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Friday, June 5, 2009
Morning Notes 6 5 09/Unemployment: Good or Bad News?/ Cramer Hot on Aerospace-Bought 100 ETF PPA
1. Unemployment: The unemployment rate rose to 9.4% in May from 8.9% in April. About 7 million jobs have been lost since the beginning of the recession. Yet, since employers cut a fewer than expected 345,000 jobs, this report has been greeted as positive news by the street denizens, at least for the first thirty minutes or so this morning. The jobless rate is the highest since 1983. Employment Situation Summary
The forecast was for 525,000 job losses in May.
2. German Central Bank Dour on the German Economy: The German Central bank forecasted that the German economy would contract by 6% in 2009, the highest since WWII, and would grow a feeble .5% in 2010.
3. Go With Cramer on Aerospace? Aerospace ETFs Cramer was really excited about aerospace companies yesterday. Street
I am aware of two ETFs that focus on this sector. Powershares has one, PPA, for the Aerospace and Defense industries. This is a link to the sponsor's web page: PPA
This is a link to the current holdings: Holdings
This ETF has 56 companies in it with Boeing at 8.29%.
The expense ratio is high at .6%, a tad higher than the .48% an alternative from Ishares: (ITA):
The Ishares ETF currently has 34 holdings and has a higher weight in UTX than BA. (ITA): Holdings
I am going to give Cramer the benefit of the doubt on this one. I did not want to buy an individual security so I just bought 100 PPA at around $15.15 this morning.
There was an article in the WSJ that DD may benefit from a cap and trade plan, with DD projecting that its sales for renewable materials used to displace fossil fuels could double to 8 billion by 2015. WSJ.com
I currently have a position in DD. The Most Abused Word: Reform/Buys of IR & DD/Santayana: An Inability to Remember History or Just Creating Your Own Reality to Fit an Ideology
5. Nestle: I own a 100 shares of Nestle. I noticed that it was down this morning. This stock is traded on the pink sheets in the U.S. I did a google search and found out that Goldman Sachs downgraded Nestle from buy to neutral. R
I saw that Nestle paid a $123.7 dividend into my account today, and $18.75 of that amount was withheld to pay the foreign tax. Every foreign stock that I own will reduce the dividend by 15% to pay a tax to a foreign government. This is one reason why I will buy these securities in a taxable account, since it is my understanding that I should be able to take a U.S. tax credit for those foreign taxes paid. If the security was held in a retirement account, that foreign tax payment can never be recovered.
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I found a blogger who felt the gov't numbers were suspect. Here's an excerpt of his views...
ReplyDelete(the full exposition, with diagrams and tables, can be found at http://www.chrismartenson.com/blog/4)
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May Employment Report Not Believable
Friday, June 5, 2009, 8:51 am, by cmartenson
Well, I thought that I had seen some fantastic data manipulation in the past, but today's release of the May employment report by the BLS was a real keeper. It is one for the books (the forensic accounting books, specifically).
Here's the news:
NEW YORK (CNNMoney.com) -- Job losses slowed dramatically in May, according to the latest government reading on the battered labor market, even as the unemployment rate rose to a 26-year high.
Employers cut 345,000 jobs from their payrolls in the month, down from the revised 504,000-job decline in April.
What spectacular news! Stock futures vaulted, gold killed, the dollar rebounded - all in all a very favorable set of market outcomes that are certainly welcome in the marbled halls of DC and on Wall Street.
The problem is that this huge surprise to the upside is completely out of line with other sources of data.
.
In the chart below, you are looking at the number of jobs that the BLS has "modeled" to have been created. ...
I want you to note the blue arrows, which reveal that 43,000 construction jobs were somehow added in the month of May, along with 77,000 "leisure & hospitality" (hotels and parks and such) jobs and even 7,000 financial services jobs (I bet there are more than a few banking industry folks wondering where those might be!).
All told, this resulted in 220,000 jobs being added to the reported number, which came in at 345,000 where 520,000 were expected.
This is an enormous improvement of +175,000 jobs over the expected number; the only problem is that 220,000 of these jobs cannot be counted, touched, or verified, as they were modeled.
Now I don't know about you, but in my neck of the woods, this year is much darker on the job front than last year. Every piece of data I am reading suggests that this is a national phenomenon. How many jobs were "modeled" and added last May? Only 176,000. So we might ask ourselves, again, what sort of a model is it that can find a way to add 25% more jobs this May than last May?
Another source for employment data, independent of the Bureau of Labor Statistics, comes from ADP, which is a payroll processing company that services a very large number of businesses.
... here was the ADP estimate for May:
The ADP National Employment Report
May, 2009
Nonfarm private employment decreased 532,000 from April to May 2009 on a seasonally adjusted basis, according to the ADP National Employment Report®. The estimated change of employment from March to April was revised by 54,000, from a decline of 491,000 to a decline of 545,000.
The interesting part is that the ADP number does not include government workers, so I would have expected the BLS release (which does) to have tracked lower, not higher, than the ADP data. I say this because every state I have looked at has either cut or frozen government jobs. Yet the BLS report estimated that only 7,000 government jobs were lost across the entire country, which is mysterious, since 60,000 of the temporary census jobs were terminated in May...
Given that 60,000 temporary census jobs went away, I am at a loss to figure out how all the other government hiring and firing collectively added up to a 53,000 job gain to secure the final -7,000 reading.
...
While I can certainly understand, and even find some compassion for, the desire to manipulate the data to inject some confidence and optimism into the populace and markets, I must regretfully conclude that such efforts are more damaging than helpful.
We need good and believable data.