Friday, July 30th, 2010

Daily Download: Financial and Stock Investing News for 10-8-09

October 8th, 2009 at 4:45 am by CB | No Comments

logo2650730_md Good morning, investors and traders! You are reading the Daily Download (“Daily DL”), which includes summaries and links to the day’s selected economic and stock investing news. The Daily DL is maintained by Chain Bridge Investing, which is a financial blog at www.chainbridgeinvesting.com. Chain Bridge Investing is constantly improving and adding new financial and investing content to the website. Please let us know if you have any suggestions.

Upcoming Economic Data for the Day (all times EST)

8:30 AM Jobless Claims

9:00 AM RBC Cash Index

10:00 AM Wholesale Trade

10:30 AM EIA Natural Gas Report

1:00 PM 30-Yr. Bond Auction

4:30 PM Fed Balance Sheet

4:30 PM Money Supply

News

FCC Looks to Add to Airwaves for Wireless – The Wall Street Journal

Summary: Speaking at an international wireless industry convention in San Diego, Julius Genachowski, the Federal Communications Commission (the “FCC”) Chairman, stated that the current lack of available airwaves creates a potential crisis as 4G wireless networks are being built. Mr. Genachowski believes that this scarcity of available airwaves could dramatically slow down productivity as people will not be able to optimize the features on their mobile devices. At present, the FCC has approved a threefold increase in available spectrum, but data traffic forecasts point to a 30-fold increase in demand. The industry is pleased with the FCC’s focus on more available spectrum, but worries that new regulations may be attached to that spectrum. Furthermore, the FCC is considering ways of providing secondary markets for airwaves to help optimize the usage of the current airwaves.

Drought of Credit Hampers Recovery – The Wall Street Journal

Summary: On Wednesday the Fed reported that total consumer credit outstanding dropped by $12 billion in August, or at a 5.8% seasonally adjusted annual rate, for the seventh straight month of credit contraction. The revolving credit component of total consumer credit declined at a 13% annual rate, while the nonrevolving credit component declined at a 1.6% annual rate. Since the peak of total consumer credit in July 2008, it has dropped 4.6% to $2.46 trillion. This consumer credit contraction reflects (1) the tightening on lending by financial institutions and (2) a desire by the consumers to eschew large loans and debt loads at present. Many believe that the current unemployment situation combined with the credit contraction will severely restrain the level of consumer spending, which is currently approximately 70% of gross domestic product, thus slowing the recovery. However, consumer mortgage debt, which is at 95% of disposable personal income as of June 30 remains high relative to historical data, is harder to reduce than credit card debt. Consumer mortgage debt is expected to continue to contract, but at a slower pace than other components of total consumer credit.

Retail Vacancies Hit Multiyear Highs – The Wall Street Journal

Summary: According to Reis Inc, a real-estate research firm that covers the 77 largest U.S. markets, shopping centers had witnessed a 10.3% vacancy rate for the third quarter, compared to a vacancy rate of 8.4% from a year earlier. Meanwhile, the vacancy rate at enclosed malls increased two percentage points to 8.6%, the worst rate since Reis began tracking mall data in 2000. Furthermore, the Fed has reported approximately 8,300 retail store closings for the year-to-date period. Consequently, average retail lease rates continued to decline in the third quarter. The average retail lease rate for shopping centers fell 3.7% to $16.89 per square foot, while the average retail lease rate for malls fell 3.5% to $39.18 for malls. Reis Inc. believes that retail rent will return to 2008 levels in 2016.

Gold Extends Record: $1,043.30 – The Wall Street Journal

Summary: According to some analysts, the continued rise in gold is a reflection of the weak dollar in the foreign-exchange market, rather than an inflation hedge. The rise of the U.S. Treasury market over the last few months indicates that bond traders are not considering near-term inflation, according to Frank Lesh of FuturePath Trading.

The Financial Times related reading article offers another perspective:

John Higgins at Capital Economics said that while gold’s price spike had grabbed the headlines, demand for inflation protection was evident in bond markets, with yields on government inflation protected securities falling sharply recently.

GM Expects Car Sales to Stay Slow – The Washington Post

Summary: Fitz Henderson, the chief executive officer at General Motors (“GM”), believes that in 2010 there will be 11.5 million car and light-truck sales, compared to 16 million two years ago. Mr. Henderson blames the estimated lower automobile sales on the current economic uncertainty. Furthermore, he states that GM is currently operating at below break even. Also, Mr. Henderson will shift the focus from optimizing GM’s operations to creating the best product for GM’s customers. At present, GM’s U.S. market share is near 19.5%, down from 22.1% in 2008.

U.S. Retailers – Financial Times

Summary: Despite little to no evidence that sales at retailers are going to increase for the third quarter of 2009, the retailers’ stocks are currently being rated at 16 times estimated earnings versus 11 times estimated earnings from December 2008. Recently, retailers have cut costs in regards to inventory, staff, and overhead but many of these cuts are temporary given the current level of sales. The only way to justify a rating of 16 times estimated earnings on the retail sector is to expect sales to grow before the temporary cost cuts are reversed.

Active Management Loses in Risk Study – The Wall Street Journal

Summary: A Morningstar Inc. study reported that during the last three years nearly 50% of actively managed funds outperformed their respective Morningstar indices; however, only 37% of these active funds did so on a risk, size, and style basis. One Morningstar analyst states that its not good to beat an index if the fund manager had to assume more risk than the index. If index investors want more risk, then they might as well use leverage and increase their index exposure, which would increase their risk as well as potential for higher returns at a generally lower cost than investing in an actively managed fund.

(CB: The article doesn’t state how risk is defined. There is no clear and universally accepted definition for risk. Often times people will use volatility as a measure of risk, which appears to be done in the article. CB would argue that volatility alone does not equal risk, the fact that a company is more likely to fluctuate in movements either up or down does not make it riskier without more context. One must consider the fundamental, operational, and technical factors of the company as well as the fund’s strategy. Using volatility as a measure of risk is a quantitative short-cut and a failure to look in-depth at other sources of risk. Working within this framework, a company whose price shoots up 100% and can only go up, in a given time frame, is just as risky as a company whose price drops 100% and can only go down in the same period. Risk can be a personal perspective as well. Perhaps an investor doesn’t like volatility, well then he should eschew such investments. However, in a vacuum volatility is not only a bad event, although to some investors’ preferences it may be. Nevertheless, there are plenty of option traders who make money consistently relying on investments that are volatile – they love volatility. If the study makes the assumption that volatility is bad, then it should be clearly stated. Just some thoughts.)

More Links of Note

The Chinese have a Massive Dollar Problem – Kenneth Rogoff

How Do Bubbles Create and Kill Jobs? – The Atlantic

Analysts at Most Bullish Level in Two Years – Bespoke Investment Group

A Brief Look at the Asset-Based Economy at Economic Turns – Credit Writedowns

Paul Krugman: In Trade, ‘It’s Not the Great Depression – It’s Worse’ – WSJ Blogs