When all you read is gloom, turn here for a much different perspective.

Friday, October 30, 2009

Colorado Governor: "Reason For Optimism"

An open letter from Colorado Governor Bill Ritter:

Here in Colorado, we're seeing encouraging signs of success and reason for optimism.

Last week we learned Colorado's unemployment rate has dipped to 7%, now nearly 3 full points below the national average of 9.8% -- and lower than all but a dozen states' unemployment rates.

We're still not out of the woods. Too many Coloradans are still struggling to find work, as businesses and families tighten their belts and adjust to the new economic reality. We continue to face a very difficult budget situation in the capitol. We're making tough choices from limited options, requiring everyone from state employees to those who rely on public services to make even more sacrifices in the months ahead.

While challenging, this new economic reality presents us with a fresh opportunity to think ahead, adapt and create new pathways to grow and prosper in the 21st Century.

That's why we're building New Colorado Partnerships that better connect government with businesses, schools, and our research facilities to invest in our people and attract the industries of tomorrow to Colorado. We're transforming government to keep pace with the rapid changes each Colorado business and family must face today, while making it tighter, more entrepreneurial, and more nimble to meet the challenges of these new economic times. We're offering tax incentives to businesses that create jobs in Colorado, providing access to capital, making revolutionary changes to improve our education system, and strengthening our public universities.

That's why Forbes.com and CNBC both rank Colorado among the top five states in which to do business. It's why Colorado schools are well-positioned to receive millions of dollars in federal "Race to the Top" funding. And it's why many experts believe our diverse economy will help Colorado emerge from the national recession sooner and stronger than other states.

Our bold strategy is already paying dividends, as last week's unemployment report confirms. We are setting an example for the rest of the nation to follow. The challenges ahead are great, but they are not impossible, and Coloradans have a reason for optimism.

Please join me to share this simple message of hope:

While unemployment continues to creep upwards of 10% or even 15% in other states, Colorado is open for business and attracting new jobs every day. This month alone, two major New Energy Economy companies -- SunRun and SMA Solar Technology -- have announced plans to open their doors and hire more than 700 new workers here in Colorado.

They join dozens of other new energy, aerospace, bioscience, and technology companies adding thousands of new jobs and forever re-orienting Colorado's economy to be more innovative, more prosperous, and more sustainable.

Government can't do everything, and our New Colorado Partnerships aren't the only reason companies and entrepreneurs are choosing to open their doors in Colorado. But government can do a lot to build a brighter future for families and businesses and help all of us achieve the Colorado Promise, and so long as I'm governor, it will.


Bill Ritter, Jr.
Governor of Colorado

Thursday, October 29, 2009

Q4 Growth Likely to be Stronger than Q3

Thursday we got another indication that the U.S. economy is returning to strong growth. The government's first estimate for the third quarter came in at a 3.5 percent annual pace.

Again most economists were wrong. The consensus was for only a 3.2% jump. In fact several analysts had actually lowered their estimates yesterday in advance of the report.

The quarter was the first to experience the positive effects of emergency government stimulus programs put in place earlier in the year.

Growth in consumer spending and confidence, which accounts for about 70 percent of the economy, contributed significantly to the rebound.

Purchases of durable goods, which include autos, jumped 22 percent, the biggest increase since 2001. The governments $3B Clunkermania program obviously contributed significantly to that huge durable goods jump. But what was perhaps more encouraging was the data that showed that even excluding sales, production and inventories of automobiles, the economy grew 1.9 percent in the quarter. The stimulus programs are acting as a catalyst and not just the only source of growth.

Many economists now agree that the recession ended earlier in the year. As we have said for quite sometime, when the National Bureau of Economic Research officially marks the recession's end, they will likely point to June 2009. And that prediction was made by professor Mark Hirschey back in November of 2008.

In the 3rd quarter, residential construction also jumped at a 23 percent annual rate. It was the first quarterly gain in almost four years and the largest jump since 1986.

The home-building market -- which as be ailing for several years -- surged as sales climbed, propelled in part by an $8,000 tax credit for first-time buyers. The credit (also part of the emergency stimulus past by the US government earlier this year) will likely be extended with the support of the majority of the Senate.

And Q3 earnings continue to be strong -- pointing to not only moderate growth in Q3 -- but extremely strong growth in Q4 and into 2010.

Amazon in particular has used the past year of recession to continue to decimate it's brick and mortar competition. Amazon, which is reorganizing the retail market value chain continues to produce strong results. “You should see more expansion in the categories we’re in, as well as more geographical expansion over time,” said Amazon's Chief Financial Officer Thomas Szkutak last Thursday.

In the overall manufacturing sector, total inventories in Q3 continue to drop precipitously. The only conclusion: factory production will need to keep pace with significant upward momentum.

As stockpiles decrease and demand continues to grow more factories will need to come back online quickly. The gains required to produce such output will now lead to a quick rebound in hiring.

In September, the unemployment rate likely reached it's peak and with growth now ramping significantly in the 4th quarter, overall job growth is just around the corner.

You'll remember that we warned back in August to not be surprised by robust Q3 growth. Don't be caught off guard again with Q4 growth that will prove to be even stronger.

Tuesday, October 27, 2009

A Jobless Recovery? Not this Time

Early this week a survey release by the National Association for Business Economics (NABE) provided new evidence that the U.S. recovery is solidly under way and will be sustained well into 2010. The best news of the survey is that now a majority of companies surveyed are planning to boost their payrolls this year and next.

For the first time in over a year, the percentage of businesses expecting to hire workers over the next half year exceeds the share that project more layoffs.

Additionally the majority of firms now foresee that they will spend more on new capital equipment in the next six months adding more fuel to the growing recovery in 2010.

The survey shows that companies are generally becoming more optimistic about the future. As initial claims for unemployment continue to fall, the survey results are one strong signal that a return to job growth for the US economy is just around the corner.

The NABE survey's select group of retailers, health-care providers, hotels, restaurants, finance firms, insurance companies, and real estate employers all forecast job growth in 2010.

Much of the fuel for optimism has come from much better than expected results in Q3. Earlier in the year many economists had forecast lackluster results for Q3, but most firms have smashed those meager expectations. Since the start of the third-quarter reporting period, 80 percent of the companies in the S&Ps 500 Index have released better-than-expected results, according to Bloomberg, First Call, and Thomson earnings data. As a percentage so far, that's the best quarterly showing in 16 years.

Not only are a majority of firms beating Q3 expectations, forecasting job creation, and upping capital expenditures, but every single company polled this month anticipates the economy will expand in 2010.

Surprise, surprise, surprise!

Sunday, October 25, 2009

Buffett: "Enormous Progress"

This past week Warren Buffett said that it is now very clear that the low point in the US economy has already passed, with "enormous" progress being seen over the past year.

Buffett attributes much of the strong uptick to swift government action last fall and winter. The actions were paramount in keeping the economy from complete collapse.

"We made enormous progress since a year ago... What happened in September and October of 2008 will particularly be remembered for a long, long time," Buffett said in an interview with Business Wire CEO Cathy Baron Tamraz that was released late in the day Tuesday.

Buffett continued, "And while the governmental authorities malign things sometimes, they fortunately did some very right things, very important things. They did them properly, and they kept us from going over the cliff."

Saturday, October 24, 2009

Senate Likely to Extend $8,000 Home-Buyer Tax Credit

Senate Majority Leader Harry Reid has proposed a new version of a popular home-buyer tax-credit extension. Folks close to the matter claim a vote on the proposal is coming shortly.

Another recent Senate alternative would continue the $8,000 credit for four months and then gradually phase it out after that. Current law has the credit expiring at the end of November.

The value of the credit would drop by $2,000 every quarter until it halted completely by the end of 2010.

The National Association of Realtors supports the extension of the credit though at least the first two quarters of 2010 to assure that recent new home sales is firmly on a recovery track. They claim that home-buying activity in that six-month period could be crucial for new stability in the housing market again.

On the contrary, the Reid proposal wouldn't be nearly as effective at stimulating home sales, Mr. Salvant said, because it would start winding down during the second quarter.

The debate comes as a Treasury auditor revealed this week that the Internal Revenue Service improperly issued millions of refunds related to the credit.

At a House panel hearing this week, an IRS official said it is reviewing 100,000 returns to determine if credits were paid appropriately. Given the popularity of the credit, however, experts say the allegations are unlikely to derail the push to extend it in some form.

Spurred on by the credit home sales have been recovering nicely in the past six months. On Friday home sales were report to jump significantly in September. Existing home sales rose 9.4 percent. The West was the strongest region, up 13.0 percent. In an extremely encouraging sign, supply on the market fell back sharply -- down 7.5 percent in the month. Supply is now at its lowest level in 2-1/2 years.

Q3 earnings continue to impress, major firms are surprising to the upside, and markets are continuing their break-neck bounce. With second half growth coming on strong, an extension of the tax credit can mean nothing but good news for the 2010 housing market.

Thursday, October 22, 2009

Jobless Claims Decline for Seven Straight Weeks

Data release Thursday shows seven straight weeks of decline in the four-week moving average of initial claims for unemployment. The moving average is widely seen as the best gauge of underlying initial claims trending.

Additionally, the number of people collecting long-term unemployment benefits in the week ended October 10 dropped to the lowest since March. This measure has also trended lower for five straight weeks.

These two are clear signs that unemployment is close to peaking and that the October employment report will likely show improvement over Septembers report.

The insured unemployment rate, which measures the percentage of the insured labor force that is jobless, also edged down to 4.5 percent in the week ended October 10 from 4.6 percent the prior week.

Another hopeful sign was that the number of mass layoffs, defined as job cuts involving at least 50 people from a single employer, fell by 129 to 2,561 last month.

Monday, October 19, 2009

Bad News Bears Battle Break-Neck Bounce

Phrases like dead-cat bounce, house of cards, stagflation, W-shaped, U-shaped, lackluster, sucker's rally, deflation spiral, run-away inflation, and great depression were all in their pronouncements.

The bad news bears have pointed to a fearful, unemployed consumer who has cut up her credit card, has no more savings, and a government that has only racked up more national debt -- the dollar is dead -- they claim.

But the Q3 business realities continue to paint a starkly different picture.

Stimulus programs are firing up. Inflation is under control. Manufacturing lines are back on-line. Equities are on a roll. Optimism is accelerating.

So what are the doomsters missing?

Here's what Barton Briggs (Managing Partner of Traxis Partners Investment Fund) writes in Newsweek:

"First and foremost, they are betting against America, the greatest entrepreneurial engine ever created. History says buy America when it's down. In addition, emerging economies may well be the new dynamo of growth. They now account for 35 percent of world GDP and are growing two to three times faster than the developed world. S&P 500 companies now collect almost 50 percent of their revenues from overseas, and almost half of that portion comes from these fast-growing developing countries. Another factor could be that stocks currently despite the rally are still deeply undervalued. The rule of thumb is that stocks should sell at a price/earnings ratio equal to 20 less the inflation rate. Assume S&P 500 operating earnings are $70 to $75 next year and inflation is 1 percent, you get a theoretical price far higher than the current level of 1060."

Not only will the second half of 2009 continue to be strong, but 2010 will likely reap the benefits of this new international growth dynamo. It will be interesting to see where and when the dead cat lands.

Wednesday, October 14, 2009

JPM, Intel Ignite Markets, Fed Affirms

As a Q3 positive earnings season rolls on, JPMorgan Chase and Intel ignited the markets on Wednesday. Later in the day, minutes from the Fed's most recent meeting reaffirmed our convictions that this recovery indeed will be strong and prolonged.

Intel reported third quarter revenue of $9.4 Billion which represents the largest second to third quarter growth in over 30 years. You will remember that earlier in the year Intel was one of the first firms to invest significantly during the downturn, continue to forecast recovery in 2009, and further downplay any notions that a recovery would be lackluster and bumpy. So far, their forecasts have be right on target.

JPMorgan, the first of the big banks to release earnings for Q3, reported a $3.59 billion profit. In a significant trend reversal, the company said for the second straight quarter there are actually now signs of stabilization in delinquencies among its consumer loans.

And as the markets continued their steep drive higher, the minutes of the two-day Federal Reserve FOMC meeting that concluded Sept. 23 were released. They contained the most explicit statement yet from the Committee that it now firmly believes the recession that started in December 2007 is over.

According to the minutes: "Many participants noted that since August, they had revised up their projections for the second half of 2009 and for subsequent years."

Like Q2, Q3 results continue to surprise, surprise, surprise.

Wednesday, October 7, 2009

Q3 Earnings Season Underscores Rebound

While skeptics remain, Q3 earnings season kicked off on Wednesday with almost all those announcing earnings surprising to the upside.

Alcoa, the firm which much earlier in the year pegged the global turnaround, swung to a profit in Q3. "We do clearly see growth, substantial growth ... in China," Alcoa CEO Klaus Kleinfeld told reporters. "The second half of the year is clearly better than the first half in many industries and many regions." You may remember Kleinfeld's "giant sucking sound" of demand predictions.

Google also reasserted our sentiment of several months now, "We are clearly seeing aspects of recovery, and what is notable is that we’re seeing aspects of recovery not just in the United States but in Europe... We never stopped hiring, but we told our team internally and we’ve said to many other people that we are increase our hiring rate and our investment rate in anticipation of a recovery."

Our favorite perma-doomsters like Nouriel Roubini continue to beat the drum of "double dip recession", but the Q3 earnings results will paint a much different picture.

Sunday, October 4, 2009

October Reports off to a Very Good Start

As another October comes into focus there are many signs that robust recovery is no doubt firming in late 2009:

1. Retail sales improved in the last week in Sept according to ICSC-Goldman's tally which rose 0.1 percent. The gain represents a 0.9 percent year-on-year gain that compares with a plus 0.6 percent gain the week before. Goldman's report summarizes that retail traffic is indeed improving. Redbook, like Goldman, reported strength for store sales and extends an improving trend. Redbook further reports that Halloween sales are off to a good start. Later in the week the Commerce Department reported that while everyone was expecting spending to be up in motor vehicle sales, consumers were actually spending elsewhere, too. Consumer spending spiked on clunkermania auto purchases as personal consumption expenditures surged 1.3 percent in August. Indeed there was strength in durable goods spending, which jumped 5.3 percent on sharply higher motor vehicle sales. However, non-durables were robust also with a 2.3 percent boost and services also advanced 0.4 percent.

2. Case-Shiller reported a third month of gains for home sale prices. Their index rose 1.7 percent in July on top of a 1.4 percent gain in June and a 0.5 percent gain in May. Interestingly almost all metro areas now show sale price gains or at least flat conditions in the July report period. Year-on-year rates also improved for a third month. The pending home sales index also jumped in August, up 6.4 percent for a year-on-year gain of 12.4 percent. All regions posted home sales increases for August.

3. The third estimate for second quarter GDP clearly shows the economy at the recession bottom back when we technically called the recession's end in June. And the component mix for second quarter GDP adds to credibility our argument that the third quarter will be much more positive than the lackluster results many had predicted. For the second revision to second quarter GDP, the Commerce Department pushed up its estimate to an annualized 0.7 percent decrease from the previous estimate of minus 1.0 percent.

4. On the employment front, Challenger's count of layoff announcements fell to 66,404 in September, down from 76,456 in August for the lowest total since March 2008. Industrial goods employment showed improvement as did the health care and construction segments. The Monster employment index also showed firming job prospects in many blue collar segments.

The first half of September was full of economic good news, and October is bringing more of the same.

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