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The Wall Street Greek blog is the sexy & syndicated financial securities markets publication of former Senior Equity Analyst Markos N. Kaminis. Our stock market blog reaches reputable publishers & private networks and is an unbiased, independent Wall Street research resource on the economy, stocks, gold & currency, energy & oil, real estate and more. Wall Street & Greece should be as honest, dependable and passionate as The Greek.



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Thursday, March 31, 2011

Factory Orders Fumble in February

factory orders February 2011

Factory Orders fell 0.1% in February, but all is not lost. While there's an inclination to fear the worst, given the latest turn in several forward looking economic indicators, our review of the latest manufacturing data does not have us up in arms, at least not immediately. However, don't get me wrong, the report does sound an alarm about the economy.


Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.


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Factory Orders Fumble in February


industrials analystFactory Orders fell 0.1% in February, yes, but all is not lost dear friends. As we reviewed the economic report, which required plenty of coffee in this particular case, we found appeasing factors that quelled our concern a bit. With opening day baseball playing in the background, we reviewed the relatively bland economic statistics, so forgive me if I accidentally calculate an OBA in place of an inventory ratio.


What we found is that an upward revision to January's factory orders played against February's percentage change. January orders were revised higher, to 3.3%, from the 3.1% rate initially reported. Economists surveyed by Bloomberg were looking for a 0.5% increase for this reported month, so at least some of the difference between expectations (+0.5%) and the result (-0.1%) is explainable by the prior month revision. Furthermore, we would have likely had a positive change in February, instead of a negative change, if the revision did not occur.


Also quelling our concern is the fact that January orders were so strong, so that perhaps some of what might have been ordered in early February was instead called in at the end of January. This is the reason many economic data points review several months combined, and why some companies no longer offer monthly data. With that said, perhaps we should not have expected much from February, given January’s strength.


If we exclude the big-ticket transportation sector from the order data, we find new orders actually increased by 0.1%. The transportation sector posted a big new order decrease of 1.5% in February. Transportation has been down four out of the last five months. Durable goods orders, also down 4 out of 5 months, fell 0.6% after a 3.7% increase in January. Nondurables increased by 0.3%.


Shipments increased for the sixth consecutive month, growing by 0.3% in February. That's good news. Unfilled orders rose by 0.5%, but before you get antsy, realize that this data-point will increase when economic activity is on the rise. What should be concerning is that the Unfilled Orders–to–Shipments Ratio was up to 5.64, from 5.63. When the increase is not proportional, taking into account how proportions might change as the level of activity changes, that's when we raise an eyebrow (literally in The Greek's case). Inventories increased by 0.8%, but again, we need to look at inventory in proportion to sales activity. The Inventory-to-Shipments Ratio did rise though, to 1.26 from 1.25.


Northwest Coast artTaking a closer look at the industries measured by the report, we find interesting strength in several areas. Industrial Machinery Shipments, for one, posted very impressive growth, rising 16% in February. However, closer inspection shows a significant drop in January shipments that was basically made up for in February. The same thing happened in Farm Machinery, which was up 12.7% in February. This might be part of the reason Deere (NYSE: DE) was up 2.6% today.


Aluminum and Nonferrous Metals data seems to show an interesting growth trend, with shipments up 4.4% in February, following 2.6% and 3.8% increases in the prior two months. But how much of that do you think is due to price increase? I would say it's probably a significant reason for the growth here. Hey, that shouldn’t matter for Alcoa (NYSE: AA) though, when it reports results shortly, but it matters for the economy as it distorts the view of real growth. Alcoa's shares have been moving up heading towards its EPS report. We also saw Nondurable Farm Products post shipments increases, again likely on price change.


With regard to autos, shipments increased 1.6% in February, 0.2% in January and 0.1% in December. Shipments of Light Trucks and Utility Vehicles have also gained, rising 5.4%, 5.7% and 6.3% over the last three months. The report does not provide new order activity for these segments though. Noise will clutter automobile statistics in the months ahead though, due to the logistics nightmare tied to the disruption of production in Japanese plants.


As far as orders go, when excluding transportation, there is a noticeable decelerating trend over the last three months. The trend shows orders rose only 0.1% in February, down from 0.7% growth in January, which was down from 3.0% growth in December. That is concerning, and might be more than just a lull.


Aluminum orders gained 4.2% in February, with gains also posted in the two months prior. Mining, Oil Field and Gas Field Machinery Orders were up each of the last two months, rising 22.4% in February. Given the intensification of focus on energy independence, this is more good news for these machinery makers. Computers and Electronic Products Orders have hit a dry spell, sort of meandering around limbo, with orders up just 0.1% in February.


In conclusion, I would not be too worried about the month's decrease in order activity in February, due to its following such a strong January. However, the steadily slowing pace of order activity excluding transportation over the last three months might be a warning sign that the manufacturing strength that optimists keep pointing to might be pulled out from under them.


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This article should interest investors in Boeing (NYSE: BA), Raytheon (NYSE: RTN), Digital Globe (NYSE: DGI), GenCorp (NYSE: GY), General Dynamics (NYSE: GD), Goodrich (NYSE: GR), Northrop Grumman (NYSE: NOC), Honeywell (NYSE: HON), Lockheed Martin (NYSE: LMT), Rockwell Collins (NYSE: COL), L-3 Communications (NYSE: LLL), EMBRAER (NYSE: ERJ), FLIR Systems (Nasdaq: FLIR), BE Aerospace (Nasdaq: BEAV), TransDigm (NYSE: TDG), Spirit Aerosystems (NYSE: SPR), CAE (NYSE: CAE), Alliant Techsystems (NYSE: ATK), Hexcel (NYSE: HXL), Triumph Group (NYSE: TGI), Esterline Technologies (NYSE: ESL), Moog (NYSE: MOG-A), Heico (NYSE: HEI), Teledyne (NYSE: TDY), Curtiss-Wright (NYSE: CW), Cavco (Nasdaq: CVCO), Skyline (NYSE: SKY), Nobility Homes (Nasdaq: NOBH), Palm Harbor Homes (Nasdaq: PHHM), Mohawk Industries (NYSE: MHK), Interface (Nasdaq: IFSIA), Albany International (NYSE: AIN), Unifi (NYSE: UFI), Illinois Tool Works (NYSE: ITW), Tyco International (NYSE: TYC), Cummins (NYSE: CMI), Kubota (NYSE: KUB), Ingersoll-Rand (NYSE: IR), Dover (NYSE: DOV), ITT Corp. (NYSE: ITT), Flowserve (NYSE: FLS), Pall (NYSE: PLL), Dresser-Rand (NYSE: DRC), SPX (NYSE: SPW), Gardner Denver (NYSE: GDI), IDEX (NYSE: IEX), Nordson (Nasdaq: NDSN), Graco (NYSE: GGG), Actuant (NYSE: ATU), Middleby (Nasdaq: MIDD), ABB (NYSE: ABB), Eaton (NYSE: ETN), Nidec (NYSE: NJ), Rockwell Automation (NYSE: ROK), Ametek (NYSE: AME), Regal Beloit (NYSE: RBC), Thomas & Betts (NYSE: TMB), Woodward Governor (Nasdaq: WGOV), Caterpillar (NYSE: CAT), Deere (NYSE: DE), CNH (NYSE: CNH), Joy Global (Nasdaq: JOYG), Bucyrus (Nasdaq: BUCY), Agco (Nasdaq: AGCO), Emerson Electric (NYSE: EMR), Parker Hannifin (NYSE: PH), Roper Industries (NYSE: ROP), Pentair (NYSE: PNR), Waste Management (NYSE: WM), Republic Services (NYSE: RSG), Fastenal (Nasdaq: FAST), Vulcan Materials (NYSE: VMC), MDU Resources (NYSE: MDU), Martin Marietta Materials (NYSE: MLM), Owens Corning (NYSE: OC), Valspar (NYSE: VAL), Precision Castparts (NYSE: PCP), United States Steel (NYSE: X), Reliance Steel (NYSE: RS), NVR (NYSE: NVR), DR Horton (NYSE: DHI), Pulte (NYSE: PHM), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), CRH (NYSE: CRH), CEMEX (NYSE: CX), Eagle Materials (NYSE: EXP), Fluor (NYSE: FLR), McDermott International (NYSE: MDR), Foster Wheeler (Nasdaq: FWLT), Empresas ICA (NYSE: ICA), Stanley Black & Decker (NYSE: SWK), Timken (NYSE: TKR), Kennametal (NYSE: KMT), Leucadia National (NYSE: LUK), Masco (NYSE: MAS), Weyerhaeuser (NYSE: WY), Quanta Services (NYSE: PWR), Chicago Bridge & Iron (NYSE: CBI), EMCOR (NYSE: EME), Snap-on (NYSE: SNA), Toro (NYSE: TTC), GM (NYSE: GM) and Ford (NYSE: F).


Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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ADP Private Payrolls and Challenger Job Cuts Data Examined

ADP Private Payrolls and Challenger Job Cuts Data

Jobs Data


The latest two labor market data-points to reach the business wire offered mildly positive news that contained components of concern. We examine March's ADP Private Employment Report and Challenger's Job-Cuts Report herein.


Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.


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ADP Private Payrolls and Challenger Job Cuts Data Examined


labor market analystADP's Private Employment Report for the month of March showed another plus 200K increase in its private nonfarm payroll estimate. ADP sees private payrolls rising 201K in March, which it says was in line with economists' expectations and consistent with consensus expectations for the federal government tally of private payrolls, due Friday. ADP also revised its February estimate slightly lower, to 208K, from the 217K reported initially.


The company's commentary indicated this level of change was consistent with a decreasing unemployment rate. It also reported that the last four months of estimates have averaged 211K, which is much higher than the four months just prior, with the average for that period, ending in November, at +74K. That said, ADP has a record of mismatching against the federal government data (at least of late), based on my unscientific observation, which I'm sure plenty of market watchers would agree with. Given its proximity to the government release, just two days prior, I'm not sure the report really carries much weight anyway. Investors tend to just wait a couple days for the DOL data before directing their dollars.


Most of March's improvement was found in the service sector and in smaller sized firms, or the "sweet spot" of the American bat. ADP noted the service sector likely added 164K net jobs in March. That's a lot, but it’s less than February's 187K net job additions for the most important segment of the American economy. Growth within the segment was spread proportionally to the importance of each size segment of American business. So most of the gains came in small-sized companies (0 to 49 employees), where a net 89K jobs were added within small services businesses. Mid-sized services firms (50 to 499) added an estimated 61K jobs, while large servicers (500+) added 14K jobs.


Within the goods producing sector, an estimated 37K jobs were produced in total, spread among 13K in small firms, 21K in medium sized, and 3K by large goods producing firms. Manufacturers added an estimated 37K jobs as a group. Construction employment is also isolated out, and was estimated to have shed 5K jobs in March. Financial services supposedly added 4K employees.


Overall, small-sized firms were estimated to have added 102K jobs, while medium-sized firms were reported to have added 82K and large firms 17K. This again is in line with the spread of jobs across American firms. Thus, there is no obvious anomaly or significant skew to growth that might be inconsistent with the spread of job opportunities that exists among firms, either in goods/services or in the sizes of firms, as far as I can see based a thumbnail of this data.


We do not necessarily dispute ADP's report, but neither are we impressed by the estimated job growth. It is not stellar, and the gains in small businesses are often simply eating capital of well-funded but doomed to fail start-up businesses, like perhaps many blogs. Also, we expect the public sector will pull jobs from the economy this month, given intensifying budget situations across the country. There's evidence of this in Challenger, Gray and Christmas' report for this month, which we detail in the paragraphs that follow.


Challenger, Gray and Christmas reported on Announced Corporate Layoffs for March today as well. Challenger reported improvement, with job cuts decreasing to 41,528, versus the 50,702 noted in February. That month however, was out of place compared to the last half year or so. In fact, through the first quarter, only 130,749 job cuts were declared, which was the lowest for any quarter since 1995.


However, while the total figure came down in March, the segment that is bothering me most these days, the public sector, posted a 17% increase in announced corporate layoffs, to 19,099. That said, the public sector has been shedding jobs for some time now, and so year-over-year comparison presents a completely different view of the situation. In fact, against last March, announced layoffs are down 62% from the prior year period.


That said, Challenger Executive Vice President Rick Cobb expressed concern about upcoming layoffs at the municipality and federal level, given budget battles currently underway. Still, and as we have said before within these pages, it appears that barring a cataclysmic or game-changing event, private organizations are operating at tight workforce levels that would not easily allow for further reductions... barring some important change.


While old areas of weakness, including the Pharmaceuticals, Telecommunications and Automotive industries are much improved in terms of job shedding, there are new leaders cutting costs. The retail sector for instance has already shed 15,768 jobs this year, though that's less than at this time last year. However, the Aerospace & Defense industry cannot boast of the same comparison, as its 7.3K job cuts year-to-date compare against just 2.7K at this time last year. The Financial Sector has also reduced workforce this year by a greater amount than last year.


California leads all layoffs this year, with 22K, which should not be a surprise given its relative population size. The District of Columbia is second though, with 14K layoffs year-to-date, but we can reconcile it to federal cutbacks and related government job cuts. Also playing a role in DC, non-profits are forced to reduce workforce during tough times, as contributions dwindle. Third is Michigan, which is just sad given the tough time the state has already had to deal with due to the significant consolidation of the auto industry.


The good news this last month was that when excluding government jobs, the damage is not so deep. No particular industry had more than 2,400 job cuts. The bad news is that among the reasons for layoffs, the leaders were restructuring, closed down businesses and cost cutting. Truth be told, there aren't many digestible reasons for layoffs on the board. If the current pace holds, we'll match last year's layoff pace, but there is a marked deceleration that will likely take the count well under 2010's 530K layoffs, barring unexpected event.


One such event that we cannot necessarily call unknown any longer is the Middle Eastern unrest driven spike in gasoline prices. Fuel price increase, in conjunction with rising commodity costs and food prices driven by global demand/supply imbalance and dollar dilution, is putting consumers into a sour mood (as just discussed at our blog yesterday). As a result, a new recession may not be too farfetched of a scenario, and anecdotal evidence tells me the economy is vulnerable to a shock like the rise in gas prices. And while employers are not firing, they do not seem to be hiring either, at least based on Challenger's take and our analysis of the unemployment rate. Challenger's report shows announced corporate hiring plans at only 10,869 in March, versus 13,994 last year; though February boasted a count of 72,581. That said, the current hiring pace through 3 months, would have total job creation about matching last year, given no change for the positive.


It is as if the economy is lying in waiting, businesses carefully watching, consumers entrenching, all waiting for the cloud of uncertainty to pass over. Only the investor ventures forth, boldly, but not by courage; instead by greed, he is driven to precede economic revival.

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Article should interest investors in Paychex (Nasdaq: PAYX), Manpower (NYSE: MAN), Robert Half International (NYSE: RHI), 51Job Inc. (Nasdaq: JOBS), Monster World Wide (NYSE: MWW), Korn/Ferry International (NYSE: KFY), Administaff (NYSE: ASF), Kforce (Nasdaq: KFRC), TrueBlue (NYSE: TBI), Dice Holdings (NYSE: DHX), Kelly Services (Nasdaq: KELYA), SFN Group (NYSE: SFN), CDI Corp. (NYSE: CDI), Cross Country Healthcare (Nasdaq: CCRN), On Assignment (Nasdaq: ASGN), AMN Healthcare Services (NYSE: AHS), Barrett Business Services (Nasdaq: BBSI), Hudson Highland Group (Nasdaq: HHGP), StarTek (NYSE: SRT), RCM Technologies (Nasdaq: RCMT), VirtualScopics (Nasdaq: VSCP), American Surgical (OTC: ASRG.OB), Medical Connections (OTC: MCTH.OB), iGen Networks (OTC: IGEN.OB), St. Joseph (OTC: STJO.OB), General Employment Enterprises (NYSE: JOB), Total Neutraceutical (OTC: TNUS.OB), TeamStaff (Nasdaq: TSTF), Stratum (OTC: STTH.OB), Purespectrum (OTC: PSRU.OB), Corporate Resource Services (OTC: CRRS.OB), Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Citigroup (NYSE: C), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), TD Bank (NYSE: TD), PNC Bank (NYSE: PNC), General Electric (NYSE: GE), Wal-Mart (NYSE: WMT), McDonald's (NYSE: MCD), Alcoa (NYSE: AA), American Express (NYSE: AXP), Boeing (NYSE: BA), Caterpillar (NYSE: CAT), Cisco Systems (Nasdaq: CSCO), Chevron (NYSE: CVX), DuPont (NYSE: DD), Walt Disney (NYSE: DIS), Home Depot (NYSE: HD), Hewlett-Packard (NYSE: HPQ), IBM (NYSE: IBM), Intel (Nasdaq: INTC), Johnson & Johnson (NYSE: JNJ), Kraft (NYSE: KFT), Coca-Cola (NYSE: KO), 3M (NYSE: MMM), Merck (NYSE: MRK), Microsoft (Nasdaq: MSFT), Pfizer (NYSE: PFE), Procter & Gamble (NYSE: PG), AT&T (NYSE: T), Travelers (NYSE: TRV), United Technologies (NYSE: UTX), Verizon (NYSE: VZ), Exxon Mobil (NYSE: XOM). The day’s earnings included Deere (NYSE: DE), Tiffany (NYSE: TIF), China Cord Blood (NYSE: CO) and Frontline (NYSE: FRO).


Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Wednesday, March 30, 2011

Business News: Jobs Data, FDO, CEPH, QE3, Mortgages, Japanese Autos, Canadian Inflation, Oil Inventory

business news summary Today's Coffee


Today's Business Summary highlights economic data and business news from: ADP on Private Payrolls, Challenger on Job Cuts, the Mortgage Bankers Association on Mortgage Activity, Fed indications toward QE3 completion, Family Dollar's strong quarter, Cephalon's intriguing trading and its hostile bid from Valeant Pharmaceuticals, logistical issues at Japanese automakers, Obama's energy push, the EIA Petroleum Status Report, Canadian inflation, the repercussions of Japan's disaster, Salesforce.com's acquisition and more.


Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.


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Business News: ADP and Challenger Jobs Data, FDO, CEPH, QE3, Mortgages, Japanese Autos, Canadian Inflation, Oil Inventory


By "The Greek"


ADP Private Employment Report


ADP published its best estimate today for March Nonfarm Payrolls, seeing a 201K net increase in private market jobs. The result was just slightly less than the revised February net addition of 208K jobs. ADP reports that the result was in line with consensus expectations for ADP's data and for the government's data, due on Friday. The pace of job increase was significantly better through the first quarter of 2011, versus the last quarter of 2010.


Challenger Announced Corporate Layoffs


After a spike up in February, Challenger, Gray & Christmas reported that Announced Corporate Layoffs fell 18% in March, to 41,528. First quarter job cuts, at 130,749, were the lowest measured since 1995. Job cuts were still much improved from the prior year period, down 39%. However, the public sector saw job cuts increase by 17%, as municipalities and federal government budget cutbacks force layoffs. That said, even government layoffs were down from a year ago, falling by 62%.


Mortgage Activity Eases


As rates moved back up on easing concerns about the Middle East and Japan, mortgage refinancing activity led overall mortgage activity lower. For the period ending March 25, the Market Composite Index of mortgage activity fell 7.5% on a seasonally adjusted basis. The Refinance Index dropped 10.1%, as contracted rates on fixed rate mortgages of 30-year and 15-year durations increased to 4.92% (from 4.8%) and 4.16% (from 4.02%), respectively. Purchase activity also eased, but by just 1.7% on a seasonally adjusted basis, as the spring buying season is getting underway.


Fed Men Support Completion of Quantitative Easing


business newsTwo Federal Reserve Bank Presidents, Boston's Eric Rosengren and Chicago's Charles Evans, voiced support for the full completion of the Fed's $600 billion quantitative easing program scheduled to last through June. The argument by some Fed men that the economy is on "firmer footing," and so might not need the full program, is coming into question of late, given new economic data and developments in the marketplace and global economy. The duo of Fed Presidents intimated that it was likely still too early to pull stimulus and that it appears the target figure of $600 billion is appropriate.


Obama Pushing Energy Today


President Obama is delivering a speech today to promote energy independence in the wake of disruptions abroad which highlight the vulnerability of supplies. The goal is to reduce oil imports by one-third over the next decade through the development of alternative fuels and energy. In a teaser last night, the President said, "Let's actually have a plan. Let's, yes, increase domestic oil production, but let's also invest in solar and wind and geothermal and bio-fuels and let's make our buildings more efficient and our cars more efficient."


Japan Might be Bigger Problem than Experts Suggest


Reports that the nuclear situation could drag out like the BP (NYSE: BP) oil spill did have many quick-to-speak market strategists looking foolish today. Japan's nuclear experts are now saying that it could take a substantial amount of time to stabilize Fukushima. As this catastrophe drags out, it weighs on the world's third largest economy. Uncertainty is a heavy weight for markets to bear, and it appears gurus were wrong in their overlooking what is a very complex and unique situation in Japan.


Portugal Says A-Okay for 2011


Despite bearing a downgrade by credit rating bully S&P on Tuesday, Portugal's Secretary of State for Treasury and Finance, Carlos Costa Pina, said Portugal is in position to meet its bond obligations for 2011, especially the redemptions of long-term debt that will take place in April and June. Costa Pina suggests his country will do all it can to avoid taking foreign aid, as it is viewed internally as a great burden on both public and private sector growth. Indeed, Greece also tried to avoid taking help, but the markets forced it to by pressuring its cost of borrowing beyond its ability. The recent government turnover only increased uncertainty in Portugal and pushed bond yields higher. The outlook is not a bright one for Portugal and so credit-rater S&P is probably right, but after the fact as is proving a trend on Water Street (i.e. US MBS).


Canada Contributes to Inflation Fears


Canada reported its industrial product and raw materials prices increased more than expected in February. The North reported that industrial product prices increased 0.7% in February, against expectations for a 0.3% increase. The gain followed a 0.4% rise in January and a 0.8% increase in December. Prices were up 3.4% year-to-year. The Raw Materials Price Index rose 1.8% in February, and was three times more than economists foresaw.


EIA Petroleum Status


With Saudi Arabia on its horse to make up for the supply disruption from Libya, oil inventory increased again by 2.9 million barrels in the latest week. However, for the period ending March 25, total motor gasoline inventory again dropped precipitously, by 2.7 million barrels this time. The Saudis are saying they will send more oil conducive to gasoline refining to make up for the loss of high quality oil usually delivered from Libya. Indeed, US interests are at stake in Libya, as the price of gasoline is growing intolerable to American consumers.


Corporate News Wire


Family Dollar (NYSE: FDO) reported a penny better quarterly EPS than analysts had forecast on average (even after their adjustment higher in early March), and FDO forecast annual income ahead of analysts' estimates. As a result, its shares are higher today, but down from their premarket scramble. Family Dollar sees full year EPS at $3.13 to $3.23, ahead of the analysts' consensus for $3.12.


Cephalon (Nasdaq: CEPH) is trading at a $75 and change today, above the $73 per share hostile takeover bid by Valeant Pharmaceuticals (NYSE: VRX), Canada's largest drugmaker. Valeant's bid marked a 24% premium to CEPH's closing price Tuesday. Valeant is an aggressive acquirer, and it looks like the market is anticipating Cephalon's playing hard to get might work in its shareholders' favor. Or, investors may be indicating the possibility of a bidding war. Otherwise, if the deal were accepted, CEPH's shares would be trading at a slight discount to the bid price.


Salesforce.com (NYSE: CRM) is adding a social media aspect through its acquisition of private firm Radian6, announced Wednesday. The deal, costing $326 million in cash and stock, is seen as an asset to the cloud software writer's clients ability to track customer trends on social media sites.


Japanese automakers Toyota (NYSE: TM), Honda (NYSE: HMC) and Nissan (Nasdaq: NSANY) are experiencing logistics issues tied to car parts deliveries from shutdown plants in Japan. Toyota has reportedly told its US dealers to stop ordering certain parts, for fear it will run out. Meanwhile, testing for radiation at foreign locations poses threat to further taint the Japanese automakers' brands and deliveries.


Wal-Mart (NYSE: WMT) is holding an international conference today for the investment community. The J.P. Morgan (NYSE: JPM) Global Protein Conference highlights a presentation by Tyson Foods (NYSE: TSN). The earnings schedule highlights reports from Acuity Brands (NYSE: AYI), American Electric Technologies (Nasdaq: AETI), Ameron International (NYSE: AMN), Andatee China Marine Fuel Services (Nasdaq: AMCF), Banks.com (AMEX: BNX), China Wind Systems (Nasdaq: CWS), Citadel Broadcasting (OTC: CDELB), Derma Sciences (Nasdaq: DSCI), Dreams (AMEX: DRJ), DryShips (Nasdaq: DRYS), Ediets Com (Nasdaq: DIET), Emergent (AMEX: LZR), EnergySolutions (NYSE: ES), Entremed (Nasdaq: ENMD), Ever-Glory (AMEX: EVK), Family Dollar (NYSE: FDO), Food Technology Services (Nasdaq: VIFL), General Maritime (NYSE: GMR), Global-Tech Advanced Innovation (Nasdaq: GAI), Gold Reserve (AMEX: GRZ), Gushan Environmental Energy (NYSE: GU), Innovaro (AMEX: INV), Jos. A. Banks (Nasdaq: JOSB), Lakes Entertainment (Nasdaq: LACO), Lindsay (NYSE: LNN), Merriman (Nasdaq: MERR), Mosaic (NYSE: MOS), Performance Tech (Nasdaq: PTIX), Signet Jewelers (NYSE: SIG), Unifirst (NYSE: UNF), UniTek Global (Nasdaq: UNTK), VCG Holding (Nasdaq: VCGH), Wireless Telecom (AMEX: WTT) and others.


Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Tuesday, March 29, 2011

Consumers Souring on the Economy

consumers souring on the economy

Consumer Shock


Two separate consumer confidence measures offered a consistent message over the last several days. Consumers are souring on the economy. Global economic recovery, combined with the pressure applied from Middle Eastern unrest, has a difficult environment further burdened by rising gasoline and other prices.


Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.


Relevant Tickers: NYSE: XRT, NYSE: WMT, NYSE: PIR, NYSE: ETH, Nasdaq: HOFT, NYSE: HD, NYSE: LOW, Nasdaq: AAPL, NYSE: BBY, NYSE: LTD, NYSE: CHS, NYSE: ANN, NYSE: GPS, NYSE: M, NYSE: JCP, NYSE: JWN, NYSE: TJX, NYSE: KSS, Nasdaq: COST, NYSE: TGT, NYSE: WMT, Nasdaq: WTSLA, Nasdaq: HOTT, NYSE: AEO, NYSE: ARO, NYSE: ANF, NYSE: SAK, NYSE: TIF, NYSE: TLB, NYSE: LL, Nasdaq: BLDR, NYSE: FO, NYSE: LEG, NYSE: TPX, NYSE: AYI, NYSE: LZB, Nasdaq: SCSS, NYSE: ZZ, NYSE: FBN, NYSE: NTZ, Nasdaq: SHLD, NYSE: DDS, Nasdaq: BONT, Nasdaq: CPWM, Nasdaq: BKRS, Nasdaq: BEBE, NYSE: BKE, Nasdaq: CACH, Nasdaq: CMRG, Nasdaq: CATO, NYSE: CBK, Nasdaq: CTRN, NYSE: PSS, Nasdaq: DEST, Nasdaq: DBRN, NYSE: DSW, Nasdaq: FINL, NYSE: FL, Nasdaq: GYMB, NYSE: GES, NYSE: JCG, NYSE: JNY, Nasdaq: JOSB, NYSE: NWY, NYSE: JWN, NYSE: MW, Nasdaq: SYMS, Nasdaq: PLCE, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ, NYSE: BAC, NYSE: GS, NYSE: MS, NYSE: JPM, NYSE: C, NYSE: WFC


Consumers Souring on the Economy

consumer discretionary analyst Both the University of Michigan/Reuters measure and the Conference Board's measure published on Tuesday concurred that inflation is the main concern of consumers today. It has them very worried about the affordability of gasoline and food and other goods over the months ahead. As higher necessary gasoline expenditures cut into pocket books, other spending is threatened as well.


The Conference Board's latest take for March showed its Consumer Confidence Index fell to 63.4, a notable decline from February's measurement of 72.0. The mark was the worst in three months in fact. As we have discussed here previously, most of the last year's gains in confidence have been counted in the expectations portion of the survey. The outlook of consumers had improved, surely benefiting from a rising stock market and positive economic data. We continue to be suspicious though of the reported gains in employment, and we've suggested the true unemployment rate is closer to 9.4% then 8.9%. Expectations, however, are easily spoiled, and vulnerable to swift change, as seen in the monthly collapse here.


Last week, Reuters/University of Michigan reported its Consumer Sentiment Index fell to 67.5, from 77.5 in February. That was the lowest reading for the index in more than a year. The expectations index here fell to 57.9, from 71.6 in February; this was the lowest level for consumer expectations since March 2009. The Conference Board's report issued today showed its consumer expectations measure fell to 81.1, from 97.5.


In both cases, the surveyed consumers indicated it was inflation concerns that bothered them most. Inflation expectations moved higher in each report, and the reason is clear, as gasoline has been highly pressured by the events in Libya, Bahrain and the Middle East and North Africa generally. However, even before the turnover of government in Egypt, commodity prices had been steepening. In fact, higher food prices were at the core of the unrest in Tunisia, since the impact is felt more sensitively by these third world nations, where food costs represent a greater proportion of income than in the U.S.


The Conference Board's report has not proven positive upon close inspection, even before today's news. While it has noted better relative results, on an absolute level, the survey displays a clearly miserable state of affairs. For instance, consumers claiming business conditions are "good" increased, but only to 15.1% of those surveyed. Those claiming business conditions were "bad" decreased, true, but only to 37.0%, from 39.3%. And some 44.6% of consumers said jobs are "hard to get", while just 4.4% said jobs were "plentiful".


Study of the numbers shows a pitiful confidence environment, that much is clear. Just 20.6% of consumers expect business conditions to improve over the next six months, and that is down from a still sad 25.2% last month. The numbers are not any better with regard to the jobs outlook or for income expectations. Representing 70% of the American economy, consumer spending is threatened, as is the housing recovery and GDP. Thus, concern is heightening about the possibility of another recession, and the likelihood of QE3 is increasing.


I noted Larry Kudlow Tuesday pointing to manufacturing strength and Jim Cramer spoke recently of the good health of the American multinational. Both statements are true. However, manufacturing alone will not survive the American economy, and the good health of American multinationals will neither support significant US job growth.

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Article interests investors in: S&P Retail ETF (NYSE: XRT), Wal-Mart (NYSE: WMT), Pier 1 Imports (NYSE: PIR), Ethan Allen (NYSE: ETH), Hooker Furniture (Nasdaq: HOFT), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Apple (Nasdaq: AAPL), Best Buy (NYSE: BBY), The Limited (NYSE: LTD), Chicos (NYSE: CHS), Ann Taylor (NYSE: ANN), The Gap (NYSE: GPS), Macy’s (NYSE: M), JC Penney (NYSE: JCP), Nordstrom (NYSE: JWN), TJX Company (NYSE: TJX), Kohls (NYSE: KSS), Costco (Nasdaq: COST), Target (NYSE: TGT), Wet Seal (Nasdaq: WTSLA), Hot Topic (Nasdaq: HOTT), American Eagle Outfitters (NYSE: AEO), Aeropostale (NYSE: ARO), Abercrombie & Fitch (NYSE: ANF), Saks (NYSE: SAK), Tiffany (NYSE: TIF), Talbots (NYSE: TLB), Lumber Liquidators (NYSE: LL), Builders Firstsource (Nasdaq: BLDR), Fortune Brands (NYSE: FO), Leggett & Platt (NYSE: LEG), Tempur-Pedic International (NYSE: TPX), Acuity Brands (NYSE: AYI), La-Z-Boy (NYSE: LZB), Select Comfort (Nasdaq: SCSS), Sleepy’s (NYSE: ZZ), Furniture Brands (NYSE: FBN), Natuzzi (NYSE: NTZ), Sears (Nasdaq: SHLD), Dillard’s (NYSE: DDS), Bon-Ton (Nasdaq: BONT), Cost Plus (Nasdaq: CPWM), Baker’s Footwear (Nasdaq: BKRS.OB), Bebe Stores (Nasdaq: BEBE), The Buckle (NYSE: BKE), Cache (Nasdaq: CACH), Casual Male (Nasdaq: CMRG), Cato (Nasdaq: CATO), Christopher & Banks (NYSE: CBK), Citi Trends (Nasdaq: CTRN), Collective Brands (NYSE: PSS), Destination Maternity (Nasdaq: DEST), Dress Barn (Nasdaq: DBRN), DSW (NYSE: DSW), Finish Line (Nasdaq: FINL), Footlocker (NYSE: FL), Gymboree (Nasdaq: GYMB), Guess (NYSE: GES), J. Crew (NYSE: JCG), Jones New York (NYSE: JNY), Jos. A Banks (Nasdaq: JOSB), New York & Co. (NYSE: NWY), Men’s Wearhouse (NYSE: MW), Syms (Nasdaq: SYMS), The Children’s Place (Nasdaq: PLCE), Bank of America (NYSE: BAC), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), J.P. Morgan (NYSE: JPM), Citigroup (NYSE: C) and Wells Fargo (NYSE: WFC).


Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Monday, March 28, 2011

Economic Reports - Pending Home Sales and Personal Income and Outlays

economic reports

Economic Reports


Monday offered two economic reports, Pending Home Sales and Personal Income and Outlays data for February. We cover both briefly here for you.


Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.


Relative Tickers: NYSE: BAC, NYSE: JPM, NYSE: GS, NYSE: C, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: PNC, NYSE: STT, NYSE: JNS, Nasdaq: TROW, NYSE: GE, NYSE: WMT, NYSE: MCD, NYSE: AA, NYSE: AXP, NYSE: BA, NYSE: CAT, Nasdaq: CSCO, NYSE: CVX, NYSE: DD, NYSE: DIS, NYSE: HD, NYSE: HPQ, NYSE: IBM, Nasdaq: INTC, NYSE: JNJ, NYSE: KFT, NYSE: KO, NYSE: MMM, NYSE: MRK, Nasdaq: MSFT, NYSE: PFE, NYSE: PG, NYSE: T, NYSE: TRV, NYSE: UTX, NYSE: VZ, NYSE: XOM


Economic Reports - Pending Home Sales & Personal Income & Outlays

Pending Home Sales February


Contrasting against last week's housing data, Pending Home Sales offered good news today for the month of February. The Pending Home Sales Index rose 2.1%, to 90.8 in February. Last week's data marked contract closings, but this report covers new contract signings, which is a forward looking indicator for future sales. Even so, the Pending Home Sales Index was still down 8.2% from last February. The National Association of Realtors focused attention to the fact that the trend line shows rise since last June. Regionally, we saw growth in all segments except the Northeast, where an excessively snowy winter likely played a role in limiting foot traffic.


Personal Income & Outlays February


The Personal Income & Outlays Report is watched mainly for its consumer spending data and its price gauge. Both those data points offered intriguing information Monday too. Personal Outlays increased 0.7% in February, against economists' consensus expectations for a 0.6% rise. The increase came on a prior month revised higher count, so it got no benefit from revision. However, real PCE, excluding price changes, only increased 0.3%. Thus, price drove much of the change. That was seen in the 0.2% increase in the Core PCE Price Index and the 0.4% increase in the price index including food and energy prices. Personal Income rose 0.3%, less than the 0.4% expectation by economists and against the 1.2% revised growth seen in January.


Article should interest investors in Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Citigroup (NYSE: C), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), TD Bank (NYSE: TD), PNC Bank (NYSE: PNC), State Street (NYSE: STT), Janus (NYSE: JNS), T. Rowe Price (Nasdaq: TROW), General Electric (NYSE: GE), Wal-Mart (NYSE: WMT), McDonald's (NYSE: MCD), Alcoa (NYSE: AA), American Express (NYSE: AXP), Boeing (NYSE: BA), Caterpillar (NYSE: CAT), Cisco Systems (Nasdaq: CSCO), Chevron (NYSE: CVX), DuPont (NYSE: DD), Walt Disney (NYSE: DIS), Home Depot (NYSE: HD), Hewlett-Packard (NYSE: HPQ), IBM (NYSE: IBM), Intel (Nasdaq: INTC), Johnson & Johnson (NYSE: JNJ), Kraft (NYSE: KFT), Coca-Cola (NYSE: KO), 3M (NYSE: MMM), Merck (NYSE: MRK), Microsoft (Nasdaq: MSFT), Pfizer (NYSE: PFE), Procter & Gamble (NYSE: PG), AT&T (NYSE: T), Travelers (NYSE: TRV), United Technologies (NYSE: UTX), Verizon (NYSE: VZ), Exxon Mobil (NYSE: XOM).


Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Merger Monday Market Movers - BUD, HOOK, EBAY, GSIC, MENT, RURL

merger Monday market movers

Market Movers


Merger Monday let nobody down this week, with several deals getting done and driving stocks. This brief covers the movers and shakers among them and the day's most actives list.


Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.


Relative Tickers: Nasdaq: RURL, NYSE: BUD, Nasdaq: HOOK, Nasdaq: EBAY, Nasdaq: GSIC, Nasdaq: MENT, Nasdaq: RURL, NYSE: T, NYSE: S, NYSE: VZ, Nasdaq: LEAP, NYSE: PCS, Nasdaq: MENT, Nasdaq: NVGN, Nasdaq: OBCI, Nasdaq: MSHL, Nasdaq: SPEC, Nasdaq: CRYP, Nasdaq: TXCC, Nasdaq: ADES, NYSE: TRU, Nasdaq: ASTM, Nasdaq: IDSA, Nasdaq: SCMF, Nasdaq: CAAS, Nasdaq: ARII, AMEX: EGX, Nasdaq: RIVR, Nasdaq: ONSM, Nasdaq: CPGI, Nasdaq: EFOI, Nasdaq: TEAR, NYSE: WAB, Nasdaq: DMED, NYSE: PKD, Nasdaq: CBEH, AMEX: IVD, AMEX: RNN, Nasdaq: FUQI, Nasdaq: TSTY, Nasdaq: CISG, Nasdaq: ANIK, NYSE: XEL-PE, AMEX: WAC, AMEX: IDI, Nasdaq: VALV, Nasdaq: OTIV, Nasdaq: KGJI, Nasdaq: PRAN, Nasdaq: YRCW, NYSE: KV-B, NYSE: KV-A, Nasdaq: EDMC, Nasdaq: EBIX, Nasdaq: CADC, Nasdaq: IBCPO, Nasdaq: TKMR, AMEX: MXC, Nasdaq: PRPH, Nasdaq: EDSWW, Nasdaq: APPA, Nasdaq: BONE, Nasdaq: BIOF, Nasdaq: CALM, Nasdaq: CPHC, AMEX: CAW, AMEX: CVR, NYSE: CCM, Nasdaq: COSI, Nasdaq: GENT, Nasdaq: GRMH, Nasdaq: GSIG, Nasdaq: IDSA, NYSE: NTZ, Nasdaq: NEWN, Nasdaq: NVAX, Nasdaq: PEIX, Nasdaq: PMIC, AMEX: PIP, NYSE: PVH, Nasdaq: PRGS, Nasdaq: RPRX, Nasdaq: SNSTA, Nasdaq: TALN, Nasdaq: THTI, AMEX: WYY.


Merger Monday Market Movers – BUD, HOOK, EBAY, GSIC, MENT, RURL

Greek

Warburg Pincas Buys Rural/Metro (Nasdaq: RURL)


The private equity firm said it would pay $437.8 million for Rural/Metro (Nasdaq: RURL), excluding debt. The 37% price premium was just about realized today on the news break. Rural/Metro is an emergency services firm, running an ambulance services business and private fire protection services. The deal, and the similar deal between Clayton, Dubilier & Rice and Emergency Medical Services (NYSE: EMS) are suggested to benefit from growth into the fragmented ambulatory services market. However, The Greek also likes the private fire services operations, given that municipalities are moving towards a pay for services or outsourcing model.


Anheuser-Busch (NYSE: BUD) Acquires Chicago's Goose Island


Anheuser-Busch (NYSE: BUD) is paying $38.8 million for Chicago craft brewer Goose Island, which is 42% owned by Craft Brewers Alliance (Nasdaq: HOOK). BUD fell 1% as a result, while HOOK gained 12.4%. BUD has been distributing Goose Island beers since 2006, including its Honkers Ale and 312 Urban Wheat Ale. BUD holds about a one-third stake in the Craft Brewers Alliance too.


eBay (Nasdaq: EBAY) Buys GSI Commerce (Nasdaq: GSIC)


GSIC shares rocketed 51% on news the company would be acquired by eBay Monday. The online auction site will buy the retailer web services provider for $29.25 a share or $2.4 billion. eBay will not be holding on to all the assets, as GSIC's CEO organizes a new holding company to buy the to be spun-off licensed sports merchandise business, which operates online shops for the NHL, NBA, MLB, Nascar and other brands. The new holding company will also take on a 70% interest in GSI's ShopRunner and Rue La La, its private shopping sites. GSI closed a nickel short of the acquisition price, as it has a 40-day span to shop for a better offer. Stay tuned...


Mentor Graphics (Nasdaq: MENT) Rejects Icahn Bid


Mentor Graphics' board rejected Carl Icahn's $1.9 billion bid for the software firm, saying it significantly undervalues Mentor. The board also voted down Icahn's demand for the company to merge or to be acquired by someone else. The company will instead continue on its current path for growth, which it sees more rewarding over time. Mentor is a key player in electronic design automation, serving semiconductor and electronics makers. Icahn is a holder of almost 15% of the company, and he still has a chance to get his way if his three board nominees make it through to the boardroom.


AT&T T-Mobile Drives Telecom Action


In the wake of the proposed AT&T T-Mobile deal, an analyst at R.W. Baird upgraded shares of Leap Wireless (Nasdaq: LEAP) and MetroPCS (NYSE: PCS) to "Outperform" from "Neutral." We caught the analyst on CNBC's Fast Money naming Sprint-Nextel (NYSE: S) as a potential future buyer, if it could clean up its balance sheet a bit. He upgraded AT&T (NYSE: T) and Verizon (NYSE: VZ) to Outperform from Neutral as well.


Remaining Most Actives: The rest of the day's most actives included gainers: Novogen (Nasdaq: NVGN), Ocean Bio-Chem (Nasdaq: OBCI), Marshall Edwards (Nasdaq: MSHL), Spectrum Control (Nasdaq: SPEC), Crypto-Logic (Nasdaq: CRYP), TranSwitch (Nasdaq: TXCC), ADA-ES (Nasdaq: ADES), Torch Energy Royalty Trust (NYSE: TRU), Aastrom Biosciences (Nasdaq: ASTM), Industrial Services of America (Nasdaq: IDSA), Southern Community Financial (Nasdaq: SCMF), China Automotive Systems (Nasdaq: CAAS), American Railcar (Nasdaq: ARII), Engex (AMEX: EGX), River Valley Bancorp (Nasdaq: RIVR), Onstream Media (Nasdaq: ONSM), China Shengda Packaging (Nasdaq: CPGI), Energy Focus (Nasdaq: EFOI), TearLab (Nasdaq: TEAR), Wabtec (NYSE: WAB), D. Medical Industries (Nasdaq: DMED), Parker Drilling (NYSE: PKD); and losers: China Integrated Energy (Nasdaq: CBEH), IVAX Diagnostics (AMEX: IVD), Rexahn Pharmaceuticals (AMEX: RNN), Fuqi International (Nasdaq: FUQI), Tasty Baking (Nasdaq: TSTY), CNinsure (Nasdaq: CISG), Anika Therapeutics (Nasdaq: ANIK), Xcel Energy Preferred (NYSE: XEL-PE), Walter Investment Management (AMEX: WAC), SearchMedia Holdings (AMEX: IDI), Shengkai Innovations (Nasdaq: VALV), On Trak Innovations (Nasdaq: OTIV), Kingold Jewelry (Nasdaq: KGJI), Prana Biotechnology (Nasdaq: PRAN), YRC Worldwide (Nasdaq: YRCW), K-V Pharmaceutical (NYSE: KV-B, NYSE: KV-A), Education Management (Nasdaq: EDMC), Ebix (Nasdaq: EBIX), China Advanced Construction Materials (Nasdaq: CADC), Independent Bank (Nasdaq: IBCPO), Tekmira Pharmaceuticals (Nasdaq: TKMR), Mexco Energy (AMEX: MXC), ProPhase Labs (Nasdaq: PRPH), Exceed (Nasdaq: EDSWW).


The EPS schedule highlights reports from Ap Pharma (Nasdaq: APPA), Bacterin International (Nasdaq: BONE), Biofuel Energy (Nasdaq: BIOF), Cal Maine Foods (Nasdaq: CALM), Canterbury Park (Nasdaq: CPHC), CCA Industries (AMEX: CAW), Chicago Rivet and Machine (AMEX: CVR), Concord Medical (NYSE: CCM), Cosi (Nasdaq: COSI), Gentium (Nasdaq: GENT), Graymark Healthcare (Nasdaq: GRMH), GSI Group (Nasdaq: GSIG), Industrial Services of America (Nasdaq: IDSA), Natuzzi (NYSE: NTZ), New Energy Systems (Nasdaq: NEWN), Novavax (Nasdaq: NVAX), Pacific Ethanol (Nasdaq: PEIX), Penn Millers (Nasdaq: PMIC), PharmAthene (AMEX: PIP), Phillips Van Heusen (NYSE: PVH), Progress Software (Nasdaq: PRGS), Repros Therapeutics (Nasdaq: RPRX), Sonesta (Nasdaq: SNSTA), Talon (Nasdaq: TALN), THT Heat (Nasdaq: THTI) and Widepoint (AMEX: WYY).


Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Thursday, March 24, 2011

The Greek Not Impressed by Jobless Claims Improvement

The Greek not impressed by jobless claims improvement
Job Market

Another week, another solidly improved weekly initial jobless claims count. While that helped the Dow up 0.7% Thursday, it does not necessarily offer the best of news - says The Greek.


Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative Tickers: NYSE: RHI, NYSE: KFY, NYSE: MAN, NYSE: MWW, Nasdaq: KELYA, Nasdaq: JOBS, NYSE: JOB, Nasdaq: CECO, Nasdaq: PAYX, NYSE: ASF, Nasdaq: KFRC, NYSE: TBI, NYSE: DHX, NYSE: SFN, NYSE: CDI, Nasdaq: CCRN, Nasdaq: ASGN, NYSE: AHS, Nasdaq: BBSI, Nasdaq: HHGP, NYSE: SRT, Nasdaq: RCMT, Nasdaq: VSCP, OTC: ASRG.OB, OTC: MCTH.OB, OTC: IGEN.OB, OTC: STJO.OB, OTC: TNUS.OB, Nasdaq: TSTF, OTC: STTH.OB, OTC: PSRU.OB, OTC: CRRS.OB, NYSE: BAC, NYSE: JPM, NYSE: GS, NYSE: C, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: PNC, NYSE: GE, NYSE: WMT, NYSE: MCD, NYSE: AA, NYSE: AXP, NYSE: BA, NYSE: CAT, Nasdaq: CSCO, NYSE: CVX, NYSE: DD, NYSE: DIS, NYSE: HD, NYSE: HPQ, NYSE: IBM, Nasdaq: INTC, NYSE: JNJ, NYSE: KFT, NYSE: KO, NYSE: MMM, NYSE: MRK, Nasdaq: MSFT, NYSE: PFE, NYSE: PG, NYSE: T, NYSE: TRV, NYSE: UTX, NYSE: VZ, NYSE: XOM, NYSE: DE, NYSE: TIF, NYSE: CO, NYSE: FRO, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ

The Greek Not Impressed by Jobless Claims Improvement



employment analystFor the period ending March 19, Weekly Initial Jobless Claims offered mildly positive news, falling by 5,000, to 382K. The weekly flow has been slowly but steadily improving, and the four-week moving average shows exactly that, sliding by 1,500 this week, to 386,750.

For the period ending March 12, the insured unemployment rate matched the week just prior to it, at 3.0%. That ratio counted approximately 3.721 million people, a decrease of 2K. The four-week moving average here also shows improvement, with that count better by 28K, to 3.755 million. However, what matters more is the total number unemployed covered under all programs, including the unemployment insurance extension program. That tally measures a still hefty 8.766 million for the period ending March 5.

The improvement is welcomed, but the pace of it, along with the likelihood that general corporate hiring is still a cautious activity, remains a concern. The general economic view is that a pace of 300K new benefits filers allows for net job creation in the economy. At 380+, we are not yet qualifying.

While the unemployment rate has been reported improved over recent months, we’ve disputed the credibility of those reports, and last saw the rate at 9.4%, versus the government’s published 8.9%. We unfortunately expect the decrease in the workforce behind the government’s number is not due to reverse migration, but due to the despair of the long-term unemployed.

We worry that as gasoline prices and food prices rise, more than consumer spending decline threatens. With police layoffs a norm among municipalities, we expect crime rates will increase substantially and protesting on American soil will resemble some of what we’ve seen overseas. Yet, we thus far remain much better off here in America, since the cost of inflation has not yet dented our substantially higher average incomes.

FYI:

The highest insured unemployment rates in the week ending March 5 were in Alaska (6.7 percent), Puerto Rico (5.1), Idaho (5.0), Montana (5.0), Rhode Island (5.0), Oregon (4.9), Pennsylvania (4.8), Wisconsin (4.8), New Jersey (4.6), and Connecticut (4.5).

The largest increases in initial claims for the week ending March 12 were in North Carolina (+930), Florida (+776), Oregon (+582), Puerto Rico (+509), and South Carolina (+484), while the largest decreases were in New York (-16,917), California (-5,490), Pennsylvania (-1,907), Massachusetts (-1,778), and Washington (-1,429).

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Article should interest investors in Paychex (Nasdaq: PAYX), Manpower (NYSE: MAN), Robert Half International (NYSE: RHI), 51Job Inc. (Nasdaq: JOBS), Monster World Wide (NYSE: MWW), Korn/Ferry International (NYSE: KFY), Administaff (NYSE: ASF), Kforce (Nasdaq: KFRC), TrueBlue (NYSE: TBI), Dice Holdings (NYSE: DHX), Kelly Services (Nasdaq: KELYA), SFN Group (NYSE: SFN), CDI Corp. (NYSE: CDI), Cross Country Healthcare (Nasdaq: CCRN), On Assignment (Nasdaq: ASGN), AMN Healthcare Services (NYSE: AHS), Barrett Business Services (Nasdaq: BBSI), Hudson Highland Group (Nasdaq: HHGP), StarTek (NYSE: SRT), RCM Technologies (Nasdaq: RCMT), VirtualScopics (Nasdaq: VSCP), American Surgical (OTC: ASRG.OB), Medical Connections (OTC: MCTH.OB), iGen Networks (OTC: IGEN.OB), St. Joseph (OTC: STJO.OB), General Employment Enterprises (NYSE: JOB), Total Neutraceutical (OTC: TNUS.OB), TeamStaff (Nasdaq: TSTF), Stratum (OTC: STTH.OB), Purespectrum (OTC: PSRU.OB), Corporate Resource Services (OTC: CRRS.OB), Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Citigroup (NYSE: C), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), TD Bank (NYSE: TD), PNC Bank (NYSE: PNC), General Electric (NYSE: GE), Wal-Mart (NYSE: WMT), McDonald's (NYSE: MCD), Alcoa (NYSE: AA), American Express (NYSE: AXP), Boeing (NYSE: BA), Caterpillar (NYSE: CAT), Cisco Systems (Nasdaq: CSCO), Chevron (NYSE: CVX), DuPont (NYSE: DD), Walt Disney (NYSE: DIS), Home Depot (NYSE: HD), Hewlett-Packard (NYSE: HPQ), IBM (NYSE: IBM), Intel (Nasdaq: INTC), Johnson & Johnson (NYSE: JNJ), Kraft (NYSE: KFT), Coca-Cola (NYSE: KO), 3M (NYSE: MMM), Merck (NYSE: MRK), Microsoft (Nasdaq: MSFT), Pfizer (NYSE: PFE), Procter & Gamble (NYSE: PG), AT&T (NYSE: T), Travelers (NYSE: TRV), United Technologies (NYSE: UTX), Verizon (NYSE: VZ), Exxon Mobil (NYSE: XOM). The day’s earnings included Deere (NYSE: DE), Tiffany (NYSE: TIF), China Cord Blood (NYSE: CO) and Frontline (NYSE: FRO).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Home Buyers to Re-Enter Real Estate Market In 2012

home buyers to re-enter real estate market in 2012
Real Estate

Wall Street Greek's Real Estate Columnist Michael Douville tells us the penalty box is full of potential home buyers, but the power play will be over for many toward the end of this year. In Douville's home market of the Sand States of the West, that release comprises some 65% or so of buyers back onto the real estate ice.


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Home Buyers to Re-Enter Real Estate Market In 2012



real estate columnistThe penalty box is full! Fannie Mae (OTC: FMCC.OB), owner of upwards of 90% of the conventional home loans in the United Sates, has restricted new loans to troubled borrowers. Distressed home sellers liquidating their properties either through a gut-wrenching foreclosure or a sale with a negotiated settlement via the "Short Sale," are prohibited from re-purchasing for 24 to 84 months depending on loan default status.

Distressed sales comprise upwards of 65% of current sales in the Sand States of California, Nevada, Florida, and Arizona. The buyers that fueled the bubble of 2005-2007 are liquidating their underwater properties. This segment of the population is huge. Everyone was buying at least one property in the 2005 to 2007 span, and 65% of those buyers fell into trouble in the 2008 to 2010 period. They are now contributing to the distressed sales flood.

"65% of potential home purchasers cannot buy now."

Let me make my point clearly here: 65% of potential home purchasers cannot buy now. There is a vacuum, a void being filled by savvy and return driven investors able to purchase these greatly discounted properties. There is a quantum difference between the manic buyers of the bubble and today's buyers. Today's buyers are looking for "Investment Return". Today's buyers are purchasing to generate current income, visible immediately after closing, unlike a possible gain years from now; consequently, a much tougher and discerning buyer exists.

Investment buyers are estimated to comprise 40-60% of all real estate sales. Current profit is the only motive; there is no emotional tug by backyards with swings, or homes close to family or schools, or wallpaper to match the baby's blanket. It's about profit! If one investor pays $100,000 for a property, the next investor down the street wants to pay less! The components necessary for a balanced market are absent. The adage for value: "A fair price is what a non-distressed seller is willing to take and an educated buyer is willing to pay," has become obsolete at the moment. The "Housing Clearance Sale" continues. Distressed sales have taken the leading edge of the pricing trend, and until the traditional buyers return, price appreciation and economic activity will continue to be muted in real estate related industries.

northwest coast artIn a normal sales year, a homeowner sells their home and re-purchases a different home. In the transaction, capital changes hands and there is a "velocity of money," as loans are originated, commissions are paid, and titles are insured. Further, home improvements are planned, painting and accessories are bought, and typically new furniture and electronics are bought to update the new home; thus the economy greatly benefits. This chain of events has been interrupted; jobs have been lost that are structurally not available. Roofers and framers need to be retrained; retail furniture space needs new utilization; loan officers, escrow officers, and real estate agents need new career paths for the next 12-24 months.

Furthermore, the relaxed underwriting standards of 2005-2007 have been replaced with guidelines that are far more stringent than may be necessary, as loans originated after 2009 have the lowest default rate in decades. Many underwriters are concerned a bad loan may be construed as an illegal loan, and credit score requirements have continually crept higher and higher - raising the bar to home ownership. Verifying information has always been sound business practice, however, the knee-jerk reaction from the far-too-relaxed standards of the bubble years may have driven far too stringent standards in today's lending practices.

If the economy continues to improve, consumer debt will continue to be reduced, lenders' reserves will grow, and eventually standards will loosen - qualifying more and more potential buyers to enter the housing market. The time restrictions mandated by Fannie Mae will expire and millions of buyers will become eligible to buy. Look for flat prices through 2011 and abundant potential properties through the second quarter. However, as properties are slowly cleared, fewer will enter the market. Toward year end, the first wave of penalized buyers will start to become eligible and will compete with investors for properties. By 2012, enough former home owners may become buyers to squeeze the investors out of market dominance. When owner occupied sales regain their dominance in mid-2012, true appreciation should result with prices recovering until the next recession.

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Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Wednesday, March 23, 2011

Mortgage Activity Pickup on Lower Rates and Better Weather

mortgage activity pickup on lower rates better weather
Real Estate

The Mortgage Bankers Association today reported on mortgage activity for the week ending March 18, 2011. The period marked improvement over the week just prior to it, and we believe we know why.


Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Mortgage Activity Pickup on Lower Rates and Better Weather



banking analystThe Mortgage Bankers Association (MBA) reported on mortgage activity for the March 18 period. While mortgage rates did not change much from the prior week, the recent decline from higher February and early March periods certainly drove business. Last week we noted a pickup in refinance activity, and suggested that mortgage activity tied to home purchases are less nimble but should also pick up. We think that is exactly what happened this week, and we expect activity also benefited from a warm weather spurt that started spring cleaning, and home shopping during the period.

The average contracted rate on 30-year and 15-year fixed rate mortgages inched higher to 4.8% (from 4.79%) and 4.02% (from 4.03%), respectively last week. However, the approximate 20 basis point drop from recent levels continued to drive refinancing activity. This past week, we believe, aided by warm weather as well, purchase activity picked up too.

The Market Composite Index of overall mortgage activity rose 2.7% on a seasonally adjusted basis (2.8% unadjusted). The modest gain was driven by a 2.7% increase in the Refinance Index, as refinancing activity stuck at 66.4% of total activity. The Purchase Index also gained this week, rising 2.7% on a seasonally adjusted basis.

While Existing and New Home Sales data reported this week for the month of February offered distressing news, this mortgage data covering a more recent period offers a more relevant and hopeful message. As long as the global investment community remains concerned about events in the Middle East and Asia, demand for safe-haven and concerns about global economic growth should help keep interest rates tamed. As the spring selling season begins now that spring itself is officially upon us, soon followed by regularly warmer days, we believe today's data shows housing growth also lies in store.

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Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), BB&T (NYSE: BBT), CIT (NYSE: CIT), Bank United (NYSE: BKU), First Citizens (OTC: FCNCA.PK), Synovus (NYSE: SNV), United Bankshares (Nasdaq: UBSI), Hampton Roads Bankshares (Nasdaq: HMPR), WesBanco (Nasdaq: WSBC), City Holding (Nasdaq: CHCO), Sandy Spring (Nasdaq: SASR), First Citizens (OTC: FCBN.OB), SCBT Financial (Nasdaq: SCBT), Wilmington Trust (NYSE: WL), WSFS Financial (Nasdaq: WSFS), Southside Bancshares (Nasdaq: SBSI), Stellar One (Nasdaq: STEL), Union First Market (Nasdaq: UBSH), Eagle Bancorp (Nasdaq: EGBN), First Bancorp (Nasdaq: FBNC), Ameris (Nasdaq: ABCB), The Bancorp (Nasdaq: TBBK), First Community (Nasdaq: FCBC), Capital City (Nasdaq: CCBG), Financial Institutions (Nasdaq: FISI), National Bankshares (Nasdaq: NKSH), Citizens & Northern (Nasdaq: CZNC), Charter Financial (Nasdaq: CHFN), Seacoast Banking (Nasdaq: SBCF), TIB Financial (Nasdaq: TIBB), American National (Nasdaq: AMNB), United Community (Nasdaq: UCBI), Middleburg Financial (Nasdaq: MBRG), Heritage Financial (Nasdaq: HBOS), Zions Bancorp (Nasdaq: ZION), East West Bancorp (Nasdaq: EWBC), City National (NYSE: CYN), Bank of Hawaii (NYSE: BOH), SVB Financial (Nasdaq: SIVB), Westamerica (Nasdaq: WABC), Cathay General (Nasdaq: CATY), Umpqua (Nasdaq: UMPQ), Glacier Bancorp (Nasdaq: GBCI), Pacific Capital (Nasdaq: PCBC), PacWest (Nasdaq: PACW), Western Alliance (NYSE: WAL), First National Alaska (OTC: FBAK.OB), First Interstate Bancsystem (Nasdaq: FIBK), Nara (Nasdaq: NARA), West Coast (Nasdaq: WCBO), TriCo (Nasdaq: TCBK), Territorial (Nasdaq: TBNK), Washington Banking (Nasdaq: WCBO), Bank of Marin (Nasdaq: BMRC), Hanmi (Nasdaq: HAFC), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), United Bankshares (Nasdaq: UBSI), Bank of New York Mellon (NYSE: BK), MB Financial (Nasdaq: MBFI), Astoria Financial (NYSE: AF), New York Community (NYSE: NYB), Hudson City (Nasdaq: HCBK), People’s United (Nasdaq: PBCT), First Niagra (Nasdaq: FNFG), Capitol Federal (Nasdaq: CFFN), Washington Federal (Nasdaq: WFSL), Investor’s Bancorp (Nasdaq: ISBC), Northwest Bankshares (Nasdaq: NWBI), Sterling Financial (Nasdaq: STSA), Ocwen (NYSE: OCN), Flagstar (NYSE: FBC), Provident (NYSE: PFS), Colombia Banking (Nasdaq: COLB), Kearny (Nasdaq: KRNY), Brookline (Nasdaq: BRKL), Dime Community (Nasdaq: DCOM), Flushing Financial (Nasdaq: FFIC), Danvers (Nasdaq: DNBK).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Bernanke Speech to Community Bankers

Bernanke speech to community bankers
Community Banking in a Period of Recovery and Change

What follows is Chairman Bernanke's speech given today at noon to the Independent Community Bankers of America National Convention, San Diego, California


Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Chairman Ben S. Bernanke
March 23, 2011


Bernanke Speech to Community Bankers



It's a pleasure to have the opportunity to speak once again before the Independent Community Bankers of America (ICBA). This is the sixth consecutive year that I've met with you at this event, and the themes of my remarks over the years tell a story not only about the financial and economic upheaval that we have all experienced, but also about some of the very difficult issues that continue to confront both bankers and policymakers today. Back in 2006, less than two months after I started as Chairman, I spoke to you about the strong performance of community banks as well as about some important longer-term challenges. In subsequent years, my remarks touched on the need to strengthen regulation and supervision of Fannie Mae and Freddie Mac, approaches to reducing preventable mortgage foreclosures, community banking and the financial crisis, and then last year, the need to address the problem of financial institutions that are "too big to fail." My themes today are the vital role that community banks need to play in the economic recovery, the value that the Federal Reserve places on insights from community banks, and the evolving regulatory environment.

Community Banks and the Economic Recovery
To me, the title of the 2009 ICBA annual report, Empowering Main Street, is a concise and accurate description of the critical role that community banks play in the U.S. economy. Community bankers live and work where they do business, and their institutions have deep roots, sometimes established over several generations. They know their customers and the local economy. Relationship banking is therefore at the core of community banking. The largest banks typically rely heavily on statistical models to assess borrowers' capital, collateral, and capacity to repay, and those approaches can add value, but banks whose headquarters and key decisionmakers are hundreds or thousands of miles away inevitably lack the in-depth local knowledge that community banks use to assess character and conditions when making credit decisions. This advantage for community banks is fundamental to their effectiveness and cannot be matched by models or algorithms, no matter how sophisticated. The IBM computer program Watson may play a mean game of Jeopardy, but I would not trust it to judge the creditworthiness of a fledgling local business or to build longstanding personal relationships with customers and borrowers.

Given the important role that community banks play in their local economies, we at the Federal Reserve are keenly interested in their health and their collective future. Local communities, ranging from small towns to urban neighborhoods, are the foundation of the U.S. economy and communities need community banks to help them grow and prosper. As I'm sure you are all too aware, the financial crisis and its aftermath have hit some community banks especially hard, and those institutions will continue to need time to repair their balance sheets. Although we are not yet where we would like to be, the good news is that many community banks are recovering and reporting stronger performance.

Indeed, despite some of the worst economic conditions since the Great Depression and their own strained balance sheets, community banks have already been doing their part to meet the credit needs of their customers, notably including small business customers. We have been spending a lot of time at the Federal Reserve trying to understand and promote lending to small businesses, and one of the interesting things we have found is that while small business lending contracted overall from mid-2008 through 2010, this contraction was not uniform. In fact, a majority of the smallest banks (in this case, those with assets of $250 million or less) actually increased their small business lending during this period. And while banks with assets between $250 million and $1 billion showed a slight decline in small business lending over this period, the contraction was not nearly as sharp as it was for the largest banks. This hard evidence underscores the important benefits of relationship banking, particularly in periods of unusual economic and financial stress.

Community Banks and the Federal Reserve
You may recall that in my remarks to this group last year, I noted that the decentralized structure of the Federal Reserve System, with 12 Reserve Banks and 24 branches located in cities across the country, was designed to ensure that local insights and information would be incorporated in the deliberations of both the Board and the Federal Open Market Committee. During the debates leading up to the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, we emphasized that our supervisory responsibility for state-chartered banks that are members of the Federal Reserve System and bank holding companies of all sizes not only provides valuable economic information at the grass-roots level that would be very difficult to replace, it also gives us a fuller picture of the nation's financial system. At the same time, the range of expertise that the Federal Reserve develops in making monetary policy and in its engagement with the financial system allows us to bring unique insights and value-added to our supervisory activities. Fortunately, the Congress decided to preserve the Federal Reserve's existing supervisory authority over smaller as well as larger banking organizations. It also broadened the Federal Reserve's connections to Main Street by adding hundreds of thrift holding companies to the institutions we supervise. We are delighted that, through our supervision, our gathering of economic intelligence, and the activities of our community affairs departments around the country, we will be able to remain fully engaged with grass-roots America.

The Federal Reserve has undertaken several recent initiatives to enhance our interactions with community banks and ensure that we fully take their perspectives and unique characteristics into account in our policymaking. First, for many years, the Board has had a committee of Governors that provides oversight on bank supervisory and regulatory matters. Although many of this committee's efforts in the wake of the financial crisis have understandably been focused on the largest and most complex banking organizations, the Board believes that it is important to sharpen our focus on smaller banking organizations as well. As a result, we recently established a special supervision subcommittee that focuses on community banks and smaller regional institutions. This subcommittee is chaired by a former longtime community banker, Governor Betsy Duke, and also includes a former state banking commissioner, Governor Sarah Bloom Raskin.

The subcommittee provides leadership and oversight on a variety of matters related specifically to our supervision of community and smaller regional banks.1 In particular, the subcommittee is reviewing new policy proposals through the lens of the effect those proposals could have on smaller institutions, both in terms of safety and soundness and potential regulatory burden. Among other things, the subcommittee also monitors the Federal Reserve's working relationship with state banking supervisors, which is particularly important because we share with them supervisory responsibility for state member banks.

We have also undertaken an initiative to solicit feedback from community banks on a more regular basis. In October, the Board announced that it would form a Community Depository Institutions Advisory Council to provide insight and information on the economy, lending conditions, and other issues of interest to community banks.2 To make this council as representative as possible, each of the 12 Reserve Banks now has its own local advisory council comprising representatives from banks, thrift institutions, and credit unions; one member from each local council serves on the national council that will meet with the Board twice a year in Washington. Local meetings have already begun, and the first meeting of the national council with the Board will take place soon. Personally, I am looking forward to hearing more from community bankers about issues ranging from their local economies to regulatory reform.

Community Banks and Regulatory Reform
As you know, a key challenge for community banks in the years ahead will be to adapt to the changing regulatory environment, particularly the regulatory reforms contained in the Dodd-Frank Act, as well as the changes that will be associated with the Basel III reforms. We are certainly aware of and appreciate the concerns that community banks have about these regulatory changes, and, as I have just described, we have stepped up our efforts to understand those concerns and to respond to them as appropriate. I think it is worth emphasizing that the changes we will be seeing in the financial regulatory architecture are principally directed at our largest and most complex financial firms, including nonbanks. Consequently, one benefit of the reforms should be the creation of a more level playing field for financial institutions of all sizes.

Focusing reform on our largest, most complex financial firms makes sense. The recent financial crisis highlighted the fact that some financial firms had grown so large, leveraged, and interconnected that their failure could pose a threat to overall financial stability. The sudden collapses of major financial firms were among the most destabilizing events of the crisis. The crisis also demonstrated the inadequacy of the existing framework for supervising, regulating, and otherwise constraining the risks of major financial firms as well as of the toolkit the government had at the time to manage their failure.

As I discussed with you at last year's meeting, a major thrust of the Dodd-Frank Act is addressing the too-big-to-fail problem and mitigating the threat to financial stability posed by systemically important financial firms. The too-big-to-fail problem is a pernicious one that has a number of substantial harmful effects. Critically, it reduces the incentives of shareholders, creditors, and counterparties of such firms to discipline excessive risk-taking. And it produces competitive distortions by enabling firms with large systemic footprints to fund themselves more cheaply than other firms because of the implicit subsidy of too-big-to-fail status. This competitive distortion is not only unfair to smaller firms and damaging to competition today, but it also spurs further growth by the largest firms and more consolidation and concentration in the financial industry. A financial system dominated by too-big-to-fail firms cannot be a healthy financial system.

The act addresses the too-big-to-fail problem with a multi-pronged approach. Under it, we are developing more-stringent prudential standards for banking firms with assets greater than $50 billion and all nonbank financial firms designated as systemically important by the Financial Stability Oversight Council. These more-stringent standards will include stronger capital and leverage requirements, liquidity requirements, and single-counterparty credit limits, as well as requirements to periodically produce resolution plans and conduct stress tests. Our goal is to produce a well-integrated set of rules that meaningfully reduces the probability of failure of our largest, most complex financial firms and that minimizes the losses to the financial system and the economy if such a firm should fail. In doing so, we aim to force these firms to take into account the costs that they impose on the broader financial system, soak up the implicit subsidy these firms enjoy due to market perceptions of their systemic importance, and give the firms regulatory incentives to shrink their systemic footprint.

Complementing these efforts, the Federal Reserve has been working for some time with other regulatory agencies and central banks around the world to design and implement a stronger set of prudential requirements for large, internationally active banking firms. These efforts include the agreements reached in December on the major elements of the new Basel III prudential framework for large, globally active banks. Basel III should make the financial system more stable and reduce the likelihood of future financial crises by requiring large banks to hold more and better-quality capital and more-robust liquidity buffers. A more stable financial system will benefit all banking institutions and, of course, our economy as a whole. We are working to adopt the Basel III framework in the United States in a timely manner.

A central issue that we and the other banking agencies face in implementing Basel III in the United States is deciding how these capital rules will be applied for banks that are not systemic or internationally active. We recognize the importance of striking the right balance between promoting safety and soundness throughout the banking system and keeping the compliance costs for smaller banking firms as low as possible. Also, to minimize the impact of the new capital rules on credit availability while the global economy is still recovering, we and our international colleagues have agreed to allow long transition periods for the implementation of the new standards.

In addition to stricter regulation and supervision of large financial firms, the Dodd-Frank Act places new checks on the growth by acquisition of our major financial firms. It expands current restraints on acquisitions by bank holding companies to include a broader range of acquired firms (not just banks) and a broader range of liabilities (not just deposits). This expansion reflects a financial system that has changed in important ways since 1994, when the Congress first adopted concentration limits for banks and bank holding companies.

The act also imposes new restrictions on the capital markets activities of banking firms--restrictions that will disproportionately affect the structure and profitability of the largest banking firms. For example, the so-called Volcker rule will restrict the ability of banking firms to engage in proprietary trading of securities and derivatives and to invest in or sponsor private investment funds.

Among the most important aspects of act are the measures that it authorizes to reduce the financial and economic effects of the failure of large firms. A clear lesson of the past few years is that the government must not be forced to choose between bailing out a systemically important firm and having it fail in a disorderly and disruptive manner. Instead, we need the tools to resolve a failing firm in a manner that preserves market discipline--by ensuring that shareholders and creditors incur losses and that culpable managers are replaced--and that at the same time cushions the broader financial system from the possibly destabilizing effects of the firm's collapse. Of course, such a framework has been in place for banks for several decades now, as you know. The Dodd-Frank Act creates an analogous framework for systemically important nonbank financial firms, including bank holding companies. Resolving a large, multinational financial firm safely will likely always be a difficult challenge, and a great deal of work remains to be done to make these new authorities fully effective. Ultimately, though, these changes will mitigate moral hazard in our financial system by reducing expectations of government support by the creditors and counterparties of large firms. Taken together, the measures I have described should give us a financial system that is safer, more efficient, and more equitable.

In short, two key objectives of financial regulatory reform are, first, addressing the problems that emerged in the largest, most complex financial firms during the crisis and, second, creating a better balance with respect to regulation and oversight between banks and nonbank financial firms. The Federal Reserve believes that these are the right goals for reform. We are committed to working with the other U.S. financial regulatory agencies to implement the act and related reforms in a manner that both achieves the law's key objectives and appropriately takes into account the risk profiles and business models of smaller banking firms, including community banks.

Before I conclude my remarks, let me say a few words about the transfer of thrift holding company supervisory authority to the Federal Reserve. We have been working closely with the Office of Thrift Supervision, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation to make this transfer as smooth as possible, and progress so far has been good. The Federal Reserve believes that any company that controls a depository institution should be held to appropriate prudential standards, including those for capital, liquidity, and risk management. As such, we intend to create an oversight regime for thrift holding companies that is consistent with, and is as rigorous as, the supervisory regime we apply to bank holding companies. That said, we appreciate that thrift and bank holding companies differ in important ways, play different roles in our economy, and will remain governed by different statutes. We will be mindful of these differences and of the unique characteristics of the thrift industry as we develop our supervisory approach to thrift holding companies.

Conclusion
My colleague, Governor Duke, recently told our examiners that "community bankers are creative, committed, stubborn, and resilient." I know she won't mind my repeating that sentiment here, and I'm sure most of the community bankers in this room would wear those words as a badge of honor. Community banks face substantial challenges in the months and years to come, including still-difficult economic conditions, continued uncertainties in real estate and other key markets, and a changing regulatory environment. But community banks have faced difficult times before, and the industry has remained vibrant and resilient. I am confident that community banking will successfully navigate these new challenges as well. Thank you for what you do every day to meet the needs of your communities and to help our economy grow stronger.

Federal Reserve forum message board chat

1. For supervisory purposes, the Federal Reserve generally considers banking organizations with assets of $10 billion or less to be community banking organizations and those with assets between $10 billion and $50 billion to be regional banking organizations.

2. This group replaces the former Thrift Institution Advisory Council, which provided the Board with useful information from the perspective of thrift institutions and credit unions.


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