11.09.09
Imperfect Information Undermines “Free-market” Economies
It’s no secret that a variety of interested parties exert influence over both economic policies and the general understanding (and reporting) of the effects of changes, just as they do in energy, health care, education, the financial sector, and/or anything else that the Congress or various federal agencies have a role in shaping. Misinformation can lead a seemingly honest, open debate far afield from reality, inhibiting the efficiency of the process while at the same time warping the outcome.
If you don’t understand fiduciary relationships, and you still think most corporate actions reflect the same sort of priorities that pertain when a truly small business is owned by a single person, or a couple, you’re missing a key factor. Shareholders, for instance, seldom have any significant influence on the pay (or bonuses) of officers engaged in potentially risky decisions at major corporations – auto manufacturers, for instance, or the financial institutions that crumbled on Wall Street as the financial crisis became obvious to virtually everybody at home and abroad near the end of the Bush administration, when we ended up dumping billions of dollars into banks without any obvious benefit (it certainly didn’t stimulate consumer lending, as both Bush and early Obama administration initiatives were intended to do.)
In fact, if you look closely, the problem of banks that are “too big to fail” is getting worse, not better, due to consolidation. But that’s not what they tell Congress or the media; the bankers speak instead of “economies of scale” to justify even further growth. Banks are tied to the model that’s ruled economic policy for decades: debt-fueled consumer spending.
Those who talk about concerns over finite resources, such as clean water, are scoffed at, and the countering rhetoric lumps them in with “climate alarmists” and “tree huggers” in such a way that genuine free market forces are not even close to determining the value of any natural resource that cannot be mined – with the curious exception that there are some cities who have privatized their formerly municipally controlled water systems, which does begin to result in a certain market value being placed on that particular resource. Of course, once a profit motive starts driving the price up, citizens in the U.S. and abroad often agitate to re-socialize their water supplies, in an era when “socializing” is used by some to imply everything that went wrong with every non-U.S. form of government.
Similarly there’s an obvious bias in the talk about income tax cuts – it generally originates from those who are well to do, and stirs the emotions of those who have much less, but more importantly if one looks closely at the data, there’s been a strong correlation in the past between those with wealth and those whose tax rates truly go down under most of the recent approaches. Would tax cuts stimulate the economy? Assuredly so – but in what way? 
A tax cut on income doesn’t have the same effect as, say, a tax cut (or tax credit/investment credit) for spending consistent with our national priorities, such as alternative energy sources, or research and education, etc. Such selective, targeted changes spur spending in specific areas — a very straightforward function of supply and demand, and the result is tangible — money flows to those areas, stimulating job growth and additional investment without any necessary growth of the government (growth which makes most of us justifiably cautious in the wake of the Bush administration’s under-reported increases.)
The reason that governments trying socialism, such as the USSR, to manage resources and markets for the good of the people have consistently floundered and failed is that they don’t — and can’t — have good enough centralized information to succeed making the rapid decisions necessary to control what is arguably the most intricate challenge of any “man-made” system, the decentralized activity of a vibrant, balanced economy. Markets are efficient at managing that information; but we’ve seen a dramatic example of why they cannot be expected to function for the good of the consumers when government fails to regulate those with the profit motives.
Consumers, too, need access to better information than they typically get under the current system, no matter if you’re considering tax-cuts, politics, the price of peanut butter, new home-buyer credits, or anything else. When misinformation is tolerated (or encouraged) it undermines the effectiveness of capitalism. Free markets rely on timely, accurate information – we need to consider new incentives for the reporting of “news” and information systems we base our choices on, or capitalism is absolutely doomed to implode.
10.29.09
CNN & Money.com aren’t qualified to assess “Cash for Clunkers”
You’d expect an author at this CNNMoney.com to understand the role of money in business. You’d expect an editor to send this back to re-write. Here was the basis of Peter Valdes-Dapena’s misguided assessment:
“…majority of sales would have taken place anyway at some time in the last half of 2009, according to Edmunds.com”
So? This isn’t news, and it misses the point of the Cash for Clunkers initiative.
Valdes-Dapena and/or his editor may think selling cars sooner rather than later is a valid reason to criticize the program, but as any businessman can tell you: success in business is about cash flow. Any retail operation needs to keep their stock turning over. At a time when the inventory was sitting idle on the lots this program provided a much needed infusion, enabling dealers to pay staff, utilities, creditors, and suppliers.
Did the Cash for Clunkers program solve the economic crisis? Of course not. The goal was to turn over inventory in one segment of the industry – to keep dealerships from failing in huge numbers just before the manufacturers started to recover, thereby saving some jobs and hopefully averting a situation that would spread and further exacerbate the economic downturn.
The article may fool a person with no entrepreneurial experience, but it reflects either a shallow grasp of money and business or a thinly-veiled attack on the government’s attempt to avert a breakdown in the delivery mechanism of an industry it was actively seeking to save – without proposing any alternative that might have been even marginally effective.
The public may think “Cash for Clunkers” was as simple as just selling cars, the author evidently wants to; the reality is much subtler. Edmunds didn’t surprise anybody (except maybe CNNMoney.com staff) with the news that one of the primary effects was to accelerate the decisions and purchases – that was the point.
10.27.09
Recent tax cuts increased the 2009 deficit
Bruce Bartlett was a domestic policy adviser to President Ronald Reagan, and conservative supply sider. He did a little simple math and uncovered that the cause of the deficit increase is revenue-related.
The increase cannot be blamed on spending – the Obama administration’s spending has been more conservative than was forecast – $28 billion less than was predicted. This math strongly suggests that more tax cuts, as some in the GOP are advocating, would actually further increase the deficit; tax cuts were unambiguously a major factor in the problematic revenue decline that underlies the deficit growth.
Mr. Bartlett, in a column dated October 24th, was responding to the theory that tax cuts were the best way to solve the deficit, as was advanced by Mort Zuckerman recently in a New York Daily News opinion piece.
Here’s an excerpt:
According to the Congressional Budget Office’s January 2009 estimate for fiscal year 2009, outlays were projected to be $3,543 billion and revenues were projected to be $2,357 billion, leaving a deficit of $1,186 billion. Keep in mind that these estimates were made before Obama took office, based on existing law and policy, and did not take into account any actions that Obama might implement.
Therefore, unless one thinks that McCain would have somehow or other raised taxes and cut spending (with a Democratic Congress), rather than enacting a stimulus of his own, then a deficit of $1.2 trillion was baked in the cake the day Obama took office. Any suggestion that McCain would have brought in a lower deficit is simply fanciful.
Now let’s fast forward to the end of fiscal year 2009, which ended on September 30. According to CBO, it ended with spending at $3,515 billion and revenues of $2,106 billion for a deficit of $1,409 billion.
To recap, the deficit came in $223 billion higher than projected, but spending was $28 billion [less] and revenues were $251 billion less than expected. Thus we can conclude that more than 100 percent of the increase in the deficit since January is accounted for by lower revenues. Not one penny is due to higher spending.
It turns out you have to go back to 1950 to find a year when federal revenues were lower as a share of GDP. So Bartlett, who is happy to say there is some basis for criticism of the Obama administration’s anti-recession tactics, points out that excessive spending isn’t the problem.
In fact, with much of the revenue that was not collected due to the tax cuts sitting more-or-less idle in savings accounts, and certainly not trickling down to stimulate job growth, or bank lending, etc., Bruce Bartlett concludes that:
The idea that Reagan-style tax cuts would have done anything is just nuts.
Bartlett’s article is a must-read for anybody involved in the U.S. economy – which should include every voter and pundit, not just those elected to Congress.
10.22.09
Income Redistribution and the IRS
The non-partisan Center on Budget and Priority Policy, a research group forcused on federal and state fiscal policies, looked at IRS data and stated in September that:
“Two-thirds of the nation’s total income gains from 2002 to 2007 flowed to the top 1 percent of U.S. households, and that top 1 percent held a larger share of income in 2007 than at any time since 1928, according to an analysis of newly released IRS data by economists Thomas Piketty and Emmanuel Saez.”
In fact, with the exception of a slight reversal that correlates with the Bill Clinton presidency, the chart of this IRS data, reproduced below, reveals an obvious trend in favor of the wealthy.
Class Warfare?
In point of fact, Piketty and Saez relied on several different income concepts and each naturally results in slightly different estimates of the share of income going to each group, so the Center on Budget and Priority Policy conclusion that the share of the nation’s income flowing to the top earning households increased from 16.9% in 2002 to 23.5% in 2007 could have “quibble room.” Yet the fact remains that change represents a larger share than at any point since 1928.
I strongly urge you to read the entire article, and abandon any sense that the wealthy in America are either paying a disproportionate share of their income(s) or losing some mythical class warfare when people talk about income redistribution or raising taxes.
Taxation without representation
It’s lately become fashionable in certain circles to cite the American Revolution as an anti-tax movement. Nothing could be more misleading, and I suspect many of those who rely on the tea bag as a new rallying symbol neither drink tea nor are conversant with either the series of
tax changes, such as the molasses tax (6p/gallon,) which contributed to the uprising against taxation without representation or with the impact of the choice to drink tea over coffee.
Surely many of those who opine that they, “don’t want our government to do anything at all,” and argue in favor of states’ rights, etc., do, in fact, prefer having national immigration laws (and agents to enforce them,) a standing army to provide for the common defense, and even publicly built and maintained highways over the free-market alternative as practiced in present-day Somalia. Yet there’s more to their position than simply a media-distorted, sound-bite-fed outcry being exploited for ratings and ad revenues.
The collective American psyche places great stock in the notion of fair play. Some take it so far that they want the U.S. to be the world arbiter of justice, and accordingly encourage the notion that it’s somehow an American responsibility to prevent piracy on the high seas (the ultimate free-market exercise) or to remove regimes from power in other countries if they don’t believe that leader assumed power fairly.
State budgets are under assault
The American Dream is under assault. There is no free lunch. Taxation to accomplish the legitimate goals of federal and state government initiatives must be fairly distributed. Defining the necessary changes to tax codes is a daunting prospect even if it’s separated pragmatically from debating the role of government to expedite resolving budget crises. But considering higher taxes on the wealthy hardly constitutes class warfare, let alone an unfair burden.
10.02.09
Can the market create prosperity?
Some of our elected representatives in Washington say our big government can’t do anything well. Ironically, while it’s true the federal government obviously did a slip-shod job of regulating the mortgage and banking industry, those elected officials are in charge of everything from what the government spends to how it runs, and many of them have been there for well over a decade, doing whatever it is they do to make it “better.”
We’ve tried less regulation; we’ve tried lowering taxes; we’ve outsourced to save money including using private contractors instead of the military to fight a war that obviously hasn’t stimulated the economy; we’ve tried everything the politicians could think of except privatizing our social security accounts – and most of us are glad that didn’t fly.
Where have they led us?
The economy will need years to recover from the steep plunge in 2008, unemployment is still rising, mortgage foreclosure rates are problematic while home prices tumble, banks are being closed at a record pace, and institutions “too big to fail” are on the verge of filing bankruptcy despite the former administrations attempts to rescue them by propping up their finances with billions of tax dollars.
On the other hand, gas is back down under $3 a gallon – who would have imagined that was a good price 5 years ago? Still, that’s what the middle class is cheering about today (it sure isn’t the price of education or health insurance.)
When was the last time you say “Made in America” on the label of something you bought? Plants sit idle while manufacturing jobs continue to dwindle. Where have we been investing? In derivatives – financial products so complex that the people who buy and sell them can’t really tell you how they work. Once upon a time we heard about the huge growth of jobs in the service sector, but if you call for service you’re as likely to get a machine answering the call as a person, and when it’s a person they’re often overseas – who knew we could outsource service sector jobs?
The President’s got a real rat’s nest on his hands with the economy. Depending who you listen to he’s either put the foxes in charge of the chicken coop or hired the people who made the mess in the financial markets to clean it up. The former would be a disaster, obviously, but even the latter is rather daunting (and yes, I know, banks hire former bank robbers, computer security firms hire former hackers, but that doesn’t make me comfortable.) Granted, Obama’s shown a desire to invest in America, to get people back to work, but he’s still a relative newcomer and the entrenched powers that be in both major parties were there – in charge – as all these problems brewed up this ugly mess in the first place. There’s enough blame to go ’round on Capitol Hill when it comes to the economy. One man by himself cannot create – or recapture – our American Dream.
It’s not enough to “stimulate” the private sector and create green jobs; our leaders have to insure that the sorts of abuses which led to this crisis won’t recur. The abuses of the public trust are not confined to Wall Street, they’re also there on K Street, First Street, and South Capitol Street… and consumers are justified in being dubious that the people who left this series of overlapping errors unattended are the proper ones to lead us out of the resulting crisis. The denizens of the Capitol have shown a propensity for bickering and posturing, but little in the way of solutions has emerged – to the point that the executive branch is now authoring legislative proposals since the two parties can’t agree on how to move forward together.
It’s time to invest in us and our future – in infrastructure and education, and in making sure that anybody who works for a living can afford to stay healthy and enjoy the retirement they’ve earned. I’m not advocating isolationism, mind you, but multi-national corporations aren’t helping anybody but themselves. Small businesses that put local people to work and keep the profits within our communities are the engine that can power economic recovery. Tax breaks for mega-corporations end up being bonuses for already-rich CEOs – what trickles down is being funneled through lobbyists right back to Congress, apparently.
We pay our taxes so the government can do what is necessary for the common good. Seems to me all the government’s done for most of the past 10 or more years is grow larger. What have our Senators and Representatives done but watch as the entire system melted down? OK, granted, they did just boost their own budget, and sure, CEOs and lobbyists are still pulling down a good paycheck, with full benefits – but what about the rest of us?
09.23.09
Sep 2009 ERRI reflects late summer softness on Wall Street
Despite significant improvement in the number of job losers 
in August, traditional end of summer sell-offs on Wall Street sent the Economic Recovery Reality Index (ERRI) itself 1.62 points lower, giving back some of the August gain to a modest 3.13 points over July 2009, to 14.41 for September, 2009. In August, the number of unemployed persons increased by 466,000 to 14.9 million, bumping the unemployment rate by three tenths of a percent – essentially unchanged among the major demographic divisions examined by the U.S. Bureau of Labor Statistics, and few experts doubt an overall rate increase to 10% as hiring necessarily lags other economic indicators; both construction and manufacturing employment continue downward trends, though overall manufacturers are so light-staffed that any order can stimulate hiring decisions.
Despite the slight correction as summer wound down, investors seem optimistic and stock markets continue to reflect increasing willingness to move capital back into equities over the past quarter. The ERRI is based in part on a weighted, hypothetical mid-cap oriented index fund (see below) which lost nearly 5% of its August value with uneven movement across the sectors and industries being tracked, weighing the ERRI down. Solar technology and consumer goods reflected weak sentiment, with renewed confidence in finance and non-solar energy.
Average weekly earnings continued modest improvement after a dip in the early part of the summer. The increase in the number of “discouraged” workers is still slowing, while the number of “involuntary part-time” workers crept up slightly. (Discouraged workers are those not currently looking for work because they doubt jobs are available for them.) The bright spot in the figures may be Health Care, where employment continued to make gains – up another 28,000 jobs (roughly the same number of jobs shed in the financial sector) after an increase of 20,000 in July.
U.S. government unemployment figures are estimates based on a monthly survey of households. All persons who are without jobs and are actively seeking and available to work are counted among the unemployed, including those on temporary layoff are included (even if they do not actively seek alternative work.)
Note: The particular selections comprising the security/equity component of the ERRI (data below) were selected to track various sectors, not out-perform the broader U.S. equity markets. These are not investment recommendations, and should not be construed as such. The ERRI fund is an entirely hypothetical construct, and while the author and/or persons connected to the research and/or this website may at times hold positions in these securities, particularly via any one of a number of mutual funds, no representation is made as to the suitability of any given equity, sector, on investment strategy for the reader.
Further, while the hypothetical index fund component shows apparent growth of 17% when calculated simply against an initial cost-basis of $10,000 (the September valuation was $11,697.72) it should be noted that the weighting of various sectors and components means the effective impact is approximately tantamount to only a 7.5% increase. The ERRI fund calculation represents only investor sentiment to the extent stock market behaviors reflect this mostly professional group; domestic (and global) economic recovery depend heavily on wages and employment, as well as difficult-to-quantify public sentiment.
Data on the equities is presented “as though” an investment had been made in an “index fund” for the ease of comparison and understanding, but no such fund exists nor did any investment take place. Equity investments are volatile, particularly when not carefully diversified and monitored. The third column in the table below represents the percentage change in the individual equity prices as of the close of the NYSE on 4 September 2009 versus the previous month.
| symbol | 4 Sep 09 close |
% +/- |
index value |
Sector | Industry |
| EMN | $ 50.26 |
-4.68 |
1,357.02 |
Basic Materials | Chem. (Plastic & Rubber) |
| HON | $ 37.15 |
+2.12 | 594.40 | Capital Goods | Aerospace & Defense |
| CAT | $ 46.11 |
-3.50 | 691.65 | Capital Goods | Constr. & Agric Machinery |
| FDML | $ 11.46 |
-23.50 | 1,180.38 | Consumer Cyclical | Auto & Truck Parts |
| HQS | $ 8.40 |
-7.59 | 999.60 | NonCyclic Consumer | Fish / Livestock |
| BBEP | $ 9.94 | +13.86 | 675.92 | Energy | Oil & Gas (Integrated) |
| PZE | $ 6.74 |
-3.99 | 559.42 | Energy | Oil & Gas (Integrated) |
| AIB | $ 6.91 | +17.52 | 497.52 | Financial | Money Center Banking |
| CMA | $ 25.42 | -7.93 | 381.30 | Financial | Regional Bank |
| FITB | $ 10.52 | +8.34 | 494.44 | Financial | Regional Bank |
| CCI | $ 27.83 | -1.00 | 556.60 | Services | Communications Srvcs |
| JWN | $ 29.23 | -3.53 | 701.52 | Services | Retail (Apparel) |
| FSLR | $121.47 | -17.07 | 850.29 | Solar Technology | Semiconductors |
| RIMM | $ 77.50 | +0.53 | 542.50 | Technology | Comm. Equipment |
| PLXS | $ 25.25 | -5.00 | 580.75 | Technology | Electronic Instr & Controls |
| POM | $ 14.17 | +1.87 | 1,034.41 | Utilities | Electric |
Disclaimer: Readers are advised that the ideas, materials, and opinions contained herein should be used solely for informational purposes. The author does not purport to tell or suggest investment securities that should be bought or sold. Investors should always conduct their own research and due diligence and obtain professional advice before making any investment decision. Neither the author nor realitytax shall be liable for any loss or damage caused by a reader’s reliance on information obtained in any posts, newsletters, special reports, email correspondence, or comments on the web site. The author is not a registered investment advisor or broker/dealer. The information contained herein does not constitute a representation by the publisher or a solicitation for the purchase (or sale) of securities. Opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty is made as to their accuracy or completeness, and we are not liable for errors or omissions. All such information should be independently verified with the companies mentioned. The author(s) receives no compensation of any kind from any companies that may be mentioned on this web site. Any opinions expressed are subject to change without notice. Owners, employees and writers may hold positions in the securities that are discussed; the intent is neither to suggest investment choices/strategies nor to influence market conditions, but rather to divulge methodology for inclusion of equities and sectors in the Economic Recovery Reality Index [ERRI]
Digg the ERRI report.
08.10.09
Aug 2009 Economic Recovery Reality Index up slightly to 16.03
Bolstered by a very slight improvement in the unemployment rate and average weekly earnings, since non-farm payrolls declined slightly, despite robust activity on Wall Street the Economic Recovery Reality Index (ERRI) crept up a modest 4.76 points over July 2009 to 16.03 as of August 7, 2009. Unemployment rates remained essentially unchanged among the major demographic divisions examined by the U.S. Bureau of Labor Statistics, and many experts still expect the overall rate to increase to 10%, in part because hiring necessarily lags other economic indicators.
Nonetheless, investors seem optimistic, some of the uncertainty surrounding the big 3 U.S. automakers has subsided, and stock markets reflect an increasing willingness to move funds back into equities over the past month. The ERRI is based in part on a weighted, hypothetical mid-cap oriented index fund (see below) which showed upward, yet uneven movement across the 10 sectors/industries being tracked. Solar technology and utilities lagged other sectors, which were led by investment in retail and cyclical consumer goods, with solid performance in basic materials and capital goods equities (construction, aerospace, etc.) Energy showed some investor confidence, while both financial and service sectors reflected substantive improvement in sentiment.
Average weekly earnings, which had fallen in June reflecting that wage earners continued to be under siege, showed a modest recovery during July by returning to the levels they had been at in May of this year. The increase in the number of “discouraged” workers is slowing – it has risen roughly 335,000 people over the past 12 months, but only 3000 were added to that number in the latest monthly figures, while the number of “involuntary part-time” workers declined slightly. (Discouraged workers are those not currently looking for work because they doubt jobs are available for them.) The bright spot in the figures may be Health Care, where employment continued to make gains – up about 20,000 jobs in July.
U.S. government unemployment figures are estimates based on a monthly survey of households. All persons who are without jobs and are actively seeking and available to work are counted among the unemployed, including those on temporary layoff are included (even if they do not actively seek alternative work.)
Note: The particular selections comprising the security/equity component of the ERRI (data below) were selected to track various sectors, not out-perform the broader U.S. equity markets. These are not investment recommendations, and should not be construed as such. The ERRI fund is an entirely hypothetical construct, and while the author and/or persons connected to the research and/or this website may at times hold positions in these securities, particularly via any one of a number of mutual funds, no representation is made as to the suitability of any given equity, sector, on investment strategy for the reader.
Further, while the hypothetical index fund component shows apparent growth of 23% when calculated simply against an initial cost-basis of $10,000 and an August 7 valuation of $12,298.41 it should be noted that the weighting of various sectors means the effective impact is approximately tantamount to only a 17.6% change, which is not evident in the raw data below. The ERRI fund calculation represents only investor sentiment to the extent stock market behaviors reflect this mostly professional group; domestic (and global) economic recovery depend heavily on wages and employment, as well as difficult-to-quantify public sentiment.
Data on the equities is presented “as though” an investment had been made in an “index fund” for the ease of comparison and understanding, but no such fund exists nor did any investment take place. Equity investments are volatile, particularly when not carefully diversified and monitored; the ERRI would have shown even less improvement had closing prices from even a day sooner been utilized in the calculations (since that would have reduced the “ERRI fund” improvement.) The third column in the table below represents the percentage change in the individual equity prices as of the close of the NYSE on 7 August 2009.
| symbol | 7 Aug 09 close |
% +/- |
index value |
Sector | Industry |
| EMN | $ 52.73 |
+43.09 |
1,423.71 |
Basic Materials | Chem. (Plastic & Rubber) |
| HON | $ 36.38 |
+16.68 | 582.08 | Capital Goods | Aerospace & Defense |
| CAT | $ 47.78 |
+49.64 | 716.70 | Capital Goods | Constr. & Agric Machinery |
| FDML | $ 14.98 |
+54.91 | 1,542.94 | Consumer Cyclical | Auto & Truck Parts |
| HQS | $ 9.09 |
+8.60 | 1,081.71 | NonCyclic Consumer | Fish / Livestock |
| BBEP | $ 8.73 | +19.26 | 593.64 | Energy | Oil & Gas (Integrated) |
| PZE | $ 7.02 |
+17.39 | 582.66 | Energy | Oil & Gas (Integrated) |
| AIB | $ 5.88 | +28.38 | 423.36 | Financial | Money Center Banking |
| CMA | $ 27.61 | +26.42 | 414.15 | Financial | Regional Bank |
| FITB | $ 9.71 | +37.54 | 456.37 | Financial | Regional Bank |
| CCI | $ 28.11 | +15.87 | 562.20 | Services | Communications Srvcs |
| JWN | $ 30.30 | +50.67 | 727.20 | Services | Retail (Apparel) |
| FSLR | $146.47 | +3.48 | 1,025.29 | Solar Technology | Semiconductors |
| RIMM | $ 77.09 | +16.49 | 539.63 | Technology | Comm. Equipment |
| PLXS | $ 26.58 | +23.11 | 611.34 | Technology | Electronic Instr & Controls |
| POM | $ 13.91 | +2.73 | 1,015.43 | Utilities | Electric |
Disclaimer: Readers are advised that the ideas, materials, and opinions contained herein should be used solely for informational purposes. The author does not purport to tell or suggest investment securities that should be bought or sold. Investors should always conduct their own research and due diligence and obtain professional advice before making any investment decision. Neither the author nor realitytax shall be be liable for any loss or damage caused by a reader’s reliance on information obtained in any posts, newsletters, special reports, email correspondence, or comments on the web site. The author is not a registered investment advisor or broker/dealer. The information contained herein does not constitute a representation by the publisher or a solicitation for the purchase (or sale) of securities. Opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty is made as to their accuracy or completeness, and we are not liable for errors or omissions. All such information should be independently verified with the companies mentioned. The author(s) receives no compensation of any kind from any companies that may be mentioned on this web site. Any opinions expressed are subject to change without notice. Owners, employees and writers may hold positions in the securities that are discussed; the intent is neither to suggest investment choices/strategies nor to influence market conditions, but rather to divulge methodology for inclusion of equities and sectors in the Economic Recovery Reality Index [ERRI]
Digg this article!
07.31.09
Why is HQ Sustainable Maritime in the ERRI fund?
HQ Sustainable Maritime Industries, Inc. (HQS), is an integrated “aquatic product” producer, processor and farmer of toxin-free tilapia with operations in China, other aquatic products and marine bio and health-care products sold principally to customers in North America, Europe and Asia. HQS facilities are certified according to the Hazard Analysis Critical Control Points (HACCP) standards and assigned a European Union (EU) code required for exporting aquatic products to the EU. HQS is also certified in accordance with the Aquaculture Certification Counsel, Inc. (ACC) standards. The Company owns a “nutraceuticals” and health products company, producing and selling products subject to certification(s) by the China Ministry of Health.
HQS shares plummeted from about $16/share in late July of 2008 to just over $3 by the end of October 2008 as the effects of the lack of accountability and transparency on Wall Street precipitated the spread of the well-documented credit and liquidity crisis outside the mortgage and banking sectors, and share prices dipped again a bit in March when much of the market struggled. Investor sentiment is typically positive when the 50-day moving average is rising, especially if it’s also above the 200-day moving average. HQS 200-day numbers trended down since August 2008 until late may, shortly after the more volatile 50-day average had “crossed above.” The 50-day, now showing signs of life, had dipped below the 200-day in early September of 2008. Other technical indicators complete a “mixed” outlook (arguably neutral or slightly better) but small ventures such as HQS face immense challenges to growth and success as the echoes of the credit crisis have spread to the world markets.
With just over $100 million in market capitalization (a Small-Cap stock) HQS valuation tumbled during the latter months of 2008, tracking the broader markets. HQS is used within the ERRI fund to benchmark non-cyclic consumer activity, particularly food, and comprised 10.11% of the valuation at fund inception. The market recovery can’t be measured solely by tracking large companies engaged in retail clothing, the financial sector, and/or utilities; small companies face a very competitive landscape as they seek resources to expand. HQS has scheduled the release of its 2009 second quarter results for after the close of the market on August 10, 2009.
It is interesting to note that institutions own a significant portion of the outstanding shares in HQS, approaching double the average for the fish/livestock industry.
Tilapia consumption in America has reportedly been growing at over 35% a year for the past 8 years.
In addition to headquarters in Seattle, HQS has operational offices in Wenchang on the island of Hainan, in China’s South Sea. (Hainan is the largest Special Economic Zone laid out by Chinese leader Deng Xiaoping in the late 1980s.) The nutraceuticals produced are used to enrich feed used by HQS’ cooperative aquaculture operations. The successful negotiations with the Chinese government underscore the value HQS sees in Asian markets in general, and China in particular. With the increasing pressure from the Chinese on American fiscal and monetary policy it seemed prudent to include both HQS and Research in Motion in the ERRI fund, making nearly 15% of the fund total “responsive” to business with the People’s Republic.
Disclaimer: Readers are advised that the ideas, materials, and opinions contained herein should be used solely for informational purposes. The author does not purport to tell or suggest investment securities that should be bought or sold. Investors should always conduct their own research and due diligence and obtain professional advice before making any investment decision. Neither the author nor realitytax shall be be liable for any loss or damage caused by a reader’s reliance on information obtained in any posts, newsletters, special reports, email correspondence, or comments on the web site. The author is not a registered investment advisor or broker/dealer. The information contained herein does not constitute a representation by the publisher or a solicitation for the purchase (or sale) of securities. Opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty is made as to their accuracy or completeness, and we are not liable for errors or omissions. All such information should be independently verified with the companies mentioned. The author(s) receives no compensation of any kind from any companies that may be mentioned on this web site. Any opinions expressed are subject to change without notice. Owners, employees and writers may hold positions in the securities that are discussed; the intent is neither to suggest investment choices/strategies nor to influence market conditions, but rather to divulge methodology for inclusion of equities and sectors in the Economic Recovery Reality Index [ERRI]
Why is Pepco Holding, Inc. in the ERRI?
Pepco Holdings, Inc. (POM) is a diversified energy company focused on distribution, transmission and “default supply” of electricity and the delivery and supply of natural gas, as well as energy generation, marketing and supply. The distribution, transmission and supply of electricity and the delivery and supply of natural gas is conducted through Potomac Electric Power Company (Pepco), Delmarva Power and Light Company (DPL) and Atlantic City Electric Company (ACE) in the U.S. Mid-Atlantic region. Energy generation, marketing and supply is conducted through subsidiaries of Conectiv Energy Holding Company and Pepco Energy Services, Inc. and its subsidiaries. ACE, (along with Jersey Central Power & Light), is presently conducting an RFP to secure Solar Renewable Energy Certificates as part of the NJ Board of Public Utilities’ effort to encourage new solar energy projects.
POM was trading just over $10/share when much of the market struggled in early March, less than half the over $26 price the stock commanded in mid August of 2008 before investors realized that lack of accountability and transparency on Wall Street (and arguably in Washington) was precipitating a mortgage, credit, and liquidity crisis that would spread to the economy as a whole.
On July 23rd Pepco’s Board of Directors declared a dividend on common stock of 27 cents per share (payable Sept. 30, 2009, to shareholders of record on Sept. 10, 2009.) Second-quarter 2009 earnings will be released August 6th. Investor sentiment is typically positive when the 50-day moving average is rising, especially if it’s also above the 200-day moving average. With that in mind, the 50-day average, which has been trending slightly upward, has remained below the downward trending 200-day average for the preceding year. Other technical indicators, such as the Chart pattern, complete a “mixed” outlook – there’s little sign that Pepco is about to break out ahead of the pack as reflected by share price.
With $3.2 billion in market capitalization, POM, a Mid-Cap stock, represents the ongoing market impact as what started out as a problem in the U.S mortgage lending industry undermined investor confidence and the economy; even utility companies were not exempt. Pepco accounts for 10.03% of the initial ERRI fund valuation. It is the only utility in the equity component of the Economic Recovery Reality Index (ERRI.)
Institutions own a lower percentage of the 219,990,000 outstanding Pepco shares (57.7) that the average within the electric utilities industry (61.3) which itself is lower than the average 68.8% institutional owernship for the S&P 500 as a whole. Nonetheless, Pepco’s current dividend yield and 5 year average payout have been above industry averages.
Disclaimer: Readers are advised that the ideas, materials, and opinions contained herein should be used solely for informational purposes. The author does not purport to tell or suggest investment securities that should be bought or sold. Investors should always conduct their own research and due diligence and obtain professional advice before making any investment decision. Neither the author nor realitytax shall be be liable for any loss or damage caused by a reader’s reliance on information obtained in any posts, newsletters, special reports, email correspondence, or comments on the web site. The author is not a registered investment advisor or broker/dealer. The information contained herein does not constitute a representation by the publisher or a solicitation for the purchase (or sale) of securities. Opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty is made as to their accuracy or completeness, and we are not liable for errors or omissions. All such information should be independently verified with the companies mentioned. The author(s) receives no compensation of any kind from any companies that may be mentioned on this web site. Any opinions expressed are subject to change without notice. Owners, employees and writers may hold positions in the securities that are discussed; the intent is neither to suggest investment choices/strategies nor to influence market conditions, but rather to divulge methodology for inclusion of equities and sectors in the Economic Recovery Reality Index [ERRI]
07.30.09
Why is First Solar included in the ERRI fund?
Tempe, Arizona based First Solar, Inc. (FSLR) designs and manufactures solar modules using a thin film semiconductor technology. The 2′ x 4′ (60cm x 120 cm) modules employ a thin layer of cadmium telluride semiconductor material to convert sunlight into an average rated power of approximately 73 watts (a single-junction polycrystalline thin film structure that uses cadmium telluride as the absorption layer and cadmium sulfide as the window.) First Solar provides a variety of integrated services to its customers: solar power system design, procurement of permits and balance of system components, construction management, monitoring and maintenance.
Beginning in 2009, First Solar is expanding its focus from sustainable commercial solutions into the Residential Market. In a forward-looking, eco-sensitive “cradle to grave” model, First Solar finances and manages the collection & recycling of Photo-voltaic First Solar Modules.
FSLR shares fell from a little over $300 in late July of 2008 to just over $85 in November of that year as the reality of the credit and mortgage crisis had sunk in, and share prices were again low in March when much of the market struggled. Investor sentiment is typically positive when the 50-day moving average is rising, especially if it’s also above the 200-day moving average. With that in mind, the 200-day numbers have trended down since October 2008, when the more volatile 50-day average had “crossed below.” The 50-day emerged above the 200-day in late May. Other technical indicators, such as the Chart pattern, complete a “mixed” outlook (arguably neutral or slightly better) as you might expect for a company reliant on the still-reeling building industry. Earnings for the 2nd Quarter are due out today.
With $14.6 billion in market capitalization (a Mid-Cap stock) First Solar valuation tumbled during the latter months of 2008, tracking the broader markets as global reverberations of what started out as a problem in the U.S mortgage lending industry spread throughout the world stock markets. FSLR is used within the ERRI fund to represent alternative energy. The market recovery can’t be measured solely by tracking retail clothing, the financial sector, and old-style energy companies/utilities; mid-cap companies in the alternative energy business face a competitive landscape as their customers weather the credit crunch, but clearly there is growing sentiment in favor of wind and solar power generation.
Despite a glut in the supply of solar panels world-wide, First Solar recently announced a venture to build France’s largest solar panel manufacturing plant, with an initial annual capacity of more than 100MWp. This new venture will support the recently announced goal of the French government to become a leader in sustainable energy technologies. The plant is projected to employ over 300 people during the second half of 2011. FSLR valuation will reflect investor confidence in solar and alternative energy production versus reliance on fossil-fuel/carbon-based sources, given the current U.S. administrations focus on “greening” up the economy and the energy sector.
Disclaimer: Readers are advised that the ideas, materials, and opinions contained herein should be used solely for informational purposes. The author does not purport to tell or suggest investment securities that should be bought or sold. Investors should always conduct their own research and due diligence and obtain professional advice before making any investment decision. Neither the author nor realitytax shall be be liable for any loss or damage caused by a reader’s reliance on information obtained in any posts, newsletters, special reports, email correspondence, or comments on the web site. The author is not a registered investment advisor or broker/dealer. The information contained herein does not constitute a representation by the publisher or a solicitation for the purchase (or sale) of securities. Opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty is made as to their accuracy or completeness, and we are not liable for errors or omissions. All such information should be independently verified with the companies mentioned. The author(s) receives no compensation of any kind from any companies that may be mentioned on this web site. Any opinions expressed are subject to change without notice. Owners, employees and writers may hold positions in the securities that are discussed; the intent is neither to suggest investment choices/strategies nor to influence market conditions, but rather to divulge methodology for inclusion of equities and sectors in the Economic Recovery Reality Index [ERRI]
