September 23, 2009

Sep 2009 ERRI reflects late summer softness on Wall Street

Posted in economic indicator, economic recovery, ERRI, U.S. Economy tagged , , , , at 5:02 pm by realitytax

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.

August 10, 2009

Aug 2009 Economic Recovery Reality Index up slightly to 16.03

Posted in economic indicator, economic recovery, ERRI, health care, Obama administration, U.S. Economy tagged , , , , , at 2:41 am by realitytax

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!

July 31, 2009

Why is HQ Sustainable Maritime in the ERRI fund?

Posted in economic indicator, economic recovery, ERRI, Obama administration, U.S. Economy tagged , , , , , , , at 7:58 pm by realitytax

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?

Posted in economic indicator, economic recovery, ERRI, U.S. Economy tagged , , at 5:35 pm by realitytax

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]

July 30, 2009

Why is First Solar included in the ERRI fund?

Posted in economic indicator, economic recovery, ERRI, Obama administration, U.S. Economy tagged , , , , , at 6:35 pm by realitytax

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]

Why is Honeywell included in the ERRI fund?

Posted in economic indicator, economic recovery, ERRI, Obama administration, U.S. Economy tagged , , , , at 5:03 pm by realitytax

Honeywell International Inc. (HON) is a diversified technology and manufacturing company, serving customers globally with aerospace products and services, control, sensing and security technologies for buildings and aircraft, turbochargers, automotive products, electronic and advanced materials, specialty chemicals and process technology for refining, and “products and solutions” for homes, business and transportation. Hence, in addition to aerospace and defense, Honeywell also works with automation and control solutions, specialty materials, and transportation systems used in many industries.

In July 2008, B/E Aerospace, Inc. announced that it has completed the acquisition of Honeywell’s Consumables Solutions distribution business (HCS) within the Aerospace segment. During the year ended December 31, 2008, the Company completed the acquisition of Safety Products Holding, Inc. (Norcross) and Metrologic Instruments, Inc.

HON was trading just over $23/share when much of the market struggled in early March, less than half the over $52 price the stock commanded in late July of 2008 before the reality of the credit and mortgage crisis had sunk in. 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 just begun to ease upward, while the relatively flatter 50-day average had “crossed above” during June. Other technical indicators, such as the Chart pattern, complete a “mixed” outlook (arguably neutral) as you might expect for a company reliant in part on defense spending.

With $25.6 billion in market capitalization (a Mid-Cap stock) Honeywell valuation tumbled, 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. HON is used within the ERRI fund (along with Caterpillar) to track capital goods. The market recovery can’t be measured solely by tracking retail clothing, utilities, and the financial sector; mid-cap companies in the defense/aerospace arena will face a competitive landscape as their customers weather the credit crunch. While they do sell “portable” generators and FRAM® Tough Guard® Air Filters targeting the consumer market, the aerospace, automation and control solutions, specialty materials, and transportation segments of Honeywell’s business take off in reaction to a number of factors not by any means tied to consumer sentiment.


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 Federal-Mogul Corp in the ERRI?

Posted in economic indicator, economic recovery, ERRI, mortgage reform, Obama administration, U.S. Economy tagged , , , , , , at 2:41 pm by realitytax

Founded in Detroit in 1899, Federal-Mogul Corporation (FDML) supplies a range of components, accessories and systems to the automotive, small engine, off-road, heavy-duty, marine, railroad, agricultural, aerospace, energy and transport markets world-wide, including both original equipment manufacturers (OEM) and aftermarkets. It deals in power-trains, vehicle Safety and Protection, Global aftermarkets, and Automotive Products.

In February 2008, the company acquired Federal-Mogul Bearings India Limited. In August 2008, the company acquired a 51% interest in another Indian company, Perfect Circle. The company’s strong second quarter earnings and reports on July 30, 2009 that they had reduced headcount By 22% as compared with a year ago fueled an equity rally which had started earlier in the month.

FDML was trading under $3/share when much of the market struggled in early March, considerably down from the over $17 price the stock commanded in late August of 2008 before the reality of the credit and mortgage crisis had spread to the broad markets. FDML reacted vigorously in the intervening year, as evidenced by the 22% headcount reduction, and 2nd quarter sales are up. Stock price trends reflect “collective opinion” within the investment community. 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 had just begun an upswing prior to the earnings report, while the 50-day average “crossed above” during May. Other technical indicators, such as the Chart pattern, complete a “mixed” outlook – as is true for much of the economy. Here, then, is an equity tied to the recovery of the automotive sector domestically and abroad – the 22% workforce cut is indicative of why the mortgage and banking sectors have such broad influence on the economy.

With $1.4 billion in market capitalization, FDML, a Mid-Cap stock, represents the global reverberations of what started out as a problem in the U.S mortgage lending industry, particularly auto and truck parts which wanted distancing from the extraordinary efforts with regard to GM & Chrysler within the ERRI. FDML is the ERRI bellwether for cyclical consumer goods in the ERRI fund, with cyclical goods comprising 10.11% of the entire fund. Sometimes likened to Honeywell, which is also in the fund, and to similarly capitalized TRW which is having a banner year by investor’s reckonings, FDML responds to the consumer side of the economic equation (consideration was given to balancing it with Hanes Brands in that regard.) Federal-Mogul reflects the broad, overall automotive industry, not just the “big 3” automakers in the U.S.

For reference, among the FDML brands are:
ANCO® wipers, iconic Champion® spark plugs and wipers, Wagner® lighting and brake products, Fel-Pro® gaskets, Nural® pistons, Goetze® piston rings, Ferodo® brake pads, National® wheel-end components, Glyco® bearings, Payen® gaskets and Moog® chassis products.


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]

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