Market Update — July 23rd

Before we get to today’s blog, a quick and important commercial… I’ve got a really good friend who is a portfolio manager at a small firm that is shutting down.  His background includes both stock analysis and investment product due diligence.  While he’s spent the latter part of his career managing portfolios and researching mid-cap and large-cap stocks, his prior experience involved analyzing liquid and illiquid investment products (LPs, mutual funds and investment managers).  He has really strong skills and is a really good guy.  He’s even written a book (while working full-time) that was published a few months ago by John Wiley and Sons.  He is willing to move.  If you would like to see his resume, please send me an email.

Here are some of the interesting numbers that I read this weekend…

EUROPE

The yield on Spain’s ten-year bond hit as high as 7.28% on Friday.

Spanish stocks fell 5.8% on Friday.  Italian stocks fell 4.4%.

The forecast for Spain’s 2013 GDP has decreased from +.2% to -.5%.

Spain’s retail sales are 23% lower than 2007.  Spain just approved measures that will allow stores to stay open longer.  Many close from 2 – 4 PM for siesta.

More than 57 million tourists visit Spain every year.  It accounts for 10.2% of GDP.

The ten-year German bund hit a record low of 1.17%.

Two-year Treasury notes offered .21%.  Similar-dated French debt offered .12% and Dutch bonds offered -.04%.

U.S. ECONOMY AND MARKETS

On Friday, U.S. Q2 GDP will be released.  While that’s a backward-looking number, there’s thought that a number below 1.5% might really change sentiment.

For the current quarter, 69% of S&P 500 companies have beaten profit estimates.  Only 42% have beaten revenue estimates.

In the broader S&P 1500, analysts have cut outlooks for 792 companies and raised estimates for 323. 

Since mid-April, large, dividend-paying stocks have been outperforming.  In the past three months, telecom services are up 13.68%, utilities are up 7.52%, health care is up 2.60% and consumer staples are up 2.28%.  By one estimate, investors are paying 25% more for dividend-paying stocks than for non-dividend paying companies. 

$16 billion has been plowed into U.S. dividend equity funds since the beginning of the year.  By contrast, $25 billion has been withdrawn from non-dividend funds.

The consensus now expects the 30 stocks in the Dow to post 1% – 1.5% YOY top-line growth for Q3.  This was 3% – 3.7% just two months ago.  These low rates (1% – 1.5%) are close to our inflation estimates.  They lead to a belief that our economy might be in recession.

The top Wall Street banks (JPM, BAC, C, GS and MS) had first-half revenue that was down 4.5% YOY.

LABOR

Big U.S. steelmakers are trying to get concessions from the United Steelworkers of America.  Average wages and benefits (including retirement benefits) were $170,855 in 2011.  Steelmakers want to cut this by 36%.

Shareholders said no to pay packages at about 50 of more than 3,000 companies that held votes this year.

Since 1958, the number of teachers at the nation’s four-year colleges and universities has increased 330% to 1.6 million.

Teaching jobs at junior colleges have more than doubled to 100,000 since 1990.  These schools have seen a 22% rise in enrollment since 2007.

STUDENT DEBT

New estimates of student loan debt outstanding puts it above $1 trillion in 2011, composed of $864 billion in federal government loans and $150 billion in private student loan debt.

The delinquency rate (% of debt 90 days behind) has reached 11.9% for student loan borrowers aged 40 – 49.  For all borrowers, the number is 8.7%.

Two-thirds of student debt is owed by Americans under 40.

The number of Americans with student debt rose from 23MM in 2005 to 37MM in 2012.

POLITICS

President Obama describes the top 2% as “millionaires” and Governor Romney describes them as “job creators.”  Professor Leonard Burman (who I’ve blogged about in the past – he’s written some greater papers about tax expenditures) says both are wrong.  (No wonder I like this guy.)  These tend to be two-earner couples living on the East or West coast, doctors, lawyers, engineers and Wall Street executives. 

In the top two tax brackets, approximately 35.5% were employers receiving business income.

President Obama wants to raise the 33% and 35% brackets to 36% and 39.6%.

To be in the top 1% of households, you have to be making $597K.

RANDOM

According to a survey by American Express, 31% of individuals who are married or living with a partner have a separate checking account and 23% have their own savings account.

Jenny and I saw the movie “Bernie” this weekend and we both really enjoyed it.

Have a great week.

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