Thursday, November 12, 2009

Jack and The Giant Bean Stalk - 11.12.09

This morning ADP Jobless Claims numbers were a bit better then expected. Jobless claims came in at 502,000 down from the revised 514,000 last week. Economists poled by Bloomberg expected 510,000 claims. What does this really tell the market? Nothing. Let's examine this from a corporate/private sector perspective.

We have seen poor corporate earnings through the second and third quarters of 2009. More then 70% of S&P 500 companies beat estimates, but with cost cutting rather then revenue growth. Take Applied Materials as an example. The company announced it will cut another 1500 jobs or 10-12% of its labor force. This equates to $450M savings in the long run. Coupled with 2009 expense axes of $460M Applied Materials can barely turn a profit. Third quarter net income was 10 cents/per share ($137.9M) on $1.53B of revenue. That equates to a meager profit margin of 9.01% compared to 2008 full year Profit margin of 11.8% . My point: there is no revenue growth or job creation. The only growth is coming from accountants sliding decimal places.

Furthermore, recent M&A activity in the tech sector has guaranteed more job cuts as firms look for cost synergies. H-P announced yesterday it will pony up $2.7B to buy 3com, a maker of switching and routing gear. Oracle bought Sun Micro systems. Dell took Perot Systems off the market. Xerox swallowed ACS. Typically in an acquisition the Acquiror ravages the acquiree and keeps only the most profitable/valuable businesses. Hence, most acquisitions lead to layoffs. Not to mention if the acquisitions go bad (3/4 do), more layoffs will follow.

Undoubtedly, the unemployment/Jobless claim numbers may tell Washington and "Policy Makers" what they wants to hear, but the numbers do not indicate long-term economic growth.

Trade with caution...

Patrick M. Ambrus
Analyze Capital LLC

1 comment:


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