Wednesday, October 14, 2009

NFIB Uses Newspeak to Write an Upbeat Headline

Headline: NFIB SBET: Small Business Optimism Returns

Here's some of the text:

WASHINGTON, October 13, 2009 –The National Federation of Independent Business Index of Small Business Optimism gained 0.2 points in September to 88.8 (1986=100). Four of the 10 Index components posted gains, two were unchanged, and four declined.

“The good news is the Index didn’t decline. The bad news is that improvements were far less than what we hoped for,” said NFIB Chief Economist William Dunkelberg. . .

Almost 2 years from the economic peak, certainly there are some employment gains?


In September, small business owners reported a decline in average employment of 0.83 workers per firm during the prior three months, a substantial improvement from May but virtually no change from July and August and historically the sixth largest loss per firm in the 35 year survey history (the record is negative 1.26 in May, 2009). Seven percent of the owners increased employment and 23 percent reduced employment, yielding a seasonally adjusted net negative 16 percent of owners decreasing employment in the last three months, unchanged from August. The job generating machine is still in reverse. Sales are not picking up, so survival requires continuous attention to costs, and labor costs loom large.

(Unsaid in the above, and without opining on the merits of any healthcare legislation that may be passed soon, those business owners who do not carry health insurance for their employees are looking at materially higher costs from said legislation. Every single small business owner is considering this issue.)

What about capital spending? That drives growth, which since we are a full half year from green shoots language, has to occur to drive said growth?

Overall, a dismal performance, only vehicle purchases were up most likely due to the cash for clunkers program.

Are the small businesses moving the merchandise?

The net percent of all owners (seasonally adjusted) reporting higher sales in the past three months was negative 26 percent, up a point and 8 points better than the record low set in March and revisited in July.

It looks as though that answer is NO. Surely the "money-printing" from the Fed and the record gold price mean that there are pricing pressures:

The weak economy continued to put downward pressure on prices. Ten percent of the owners reported raising average selling prices, but 32 percent reported price reductions. Widespread price cutting is a major factor shaping the reports of lower nominal sales.

Unsurprisingly, earnings trends were poor:

Reports of positive profit trends were unchanged at a net negative 40 percent.

To end the press release and end the section about credit (difficult to obtain but much less a problem than sales), Dr. Dunkelberg states:

“It is no surprise that credit is more difficult to obtain since sales prospects and profit trends are very weak.”

So, where did that press release's headline come from? Perhaps even NFIB isn't so independent of the Newspeak wherein bad news is good news nowadays.

The DoctoRx summary:

Price increases for most common stocks have as little to do with the overall economy as the fall 1929 stock market correction from a hyped bubble peak had to do with the economic collapse that began later, after the passage of the Smoot-Hawley Tariff Act and all sorts of post-WW I political and financial machinations. The message of the facts and the markets appears to be: times are tough and not visibly improving. Government credit guarantees and back-t0-bubble financing of homes is doing what it is doing. "Banks" which are really not banks in the traditional sense of making well-secured loans with depositors' savings accounts but which are trading and gambling houses are thriving, but real banks are not doing well. In other words, the oligarchy is prospering. There is no money either in equity or loans for the vaunted scrappy start-up that wants to challenge an entrenched player.

I'm apathetic about the Dow crossing 10,000 again. But with U. S. banks holding hundreds of trillions of dollars of "notional" value in interest rate swaps, dwarfing the tens of trillions of dollars they may be holding in credit default swaps, the conclusion remains that the gambling that is going on is on such a grand scale that conventional financial instruments are pawns in a greater game.

For those people who avoid gold for the reason that it has quadupled in nominal price in 8 years (from an almost 22-year nominal price low), consider that BofA stock (BAC) is up more than 7 times in 7 months. Was this a panic low? Yes. But wasn't BofA paying out dividends for years and buying its stock, leaving no retained earnings, when in retrospect it had no margin of safety when a little panic occurred, as it always might? Yes.
Whereas the point with gold is that it pays nothing, so its total return comes from what some call price appreciation but others call preservation of purchasing power. The most basic reason to invest in gold is a highly conservative one: keep what one has, rather than try to grow it as with a speculative growth vehicle.

Big Finance is playing poker against everyone else and, as with Goldfinger gambling in Miami Beach, they see your cards but you don't see theirs. And the government will provide downside protection for them but not you. Nice work if you can get it. How long will going with this sort of stock continue to be a one-way bet for the public without government backstop of the stock price?

Copyright (C) Long Lake LLC 2009

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