BerkAdvisory

With Terrible New Job Numbers, Can We Finally Say Obamanomics Has Failed?

Actually, Obamanomics already has failed. It didn’t work for Hoover and Roosevelt. It didn’t work for Bush. It isn’t working in Europe. And now it’s failing for Obama.

It doesn’t matter what you call it or when the policies are imposed, expanding the size and scope of government is bad for prosperity. So the real question is when will the establishment press finally admit that Obamanomics has failed?

The unemployment numbers released today certainly will not be easy to spin. Here’s the chart I periodically update, showing the actual unemployment rate compared to what the White House claimed would happen if we flushed $800 billion down the Washington rathole.

via danieljmitchell.wordpress.com

BERK: It's failed...try something else that has worked before - Get the Federal govt to retreat...stop Obamacare now and redo Dodd Frank..stop suing the states for enforcing the Fed's laws and call off the NLRB, who in a desperate attempt to bolster union power (cause I guess union power has created prosperity in the Progressives' delusional minds) is killing jobs and driving them overseas - I guess that's a new union plank - sending jobs overseas.   Oh yeh call off the EPA and let the states drill for natural gas.

Amenity sells: iPhone versus Windows Phone 7

Really, Microsoft?

These commercials made everyone want Apple's iPhone because they created a "need" that people didn't even know they had and convinced them that they could do what they saw on the screen. 

 

Microsoft's campaign to launch Windows Phone 7 was not nearly as successful because it did not let people know whether it would be as easy as an iPhone - the assumption in fact is that it might be harder to navigate because they didn't really show how easy or amenable the new technology is.

 

Individual investors bought bonds, not stocks, during one of the greatest two-year stock bull markets in history.

Typical behavior of individual investors - so many have missed this market rise or don't even know if they took advantage of the rise.  That is the main service BerkAdvisory provides - we aim to keep our clients on their plan, regardless of short-term swings in the market.  Ultimately, we want to have cash available to invest in stocks as others panic - and buy bonds.  Now, people are just starting to reverse their migration to bonds yielding 1% and less.

 

 

What are individuals doing now? Over the past three months through February, they purchased $72 billion in equity mutual funds and $9.3 billion in bond funds. The equity inflows are the best three-month total since February 2007. The bond inflows are the worst three-month total since late 2008, just before individual investors went on a bond-buying binge during 2009 and most of 2010.



What did individual investors do during one of the greatest two-year equity bull markets in history? They bought bonds. Their cumulative net inflows over the past 24 months through February were $737.7 billion into bond funds and $119.5 billion into equity funds. 

via blog.yardeni.com

From Dr. Ed's Blog

Visa, MasterCard & Amex Watches as PayPal Plans Move Into Stores

By George Anderson

PayPal, the online payment service, is serious about giving Visa, Mastercard and Amex a run for consumers' money and that includes moving into brick and mortar stores.

"If you'd asked me two years ago when would PayPal be in retail environments, I don't think I'd have said 'by the end of 2011,' but that's the truth," wrote Scott Thompson, president of PayPal, on the company's blog.  "Our developers started taking us there as soon as we opened our platform in 2009 and now many of our developer partners, like Yorder and Bling Nation, have delivered new services and products that are designed primarily to reach consumers offline."

"These new ideas, coupled with the incredible rise in connected devices and smart phones, have pushed traditional lines between online payments and offline purchases together -- opening up an entirely new market for PayPal as the megatrends of mobile, social and local collide," Mr. Thompson added.

PayPal management, according to a Bloomberg News report, believes that in-store transactions could help the eBay division double its revenue by 2013.

"The top executives of Visa and MasterCard must lay awake at night wondering how many years it's going to be before these folks are substantially impinging on their business," Bill Smead at Smead Capital Management, told the news service.

PayPal announced this week that it has hired Don Kingsborough, founder and former CEO of Blackhawk Network, the subsidiary of Safeway responsible for placing gift cards in thousands of retail stores, to help bring PayPal into physical stores.

"Don's experience in consumer product development, technology, retail, POS and merchant relationships will prove invaluable as we work to bring PayPal to connected devices and the offline world," wrote Mr. Thompson.

via www.retailwire.com

$AAPL is Still Undervalued; Only 6% Revenue Growth Embedded in Latest Price

AFGView.com, our vendor for recast accounting data that makes companies economic performance comparable across industries and business models, has the following passage today on their Value Expectations blog in reference to AAPL's stock.  (I highly recommend advisors and portfolio managers sign up for the service.)  40 million iPads maybe in 2011 - that's a lot.

It is rare indeed that we get to buy and own a company growing as fast as APPLE ($AAPL ) for a price that iplies "modest" forward expectations.

 At the end of the day, a healthy Steve Jobs, an innovative and attractively priced iPad 2, and the lack of viable competition in the tablet arena are all good signs for the health of Apple’s stock going forward. In addition, Apple has proven to be a consistent wealth creator and looks very attractive on a valuation basis according to AFG metrics. Despite being up nearly 300% from 2 years ago, shares of Apple currently have 6% long-term revenue growth priced in, assuming EBITDA margins and asset turnover stays consistent with last year. This is an extremely low expectation for a company expected to grow sales 52% and 17% in FY11 and FY12, respectively.

I guess the old saying is right: “An apple a day, keeps the doctor (of underperformance) away.”

 

The chart below illustrates Apple’s ability to create wealth for its shareholders.

 

The following chart displays Apple’s current trading price relative to its intrinsic value. Apple currently looks undervalued.

via valueexpectations.com

Disclosure: We own AAPL calls and might buy the stock or more calls in the next few days.

Buffett on the importance of buying ValueAligned companies

This “what-will-they-do-with-the-money” factor he calls it.  Some call it the "management quality" factor.  We call it the ValueAligned factor.  Companies that use EVA and Value-Based Management or a sytem like it are much more likely to create $2.00 out of each $1.00 of retained earnings than $0.50 out of each $1.00. 

There is a third, more subjective, element to an intrinsic value calculation that can be either positive or negative: the efficacy with which retained earnings will be deployed in the future. We, as well as many other businesses, are likely to retain earnings over the next decade that will equal, or even exceed, the capital we presently employ. Some companies will turn these retained dollars into fifty-cent pieces, others into two-dollar bills.

This “what-will-they-do-with-the-money” factor must always be evaluated along with the “what-do-we-have-now” calculation in order for us, or anybody, to arrive at a sensible estimate of a company’s intrinsic value. That’s because an outside investor stands by helplessly as management reinvests his share of the company’s earnings. If a CEO can be expected to do this job well, the reinvestment prospects add to the company’s current value; if the CEO’s talents or motives are suspect, today’s value must be discounted. The difference in outcome can be huge. A dollar of then-value in the hands of Sears Roebuck’s or Montgomery Ward’s CEOs in the late 1960s had a far different destiny than did a dollar entrusted to Sam Walton.

ValueAligned Leader AutoZone ($AZO) - Ninth Consecutive Qtr of 20%+ EPS Growth

AZO EPS Increases +35.8%

"We are pleased to announce another quarter of strong performance. This marks the ninth consecutive quarter of 20% plus growth in earnings per share and our eighteenth consecutive quarter of double digit growth. We remain committed to executing our 2011 operating theme of "1TEAM Going the Extra Mile." 

We continued our focus on improving parts coverage, hiring, retaining, and training the best automotive parts professionals, and growing our Commercial business. Additionally, our return on invested capital on a trailing four-quarter basis reached another new all-time high at 29.3%. We remain committed to our disciplined approach of growing operating earnings while efficiently utilizing our capital," 

 Bill Rhodes, Chairman, President and Chief Executive Officer 03/01/2011 Press Release

Disclosure: Our clients and we are LONG AutoZone (AZO)

 

 

Why My R.N. Wife is Studying to Become a Nurse Practitioner

Because of the primary care physician shortage in the U.S., there is no question that retail and urgent care clinics will step in where patients have trouble finding access to good primary care physicians. In Baltimore/Washington/Northern Virginia, Patient First has evolved from an urgent-care-only clinic network to become an equally powerful brand for primary care. And retail clinic nurse practitioners are beginning to develop a following as primary care providers in markets where there is a primary care physician shortage."

via mjperry.blogspot.com

U.S. Schools Are Still Ahead—Way Ahead—Despite All Those Chinese Mothers

There's a lot of talk lately about how Chinese and Indian students are superior to American students.  Much of it was started by this provocative Op/Ed in the Wall Street Journal by Amy Chua titled "Why Chinese Mothers Are Superior"    

From Carpe Diem, here's an excerpt from a response which basically says "your Asian kids might be academically successful, but they also will become socially awkward, creatively challenged and possess low self-esteem."  In the end, American students are still by far the most productive - not having to be retrained for duty on day one.

From Duke/Harvard/Berkeley professor Vivek Wahwa, writing in Bloomberg;

"The independence and social skills American children develop give them a huge advantage when they join the workforce. They learn to experiment, challenge norms, and take risks. They can think for themselves, and they can innovate. This is why America remains the world leader in innovation; why Chinese and Indians invest their life savings to send their children to expensive U.S. schools when they can. India and China are changing, and as the next generations of students become like American ones, they too are beginning to innovate. So far, their education systems have held them back.

My research team at Duke looked in depth at the engineering education of China and India. We documented that these countries now graduate four to seven times as many engineers as does the U.S. The quality of these engineers, however, is so poor that most are not fit to work as engineers; their system of rote learning handicaps those who do get jobs, so it takes two to three years for them to achieve the same productivity as fresh American graduates.As a result, significant proportions of China's engineering graduates end up working on factory floors and Indian industry has to spend large sums of money retraining its employees. After four or five years in the workforce, Indians do become innovative and produce, overall, at the same quality as Americans, but they lose a valuable two to three years in their retraining.

Let's keep improving our education system and focus, in particular, on disadvantaged groups. Education is the future of our nation. But let's get over our inferiority complex. America is second to none. Rather than in mastery of facts learned by rote and great numbers of accomplished martinets, its strength lies in the diversity and innovation that arise in an open, creative society."

via mjperry.blogspot.com

Reality, purity and dividends Abnormal Returns

Dividends matter.  Dividends for many seem like a quaint relic of a bygone era.  However to ignore dividends is to ignore the long history of the stock market.  One need only check out the graph below from Visualizing Economics that highlights the difference in real returns to an investor than reinvests dividends and the real price return.

Source:  Visualizing Economics

via classic.abnormalreturns.com

Dividends matter because most companies don't know how to manage for shareholder value or intrinsic value per share. Most management teams seem to be motivated by other things like growing bigger and ruling in market share or same store sales as an end. Those are the management teams that need to pay dividends so there is less discretionary cash to destroy value with.

Dividends are great but not an end in of itself. We own many companies that do not pay dividends because we trust management to deploy discretionary cash flow to the benefit of the minority shareholders.