Weekly Market Returns

Despite a poor start to the week the markets would up rallying in the face of a weaker dollar and higher oil prices.

For the week the S&P 500 advanced .8%, the DJIA .5% and the NASDAQ .3%.

Oil remains a problem due to concerns over tight supplies versus growing demand. At this time of the year refineries are going off line for maintenance before they switch over the gasoline from heating oil production.

The spike in prices demonstrates just how tight supplies are.

Spin from within: Procter & Gamble buys Gillette

Wow! Maybe you knew this deal was in the works but this one was a shocker to us!

As a couple of weeks have passed it gives us the opportunity to look at the deal with some hindsight and a little more clarity.

Stepping back and looking at the deal there is one common thread here that the financial media has by and large missed: Wal-Mart (NYSE: WMT)

There have been ruminations in the financial press about the relationship between P&G and WMT but here is the big deal; WMT has massive scale at $277 billion in annual sales, nearly 6 times the sales of Target(NYSE: TGT), and 5 times the sales of a combined Sears (NYSE: S)and K-Mart(NDQ: KMRT).

Suppliers to WMT have to combat WMT’s scale with scale of their own. No other retailer has the market power to make the demands that WMT does, to squeeze cost out of the supply chain (read: Margin). Rarely does WMT allow suppliers to pass price increases through to their customers. In effect, WMT has been a firewall between the consumer and inflation. In order to defend their margins suppliers need to grow in size and importance relative to WMT. Suppliers need to be as important to WMT as WMT is to them and their sales.

Consider this, in 1994 Wal-Mart had annual sales were $67,344 Billion, at the end of the last quarter WMT had annual sales of $277,499, growth of a factor of 4.

Now, in 1994 Gillette had annual sales of $7,935 Billion, at the end of the last quarter G had annual sales of $9,991, growth of a factor of just 1.25.

For P&G, in 1994 they had sales of $30,385 Billion and closed the most recent quarter P&G had annual sales of $54,187 Billion, a growth factor of 1.78.

If our thesis is correct it has ramifications for other producers of consumer staples, like Colgate Palmolive, (CL), Sarah Lee (SLE), Kellogg (K), Hershey (HSY), HEINZ (HNZ), Kraft (KFT) and Campbell Soup (CPB).

We may indeed see further rounds of mergers that result in massive Consumer Goods companies; in fact we may one day see something like a Kraft-Kellogg-Hershey marriage.

Something to think about, time will tell.

Weekly Market Returns

For the week the markets slipped with the NASDAQ down -.9%, the S&P 500 -.3% and the DJIA -.1%.

Dr. Greenspan, the Chair of the Federal Reserve appeared before both the House and the Senate this week to provide testimony . Normally these appearances cover current economic conditions, future economic conditions the Fed anticipates, the level and change in interest rates and money supply.

Dr. Greenspan at some point has become the chief economic consultant to the Congress, as he was peppered with questions about Bush's Social Security plans and private accounts. Greenspan would indeed be a good source of information as he was involved with the last round of changes to Social Security in 1982.

To some pundits he came down on the side of private accounts and to some he spoke out against them. Our view is that he said in the Q&A that he supported private accounts to accumulate a sufficient pool of capital to support the looming boomer generation in retirement, but said that private accounts would do nothing to improve the solvency of the Social Security Trust Fund.

We were shortchanged this week in that the focus on getting Greenspan's opinion on Social Security reform left us little additional information on the monetary situation or its future course. That is why he was there and that is Congress job, oversight of the monetary authorities. Oh well, there is always next time.

Jobless Claims Dip Unexpectedly Last Week

Labor markets relative weakness has been a missing ingredient in the recovery in the USA. Normally there is some symmetry between new jobs created and jobless claims, but much less so in the last two business cycles.

Investors should be aware that punk labor conditions have kept a lid on long term interest rates, along with robust foreign buying of US Treasury bonds.

In at the end on the first quarter of 2004 when it looked like labor conditions were making a strong upturn, Treasury bonds sold off and the yield rose.

If the trend in jobless claims continues this situation may sneak up on us yet again.

Greenspan: Social Security Funding Hard Under Current System

Taken from transcript of Dr. Greenspan's Senate Testimony

"Beyond the near term, benefits promised to a burgeoning retirement-age population under mandatory entitlement programs, most notably Social Security and Medicare, threaten to strain the resources of the working-age population in the years ahead. Real progress on these issues will unavoidably entail many difficult choices. But the demographics are inexorable, and call for action before the leading edge of baby boomer retirement becomes evident in 2008. This is especially the case because longer-term problems, if not addressed, could begin to affect longer-dated debt issues, the value of which is based partly on expectations of developments many years in the future."

It is time for Congress to get on board and do something.

177 million reasons to not be long google...

Yes the growth rate is up there, so is the valuation.

Today the big piece of the lockup is available for holders to trade.

Insiders can and will sell, after the float jumps we will have a better idea about valuation and prospects.

Weekly Market Returns

For the week the broad market rallied and the tech heavy Nasdaq lagged. For the week the DJIA was up +.7%, the S&P 500 .2%, and the Nasdaq fell -.5%.

The Nasdaq was held back by reports from DELL and CSCO that disappointed most investors. By and large earnings reports have been strong, with a number of firms reporting this week. It is not companies are not hitting their numbers, its the measured forward view offered by management.

For the broader economy, jobless claims continued to fall, remaining at a level that historically indicates a robust labor market, but alas at the present time the labor markets remain "fair" at best.

Summary Market Returns for January 2004

Are up on our website. I will save you the page turning suspense, the 5 year return on the S&P 500 is STILL negative. Yikes!

Weekly Market Returns

The US equity markets had a nice rally for the week with all the broad averages advancing.

For the week the DJIA led the charge with a +2.8% gain, the S&P 500 was close behind with a 2.7% gain and the NASDAQ advanced 2.5% for the week.

The quiet success of the Iraq elections boosted markets early in the week and a slew of earnings reports hit the tape this week. To no one's surprise the FED moved the Fed Funds rate up by another 1/4 of a point.

The thing we would have you watch closely is the yield on the 10 year bond is falling while short term interest rates rise, called the yield curve. The yield curve has fallen over the past couple of months signaling slower growth in the coming months. Indeed, the number of companies lowering their earnings guidance for the year has been increasing over the past couple of weeks.

While growth continues it had moderated substantially over the past couple of months.

Social Security Privatization Road Show, Send Bush to Galveston!

Here at Marketweek we are ardent believers in individual responsibly and private property rights.

When people start discussing changes to Social Security we are in favor of wholesale changes that would drastically reshape the system to the benefit of plan participants and society as a whole. Private accounts should certainly be a part of the reformed system. Our first and biggest caveat is we are not experts on the subject and the devil is in the details!

On a personal note, I turn 65 in the year 2034. In 2035 the current system will be beyond what could be called bankrupt or insolvent. In my personal retirement planning I do not count on one red cent from the Social Security Administration. In 2034 my children will be 35,33 and 30. Projected FICA rates to fund the current system run as high as 27%. 27% of gross income!

I for one will not fund my retirement on the backs of my children. In the information age capital and ideas are portable, if need be they could/would/should work abroad. To state it clearly, rates that are nearly double the current rate will not bring in the amount of revenue needed to fund the system, people will actively make choices in their lives to avoid it.

Social Security does not need to be "tinkered" with, with a few small changes around the edges. Raising retirement ages and raising the payroll tax ceiling will just shift the day of reckoning, not change the fundamental actuarial flaw. Forget the number of workers that support the average beneficiary and how that ratio has fallen dramatically over the years, the biggest problem is life expectancy.

When social security was enacted it was a safety net not a retirement program. Most of the beneficiaries were dead by age 72 if they made it to age 65 to draw retirement benefits. Someone who today is 65 can be expected to live to age 86. IRS Life Expectancy Tables, pg 79 of PDF That is 21 years drawing Social Security benefits versus 7 years in our example, a factor of 3!

Life expectancy has and will continue to improve. When scientists unlock the cause of cancer and develop a cure or vaccine life expectancy will grow further. That is the fundamental problem with the system.

Want to see what a private system could look like? Look no further than Galveston, Texas. In 1981 they opted out of the system. From the evidence we have reviewed and things we have heard over the years the employees of the Galveston System are delighted.

Bush should do a town hall in Galveston and force the main stream media to address the issue openly and honestly with people who have been there and done that!

Do not be fooled by politically charged language and red herrings about the "risky stock market". We need 20 to 30 years of compound interest to work in our favor to fix the system in a way that sets people free so they will not be slaves to or dependent on the Federal Government!

Bottom line: We have a real world example here in the USA of a private system that has worked, not a theory or a model. We should take advantage of it!

To find our more about the Galveston System check out some of these resources:

Privatize Social Security? Galveston County Did

Some Americans Have Already Privatized Social Security

The Galveston Plan and Social Security: A comparative Analysis of Two Systems

Chart of the month...

Ok, so it's not so much a chart, but look at the information provided...
We (and many others) have been saying for quite some time that interest rates were to be going up. Well, the Fed has raised rates six times in recent months, but the interest rates that affects consumer behavior has not moved. In industry language, the yield curve has flattened as short-term rates have increased and long-term rates have moved down. There are lots of reasons for this, and we can get into them in a later post, but the Chart of the Month shows what we believe the natural rates for some of these securities should be. For example, based on the historical relationship between the ten year Treasury and inflation, the ten year bond should be trading closer to 6% which is considerably higher than 4.19%. We don't think that these historical relationships should hold exactly at this point in time, but they lend credence to our assertion that interest rates should be higher than where they are.

Morningstar Unloved Funds

Often, small investors are their own worst enemies when it comes to Performance Chasing, taking money out of an investment style that has done poorly to place it in a style that has done well. This is frequently a way to do considerable damage to your portfolio as the returns for asset classes will, over time, trend towards their average. The Morningstar unloved fund study is one way to be a contrarian. Another is by using their fund category performance to look for weak performing candidates to buy and strong performing ones to sell.

Others Views: Why Google is not a good long-term bet

Monster Employment Index Surges to New High...

While the conference board's Help Wanted Index has been flat at the low end of its range for a number of months, this new series continues to move higher. One big caveat is that the Monster Index is non seasonally adjusted. Another is that the series has very little history to judge it against a business cycle.

Monster Employment Index Surges to Record Level in January,
Indicating Strong Growth in Online Job Demand at Start of New Year


- Index's 27-Point Increase Over January 2004 Offers More Compelling Evidence of U.S. Labor Market Growth -


- 14 of 20 Industries Registered Increases, with Management of Companies, Retail Trade and Manufacturing All Up Sharply -


- Nearly All Occupations Higher Compared with Prior Year Period, Indicating Labor Market Growth Across a Diverse Spectrum of Occupations -


NEW YORK, February 3, 2005 - The Monster Employment Index surged to a record high in January, indicating strong growth in U.S. online job demand and online job recruitment activity in the first month of the New Year. The overall Index jumped a total of 7 points, rising from 113 in December 2004 to 120 in January 2005. This increase marked the Index's highest level since its inception, its second-largest month-to-month increase, and a dramatic 27-point improvement over its January 2004 level of 93.


The Index's strong growth in January, combined with the fact that nearly all industries, occupations and regions tracked by the Index remain up year-over-year, offers more compelling evidence of U.S. labor market growth. The Monster Employment Index's overall results for the past 13 months are as follows:


Jan. 05 Dec. 04 Nov. 04 Oct. 04 Sept. 04 Aug. 04 Jul. 04 Jun. 04 May 04 Apr. 04 Mar. 04 Feb. 04 Jan. 04
120 113 117 114 114 112 107 108 105 103 97 95 93


Fourteen of the 20 industries tracked by the Index registered increases in January, led by management of companies & enterprises, retail trade and manufacturing. Retail trade reached an all-time high, with its sharp rise most likely due in part to the carry-over of holiday shopping. Construction was up for the fourth consecutive month, as online demand for related support jobs such as sales, finance, engineers, technicians and designers increased. Healthcare & social assistance also showed a slight increase over December's level, when it remained flat. All industries - except administrative, support & waste management - registered higher year-over-year levels, with agriculture, forestry, fishing and farming registering the highest year-over-year growth.


Industries that saw slight declines in online job demand during January included wholesale trade, information, educational services, and finance & insurance. Transportation & warehousing also saw a minor dip, most likely reflective of rising fuel costs that have hampered U.S. travel and freight carriers.


"2005 is clearly off to a strong start with the Monster Employment Index recording a new all-time high and indicating significant year-over-year growth in online job demand across all 50 U.S. states," said Jeff Taylor, Founder and Chief Monster. "With productivity levels trending down and wages rising according to the Department of Labor, we are embarking on a great environment for job creation across a wide range of industries."


Online demand for workers increased in 14 of 23 occupational categories during the month of January. Legal, business & financial, and office & administrative support were among the categories that registered the biggest month-to-month gains. All occupations, except personal care & service and healthcare practitioners & technical, were higher compared with the prior year period, indicating labor market growth across a diverse spectrum of occupations. Those that saw the most pronounced growth over the past three months were largely white collar positions, including sales, finance, management, healthcare and education related.


The dramatic 17-point rise in online demand for legal occupations in January is likely reflective of increased demand for mostly paralegal and legal assistant-level support. Much of this stems from law firms and other employers with legal staffs increasingly looking to add paralegal staff to reduce costs and increase efficiencies. A significant amount of legal support is also reportedly being sought by real estate firms to support the continued strong real estate market.


Meanwhile, online demand for business & financial occupations continued a 13-month sequential growth trend that is anticipated to continue as companies add accountants ahead of the approaching 2005 tax season. Farming, fishing and forestry occupations, which track to a highly seasonal pattern with growth typically beginning in March and tapering off in October, also saw a sharp increase during January. The category's already dramatic 16-point year-over-year increase in January may suggest a stronger overall rate of growth for this industry segment over the course of 2005.


Online demand for computer & mathematical, transportation & material moving, healthcare support, protective service, and military specific occupations all experienced declines of varying degrees in January. The community & social services category fell 14 points and experienced the sharpest month-to-month decline, while personal care & service dipped to its lowest level since the inception of the Index. Education, training & library; installation, maintenance & repair; and arts, design, entertainment, sports & media all remained essentially flat for the month.


Online Job Demand Rises Across Nearly All U.S. Regions in January
Online job demand for workers rose in nearly all nine U.S. Census Bureau regions in January. Every region, except New England, saw an increase and all regions remained at very high levels when compared year over year.


Forty-one U.S. states either remained unchanged or saw increases during the month of January. States that saw the biggest month-to-month increases included Nebraska, Montana, Oklahoma, Oregon and Tennessee. Those that experienced declines of varying degrees during the month included Maine, New Hampshire, North Dakota, Utah, West Virginia and Wyoming. The District of Columbia also dipped slightly.


Based on online job demand in relation to total working population, the Monster Employment Index found the following states (and the District of Columbia) to be the top ten in terms of online job availability during the month of January:


1. Arizona
2. DC
3. Delaware
4. California
5. Maryland
6. Florida
7. Massachusetts
8. Connecticut
9. Virginia
10. New Jersey


California continued to offer the most online job availability of any state during the month of January based on sheer quantity alone.


Top Five Industries Looking for Employees in January
Industries showing the greatest rate of increase in job availability in January included:

Industries Jan. 05 Dec. 04 Nov. 04 Oct. 04 Sept. 04 Jan. 04
Management of Companies & Enterprises 104 95 99 104 105 91
Retail Trade 118 111 112 113 111 93
Manufacturing 129 123 116 116 114 92
Utilities 111 105 110 107 101 109
Public Administration 97 91 94 94 103 91



Most Wanted Occupational Experience


Occupational categories showing the largest rates of increase in online job demand in January included:


Occupations Jan. 05 Dec. 04 Nov. 04 Oct. 04 Sept. 04 Jan. 04
Legal 127 110 112 111 110 92
Other 112 103 106 104 107 94
Business & Financial Operations 128 122 121 118 116 89
Farming, Fishing & Forestry 97 91 93 98 103 81
Office & Administrative Support 116 111 114 114 115 90


Online Job Demand Increases Across Nearly All U.S. Regions in January

All of the following U.S. Census Bureau regions saw increases in online job demand in January, except New England, which remained flat for the month but still near its all-time high and well above its January 2004 level. Regions are presented in order of greatest month-to-month increase.


U.S. Census Bureau Regions Jan. 05 Dec. 04 Nov. 04 Oct. 04 Sept. 04 Jan. 04
East South Central 116 112 114 112 113 90
East North Central 117 114 115 114 116 90
West South Central 120 117 118 113 117 90
Pacific 118 115 116 114 116 90
Mid-Atlantic 115 113 115 113 117 88
West North Central 116 114 116 115 117 93
South Atlantic 117 116 117 114 114 99
Mountain 115 114 116 115 117 91
New England 114 114 116 114 115 89



About the Monster Employment Index


Launched in April 2004 with data collected since October 2003, the Monster Employment Index is a broad and comprehensive monthly analysis of U.S. online job demand conducted by Monster Worldwide, Inc. (NASDAQ: MNST), the parent company of the leading global online careers property, Monster®. Based on a real-time review of millions of employer job opportunities culled from more than 1,500 Web sites, including a variety of corporate career sites, job boards and Monster, the Monster Employment Index presents a snapshot of employer online recruitment activity nationwide. The Index counts job postings as an indicator of employer demand for employees or, in other words, job availability. Job postings are online advertisements placed by an employer looking to fill one or more vacant job positions. The Monster Employment Index reports results on a monthly basis.


All of the data and findings in the Monster Employment Index have been validated for their accuracy through independent, third party auditing conducted on a monthly basis by ARC Research, a Cranford, New Jersey-based provider of innovative click and brick market research solutions. The audit validates the accuracy of the online job recruitment activity measured for the last six months within a margin of error of +/- 1.05%.


Additional information on the Monster Employment Index, including all charts and tables, is available online at http://eIndex.monsterworldwide.com. Data for the month of February 2005 will be released on March 3, 2005.