BindleSnitch Business Digest Oct 1 2014
Today’s business summary touches on Yahoo’s embarrassment of riches as it cashes in on its Alibaba investments, and the increasingly strident shareholder calls for big changes in the social media pioneer’s business model but, first, we are going to look at the drama queens in the news rooms who are writing headings about plunging stock values and Wall Street jitters, and contradictory reports on manufacturing activity and job growth that seem to suggest that the economy is moving in two different directions at once.
Drama Queens in the News Rooms Headline Ebola Bump
Earlier this week, news outlets were sounding alarms over a plunging stock market that pundits associated with unrest in Hong Kong. By the end of the day, the losses amounted to around one-fifth of one percent, nothing like the 22 percent adjustment the market went through on Black Monday in 1987, when stock values really did plummet as a result of computerized trading. Today, the Associated Press, in an unsigned article published by The New York Times, is doing it again, calling a one percent sell off of Dow Jones stock a sharp drop in reaction to disappointing economic news and a slide in airline stocks over Ebola fears.
The AP article attributes airline stock price losses to fears over the first case of Ebola on the grounds that finding one case in the U.S. would discourage people from flying. The story also pointed out that pharmaceuticals jumped UP in reaction to the same news story. The problem with these statements is that they are conclusions drawn without recourse to empirical evidence, and represented nothing more than the surmises of an unnamed reporter. Net effective data transfer: Zero.
CNN: Ebola is Good for Big Pharma
While the Associated Press blames Ebola fears for a tiny little sell-off on the Dow Jones, a CNN article by Matt Egan correctly associates news about the increasing spread of Ebola with a 19% run-up in value for Tekmira Pharmaceuticals, which just received the FDA’s green light to provide their experimental Ebola treatment to test subjects. Report Matt Egan again uses the word plunge to describe a minor deviation from the norm, while citing a companion CNN article by Paul R. LaMonica suggesting that something called the VIX index is indicating that investors are scared out of their wits.
In case you’ve never heard of it, this so-called Fear Index actually measures volatility of options, but the Fear Index itself is traded as an option on the Chicago Board of Trade, and is influenced by so many variables that it becomes specious to attribute any specific blip to any specific event. In the cases here at point, we have the Associated Press informing us that airline stocks are crashing because of the same Ebola fears that CNN:Money claims are launching Tekmira stock to new highs. Ultimately, the VIX Fear Index ends up measuring its own effect on the markets, sort of like robotic trading in reverse.
Neither report mentions that at the end of a 52 week winning streak, the bulls usually pull in their horns, leaving from for the bears to have a frolic. Maybe the Fear Index should be renamed The Greed Index.
ADP Crows Job Growth into Deaf Ears
ADP, the big payroll processing company once run by the late Senator Frank Lautenberg of New Jersey, is not getting much of reaction to their report that 213,000 new jobs were added to the U.S. economy in August, the sixth straight month of 200,000 plus job gains, according to a Zacks.Com report cited by NASDAQ.COM. The summary version of the report suggests that it is not likely to to boost stocks, even though the ADP report was corroborated by figures from the Bureau of Labor Statistics.
ADP uses new enrollments of recently hired employees by companies that use their payroll service as the basis for their reports, which should make them highly reliable, since companies don’t pay people who aren’t working. The Bureau of Labor Statistics uses telephone surveys of picked respondents to determine the number of people who started working during the month on the basis of their responses to the survey.
When the two reports are in agreement, they tend to cancel each other out but, when they, diverge, Wall Street typically believes the negative report, while Washington believes the positive report. In an unusual reversal of the usual practice, analysts are discounting the good news from the job reports, which leads one to wonder why they only believe bad news.
Yahoo Suffers Embarrassment of Alibaba’s Riches
The Alibaba IPO put an embarrassing amount of unearned investment income into Yahoo’s pockets and now Yahoo shareholders are looking for the benefit from the windfall, according to a CNBC Report. Yahoo, under an agreement that was inked with Alibaba when Yahoo bought into the company, sold off 122 million shares to generate a $9.4 billion windfall profit. which still leaves Yahoo with a 16.3% stake in the world’s largest and most profitable business-to-business e-commerce platform. (Other sources have reported the windfall profit to Yahoo from Alibaba down to $5 billion.)
One Yahoo shareholder, Starboard Value, LP, is trying to force Yahoo’s CEO Marissa Mayer into a shotgun wedding with Yahoo’s arch rival AOL, but the naysayers point out that such a merger would bring no added value to either company, nor does AOL stakeholder Arianna Huffington want to give up her joint venture between AOL and The Huffington Post. Several other plans are being floated but, in the final analysis, Yahoo is beginning to look more and more like the fatted calf, just before the prodigal son shows up for dinner.
Factories Cut Back While Private Sector Hires Workers?
According to a report by the Reuters News Agency, factory activity in the U.S. appears to be falling off due to a combination of the increasing strength of the dollar, which increases the costs of U.S. exports, and a global growth slowdown. Measured by the monthly survey by the Institute for Supply Management, the index of U.S. factory activity in September dropped to 56.6 from 59.0 in August. New orders for manufactured goods dropped 6.7 points to 60.0 in month over month activity. A score of 100 would indicate that U.S. factories were running at capacity. a score of less than 50 would indicate that the economy was moving into contraction, another word for recession.
When considered together with the job growth figures from ADP, one begins to wonder just where all those new workers are going to work if U.S. manufacturing. Taken together with other measurements of the economy, it sounds more and more as though the economy is heading into a coasting period as the country consolidates the gains achieved in the wake of the Great Recession, but we still want to know where all those workers went to work….and how long they are going to stay employed. It’s too soon for the job bump to be due to the Christmas Rush but, if not that, we are going to have to wait for the government’s job report to find out where the workers are working.