Monthly Archives: September 2013

The August 2013 Employment Situation: when bad news is good?

September 9, 2013 By in Current Market Thoughts, economics, employment, Employment Situation report Tags: , , , , , Leave a comment

the August Employment Situation

Last Friday was the first Friday of the month.  So the Bureau of Labor Statistics of the Labor Department issued its usual monthly Employment Situation report, an hour before stock trading on Wall Street opened.  After an initial plunge on the data, stocks rallied.  They stayed up by +.25% – +.50% until just before the close.  Traders then exhibited their typical nervousness about holding positions over the weekend and brought the market back down,closing just above breakeven.

The ES figures?

They were relatively weak.     …a gain of +169,000 new jobs for the month.  Not bad, but below the Wall Street consensus of +180,000 positions.  In addition, previously reported estimates for June and July were revised down by a total of -74,000 jobs.  Hence the initial negative financial markets reaction.

should we take these numbers seriously?

Yes, they have a stock market reality (shot-term traders transact on them), but:

1.  Economists’ predictions for the month had been edging up on positive anecdotal data.  Like houses selling in a few days at above the asking prices, or cars flying off dealers’ lots, with shortages developing at Subaru and Ford.  Maybe the economists went a little overboard.

2.  The raw data are massaged (seasonally adjusted) before they’re published.  Over the past couple of years, the monthly adjustments for August have been wacky–and revised up a lot in subsequent months.

3.  The margin of error for the ES is +/- 100,000 jobs.  Why so big?  Every month, 3 million – 4 million Americans leave their jobs.  Every month, 3 million – 4 million take new jobs.  The ES jobs estimate is the difference between these two gigantic numbers.  On that scale, +/- 11,000 jobs is a rounding error.  The fine print at the bottom of each monthly report says we should take seriously only figures nine times that size.

Nevertheless, traders are fixated on the monthly ES reports and react strongly to them, no matter what their actual statistical significance.

the market’s thinking this time?

It’s that this ostensibly bad news is actually good.  The argument is that the Fed’s intended “taper,” that is, the amount by which it will slow it injection of emergency supplies of new money into the economy, will be less than originally anticipated.  The Fed will not want to take the risk that, for once, the August ES are accurate and the economy is a bit weaker than anecdotal evidence suggests.

my take

Yes, given the high level of chronic unemployment, the monthly ES reports take on a significance they wouldn’t ordinarily have.  After all, I’m writing about them every month and I never paid much attention before the Great Recession.

On the other hand, I routinely ask people wherever I go how their business is going.  Throughout the northeast US, even in the most unlikely places, I’ve been getting surprisingly positive answers recently.  I find it very hard to believe that the US economy is beginning to weaken.

Also, for my stock market strategy–which is to reestablish exposure to the EU and the Pacific and to find beneficiaries of increased spending by ordinary Americans–small monthly fluctuations in the ES numbers don’t really matter that much any more.

Microsoft (MSFT) and Nokia (NOK)

September 6, 2013 By in Industry Analysis, internet, Stock ideas, Technology, Wireless Tags: , , , , , , Leave a comment

A few days ago, MSFT announced a $7.2 billion deal to buy Nokia’s cellphone business.  That breaks out into $5 billion for the cellphone division + $2.2 billion to license Nokia’s relevant telecom patents.

Rather joining in the chorus of MSFT-bashing that’s accompanied the deal’s announcement, I want to make a single point.  This deal has been a long time in the making–at least two years–even if MSFT may not have realized this.

In late 2010, Stephen Elop, a consultant/general manager with a tech background who had worked for almost three years at MSFT, became CEO of NOK.  He promptly issued his “Burning Platform” memo, in which he likened working in NOK’s cellphone business to being stuck on an offshore oil platform that was being consumed by fire.  Two choices:  jump into the ocean or burn to death.

He followed that up in early 2011 by declaring that NOK was opting for the briny deep by abandoning its proprietary Symbian cellphone operating system in favor of Windows.  Why not Android, which would have been the safer choice?  Differentiation, Elop’s familiarity with MSFT, the potential for support from MSFT in the form of access to its smartphone intellectual property and possibly to its enormous pile of unused cash.

Sounds a little like Ron Johnson at J C Penney, doesn’t it?   … drama, and a bet-the-farm moment.

The announcement that Symbian’s goose was cooked had the predictable result.  People around the world stopped buying Symbian phones.  Cash flow from cellphones turned from strongly positive to significantly negative.  The situation didn’t improve when the first Windows-based Lumia phones debuted later that year.

By early 2012, it seems to me, the NOK board had to begin contingency planning.  What if the Lumia phones were slow in taking off?  How much of NOK’s cash flow from its other businesses would it be willing to plow into smartphones?  How much financial support would MSFT kick in?  When would continuing to prop up a failing Lumia line threaten to pull the parent company itself under?

We now know the answers.

NOK began to negotiate the sale of its smartphone business to MSFT in February, telling us that by that point NOK had determined it couldn’t continue its aggressive Windows phone bet without putting the entire company at risk.

Why did MSFT agree to buy the NOK cellphone business?

Without a Windows smartphone, MSFT’s grand vision of creating a Windows ecosystem like Android or Apple is DOA.  Also, MSFT probably regards itself as playing with $.65 dollars.  It gets to use a (small) portion of its foreign cash without repatriating it to the US and paying corporate income tax.

Anyway, NOK’s bungling the transition from flipphone to smartphone set a chain of events into motion that resulted in its willingness to sell.  MSFT’s bungling of its decade-long mobile phone initiative made it an eager buyer.  Whether the cobmination of the two will have a happier outcome is a completely different question.

 

 

Macau casinos, August 2013

September 5, 2013 By in Asian economic development, Casinos, China, Entertainment, Hong Kong, Industry Analysis, Macau Tags: , , , , , , , , , , , , Leave a comment

Over the Labor Day weekend, the Macau Gaming Inspection and coordination Bureau (DICJ) released its monthly report on the aggregate amount won by the casinos in the SAR during the month.  Here are the figures:

* 1 HKD = 1.03MOP (Unit:MOP million )
Monthly Gross Revenue Accumulated Gross Revenue
2013 2012 Variance 2013 2012 Variance
Jan 26,864 25,040 +7.3% 26,864 25,040 +7.3%
Feb 27,084 24,286 +11.5% 53,948 49,325 +9.4%
Mar 31,336 24,989 +25.4% 85,284 74,314 +14.8%
Apr 28,305 25,003 +13.2% 113,589 99,317 +14.4%
May 29,589 26,078 +13.5% 143,178 125,395 +14.2%
Jun 28,269 23,334 +21.1% 171,447 148,729 +15.3%
Jul 29,485 24,579 +20.0% 200,932 173,308 +15.9%
Aug 30,737 26,136 +17.6% 231,670 199,444 +16.2%

Source: Macau DICJ

The figures are obviously good.  the MOP 30.7 billion achieved in August surpasses all but the win from last March, a holiday month.  They’re 4% better than the results for July.  They’re also up 17.6% year on year.  August of last year may have been negatively affected both by weather and by high rollers beginning to pull in their horns as the anti- conspicuous consumption attitude of the new Communist Party leadership began to make itself known.

What’s most interesting–and encouraging–are company comments that VIP gamblers are beginning to return in higher numbers to Macau as they feel more comfortable about what the Party’s anti-corruption stance and dislike of lavish displays of wealth actually means for them.  Apparently, gambling, in itself, isn’t a bad thing.  In addition, the tide of merely affluent gamblers–who might gamble US$10,000 on a visit, rather than US$1 million–is continuing to rise strongly.

The real shortage element at present is casino and hotel capacity to receive customers.  The biggest beneficiaries of market growth are those who are opening new space in Cotai.  To my mind, this means Galaxy Entertainment and Sands China (I own shares of  Galaxy and of Sands China’s parent, Las Vegas Sands.  (Both Fidelity and Schwab maintain Americans aren’t permitted to buy Sands China in Hong Kong and refuse to transact in the name.   I’ve asked LVS several times for an explanation–their investor relations people are clueless, however.  I find that disturbing for a big company, but not to the degree that I want to sell LVS.)

One’s instinct in any attractive market is to look for laggards–companies that may not be the best-positioned, but which are significantly cheaper than the leaders.  Buy them, wait for a run and trade into the leaders, the strategy goes.  In theory this sounds good.  And Hong Kongers have no trouble executing it among the Macau gambling stocks.  As for me, some of the laggards are controlled by people I don’t trust.  So I’d rather stick with the names I have (I also own Wynn Macau and WYNN).

CBS vs. Time Warner Cable: what’s at stake

September 4, 2013 By in Aereo, Cable, Entertainment, Industry Analysis, internet, Stock ideas Tags: , , , , , , , , , Leave a comment

CBS and TWC have settled their differences, but only after a month-long blackout of CBS (and Showtime) on TWC.

The dispute got ugly as time passed.  Toward the end, CBS personalities were appearing in ads offering to help TWC customers switch to other providers.  TWC was helping introduce customers to Aereo, the antenna company, as an alternate source of CBS content.  (The latter seems to me to have a strong shoot-yourself-in-the-foot aspect to it, although the networks hate/fear Aereo, so maybe it did something.)

According to SNL Kagan, the media guru that’s the source of most of the hard data in this post, in New York City, Verizon FIOS boosted its customer base by 16%+ during the struggle, presumably all coming from TWC.

The ferocity of the dispute and the length of time it took to resolve indicate the core issue–retransmission consent–is a key subject.  I think negotiations also underline the precarious position of the traditional cable content sales model.

background

Cable companies pay the traditional free over-the-air broadcasters for permission to retransmit network content to cable subscribers.  NFL football is probably the most important item, since lots of people watch.  They watch it live, too–commercials included.  For a long time, the networks regarded the fees they got as “found” money.  All they really cared about was ad revenue.

Not any more.  Over the past few years, as ad revenues have begun to wane, networks have become increasingly aggressive in pushing retransmission payments up.  In the aggregate, the ota networks will collect about $3 billion in retransmission fees in 2013.  That could balloon to $12 billion five years from now.

CBS vs. TWC

According to SNL Kagan:

–CBS had been charging  TWC $.65 – $.75 per subscriber per month for retransmission consent.  It was aiming to raise that to $2/sub/month by 2018

–the reason the previously doggy local affiliate stations are being scooped up in large numbers by predators is their share of the retransmission loot.  SNL estimates that local stations’ share of retransmission revenues has risen by 50% since 2011 and now accounts for a third of EBITDA for many of them.  The way things are going, retransmission will be the dominant source of income for them before the decade is out

—TWC was ok with $2 a subscriber/month.  Digital rights were the main sticking point.  “Digital rights” is a broad concept.  It covers on-demand rights and online rights–everything from on-demand over the internet, to ads in on-demand, to fast-forward disabling of broadcast content.  During the years when it wasn’t paying much attention, CBS had apparently granted TWC wide latitude in this area for free.  Now it wants those rights back–presumably so it can charge extra for them in later contracts with cable operators.

no one’s leaking settlement details

That suggests that one party made the lion’s share of the concessions.  My money would be on CBS having come away from the table as the big winner, if I had to make a bet.

a tipping point for cable?

As monthly cable/broadcast satellite/telco video bills approach $100 a month, subscribership is beginning to decline, albeit slowly.  Although an extra $1.50 a month doesn’t sound like much–$6 a month when multiplied to account for all the major ota networks–passing along these new costs may trigger a disproportionately large loss of subscribers.

Cable’s response?

The nuclear option, to put little ota antennas in cable boxes, is probably too expensive.  Partnership with Aereo would be iffy, given the unclear legal status of the service (a Federal court in New York has ruled in favor, one in California has ruled against).

Maybe the retransmission issue forces a rethink of cable’s whole current pricing philosophy.