Canaccord Genuity Recaps PIMCO

By Canaccord Genuity  DEC 05, 2012 11:26 AM

Plus, a look at Apple and Toll Brothers.

 


The following are excerpts from Canaccord Genuity's Morning Coffee, a compendium of news on market-moving equities.

PIMCO Bill Gross’ Monthly Outlook: Dollar bill.

In his most recent "Investment Outlook," PIMCO’s [owned by Allianz (PINK:AZSEY) Bill Gross outlines the four big structural issues that could cause problems for the economy going forward. In his words:

1) Debt/Delevering. Developed global economies  have too much debt – pure and simple – and as we attempt to resolve the dilemma, the resultant austerity should lower real growth for years to come. It is clear that financial institutions and households face similar growth headwinds. The former needs to raise equity via retained earnings and the latter to increase savings in order to stabilize family balance sheets;

2) Globalization. The fall of the Iron Curtain in the late 1980s and the emergence of capitalistic China at nearly the same time was a locomotive of significant proportions. Adding 2 billion consumers to the menu made for a prosperous restaurant, increasing profits, and growth in developed economies despite the negative internal effects on employment and wages. Now, however, these tailwinds are diminishing, producing an airspeed which inexorably slows relative to the standards of prior decades;

3) Technology. In the past decade, machines and robotics have rather silently replaced humans, as the US and other advanced economies have sought to counter the influence of cheap Asian labor. Almost a century ago, Keynes alerted the economic community to a “new disease,” what he called “technological unemployment” where jobs couldn’t be replaced as fast as they were being destroyed by automation. A structurally higher unemployment rate of 7% or more is the feared “whisper” number in Fed circles. Technology may be leading to slower, not faster economic growth despite its productive benefits; and

4) Demographics. Numerous studies and common sense logic point to the inevitable conclusion that when an economic society exceeds a certain average “age” then demand slows. Typically the dynamic cohort of an economy is its 20- to 55-year-old age group. Now, however, almost all developed economies, including the US, are gradually aging and witnessing a larger and larger percentage of their adult population move past the critical 55-year-old mark. This means several things for economic growth: First of all from the supply side, it means productivity and employment growth rates will slow. From the demand side, it suggests a greater emphasis on savings and reduced consumption. Those approaching their seventh decade need fewer cars and new homes. Almost none of them have babies (thank goodness!). Such low birth rates and a significant reduction in demand have imperiled Japan for several lost decades now. A similar experience will likely turn many developed economy “boomers” into “busters” within the next several years. Apple (NASDAQ:AAPL): iClaim.

In a patent application published a few days ago, “Wireless Power Utilization in a Local Computing Environment,” Apple has appeared to have filed for some technology that looks like wireless charging heaven. Using near-field magnetic resonance, Apple aspires (in theory) to create a wireless charging dome that reaches out up to a meter from the source, powering anything nearby with near-field magnetic resolution (NFMR) resonator circuits in them. Mice, keyboards, phones, remotes, whatever. It’s a dream come true. Or rather it could be a dream come true, Gizmodo noted yesterday, if this is actually coming down the development pipe and works according to plan. Sure, jacking up NFMR so that the “near-field” is several feet could charge distant devices, but it could also your credit card, and who knows what else.

On top of that, there's also the chance this patent is more of a defensive move, and that this kind of charging is still a way off, but the patent was filed “just in case.” Note that a company called WiPower file the patent in 2008 on the concept of wireless charging as a whole. That company was later acquired by Qualcomm (NASDAQ:QCOM) with the patents becoming the foundation for The Alliance For Wireless Power along with some intellectual property provided by alliance member Samsung (PINK:SSNLF).

Toll Brothers (NYSE:TOL): Selling homes on the road to recovery.

Toll Brothers, America's largest luxury homebuilder, reported a higher quarterly profit and said new orders rose sharply, indicating that the US housing market is well on its way to recovery. Net income rose to $411.4 million, or $2.35 per share, in the fourth quarter from $15.0 million, or $0.09 per share, a year earlier. The fourth-quarter profit included a net tax benefit of $350.7 million while revenue rose 48% to $632.8 million. Toll's net signed contracts jumped 70% to 1,098 units in the fourth quarter ended October and the company’s backlog climbed 54%. The company's cancelation rate -- the number of cancelations divided by the number of signed contracts -- fell to 4.6% in the August-October quarter from 7.9% a year earlier.

“With this backlog, and the lowest cancelation rate in our industry, we believe we will deliver between 3,600 and 4,400 homes in 2013 at an average price between $595,000 and $630,000 per home,” Chief Financial Officer Martin Connor said in a statement, implying a 34% increase in deliveries.

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