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Buzz Bits: Dow, Nasdaq Gain Ground

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Editor's Note: This is a small sample of the content available on the Buzz and Banter



Haves vs. Have Nots - Kevin Depew - 2:15 PM


Widening income inequality is well known. Five Things this morning looked at a recent Conference Board survey showing the failure of wage growth to keep up with inflation, and Professor Succo discussed it here on the Buzz and Banter as well.

What is less well known, according to a recent Washington Post article, however, is the acceleration in the decline in middle class communities. A Brookings Institution study released last week found that as a share of all urban and suburban neighborhoods, middle class neighborhoods declined from 58% in 1970 to 41% in 2000.

The question is whether that's a consequence of the upward mobility and class mobility, i.e. more people entering middle class from underneath, or whether it's a hallmark of a fading middle class and downward mobility.

Not surprisingly, the answers tend to fall along political lines even though the data are clear: our earnings growth is failing to keep pace with inflation, we owe more in debt as a society than ever before yet we save less.


2 things. Glad to be out of 10's and coming up on 12 year support line in 10's - Bennet Sedacca - 1:26 PM

As posted here before, my firm lucked out of our position in 10's and are sitting in 2 year notes (not that that is all that much fun either to be frank), and we are coming up on a MAJOR support line at 5.25-5.26. See the chart here.

Some people would use 5.40-5.50 area as most recent highs and therefore more important resistance. Frankly you can make a case for either...but not a good one. Personally, I think they won't break, but part of the reason we sold is that the markets behave poorly during the best seasonal month of the year. And that is not good market behavior.

Position in 2's


Vicious Cycle... - John Succo - 12:46 PM

According to a conference board survey of over 450 firms, pay increases for most salaried workers will average only 3.5% this year and stay at that level through 2007. This would mark the fourth straight year of sub 4% increases as corporate America remains focused on cost controls.

This number falls to below 3% if measured by "median" income, perhaps a better way to look at what is really going on: income is being redistributed to the wealthy.

The simple fact is that pay increases are running below cost of living increases. Combine this with higher local taxes and the fact that mortgage costs are set to rise dramatically this year and next as ARMs need to be refinanced (the number is that mortgage costs will rise around 25% when ARMs are reset) and you get a squeezed consumer.

The irony is that corporations are squeezing their own customers. This is how the vicious cycle of deflation plays out.


Shock and awe - nice guy's edition - David Miller - 12:42 PM

  • I'm awed by Bill Gates retiring from Microsoft (MSFT) to work on his foundation and Warren Buffet's decision to leave his billions to the Gates Foundation. These two men are bright spots in a time when selfishness, greed, and avoidance of personal responsibility seems institutionalized.
  • And not one word about how this would affect the lives of people who work the markets for a living.
  • Tedium in biotech land as we open the page on a fresh new week with the same old action. The BTK is up, slightly. the NBI is down, slightly. Advancers on the NBI are 87, 7 flat, and 70 down. 50 of the 87 advancers are up over 1%, while 29 of the 70 decliners are down more than 1%. Today's big losers are Vasogen (VSGN), which I mentioned before, down 70% and Anadys (ANDS), down 48%, which is off on downgrades resulting from a suspension of a Phase Ib hepatitis trial due to adverse findings in preclinical toxicology studies.



At it again... - Woody Dorsey - 11:06 AM

Well, Hoofy and Boo are at it again...lots of action but no winner.

The risk appetite behavior this morning may foreshadow a week of slugs and slogs... There may be too much data and too much anticipation for a big move. With the holiday coming, a strange sobriety in markets could be the surprise. The obvious tell thought of the hard asset takeover grabfest is that real money thinks that commodities have some secular strength.


Walgreens: great free cash flow, lower tax rate - Brian Gilmartin - 9:25 AM

Walgreens (WAG) reported fiscal q3 earnings this morning, which look to be in line, although the eps number looks to be boosted by a 2% lower effective tax rate.

Walgreen's eps numbers look to be boosted by a 2% lower effective tax rate, thus adding $0.016 (or a little over a penny and a half) to earnings, but cash-flow is the real star: Walgreen's generated $639 ml in free-cash-flow this quarter, which is quite strong, and if you combine it with last quarter's $500 ml, we have the best two-quarter sequential free-cash-flow generation since my firm started modeling the stock in 1997.

The gross margin fell 59 bp's year-over-year, while the operating margin slipped 8 bp's, most of which was expected given the generic launch and the initiation of Medicare Part D.

Revenues grew 12%, eps grew 10% (on an operating basis, from our perspective) and operating income grew 11% y/y, so it was a decent, but not blow-out quarter if you look over the long-term.

WAG is currently stuck right in the middle of its 52-week trading range between $40-$49. Without a cooperative general market environment, it is tough to make the case for the stock to move to an all-time high, and stay there, thus we would be a stronger buyer in the low $40's - high $30's.

Position in WAG


Trends - Jason Roney - 9:07 AM

With the FOMC decision expected Thursday, it's obvious we'll see some increase in volatility. Nonetheless, I find the pattern below of interest and worth sharing.

On June 15, the S&P500 surged more than 2% (the biggest one day gain in nearly 3 years). Since then, the index has made highs below the high of that day (1258.64) and lows above the low of that day (1230.01). That's 6 consecutive daily bars inside the large range day. This is the first time we've seen this type of consolidation in more than 10 years and just the 6th time in the last 30 years.

This is another one of those patterns that gives us no help directionally – but we should get some range expansion this week. The range over the next 5 days was at least that of the large range day in all but one occurrence.

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