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Five Things You Need to Know: Productivity Fine, It's Just Your Pay That's Gone Missing


The Man is getting more bang for both his buck and yours.


Kevin Depew's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Productivity Fine, It's Just Your Pay That's Gone Missing

Despite an increase in the supply of chain email letter supply, funny YouTube video links and web sites like this one with humorous cartoon video characters, productivity still managed to increase sharply in the first quarter.

Productivity, the government's formal measure of worker efficiency, rose at a 2.2% annual pace, the Labor Department said, more than most economists expected. This information was widely disseminated to the media. Then, hilarity ensued.

On the surface, and only on the surface, the report seemed good. After all, productivity is at a four-year high - a good thing, it means The Man is getting more bang for his buck - and labor costs hit a four-year low - also a good thing, it means The Man is getting more bang for your buck.

The positive spin on this is that the increased productivity and lower-than-expected labor costs suggest inflation remains muted. The reality is that there is little to no inflation in just about anything except food and energy. That doesn't do you any good with the monthly check book, but know that inflation in a handful of necessary items does not create more inflation.

Meanwhile, the job cuts continue, which will create even more deflationary pressures in the economy in the second half of the year. Employers have cut 260,000 jobs so far this year. If you listen to earnings conference calls, more are on the way. And for those who have a job, real compensation adjusted for inflation decreased 0.7% year-over-year, the weakest performance in 13 years.

Yes, productivity is just fine. It's just your job and pay that's gone missing.

2. Pending Home Sales

The National Association of Realtors Pending Home Sales Index fell 1% in March as fewer Americans signed contracts to buy previously owned homes. February's previously reported 1.9% decline was also revised sharply lower to a 2.8% drop, the NAR said. Year-over-year, pending resales fell 20%.

3. Cisco: When Is a Beat, Not a Beat?

Cisco Systems (CSCO), the networking equipment tech bellwether known for its ability to always beat estimates, beat estimates last night. The company reported earnings per share that beat average analyst estimates by $0.02.

Like most companies with international division, the focus from Wall Street is on strong international businesses to offset the slowing U.S., but even for CSCO it was Europe and Japan responsible for the strength last quarter as emerging markets, Asia Pacific (excluding Japan) were all weaker.

In fact, all the company's main growth drivers are showing deceleration. CSCO CEO John Chambers on the call painted this in a different light, of course, referring to how "lumpy" emerging markets order flow is. Fair enough. But the bottom line is that, as usual, all forward looking comments from Chambers were grounded in a belief that, somehow, things are going to get better in the economy in the second half of the year.

The pipeline for the company going into the fiscal fourth quarter "looks very solid," Chambers said, adding, "if you talk to our field sales people, they feel good about their long-term growth and momentum." We suspect that is true; they probably do say they "feel good" about long-term growth and momentum. But that's simply describing what 95% of a salesperson's job is - feeling good about the future - not economic reality.

The numbers being reported and the actions being taken by companies across a broad spectrum of sectors of the economy point to a different economic reality.

4. Opportunistic SEC Seeking More Money, Naturally

If nothing else, recessions and depressions are good for government. The more severe the economic downturn, the more government is enabled - even encouraged - to expand its role in the economy; a bitter dose of irony for anyone with an economic history book handy. This morning on Bloomberg we ran across what could serve as a template for government agencies looking to capitalize on general economic weakness:


May 7 (Bloomberg) -- The U.S. Securities and Exchange
Commission's inability to avert the collapse of Bear Stearns
Cos. may be traced to funding levels at the agency that haven't
kept pace with the complexity of Wall Street's biggest

The reality is that no amount of money, no amount of staffing, and certainly no amount of increased regulation from Washington could have averted the collapse of Bear Stearns (BSC) as the article implies; not unless the SEC uses that increased staffing and money to somehow rewire human behavior which, of course, they won't... because they can't.

Still, important to understand is how this relates to the Federal Reserve. The fact that a government agency is presently laying the groundwork for increased staffing and funding ties directly to the actions of the central bank in expanding credit, and ultimately its own role, in the economy.

Like any other bureaucratic institution, the central bank is concerned first and foremost with maintaining and expanding its control and power. Rhetoric from those inside the institution cleverly attaches the expansion of the Federal Reserve's authority to something that sounds very much like it is in our best interest; namely, price stability and economic growth. Who, in their right mind, could be against that? The answer, ironically, is only those who claim their mandate is to ensure it.

5. First Rule of Keeping Your Bank Job During a Credit Crunch: Don't Go By the Nickname "Large Loan"

This morning we ran across an article in the Wall Street Journal about a high-powered commercial real estate lender leaving Wachovia Corp. (WB). According to the Journal, Robert Verrone, known by the nickname "Large Loan," - seriously we're not making that up! - is expected to leave Wachovia within the next week.

The reason for Mr. Verrone's departure couldn't be determined, the Journal said, but noted that a person familiar with the situation described the exit as "a perfectly amicable split."

We'll give that source the benefit of the doubt and play along, perhaps the split is amicable. But, we would say that it's a pretty good bet, as a rule, that anyone working in a bank's lending department during a credit crunch who goes by the nickname "Large Loan" is probably at risk of being out of a job before all is said and done.

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