By B.P.T., on May 12th, 2011
At 8:30 AM EDT, the U.S. government will release its weekly Jobless Claims report. The consensus is that there were 430,000 new jobless claims last week, which would would be 44,000 less than the unexpectedly high number released last week.
Also at 8:30 AM EDT, the Producer Price Index for April will be released. The consensus is that the index increased 0.6% over last month, and increased 0.2% when food and energy are excluded.
Also at 8:30 AM EDT, the Retail Sales report for April will be released. The consensus is that retail sales increased 0.6% , after a 0.4% increase last month.
At 10:00 AM EDT, the Business Inventories report for March will be released. The consensus is that inventories increased 0.8% from the previous month.
Also at 10:00 AM EDT, Federal Reserve Chairman Ben Bernanke will testify on Dodd-Frank implementation before the Senate Banking Committee in Washington DC.
At 9:45 AM EDT, the weekly Bloomberg Consumer Comfort Index will be released, providing an update on Americans’ views of the U.S. economy, their personal finances and the buying climate.
At 10:30 AM EDT, the weekly Energy Information Administration Natural Gas Report will be released, giving an update on natural gas inventories in the United States.
At 4:30 PM EDT, the Federal Reserve will release its Money Supply report, showing the amount of liquidity available in the U.S. economy.
Also at 4:30 PM EDT, the Federal Reserve will release its Balance Sheet report, showing the amount of liquidity the Fed has injected into the economy by adding or removing reserves.
By Simon Grey, on May 11th, 2011
Some say this is unfair because it offers the rich more options than the poor. But to stop people from being able to pay for places just to bring them down to the level of the poor is completely backwards – we should be trying to see how we can raise the poor up to that level. Equality for its own sake shouldn’t be the objective; what we want is to improve people’s lives. So how could we do this? Quite simply: by making sure that student loans are available to everybody with the grades needed for these places, and allowing universities to raise their fees to reflect the supply and demand for places.
Destroying wealth in the name of equality is the lazy man’s way of ensuring fairness because it is incredibly easy to destroy. If one man makes $20,000 a year and another man makes $30,000 a year, it is easier to take $5,000 from the better-paid man and give it to the lesser-paid man.
The more moral thing to do, however, would be to help the lesser-paid man find a way to earn $30,000 a year. Not only would there be equality, as was true with the prior scenario, but there would also be an increase in aggregate wealth. Additionally, neither man would have his wealth destroyed or taken from him. Of course, it is more difficult to help pull someone up than it is to push someone down, and so future attempts at ensuring equality will largely consist of destroying wealth instead of creating it.
By Doug Gentry, on May 11th, 2011
The U.S. has a temporary reprieve on the debt ceiling limit – tax revenues have come in higher than expected in the early part of the year, reducing the needed pace of borrowing by the U.S. government. While this has pushed the deadline for Congressional action back by a month or more, the rhetoric in Washington continues to be intense. As quick background…Congress periodically authorizes new limits to borrowing to cover new debt. Public radio’s Planet Money has a good, short description of the ceiling. That ceiling needs to be adjusted upwards by Congress in order for the Treasury Department to sell more U.S. bonds (i.e. borrow more).
Credit Greg Uchrin
The coming vote on raising the debt ceiling is giving the Republicans a chance to push for a less-government/less-spending program. Speaker Boehner issued a challenge earlier this week, as reported in The New York Times,
‘Without significant spending cuts and changes to the way we spend the American people’s money, there will be no debt limit increase,’ Mr. Boehner told members of New York’s business and finance community. ‘And cuts should be greater than the accompanying increase in debt authority the president is given.’ Mr. Boehner said those cuts should be in the trillions of dollars, not billions.
So, what would happen if trillions, or even just $100 – $300 billion was cut from Federal spending? University of Oregon economics professor, Mark Thoma, was asked this question and wrote about it in MoneyWatch.
Thoma’s bottom line is
Even a much smaller cut, say $100 billion over the next year, would still wipe out 500,00 jobs over that time period — 2 months of job creation at present rates — and set the recovery back considerably.
For students in macroeconomics there are some good reminders of basic economic forces. I recommend reading the MoneyWatch posting. Look for these important uses of macroeconomic theory:
- The multiplier (AKA the Keynesian Multiplier). When the government spends money, that initial increase in spending adds directly to GDP. Government spending is one of the four main elements of GDP, along with Consumption, Investment, and Net Exports. Then, depending on how that money is used (spent vs. saved) those funds cascade through the economy, prompting more spending (usually personal consumption). That means the original government expenditure has an impact on GDP that is a multiple of the original amount. In theory that multiplier could be as high as 5, but applied research suggests figures between 1 and 2. Thoma makes a point that was new to me, that the multiplier can be different depending on the state of the economy – lower when the economy is closer to full employment, and higher during recessionary times. (Note to self – look this up.)
- Okun’s Law. Okun saw a relationship between changes in GDP and changes in unemployment. He observed empirically that a two percent drop in GDP was associated with a one percent rise in unemployment.
Putting it all together – Thoma estimates that a $600 billion drop in government spending over two years ($300 b in one year) will reduce GDP by two percentage points and raise unemployment by 1 percent. That is about 3 million workers losing their jobs. That would rip the guts out of our recovery.
By Christopher Briem, on May 11th, 2011
The website thestreet.com has yet another list of cities unaffected by a bad economy and yup Pittsburgh must be on it. Some interesting semantics in it. I suspect they wanted to title that cities unaffected by recession, but the recession itself has been officially over for some time. We are going to make it to the next recession before local coverage of the economy turns as upbeat as the national media talks about us.
On a side note.. PG has taken up the issue of the toothlessness of the real estate transfer tax in the City of Pittsburgh. and finally there is some note that this does not have to be this way and that Philadelphia has made significant changes to their real estate tax statutes to limit the shenanigans. As I said earlier (or earlier, or earlier), fix this now and there could be significant revenue gains for the city in the future. Even if there are significant legal or political issues to making such a change, you really have to wonder why this has no more than a very passing public debate over the decades as Pittsburgh lost money Philadelphia likely would have been collecting from similar transactions.
The excuse that state law inihibits this is misleading. 2nd class city code can be changed as can 2nd class county code in Pennsylvania. The question is has anyone in Harrisburg even suggested this over the years? Maybe we could get some more attention for this if we called it a tax in lieu of a tax on electronic billboards tax?
Ni!
Seriously, if you do a NPV calculation of all the future revenue that could be collected, you might be talking significant amounts. In fact, someone ought to go fund a study looking back at how much has potentially been lost over the last decade because of the differences in how Pittsburgh can tax these transactions compared to Philadelphia. Wouldn’t that be an interesting number?
More likely there will be no follow up and this will all be lost in the shrubbery until the next big real estate transaction.
By B.P.T., on May 11th, 2011
The Mortgage Bankers’ Association purchase index was released at 7:00 AM EDT, and there was a week to week increase of 6.7% in the Purchase Index and a week to week increase of 9.0% in the Refinance Index.
At 8:30 AM EDT, the International Trade report for March will be released. The consensus is a deficit of $47.7 billion, which would be $1.9 billion larger than the previous month.
At 10:30 AM EDT, the weekly Energy Information Administration Petroleum Status Report will be released, giving investors an update on oil inventories in the United States.
At 2:00 PM EDT, the Treasury budget for April will be released. The consensus is a deficit of $65 billion, which is smaller than the historical average, and about $17.7 billion less than last April.
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By Christopher Briem, on May 10th, 2011
NYT is reporting on demographics from our so distant neighbor Weirton, WV where the annual number of deaths exceeds births each year: With Death Outpacing Birth, a County Slows to a Shuffle.
Can’t hide from the fact that have long been there already. In fact even in the NYT it has been our story in the the past. See: As Deaths Outpace Births, Cities Adjust. Here is the trend in births minus deaths, also known as natural population change, in Allegheny County over the last 3 decades:
So if you focus on population change as a reflection of how people feel about a region, the voting with their feet argument, realize that for us the voting is not quite the same as it is elsewhere else.. and means something awfully different as well.
This is all part and parcel which is what the real big and understudied story that will impact US politics in the next couple of decades. Read from just the other day: Census estimates show seniors gaining influence .. and again something we are way ahead of the curve. Read: Older Voters Reign at Polls. Especially as the Big Sort continues it means primary elections will become ever more important nationally just as they are here.. and it is in primary elections that young voters really shun the process. Many even register as independents and in closed primaries as Pennsylvania has, can’t even vote in primaries. For us, by the time the primary gets here soon, most students will have finished the term and left town further depressing their impact. Not just the students of course, but a decent chunk of the workforce that is solely associated with education as well. What if the primary was moved up just a few weeks and the students were still around?
By The Gold Report, on May 10th, 2011
 Get in cheap while companies are relatively unknown and then pick up doubles, triples, or better when they hit the big time—that is AlphaNorth Asset Management Founder Steve Palmer’s investment strategy. In this exclusive interview with The Gold Report, Steve shares some ideas for spotting big growth potential.
The Gold Report: At the end of March you had CAD$100 million under management. This gives you tremendous flexibility with small-cap companies. How much can you manage and still maintain your small-company focus?
Steve Palmer: Since inception of the fund, we have said we would limit new investments once we reached CAD$100M. As a result, we gave notice several weeks ago that the Class A and D shares will be closed to new investors after June 30.
TGR: Do you anticipate opening a new fund?
SP: Yes, in early May we filed a preliminary prospectus for a new mutual fund—the AlphaNorth Growth Fund. This fund will have more of a mid-cap Canadian equity focus.
TGR: You managed a large-cap fund for a major asset management firm. You never had any problem with liquidity of shares in that kind of situation. But is that your chief concern in the micro- and small-cap space today?
SP: Yes, liquidity is always an issue when you’re investing in small-cap companies. So, it’s prudent to limit the size of the assets under management. Otherwise liquidity can detract from performance. Currently, our focus is small caps because they offer the best long-term returns. Our small-cap assets have reached a level now where I don’t want to go too much beyond, or it will start negatively impacting the returns we can generate.
TGR: I know you’re long-biased, but what makes you a hedge fund?
SP: Well, the AlphaNorth Partners Fund structure also gives us the flexibility to use leverage and to short stocks, unlike the mutual fund structure. But most of the money is made from the long side. I’ve listened to other managers brag about making 50% on the short sale. But, if I only make 50% on a position, I’m disappointed. I’m trying to get into something that has lots of potential and make multiple times my invested capital. So, that’s why we focus on the long side.
We use the shorting to hedge our market risk, lock in gains in positions that are not freely trading or make outright negative bets on a company. So, that just helps limit the downside. But, the strategy of the fund is not to have every month be consistently positive. We’re trying to maximize returns over the long term.
TGR: Your January performance was up 5% or 6%. February was an outstanding month when the fund was up 23%. March up about 1%. How did April shape up?
SP: The fund returned 11.7% in April, so it was been a very strong month, especially in the context of the TSX and the TSX Venture, which were both negative during the month.
TGR: In your last interview in December, you had some short positions in gold equities. You were right at the time. By the end of January gold had plunged by about $100/oz. from mid-December. I’m wondering if your outlook has changed. Do you think gold is overvalued today?
SP: Well, the value of gold is very arbitrary. I’ve always used it as a play on the U.S. dollar. And, in recent weeks the U.S. dollar has gone down fairly significantly and as a result gold has rallied. We do still have a short position on COMEX gold, a small position. That helps to hedge some of the risk of our junior gold equities that we own. So, of all the commodities, it’s probably my least favorite. The major reason for that is that I think investor sentiment remains unanimously bullish on gold, and that’s bound to turn at some point.
TGR: Steve, you’re looking for equities that have a driver other than appreciation of the underlying asset. Isn’t that right?
SP: Right. For someone who is actually negative on the commodity, some would say I have a surprising number of junior gold investments. But, they’re, as you say, more driven on stock-specific catalysts. They’re more discovery stories versus the senior gold producers, which are cash-flow driven and where the price of gold directly impacts the value. The juniors are impacted to some degree by the gold price, but whether gold is plus or minus $50/oz. from where it is today is not going to materially change the outlook for a company that’s on the verge of a big discovery, for example.
TGR: One of your investment theories is finding value through inefficient markets. Can you still find hidden nuggets in these piles of small-cap resource companies?
SP: Yes. A lot of opportunities exist in Canada. The TSX Venture Exchange alone has more than 1,600 listings. There is no shortage of good opportunities in Canada.
TGR: Investing in orphan companies sounds precarious. If there is no analyst coverage and people aren’t writing about it, you really have to know a lot about the company. What’s your main safeguard in the due diligence process?
SP: Well, we usually meet management before investing in a company, and we assess the business plan and the current value of a company. At the end of the day, it depends on the risk compared to the reward opportunity. So, we try to get in on situations that have minimal downside risk; in other words, very cheap valuation and strong management. We also want to see strong backers who are going to make things work one way or another. If it doesn’t work on one asset, they’ll find another one and then make it work over the long term. And on the flip side, we want to have lots of upside potential. So, quite often we get involved in private placements where you can buy a unit that is a share-and-a-half or a full warrant, which provides you additional leverage to gains if things really work out.
TGR: Where are you finding the value and growth that you seek today?
SP: One that we participated in very recently where we were existing holders already is Ryan Gold Corp. (TSX.V:RYG), which recently raised over CAD$50M. We added to our position. The Yukon has been the site of several significant discoveries over the last couple of years. Most of those properties were vended into several companies by Sean Ryan. Now he is exclusive to Ryan Gold, which is going to have one of the largest exploration programs in the Yukon. His systematic approach to conducting soil samples and drilling has been highly successful.
The odds are extremely high that something very significant will be found on Ryan’s large property position. They have multiple targets already. The soil sample results are similar to those that have led to other discoveries by what was then Underworld Resources Inc. and Kaminak Gold Corp. (TSX.V:KAM). It’s hard to see how they will not find anything significant.
TGR: You’re partial to the Yukon region?
SP: The whole Yukon area, yes.
TGR: Anything in the Yukon you currently like?
SP: Well, I guess I could talk about Taku Gold Corp. (TSX.V:TAK; OTCBB:TAKUF). We still own that position. It has a much lower market cap than Ryan Gold, but it is well positioned in the Yukon as well. I think the shares are a good value at current levels. Also, we’ve owned Golden Predator Corp. (TSX:GPD) for a while, and it’s done very well. It reported recently with some very good drill results that caused the stock to go up. There is already a discovery on the property, and some additional drilling will expand the resource.
TGR: Do you like Golden Predator enough to keep it?
SP: Yes, I just recently purchased in their latest financing.
TGR: You own one that has not traded for a while, I think.
SP: Yes, Puget Ventures Inc. (TSX.V:PVS) has been halted for, I think, it’s been about seven months now. It’s taking a long time, but I guess there’s a lot of paperwork and bureaucracy involved in merging this private Russian company, Imperial Mining Holding Ltd. that has a significant cobalt asset, with the existing Puget assets. The new name will be Global Cobalt Corp. My understanding is that that’s pretty much complete. I think we’re a couple of weeks away from all that paperwork being finished. Some funds will need to be raised to get it relisted on the TSX.
TGR: Thank you, Steve.
SP: Thank you as well.
Steve Palmer has served as president, CEO and a director of AlphaNorth Asset Management since founding the firm in the fall of 2007. The company currently manages a long-biased, small-cap hedge fund. Prior to founding AlphaNorth, Mr. Palmer was employed at one of the world’s largest financial institutions as VP of Canadian Equities, where he managed assets of approximately $350 million. He managed a small-cap pooled fund from its inception in August 1998 to August 2007, achieving returns that Morningstar Canada ranked #1 in performance (35.8% over nine years versus 10.0% for S&P/TSX Composite Index and 13.0% for the BMO Weighted Small-Cap Total Return Index) over the same period. Mr. Palmer also managed a large-cap fund that ranked in the first quartile of performance for years 1–5 and 10 at the time of his departure in August 2007. Prior to this, he worked as a portfolio manager at a high net-worth investment boutique. Starting his career as a research associate in January 1995, Mr. Palmer quickly progressed to research analyst. He has a BA in economics from the University of Western Ontario and is a CFA.
By Simon Grey, on May 10th, 2011
I was talking to a preacher buddy of my dad’s a while ago, discussing my future plans, and I told him how I wanted to be an economist. Being a free-market apologist who had the audacity to challenge him on his favorable views of unions (from a historical perspective), he felt compelled to tell me that while he was pro-capitalism, he thought that some restrictions were necessary.
His argument for interfering in the market was based on how God had interfered with the free market under the old law. Specifically, he cited how God required that farmers leave remnants in their fields for the poor to borrow and how God forbade the Israelites from charging their brethren interest on loans). Unfortunately, there are at least three problems with this line of thinking.
First, God presumably possesses more knowledge than any central planner would. This difference is crucial because it means that the Old Testament theocracy is not comparable to any human-devised system. The biggest difference between the two systems would be that the theocratic system would not face near the knowledge constraints that a human system would. As such, God could be reasonably sure of the future and plan accordingly; mere mortals do not have these powers and abilities and thus would not have the ability to plan out an economy.
Second, not even God’s command was enough to ensure compliance with regulations that would work in theory. Time and again, the children of Israel ignored God’s laws. (It should be noted that usury laws and gleanings laws are not the only “economic” laws. Mandatory sacrifices have an economic component, as do the various regulations on commerce and production.) There were multiple times when the Israelites failed to keep God’s commands, which goes to show that even the laws implemented by the Lord of Hosts can be violated. If God’s laws can be violated then how can we expect any different for man’s laws?
Finally, note that some of God’s laws were intended to be signs of the Abrahamic covenant (e.g. dietary restrictions). Also note that some of God’s laws were intended to be signs of the coming Christ (e.g. sacrificial laws). As such, a good portion of God’s interference served a spiritual purpose. Not all laws that interfered with the Israelite economy had spiritual significance, but some did, and it is not always easy to discern between the two (e.g. Lev. 19:19).
At this point, it should be obvious that the argument that God’s interference in the Israelite economy during Old Testament times justifies Man’s interference in any economy today fails because it is an invalid comparison, it neglects to consider how even with God non-compliance with economic statutes was possible, and it fails to consider to consider the spiritual component of some of God’s economic laws, which is also an invalid comparison.
By B.P.T., on May 10th, 2011
At 7:30 AM EDT, the NFIB Small Business Optimism Index for April will be released, providing information regarding the health and confidence of small businesses in the United States.
At 7:45 AM EDT, the weekly ICSC-Goldman Store Sales report will be released, giving an update on the health of the consumer through this analysis of retail sales.
At 8:30 AM EDT, the Import and Export Prices index for April will be released, providing some data that can be used to monitor the threat of inflation.
At 8:55 AM EDT, the weekly Redbook report will be released, giving us more information about consumer spending.
At 10:00 AM EDT, the Wholesale Trade report will be released for March, showing inventory levels for wholesalers in the United States.
By Christopher Briem, on May 9th, 2011
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