The Tycoon Report

Bill Gates Buys $32 Million Worth of Garbage

Monday, September 15, 2008 | Tycoon Staff

This week's most notable insider-buying move was Cascade Investment LLC's purchase of $32 million worth of shares in waste management and garbage collection firm, Republic Services (RSG). As you probably know, Cascade manages a large portion of Bill Gates' personal wealth. Since August, Cascade has accumulated 304 million shares, which are valued at $10.4 billion as of Friday's close.

Below is a weekly re-cap of the past week's activity.  We publish this re-cap every Monday, and it can be accessed in your email issues or on the Tycoon Report website.

Very important note:  While these Monday re-caps are available on the Tycoon Report website, if you want the most timely information we provide on insider buying and selling you've got to be sure and read the email issues that we send each weekday morning.


Economic Calendar for the week of September 15 to September 19

Monday, Sept 15

9:15 Industrial Production, Capacity Utilization

    * Importance (A-F): This release merits a B-.
    * Source: Federal Reserve.
    * Release Time: 9:15 ET around the 15th of the month (data for month prior).
    * Raw Data Available At: http://www.federalreserve.gov/releases/G17/Current/g17.txt.

The index of Industrial Production is a fixed-weight measure of the physical output of the nation's factories, mines, and utilities. Manufacturing production, the largest component of the total, can be accurately predicted using total manufacturing hours worked from the employment report. One of the bigger wildcards in this report is utility production, which can be quite volatile due to swings in the weather.

Severe hot or cold spells can boost production as increased heating/cooling needs drive utility production up.

In addition to production, this monthly report also provides a measure of capacity utilization. Though the rate of capacity utilization is seen as a critical gauge of the slack available in the economy, the market does not completely trust this measure. Capacity is very difficult to measure, and the Fed essentially assumes that growth in capacity in any given year follows a straight line. One can therefore predict the capacity utilization rate quite accurately based on the assumption for production growth. The 85% mark is seen as a key barrier over which inflationary pressures are generated, but given revisions to these data and the difficulties with capacity measurement, the 85% mark should be viewed cautiously. It would be appropriate to look for corroborating inflation indications from commodity prices and vendor deliveries.

Highlights

* The second straight month of increase for industrial production shows that resilience of the manufacturing sector to weakness in other sectors of the economy.
* The manufacturing component of production was up for the second straight month, as the end of the auto parts strike helped boost this core component. Further modest gains are likely, as factor orders have remained strong.
* The decline in utilities reflected cool weather across the country, which reduced demand for air conditioning.  It should be near flat in July.
* Mining ouput posted a solid gain of 0.9%.  The rate of increase will probably slow in the months ahead.

Big Picture

Surprising resilience in manufacturing is a major reason the period of weak economic growth late last year and early this year did not turn into a recession.  Industrial production in June was 0.3% above the year-ago level.  In recessions, production tends to drop sharply to well below year-ago levels.  For example, just prior to the 2001 recession and through 20021 and into early 2002, industrial production fell every single month.  Fourteen straight monthly declines were posted, with an average decline of 0.5% per month.  Year-over-year production fell to -5%.  This cycle, there have been monthly declines and a leveling off in production, but that reflects considerable resilience relative to the 2001 recession.


Tuesday, Sept 16

8:30 Consumer Price Index (CPI)

    *  Importance (A-F): This release merits a B .
    * Source: Bureau of Labor statistics, U.S. Department of Labor.
    * Release Time: 8:30 ET, about the 13th of each month for the prior month.
    * Raw Data Available At: http://stats.bls.gov/news.release/cpi.toc.htm.

The Consumer Price Index is a measure of the price level of a fixed market basket of goods and services purchased by consumers. CPI is the most widely cited inflation indicator, and it is used to calculate cost of living adjustments for government programs and it is the basis of COLAs for many private labor agreements as well. It has been criticized for overstating inflation, because it does not adjust for substitution effects and because the fixed basket does not reflect price changes in new technology goods which are often declining in price. Despite these criticisms, it remains the benchmark inflation index.CPI can be greatly influenced in any given month by a movement in volatile food and energy prices.

Therefore, it is important to look at CPI excluding food and energy, commonly called the "core rate" of inflation. Within the core rate, some of the more volatile and closely watched components are apparel, tobacco, airfares, and new cars. In addition to tracking the month/month changes in core CPI, the year/year change in core CPI is seen by most economists as the best measure of the underlying inflation rate.


Wednesday, Sept 17

8:30 Housing Starts, Building Permits

    * Importance (A-F):  This release merits a B-.
    * Source: The Census Bureau of the Department of Commerce
    * Release Time: 8:30 ET around the 16th of the month (data for one month prior).
    * Raw Data Available At: http://www.census.gov/const/www/newresconstindex.html.

Housing Starts are a measure of the number of residential units on which construction is begun each month.

A start in construction is defined as the beginning of excavation of the foundation for the building and is comprised primarily of residential housing. Building permits are permits taken out in order to allow excavation. An increase in building permits and starts usually occurs a few months after a reduction in mortgage rates. Permits lead starts, but permits are not required in all regions of the country, and the level of permits therefore tends to be less than the level of starts over time.

The monthly national report is broken down by region: Northeast, Midwest, South, and West. Briefing recommends analyzing the regional data because they are subject to a high degree of volatility. The high volatility can be attributed to weather changes and/or natural disasters. For example, an unexpectedly high level of rain in South could delay housing starts for the region.

Highlights

* The large drop in housing starts and permits in July was partly aberrant.  There was a surge in both data series in June due to a change in the housing permit process in New York.  That led to a speed-up in permits and starts, and a subsequent reduction in June.
* It may be a month or two until the underlying trend is evident.  For now, it may be best to look at the June-July averages.  For starts, this was a 1.015 million annual rate.  That compares with an average 990,000 annual rate in the three prior months.
* Permits for June-July averaged a 1.054 million rate.  That is up from an average of 964,000 for the three months of March-May.
* It therefore appears that, regardless of the swings in the June-July data, that the housing sector remains in a bottoming phase.

Big Picture

The housing sector has been in a deep recession.  Fortunately, there are now some signs that the rate of decline is slowing, and even that some stabilization is occurring.  The rate of decline in existing home sales has slowed over the past half year.  Sales are not picking up, but a bottoming is preceded by a leveling off.  Now, housing starts and permits are starting to level off as well.  It may well be that the housing sector stabilizes over the summer months, and picks up in the third quarter.  Lower mortgage rates and a stabilizing economy will help.  Lower prices on homes will ulitimately stimulate demand, but for now may inhibit sales as the urgency to buy is mitigated.  The housing sector is a long way from anything that can be called a recovery, but even a general stabilization would help boost GDP numbers by eliminating what has been a major negative on the numbers the past year.  


Thursday, Sept 18

10:00 Philadelphia Fed Index

    * Importance (A-F): The Philadelphia Fed Index merits a B.
    * Source: The Philadelphia Federal Reserve bank.
    * Release Time: Third Thursday of the month at 12 ET for the current month.
    * Raw Data Available At: http://www.phil.frb.org/

There are many regional manufacturing surveys, and they tend to be ranked in order of timeliness and the importance of the region. The Philadelphia Fed's survey is first each month, actually coming out during the third week of the month for which it is reporting. Several smaller surveys are then released before the Chicago purchasing managers' report on the last day of each month. A few, such as the Atlanta and Richmond Fed surveys, are released after the NAPM and are of little value. The purchasing managers' reports are measured like the national NAPM - 50% marks the breakeven line between an expanding and contracting manufacturing sector. For the Philadelphia and Atlanta Fed indexes, 0 is the breakeven mark.

These surveys can be of some help in forecasting the national NAPM - particularly the Philadelphia and Chicago surveys which are more closely watched due to their timeliness and the fact that these regions represent a reasonable cross section of national manufacturing activities.