The Tycoon Report

Dinner's on Us!

Monday, October 1, 2007 | Wayne Mulligan

Let me just start off by saying, WOW!

The response to last week’s article about the idea for creating an “Investing 101” course was phenomenal!  Not only did we get 30 comments from readers, but we got even more e-mails directly to me and other Tycoon Editors from people begging for a course like that.  Needless to say, you and other Tycoon members really gave us a lot to think about as we head towards the end of the year.

The Investing 101 course is a service we’ve debated creating for quite some time and now that I put it on the “front burner”, it’s become the hot topic around here.  So I’ll definitely keep you updated on how those internal conversations are going.

As always, my goal in my Tycoon Report articles is to reach out into the Tycoon community and really engage you and other members – really try to get you involved in helping us build a better Tycoon Report and find out where your heads are at, so to speak.

In keeping with that theme, I’m going to do something completely different this week, but equally engaging.

I’m going to hold a Tycoon Q&A Session right here on the web site.

But this isn’t our typical Question and Answer session – I won’t be taking questions from the members and answering them myself ... no, no, no. 

If you recall in Dylan’s article two weeks ago, he asked members for finance and investing questions.  And, oh boy, did people respond – we collected a ton of great questions – so much so that we’re having the toughest time answering all of them as quickly as possible.

So I had a better idea.  I’ve been so impressed with all of your comments and articles in the Tycoon Member articles section, that I told Dylan to hold off on answering all of the questions he received.

To be perfectly honest, I made a bet with him. 

I bet him a dinner at the world famous Peter Luger Steak House in New York that he could pick the three toughest questions from his article two weeks ago, and I could get Tycoon members to answer each and every one of them within a single day.

And while Dylan definitely has a lot of faith in the intelligence of our members, he just felt that it might be asking too much.  But you see, I know better.  Let me explain ...

I’m the one who goes through the Member Articles each week – I’ve written personal e-mails to some of our biggest contributors (Stephanie, Joseph, Chaos Nantuko, etc. can all attest to that), praising them and thanking them for their participation.  So more than anybody else within Tycoon’s walls, I know what our readers are made of!

And I know you guys will help me win this bet!

So after hearing how confident I was, Dylan, being the gentleman that he is, did me one better.  He said, and I quote, “Wayne, if you can get the members to answer these questions adequately in one day, then I’ll take you and the top three responders out for dinner at Peter Luger.”

I was blown away!


So here’s my challenge to you: 

Answer the following questions as best you can within the next 24 hours.  We’ll go through the responses over the next day or two, and whoever has the best answers for each question will get a free dinner with the Tycoon crew at Peter Luger in New York City next month.  And if you’ve never heard of or have never eaten at Peter Luger, then let me just say that you’ve been missing out – this is far and away one of the best (if not the best) steakhouses in the world, and it’s a New York City landmark!

Plus, you get to have dinner with all of us!  And instead of answering questions, you’ll get to ask us as many as you’d like over a wonderful meal and some good wine.

So without further ado, here are the questions Dylan bet that you couldn’t answer ... are you ready to prove him wrong?

1. What are the strongest investments in a down market?  (Note:  some of these questions are obviously subjective, and there won’t be a single right answer – so when choosing the best answer, we’ll be looking at the quality of argument and the thoroughness of your answer.)
2. How do you know when management of a company is good if they are not Warren Buffet or someone well-known?  What is it you look for to tell you?
3. Why are a company’s P/E ratio and Return on Capital important factors to look at when making an investment?

So there they are!

You can answer them by clicking here and leaving a comment – good luck!  I can’t wait to see some of you at Dinner in the very near future!




Wayne Mulligan
Contributing Editor
The Tycoon Report



Monday, October 1

10:00 - ISM Index (for September): Consensus 52.5

Big Picture: The index has fallen from the 14-month high of June, as the level remains consistent with the improvement in actual demand and production.  June new orders showed the strongest level in 16 months, as production rose to the highest since July 2004 -- those levels have returned to the mid 50s.  Inventory draw down left weak early year levels as the foreward view depends on business investment given the weaker growth outlook.  Business investment has some supportive fundamentals -- large profits, cash loaded balance sheets and a high capacity utilization rate urging continued labor saving investment.  The lift in manufacturing activity comes with stronger capital investment, as the effects from autos, housing and bloated inventories have lightened, with economic growth expectations providing the forward view.

Implications: The ISM report is a national survey of purchasing managers which covers such indicators as new orders, production, employment, inventories, delivery times, prices, export orders, and import orders.  Diffusion indexes are produced for each of these categories, with a reading over 50% indicating expansion relative to the prior month, and a sub-50% reading indicating contraction.  The total index is calculated based on a weighted average of the following five sub-indexes, with weights in parentheses: new orders (30%), production (25%), employment (20%), deliveries (15%), and inventories (10%).  The ISM is one of the first comprehensive economic releases of the month, typically preceding the employment report.  Though it covers only the manufacturing sector, it can often provide accurate hints regarding the tone of subsequent releases.  During periods of inflation concerns, the prices paid and vendor deliveries indexes often determine the bond market's reaction to the report.

17:00 - Auto Sales (for September): Consensus 5.1M, Truck Sales (for September): Consensus 7.2M

Big picture: Buying incentives have provided a bouncy path for vehicle sales over the last few years and drive the monthly pace of domestic sales.  High gasoline prices provide the advantage to fuel efficient imports and domestic autos, but SUV sales have not shown a strong decline, given the larger discounts awarded and domestic preferences.  Reduced discounting softened the pace of 2006 sales to a 12.8 mln average pace from 13.4 mln in 2005.  Year to date 2007, the average is a still weaker 12.3 mln given the 20-month lows reached in both June and July.  With a 20% weight in retail sales, autos provide the monthly swing to consumer spending.

Implications: Auto and Truck Sales measure the monthly sales of all domestically produced vehicles.  They are considered an important indicator of consumer demand, accounting for roughly 25% of total retail sales.  Demand for big ticket items such as autos and trucks tends to be interest rate sensitive, making the motor vehicle sector a leading indicator of business cycles.


Wednesday, October 3

10:00 - ISM Services (for September): Consensus 55.0

Big Picture: Despite rumors of household spending getting pinched by higher gas prices and eroding home values, the wealth effect appears to be hanging in there, fueling spending & consumption.  New orders popped back up in August after July's dip.  Exports have lost their edge over imports, despite the weak U.S. dollar and a strong global economy.

Implications: The non-manufacturing ISM report is a national survey of purchasing managers which covers new orders, employment, inventories, supplier delivery times, prices, backlog orders, export orders, and import orders.  Diffusion indexes are produced for each of these categories, with a reading over 50% indicating expansion relative to the prior month, and a sub-50% reading indicating contraction.  The index should be far more indicative of the broader economy given its inclusion of service- producing as well as good-producing sectors outside of manufacturing.  However, the short history of the index dates to only July 1997 and doesn't provide the insight of a longer period inclusive of varied economic climates.


Thursday, October 4

8:30 - Initial Claims (for 9/29): Consensus NA

Big Picture: Weekly initial claims can be volatile, as the trends reflect some easing in the tight labor market.  Layoffs (seen in initial claims) remain subdued given the lean supply of available workers, while hiring (seen in continued claims) has cooled, as reflected in the 20-month high in the early September 4-week average and the dip in August payroll growth.  Claims provide a nearly real time read on layoffs and the labor market, as low 4.6% unemployment reflects the broader combined read of layoffs and hiring.

Implications: Initial jobless claims measure the number of filings for state jobless benefits.  This report provides a timely, but often misleading, indicator of the direction of the economy, with increases (decreases) in claims potential signaling slowing (accelerating) job growth.  On a week-to-week basis, claims are quite volatile, and many analysts therefore track a four week moving average to get a better sense of the underlying trend.  It typically takes a sustained move of at least 30K in claims to signal a meaningful change in job growth.

10:00 - Factory Orders (for August): Consensus -2.5%

Big Picture: Volatile factory orders finally topped the September 2006 record level in July.  The struggling auto and housing sectors added to the softening in business capital investment, as orders and production are back on the rise.  Some of the fall-off was due to the drawing down of unwanted inventories.  The underlying fundamentals of flush corporate balance sheets and high capacity use helps support capital investment and factory production, but the growing risk is that business will slow investment as the growth outlook softens.

Implications: Factory orders consist of the earlier announced durable goods report plus non-durable goods orders.  The report is very predictable, with nondurables the only new component.  Nondurables consist of such items as food and tobacco products, which grow at a fairly consistent monthly rate, so that market forecasts for this report are far more accurate than for the durable orders report.  In addition to seeing nondurables for the first time, the market also watches for revisions to the durable orders data, which can be significant.  At present, durable goods orders add up to about 54% of total orders.


Friday, October 5

8:30 - Nonfarm Payrolls (for September): Consensus 100K, Unemployment Rate (for September): Consensus 4.7%, Hourly Earnings (for September): Consensus 0.3%, Average Workweek (for September): Consensus 33.8

Big Picture: August showed the first decline in payrolls since August 2003, as unemployment is ever so slowly rising from the March low of 4.4%.  The relatively low labor participation rate continues to leave lean worker availability despite the weak 44K average growth in payrolls over the last three months.  Employment trends lag the economy as final demand -- in excess of labor productivity -- feeds in to labor demand.  Earnings growth is holding steady near a 4% yoy rate -- off the 4.3% yoy high of December.  The decline in payrolls signals increased disruption in economic growth.

Implications: The employment report is actually two separate reports which are the results of two separate surveys.  The household survey is a survey of roughly 60,000 households.  This survey produces the unemployment rate.  The establishment survey is a survey of 375,000 businesses.  This survey produces the nonfarm payrolls, average workweek, and average hourly earnings figures, to name a few.  Both surveys cover the payroll period which includes the 12th of each month.

15:00 - Consumer Credit (for August): Consensus $9.0B

Big Picture: Consumer credit includes household non-mortgage loans.  Tax cuts and cash out mortgage refinancing provided consumer funding in past years as 7% yoy income growth and weakening equity and home price gains now provide the means outside of credit.  Credit cards (revolving credit) make up 37% of total consumer credit, which stands at $2.5 trillion.  Nonrevolving credit helps finance auto purchases, tuition, vacations and other forms of consumer borrowing.   Annual growth of 4% has shown acceleration from the 3.4% yoy decade-low of April 2006.

Implications: This monthly measure of consumer debt is volatile and subject to massive revisions.  It is also released well after every other consumer spending indicator, including weekly chain store sales, auto sales, consumer confidence, retail sales, and personal consumption.  For these reasons, the market almost never reacts to the consumer credit report.


Source:  www.Briefing.com