Wednesday, August 31, 2011

Portugal has been caught in the classic debt trap

Portugal is now expected to press for a package worth about ?90bn, roughly the same as Ireland and less than the ?110bn Greek bail-out. That?s equivalent to slightly more than half Portugal?s national output. Between ?20bn and ?25bn will have to be disbursed at the beginning of May, and Britain is on the hook for up to �4bn under the European Financial Stability Mechanism Alistair Darling signed in the last act before Labour lost power.

Politically, the timing is perhaps astute. The Portuguese government resigned office after the austerity measures were rejected, leaving them in a ?caretaking? role. Jose Socrates, the former prime minister and now acting prime minister, made it clear that he blames his rivals for precipitating the crisis by rejecting his reforms. The opposition, now favourite to take power, said they will support the request for a bail-out. Rescue will come with conditions ? probably the same as those already rejected, as they had been approved by the International Monetary Fund.

This time, though, it will be easier for the winner of the June 5 election to simply present the nation with the package as the fault of others and unavoidable.

The big question, however, is whether the bond markets will now turn on Spain. Three of the original PIGS are now down, will the fourth fall as well? Economists think not and the country also comfortably got a ?4.1bn bond auction away on Thursday. Spain may have a budget deficit of around 8.5pc of GDP, but its national debt at about 75pc of GDP, is on safer ground. Spain is also pushing through harsh reforms, increasing the pension age to 67, raising VAT, slashing civil servants? pay to get the deficit under control, and addressing its banking problems.

In the five months since Ireland?s rescue, Spain has moved mountains to differentiate itself from Portugal ? with some success. Spanish sovereign debt rates have stabilised over the past three months as investors have decided its public debt levels are on a sustainable path. Even with a massive ?70bn state-funded bank recapitalisation (7pc of GDP), analysts believe the country can grow its way back to health.

The differentiation is working. It needs to, because Europe cannot afford to let Spain fail.


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Jobless Claims Remain Below 400,000 for 6th Week

Jobless Claims Remain Below 400,000 for 6th Week

The Department of Labor reported today that initial jobless claims fell by 10,000 for the week ending April 2, bringing the four-week moving average down by 5,750 to 389,500 (see chart).� For the first time since July 2008, the four-week average for jobless claims has remained below the benchmark 400,000 level for six consecutive weeks, and provides additional evidence that conditions in the labor market are gradually improving.�

According to Reuters:



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U.S. Consumer Credit Rises in February on Student Loans

April 07, 2011, 3:31 PM EDT

By Vincent Del Giudice

(Updates with economist?s comment in fourth paragraph.)

April 7 (Bloomberg) -- U.S. consumer borrowing rose for a fifth straight month in February on an increase in non-revolving credit as education loans expanded, the Federal Reserve reported today.

Credit climbed $7.62 billion, the most since June 2008, to $2.42 trillion after increasing a revised $4.45 billion in January, the Fed said in Washington. The February figure exceeded the median economist forecast of a $4.7 billion increase in the measure of credit card debt and non-revolving loans, according to a Bloomberg News survey.

The second consecutive drop in revolving credit, which includes credit cards, indicates Americans remain reluctant to take on more debt even as the economy and job market improve. In addition, rising fuel and food prices are limiting people?s buying power, raising the risk that consumer spending, which accounts for about 70 percent of the economy, will cool.

The increase in loans for education shows that ?people are going back to school to improve their skills,? said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. ?We expect consumer spending to continue growing. The recovery has the strength to continue.?

The total increase reflected an $8.2 billion non-seasonally adjusted rise, to $349 billion, in the federal government category of borrowing, which includes school loans.

Estimates from 33 economists in the Bloomberg survey ranged from a $2 billion decrease to an $8 billion gain. The revised January reading was lower than the initial figure of $5 billion.

Credit Breakdown

Revolving debt, which includes credit cards, decreased $2.71 billion in February, according to the central bank?s statistics. Non-revolving debt, including educational loans and borrowing for autos and mobile homes, rose $10.3 billion for the month, the Fed said.

While the Fed?s policy-setting Federal Open Market Committee said March 15 that the economy is on a ?firmer footing,? New York Fed President William Dudley, the panel?s vice chairman, said April 1 that the U.S. recovery is ?still tenuous? and the jobless rate ?much too high? at 8.8 percent. The central bank is buying $600 billion of Treasuries through June in an effort to boost growth with the benchmark rate close to zero since December 2008.

Moody?s Investors Service raised its outlook for the credit card industry to ?stable? from ?negative? last month, citing a recovery in card issuers? ?asset quality and profitability in an improved economic environment.?

Discover Profit

Discover Financial Services, benefiting from a rebound in its card-lending business, reported a record fiscal first- quarter profit and raised its dividend last month. Its write- offs for loans deemed uncollectible fell to 5.8 percent in February from 9.1 percent a year earlier.

In the auto industry, U.S. vehicle sales rose 6.7 percent in February to an annual rate of 13.4 million, the fastest since August 2009, before slipping in March to 13.1 million. General Motors Co. said sales rose 46 percent in February as discounts and new financing options lured buyers. Ford Motor Co. and Chrysler Group LLC also reported February gains.

?We continue to believe that the economy is going to continue to stay on its current course of slow but steady recovery,? Don Johnson, vice president of U.S. sales for General Motors, said during an April 1 conference call. ?With credit availability improving, continuing historically low interest rates and pent-up demand, we continue to believe that consumers are going to be returning to showrooms in even greater numbers this year.?

The Fed?s report doesn?t track debt secured by real estate, such as residential mortgages and home equity lines of credit.

--Editors: Scott Lanman, Vince Golle

To contact the reporter on this story: Vincent Del Giudice in Washington at vdelgiudice@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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U.S. Stocks Drop on Japan Earthquake, Government Budget Impasse

April 07, 2011, 3:23 PM EDT

By Rita Nazareth

April 7 (Bloomberg) -- U.S. stocks fell, dragging the Dow Jones Industrial Average down from an almost three-year high, as another earthquake shook Japan and a dispute over the federal budget threatened to shut down the American government.

General Electric Co., Cisco Systems Inc. and Alcoa Inc. lost at least 1.2 percent to lead declines in the Dow. The iShares MSCI Japan Index Fund, an exchange-traded security tracking the nation?s equities, dropped 0.8 percent after retreating as much as 1.7 percent. Gap Inc. declined 1.4 percent after the largest U.S. apparel chain reported a 10 percent slump

The S&P 500 lost 0.2 percent to 1,332.63 at 3:19 p.m. in New York, after dropping as much as 0.7 percent. The Dow, which climbed yesterday to the highest level since June 2008, slid 28.53 points, or 0.2 percent, to 12,398.22 today.

?It?s body blow after body blow,? said Matt McCormick, a Cincinnati-based money manager at Bahl & Gaynor Inc., which oversees $3.6 billion. ?The market has faced a series of black swans. We don?t know the impacts of the Japan situation. We don?t know what will happen in the Middle East. In addition, people are skittish because of all the budget discussion and concern about the future of monetary and fiscal policies.?

The S&P 500 rose 6.2 percent in 2011 through yesterday as government stimulus measures, corporate takeovers and higher- than-estimated profits boosted investors? optimism. The benchmark gauge fell on April 5 as minutes from the Federal Reserve?s last meeting spurred speculation central bankers may begin removing record stimulus measures enacted to ensure the economy recovered from recession.

7.1-Magnitude Earthquake

Benchmark indexes slumped today as 7.1-magnitude earthquake minutes before midnight spared the stricken Fukushima Dai-Ichi nuclear plant in Japan, although workers struggling to cool radioactive fuel were evacuated, Tokyo Electric Power Co. said based on its initial assessment. The aftershock was the second- strongest since a record 9-magnitude earthquake and tsunami on March 11. No unusual conditions were observed at the plant afterward, the utility, known as Tepco, and Japan?s Nuclear and Industrial Safety Agency said in statements.

Crude rose above $110 a barrel for the first time in 30 months as a fire burned at Libya?s Sarir field, bolstering concern that unrest in North Africa and the Middle East will spread, curbing shipments. NATO said forces loyal to Muammar Qaddafi caused a fire at the field, according to Al Arabiya television. The conflict in Libya is currently in a stalemate, said Army General Carter Ham, the U.S. commander for Africa.

Stopgap Spending Bill

The U.S. House approved a stopgap spending bill to keep the government open through next week, although President Barack Obama said he would veto the measure and a shutdown still looms. The measure, passed 247-181, would cut another $12 billion in spending this year and fund the Pentagon at current levels through Sept. 30. Senate Majority Leader Harry Reid, a Nevada Democrat, called the bill a ?non-starter.?

House Speaker John Boehner said there was no agreement on a budget reached at a White House meeting with President Obama and Senate Majority Leader Reid. ?We?re not there yet,? Boehner, an Ohio Republican, said outside the White House. Reid, a Nevada Democrat, said he was ?disappointed? that negotiations haven?t resolved the issue. He said the leaders will meet again tonight.

A failure by Congress to extend the government?s spending authority, which expires tomorrow, would force the closure of national parks, monuments and museums. Federal agencies -- such as the National Labor Relations Board -- that don?t protect lives, property or national security also would be shuttered.

Higher Rates

Stock-futures fell before the open of exchanges as European Central Bank President Jean-Claude Trichet said today?s interest-rate increase is not necessarily the start of a series. ?We did not decide that it was the first of a series of interest-rate increases,? Trichet said at a press conference in Frankfurt after the ECB raised its benchmark rate to 1.25 percent from a record low of 1 percent.

The S&P 500 has closed every session this month less than 1 percent below its 2011 high of 1,343.01 set on Feb. 18, causing investors to question whether the index will set a new high or head lower in a so-called double top.

?The big question with the indexes is, will this be a double top or not?? said Kurt Kinker, chief market analyst at Mirus Futures in Chicago. ?We?re holding these 1330s in the S&Ps. And whether they can break out above the February highs or whether they?ll head south, that?s the question.?

Gap Slumps

Gap slipped 1.4 percent to $22.73. Same-store sales dropped 10 percent, compared with the estimated decline of 7.3 percent. Last month?s earthquake and tsunami in Japan, where the retailer has more than 150 stores, cut into results, Chief Executive Officer Glenn Murphy said in a statement.

KLA-Tencor Corp. had the biggest drop in the S&P 500, falling 4.9 percent to $43.93. Citigroup Inc. advised selling rival semiconductor-equipment maker Lam Research Corp.

Lam Research dropped 4.6 percent to $53.75. The maker of chip-manufacturing equipment may disappoint investors when reporting earnings for the current quarter as demand slows, Citigroup Inc. wrote in a note, in which it added the idea of selling the shares its Top Picks Live! list.

Bed Bath & Beyond Inc. gained 11 percent to $54.60. The home furnishings retailer forecast annual earnings of $3.38 to $3.53 a share. That compares with the average analyst projection of $3.33, Bloomberg data show.

Costco Wholesale Corp. rose 3.7 percent to $77.75. The largest U.S. warehouse-club chain reported total comparable sales rose 13 percent in March, beating the 7.4 percent estimate.

Jobless Claims

Fewer Americans filed first-time claims for unemployment insurance last week. Applications for jobless benefits fell 10,000 in the week ended April 2 to 382,000, the fewest since Feb. 26, Labor Department figures showed. Economists projected claims would be little changed at 385,000, according to the median estimate in a Bloomberg News survey. The number of people on unemployment benefit rolls and those collecting extended payments decreased.

?There?s a glimmer of hope that the jobs market is getting better,? said Michael Nasto, senior trader at U.S. Global Investors Inc., which manages about $3 billion in San Antonio. ?There?s no doubt things are getting better from an economic standpoint. The wild card here will be monetary policy.?

--Editors: Nick Baker, Michael Regan

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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Tuesday, August 30, 2011

Markets fall after Japan aftershock (Reuters)

NEW YORK (Reuters) ? U.S. stocks fell on Thursday after Japan suffered a major aftershock, which caused injuries and renewed concerns about industrial supply disruptions and nuclear power.

Investors sought protection against further market declines, which sent the CBOE Volatility Index VIX (.VIX) up 2.2 percent to 17.27. VIX futures also rose as investors bet the index could rise above 20 by May.

The earthquake, measured at magnitude 7.4, caused no tsunami or detectable damage at the Fukushima Daiichi nuclear plant, but investors remained cautious after Japan's 9.0 deadly earthquake and tsunami on March 11. For details, see

"It got people thinking that maybe this is not finished yet, and this is of a bigger scale than what we had expected," said Jack DeGan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire.

The VIX, which often moves inversely to the S&P 500, measures the cost of hedges or protection investors are willing to pay against a fall in the S&P 500. The heavy call volume suggests expectations for more anxiety in the future.

The iShares MSCI Japan Index ETF (EWJ.P) dropped 0.9 percent, rebounding off earlier lows, while dollar-denominated Nikkei futures slid 1.2 percent.

The Dow Jones industrial average (.DJI) was down 61.91 points, or 0.50 percent, at 12,364.84. The Standard & Poor's 500 Index (.SPX) was down 5.35 points, or 0.40 percent, at 1,330.19. The Nasdaq Composite Index (.IXIC) was down 5.97 points, or 0.21 percent, at 2,793.85.

Stocks had been mostly flat prior to the news of the quake, with the S&P 500 encountering strong technical resistance that stymied gains after a larger-than-expected drop in weekly jobless claims and March retail sales that topped expectations.

"The consumer seems to be hanging in there despite higher gas prices," said Donald Selkin, chief market strategist at National Securities in New York, which has about $3 billion in assets under management.

Among retailers, Costco Wholesale Corp (COST.O) beat expectations, and its shares gained 3.4 percent to $77.57. Macy's Inc (M.N) rose 0.3 percent to $25.26 while Target Corp (TGT.N) fell 2 percent to $49.93.

Bed Bath and Beyond Inc (BBBY.O) surged 10.1 percent to $54.37 a day after it forecast full-year earnings growth that would beat Wall St expectations.

U.S.-listed shares of Japanese stocks fell, but some analysts said they might buy on the weakens.

"I'm looking at auto manufacturers, and I'm definitely looking to buy Honda if it gets cheap enough," said Tim Hartzell, chief investment officer for Houston-based Sequent Asset Management.

New York-traded shares of Honda Motor Corp (HMC.N) rose 0.2 percent on volume that neared its 50-day average.

(Reporting by Angela Moon, Editing by Kenneth Barry)


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Jobless Claims Remain Below 400,000 for 6th Week

Jobless Claims Remain Below 400,000 for 6th Week

The Department of Labor reported today that initial jobless claims fell by 10,000 for the week ending April 2, bringing the four-week moving average down by 5,750 to 389,500 (see chart).� For the first time since July 2008, the four-week average for jobless claims has remained below the benchmark 400,000 level for six consecutive weeks, and provides additional evidence that conditions in the labor market are gradually improving.�

According to Reuters:



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Tsunami worries mount as new earthquake hits Japan

An earthquake measuring 7.4 on the Richter scale has rocked Japan. The epicentre of the quake is of Japan's northeastern coast, and 40 kilometers under-water. The Japan meteorological agency has issued a tsunami warning for a wave of up to one meter. CNBC's Charles Haddock shares details on the tragedy.

Below is a verbatim transcript of Charles Haddocks report. Also watch the accompanying video.

Tokoyo was rattled by the earthquake even though it was some 200 miles away. The epicenter of this 7.4 earthquake was about 70 miles from Fukoshima and the local Tsunami warning has been issued for the area. Now, the area around Fukoshima was build to withstand a 25 foot surge of water. The problem was that the 9.0 earthquake that hit about 4 weeks ago was a 45 foot wave. Therefore, it should be able to withstand the wave. They were just about ready to make some progress in cleaning up and getting the cooling system back in order at the Fukoshima plant. It is know yet what this earthquake has done to that effort.

TEPCO has certainly taken a beating, but no company or country has been through something like this an earthquake of a magnitude of 9.0, tsunami and then a nuclear leak in three to four reactors. They are doing the best they can. They have had some missteps along the way. However, in this week they were making progress. They were able to stop that leak of radioactive water into the Pacific Ocean. They were injecting nitrogen gas into the containment buildings to try to stabilize the atmosphere for the reactors. They still have a lot of water pooling around the reactors and the buildings. They have to get rid of that before they can get in and really repair the infrastructure of the reactor units, try to stabilize them before they can permanently shut them down for good.

It is too early know about casualties from their fresh earthquake. Earlier in the day, they had made a significant effort to try to enter the 12 mile radius around the nuclear plant to try to find more victims from the massive tsunami that swept the region. They wanted to be able to get the bodies out of there before they deteriorated too much and try to bring some condolence to the families of the victims there. That effort obviously has been suspended for the night. We dont know what the earthquake has done to the infrastructure around Fukoshima. Are the roads wiped out? Are the railroads still in a mess? Its night time and information from that region has been hard to get in the best of times. Its certainly not coming forth tonight.


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Free Fragrance from Lacoste

free fragrance from LacosteGet a sample of free fragrance from Lacoste when you sign up to receive emails from Lacoste. Share your name, address, email, and date of birth. Then choose from one of four fragrances for men (all the women's perfume seems to have run out). The choices include LACOSTE Challenge, LACOSTE Essential Sport, LACOSTE Essential, and EAU DE LACOSTE.

You may sign up for additional LACOSTE email lists and clubs, but it is not necessary to receive the free fragrance sample.

Caveats: You must be 18 or older to receive this free fragrance from Lacoste. Available to residents of the U.S. only. Once you submit the form, your free sample will arrive in a few weeks.

Check back later today and through the week for more great freebies at WalletPop.


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Monday, August 29, 2011

How to Create the Right Mindset to Get Out of Debt

Lynette Khalfani-CoxIn light of actor and rapper Ja Rule pleading guilty to tax evasion, and becoming a Money Coach for nearly a decade, and as someone who was once $100,000 in credit card debt, I know that becoming debt-free isn't just about using solid money-management techniques and effective debt-elimination strategies. It's also about having the right mindset to get out of debt.

Here are four insights to help you create the proper mindset to get out of debt.

1. It's Not About the Money

Most of us erroneously think that the biggest drawback of being in debt is the amount of money we have to pay to banks and creditors. We bemoan all the cash that goes down the drain in the form of interest. Or we rail about high fees, late payments and other charges tied to having debt.

But the real price tag of debt isn't the financial cost associated with owing others. It's the toll that debt takes on every area of your life.

Debt wreaks havoc on you emotionally, causing physical and mental stress. Debt taxes relationships, leading couples to argue more, or divorce. Debt limits your personal and career options, keeping you in a dead-end job or unable to move because you owe too much money on your credit cards or your mortgage.

So stop thinking that becoming debt free is simply a way to improve your wallet. Think instead about how becoming debt free will improve your entire life, including your health, your relationships and your overall emotional well-being.

2. You Have More Power/Leverage Than You Think

Debt can often feel like bondage -- and for good reason. When you're deep in debt, and trapped by excessive bills, you're essentially a slave to your creditors. But despite the fact that you may owe thousands, or even tens of thousands of dollars to banks or other financial institutions, you have more leverage than you may think.

For instance, if you are facing high-interest-rate credit cards, you have the power to call up your credit card company and negotiate. Unfortunately, too few consumers do this. They think: "I'm just one small customer" or "The bank is going to say 'No' anyway."

But banks send out billions of credit card offers annually. And if you've been paying your bills on time, the bank doesn't want to lose your business. So simply calling up the issuer or your Visa or MasterCard and asking: "Is this the best rate you can offer?" could get you better terms.

Even bankruptcy ? which I only recommend as a last resort - is a form of leverage with your creditors. Banks know that if you file for bankruptcy protection, they may get nothing. So in such cases, they may be more flexible and willing to negotiate.

My point is: Once you shift your mindset to being proactive about your debt, instead of passive or reactive about it, you'll be better equipped to chip away at those bills and come up with debt-elimination strategies that best suit your individual circumstances.

3. It's NOT Someone Else's Fault

We'd all like to blame someone else for our debt woes and our financial problems. The "irresponsible" ex-spouse who ran up the bills. The "stingy" boss who wouldn't give us a raise. Or maybe even the "greedy" bankers who gave us credit and loans in the first place!

But to get out of debt, you have to accept responsibility for your predicament. You have to think about the choices YOU made, the things YOU did - or did not do - that led to your current state of financial affairs.

It's only by seeing your own level of personal responsibility that you become empowered. You have to start to think: "If I got myself into this mess, I have the power to get myself out of it." At the very least you need to ask yourself: "How did I contribute to my debt?" And more importantly: "What can I do to help turn things around?"

Even if you got into debt through seemingly no fault of your own (perhaps because you were downsized, went through a divorce, or had big medical bills in the family), you should review what happened and think about how you could have financially protected yourself and safeguarded your household against such unforeseen events.

Could you have had a bigger savings nest egg? Could you have had more insurance? Instead of blaming others, focus on what you could have done to help avoid the situation or examine what's within your power to do now to fix the problem.

4. Paying Off High Interest Rate Debt First Isn't Always the Best Strategy

Here's a bit of financial advice that you've likely heard over and over: Pay off your high interest rate credit card debt first. Unfortunately, it's also bad advice that doesn't fit everyone's circumstances.

Some people shouldn't worry about high-rate debt because, frankly, the interest rates on their debts aren't really that high at all. They should focus on paying off cards with the highest dollar balances. Other should go after cards with the lowest dollar balances. How do you know which is best? Think about what bothers you most -- and then attack your area of pain.

If you're stressed out because your cards are all maxed out, then you need to pay off cards with the highest dollar balances first. If you're finding it hard to keep it with so many credit cards, because you've got a wallet full of plastic, then you should pay off the cards with the lowest dollar balances first. As you pay off cards, then use the money you had been paying to double up on the next card.

The main reason you shouldn't always pay off your high interest rate debt first is because that strategy can takes many months - if not years - before you see your balances start to budge. For most people, that's way too long and depressing.

Who wants to fight against debt month after month only to see that the $170 they paid on a Visa card only covered $17 worth of the principal balance and the other $153 went toward interest? Little wonder that people don't stay motivated or stick to a payoff plan when the only advice they get is: pay off high rate debt first.

So instead, pick a proper debt payoff strategy that lets you get an immediate emotional boost from seeing that your plan is working. That will keep you motivated and on track to becoming debt-free.

Getting out of debt takes persistence and some savvy financial moves. But it also requires the right mindset ? especially if you want to be debt-free as quickly as possible.


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Jobless claims fall, retail sales stronger (Reuters)

WASHINGTON (Reuters) ? New claims for jobless benefits fell last week and retailers racked up much stronger-than-expected sales in March, signs that high fuel prices have not knocked the economy off its growth path.

Initial claims for state unemployment aid slipped 10,000 to 382,000, the Labor Department said on Thursday, a touch below economists' expectations and firmly beneath the 400,000 level associated with steady jobs growth.

Other data showed shoppers shrugged off higher gasoline prices last month to boost sales at many retailers as improving labor market conditions encouraged discretionary spending.

Same-store retailer sales had been expected to decline for the first time since August 2009, in part because Easter falls three weeks later than last year, delaying some spending.

"The claims report is one more piece of evidence that the general labor market is improving," said Patrick O'Keefe, head of economic research at J.H. Cohn in Roseland, New Jersey.

"The economy is growing and employers are no longer laying off workers because of a weakening in the general economic conditions but rather they doing so for normal business reasons."

The claims data underscored the strengthening labor market tenor and came on the heels of a report last week showing employers added 216,000 jobs in March, with the unemployment rate falling to a two-year low of 8.8 percent.

Last week, the four-week average of unemployment claims, a better measure of underlying trends, fell 5,750 to 389,500.

With the labor market conditions firming, consumers are feeling a little more confident to loosen their purse strings.

Sales at stores open at least a year rose 1.7 percent in a tally of 25 retailers, topping expectations of a 0.7 percent decline, according to Thomson Reuters.

GASOLINE TO DISTORT RETAIL SALES

The stronger-than-expected same-store sales bode well for the government's overall retail sales report for March, which is scheduled for release next week and is expected to be heavily influenced by the high gasoline prices.

They offered some relief after other data on consumer spending suggested a moderation in the pace of economic growth early in the year after a fairly brisk pace in the fourth quarter.

Consumer spending -- which accounts for about 70 percent of U.S. economic activity -- got off to slow start in the first two months of 2011 -- held back by bad weather. Rising gasoline prices also took spending away from other sectors.

The stronger-than-expected same-store sales were little boosted by inflation, given the nature of the merchandise which economists said was less sensitive to the high energy prices.

"Consumers have held back for a long time, there is a certain amount of pent-up demand. Wage growth isn't much, but we are also seeing an increase in income because of an increase in job growth," said Steve Blitz, a senior economist at ITG Investment Research in New York.

"Job growth also means that for those who are employed there is reduced concern about being laid off so the pent up demand is coming out."

With the latest fall, initial claims for jobless benefits are now beneath the 400,000 level, which is generally associated with steady job growth, for four weeks in a row.

The four-week average has held below that mark for the sixth straight week. Economists say both measures need to drop to about 300,000 to signal a strong labor market recovery.

Signs of improvement in the jobs market were also evident in the number of people still receiving benefits under regular state programs after an initial week of aid, which fell in the week ended March 26 to the lowest level since October 2008.

However, long-term unemployment remains a major problem.

A total of 8.52 million people were claiming unemployment benefits under all programs in the week ended March 19, the latest week for which data is available.

"While the labor market has stabilized and employment may be increasing, it's not increasing so rapidly that previously unemployed people who were claiming benefits are returning to work at a fast clip," said J.H. Cohn's O'Keefe.

(Additional reporting by Jessica Wohl in Chicago; Editing by Neil Stempleman)


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Is Northrop Grumman's Stock Cheap by the Numbers?

Numbers can lie -- yet they're the best first step in determining whether a stock is a buy. In this series, we use some carefully chosen metrics to size up a stock's true value based on the following clues:

  • The current price multiples.
  • The consistency of past earnings and cash flow.
  • The amount of growth we can expect.

Let's see what those numbers can tell us about how expensive or cheap Northrop Grumman (NYSE: NOC) might be.

The current price multiples
First, we'll look at most investors' favorite metric: the price-to-earnings ratio. It divides the company's share price by its earnings per share (EPS). The lower the P/E, the better.

Then we'll take things up a notch with a more advanced metric: enterprise value to unlevered free cash flow. This tool divides the company's enterprise value (basically, its market cap plus its debt, minus its cash) by its unlevered free cash flow (its free cash flow, adding back the interest payments on its debt). As with the P/E, the lower this number is, the better.

Analysts argue about which is more important -- earnings or cash flow. Who cares? A good buy ideally has low multiples on both.

Northrop Grumman has a P/E ratio of 9.4 and an EV/FCF ratio of 13.7 over the trailing 12 months. If we stretch and compare current valuations with the five-year averages for earnings and free cash flow, we see that Northrop Grumman has a P/E ratio of 17.1 and a five-year EV/FCF ratio of 11.5.

A one-year ratio of less than 10 for both metrics is ideal. For a five-year metric, less than 20 is ideal.

Northrop Grumman has a mixed performance in hitting the ideal targets, but let's see how it stacks up against some of its competitors and industry mates.�

Source: Capital IQ, a division of Standard & Poor's; NM = not meaningful.

Numerically, we've seen how Northrop Grumman's valuation rates on both an absolute and relative basis. Next, let's examine ?

The consistency of past earnings and cash flow
An ideal company will be consistently strong in its earnings and cash-flow generation.

In the past five years, Northrop Grumman's net income margin has ranged from -3.9% to 6.0%. In that same time frame, unlevered free cash flow margin has ranged from 4.4% to 7.2%.

How do those figures compare with those of the company's peers? See for yourself:

anImage

Source: Capital IQ, a division of Standard & Poor's; margin ranges are combined.

In addition, over the past five years, Northrop Grumman has tallied up four years of positive earnings and five years of positive free cash flow.

Next, let's figure out ?

How much growth we can expect
Analysts tend to comically overstate their five-year growth estimates. If you accept them at face value, you will overpay for stocks. But even though you should definitely take the analysts' prognostications with a grain of salt, they can still provide a useful starting point when compared with similar numbers from a company's closest rivals.

Let's start by seeing what this company's done over the past five years. In that time period, Northrop Grumman has put up past EPS growth rates of 12.9%. Meanwhile, Wall Street's analysts expect future growth rates of 10.4%.

Here's how Northrop Grumman compares with its peers for trailing five-year growth:

anImage

Source: Capital IQ, a division of Standard & Poor's; EPS growth shown.

And here's how it measures up with regard to the growth analysts expect over the next five years:

anImage

Source: Capital IQ, a division of Standard & Poor's; estimates for EPS growth.

The bottom line
The pile of numbers we've plowed through has shown us the price multiples that shares of Northrop Grumman�are trading at, the volatility of its operational performance, and what kind of growth profile it has -- both on an absolute and a relative basis.

The more consistent a company's performance has been and the more growth we can expect, the more we should be willing to pay. We've gone well beyond looking at a 9.4 P/E ratio, and the numbers look impressive. For more on my thoughts, check out the defense stocks I bought in my real-money portfolio.

If you find Northrop Grumman's numbers or story compelling, don't stop here. Continue your due-diligence process until you're confident that the initial numbers aren't lying to you.

Interested in reading more about any of these stocks? Add them to My Watchlist to find all of our Foolish analysis. And for more stock ideas, check out this recent article: "34 Expert Analysts Uncover Outstanding Dividend Plays."


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Who Cares That Buffalo Wild Wings Can Charge Your EV?

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Just in time for the Super Bowl, a Buffalo Wild Wings (Nasdaq: BWLD) sports bar in Kissimmee, Fla., installed a Coulomb Technologies ChargePoint station for electric vehicles. This is fantastic news for the smattering of EV owners who are fans of deep-fried, factory-farmed food served at chain restaurants and live in Central Florida (assuming these people exist). Unfortunately, there are a few reasons the marketing ploy of level II charging stations at restaurants is misled, at best.

First of all, there's charging time. Buffalo Wild Wings could have a better case than, say, a McDonald's, because people might stay put for a four-hour Super Bowl game. However, if you stop in for some wings and a fraction of a game, you'll get only a partial charge. Maybe you live only a few miles away, in which case, if you really wanted to be environmentally friendly, you should have ridden your bike. But I digress.

A full charge using a 240V charger for a Nissan Leaf will take about six hours. More than 80% of that charging will happen at home, according to Jose A. Salazar, senior project manager at the Advanced Technology, Field Technologies Group for Southern California Edison. When you're not juicing up in the garage (or maybe street charging, for those without garages), you'll probably be looking for a plug at or near work.

That's not stopping chains like Buffalo Wild Wings and McDonald's from making the play for EV customers, but it will likely be years, and maybe decades, before you would make a decision on where you eat fast food based on charging. At the Networked EV conference in November, there was a lively debate on whether charging at malls, restaurants, and movie theaters shifted the focus away from how to realistically mainstream EVs, which could include fleets, heavy-duty and fast-charging buses.

Of course, if gas prices continue to creep back up, then people will be more likely to adopt EVs, in which case faster charging will be in demand. However one of the ideas being tossed around now is that charging might be subscription-based, so depending on which company you pay to charge your car (Coulomb, Ecotality) -- you might not plug in just because you can at a restaurant if it means you're paying above and beyond what you're already charged monthly. Of course, if it's free, which it likely will be at many retail locations, then that's another story. �

The conventional answer to the long time required for charging is DC charging. A high-voltage DC charger can fully charge an EV in 25 minutes or less. But the systems are expensive, and the infrastructure exists mostly in fantasyland. Others, such as Better Place, have promoted battery swapping, but the idea has yet to catch wildfire beyond Better Place.

But there are cheaper alternatives. Ford (NYSE: F), for instance, will put a 6.6-kilowatt charger in the all-electric Focus coming out at the end of the year, allowing the car (with a 23-kilowatt-hour battery) fully recharge in three to four hours. Most other cars have a 3.3-kilowatt charger or smaller and thus take five or six hours to charge. It's sort of like having a bigger garden hose.

In the real world, that will mean that Ford drivers will be able to substantially top off their cars during trips to the mall or restaurants, said Ed Pleet, one of the designers behind the software and consumer interfaces coming with Ford's electric cars. An hour at lunch is a one-third charge. The interface for smartphones will help as well. Users can instantly tap into the level of charge, how long before the car is fully (or three-fourths) charged, and other information. Ideally, the information will reduce the any anxiety about how long a charge will take.

General Motors (NYSE: GM), meanwhile, has another idea: buy a Volt. The Volt contains a gas generator that extends the range to a few hundred miles.

More from GreenTechMedia:

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Sunday, August 28, 2011

Knowing Buffett's moves not always a money-maker (Reuters)

NEW YORK (Reuters) ? Knowing what Warren Buffett is going to do a few weeks before he does it is not the sure-fire money-maker you might think.

The iconic investor and champion of ethical corporate behavior is under fire over the revelation that his presumed successor, David Sokol, bought shares in Lubrizol Corp (LZ.N) before pushing Buffett to acquire the company.

That $9 billion deal netted Sokol a profit of nearly $3 million. It also raised questions about whether others inside Buffett's holding company Berkshire Hathaway Inc (BRKa.N) (BRKb.N) have ever bought into stocks they knew Buffett might take a shine to later.

A look back at five other high-profile deals Buffett made in the last three years shows the same kind of foresight Sokol had would have been very lucrative at some times -- and at other times a losing proposition.

Reuters looked at the acquisition of railroad Burlington Northern Santa Fe in August 2009 and four investments Berkshire made in 2008 -- Goldman Sachs Group Inc (GS.N), Dow Chemical Co (DOW.N), Wm. Wrigley Jr. Co and Chinese car maker BYD (1211.HK).

In each case, Reuters compared the company's share price in the first trading session after the deal was announced with its closing share price 70 days before the deal -- the precise window Sokol had from his first purchase of Lubrizol shares to the announcement of the acquisition.

An investor who bought 100,000 shares of each company's stock 70 days before the deals were announced would have made money on Wrigley ($1.89 million), Burlington ($1.32 million) and BYD ($46,296).

But that same clairvoyant investor would have lost a fair bit of money on Goldman Sachs ($2.48 million) and Dow Chemical ($788,000).

In other words, getting ahead of Buffett's five biggest deal before Lubrizol was more or less a wash. But getting into Lubrizol before Buffett, like Sokol did, would have netted the investor about $3 million.

That issue -- getting ahead of Buffett's dealmaking -- has become a source of controversy recently for reasons other than the Sokol matter.

Prosecutors in the biggest insider trading case since the 1980s say fund manager Raj Rajaratnam got inside information from Goldman director Rajat Gupta, including a day-ahead tip that Berkshire would invest $5 billion in Goldman. Rajaratnam, prosecutors say, made $1 million on the information.

(Reporting by Ben Berkowitz, editing by Gerald E. McCormick)


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Tsunami worries mount as new earthquake hits Japan

An earthquake measuring 7.4 on the Richter scale has rocked Japan. The epicentre of the quake is of Japan's northeastern coast, and 40 kilometers under-water. The Japan meteorological agency has issued a tsunami warning for a wave of up to one meter. CNBC's Charles Haddock shares details on the tragedy.

Below is a verbatim transcript of Charles Haddocks report. Also watch the accompanying video.

Tokoyo was rattled by the earthquake even though it was some 200 miles away. The epicenter of this 7.4 earthquake was about 70 miles from Fukoshima and the local Tsunami warning has been issued for the area. Now, the area around Fukoshima was build to withstand a 25 foot surge of water. The problem was that the 9.0 earthquake that hit about 4 weeks ago was a 45 foot wave. Therefore, it should be able to withstand the wave. They were just about ready to make some progress in cleaning up and getting the cooling system back in order at the Fukoshima plant. It is know yet what this earthquake has done to that effort.

TEPCO has certainly taken a beating, but no company or country has been through something like this an earthquake of a magnitude of 9.0, tsunami and then a nuclear leak in three to four reactors. They are doing the best they can. They have had some missteps along the way. However, in this week they were making progress. They were able to stop that leak of radioactive water into the Pacific Ocean. They were injecting nitrogen gas into the containment buildings to try to stabilize the atmosphere for the reactors. They still have a lot of water pooling around the reactors and the buildings. They have to get rid of that before they can get in and really repair the infrastructure of the reactor units, try to stabilize them before they can permanently shut them down for good.

It is too early know about casualties from their fresh earthquake. Earlier in the day, they had made a significant effort to try to enter the 12 mile radius around the nuclear plant to try to find more victims from the massive tsunami that swept the region. They wanted to be able to get the bodies out of there before they deteriorated too much and try to bring some condolence to the families of the victims there. That effort obviously has been suspended for the night. We dont know what the earthquake has done to the infrastructure around Fukoshima. Are the roads wiped out? Are the railroads still in a mess? Its night time and information from that region has been hard to get in the best of times. Its certainly not coming forth tonight.


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Google Reinvents YouTube Again with Premium Video Channels

In 2006, Google (GOOG) bought Internet video powerhouse YouTube for $1.65 billion. The search giant claims the deal was a financial success. Management says that YouTube's revenue rose to nearly $1 billion last year, and it hints that the site may be profitable. But Google doesn't have to break out YouTube as a unit in its quarterly financial statements, and profits within divisions of big firms always depend what expenses the parent assigns. For example, who pays for the video storage and bandwidth costs for YouTube -- the video site or Google?

Google's latest move to boost the site and raise revenues is to create premium video channels on YouTube, several media outlets are reporting. The premium zone would include as many as 20 sections of content, all streamed to TVs, PCs, and portable devices. That makes YouTube's new model sound just like those of nearly every challenger in the premium video market, from Netflix (NFLX) and Comcast (CMCSA) to Amazon (AMZN), Apple (AAPL) and Hulu.

Google has battled with content-creating companies in the past. Viacom (VIA) sued YouTube for copyright infringement to the tune of $1 billion. Some observers thought that the legal action would ruin YouTube, but a federal court ruled in favor of Google last year.

Google has one advantage over its competition in the online video race: viewers. According to Comscore, in February, Google video sites had 141 million unique U.S. visitors, and almost all of that traffic was to YouTube. Those visitors accounted for 1.8 billion viewing sessions. No other U.S. video site even came close. So if size matters, Google may be able to get a large share of the premium video content delivery market.

But size may not matter as much as consumers' mindsets. Many people think of YouTube as primarily the online home of grainy, amateur clips of laughing babies, dancing dogs, and music videos. It's a reasonable perception: YouTube has for the most part been a collection of an odd mix of home videos since it was founded. Google will have to change that image if it hopes to get large numbers of consumers to visit YouTube looking for premium video. And old images die hard -- especially on the Internet.


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Searching for Value on the High Seas

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These aren't good times to be an ocean shipper.

The Baltic Dry Index, which measures the rates charged by bulk transporters such as DryShips (Nasdaq: DRYS) and Diana Shipping (NYSE: DSX), has fallen from a peak above 4,000 in May to 1,043 today. It has declined by nearly 60% just in the past three months, and it's taken the share prices of many fleet operators down with it.

The following companies have fallen between 12% and 40% in the past year and are likely to report some pretty ugly numbers in the coming quarters. But if you look past the near future, you may find some considerable long-term value in owning a carefully selected ocean carrier. Most now trade for significantly less than the price of their ships, and many can be had for less than the cash flow they generated over the past three years, which was a depressed environment to begin with. And things just may be on the cusp of turning around.

A new beginning?

Company Name

Market Cap

Price/3-Year Average OCF

Price/Book

Debt/Equity

52-Week % Performance

DryShips $1.5 billion 3.67 0.52 97% (12%)
Diana Shipping $945 million 4.80 0.85 30% (12%)
Navios Maritime (NYSE: NM) $492 million 4.32 0.48 219% (22%)
Genco Shipping (NYSE: GNK) $403 million 1.64 0.37 163% (40%)
Excel Maritime (NYSE: EXM) $378 million 1.93 0.23 70% (19%)
Eagles Bulk Shipping (Nasdaq: EGLE) $256 million 2.46 0.39 174% (18%)
Paragon Shipping (NYSE: PRGN) $161 million 2.09 0.33 72% (30%)

Data from Yahoo! Finance, Morningstar, and author's calculations. As of 1/30/11.

Even as commodities have continued their strong performance, dry bulk shipping has suffered from a confluence of woes. For starters, the worldwide cargo shipping fleet is estimated to grow by 18% this year, and that forecast has sparked fears of oversupply. It also hasn't helped that Australia, a major exporter of iron and coal, has seen its exports hampered by excessive flooding. Analysts have estimated that these floods may eventually cause more than 30 percentage points of decline in the Baltic Dry.

With any luck, these matters will be temporary, and they will shortly blow over. Some observers are expecting a new record in goods shipped this year, and so long as the demand for commodities continues to soar, shippers should work through this eventually.

Granted, there are considerable risks. Investors looking to navigate through these waters should know that high levels of debt are all too common in this industry. Small changes in value therefore have a disproportionate equity effect. It's also difficult in such an environment to keep up with debt payments during prolonged periods of slowdown.

The industry has also become heavily dependent on China. The Chinese consume more than 50% of the world's iron ore and import more than one 150 million tons of coal each year to satisfy their domestic demand. A slowdown in China could very quickly bring with it a drop in shipping demand.

But despite the potential headwinds, one has to get excited about these historically cheap valuations. Many of these businesses trade at only a fraction of their five-year average price-to-book values. Investors believing in the strength of commodities may find that with a little bit of due diligence, an investment in the shipping industry may turn into a profitable adventure.

For related Foolish content:

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Saturday, August 27, 2011

Is Northrop Grumman's Stock Cheap by the Numbers?

Numbers can lie -- yet they're the best first step in determining whether a stock is a buy. In this series, we use some carefully chosen metrics to size up a stock's true value based on the following clues:

  • The current price multiples.
  • The consistency of past earnings and cash flow.
  • The amount of growth we can expect.

Let's see what those numbers can tell us about how expensive or cheap Northrop Grumman (NYSE: NOC) might be.

The current price multiples
First, we'll look at most investors' favorite metric: the price-to-earnings ratio. It divides the company's share price by its earnings per share (EPS). The lower the P/E, the better.

Then we'll take things up a notch with a more advanced metric: enterprise value to unlevered free cash flow. This tool divides the company's enterprise value (basically, its market cap plus its debt, minus its cash) by its unlevered free cash flow (its free cash flow, adding back the interest payments on its debt). As with the P/E, the lower this number is, the better.

Analysts argue about which is more important -- earnings or cash flow. Who cares? A good buy ideally has low multiples on both.

Northrop Grumman has a P/E ratio of 9.4 and an EV/FCF ratio of 13.7 over the trailing 12 months. If we stretch and compare current valuations with the five-year averages for earnings and free cash flow, we see that Northrop Grumman has a P/E ratio of 17.1 and a five-year EV/FCF ratio of 11.5.

A one-year ratio of less than 10 for both metrics is ideal. For a five-year metric, less than 20 is ideal.

Northrop Grumman has a mixed performance in hitting the ideal targets, but let's see how it stacks up against some of its competitors and industry mates.�

Source: Capital IQ, a division of Standard & Poor's; NM = not meaningful.

Numerically, we've seen how Northrop Grumman's valuation rates on both an absolute and relative basis. Next, let's examine ?

The consistency of past earnings and cash flow
An ideal company will be consistently strong in its earnings and cash-flow generation.

In the past five years, Northrop Grumman's net income margin has ranged from -3.9% to 6.0%. In that same time frame, unlevered free cash flow margin has ranged from 4.4% to 7.2%.

How do those figures compare with those of the company's peers? See for yourself:

anImage

Source: Capital IQ, a division of Standard & Poor's; margin ranges are combined.

In addition, over the past five years, Northrop Grumman has tallied up four years of positive earnings and five years of positive free cash flow.

Next, let's figure out ?

How much growth we can expect
Analysts tend to comically overstate their five-year growth estimates. If you accept them at face value, you will overpay for stocks. But even though you should definitely take the analysts' prognostications with a grain of salt, they can still provide a useful starting point when compared with similar numbers from a company's closest rivals.

Let's start by seeing what this company's done over the past five years. In that time period, Northrop Grumman has put up past EPS growth rates of 12.9%. Meanwhile, Wall Street's analysts expect future growth rates of 10.4%.

Here's how Northrop Grumman compares with its peers for trailing five-year growth:

anImage

Source: Capital IQ, a division of Standard & Poor's; EPS growth shown.

And here's how it measures up with regard to the growth analysts expect over the next five years:

anImage

Source: Capital IQ, a division of Standard & Poor's; estimates for EPS growth.

The bottom line
The pile of numbers we've plowed through has shown us the price multiples that shares of Northrop Grumman�are trading at, the volatility of its operational performance, and what kind of growth profile it has -- both on an absolute and a relative basis.

The more consistent a company's performance has been and the more growth we can expect, the more we should be willing to pay. We've gone well beyond looking at a 9.4 P/E ratio, and the numbers look impressive. For more on my thoughts, check out the defense stocks I bought in my real-money portfolio.

If you find Northrop Grumman's numbers or story compelling, don't stop here. Continue your due-diligence process until you're confident that the initial numbers aren't lying to you.

Interested in reading more about any of these stocks? Add them to My Watchlist to find all of our Foolish analysis. And for more stock ideas, check out this recent article: "34 Expert Analysts Uncover Outstanding Dividend Plays."


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Berkshire Hathaway's Dave Sokol resigns

Dave Sokol, who ran several of Berkshire's businesses, including Mid-American Energy, resigned from Berkshire on Monday. In a statement announcing the departure late Wednesday, Mr Buffett revealed that Mr Sokol purchased shares in chemicals maker Lubrizol shortly before he recommended to Mr Buffett that Berkshire invest in the company. In the middle of March, Berkshire announced the $9bn (�5.6bn) takeover of Lubrizol.


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Stocks fall after another earthquake hits Japan (AP)

NEW YORK ? Stocks fell Thursday after a 7.4-magnitude earthquake struck off the coast of northern Japan. The losses moderated slightly after a tsunami warning was lifted.

The Dow Jones industrial average fell as many as 96 points in morning trading before recovering some of its losses. Japan's stock market had already closed by the time the earthquake struck.

The quake rattled investors, partly since it struck near the same area as the massive earthquake that triggered devastating tsunami on March 11. Stock indexes pared their losses after the impact of the latest quake appeared to be less than initially feared.

The Dow fell 56 points, or 0.4 percent, to 12,367 in afternoon trading. The broader S&P 500 fell 5, or 0.4 percent, to 1,330. The Nasdaq composite index fell 5, or 0.2 percent, to 2,795.

In the U.S., economic news was mostly positive. The Commerce Department said 382,000 people applied for unemployment for the first time last week. That was the third drop in four weeks. The decline in applications suggests layoffs are slowing.

Major retailers also reported better-than-expected sales for March at stores that have been open at least a year. Analysts had predicted declines because of cold weather and higher gas prices.

Costco Wholesale Corp. rose 4 percent after reporting a 13 percent gain in sales. Limited Brands Inc. rose 1 percent after it said its revenue increased 14 percent because of strong sales at its Victoria's Secret stores. Nordstrom Inc. and Macy's Inc. also rose about 1 percent.

Bed Bath & Beyond Inc. rose 11 percent, the most of any stock in the Standard & Poor's 500 index. The home furnishings retailer posted strong results late Wednesday and said it expected earnings to rise 10 percent to 15 percent this year.

Constellation Brands Inc. rose 6 percent. The maker of Robert Mondavi wine and Svedka vodka recovered from a loss in the same quarter a year ago and reported a double-digit increase in wine sales in North America.

KLA-Tencor fell 5 percent, the most out of any company in the S&P 500. The chip manufacturer gets 14 percent of its revenues from Japan.

Netflix, Inc. also fell, dropping 3 percent a day after the home-entertainment company announced its decision to pay nearly $1 million per episode to stream the TV series "Mad Men." Dish Network Corp. emerged as a new competitor after announcing it would buy Blockbuster Inc. out of bankruptcy.

Bond prices rose, sending their yields lower. The yield on the 10-year Treasury note fell to 3.54 percent from 3.55 percent late Wednesday.

The European Central Bank raised its main interest rate by a quarter point to 1.25 percent, a day after Portugal asked for a bailout. The Bank of England kept its main interest rate unchanged at 0.5 percent.


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Jobless claims fall, retail sales stronger (Reuters)

WASHINGTON (Reuters) ? New claims for jobless benefits fell last week and retailers racked up much stronger-than-expected sales in March, signs that high fuel prices have not knocked the economy off its growth path.

Initial claims for state unemployment aid slipped 10,000 to 382,000, the Labor Department said on Thursday, a touch below economists' expectations and firmly beneath the 400,000 level associated with steady jobs growth.

Other data showed shoppers shrugged off higher gasoline prices last month to boost sales at many retailers as improving labor market conditions encouraged discretionary spending.

Same-store retailer sales had been expected to decline for the first time since August 2009, in part because Easter falls three weeks later than last year, delaying some spending.

"The claims report is one more piece of evidence that the general labor market is improving," said Patrick O'Keefe, head of economic research at J.H. Cohn in Roseland, New Jersey.

"The economy is growing and employers are no longer laying off workers because of a weakening in the general economic conditions but rather they doing so for normal business reasons."

The claims data underscored the strengthening labor market tenor and came on the heels of a report last week showing employers added 216,000 jobs in March, with the unemployment rate falling to a two-year low of 8.8 percent.

Last week, the four-week average of unemployment claims, a better measure of underlying trends, fell 5,750 to 389,500.

With the labor market conditions firming, consumers are feeling a little more confident to loosen their purse strings.

Sales at stores open at least a year rose 1.7 percent in a tally of 25 retailers, topping expectations of a 0.7 percent decline, according to Thomson Reuters.

GASOLINE TO DISTORT RETAIL SALES

The stronger-than-expected same-store sales bode well for the government's overall retail sales report for March, which is scheduled for release next week and is expected to be heavily influenced by the high gasoline prices.

They offered some relief after other data on consumer spending suggested a moderation in the pace of economic growth early in the year after a fairly brisk pace in the fourth quarter.

Consumer spending -- which accounts for about 70 percent of U.S. economic activity -- got off to slow start in the first two months of 2011 -- held back by bad weather. Rising gasoline prices also took spending away from other sectors.

The stronger-than-expected same-store sales were little boosted by inflation, given the nature of the merchandise which economists said was less sensitive to the high energy prices.

"Consumers have held back for a long time, there is a certain amount of pent-up demand. Wage growth isn't much, but we are also seeing an increase in income because of an increase in job growth," said Steve Blitz, a senior economist at ITG Investment Research in New York.

"Job growth also means that for those who are employed there is reduced concern about being laid off so the pent up demand is coming out."

With the latest fall, initial claims for jobless benefits are now beneath the 400,000 level, which is generally associated with steady job growth, for four weeks in a row.

The four-week average has held below that mark for the sixth straight week. Economists say both measures need to drop to about 300,000 to signal a strong labor market recovery.

Signs of improvement in the jobs market were also evident in the number of people still receiving benefits under regular state programs after an initial week of aid, which fell in the week ended March 26 to the lowest level since October 2008.

However, long-term unemployment remains a major problem.

A total of 8.52 million people were claiming unemployment benefits under all programs in the week ended March 19, the latest week for which data is available.

"While the labor market has stabilized and employment may be increasing, it's not increasing so rapidly that previously unemployed people who were claiming benefits are returning to work at a fast clip," said J.H. Cohn's O'Keefe.

(Additional reporting by Jessica Wohl in Chicago; Editing by Neil Stempleman)


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Friday, August 26, 2011

Is CA Technologies' Stock Cheap by the Numbers?

Numbers can lie -- yet they're the best first step in determining whether a stock is a buy. In this series, we use some carefully chosen metrics to size up a stock's true value based on the following clues:

  • The current price multiples.
  • The consistency of past earnings and cash flow.
  • The amount of growth we can expect.

Let's see what those numbers can tell us about how expensive or cheap CA Technologies (Nasdaq: CA) might be.

The current price multiples
First, we'll look at most investors' favorite metric: the price-to-earnings ratio. It divides the company's share price by its earnings per share (EPS). The lower the P/E, the better.

Then we'll take things up a notch with a more advanced metric: enterprise value to unlevered free cash flow. This tool divides the company's enterprise value (basically, its market cap plus its debt, minus its cash) by its unlevered free cash flow (its free cash flow, adding back the interest payments on its debt). As with the P/E, the lower this number is, the better.

Analysts argue about which is more important -- earnings or cash flow. Who cares? A good buy ideally has low multiples on both.

CA has a P/E ratio of 16.1 and an EV/FCF ratio of 8.2 over the trailing 12 months. If we stretch and compare current valuations with the five-year averages for earnings and free cash flow, we see that CA has a P/E ratio of 22.4 and a five-year EV/FCF ratio of 9.3.

A one-year ratio of less than 10 for both metrics is ideal. For a five-year metric, less than 20 is ideal.

CA has a mixed performance in hitting the ideal targets, but let's see how it stacks up against some of its competitors and industry mates.�

Source: Capital IQ, a division of Standard & Poor's; NM = not meaningful.

Numerically, we've seen how CA's valuation rates on both an absolute and relative basis. Next, let's examine ?

The consistency of past earnings and cash flow
An ideal company will be consistently strong in its earnings and cash-flow generation.

In the past five years, CA's net income margin has ranged from 2.5% to 17.2%. In that same time frame, unlevered free cash flow margin has ranged from 21.3% to 32.6%.

How do those figures compare with those of the company's peers? See for yourself:

anImage

Source: Capital IQ, a division of Standard & Poor's; margin ranges are combined.

In addition, over the past five years, CA has tallied up five years of positive earnings and five years of positive free cash flow.

Next, let's figure out ?

How much growth we can expect
Analysts tend to comically overstate their five-year growth estimates. If you accept them at face value, you will overpay for stocks. But even though you should definitely take the analysts' prognostications with a grain of salt, they can still provide a useful starting point when compared with similar numbers from a company's closest rivals.

Let's start by seeing what this company's done over the past five years. In that time period, CA has put up past EPS growth rates of 29.1%. Meanwhile, Wall Street's analysts expect future growth rates of 10.2%.

Here's how CA compares with its peers for trailing five-year growth:

anImage

Source: Capital IQ, a division of Standard & Poor's; EPS growth shown.

And here's how it measures up with regard to the growth analysts expect over the next five years:

anImage

Source: Capital IQ, a division of Standard & Poor's; estimates for EPS growth.

The bottom line
The pile of numbers we've plowed through has shown us the price multiples that shares of CA�are trading at, the volatility of its operational performance, and what kind of growth profile it has -- both on an absolute and a relative basis.

The more consistent a company's performance has been and the more growth we can expect, the more we should be willing to pay. We've gone well beyond looking at a 16.1 P/E ratio, and we see some strong growth and profitability. If you find CA's numbers or story compelling, don't stop here. Continue your due-diligence process until you're confident that the initial numbers aren't lying to you.

Interested in reading more about any of these stocks? Add them to My Watchlist to find all of our Foolish analysis. And for more stock ideas, check out this recent article: "34 Expert Analysts Uncover Outstanding Dividend Plays."


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