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Durable Goods Orders Drop – Analyst Blog

Dirk Van Dijk — Wed, 25 Nov 2009 19:31:17 +0000

Durable Goods Orders Drop

In October, new durable goods orders fell by 0.6%, partially reversing a 2.0% rise in September, which in turn was a partial reversal of a 2.7% decline in August. Year to date, new durable goods orders are 23.0% below the level for the first ten months of last year.

If we exclude the extremely volatile Transportation sector, new durable goods orders fell 1.3% after rising 1.8% last month. Transportation equipment includes jetliners, and one new order for a 787 from Boeing (BA) can easily swamp lots of new durable goods orders for smaller ticket items. It was mostly the Boeing order book that partially saved the day for total new durable goods orders, as orders for non-defense aircraft surged by 50.8% in the month. Last month they were up a modest 1.1%, but in August they plunged 44.0%.

Clearly if you want to make heads or tails out of this data, it is a good idea to exclude the Transportation sector. The first graph (from http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/durord.htm) shows total new orders for durable goods on a year-over-year basis. While we are still deep in negative territory, it looks like we have turned the corner (note that the graphs do not include this month’s data, however; October 2008 was an awful month for new orders, so when updated the graphs should show further improvement).

However, most of the decline stems from fewer new durable goods orders from the Pentagon, another area that can be very volatile from month to month. Excluding defense, new durable goods orders actually rose by 0.4% in October after rising 1.8% in September and falling 2.7% in August. Regardless of what you include or exclude, though, on a longer-term year-to-date basis, the numbers are still very ugly, and show that we have a lot of ground to make up.

Excluding Transportation, year-to-date orders are down 20.4%, and excluding defense, orders are down 24.4%. Defense is in fact the only area to see an increase in durable goods orders on a year-to-date basis, with total defense capital goods orders up 1.0% and defense aircraft orders up 8.8%. Non-defense aircraft orders, on the other hand, are down 59.4% on a year-to-date basis, even including the huge surge this month.

In a positive sign for the economy, new durable goods orders for non-defense capital goods -- a very good proxy for business investment spending on equipment and software -- rose by 1.2% in October following a 3.2% increase in September. On a year-to-date basis, though, they are down 27.6%. Still it shows that business investment might be starting to come back.

However, that number does include the non-defense aircraft, since planes are the main capital good of an airline. If aircraft are excluded to get to what is known as "core capital goods," orders fell by 2.9% in October, reversing a 2.6% increase in September, and down 21.0% on a year-to-date basis. The second graph, (also from http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/durord.htm) shows the history of core capital goods spending. As with total orders, it looks like we have turned the corner, but have a lot of ground to make up.

One area that has seen solid increases in durable goods orders for each of the last three months is primary metals, which are sort of at the base of the food chain, and might be signaling better times ahead. In the short term it is good news for firms like Alcoa (AA), U.S. Steel (X) and Freeport McMoRan (FCX). This month they rose by 3.6%, following increases of 2.6% and 1.2% in September and August, respectively.

That area, though, has an especially large amount of ground to make up, as even with the increases in durable goods orders for each of the last three months, orders are still down 39.6% on a year-to-date basis. Three months in a row of solid gains makes it look like the rebound is a trend, and not a short-term aberration, though.

On the other hand, Computer orders, which had held up reasonably well on a year-to-date basis -- down "just" 15.1% year to date -- have started to turn south, dropping in two of the last three months. In October they dropped by 7.2%, following a 0.3% increase last month and a 3.1% decline in August. Thus, the high tech rebound might be less robust than many have been hoping for.

All in all, I would rate this durable goods orders report as a negative -- not a disaster, but not nearly as positive as the other economic reports that we got today.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.
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3Q GDP Growth Revised to 2.8% – Analyst Blog

Dirk Van Dijk — Tue, 24 Nov 2009 16:29:18 +0000

This is a revision to the post I put up when the first cut at the GDP report came out on 10/30. In it the new numbers are in bold and the original estimates are put in parentheses, thus a number in parentheses does not mean that it has a negative value (those will have a minus sign in front of them, numbers relating to the first or second quarters are left unchanged. New text will be in italics. This should give the reader a clear sense of not only how strong GDP and its components, but also how the latest numbers match up.

The recession is over! In the third quarter GDP grew by 2.8% (3.5%), slightly below (comfortably ahead) of expectations for 2.9% (3.0%) growth. This is a huge improvement over the 0.7% decline in the second quarter and the 6.4% plunge in the first quarter.

The internals of the report were strong as well, although it appears that much of the growth came from things like the Cash for Clunkers program and the extraordinary levels of support that are currently being given to the housing sector.

I will first go over the percentage growth rates for the main components of GDP, and then how much each part contributed to, or subtracted from, the 2.8% (3.5%) growth rate. This is probably the more important part since the size of the different parts of GDP are very different, and a small percentage change in a big component can have more impact than a large change in a small component. Just as a reminder: GDP is equal to the sum of Consumer spending, Investment spending, Government spending and net exports, or Y = C + I + G + (X – M) and I will be using that framework for the discussion.

Growth Rates

The overall 2.8% (3.5%) growth of GDP was almost matched by its biggest component, Personal Consumption expenditures, or PCE, which grew 2.9% (3.4%), a big improvement over the 0.9% decline in the second quarter and the 0.6% increase in the first three months of the year.

It is important to note that during the recession, consumer spending declined far less than did overall GDP, especially in the first quarter, so the consumer was becoming a much bigger part of the overall economy. This is not healthy over the long run, but at this point I think people are happy to get some growth where ever we can find it

Consumers spend on both goods and services, and goods are broken down into durable and non durable goods. The big mover in the third quarter were goods, which increased by 7.2% (8.1%) following a decline of 3.1% in the 2Q and an increase of 2.5% in the 1Q. Spending on durable goods was the real driver, growing at an annualized rate of 20.1% (22.3%) in the 3Q, following a 5.6% decline in the 2Q and a 3.9% increase in the 1Q.

Spending on non-durable goods tends to be much more stable than spending on durable goods. Non-durable goods spending rose by 1.7% (2.0%) reversing a 1.9% decline in the 2Q, which was in turn a reversal of a 1.9% increase in the 1Q. Spending on services tends to be even more stable than spending on non-durable goods. Service spending grew at an annualized rate of 1.0% (1.2%) in the 2Q up from a 0.2% increase in the 2Q and a 0.3% decline in the 1Q

Historically, spending on durable goods has been one of the key drivers to getting us out of a recession, and not spending on durable goods one of the key reasons for falling into recessions. It is the volatility in the sector that makes it important more than its absolute size.

Now, you might wonder, what caused the recession to be so nasty last winter when Consumer spending wasn’t really all that bad? The answer is that Investment really fell of a cliff. The good news is that it is starting to come back.

Overall Gross Private Domestic investment grew at an 8.4% (11.5%) annualized rate in the 3Q, but it still has a lot of lost ground to make up from the earlier part of the year. In the second quarter overall investment spending fell at a 23.7% annualized rate

Now here is the kicker -- that was actually a dramatic improvement over the 1Q when investment spending absolutely collapsed, falling 50.5%. Clearly the biggest collapse in investment spending since the Great Depression (and it came on the heels of a 24.2% decline in the 4Q of 2008). To anyone who understood what was going on, those were really terrifying times, and the turnaround from them is absolutely spectacular

There are two basic types of investment: fixed and inventory, and right now we are concerned with fixed investment (I will cover inventory later in the contributions to GDP part).

Fixed investment is broken into two parts, Non-Residential or business investment and Residential investment, which is mostly homebuilding.

Overall Fixed investment rose by 0.3% (2.3%) following declines of 12.5% in the 2Q and 39.0% in the 1Q. Business investment, however, continued to decline, but at a much slower rate, falling 4.1% (2.5%) after 9.6% and 39.2% declines in the 2Q and 1Q, respectively. With massive amounts of unused capacity it is not surprising that businesses are cutting back on their capital spending still.

Business investment comes in two flavors, spending on structures like building new factories, malls and office buildings and spending on equipment and software to go into them. Spending on structures continues to be very weak, falling at a 15.1% (9.0%) annualized rate in the 3Q, but that marks an improvement over the 17.3% decline in the 2Q and the 43.6% collapse in the 1Q. With massive amounts of space sitting idle in offices and empty strip malls littering the landscape, look for new investment in commercial real estate to continue to decline in coming quarters.

Moody’s has estimated that the value of commercial real estate has plunged by 41% since the peak a little over a year ago, and that is hardly an inducement to build more. If a business needs the space, it's far cheaper to just buy some existing space.

Spending on Equipment and Software (E&S) on the other hand is starting to come back, if only feebly, rising 2.3% (1.1%) after a 4.9% decline in the 2Q and a 36.4% plunge in the 1Q. Look for some stability in this line going forward as the new Microsoft operating system will probably generate a new PC cycle, but with capacity utilization still around 70% I would not expect a boom in orders for new factory equipment.

The real star of fixed investment though came on the residential side, which rose 19.5% (23.4%). This is the first increase in almost four years, and follows declines of 23.3% in the 2Q and 38.2% in the 1Q. The long string of declines had brought residential investment to a record low share of GDP. The extraordinary support of the housing sector by the government, including the first time buyer tax credit, the Fed buying up $1.25 Trillion of Fannie (FNM) and Freddie (FRE) backed paper to artificially suppress mortgage rates and the FHA acting like the old New Century Financial or Washington Mutual on their worst days have played a big role in the turnaround. I seriously question the sustainability of it after the support is removed, and I don’t think the support can continue indefinitely.

Government spending grew by 3.1% (2.3%) in the 3Q, a big slowdown from the 6.7% increase in the 2Q, but more than the 2.6% decline in the 1Q. It was all at the Federal level where spending rose at an annual rate of 8.3% (7.9%) down from a 11.4% increase in the 2Q, but up from the 4.3% decline in the 1Q.

Remember this measure of government spending does not include spending on transfer payments like Social Security and Medicare, which are largely captured in the consumption numbers. Defense spending was the big driver -- we are still a nation fighting two wars. It grew at an annual rate of 8.3% (8.4%) down from a 14.0% rate of increase in the 2Q but up from a 5.1% decline in the 1Q.

Non-defense spending rose at a 6.9% (6.8%) annual rate following a 6.1% increase in the 2Q and a 2.5% decline in the 1Q. State and local spending on the other hand is constrained by balanced budget laws and falling tax revenues. It declined 0.1% (1.1%) in the 3Q following a 3.9% increase in the 2Q and a 1.5% decline in the 1Q. They were able to increase spending in the 2Q due to support for the Federal government as part of the stimulus package. Now that support looks like it is being overwhelmed by the plunge in property, income and sales taxes.

International trade has started to rebound, and we saw an increase in both imports and exports. Increasing exports are good for GDP and increases in Imports are bad for GDP, and unfortunately imports rose more than did exports. We were able to improve our overseas sales by 17.0% (14.7%) in the 3Q -- a nice turnaround from the 4.1% decline in the 2Q and the 29.9% plunge in the 1Q. Unfortunately we also increase what we bought from overseas by 20.8% (16.4%), a big turnaround from the 14.7% decline in the 2Q and the 36.4% plunge in the first three months of the year. Keep in mind that we import a lot more than we export, so not only was the percentage increase bigger for imports, it was coming off a higher base.

Contributions to Growth

The biggest part of the economy is the Consumer or PCE, over all it contributed 2.07 (2.36) of the 2.80 (3.50) points of total growth. In the second quarter it caused 0.62 of the 0.70 total decline in the 2Q. In the first quarter it actually offset 0.44 points of the 6.40 total decline. In other words, excluding the consumer the economy would have contracted 6.84% rather than 6.40%.

Within consumer spending, spending on goods added 1.60 (1.79) points after subtracting 0.71 points in the 2Q and adding 0.56 points in the 1Q. Spending on durables was the main driver, adding 1.34 (1.47) points after subtracting 0.41 points in the 2Q and adding 0.28 in the 1Q. Non durable goods added 0.26 (0.31) points after subtracting 0.29 in the 2Q and adding 0.29 in the 1Q.

While spending on services is much more stable than spending on goods, it is also a much larger portion of the consumer wallet. Service spending added 0.47 (0.57) points to the overall GDP growth in the 2Q, up from adding 0.09 points in the 2Q and subtracting 0.13 in the 1Q. It is the volatility that gives durable goods there importance to the economy not the overall size. In the third quarter total spending on durable goods was at a $1.055 Trillion annual rate, just 15.4% of the $6.852 Trillion spent on services, but durables goods had an impact on economic growth that was 158% bigger.

Investment spending was a big swing factor in the 3Q. It added 0.91 (1.22) points to overall growth. That is a HUGE improvement over the 3.10 point subtraction in the 2Q and the 8.98 point implosion in the 1Q. Unfortunately. 0.87 (0.94) points of that contribution came from inventories. Inventory investment is the “worst" type of GDP growth since large increases in one quarter are usually reversed in the next quarter, or in this case, large declines being reversed upwards.

In the 2Q inventory investment subtracted 1.42 points from overall growth and in the 1Q they subtracted 2.36 points. Even in the 4Q they subtracted 0.64 points from growth. Three straight quarters of sharply lower inventories is highly unusual and we were due for a bounce. Perhaps we have one more quarter of a solid contribution from inventory investment, but I would not expect it to last much beyond that.

Overall fixed investment added just 0.04 (0.28) points to growth, but that sure was a nice improvement over the 1.68 point subtraction and the 6.62 point disaster that was the 1Q.

However, it was not coming from the business side. Business investment subtracted 0.40 (0.24) growth points in the 3Q, so it is still very soft, but at least it is not imploding like it was earlier in the year. In the 2Q it subtracted 1.01 points and in the 1Q it took away 5.29 growth points. Within business investment it was spending on structures that caused the problem with a deduction of 0.55 (0.32) growth points while spending on E&S offset 0.15 (0.08) points of that. In the 2Q both sides of business investment were drags on the economy with investment in Commercial real estate subtracting 0.69 growth points and spending on equipment deducting 0.32 points. The 2Q was in turn a major improvement over the 1Q disaster where spending on structures subtracted 2.28 growth points and equipment spending subtracted 3.01 points.

Housing finally helped the economy in the 3Q, adding 0.45 (0.53) points to growth, after a string of 15 straight quarters where it was a drag on the economy. In the 2Q it was a 0.67 point drag and in the 1Q it was a 1.33 point drag. The long decline has, however, made housing a much smaller share of the overall economy. In the 3Q residential investment totaled only $360.9 billion, or 2.52% of the overall economy. At the peak of the housing bubble it represented 6.34% of the overall economy. Thus the 19.5 (23.3%) increase in residential investment had far less of an overall impact than it did in the past.

While residential investment is still near a record low share of the overall economy, I have serious questions about the sustainability of the increase. The extension and expansion of the tax credit as is now moving through the Congress might keep things going for the next few quarters, but after that things are likely to fall apart again. Most of the tax credit is going to those who buy existing homes, rather than new homes, and thus it is a very inefficient way of increasing residential investment. It is however, an open question if we really want to be directing resources into housing given the glut of housing units in the country. Just like we saw with the Cash for Clunkers program, it is probably just encouraging those folks who might have bought later to buy now. Cash for clunkers was a much smaller program, totaling only $3.0 billion, yet is had a huge impact on the economy, most of the improvement in consumer durable goods came from autos.

The tax credit is also tricking people into thinking that the house is more affordable that it really is, just the way that teaser rate ARM’s did, and we saw just how well that worked out. The FHA is handing out mortgages with only 3.5% down and people can use the tax credit for that ridiculously small down payment. This has future disaster of biblical proportions written all over it. The next bailouts will not be of the banks like Bank of America (BAC) and Citigroup (C) but of the FDIC and the FHA.

Direct government spending had a small but positive impact on overall growth in the 3Q, adding 0.63 (0.48) points a fairly significant slowdown from the 1.33 contribution in the 2Q, but better than the 0.52 point drag in the 1Q. All the help came from Washington , not city hall or the statehouse.

The Federal government added 0.65 (0.62) growth points, down from 0.85 points in the 2Q but up from a 0.33 point drag in the 1Q. The Pentagon was the main factor in all three quarters, with defense spending adding 0.48 (0.45) points in the 3Q following a 0.70 addition in the 2Q and a 0.27 point drag in the 1Q. Non-defense spending was sort of a non issue, adding just 0.17 (0.17) points in the 3Q, not much difference from the 0.15 point contribution in the 2Q, and up a little bit from the slight 0.06 point drag in the 1Q.

State and Local governments are not allowed to run operating deficits, and so when faced with declining tax revenues they have to cut back, unless Uncle Sam helps them out. Well Washington is helping, but its not enough and S&L spending was a 0.02 (0.14) point drag in the 3Q. The Federal help was enough in the 2Q and so the contribution to growth in the 2Q was a positive 0.48 points. In the 1Q, before the stimulus package could get much traction S&L spending was a 0.19 point drag.

Net exports had been just about the only bright spot in the first half of the year, even though it came the wrong way, from both imports and exports plunging, only with imports falling more than exports did. That reversed in the 3Q as both showed a nice expansion, but our appetite for foreign goods outstripping the desire for U.S. goods and services abroad. The increase in exports added 1.71 (1.49) points to growth, but the increase in imports was a 2.53 (2.01) point drag, for a net negative contribution from net exports of 0.82 (0.52) points. In the 2Q falling exports subtracted 0.45 points but plunging imports added 2.09 points, for a net imports net help to the economy of 1.64 points.

In the first quarter, as world trade came to a near standstill, net exports were just about the only positive you could find for the economy. Yes, plunging exports subtracted an awful 3.95 points of growth, but the fact that we were buying practically nothing from overseas added 6.58 growth points for a net aid to the economy of 2.85 points. In other words, if the U.S. were a closed economy in the first quarter, growth would have fallen not at a 6.4% rate, but at a 9.25% rate.

Overall

Relative to the first cut at the data, the downward revisions were broad based, with smaller contributions from all major areas of the economy, with the exception of the government. Of particular concern is that fixed investments contribution to growth virtually disappeared.

Investment’s share of GDP is near all time low’s and that is not a good thing for the future of the country. Inventory investment really does not count in this regard. The trade deficit (net exports) continues to be a major problem. While consumption spending growth was revised lower, it still grew faster than overall GDP, indicating that it continues to grow as a share of the economy.

This country needs to move its economy towards one that is focused on investment and exports, not one dominated by consumption, and consumption of imported goods in particular. Still, even though it was not as good a report as the original, it sure is an improvement over the second quarter, and especially over the fourth quarter.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market-beating Zacks Strategic Investor service.

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Zacks Industry Outlook Highlights: United Technologies Corporation, Oshkosh Corporation, The Boeing Company and Honeywell International Inc. – Press Releases

Zacks Market Commentaries — Wed, 04 Nov 2009 13:30:15 +0000

For Immediate Release

Chicago, IL – November 4, 2009 – Zacks.com releases the latest Industry Outlook. Today, Zacks Equity Research discusses the Aerospace & Defense sector, including United Technologies Corporation (UTX), Oshkosh Corporation (OSK), The Boeing Company (BA) and Honeywell International Inc. (HON).

A synopsis of today’s Industry Outlook is presented below. The full article can be read at http://www.zacks.com/stock/news/26834/Aerospace+%26amp%3B+Defense.

With core defense spending expected to slow, U.S. defense contractors need to identify additional revenue sources for the coming years. 2009 holds potential for interesting merger and acquisition (M&A) activity, mostly smaller deals by larger A&D firms to fill in capability gaps -- particularly in the security, defense electronics and aftermarket services business areas. U.S. defense firms may see opportunities in credit-squeezed markets to pick up U.S. assets at historically low price-to-earnings multiples.

Some large companies are expanding into the adjacent markets of mission support and services, such as performance-based logistics, or PBL, which can provide a more consistent -- albeit riskier though perhaps more profitable -- revenue stream.

Building on the example set by engine manufacturers -- Pratt & Whitney, a United Technologies Corporation (UTX) company, and Rolls-Royce Group -- to get 50% of revenues and 60% of profits from their services business, Aerospace & Defense contractors are learning how to take on, measure and internalize risk and to make support and services offerings profitable. This includes understanding how to service the equipment they manufacture, and assembling the necessary infrastructure, capabilities and people to operate it.

Shifting defense priorities could prove to be a boon for some manufacturers as the Pentagon looks to beef up protection for US ground soldiers. Oshkosh Corporation (OSK) is aiming to induct 300 to 500 workers in Wisconsin and calling back as many as 650 it had let go at a Pennsylvania facility as it looks to fill orders for armored trucks that can deflect roadside bombs. The truck manufacturer also won a $1.1 billion contract to build more than 2,200 Mine Resistant Ambush Protect All Terrain Vehicles for use by US troops in Afghanistan.

Companies are also leveraging strong balance sheets to grow organically and acquire new services business. As product development transitions to production program deliveries, it is anticipated that companies will ramp up their services businesses and profitability should improve.

Overall, in the next two decades, The Boeing Company (BA) forecasts delivery of 29,400 new commercial aircraft worth $3.2 trillion. Honeywell International Inc.’s (HON) 2008 forecast predicts 17,000 new business aircraft valued at $300 billion.

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Aerospace & Defense – Industry Outlook

Zacks Market Commentaries — Tue, 03 Nov 2009 20:27:49 +0000

OVERVIEW

Inherently, big defense contractors are expected to eliminate jobs as the Pentagon has lowered spending on traditional weapon systems, while smaller, niche companies may accelerate hiring as the United States garners resources to protect ground troops and strategic computer networks.

Industry pioneer Lockheed Martin Corporation (LMT) aims to reduce 600 jobs as a result of the US Defense Department's decision to terminate the VH-71 presidential helicopter program. The Boeing Company (BA) hinted that Pentagon cuts would claim 1,000 jobs in its defense business, affecting staffing at various work sites in the United States in missile defense and in the Army's Future Combat Systems modernization program, which is now being opened to more competition.

The large commercial aircraft sector is expected to generate most of its revenue from Asia Pacific Japan (APJ) and the Middle East, relying less on U.S. orders because of the current economic climate. However, airline companies worldwide will continue to struggle with the global economic recession, fuel price fluctuations and the difficulty in raising ticket prices, which might have an impact on airplane and engine purchase orders in 2009.

Despite robust business aviation forecasts, there may be short-term customer financing challenges for the business jets segment. Thus, we would generally expect that 2009 to see a fall-off in business jet orders, production and deliveries.

The appetite for both US and non-US Aerospace & Defense assets has been significantly constrained by the ongoing global recession and the resulting squeeze on corporate profits, lack of liquidity and continuing uncertainty about when a recovery is likely to begin. Year-to-date, there have been just six deals with values at or greater than $50 million.

The total value for deals announced during the first half of 2009 with a disclosed value of at least $50 million was just under $600 million, substantially less than total deal values in the first half of 2008 ($11.7 billion), representing a decline of 95% year-over-year. Notably, the largest transaction in 2008 -- Finmeccanica’s acquisition of DRS Technologies, announced in May 2008 for $5 billion -- occurred in the first half of that year. Excluding this transaction, the total deal value for the first half of 2008 was $6.6 billion, which is still much higher than the value of transactions during the first half of 2009.

Financial investors remain on the sidelines as financing remains challenging compared with the same period a year ago. Strategic investors have also experienced a decrease in deal activity involving acquisitions of $50 million or more. To date, there have been four deals announced involving strategic investors. This compares with the 20 deals in the first half of 2008, an 80% decrease over the same period a year ago. Strategic investors have redirected their focus on internal restructuring initiatives.

On an annualized basis, the actual number of deals in 2009 is in line with 2008 (270 compared with 275, respectively). But as the economic downturn intensified in the first half of 2009, the value of those transactions has decreased drastically. The average transaction value for first-half 2008 was $85 million compared with $7.5 million for first-half 2009, representing an approximate 91% decrease.

OPPORTUNITIES

With core defense spending expected to slow, U.S. defense contractors need to identify additional revenue sources for the coming years. 2009 holds potential for interesting merger and acquisition (M&A) activity, mostly smaller deals by larger A&D firms to fill in capability gaps -- particularly in the security, defense electronics and aftermarket services business areas. U.S. defense firms may see opportunities in credit-squeezed markets to pick up U.S. assets at historically low price-to-earnings multiples.

Some large companies are expanding into the adjacent markets of mission support and services, such as performance-based logistics, or PBL, which can provide a more consistent -- albeit riskier though perhaps more profitable -- revenue stream.

Building on the example set by engine manufacturers -- Pratt & Whitney, a United Technologies Corporation (UTX) company, and Rolls-Royce Group -- to get 50% of revenues and 60% of profits from their services business, Aerospace & Defense contractors are learning how to take on, measure and internalize risk and to make support and services offerings profitable. This includes understanding how to service the equipment they manufacture, and assembling the necessary infrastructure, capabilities and people to operate it.

Shifting defense priorities could prove to be a boon for some manufacturers as the Pentagon looks to beef up protection for US ground soldiers. Oshkosh Corporation (OSK) is aiming to induct 300 to 500 workers in Wisconsin and calling back as many as 650 it had let go at a Pennsylvania facility as it looks to fill orders for armored trucks that can deflect roadside bombs. The truck manufacturer also won a $1.1 billion contract to build more than 2,200 Mine Resistant Ambush Protect All Terrain Vehicles for use by US troops in Afghanistan.

Companies are also leveraging strong balance sheets to grow organically and acquire new services business. As product development transitions to production program deliveries, it is anticipated that companies will ramp up their services businesses and profitability should improve.

Overall, in the next two decades, The Boeing Company (BA) forecasts delivery of 29,400 new commercial aircraft worth $3.2 trillion. Honeywell International Inc’s (HON) 2008 forecast predicts 17,000 new business aircraft valued at $300 billion. While we currently don’t have Outperform recommendation on aircraft and engine manufacturers, we have positive outlooks on UTX, BA and HON.

WEAKNESSES

A major Aerospace & Defense sector challenge for 2009 is improving program management and execution. For the past few years, commercial aircraft programs have run late due to global supply chain or design problems. In addition, government aerospace procurements have overrun their budgets.

The root causes for this problem are as follows:

Technical complexity - Today’s programs rely on the use of leading-edge, still-maturing software-based technologies, which require infinitely higher levels of functionality, interoperability and integration. This technical complexity has resulted in increased development time vs. historical programs.
Talent crisis - Twenty-seven percent of employees in the sector are estimated to retire in the next five years. In addition, the National Science Foundation expects the number of science, technology and engineering retirements to increase threefold annually in the next 10 years. Unfortunately, the industry may not be able to attract sufficient new talent to make up for the deficit.
Supply chain challenges - The Aerospace & Defense supply chain management model is transitioning to a global, super-supplier model for the Tier 1 suppliers and original equipment manufacturers (OEMs). These organizations are shedding manufacturing and subsystem assembly work, relying on super- or middle-tier suppliers to take on increasingly complex design and manufacturing tasks.
Politics - Aerospace & Defense programs span multiple years but are budgeted annually. In times of economic stress, other government priorities may prompt cuts in multiyear projects for a number of units. This approach typically results in increased fly-away unit costs.
Program management challenges - Many Aerospace & Defense program schedules are based on a "sunny day" scenario, rather than a more realistic "cloudy day" scenario that contemplates program delays, technical difficulties, supply chain problems and changing requirements. These program management challenges and associated cost overruns need to be addressed by improving cost, schedule, and risk management processes and techniques.

With an increase in passenger traffic and competitors, commercial airplanes have become more commoditized, requiring companies to improve differentiation. Airline manufacturers therefore should promote product and process innovation.

The new Boeing 787 Dreamliner is a good example: It will be the first major aircraft to use composite materials for most of its construction. Featuring an estimated 20% lower direct operating cost, better passenger comfort via higher air pressure and humidity, larger windows and less-frequent maintenance requirements, the 787 has become the most successful aircraft product launch in aviation history, as measured by the number of aircraft ordered prior to first flight.Zacks Investment Research

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Contributions to GDP Growth – Analyst Blog

Dirk Van Dijk — Thu, 29 Oct 2009 18:02:59 +0000

Not all components of GDP are created equal. Some are very big, and others relatively small. Some tend to be very stable over time, and some tend to swing violently from quarter to quarter. The bigger and more volatile they are, the more they will impact the overall growth rate of GDP.

Thus looking at just the percentage changes in the components does not tell the full story. Of the 3.5% total growth, how many points were added or subtracted by each part of the economy?

The biggest part of the economy is the Consumer, or PCE -- overall it contributed 2.36 of the 3.50 points of total growth. In the second quarter it caused 0.62 of the 0.70 total decline in the 2Q. In the first quarter it actually offset 0.44 points of the 6.40 total decline. In other words, excluding the Consumer the economy would have contracted 6.84% rather than 6.40%.

Within Consumer spending, spending on Goods added 1.79 points after subtracting 0.71 points in the 2Q and adding 0.56 points in the 1Q. Spending on Durables was the main driver, adding 1.47 points after subtracting 0.41 points in the 2Q and adding 0.28 in the 1Q. Non-Durable goods added 0.31 points after subtracting 0.29 in the 2Q and adding 0.29 in the 1Q.

While spending on Services is much more stable than spending on Goods, it is also a much larger portion of the Consumer wallet. Service spending added 0.57 points to the overall GDP growth in the 2Q -- up from adding 0.09 points in the 2Q and subtracting 0.13 in the 1Q.

It is the volatility that gives Durable goods their importance to the economy, not the overall size. In the third quarter, total spending on Durable goods was at a $1.055 Trillion annual rate, just 15.4% of the $6.852 Trillion spent on Services, but Durable goods had an impact on economic growth that was 158% bigger.

Investment spending was a big swing factor in the 3Q. It added 1.22 points to overall growth. That is a HUGE improvement over the 3.10 point subtraction in the 2Q and the 8.98 point implosion in the 1Q. Unfortunately, 0.94 points of that contribution came from Inventories.

Inventory investment is the "worst" type of GDP growth, since large increases in one quarter are usually reversed in the next quarter -- or in this case, large declines being reversed upwards. In the 2Q, Inventory investment subtracted 1.42 points from overall growth and in the 1Q it subtracted 2.36 points. Even in the 4Q, it subtracted 0.64 points from growth. Three straight quarters of sharply lower inventories is highly unusual, and we were due for a bounce. Perhaps we have one more quarter of a solid contribution from Inventory investment, but I would not expect it to last much beyond that.

Overall Fixed investment added just 0.28 points to growth, but that sure was a nice improvement over the 1.68 point subtraction and the 6.62 point disaster that was the 1Q. However, it was not coming from the business side. Business investment subtracted 0.24 growth points in the 3Q, so it is still very soft, but at least it is not imploding like it was earlier in the year. In the 2Q it subtracted 1.01 points and in the 1Q it took away 5.29 growth points.

Within business investment it was spending on structures that caused the problem, with a deduction of 0.32 growth points while spending on E&S offset 0.08 points of that. In the 2Q, both sides of business investment were drags on the economy with investment in Commercial real estate subtracting 0.69 growth points, and spending on equipment deducting 0.32 points. The 2Q was in turn a major improvement over the 1Q disaster, where spending on structures subtracted 2.28 growth points and equipment spending subtracted 3.01 points.

Housing finally helped the economy in the 3Q, adding 0.53 points to growth -- after a string of 15 straight quarters where it was a drag on the economy. In the 2Q it was a 0.67-point drag and in the 1Q it was a 1.33-point drag.

The long decline has, however, made housing a much smaller share of the overall economy. In the 3Q, residential investment totaled only $360.9 billion, or 2.52% of the overall economy. At the peak of the housing bubble, it represented 6.34% of the overall economy. Thus the 23.4% increase in residential investment had far less of an overall impact than it did in the past.

While residential investment is still near a record low share of the overall economy, I have serious questions about the sustainability of the increase. The extension and expansion of the the tax credit by Congress might keep things going for the next few quarters, but after that things are likely to fall apart again. Just like we saw with the "Cash for Clunkers" (C4C) program, it is probably just encouraging those folks who might have bought later to buy now.

It is also tricking people into thinking that a house is more affordable that it really is -- just the way that teaser-rate ARM’s did, and we saw just how well that worked out. The FHA is handing out mortgages with only 3.5% down, and people can use the tax credit for that ridiculously small down payment. This has future disaster of biblical proportions written all over it. The next bailouts will not be of the banks like Bank of America (BAC) and Citigroup (C) but of the FDIC and the FHA.

Direct Government spending had a small but positive impact on overall growth in the 3Q, adding 0.48 points -- a fairly significant slowdown from the 1.33 contribution in the 2Q, but better than the 0.52 point drag in the 1Q. All the help came from Washington, not City Hall or the Statehouse.

The Federal government added 0.62 growth points, down from 0.85 points in the 2Q but up from a 0.33 point drag in the 1Q. The Pentagon was the main factor in all three quarters, with Defense spending adding 0.45 points in the 3Q following a 0.70 addition in the 2Q and a 0.27 point drag in the 1Q. Non-Defense spending was sort of a non-issue, adding just 0.17 points in the 3Q, not much difference from the 0.15-point contribution in the 2Q, and up a little bit from the slight 0.06 point drag in the 1Q.

State and Local governments are not allowed to run operating deficits, and so when faced with declining tax revenues they have to cut back, unless Uncle Sam helps them out. Well, Washington is helping, but it's not enough, and S&L spending was a 0.14 point drag in the 3Q. The Federal help was enough in the 2Q and so the contribution to growth in the 2Q was a positive 0.48 points. In the 1Q, before the stimulus package could get much traction, S&L spending was a 0.19 point drag.

Net exports had been just about the only bright spot in the first half of the year -- even though it came the wrong way, from both imports and exports plunging, only with imports falling more than exports did. That reversed in the 3Q, as both showed a nice expansion, but our appetite for foreign goods is outstripping the desire for U.S. goods and services abroad.

The increase in exports added 1.49 points to growth, but the increase in imports was a 2.01 point drag, for a net negative contribution from net exports of 0.52 points. In the 2Q, falling exports subtracted 0.45 points, but plunging imports added 2.09 points, for a net imports net help to the economy of 1.64 points.

In the first quarter, as world trade came to a near-standstill, net exports were just about the only positive you could find for the economy. Yes, plunging exports subtracted an awful 3.95 points of growth, but the fact that we were buying practically nothing from overseas added 6.58 growth points, for a net aid to the economy of 2.85 points. In other words, if the U.S. were a closed economy in the first quarter, growth would have fallen not at a 6.4% rate, but at a 9.25% rate.

Overall

Overall this is a very welcome report. It confirms that the recession is over and that we are on the right track. However, I am not thrilled about the overall composition of the growth. Over time we need to see the consumer become a much smaller part of the overall economy, and real business investment become a much bigger share.

Unfortunately, we seem to be headed in the wrong direction, with the growth in consumer spending nearly keeping up with the overall growth of the economy. This is especially true if you consider Residential Investment as primarily part of Consumption. We need net exports to play a bigger and more positive role in the economy, and ideally have that happen through exports growing faster than imports, not from a plunge in imports like we saw in the first half of the year.

Seeing net exports turn into a drag again is disappointing. A big part of that, however, is due to oil imports, and the increase in the price of oil. That is a long-term structural problem that needs to be addressed. Fortunately, the opening-up of the shale gas plays gives us a chance to finally do something about it, but I’m not sure how fast that will occur. That, along with more efficiency and alternative energy sources, can make a dent over time, but not overnight.

But it is a fertile place to see an increase in Investment spending, so it could have a double-barreled effect -- on both the investment line and on the net exports line. The contribution from inventories is not sustainable long-term, but given how much they fell prior to this rebound, we might see a bit more of it in the 4Q, though not much beyond that.

The increase in Consumption spending was largely due to the C4C program, which is now over, so don’t look for a big contribution from Durable goods spending in the fourth quarter.

All in all, a better-than-expected report, but don’t be deluded into thinking that we are out of the woods and the coast is clear. We still face major challenges, and getting complacent here would be a big mistake.
Read the full analyst report on "BAC"
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Zacks Investment Research

Boeing Investors Climb the Wrong Wall

Adam Lass — Thu, 22 Oct 2009 12:00:00 +0000

BA does almost nothing right. So why is the stock up 52%? We have all heard the old saw as to how “the market climbs a wall of worry.” There is, of course, an inherent truth in this. Investors...div class="feedflare" a href="http://feeds.taipanpublishinggroup.com/~ff/taipan?a=6aB9ZrT9ZhA:IxGPN_pz9Hw:yIl2AUoC8zA"img src="http://feeds.feedburner.com/~ff/taipan?d=yIl2AUoC8zA" border="0"/img/a a href="http://feeds.taipanpublishinggroup.com/~ff/taipan?a=6aB9ZrT9ZhA:IxGPN_pz9Hw:V_sGLiPBpWU"img src="http://feeds.feedburner.com/~ff/taipan?i=6aB9ZrT9ZhA:IxGPN_pz9Hw:V_sGLiPBpWU" border="0"/img/a a href="http://feeds.taipanpublishinggroup.com/~ff/taipan?a=6aB9ZrT9ZhA:IxGPN_pz9Hw:F7zBnMyn0Lo"img src="http://feeds.feedburner.com/~ff/taipan?i=6aB9ZrT9ZhA:IxGPN_pz9Hw:F7zBnMyn0Lo" border="0"/img/a a href="http://feeds.taipanpublishinggroup.com/~ff/taipan?a=6aB9ZrT9ZhA:IxGPN_pz9Hw:wd9GD17jvC4"img src="http://feeds.feedburner.com/~ff/taipan?d=wd9GD17jvC4" border="0"/img/a a href="http://feeds.taipanpublishinggroup.com/~ff/taipan?a=6aB9ZrT9ZhA:IxGPN_pz9Hw:l6gmwiTKsz0"img src="http://feeds.feedburner.com/~ff/taipan?d=l6gmwiTKsz0" border="0"/img/a /divimg src="http://feeds.feedburner.com/~r/taipan/~4/6aB9ZrT9ZhA" height="1" width="1"/

Northrop Pockets Four Contracts – Analyst Blog

Zacks Market Commentaries — Wed, 14 Oct 2009 15:30:00 +0000

Northrop Grumman Corporation (NOC) has recently bagged four small contracts from the Pentagon, totaling approximately $116.6 million. Of this, the largest is a $58 million Army contract to complete a counter-rocket artillery and mortar system.

Work on the contract will be performed in Huntsville , Alabama facility. The company expects to complete the contract by the end of the third quarter of fiscal 2010. The Pentagon also awarded a $42 million Navy contract to build spare and repair parts for weapons-system navigation and radars.

Work on the contract will be performed in the Charlottesville , Virginia facility and is expected to be completed by Oct 2012. The company also received a $9.6 million Air Force contract for a preliminary design for a communications system for the MQ-9 Reaper, an unmanned aerial vehicle. Lastly, another $7 million was awarded to Northrop to work on an integrated base-defense system for the Army.

Work on this contract will be performed in Herndon , Virginia facility and is expected to be completed by October 2010. These contracts will boost the dwindling backlog of Northrop which fell to $70.4 billion after the second quarter of fiscal 2009 from $76.9 billion year over year. Though Northrop Grumman is one of the largest defense contractors, its backlog was affected by the cancellation of the $5.1 billion Kinetic Energy Interceptor program by the U.S. Government.

Based in Los Angeles , California , Northrop Grumman provides products, services, and solutions in information and services, aerospace, electronics and shipbuilding to the military, government and commercial customers of the United States and beyond.

The company is the largest IT service provider to the federal government. In addition, Northrop Grumman is the only nuclear-powered aircraft shipbuilder in the United States . We maintain our long term Outperform recommendation on the shares.
Read the full analyst report on "NOC"
Zacks Investment Research

Why All the Fuss Over Rare Earths?

Contrarian Profits — Tue, 06 Oct 2009 20:09:36 +0000

pRare earth elements (REEs) have been the mystery metals of the mining world for years. Now, suddenly, everyone’s heard about them./p pBefore we delve into the reasons behind all the publicity, here’s the basic skinny on REEs: One, they are rare, at least sort of. Two, they are indispensable to modern technology. Three, the number of active, dedicated producers is tiny, with more than 90% of the world’s supply coming from China./p pIf you took high school chemistry, you probably remember the periodic table of the elements. But if you’re like most of us, even if you pulled a 95 on the chem final, you may not recall many of the details today. And there’s a better than even chance you never#8230;/p

PWRM, CVX, NDAQ, TSPG, BA, AQNM, LMT, DrStockPick.com Stock Report!

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A New Era in the Defense Industry: Lock And Load On Profits

Investment U — Fri, 18 Sep 2009 19:41:04 +0000

A New Era in the Defense Industry: Lock And Load On Profits by Tony Daltorio, Investment U Research Over the past year, stocks of companies in the defense industry have taken a beating, down thirty percent… forty percent… or more. Valuations have taken an even harder knock, with forward price-to-earnings dropping to just under nine times [...]

GD Wins Air Force Contract – Analyst Blog

Zacks Market Commentaries — Wed, 16 Sep 2009 21:27:50 +0000

General Dynamics Corporation (GD) bagged a $50 million contract from the U.S. Air Force to perform specialized research and use advanced state-of-the-art material technologies or applications in several programs within the survivability portfolio of the Pentagon. The company has significant exposure in survivability programs.

General Dynamics has earlier worked on M1A2 SEP, Abrams Integrated Management (AIM) and Tank Urban Survivability Kit (TUSK) programs. These programs focused on improving the electronics, command-and-control capabilities and armor enhancements for higher crew survivability. General Dynamics finished the first half of fiscal 2009 with a total order backlog of $67.6 billion, a 22.2% rise over the year-ago period. Subsequent to that, the companies haven’t won any significant major contract.

General Dynamics engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation. The company operates through four segments: Information Systems & Technology (IS&T), Combat Systems, Marine Systems, and Aerospace.

We view General Dynamics as a well-run company that is likely to continue to deliver on expectations driven by strong revenue growth, margin expansion and cash flow generation. Strong defense outlays should further improve the company’s outlook for shareholders while an increasing funded backlog and an improving balance sheet signal additional positive factors for the company.

However, these are offset by apprehensions over defense spending under the Obama Administration, a bleak scenario for the Gulfstream, risks related to key projects execution and order cancellation of the FCS program. Thus we maintain our market Neutral recommendation on the shares.
Read the full analyst report on "GD"
Zacks Investment Research

Raytheon Set to Acquire BBN Tech – Analyst Blog

Zacks Market Commentaries — Thu, 03 Sep 2009 16:11:21 +0000

Raytheon Company (RTN) is planning to acquire privately held BBN Technologies to boost its advanced networking and speech and language technologies. Raytheon expects to complete the transaction by year's end.

BBN Technologies was set up in 1984 by Massachusetts Institute of Technology professors Richard Bolt and Leo Beranek with MIT graduate Robert Newman. The company has about 700 employees in its seven U.S. facilities.

Raytheon’s acquisition of BBN Technologies has been planned in accordance with its focus on strengthening its Intelligence and Information Systems segment, whose importance rose in recent times with Pentagon’s emphasis on cyber security and mission-critical intelligence products.

Intelligence and Information Systems segment is the dark horse for growth considering the Pentagon’s ire towards high-cost platform programs. However, Raytheon ended the second quarter of fiscal 2009 with a funded backlog of only $1.8 billion, the lowest among its six operating segments.

Raytheon is the one of the largest aerospace and defense companies in the U.S., with a well-diversified line of military products, including missiles, radars, sensors, surveillance and reconnaissance equipment, communication and information systems, naval systems, air traffic control systems, and technical services. We maintain our market Outperform recommendation on the shares.
Read the full analyst report on "RTN"
Zacks Investment Research

Caterpillar & Terex Win Defense Deals – Analyst Blog

Zacks Market Commentaries — Fri, 28 Aug 2009 21:41:53 +0000

The construction and equipment manufacturers Caterpillar Inc. (CAT) and Terex Corp. (TEX) received contracts from the Defense Logistic Agency this week.

The Pentagon announced that Terex received a $5.6 million contract from the agency for a rock crusher jaw plant, while Caterpillar received two contracts, one for providing adverse terrain forklifts and the other for dump trucks. The contracts are worth approximately $14 million and $6 million, respectively.

Currently, both companies are experiencing weak demand for their products. Caterpillar reported a year-over-year sales decline of 32%, while Terex’s sales were down 51% during the first half of 2009.

Uncertainty surrounding the global economic recovery is leading to low activity levels in the construction, mining and other end markets. This is leading to cancellation or rescheduling of orders in these businesses. We do not expect to see substantial recovery in any of these markets for the next couple of quarters.

In response to tough market conditions, both companies have initiated various actions to cut down costs and reduce inventories. Terex aims to cut costs in excess of $300 million per quarter and reduce inventories by more than $500 million by the end of 2009. However, we believe the company will not be able to fully offset the negative impact of lower sales on its earnings. We expect Terex to post a net loss for the year.

Caterpillar, on the other hand, is well equipped to weather the recessionary conditions and remain profitable in this challenging environment. The company is aggressively cutting down costs and is turning to lean manufacturing. With its strong brand name, pricing power, focus on R&D, and global dealer network, we believe Caterpillar is well positioned to take advantage of the growth opportunities once the market recovers.
Read the full analyst report on "CAT"
Read the full analyst report on "TEX"
Zacks Investment Research

It’s Raining Contracts for Northrop – Analyst Blog

Zacks Market Commentaries — Fri, 28 Aug 2009 17:15:19 +0000

Northrop Grumman Corp. (NOC) yesterday bagged two Pentagon contracts worth $5.87 billion. The first contract is worth $3.44 billion, from the Air Force for providing services for the stealth bomber B-2 bomber fleet. The second contract is of $2.43 billion from the Navy for providing services on overhaul, alterations, repair, maintenance and refueling of the nuclear-powered aircraft carrier USS Theodore Roosevelt.

Northrop Grumman is the second largest defense contractor after Lockheed Martin Corp. (LMT). These contracts will boost the dwindling backlog of Northrop, which fell to $70.4 billion after the fiscal second quarter from $76.9 billion year over year. Northrop’s backlog was affected by the cancellation of the $5.1 billion Kinetic Energy Interceptor program by the U.S. Government.

The Air Force contract will maintain the status-quo of the Electronic Systems segment as the star performer. In the fiscal second quarter Electronic Systems’ operating income grew by one-fourth year over year.

Similarly the navy contract will rejuvenate the Shipbuilding segment where sales shrunk by 10%, year over year in the second quarter. The shipbuilding segment’s performance was weak due to lower volume year over year for expeditionary warfare programs.

Based in Los Angeles, California, Northrop Grumman provides products, services, and solutions in information and services, aerospace, electronics and shipbuilding to the military, government, and commercial customers of United States and beyond. The company is the largest IT service provider to the federal government. In addition, Northrop Grumman is the only nuclear-powered aircraft shipbuilder in the United States. We maintain our Long-Term Outperform recommendation on the shares.
Read the full analyst report on "NOC"
Read the full analyst report on "LMT"
Zacks Investment Research

David versus Goliath: Oshkosh Wins Yet Another Big Contract

Andrew Snyder — Fri, 28 Aug 2009 11:37:33 +0000

p500% gains in six months is an astonishing accomplishment. How long can Oshkosh continue to outbid its fierce competitors? /p pJust when most investors believe it shares had topped out and were ready to level off, strongOshKosh (NYSE:a href="http://www.google.com/finance?q=osk" target="_blank"OSK/a)/strong goes and wins yet another huge contract./p pWhen I first started tracking the heavy-equipment manufacturer late last year, shares were going for just $5.76. After a quick, in-and-out recommendation, readers that followed my recommendation locked in gains of 35%./p pNot bad, but we should have held our shares./p pAs I write, those same shares are trading for over $34.00, good for gains of just shy of 500%, up 25% today alone./p pObviously, when a stock surges by that much in that short of a period, the market made#8230;/p

Russia Talks about Building New Bombers, Again

Robert Amsterdam — Thu, 20 Aug 2009 19:35:29 +0000

Wow, it is really starting to feel like military Thursday. Here's another story from Wired's Danger Room reminding us that why Washington isn't really all that concerned over Russia's frequent gestures of hostility:Depending on whom you ask, Moscow's bomber threat...

Russia Huffs and Puffs as the House Comes Down

Robert Amsterdam — Thu, 13 Aug 2009 16:48:20 +0000

Here is the beginning of Robert Amsterdam's latest contribution to Huffington Post:It really is impressive the level of tolerance we've built up when it comes to Russia's confrontational antics. Take for example the move in early August to deploy two...

Valero Wins Aviation Fuel Contract – Analyst Blog

Zacks Market Commentaries — Thu, 13 Aug 2009 16:45:41 +0000

Yesterday, Valero Marketing and Supply Co., a subsidiary of oil refiner and marketer Valero Energy Corp. (VLO), won an aviation fuel supply contract worth up to $230.5 million from the U.S. Defense Logistics Agency. The Pentagon said that Valero will provide the fuel to the Defense Energy Support Center, which manages bulk fuel purchases on behalf of the U.S. Department of Defense. The contract, which ends on Oct 30, 2010, will require Valero to ship the fuel from its 170,000 barrel-per-day refinery in Benicia, California.

We view this contract as a positive for Valero as this will bring much needed cash flows for the company in an otherwise gloomy economic environment. However, a combination of weak demand, excess production capacity, and narrowing crude quality spreads continue to weigh on Valero’s near-term margins, thereby squeezing its profits. Weighed down by these factors, the Texas-based marketer of petroleum products posted a second-quarter loss.

We see limited room for margin gains over the coming months, given the current gasoline and distillate inventory levels and the overall low utilization rate. Given these headwinds, we expect Valero to perform in-line with the market as well as the sector in the coming quarters. As such, we recommend a Neutral rating for Valero shares.
Read the full analyst report on "VLO"
Zacks Investment Research

The Debt Ceiling, Dividend Plays, A Currency Sea Change and More!

Contrarian Profits — Tue, 11 Aug 2009 15:00:11 +0000

pSay what? Geithner begs for higher debt ceiling, says it will restore world confidence#8230; Deficit now three times last year’s record… so Congress buys 8 private jets#8230; A currency sea change? Bill Jenkins on the dollar’s surprise rally#8230; Jim Nelson on the best sectors for income investing#8230; John Williams digs deeper into Friday’ jobs report… four data distortions you need to know#8230;/p p strong“It is critically important that Congress act before the [debt] limit is reached,”/strong Tim Geithner wrote over the weekend in a letter to lawmakers, “so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations.#8221;/p pSounds like our Treasury Secretary is finally putting his foot down, insisting that Congress pull back its lavish spending#8230;/p

The Debt Ceiling Riseth

Contrarian Profits — Mon, 10 Aug 2009 23:30:26 +0000

p“It is critically important that Congress act before the [debt] limit is reached,” Tim Geithner wrote over the weekend in a letter to lawmakers, “so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations.”/p pSounds like our Treasury Secretary is finally putting his foot down, insisting that Congress pull back its lavish spending programs and start addressing our incredible $11.6 trillion national debt./p pWait… what’s that? Oh, Geithner’s actually asking for Congress to raise the debt ceiling. If Congress authorizes our government to dig deeper than $12.1 trillion in debt (our current glass ceiling) our partners here and abroad will somehow “remain confident.” How perverse is that?/p pThe U.S. budget deficit#8230;/p

Lockheed’s F-35 Increases Its Reach to Sea – Analyst Blog

Zacks Market Commentaries — Wed, 29 Jul 2009 23:46:00 +0000

Lockheed Martin Corporation (LMT), the nation's largest defense contractor, unveiled yesterday the carrier variant of the F-35 fighter plane. The F-35 variant, known as F-35C Lightning II, is the first-ever stealth fighter added the U.S. Navy's arsenal.

Lockheed Martin is focusing on F-35 as its primary growth driver in the Aeronautics segment to offset the loss of F-22. The Senate recently voted to stop production of the F-22 plane, putting it as too advanced for the recent trend of low-intensity warfare.

Subsequent to the end of the second quarter of 2009, Lockheed Martin's Aeronautics segmental order backlog was $27.9 billion. The F-35 is slated to replace the F-16 and A-10 fleets. As per media reports, the Pentagon will have to procure about 3,000 F-35 variants over the coming decade for the purpose. The F-35 has three variants, of which two of them are land based differing on the take-off and landing aspects, while the third one is a carrier-based variant.

Lockheed Martin is the primary player in the F-35 program along with industry peers, Northrop Grumman (NOC) and BAE Systems (BAE).

The focus of the Pentagon on the F-35 program is evident as, to date, two separate, interchangeable F-35 engines are under development. The two engines under development are Pratt & Whitney F135 and GE Rolls-Royce Fighter Engine Team F136. However, given the recent White House focus on fund conservation, the GE Rolls-Royce Fighter Engine Team F136 engine being developed by General Electric (GE) for the F-35 has come under a lot of scrutiny lately.

We reiterate our BUY rating on LMT.

Read the full analyst report on "LMT"
Read the full analyst report on "NOC"
Read the full analyst report on "BAE"
Zacks Investment Research

Zacks Analyst Blog Highlights: L-3 Communications Holdings, Inc., Lockheed Martin Corporation, Raytheon Company, FLIR Systems and Sprint Nextel – Press Releases

Zacks Market Commentaries — Fri, 24 Jul 2009 20:12:26 +0000

For Immediate Release

Chicago, IL – July 24, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: L-3 Communications Holdings, Inc. (LLL), Lockheed Martin Corporation (LMT), Raytheon Company (RTN), FLIR Systems (FLIR) and Sprint Nextel (S).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Thursday’s Analyst Blog:

L-3 Communications Displays Resilience

Before the opening bell, L-3 Communications Holdings, Inc. (LLL) opened its second quarter reporting sales growth of 5.6% year-over-year to $3.93 billion barely beating our estimate of $3.88 billion and consensus estimate of $3.84 billion.

Showing resilience the company despite a higher pension liability partially offset the fall in EPS as widely expected. Higher pension liability during the quarter was due to fall in value of pension plan assets. During the quarter EPS fell to $1.90 from $2.21 in the year-ago quarter. However on the way it beat our EPS expectation of $1.83 and street apprehension of $1.77. The pension “poison" in the second quarter has affected defense goliath Lockheed Martin Corporation (LMT) too, only Raytheon Company (RTN) has passed the quarter unscathed.

The bell ringer for L-3 Communications topline during the quarter was the Command, Control, Communications and Intelligence, Surveillance, and Reconnaissance (C3ISR) segment. Capitalizing on the current Pentagon focus on airborne ISR and networked communication systems for manned and unmanned platforms, topline grew 23.6%. While Specialized Products (SP) and Aircraft Modernization and Maintenance (AM&M) segments chipped. However limited downside came from the Government Services (GS) segment where topline shrunk 3% primarily due to the company’s change of status in the linguist services contract.

L-3 Communications improved its whole year EPS outlook by a dime to $7.25 – $7.35 from $7.17 – $7.32. The upsurge in guidance is fuelled by higher expected margins in the C3ISR segment, which is expected to absorb the expected lower margins in the Government Services and the AM&M segments. The company finished the quarter with funded orders worth $3.3 billion and funded backlog of $11.2 billion. However, the market wasn’t kind to all of its peers; FLIR Systems (FLIR) this morning lowered its revenue outlook and upper end of its expected EPS for the whole fiscal. We maintain our speculative BUY rating on LLL.

Sprint Expanding 4G Footprint

Sprint Nextel (S) recently announced the expansion of its fourth-generation (4G) wireless broadband service as the company plans to officially launch services in three more US cities of Atlanta, Portland and Las Vegas in August 2009. The third-largest US wireless carrier also plans to roll out 4G services in additional markets including Chicago, Dallas, Philadelphia, Seattle and Honolulu through 2009. Sprint is deploying its 4G network under the "Sprint 4G" brand based on the WiMax mobile broadband technology.

In early October 2008, Sprint became the first wireless operator to launch 4G mobile broadband services in the U.S with the official commercial service roll outs in Baltimore. The efforts to strengthen its 4G wireless leadership was further demonstrated by the launch of the nation’s first dual-mode mobile broadband service in December 2008, which operates on both 3G and 4G networks.

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Esterline Technologies (NYSE:ESL): Upgraded to Outperform at Credit Suisse; $43 tgt

Notable Calls — Thu, 16 Jul 2009 11:33:00 +0000

Credit Suisse is upgradingspan style="font-weight: bold;" Esterline Technologies (NYSE:ESL)/span to Outperform from Neutral while raising their tgt to $43 (prev. $32).br /div style="text-align: justify;"br /While ESL has strong breadth across the typically late-cycle aerodefense market, the firm thinks its 18% sales (higher % for EBIT) exposure to comm’l aftermarket will allow it to benefit from the nearer-term recovery in spares demand that they anticipate in 2010. Thus the firm sees a single down EPS year in ‘09 as ESL’s diverse markets and acquisitive strategy should drive growth thereafter.br /br /span style="font-weight: bold;"A Volatile Chart: /spanThe Feb. sell-off to $20 traces to an abnormally soft FQ1 (Dec) of $0.38 which startled investors following 8 prior qtrs averaging $0.93 (albeit w/ volatility). The mkt rightfully questioned ESL’s $3.70-$3.90 FY09 guidance after it delivered only 10% in FQ1. However, since then, airline traffic seems to be near bottom, and markets are now considering longer-term earnings pwr. With a more typical FQ2 report of $0.85 in May and an adj. in guidance to a more reasonably achievable range of $3.00-$3.20, the shares rallied quickly to above $30 on 6/5. Credit Suisse sees the recent pull-back to $26 as a good opportunity to get more involved.br /br /a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://4.bp.blogspot.com/_YzBo7Kz5y1M/Sl8Q-o0I2rI/AAAAAAAAAHA/H9dSBRERWf8/s1600-h/ESL.GIF"img style="margin: 0px auto 10px; display: block; text-align: center; cursor: pointer; width: 400px; height: 232px;" src="http://4.bp.blogspot.com/_YzBo7Kz5y1M/Sl8Q-o0I2rI/AAAAAAAAAHA/H9dSBRERWf8/s400/ESL.GIF" alt="" id="BLOGGER_PHOTO_ID_5359020749888215730" border="0" //abr /span style="font-weight: bold;"Diversified Supplier w/ Global Reach: /spanAero spares comprise ~35% of revs (w/ higher margins), amp; they expect comm’l spares to recover late this year or early next. In military, ESL has solid int’l exposure of 10-15% offering diversity away from a slowing US DoD budget. Regarding recent U.S. defense cuts, Sec. Gates clear support for JSF ($1M content/unit) trumps any negative news elsewhere (e.g. A400M).br /br /span style="font-weight: bold;"New $43 TP:/span Today, ESL is CSFB's least expensive aero name w/ a P/E of 8.4x (CY09) amp; 7.3x (CY10E) amp; EBITDA multiple of 5.6x amp; 5.3x, respectively, offering a discount to peers of 12-28% . As well, the B/S is solid w/ net debt at 28% amp; FCF yield of 11%. Firm thinks the days of trough multiples (10x) on trough earnings are over as the mkt gains visibility. Thus, they expand out target multiple to the more historically normalized 12x for ESL’s comm’l aero (40% of total) and industrial ops (20%). For the defense biz (40%), which has sufficient int’l retrofit exposure to outpace U.S DoD budget growth, teyapply a slight premium of 10% to the 11x avg the firm uses for Pentagon-dominated peers, yielding a new TP of $43.br /br /span style="color: rgb(255, 0, 0);"Notablecalls:/span This is a pretty gutsy call from CSFB's Aerospace amp; Defense team. They are basically saying commercial air traffic will recover...which is kind of suspect.br /br /I checked with my aero/def analyst contact this morning and all he had to say was that this sure is a gutsy call. He calls the valuation interesting but notes the '..earnings stream is incredibly lumpy and they will leave you hanging as they don’t give any guidance...'br /br /So there you have it.br /br /span style="font-weight: bold;"I think ESL will trade up considerably today based on this call but is it really investable? Guessing 5-6% upside./span/divdiv class="blogger-post-footer"img width='1' height='1' src='https://blogger.googleusercontent.com/tracker/29297569-406244656230356909?l=notablecalls.blogspot.com'//div

LMT: Will JASSM Blast Off? – Analyst Blog

Zacks Market Commentaries — Tue, 07 Jul 2009 16:30:48 +0000

Lockheed Martin Corporation’s (LMT) long-in-the-making JASSM (Joint Air-to-Surface Standoff Missile) stealth cruise missile may meet a pre-mature detonation.

Although the weapon was declared combat-ready in 2003, LMT on Monday was awarded a measly $23 million contract for production of only 12 Joint Air-to-Surface Standoff Missile-Extended Range (JASSM-ER) test missiles. Of these, 6 will be used to complete a development test flight program while the rest will go for operational tests.

LMT has reason to worry, since the $6 billion radar-evading missile under development since 1996 is a plausible target for the Pentagon trying to realign its weapons programs portfolio under budgetary complications. The long-range, conventional, precision missile designed to destroy fixed and moving targets is still far from the Air Force's 90% reliability requirement.

Finally, the US Air Force's proposed fiscal 2010 budget set aside only $82.2 million for missile reliability issues while excluding any funding for new missiles. The fate of JASSM will be sealed only after critical tests in late summer.
Read the full analyst report on "LMT"
Zacks Investment Research

Thales Partners with Russia on Weapons

Robert Amsterdam — Mon, 29 Jun 2009 18:09:20 +0000

There's an interesting post over at RCW's Compass blog on the new memorandum of understanding signed between the French defense giant Thales and the Russian state arms exporter Rosonboronexport to jointly manufacture and sell arms to third parties, beginning with...

Boeing’s Flight Delayed – or Canceled?

Jim Musselwhite — Thu, 25 Jun 2009 18:14:18 +0000

By Guest Author: Adam Lass (www.taipanpublishinggroup.com) Anyone who has ever flown on most any commercial airline is familiar with this scenario: Your plane is supposed to depart in the next few minutes. The big board says the flight is on time. The lady behind the counter is all smiles. But you haven’t actually boarded or anything. In [...]

Boeing’s Flight Delayed – or Canceled?

Contrarian Profits — Thu, 25 Jun 2009 15:45:56 +0000

pBA obviously can#8217;t land its 2009 numbers. So when does arrogance become fraud?/p pAnyone who has ever flown on most any commercial airline is familiar with this scenario: Your plane is supposed to depart in the next few minutes. The big board says the flight is on time. The lady behind the counter is all smiles./p pBut you haven#8217;t actually boarded or anything. In fact, as you squint out the window, you can see that emthere is no plane available to board/em, a fact that the oblivious clerk seems unable or unwilling to acknowledge./p pThirty minutes after your takeoff slot has come and gone, the ubiquitous screens that decorate the departure lounge#8217;s walls suddenly blur, flicker and light up with the announcement that#8230;/p

The American Empire is Unraveling Reckons Bill Bonner

Contrarian Profits — Tue, 19 May 2009 14:46:08 +0000

pa href="http://www.contrarianprofits.com/articles/author/bill-bonner/" class="alinks_links"Bill Bonner/a believes America is in irreversible decline. We think he’s probably right. The following extract from The a href="http://www.dailyreckoning.com" class="alinks_links"Daily Reckoning/a sums up the scale of the challenges facing the US./p blockquotepAfter the Berlin Wall came down#8230; America had no enemies worthy of the name. She had a monopoly franchise on the world#8217;s money - the dollar was the undisputed queen of the planet#8217;s reserves. And she had a monopoly on military power too - the undisputed king of the hill, with a Pentagon budget nearly as large as all other nations#8217; military spending put together./p pBut nature abhors a vacuum and detests a monopoly. Lacking a suitable challenger, America had to become her own worst enemy. Lacking a rival who could destroy her, she#8230;/p/blockquote

Why Buy Check Point?

Bullish Bankers — Wed, 13 May 2009 11:00:46 +0000

Why buy Check Point Software Technology [CHKP: 22.18, 0.00 (0.00%)]? Check Point is the gorilla of pure-play security software. The company is a global leader in cyber security software with products deployed in virtually every major global corporation including all Fortune 100 companies and its technology dominates the global market for perimeter defenses such as [...]

Is America Overstretched?

Bill Bonner — Tue, 12 May 2009 20:54:27 +0000

pO! Bama! Whither takest thou us? There are two broad theories concerning the great men of history. One says that history is made by great men. The other says great men are made by history. But here at emThe a href="http://www.dailyreckoning.com" class="alinks_links"Daily Reckoning/a/em we think they’re both wrong. strongIn our book, great men don’t really exist. They are merely invented by the historians./strong History needs heroes. Sometimes tragic heroes… sometimes comic… the historians take what they’ve got to work with and set them spinning. But if you look at their leading characters closely, they look little different from the rest of us… just fellow passengers on the big bus./p pPoor Obama. He seems like such a likable fellow. He would probably make a good college#8230;/p

Global Investment News Briefs Thursday April 23, 2009

Contrarian Profits — Thu, 23 Apr 2009 14:09:56 +0000

pMF Cuts Global Outlook; Brazil Hedge Fund Sells Banks, Homebuilders; February Home Prices Up 0.7%; Home Prices in Dubai Could Fall 70%; Apple Tops Forecasts; Feds Search Siemens’ Offices; Freddie Mac CFO Found Dead; E-Bay Beats Street /p ul type="disc" liIn its latest global outlook, the International Monetary Fund (IMF) slashed the growth forecast for every major country and urged more recovery actions. The IMF said the global economy a href="http://www.reuters.com/article/ousiv/idUSTRE53L32C20090422"will likely contract 1.3% this year/a and post a 1.9% gain next year, strongemReuters /em/strongreported./li /ul ul type="disc" liMercatto Estrategia FI, a Brazilian hedge fund that is beating 97% of its peers, a href="http://www.bloomberg.com/apps/news?pid=20601086#38;sid=auUWGiDWn7xk#38;refer=latin_america"is selling assets of the country’s largest homebuilders and banks/a, saying they are overvalued, strongemBloomberg /em/strongreported. “Since we’ve lived through a liquidity crisis, it shook up the#8230;/li/ul

Boeing: Light at End of Chunnel? – Analyst Blog

Zacks Market Commentaries — Fri, 17 Apr 2009 21:38:49 +0000

Highlights include The Boeing Company (BA) and Northrop Grumman (NOC).

Boeing: Light at the End of the Chunnel?

Louis Gallois, the CEO of EADS (the acronym for the European Aeronautic Defense and Space Company, which, in turn, is the parent of Airbus) is reported to have said that his company would probably bid on the oft-delayed $35 billion Air Force tanker program, even (or, perhaps, especially) if the contract was split between the EADS/Northrop Grumman (NOC) team and Boeing -- as long as EADS/NOC could build a minimum of 12 planes per year, which, in turn, would make it worthwhile for EADS/NOC to build a factory in Mobile, AL (where some fear that Airbus would then start producing commercial airliners, though not for awhile).

Secretary of Defense Gates apparently doesn't like that idea. However, several members of Congress do, and they have some sway in the matter. There is a bit of history supporting the use of more than one type of tanker aircraft: the KC-10 Extender cargo/tanker, which was derived from the DC-10-30, which was built by McDonnell Douglas, which was acquired by The Boeing Company (BA). Secretary Gates apparently fears that the Pentagon would lose some of its ability to control costs if there are two types of tankers; that may be a specious concern, as the DoD supposedly is going to add some twenty thousand acquisition officers to its managerial quiver and, surely, they could handle two tanker contracts.

Perhaps more importantly, we could get down to the business of building airplanes -- which, in this case, will have different characteristics -- and that might be a good thing for an ever-changing threat scenario, as well as the economy -- both here in Washington as well as Alabama. Boeing wouldn't have to spend as much on the bidding process, and probably would be the first in the air, as personnel become available from the declining commercial side.

The other glimmer of white light is that the Army's $159 billion Future Combat System -- for which Boeing is a co-program manager (with SAIC) -- may be resurrected in a somewhat different form. Instead of developing all new vehicles, the program would use current and modified versions of the existing MRAPs -- the acronym for mine resistant ambush protected armored vehicles -- while still pursuing advanced technology which would allow our armed services to better-handle the current wide-spread threats of guerilla warfare.
Read the full analyst report on "NOC"
Zacks Investment Research

Pentagon preps for economic warfare

Alex Stanczyk — Mon, 13 Apr 2009 11:53:40 +0000

By: Eamon Javers April 9, 2009 04:18 AM EST The Pentagon sponsored a first-of-its-kind war game last month focused not on bullets and bombs — but on how hostile nations might seek to cripple the U.S. economy, a scenario made all the more real by the global financial crisis. The two-day event near Ft. [...]

More Evidence of Pentagon Budget Cuts…Will it Actually Happen?

Michael E. Brisky — Tue, 31 Mar 2009 18:17:00 +0000

Yesterday I mentioned Raytheon (a href="http://finance.yahoo.com/q?s=rtn"RTN/a) for an investment at these levels. Today, a href="http://www.breitbart.com/article.php?id=D9794LL81"we find a little more news on the subject./abr /br /span class="lingo_region"blockquoteA Senate defense committee chairman says Pentagon budget will include large, painful cuts. Senate Armed Services Committee Chairman Carl Levin said Tuesday that major program cuts will not be pushed off until the 2011 budget, but will be included when Defense Secretary Robert Gates sends his spending plan to the president later this month. p Levin's comments confirmed what many contractors and military leaders have expected, but he offered no details on which programs may be axed. He said Pentagon officials have indicated they will not be able to submit the much-anticipated spending plan by April 21, as initially hoped. /p/blockquotepbr //ppWhat does this mean? For now, not much. This thesis has been priced into all defense stocks, and thats why I like Raytheon's valution. I'm actually a believer that we spend far too much money on certain aspects of defense, and there would be a lot of ways to intelligently trim the budget. But the government doesn't really work that way. Its more likely to move in larger, more sweeping movements. And although President Obama was in favor of making some major changes, as of right now, he appears to be becoming more conservative in terms of policy (I don't mean fiscally conservative, I mean conservative as in not changing). br //ppSo what I mean is that its still unlikely to see a huge cut in defense spending. If significant changes do come, it won't be for a few years and the near term outlook for these stocks, especially Raytheon, remains strong. They just raised their dividend and have a strong balance sheet. I like the stock in the near term. br //ppNo current position, but considering. br //p/spandiv class="blogger-post-footer"img width='1' height='1' src='http://res1.blogblog.com/tracker/819581243324579563-6269431351333355161?l=briskycapital.blogspot.com'//div

Defense Sector Rumblings Ahead – Analyst Blog

Zacks Market Commentaries — Tue, 17 Mar 2009 19:41:50 +0000

Highlights include The Boeing Company (BA), General Dynamics Corp. (GD), Lockheed Martin Corp. (LMT), Northrop Grumman Corp. (NOC) and Raytheon Company (RTN).

Awhile back, we published the following warning regarding the Defense Sector: Watch out for the light at the end of the tunnel -- it could be the termination express! Well, it looks like the train is about to arrive.

Reportedly, Defense Secretary Gates is readying the most extreme changes to the Pentagon's spending plans since the end of the Cold War. It is possible that the Pentagon will call for the termination of as many as 6 major weapons systems as soon as the end of March. Programs which are probably on the block include the DDG X Destroyer and the F-22 Lightening II. And these are just the starters. If history repeats itself -- as it has many times in such instances -- other programs will also be axed further down the road to extinction.

The known (there are items hidden in other budgets) Dept. of Defense budget for next year is $534 billion. With all the other demands being put on our financial resources -- including a war in Afghanistan which many observers feel is unwinnable -- this may be the highest defense budget for many years to come.

The big companies that will be affected by such actions are the normal list of suspects: Boeing (BA), General Dynamics (GD), Lockheed Martin (LMT), Northrop Grumman (NOC), Raytheon (RTN), et al.

However, there are a myriad of suppliers that will also be impacted -- just at the same time that Commercial Aerospace is in a nosedive. When it rains, it pours!

Read the full analyst report on "GD"
Read the full analyst report on "LMT"
Read the full analyst report on "NOC"
Read the full analyst report on "RTN"
Zacks Investment Research

Doug Casey: Opportunities Amidst Crisis

The Energy Report — Thu, 26 Feb 2009 21:54:11 +0000

Bullion and oil appear in the lineup of power players that Doug Casey thinks investors can count on as the world slips deeper and deeper into what he calls the “Greater Depression.” Despite the raging economic storm and Doug’s doubts that Western civilization’s governments will take the actions needed to quell it, though, the Chairman [...]

Doug Casey: Opportunities Amidst Crisis

The Gold Report — Wed, 25 Feb 2009 01:52:26 +0000

MARKET COMMENT February 3, 2009 I’m back in the turret today.

David Fry — Tue, 03 Feb 2009 23:46:36 +0000

MARKET COMMENT February 3, 2009 I#8217;m back in the turret today. Actually I#8217;ve only been away physically since making a presentation to an audience of RIAs doesn#8217;t get your mind off the markets now does it? This is still a pretty lethal market for position traders versus day-traders whether doing business in their pajamas or from what#8217;s left of WS trading desks and hedge funds. Take a little TARP money and route it to the trading desks for fun and profit.

Obama’s Stimulus Plan Backed by Promises of Fiscal Restraint Tax Cuts

Contrarian Profits — Tue, 06 Jan 2009 13:19:16 +0000

pPresident-Elect Barack Obama headed to Capitol Hill yesterday (Monday) to meet with House and Senate leaders to push for quick action on his broad economic stimulus package that could cost as much as $775 billion. /p pBut in a concession to his need for bi-partisan support to pass any package, Obama promised “a href="http://www.nytimes.com/2009/01/05/us/politics/05spend.html?bl#38;ex=1231304400#38;en=99a6130dae16eb41#38;ei=5087" target="_blank"radical reforms/a” to impose more control over the federal budget in the future, strongemThe/em/strong strongemNew York Times /em/strongreported.strong/strong/p pRepublican leaders have already started voicing criticism of the recovery plan, offering their own ideas about what it should contain. Obama aides hope to soften the perception of the plan as an “open checkbook” by focusing more on tax cuts than on spending./p pTo firm up support among Congressional skeptics worried that Obama was#8230;/p

Police Prepared In Anticipation of Civil Unrest? Military force on American Soil?

Alex Stanczyk — Tue, 23 Dec 2008 18:49:13 +0000

Ariz. police say they are prepared as War College warns military must prep for unrest; IMF warns of economic riots Phoenix Business Journal - by Mike Sunnucks A new report by the U.S. Army War College talks about the possibility of Pentagon resources and troops being used should the economic crisis lead to civil unrest, such as [...]

RA’s Daily Russia News Blast – Nov 13, 2008

Robert Amsterdam — Thu, 13 Nov 2008 11:00:55 +0000

TODAY: Kremlin continues to ignore Bush administration, Medvedev optimistic on relations under Obama; US to support Ukraine’s NATO bid at meeting; Russia wants EU inquiry into OSCE accounts of outbreak of war in Georgia; population to drop by 34 million by 2050. The Kremlin is continuing to reject proposals from the US Bush administration on its planned missile defense shield, insisting that it will try to resolve the dispute once Barack Obama takes office. In a televised interview, Dmitry Medvedev announced that he had high hopes for US-Russia relations under President-elect Obama, and reiterated his statement that Russia would abandon plans to deploy missiles near the Polish border if the US abandoned its own missile defense plans in the region. The Pentagon General in charge of missile defense is anxious that the US keep to its plan. Meanwhile US Defense Secretary Robert Gates is planning to show support for Ukrainian membership at today’s NATO meeting. Despite his insistence that NATO expansion is not a threat to Russia, US support for Ukraine is likely to further sour relations.

Russia’s View on the Elections

Robert Amsterdam — Sat, 01 Nov 2008 16:59:46 +0000

This bit comes from Rose Gottemoeller in the Moscow Times:

Obama and Medvedev would do well early in their relationship to make some policy decisions that would sharply break with Cold War patterns. For example, although Obama would not have assumed command of the U.S. military when Russia's naval flotilla completes its exercises off Venezuela in mid-November, he could suggest that the Pentagon invite the Russian commanders to stop off at Central Command in Florida before their return to Russia. The purpose of the stop would be to discuss urgent issues that are engaging both navies, such as the piracy that is running rampant off Somalia. And Medvedev, although he would have to push back against Kremlin hard-liners, could recommend that Moscow and Washington have some urgent issues to work on together with Tbilisi. Smuggling through South Ossetia has been a persistent problem, and it has at times involved that most dangerous of contraband -- fissile material that could be used to make nuclear bombs. Both Georgia and Russia have cooperated with the United States to build defenses against nuclear smuggling, and all three could cooperate to confront this terrible problem. These two examples show clearly what must be done to get beyond the Cold War. They convey that Russia and the United States can cooperate rather than compete, even in their own backyards. Since Obama and Medvedev are so clearly of a new generation, they are the leaders who may finally succeed in breaking the old patterns.

Grigory Pasko: Interview with Zakhar Prilepin

Robert Amsterdam — Mon, 27 Oct 2008 16:32:24 +0000

Talk of a writer with a lieutenant-colonel Grigory Pasko, journalist Если Вы хотите прочитать оригинал данной статьи на русском языке, нажмите сюда. In the writer Zakhar Prilepin’s essay "Поедем на авто, несогласный?" ["Shall we take a drive, dissident?"] (the book "Я пришел из России" ["I came from Russia"], Limbus Press, the year 2008) is described the dialogue of the author with an employee of the FSB (the feesbeshnik [FSB-nik—Trans.] speaks first):

“Look here, you’re a famous person – but you’re not afraid that they’ll use you?” “Who can use me, if I myself don’t want this? The CIA? The Pentagon? A masonic lodge?” “Well, something could be offered to you too…” “Nothing can be offered to me, I have everything. Things can only be taken away from me.” Further on, the author comes to the conclusion that he and his interlocutor are really not all that different. “The difference, really, is in one thing: if it will be necessary to ‘seat’ me [lock me up—Trans.] – he will ‘seat’ me. But I wouldn’t ‘seat’ him…”, - the author of the essay concludes his musings.

Sarkozy Calls for European Sovereign Wealth Funds to Protect Assets

Contrarian Profits — Wed, 22 Oct 2008 13:21:05 +0000

Concerned about the recent decline in stock prices, French President Nicolas Sarkozy, yesterday (Tuesday) called for the creation of European sovereign wealth funds. The funds would be virtual carbon copies of the state-owned investment vehicles that have sprung up from Beijing to Abu Dhabi to disperse their respective nations’ cash reserves in foreign assets.

Addressing the European Parliament, President Sarkozy implored his European contemporaries to embrace the current period of economic upheaval as an opportunity to restructure the global financial system. According to the Daily Telegraph, he also articulated the concern of many Western authorities that sovereign wealth funds, located primarily in Asia and the Middle East, could use their massive cash reserves to scoop up key foreign assets at extraordinarily…

Government Bailout Is for its Own Spending Needs

Contrarian Profits — Tue, 07 Oct 2008 14:14:26 +0000

The Mogambo Guru says the real motive for Hank Paulson's bailout bill was that the government needs the money for its lavish spending requirements. And what the government needs, the Fed will print. Of course, this will eventually bring down the dollar, and send gold soaring...

This from The Daily Reckoning:

If you want to know the Real, Real Reason (RRR) why we are being subjected to a $700 billion bailout of the economy, which is just the beginning, it is because the despicable Alan Greenspan, during his foul 18-years as chairman of the loathsome Federal Reserve, created all the money and credit that financed the stock market boom, the bond market boom, the housing boom and (worst of all) the growth-in-government boom.

And now, all those things are bid up waaaAAAaaaayyyyy past their real values, and buyers are scarce while sellers are many. So the owners of those depreciating assets suddenly realize that they either have to hold onto them and go bust, or find some moron with a lot of money to buy them. Oops!

Tragically, while stocks can go bust, and bonds can go bust, and houses can go bust (and they are), the growth-in-government boom cannot be allowed to go bankrupt, because half of the people in the country now receive a government check of some kind as their income every month (Social Security, welfare, etc.), AND the governments collectively "employ" half the workers in the country because half the nation's workers have incomes that derive from government spending either directly or indirectly!

So, the real reason is: Governments need the money! It's as simple as that!

I know you find it hard to believe me, since Total Payrolls is officially listed as $145.5 million, while government payrolls is shown as $22.5 million - but it's true, nonetheless.

Firstly, these "government payrolls" do not variously count such things as firemen, policemen, teachers or any of myriad "contracted out" services, which means that the contracting private-sector provider is a private company that gets all of its income from government, thus they are indirectly, but totally, employed by government.

Now, add in ALL of those "contracted" services that government buys, such as building maintenance, lawn services, office supplies, equipment providers, equipment servicing contractors, rented office space, security services, pornography downloads, storage space, and parking areas, all of which is counted as being "private employment", when in fact it is Pure Public Payroll (PPP).

Now, we apply the multiplier as these incomes provided by the government are received and then spent, providing another income to someone else, which is also spent, providing another income to someone else, which is also spent, providing another income to someone else, over and over, all the while being whittled down by taxes.

Since all multipliers range between 3 and 7, even a multiplier of 3 will be enough to enlarge the official 22.5 million government employees to 67.5 million, which is almost half of the total 145.5 million employed in the whole freaking country!

As proof, I offer the Energy & Scarcity Investor newsletter, where we get the report that "Last year, the Pentagon spent $316 billion on contracts with private firms", which is "more than it spends on actual weapons to fight wars."

So, not only do "military contractors account for more than half of all Defense Department spending - 57.6%", but there are a lot of these "private employees" in the "47,000 companies to choose from - running the gamut from blue chips to start-ups" that are getting, and living on, government money.

Ergo, the government desperately needs money, the Federal Reserve will create the money the government wants, the fresh government debt will be bought up, the money supply will increase, the value of the dollar will continue to fall, and gold will rise along with, and almost certainly more than, the rise in all other prices! Whee! This investing stuff is easy!

Source: Government Spending Spree

5 Things You Need to Know about Paulson’s Bailout Plan

Justice Litle — Tue, 23 Sep 2008 19:06:31 +0000

Make no mistake: we are in uncharted territory. Hank Paulson wants $700 billion of taxpayer’s money to buy up bad debt and ‘rescue’ the markets.Some lawmakers strongly opposed to the plan. “The free market for all intents and purposes is dead in America,” said Senator Jim Bunning, Republican of Kentucky, on Friday. Justice Litle says the plan [...]

Surrendering Abkhazia and South Ossetia

Robert Amsterdam — Wed, 10 Sep 2008 14:29:57 +0000

The Los Angeles Times has an interesting piece about the testimony before the Senate Armed Services Committee by Daniel Fried and Eric Edelman, debating the U.S. response to the Russian invasion of Georgia. While Democratic Senators are criticizing the government's weak response, there are indications that the Pentagon is willing to allow Russia de facto control over Abkhazia and South Ossetia. Russia Today has already produced a gleeful propaganda piece declaring that Washington is "divided" over Georgia ... yes, the inconveniences of democracy are not well known in Russian foreign policy circles, but it would be a mistake to believe that there isn't consensus on the basic opposition to this war.

Fried dismissed charges that condemnation of Russia's action was too modest a response, saying the Kremlin was facing diplomatic isolation. "You're quite right that a couple of communiques that use the word 'condemn,' by themselves, if this is all there is, does not constitute a lasting lesson," Fried said. "But it is a pretty good beginning." Still, Fried and Edelman remained vague about how the administration might attempt to get tougher, sidestepping several questions from the committee's Democratic chairman, Sen. Carl Levin of Michigan, about what measures the administration was actively considering. Fried went so far as to suggest that, though the administration adamantly opposed any Russian move to annex Abkhazia and South Ossetia, it was willing to allow de facto Russian control of the regions. He said that it was a prime American goal to prevent Georgia's sovereignty from being "crushed."

GeoEye Inc. (GEOY) Signs Deal to Provide Imagery to Google

QualityStocks — Fri, 29 Aug 2008 17:32:54 +0000

GeoEye Inc. (GEOY) is the premier provider of geospatial information for the national security community, commercial customers, and strategic partners to help them better map, measure, and monitor the world. The company is recognized as the industry’s trusted imagery expert for delivering reliable service and the exceptional quality of its imagery products and solutions. In [...]

Boeing Threatens to Pull Out of $35 Billion Air Force Tanker Program

Money Morning — Tue, 26 Aug 2008 04:21:08 +0000

By William Patalon III Executive Editor Money Morning/The Money Map Report The Boeing Co. (BA) doesn’t believe it can win the controversial competition for a $35 billion U.S Air Force... Money Morning is here to help investors profit hand...

Russia’s Artful Invasion

Robert Amsterdam — Sun, 17 Aug 2008 15:35:06 +0000

From the International Herald Tribune:

So along with the old-school onslaught of infantry, armor and artillery, Russia mounted joint air and naval operations, appeared to launch simultaneous cyberattacks on Georgian government Web sites and had its best English speakers at the ready to make Moscow's case in television appearances. If the rapidly unfolding events caught much of the world off guard, that kind of coordination of the old and the new did not look accidental to military professionals. "They seem to have harnessed all their instruments of national power — military, diplomatic, information — in a very disciplined way," said one Pentagon official, who like others interviewed for this article disclosed details of the operation under ground rules that called for anonymity. "It appears this was well thought out and planned in advance, and suggests a level of coordination in the Russian government between the military and the other civilian agencies and departments that we are striving for today."