2011 September

Lockheed Martin To Cut 540 Jobs

Lockheed Martin (NYSE:LMT) revealed plans to reduce the work force of its aeronautics business by about 540 jobs by year’s end. The company had targeted about 1,500 job cuts back in June. The greatest impacts are occurring at Lockheed’s larger sites in Texas, Georgia, and California. The aeronautics unit of Lockheed employs about 28,000 people. The reductions were offset by more than 450 employees taking voluntary layoffs and the elimination of about 300 unfilled jobs, as well as 300 layoffs earlier in the year.

In July, the company reported its second-quarter profit rose 3.9% as it posted continued sales growth in its electronic systems and aeronautics segments, but saw expenses increase due to work force reductions. Though Lockheed raised its full-year guidance, it also faced the prospect of deeper cuts in U.S. defense spending, in addition to broader changes in global military programs.

Lockheed Martin’s aeronautics unit had approximately $13.3 billion in 2010 sales which included tactical aircraft, airlift, and aeronautical research and development lines of business.

Headquartered in Bethesda, MD, Lockheed Martin is a global security company that employs about 126,000 people worldwide and is principally engaged in the research, design, development, manufacture, and integration of advanced technology systems, products and services.

Shares were up 1.5% at $73.15 in recent trading. The stock is up 4.6% this year.

Case Shiller Index Shows Glimmer Of Hope In Housing

The Standard & Poor’s/Case-Shiller index of 20 American cities, a key measure that is closely watched by economists, was up 0.9% over June, but down 4.1% from July 2010. The month-over-month bump is likely due to the seasonal boost the housing market gets over the summer.

Albeit a glimmer of hope, most economists agree the housing industry is a long way off from a sustained recovery. “While we have now seen four consecutive months of generally increasing prices, we do know that we are still far from a sustained recovery,” David Blitzer, chairman of the S&P index committee, said in a data release on Tuesday.

Economists predict prices will drop again in fall and winter. All California cities in the index posted minor month-over-month gains. Los Angeles was up 0.2%, San Diego 0.1% and San Francisco 0.3%.

Economists expect the sector will remain weak for years to come but the long slide in house prices since 2008 could be in sight. The Case-Shiller 20 cities index is down about 31 percent from its peak in 2006.

The Case-Shiller index also includes data adjusted for seasonal variations, but the experts who publish these numbers have cautioned that the large number of foreclosures on the market have distorted the statistics. The adjusted data showed the index was flat from June to July.

A government report on Monday showed new home sales slipped 2.3 percent in August to a six-month low. Prices also fell in August.

Last Week, the Unites Sates Federal Reserve announced new measures to ease credit for home buyers. Analysts caution that the level of mortgage rates is not the main hurdle to buying a home. Many economists are skeptical that attempts to lower rates won’t help because millions of Americas owe more on their mortgages than their homes are worth. This effectively chains them to their properties and prevents them from refinancing to lower their monthly costs.

UAW/Ford Talks And GM Deal Hit Home-Stretch

Talks between the United Auto Workers and Ford Motor Company for a new labor contract are nearing a conclusion. General Motors is looking to vote on ratification of the proposed agreement by the UAW.

The union began an intense focus on Ford a day after the UAW failed to finalize a deal with Chrysler Group LLC, then extended its contract with the Fiat SpA-controlled automaker until October 19, 2011. Chrysler and UAW negotiators held “high-level” discussions over the weekend and were scheduled to continue on Tuesday. UAW represented workers have begun voting on a four-year deal reached a week ago with GM. Union officials hope to wrap up that voting by Thursday. Early results show most union locals supporting the deal.

The GM deal would keep or create more than 6,000 factory jobs, raise wages for entry-level workers, and guarantee all workers bonuses of at least $11,500 over four years. New four-year contracts for GM and Chrysler workers would be the first since those two companies were bailed out by the Obama administration in 2009. UAW represented autoworkers have gone without a base pay increase since 2003.

The ongoing talks with Ford are similar to the GM deal which covers 48,500 GM employees. Ford has approximately 41,000 employees represented by the UAW. Ford employees have the right to strike and also have high expectations for wages and benefits because of the strong performance by the company. The last UAW strike at Ford was in 1976.

The UAW has made job retention and expansion in the United States a top goal in its talks with the companies. The UAW is rumored to be asking Ford to shift work from Mexico back to the United States.

Consumer Confidence Essentially Flat

Consumer confidence is showing a slight improvement for the month of September after a disappointing plunge in August. The Conference Board, a private research group is reporting that its consumer confidence index rose to 45.4 in September, up from the 44.2 reported for August. The August reading was the lowest since April 2009, almost 15 points below July’s reading of 59.2. However, the slight increase still finds consumer confidence essentially flat.

A reading above 90 shows the economy is on solid footing, and a reading above 100 shows strong economic growth. Economists closely watch the number consumer spending accounts for 70% of U.S. economic activity.

The Conference Board bases its index on results of a survey it conducts the first half of each month with 5,000 randomly selected households nationwide.

Lynn Franco, Director of The Conference Board Consumer Research Center, said: “The pessimism that shrouded consumers last month has spilled over into September. Consumer expectations, which had plummeted in August, posted a marginal gain. However, consumers expressed greater concern about their expected earnings, a sign that does not bode well for spending. In addition, consumers’ assessment of current conditions declined for the fifth consecutive month, a sign that the economic environment remains weak.”

The Conference Board wrote: “Consumers’ short-term outlook, which had deteriorated sharply last month, improved slightly in September. Those expecting business conditions to improve over the next six months decreased to 11.3 percent from 11.8 percent, while those expecting business conditions to worsen declined to 22.6 percent from 24.6 percent.Consumers were also slightly less pessimistic about the outlook for the job market. Those anticipating more jobs in the months ahead edged up to 12.0 percent from 11.8 percent, while those expecting fewer jobs declined to 28.6 percent from 31.2 percent. The proportion of consumers anticipating an increase in their incomes, however, declined to 13.3 percent from 14.3 percent.”

A retail analyst, Alison Paul, Vice Chairman of Deloitte LLP, said shoppers will remain focused on deals into the winter holidays but could spend a little more than last year, barring catastrophic events.”I think we are going to have an OK Christmas,” Paul said. “What shoppers say and what they do are two different things. Shoppers continue to sound down, but they still show up at the stores. “Deloitte expects stores’ revenue to grow 2.5 percent to 3 percent for the period from November through January. Last year, it rose 5.9 percent.

Minimum Wage Jobs = Poverty

Everyone agrees America needs more jobs to emerge from the economic slump this country faces. Besides the continued high unemployment rate of 9.1%, another problem is the untold millions of Americans working for minimum wage.

Paul Osterman, an economics professor at MIT recently wrote that it is crucial to increase the minimum wage in order to get more cash to the working poor in this country. About 20% of American adults who have jobs are earning only $10.65 an hour or less, according to Osterman’s analysis. A worker putting in 40 hours a week at $10.65 an hour will make less than $22,314, the poverty level for a family of four.

The federal minimum wage currently stands at $7.25 an hour, although eighteen states set their own rates above the federal level, maxing out at $8.67 an hour in Washington State. Increases in the minimum wage have not kept up with inflation. When adjusted for inflation, the highest federal minimum wage was in 1968, when it was the equivalent of $10.38 in today’s dollars.

In Osterman’s new book called “Good Jobs America”, he called for the minimum wage to be gradually raised to over $10. “If you give someone making $15,000 a year a $3,000 increase, that’s going to make a tremendous difference in their life,” he said. Osterman points out that a greater percentage of the nation’s income goes to corporate profits. Osterman said, “There needs to be standards in the job market,” he said. “If the object is simply to minimize costs, we can use slaves again.”

Some economists believe that raising the minimum wage will cause small businesses to cut back on hiring or eliminate employees altogether. Historically though, most businesses say they cut back when demand is weak and in surveys of businesses, wages are not listed as a major concern. However, most economists agree if you raise wages in a stalled economy, there would be lost jobs. Once the economy starts growing again, that would be the time to address this issue.

Walgreens Sales Up 6.5%

Walgreen Co. (NYSE:WAG) said on Tuesday its fourth-quarter profit rose to $792 million, or $.87 a share, from $470 million, or $.49 a share, in the year-ago period. While excluding a one-time gain of $.30 a share, Walgreens earned $.57 a share in the latest period. Fourth-quarter sales rose 6.5% to $18 billion. Wall Street analysts expected Walgreen Co. to earn $.55 a share on revenue of $17.94 billion, according to a survey by FactSet Research. Walgreens said it continues its plan to move forward without a contract with pharmacy benefits firm Express Scripts after Dec. 31, 2011. “Walgreens is working with a number of partners to explore all options,” a spokesman for the drug store chain said.

Walgreen Co., based in Deerfield, Ill., said when it reported fiscal third-quarter results that it was ending its relationship worth $5.3 billion per year with Express Scripts. Walgreen said that the St. Louis company was not paying it enough money to fill prescriptions. It also complained that Express Scripts was trying to dictate terms of the partnership.The conflict intensified this month. Walgreen said it plans to stop filling prescriptions managed by Express Scripts Inc. on Jan. 1, 2012 saying contract renewal negotiations between the companies are stalled.

Walgreens is the largest drugstore chain in the United States and is the largest provider of flu shots behind the federal government.

Walgreen Co. together with its subsidiaries, operates a drugstore chain in the United States. The Company provides its customers with multichannel access to consumer goods and services, and pharmacy, health and wellness services in communities across America. Walgreen offers its products and services through drugstores, as well as through mail, by telephone, and via the Internet. It sells prescription and non-prescription drugs, as well as general merchandise, including household products, convenience foods, personal care, beauty care, candy, photofinishing and seasonal items. Its pharmacy services includes retail, specialty, infusion, medical facility, long- term care and mail service, along with pharmacy benefit solutions and respiratory services.

Stock Futures Soar

Stock index futures soared on Wall Street this morning joining a global rally. As of 8:00 a.m. ET, Dow Jones Industrial Average futures jumped 189 points to 11,161, S&P 500 futures soared 21 points to 1,179 and Nasdaq 100 futures rose 37.5 points to 2,264.

After a blistering week, the markets have staged a nice rebound bid. The blue chips rose 272 points in yesterday’s session. The yield on the 10-year Treasury, which touched historic lows during the intense volatility of last week, has climbed in a sign of the return to riskier equity and commodities markets. The benchmark bond recently yielded 1.966%, up from 1.905%. The U.S. Federal Reserve’s decision last week to ease monetary policy looks to be working so far.

European shares also bounced back with the Euro Stoxx 50 jumping 4.4% over the last two sessions. Emerging market shares rose 4%. Yields on long-term core euro zone bonds shot up.
After losing more than 7 percent last week, the MSCI all-country world stock index was up 1.8 percent for a more than 2.5 percent rebound so far this week. Japan’s Nikkei gained 2.8%.

After a series of meetings over the weekend by the International Monetary Fund, expectations have risen that European policymakers will act to contain Greece’s sovereign debt problems and act quickly so there will be no spillover into the global economy.

Officials have hinted there are plans underway to increase the size of the bailout to Greece and to recapitalize banks in the process. “Given so much uncertainty at the moment, there is room for both pessimism and optimism. The optimists have taken the forefront on hopes that we could see European politicians getting to grips with the current situation over the coming weeks,” said Keith Bowman, an analyst at Hargreaves Lansdown.

Rumors Of Apple’s iPad Supply Slowdown

Apple Inc. stock shares fell over 3% in early trading Monday on Wall Street after reports by an analyst said the company was cutting orders from suppliers of parts for its iPad tablet.

JPMorgan Chase said a research note out of Asia suggested that several suppliers indicated in the past two weeks that Apple lowered fourth-quarter iPad orders 25%. “Our understanding is that this is not in preparation for a new model launch,” said Gokul Hariharan, JP Morgan’s Asia Pacific electronic manufacturing services analyst. JP Morgan’s U.S. based Apple analyst, does not expect the supply chain adjustments to result in lower estimates for iPad shipments. Other analysts have also stated they will not be changing their shipping estimates.

“The iPhone 5 launch is much more important than the iPad right now,” said BGC Partners analyst Colin Gillis. “Could the tablet market slow down? Yes absolutely, but data from factories is notoriously unreliable especially since Apple started diversifying their supplier base.” BTIG analyst Walter Piecyk said he would be maintaining his forecasts of Apple selling 13 million iPads in the fourth quarter.

Global tablet sales are expected to explode to more than 50 million in 2011. Apple, which has sold nearly 29 million iPads so far, is expected to continue to dominate the market in the near term. Another analyst report out of Asia over the weekend indicated that the retail outlook for Apple remained positive in the region with packed Apple stores in several Chinese cities.

Apple Inc. (NYSE: AAPL) was down 0.28% at the close on Wall Street today. Shares ended the day trading at $403.17.

Buffett to Buy Back Berkshire Hathaway Shares

Berkshire Hathaway announced today that they will be buying back shares of their company at up to 10% premium above book value using cash. The company has about $47 billion in cash and buy backs “will not be made if they would reduce Berkshire’s consolidated cash equivalent holdings below $20 billion.”

A note from Birinyi Associates said the plan essentially provides for “an unlimited an perpetual program.” According to Birinyi, the only other buy back program similar to this one was when Exxon Mobil Corp. did one in 2000.

Some portfolio managers believe this buyback is a clear signal that Buffett thinks the market’ is undervaluing Berkshire shares. Timothy Vick, a senior portfolio manage at Sanibel Captiva Trust Co. said, “To him (Buffett), this makes good sense. If he puts $10 billion or more into the buyback, it won’t be the highest return but it’ll be the best return for this level of safety.”

One fund manager believes this news helps pave the way for Warren Buffett’s eventual exit. Thomas Russo, partner at Gardner Russo & Gardner said, ““This is a piece of the unfolding introduction of life after Buffett,.” Russo added, “Under him, cash has had such a high value and going forward those maestro opportunities will be reduced.”

Following this news, Berkshire Hathaway shares B-shares rose nearly 7% and A-shares rose 6.2%. Last week, the price of Berkshire A-shares dipped below $100,000 for the first time in over a year.

New Home Sales Drop 2.3%

New home sales fell for the fourth straight month in August as the housing industry continues to reel from the bubble burst. According to data just released from the Commerce Department, new home sales dropped by 2.3% on a monthly basis to a seasonally adjusted rate of 295,000 units. Sales for July were revised slightly upward to a rate of 302,000

The results were in line with forecasts by economists who were polled by Dow Jones Newswires. Compared to a year earlier, new home sales were up 6.1%.

New home sales amount to about a fourth of their peak before the housing bubble five years ago. However sales are still far below healthy levels. The housing industry as a whole continues to be a major drag on the economy with unemployment and consumer confidence completing the circle.

As unemployment continues to stay above 9%, consumer confidence has fallen off the cliff. High unemployment and a weakening economy are raising Americans’ doubts about their prospects for the future, leading many to save money and pay down debts rather than taking out loans. Some people can’t get financing due to tight lending standards enacted after the housing bust. So, there is an endless cycle of one economic factor perpetuating another one.

Last week the Federal Reserve announced it would be putting money back into mortgages, but analysts expect that to change very little. The move did push down mortgage rates below 4% for a 30 year fixed loan, but the problem is consumers aren’t buying and sellers aren’t selling due to depressed home prices.

The Commerce Department report said August new-home sales fell in three out of four U.S. regions. Sales fell 13.6% in the Northeast, dropped 6.3% in the West, 2.4% in the South and rose 8.2% in the Midwest.

Amazon Scheduled To Unveil Tablet On Wednesday

Amazon has scheduled a news conference on Wednesday of this week, and the speculation is the the Internet retailing giant will unveil a tablet computer to compete with Apple’s iPad. A new Kindle tablet would combine Amazon’s electronic book reader with connection to Amazon’s offerings of MP3 music and digital videos.

Media speculation says the new tablet would run on Google’s android operating system with the ability to access Android apps through Amazon’s app store. The Wall Street Journal is speculating the tablet will have a 9 inch screen while other reports say a 7 inch screen is likely.

Early this month, TechCrunch.com reported that the Kindle tablet will have a 7-inch full-color screen and start at $250, half the cost of the cheapest iPad. Other analysts talk about $300 or less, reports say.

The tablet has been awaited as a strong competitor to Apple Inc’s iPad. Apple has sold approximately 29 million of the devices since its launch in April 2010. “The real issue here is that, you know, it is likely going to be good for consumers; is this going to be good for shareholders?,” BCG partners analyst Colin Gillis said. He wondered whether Amazon would price the tablet below those of rivals — and thereby do little to boost margins. “Knowing Amazon, it is likely to be a very aggressive price,” Gillis said.

The tablet could pose a major threat to Apple because of the Kindle’s popularity and the movie and music services Amazon sells. Forrester’s McQuivey said the device also takes aim at Barnes & Noble’s NookColor device, which hit the market last year and features tablet functionalities.

Research In Motion and Samsung have introduced tablets that sold poorly. Hewlett Packard Co recently announced it would abandon its tablet. However, analysts believe if there is a tablet that can compete with the dominant Apple iPad, it would be the new Kindle tablet by Amazon.

French Bank Bailout

Investors and Analysts believe a bailout of troubled French banks is increasingly likely even as the banks continue to deny they are in need of such capital. The possibility of a French bank bailout increased over the weekend after Bank of France Chairman Christain Noyer said a support system set up during the financial crisis of 2008 could be used to “shore up” bank capital in case of an “extraordinary event”.

On Monday, analyst’s research notes discussed the likelihood of the French government moving to inject capital into French banks BNP Paribas, Societe Generale, and Credit Argricole. An HSBC analyst noted, “We believe the longer the crisis continues, the greater the likelihood that the French government will opt for some form of market ‘shock therapy’ to reintroduce confidence in the French banks’ viability.”

All three banks mentioned above soared on Monday in European markets. All three banks continue to deny that any bailout is needed or being planned, but as Nomura analyst Jon Peace said in a research note on Monday, there were also strenuous denials in 2008 until just days before the French government moved in with a recapitalization plan.

“The sentiment that the state is there to support the banks if needed explains the rebound even if the banks say they have no need for it,” said Frederic Rozier, a fund manager at Meeschaert Asset Management, speaking about the French government.

Some form of injection that does not involve common shares is likely because the French government does not want to get involved in day-to-day management decisions at the banks.

French Banks are the most at risk right now due to the ongoing Greek sovereign debt crisis.

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