- rising compensation costs and why they shouldn't be a concern;
- more evidence of housing's turn; and
- unwarranted negativity surrounding earnings.
Rising Compensation Costs Not a Bad Thing
Posted at 6:39 a.m. EST, Friday, Jan. 21 It's the costs, the compensation costs. That's what peeved so many analysts Thursday, whether it be the cost of opening new mines at Freeport ( FCX) or hiring new workers at Union Pacific ( UNP) or the compensation costs at the banks that are growing. To which I say, give me a break. When a company like Freeport sees opportunities in opening long since closed mines or scaled back projects in America to meet voracious copper demand in China, it's going to do so. And if Freeport thinks that construction is going to pick up in this country, it better open those mines. If Union Pacific is going to let others take business because it won't bring back the 9,000 people it laid off, it's not as great a company as I thought. And if the banks that survived want to stay in the game and take share they should be paying good people to stay and getting good people in to do the work. > > Bull or Bear? Vote in Our Poll But somehow the analysts seem to want it both ways, more business, much more business, without any new costs. That's unrealistic. And you don't own stocks just because costs keep getting cut -- you own stocks because businesses are growing and they need to expand because they have such demand. We got fat and happy with the idea that companies can keep making numbers through productivity. But we aren't at that stage any more. When Chuck Bunch, the great CEO at PPG ( PPG), has to bring in more people to meet the demand he's doing what's right for the business, not what's right for the analysts. And if he didn't have any new business at this stage of the economic expansion you don't want to own the stock anyway. Ford's ( F) bringing in 7,000 not-as-highly-compensated employees because it, too, wants to meet demand.
More Proof of a Turn in Housing
Posted at 2:18 p.m. EST, Thursday, Jan. 20 Let's talk truth about housing. Today's December existing-home sales data, which rose sharply -- continuing a six-month trend higher -- simply isn't supposed to happen. We heard all summer that when the tax credit expired, we would begin to see a sharp degradation in purchasing of existing homes AND a huge price decline, perhaps as much as 20% to 25%.
The Scuttlebutt Can Steer You Astray
Posted at 10:16 a.m. EST, Thursday, Jan. 20 Boy, does the stock market get stupid during this period. It just loses its mind. People are blasting out of stocks on headlines that numbers are disappointing or lower than they should be, and instantly the scuttlebutt is that things are bad and getting worse. Case in point: PNC ( PNC). While there are always, always, always going to be lines that people don't like in a bank earnings statement -- in this case, expenses are up a bit more than we would like (all detailed in a note this morning for Action Alerts PLUS subscribers) and some obviously higher legal expenses (you read the papers, you know the mortgage morass). But credit's much better, with nonperformers falling a staggering 6%; balance sheet is industry-best; reserves are coming down, showing how prudent the company really is; and most important, there's actual loan growth -- more, you could argue, than even Wells Fargo ( WFC) showed. "Blowout" would be the word I would use. But the stock's down, down badly, just like Wells Fargo was down, down badly, yesterday. Now, look at Wells. Look at what it is doing. It is rallying. Why? I would say because people are going through the quarter now in a thoughtful way and recognizing that Wells Fargo did a terrific job, and the bank's really in great shape -- something that no one seemed to believe yesterday. I believe PNC will have the same exact reaction. This process is being repeated throughout the Street today. We still have a lot of work to do for AA PLUS -- full analysis coming for subscribers -- but Johnson Controls ( JCI) fits this same PNC/WFC pattern: a great number that people are now scrambling to find something wrong to justify the loss. It's just had a big run. It's fine. No, better than fine. Or take Freeport ( FCX). It's very clear that it is a monster quarter. Beautiful. It is very clear that the company maintains its very proshareholder stance. It is very clear that demand for copper remains unabated. It is very clear that, once again, the company is cautioning in Grasberg, a key mine in Indonesia where the company has indicated from time to time that there could be some ore degradation that hasn't hurt the company but could. That's the same old song.