7/23/2012 7:56 PM ET|
Stocks for a bad job market
In this environment, how can investors best position themselves? By looking for companies that fall into 4 broad categories. (Plus: Examples from each category.)
There's plenty of work in this economy. There just aren't any jobs. That sentiment, voiced by a friend of mine, pretty much sums up the U.S. economy of the moment.
If you have a job, you're constantly asked to do more -- usually without additional compensation. And if you don't have a job, you're being advised to volunteer, to intern or to do part-time or temporary work. All of those alternatives, of course, involve doing work that once made up a full-time paying job for someone.
We all know what the "plenty of work but no jobs" economy feels like. High unemployment. Discouragingly long job searches. Service cuts in areas that include public parks, schools and fire protection.
This kind of economy has implications for investors, too. It tests the ability of every company to cut costs, but it doesn't test every company equally. For some companies, it means a loss of business as customers look to cheaper alternatives or switch to competitors better able to deliver goods and services despite cuts to their workforce.
For some companies it actually provides a boost in business, as what these companies sell helps other companies cut costs. All you have to do as an investor is figure out which companies fall into which camp.
The Bank of America example
The economy was summed up by the recent news that Bank of America (BAC) will tell an additional 3,500 workers in coming weeks that they're being let go. That's on top of job losses of 3,228 since the end of the first quarter, which brings the job losses since June 30, 2011, to 12,624, according to the company's second-quarter earnings report.
The job losses would be even higher, the company said -- some 20,000 since June 30, 2011 -- except that the company added about 8,000 full-time, but temporary, workers in this period to work on servicing mortgages.
That hiring isn't especially surprising. For the quarter, the bank announced that it faced increased claims from Fannie Mae and other investors on billions in mortgage-backed securities that investors say were written in violation of underwriting guidelines. Such claims soared in the quarter from $16 billion at the end of March to $22.7 billion.
Bank of America says it "remains in disagreement" with these claims. But the bank's defense is certainly going to eat up the hours of thousands of employees as they look at the paperwork for these mortgages.
What you see at Bank of America, though, is an extreme example of the vise squeezing many companies in the United States and elsewhere. Companies feel intense pressure to cut costs -- with job cuts often seeming to be the fastest, easiest and most reliable way to do so -- at the same time as the actual amount of work the company has to perform isn't falling and may even be increasing.
More work for less money
The implications for all of us who live in the global economy are painful. More of us will be asked to work harder for the same or less money. More of us will wind up without permanent jobs as companies replace full-time permanent workers with temporary, part-time or outsourced workers (or consultants). And some of us will wind up with no jobs at all.
The implications for investors are less painful but still very real. At the simplest level, we all know from our daily lives that firing workers and then demanding that frequently demoralized workers who survive do more -- with a smile if it's a service business -- doesn't work.
I've been on airline flights recently where I was convinced that a member of the cabin crew was about to bite the head off the next passenger who asked for a blanket. Picking up a car at my last visit to my customary rental car location took twice as long as it used to because there was just one worker bringing cars down the elevator when there used to be two or three. And I've stopped counting the times recently when I've asked a worker in a grocery or warehouse store where to find something only to be told, "I don't know. Let me find someone to ask."
At this level, we know that customer loyalties are being stressed and long-standing management indifference to workers at some companies is becoming clear to customers.
And that's only at the simplest level. At slightly more complicated levels, we know that some companies are better at navigating this economy than others. We know that some will take market share from competitors because of the way they are positioned in markets. We know that some will even thrive because of this economy. And we know that some are indifferent to labor market fluctuations and will rise or fall based on an entirely different set of criteria.
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Republicans say if you give tax breaks to the rich they will create jobs. Having been in the workforce for more than 40 years, I don’t understand that concept. For 9 years I was a Headhunter and the only time I found a company wanting to hire people was to solve a problem that was adversely affecting profits. It could be a lack of people to meet demand, to build a new product or to improve on technology issues to save money or be more competitive.
Have you ever heard a company say we’ve got too much cash, just got a tax credit, let’s hire someone? Today companies are sitting on record amounts of cash. How would giving Warren Buffett, Bill Gates, Julia Roberts, Tom Cruise or Kobe Bryant a tax break create jobs?
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[BRIEFING.COM] S&P futures vs fair value: -6.60. Nasdaq futures vs fair value: -14.50. The S&P 500 futures trade seven points below fair value.
Markets across most of Asia ended on a lower note, while Japan's Nikkei was closed for Autumn Equinox.
- Economic data was limited:
- China's HSBC Manufacturing PMI ticked up to 50.5 from 50.2 (expected 50.0)
- Singapore's CPI eased to 0.9% year-over-year (expected 1.2%; previous ... More
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