Credit Suisse Chops AIG

The appointment by troubled insurer AIG (AIG) of a new CEO, Bob Benmosche, formerly of MetLife (MET), last month, has been the occasion of some optimism for the company, the stock up 35% in the last month.

But AIG still has a lot of restructuring to do, and it will yield little value to investors, contends Credit Suisse analyst Thomas Gallagher in a note today to clients.

Gallagher cut his rating on the stock from “Neutral” to “Underperform,” with a price target of $15, down from $30, or one times book value by his calculations.

Benmosche’s in a bit of a tough spot, writes Gallagher: the company’s various businesses are eroding, which means they need to be sold off or IPO’d before they deteriorate further and use the proceeds to pay off some $53 billion of financial debt.

At the same time, if these businesses are rapidly dispossessed, there would be little common shareholder equity left, what with $59 billion of financial debt, $18 billion of “private market hybrids,” and $43 billion in preferred stock own by the US Government after several bailouts of AIG — a total of $119 billion in obligations versus a $70 billion to $100 billion value of the current businesses.

AIG shares today are off $3.82, or 10%, at $36.23.

Top 5 Blue-Chip Stocks for February

These top five stocks for February have the immediate growth potential and are seeing exceptional buying pressure. I want to make certain you’re not missing out on these wonderful opportunities.

Two of the top five stocks for February are returning veterans from January and other months, but I�ve added some new stocks as well. Let’s get started:

    Alexion Pharmaceuticals

Alexion (NASDAQ:ALXN) remains the No. 1 stock on my buy list. This stock has been surging higher in recent weeks, and shares responded very positively to the news that the company is expanding its product portfolio through its $1 billion bid for Enobia Pharma, a developer of therapies for serious genetic bone disorders. The company currently is working to get its hypophosphatasia treatment, asfotase alfa, approved in the United States. To date, there is no approved treatment for this life-threatening disease. So, if approved, the company would have a tremendous first-mover advantage. Alexion, who will acquire full worldwide development and commercial rights to asfotase alfa, is confident the drug can obtain approval. Analysts currently expect Alexion to grow sales by 41.4% and earnings by 30.8% in the fourth quarter. ALXN reports Thursday, Feb. 9.

    

AutoZone

AutoZone (NYSE:AZO) has taken off on its next leg higher because it is the perfect stock for the current automobile market. Although consumers are buying new cars when necessary, they also are extending the lives of those vehicles and getting as much mileage as they can for their buck. And companies like AutoZone do this superbly by supplying the parts to keep well-worn cars in top condition. Looking forward to the company’s next quarterly earnings report, expected in late February, analysts currently estimate AutoZone will announce 7% growth in sales and 19.8% growth in earnings. The stock should be a solid performer in the coming weeks. AZO is a strong buy.

    Dollar Tree

Dollar Tree (NASDAQ:DLTR) knows one of the best ways of coping with thinning wallets is to stretch each and every dollar. So, while lean times hit other retailers particularly hard, Dollar Tree stores flourished. The company is the largest and most successful single-price-point retailer in the U.S. — everything in its 4,000 locations is just $1. The company has continued its success even as the U.S. economy improves, and I don’t believe the desire of consumers to save money will be disappearing anytime in 2012. In fact, analysts currently expect the company to report 11.5% sales growth and 22.5% earnings growth in its Feb. 22 earnings announcement.

    McDonald’s

McDonald’s (NYSE:MCD) is the world’s No. 1 fast-food company and a solid winner for this buy list. Analysts expected the company to report 9.1% sales growth and 11.2% earnings growth this week. McDonald’s answered back by beating earnings expectations for 14th time in the past 16 quarters. Although this did not push the stock higher, I still believe the positive earnings report will be a catalyst for further gains. McDonald’s plans to invest in store expansions around the globe in 2012, with two-thirds of its new stores to be located in Asia.

Ross Stores

Ross Stores (NASDAQ:ROST) is the nation’s largest off-price apparel and home fashion retailer and continues to benefit from value-focused customers. The stock has been a solid performer so far in the new year. In December, ROST reported that its same-store sales jumped 9.2%, over double the 4% estimate! I’m looking forward to the company’s Q4 earnings announcement and finding out how these exceptional sales affected the company’s earnings. Analysts are currently expect the company to report 10.9% sales growth and 20.3% earnings growth, and a solid surprise could be just the ticket to the stock’s next leg higher.

If you’re curious to see what other advisers have as their top picks for February, I suggest starting with Richard Young’s analysis.

A Proposal for Abolishing Congressional Insider Trading

In a little under 10 months, Americans will head to the polls to elect 470-odd lawmakers (and one president) to represent their interests in Washington. But once these Mr. Smiths arrive in Washington, will they be representing your interests...or lining their own pockets?

Three months ago, a report on 60 Minutes sounded the alarm about the potential for widespread insider trading in Congress. Ever since, a little-known piece of legislation (albeit, one we've been talking up for the past 18 months) has gained momentum. It's called the STOCK Act, and its aim is to put an end to insider trading on Capitol Hill, and to ensure that Congress members play by the same rules as the rest of us.

Why is this law needed, and what specifically must be done to put an end to this practice? Eight years ago, Professor Alan Ziobroswki of Georgia State University conducted a study showing that U.S. senators and representatives significantly outperform other investors on their stock returns. Crunching the numbers, the professor concluded that "trading with an informational advantage is common" in Congress. The results of a second study out of MIT, while less damning, also left open the possibility that members of Congress are trading on insider information...or at least, that they did so in the past, when no one was looking (and might do so again).

Either way, though, most experts we've spoken with agree: There's no good reason not to pass a law stating clearly and unambiguously that insider trading is wrong. And more to the point, because the law prohibits others from trading on insider information, the same rule should hold true for the legislators themselves. Put simply, members of Congress should be subject to the same standards as the rest of us: They should not be able use congressional information for their own benefit, and, to assure compliance and legislative transparency, they should report their transactions in a timely and comprehensible manner, just like corporate officers and directors.

Now...what do we need to do to make this happen?

There ought to be a law
It's ambiguous whether insider trading involving members of Congress is prohibited. Ask one "expert" whether insider trading laws already apply to Congress, and you'll get a resounding "yes" in response (followed by 13 pages of footnotes trying to prove the point.) Ask another expert, he'll just as convincingly argue "no."

But regardless of how they interpret current law, just about everyone we've spoken with agrees that there's no reason why we shouldn't pass a law clarifying that Congress is banned from insider trading -- just like the rest of us. We entrust our elected representatives with nonpublic information so that they can do their jobs for the benefit of the people they represent -- not so that they can misappropriate this insider information for personal gain. To this end, we at The Motley Fool believe that the STOCK Act should contain a provision reading more or less like this (although we'll leave the drafting to the professionals):

Members must not use material nonpublic information that they receive by virtue of their congressional positions, or gained from performing their duties, for personal benefit.

How to enforce the law
Of course, even after the principle is in place, we still need a way to determine when a violation has occurred, and how to punish it. For Americans who do not happen to be members of Congress, the SEC has been honing the provisions of the Securities Exchange Act of 1934 and its rules for almost eight decades now. But by the same token, once a law is passed subjecting Congress to the insider trading prohibition, could it take another 80 years to work out all the kinks?

Probably not. Considering that a vast array of laws, regulations, court decisions, and commentary has already been written on insider trading, we see no need to reinvent the wheel. Instead, we believe that the simplest, most elegant solution is to make crystal clear that the rules the SEC and courts have worked out for the rest of us regarding insider trading apply to Congress, too. And the simplest way to do that is to make it clear that Congress has the same duty to protect confidential information as does anyone outside of Congress. If we were writing the law, we'd want to see something to the following effect:

Members owe a duty of trust and confidence to Congress, the United States government, and the American people. Consequently, their use or disclosure of congressional information is subject to the provisions of Section 10(b) of the Securities Exchange Act of 1934 and the SEC's Rule 10b-5.

Uttering the magic words "duty of trust and confidence" is more than just fancy legal language. Under current law, once this duty has been created, a violation of it (for example, by trading on insider information) can constitute securities fraud. Creation of this duty also implicates the prohibitions against "tipping" -- when someone who holds insider information passes it on for someone else to trade on, rather than trading on the information him- or herself.

As an added benefit, by extending the ban on tipping to Congress, the STOCK Act would curtail some of the more objectionable behavior by political intelligence firms that have been in the news lately.

Sunshine is the best disinfectant
The two clauses that we're recommending move toward banning bad behavior. Still, an ounce of paranoia is worth a pound of prosecution. While we're all in favor of locking up bad actors, we'd just as soon scare the bejeezus out of Congress so that they never dare trade on insider information in the first place.

How do we do that? By making them fess up in public to any trades they make, trusting that an unfettered free press and intrepid blogosphere will gamely dig into these disclosures and raise "uncomfortable" questions about any transactions that look suspect. Our suggestion for the law:

Members must report their transactions in publicly traded securities within 48 hours of executing each transaction. Congress shall develop a standard means of reporting such transactions electronically to ensure that this requirement not place an undue burden upon those who must report the transactions. This system shall require Members to accurately disclose the date of each transaction, its amount, and the security being traded.

We believe that including these three provisions will largely put an end to the practice of insider trading in Congress (if it is ongoing), ensure that it never gains traction (if it is not), and punish offenders (should they prove us wrong on points one and two).

Help Wanted: A congressional cop
Against the chance that an offense does take place, however, we believe that Congress should choose an appropriate body to police enforcement of the STOCK Act. The SEC is the logical agency for this, because it enforces the securities laws for everyone else. We are concerned, however (although we'd love to be proven wrong on this), that charging the SEC with this responsibility would place that agency in the untenable position of being asked to police the actions of the people who sign its paycheck. For this reason, we believe that the respective House and Senate ethics committees should also take an active role in policing their respective chambers. When suspicions of improper trading are brought to their attention, or when they formulate their own suspicions after review of disclosure forms, these committees should officially request the SEC to investigate and take all appropriate measures. Such invitations should alleviate the SEC's fears about political repercussions from investigating a lawmaker, although it would still retain its traditional role of enforcing the securities laws on its own.

An intelligent addition
We disagree with Sen. Joe Lieberman, D-Conn., who recommended that the recent phenomenon of political intelligence firms gathering nonpublic information for their (commonly hedge fund) clients on Capitol Hill requires further study. It is possible (and we hope) that creating a "duty of trust and confidence" and implicating the general rules against tipping will stop the more objectionable activities that the political intelligence firms are alleged to have engaged in. That said, there is no clear nexus between a senator (for example), the political intelligence firm he speaks with, and the (now twice-removed) client of that firm who may ultimately trade on illegally "tipped" insider information, especially as energetic firms may be able to piece together bits of confidential information into valuable "mosaics" with no obvious source. This lack of a clear connection stands in marked contrast to the situation where (again, for example) a senator tips a relative to material nonpublic information, resulting in a trade on congressional information.

To facilitate the monitoring of the flow of information from Congress, we therefore recommend the following addition to the STOCK Act:

Political intelligence firms, lobbying firms that engage in political intelligence-gathering activities, and organizations performing similar activities shall register with the SEC and provide detailed information on their identities, their focus of activity, their contact information, and corresponding information on their clients -- which data shall be updated annually, or in the event of a change of status of a client or former client, within 48 hours of such change occurring. All such disclosures shall be maintained in an up-to-date, publicly accessible electronic database.

That said, the other provisions are so important that we would not want a focus on political intelligence firms to delay or divert progress on the rest of the STOCK Act.

Foolish humility
We readily admit that the above suggestions are not cure-alls to the bad acts occurring in Congress generally, or trading on congressional knowledge in particular. The authorities will not always detect improper trading, and, to the extent that prosecutorial discretion is often the better part of prosecutors not-getting-fired-by-their-bosses, even a properly anointed regulator may not take aggressive action against any but the most egregious violations. Nevertheless, the provisions we recommend should go a long way toward treating congressional insiders as they ought to be -- subject to the same limitations on improper trading that apply to the rest of us.

Top Stocks To Buy For 2012-2-1-1

Bankrate Inc (NYSE:RATE) achieved its new 52 week high price of $21.94 where it was opened at $21.94 up 0.69 points or +3.72% by closing at $19.25. RATE transacted shares during the day were over 262,742 shares however it has an average volume of 314,243 shares.

RATE has a market capitalization $1.92 billion and an enterprise value at $1.98 billion. Trailing twelve months price to sales ratio of the stock was 4.79 while price to book ratio in most recent quarter was 2.40. In profitability ratios, net profit margin in past twelve months appeared at -8.34% whereas operating profit margin for the same period at 20.18%.

In the period of trailing 12 months it generated revenue amounted to $387.70 million gaining $5.14 revenue per share.

According to preceding quarter balance sheet results, the company had $64.49 million cash in hand making cash per share at 0.65. The total of $193.54 million debt was there putting a total debt to equity ratio 25.07. Moreover its current ratio according to same quarter results was 4.12 and book value per share was 7.72.

Looking at the trading information, the stock price history displayed that its S&P500 52 Week Change illustrated 3.38% where the stock current price exhibited up beat from its 50 day moving average price of $17.09 and remained above from its 200 Day Moving Average price of $16.62.

RATE holds 99.00 million outstanding shares with 25.41 million floating shares.

Fed Interchange Fee Decision Shocks Retailers, But Consumers Will Pay the Price

A U.S. Federal Reserve decision Wednesday to cap debit card transaction fees at a higher level than expected angered retailers - but it may end up costing consumers much more.

Instead of lowering the "interchange fee" cap from the current $0.44 per transaction to the $0.12 proposed in the Dodd-Frank financial reform legislation, the Fed voted to set the cap at $0.21. Additional fees allowed by the rules would result in a charge of $0.24 for the average debit card transaction of $38.

Although retailers will now pay less, they are peeved the Fed did not stick with the much lower cap, which would have saved them twice as much. Retailers had argued that the high interchange fees have hurt smaller businesses, forcing them to raise prices for customers.

But many, including one of the primary proponents of financial reform, Rep. Barney Frank, D-MA, doubt that retailers will now put any of the near-50% reduction in the cap toward customer savings.

"I think they were fighting to raise their revenue," Frank told The Wall Street Journal.

Indeed, consumers stand to lose as a result of the Fed's decision. Few merchants are likely to lower prices, and banks may well raise customer fees to recoup some of their lost profits on debit transactions.

"I don't think the retailers would have spent millions of dollars lobbying for this law if they intended to pass along every single nickel of savings to consumers," Greg McBride, senior financial analyst for Bankrate Inc. (NYSE: RATE), told the Orlando Sentinel. "This was an issue of where the cash would flow - to the banks or the merchants. Ultimately, I'm afraid, the consumer is going to get stuck footing the bill."

Debit cards have grown more popular with consumers than credit cards; U.S. consumers chose debit for 37 billion transactions in 2010, compared to 19 billion transactions using credit cards and 18 billion using checks.

With billions of dollars at stake, retailers think banks made out in the Fed's decision.

"The Fed essentially took what had been a win and turned it into a loss,"National Retail Federationgeneral counsel Mallory Duncan told USA Today. "They took $6 billion a year away from the public and put it into the pocket of the biggest banks in the country."

The lower interchange fee cap, which becomes effective Oct. 1, will cost banks more than 40% of the revenue they get from such fees, about $20 billion annually. But a $0.12 cap would have hurt the banks far more.

"It's better than it was, but it is still below our cost," William Cooper, chief executive of TCF Financial Corp. (NYSE: TCB), told The Journal.

The banks say they need to recoup the cost of processing each transaction plus a "reasonable profit." The Credit Union National Association (CUNA) says it costs $0.25 to $0.35 to process each transaction, although a Fed study last year put the costs far lower -- $0.04 to $0.07 per transaction.

Changes for bank customers could include higher minimum account balances and daily limits on how much one can spend with their debit card. Some banks may scale back or phase out rewards programs on their debit cards.

"Everything from checking to savings to other retail and commercial bank products will be revaluated," Robert Hammer, who runs a payments consulting firm in Thousand Oaks, CA, told The Journal.

The banks most affected by the change are Bank of America Corp. (NYSE: BAC) and Wells Fargo & Co. (NYSE: WFC). Revenue from debit interchange fees constitutes 2.5% of both banks' total revenue.

The only clear winners are the major credit card companies, who would have been forced to lower the fees that they charge the banks to rout the transactions had the Fed held to the $0.12 limit.

After the announcement, MasterCard Inc. (NYSE: MA) rose 11% to $309.70 and Visa Inc. (NYSE: V). shot up 15% to $86.57. Other card issuers enjoyed a less-pronounced pop -- American Express Company (NYSE: AXP) was up 2.17% and Discover Financial Services (NYSE: DFS) 1.29%.

"The final rules are a clear positive as a higher interchange cap could lessen pricing pressure from large bank issuers," Robert W. Baird analyst David Koning told Reuters. "We believe Visa and MasterCard become more investable again, as the regulatorycloud lifts."

The bottom line is that unless you hold MasterCard or Visa stock, the Fed decision on interchange fees is bad for you.

News and Related Story Links:

• Money Morning: Visa Inc. (NYSE: V), MasterCard Inc. (NYSE: MA) Suffer From Interchange Fees Slashing
• Money Morning: Mobile Banking: Why VeriFone Systems Inc. (NYSE: PAY) is Positioned to Win
• The Financial Times:
  Federal Reserve allows higher debit card fees
• Los Angeles Times: Debit cards poised to get much costlier
• Time Moneyland: How Debit Card Swipe Fee Changes Will Cost You

Get Used To Positive Surprises Ahead For U.S. Economy

 

In 2008 it seemed a sure thing that the economy would wind up in the next Great Depression.

Look at all that was happening with the bursting of the real estate bubble, collapse of the sub-prime mortgage market, freeze-up of the banking system, ravages of the Great Recession, collapse of the auto industry, bailout of mortgage-insurance giant AIG and the bankruptcy of General Motors and Chrysler.

It was then a sure thing that the massive stimulus and bailout efforts would not work, and the costs would bankrupt the country and drop it into third-world economy status.

There was no chance that the banks or the U.S. auto industry would ever pay back the bailout loans. The assets the Federal Reserve was also putting on its books to help the banks clean up their balance sheets, by exchanging Treasury bonds for some of the toxic assets on the books of banks, was just further money down the drain.

The way the banks seemed to be using the bailout loans to expand, buying out competitors, expanding into Asia, rather than using it to make loans, was going to make the �too big to fail� problem even worse for the future.

Even since the recovery began, it has been derided as just an illusion, as could be seen by the housing industry still being mired in depression-like conditions, and no progress being made in the terribly high unemployment situation.

Sometimes it seems we�re so focused on the negatives that we haven�t noticed the unexpected positive surprises in the recovery

For instance, how many realize that most of the government loans made to the banks and auto industry have already been paid back, with interest.

Or that the U.S. auto industry has bounced back dramatically. Global auto sales recovered sharply in 2011 and the U.S. led the way, with sales up 9.2%, topping even the 6% auto sales growth in China.

Yesterday it was reported that General Motors has bounced back from its bankruptcy three years ago to a degree that it has regained its crown as the top-selling car-maker in the world.

D.R. Horton Builds Up For Profit Growth

By David Urani

On January 27, D.R. Horton (DHI) reported its fiscal first quarter 2012 earnings results. The Company reported revenue of $885.6 million, representing an increase of 15.5% year over year and falling slightly short of the $891.6 million consensus estimate, and below our $905.1 million projection. Home closings were up 13% year over year. The average price per home sold was up 3% year over year to $214,700.

On the bottom line, D.R. Horton reported net income of $27.7 million, or $0.09 per share. The result exceeded the $0.05 per share consensus estimate (which we also modeled for). The result included $1.4 million of asset valuation charges. Excluding charges, gross margin was up to 16.8% from 15.6% year over year and from 16.1% sequentially. SG&A expenses went down as a percentage of revenue to 13.5% from 15.6% year over year, largely as a result of the increase in revenue.

Sales Trends

Economic Trends

New home sales in December were down 2.2% at 307k annually, according to the Census Bureau, and were equal to the October reading. We attribute the decline largely to volatility in the data in the South, which had increased by 14.8% in November and fell back 10.1% in December. At the same time, existing home sales were up 5.0% month to month to the highest level since January at 4.6 million annually. Seasonally adjusted home prices as measured by the Case-Shiller index were down 0.6% month to month in October, and represented the lowest level of the cycle indicating prices are as weak as ever.

Opinion

D.R. Horton's first quarter showed continued strength as the housing market shows signs of a rebound. Total revenue did come up short of expectations but also remained indicative of an improved demand scenario, up 15.5% year over year. Looking forward, new orders trends were also strong, up 13% year over year, while backlog was up 18%.

Gross margin was encouraging, being up both year over year and sequentially. We were glad to see that despite signs that the national pricing situation is weak, gross margin was up 70 basis points quarter to quarter. Management cited cost improvements, reduced incentives and decreased development obligations.

D.R. Horton spent $229 million on land, lots and development in the first quarter, with management noting that good opportunities are popping up. Inventory declined by 300 to 10,200 homes quarter to quarter, but the company is actively building up its pipeline in response to growing demand, and expects its finished supply to increase in the quarters ahead. The company ended the quarter with $1 billion of unrestricted cash and equivalents, and with $1.6 billion of debt with the earliest maturity being in May 2013.

We noted after its previous quarterly results that D.R. Horton seemed to be managing its supply conservatively, as it had fewer homes ready to sell than a year ago. That continued to be the case in its fiscal first quarter, and we suspect that is one reason sales didn't quite meet expectations. That being said, the company has been making an effort to build its supply back up and after a round of land purchases, and is set to increase its exposure to the market as properties are developed. Beyond that, D.R. Horton showed a stronger gross margin and lower overhead costs.

Given its increasing revenue potential (on new property investments) and improving profitability metrics, we continue to feel D.R. Horton is on the right track. Given the strong run-up in the stock in the last four months, we are wary of near-term pullbacks. However, we feel any pullbacks may represent good buying opportunities as the stock continues to trade at reasonable valuation multiples.

Safeway Shines With These Two Metrics

Safeway (NYSE: SWY  ) carries $431 million of goodwill and other intangibles on its balance sheet. Sometimes goodwill, especially when it's excessive, can foreshadow problems down the road. Could this be this be the case with Safeway?

Before we answer that, let's look at what could go wrong.

AOL blows up
In early 2002, AOL Time Warner was trading for $66.27 per share.

It had $209 billion of assets on its balance sheet, and $128 billion of that was in the form of goodwill and other intangible assets. Goodwill is simply the difference between the price paid for a company during an acquisition and the net assets of the acquired company. The $128 billion of goodwill in this case was created when AOL and Time Warner merged in 2000.

The problem with inflating your net assets with goodwill is that it can -- being intangible after all -- go away if the acquisition or merger doesn't create the amount of value that was expected. That's what happened in AOL Time Warner's case. It had to write off most of the goodwill over the next few months, and one year later that line item had shrunk to $37 billion. Investors punished the stock along the way, sending it down to $27.04 -- or nearly a 60% loss.

In his fine book It's Earnings That Count, Hewitt Heiserman explains the AOL situation and how two simple metrics can help minimize your risk of owning a company that may blow up like this. Let's see how Safeway holds up using his two metrics.

Intangible assets ratio
This ratio shows us the percentage of total assets made up by goodwill and other intangibles. Heiserman says he views anything over 20% as worrisome, "because management might be overpaying for the acquisition or acquisitions that gave rise to the goodwill."

Safeway has an intangible assets ratio of 3%.

This is well below Heiserman's threshold, and a sign that any growth you see with the company is probably organic. But we're not through; let's also take a look at tangible book value.

Tangible book value
Tangible book value, which is simply what remains after subtracting goodwill and other intangibles from shareholders' equity (also known as book value, see box). If this is not a positive value, Heiserman advises you to run away because such companies may "lack the balance sheet muscle to protect themselves in a recession or from better-financed competitors."

Safeway's tangible book value is $4 billion, so no yellow flags here.

Foolish bottom line
Safeway appears to be in good shape in terms of the intangible assets ratio and tangible book value. You can never base an entire investment thesis on one or two metrics, but there are no yellow flags here. If any companies you're researching do fail one of these checks, make sure you understand the business model and management's objectives. I'll help you keep a close eye on these ratios over the next few quarters by updating them soon after each earnings report.

Keep up with Safeway, including news and analysis as it's published, by adding the company to your free, personalized watchlist.

Retire Here, Not There: Texas

For the more than 36 million Americans who will turn 65 in the coming decade, the best cities and towns to retire in now have a much higher bar to clear: They can't just be great places -- they have to be affordable. Each week, SmartMoney.com tours a different state to find less-expensive alternatives to the most well-known golden year destinations.

Also See

Retire Here, Not There: State-by-State Forget your parents' retirement destinations. These less-known gems offer lower prices and peppy economies.

Getty Images

It's hard to mess with Texas -- at least as a retirement destination. The state boasts warm weather, zero income tax, a friendly vibe and a cost of living that's lower than the national average, says Rick Salmeron, founder of Dallas-based Salmeron Financial Network. "We've got a killer economy," with low unemployment and a relatively robust housing market, he adds. Granted, the fiercely independent, cowboy culture that permeates most of the state isn't for everyone. Nor are the McMansion-filled developments and strip malls that sprawl from the centers of many of the big cities. (They don't say, "Everything's bigger in Texas," for nothing.)

Despite the low overall cost of living in the state, advisers say there are some pricier spots, especially in and around Dallas and Houston. Take The Woodlands: Low crime, golf courses designed by Jack Nicklaus and Arnold Palmer and roughly 6,000 acres of green space at this master-planned community roughly 30 miles from Houston. But the cost of living in this tucked-away haven for retirees is nearly 13% more than average and the median home price is $274,100, compared to roughly $200,000 on average.*

For retirees looking for less-expensive options, retirement experts say Texas still delivers. Here are four great places they say to consider.

* Source: Sperling's Best Places

Corpus Christi: For the beach bum Bob Hall Pier in Corpus Christi / iStockPhoto By the numbers*

• Population: 287,641
• Median home cost: $103,500
• Cost of living: 15.4% lower than average
• Unemployment: 7.4%
• * Source: Sperling's Best Places

The tagline for Corpus Christi -- "Beaches Plus" -- is certainly fitting. The area boasts more than 100 miles of sandy beaches, including Padre Island and Mustang Island, and clear Gulf Coast waters at a cost that's significantly less than most Florida beach towns. Retirees can build sand castles with the grandkids, take the boat out for a cruise or fishing trip, or try their hand at windsurfing.

As the nickname implies, this town is more than just sand and surf, locals say. The thriving downtown has a variety of museums and galleries, nearly 600 restaurants and an impressive aquarium. It also offers hiking and bird-watching in the local parks and nature trails, says Colette Rye, the communications manager for Corpus Christi Convention & Visitors Bureau. There are also five golf courses in the area and a major hospital system called Christus Spohn, she adds.

The downsides: The summers are hot -- temperatures stay in the 90s most of the season, which in combination with the humidity means many older residents spend much of their days inside with the AC cranked. Corpus Christi is also a popular spring break destination for college kids. Come March and April the town may be more Girls Gone Wild than a relaxing retirement spot, locals say.

Austin: For the intellectual Austin's skyline / iStockPhoto By the numbers*

• Population: 767,250
• Median home cost: $196,200
• Cost of living: 2.4% higher than average
• Unemployment: 6.3%
• * Source: Sperling's Best Places

Advisers say Austin deserves its place as a mainstay on several "best places to retire" lists. The state capital and liberal stronghold is also home to the highly ranked University of Texas at Austin, a thriving arts, music and cultural scene including the world-renowned South by Southwest music festival and more than 2,000 restaurants. Residents can enjoy live theater and events at the city's three performing arts centers, listen to live music at one of the dozens of venues in the city (Austin calls itself the "Live Music Capital of the World") and take an adult education course at one of the many universities in the area. "It's got as much to see and do as a big city, but still has a friendly, small-town feel," says Salmeron.

But thanks to the warm weather, people also enjoy year-round outdoor activities, says Mike Rollins, president of the Austin Chamber of Commerce. Town Lake, for instance is surrounded by more than 10 miles of hiking and biking trails. Kayaking in the Colorado River is also nearby. There are also a number of good hospitals and medical facilities in the area.

Keep in mind the city is quirky, locals warn. A popular bumper sticker in the area reads "Keep Austin Weird." Indeed, one of the favorite local pastimes is gathering near the Congress Avenue Bridge in the evening to watch millions of bats leave their roosts at twilight. In addition, Austin's recent economic boom has caused some residents to complain that widespread development is choking the character of the city.

Georgetown: For quaint, small-town life Williamson County Courthouse / iStockPhoto By the numbers*

• Population: 44,762
• Median home cost: $215,000
• Cost of living: 0.6% higher than average
• Unemployment: 7%
• * Source: Sperling's Best Places

Retirees attracted to the culture and learning opportunities of Austin, but who want a smaller venue, might consider Georgetown. Roughly 30 miles from Austin, the Red Poppy Capital of Texas, it's best known for two things: the abundance of bright red poppies that bloom around April and its Victorian architecture. (There are more than 180 homes and buildings listed on the National Historic Homes Registry.)

Smaller can mean inconvenient, locals warn. The Houston and Dallas airports, the two largest in the state with plenty of direct flight service, are a full two hours away. (Though you can fly out of the nearby Austin airport, though it is smaller.) And despite Georgetown's admirable efforts, for major cultural activities residents still need to travel a half hour to Austin.

That said, outdoorsy types won't be disappointed. Blue Hole is a lagoon on the South San Gabriel River that's bordered by limestone bluffs. The 180-acre San Gabriel Park is graced with myriad 200-year-old oak trees and miles of hiking and biking trails. Lake Georgetown is a popular spot for bass fishing and the Inner Space cavern is one of the state's many caves worth exploring, says Keith Hutchinson, the communications director for the City of Georgetown. The city is also home to several art galleries, a theatre with year-round productions and Southwestern University.

San Antonio, Texas: For the history buff Restaurants along San Antonio's River Walk / iStockPhoto By the numbers*

• Population: 1,321,692
• Median home cost: $105,600
• Cost of living: 16.6% lower than average
• Unemployment: 7%
• * Source: Sperling's Best Places

The site of the Alamo, where Davy Crockett was killed in 1836, this Texas town is steeped in Old West history. The former mission is San Antonio's best known historic site, but there's also the Casa Navarro State Historical Park and the King William Historic Area. The unique Spanish and Mexican heritage gives this town its unique flavor with its art and cultural museums and the Fiesta festival, a celebration of the diverse cultures in the San Antonio area that includes more than 100 official events including parades and concerts.

But the real draw for tourists and retirees alike is the famed River Walk. Five miles of walking paths along the river -- lined with shops and restaurants -- connect the Alamo to the Rivercenter Mall and the San Antonio Museum of Art and beyond. Throughout the year, more than 20 events take place along the River Walk, including a St. Patrick's Day festival, a Mardi Gras parade and a slew of arts and crafts shows. "A healthy economy, affordable living costs, access to world-class healthcare and year-round great weather makes San Antonio one of the top places for retirees to visit and live," says Casandra Matej, executive director of the San Antonio Convention & Visitors Bureau.

Experts warn, however, that at times the town can feel overrun with tourists. Indeed, more than 25 million people visit San Antonio each year. And there's little relief from the oppressive summer heat, with the nearest beach is two hours away.

U.S. Recovery Producing Unexpected Results

In 2008 it was a sure thing that between the bursting of the real estate bubble, the collapse of the sub-prime mortgage market, the freeze-up of the banking system, the ravages of the ‘Great Recession’, the collapse of the auto industry, the bailout of mortgage- insurance giant AIG and the bankruptcy of General Motors and Chrysler, etc., the economy would wind up in the next Great Depression.

It was then a sure thing that the massive stimulus and bailout efforts would not work, and the costs would bankrupt the country and drop it into third-world economy status.

There was no chance the banks or the U.S. auto industry would ever pay back the bailout loans. The assets the Federal Reserve was also putting on its books to help the banks clean up their balance sheets, by exchanging Treasury Bonds for some of the toxic assets on the books of banks, was just further money down the drain.

The way the banks seemed to be using the bailout loans to expand, buying out competitors, expanding into Asia, rather than using it to make loans, was going to make the ‘too big to fail’ problem even worse for the future.

Even since the recovery began, it has been derided as just an illusion, as could be seen by the housing industry still being mired in depression-like conditions, and no progress being made in the terribly high unemployment situation.

Sometimes it seems we’re so focused on the negatives that we haven’t noticed the unexpected positive surprises in the recovery

For instance, how many realize that most of the government loans made to the banks and auto industry have already been paid back, with interest.

Or that the U.S. auto industry has bounced back dramatically. Global auto sales recovered sharply in 2011 and the U.S. led the way, with sales up 9.2%, topping even the 6% auto sales growth in China.

Last week it was reported that General Motors has bounced back from its bankruptcy three years ago to a degree that it has regained its crown as the top-selling car-maker in the world.

Meanwhile, the Federal Reserve is making surprising profits on many of the assets it put on its books in the bailout process, $79.3 billion in 2010, which it turned over to the Treasury. And it recently estimated it made another $76.9 billion on those assets, and the Treasury bonds it bought in its two rounds of quantitative easing, and will be turning that profit over to the Treasury Department for 2011.

Regarding the employment picture, we sometimes forget it was a global ‘Great Recession’ and the rest of the world has also been struggling to recover since the recession ended in 2009.

In that struggle the economic recovery in the U.S., as anemic as it has been, has apparently been leading the way.

The Financial Times reported on Wednesday that manufacturing employment has grown faster in the U.S. than in any other leading developed economy since the start of the recovery, and has added more net manufacturing jobs since the start of 2010 than the rest of the Group of Seven developed countries put together. Only two other major economies, Germany and Canada, have increased factory employment at all.

That’s not to say that the employment situation in the U.S. is great, still 2 million jobs below pre-recession levels. But it is apparently heading in the right direction and recovering better than most of the rest of the world.

The fears that the financial industry was going to wind up even more in the realm of being too big to fail in the future, are also potentially turning out to be unfounded.

Banks closed operations and laid off 230,000 employees in 2011, and estimate another 220,000 lay-offs in 2012. Almost every week brings news of a major bank selling off or closing a division. Just a few days ago it was that CitiGroup is selling its consumer operations in Belgium. A few months ago Bank of America sold its stake in the China Construction Bank. Both giant banks have been cutting back drastically, and recently Bank of America told regulators it may even downsize further by retreating from some parts of the U.S., possibly selling branches and operations in a reversal of its aggressive expansion of the previous 15 years.

Putting it all together, the U.S. recovery from the recession not only continues, but has been producing some unexpected results and surprises that were certainly not foreseen three years ago, not the least of which has been a substantial bull market that has the Dow 95% higher than three years ago.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Weaker Yen Lifts Tokyo

Asian markets advanced Wednesday on robust earnings from Apple and better-than-expected euro-zone economic data, with stocks in Tokyo ending near a three-month high as the yen weakened on Japan's first annual trade deficit in three decades.

Australia's S&P/ASX 200 index rose 1.1% to 4,271.30, with banks leading the advance after a tame reading on consumer prices, while South Korean investors returned after a four-day holiday weekend to push the Kospi 0.1% higher to 1952.23.

In Tokyo, the Nikkei Stock Average climbed 1.1% to 8,883.69, a closing level it hasn't seen since Oct. 31. The gains came as the dollar rose as high as ¥77.98 during the session, compared with ¥77.74 late Tuesday and ¥77.02 late Monday in North America.

Markets in Hong Kong, Taipei and Shanghai, among others, remained closed for the Lunar New Year holidays.

Data released earlier in the day showed Japan recorded an annual trade deficit in 2011, its first since 1980.

"The point at which Japan's savings turn around in terms of momentum has long been seen as the time to sell the Japanese yen," said Sebastian Galy, strategist at Societe Generale.

Japanese exporters gained as the yen weakened, with Honda Motor rising 3.8%, Mazda Motor climbing 4.6%, and Sony zooming up 4.8%.

Toyota Motor rose 3%, also aided after the firm revised up its 2012 sales plan for Japan.

Shipping firms jumped in the region on improved investor sentiment, with Mitsui O.S.K. Lines advancing 7.6%, and Nippon Yusen K.K. climbing 3.6% in Tokyo, while Hanjin Shipping Holdings added 2.1% in Seoul.

The day's advance came despite a decline for the Dow Jones Industrial Average Tuesday, amid worries about stalled debt talks between Greece and its lenders, and downbeat results from McDonald's and Travelers Cos.

But after the closing bell, Apple reported a forecast-busting rise in first-quarter net profit, following a jump in iPhone sales. The results helped push Nasdaq 100 futures up 1%, or 25.25 points, to 2462.75.

The gains for U.S. stock index futures also came ahead of the conclusion of a two-day Federal Reserve policy meeting. For the first time, Fed officials will release forecasts for their best guess of the path of short-term rates for coming years.

Although Greece has yet to reach an agreement with its private creditors, and the International Monetary Fund cut its global growth forecast Tuesday, "risk sentiment has received some support from better economic data out of Europe," said Barclays Capital strategists in a report.

They were referring to preliminary data out Tuesday, which showed private-sector economic activity in the euro zone unexpectedly ticked up in January.

In Sydney, meanwhile, banking stocks advanced after quarterly inflation data appeared tame enough to keep hopes alive for an interest-rate cut from the Reserve Bank of Australia.

"We still think the next rate move is down but perhaps more a case of March than February. There's no immediate rush to cut rates at the moment," said Peter Esho, strategist at City Index.

Mortgage lenders on the move included Westpac Banking, up 3.5%, while Commonwealth Bank of Australia gained 2.4%, and National Australia Bank added 2%.

Property owners advancing included Westfield Group Australia, up 2.8%, and CFS Retail Property Trust, which ended 1.5% higher.

CLSA upgraded both firms to outperform Wednesday.

"Contrary to sentiment, we believe retail landlords will be able to maintain full occupancy during the near-term," they said, adding that vacancy rates are below 1%, domestic and international retailers are expanding, and rental-lease increases were maintained in 2011.

Write to Sarah Turner at sarah.turner@dowjones.com and V. Phani Kumar at phani.kumar@dowjones.com

Today in Commodities: Chasing Alpha

As we get into the second trading month of the year where are investors seeking returns? The 5% correction we’ve seen in Crude has been fairly orderly and we suggest using this set back as a buying opportunity. Aggressive clients were advised to buy a combination of futures and options today in May, June or July contracts. Natural gas was hit by an additional 4% today…we still favor a probe of $4 before establishing bullish plays for clients. As we wrote in our 2011 outlook we will be a buyer below $4 for clients and a seller above $5 for clients. A fresh 2 1/2 year high in the indices…the BULLS remain in the driver’s seat. We are content on the sidelines and do not wish to add any exposure for clients.

The dollar rally stalled today but we are looking for higher trade still. Aggressive traders can continue to fade rallies in the Cable and Euro. Our targets are 1.5800 and 1.3350 respectively. We are thankful we advised clients to exit their live cattle last week as prices are down just over 1% today. We will be looking to be a buyer from lower levels this week or next. On a breach of today’s trend line we expect to see a 2-4% further depreciation.

Silver was marginally higher gaining six out of the last seven sessions. The significance of today’s action was a settlement above the 40 and 50 day MA. We should see a trade back over $30/ounce this week in the March contract. April gold will need to retake the 100 day MA; in April at $1361 to see higher ground…stay tuned. Cotton was limit higher today picking up just over 4%. Our profits are no longer for clients in May put spreads. We will hold but recognize this will be an extremely bumpy ride. The trade was not as bad in coffee as we’ve been advising clients to gain bearish options exposure there as well anticipating a 10% correction. USDA report out Wednesday, get in the position you want today or tomorrow. We will be mildly long corn with some clients and have advised March put options in case we get a bearish surprise. In the debt complex we suggest bearish exposure in the short end of the curve.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results

PharMerica dives, Amylin surges after hours

LOS ANGELES (MarketWatch) � Shares of PharMerica Corp. fell sharply late Friday after a U.S. regulatory agency sought to block an acquisition bid for the pharmacy-management services firm, while Amylin Pharmaceuticals Inc. and Alkermes PLC climbed after the companies received regulatory approval of their diabetes treatment.

PharMerica Corp. PMC �shares slid 14% at $12.30 after the U.S. Federal Trade Commission filed a complaint aimed at blocking Omnicare Inc.�s OCR �bid for its rival. Omnicare�s late-traded shares shed 1.4% to $32.60 in scant volume.

The FTC said in a statement that it sees the combination of the two largest U.S. long-term care pharmacies as harmful to competition, and will enable Omnicare to raise the price of drugs for Medicare Part D consumers and others. The FTC also cited concerns by the Centers for Medicare & Medicaid Services, an agency of the Health and Human Services Department, that the deal if completed will likely result in higher reimbursement rates.

Click to Play The first post-Steve Jobs Macworld

A report from the 2012 Macworld developer's show in San Francisco. (Photo: Getty Images)

�If Omnicare is allowed to purchase its biggest and only national competitor, it will diminish competition and raise health-care costs � leaving taxpayers and patients to foot the bill,� said Richard Feinstein, director of the FTC�s bureau of competition, in a statement.

PharMerica rejected a $456 million bid from Omnicare in August, prompting Omnicare to take its offer directly to PharMerica shareholders. Omnicare earlier Friday extended to Feb. 17 its tender offer to buy all of PharMerica�s shares for $15 each. As of Thursday, about 16% of all PharMerica�s outstanding shares had been tendered, according to Omnicare.

Amylin shares AMLN surged 17% to $14.25 and Alkermes shares ALKS gained 4.7% to $19.99. The biopharmaceutical companies said shortly before the start of the evening session that the U.S. Food and Drug Administration has approved Bydureon to treat Type 2 diabetes.

The newly approved drug is a once-weekly administered version of Amylin�s popular diabetes treatment Byetta. Bydureon will also carry a warning advising that it might cause acute pancreatitis or raise the risk of developing a certain type of thyroid cancer.

Amylin shares through Friday�s trading session had advanced almost 7% this year. Over the 12 months, they�ve fallen 26%. Alkermes shares had gained 10% in 2012, and have risen about 45% over the past year.

During the regular session, most U.S. stocks finished lower following a weaker-than-expected pace of growth in the U.S. economy during the fourth quarter. The economy expanded 2.8%, less than the 3% forecast by analysts surveyed by MarketWatch. Read about Friday's losses among U.S. stocks.

The Dow Jones Industrial Average DJIA �fell 74 points, or 0.6%, at 12,660.46. The S&P 500 Index SPX fell 0.2% at 1,316.33. But the Nasdaq Composite Index COMP �managed a 0.4% advance to 2,816.55.

Global Macro Notes: The Great Compression

By Jack Sparrow

Where is all the spending coming from?

We know where the liquidity and the “animal spirits” are coming from. Those are courtesy of Ben S. Bernanke, the golden god of stocks.

But from whence the spending – specifically, the consumer spending (circa 70% of the U.S. economy) that powers earnings and recovery stats and makes this market relentless?

[Click to enlarge]

Look at the above chart of XRT, the SPDR S&P Retail Index. XRT has been a juggernaut – a tank. This reflects the strength of retail names, and of U.S. consumer spending in general (at least on the high end).

The refusal of the consumer to roll over has driven bears up a wall (pun intended). You’ve heard the arguments. You’ve heard them pounded into the table, hard enough to make it break.

And then there’s the data: The persistent unemployment; the still-deflating housing bubble; the clear evidences of wage reduction and stagnation; the lessons of financial history; the need of a serious and prolonged deleveraging that keeps getting put off.

Thus far, none of it has mattered. The consumer has powered through, with the ample help of the most reckless Keynesian monetary experiment the world has ever known. And thus, animal spirits have prevailed. But how?

A theory: What has widely come to be called “the Great Recession” is actually, in many ways, “the Great Compression.”

Via Fortune:

Welcome to the world of invisible promotions, where you can have your job — and your former boss’s too. Productivity is high — but so is unemployment. That’s why across the country, managers and staff now shoulder duties from laid-off managers and peers or positions that were supposed to be filled but never were. The extra work usually brings extra headaches or longer hours, but little or no extra money.

The piling-on of responsibilities is at an all-time high, says Jim Link, staffing agency Randstad’s managing director for human resources. Consider Maura, an interactive designer at a major technology company in Texas who asked that her real name not be used because she still works in the same overburdened department. As the staff shrank, “they kept putting all the responsibility on my shoulders,” she says, figuring she handled the work of three designers in addition to serving as art director on many web projects. Yet a job is a job: Maura kept at it for two years, taking work home and cramming her days full. “I really thought I might explode,” she says.

Maura finally worked up her courage and asked to be recognized for the work she’d been doing. She gave her manager two options: promote her to art director or split up the extra work she’d been handling among several people. She got the promotion, though it took months for her raise, about 2%, to come through. “It wasn’t the pay increase to match the title,” Maura says.

For the sake of debate, let’s call people like Maura the “over-employed.” We can think of the over-employed as a sort of reverse mirror image of the under-employed: Workers who are doing a hell of a lot more work for the same pay (or even reduced pay, given cutbacks in bonuses, perks, etc.).

Given the above as a backdrop, let’s follow the “Great Compression” logic:

• The over-employed have dramatically increased corporate productivity.
• The over-employed still have money to spend.
• The over-employed have psychological justification to treat themselves.
• The above factors can feed a virtuous earnings circle.

Howard Davidowitz, of Davidowitz & Associates, has been a consultant to the retail business for decades. Davidowitz has also been a very loud and colorful bear these past few years. When asked to explain how his bearish macro views fit with resilient consumer spending trends, Davidowitz asserted that high-end retailers are driven by the top 30% of consumers. The bottom 70% don’t really matter.

If this 30% assertion is more or less right, it can help explain why the LuluLemon Athleticas (LULU) of the world can be hopping and popping even as the true unemployment rate skyrockets and “99ers” tell horrible stories of destitution. The bottom 70% are screwed, blued and tattooed – but so what. The spending is being driven by those in the upper strata, those who still have jobs and incomes and the ability to absorb rising grocery and gas prices without blinking an eye.

And again, take into account the psychological profile of an over-employed survivor like Maura. She knows she’s kicking ass for less than stellar pay. And if the company isn’t rewarding her, she is going to want to reward herself with a little spending and splurging here and there. And she’ll be encouraged to do so by the steadily improving stock market and the “green shoots” news she hears in the media, courtesy of Fed Chairman Bernanke.

In some ways, the profile of the over-employed counts as a monetary policy success. After 9/11, President Bush told consumers to go shopping. After the global financial crisis, the Fed told investors to go shopping for stocks. This is all suppposed to feed a positive feedback loop in which “animal spirits” – those famed Keynesian drivers – take us back to a good and healthy place.

But what about that other 70%?

Step back and consider the global picture for a moment.

Inflation is heating up in emerging markets. China is a bubble waiting for a pin. Riots are breaking out in the Middle East, with demands for wage increasesone of the drivers. The “E.M. hiking cycle” (as we have dubbed it) is in full effect.

This is, in part, because rising food and energy prices make up a much larger percentage of consumer spending in developing world countries than they do in the United States.

Food and energy prices also make up a much larger portion of budgets for the un- and under-employed in the U.S. – that great swath of folks the Federal Reserve could care less about.

And so here is where “The Great Compression” puts us on a path to disaster:

• U.S. companies have expanded productivity through a “Great Compression” of the workforce. Fire half or two-thirds of the staff; get the remaining staff to do all the work at the same or reduced pay.

• The over-employed, and the top 30% (give or take) of U.S. consumers in general have driven recovery expectations. Those who still have money, and the psychological impetus to spend it, are the ones that matter to Wall Street. Their habits show up in the earnings and the stats. Everyone else can go pound sand.

• The same speculation-enabling monetary policies, designed to boost the stock market, are destroying the economic well being of the bottom 70% — both globally and domestically. Because rampant stimulus is inflationary in respect to “non-core” areas, with the main beneficiary of stimulus being paper assets, those with the right job profile and paper asset exposure get the benefit, while those without get the pain.

Look around and you can see this “compression” phenomenon everywhere. Companies are compressing productivity into the output of fewer workers. The Federal Reserve is compressing the discretionary income of the bottom 70% (and especially the under-employed) by ignoring the inflationary impact of its policies. China, a long-time veteran of exploiting its own labor force, is compressing the earnings power of workers through mercantilist trade policies and fudged inflation statistics. Dictators in the Middle East compress the well-being of their subjects by running kleptocrat regimes that siphon wealth out of the system … and so on.

It’s quite remarkable, really. Under the management of a liberal Democrat U.S. President and (until recently) liberal Democrat Congress, we have seen perhaps the most lopsided wealth-transfer effort in decades – not from rich to poor but vice-versa. It’s like LBJ’s Great Society in reverse.

Bottom line: The stealth-inflationary asset-propping monetary policies of both the Federal Reserve and China, to the extent they drive paper asset returns and optimism among those with means, are simultaneously brutalizing the silent majority without adequate means of saving (or even paying the bills). As the U.S. equity market soars, we are in real danger of creating an institutionalized underclass.

The Fed’s great hope, of course, is that the love trickles down before the experiment goes bust. In Chairman Bernanke’s world, the healing power of rising nominal asset prices will eventually console not just the top 30%, but the bottom 70% as well.

But why should this happen? If we can correctly identify the current earnings and data recovery as a “Great Compression” phenomenon in which the many are sacrificed for the few, is there any logic for justifying things will change?

Not really …

• If a spending resurgence among the top 30% is linked to the feel-good factor of rising equities, there is no way to slow down the merry-go-round. Those of us with means feel good while “QE” is in full effect. But what happens when it stops? And where do we go when long rates begin to rise in earnest?

• If corporations have found a path to higher profits through increased productivity, why should they go back? When the jobs go away, where are they likely to crop back up? Will the 2,000 workers laid off in Peoria, Ill. see their jobs return -- or are those jobs more likely to show up in Bangalore or Shenzen or Kuala Lumpur?

• We can’t really go back, but neithercan we go forward forever. Another type of compression -- margin compression -- is beginning to show up in corporate earnings statements. FedEx (FDX) was the most recent bellwether name to cite rising fuel prices as a factor. Sanguine investors have forgotten, for the moment, that the ravages of inflation were the driver behind BusinessWeek’s “Death of Equities” cover in 1979.

• If investors are both financially and psychologically invested in a trend of rising hard asset prices, what happens if that trend reverses? The dollar is going to go down forever … hard assets (like oil and copper) are the place to be … we all “know” these things now, and large leveraged bets have been placed. What happens if the bets go sour?

Some time back, Jeremy Grantham of GMO Advisors –- one of the most accurate forecasters of the past few years — warned that the worst thing that could happen would be a successful reflation campaign. Were the Fed to succeed in its bid to reflate the asset bubble, Grantham opined, we would be on the path to an even greater disaster when it popped.

And look where we are now.

As flexible Mercenaries, we are making most of our hay on the long side these days (as are most traders with P&L still intact).

If the above is true, however, the ultimate outcome of “the Great Compression” could wind up being brutal, not just for the stressed and strained underclasses from America to China to Egypt, but for investors too – in the form of swiftly collapsing P/E Ratios on the other side of a 1987/1929 style denouement.

Winston Churchill said: “There is no worse course in leadership than to hold out false hopes soon to be swept away.” We still submit that, via the non-sustainable nature of the Great Compression, and the eventual exposure of the bankrupt thinking behind it, the scale and scope of Bernanke’s failures will be far more spectacular than his successes in the end.

Disclosure: As active traders, authors may have positions long or short in any securities mentioned. Full disclaimer can be found here: http://mercenarytrader.com/legal/

Wirehouse Push Into Indie-BD Space Could Follow Wells’ Model

(Photo: AP)

Experts say that an anticipated move by some wirehouse brokerage firms into the independent broker-dealer market could resemble the channels introduced by Wells Fargo (WFC) and the firms it acquired as part of its ’08 merger with Wachovia.

The wirehouse push was outlined in a recent report, “The Independent Reps & Independent Broker/Dealers Market: The 21st Century Model?” published by the consultancy Tiburon Strategic Advisors. The report says the wirehouses are looking at a semi-independent model as one way to capture and retain more brokers.

“At least one of them and maybe two will in 2012 create halfway houses, where the allow reps to utilize their brands but take over some of their own economics, earn a higher payout, pay their own staff, pay their own technology, pay their own rent, etc.,” said Chip Roame (right), head of Tiburon Strategic Advisors, in an interview with AdvisorOne.

Other experts, while not convinced on the short-term introduction of any new wirehouse channel, agree that the competitive environment means they must, at least, seriously consider such a development.

“For years, they dismissed [independence] as a source of lost advisors or part of their planned attrition,” said Mindy Diamond of Diamond Consultants, a recruiting firm, in an interview. “But the breakaway-broker movement is having an impact: They aren’t losing that much in terms of quantity, but they are in terms of quality. There is no question about that.”

Wells Fargo’s independent model, FiNet, is a success, Diamond says. “Advisors feel protected but also able to keep more of their fees and commissions, and [Wells Fargo] pays nice transition money.  It’s a tremendous success,” she explained.

FiNet has about 1,050 reps, while another Wells’ channel called Profit Formula reportedly has several hundred advisors.

The Profit Formula platform, experts say, lets advisors retain their status as employees while requiring them to pay for some office and other expenses in return for higher payouts. It has given the advisors the freedom to set and distribute their own bonuses to staff, for instance. But, financially, it doesn’t appear to be such a great deal for Wells Fargo.

“They’re not expanding it and not letting reps transfer into it,” said Danny Sarch of Leitner Sarch, an executive-search firm, in an interview. “Advisors love it, and no [Profit Formula] reps are leaving.”

Wells and the other firms still have to figure out the best way to profit from semi-independent and fully independent platforms, he adds.

And from the advisors perspective, Sarch says, the appeal is limited. “The disadvantage of being on a caputured-independent platform with Wells Fargo, LPL Financial (LPLA) or Raymond James (RJF), for instance, is that you deal with one broker dealer vs. being in an RIA model with many custodians and more choice about how your business is custodied.

What the wirehouses must do, he notes “is to do something to differentiate themselves from each other and come up with a value proposition as to why they are a good choice.” Until they do that, Sarch adds, they are must continue to boost their upfront recruiting, or signing, bonuses.

“They have to make some compromises,” Sarch said, noting that, “if they trust these [advisors] as producers, they should let them run their own practices. It makes sense as a business model.”

While it may seem to make sense in some ways, the wirehouses face many other pressures at the moment, such as integration issues related to the Morgan Stanley Smith Barney (MS) joint venture and the Bank of America-Merrill Lynch (BAC) merger, for instance. Such challenges and the apparent difficulty of profiting from independent and semi-independent channels within the wirehouses could take some time to straighten out, experts say.   

“It’s been on their minds,” added Diamond. “I’m not privy to boardroom talk, but I do not know that they will ever do it.”

Roame, though, insists it is the shape of things to come.

 “Wells’ FiNet is landing some big reps but not huge numbers,” he said. “Part of the reason is, I believe, the breakaway broker trend is smaller in numbers than most others say. It’s a good offer. Wells (Wachovia really) had another offer called Profit Formula and yet another call Cap Trust. All of these had glimmers of the right idea. These ideas will all come back in 2012.”

For his part, Sarch believes we’ll just have to wait and see. “Who knows what they have on the drawing board,” he stressed. “The pressures on the wirehouse model means [many options are] being examined.”

Top Stocks To Buy For 2012-1-29-4

Georgia Gulf Corporation (NYSE:GGC) shares were transacted unexpectedly with a volume of 1.70 million shares as compared to its average volume of 0.402 million shares. GGC opened at $29.64 scored +3.93% closed $30.43. Its 52 week price range is $11.11 - $31.17.

GGC has earnings of $-87.91 million and made $2.63 billion sales for the last 12 months. Its quarter to quarter sales remained 36.25%. The company has 33.96 million of outstanding shares and 32.81 million shares were floated in the market.

GGC has an insider ownership at 0.46%. Its return on investment (ROI) for the last 12 month was -6.81% as compare to its return on equity (ROE) of -18.97% for the last 12 months.

The price moved ahead +10.01% from the mean of 20 days, +18.05% from 50 and went up 61.90% from 200 days average price. Company�s performance for the week was 7.83%, +19.01% for month and yearly performance remained 90.31%.

Its price volatility for a month remained 3.99% whereas volatility for a week noted as 3.36% having beta of 2.00. Company�s price to sales ratio for last 12 months was 0.39 while its price to book ratio for the most recent quarter was 2.42 and its earnings before interest, tax, depreciation and amortization (EBITDA) remained 170.27 million for the past twelve months.

Special Report: How to Buy Gold

As an analyst and editor who specializes in the natural-resources sector, I spend a lot of time writing about gold, gold mining, and gold investing. Those are popular - and even emotional - topics with investors, which means that the columns, essays and advisories I write tend to generate a lot of comments and questions.

I think that's great. After all, an engaged investor tends to be a successful investor.

Not surprisingly, one question dominates. And that's the question we're addressing in this special report.

The question: "How do I buy gold?"

As a service to the Money Morning readers who have asked that question, or who've had that same thought, I've put together this overview - or primer - that addresses the basic ins and outs of buying gold. In this feature, I address some of the more-common and more-timely questions that I've been getting.

How to Buy GoldQ:  How should individuals buy gold? Who can they look to?

Peter Krauth:   There's nothing like holding a gold coin or gold bar in your hands.  This is the oldest and most direct form of gold ownership.  In some cultures, gold remains the main investment vehicle people use to accumulate their savings. 

You can buy gold bars in a variety of sizes and weights, which is how its price is determined.  Non-collectible coins are bought for their gold content, which is usually a full troy ounce.  Just be sure you have a safe place to store your shiny new asset.

Bullion dealers are the easiest way for most investors to buy smaller quantities of gold.  Do some homework to check them out before you buy.  Expect to pay - under normal circumstances - premiums of about 3% to 6% above the "spot" price for physical gold.  But when things get hairy - as they were back in November 2008, in the depths of the global financial crisis - premiums can go up by three to five times, with some dealers charging 10% to 15% above spot.  Obviously, you'll be better off buying gold on price dips and under calmer circumstances.

A few dealers that have an established reputation are:

• Kitco.com: Premiums are fair and the selection is usually quite good. They have offices in both New York and Montreal.
• Asset Strategies International Inc. (assetstrategies.com):  This dealer is located in Rockville, MD.  Asset Strategies also offers gold storage options outside U.S. borders.
• Camino Coin LLC (caminocompany.com): Burlingame, CA.
• American Precious Metals Exchange (apmex.com): Oklahoma City, OK.
• The Tulving Co. (tulving.com): Newport Beach, CA
• Gainesville Coins (gainesvillecoins.com):  Lutz, FL.

Q: How are gold sales taxed?

Krauth: I was recently reviewing the "Frequently Asked Questions" (FAQ) section of the official Website of the SPDR Gold Trust Exchange-Traded Fund (NYSE: GLD) and found an excellent overview of how the GLD ETF is treated from a tax standpoint. So I've included some of it here:

"The United States Internal Revenue Service (IRS) treats gold as a collectible for long-term capital gains tax purposes. As such, gains recognized by individuals from the sale of SPDR Gold Shares are subject to a capital gains rate of 28% if held for more than one year. This rule extends to all gold held by the Trust. Although there are some restrictions applicable to retirement plans such as IRAs and 401(k)s investing in collectibles, SPDR Gold Shares received a private letter ruling permitting investment by such retirement plans."

Managing Risks/Maximizing RewardsQ:  Are gold ETFs considered "paper" money for not owning real, physical gold? If so, what is the real risk, if any, of not owning real gold?

Krauth:  That's a matter of opinion.  I'd rather own a nice chunk of an established gold ETF than have no exposure to gold, whatsoever, since it's typically backed by gold, according to its prospectus. 

Let's be clear: Actual paper money is simply a government-issued note, which is deemed legal tender.  That means the issuer says people can use that currency to conduct transactions. The problem arises in the case of inflation, expected inflation, or hyperinflation, because the public using that fiat currency (not backed by a valuable physical commodity) might lose faith that others will attribute the same value to it in the future.

That being said, gold ETFs are an interesting tool as a convenient way to own a claim on gold.  Nothing will ever replace owning actual gold and safely storing it under your control.

One of the easiest ways to buy such a claim on gold is the SPDR Gold Trust ETF (NYSE: GLD).  With a total value of $50 billion, GLD is now the largest physically backed gold ETF in the world, holding 1,300 metric tons (or 42 million ounces) of the yellow metal in a London vault. GLD shares, which represent one-tenth of a gold ounce, can easily be bought and sold by investors through their brokerage account.

Another option to acquire paper gold is through Perth Mint Certificates (PMC).  Locked away in a vault and insured, this is the only bullion-storage program that is government-backed, with the state of Western Australia standing firmly behind it. 

You'll need to commit at least $10,000 to get started in PMCs. There are also small-but-reasonable fees to obtain your certificate and trade your holdings.  It's also a great way to gain some international diversification for your gold holdings, by owning it outside of your home country.  For more info go to Perthmint.com (note that Kitco and Asset Strategies also offer the PMCs).

As for the risks of not owning real gold, that's something each individual needs to come to terms with for themselves. 

What I can say is that it is vital for you to know and understand this: Physical gold coins or bars are an unequalled safe haven, due to their liquidity and lack of counterparty risk.  It is the only liquid, universally recognized form of transportable wealth that is not simultaneously someone else's liability.  That's what makes gold so desirable.

By contrast, owning paper gold means that - at some level - you'll be relying on someone else's promise.  So it may have its place in your portfolio, but you just need to understand it well, and appreciate its inherent risks.

Q:  How much of a risk is there that U.S. President Barack Obama will mirror the move of President Franklin D. Roosevelt and issue an EO (specifically, another version of Executive Order 6102) that would force us all to sell our gold at a fixed (negative) rate to shorten our profits (not to mention also tax us at 40%)?

Krauth:  This is a big question.  If you're concerned that President Obama or his successor (or your own country's administration) will pull a gold confiscation, then you may want to own some gold outside your country of residence.  That could mean renting a safety deposit box in another country, having an established firm store gold for you, or buying an ETF-type fund which is backed by gold that's held physically outside your home borders.  

One example of this for U.S. residents would be the Central Fund of Canada Ltd. (AMEX: CEF).  It's a closed-end fund that owns physical gold and silver, and that's been around since 1961.  It's domiciled in Canada, with its precious metals stored in the vaults of a Canadian-chartered bank.  CEF often trades above its net asset value (NAV), but you should avoid paying more than a 5% premium.  See www.centralfund.com for more info.

It's impossible to know if something like an Executive Order will ever come to pass, or if it does, to anticipate the precise wording it might contain - which would determine how the EO would affect different types of gold ownership.  Frankly, I think the current (U.S.) administration, even at the U.S. Federal Reserve level, is so clued out on gold that it's unlikely to happen any time soon.

But while we're in the speculation mode, I'd propose that if something like that were to happen again, it would be so far into the future, and at gold prices so much higher than today's, that you'd still benefit from a considerable gain off today's levels.

Given that outlook, let's just say that I'd rather own gold now, even with the chance for an EO someday.

Indeed, the bigger question to ask yourself - in my view - is this: What are the risks of not owning any gold?  Well, the risks are that we wind up in the midst of serious, sustained inflation, or even hyperinflation.  In that case, any cash you own will quickly lose value, while precious metals soar.  And that's something that, frankly, I'd rather not have to worry about.

Action to Take: Buy some gold - in one or several forms - store it safely, forget about some of these non-issues, and take comfort from the fact that you've taken a decisive step to protect your financial future.

Also, if you have follow-up questions, please feel free to send them in to the "Money Morning Mailbag" at mailbag@moneymappress.com.

[Editor's Note: Peter Krauth, a frequent contributor to Money Morning, is the editor of the Global Resource Alert, a private advisory service that focuses on precious metals, energy commodities and other natural-resource-related topics. Krauth spent two decades as a market analyst and portfolio advisor, and has covered all the commodities sectors, including gold, silver, coal, alternative energy and agriculture. He even makes his home in Canada - to be closer to the action. And several of his recent predictions have generated a genuine Internet buzz.

All of his research led Krauth to the discovery of the "Gold Spike Indicator," or GSI, which signals the near-term direction of key commodity prices, including gold.

However, because it's tied to quarterly disclosure data, the GSI is available only four times a year, meaning it offers investors only a short time to act. If you want to find out more about this before this "profit window" closes, please click here.]

Checkout Registers to Be a Thing of the Past

For those of you that may be intimidated by self-checkout machines or get frustrated by the current process, you better warm up to the idea of a world without checkout registers.

Use of self-checkout is growing, and the technology is getting better all the time. With self-service machines now available at airports kiosks, gas stations, grocery stores and parking lots, the world of assisted service could be a thing of the past.

Bill Nuti, NCR’s CEO told CNBC.com on Tuesday: “Within 10 years there won�t be assisted service left much like it isn�t at the gas station, much like there hasn�t been in other markets. Self-service is here to stay, and we�ll continue to innovate and make the technology better.”

NCR (NYSE:NCR) makes self-checkout scanners and kiosks as well as bank ATMs. He acknowledged that self-service machines could break down, but the technology is improving and “the consumer experience is getting better over time.”

So much better, in fact, that “we have customers that have tremendous numbers of [consumer] transactions going through,” he said. “We have customers with upwards of 50% of all their transactions in the store, go through self-checkout.”

One thing is for certain, like it or not, self-checkout is here to stay.

Imation: Mr. Market Cheers, But Risk Goes Up

Sometimes a company is so cheap that a value investor can make a significant amount on it even when its management pursues strategies which are "anti-value." Consider shares of Imation (IMN), a company that I've previously discussedas a potential value investment. The shares rose significantly last week after the company reported its latest results. But while the company's cash position is still two-thirds of its market cap, management appears to be making decisions that are increasing the company's risk.

Imation has decided to undertake a "new strategic direction as a global technology company dedicated to helping people and organizations store, protect, and connect their digital world." This certainly sounds like great news for global citizens with disconnected digital worlds, but what does it mean for value investors?

1. "The Company announced today a new $35 million restructuring ... [which] will result in approximately $30 million of future cash expenditures."

Imation is a perennial "restructur-er." Write-downs in 2010 included $78 million, made up of some goodwill writedowns, some severance pay, property writedowns, equipment sales, etc. What's unattractive about this new restructuring is that it is not just a writedown of some long-lived asset that is not performing; it will require a cash outlay.

2. "[In addition], the Company expects incremental organic investment of $15 million focused on technology; expanded sales and marketing coverage for the VAR (value added reseller) and OEM channels; improved decision-support tools in IT; and international expansion, focused on China."

Imation is not very profitable, and hasn't been for a while. So when management is deciding to continue to invest, rather than return its strong cash flows to shareholders, risk increases.

3. "The Company also anticipates investments through acquisitions ... with the potential for several acquisitions each ranging from a few million dollars to $50 million."

More cash (of amounts unknown at this time) will be expended on high-tech products with uncertain futures.

4. "[A] stock buyback, restarting share repurchases under the Company's existing board authorization of 2.3 million shares."

This is a case of too little, too late. This authorization represents just 5% of the company's outstanding shares, and has already been in place for a while. While the company has generated $200 million of cash from operating activities in the last two years (which is almost half of today's market cap), Imation has paid no dividends and bought back no shares over this period, even though shares were a lot cheaper a few months ago than they are today.

So rather than return cash to shareholders, management appears bent on growing the business even though it has shown an inability to do so thus far. At the current price, and considering the uncertain investments management wants to make going forward, value investors who purchased (for the reasons discussed here) back when the stock was 30-40% lower last year or the year before may want to cash out and look for more value-friendly investments.

Qualcomm: A Compelling Risk / Reward Story

Qualcomm (QCOM) is a play on the smartphone space through its large intellectual property holdings related to 3G technology (there are six interfaces for this, of which three are based on Qualcomm’s CDMA technology and one on Qualcomm dominated OFDMA technology). Up to now, many GSM-based operators were using a bridging technology 2.5G (like GPRS), but the proliferation of smartphones and the explosion of data services means that the push to WCDMA (including HSDPA, HSUPA) will materialize, proving a big boost for Qualcomm.

Royalties make up 2/3 of the company's profits, while manufacturing chips makes up 1/3 of profits (with ratios switched for revenues). Having settled over the past 2 years all outstanding license agreements with the big guys for a 15-year period, Qualcomm has only one license renewal coming up in the next 7 years. This has obviously de-risked the business substantially. With +10% growth expected for the next 3 years with EBITDA growth of over 15% in the same period, the company is poised to reverse the flattish performance of the last year. Generating $1-1.2bn per quarter in the next couple years (which is $4bn of cash on top of the company's $19bn cash pile), the valuation seems out of whack with such an appealing profile for a large cap play. The company currently has a market cap of $67bn while the EV is $48bn. Ex-cash, you are getting the company at around 12x free cash flow multiple (or 14x P/E), on top of a modest 1.8% dividend yield.

The chart looks a bit eery as the stock hovers around the major support level at $37. With the potential to get back up to the $47 area (gap fill), however, risk/reward seems compelling at this level with a tight stop. (Click to enlarge)

Composite Leading Indicators Point to Continued Expansion in OECD

Composite leading indicators (CLIs) for December 2010, designed to anticipate turning points in economic activity relative to trend, continue to point to expansion in most major OECD countries, but to a downturn in China and slowdown in India.

The CLIs for Germany, Japan and the United States point to relatively robust expansion relative to trend, while in Canada, France and the United Kingdom the CLIs point to continued moderate expansion. There are nevertheless signs of a downturn emerging in Italy.

New data for China point to a downturn, reversing the tentative signs of regained growth momentum reported in last month’s assessment. With three of its seven components pointing upward the outlook remains volatile. The CLI for India is pointing towards a slowdown. In Russia, the CLI continues to point to an expansion, while Brazil is expected to continue to perform close to its long-term trend.

Click image to enlarge. For more charts, clickhere.

Why Trex May Be About to Take Off

Here at The Motley Fool, I've long cautioned investors to keep a close eye on inventory levels. It's a part of my standard diligence when searching for the market's best stocks. I think a quarterly checkup can help you spot potential problems. For many companies, products that sit on the shelves too long can become big trouble. Stale inventory may be sold for lower prices, hurting profitability. In extreme cases, it may be written off completely and sent to the shredder.

Basic guidelines
In this series, I examine inventory using a simple rule of thumb: Inventory increases ought to roughly parallel revenue increases. If inventory bloats more quickly than sales grow, this might be a sign that expected sales haven't materialized. Is the current inventory situation at Trex (NYSE: TREX  ) out of line? To figure that out, start by comparing the company's inventory growth to sales growth. How is Trex doing by this quick checkup? At first glance, pretty well. Trailing-12-month revenue decreased 1.0%, and inventory decreased 42.3%. Over the sequential quarterly period, the trend looks healthy. Revenue dropped 13.4%, and inventory dropped 15.5%.

Advanced inventory
I don't stop my checkup there, because the type of inventory can matter even more than the overall quantity. There's even one type of inventory bulge we sometimes like to see. You can check for it by examining the quarterly filings to evaluate the different kinds of inventory: raw materials, work-in-progress inventory, and finished goods. (Some companies report the first two types as a single category.)

A company ramping up for increased demand may increase raw materials and work-in-progress inventory at a faster rate when it expects robust future growth. As such, we might consider oversized growth in those categories to offer a clue to a brighter future, and a clue that most other investors will miss. We call it "positive inventory divergence."

On the other hand, if we see a big increase in finished goods, that often means product isn't moving as well as expected, and it's time to hunker down with the filings and conference calls to find out why.

What's going on with the inventory at Trex? I chart the details below for both quarterly and 12-month periods.

Source: S&P Capital IQ. Data is current as of latest fully reported quarter. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.

Source: S&P Capital IQ. Data is current as of latest fully reported quarter. Dollar amounts in millions. FQ = fiscal quarter.

Let's dig into the inventory specifics. On a trailing-12-month basis, raw materials inventory was the fastest-growing segment, up 7.6%. On a sequential-quarter basis, raw materials inventory was also the fastest-growing segment, up 6.6%. Trex seems to be handling inventory well enough, but the individual segments don't provide a clear signal. Trex may display positive inventory divergence, suggesting that management sees increased demand on the horizon.

Foolish bottom line
When you're doing your research, remember that aggregate numbers such as inventory balances often mask situations that are more complex than they appear. Even the detailed numbers don't give us the final word. When in doubt, listen to the conference call, or contact investor relations. What at first looks like a problem may actually signal a stock that will provide the market's best returns. And what might look hunky-dory at first glance could actually be warning you to cut your losses before the rest of the Street wises up.

I run these quick inventory checks every quarter. To stay on top of inventory and other tell-tale metrics at your favorite companies, add them to your free watchlist, and we'll deliver our latest coverage right to your inbox.

• Add Trex �to My Watchlist.

Roles in the office that require well organised candidates

Personal assistant jobs

More personal assistant jobs are to be found in the corporate world. Small businesses do not have the capacity to recruit for these kind of roles. If you want to be a personal assistant you will need to have some special skills and attributes, depending on the nature of your role. This article will highlight some of the things you may need to work on to get this job.

If you are not highly organised you will be very hard pressed to do this job well. You need to know what is happening when, how long it will take and where you can slot new things in. You can use new technology to help you do your job better if you are comfortable doing that, and in some cases it is a defiant requirement.

You need to know how to use basic computer software, like spreadsheets and word processors. This will also help you get organised. By helping your boss effectively you will then be helping him to do a better job in his role.

Secretarial roles

It is expected of a secretary to have decent computer skills and to be able to be well organised. You have to answer the telephone so you must be able to communicate with professional people in this job.

Must have skills also include using the internet to find out things and using an email system for planning and emailing. Make sure you are not an idiot so that you can work quickly. You will be expected to do printing, photo copy paper, file documents, take messages and do a lot more in this role. Dressing like a professional and always answering the phone with a smile and a professional etiquette will help you fit in to this exciting role. In most of these roles you will need to have some experience in the field.

A variation of the secretary role is that of the receptionist, who works at the front desk. The receptionist acts as a secretary for the company, one could say.

Expecting Rogers Communications to Outperform

We have upgraded our recommendation to Outperform for Rogers Communications Inc. (RCI) following its fourth quarter 2009 financial results, which came ahead of the Zacks Consensus Estimate (see conference call transcript here). Despite facing an extremely challenging economic environment, Rogers performed exceptionally well in 2009, reflecting effective cost controls and an improved churn rate. This enabled the company to generate a double-digit increase in cash flow generation.

Supported by strong free cash flow generation, the company announced a 10% dividend hike, taking the annual dividend from $1.16 to $1.28 per Class A Voting and Class B Non-Voting share. The company also announced a renewal of Rogers' NCIB program for the repurchase of up to $1.5 billion of its Class B non-Voting shares on the open market during the next year.

Estimate Revisions Trend

The overall trend in estimate revisions is quite favorable. Over the last 30 days, four of the 8 analysts covering the stock have raised their estimates for the first quarter 2010, while 2 have revised in the opposite direction. For full fiscal 2010, eight of the 11 analysts covering the stock raised estimates in last 30 days, while 2 analysts decreased it.

Currently the Zacks Consensus Estimate for the first quarter 2010 earnings is 53 cents per share, which would be a substantial improvement over the prior-year quarter earnings of 40 cents per share. However, the current Zacks Consensus Estimate for full fiscal 2010 EPS is $2.45, down 2.39% year over year.

Given the significant upward estimate revisions recently, the Zacks Consensus Estimate for the first quarter 2010 EPS has moved up by 1 cent in the last 30 days and by 2 cents in the last 60 days. For full fiscal 2010 EPS, the Zacks Consensus Estimate moved up by a massive 12 cents in last 30 days and by 13 cents in last 60 days.

These accelerations in Rogers' earnings growth is reflected in its current Zacks #1 Rank ('Strong Buy') and our Outperform recommendation.

With respect to earnings surprises, the company's fairly good track record is expected to persist in the coming quarters. Rogers produced an impressive average earnings surprise of 25.47% in the last four quarters.

Other Positive Factors

Rogers' Wireless operations, which account for more than half of the company's total revenue and 64% of its EBITDA, are well positioned with the lead share (37%) of the attractive Canadian market. Wireless penetration in Canada is little more than 60%, providing significant growth opportunities for the well-positioned Canadian operators. As the only Canadian carrier using GSM – the technology used all across Europe and in many other countries – Rogers is uniquely positioned to capture roaming revenue from foreign visitors.

According to our assessment, deployment of the high-speed HSPA+ wireless network and the DOCSIS 3.0 cable network will sustain future growth of the company. Rogers' cable operations are also growing rapidly, fueled by its triple play packages (cable, telephony and Internet data services). Cable telephony lines increased 13.6% year over year in the reported quarter, which represented 38% of basic cable subscribers and 25% of the homes passed by cable networks.