MCAD Industry View - A May 2006 Update


The Dow Jones industrials ended the week up only 129 points, despite a one-day surge of 212 points on July 19 solely due to investor optimism that long string of Fed interest rate hikes may soon be nearing an end. Federal Reserve Chairman Ben Bernanke predicted that the US economic slowdown would help ease inflation pressures in coming months. Oh, great! Some observers felt the market was hearing everything positive Bernanke said on the 19th and ignoring his many caveats.

On July 20, Ford reported a second-quarter loss of $123 million, or 7 cents a share, down from a year-ago profit of $946 million, or 51 cents a share. In June, Ford's worldwide sales dropped 6.9% even as passenger car sales rose from a year ago. The truck side, which is key to profit, fell 14%, with the F-series pickups, the best-selling vehicle in the US, off nearly 10%. The month was even more difficult for Ford rival General Motors, which reported a 26% decline in June in US sales alone.

In the first actual charges to come out of the widening stock-options scandal, criminal and civil actions were filed July 20 against two former executives of San Jose CA Brocade Communications Systems for securities fraud. The two were charged with concealing millions of dollars in expenses, overstating the company's income and falsifying records of stock options grants. A third Brocade executive faces civil charges. The SEC and US Justice Department are now investigating at least 80 companies for backdating options and failing to properly account for them. The count was only 17 companies being investigated as recently as May 19, 2006.

The United Nations reported on July 18 that an average of more than 100 civilians per day were killed in Iraq during June 2006, registering the highest official monthly tally of violent deaths since the fall of Baghdad in 2003. Meanwhile, the new war among Israel, Lebanon and Hezbollah widened unchecked during the last 10 days. There could hardly have been a better moment for the annual meeting of the Group of 8 to prove its worth. Instead, it showed how pointless these “leaders” are. It did not take Bush's unwanted shoulder massage of Germany's Angela Merkel or his awkwardly open microphone to display the huge gap between the summit meeting and political reality. The entire G8 Meeting was a useless exercise.


July 28

Confirmation arrived today of the relentless slowdown in the US economy that we've been commenting on for months. The US Commerce Department officially reported that the nation's gross domestic product grew only 2.5% in the second quarter, less than half than in the first three months of 2006. Q2 growth in consumer spending halved, and Q2 residential investment suffered its steepest decline in six years. Meanwhile, the Commerce Department also reported that the core price index for personal consumer expenditures, which measures the price of consumer goods and services, excluding food and energy, surged at an annual rate of 2.9% in the second quarter, up 38% from the first quarter. Add in food and energy costs, and inflation is even worse. Perversely, the GNP news bolstered today's prices of stocks, as it raised investors' myopic hopes that the Federal Reserve will stop raising interest rates, never mind the declining GNP's enervating impacts on jobs and inflation. Along with the latest GDP report, the government also issued annual revisions today that showed the GNP was less than previously estimated for 2003, 2004 and 2005. The main reason for the downgrade: business investment in computer equipment and software was less than previously reported.

Following on the heels of the reports in the original May Commentary regarding the oil industry's first quarter's results, Exxon Mobil, the world's largest publicly traded oil company, reported a 36% gain in second-quarter earnings this week, bolstered by outrageous oil and gas prices in the United States, China and India. Net income for the quarter rose to $10.36 billion, from $7.64 billion a year earlier. The only time Exxon's quarterly profit was higher was the fourth quarter of last year (after Katrina). Exxon revenue climbed only 12% in Q2 2006, to $99 billion, yet yielded a 36% increase in profits - hmmm … good business if you can get it! The $99 billion in revenue was second only to Exxon's third quarter of last year.



Combined, the top five oil companies, Exxon Mobil Corp., BP PLC, Chevron ConocoPhillips and Royal Dutch Shell PLC, “earned” $34.6 billion in the second quarter, also 36% more than the same period last year. Through the first half of 2006, the five companies have “earned” $62.8 billion, demonstrating the industry's current moneymaking prowess now that energy prices and profit margins appear likely to remain at heights that truly seemed far-fetched as the Clinton years ended.

Since oil prices have climbed even higher in July, peaking at $78.40 per barrel, Q3 2006 probably will be even more prosperous for the oil companies than Q2. Remember all that talk in the Republican-laden Congress in recent times about a windfall profits tax? Ha-Ha. The US Senate held hearings with oil company executives last year without taking any action against the industry. While these executives repeatedly point out that “they don't set the price for crude oil”, they nevertheless continue to accept larger and larger bonuses as their companies reap the benefits of the ballooning profits at the expense of hapless drivers everywhere. One more item for US voters to remember in November.


August 4

Well, Wall Street traders got their wish Friday when the US labor Department issued its payroll report for July. US job growth in July was again way below expectations. Employers added jobs in July at a miserably slow pace for the fourth consecutive month, providing the strongest evidence yet of the country's weakening economy. "I would be absolutely astonished if the Fed raised rates next week," said chief US economist for High Frequency Economics Ian Shepherdson hopefully. "The loss of momentum in the economy is all too evident." But investors nevertheless pushed stocks lower on Friday after all, unwilling to trust that the labor report was enough to keep the Federal Reserve from again raising interest rates.

Of course, stock market players' concerns pale in comparison to the ongoing dispair of millions of US workers lucklessly seeking jobs during the last five and a half years. And those who have jobs have seen their weak earnings growth continuously fall behind increasing inflation.

July's bad news continued. The unemployment rate, which usually moves in tenth-of-a-point increments, when it moves at all, jumped two-tenths in July, to 4.8%, the highest level in five months. Indeed, for the unemployed, finding another job is getting harder. The average number of weeks spent looking for a job grew by more than a week in July, to 17.3 weeks, the largest monthly jump since last August. At the same time, 1.3 million of the unemployed, or more than 18%, were out of work for 27 weeks or longer, an increase of 200,000 since June.

While the US economy deteriorates, while the federal deficit balloons, and while many parts of the world are in flames, the Republican-laden Congress again focuses on, you guessed it, repeal of the estate tax for the richest Americans!

For his part, Dick Cheney is inappropriately butting into Alaskan state politics, urging legislative leaders there to approve a controversial bill to allow three of the top five oil companies to build a new $20 billion natural gas pipeline. Of course, the oil companies are demanding billions in tax breaks, even though these same oil companies are swimming in profits (see the July 28 update above).

Amid all these troubles, George W. Bush left Washington today for another Texas vacation . You know - like the past vacations in Texas when he ignored the briefing that "Osama Bin Laden is determined to strike in the United States" (August 6, 2001), or like when he ignored Cindy Sheehan's protests about IRAQ, or like when he ignored the threat and subsequent devastation of KATRINA - that kind of Texas vacation. He'd better watch out this year; he may just miss the approaching end of the world, as many Christian "end-times believers" think the current Middle East wars are definite signs of the coming Armageddon.

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  • October 09, 2008
    Reviewed by 'Randy Bigs'
    I agree that the authors did not clearly tie in the overall state of the economy with the topic at hand: The MCAD industry. But, based on this week's Wall Street stock meltdown, and the worry about increased inflation, It's obivious that we've got big trouble right here in River City, and it will not only negatively impact our economy in general but the MCAD industry specifically. I applaud Russ and Jack for their in depth financial analysis, but I also would like to see their US and geopolitical comments weaved into the central theme, and I hope when things turn around they'll continue to present an objective viewpoint.

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  • October 09, 2008
    Reviewed by 'Mac'
    Where's the beef? As I read the article hoping to get an update on the MCAD industry, I quickly realized that this article was just another political aid without any data that could be interpreted without a secret MCAD decoder ring. I find it ridiculas that instead of giving us a real opinions on state things in the MCAD space, the authors just threw up graphs and charts and ambigious explantions about what those caharts and graphs meant. At the end of the article, I could only grin as I kept wating for some information that might actually provide me with some insight on the state of affairs in the MCAD space, but it didn't happen.
    I guess I will have to keep on collecting data myself and come up with my own opinions as I am not on someone's pay roll and have no political agenda. Here's a noval idea, lose the jibber jabber talk (Denny Crain) and call it like it is for once.
    Mac

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  • October 09, 2008
    Reviewed by 'S. Wertel'
    This article is quite detailed and well written, but what does your political view on the current administration have anything to do with MCAD?
    The entire Economic & Geopolitical Factors section is filled with tripe and misleading statistics pulled from sources biased to anti-Bush sentiments. Is this the only medium Henke and Horgan have available to prevail themselves as some sort of economic masterminds? Please keep your political drivel to yourselves, or at least place them in a forum suited to that topic. If I were to have written something as perverse as this, my high school social studies teacher would have accused me of having diarrhea of the mouth and sent me back to perform an unbiased analysis showing both side of the story and how they relate to the topic at hand - the state of the MCAD industry. No where in the Economic & Geopolitical Factors section was there a tie between the rubbish on the page and how it relates to the topic of MCAD. Please go back to high school.
    In the future, please contain the Industry View to just an Industry View, or at least tie in the Economic and Political Factors with how they affect MCAD.

      One person found this review helpful.

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  • October 09, 2008
    Reviewed by 'Brian T.'
    What can I say, this article is not a News/Commentary article on MCAD. It is a Liberal Propaganda Tool which I will no longer subscribe to. This is my third comment on these out of place personal comments in a otherwise informative article. When the last article was being reviewed, the last I checked 6 out of 7 responses to that last article agreed with my review, then it was removed from the mcadcafe page. I guess this would be expected, that poll might not swing their way, so cut it short before it looks bad. I have never seen this report taken off this site before. These views are included in a bias manor. Some of the same information could be included with out the Liberal Bias View or the quotes from the Like Sources. Enough Said, another media tool that can't seem to go down the middle.

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