New Unemployment Claims Surge Once More

More bad news -- unemployment claims on the rise. Hovering just below 500,000, new unemployment claims is a window into what employers are doing at the moment. They are beginning to add to layoffs again.

For reasons laid out over and over again in earlier blogs, this is a perfectly rational response by private employers to actions taken by the Obama Administration and the Congress in 2009-2010. Commercial banks have, as a predictable response to Obama and the Congress, dramatically curtailed business lending. Can't be pilloried for making bad loans, if you don't make loans.

So, in some sense the Obama plan is working: the private sector has been brought to it's knees: way to go, Barrack! You paid those guys back. A little collateral damage, but so what if the unemployed ranks continue to grow.

The Future of Medical Care in the US

By waving magic wands in the air and declaring (almost) universal health insurance for all Americans, the Obama folks think that they have really accomplished something of significance. Actually, they have, but their main accomplishment is not what they think.

Obamacare, Medicare, Social Security will not succeed as advertised simply because there is no payment mechanism to fund these pipedreams. Instead, generations of Americans will find nothing in the well when their turn comes to receive benefits. The politicians that created this looming nightmare will be long gone, leaving a disillusioned populous with nothing but dark memories.

But beyond this. The assault on the the health care industry, the insurance industry, the medical supplies and technicians industry by the Obama Administration will destroy those various components of the health care industry. It will further erode the necessary supply of doctors and nurses required to service even past levels of American health care. The new Obama world will be health care without doctors and nurses. That should be interesting!

Like everything else in Obama-land, there is a huge disconnect between dreams and reality.

The Hidden Cost of Labor-Friendly Government

Why don't ordinary folks rob banks? That's where the money is, said famed bank robber Willie Sutton. The answer is: "you might get caught." If you a rob a bank, you might end up in prison (but, you might get away with it). This is what economists call a contingent liability. You have to do something first, then sit back and see the consequences.

What if you're a businessman, choosing between hiring an employee and a more expensive machine alternative. What would you do? Normally you would hire the employee. But this assumes that both choices have the same contingent liabilities. But, there are no government laws to protect machines...hence no real contingent liability to acquire the machine.

But, what about hiring an employee? Employees have "rights.". Literally, hundreds of rights. These "rights" enable employees to sue their employer, even for things that occur off the job site! The contingent liability of hiring a single employee can run into the hundreds of thousands of dollars! Even a small workforce, especially if it satisfies modern notions of diversity, can impose millions of dollars of contingent liabilitiies upon a small business.

So,what to do? The only way to avoid these massive contingent liabilities is to not trigger the enabling event: if you want to avoid jail, don't go around robbing banks; if you as a businessman want to avoid crippling litigation costs over presumed "employee rights," hire fewer employees and, almost as important, do not create a diverse workforce.

Employees with "rights" impose huge contingent liabilities on employers. There is a way out -- don't hire!

This seems to be what is happening in today's labor market.

Stock Watch -- Zhulian

Zhulian is one of the leading Direct Selling Companies in Malaysia with more than 80 authorized agencies and approximately 100,000 distributors. Founded in 1989 with initial core business in distributing gold-plated jewellery through Multi-Level Marketing (MLM) channel, Zhulian had since diversified its products lines to home care, f&b, nutritional supplements, personal care, cosmetics, air treatment, water treatment, sleep enhancement products and disposable hygiene products.

Keeps on Growing

After venturing into Thailand and Indonesia market since 1990’s, Zhulian is currently looking to spread its wings to Philippines and Vietnam. In fact, Indonesia market is expected to contribute to its earnings tremendously in the next few years because of huge untapped market. Currently, it’s Thailand and Indonesia operations contribute 46% and 5% of its total sales respectively.

New products

The company would continue to introduce 8-10 new products every year to entice its consumers and help its MLM agents to push sales. Moreover, the future direction is to have more consumables revenue which is recession proof.

Dividends

With a payout of 60%, one could expect get an attractive net dividend yield of 6-7% per year now. And, the company has Rm127mil cash currently.

Undervalue Gem?

Many research houses has a BUYcall on Zhulian, and the target price are ranging between Rm2.30 to Rm2.50, which implies a potential upside of around 20%. With such a stable and low risk counter, couple with decent dividend yield and strong growing market, would you make it your Gem?

The Employment Nightmare Continues

Today's job report simply re-emphasizes the Obama dilemma. The Obama effort has been aimed almost exclusively at preserving jobs in the public sector. Ultimately, the cost of preserving public sector jobs is unaffordable and a drag on the rest of the economy.

It's the private sector, now buried by Obama mandates, taxes, regulations, imposed government restrictions on lending, where the majority of new hiring must come from. Large businesses will begin to do more hiring, but small to medium businesses will not. The expiration of the Bush tax cuts will only add to the reluctance of medium size businesses to commit to new employees.

Why unemployment rate remain HIGH now?

Again, US will announce one of their main economy indicators – unemployment rate – this Friday, 6^th August. Investors are cautiously trading ahead of the result, while some economists are projecting a higher unemployment rate this time. What? Higher?

Personally, I think the US unemployment rate will remain high in the short-term, at least, mainly because corporate are upgrading their system, instead of hiring now.

Cost Cutting

For instance, 2008 economic crisis had forced many surviving companies to trim down their workforce, to reduce the fixed cost of a business.

Temporary measure

Then, when economy is getting better in 2009, companies are hiring temporary or contract workers to beef up their inventory which slumped to record low level in previous year.

Improving efficiency

Now in 2010, companies are spending to improve their operating or delivering systems to remain cost competitive. Hiring seems to be the last resort would a company take for long-term confirmation of a reviving economy.

Thus, I’m not surprise if the result remains high at around 9.5% recorded currently.

Msia Tech Sector: Still have potential upside?

If you had invested into MPI and Unisem for the past one year, I congratulate you for the "sweet" returns. At this juncture, is it still good?

As written in my previous article, I highlighted that the tech-stocks maybe in the brink of peak. The chart below double-confirm with what I said. From there, global chips sales had peaked in March this year and now are showing signs of slowing down. If the share price of your darling stock still holds up well, this means that it is no longer cheap. Rule of thumb, CHIP sales reflecting how CHEAP is tech-stocks.

This is a turning point where rising raw materials prices and stronger Ringgit would affect the manufacturing sector. It is wise to take profits now.

Do not worry, 2^nd quarter profit still considered okay. You still have plenty of times to unwind your holdings.