The Best of Kass
Among his posts this week, Kass discussed what the latest jobless claims and ISM reports mean for the economy, why Ocwen Financial is now his favorite stock for 2012 and why Barnes & Noble is a perfect example of when not to short a stock.
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Parsing the Data
Originally published on Thursday, May 3 at 11:07 a.m. EDT.
Initial jobless claims came in at 365,000 vs. expectations of 375,000 and 392,000 a week earlier. This is the lowest claims number since the end of March, which suggests that the recent upward move in claims was, to some degree, a function of the Easter holiday. Today's report is consistent with at least 175,000-a-month payroll growth. (Tomorrow I expect about 150,000 and then upward-trending payroll gains.)
First-quarter labor productivity dropped by 0.5%, in line with expectations. This reflects increases in hiring and expanding employee hours combined with a moderation in economic growth and output.
First-quarter unit labor costs rose by 2%, less than expectations of 2.7%.
April ISM nonmanufacturing, at 53.5, missed expectations for 55.3. Business activity declined to the lowest level since October 2011. New orders and employment fell while backlogs rose. Export orders were solid, rising to the best reading in 14 months. Prices paid eased for the second month in a row, and 15 out of 18 industries surveyed reported positive growth.
It is important to remember that the services report, prior to today's release, was indicative of real GDP growth of more than 3.25%, so this morning's release must be put into perspective.
If we combine both this morning's ISM nonmanufacting with the report earlier this week of ISM manufacturing, April averaged 53.7 compared to 55.7 in the prior month. This should translate into at least 2.5% real GDP growth, which is slightly better than my muddle-through expectation.
At the time of publication, Kass had no positions in securities mentioned .
Ocwen Has Huge Potential
Originally published on Thursday, May 3 at 12:05 p.m. EDT.
The key takeaway from the Ocwen(OCN) conference call is that the company faces a huge runway, with $450 billion of potential servicing deals in the pipeline.
This coupled with a likely spin-out of two new businesses in late 2012-early 2013 makes Ocwen eerily reminiscent to its sister (which was spun out in 2009), Altisource Portfolio Solutions (ASPS) .