For Immediate Release
Chicago, IL – June 11, 2010 – Zacks.com Analyst Blog features: Big Lots (BIG), Fannie Mae (FNM), Freddie Mac (FRE), Bank of America (BAC) and Honda Motor Co. (HMC).
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Here are highlights from Thursday’s Analyst Blog:
Initial Jobless Claims Fall (Sort Of)
We got some mixed news as Initial Claims for Unemployment Insurance fell by 3,000 last week to 456,000. However, it is not good enough. If one factors in the upward revision to the previous week’s number, it is actually an increase of 3,000. The decline was also much smaller than consensus expectations, which were looking for a level of 450,000 new claims.
Since the week-to-week numbers can be noisy and volatile, it is generally better to look at the four-week moving average to get a better sense of the overall trend.
After 26 weeks of only getting about 60% of what you were earning prior to being laid off (up to a maximum of about $400 a week, although the numbers vary by state), most people would have already depleted most of their savings, particularly any savings outside of sheltered retirement accounts. They may have already started to pull money out of their IRA’s and 401-k’s, even though doing so requires them to pay taxes on the money as if it were earnings, and an additional 10% penalty on top of that. That is quite a blow to people’s long term retirement security. They have also probably run up their credit card balances.
If benefits ended abruptly after six months, those people would not even afford to buy the basics of life at deep discounters like Big Lots (BIG). They would have no hope of paying their mortgages if they were homeowners, and would most likely either sell (putting more houses on the market, further depressing housing prices) if they still have positive equity in their homes.
They could borrow against the equity in their homes, which was a common strategy in previous downturns, but with 24% of all houses “underwater” and another 4% with less than 5% positive equity, that option is not open to many. That is especially true if you consider that the areas with the highest levels of unemployment are also generally those with the highest percentage of homes underwater. (Ironically, the places with the most underwater homes are in the desert, notably in Nevada and Arizona.)
Many would try to survive simply by not paying their mortgage and waiting for the sheriff to show up at the door, which in many areas of the country these days can take more than a year. While such a move might help those people to stretch their last few financial resources, it would hardly be good news for just about any firm in the mortgage complex, ranging from the wards of the state like Fannie Mae (FNM) and Freddie Mac (FRE), which would simply have much larger losses, to the major banks with big mortgage operations like Bank of America (BAC). If we try to save money by cutting off extended benefits, it is likely that we will simply have to spend more money on losses at Fannie and Freddie, so the savings would be an illusion.
Honda Faces Labor Strike Again
Honda Motor Co.’s (HMC) woes with labor trouble in China are seemingly endless. The automaker has faced a labor strike for the third time in less than a month in the country. The affected plant belongs to Honda’s affiliated company, Honda Lock Co., a supplier of door-locking systems located in the southern province of China, Guangdong.
On May 17, Honda faced the first labor strike at its Honda Auto Parts Manufacturing Co. plant in Foshan, Guangdong. About 1,850 workers, who manufacture transmissions and engine parts at the plant, walked out demanding a pay raise. This caused the company to halt production at all four assembly plants in the country due to a shortage of parts. However, Honda resolved that strike last week by agreeing to pay raises of 24%–32%.
Honda faced another labor strike at its Foshan Fengfu Autoparts Co. plant in Foshan, Guangdong over pay hike. The plant is a joint venture between Honda subsidiary Yutaka Giken Co. and a Taiwanese partner, and manufactures exhaust and muffler components.
Honda has settled the second strike as well by reaching an undisclosed agreement with the workers. The workers ended the two-day strike and returned to work yesterday.
In the latest strike, about 1,500 workers at Honda Lock are demanding a monthly pay hike to RMB2,040 ($297) from the existing RMB1,700 ($248).
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