Morning Report – Good numbers out of KB Home 1/13/15

Markets are higher this morning in sympathy with markets around the world. Bonds and MBS are down.

Alcoa kicked off earnings season with a better than expected result, however the stock is unch’d this morning…

Goldman decreased their price target for oil this quarter to $39 a barrel. Speculators are betting that supply will increase even more.

Homebuilder KB Home reported earnings this morning… Orders were up 10%, and earnings beat on a massive tax benefit. Revenues rose 29%, and average selling prices rose 17%. That big jump was due mainly to a greater emphasis on Northern California and away from the Southwest. Gross margins contracted 60 basis points. The stock is up a few percent this morning. The conference call is at 11:30 am (877-269-7756 / 13596999) if you are interested in listening in. We will hear from Lennar later this week.

The NFIB Small Business Optimism survey came in above par for December. This was the highest reading since October 2006. 100 is more or less “normalcy” since the index was created about 20 years ago. Employment was a pleasant surprise, with 54% of firms reporting hiring (or attempts to hire) however the pool of available candidates appears to be a poor fit, as 43% reported few or no qualified candidates for the position:  (“Qualified candidate” –  a candidate with the wisdom of someone in their fifties, the efficiency of someone in their forties, the drive of someone in their thirties and the paycheck of someone in their twenties)

Job Openings were more or less unchanged at 4.8 million in November, according to the JOLTS survey. This is a boom-time level, and is a leading indicator for the labor market.

The IBD / TIPP Economic Optimism Index came in at 51.5 from 48.4.

Good background article on Bill Gross’s exit from PIMCO.

10 Responses

  1. Goldman decreased their price target for oil this quarter to $39 a barrel. Speculators are betting that supply will increase even more.

    At $39/bbl there will be no new fracking and precious little North American drilling, if any. Certainly there would be no offshore or North Sea drilling. Seems to me that supplies will gradually decrease, unless there is some global producer who can actually afford to drill at that price. I do not think that is the case – I think $40 is break even for new drilling in Saudi Arabia.

    But I could be wrong.

    Wrong or right, I am FRIST.

    Addendum: great breakeven charts, here.

    Obviously new drilling would evaporate.


  2. North Koreans walk across a frozen river and murder Chinese for food

    But they have almost no inequality. And no profit motive. How in the world could this happen?


  3. At $39/bbl there will be no new fracking and precious little North American drilling, if any.

    Not necessarily. Anadarko has a big play in CO, our daughter’s, that they’ve sold part of the rights to and they’re picking their first wells now.


  4. The Wall Street Journal had an article today about how Canada is going ahead despite whatever the price. Another recent one (probably the Journal) pointed out that break even for many countries is what they need to finance their budgets, not what it costs to extract a barrel. A great news operation.

    Also predictable on the op-ed side. Obama comes out with a plan pushing community colleges and the op-ed page cranks out attack articles on how community college is worthless. Quelle surpise.



    • FB:

      Also predictable on the op-ed side. Obama comes out with a plan pushing community colleges and the op-ed page cranks out attack articles on how community college is worthless. Quelle sUprise.

      This was the article published today on the WSJ op-Ed page about Obama’s community college scheme. At no point whatsoever do I see the article suggest even remotely what you claim. I guess others can judge for themselves.

      On Thursday President Obama proposed making two years of community college tuition free for responsible students. Two years gets a student closer to an associate’s degree and halfway to a bachelor’s degree, and college completion is the gateway to social mobility. All good things, right?

      Not quite. Community college is great if it helps you get a bachelor’s degree, but only one in five students attending these institutions goes on to earn the degree within six years according to federal data. In addition, only 21% of first-time, full-time students earn an associate’s degree within three years, and tuition is not the main obstacle to the completion of a degree for low-income students.

      Census Bureau data reveal that for most students with some college and no degree, it actually pays—in pure earnings premiums—to pursue a professional certification or educational certificate instead of a stand-alone associate’s degree.

      We have two competing agendas when it comes to higher education in the U.S. today: one about college completion and another about social mobility.

      Mr. Obama’s goal, which he announced in his first year in office, is that “by 2020, America would once again have the highest proportion of college graduates in the world.” He based this initiative on the assumptions that employers will increasingly require degrees and that “higher education is the clearest pathway into the middle class.” But increasing graduation rates does not necessarily translate into adding more skilled workers to the workforce or upward mobility.

      Ask Facebook , Google and AT&T why they’re partnering with Udacity to build programs in Big Data and Data Science and Computer Science. Ask Infosys why it partnered with Wayne County Community College District in 2012 to build a Software Engineering Boot Camp in Detroit through which plumbers, unemployed auto workers and a casino waitress were able to get the skills to take advantage of opportunities at companies like Compuware, GalaxE.Solutions and Kimberly Group. Ask Dev Bootcamp and other coding bootcamps why a company like Adobe is recruiting talent directly from them.

      The students emerging from these programs aren’t necessarily earning degrees, but they’re getting jobs. As reported in this newspaper, coding bootcamps, for instance, boast anywhere from 63% to 99% job attainment rates—stronger than the 57% placement rate of law-school graduates, according to the American Bar Association.

      Today, many employers demand more and higher academic credentials because of their dissatisfaction with the quality of degree-holders. “Upcredentialing” is the latest trend, even though most middle-skills jobs don’t require a bachelor’s degree. The call for more education compensates for the imprecise signaling power of a college degree.

      We should turn our attention to innovations springing up in alternative credentials, competency-based programs and micro-certifications that validate what a student actually knows and can do. This marketplace of non-degree credentials, according to Georgetown University’s Center on Education and the Workforce, is a $500 billion industry.

      Given this investment in informal credentialing, how can the country shift the emphasis away from a degree as the sole proxy for talent? That’s the public-policy question we should be asking.

      Continued focus on a college degree loses sight of the needs of most first-generation, low-income and minority students. These students will miss out on the effects of Mr. Obama’s proposed reform. Community-college tuition is already free through grant aid for most students in the bottom half of the income distribution.

      No one wants to further stratify higher education by race and class—but we need to be cognizant of the more than 91 million people with high-school degrees and some college who could significantly increase their earning power by attaining an alternative credential. Those pursuing and acquiring alternative credentials are typically low-income students with parents with an education of less than a bachelor’s degree.

      College is not the only path into the middle class. It’s time to think strategically about how alternative credentials might serve as a powerful lever for upward mobility.


      • FB:

        Here is the only other piece, from yesterday’s WSJ op-ed page, on Obama’s federal CC giveaway plan. It, too, bears little resemblance to your characterization.

        The State of the Union address is coming, which means it’s time for President Obama to propose new federal entitlements. His latest gift horse from taxpayers comes under the pretext of improving America’s workforce: free community college.

        Community colleges are public state or local institutions, often two- or three-year programs, that attempt to narrow the skills gap for high-school graduates who don’t attend four-year colleges. The schools vary widely in quality, and in practice they often provide remedial training in basic math and reading skills to kids who were promoted through failing K-12 schools.

        The White House proposal would waive tuition for students who attend community college at least half-time and maintain a 2.5 GPA (that’s a C+). You have to work hard not to get that grade. Washington would then cover 75% of tuition on the condition that states pay the rest. The Obama Administration calls this a federal-state “partnership.” It’s more accurate to call it the education version of Medicaid without the fiscal discipline.

        To be eligible, community colleges would have to offer academic credits that transfer to four-year colleges or occupational programs that produce high graduation rates and degrees in demand by employers. The Administration doesn’t specify how it would measure the latter, but you can bet it would include nonprofit and government jobs.

        Colleges must also “adopt promising and evidence-based institutional reforms to improve student outcomes,” such as paying for books and transit costs. President Obama is also proposing a new worker-training fund whose objective is the same as Washington’s 30 some other job-training programs.

        White House officials are whispering to reporters that all of this will cost federal taxpayers $60 billion over 10 years, and another $20 billion by the states, if you choose to believe them. The White House predicted in 2010 that expanding its income-based repayment (i.e., student loan forgiveness) plans would cost $1.7 billion that year and $7.4 billion over the following decade. By 2014 the Administration’s estimate had ballooned to $7.6 billion for 2015 alone.

        The bigger problem with the new entitlement is that there are already plenty of training programs and financial assistance for students attending community colleges. According to the College Board’s annual survey, tuition at public two-year colleges averages about $3,300, which is less than the $5,090 in average student aid (i.e., grants and tax benefits). Low-income students can also receive up to $5,730 in Pell grants, which Mr. Obama has greatly expanded.

        The White House says its plan is based on a Tennessee program that pays for two free years of community college for state residents. If that’s how states want to spend their tax dollars, at least voters are in a position to hold local schools accountable.

        But by nationalizing the program, the feds are likely to make community colleges more expensive and bureaucratic. States would have an incentive to cut their own direct funding for community colleges and redirect spending to student grants. For every dollar states spend on student aid, they would reel in three more from Washington. Community colleges would then raise tuition to pocket more federal cash.

        The new entitlement is best understood as an extension of the Administration’s ideological project to add higher education to the list of entitlements that keep the federal government in charge of American life from cradle to grave. First Mr. Obama nationalized the student-loan market, adding $1 trillion in taxpayer liabilities. Then he made forgiving those loans easier. This year he plans to propose a new rating system for colleges that the feds will eventually use to determine which schools receive federal aid.

        Meantime, the Administration has spent years harassing for-profit colleges by trying to impose a “gainful employment” rule that ties federal aid to student debt and incomes. The rule could shut down nearly 1,400 for-profit programs educating 840,000 students if it survives another legal challenge, but the Administration won’t apply the rule to community colleges or nonprofit schools.

        Yet according to the National Center for Education Statistics, the three-year college completion rate at community colleges is 21%, compared to 62% at two-year nonprofits and 63% at for-profits. The reason for the disparity is that many community colleges do a poor job of meeting the needs of non-traditional students who tend to be older and work while attending school. Enrollment at for-profit colleges soared over the last decade in part because students and employers could see that many community colleges weren’t providing the skills they require.

        And now the Administration is proposing to give inferior community colleges another competitive advantage with this new entitlement that bribes students with “free” tuition. So: Punish private schools, subsidize often inferior public schools, snatch regulatory control from states, and add tens of billions in new taxpayer obligations: The ObamaCollege plan is everything we’ve come to expect from this White House.


        • It seems to me that Obama’s plan will simply degrade the value of a college education even further. I don’t understand the desire to maximize the number of people with a college education. The economic value of a college education, to the individual who gets it, is derived primarily from being a scarce resource, ie being one of a relatively few who has a college degree. The more people to whom a college degree is given, the less valuable the degree becomes. This seems to me to be a pretty basic economic truism.

          The fact that good, high paying jobs generally go to college graduates does not imply that if everyone was a college graduate, everyone would have a good, high paying job.


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