This blog is written weekly by Dock David Treece, a registered investment advisor with Treece Investment Advisory Corp. It is meant to share insight of investment professionals, including Dock David and his father, Dock, and brother, Ben, with the public at large. The hope is that the knowledge shared will help individuals to better navigate the investment world.

Monday, February 1, 2010

Jobs? Jobs. Jobs!

The big news this week comes, naturally, from US auto companies. Rather than missing earnings estimates, battling unions, or closing down plants, auto firms are now making news for their surprisingly optimistic employment outlook.

This week announcements have come from GM, Toyota, VW, and KIA, who plan to add 100, 850, 2000, and 1200 jobs, respectively. While GM is expanding operations in Detroit and Maryland, Toyota is adding a second shift in San Antonio, KIA is building on its operations in West Point, Georgia, and VW is opening a new plant in Chattanooga (Shhh! Don’t Look Now, But the Auto Industry is Hiring,

The real star, though, of big auto has been Ford. The only big auto company NOT to accept government bailout funds, Ford has been roaring back in recent weeks, making moves to capture significant market share as its competitors struggle for sure footing.

On the issue of employment, Ford is also a star-performer. The auto giant is planning to hire 1000 workers by 2012 in order to operate a new Detroit plant that will engineer electric cars. An additional 1200 jobs will be coming to Chicago, where Ford will be manufacturing the new Explorer SUV (Ford to bring 1,200 jobs to Chicago area,

Thankfully, job prospects aren’t limited to solely auto companies. Tech tycoon Larry Ellison announced Tuesday that his company, Oracle, in addition to acquiring Sun Microsystems, also intends to add 2000 sales and engineering employees (CEO Ellison Sets New Course as Oracle Gains Control of Sun, Wall Street Journal).

Generally speaking, the economy seems to be picking up, partially due to increased demand, but even more so because inventory is finally dwindling. One prime example can be found with Caterpillar, which reacted extremely quickly when demand for its heavy-machinery dried up months ago.

At that time, in a period of just a couple weeks, Caterpillar [over-]reacted by closing plants and laying off workers en masse. Now that circumstances are beginning to improve, Caterpillar has little or no inventory remaining, and is having to scramble to bring back workers and accumulate the resources it will need to satisfy coming demand.

This phenomenon, though exhibiting incredibly poor supply chain management on the part of Caterpillar, is good news for the American people, who will ultimately benefit from the company’s sudden demand for labor and resources (Caterpillar’s Profits Fall, But Demand Picks Up, Wall Street Journal).

We are also beginning to see this occur in the housing sector, especially in California. Like cars and heavy machinery, housing production also ground to a halt when demand for new homes took a dive and financing availability disappeared. Now, with housing prices having stabilized at unsustainable lows – many existing homes selling below their replacement costs – the rebound has begun.

Though demand for new homes remains low, the inventory of existing homes is vastly diminished. There remains a large “shadow” supply of existing homes, mostly foreclosures, being held on by banks and not yet listed on the market. This inventory, too, will ultimately diminish as banks slowly work through homes held on their books.

Before closing, one slightly sour note remains in the area of real estate. Unfortunately, uncertainty still remains about the possible coming wave of defaults in commercial real estate. Recall that much of the problems in residential real estate resulted from subprime Adjustable Rate Mortgages, or ARMs. The ARM equivalent in commercial real estate is the Alt-A mortgage, standing for Alternative A-paper.

Despite the issues that arose from the wave of defaults that came in ARMs when mortgage rates reset, many professionals continue to believe that they could pale in comparison to the troubles that may result when rates reset in Alt-A mortgages on commercial properties.

As circumstances continue to improve, it’s important that we remain cautious in our optimism. While a rebound seems underway for many manufacturing firms and, as a result, employment, the outlook can change remarkably quickly. This is, hopefully, one lesson we’ve all learned over the past two years.

Dock David Treece is a stockbroker licensed with FINRA. He works for Treece Financial Services Corp., The above information is the express opinion of Dock David Treece and should not be used without outside verification.

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