Total nonfarm payroll employment declined by 131,000 in July, and the unemployment rate was unchanged at 9.5 percent, the U.S. Bureau of Labor Statistics reported today. Federal government employment fell, as 143,000 temporary workers hired for the decennial census completed their work. Private-sector payroll employment edged up by 71,000

Southridge has mentioned this repeatedly, but in the hours before the all important employment numbers it is important to put it in perspective. Retail continues to lag. Regardless of the today’s numbers and the direction of the market, clients should avoid and/or use rallies to pare back long positions in retail stocks. Below are the charts for the SPX, RTH and the Apparel Sector. Clients should note the underperformance of Retail and especially apparel since the 4/26 2010 market high and in the recent rally from 7/1. Southridge believes that this pattern will continue especially given the bleak charts of Unemployment, Non-Farm Payrolls, New Home Sales and Construction Spending below. 250,000 new jobs need to be added each month to keep unemployment constant, yet the market may be overjoyed today with a one month non-farm loss of 65,000 and a private gain of 90,000 = the consensus estimates.

S&P500 Vs. Retail from 2010 Market High on 4/26
SPX (white) -7%
RTH (yellow) -15%
Apparel Retail (green) -20%+

S&P500 Vs. Retail in last rally from 7/1
SPX (white) +9.5%
RTH (yellow) +5.2%
Apparel Retail (green) -0.6%

Unemployment

Non Farm Payrolls Net Change (+250k per month needed to keep Unemployment constant)

New Home Sales

Housing Starts reported yesterday (549k annual) and it is hard to take solace from any of these numbers. Although retail and consumer stocks rallied with the rest of the market, Southridge believes the consumer is still in trouble. The next employment #’s will be key to the markets.

US New Privately Owned Housing Units Started by Structure Total SAAR (since 1959/last report 7/20)

US New One Family Houses Sold Annual Total SAAR
(Last month lowest reading on record/next report 7/26)

Southridge Capital was pleased to see the Dow Jones Industrial Average increase over 5% last week (the week ended 7-9-10). As students of the stock market know, the week before the Fourth of July (a shortened week itself), the Dow fell over 455 points.

Southridge Capital continues to believe that there is a lot of news, from espionage to sports which put positive energy in the Market. The first positive story was the Russian spy swap where Russia swapped 4 American agents (spies) in prison, for 10 Russian agents (spies) who just were apprehended in the US. We think the quick actions by both governments to not let this become a problem and further hurt relations helped the overall markets. Where is James Bond when he’s needed?

Secondly, we feel the change from General Stanley McChrystal to General Petraeus in military command in Afghanistan gave the market a fresh look at the war in Afghanistan. From the sports side, the most anticipated free agent in the basketball world Lebron James announced he was playing for Miami. The options on Cablevision, which owns the Knicks increased dramatically days before the announcement. Ditto for MSG – Madison Square Garden. (Although the news that LeBron was headed to South Beach hurt MSG, Cablevision apparently continues to benefit from its other sources of revenue.)

From the corporate side, Google which is down over 20% this year is now making its way back to China. Google pulled out of China for censorship reasons, and has stuck a deal which should help them regain some footing in China. Lastly, Apple is set to open a flagship store in Shanghai; this should help sales for the biggest tech company in the USA. Southridge Capital believes that all this positive energy will put investors in the right frame of mine!

Southridge Capital reviewed in an earlier blog how the Auto Industry was fairing in the USA. As a follow up to that blog, Southridge Capital is pleased to learn both GM and Ford are big sellers in China, which is now the largest automobile market in the world.

GM announced for the first time in over 100 years that sales in a foreign market (China) outpaced car sales in the US. According to GM, its joint venture with Chinese’s -venture partner SAIC Motor Corporation Ltd is starting to really benefit the company.

Ford also saw sales increase over 50% in China for the first 6 months of 2010. Ford stated it had its best ever 6-month period in sales in China. Ford’s numbers are impressive because the company was late in committing to going to China.

China consumers took the place of the US consumers as the biggest car buyer in 2009 and held on to the biggest auto market 2010.

Southridge Capital is bullish on these two car makers working in the 2 biggest markets and increasing sales at a record pace.

Southridge Capital was pleased to see the market recover a bit on Friday after the steep decline on Thursday. For the week ending May 21st, 2010, NASDAQ, lost 5%, and the Dow lost 4%.

The European crisis is said to be a major reason for the market volatility and tremendous selling pressure last week. Unfortunately the market turmoil caused the investing public to overlook several positive news items: The first was the upbeat press release Dell put out which point to an increase in earnings of 52% in the first quarter, easily beating analysts’ expectations. Dell, more than its competitors relies on businesses to order computers, and while this has not happened yet, Southridge Capital finds its increase in earnings newsworthy.

Dubai, which rocked the markets a few months ago with concerns about its debt issues, reached a deal to restructure over $23 billion in debt. It is reported the restructuring of the debt was reached with over 90 lenders. These positive factors are important to look at as we look toward the summer months.

According to Barron’s Market Center, both the 15 year fixed mortgage rate and the 30 year fixed are at 52 week low, 4.29% and 4.99% respectively. The 5 year adjustable is also at a 52 week low, at 3.79%. Low rates like these will encourage new home buyers, even if there is no more $8,000 tax break.

We are also pleased to see the Senate finally approve the Financial Regulation, which was passed in December by the Democratic congressional leaders. The major segments looked at were, Shareholder Protections, Proprietary Trading, Derivatives, Consumer Protection, Financial Regulation, Too Big to Fail and an Investor Protection provisions. A lot more work is required, but both parties have provided their thoughts, and by working together should make consumers feel much better about large financial institutions and Wall Street.

Southridge Capital takes a look at the business of entertainment. We recently heard Law and Order, after 20 years, is ending its run. The show spends about $79 million a year in New York City, according to Katherine Oliver the commissioner of the Mayor’s office of Film, Theater and Broadcasting.

What would happen to New York’s economic picture if LeBron James became a New York Knick? The Knicks last winning season was in 2000-01, with them making the playoffs playoffs in 2004, with a losing record. The Knicks are actually ranked either number 2, or close to it, in NBA Team Valuations. With all the losing seasons, this is an amazing ranking for the Knicks.

The number 1 team in value is the LA Lakers and they won a championship last year and are favored this year. What would happen if LeBrom James came to New York City? Would that change the valuation of the Knicks? If they are close to being the second most valuable team, how much is LeBron worth on their roster? Or would the Nets be a better decision?

Please comment below.

Southridge Capital looked at the April retail sales and was very pleased there was another increase, making it seven months in a row. We feel strongly this is a positive sign that the consumer feels much more confident about the economy.

We are also happy to see the price control on debit transactions. Consumers should use the additional monies saved on bank fees for new purchases, which will allow the economy to flourish. We also noticed the increased in commercials directed to help consumers with their credit card balances. We actually have a plan for this.

The card holder should be able to return the merchandise they purchased on their credit card. The credit card company would give the consumer “book value” for the merchandise. The money paid by the credit card company would have to be used to pay off the credit card debt on the particular card. Then the merchandise can be sold by the credit card issuer to the public and make the money back on the discounted merchandise. This would reduce debt, create jobs and then no one would feel they are the only one losing.

Southridge Capital wrote in an earlier blog about how the US looks stable compared to some of the other regions worldwide. The stock market saw its second week of decline, and for the most part Greece’s turmoil replaced Goldman Sachs in the news.

Getting back to what we mentioned about US stability, the most recent employment numbers were released for April and we are pleased with what was reported. According to the Labor Department, employers increased hiring in April to the tune of 290,000 jobs – its biggest increase in four years and its 4th consecutive month of adding jobs. Reading into the job numbers also shows hiring was spread out amongst a number of industries, which is positive news for an economy in search of stabilization.

Getting back to the Greece, finally on Friday Germany’s Parliament backed a $140 billion bailout plan for Greece and over the weekend, the EU stepped in with a package of its own to calm jittery global markets. Let’s hope these interventions help calm investors and give them a reason to look at our good news here in the US.

Southridge Capital looked at various forms of entertainment – sporting industries and movies. The numbers showed some pleasing results.

The WWE held its main event called WrestleMania in Glendale, Arizona in March. This years’ WrestleMania XXVI contributed approximately $28.8 million of revenues, $13.1 million of profit to the WWE on this one event according to the WWE’s press release. This is very impressive for an economy that’s pulling out of a recession.

Sticking to the ‘ring” according to a BoxingNews24.com source Floyd Mayweather Jr. vs. Shane Mosley did an estimated 1.1-1.2 million buys on pay-per-view (PPV), making this the largest fight for the 2010 year (so far) If Floyd Mayweather Jr and Pacquiao ever sign a contract, we are sure PPV numbers will rise dramatically. In movie news, Iron Man on Friday (May 7, 2010) cleared over $50 million dollar in ticket sales in one day which would give it the seventh biggest opening day in history.

According to IMDB.com, Avatar has taken in approximately $747,292,481 in US sales since it was released.

Lastly Callaway saw a worldwide increase in sales of 11% from the first quarter of last year and US sales increase of 7%. No wonder the personal saving rates (a percent of disposable income) decreased a bit. In summary, these sporting, and entertainment events shows the American consumer is looking for fun which helps everyone.