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Be Very Wary of the October Jobs Report

After yesterday’s rough selloff, the markets are heading upward after the release of the October jobs report. By far the most important mover of markets, the report showed Non-farm payrolls rising 166,000 and unemployment steady at 4.7%. However, as much as I would like to take that at face value and run with it, I had to dig deeper into the number.

Not Good

What I found was not good, and I believe the markets are being complacent regarding recession risk. First off, Non-farm payrolls is a constantly “revised” number, which means the data can easily change in the next month or so. But the most troubling part is the decline in manufacturing jobs (-21%) and retail trade (-22%). Even though this was offset by service-providing job growth, with consumer spending accounting for about 2/3 of GDP I think a decline in these areas ahead of the holiday shopping season does not bode well for the economy.

Related Links:

Bureau of Labor Statistics - Oct 2007 Employment Situation

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CROX Down, Not Exactly a Shocker

If you haven’t heard of Crocs, the maker of trendy footwear worn by surgeons and school kids alike, then quite frankly you may have been living under a rubber shoe. Consider yourself lucky. The stock tanked about 22% yesterday on news it wouldn’t meet analyst expectations for sales in 2007.

Every time I see a stock like this I ask myself 1 thing: What would my man Warren Buffet do? He would look for 2 things:

1. Value
2. Durable competitive advantage.

Unfortunately, I don’t see either here - the stock was trading at 50X trailing earnings, and there is essentially no economic moat (everyone from Payless to Skechers makes imitation Crocs). The stock has had a good run and management has steered the ship well…but I think it is time to let this one sail on.

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