Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
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The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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Rising Unemployment Spells Rising Profits for
Education Firms |
[http://www.streetauthority.com/includes/article-top-ma.htm]Published:
March 3, 2009
The
minutes of the Fed's late January Federal Open Market Committee
(FOMC) meeting provide some grim reading. Fed members
drastically lowered their expectations for U.S. economic growth
in 2009 and 2010 and indicated a great deal of uncertainty as to
the timing and strength of any recovery.
One of the most discussed issues: U.S. unemployment. The Fed's
latest outlook is for unemployment to rise to 8.5% to 8.8% from
today's reading of 7.2%. But even that projection may prove
optimistic -- some Fed members are projecting unemployment to
peak near 10%.
That's bad news for the economy in general and for many market
sectors. But there is one sector that has historically benefited
handsomely during periods of rising unemployment.
Working-age adults face a number of risks in today's market.
Many will be laid off as companies seek to reduce their costs.
But, even those that keep their jobs face the prospect of
underemployment -- they'll take on lower-paying and less-skilled
work just to get by.
But there is an alternative -- many erstwhile job-seekers decide
the recession is a great opportunity to return to school to
learn a new trade or earn a more advanced degree. Some decide to
quit work entirely to pursue an education while others simply
attend part-time. The result: admissions tend to spike during
recessions.
 Our
chart clearly shows that admissions at U.S. degree-granting
institutions accelerated during the recessions of 1973/74,
1981/82, 1991, and 2001. While the Department of Education only
offers data through the end of 2005, the agency is forecasting a
near +16% jump in total admissions between 2006 and 2016.
For-profit education companies reporting to date indicate that
this historical pattern is repeating again this year. The
largest for-profit education firm in the U.S., Apollo Group
(Nasdaq: APOL) recently announced that its admissions grew more
than +18% year-over-year in its fiscal first quarter.
And there's more. Growth in admissions is likely to be even
stronger than normal during this recession thanks to massive
spending on education from the government. The majority of
students in U.S. universities use some form of student loan to
finance at least part of their studies. In some cases, the
government loans money directly to students and in others the
loans flow through third-party lenders but are guaranteed by the
government. The latter program, known as Federal Family
Education Loan Program (FFELP), has been the main source of
student loans for years.
In recent months, the government has ramped up its direct loan
program, offsetting declining lending from private institutions,
many of which are exiting the student loan business.
Even more importantly, the Term Asset-Backed Liquidity Facility
(TALF) should benefit student lenders under FFELP. The TALF was
recently expanded in size form $200 billion to $1 trillion. The
fund allows the Fed to lend money to banks using "AAA"-rated
asset-backed bonds as collateral. The list of appropriate bonds
would include those backed by pools of student loans; since
student loans are guaranteed by the government under FFELP,
they're typically rated triple A. And finally, the Department of
Education has been authorized to buy student loans guaranteed
under FFELP directly from third-party lenders.
This has had the effect of increasingly liquidity in the market
for securitized student loans. As a result, the availability of
student loans remains strong despite the ongoing credit crisis
that's hampered access to just about every other imaginable form
of credit. According to the Department of Education, total
lending under FFELP grew +10% in the first nine months of 2008
compared to the same period in 2007 even as the credit crunch
deepened.
And alongside federally subsidized student loans, the government
also offers a host of tax breaks and financial aid for students.
The so-called Stimulus package recently signed into law by
President Obama included significant extensions of these credits
and grants.
For example, the bill provided an additional $15.7 billion in
funding for the Pell grant program. Pell grants provide needs
based funding primarily to undergraduate students. Apollo Group
gets about 10% of its revenues from Pell grants while Corinthian
Colleges (Nasdaq: COCO) gets nearly one-quarter from the same
source. The extension of Pell grants can provide a meaningful
boost in affordability for students and a boost to revenue for
the for-profits.
In addition to the Pell extensions, the bill also added
additional funds for the Hope credit, a tax credit against
qualified education and tuition expenses.
Good Investing! [http://www.streetauthority.com/includes/editor-profiles-ma.htm]
Disclosure: Paul Tracy does
not own any of the stocks
mentioned in this article.
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