Saturday, November 09, 2002

11/9/02 The "Soft Spot" Befalls Turner's In Corning, Iowa

It's a very sad day when tradition's best closes its doors. After 134 years, Turner's Clothing Store is shutting its SE Iowa operation.

Clare Hushbeck, an AARP economist: "Nobody knows what the economy or the markets will do...more people are showing up at soup kitchens and food pantries and that's a real sign of the economic pain that Americans on fixed incomes are experiencing in this recession."

Paul Palmer Jr, Cypress Advisory Services in Houston: "Right now a lot of people lack the confidence to do anything because they don't want to run the risk of losing principal."

Paul McCulley, Pimco, "There is a global deficiency of global aggregate demand."

When there is uncertainty, a lack of confidence, too little demand, and too much supply, you have a recipe for trouble. That's what we have. Trouble.

Friday, November 08, 2002

11/8/02 The "Soft Spot" Hits Main Street America

McDonald's will miss their already reduced profit forecast, close restaurants, and lay off workers. The poor economy has hit the supermarket business. Safeway lowered its earnings forecast.

Most municipal bonds now have a higher yield than treasury bonds.

The yield curve is flattening. As such, the spread between 2 year and 30 year treasury bonds is narrowing. The yield on the latter is down to 4.82% and the 10 year yields 3.87%.

I have said it so many times. We have widespread overcapacity; too much consumer debt; imports pressing prices lower; and deflation looming on the horizon. Most businesses will continue to cut costs and sidestep hiring and capital investment.

SAS to cut 2700 more jobs.

Thursday, November 07, 2002

11/7/02 The Fed Slices, Dices, And Panics

It is difficult to begin the day on a critical note. Providing praise, on the other hand, is quite uplifting. Yesterday the Fed lowered their funds rate to a level below the inflation rate. The latter is 1.4%. In essence, the Fed said this lowered rate would provide the balance between inflation and the "soft spot" we now have in the economy. This statement is an insult to the intelligence of the American people. Inflation is essentially non-existant. Additionally, we do not have a soft spot economically. We have a serious problem on our hands. You don't believe me?

Costco, one of our foremost retailers, today warned about less than expected results due to disappointing same store sales. Sam's Club, a unit of WalMart, announced a 1.6% decline in its October same store sales. WalMart, as a whole, produced a 3.7% sales gain, and this approximated its results for the past several months. The company said November would show a 2 to 4% sales gain, hardly the growth that made WalMart great.

Cisco's latest quarterly results showed a $500 million decline (a bit over 30%) in cash flow from operations from the prior quarter. The CEO expects sales for the current quarter to be flat to down 3 to 4%. He said customers remain cautious regarding spending and are unsure of revenue and profit projections.

Advanced Micro devices announced their need to lay off 20% of the workforce in order to bring costs in line with sharply reduced revenues.

The Bank of England and the European Central Bank both left their rates unchanged. There was a time these institutions would have followed the Fed's lead. Unfortunately, in my view, the Fed has lost its credibility in the marketplace. Only the media finds this Fed newsworthy.

The consumer is beleaguered. Does the Fed want the consumer to borrow more at slightly lower interest rates? Should they take out more car loans? Should they buy more presents on their debt laden credit cards? I don't think so. I believe a clean sweep is in store. Show the exit door to the Chair and the 12 governors and let them follow Harvey Pitt to the showers.

I apologize for this late posting. The .Net Passport server has been down.

Wednesday, November 06, 2002

11/6/02 Insurance Premiums

Insurance premiums are rising at their fastest clip in a decade, fueled by increased demand for hospital services and prescription drugs. Premiums are forecast to leap an average 15.4% for employers next year, even as the economy remains shaky and the job market tight.

Some employers are requiring workers to pay 10% to 30% more toward monthly premiums, raising deductibles and setting higher co-payments for office visits, hospital care and drugs. Hewitt Associates estimates that the amount employees will pay in premiums and other costs next year will rise by an average of $342, to $1,753.

Since June 415,000 jobs have been added in agriculture, and that accounts for roughly 50% of the new jobs added since June. Are marijuana farmers being counted now or possibly illegal migrant farm workers being added to payrolls?

The ISM monthly index of non-manufacturing activity(or lack of) showed new orders slowed in October to 50.9 from 52.3, and this is the lowest level since January. The non-manufacturing employment index fell to 46.2, and this is the 20th consecutive month for job losses.

Tuesday, November 05, 2002

11/5/02 More Job Cuts

In October there were 176,010 announced job cuts. This was the second highest monthly number in 2002. Only January had more.
Yesterday Applied Materials announced they are laying off 11% of their workforce, and Dow Jones is cutting an additional 3% of theirs. What I find interesting is that both of these companies are the leaders in their respective fields. Additionally, Jim Morgan, the CEO of Applied Materials, is one of the brightest guys in the Silicon Valley. If Morgan thought business were on the verge of improving, he wouldn't be making these cuts.

Last Friday Network Commerce filed for chapter 11. At one time the company had 650 employees and had a stock market value exceeding $500 million. Between 1998 and 2001 they reported losses exceeding $500 million. How many other stories like this are in the naked city?

Factory orders dropped 2.3% in September.

IBM will spend $700-800 million over the next year on ads to promote "on-demand computing." The spoof ads are intended to counteract technology gloom and doom. In my view, growth in cash flow and net profits might be a much better tonic.

The Dow at 8600 is up 20%(about 1400 points) above its 5 year low of about 7200 set intraday on October 10. I wonder how much new money was suckered into this bear market rally.

Monday, November 04, 2002

11/4/02 Happy Anniversary Guy

Your smiling eyes are everywhere and light up the sky.

Tomorrow there are 36 governorships, 34 Senate spots, and 435 House seats up for grabs. Hopefully, we will vote with our heads and not focus on the photo-ops. These individuals are to represent your beliefs. With all due respect, maybe they will do a better job than the current array of money managers who are stewards for your money. Everyone should be tired by now of losing money. Are we also tired of bloated government and a do-nothing Congress? The choice is yours. A single vote can make the difference.

After years of reading about the "Microsoft Case" it is finally over. Nothing happened except for the hundreds of millions of dollars wasted on pursuiing competition in our capitalistic society. John D. Rockefeller must be smiling.

Today I will need to rest. I have to prepare myself for the Fed meeting this week. The outcome has so much meaningless suspense.

Sunday, November 03, 2002

11/3/02 Happy Birthday Guy

This blog is for you. I remember and will never forget. May your soul light up the earth and the stars.

I must have received at least 23 spam messages this week informing me that the Fed will lower interest rates this coming Wednesday. Does this mean that I can borrow at 1.5% or that the economy will turn on a dime? Actually I have given this matter a great deal of thought. I need to give credit where credit is due. The Fed is the second coming of Prozac- generically speaking of course. When I think of Alan Greenspan and his associates, I envision the Lone Ranger and Tonto, Spiderman, Superman, Elvis, John Wayne, and Madonna all coming to the rescue. After all, I read where our economic recovery is in peril. That's correct. Peril. Everything will be ok. I'll have some milk and cookies, go to bed, and wake up in March 2003 when all will be rosy.

The problem with the above scenario is missing the holiday season. The retailers need our dollars to buy merchandise for the Spring. I cannot have on my conscience the thought that my sleeping thru the holidays could contribute to KMart going the way of Loehman's. I would rather stay awake and swallow the peril pill. Reality is easier to digest in the short and long run.