Saturday, May 03, 2003

5/03/03 Horse Racing And The Stock Market

The Kentucky Oaks is the Kentucky Derby for fillies. It was won in record time yesterday by Bird Town before a crowd of 100,000. She went off at 19-1, stumbled out of the gate.The trainer,Nick Zito, thought bad luck had again ruined his day. The three favorites were evenly stretched across the track coming into the home turn. Down the stretch run no one saw the winner coming. They were too busy looking at each other. It would not have mattered. Bird Town blistered the closing field and won by about four lengths. It was more than convincing. It was a win by knockout. My pick, Yell, came in third after getting roughed up twice on the first turn. Horses and jockeys need to be tough. Yell was tough but not fast enough. The favorite came in fourth.

Only one favorite has won the Kentucky Derby in the past 23 years. Easy Goer, went off at 4-5 in 1989, and finished second. That was some kind of colt, and couldn't get the job done at Churchill Downs. Today Empire Maker and Ten Most Wanted will be the favorites. The former was sired by Unbridled, the 1990 Kentucky Derby winner. Maybe this run for the roses will be another surprise. Possibly the winner could be Peace Rules, Funny Cide, or another colt. If it's an off track, maybe Brancusi will surprise. Maybe the winner will stumble out of the gate or be roughed up around the first turn. That's what makes horse racing.

With 15 minutes going into yesterday's market opening, few had a conviction about where the market would close on the week. That's what makes the stock market so exciting every day. It's more than a challenge. The bulls were there to say the trend in unemployment was bullish. In February, 357,000 jobs were lost; in March another 124,000; and yesterday it was reported that only 48,000 jobs were lost in April. The figure of 53,000 had been expected. It is true that 32,000 gov't jobs were added but that number was offset by the number of reservists called up. The bears said the unemployment rate rose to an 8 year high of 6%; only once since WW II has the economy lost jobs in 3 consecutive quarters and not been in a recession, and that was during the steel strike of 1952; the average weekly April wages fell by about $4 from March's level;
the work week fell to 34; aggregate weekly hours slid 0.7%; manufacturing hours declined; and overtime hours declined. Overall, it meant that almost 2 million Americans have been unemployed for 27 weeks or more.

The market did not explode out of the gate. There was stumbling and some roughing up as well. But, as the market started to pick up, the Dow Theorists took over. They said the magic number of Dow 8521 was key, and the market roared thru that number like Bird Town coming down the stretch for home. The action was helped by the rumor that IBM would buy Sun Microsystems. It was Friday, and rumors make the rounds on fridays. The Nasdaq closed above 1500 for the first time in a year. Treasuries had their worst decline in a month. The Dow powered forward throughout the afternoon. Few would have predicted this happening- especially with gold at $341 and the indexes for metals acting well. The crowning glory was Merrill Lynch saying the worst was over for the airlines, and the leaders in this group rose between 10 and 20 per cent on the day.

So where does that leave us? The chief economist for Goldman Sachs said "repeated payroll declines are usually an indication of serious trouble." The trouble is we are not living in usual times. Ralph Waldo Emerson would say that "the primary wisdom is intuition." Others might argue to follow the money but Thomas Jefferson said "I sincerely believe that banking establishments are more dangerous than standing armies." So what's the reason investors were buying yesterday? JP Morgan said "a man always has two reasons for doing anything- a good reason and the real reason." Now we just have to wait and see whether the reason proves to be borne in brilliance or stupidity.

SARS is mutating rapidly in Hong Kong. Eight more deaths were reported and the mortality rate is near 11%. Four different strains of SARS have been discovered- all with different genomic sequencing. Don't bet on a vaccine any time soon. You might have better luck betting on the Kentucky Derby today.

Friday, May 02, 2003

5/2/03 Being Right In The Market Requires Patience

In the Fall of 1998 the dotcom boom was beginning to percolate. I could smell the air, and my stomach told me it was about to take off. I was not comfortable in that arena. I'm not a tech guru. I did, however, believe we were going into a housing boom era. I analyzed and studied and thought the stocks were being given away. The multiples were ridiculously low, and the main risks in my mind were timing and patience. In October, 1998 I bought a basket of the top housing companies, an approach Peter Lynch used successfully over the years. As the internet stocks started to zoom, my housing stocks couldn't get out of the front door. As the months went on, I added to my positions. I thought the stocks were even cheaper than before. The internet stocks zoomed higher. My friends thought I was crazy. We know this. It's nothing new. By the Spring of 2000, I felt like I owned a lot of houses. The stocks never moved though. By May/June 2000, I was telling my friends that they had better sell their dotcom stocks. The party was over in my view. I thought the only place to make money was in the housing sector. My friends were tired of hearing this from me. I couldn't blame them. Then a funny thing happened on the way to the bank. The housing sector started to look better in July/August 2000. Then zoom. It was off to the races. I sold out in the Spring of 2002. I had made a ham sandwich or as Peter Lynch would say a three or four bagger. It took me a bit over 3 1/2 years and lots of patience. I almost bit a hole in my tongue. But I didn't. Being right in the market requires patience. Now we turn to today. Yesterday made me laugh. It reminded me of early 2000. The dotcom stocks could be down for all but the last 30 minutes of trading, and then buying came in. It happened so often in those crazy years. That took place yesterday. I recognized the smell. It has happened a few times in the last few weeks. The bulls say it means stocks were able to rally in the face of bad news. I call it strategic market buying at a strategic time of the day. This is nothing new. I have seen it time and time again over 37 years. Maybe you will be fooled. I won't be.

In a recent blog I said the market will crash. I believe it will happen soon. As I reflected in the paragraph above, market timing is difficult, and the market makes everyone humble. I may be right or maybe wrong on timing, but it will happen. Just like the housing boom occurred after very few saw it coming. We are in deep deep muck. You can look at the 20 point uptick in consumer sentiment after the war ended and some of the profit results for the first quarter. Sentiment does not buy food. A paying job buys food. Google maybe hiring 800 people this year and getting 1000 resumes a day. That's great. In the meantime, Gulfstream, the business jet maker, just closed its Savannah, Ga. plant for a month and well over a thousand workers will be furloughed. This is just one such story in the naked city, so to speak.

I don't like Hillary Clinton but she's not stupid. Do you know why she likened George Bush to Herbert Hoover in a speech she gave in Conneticut a few days ago? As it stands now, Bush will be the first president since Hoover to preside over a four year term in which the U.S. economy lost jobs. That's right. Since the enactment of his tax cuts in June, 2001, we've lost 1 3/4 million jobs. The Bush economic team said that the new proposed tax cuts would add between 1 million and 1.4 million jobs in the next 18 months. During this time frame 2 million jobs would need to be added for Bush not to be mentioned with Hoover. We may lose another 2 million jobs, but we sure aren't going to add them. Since 1900, the only incumbent Republic presidents to lose bids for a second term have been Hoover and Bush senior. By the way, in a Washington Post-ABC News poll taken 2 days ago, those responding gave Bush a 52% approval on the economy and 45% disapproved; on the cost, availability, and coverage of health insurance 57% disapproved and 34% approved; and on the federal budget 50% disapproved and 43% approved. I wonder how many approve of giving $20 cash payments to 1 million citizens in Iraq while so many Americans are homeless and stand in breadlines.

U.S. average jobless claims rose to a new yearly high to 442,000, and the average number of Americans receiving state unemployment checks over the past four weeks rose to their highest level since November.

It was announced the other day that the first quarter GDP rose 1.6%. The worker productivity rate during that time rose 1.6%. In other words, without the productivity gain GDP would have had no growth. If you take out government spending, there would have been a 1% decline in GDP. The cost for that labor production rose 1.9% in the first quarter. By my simple math, we are going backwards along with the euro economies and Japan. We could form a jazz group and call ourselves The Trio In Decline. Kind of catchy.

The U.S. may try to cut tax breaks for those citizens working overseas. Isn't a job a job?

The manufacturing sector is really in the doldrums. It's at the lowest level in about a year and one half or more. Less and less people are getting employed in that sector. That will continue as new manufacturing orders fell once again.

A gain had been expected for construction spending in March. It fell 1%.

What does Sir Jonathan Pruitt have against Tony Blair? He said "I don't think the war would have happened if Iraq didn't have the second largest oil reserves in the world." I thought the war was fought over terrorism and WMD.

April auto sales for the Big Three declined. No surprise.

German retail sales plunged again. No surprise.

In the last few days SARS has exploded in Taiwan. Just this week there have been about 50 new cases and two people died yesterday. This comes as a surprise to many in Taiwan.

The U.S manufacturing index dropped to a dismal 41.4. There have been 31 straight months of layoffs. This is catastrophic.

European manufacturing contracted in April. The euro has gained 6 1/2% vs the dollar this year, and this rise has severely impacted exports.

The Canadian dollar rose above 70 cents vs the U.S. dollar for the first time in 5 years. Our dollar is in a world-wide bear market.

Dell's COO: "We haven't seen any change in the marketplace that would suggest we are out of the slowness." Talking about Dell, they have been in the Layer 2 switch business for a short time. Network switches are 40% of Cisco's business. Dell is "committed to this market." Dell will enter the most profitable part of the business, Layer 3, by year end. I say prices will come down and profit margins will follow.

A school in Hong Kong will suspend classes for a week after a 13 year old student was suspected to have contracted SARS. Some 1600 others have been infected in Hong Kong and 162 have died.

Beijing has 21 hospitals set aside for SARS patients. Beijing has experienced 100 or more SARS cases per day, and 170 have died. Now 11,000 are under quarantine.

Normally at least 85 million people in China hit the raod for the big May Day holiday. The government has cut the holiday back to only 3 days and is asking people not to travel. It usually generates $4 billion in tourist revenues.

Thursday, May 01, 2003

5/1/03 Greenspan Put On His Game Face

Half the battle is just showing up. Give the man credit. He is recovering from a medical procedure, and I wish him the best. I will not criticize anyone who does their absolute best. What was he to say? That business conditions are lame? That the Treasury is running out of money again? That business spending is a misnomer? Give the man credit. He said there would be an uptick for the economy. He just didn't know when and how strong the upturn would be or how lengthy it would be. He said tax cuts are fine as long as you offset them with spending cuts and/or tax increases (the latter I wish he hadn't said. The Congress doesn't need impetus in that area). Give the man credit. He was honest. Lingering business caution could be an impediment to improved economic performance. He said the Fed has a hard time figuring out which way the immediate trends are pointing. It's not easy out there. The man is ok.

Richard Clarida, the U.S. treasury's chief economist is leaving that post next month. The deputy secretary of the U.S. Treasury left in February, and there have been other departures. You can't blame them for leaving a sinking ship.

Berkshire Hathaway has purchased 13.35% of PetroChina, which is selling for about 6 times earnings. I sure would rather invest in that stock at that valuation rather than let's say a Cisco. Talking about Cisco, the latter's CEO said jobs might be shifted overseas if tech companies are forced to account for stock options as a business expense. Maybe someone should tell Chambers that outsourcing to India will continue whether he likes expensing stock options or not. If he wants to make idle threats, he should threaten to improve his own performance.

The U.S. will cut 6000 airport screening jobs. They were just getting the hang of it. Does this mean there will be less future airline travel in the U.S.?

The WHO says SARS is here to stay. As I have been stating, SARS and AIDS have a good deal in common.

The death toll from SARS in Canada rose to 23. SARS patients in Hong Kong have had relapses. There are about 9000 people quarantined in China.

Singapore Airlines asked 6000 employees to take leave.

Asyst Technologies, a semiconductor company in Fremont, fired 30% of their workforce.

April was the best month for the Dow and the S&P 500 since October. The UK's FTSE had its best monthly gain in 5 years in April. It's too bad every month is not like April, 2003.

The WSJ reports that the Bush Administration has a broad plan for Iraq's economy. I hope it's better than the plan they've had for the U.S. economy.

The Chicago PMI was 47.6 in April vs 48.4 in March. The index was poor for New York too. Talking about N.Y., the City is facing a $3.8 billion budget deficit, and will raise the sales tax to 8.75%, and there will be an income tax surcharge on those earning at least $150,000 per year. If they keep fining those on Wall Street, like Ron Baron just yesterday, they'll be no one earning at least $150,000. Those in Chinatown and those in the Mafia are strictly on a cash basis and not on a reporting basis.

South Korea reported its first suspected SARS case.

Pfizer will close 4 Pharmacia Corp. facilities in the Chicago area that employ 1500 people.

St. Anthony's Dining Room in San Francisco opened in 1950 and just served its 30 millionth meal. They serve 2000 lunches each day, and have found that, since 1995, the percent of homeless diners who are seniors grew from 6 to 32% and families dining increased from none to 40% in 2002. More than 70% of those eating lunch have been doing so for more than a year. Just another indication of why the Administration economic plan is not working. Too many people are not working.

The 15 largest defined-benefit corporate pension funds covering workers in Washington, Oregon, and Idaho had a shortfall of $9.5 billion. A year before they had a billion dollar surplus.

The Nasdaq is up 10% year to date. That's like a $1 stock going to $1.10. In the past 5 or 6 weeks the semiconductor index is up over 30% and the networking index is up about 20%. There have been these kind of rallies over the past three years. It gives everyone hope- just like Greenspan did yesterday.

Wednesday, April 30, 2003

4/30/03 The New Color Of Money

For the first time in almost 100 years there will be a new color design for the $20 bill. There is a small problem. It will be crafted with disappearing ink. The reason is simple. On February 20th the Treasury announced they had reached the debt ceiling limit. Then with some juggling they stated they could see their way thru to about mid-July. I never believed that statement. Our "budgeteers" were banking on a larger amount of income tax receipts come April 15 than I did. In addition, I was correct in assessing that the economy was much weaker than those in DC had projected. As such, in a few weeks the Treasury will have hit the $6.4 trillion debt ceiling, and they maintain there is no more room to pay bills and/or debts coming due. Reducing government salaries and other expenses do not seem to be a serious alternative. It should be noted that the debt ceiling was raised by $450 billion in June, 2002. The fixes are coming with greater alacrity and in larger amounts. Don't worry your Congress is coming to the rescue with a trillion dollar increase in the debt ceiling by the end of May. Prior to June, 2002, Congress had last raised the debt limit to $5.95 trillion in the Balanced Budget Act of 1997. The CBO had projected in January 2001 that the $5.95 trillion would not be reached before fiscal year 2009. In other words, the CBO's projections are not worth the paper on which they are printed. For my money, the entire work of the CBO should be outsourced to India.

Some opponents of raising the debt limit argue that it is one way of trying to control or at least protest the level of government spending and as a method of constraining future spending. Obviously, the protests have been meek, to say the least. I can barely hear a gasp. These guys can't even talk a good game. Why? It's OPM. It's ours and not theirs. In addition, the government rarely has a layoff and they continue to cash salary checks.

Prior to 1917, Congress approved each issuance of debt, including its interest rate and term. The basis for our current debt-limit law is the Second Liberty Bond Act of 1917. That is not related to the Patriot Act. The initial debt limit was $11.5 billion. Between January, 1980 and September, 1997 the debt limit was increased or extended by Congress 37 times. The last time the debt ceiling was increased about $1 trillion in one year was between 1990 and 1991. The senior Mr. Bush was then President.

All of the above makes it sound like business is usual. It's not. The budget deficit this fiscal year is projected by Morgan Stanley at $370 billion; by Goldman Sachs at $425 billion; by Citicorp at $500 billion; and by me at $465 billion. Depending on the consumer, SARS, the West Nile virus, and other possible happenings all of these estimates may be low. They won't be very high. That's for certain. The CBO is still forecasting a budget deficit of $300 billion. Either they don't have a clue or they are afraid to tell the truth. Both could be the case.

It is quite plain to see that our United States is on the verge of an economic calamity. We have robbed Peter to pay Paul for the last time. Everett Dirksen said it better than I ever could. He said "I know how easy it is to say 'Oh, it is only $20,000,000,' or 'it is only $80,000,000' or it is only $240,000,000 a year that will be taken out of the pockets of the taxpayer.' But where will it finally stop? I do not know. An old man once taught me what a million is. He said 'look at your watch, and watch the second hand. You can see it every second, every minute, every day, every night, every week, every month, every year- and in 3 years it would go around 1,000,000 times." Well, time has run out on our Treasury and on our $20 dollar bill with the disappearing ink and even on the nickel with the new design. Without any substance the designs mean diddly. Foreigners are not going to fund our deficits. We are no longer a safe haven. The smart money started to lessen their U.S. assets in 2002. The dollar is depreciating. The euro is not. The Swiss franc is not. The currencies in New Zealand and Norway are not. There are plenty of alternatives. We may have superiority in weaponry but we also stand head and shoulders above all other nations in spending and lack of fiscal restraint. The euro countries are restricted to where the budget deficit cannot exceed 3% of their GDP. We couldn't even qualify for entry into the euro countries. That's pathetic.

Twenty nine states face the worst budget crisis in a century. If the President's proposed tax cuts are enacted without corresponding spending cuts, most states will lose millions of dollars in funding for education and job training; health care; security; transportation; support for low-income families; environmental programs; and agriculture. Many states are in dire shape. In Pennsylvania, since January 2001, 85,000 jobs have been lost; 1.2 million individuals haven't health care coverage; 1,158,000 of their citizens are poor; there are oversized classes and other educational deficiencies; 37% of the roads are rated poor and 42% of the bridges have structural deficiencies; and Pennsylvania has a total budget shortfall of $2.4 billion.

Everett Dirksen stood, in my view, head and shoulders above those in Congress today. Maybe we can learn from his wisdom from 1959 when he said "with respect to authorization bills, I do not want the Congress or the country to commit fiscal suicide on the installment plan. I never think of the fiscal situation without being reminded of a Government project out home many years ago. It was a make-work project. There was a huge hole in the street. When the work had been finished and the hole filled, there was a great mound of earth which constituted a traffic hazard. The gentlemen wielding the shovels did not know what to do. Finally they held a conference on the curb. Someone said I will tell you how to get rid of the mound of earth. We will just dig a hole deeper."

Yesterday it was reported that consumer confidence in April jumped 20 points. The last time that happened was after the Gulf War in 1991, the same year the debt ceiling limit was raised by $1 trillion. This improved reading may not be telling the true spending story. With Easter in April this year, retailers had expected a gangbusters month. Now it looks like April retail sales may only be up a bit over 2%. Profit forecasts will need to be reduced. Northern Trust Corp. said in a note to clients that "we think that the dire outlook for jobs is an underlying factor in restraining the consumer from more robust spending."

The Texas Business Leaders Confidence Index dropped to 52, down six points from the prior quarter. Only 38% of those polled expect the state's economy to strengthen in the second quarter.

State and local government compensation increased about 1% in the first quarter, and that, in the face of soaring deficits.

Japan's industrial output fell unexpectedly in March and the Bank of Japan has decided to ease monetary policy further and to inject more money into the economy.

The Bank of Japan said there is "considerable uncertainty" about the outlook for the recovery of the U.S. and European economies.

Asia accounts for 40% of Japan's exports and SARS will diminish those exports.

The SARS virus is threatening to overwhelm hospitals in Beijing. About 10,000 people have been quarantined.

China's Prime Minister said "there is a need for us to recognize the fact that the SARS epidemic is going to be a long-term, a complex and relapsing epidemic."

Singapore warned of higher unemployment as visitor arrivals plunged and regional airline SILKAIR laid off staff.

On Tuesday Hong Kong reported another 12 SARS deaths and 15 fresh cases.

Health experts suspect China has had more than the 148 reported SARS deaths and more than their 3000 SARS cases.

The dollar reached a new four-year low vs the euro.

In June,1965 Everett Dirksen said "if some people get any cheer out of a $328 billion debt ceiling, I do not find very much to cheer about concerning it." Well, at this time, it is about 20 times larger than it was in 1965. I wonder whether today's GDP is 20 times larger than it was in 1965. By the end of May, the debt ceiling will be 22 1/2 times the size it was in 1965. How many in Congress will be cheering? For me, it will be like watching Rome burn as the unemployment ranks increase along with the bread lines. When the stock market crashes, we can look in the mirror and congratulate ourselves for a job well done at the voting booths.

Tuesday, April 29, 2003

4/29/03 The Tale Of Two Viruses

The U.S. government will borrow a net $79 billion for the April-June quarter, a new record. This is a fiscal disgrace. So is the pending $450 billion budget deficit, which is the direct result of the spending virus in Washington, DC. If any elected person in the halls of Congress votes to cut taxes without imposing concurrent sharp spending reductions, then they should not be re-elected. Only your vote can rid this country of the spending virus. There are no vaccines. When you go to the voting booth, please remember that discretionary government spending is up 33% over the last five years.

In the 1980's Wall Street had Michael Millken and Ivan Boesky. They were fined $500 million and $100 million respectively and were imprisioned. They were a great deal smarter than Jack Grubman and Henry Blodgett, who paid fines of $15 million and $4 million respectively and admitted to no wrongdoing. Meanwhile hundreds and hundreds of millions of dollars, and probably billions, were lost because of Grubman and Blodgett. That was not the case with Millken and Boesky. Grubman and Blodgett and others like them should be imprisoned. The fact that they go free makes the scum virus more likely to spread to further corners of Wall Street. The issue is not that they are banned from Wall Street for life. That's meaningless. They shouldn't have been hired in the first place. Their bosses should also not pass go. They too should go directly to jail.

China will shut its stock exchanges from May 1 thru May 9. If the SARS virus can close their exchanges, then the scum virus should do the same in the U.S. Either run an honest business or close it down. If Warren Buffett and others like him can do without analysts and perform brilliantly, then so can the rest of America. I don't know about you, but I never listened to a word Grubman or Blodgett had to say. When they came on CNBC and were treated like gods, I turned on the mute button.

Ericsson to cut 13,940 workers, Corus another 1150, Goodrich 1700, 60 Eddie Bauer stores to close, and Regal Cruises goes out of business.

One of the reasons for the bullish stance on Wall Street is that the S&P 500 Index currently around 915 was at 800 in March and the Index has been over the 200 day moving average for one week. As such, many are putting money in the market thinking the trend has changed. This is simply a rally in a bear market brought to you by over valuation, over capacity, joblessness, too much debt, too much spending, poor revenue growth, and a scarcity of free cash flow. The Iraq war and SARS have only made future results look bleaker. The worst is not over.

I found an incident rather interesting yesterday. Piper Jaffray, one of the Wall Street firms fined, has an analyst who said that orders for Cisco were above expectations and said that quarterly sales and net income could exceed expectations. He said that information came out of his discussions with management. I thought that companies were suppose to provide guidance to the investing public at one time thru a public release.

China accounts for 10% of PC demand and 15% of cell phone demand. Recent handset sales were down sharply in the past week.

Nearly 75% of Californians say the state is in bad economic times. This is the worst assessment of California's economy in nearly a decade.

If P&G is so optimistic, why have their capital expenditures this year dropped $257 million from 2002?

Gold is at $335 per ounce.

Indonesia is the world's fourth most populated country. Their first SARS death was announced.

Asked if he were confident that the worldwide spread of SARS could be stopped, WHO's Heymann said " No we are not."

Hong Kong is having its first major trade show since the SARS breakout. They expected 4700 exhibitors at the three-day Gifts and Houseware Fare. Only 460 exhibitors showed up. At the Guangzhou Trade Fair in China they took in only $2.2. billion from the 12-day event, and that was down 90% from one year ago.

I don't know whether there is any connection with SARS, the spending virus, or the scum virus but a leading research firm says that 70 million people world-wide are affected by IBS, the irritable bowel syndrome.

In Beijing another nine people died from SARS and 202 newly infected were reported.

Chicago Fed President Moskow: "Data for February and March raise the concern that the veil of uncertainty has masked a more fundamental source of weakness in the business sector."

Argus' Yamarone: "I don't see demand anywhere, domestic or global, being strong enough to turn on existing factories, let alone invest in new ones. I don't want to be pessimistic, but it's real."

Avon's CEO: "I think our heads would be in the sand if we said there's not going to be any impact in the second quarter from SARS."

WHO's head of communicable diseases said China is the key to containing SARS. Premier Wen said "I have come to face reality and the world bravely." That statement and a buck will get him on the bus.

BMC Software's CEO: "Unless SARS gets better soon, I do expect it will have an impact on everybody that does business in Asia Pacific and maybe other parts of the world."

China is Kodak's second-biggest film market after the U.S.

McDonald's said SARS would impact comparable sales at least in the near term.

French business confidence fell in April.

U.S. venture capital spending fell 41% to a six year low in the first quarter.

SARS will hinder travel to Disney's theme parks. They weren't doing too well prior to SARS.

Later this week Alan Greenspan will be giving a speech. I wonder whether he will be able to answer this question- why should there be a boost in investment spending with capacity at 75%? The object of his talk will be to instill confidence in people and to provide hope. The last time I looked at a U.S. dollar it did not say in hope we trust.

CEO pay stands currently at roughly 240 times the pay of the average worker. Scott Klinger studied CEO pay over a 10 year span. Using $10,000 invested in the company of the top-paid CEO, held for one year, then investing the proceeds in the company of the next year's pay leader, and so on, by 2002 that $10,000 was worth $2899 while $10,000 invested in the S&P 500 Index over that 10-year period was worth $22,170.

We hear that worker productivity is at record levels. I suggest that part of the reason is fear of losing the job and the need for the day's pay. Doctors say that the average adult catches two to four colds per year and takes about a week to recover from each. According to the Bureau of Labor Statistics, (I apologize for relying on a government agency) the number of people taking sick or personal days off dropped last year by 200,000 a week nationally as compared with two years earlier. Full-time employees across the country were granted an average of 7.6 sick days last year, and that was down from 8.4 days in 2001. Workplace-productivity experts have coined a term for those employees coming to work sick: "presenteeism."

Monday, April 28, 2003

4/28/03 The Worst Is Over

The WHO said SARS has peaked in Canada, Singapore, Vietnam, and Hong Kong but not in China. I believe we will look back on this statement and say it would have been more accurate to say it peaked for now in those countries. At the moment, the death count from SARS tops 300. Counting non-military casualties, SARS is getting to sound like another Iraq war. Some of the main diffeences appear that SARS does not have the same reconstuction costs, it is a democratic virus, and it will in all likelihood re-appear when the weather gets colder, for example, Hong Kong.

The exodus from Beijing exceeds that of the Jews from Egypt. There are between 100,000 and 200,000 leaving each day. People are rushing out before the authorities seal off the city. Now the virus will be spread into outlying areas where the health resources are truly limited.

Economists have said the global financial fallout from SARS up to this point has reached $30 billion. That sounds low to me.

Canada had another death on Sunday and four others are critically ill in Toronto, and they could soon die.

Japan's latest retail sales declined 1.2%.

Taiwan shares dropped 4% as the SARS virus threatens their economy.

Sony is trading at a 7 1/2 year low, and the Nikkei made a new 20 year low.

Even after the end of the Iraq war, business confidence in Germany fell to the lowest level in 16 months. The euro hit a 4 year high vs the yen.

U.S. oil prices fell once again to their lowest level of the year.

I received numerous emails questioning why I thought President Bush was wrong to say the income for Americans is rising. The latest IRS numbers available are for 2001. There were 130 million individual income-tax returns filed for 2001. According to the IRS, taxable income declined 5.2%. Total income tax decreased 6.8%. Going one step further, we know that the jobless rate has been rising, and that unemployment has been rising, and that the amount of time it takes to find another job is rising, and that taken all together, the jobless, the underemployed, and those having given up trying to find a job after looking for about two years, has created less taxable income and less total income tax for 2002- even though the final IRS numbers are not available. I guarantee that is an accurate statement and so is the one I made stating incomes for Americans are not rising. I bet the President would not bet his re-election on proving me wrong.

Mississippi has a $90 million deficit in Medicaid. In Ohio Medicaid covers one in eight residents. Medicaid covers 36 million disabled and low-income Americans, and it is the second largest expense after education for most of the 50 states.

Global semiconductor sales in the first quarter declined 3.2% from year-earlier levels.

Dr. Isadore Rosenfeld, head cardiologist at Cornell University Medical, said the tests tried so far on the SARS virus has some real problems. Many who have tested negative may still have SARS. In addition, people who lick SARS may get the virus again. He said the mortality rate for people 75 and over is 30%, 65 and over 19%, and for others about 10%. One explanation for differing research on the virus is the possible multiple SARS strains. It is thought there is a spectrum of genetic variation, and it is believed by some researchers that SARS, which is a RNA virus, is prone to mutations. The top scientist for the WHO said different varieties of the virus could explain the disparities in the disease.

The average American spends at least $5000 per year on health care. Inasmuch as the U.S. does not have universal coverage for health care and government-regulated costs, the problems of getting sick has become a national epidemic and potentially much worse than SARS in China. Many businesses are either dropping coverage or asking employees to pay more. It is becoming more unaffordable for those with insurance and for the almost 45 million Americans without insurance. The average person in the U.S. sees a doctor 6 times a year, and we spend well over $1000 each year to see the doctors. In Japan they see doctors 16 times a year. We pay close to $1700 a year per person for hospital services, and that is growing almost monthly. The French and the Germans spend 50% less per person in this area. The average person in Cuba has the same lifespan as in the U.S. but the annual healthcare is only $170 per person. I am well aware of the differences in our health care services from those in Cuba, but are we getting real value? I don't think so, and I think malpractice insurance rates have a good deal to do with the question posed.

Sunday, April 27, 2003

4/27/03 I'm Bushed

Jed Bush in thanking the NRA: "Were it not for your active involvement, it's safe to say my brother would not be president of the United States." He noted that 48% of the voters in the 2000 presidential race were gun owners. Jed Bush went on to say "the sound of our guns is the sound of freedom." It's our constitutional right to bear arms; however, to applaud the sound of guns is, in my opinion, irresponsible and reprehensible. Maybe carrying a gun makes one feel like a tough guy. I don't know. I never have even held a gun in my hand. Then again, I use suntan lotion so my neck won't get red. I try to prevent cancers of all kinds.

If Governor Bush's remarks were not enough, I was faced with the words from his brother, President Bush, who stated "America's families are seeing their incomes on the rise." A more appropriate statement of reality might have been that there are 8 million unemployed Americans, and that does not include the 5 million Americans who aren't counted in the monthly numbers who earn too little to cover their rent and other necessary expenses. The number of the "underemployed" has grown 41% over the past two years, and characterizes those taking part-time jobs and/or low-paying jobs. Then there are the 500,000 "discouraged jobless" who have stopped looking for work after almost two years of trying. Taken together, the unemployment rate of 5.8% jumps to at least 10.5%. Yes, you are right. I have mentioned this in prior blogs. I felt a need to mention it again in the hopes that our President might take notice of these numbers. The voters will when the next election comes around.

Mexico's Environmental Ministry estimates that in 1960 each of its 35 million people generated one-half a pound of refuse, and most was biodegradable. Today there are more than 100 million Mexicans each producing two pounds of rubbish a day, and much of it is plastic wrappers and bottles that are not biodegradable. Officials say untreated municipal sewage or toxic waste are more urgent problems than refuse. I would not want to live along the waterways bordering Mexico. Now I know why so many Texans bear arms. Many are trying to shoot the sewage and toxic waste flowing towards them from Mexico.

Maybe because of SARS many have forgotten about the West Nile infection which hit 46 states last year up from 10 states in 2001. In 2002 the virus killed 284 people and caused serious illness in more than 4000. Temperatures are beginning to warm and mosquitoes start to hatch. Up to this point, predictions about the West Nile have been wrong.

Twenty miles north of Tikrit in Iraq our "Buffalo Soldiers" found fourteen 50-gallon drums with liquids testing positive for cyclo-sarin. They are thought to be part of two mobile labs.

Between 2004 and 2013 the CBO stated the president's tax proposals would add $621 billion to mandatory spending. In addition, during that time period, analysts have stated the proposals would reduce revenues by $1.5 trillion. Maybe a cut in spending might be in order. Fiscal restraint is a bit like chicken soup. It can't hurt.

The British pound has fallen 12% vs the euro in the past year and the FTSE has declined 25% during this time. The British budget deficit will widen to $43 billion this year, and the pound is at its lowest level in four years.

U.S. customers buy about 20% of the goods exported by the twelve euro-based countries.

GlaxoSmithKline generates 50% of its sales in the U.S. A weak dollar will hurt their results as it will DaimlerChrysler, Schering AG, Pechiney SA, AstraZeneca Plc, Unilever, Ericsson AB, Nestle SA, Michelin, and others. It should be noted that currency rates can be hedged successfully, and I noted in a prior blog how hedging oil contracts assisted Southwest Airlines in the first quarter. If companies remain unhedged in this world of wide currency fluctuations, it only reflects inept managements.

Forty two per cent of employers surveyed said they expect to cut college hiring.

The average stock mutual fund investor has lost almost $36,000 during the past three years. When starting from a smaller base, recouping losses becomes a much more difficult achievement. If a stock goes from $10 to $5, the drop is 50%. To reverse and go from $5 to $10 requires a gain of 100%. That's why recouping losses takes a long period of time. In some cases, after bear market declines, it has taken 10 to 20 years.

Taiwan said today that it would bar visitors from Hong Kong, China, Singapore, and Canada. Taiwan's Premier said "fighting the epidemic is like fighting a war. We face an invisible enemy (SARS)." The probable cases in Taiwan jumped from 33 to 55 and suspect cases from 50 to 72. Sunday marked the first SARS death in Taipei.

The SARS mortality rate started at 4%, rose to 5%, then 6%, and is now thought to be 10%. China and Hong Kong each have reported 122 deaths and Singapore and Canada each 19.

Beijing has ordered the closure of theaters, cinemas, dance halls, and other entertainment venues in an attempt to control SARS. Beijing's Ditan Hospital was the third of the capital's medical centers to be shut in recent days.

In China, almost 40,000 students hoping to study at U.S. universities next year may miss the deadline because the Educational Testing Service has suspended administering several tests in China. The ETS, located in Princeton, N.J., said China had requested the suspension.

WHO official Mark Salter told reporters the search for an effective vaccine to stem the SARS pandemic would take time. He said " I think we are looking at two years, three years, maybe, before a vaccine."

Dr. David Heymann, the WHO's head of communicable diseases, said "we don't know what this disease would do in immunity-suppressed populations."