Saturday, May 31, 2003

5/31/03 The Money Trail And Possibly "Cherry-Picking" The Flow Of Information

As yesterday's trading day ended, May marked the fourth straight monthly gain for the Nasdaq. The last time this took place was in late 1999, and what a great time that was to be a seller. Steve Ballmer, Microsoft's CEO, was not a seller in 1999. As I wrote the other day, up until about one week ago, he had not sold one share of Microsoft since 1991. I noted he had just sold 49.4 million shares, and then, this past Wednesday he sold another 2 million shares and then another 4 million on Thursday. Bill Gates has sold Microsoft on a regular basis for a period of years. The other day Jeff Bezos of Amazon sold a large amount of shares in the company he founded. I noted Michael Dell was a recent seller too. May had a positive money inflow into U.S. stock funds. You might consider asking yourself a basic question. Microsoft, Dell, and Amazon are three of the leading companies on the Nasdaq. Over and over again, I have mentioned that Microsoft and Dell are two of my favorite companies, and have been for years. I have also said many times I am in love with my family but not with my portfolio positions. Now for the question. If you see Ballmer, Dell, and Bezos lightening up, should you be a buyer or a seller- not just of the companies they run- but the market as a whole? What's more important- the market making new highs or the selling by some of our most successful technology entrepreneurs? Data can be devoid of information, it can be manipulated, and it can be massaged. I look at it this way. There are words, there are numbers, and there are people intertwined. I prefer to pay attention when smart people talk with their personal flow of money. You may think otherwise. It's your money. It's your choice.

Rick Carlisle was just fired as head coach of the Pistons. In his first season with the Pistons, 2001-2002, he was named NBA Coach of the Year. This season the Pistons went 50-32, and this was the best record in the East. His team went to the conference finals where they lost 4 straight to the Nets, a better team. The Pistons may hire Larry Brown who recently left the 76ers. Carlisle had been paid $2 million for the season. He is considered one of the best coaches in the league, and his two year record supports that view. He had every reason to believe he would receive a new contract, and probably a raise as well. Life is unpredictable. The market is unpredictable. You can never be sure enough in today's world. If you believe that last statement, then it might be wise to get paid for the risks in today's world. The problem is insurance can be expensive. There is one advantage should you so choose. The sellers of options generally make money 80% of the time. You might consider hedging your portfolio. It all depends on your point of view, and your ability to sleep at night. There is an old saying- sell to the sleeping point.

I was particularly interested in Fed Board Governor Ben Bernanke's speech today to the Japan Society of Monetary Economics. He said "there is no immediate threat of deflation in the U.S. economy and that the concern is that inflation may become uncomfortably low." He expects second half growth of between 3% and 3.5% and rising to 4% in 2004. He recommended that the Bank of Japan should focus on reflation. "Specifically, the Bank of Japan should consider increasing still further its purchases of government debt, preferably in explicit conjunction with a program of tax cuts or other fiscal stimulus. Consumers and businesses should be willing to spend rather than save the bulk of their tax cut. They have extra cash on hand, but-- because the BOJ purchased government debt in the amount of the tax cut-- no current debt service burden has been created to imply future taxes." This sounds a great deal like what is taking place in the U.S. I hope Bernanke doesn't believe, however, that consumers and businesses have extra cash lying around. In addition, as he well knows, Japan runs large trade account surpluses and that makes it feasible to reflate.

Because of SARS, Hong Kong's economy actually shrank 0.3% in the first quarter, and the government reduced its growth estimate for the year to 1.5% from 3%. The government expects SARS to reduce the 2003 GDP by 1.8%.

An annular eclipse is one where the sun is but a bright ring behind the moon. In early hours, the North Atlantic region witnessed its biggest such solar event in almost 50 years.

Quietly, over the past month or so, the Nikkei has climbed without fanfare from 7600 to 8400. Many companies are still having major problems. For example, Mitsui Mining reported a yearly loss of $445 million, and the loss created a negative net worth. It will be interesting to see how the performance of the Nikkei compares with that of the Nasdaq over the next 12 to 18 months.

This is our government attempting to be at work. In March Energy Secretary Abraham commissoned the National Petroleum Council to do a study on natural gas supplies, consumption, and prices and to make recommendations. The study will be completed in December. In the private sector I would hope a more realistic timetable would be 48 hours.

Albert Einstein: "Whoever is careless with the truth in small matters cannot be trusted with the important matters." Are we learning to think in different terms? Cross currents can be created by various flows of information and data. We know it is possible to manipulate data. Forks in the road are generated, and they lead on one side to mistrust and to the other side to wise leadership. The path you take is your choice, and yours alone. However, as Sandra Carey said, "never mistake knowledge for wisdom. One helps you make a living; the other helps you make a life." Let's focus for a moment on the question of intelligence. A senior intelligence official spoke on the condition of anonymity and said that only Colin Powell's February 5 speech at the UN Security Council was reviewed by intelligence agencies in detail and backed by detailed intelligence. In my opinion, that speech mostly provided an historical picture and did not feature current views of WMD. I am convinced to this day that Powell believed in the speech he gave. The cross current is generated by the opinions put forth by the Veteran Intelligence Professionals for Sanity, a group mostly comprised of CIA intelligence analysts. This group wrote Bush on May 1 about "a policy and intelligence fiasco of monumental proportions." In essence, they maintain intelligence data was skewed and that the Administration played up "fraudulent" intelligence, and before declaring war, there was a "moral obligation to use the best information available, not just information that fits your preconceived ideas." A former head of worldwide human intelligence gathering for the Defense Intelligence Agency said the administration "cherry-picked the intelligence stream." Upon a good deal of reflection, I think the kindest thing one can say is that a good deal of information provided was flawed. A good example would be yesterday's statement by Lt. Gen. James Conway, who is the top Marine Corps officer in Iraq. He said U.S. intelligence was "simply wrong" to make our military commanders indicate to our troops that they should be fearful of being attacked with chemical weapons in Iraq. We are now sending a 1300 person team of intelligence officers, scientists, and document specialists to aid in the search for WPM. Yesterday, Bush was interviewed and said "But for those who say we haven't found the banned manufacturing devices or banned weapons, they're wrong. We found them." He was referring to two trailers where the CIA had concluded no pathogens had been found.

Coco Chanel: "It's amazing how many cares disappear when you decide not be something, but to be someone."

Today Bush visited Auschwitz, and in a speech to Polish television he mentioned that his visit to the "Death Wall" is "to remind people that we must confront evil when we find it." Speaking for myself, I don't need the reminder. I remember it every day, and every day I am unfortunately reminded of new evils. I am not skilled in the art of selective forgetfulness.

Yesterday morning I was flipping the TV channel and saw an old familiar face. He was providing his current views, and he has been a successful money manager for some years. He mentioned about hs partner's description of tension in the boardroom, and that this tension was good for stocks. Specifically, he said boards are under pressure to make acquisitions, to do stock buybacks, and/or to declare dividends. I thought for a moment. This is good for stocks? At least 75% of acqusitions are unsuccessful. That number has been proven. In fact, it might be closer to 80%. Buybacks are not necessarily the best use of cash flow. Speaking from experience as chairman of an executive committee and chairman of a finance committee, we purchased stock on three separate occasions when the market was depressed and below the then last sale price. However, our best use of cash flow day in and day out was investing in our plants, and the annualized ROI was never below 50%. We never paid out a dividend just for that reason. The stockholders didn't do too badly. From the third week of December, 1981 thru the spring of 1988 the stock rose from $19 to the buyout price of $109.

Having money and the uses for the money is on everyone's mind. In April wages and salaries fell 0.2%. It was not surprising, therefore, to see the personal consumption expenditures index to also fall 0.2%. There's a lot of data out there. We have the lowest interest rates in four decades. Unemployment levels are way too high. Business spending is a misnomer. Everyone knows the numbers. The point is what do you feel the picture is telling your guts? Not what I say or Joe Blow says or even Bush says. What do you think? Please avoid bureaurocratic leanings. You might wind up like Deputy Defense Secretary Paul Wolfowitz and his explanation for going to war with Iraq: 'the truth is that for reasons that have a lot to do with the U.S. government bureaucracy, we settled on the one issue that everyone could agree on which was weapons of mass destruction as the core reason."



Friday, May 30, 2003

5/30/03 The Bad, The Bad, And The Ugly

Our Speaker of the House is Dennis Hastert. Many wondered why Boeing moved its long-time headquarters from Washington state to Illinois. Boeing said they got a better deal. I guess they did. How did Boeing just win a $16 billion Pentagon contract to lease modified jetliners for use as refueling tankers? Hastert proudly told the world "We did that kind of on our own. But I think the important thing is that we were able to have the muscle to get it done, and that means not just 100 planes but probably, long-term, it'll be 500 tankers." Some question why the $16 billion lease cost is more than an outright purchase would be. I'm sure everyone knows that Hastert, who represents Illinois, is third in line to run this country should a calamity befall our President and Vice-President. I'm certain that there are those snickering and are saying that's how business is done. Maybe it's done this way because no one does anything about it. In my view, things need to change.

The Boeing matter reminds me of IPOs. All the news relates to feeding the hot deals to the heads of companies who direct their business to the IPO managers who control the distribution of the stock. I think it goes much further than that. How about all the fund managers who direct millions of dollars in commission business to these same firms managing the hot IPO deals? I realize they should be treated differently. They are the best customers. They already are paying a lower commission than the average person doing business with that same firm. The large fund manager does something else though. That fund manager getting the hot issue, such as, VA Linux, will agree to take a lemon every once in a while. My comments come from experience. I have been offered these hot IPOs and turned each down. I also don't knowingly take on lemons. I can make money working hard and being my own man. Yesterday I mentioned Krispy Kreme. I really like this company. I like the product too much. I was offered the stock at the IPO price. When the stock opened for trading, I paid 60% higher than the IPO price. I still own those original shares. As for lower commission rates, I was always happy with the deal I struck in 1980. I still do business with that firm as I do with WalMart where they are pleased to give me a 10% discount. I am a valued repeat customer and spend a good deal of money there. What I buy is my choice though.

Yesterday, another U.S. soldier was killed in Iraq. Lt. Gen. David McKiernan told a Thursday news conference "The war has not ended, that's a point I need you to understand." Don't tell us, McKiernan. Tell it to the families whose near and dear were killed after combat was declared over on May 1. I am not one with military experience and don't understand how the troops in Iraq can still be receiving combat pay when the combat is declared over. In my view, the aftermath of the combat, that of chaos, could have been prevented with much different planning. I would like to believe that Ross Perot or Barry Goldwater would have handled this situation with much greater adroitness.

The Investment Company Institute reported April stock fund inflows amounted to $16.1 billion, and that this was the first inflow since November.

The World Semiconductor Trade Statistics group said April global semiconductor sales growth was flat compared with March, and was much weaker than expected.

Last week initial jobless claims amounted to 424,000, and for 15 straight weeks claims have remained above 400,000. Japan can relate to difficult times. Tokyo CPI prices have declined for 44 straight months. That's deflation!

In the first quarter in the U.S., earnings after taxes, adjusted for the value of inventories and capital consumption, fell 0.8%. We should see what results show in the second quarter.

S&P cut J.C.Penney's debt to a "junk" rating.

When Congress reconvenes and focuses on Medicare, I will be interested to see how Medicare's unfunded liability is handled.

You just have to love some of these airlines. U.S. Air is offering a $7 breakfast and a $10 dinner. Next to that, the $19 hot dog at the Old Homestead is looking a lot better.

In discussing the euro currency market, David Schoenthal, senior managing director of Bear Stearns, said "the market is focused on the deficits here, tainting the appeal of the dollar." The stock market does not appear to focus on the deficits nor does the Administration or the Congress.

Toronto now changed how it counts SARS cases. I need to take a course in counting. I didn't realize there were different ways to count SARS. No wonder the number of cases shot up to 70 and thousands were placed into quarantine. A big 4 accounting firm must have done the audit. Depending on the length of sickness, the hospital may be permitted to change to a double declining patient depreciation schedule.

ECB's chief economist, Otmar Issing, doesn't believe there is deflation in Germany. The fact is business hit a soft patch there, and they are the largest economy in the eurozone.

San Jose Congresswoman Zoe Lofgren serves on the House Select Committee on Homeland Security and is the top Democrat on the Cyber Security Committee (I didn't know we had one). She complains that air cargo, nearly a quarter of which is transported on passenger planes, is uninspected, and so is most of the cargo on ships. I wonder if that includes cruise ships. The latter may only have room to store SARS and other viruses.

According to the Conference Board, the volume of help-wanted ads in major U.S. newspapers fell in April to the lowest level in more than 41 years.

Joe Mysak is a Bloomberg News columnist. He wrote an interesting article on the Muni bond market and potential negative yields. He quotes John Hanley, the national sales manager at George A. Baum, who says "Investors are making a bet that bonds will make it past the call date. If that happens, incremental yields may pick up significantly. The approach requires some research but can generate decent returns. To this point it's been a safe bet as negative arbitrage has slowed municipal refundings." It got me to thinking. I'm familiar with arbitrage. I need to research whether similar negative arbitrage exists in the stock market.

Thursday, May 29, 2003

5/29/03 Different Perspectives And The $19 "Dog" And Giant Holes

Having been born, raised, and lived most of my life in New York, I have always felt a kinship to the real-deal hot dog made by Sabrett and sold at carts manned by street vendors. The Old Homestead Restaurant in New York City is considerably older than I am, therefore ancient, and now offers a different perspective on the "dog"-- a $19 Kobe beef hot dog.

CBS Evening News offers a different perspective on the opening night of the Iraqi war. They just reported there was no bunker bombed. They quote Col. Tim Madere who said "When we came out here, the primary thing they were looking for was an underground facility, or bodies, forensics, and basically, what they saw was giant holes created. No underground facilities. No bodies." There were no traces of DNA indicating whether Hussein or his sons had been killed or wounded.

Goldman Sachs offers a different perspective on the possible economic impact of the tax cut on 2003 GDP results. They maintain it will not have any impact at all and are sticking with their projected 2.2% GDP growth for 2003.

Some financial publications offer a different perspective on the economic upturn which is supposedly just around the corner. Some suggest that growth will in fact pick up but that unemployment will continue at the same level. In other words a jobless recovery, as it were, is foreseen in a different perspective.

Senator Graham is a candidate for the Democratic nomination. He is not well-known by many but, of all the candidates, he has been privy over the past 10 years to the most classified information. He offers a different perspective on the Iraqi war. Basically, he maintains that Saudi Arabia aided and financed al-Qaeda's 9/11 calamity, and that the whereabouts and existence of WPM were not truly known at the time our bombing began. It's possible, therefore, that the U.S. could get control of the Iraqi oil and make use of that source in order to minimize the importance of Saudi Arabia's oil and that of the mideast oil cartel.

Microsoft will be dropping prices by $80 to $110 on its Office XP suite of business software. This represents a reduction of about 15%. Later this year, the company will be inroducing Microsoft Office System 2003.

According to market research firm GfK Asia Pte. Ltd., a survey of 134 electronics retailers in Hong Kong and Singapore projects slow business to continue until at least July, and the reason is the impact from SARS. Yesterday Taiwan reported 14 new SARS cases and 5 more deaths. In Toronto a high school was shut down, and 2000 from the school and a total of 6400 were placed into quarantine. Russia announced its first confirmed case of SARS yesterday.

Unlike the recent headlines on home prices, Economist magazine provides a different perspective. They say U.S. and U.K. home prices will drop "dramatically" in the next few years, and that some nations will experience a recession.

The Christian Science Monitor reports that more and more states, such as, Alabama, New York, California, and Nevada, are moving to raise taxes by record amounts. Nicholas Jenny, a tax analyst at the Rockefeller Institute of Government in Albany, states that in most states "we're going to see big tax increases this year. It almost seems inevitable." David Lanoue, a political scientist at the University of Alabama at Tuscaloosa, offers an interesting perspective when he says "many governors are in the first year of their term, which gives them three years to recover. And three years is a lifetime in politics."

The May 29 Far Eastern Economic Review makes some very interesting points about China and its currency. Much is discussed about the renminbi's debut as both a regional reserve currency, a growing international currency, as well as a currency which is fully convertible. The IMF estimates that 40% of total trade within non-Japan Asia is intra-regional and trading with China accounted for 40% of the increase in 2002. It is suggested by John Wadsworth, an advisory director of Morgan Stanley, that "it is highly likely that there will be four major currencies in the world within 10-15 years." Taking it one step further, might be the future potential of the renminbi to float against the dollar, the euro, and the yen. With China's $300 billion of foreign reserves, its future growth prospects, and the evolution of the renminbi, the country should have a major global economic impact for years to come. Jonathan Woetzel, a Shanghai-based director of MCkinsey & Co., says of China "What makes it distinctive is its growth. By 2010, it is expected to almost double in size to rival Germany. With continued growth it will surpass Japan by 2020."

The average forecast from auto analysts peg the industry's May sales below the results of April, where orders for cars and auto parts were off by 3%. May figures will be released June 3. Because of continued high inventory levels, production cutbacks are expected for the third quarter.

In Japan industrial production fell in April.

Air Canada is laying off nearly 2000 flight attendants.

Our nation continues to have a sweet tooth- me included. Krispy Kreme's same store sales increased 11.2% in the latest quarter. An estimated 7.5 million Krispy Kreme doughnuts are made every day and more than 2.7 billion are produced each year. I am a big fan of this business. Owning an itty bitty bitty piece makes each doughnut taste even better.

Just a short closing remark. I appreciate hearing from readers. I appreciate the constructive comments as well as the ones with praise and laugh off any that reach me with unkind tones. Many have requested that I should endeavor to place my blog before a larger audience . For new readers I will reiterate. I like writing the blog the way it's now done. I no longer give interviews and no longer provide comments to reporters. The last filmed interview was several years ago when CNBC named me their "Player of the Week." My family bore the brunt of that publicity. It will not take place again. I don't make the same mistake twice. I hope all my new and old readers appreciate my point of view.

Wednesday, May 28, 2003

5/28/03 The Balanced Bar

The Yankees had lost their last eight games in the house that Ruth built. Yesterday, they responded with a win and "stopped the bleeding."

Another piece of good news. In describing the WMD, Rumsfeld said "It is also possible that they decided that they would destroy them prior to a conflict." If that were the case, we were really lucky because the casualties would have been much greater. Further clarification came from Maj. Gen. David Petraeus, commander of the Army's 101st Airborne Division. He said "I just don't know whether it was all destroyed years ago-- I mean, there's no question that there were chemical weapons years ago-- whether they were destroyed right before the war, or whether they're still hidden." The fact is on May 1 the combat was declared over. We can be thankful to all our troops- those remaining, those wounded, and those laid to rest. We can also be thankful because our recent huge rally originated with the ending of the conflict. It has generated increased consumer confidence and created greater equity wealth for most stockholders. Consumers are feeling better about the future six months from now.

Record low 30-year fixed mortgage rates have continued to stoke new home sales. According to the California Association of Realtors, the median price of an exisiting home in California increased 14.8% compared to the same period a year ago, and stood at $363,930. Just in the past month the median price increased 3.2% over the prior month. If employment picks up, prices might jump even further.

As I was reading the latest mortgage rates, I got to thinking. Interest is deductible. The national debt is like having a second mortgage. Each family's share of the national debt is $70,531. I think it's only fair for the interest on that amount to be deductible for every American.

The Conference Board said that 17.8% of consumers anticipate that more jobs will become available, and this was up from 16.4%. A slightly smaller percentage anticipate their income to increase.

The Rocky Mountain News reported that home foreclosures in the Denver area rose by 38% in the first quarter compared with the period a year ago. Foreclosures are expected to rise 20% in 2003. The good news is that the number of forclosures is far below the record set in 1988.

Honda cut production in Japan in April by 26% from the prior year period. Ricoh, Japan's number two office equipment maker, closed its Beijing factory in May because of SARS. Clarion, the Japanese car audio equipment manufacturer, cut 5% of its workforce yesterday. As in the U.S., medical costs are rising in Japan.

The Pew Center on the States released its first ever comprehensive national survey of state legislators. There were 770 state legislators included in the study. Over the next two years the survey paints continued belt tightening, on-going budget shortfalls, continued cuts in social services are likely, and lawmakers in states with population above 6 million paint the darkest picture of economic conditions and budget shortfalls. The entire survey can be viewed at http://www.stateline.org.

Boeing will deliver about 280 aircraft in 2003 and roughly the same next year. Their CEO said "one thing remains unknown and is the impact of SARS and how long this will affect a number of businesses." This statement reveals to me that the lower dollar will not have much positive impact on Boeing's export sales. As we know, Boeing is this country's number one exporter.

Michael Dell recently sold 10 million shares of Dell common stock at an average price of $29.70. He still owns 278 million shares. As the market has risen in price, some important CEOs have sold shares. Last week it was Steve Ballmer of Microsoft. Talking about Microsoft, since 2001, the company has written down $7 billion in its investments. Yesterday, after purchasing shares in Telewest Communications three years ago for $2.6 billion, Microsoft sold this stock for $5 million in cash. Even the brightest technology people were caught in the dotcom and telecom bubble. As the saying goes, when they raid the whorehouse, they take all the girls.

According to the U.S. Commodity Futures Trading Commission, as of May 20 hedge funds and other speculators (not my description) held a net 65,741 gold futures contracts, the most since the 7 year high reached on February 4.

The new Illinois proposed budget calls for a $112 million cut to public universities. As such, an average tuition increase of 11.5% will be instituted in the fall at Illinois' public universities. How many will be able to afford this increase?

Pt. Reyes National Seashore is a 71,000 acre national park. It is my most favorite recreational area in and around San Francisco. On Sunday they had their first bear sighting in more than 100 years. I hope this isn't an omen. The market is just now working up a head of steam.

Finally, I would like to end today's blog focusing on a very important subject. After the euro was introduced, there was a period of a few years where it was quite weak and it dropped from roughly 1.18 to about the low 80s. The eurozone countries had been running surpluses, and therefore, did not require a daily capital inflow. Japan's yen also was very weak for a time, and they too have large surpluses and do not have the need to attract outside capital on a daily basis. As we know, over the past several years the Fed has reduced interest rates a dozen times, and, as a result, treasuries have had a big rise in price while yields declined. However, that's only half the story. Over the past year the dollar has fallen 22% vs the euro. If treasuries had risen 22% during this period, then there would not have been a loss of capital on the part of the eurozone investors. In other words, the fall in the dollar decreases the willingness of foreign investors to commit their capital into the U.S. The Administration and many economists and many market analysts have simply focused on rising exports with the dollar's decline. This is a very small part of the overall picture. Speaking just for me, investing is a matter of assessing risk/reward. I have placed my shoes in those of foreign investors. I cannot see a reason to assume the risks residing in our economic system. The Nasdaq market, for example, sits at an 11 month high. Had one purchased during the third week in October, and held on until now, the rise would have wiped out the currency loss from the declining dollar by a wide margin. How many bought at that time and are still holding on? The point is this. The U.S. needs to attract $2 billion a day into this country to fund our capital shortfalls. Interest rates aren't going to decline below zero and the economic climate won't make the equity markets go to the moon. Ballmer and Dell aren't stupid. I know they still own billions worth of their respective company's shares. I know they want to diversify their holdings. I also know they must believe they are selling at a good time. Ballmer hadn't sold a share of Microsoft for about a dozen years until a week ago. On the other hand, consumer confidence is rising and the outlook on the part of consumers is rosier. The refinancing boom continues and additional cash flow is released to the consumer. Housing prices continue to rise, and consumers feel wealthier. The stock market has risen beautifully since the Iraqi combat ended. There are plenty of reasons to cheer. There will be opportunities in every market. It's a matter of weighing the risks and the rewards and how you see the world. If I were in Mexico, I'd be looking at a 2.5%+ economic expansion in 2003. Their formal economy will generate 250,000 jobs this year! That is fantastic. There's another side to the story. That nation's workforce is growing by more than 1 million people a year. That's the balanced bar. I myself go for the Pria bar. It gives me energy and the risks are minimal. I prefer it that way.

Tuesday, May 27, 2003

5/27/03 We Remember And We Contemplate

I often have said that every day should be Mother's Day and Father's Day. I feel the same way about Memorial Day. The Wall at Arlington National Cemetery has 58,235 names. More names will be added as two U.S. soldiers were killed and nine others injured yesterday in and around Fallujah, Iraq. I was reminded by a reader that "all of the top members of the Administration have repeadedly said that, although major combat is over, there are still significant risks to the troops and lives may be lost." I apologize for not having included that statement in yesterday's remarks. I am certain it will be a comfort to the families of the 27 soldiers killed in Iraq since May 1. I only hope and pray more troops will not lose their lives in the combat-free period than did during combat.

A study by Matthew Shapiro and Joel Slemrod, economists at the University of Michigan, found that only about 25% of those surveyed said they spent the rebate they got under Bush's 2001 tax cut. Since that tax cut, 2.7 million Americans have found themselves without a job. As such, I believe it is reasonable to expect less than 25% will spend their tax rebate this time around.

Micron Technology, with approximately 10,000 employees in Boise, is Idaho's largest private employer. In February 10% of the workforce was laid off. With additional quarterly losses anticipated, more layoffs can be expected at Micron.

The state of California has $11 billion worth of debt, and that number continues to rise. Carole Migden, chair of the state Board of Equalization, is a former assemblywoman and a veteran of seven budgets. She says "the state is busted, and we don't have a lot of options." She might also have been talking about the United States and the Fed. This country has debt of $6.4 trillion and that too is about to increase. The Fed has few options. They slip in a concern about deflation but I believe that concern is truly only a dot on their radar screen. Their cup runneth over with concerns. They print money and print money and can't get the economy going. They have a dozen rate cuts and the jobless rate rolls just increase. The largest tax cut in this country's history was nice- just like a warm glass of milk. It didn't really get to our economic woes. The lower interest rates have not gotten businesses to invest. Why should they? Factory utilization is at about a 75% rate. As I have said for three years, we have oversupply and underdemand. We'll remember these days. They won't be with fondness.

According to CNW Marketing Research, an estimated 525,000 auto loans with a total balance of $10 billion will be refinanced in 2003. In 2001 there were 297,000 loans with a balance of $4.5 billion. In years to come, we will remember these refinancing days. It was great while it lasted. As with other good things, they come to an end.

Across the nation this weekend hundreds of thousands of travelers abandoned their plans to travel on the roads. In some areas it might have been due to the weather. Others said it was the result of people just not having money to spend or being unwilling to spend the money they had.

The ECB said the euro zone had an inflow of $12.7 billion euros in March up from February's inflow of $11.4 billion.

Hong Kong has found a new way to fight SARS- an anti-spitting and anti-littering campaign. In Toronto more than 1400 people were asked to go into quarantine.

The euro hit a new high of over 1.19 vs the dollar, and it's now up 13% for the year vs the greenback. That's better than the New Zealand dollar which is up 11.5% this year vs the greenback. While I'm on the subject of New Zealand, which is my country of choice for investment, let me leave you with this question. The Fed funds rate is 1.25% and in New Zealand it's 5.5%. In the U.S.we have record budget deficits. In New Zealand they have 10 straight years of budget surpluses. Why buy a 10 year Treasury at about 3.30% when I can buy a 10 year New Zealand bond providing a yield of 5.45%? The Fed can't answer the question either or maybe they can and don't want the public to know their opinions on this matter. Just as money is pouring into euros, so is money pouring into the New Zealand dollar and their bonds. It's provides a better yield and with less risk. If an educated consumer makes the best customer, then an educated investor should make for the best performance, and the latter will be remembered with fond memories.





Monday, May 26, 2003

5/26/03 Supposedly

Supposedly, on this Memorial Day, after May 1 we would not be mourning the death of more soldiers in Iraq. That's when the fighting was declared done and over and finito. Tell that to the families of the 23 who have died since May 1.

Supposedly, Matrix Reloaded's box office receipts were going to make everyone forget about the results from other movies. Surprise. From Friday thru Sunday Bruce Almighty pulled in $70.5 million vs the Matrix's $37 million. Bruce Almighty cost $81 million to produce. We shouldn't take up a collection for the Matrix. It has grossed $200 million in 11 days. There are many public companies that don't gross that amount in a year.

Supposedly, Canada and Taiwan had conquered SARS. The travel advisories had been lifted. The fighting was deemed over. No one informed the virus. It never left the neighborhood. It was just resting comfortably. Yesterday there were 12 deaths in Taiwan, 3 in Canada, 7 in China, and 4 in Hong Kong. I feel comfortable in stating there's more where they came from- and in the near future.

Supposedly, all Americans were created equally. Not in Cook County, Illinois. There a new study reports that thousands of uninsured people are charged higher rates for services at 59 hospitals than those with insurance.

Supposedly, Boeing is this country's largest exporter and second largest defense contractor. I said supposedly because I don't know whether companies like Singapore Airlines are still buying planes. You would think Homeland Security would consider Boeing pretty important. Boeing's Chief Security Officer Greg Gwash has been concerned about "apparent Middle Easterners" conducting surveillance at the company's facilities in the Seattle area. Gwash emailed staff members to increase "surveillance detection measures...especially during hours of darkness, to detect any reconnaissance being done in advance of a future attack." The FBI agent in charge of the agency's Seattle office said his department is not aware of specific threats.

Supposedly, the airline business has seen its worst times. The group has recently had a dramatic market rally. Maybe the airline world is not created equally. Singapore Airlines is offering $198 round trip fares from JFK or Newark to Frankfurt or Amsterdam. This airline was voted the world's best by Conde Nast Traveler magazine. I wonder what the fares are like on the worst airlines.

Supposedly, what's good for bonds is good for stocks. What happens if the reverse is true? Can there be a bubble in bonds, mortgage rates, housing prices, and eBay all at the same time? If Greenspan knew that a bubble existed in stock prices years ago, and did nothing about it, and then lied that he didn't know there was such a bubble (contrary to Fed meeting notes), what makes you think he doesn't recognize a bubble exists in bond prices today and is doing nothing about it? I predict down the road we will find that plenty of Fed presidents and Greenspan recognized the treasury bond bubble but hoped that low mortgage rates would create the refinancing which would generate free cash flow for the consumer and thus prevent an economic meltdown. Now, this is a market vacation day. You're thinking I am just challenging you with outlandish comments. Sorry. I didn't mean to burst your bubble.

Sunday, May 25, 2003

5/25/03 The Check Is In The Mail

Job creation. What job creation? Tax cuts. What tax cuts? The check is in the mail. Keep a firm grip on your checkbook. It's three card monte. Please watch carefully. I do not have anything up my sleeve. My cards will be on the table. I won't touch them. I give you my word. It's all about shifting the nation's burdens and priorities. Let's take a peek at two of our biggest states- Texas and California. Bush should know Texas pretty well. He has a ranch in Crawford and I believe he may have been governor for a spell. They are cheering in the Texas state house. A $118 billion budget has been produced where taxes were not raised for Texans. It did, however, produce a few itty bitty problems. Annual health benefits to actiive public teachers were cut by $500 and they are now charged $8 more a month for retirement benefits. Retirement teachers will get a 30% premium hike for their health care. The average Texas family will be paying higher local taxes. The burden on many services has been shifted from the state capitol to cities and counties throughout Texas. For example, the tuition will be raised at the local colleges and universities as state funds were cut for education. The headlines in the papers will read "No Tax Increase For Texans." Actually, Texans will be paying more for services and the quality of the those services will be declining. They shouldn't worry though. The Federal government's rebate checks should be arriving in July. Texans are lucky. They could be living in California where there is a $38 billion budget shortfall. Over the past 12 months over 450,000 Californians have signed up for Medi-Cal. An estimated 7 million peple are in this state program or 20% of the state's population. Medi-Cal will cost California $12 billion this year alone. To help reduce California's budget deficit, Davis wants to reduce Medi-Cal payments to doctors and health facilities by 15%. California is in a pile of trouble. The workers' comp costs are escalating out of control. Who wants to hire a new employee in the face of these soaring workers' comp costs? I don't know any company other than Microsoft that might be hiring. They are hiring for their operations in India. Of course, they also have over $45 billion in cash. In sum, Californians need not worry. The government's tax rebate check will be in the mail in July.

I didn't mean to gloss over medical expenses. Medicaid costs rose 13% in 2002. The program provides health insurance to 50 million low-income Americans. This year the program will cost almost $300 billion with 57% of the expenses borne by the Federal government and 43% by the states. The headlines may have read "Bush's $350 tax cut plan approved" but it didn't state that the burdens from Medicaid are unable to be borne by the states in 2003 and unwilling to be borne by the Federal government. At the same time, the Congress is willing to approve a $400 billion defense budget. I keep looking at the faces of our soldiers killed in Iraq. I read their names. It's a long list. Then I ask myself whether anyone has found the WMD or seen Osama bin Laden or Hussein. I wonder about the 45 million uninsured Americans who cannot afford healthcare, the millions of Americans without a job, the millions who cannot get a full-time job, the homeless, those standing on line at soup kitchens, and knowing that social security benefits will run out in about a decade when the seasoned citizens need it most. Then I sit back and tell myself that this wall of worry is different. The government rebate check will soon be in the mail. Then I remind myself that Social Security, Medicare, and Medicaid are still at large. It's too bad the Administration doesn't have the acumen to reform them. I know the costs are running wild. Capturing these culprits would be too much to ask. Then I say to myself. Bush just mailed out 1 million fund raising letters. Maybe the funds will go to worthy causes.

I'm not a great photographer but I know a picture that's out of focus. In yesterday's radio address Bush said "Moving toward a balanced budget also requires that we hold federal spending to a responsible level. Spending discipline is crucial to my economic program." Really? We are moving toward a balanced budget? We have the largest budget deficit in this nation's history. It's growing monthly. We have the largest trade account deficit in this nation's history. It's growing monthly. We have spending discipline? The debt ceiling limit was raised by about $1 trillion shortly after the tax cut plan in the senate was approved via Cheney's tie-breaking vote. Bush went on to say that "Governments should follow the example of American families by setting priorities and staying with them." And what priorities have been set by the Administration? Certainly not spending discipline or a balanced budget. The hallmark of this Administration's economic program has been a weakened dollar, the loss of 2.7 million jobs, and the most disappearing check the Federal government has voted to mail to the American people. This has been a very sad beginning to the Memorial Day weekend.

Sometimes my hearing is not too terrific. I could have sworn I heard Bush say in his radio address that "Discretionary federal spending will rise by 4%, about the same as the increase in the average American family's income." He must have been talking about the working family not the unemployed or underemployed family. The $1 trillion increase in the debt ceiling might cover the 4% increase in federal government discretioary spending; however, who is to cover the consumer's rising health care, insurance, education, local services and tax costs? Certainly not the rebate check which will be mailed in July.

Is it possible for the yield curve and the stock market to be out of focus? Let's take a look. In the treasury market a 5 year note yields about 1% more than a 2 year note. A 10 year yields about 1% more than the 5 year. The 30 year yields slightly less than 1% above the 10 year. In other words, the yield curve is pretty flat. Not inverted. Just pretty flat. If inverted, it would signal a future business contraction. A flat curve signals a very slow growth economy. A steepened yield curve indicates strong future economic growth. Now we've recently experienced a pretty snappy rally in the S&P 500, the Dow, and the Nasdaq, and this rally has been accompanied by some fancy falling treasury bond yields. In other words, both investment worlds are in harmony. If you were in California, you'd consider them centered. In N.Y.C. they would be in sync. For me, since I grew up on the streets, they are in 3 card monte land. Our economic policy is diseased. We are not going to reduce government spending. Bush said so in his address. The deficits will increase. The debt ceiling was raised to accomodate greater deficits. Rising costs for workers' comp, health care, insurance, and benefits will wipe out any chance for more jobs. In fact, unemployment will continue to increase. IBM and Boeing, two Dow companies, will add to future jobless rolls. There will be others. China will continue to export deflation to the U.S. The flat yield curve is telling you that growth is limited going forward. The question is whether the yield curve will become inverted? Will interest rates rise in order to attract foreign capital to fund our deficit? Has everyone enjoyed the rallies? Keep your hands in your pockets. Going forward in the bond and stock markets, the rebate check being mailed will not bail you out. Getting liquid will bail you out. Just stay away from the dollar.