Saturday, June 28, 2003

6/27/03 This Picture Needs Cropping

Yesterday was my day for listening to the radio. I was fidding on the dial and heard a familiar voice. Here was a successful money manager. He had made good money for investors for probably 15 straight years and left his profession for "show business." He said he was buying Dow Chemical fr the yield- about 5%. He said he knew they weren't doing well but could cover the dividend and that one "should forget about the fundamentals... the market is in a sweet spot...I turned bullish with the Dow at 7700 and it's going to 9500." Who am I to argue with a guy who has been right and bullish? He made money up until 2000. I don't know his record after that. This is not the point. I don't care how smart one is. You never forget the fundamentals. Never. When A-Rod gets into the batter's box, do you think he goes over in his mind the pitcher's tendencies, what pitches to look for in this situation, where to hit the ball, where the defense is playing him etc? He doesn't walk to the plate and ignore what he's studied and what is required of specific preparation in a given situation. This commentator said that paying dividends is a sign of the strength of the company. It's only recently that Mcrosoft started payng a dividend. They have almost $50 billion in cash. Some of the companies with the largest cash reserves don't pay dividends. Take Berkshire Hathaway. In fact, the companies which have proven to be the best investments for me over time don't pay a dividend. They reinvest the money in their growth. This guy may be a smart money manager but he doesn't talk smart. I promise you this. If he forgets fundamentals, his market results will turn to red. Be careful what you read. Be careful of what people say. That goes for everyone. I am not excluded.

My next radio program concerned politics. The topic was the war in Iraq, a subject where my opinion has been voiced so many times. He wondered whether the public would care come the next election if at least one of our soldiers died every day for the next year or so in Iraq. Never once did he mention the loss for the families or the soldiers being wounded. They were just a numbers game in a political exercise. He said that a general had admitted that the Administration had underestimated the difficulties to be confronted after May 1. You didn't need the general to tell you that. Then came the bomb. The talk show host said that the killing of our troops in Iraq would not stop until Saddam Hussein was captured. He might have mentioned the terror alerts and Osama bin Laden. He actually believes this crap and gets paid for delivering his message from the mount. If this is an example of talk radio, then maybe this medium has hit its peak.

I read the Nike release early yesterday. I keep hammering on the point to watch the leaders. If they slow down, watch out for the rest of that industry. Nike is clearly the leader in its field, and a great marketing company. They said they were reducing their growth forecasts for the next six months. The stock got hit badly, but it could have been worse. Nike is providing a signal that the consumer is not out there hitting home runs. They're trying to get on base with a walk, and then possibly steal second or even seconds, as the situation may be. If economists are depending on an upsurge in consumer spending in the second half, Nike is telling you it's not going to happen. If the consumer keeps his bat on his shoulder and rarely swings at a pitch, business owners keep a tight rein on their wallets, and managers don't have the burning desire to hire, then what do you have? What we have had for nine months or more. You may want to crop this picture. That's your right. I prefer to crop the picture painted by the financial commentator and the political talk show host. I know what they said flies in the face of rationality and good common sense. Hell, in this heat wave, maybe we should just jump in the waves and forget all the picture taking. But we cannot do that. Kodak needs some help. Otherwise they will be kicked out of the Dow and then what kind of picture remains? Just Pfizer.

Thursday, June 26, 2003

For Friday 6/27/03 The Best Of The Best

Recently, my son had the good fortune to have dinner with Dr. Leroy E. Hood, president and director of the Institute for Systems Biology in Seattle. Last year Dr. Hood received the 2002 Kyoto Prize for Advanced Technology. This prize is modeled after Sweden's Nobel Prize. Dr. Hood was honored for his original contribution in the mapping of the human genome and for his successful pioneer work in the automated instrumentation for DNA sequencing. Dr. Hood has been a founder of 9 successful companies. The best known is Amgen. His focus going forward is his concentration in the field of preventative medicine. This area holds much interest for me as well, and I too will meet with Dr. Hood to discuss this work. I consider Dr. Hood the world's leader in furthering the healthful well-being of mankind.

While on the subject of healthcare, I would like to emphasize my strong belief that Pfizer should be included in the Dow Jones Industrial Average. The reason is not because I have an interest in the company or believe it is an appropriate core holding for the long term. It's not because it is close to having the largest market capitalization of any public company. The main reason is that Pfizer is the leading ethical pharmaceutical company in the world. Healthcare makes up over 16% of the U.S. GDP and this percentage continues to grow. Next year Pfizer's sales will approach $55 billion. Pfizer has some heavy duty drugs in the pipeline- for malaria; small pox; epilepsy; neuropathic pain; anti-anxiety medication; a drug to raise the levels of HDL; and a drug to assist smokers in their efforts to stop the addiction. The company is spending over $7 billion on R&D this year. Pfizer should be listed in the Dow.

A month ago the Commerce Department had estimated that the first quarter U.S. GDP had risen at a 1.9% pace. In fact, that number was revised downward to 1.4%, and that matched the low growth rate of the fourth quarter in 2002. This is a 26% revision, and, in my view, unacceptable. It doesn't take almost three months to get a number correct. Time and time again I have written about government numbers. Only a fool would believe them. I continue to question whether they are released honestly in the first place or simply a tool to manipulate forecasts for future quarters. If the revisions were rare it would be one thing. They are the norm. The government also revised upward the unemployment numbers for the prior week. In essence, why should anyone believe the latest number of 404,000 idled workers.? They are certain to be revised- it happens weekly. Other than WalMart, Home Depot, Krispy Kreme, Starbucks, and companies like them, the only company I have seen hiring is Wells Fargo. I have seen plenty of job cuts. Second quarter GDP numbers will not be much different than those produced in the last two quarters. Companies continue to keep workers and inventories at lean levels, and spending plans are muted. In my view, the growth estimates for the second half of this year are significantly overstated. At some point investors will make that connection.
6/26/03 Waiting For Hope to Arrive

It's important that each one of us has hope. I wake up with hope and go to bed with it. However, hope does not run wild. It is tempered by reality. That's a fine line for everyone to find and realize. Emotion and psychology and hope play an important role in the stock market- not just today but every day. Lately, hope has played a role which has overshadowed reality. Others may disagree. It doesn't matter who is right or wrong. Over time we will find what the fine line of reality and hope produced. Opinions, such as mine, don't mean much in the scheme of things. We have enjoyed a magnificent stock market rally for the past three months. We have been blessed by new-found riches. The stock market had not produced much in the way of smiling since 2000.

Let's examine the past three months and revisit the hope shared in March. The Iraq war was a successful campaign. Everyone is agreed there were, at one time, WMD. We probably won't find them, but it was a successful campaign. However, it is disrespectful to announce the war is over on May1 and for our soldiers to be killed daily as the battle continues. A loving leader doesn't paint a false picture of hope. The latter has not arrived in Iraq. It won't as long as our soldiers are killed.

Over the past three months we have witnessed the scuttles between the Senate and the House over the Bush tax package. It finally arrived in a diluted format, but it arrived. It's never too late to get reduced taxation. However, hope is not realized when discretionary spending continues at the 4% level at the same time the economy is expanding at half that rate. Such a ratio makes for disappointment and not a hopeful outcome. The state and local governments are hurting across this land. Make no mistake about it. There will be increased taxes and fees to make up for the deficits. They won't bring hope. They won't end soon. The deficits will be with us for some time to come- many moons. The bottom line is that consumers won't have much more cash in their pockets- they will be nickeled and dimed to daily dismay. Just ask WalMart. The consumer is not spending much more money. It's a teeny bit more. We did not have a teeny bit stock market rally.

There are only two elements of our economy that continue strong- housing and the refinancing market, and both have been manufactured by the Fed's lower interest rates. Unless we join Japan and pay people to borrow, it is clear that interest rates can only drop 1% to get to zero. The bottom is in sight. We hoped for lower interest rates and got them. However, those lower rates did not produce increased business spending and did not produce job hiring. In fact, business leaders appear quite content to part with their company ownership shares as insider selling continues to rise monthly. That is a very bad sign. It should also be pointed out, as John Talbott has, the national growth rate for existing home sales prices in the six months ended March 31, 2003 is zero per cent. That is something to consider.

I am also concerned by the battle on overtime pay. Some time back I wrote about the auto company who has made it more difficult to realize overtime pay. An analysis is being released today by the Economic Policy Institute. They discuss the Labor Department's revisions to the overtime rules proposed in March. I pay attention to what happens to people on Main Street. Wall Street has a way of ignoring these folks. Under this plan, the Institute states that 8 million workers would lose overtime pay. How can this happen? The Bush Administration has permitted the Labor Department to reclassify the definitions of job classifications in many of 257 white-collar occupations. The new definitions of professional, administrative, and executive employees remove specific duties and education requirements, and thus employers are provided wide latitude to reclassify workers. Union contract workers will not be affected. This is but one more event which screws the average American. It should be noted that this is a proposal. The comment period ends on Monday. You can bet much of this proposed plan will be put into effect. There must be trust in the workplace for the workplace to be effective. I see this trust fading into the sunset. Main Street will impact Wall Street. It always does.

Over the past three months not much has changed in the workplace. Employment continues to drop. The news on the factory floor is gloomy. Numbers for durable goods can't get out of their own way. Shipments of business equipment produce yawns. They are a non-event. Orders for transportation equipment continue on their monthly decline. Economists continue to hope that business spending will be a factor in the anticicpated second half recovery. Month after month hope does not arrive. It's not that it's late arriving. The arrival is nowhere in sight.

On a national scale the trade deficit growth continues unabated. The monthly budget deficits continue their cancerous growth. The Fed continues to wallow in their meaningless chit chat. The dollar has bounced around and has settled at the 1.15-1.16 level for a bit. However, we have new offerings from banks. A St. Louis bank now is offering the person on Main Street an opportunity to buy China's currency, the renminbi. In addition, Everbank has started to offer renminbi accounts to its depositors. The renminbi has a fixed peg to the dollar. It won't be long before this peg is revised upward in value to favor the renminbi. The U.S. currency is in a state of decline around the globe. This decline is in the early stages. It doesn't help to be running a $100 billion annual trade deficit with China.

As I have mentioned so often, in Europe much trouble persists. Fiat will cut 12,300 workers between now and 2006. French manufacturers have seen their confidence level drop to the lowest level since 2001. There are economic problems throughout Europe and Japan. The dollar may have declined in value, but our exports are still hurting.

Over the past three months we have seen an increase in the optimism index- both for the consumer and the small business owner. That's great to see. Unfortunately, without more economic meat on the bone, that hope does not count for much. The expectation is for the economy to improve over time. That is a nebulous thought. It is an expectation expressed yesterday by the Fed. Would you want to stake the on-going success of your investments on an economy which "has yet to exhibit sustainable growth?" Maybe it will. Maybe it won't. I only know hope does not always deliver the goods.

Wednesday, June 25, 2003

6/25/03 Chachmah (Wisdom), Binah (Comprehension), And Da'at (Knowledge)

We sure could use more wisdom, comprehension, and knowledge in today's world. Unfortunately, they appear in short supply. They seem to have been replaced by the three stooges- consumer optimism about the future, the surging money supply, and higher stock prices. Yesterday the headlines read: Consumers' outlook in June rises for third month; consumer confidence better than expected; and The Conference Board's Consumer Confidence Index turns flat in June but expectations are up. The headlines did not say that the present index fell to 65 from 67. The headlines omitted that less consumers rated the current conditions as good and that less consumers felt jobs were plentiful. Plenty of economists state that the economy will acelerate to 3.5% in the second half of the year; however, if there were more wisdom, comprehension, and knowledge on the part of those economists they would know that only 3% of households expect to buy a home in the next 6 months- the lowest figure since September 2000. They would know that only 6% plan to purchase an auto in the next 6 months, the lowest level since October 1996. They would have absorbed a survey by Grant Thornton which revealed that only 41% of middle-market executives (middle-market companies have annual revenues between $100 million and $2.5 billion) expect to increase hiring in the next six months, down from 50% in November 2002. If you want to trade with the headlines, be a stooge. Now we come to rising stock prices. According to a survey sponsored by Ariel Mutual Funds and Charles Schwab and Co. Inc., 33% of whites said they don't trust the stock market. That's up from 23% in 2000, and 49% of blacks don't trust the stock market, and that's up from 34% in 2000. Not surprisingly, a smaller percentage of whites and blacks are invested in the stock market today than they were in 1998. Stock prices may be enjoying a bear market rally, but the latter will not be sustained due to the erosion of trust on the part of investors. Fifty two per cent of blacks are bearish and 40% of whites are bearish. The survey has shown that more and more investors have turned to real estate and away from the stock market. The trend is not bullish for stock prices. A little wisdom, comprehension, and knowledge will bear fruit in this arena. Lastly, we come to the surging money supply. Dollars can be found everywhere- even in the toilet. That's where the value of the dollar has been headed over the past 12 months. Economists proclaim that the increased liquidity will produce a rejuvenation in our job market and in business investment. The money supply surges and just yesterday I read of job losses at Northern Trust, Viacom, KLM, AMP, and Ericsson. Tomorrow I'll probably read about more at Boeing. You get the picture? Do you see business investment spending rising? I see plants closing. I don't see expansion. It doesn't take much.- just a bit of wisdom, comprehension, and knowledge. It's there for the taking. It's free. It's not even taxed- at least not yet.

Do you think I should move to Japan? I need to give this consideration. Japan's overnight call rate is now below zero. That is so wonderful. That means as a borrower the lenders would pay me interest. Does it get better than this? I need to learn the language immediately. The first word I'll learn is schmuck. You need to be a schmuck to move there.

I need to acknowledge an interesting development. Yesterday, Ericsson announced it signed an agreement to outsource the development, implementation, and maintenance of IT applications supporting its business to IBM. As such, there will be a day of mourning in India, the king of outsourcing countries.

A great deal of credit must be given to the present regime in Mexico. Since 1998, 28 day Treasury yields have dropped from 48% to 4.72%. Over the past two years, Mexican pension funds have increased 85% to 356 billion pesos. Because of low rates and demand from pension funds, companies are beginning to offer peso-denominated bonds. Volkswagen de Mexico plans to sell about 1 billion pesos and Kimberly-Clark de Mexico sold 2 billion of 10 year bonds. This development is very positive for Mexico's present and future.

Italy, on the other hand, continues to languish. Italian June consumer confidence fell to its lowest level in more than 6 1/2 years. Bernardo Bocc, president of Confturismo, an organization which represents about 30,000 Italian hotels and tour operators, said "we are certainly in a recessionary climate. It's worrying and I don't see an improvement this year."

AMD, the world's number 2 maker of personal-computer processor chips behind Intel, cut its second quarter sales forecast by 14%. Intel had said its sales will rise about 7 1/2% this quarter. It appears that AMD has been hurt in the Asian market and has more exposure there than does Intel.

Jo Ann Bass is the granddaughter of the founder of Joe's Stone Crab in Miami and its current owner. Her restaurant was hit with a discrimination suit which was filed by two women. Both were interested in applying to the restaurant for a job in 1990 but did not because some acqaintances had told them Joe's did not hire women. That is not true, and never has been true. I know. I've been going to that restaurant for 30 years. A lower court had ruled that the restaurant had discriminated against two women between 1986 and 1991. These two women had applied years later for jobs and were rejected. The U.S. Supreme Court rejected the restaurant's appeal of the lower-court ruling. The legal battle cost Jo Ann Bass between 1 and 2 million dollars, and the legal award is $103,662 and with interest about $150,000. Currently, about 20% of the server staff are women. Bass said "we just have to accept it and accept the fact that life isn't fair. I don't think there's any place else to go, except God." She went on to say that "I learned there's a lot of truth to the adage that you can't fight City Hall and you can't fight the government. Their pockets are too deep, and they have all the time in the world." Unfortunately, the pockets are lined with taxpayer money and they have nothing but time because the taxpayers provide the time. What City Hall and the government don't have are wisdom, comprehension, and knowledge. That we know.

Tuesday, June 24, 2003

6/24/03 Irrational Transparency

Before I get to all the news that's fit to print, there's a bit of housekeeping that needs to be accomplished. Several readers had their nose out of joints that I had abandoned the U.S. dollar in favor of the New Zealand dollar. Had the readers been carefully assessing my postings, they would have realized that this was not a new revelation. I am a very compassionate person. As such I shall provide a primer for stress management:
1. Picture yourself near a stream. 2. Birds are softly chirping in the cool mountain air. 3. No one but you knows your secret place. 4. You are in total seclusion from the hectic place called "the world." 5. The soothing sound of a gentle waterfall fills the air with a cascade of serenity. 6. The water is crystal clear. 7. You can easily make out the face of the f---er you're holding underwater.

George W. Bush: "Terrorists declared war on the United States of America, and war is what they got."

Thomas Paine: "The sublime and the ridiculous are often so nearly related, that it is difficult to class them separately. One step above the sublime makes the ridiculous, and one step above the ridiculous makes the sublime again."

Thomas Paine: "War involves in its progress such a train of unforeseen and unsupposed circumstances that no wisdom can calculate the end. It has but one thing certain, and that is to increase taxes."

Robert Elliott: "Two rules for stress management- rule one- don't sweat the small stuff. Rule 2- it's all small stuff."

The Fed has provided a roadmap whereby rates will be lowered for the 13th time. They say it is cheap insurance against the threat of deflation. Interestingly, in all the prior cuts, the Fed has been unsuccessful in its attempt to influence business spending. It has influenced the housing market with lower interest rates producing historically low mortgage rates and with them a boiling refinancing market which has thrown off some needed cash flow for the home owner. Unfortunately, weak European and Japanese economic conditions have resulted in weak demand for U.S. exports and this has served to exacerbate our trade deficit. The Fed knows this week's rate decrease will only serve as a diversion. The real story is to target the quantity of bank reserves and thereby increase the money supply and inflation. All depository institutions in the U.S. are subject to reserve requirements on customer deposits. It may be a surprise to many that no reserves are required against time deposits or savings accounts. None. Your money in the latter two are completely unprotected save for the insurance provided by the government. Since the government is busted, that insurance is worthless. It may come as a surprise that no reserves are required on the first $6 million of checkable deposits a bank holds. None. Between $6 million and $42.1 million deposits are subject to a 3% reserve. Above $42.1 million they are subject to a 10% reserve. These breakpoints are adjusted annually in accordance with money supply growth, and the money supply is growing like rabbits multiply (a gross exaggeration but amusing nevertheless). But one thing is very important. Despite what you might think, reserves bear no likeness to the size of the money supply. That's what I call irrational transparency. For example, over the past eight years or so the M2 money aggregate increased by two thirds while the banking system reserves decreased by one third. How could the Fed let this happen? The Fed let banks violate Federal Reserve banking requirements by implementing overnight sweep accounts. It's ok for the customer to do that but not a bank. The sweep accounts place the banks in violation of their reserve ratios. The Fed knows this and they have looked the other way. The Fed has violated a trust, the trust provided by depositors, and banking institutions also in violation are, in my opinion, not worthy of our deposits. How can anyone have trust in the dollar if you can't trust the Fed or our banks? It's your money. It's your decision. I've made mine.

In May the UBS Index on investor optimism rallied from 42 to 77. Sixty five per cent of those surveyed in June believe now is a good time to invest, and that is up from fifty eight per cent in May. Hope springs eternal.

Mexico, Latin America's largest economy, sells about 90% of its exports to the U.S. and they account for one quarter of its $600 million GDP. Mexico's May manufacturing exports slid about 6% as U.S. demand weakened due to our slow economy and to our increased imports from China.

Yesterday it was like old times in the Silicon Valley. Venture capitalists put a significant amount of money to work. Mobile software maker Visto of Redwood Shores extended its recent financing round with an additional $20 million; Wi-fi products maker Vivato of San Francisco raised $44.5 million; and Cradle Technologies of Mountain View, a fabless semi company, rang the register for $21.5 million.

With the aging of the population there will be a growing need for long-term care. Should a growing number of families be wiped out financially paying for that care? Should the government (really the taxpayers) pay for that care? Should long-term care premiums be made available to all Americans? We know that 44 million Americans are uninsured for health care at this time. It is unaffordable for too many. Who should pay for those premiums? As a nation we need to answer these questions. Don't leave it up to government officials. You will regret the outcome.

Monday, June 23, 2003

6/23/03 The Crossroads

The question is not how far Greenspan will lower rates. The question is not where the S&P and the Nasdaq will be at year end. The question is not whether the new Harry Potter book will sell more than its first printing of 8.5 million copies. There are answers to all those questions. Some are more difficult to answer with conviction. There are other questions, such as, where are the WMD? I am not in any way belittling any other important questions of our time. We're talking investing. I am certain that John Templeton or Jim Rogers or George Soros considers the question I am about to present on a constant basis. I'm new to this. It's been only a short time for me. For that, I may come up short. I apologize in advance.

Some time back I felt uncomfortable placing money in treasury bills. The government's fiscal landscape is foreign and unacceptable to me. I chose the New Zealand dollar. I have been most comfortable with my choice. That decision led to my asking this question: should I be looking elsewhere for investments? Should I leave the U.S. stock and bond markets to others until matters are more to my liking? I wrestled with this question. It seems unAmerican. Then I realized that emotion does not play a part in my investment decisions. Companies are not my family. They are a vehicle for making money. I decided to limit any new investments to specific risk arbitrage opportunities. I would look outside the U.S. for any other new investments. I am comfortable with that decision, and I recommend such an alternative to everyone. There is much value elsewhere, and, in countries devoid of our financial hysteria.

There was a program on the History channel, and my family was nice enough to tape it for me. It was an interview with Frank Langone. He's not a household name. He should be. He is a financial man, and, with Bernie Marcus, co-founded Home Depot, a company where I have had an investment for years and years. Frank has always talked smart. He doesn't have a Ph.D or come from a fancy background. Frank said "if you don't have a customer, you don't have a business." Too bad all the money lost in dotcom start-ups didn't figure that out ahead of time. Home Depot, Frank said, kept it simple, and still does. The formula for success: low prices, high service, and wide assortment. This year Home Depot will hire over 100,000 new employees. As I have said over and over again, stay over time with the growing great companies. Home Depot stumbled a bit. McDonald's stumbled a bit. They are on the road to being better than ever. Great managements recognize mistakes, and in the case of Home Depot, they got so big so fast that their systems, processes, and IT were way behind their size. In addition, there was a learning curve for Nardelli. Bernie Marcus and Frank Langone made certain Nardelli wuld not fail. They gave him the tools and the support. They had a sincere interest in so doing. Home Depot is a member of their family. It's one of their children. It's not just any investment.

It pains me to read that personal bankruptcy filings in NYC are up 25% over the past two years. NYC went through so much in the 1970s, and now it's deja vu all over again.

Sunday, June 22, 2003

6/22/03 A Pitcher's Pitch

Alex Rodriguez (aka A-Rod) is currently recognized as the greatest all-around short-stop of all time. He is a future Hall-of-Famer. Growing up in Miami, he wasn't always the star he is presently. As a sophomore, he was benched for one game, and didn't win the starting job unil well into the season. He hit .270 and was placed seventh in the batting order. As a sophomore, his coach said A-Rod often swung at a "pitcher's pitch." Over the next summer Rodriguez practiced hard and learned the art of patience. As a junior, he hit .477 with six homers, stole 42 bases, scored 51 runs, and made the All-Dade first team. The rest is history. Investors can learn a great deal from A-Rod. He still works hard at honing his skills, and is still patient at the plate as he waits for "his pitch." I know from experience that the market will serve up "your pitch." When it does arrive, pull the trigger. Have the confidence to believe in yourself. Ignore what others say. It's your money. It's "your pitch." Don't wait for the pitch thrown from the pundits. They didn't earn your investing nest egg.

Silicon Valley's employment plunge is not unique. Silicon Valley has lost one of every six jobs, and employment is at the 1996 level. Since the December 2000 peak, 191,000 jobs have been lost. In Detroit employment is somewhat lower than the levels in 1996, and jobs peaked there in 1978. In Los Angeles County an employment record was set in 1990. In April 2003 there were 166,000 fewer jobs than the record of 1990.

Talking about employment, a study by Challenger, Gray, and Christmas shows that job searches for managers and executives in the first quarter of 2003 hit 128 days, a record high, and is double the 64 days for the average such job search in the second quarter of 2001, which was a record low. In addition, in the first quarter of 1977, discharged executives and managers received an all-time high severance of about six months. In the first quarter of this year that number has dropped to 2.3 months.

Health insurance premiums increased about 13% in 2002 and are anticipated to rise 15% this year. Roberta Grossman of Merrill Lynch points out an interesting fact. In 1960 consumers were paying almost 50% of national health care costs out-of-pocket. That fiure is about 15% today, and, for the next few years, is expected to remain at that level.
Even though about $16 billion in drugs went off-patent in 2002, and only 10 new drugs came to the market in 2002, prescription drug costs continue to increase. That rise is anticipated to be 11% in 2004 and 12% in 2005. One further note. The patent-expiration period will accelerate in the coming years. The waiting period for an FDA drug approval has not been reduced. That agency only approved 17 new drugs in 2002. The drug prescription market will only grow 1% this year. You can expect pharmaceutica companies to increase their focus on reducing costs. That will mean more job cuts and less spent on r&d as the latter is tied to revenue growth. The coming years will be challenging for the consumer, corporate health plans, Medicare, Medicaid, and for many of the drug companies.

The Fed is paying more attention to the field of behavioral economics. One of the pioneers in this field, Daniel Kahneman, last year won the Nobel Prize in economics. Recently, the Boston Federal Reserve held its annual conference. The topic for discussion was "How Humans Behave-Implications for Economics and Policy." Next year's topic could be on "how Federal Reserve members behave- implications for market manipulation." Any way, this aforementioned conference included looking at MRI scans of the brain. Like these folks really understand the workings of the brain. I guess because many economists are Ph.Ds they consider themselves real doctors. Inflated egos have the potential to be quite destructive. Maybe the conference participants should take a primer and read Adam Smith's "The Theory of Moral Sentiments." Since its an ancient work, there may be dust on the cover.

I don't play favorites. As such, I am not a subscriber to Barron's, Fortune, Business Week, the Wall Street Journal, Investor's Business Daily, the N.Y. Times, etc. It's amazing I am able to exist. One of my oldest friends has been one of the original participants in Barron's twice-yearly roundtable discussion. He emailed me, and said I needed to read the mid-year roundtable. I knew that would make me $3.50 poorer but I decided to be a big spender. Felix Zulauf talked about the big Fed manipulation. He talked about buying the Nikkei and shorting Japan's bonds. He still likes gold. Mario Gabelli talked about the aging of the population. Barton Biggs has a short postion in U.S. treasury bonds. Meryl Witner does not see many inexpensive stocks. Scott Black sees a weak economy. Marc Faber talks about the imbalance between U.S. consumption and Asian production. He feels that anyone buying the S&P now might not make money for the next five years. Others talked of the bubble in bonds. These are subjects I have covered in my blog for some time- with the exception of shorting Japanese bonds.