Saturday, August 02, 2003

8/02/03 Transmitted Irresponsibility

Each afternoon a radio talk show host opens his live broadcast with "coming to you from the greatest country on this earth." I too grew up believing this. I continue to want to believe this. There are doubts which appear from time to time. The President greatly disappoints me. Since January 2000 3.2 million jobs have been lost, and yet, Bush states "this economy is vibrant and strong." I have no axe to grind except for one small agenda. I love this country, and I would like to think that inept leadership in the Congress and at 1600 Pennsylvania Ave. will not puke it all away. A meal for a lifetime should not be transmitted irresponsibility.

The average man on the street cannot make ends meet when there are record low average weekly hours worked at a level of 33.6 hours. You can't have a great country when only 66% of the population is in the workforce, and I believe that labor dept figure is high. You can't have confidence in government numbers when revised figures come in over 100% low. June revised payrolls indicated a drop of 72,000 more than twice the number originally reported. In June I mentioned the number released was bogus. Yesterday the government said there were 44,000 less workers in July. That number will be revised as well.

How healthy can an economy be when auto companies have to provide incentives of $4000 per vehicle and sales still decline? Ford's July sales were down about 11%, GM's down 5.5%, and Chrysler's fell 7.6%. How is it that Honda's sales keep rising while the Big Three can't get out of their own way? Do you think it has to do with consumer satisfaction and trust in the product?

Wouldn't it be refreshing for a President to say the civilian labor force in the U.S. fell by 556,000 workers from June to July and that certain changes of policy need to be implemented? Is that difficult to admit? It's natural to have a state of uneasiness on Main Street because the people don'thave confidence in the way the economy is being handled. Without confidence there is little reason to be optimistic. Without optimism consumers and businesses will not invest for the long term. They may accept $4000 in incentives but that is not an investment.

Pundits cannot figure out why there is $2.2 trillion in money market funds when the 7-day yield is 0.53%. It's called lack of confidence. Until that changes for the better, the money will stay parked where it is.

Congress and the President are on a month's vacation. I suggest these folks talk to every day Americans and find out the ills of this nation. Trust the voters. They may pull the wrong lever at times, but they know what it means to live from paycheck to paycheck.

Thursday, July 31, 2003

Posting For 8/1/03 Assumptions

California's new budget assumes personal income tax collections will increase 4% in fiscal 2004 and generate $33.5 billion of the budget's $70 billion in total revenues. The state made a similar assumption for fiscal 2003. Obviously, they like to make the same mistake twice. That's a trait many government employees share.

University of California Extension to close its main SF campus at the end of the year because of the budget crisis. They offer 717 adult education classes and programs.

Second quarter GDP growth rose 2.4% due to the largest defense spending since the Korean war era. Defense spending rose 44% after falling 3.3% in the first quarter. All government spending rose 7 1/2% after rising 0.4% in the first quarter. The word "save" must be a swear word at the White House.

The trade deficit stands at $553 billion, and continues to rise.

P&G's net sales were up 8% vs the year ago number and that includes a 4% positive impact from foreign exchange. At the same time the company had lower capital expenditures.

Pep Boys to close 33 stores and lay off 860 employees.

The want-ad volume is lower in June than in January.

The yield on the 10 year treasuries rose to the highest level in one year.

Imperial Chemicals announced more lay offs - this time 2400 workers.

The American Legislative Exchange Council issued a mid-year report and thus far state taxes have surged by 48%. In 2002 states raised taxes by $8.8 billion. This year that figure is $13.1 billion. In 2002 states borrowed $30.2 billion and this year that has jumped to $68 billion.

Anadarko Petroleum to cut 400 jobs and close two offices. They anticipate earning $5.17 per share in 2003, and the stock sells at about 8 times estimated earnings- pretty reasonable.
7/31/03 Keep The Faith

If I wanted to go to hear a sermon, I'd go and listen to Father Joyce. McTeer from the Dallas Fed is not a preacher. He proclaims second half growth of 3 1/2% and next year 5% "based on a lot of faith and very little on actually seeing it yet." If life for me is to be on the come, it sure as hell will be in a very different venue. Just remember, when you read about the GDP number for the second quarter, please note the productivity portion. Then subtract inflation. The remainder is the growth factor. It should approximate zero or be in the minus column.

Donald Grimes, a University of Michigan economist, said 37 states lost jobs overall since employment peaked in Feb 2001 compared with 21 states that did so in the recesson and recovery period of the early 1990s.

Mortgage rates staged the largest weekly increase since Nov 2001 with the 30 year fixed rising from 5.99% to 6.26%, according to bankrate.com and is now at the highest level since Oct 23,2002. The 15 year rose from 5.35% to 5.59%, the highest since Dec 4,2002.

Siemens to cut 2300 jobs.

Lord & Taylor will close 32 stores as "stores in the south and west were not performing." Thousands will face layoffs.

According to Europe's Economist Intelligence Unit, the U.S. fell from the best place to do business in the 1998-2002 ranking to fifth place in the period from 2003-2007. The Unit cites increased exposure to geopolitical risk, major imbalances in the U.S. economy, and weakening public finance as the reasons the U.S. fell from first place. The Unit is the business information arm of the Economist Group.

A recent survey from the National Retail Federation trade group found that 78% of consumers planned to shop for back-to-school items at discount stores, and take advantage of items like 10 for $1 notebooks at Target.

Toshiba had its biggest 2-day drop since Oct 1987 due to a quarterly loss doubling as a result of price reductions for its notebook computers and TVs.

S. Korea's consumer prices fell for the fourth straight month in July, the longest decline since 1957.

Pillowtex filed for bankruptcy and said it will close its 16 plants and sell off its assets.

When Bush reviews his four years in office, he will focus on the tax cuts he provided to the American people. He will ignore the record spending policies he spearheaded through the Congress. Having grown up with a silver spoon, a lack of respect for money has been the result. Those spending habits will produce larger deficits and the bottomline will be the tax cuts received today under Bush will be more than wiped out by liabilities assumed and paid for by the taxpayers. His irresponsible fiscal programs will go down as the worst since those brought to us by Lyndon Johnson. The bond and stock market will pay dearly for these Bush years, and the payment will be over many years.

Wednesday, July 30, 2003

7/30/03 Erosion In Liquidity

Sellers in the bond pits continue to storm the exit gates. In just six weeks 10 year treasuries have gone from a yield of 3.07% to 4.44%, and holders of these bonds have lost about 10% of their principal. This is an historic loss in such a short time frame. They don't ring a bell when markets change, and they can change and wreck havoc. Thirty year mortgages now yield 5.87% and one year ago the yield was 5.99%. The refi market has dropped to 60% of all mortgage apps, and that market will shrivel up and die, and take with it thousands and thousands employed in this industry. With it, the excess cash flow produced for consumers will die on the vine. The Fed cannot do a thing to combat this event. It has happened and caught them asleep while giving speeches to Congress. The bond market has witnessed what it's like for sellers to storm the gates and for liquidity to erode. The markets place the blame on mortgage-related selling of Treasury interest-rate hedges. That's part of it. A more important part is the structural damage created by rising budget deficits, rising trade deficits, excessive government spending, and ill-equipped leadership providing amateurish rhetoric to problems undermining our freedoms and our economic system. We can look back and take the blame. We elected these people to Congress and to head the Administration. In the meantime, prior to selling more treasury bonds, a termite inspection should be mandatory.

This bond debacle is not an isolated event. If you think, this can't happen to stocks, then you had better check your exit strategy. It had better be a good one. I advise you not to go on vacation. July 4 fireworks are coming a bit later than normally scheduled.

Gartner, the world's biggest high-tech forecasting firm, said 500,000 of the 10.3 million U.S. technology jobs could move overseas in 2003 and 2004 in an offshore outsourcing effort. A Gartner VP and research director said "suddenly we have a profession-computer programming- that has to wake up and consider what value it really has to offer."

Toyota had a disappointing 11% operating profit slide in the June quarter.

Black & Decker said it would see flat or declining sales thru the rest of the year. The company saved money by hifting much of its production to Mexico, the Czech Republic, and other countries.

Verizon to cut 5000 jobs, BMC Software 890, and Air Products 461.

The Treasury will be announcing its refunding today. They anticipate raising $104 billion in the July-Sept quarter and $126 billion in the Oct-Dec period. Those figures will prove low. The point is there will be heavy bond sales on a continual basis for years to come. With this supply rates will rise and when they do the deficits will rise even more. The higher the rates the less attractive 1 1/2% yields on stocks look. Prices of stocks will decline. That's the order of things in the naked city. Get used to it. This is the way it will be for quite some time. Fight the oversupply of government financing and you will be carried out.

Economists were surprised by the weak consumer confidence and sentiment numbers. They might have a better handle on the pulse of the nation if they left their computers and visited
Main Street. The joblessness in this country has created a pervasive fright. People are scared and scared for the well-being of their families. They are concerned that they are one paycheck away from the street. An economic rebound will not be built on fright. On the other hand, unravelling of the economy could be. I'm not negative. I spend a great deal of my time on Main Street. I think I have a firm grip on the fright in the air.

As for finding Saddam Hussein, I figure they'll find him right after Jimmy Hoffa is found. Don't hold your breath.

Monday, July 28, 2003

Posting for 7/29/03 "Get Out Of Town Alive" Budget

That's how California's Senate Republican leader Jim Brulte described the ok of the new budget proposal. He said it looks good on paper but doesn't work in reality. For my money, it looks lousy on paper too. The lawmakers agredd to a bond to roll over $10.7 billion in debt over the next 5 years. The bond suposedly will be paid off thru a swap of sales and property taxes. The scheme is a joke, and a bad one at that. Even under the right circumstances, there would still be an $8 billion budget deficit for 2004-2005. Under the prsent total spending plan of $100 billion, the state of California has a structural deficit. The new budget plan does not contain new taxes, butit will hike fees from drivers' licenses, state park use, fishing licenses, college tuition increases of up to 30%, triple car registration fees, etc. The proposal includes eliminating 16,000 state jobs and pay cuts for other state workers.

Twenty years ago Eastman Kodak employed 136,000. That figure is now 62,000 and continues to drop. The problem is that digital photography only generated $3.8 billion of the company's $12.8 billion in 2002 sales.

With the S&P at the 1000 mark, we also have the 10 year treasuries at a new high in yield for the year at 4.27%. Will higher yields become increasingly attractive as a comparative return to equities? At the moment there is a greater appreciation for eBay than there is for long treasuries. Maybe treasuries should be auctioned off on eBay. That might provide more interest to the so-called bargain hunters. No mater what site, the caveat remains buyer beware.

In 2002 $1 billion in business products sold on eBay. That was a 90% increase from the revenue generated in the prior year.

According to Outside Magazine, only 1% of the earth's water is fresh and available for human use. In the U.S. the per capita daily water use is 153 gallons; 88 in the UK; 23 in Asia; and 12 in Africa. Up to 20 million Americans may be drinking tap water containing perchlorate, a toxic ingredient in rocket fuel.

Sunday, July 27, 2003

7/28/03 Lance Armstrong

This man is without question the greatest athlete in the U.S. and possibly the world. This last win was different. Lance had to overcome self-doubt, a new hurdle for him. Because of his success in overcoming this hurdle, he was able to outdistance the field. There will be times in our life when each of us must confront self-doubt. As investors, we see ourselves as only as good as our last trade. If that last trade is a loser, however, that doesn't make us a loser. We must overcome the loss and learn from it. This lesson is part of life's journey, and hopefully we become better individuals and better investors as we face and combat adversity. This is what separates the winners from the losers. Look inside of yourself, dig deeper, the answers are there.

Next month about 2400 IBM employees will start working shorter hours at the Essex Junction, VT plant where they have a chip manufacturing line. The reason given is because of soft demand in the semiconductor industry. Before you rush out and buy chip stocks, you might remember about this cutback. IBM imposed the same cuts at this pant two years ago because of lower demand for chips made there.
7/2703 Microsoft

I mentioned a couple of weeks ago that the Financial Times was wrong in predicting MSFT would payout a dividend of $1 billion. They won't be. John Connors, the CFO, called for patience on the dividend and said "if you've got the money, I've got the time." Shareholders are getting antsy and want a bigger share of MSFT's $49 billion cash balance. If they don't like it, they should sell the stock. Over the last 25 years no company has had more success than MSFT and created more millionaires. None. The company's sales will still show a growth of 7% this year and they are throwing off lots of free cash flow. Management should apologize to no one. If I were running the company, I'd tell any shareholder who was unhappy to take a bite out of my ass.
7/26/03 The News

For all of my readers wanting to know whether I have been ok this weekend I appreciate the concern. I am ok and will be writing three short blogs this evening. On Friday the news was that durable goods orders surged 2.1% in June from May. Ex autos and airplanes deliveries the figures were up 0.6% in June up from 0.5% in May. The market got all excited about the numbers. Maybe a rational thought would be in order. Auto sales were down in June, production will be cut back in July and August, the auto companies won't make their numbers, and forecasts are coming down. Boeing has once again reduced their plane delivery numbers for 2003 and said there will not be a pick-up until 2005- like they really can look out that far. It might be wise to think for your self and screw the headlines. You're not in the business of selling newspapers and media ads.