Saturday, December 20, 2003

12/20/03 The Truth Rules

For the past several years the Saturday before Christmas has been the biggest shopping day of the year by sales volume. If you were to listen to the National Retail Federation, you would believe that, as of December 10, only 10% of consumers had finished their holiday shopping. This is the same organization that predicted retail holiday spending growth this year up 5.7% from last year, which would be the biggest gain since 1999. WalMart and Target discounted that forecast to a less than rosy holiday shopping period. There are fewer unplanned promotions, less deep markdowns, and a lack of gotta-have products. There will be less impulse buying today, and shoppers will not see as many 75 percent price cuts as seen just before last Christmas. Many shoppers will stay home and make online purchases. Most bricks and mortar retailers will be sorry they read the forecast headlines from the National Retail Foundation. The latter will not be stuck with the inventory. It’s not their money. Maybe more retailers should have paid attention to Joyce Vordahl’s plight. Joyce is 47 and lives in Snohomish, Washington. She installed plane interiors at Boeing, and was laid off last year. She has attempted to update her skills, has cashed in her retirement plan, and is nearing the end of her benefits. Joyce stated “it shocks me. I have never had a problem getting a job in my life.� At 15, she worked in a restaurant, and if necessary, will try to find a job at a restaurant. She remarked “when I go to a fast-food restaurant, I don’t see teenagers there anymore. I see myself.� Unfortunately, there are too many like Joyce on Main Street. The sales volume for retailers this holiday season will reflect the other millions of stories in the naked city very similar to Joyce’s.

I just love to read the reports from SEMI, the San Jose-based trade association for the semiconductor industry. They have perfected the art of spinning. Yesterday they reported a November book-to-bill ratio of 1.04, and that means that $104 worth of new orders were received for every $100 of product billed for the month. SEMI stated these bookings were 7% above the October level. The headlines did not reflect that the November 2003 billings level was 8.5% below the November 2002 billings. That would not have made for very upbeat reading.

I just love to read the news releases from Boeing. This week there was the splash on the proposed 7E7. Getting an entire picture is a lot to ask of this company. Their 717 plane entered the market in 1999. You probably haven’t heard much about it. There is good reason for that. Boeing is currently building just a single 717 per month at its Long Beach production facility, and only 37 orders remain to be filled. It could become a collector’s item! Boeing might have also mentioned that more layoff notices went out this week. One of the strongest stocks in the Dow this week was Boeing.

Misery sure loves company. According to the Census Bureau, the state of California had a net population growth of 482,467 people last year. More than 35.5 million people live in California, greater than 162 nations around the globe. More people mean more stress on the state’s infrastructure and resources. It’s too bad so many of the old gold mines have been closed for decades. California could have used the tax revenues on gold production at $410 per ounce.

Several times I have written about the alternative minimum tax (AMT). Monday’s Investor’s Business Daily mentions this subject. With only 11 days remaining in 2003, it is important that each reader check with a tax advisor about the impact of AMT on your 2003 tax bite. As I have previously stated, this year more taxpayers will be hurt by the AMT. The Joint Committee on Taxation estimates the number of AMT tax returns will increase next year from 2003’s estimated 2.2 million to 3.7 million. Let me repeat that your AMT taxable income does not deduct state and local income taxes or property taxes, and many other deductions are added back into your taxable income. The AMT is a WMD for a growing number of American citizens. It can be found in your neighborhood, and placed there, in my view, by rats subsisting on pork in rat holes. The AMT will place one more nail in the coffin of consumer spending, and make it more difficult for Americans to save their hard-earned income.

I would like to close on a note that brings a smile to my face, and hopefully to yours. Harry Stine exemplifies the very best in an American employer. His presence graces the state of Iowa and blesses those fortunate enough to work with him. His Stine Seed Co. of Adel, Iowa, which he founded, employs 270 people, and it is one of the largest privately owned agricultural seed companies in the United States. It is a family business that controls the plant genetics that are the basis for half the soybean seed sold in the Midwest. After the company’s post-harvest luncheon, Harry gave a little talk and spoke from his heart. The employees heard Harry remark “we’re a can-do kind of people, that we work in the rain and the mud, and that he appreciated the hard work.� Harry then announced a gift to each employee of $1,000 for each year of service to his company, more than $1 million in all. Harry stated “all of these people help me every day. So it’s not a be-nice thing. It’s just what should be done.� Our United States need more Harry Stines. We need more appreciative givers all through each calendar year. Cindy Feltz has worked for Harry for six years, and she acknowledged “through someone else’s generosity I also can be generous.�

Friday, December 19, 2003

12/19/03 The Truth Is

The truth is the Nasdaq has risen 46% this year. The annual survey of the U.S. Conference of Mayors found that, in nearly all the cities, requests for emergency food assistance have increased by an average of 17% over last year, and the demand for emergency shelter rose by an average of 13%. More than half of the cities surveyed reported that emergency food assistance facilities had to either turn people away or limit the groceries families could receive on each visit. Of those requesting food help, 59% were families and 39% were employed, the survey stated. According to the Conference of Mayors report, in 84% of the cities surveyed, shelters reported turning away homeless families because of too few beds and other resources. Officials estimated that 30% of requests for shelter by homeless people, and 33% of the requests by homeless families were unmet.

Since Saddam Hussein was captured, the truth is more Americans now back the Iraq war. According to new Pentagon data, The military has made 8,581 medical evacuations from Operation Iraqi Freedom for non-hostile causes in addition to the 2,273 wounded, a total of 10,854. The Pentagon states that 458 troops have died. In addition, the nine-month search for weapons of mass destruction has slowed. Charles McKay is a member of the Defense Threat Reduction Agency that has been involved in the search for WMD since May. He related “for a while this place was really active, but that’s changed in the last month. Now we’re lucky if there’s a mission once a week around here. Yesterday a U.S. intelligence official in Washington said David Kay, who heads up the weapons hunt staffed by more than 1,000 intelligence analysts, interrogators, and translators, is considering quitting his post. Hans Blix, the former chief U.N. weapons inspector, stated “it’s probably time to call it quits. The U.S. and Britain are so wedded to the idea that the Iraqis were hiding things that they are not willing to explore the possibility that they’re wrong.�

The truth is that the population of the United States is nearing 300 million. According to the Census Bureau, our population grew by 2.8 million in the past year to nearly 291 million people. At the current rate of growth, the Population Reference Bureau anticipates the nation will be home to 300 million people within four years. The high birth rate among Hispanics has helped fuel the increase. With more people, one would think more people would shop for more gifts this holiday season. That has not been the story. Northeast Phoenix resident Susie Johnston describes the current shopping landscape, and states that “it’s less stressful when you spend less. It’s definitely a relief. I’m pretty proud of myself. I didn’t have to pay interest on anything.� She shops for deep discounted merchandise and remarks “I know where to shop.� Retailers are depending on last-week shoppers to save their holiday sales. Among retailers surveyed by Jupiter Research, 37% said they would offer discounted or free express shipping this year to lure last-minute Internet shoppers, up from 24% last year, and 42% said they would extend the cutoff date for ordering, compared with 30% last year. Jupiter stated “you’ll see a growth in retailers offering orders through the 23rd.� Shopping.com confirmed that “people are beginning to believe in the online channel as a last-minute resource.�

The truth is that the U.S. Chamber of Commerce chief economist, Mark Regalia, recently stated “the dollar has sunk significantly which has spurred trade.� The U.S. trade representative’s office (USTR) stated in a report released yesterday that “indeed, over the last three years, while U.S. exports to the rest of the world have decreased by 10%, U.S. exports to China have increased by 66%.� It should be noted that the Chinese currency has had a fixed peg against the U.S. dollar for many years.

A new survey conducted on behalf of American Express Financial Advisors (AEFA), called the Personal Economy Index, shows “that the majority of Americans do not have a clear road map for their financial future.� The truth is a survey spokesperson indicates “the only economy we can control is our own personal economy and this is the one that matters most.� One highlight from the Personal Economy Index revealed that one third of Americans reported their financial situation has worsened over the past two years, and of those who stated it worsened, four out of ten cited an increase in healthcare costs and a third cited the decline in the stock market as factors.

The truth is we do not think of the Federal Reserve banks as employers. The fact is they employ more than 22,000 people, or did. Yesterday they stated as many as 300 jobs would be eliminated as part of a shift in their savings bond business toward electronic transactions. The banks will eliminate 25 to 50 percent of ist 638 positions in its retail securities position. In Buffalo, N.Y., 60 of 130 jobs will be cut in the restructuring. Branches in Kansas City, Richmond, Dallas, and Boston will also face stiff cuts. A spokesperson stated “as people move to the Internet, it requires fewer resources.� It’s a little like what’s taking place for retailers.

The truth is that the value of farmland in Iowa set a record in 1981 at $2,147 per acre. In 2003, that record was broken. The average price of Iowa farmland increased 9.2% to $2,275 an acre. When the 2003 average price is adjusted for inflation, this year’s value is about the same as the figures from the early 1970s. A lot depends on one’s frame of reference.

The truth is Illinois Governor Jennifer Granholm has faced nearly $3 billion in projected deficits due to a weak economy that produced smaller than expected revenues. She and the Illinois Legislature have been hard at work to resolve the budget problem. Yesterday a vote was taken, and there will be a 6-month delay in an income tax cut that was scheduled to take place in January. In addition, there will be a 5% cut in aid to universities; a $96 per-pupil cut in aid to public schools; revenue sharing for cities, townships, and counties took a 5% funding hit; half of the state tax on health care benefits provided by employers will be phased out; and an additional $12 million in administrative cuts shall be spread across state government. Erasing the state budget deficit was not easy, but Republicans and Democrats worked together and settled on compromises to achieve the desired results. If it can be done in Illinois, it can be done on Capital Hill.

Another governor was hard at work yesterday. Arnold stated “I had to do this.� The truth is California has been in a fiscal crisis for some time. He shall impose $150 million in spending cuts without the Legislature’s approval. The cuts are expected to come from social service programs. Hopefully, these cuts will offset a portion of the lost revenue from the repealed car tax.

In my view, the three-judge panel of the 2nd U.S. Circuit Court of Appeals stepped up to the plate for our Constitution, and yesterday stated that Jose Padilla’s detention since May 2002 was not authorized by Congress and that Bush could not designate him as an enemy combatant without the authorization. The truth is the majority decision stated “but presidential authority does not exist in a vacuum, and this case involves not whether those responsibilities should be aggressively pursued, but whether the president is obligated, in the circumstances presented here, to share them with Congress.�

The truth is that Rob Glaser was a former Microsoft executive. He founded RealNetworks in 1994, and intoduced its digital media player in 1995. Microsoft introduced its own digital media player a year later, and in May 1999 launched Windows 98 Second Edition and integrated its digital media player into its operating system. For the last two and one-half years this bundling has remained in force. Yesterday Glaser’s company filed a $1 billion lawsuit against Microsoft. Glaser is attempting to liken Microsoft’s dominance over Netscape to the current battle for market share with RealNetworks and has cited notes from an internal Microsoft meeting quoting one of its executives as saying RealNetworks “is like Netscape, the only difference is we have a chance to start this battle earlier in the game.� In essence, Glaser is blaming his company’s lack of competitive success against Microsoft on the latter having WPM, as it were. In this case they would be tying its digital media player to its operating system. This is a losing argument. Users are able to remove links to its Windows Media Player, and thus the latter is not the system’s default media player.

The truth is the Labor Department stated yesterday that the number of Americans filing first-time applications for state unemployment benefits fell by 22,000 in the week that ended Saturday to 353,000. The whole truth is the number of people continuing to collect state jobless benefits rose 28,000 to 3.34 million in the week that ended Dec. 6. The Labor Department also said that 40 states and territories reported an increase in new claims, while 13 reported a decrease.

The truth is the Conference Board announced yesterday that the U.S. leading index increased 0.3 percent in November. Six of the ten indicators that make up the leading index increased in November. On the other hand, the lagging index decreased 0.3 percent in November, and that was after a 0.1 percent decline in October and a 0.5 percent drop in September. The Conference Board’s economist Ken Goldstein stated “the lone note of caution is that although the path is up, it has been bumpy and will remain so in the new year.�

Dan DiMicco, Nucor CEO, remarked that “the same fundamental forces that effect manufacturing are going to effect these so-called hi-tech service jobs.� Will Cashion, treasurer of the Association of Machinist and Aerospace Workers union, observes “there is no way to stop the global economy and as long as we continue to compete with poverty stricken countries, we can’t win.� The truth is Richmond Fed chairman Alfred Broaddus is not concerned as he stated “what we are undergoing here in the manufacturing sector in the Carolinas is an evolution. Industries in some locations diminish, other kinds of activities replace those and that’s the way our economy sort of churns itself and maintains the extraordinary longer-run performance that has been and is one of the real economic wonders of the world.� Broaddus is correct. Industries in some locations diminish. Yesterday MeadWestvaco announced they are cutting 1,000 jobs in a cost-cutting effort. Those cut from the payroll would not describe our GDP as one of the real economic wonders of the world.

Thursday, December 18, 2003

12/18/03 Microinvesting

I know you probably are thinking I shall be writing about small cap stocks. I�ll give you a hint. What does the holiday shopping season have in common with microinvesting? That clue was pretty lame. Let�s try one more. What do incentives for bargain hungry holiday shoppers have in common with microinvesting? That�s a great clue. I will put you out of your misery. This is the newest trend and it�s coming to your neighborhood. As opposed to the traditional discount or mail-in rebate, a growing number of retailers are appealing to a motivation stronger than simply bargain hunting, and that�s the need for consumers to better secure their financial future. Retailers have begun offering shoppers deposits into their college savings or retirement accounts through �microinvesting.� According to a recent report by Financial Research Corporation, microinvesting programs have the potential to capture about $22 billion annually in eligible shopping transactions, and this would represent an incremental $1.1 billion per year in assets to individual investors. Vestia Corporation of Atlanta launched its first program about three years ago. A spokesperson stated �while we�ve always had a large number of online and gift certificate merchants in our programs, I fully expect our off-line network to double in size by this time next year.� The newest participants are Hickory Farms and FastFrame, which has more than 250 custom picture-framing shops. Vestia�s senior vice president stated �microinvesting programs are truly a win-win for both participating retailers and consumers--retailers end up increasing customer loyalty and decreasing their promotional expense when compared to other traditional promotions, while consumers end up investing assets that otherwise may never have been set aside.�

To many, it just seems like words on a page when headlines describe crude oil climbing to a 9-month, post-Iraq war high of $33.75 per barrel. In Denver those words became truly meaningful. Many Denver motorists woke up yesterday to a 20 cent per gallon price overnight increase at the pump to $1.50 per gallon. That got everyone�s attention in a hurry. Hopefully, yesterday�s rise in January�s natural gas to $6.86 per million BTUs won�t produce the same unpleasant overnight results that gasoline did. In home heating, a natural gas services index is 16.5% higher than in November 2002.

It is the sign of the times. Goodwill Industries of Central North Carolina has plans to open three new stores and a new job-training center in 2004, investing an estimated $5.4 million. The expansion is expected to create about 25 jobs. Goodwill invests about 90% of its profits back into the community. Their group vice president stated �in a down economy, Goodwills have a tendency to do well. We�ve had a few good years, and we just felt it was time to maximize our investment.� Meanwhile, BellSouth Corp. will slash 1,074 positions nationwide between January and April next year. Positions affected include service technicians, clerical workers, operators, and pay phone staff. The company is exiting the pay phone business at the end of the year. Said a BellSouth spokesperson, �we are very much aware of the impact that the economy, regulation, and competition is having on the company� a scheme of government-managed competition that directs BellSouth to give away parts of its network at a rate that is below the cost that we have to invest to build it is not conducive to a positive effect on your company.� This layoff brings this year�s total to more than 3,000 union jobs that have been labeled as �surplus� and last year BellSouth cut nearly 12,000 union and nonunion jobs. It should be noted that BellSouth was not alone yesterday in announcing layoffs. Human Genome Sciences stated they shall fire 75 workers, nearly 7% of its workforce, because of overlapping responsibilities. The company lost $47 million last quarter.

I was reading yesterday that Japan has sold 18 trillion yen this year. Considering that the dollar is at about 107.27 yen, I must say Japan does not have much to show for those funds. We could have made use of those yen in the purchase of U.S. treasuries. The Treasury department stated purchases of U.S. treasuries by international investors in October would have dropped $1.7 billion had it not been for central banks. In my view, only lower deficits will help our dollar. Bush has essentially stated that we should trust him to spend less after his re-election. In other words, he needs to spend more in 2004 to buy the votes needed for re-election. Many accuse me of lacking sophistication, and that I should realize it�s American politics. My answer is I intend to cast my vote for Ron Paul.

A recent report from the nonpartisan think tank, the Council on Foreign Relations, concluded that the United States �remains dangerously ill-prepared to handle a catastrophic attack on American soil.� Analysts at the think tank estimated it would cost $98 billion over five years to give first responders and public health agencies the training and equipment to detect weapons of mass destruction and respond to an attack. The report stated �fire departments across the country have only enough radios to equip half the firefighters on a shift and breathing apparatuses for only one-third. Only 10 percent of fire departments in the United States have the personnel and equipment to respond to a building collapse.� Overall, the Department of Homeland Security will spend more than $29 billion in fiscal 2004, including $4.2 billion for the Office of Domestic Preparedness. It would be interesting to know how much of this money is spent on pet pork projects and/or contracts for political friends and allies. The answer should not come as a surprise.

Pharmacists across California are complaining about the proposed cuts in the state�s Medi-Cal program, which subsidizes drugs for poor citizens. A group of independent pharmacists and doctors have filed lawsuits against the state, accusing the head of the state�s Department of Health Services of violating federal laws that assure access to care for Medicaid patients. Pharmacists, doctors, dentists, and others serve California�s nearly 6.5 million Medi-Cal patients. Over the summer Governor Gray Davis and the Legislature had approved a 5% reduction in provider reimbursements scheduled to go into effect on January 1. Governor Arnold Schwarzenegger has proposed an additional 10% cut in reimbursements. A growing number of doctors in the state have stopped accepting Medi-Cal patients, and that number is expected to increase as a result of the proposed cuts. Almost all of the 6,000 pharmacies in the state fill Medi-Cal prescriptions. Many of these pharmacies are considering dropping Medi-Cal prescriptions. As one pharmacy owner stated, � if I don�t get paid enough to cover my expenses, I�ll have to close up.� Walgreens operates 360 stores in the state, and they claim their operating profit margin is a slim 2%, and that�s before the proposed reimbursement cuts.

According to Ernst & Young�s calculations, deflation is going to hit the bottom line for retailers this holiday season. Their director of retail and consumers products research stated �retailers are hoping their lower prices will be offset by an increase in unit sales. We believe that deflation will, ultimately, be a drag on sales in all three sectors (apparel, consumer electronics, and toys), but especially in toys.� Meanwhile, Amrican Express� John Theiss said 52% of Americans are planning to shop for discounts during the post-holiday season. Best Buy CEO Brad Anderson remarked �post-Christmas week is as big as the week that includes Thanksgiving.� I believe shoppers may find that prices will be a good deal lower than those during Thanksgiving week.
12/18/03 Microinvesting

I know you probably are thinking I shall be writing about small cap stocks. I�ll give you a hint. What does the holiday shopping season have in common with microinvesting? That clue was pretty lame. Let�s try one more. What do incentives for bargain hungry holiday shoppers have in common with microinvesting? That�s a great clue. I will put you out of your misery. This is the newest trend and it�s coming to your neighborhood. As opposed to the traditional discount or mail-in rebate, a growing number of retailers are appealing to a motivation stronger than simply bargain hunting, and that�s the need for consumers to better secure their financial future. Retailers have begun offering shoppers deposits into their college savings or retirement accounts through �microinvesting.� According to a recent report by Financial Research Corporation, microinvesting programs have the potential to capture about $22 billion annually in eligible shopping transactions, and this would represent an incremental $1.1 billion per year in assets to individual investors. Vestia Corporation of Atlanta launched its first program about three years ago. A spokesperson stated �while we�ve always had a large number of online and gift certificate merchants in our programs, I fully expect our off-line network to double in size by this time next year.� The newest participants are Hickory Farms and FastFrame, which has more than 250 custom picture-framing shops. Vestia�s senior vice president stated �microinvesting programs are truly a win-win for both participating retailers and consumers--retailers end up increasing customer loyalty and decreasing their promotional expense when compared to other traditional promotions, while consumers end up investing assets that otherwise may never have been set aside.�

To many, it just seems like words on a page when headlines describe crude oil climbing to a 9-month, post-Iraq war high of $33.75 per barrel. In Denver those words became truly meaningful. Many Denver motorists woke up yesterday to a 20 cent per gallon price overnight increase at the pump to $1.50 per gallon. That got everyone�s attention in a hurry. Hopefully, yesterday�s rise in January�s natural gas to $6.86 per million BTUs won�t produce the same unpleasant overnight results that gasoline did. In home heating, a natural gas services index is 16.5% higher than in November 2002.

It is the sign of the times. Goodwill Industries of Central North Carolina has plans to open three new stores and a new job-training center in 2004, investing an estimated $5.4 million. The expansion is expected to create about 25 jobs. Goodwill invests about 90% of its profits back into the community. Their group vice president stated �in a down economy, Goodwills have a tendency to do well. We�ve had a few good years, and we just felt it was time to maximize our investment.� Meanwhile, BellSouth Corp. will slash 1,074 positions nationwide between January and April next year. Positions affected include service technicians, clerical workers, operators, and pay phone staff. The company is exiting the pay phone business at the end of the year. Said a BellSouth spokesperson, �we are very much aware of the impact that the economy, regulation, and competition is having on the company� a scheme of government-managed competition that directs BellSouth to give away parts of its network at a rate that is below the cost that we have to invest to build it is not conducive to a positive effect on your company.� This layoff brings this year�s total to more than 3,000 union jobs that have been labeled as �surplus� and last year BellSouth cut nearly 12,000 union and nonunion jobs. It should be noted that BellSouth was not alone yesterday in announcing layoffs. Human Genome Sciences stated they shall fire 75 workers, nearly 7% of its workforce, because of overlapping responsibilities. The company lost $47 million last quarter.

I was reading yesterday that Japan has sold 18 trillion yen this year. Considering that the dollar is at about 107.27 yen, I must say Japan does not have much to show for those funds. We could have made use of those yen in the purchase of U.S. treasuries. The Treasury department stated purchases of U.S. treasuries by international investors in October would have dropped $1.7 billion had it not been for central banks. In my view, only lower deficits will help our dollar. Bush has essentially stated that we should trust him to spend less after his re-election. In other words, he needs to spend more in 2004 to buy the votes needed for re-election. Many accuse me of lacking sophistication, and that I should realize it�s American politics. My answer is I intend to cast my vote for Ron Paul.

A recent report from the nonpartisan think tank, the Council on Foreign Relations, concluded that the United States �remains dangerously ill-prepared to handle a catastrophic attack on American soil.� Analysts at the think tank estimated it would cost $98 billion over five years to give first responders and public health agencies the training and equipment to detect weapons of mass destruction and respond to an attack. The report stated �fire departments across the country have only enough radios to equip half the firefighters on a shift and breathing apparatuses for only one-third. Only 10 percent of fire departments in the United States have the personnel and equipment to respond to a building collapse.� Overall, the Department of Homeland Security will spend more than $29 billion in fiscal 2004, including $4.2 billion for the Office of Domestic Preparedness. It would be interesting to know how much of this money is spent on pet pork projects and/or contracts for political friends and allies. The answer should not come as a surprise.

Pharmacists across California are complaining about the proposed cuts in the state�s Medi-Cal program, which subsidizes drugs for poor citizens. A group of independent pharmacists and doctors have filed lawsuits against the state, accusing the head of the state�s Department of Health Services of violating federal laws that assure access to care for Medicaid patients. Pharmacists, doctors, dentists, and others serve California�s nearly 6.5 million Medi-Cal patients. Over the summer Governor Gray Davis and the Legislature had approved a 5% reduction in provider reimbursements scheduled to go into effect on January 1. Governor Arnold Schwarzenegger has proposed an additional 10% cut in reimbursements. A growing number of doctors in the state have stopped accepting Medi-Cal patients, and that number is expected to increase as a result of the proposed cuts. Almost all of the 6,000 pharmacies in the state fill Medi-Cal prescriptions. Many of these pharmacies are considering dropping Medi-Cal prescriptions. As one pharmacy owner stated, � if I don�t get paid enough to cover my expenses, I�ll have to close up.� Walgreens operates 360 stores in the state, and they claim their operating profit margin is a slim 2%, and that�s before the proposed reimbursement cuts.

According to Ernst & Young�s calculations, deflation is going to hit the bottom line for retailers this holiday season. Their director of retail and consumers products research stated �retailers are hoping their lower prices will be offset by an increase in unit sales. We believe that deflation will, ultimately, be a drag on sales in all three sectors (apparel, consumer electronics, and toys), but especially in toys.� Meanwhile, Amrican Express� John Theiss said 52% of Americans are planning to shop for discounts during the post-holiday season. Best Buy CEO Brad Anderson remarked �post-Christmas week is as big as the week that includes Thanksgiving.� I believe shoppers may find that prices will be a good deal lower than those during Thanksgiving week.
12/18/03 Microinvesting

I know you probably are thinking I shall be writing about small cap stocks. I’ll give you a hint. What does the holiday shopping season have in common with microinvesting? That clue was pretty lame. Let’s try one more. What do incentives for bargain hungry holiday shoppers have in common with microinvesting? That’s a great clue. I will put you out of your misery. This is the newest trend and it’s coming to your neighborhood. As opposed to the traditional discount or mail-in rebate, a growing number of retailers are appealing to a motivation stronger than simply bargain hunting, and that’s the need for consumers to better secure their financial future. Retailers have begun offering shoppers deposits into their college savings or retirement accounts through “microinvesting.� According to a recent report by Financial Research Corporation, microinvesting programs have the potential to capture about $22 billion annually in eligible shopping transactions, and this would represent an incremental $1.1 billion per year in assets to individual investors. Vestia Corporation of Atlanta launched its first program about three years ago. A spokesperson stated “while we’ve always had a large number of online and gift certificate merchants in our programs, I fully expect our off-line network to double in size by this time next year.� The newest participants are Hickory Farms and FastFrame, which has more than 250 custom picture-framing shops. Vestia’s senior vice president stated “microinvesting programs are truly a win-win for both participating retailers and consumers--retailers end up increasing customer loyalty and decreasing their promotional expense when compared to other traditional promotions, while consumers end up investing assets that otherwise may never have been set aside.�

To many, it just seems like words on a page when headlines describe crude oil climbing to a 9-month, post-Iraq war high of $33.75 per barrel. In Denver those words became truly meaningful. Many Denver motorists woke up yesterday to a 20 cent per gallon price overnight increase at the pump to $1.50 per gallon. That got everyone’s attention in a hurry. Hopefully, yesterday’s rise in January’s natural gas to $6.86 per million BTUs won’t produce the same unpleasant overnight results that gasoline did. In home heating, a natural gas services index is 16.5% higher than in November 2002.

It is the sign of the times. Goodwill Industries of Central North Carolina has plans to open three new stores and a new job-training center in 2004, investing an estimated $5.4 million. The expansion is expected to create about 25 jobs. Goodwill invests about 90% of its profits back into the community. Their group vice president stated “in a down economy, Goodwills have a tendency to do well. We’ve had a few good years, and we just felt it was time to maximize our investment.� Meanwhile, BellSouth Corp. will slash 1,074 positions nationwide between January and April next year. Positions affected include service technicians, clerical workers, operators, and pay phone staff. The company is exiting the pay phone business at the end of the year. Said a BellSouth spokesperson, “we are very much aware of the impact that the economy, regulation, and competition is having on the company… a scheme of government-managed competition that directs BellSouth to give away parts of its network at a rate that is below the cost that we have to invest to build it is not conducive to a positive effect on your company.� This layoff brings this year’s total to more than 3,000 union jobs that have been labeled as “surplus� and last year BellSouth cut nearly 12,000 union and nonunion jobs. It should be noted that BellSouth was not alone yesterday in announcing layoffs. Human Genome Sciences stated they shall fire 75 workers, nearly 7% of its workforce, because of overlapping responsibilities. The company lost $47 million last quarter.

I was reading yesterday that Japan has sold 18 trillion yen this year. Considering that the dollar is at about 107.27 yen, I must say Japan does not have much to show for those funds. We could have made use of those yen in the purchase of U.S. treasuries. The Treasury department stated purchases of U.S. treasuries by international investors in October would have dropped $1.7 billion had it not been for central banks. In my view, only lower deficits will help our dollar. Bush has essentially stated that we should trust him to spend less after his re-election. In other words, he needs to spend more in 2004 to buy the votes needed for re-election. Many accuse me of lacking sophistication, and that I should realize it’s American politics. My answer is I intend to cast my vote for Ron Paul.

A recent report from the nonpartisan think tank, the Council on Foreign Relations, concluded that the United States “remains dangerously ill-prepared to handle a catastrophic attack on American soil.� Analysts at the think tank estimated it would cost $98 billion over five years to give first responders and public health agencies the training and equipment to detect weapons of mass destruction and respond to an attack. The report stated “fire departments across the country have only enough radios to equip half the firefighters on a shift and breathing apparatuses for only one-third. Only 10 percent of fire departments in the United States have the personnel and equipment to respond to a building collapse.� Overall, the Department of Homeland Security will spend more than $29 billion in fiscal 2004, including $4.2 billion for the Office of Domestic Preparedness. It would be interesting to know how much of this money is spent on pet pork projects and/or contracts for political friends and allies. The answer should not come as a surprise.

Pharmacists across California are complaining about the proposed cuts in the state’s Medi-Cal program, which subsidizes drugs for poor citizens. A group of independent pharmacists and doctors have filed lawsuits against the state, accusing the head of the state’s Department of Health Services of violating federal laws that assure access to care for Medicaid patients. Pharmacists, doctors, dentists, and others serve California’s nearly 6.5 million Medi-Cal patients. Over the summer Governor Gray Davis and the Legislature had approved a 5% reduction in provider reimbursements scheduled to go into effect on January 1. Governor Arnold Schwarzenegger has proposed an additional 10% cut in reimbursements. A growing number of doctors in the state have stopped accepting Medi-Cal patients, and that number is expected to increase as a result of the proposed cuts. Almost all of the 6,000 pharmacies in the state fill Medi-Cal prescriptions. Many of these pharmacies are considering dropping Medi-Cal prescriptions. As one pharmacy owner stated, “ if I don’t get paid enough to cover my expenses, I’ll have to close up.� Walgreens operates 360 stores in the state, and they claim their operating profit margin is a slim 2%, and that’s before the proposed reimbursement cuts.

According to Ernst & Young’s calculations, deflation is going to hit the bottom line for retailers this holiday season. Their director of retail and consumers products research stated “retailers are hoping their lower prices will be offset by an increase in unit sales. We believe that deflation will, ultimately, be a drag on sales in all three sectors (apparel, consumer electronics, and toys), but especially in toys.� Meanwhile, Amrican Express’ John Theiss said 52% of Americans are planning to shop for discounts during the post-holiday season. Best Buy CEO Brad Anderson remarked “post-Christmas week is as big as the week that includes Thanksgiving.� I believe shoppers may find that prices will be a good deal lower than those during Thanksgiving week.
12/18/03 Microinvesting

I know you probably are thinking I shall be writing about small cap stocks. I’ll give you a hint. What does the holiday shopping season have in common with microinvesting? That clue was pretty lame. Let’s try one more. What do incentives for bargain hungry holiday shoppers have in common with microinvesting? That’s a great clue. I will put you out of your misery. This is the newest trend and it’s coming to your neighborhood. As opposed to the traditional discount or mail-in rebate, a growing number of retailers are appealing to a motivation stronger than simply bargain hunting, and that’s the need for consumers to better secure their financial future. Retailers have begun offering shoppers deposits into their college savings or retirement accounts through “microinvesting.� According to a recent report by Financial Research Corporation, microinvesting programs have the potential to capture about $22 billion annually in eligible shopping transactions, and this would represent an incremental $1.1 billion per year in assets to individual investors. Vestia Corporation of Atlanta launched its first program about three years ago. A spokesperson stated “while we’ve always had a large number of online and gift certificate merchants in our programs, I fully expect our off-line network to double in size by this time next year.� The newest participants are Hickory Farms and FastFrame, which has more than 250 custom picture-framing shops. Vestia’s senior vice president stated “microinvesting programs are truly a win-win for both participating retailers and consumers--retailers end up increasing customer loyalty and decreasing their promotional expense when compared to other traditional promotions, while consumers end up investing assets that otherwise may never have been set aside.�

To many, it just seems like words on a page when headlines describe crude oil climbing to a 9-month, post-Iraq war high of $33.75 per barrel. In Denver those words became truly meaningful. Many Denver motorists woke up yesterday to a 20 cent per gallon price overnight increase at the pump to $1.50 per gallon. That got everyone’s attention in a hurry. Hopefully, yesterday’s rise in January’s natural gas to $6.86 per million BTUs won’t produce the same unpleasant overnight results that gasoline did. In home heating, a natural gas services index is 16.5% higher than in November 2002.

It is the sign of the times. Goodwill Industries of Central North Carolina has plans to open three new stores and a new job-training center in 2004, investing an estimated $5.4 million. The expansion is expected to create about 25 jobs. Goodwill invests about 90% of its profits back into the community. Their group vice president stated “in a down economy, Goodwills have a tendency to do well. We’ve had a few good years, and we just felt it was time to maximize our investment.� Meanwhile, BellSouth Corp. will slash 1,074 positions nationwide between January and April next year. Positions affected include service technicians, clerical workers, operators, and pay phone staff. The company is exiting the pay phone business at the end of the year. Said a BellSouth spokesperson, “we are very much aware of the impact that the economy, regulation, and competition is having on the company… a scheme of government-managed competition that directs BellSouth to give away parts of its network at a rate that is below the cost that we have to invest to build it is not conducive to a positive effect on your company.� This layoff brings this year’s total to more than 3,000 union jobs that have been labeled as “surplus� and last year BellSouth cut nearly 12,000 union and nonunion jobs. It should be noted that BellSouth was not alone yesterday in announcing layoffs. Human Genome Sciences stated they shall fire 75 workers, nearly 7% of its workforce, because of overlapping responsibilities. The company lost $47 million last quarter.

I was reading yesterday that Japan has sold 18 trillion yen this year. Considering that the dollar is at about 107.27 yen, I must say Japan does not have much to show for those funds. We could have made use of those yen in the purchase of U.S. treasuries. The Treasury department stated purchases of U.S. treasuries by international investors in October would have dropped $1.7 billion had it not been for central banks. In my view, only lower deficits will help our dollar. Bush has essentially stated that we should trust him to spend less after his re-election. In other words, he needs to spend more in 2004 to buy the votes needed for re-election. Many accuse me of lacking sophistication, and that I should realize it’s American politics. My answer is I intend to cast my vote for Ron Paul.

A recent report from the nonpartisan think tank, the Council on Foreign Relations, concluded that the United States “remains dangerously ill-prepared to handle a catastrophic attack on American soil.� Analysts at the think tank estimated it would cost $98 billion over five years to give first responders and public health agencies the training and equipment to detect weapons of mass destruction and respond to an attack. The report stated “fire departments across the country have only enough radios to equip half the firefighters on a shift and breathing apparatuses for only one-third. Only 10 percent of fire departments in the United States have the personnel and equipment to respond to a building collapse.� Overall, the Department of Homeland Security will spend more than $29 billion in fiscal 2004, including $4.2 billion for the Office of Domestic Preparedness. It would be interesting to know how much of this money is spent on pet pork projects and/or contracts for political friends and allies. The answer should not come as a surprise.

Pharmacists across California are complaining about the proposed cuts in the state’s Medi-Cal program, which subsidizes drugs for poor citizens. A group of independent pharmacists and doctors have filed lawsuits against the state, accusing the head of the state’s Department of Health Services of violating federal laws that assure access to care for Medicaid patients. Pharmacists, doctors, dentists, and others serve California’s nearly 6.5 million Medi-Cal patients. Over the summer Governor Gray Davis and the Legislature had approved a 5% reduction in provider reimbursements scheduled to go into effect on January 1. Governor Arnold Schwarzenegger has proposed an additional 10% cut in reimbursements. A growing number of doctors in the state have stopped accepting Medi-Cal patients, and that number is expected to increase as a result of the proposed cuts. Almost all of the 6,000 pharmacies in the state fill Medi-Cal prescriptions. Many of these pharmacies are considering dropping Medi-Cal prescriptions. As one pharmacy owner stated, “ if I don’t get paid enough to cover my expenses, I’ll have to close up.� Walgreens operates 360 stores in the state, and they claim their operating profit margin is a slim 2%, and that’s before the proposed reimbursement cuts.

According to Ernst & Young’s calculations, deflation is going to hit the bottom line for retailers this holiday season. Their director of retail and consumers products research stated “retailers are hoping their lower prices will be offset by an increase in unit sales. We believe that deflation will, ultimately, be a drag on sales in all three sectors (apparel, consumer electronics, and toys), but especially in toys.� Meanwhile, Amrican Express’ John Theiss said 52% of Americans are planning to shop for discounts during the post-holiday season. Best Buy CEO Brad Anderson remarked “post-Christmas week is as big as the week that includes Thanksgiving.� I believe shoppers may find that prices will be a good deal lower than those during Thanksgiving week.

Wednesday, December 17, 2003

12/17/03 Two Sides To Every Story

In today’s Investor’s Business Daily a headline reads “Commerce Department Says IT Output Up In 2003.” The article stated that the U.S. tech industry will grow 6.4% in 2003. It quoted Phil Bond, undersecretary of technology for Commerce that “it’s clear the IT sector, after being through tough times, is on the comeback trail.” Yesterday morning I read another article on the IT industry in the Silicon Valley/San Jose Business Journal. Gartner, Inc., a research firm specializing in the IT sector, publishes its Gartner Technology Demand Index, and according to this Index, executives in the private and public sectors continued to demonstrate caution in their IT purchases in November. According to its weekly poll of IT-decision-makers in small, midsize, and large public and private organizations, businesses continued to spend below their budgeted levels for information technology. The Index for November recorded a score of 81. An index value of 100 means business spent exactly what they had budgeted for the month. In October, the index totaled 85. All technology sectors suffered a decline on the Technology Demand Index, and the IT services segment saw the biggest decline, dropping to 79 in November. David Hankin, senior vice president and general manager at Gartner, remarked that “coming from a strong position earlier in the year, IT services has seen an erosion in both current spending and in projected spending in 2004. We believe that much of the shortfall is the result of competitive pricing among vendors and new outsourcing options that have put considerable pressure on domestic service providers in North America.”

Frequently, I have discussed the falling dollar and its impact on our exports. Yesterday, for example, Oracle reported that much of their gain in sales and revenues was due to dollar weakness. The other side of the story, a more important part, is the impact on foreign investor flows and the current account deficit. Yesterday, it was reported that the current account deficit narrowed to $135 billion in the latest quarter; however, the second quarter was revised upward to $139.4 billion. Taking the two together indicates the U.S. will have a $500 billion current account deficit this year. The other portion of the bad news was that, in the latest quarter, foreign investors purchased $13 billion in U.S. corporate and agency (mortgage) debt, and that was down sharply from the second quarter’s $65.4 billion. In addition, there was a reduction in U.S. treasuries purchased from $55 billion down to $49.9 billion in the latest quarter. Finally, in the latest quarter, foreigners sold $3.5 billion in U.S. stocks, and this was a sharp reversal from the $22.6 billion in purchases in the second quarter.

Yesterday, there was much celebration in the state of Washington when Boeing announced the company was going ahead with plans to build the 7E7, and the location would be Everett, a suburb of Seattle. Over the next 20 years Boeing believes there is a market for 3,500 7E7s. Boeing has never in its history launched the manufacturing of a new airplane without launch orders for the plane. That was true until now. There is not one single order for the 7E7. If I were a Boeing stockholder, I would not be jumping for joy. One of the veteran machinists at the Boeing Everett plant stated “it’ll just mean a few less people being laid off.”

Yesterday was an interesting one at Sears. The CEO outlined the company’s restructuring effort and stated it might mean the third round of job cuts at its corporate headquarters in as many years. He mentioned Sears needed a “more focused and efficient corporate structure.” A job at Sears may not be for life but Sears announced their gift cards are now good for life. The vice president for the company’s customer relations stated “Sears customers have told us they want gift cards without fees or expiration dates.” Previously, Sears gift cards generally expired two years from the date of purchase. Same-store sales for Sears have been disappointing this holiday season, a their good for life gift cards is the company’s attempt to attract shoppers into their stores.

Most Americans have not heard of Miracle Recreation Equipment Co. in Mount Ayr, Iowa; however, I believe most have seen their equipment. They are the nation’s largest manufacturer of children’s park and recreation equipment. Their most famous products were the fiberglass and plastic statues of Ronald McDonald and the equipment in the play areas in McDonald’s restaurants. On December 31 production will be moved, the plant closed, and about 30 jobs eliminated. The plant’s shut down will hurt this town of 1,800 people. Another town will soon be hurting. Wilder, Ohio-based Newport Steel Corp. is a maker of tubular steel for the oil and gas drilling market. It will lay off 90 hourly and salaried employees effective the end of this week because of weak market conditions. The company will continue to employ about 230 at their plants in Wilder and Newport. I guess the oil and gas drilling business is not as strong as the headlines have indicated. Bad news has also reached the United Kingdom. British Airways is planning to make additional employment cuts. They will drop 5,000 workers in order to cut cuts.

Several times over the past six months I have mentioned the $100,000 tax deduction available to those purchasing a vehicle weighing 6,000 pounds or more. The idea was to hurry and purchase such a vehicle because the tax deduction might not be available in another year. Another part of the Jobs and Growth Act of 2003 signed by Bush was the bonus depreciation that allows businesses to immediately deduct 60% or more of what they spend on new equipment from taxable income as long as the equipment goes into service before Jan. 1, 2005. This is the perfected art of re-election economics. We have an economy that has a significant amount of unused capacity, and this depreciation booster will just add to that capacity. It will be likened to the purchases prior to Y2K. Under normal depreciation schedules, a 10% or 20% annual deduction is typical. When the stimulus ends, when the polling places are closed, just what do you think will be the result? That’s the other side of the story, and it won’t be pleasant.

Boston Federal Reserve President Cathy Minehan spoke yesterday to the Chamber of Commerce in Randolph, Mass. She provided two sides to the story. She stated “as the expansion seems to be broadening, deepening and picking up steam, excess resources should be absorbed even as productivity growth helps keep costs in check and inflation pressures low.” But she noted that “the hand-off from the consumer-driven to business-led growth to falter, bringing a weaker pattern to next year.” I suggest we toss a coin to decide.

Many economists and analysts were surprised by the decline in consumer prices, and the showing that underlying inflation is running at a nearly 38-year low. The core rate of inflation declined for the first time since December 1982. With large unused capacity, large unemployment, highly competitive pricing to attract consumers, too much production and too little demand, it is understandable that my continued worry is that of deflation rather than inflation. There will be continued adjustments in demand. As I mentioned earlier this month, Ford revised their fourth-quarter production downward from 920,000 vehicles in North America to 900,000. They will stop production at six North American plants through January 5 to adjust for falling sales of Taurus sedans and Focus small cars. A total of 12,600 workers will be affected by the shutdown. Even Ford’s monthly incentives of $4,396 did not help those 12,600 employees. Take away cash incentives and election depreciation bonuses, and one might get a true picture of the slack in ongoing resource utilization. It’s not a pretty Kodak moment.

Tuesday, December 16, 2003

12/16/03 It Was 8AM EST

For all on Wall Street the mood was gleeful. It was to be a prosperous day. The markets were higher all over the globe. Americans felt better about the war in Iraq. Saddam Hussein had received a message from President Bush. It was now safe for the President to hold a news conference. Another message was received at 8am EST yesterday. On their weekly recorded message WalMart stated people were buying “closer to need” and that their December same-store sales increase would reach closer to 3%, the lower end of their projected 3 to 5 percent rise. The key information was the number of shoppers declined from a year ago, and during the latter period, weak demand only generated a 2.3% gain in same-store sales. Another reason given for the current disappointment was the increase in gift cards for the holiday season. Over the past couple of weeks I have discussed this growing trend. In addition, the company stated more people appeared to be completing their holiday shopping later this season. The last week before Christmas accounts for the largest segment of the year’s retail sales. Consumers maybe waiting for larger discounts, but I believe more is at work. It should be noted that in the early evening yesterday Target stated that December same-store sales were running “below plan” for the week ended December 13 for the entire corporation, and that includes the Target stores as well as its two department store divisions. The results for WalMart and Target were in line with my expectations, and also reflect the recent survey by Coinstar, the maker of coin-counting machines, which found that 42% of shoppers plan to spend about what they did in 2002, but 35% remarked they would spend less than last year.

I believe last year’s holiday sales and this year’s will look rosy when compared with future results. It’s not just the gift cards or the online shopping or the tight consumer budget. Americans are turning to more homemade gifts. Some make ornaments for the tree, bake cookies, produce personalized holiday greeting cards, or create picture albums for friends and families. It’s about de-emphasizing the commercial aspects of the holiday season. Many are inviting friends over for a special meal. This can be good news for WalMart because they are the leading grocer in the country, and account for 10% of grocery dollars, up from 4% in 1997. The company has earned that business by providing quality at lower prices, and consumers keep returning to their stores. Unfortunately, this holiday season less shoppers are walking through their doors. If WalMart is having difficulty attracting the consumer, you can imagine the trouble brewing at other chains.

I came across a product from Tilano Fresco and it is in the spirit of making a gift for the holidays. They make an image transfer kit, and with the kit you can place a favorite picture and add some words on a marble coaster or on a fresco tile. You will need to get your picture laser copied onto the special Tilano transfer paper included in the kit.

I sometimes wonder whether Bush ever gives a thought as to why the majority of the American people are disappointed with his handling of the economy. He might consider his promise to “hold discretionary spending to 4%- that’s what we agreed with the Congress during the budget negotiations.” I am learning promises have little value. The Heritage Foundation calculates discretionary outlays rose 13% in 2002, 12% in 2003, and will rise 10% in 2004. Last week Bush also remarked “we have a strong dollar policy, which is, in our judgment good for the economic vitality of this country.” You want to vote for someone who “misspeaks?”

Foreclosures.com of Fair Oaks, California stated median new home prices fell 25.9% in October 2003 compared with a year ago in Alameda County, CA. Prices fell 15.5% in San Mateo County, CA, 14.1% in San Francisco, and 11.2% in Santa Clara County year over year. Alexis McGee, president of Forclosures.com, remarked “if recent history is any example, we expect this cooling to spread to resale homes and then move out of the Bay Area to spread throughout the state. We expect California foreclosure activity to increase in 2004. Even a slight market decline would se prices begin to approach existing loan balances. Homeowners in trouble will have less financial ‘headroom’ in their properties and will have difficulty selling their way out of foreclosure. We could see many more homes going back to lenders next year.”

TYCO Plastics and Adhesives announced plans to close its Lawrenceville, Georgia facility and cut 88 jobs. The moves are part of a corporate restructuring plan that includes the consolidation of 219 manufacturing, sales, distribution, and other facilities. These actions are expected to reduce employment by 7,200 employees. In response to slumping demand for refinancing home loans, Cowlitz Bancorporation is closing its Bay Mortgage division offices in Seattle and Bellevue and laying off 32 employees.

Should you read only the headlines this morning, you will see that Manpower’s Employment Outlook Survey predicts stronger first quarter hiring activity for the first time in five years. Of the 16,000 U.S. employers polled, 20% said they plan to boost employment levels for the first three months of 2004, while 13% anticipate a slower hiring pace. The two main areas of strength are in construction and education. The estimated hiring pace in education, however, “is still not as strong as it was a year ago.” That leaves the area of construction where the greatest opportunities are reflected in the South. With a slowdown in home building and home renovation coupled with budget constraints at the federal, state, and local government levels, I have serious doubts about increased hiring for construction. It pays to read beyond the headlines.

The U.S. government has increased enforcement of rules covering Americans traveling to Cuba. However, there is an exception to the U.S. trade embargo allowing direct sales of American farm products to Cuba. Where there is a will there is a way. On Monday, contracts were signed that could result in as much as $130 million in new farm product sales to Cuba, and that is in addition to the $500 million in goods already contracted. This marks the second anniversary of U.S. commercial food shipments to Cuba.

The Boston Consulting Group released a new study revealing that almost one in three patients surveyed reported having taken a medication less often than prescribed during the previous 12 months, and about one in four said they had delayed filling a prescription. Nearly one in five admitted that they had failed to fill a prescription during the same period. About one-fifth of the patients surveyed also stopped taking a prescription medication sooner than prescribed. About one in seven took their prescription medication but in smaller doses than prescribed.

Monday, December 15, 2003

12/15/03 Dialing For Dollars

Over the past 18 months I have mentioned several times that continued weakness in the dollar would bring foreign buyers to our shores, and that the currency adjustments would make it cheaper to purchase American companies. The Bush administration focuses solely on the cheaper dollar increasing our exports, and that is a small part of the story surrounding the dollar’s decline. Today, the Henkel Group of Dusseldorf, Germany signed an agreement to purchase the Dial Corp, makers of Dial soaps, Purex laundry detergents, Renuzit air fresheners, and Zout, for $28.75 in cash, a premium of 11% over Dial’s closing price on Friday, or about $2.9 billion. This amounts to about 2 times projected revenues for 2004, and the transaction will immediately enhance Henkel’s earnings before the amortization of goodwill. In all probability, Henkel will sell its minority interests in Clorox and Ecolab to help fund the acquisition. Dial employs 2,900 and produces a return on sales (EBIT) exceeding 17%. Henkel is a much larger company with sales approaching 10 billion euros. They employ 50,000 people worldwide. Henkel’s CEO remarked “ we’ve been underrepresented in the U.S.” Dial is based in Scottsdale, Arizona, and Herb Baum, its current CEO, will remain for two years in that role. The transaction is expected to close by April 2004. It will be interesting to see what the next U.S. acquisition shall be for the foreign buyers. There should be a great many more in the coming year.

As we know, the job market peaked in December 2000. Between January 2001 and January 2003 Santa Clara County, the home of Silicon Valley, had lost 192,300 jobs or 18% of the total. Through October of this year, another 12,100 jobs were lost. Many people don’t realize that IBM has had a facility (called a lab) in San Jose for many years. The Wall Street Journal mentioned today that IBM would be adjusting its global sourcing, and that the company would move over 4,700 programmers to India, China, and elsewhere. It has not been disclosed how many programmers might lose their positions in San Jose. To date, IBM has hired about 500 software engineers in India.

In 1995 John Chambers became CEO of Cisco, and he was granted options to purchase shares in the company for $3.45 per share. The option on two million of those shares were due to expire in August 2004. On November 13, 2003 he exercised the two million share option and sold them the same day at prices ranging from $22.50 to $22.73. For the last two and one-half years Chambers’ salary has been only $1 a year. After last month’s sale, he holds about 2 million Cisco shares and owned options to purchase an additional 28.5 million shares. I am certain the vast majority of Chambers’ net worth is in Cisco stock, and profit taking and/or diversification are not unusual. I found it odd that Chambers would choose this time to make the sale. He has been telling investors that business investment is picking up for Cisco’s products. That has not been the case for over two years. In addition, if he had waited until January 2, 2004, the tax on the profit would not be due for another 15 months.

Talking about taxes, according to a Harvard University study, most of the benefits of tax-advantaged retirement accounts go to the highest wage earners. The poorest 40% of households have only about 5% of all assets in these accounts, while the richest 10% have more than half. This is not totally surprising. According to Boston-based Cerulli Associates, about two-thirds of households have savings of less than $10,000. While the country has more than 70 million children under the age of 18, fewer than 3 million “529” savings accounts for college tuition have been opened. The White House estimated in the President’s latest budget that tax breaks for retirement would amount to more than $415 billion between 2004 and 2008. Americans have been saving less. According to the Commerce Department, Congress created IRAs in 1982, and they allowed wage earners to shelter up to $2,000 annually. In 1982 the personal savings rate was 10.9%. In 2002 the rate had dropped down to 2.3%.

A new dimension has been created to deal with the current shortage of registered nurses. Shift bidding is among the newest tools hospitals are using to attract nurses. Through bidding for jobs on internal hospital websites, hospitals save labor costs by using fewer outside nurses while letting their own nurses control when they work and how much they earn. Since 2001, St.Peter’s Hospital in Albany, N.Y. has been able to fill more than 127,000 hours and saved more than $1.7 million through online bidding, and has reduced the need for hiring higher-hourly pat agency nurses. Its overall nurse vacancy rate dropped from 11% to 5%. The national average vacancy rate for RNs is 13%.



According to the International Monetary Fund, China’s share of the world’s output of goods and services has nearly doubled since 1991 to 12.7%. The European Union’s share is 15.7%, and America’s is 21%. India’s share is 4.8%. The key point is that America’s share has not grown since 1980. As Robert Solow, the Nobel laureate in economics points out, “the notion that God intended for Americans to be permanently wealthier than the rest of the world, that gets less and less likely as time goes on.”

When I saw a picture of Saddam Hussein yesterday, my first thought was he could have passed for a homeless person on the streets of San Francisco. The only difference was the $750,000 in cash. Otherwise, the similarity was striking. No one would have noticed or bothered him in San Francisco. He would have blended right into the local landscape. He was a picture of mass destruction- his own. The question remains who gets the $25 million reward? It’s hard to believe 314 American soldiers have died, and thousands have been wounded or injured, to ensure Hussein was not a threat to our country. He may no longer terrorize Iraqis, but as long as we are occupying that nation, car bombings and the like will be commonplace. Let all Americans remember our fallen soldiers and our wounded. Let us never forget this war began over the threat of WMD. They have never been found. Only a homeless power-hungry member of the evil axis was found. For me, that does not warrant celebration. It is cause for serious introspection.

Sunday, December 14, 2003

12/14/03 A Sunday Outing Shopping Trip

I was all set to get in the car for our behind the scenes look of today’s shopping landscape. The phone rang at 2:30 AM asking me if I had heard the news about Saddam Hussein’s capture in Tikrit. I said his mother had called me Saturday night to tell me all about it. The voice on the other end called me all the familiar names. After all, that’s part of old friendship. So, before we get in the car, I will repeat what I said—for the most part. I’m delighted Hussein has been captured. I wouldn’t trade one dead or wounded U.S. soldier for Hussein, and the killing in Iraq will not stop just because Hussein is in custody. A Governing Council member, Jala Talabani, stated “with the arrest of Saddam, the source financing terrorists has been destroyed and terrorist attacks will come to an end. Now we can establish a durable stability and security in Iraq.” I suggest we give Talabani a rifle and a vest and let him patrol the streets of Baghdad on the front lines. Maybe he would be good enough to tell us where to ship his body after he has been knocked off by terrorists. Now, we can get in the car.

I have always wanted to visit Dodgeville, Iowa. It is about 40 miles northeast of Dubuque, and this is a town called home by 4,200 people. I know where we’re going. We are about to visit a football-field-size room with a height of 65 feet with a capacity to hold 550,000 boxes. We will be seeing a distribution/call center equal in size to 16 football fields. When you order from Lands’ End, this is where it happens. The addition of 2,600 seasonal employees has increased the workforce at this facility to about 7,100. Some milk the cows before arriving at work. This place is music to the ears of UPS. About 95% of Lands’ End shipments go by UPS. This place operates 24 hours a day year-round, except for about 36 hours around December 25. For this season, robes and sweaters are hot items, but not surprisingly to me, so are Lands’ End gift certificates. I mentioned a couple of weeks back that gift cards could account for up to 20% of this year’s holiday spending. As you can see, this place is amazing. It’s not just the bar codes, scanners, the 300 “smart” trays, and computers. There are single-person cranes retrieving boxes. This is cool stuff. Sears paid $2 billion for Lands’ End. If they don’t fiddle with it, they’ll make a good return over time. Hopefully, they won’t find a way to screw it up. As the distribution center director stated, “we’re old pros at it.” That’s a ten four, old buddy.

I thought we’d take a little detour to see how the thrift stores are doing. There’s Shirley Keck, a loyal shopper. She is taking a brief break from her bargain hunting to tell us “people come over to our house and they can’t believe it’s all from here. It’s perfectly good stuff.” The least Shirley could do might be to invite us for dinner, but no such luck. Goodwill Industries is having better fortune. Since July 1, the start of their fiscal year, sales have increased nearly 10% compared with the same period last year. C. Britt Beemer, who heads American Research Group, estimates 6 to 9 percent regularly shop thrift and consignment stores and another 7 to 8 percent are deal hunters who view it as more of a pastime that’s no longer socially stigmatizing. Goodwill also operates career centers for unemployed and under-employed. In the 12-month period ended June 30, more than 6,800 went to the centers looking for employment help. However, from July through November, about 5,800 people have come in seeking help. This is hardly a sign that the employment picture has improved. It’s nice to know that job creation is on Bush’s “pressing business” list for 2004. I think it also made his 2003 list.

Greenspan recently warned China about their overheating economy, and the government officials appear to be listening. Rather than make a major currency adjustment in the yuan, China’s 21st Century Business Herald reported the State Development and Planning Commission may issue a directive as soon as tomorrow ordering commercial banks to stop lending to carmakers, and for local governments to stop building and expanding plants. Only one in 120 Chinese now owns a car. The Herald stated auto manufacturing capacity is forecast to grow to 12 million cars a year by 2007. However, in November, auto prices fell 4.6% and unsold inventory rose by 37%. Some Chinese economists have expressed that China has a problem of too much investment in the auto, steel, and property industries. China has experienced on-going power shortages. It is a smart decision to curtail economic growth. Infrastructure needs to catch up with soaring economic expansion. Excessive production must be reduced in an effort to have demand meet output. Otherwise profits will disappear and bad loans at banks will mushroom.

Over the past decade India is the only country across economies that has experienced acceleration in growth rates of per capita income. As such, almost all other economies have shown an increase in growth rates lower than India’s or negative growth rates through the decade. Only China has had a higher per capita income growth from 1997 through 2002. During the last 5 years, India’s per capita income growth rate was 19% while China’s was 39%. India is not a newcomer to the economic scene. From 1982-92 the per capita income experienced a 36.5% growth rate, and from 1992-2002 improvement to 46%. In terms of current dollar rates, India’s per capita income has increased by 61% from $1,600 in 1992 to $2,570 in 2002. There is a credit boom in India. Visa now has 15 million credit and debit cards in India, more than double a year ago. However, debt levels remain low. According to ABN Amro Asia, household debt as a percentage of India’s GDP was 15% in 2002, below 1995 levels. Debt servicing does not represent much of a problem with interest rates at a 30-year low of 6%.