Saturday, January 03, 2004

1/3/04 It’s Not Business As Usual

Some in the beef industry believe the current mad cow situation is just a bump in the road, and that it’s only a hiccup. They could be right, but in my view, it’s not business as usual. Colorado is the nation’s fourth-largest cattle producer. Beef and other meat products are the state’s largest agricultural exports. Excel Corp., a division of Cargill, employs 2,200 at its Fort Morgan plant. Swift & Co.’s Greeley processing plant, the second-largest in the nation, employs 2,500. According to projections from a Nebraska economist, the mad cow disease could cost Colorado as many as 4,430 jobs this year. Jim Miller, director of policy and communications for the Colorado Department of Agriculture, states "I don’t think it’s beyond the pale…it’s difficult to imagine how we can maintain the same beef production level if we don’t send some amount of product overseas.”

Dick Nock’s family settled in Cambria, California in 1858. He is a 72-year-old rancher and cattle broker, and has worked in every phase of the industry. He was talking about the mad cow discovery in Washington state and remarked “it’s disturbing. It ranks at the top, as far as I’m concerned, with the calamities that we have had in the livestock industry…because of the perception of the consumer and the press. We went through this with Britain,and it broke the British.” Joy Fitzhugh, a third-generation cattle rancher on the Santa Lucia Range in San Luis Obispo County, runs the Fitzhugh Ranch. She stated “my first reaction was, ‘here we go,’ but we are used to cycles in the beef industry, and you just tighten your belt and go, ‘we’ll get through this one now’…we knew that these high prices weren’t going to last, but we didn’t think this was how they were going to go down…it’s another bump in the road, this mad cow thing.” Maybe it is another hiccup. That’s the way Jerry Greer, a rancher from Templeton, describes it. According to Joy Fitzhugh’s research, back in the drought years of 1862-1864, perhaps as many as 300,000 head of cattle and 100,000 head of sheep died. Many were driven off cliffs into the ocean by owners who could not stand to see their animals starve to death.

How would you like to live in California? Maybe the weather will prove an attraction. Try this little fact on for size. According to the USDA, the California Department of Health Services is “prohibited from releasing information that companies would consider proprietary. If you are concerned whether you may have purchased the product, you can call your retail store. They would know…the only way to know for sure is to contact stores…it’s up to consumers to check with their grocers, butchers, or restaurants to find out if any of the recalled meat may have landed on their tables.” The fact is meat from a recalled lot of 10,410 pounds of Washington beef had been tracked to retailers, and it was sold in as many as nine California counties. Leg bones were sold to an estimated 20 restaurants in San Jose, Oakland, and Fresno. In Orange County, a grocer notified his customers that he had purchased at least 500 pounds of tenderloin and hind shanks from the recalled lots. It’s possible that 1,000 pounds from this lot were sold in Orange County. For the people who have consumed the tainted beef, this is not a hiccup. It is quite a bump in the road.

Lately, the media has been discussing positive economic news. At the same time, there hasn’t been much mention of the 12,00 Iowans who filed for bankruptcy in 2003. That is an all-time high, up 6% from the previous year and 50% greater since 2000. It’s not just about irresponsible spending. It’s about losing a job, and, according to the president of a research consulting firm, “more than 20% of the people who file for bankruptcy complain that medical debt is a problem.”

Talking about Iowa, the first HD Radio(TM) receiver will go on sale commercially January 5th in Cedar Rapids. This will usher in radio’s digital era with FM delivering CD-level performance and AM matching today’s FM stereo standard. In addition, there will be integrated datacasting that displays information as text directly on the face of the radio. There will be interactive features supporting the on-demand delivery of audio and data programming at the press of a button as well as automated store-and-recall capabilities that bring television’s PVR-based functionality to radio. iBiquity Digital is the sole developer and licenser of HD Radio technology. In time, it will come to your neighborhood.

Bluetooth technology has taken some time to gain acceptance. What is it? Bluetooth is a short-range wireless technology that allows different devices from different (or the same) manufacturers to “talk” to each other without wires connecting the different devices. It unifies cell phones, head sets, PDAs, laptops, and even cars, to automatically and wirelessly share information, and can connect a PC with a keyboard and mouse, printer, or PDA without wires. Having access to information conveniently and wirelessly is a good thing. I believe bluetooth will be the rage in 2004 and beyond.

Zero-interest financing will continue to be a big hit with consumers in 2004. Dell announced zero-percent financing for purchases of $500 or more starting today and running through January 30. It applies to 12 months of financing on consumer electronics and personal computers.

President Bush’s latest job ratings in the Harris Poll were 51% positive and 48% negative, and are remarkably close to those of his predecessors ( Clinton, Bush Sr., Reagan, and Carter) in the last December of their first term in office. Historically, the presidents’ job ratings at this time in their first terms was not in any way a predictor of whether or not they would be re-elected.

According to December’s CIO Magazine Tech poll, when asked about spending in eight specific IT categories, the average number of panelists planning to increase spending decreased to 38.4% in December from 41.8% in November. Those planning to decrease spending declined to 14% from 15.8% in November. The security software area was the strongest. The outlook for computer hardware spending was mixed. The spending outlook for infrastructure software was disappointing. When asked how they would characterize their visibility on technology spending for the next three months, 21.7% of the respondents indicated they saw no pick-up in sight versus 18.5% in November. Another 46.2% reported they see a modest pick-up ahead, about the same as the number in the prior month. About 10% see a cloudy picture versus 18.5% in November. About 20% see the future as bright, up from November’s 14%. Interestingly, when asked about the 4th quarter of 2003, 81% stated they expected to maintain the same spending level due to budget constraints and incentives to save.

The USDA Food Safety and Inspection Service (FSIS) is issuing a regulation to ban the practice of air-injection stunning. The USDA will prohibit use of mechanically separated meat in human food. Regulations will expand the prohibition of various animal parts in the process known as advanced meat recovery. Specified risk material from cattle over 30 months of age will be prohibited from use in the human food supply. All downer cattle will be banned from the human food chain. It should be noted that certain safeguards and fire walls have been in place since 1997. Adequate oversight and supervision were often missing. Will it be different this time or will it be business as usual?

Yesterday’s headline stated that the U.S. December ISM Manufacturing Index rose to 66.2 from 62.8 in November, the highest in 20 years. I was truly happy. The Tempe, Arizona-based Institute for Supply Management surveys more than 400 companies in 20 industries, including clothing, printing, transportation, furniture, and plastics. Manufacturing accounts for about one-seventh of our economy. Business, they stated, was so brisk that even computer manufacturers couldn’t keep up with sales. Then I thought about Dell and their zero-interest financing. I told myself that I had better to read the report and study it carefully. I did just that. The report stated “much of the momentum is in New Orders, as the Index is the highest reported reading since July 1950.” That’s a long time. I better turn to the New Orders. I did. They were right. The Index was really strong; however, I have this bad habit of reading what others might not. The Backlog of Orders Index tells a very different story. The New Export Orders Index is 60.4, up 2.5 percentage points from the November number, but the Imports Index decreased 4.6 percentage points to 57.8 in December. In other words, the weak dollar has spurred our export growth. The trouble is our exports only account for 10% of our GDP. We import a great deal more than we export, thus our growing trade deficit. In addition, there are 12 industries reporting slower supplier deliveries in December, and this despite no commodities being in short supply. It should come as no surprise that the Inventories Index declined in December. This Index has registered under 50 percent for 46 out of the last 47 months. Just as significant, the Customers’ Inventories Index for December was at 39 percent. There are some businesses, such as the steel industry, that have experienced a good pick-up in revenues, but many industries are still lagging. The average lead time for production materials increased six days to 49 days. It’s tough to manufacture without materials, and this may explain, in part, the low level of inventories. There was one more item that caught my eye. December was the tenth consecutive month that the price for corrugated cartons has declined in price. Normally, the price would increase as the shipping of produced goods rises. Maybe business is not as brisk as the headlines indicate. On the other hand, the glass is half full. December was the 24th consecutive month of growth in export orders. There is something for everyone in these statistics. There’s plenty to chew on. We just need to skip over the risk material.

Friday, January 02, 2004

1/2/04 My New Year’s Resolution

I vowed not to move to Gary, Indiana. I promised my family it would not take place. This is a city of 103,000 residents. That is only part of the story. In 2003 there were 68 homicides, an increase of 10% from the prior year. That is only part of the story. In 1995, a total of 132 people were killed. The homicide rate has declined significantly from just eight years ago. That is only part of the story. Gary finished 2003 with the nation’s highest per capita homicide rate for the ninth straight year. Everything I just wrote was factual. If I cherry picked the facts, I could present a picture of dangerous chaos in Gary. That would not be fair. I’m certain many wonderful people live in Gary. In 2004, I will continue to present all sides of the facts. You may choose to believe what works for you.

Let me give you another set of facts. The National Cattlemen’s Beef Association make large political donations. In 2000, about 85% of the donations to support presidential candidates went to George Bush. That percentage is running about the same for the 2004 election. Ann Veneman, Agriculture Secretary, appointed Dale Moore to be her chief of staff. Moore is the former chief lobbyist for the National Cattlemen’s Beef Association. It is not surprising that Bush went quail hunting with his father, and yet, they ate beef. Given the current safety precautions, it is not surprising that, according to the Center for Disease Control, one in four Americans get food poisoning every year. I’m not saying they all come from beef. What I am saying is a prion, an infectious protein, is thought to be responsible for BSE or mad cow disease. Paul Brown, medical director for the U.S. Public Health Service, found that prions could remain infectious even after exposure to temperatures over 1000 degrees Fahrenheit. Some medical researchers have called prions the smallest, most lethal biological entities in the world. The inadequacy of the Department of Agriculture’s safety policies and those of the FDA, and the inadequate monitoring and policing of safety procedures, led the GAO to state that such failings have “placed U.S. herds and, in turn, the human supply at risk.” I can’t predict the daily fluctuations in the price of cattle futures. I do know there are substantial facts to question the safety of much of the beef served in this country. Just as there are many wonderful people in Gary, there are some wonderful people in the beef business. I have had the good fortune to meet some. On the other hand, there are many bad apples, and people in the industry know that too.

I finished reading the annual global automotive industry survey by KPMG LLP, the audit, tax, and advisory firm. I did not read the summary provided in this morning’s papers. My information came directly from KPMG’s survey. This is significant. The papers have provided a very different view. They cherry picked. I don’t do that. Here’s the story. KPMG stated “the executives are telling us this year that they have seen the worst and that the industry is poised for a rebound.” On the other hand, 53% of executives stated they expect global market share to fall over the next five years. Only half of the respondents agreed that “U.S. automakers will become more efficient and more competitive” over the next five years, down from 56% in the year ago survey. Executives do not expect the industry to return to peak profitability until at least 2006. What the executives have stated make no sense to me. About 36% maintain that 2003 was the worst year of profitability for the industry. Yet, they maintain that, because sales incentives are leveling off, that the worst is over. At the same time, the production of cars is down 10% from year ago levels. The industry is depending on truck sales. The past year was a record for oil imports. During part of 2003, motorists paid record prices for gasoline. Toyota and Honda, for example, are making a big push for vehicles running on alternative energy to gasoline. There is a rising demand for such autos. As the overall domestic market share declines for the Big Three as a grouping, and as their global market share continues to decline, it is hard to fathom how the facts indicate the possibility of record profits in 2006 and beyond. Maybe GM, Ford, and Chrysler shares will make new highs in 2004, but I wouldn’t buy those shares. Why would I buy stock in those companies when I prefer to purchase a vehicle made from a foreign company? For my money, they perform better. At the same time, I am certain there are many fine people in our auto industry. Recalls occur in all sections of the globe. Maybe the worst is over. That may not be saying that much.

I have always like chimpanzees. As a child, I would go to the zoo and watch them for hours. The January issue of BBC Wildlife magazine has reported that the destroying of forests for farming has forced the chimps to move into populated areas looking for food. Their habitat is being ruined. The BBC has reported that the chimps have begun to attack children in parts of Uganda. Some infants have even been killed. Families in Uganda must have a very different view of chimps than I did as a child growing up in New York City. The frame of reference is quite different. This does not mean that all chimps attack children. It depends on their habitat and food supply. When the food supply becomes less plentiful, actions can become less predictable, even those of chimps. Unpredictable conditions can often lead to increased volatility. The same is often true for stock and bond markets.


Thursday, January 01, 2004

1/1/04 HAPPY NEW YEAR

I think every American would state that the focal point of last year was the Iraq war. There is no end in sight. As long as our troops are wounded and/or killed, the war will remain in the headlines. I have thought about the next most important centerpiece for 2004, and I believe it must be the presidential election to be held eleven months from now. This election should be a reminder of how 2003 has come to a close. President Bush has created the largest division in this nation’s history. It exceeds the battle between the North and the South and all other internal hostilities. If Dr. King were alive today, I believe he would agree that racial integration is a kissing cousin to what I am about to delineate. Bush has brought you the America of today, and that is a nation of HAVES and HAVENOTS. On December 21, 2003 the extended benefits for the unemployed were allowed by the White House and the Congress to lapse. On December 31, 2003 there was a mad rush to buy Hummers, Cadillac Escalades, Ford Expeditions, Lincoln Navigators, and GMC Yukons in order to deduct the purchase from 2003 tax bills. In May, as part of his federal tax-cut package, Bush gave a deduction of up to $100,000 for new or used vehicles that weigh more than 6,000 pounds. These two December events will be defining moments for all of 2004, and particularly for the November election, which, in my opinion, Bush will lose. Almost 10% of our country’s workforce can be described as disadvantaged, either unemployed, underemployed, employed part-time, or totally discouraged and out of the workforce. About one-third of consumers believe jobs are “hard to get.” Only about 12% think jobs are “plentiful.” Almost twenty five percent of those surveyed by the Conference Board claim that business conditions are “bad.” When voters are asked whether they are better off today or four years ago, Bush will be returned to Crawford, Texas to pursue his passion for hunting.

I have been giving much thought to other matters that could have a major impact in 2004. According to a recent survey by CoolSavings, Inc., nearly eight out of ten consumers expect to have less debt in 2004. Polling revealed that 57% expect to put more money away in savings this year. Improving one’s financial situation is a top priority. An increasing number stated they would sign up for either direct deposit to a savings account, contribute to a tax-free account through payroll deduction, or keep more cash in a savings account. In addition, those surveyed specifically stated other ways they would spend less. Eighty eight percent said they would use coupons; 82% would shop at discount stores; 72% will limit credit card usage; 45% will buy groceries in bilk at wholesale clubs; and 40% will limit ATM visits. In sum, 2004 will be known for greater savings and more frugal spending. It will favor WalMart, Target, and Costco. I believe other retailers will be left holding the bag. I also believe that upscale retailers shall have a much less successful year in 2004. Conspicuous consumption will bring forth growing negative reactions from the HAVENOTS.

According to Nielsen/NetRatings, three out of every four home and work Internet users, or 76% of active web surfers, access the Internet using a non-browser based Internet application. Instant messaging and media players are the primary Internet applications, attracting 106 million Internet users, an increase of 11% from the prior year. As a senior analyst for Nielsen/NetRatings stated, “it’s become harder to distinguish when you’re on the Internet, blurring the lines between what’s sitting on the desktop and what’s coming from the World Wide Web.” The portability factor has been increased through Wi-Fi as well as enhanced applications on cell phones. For 25 years I have watched developments in speech recognition. Billions of dollars have been spent attempting to master speech processing algorithms. The time has arrived for portable text messaging on cell phones to combine with speech recognition core-technology. This accomplishment will change the landscape for the spoken and written word. The wireless age will take a giant leap forward in 2004. Many years have passed since Georg von Bekesy won the Nobel Prize in 1962 for discovering patterns of mechanical motion in the inner ear called traveling waves. In coming weeks I shall discuss concrete developments in the field of proprietary speech processing algorithms for text messaging. I am honored to take a small part in this technology.

With the outbreak of SARS, the flu, mad cow, and other diseases, 2004 will be known for its focus on immune modulating agents for humans, animals, marine life, and their feeds. Stimulating the immune system will create more resistance to infectious diseases. A good deal of research has been done on beta glucan and its ability to strengthen one’s immune system. Being conservative, I am reluctant to recount the claims put forth by others. I do believe beta glucan 1,3/1,6 is safe, non-toxic, and significantly enhances one’s immune system. I say this from experience, and, at the same time, have no financial interest in promoting this product. In fact, I believe beta glucan has the ability to make greater claims than those expressed by me.

The growth of organics has been going on for over ten years. It is not a new phenomenon. Long ago investors discovered Whole Foods Market, and to a lesser extent, Wild Oats Markets. The case of Mad Cow disease has increased the focus on organic foods. There is a difference between all-natural and organic. Organic is all-natural but all-natural is not necessarily organic. It is important to remember that. With respect to beef, there would be a prohibition of animal by-products, such as bone meal, in the livestock feed. Cattle would be fed a 100% vegetarian diet. Excluded would be antibiotics and growth or artificial hormones. An increasing number of consumers will convert to organic beef. At the same time, more Americans will continue to eat organic fruits and vegetables. The trend has been steadily upward for over a decade. If possible, purchase products that are officially certified “organic.” A widening two-tier market will take place for certified organic beef and non-organic beef. The latter has recently declined about 20% over the past five days of trading for cattle futures. By historic standards, beef is still high at 75 cents per pound.

For the first 10 months of 2003, existing home sales rose in the United States. In October they fell 4.9%, and in November they declined 4.6%. Historically, they continue at high levels. I believe they will continue to fall through 2004. As they do, layoffs will mount in the home mortgage business. I would not be surprised to see those layoffs amount to 150,000 or more in 2004.

Ward’s Automotive Reports announced yesterday that North American auto manufacturers will end 2003 having built an estimated 16.2 million units, 3% below the level for 2002. Production in 2003 was the fourth highest on record. Sales incentives were the highest on record. It is interesting to note that about 10% less cars were produced and 4% more trucks produced in 2003. As the consumer focuses on increasing savings, I believe auto sales will decline in 2004. There will be significant layoffs at Saturn, and, in addition, I think less demand for cars will be accompanied by increased cuts in employment at GM, Ford, and Chrysler.

Yesterday a friend was kind enough to send me an article on corporate pensions. It is an area I have discussed several times over the past year. According to a study which Standard and Poor’s will soon publish, America’s 500 largest companies have a $259 billion gap in their pension funds for workers and retirees. This is despite the 2003 rally in the stock market that added more than $100 billion to the depleted corporate pension funds. The government does not have the funds in its pension guaranty account to fund this enormous gap. As our population ages and more employees reach retirement age, unfunded pension liabilities shall be of increased concern, and they will begin to share the headline news. Maintaining promised benefits should be a concern for all Americans. Corporate management and corporate boards that do not comply with pension laws should have the opportunity to reflect on their wrongdoings while incarcerated.

Finally, I would like to discuss a subject that touches me deeply. As Americans, we should examine the role of reservists in our military. Presently, one quarter of our 130,000 troops in Iraq are reservists. This will increase to 40% in this spring’s troop rotation. With the death of 83 troops, November was the deadliest month in the Iraq war. In November, according to Pentagon reports, 13% of that total were citizen soldiers. In December, there were 38 deaths, and of those, 10 or 26% were by citizen soldiers. Should our reservists and national guard be carrying this share of the burden? Has their role been misrepresented to them? Shouldn’t the year begin on a more level playing field?

Wednesday, December 31, 2003

12/31/03 The Year Ends With An Integrity Red Alert

Downer cattle have been banned. Ephedra has been banned. Lying and/or half-truths have not been banned. Integrity is an endangered species. There is less of it every day. Do people fear bad publicity from telling the whole truth? The subject of outsourcing has gotten rather heated. Jobs continue to leave this country. Folks lose $33 per hour jobs, and after looking for similar work for 20 months, take two $7 per hour part-time jobs in order to barely make ends meet. That’s reality on Main Street. Life on Main Street is not selling at a two-year high. This is not the Nasdaq, the Dow, or the S&P. AT&T Wireless didn’t want to tell their 1900 employees about shifting those jobs overseas. Instead, the company informed the SEC in a filing. IBM’s newest center, the Millenium Park, a seven-story facility, will be completed in six months in India. Do you think it will sit empty? Linda Guyer, president of Alliance+IBM, believes as many as 40,000 of IBM’s 160,000 U.S. jobs will be transferred overseas by 2005. Dell is setting up a second subsidiary in India. Has the company announced that? Barclays Bank of England will move its call center jobs, which number 5000, abroad and mainly to India. Have they announced that? Archibald Candy Corp. started in Chicago 83 years ago. They make Fanny Mae and Fanny Farmer candy. They employ 900 people in the Chicago area and operate over 200 candy stores. The company filed a legal document on December 17 stating that on January 17 a bankruptcy filing would be made, all stores closed, all inventories liquidated, and “all employees will be terminated at filing.” This information will not be confirmed or denied by the company. The employees are left in the dark. Is this the way we will begin the New Year?

Automakers will release December sales figures on Monday. The adjusted annual rate will be about 18 million vehicles in December, and sales for all of 2003 will be about 16.5 million vehicles. Chrysler has offered 6-year interest-free loans and rebates of $6,000 on some models. Even Toyota has pitched some 5-year no-interest loans. Twenty eight years ago you could buy a Plymouth Duster for under $4,000. Incentives from automakers have risen to 13% of the auto price, and through November, these auto companies spent about $56 billion on incentives. CNW Marketing Research states that amount exceeds their product development budget. At the same time, U.S. automakers’ profit margins have been reduced to less than 3%. It should be noted that the stock prices for GM, Ford, and Chrysler are selling at or near their highs for 2003. As such, a stockholder might root for higher incentives. As incentives rise and profit margins decline, the stock price increases. That is new American capitalism. I apologize. I only told half the story. Over the past five years, shares of GM, Ford, and Chrysler, as a grouping, have declined about 40 percent. During this same period, shares of Toyota, Honda, and Nissan have risen 66 percent. Do you think your grandchildren will be driving new Fords or Chryslers in twenty years?

The International Council of Shopping Centers and UBS announced that same-store sales at major retail chains in the week of December 27 rose 2% from the prior week. They mentioned that consumers splurged in the latter part of their holiday shopping. They might have mentioned that retail sales for December dropped 1% from November’s numbers. On the other hand, WalMart and Target have no trouble telling their shareholders that their sales are running at the lower end of their expectations. The spinmeisters continue to tell the public that this holiday season was the best period since 1999 for retail sales. How can retail sales be rosy when about one in three people on Main Street state that jobs are hard to get?

With over 30 nations banning our beef exports, there will be a glut of beef on the market. The lower prices will, in my view, not be enough to generate needed demand. McDonald’s and Wendy’s state their business has not been hurt. Mad cow disease will not be leaving the headlines any time soon. It will linger as SARS did. The papers have another 81 animal stories to describe. It wasn’t so long ago that I was purchasing McDonald’s shares at $12 and change. Now they are double that number. Management has changed. The menu has improved. Sales are rising. Will that continue to warrant a share price of about $25? There are many buyers at $25. I had little company at $12 and change.

I will end on an interesting note. The lead article in the Christian Science Monitor is entitled “Was it really the U.S. that ‘got him’? The reference is to Saddam Hussein. There are many direct quotes in this article clearly stating we, in fact, were not responsible for the capture of Hussein. In sum, it is suggested the Kurds were holding Hussein prisoner and had drugged and beaten him. You might want to read the online article.


Tuesday, December 30, 2003

12/30/03 Window Dressing And The High Plains Downer

Yesterday the Nasdaq powered through the 2000 level. Since hitting a six-year low of 1,114 on October 9, 2002, the index has jumped 80%. It last stood at 2000 on January 15, 2002. Meanwhile the Dow joined the party, and finished the day at its highest point since March 21, 2002. It makes me happy to see jubilant faces, especially as we close in on a New Year. This is window dressing time, and besides stocks the euro, the pound, and gold all made multi-year highs.

I have a philosophy that states when things are at their best they are at their worst. When things are at their worst, they are at their best. Simply put, at times it can’t get better, and at other times, it can’t get worse. Look at the cattle industry. It was only earlier in this month that the industry was all smiles. They were having their best year ever. Yesterday marked the third consecutive day that cattle futures were down the limit. Yesterday, for the second time in the past week, adjustments were made in the daily price limits of cattle futures contracts. In just a matter of days, Jaime Willrett, chairman of the National Cattlemen’s International Markets Committee, stated “we’ve seen a reduction in the value per head of $180 to $200 for every animal in the states.” Over the course of the year there may be at least 30 million animals. If the prices were to remain down $200 per head, and amounts to a loss in value of $6 billion, and is double the value of our beef export business. That figure may not compare to the pork programs in the Congress, but to a cattle feed yard owner and others it is quite a chunk out of one’s hide. To make matters worse, producers will not be able to insure additional cattle until further notice. The USDA’s Risk Management Agency has announced that applications for Specific Coverage Endorsements for Fed Cattle and Feeder Cattle under the Livestock Risk Protection Insurance Policy are temporarily suspended pending further review of market conditions. The USDA maintains there is no risk for the public to consume beef, but the USDA will not assume the risk to insure more cattle. In sum, they are only willing to put your money where their mouth is while allowing high-risk animals to enter the food supply.

Before the announcement of the incident of mad cow disease, a Zogby poll indicated that 77% of the U.S. population felt it is unacceptable to use downed animals for human consumption. Obviously, the feelings of the public don’t mean much to the USDA. According to a proposed rule published in the Federal Register on January 31, 2003, the USDA stated “thus, if BSE were present in the United States, downer cattle infected with BSE could potentially be offered for slaughter and, if the clinical disease were not detected, pass ante mortem inspection. These cattle could then be slaughtered for human or animal food.” As Farm Sanctuary points out, downed animals are afflicted with a myriad of ailments besides mad cow disease. USDA records obtained through the Freedom of Information Act show that the USDA explicitly approved the consumption of meat from downed animals afflicted with hepatitis, gangrene, pneumonia, malignant lymphoma, and other ailments. Downer animals are believed more likely to harbor bacterial contamination than walking animals. As Tom Buddig stated, “the Europeans test cows for mad cow disease at a rate more than 45,000 times that of the USDA, and the Japanese test 180,000 times as much. Your ivory soap is 99.44 percent pure, buy your beef is 0.00055 percent sure, as far as BSE testing goes…there is a saying in the cattle industry, ‘if it’s on your plate, it must be safe.’” At he same time, “President Bush says ‘I have a full plate. And my agenda’s full, too.’” Buddig states “the first quote says you can unfailingly trust your government. The second says you can’t.”

The USDA and Canadian officials are tracing 81 other cattle from the same birth herd as the Washington mad cow. These are animals that presumably would have eaten the same feed and potentially become infected from it.

Dr. Prusiner is the Nobel Prize-winning neurologist who discovered prions, the proteins that cause BSE in cows and vCJD in humans. He wants all slaughtered cattle to be tested for BSE using a test he developed and one that InPro Biotechnology of San Francisco markets. Britain is to begin using his test in February.

In 2002, a GAO report to the Congress stated “in terms of the public health risk, consumers do not always know when foods and other products they use may contain central nervous system tissue…many edible products, such as beef stock, beef extract, and beef flavoring, are frequently made by boiling the skeletal remains (including the vertebral column) of the carcass.” According to the Center for Science in the Public Interest, spinal cord contamination may also be found in U.S. hot dogs, hamburgers, pizza toppings, and taco fillings. In fact, a 2002 USDA survey showed that approximately 35% of high risk meat products tested positive for central nervous system tissues.” The GAO report further stated “in light of the experiences in Japan and other countries that were thought to be BSE free, we believe that it would be prudent for the USDA to consider taking some action to inform consumers when products may contain central nervous system or other tissue that could pose a risk if taken from a BSE-infected animal.” The USDA did not follow this recommendation.

Last month the New England Journal of Medicine revealed that Swiss scientists found prions in the muscles of human CJD victims on autopsy. Eight out of the 32 muscle samples turned up positive for the deadly prions.

Dr. Carleton Gajdusek was also awarded the Nobel Prize in Medicine for his work on mad cow-like diseases. On Dateline NBC he stated “it’s got to be in the pigs as well as the cattle. It’s got to be passing through the chickens.” Cattle remains can be rendered down and fed to pigs, and then the pig remains can be fed back to the cattle. Or rendered cattle remains can be fed to chickens and then the chicken manure can be legally fed back to the cows. We can also include horses in this discussion. I think we get the idea by now. The 2002 GAO report concluded “BSE may be silently incubating somewhere in the United States. If that is the case, then the FDA’s failure to enforce the feed ban may already have placed U.S. herds and, in turn, the human food supply at risk. The FDA has no clear enforcement strategy for dealing with firms that do not obey the feed ban…moreover, the FDA has been using inaccurate, incomplete, and unreliable data to track and oversee feed ban compliance.”

Which affords less risk, buying the Nasdaq index at 2000, the Dow at 10,400, or beef, pork, or chicken? To lessen the risk, let’s buy some insurance. It has been said that the incubation period can last up to decades long. Are they talking about bubbles or downers? Only the Shadow knows!!!!!!!!!!

Monday, December 29, 2003

12/29/03 Uncertainties

The euro has gained 19% against the dollar this year, and traded at a record high today. A senior European Central Bank official stated earlier today that “the rapid rise of the euro brings an element of uncertainty into our forecasts. We must examine the whole picture.” The dollar is trading near a 3-year low at 106.87 yen.

Software developer Walter Wilson: “the plumbing hourly wage is about the same as a software developer now, and they can’t send plumbers overseas.”

According to the American Express Retail Index, one in three shoppers state they will return gifts after the holidays. About 28% of consumers who return a gift and buy something new spend more than the cost of the item, but most consumers spend about the same. A spokeswoman for WalMart remarked they will exchange, refund, or repair its merchandise, usually within 90 days and even without the receipt.

The impact of the Japan’s beef ban is greater on some states than others. At least a quarter of the U.S. beef exported to Japan comes from Iowa and its neighbors, the area known for high quality “I-80 beef.” The impact of the mad cow incident is being felt in Iowa. Some market-ready Iowa cattle sold at auction or directly to meat packers late last week for less than $80 per hundredweight. That’s about $20 less than sale prices the previous week.

Ken Petersen, an official with the USDA Food Safety and Inspection Service: “The risk related to consumption of this muscle meat is virtually zero. The recalled meat represents essentially zero risk to consumers.” There is some discrepancy in the records on the animal in question. Initial information obtained from the index herd owner indicate this animal was 4 to 4 ½ years old. Canada’s records indicate she was born in April 1997, making her 6 ½ years old. Canadian papers show the cow had two calves before it was exported to the United States, contrary to U.S. documents which classified the animal as a heifer when it arrived, meaning it had never born calves. Since Canada has a tracking from birth policy in place, and the U.S. does not, I am confident the DNA tests will prove Canadian records are the correct ones. Age of the animal is important because the cow may have been born before the U.S. and Canada in 1997 banned certain feed that is considered the most likely source of mad cow disease. The disease has an incubation period of about four to five years. Dr. Stephen Sundlof, head of the FDA’s Center for Veterinary medicine, stated an animal could get sick if eats a little bit of infected material, as little as half a gram. He stated “even if a small amount of brain or central nervous system material were to get into cattle feed, there is the potential for even that very small dose to result in this disease. It’s not known what dose would infect humans, but it would be higher for humans than for cattle.”

Not much has been written about the byproducts from the tainted Holstein. In fact, the secondary parts, hooves, bones, fat, innards, are used as bone meal for gardening soil, soaps, candles, hand cream, antifreeze, poultry feed and other products. Dalton Hobbs, spokesman for the Oregon Department of Agriculture, stated “it’s like the old Upton Sinclair line- ‘we use everything but the squeal.’” “We have nearly 100% utilization of the animal. But when you have so many niche markets, it makes it incredibly challenging to trace where this one cow may have gone.” Baker Commodities, a Los Angeles renderer, announced Friday it has voluntarily withheld 800 tons of cow byproduct processed in its plants in Seattle and Tacoma. Companies that use bone meal from cows to create fertilizers popular with rose growers may find themselves in the headlines. In 1996, the Royal Horticultural Society of London released an advisory, warning gardeners to wear face masks after it was reported that the dust from the bone-meal soil could carry mad cow disease. At the height of Britain’s mad cow epidemic in the 1990s, three victims of the human form of mad cow were found to be gardeners. It should also be noted that, even though the FDA in 1997 banned cow feed that included cow byproducts, feeding it to poultry remains legal. Although chickens cannot contract BSE, they could act as carriers of the disease if they pick up prions in their feed and are themselves processed into cattle feed. Do you think there is uncertainty about the accuracy of the statement that the recalled meat represents essentially zero risk to consumers?

Has anyone noticed that the terrorist attacks and bombings have doubled over the past few months in Iraq? An increasing number of our soldiers, foreign troops, and civilians have been wounded as well as killed over the past three months. In fact, since the capture of Saddam Hussein, the casualties show there is less safety in Iraq for our troops. A total of 211 U.S. soldiers have been killed in action since Bush declared major combat over on May 1 in Iraq.

Ron DeHaven, chief veterinarian with the Department of Agriculture: “ the restrictions on imports that are in place now are not well-founded in science.” He called the ban on imports of U.S. livestock and beef an “overreaction.” Inasmuch as we seem to confuse heifers with cows, maybe we are the ones in need of more scientific training. The beef recall encompasses Washington, Oregon, California, Nevada, Idaho, Montana, Alaska, Hawaii, and Guam. How many other states will be added to this growing list?

Amazon.com sold about 70,000 gift certificates on December 24.



Sunday, December 28, 2003

12/28/03 Dissecting Misdirection And Misspeak

Statistics will indicate that consumer spending increased in 2003 from the prior year. According to the Federal Reserve, excluding mortgage debt, consumers owe approximately $2 trillion, up from $1.5 trillion only three years ago. Bankruptcy filings reach their highest point between March and May of each year. In all probability, we won’t have to wait much longer for them to reach record levels. Too many Americans are living beyond their means, and that is also case for the Congress and our President. The bad news is 2003 is the year for our greatest deficits as a nation and as consumers. The worst news is that 2004 is expected to reach even higher deficit levels.

The stock market has put on a magnificent performance this year. There is no research to support this claim, but I think stock prices may move in tandem with egg prices. According to the Ohio Poultry Association, some producers went out of business between 1999 and 2002. Many dotcom companies went out of business over the last few years, and caused the Nasdaq to tank. There were fewer birds in flocks and fewer IT and software companies. People’s appetites changed, and they began to eat more eggs and also munched on more $1 IT and software stocks. With a diminished supply and growing demand, the prices rose. Egg prices have hit their highest level in 23 years. Laying an egg can be a good thing.

I am watching the Supreme Court to see whether they will lay an egg, and that would not be a good thing. As we know, our highest court played an important role in the last presidential election. Hopefully, 2004 will not prove to be the second time around for this court. The Supreme Court has agreed to hear an appeal from Cheney on a federal court order to supply documents generated from his energy task force. The lawsuit against Cheney was originally filed in the U.S. District Court for D.C. and that court ordered Cheney to release task force documents. He appealed the case to a federal appellate court three-judge panel, which again ordered the vice president to release the documents. Then, Cheney went to a nine-judge appellate court, and that court refused to reconsider the matter. Why the Supreme Court agreed to hear this case I do not know. Cheney’s Justice Department lawyers insist he is immune to the court order to release the papers on grounds of a constitutional separation of papers. There are two well-known rulings from the Supreme Court that indicate Cheney does not possess this immunity. Those cases are the United States vs. Nixon and Clinton vs. Paula Jones. Whether the Bush administration can push this matter beyond the 2004 presidential election is up to the Supreme Court. It is important the case be decided prior to the election. How many times at bat is Cheney afforded? He has struck out in three separate courts. The electoral college brought us the Bush-Cheney team. Voters are entitled to know what took place in meetings between Kenneth Lay of Enron and the vice president, and what impact those meetings had on formulating our nation’s energy policy.

As previously noted, there are 104 million cattle in the United States, 35 million are slaughtered each year, and each year at least 200,000 cattle are downed, and how many of the latter could have mad cow disease no one knows for certain. Rep. Charles Stenholm, D-Texas and a powerful rancher, has maintained that the government’s screening power was tight enough that a downer “will never find its way into the food chain.” Carol Tucker Foreman ran the Agriculture Department’s food-safety programs in the Carter administration, and remarked that “this is one of those times when unrealistic optimism triumphed over responsibility to the public.” I think it goes a lot further than that. It encompasses greed and the desire to maintain the claim that the American beef industry is disease-free. Look at the way the current mad cow situation is being handled. We claim the diseased cow had its origins in Canada, and therefore, we should not be punished for this isolated incident. Dr. Stephen Sundlof, director of the FDA’s Center for Veterinary Medicine, stated “it’s going to be a matter of trying to determine where this animal may have gotten contaminated feed. The average incubation period from the time of exposure to the development of symptoms is about four-to-five years, so it can be difficult to trace back where the feed originated. It’s not something people keep real precise records of, so it may not be possible to determine the origin of the infected feed.” I doubt whether this latter statement will make headline news. Misdirection will once again be the recipe for disseminating news to the public. When do our elected officials take responsibility for providing the whole story?

The government has no excuse in its refusal to insist all cattle be tagged at birth for tracing purposes. Other countries do it, and Canada is one example. Technology is available to handle this task. Global Technology Resources (GTR) has patented GPS technology combined with RFID. It provides real-time information and tracking of food assets globally. As the company’s president noted, “if contamination does occur, we can pinpoint where contaminants entered the supply chain and isolate the problem.” Information on farms, ranches, processing plants, transport vehicles, storage vehicles, supermarkets, and restaurants—all is provided.