Saturday, February 21, 2004

2/21/04 It’s Only A Matter Of Time

On the surface, the big story yesterday was the surging dollar. It had it’s biggest single day rise against the yen in about a year and a half. In addition, it moved sharply higher against the euro and approximately a dozen other major currencies. The Japanese government stated they may continue to sell the yen, and this comes as no surprise since they sold a record 7.15 trillion yen in January, a monthly record. Japan now holds over $550 billion of U.S. Treasury securities. We also heard from Klaus Liebscher, an ECB council member, who stated it’s “always possible” the bank will sell the euro to stem its two-year advance against the dollar. Contributing to this currency unrest was the Japanese Prime Minister raising that nation’s terrorism alert to the highest level. In addition, there are large short positions in the dollar, and many traders rushed in to cover their shorts as the dollar moved higher. Bear markets don’t trade down in a straight line. There can be sharp rallies within bear markets, and the dollar has been in a downturn for close to two years. With rising trade and budget deficits and interest rates much lower than the rest of the world’s economies, this trend will not change with a short-term rally. However, there is change in the currency wind. He Fan of the Chinese Academy of Social Sciences in Beijing stated “we are seeing a gradual shift in the world economy to this area. Some economists predict that in 2050 China will be the No. 1, the largest economy in the world as a result of both economic growth and an increase in the value of RMB.” (RMB stands for the Chinese currency, the renminbi, which is counted in yuan, and the yuan is now fixed at a value of about 12 U.S. cents or 8.28 to the dollar.) It should be noted that, in 1987, the official rate was 3.7 yuan to the dollar, but the black market rate was 10 yuan to the dollar. It is estimated that Chinese households have $100 billion in savings in U.S. dollars. As the confidence in the stability and viability of the Chinese economy increases, a gradual shift is taking place. Every day more Chinese citizens are converting their dollars into yuan. Chinese officials are well aware of this shift. There may be another reason for this sudden change of heart. Many believe it is only a matter of time until the yuan increases in value due to a change in the exchange rate. As the yuan takes on a greater life of its own as initially a regional currency, a modest revaluation is likely. It may not be tomorrow. But tomorrow more dollars will be converted into yuan, and the day after, and the day after that.

The country watched the indictment of Enron’s Skilling. Some wondered about Ken Lay’s future. Kenny Boy and his wife, Linda, are long-time friends of Bush and Cheney. This is an election year. An indictment of Lay would be most embarrassing for the president and vice president. I am not a lawyer; however, I have been reading 8-K reports filed with the SEC for several decades. Since 1985, Lay ran Enron. In 1987 in an 8-K filing the Enron Oil trading operation lost $85 million. The trading didn’t begin with Skilling and his cronies. Jan Avery worked in the Enron tax department in 1987. She stated “the pattern began very early, much earlier than anyone has reported. It started in the gray area of what was acceptable accounting principles and, in my opinion, later turned into a clean case of fraud.” She asked “where are the books for Enron Oil? How am I suppose to justify a $142 million loss for state tax purposes?” She refused to sign off on that figure. In the 1987 8-K filing that $142 million became $85 million. Avery stated “that was the clear beginning for me, when I realized that they were trying to hide all the losses. There was a huge discrepancy.” Under the law, once a party agrees to an illicit agreement, willful blindness will not save co-conspirators from being responsible for other conspirators’ acts. Looking the other way will not cut the mustard. It has been reported that Lay sold $100 million of Enron stock to pay debts. Did he know about the discrepancy in the 1987 8-K or any future discrepancies? Willful blindness may help in an election year, but it’s only a matter of time until that help disappears.

Boeing ran into a small hurdle yesterday. Let me have Boeing’s CEO tell you all about it. In a message to employees, Harry Stonecipher provided the following update on the U.S. Air Force 767 Tanker program: “Secretary of Defense Rumsfeld has implemented a pause in discussions between the U.S. Air Force and Boeing on the Air Force tanker program while a series of reviews is undertaken… consequently, starting on February 23, Boeing will slow the development efforts on the Air Force 767 tanker… through the end of 2003 Boeing had spent $270 million of company money on the Air Force 767 tanker program and has been spending approximately one million per day since then…we do not believe that continuing development work at the current level of effort is prudent for either the Air Force or Boeing. The slowdown will result in the releasing of approximately 100 contract employees in Wichita and could result in layoffs of up to 50 employees in Puget Sound as well as redeployment of approximately 600 Boeing employees across both sites.”

Phone company Alltel announced a company-wide restructuring. A total of 600 jobs will be eliminated. Company-wide, Alltel’s workers are split 60% to 40% between wireline and wireless divisions.

The global hedge fund industry had record inflows exceeding $60 billion in 2003. Overall, last year’s returns were estimated at 15.44%. Total hedge fund assets are said to approximate $750 billion.

The Texas Animal Health Commission has indicated that an isolated case of avian influenza has been identified on a non-commercial farm outside of Gonzales, Texas. Preliminary indications are that the virus is a low-pathogenic strain, significantly less serious than the high-pathogenic strain recently found in Asia. There is no connection between this isolated case and that found in recent weeks in the Northeastern U.S. or the virus found in Asia.

Friday, February 20, 2004

2/20/04 A Field Trip

Is everyone on the plane? We have six stops to make. We’ll be in Maryland, Virginia, Florida, Arkansas, Pennsylvania and California. Paul Pinkney invited us to the 3.1 million square foot GM plant on Broening Highway where the company makes the GMC Safari and Chevrolet Astro. There’s Paul. He’s the burly 6 foot 2 inch guy in his 60s. Paul has been at this Maryland plant for 39 years. His starting pay was $2.54 per hour. Today he makes $26 per hour. When he first started at the plant, more than 7,000 workers were employed. The number has shrunk to 1,100. In 1965, when Paul joined GM, one out of every four adults in the U.S. worked in manufacturing. Now, it’s about one in ten. In their new contract with the United Auto Workers, GM has targeted this southeast Baltimore plant for possible closure next year. Paul observed that “these younger people, they’re going to have to move or get other trades or something because, at the rate things are going, they can bring in two pieces of equipment and eliminate 10 jobs.” Paul stated “I am General Motors. General Motors is what made me. Some people went in that plant, worked the same job ‘til they retired. No more of that.”

We need to hurry over to Virginia. It’s just a short trip. They have a $1 billion hole in the two-year, $59 billion state budget. Last night the state Senate took a voice vote on a plan that will have Virginians pay $2 billion a year in new taxes on sales, salaries, smokes, and motor fuel. The plan was tentatively approved. There’s Sen. H. Russell Potts Jr. He is a Republican from Winchester, and a true Virginian. He remarked “I hate taxes, but I love Virginia more.” Potts informed us that, adding a penny to the sales tax, now 4.5 cents on the dollar; pushing gasoline and diesel fuel taxes to 20.5 cents per gallon; and boosting the income tax for high-dollar Virginians, the Senate plan closes several loopholes in the corporate tax law and raises the cigarette tax from 2.5 cents a pack to 35 cents over two years. Sen. Charles Colgan is the senior member of the chamber. He observed “the next election shouldn’t mean a thing. What happens over the next generation is what matters.”

Our next stop is in the Orlando area but we will not be seeing Mickey Mouse. Unfortunately, there won’t be smiles at the Department of Children & Families (DCF). Their operations include the Family Safety Program Office, which oversees contracts with agencies that run group homes. In addition, they find adoptive parents and counsel members for abusive families. This Florida child-protection agency is beginning a major restructuring. They will eliminate 400 positions statewide and require 10% of its local work force to reapply for their jobs. The agency hopes to eliminate redundancies and standardize DCF management across regions.

The next stop will be a short visit with the CEO of Wal-Mart in Bentonville, Arkansas. I thought it might be interesting to inquire about their success. Lee Scott, their CEO, remarked “we are not raising prices and have no intention of doing so.” In fact, he claims Wal-Mart made $12 billion of rollbacks or price cuts last year. That’s more than the yearly revenue of many companies on the New York Stock Exchange. Target, their main competitor, stated rival Wal-Mart “are very, very competitive as they always have been and we have seen no change in their pricing strategy in the fourth quarter, and so far in the first quarter.”

On our way back to California we’ll be making a short stop in Philadelphia. Before the mad cow incident, we had planned for a Philly steak lunch. Now it will be a turkey sandwich. Rather be safe than sorry. It will be interesting to see why the folks over at the Philadelphia Reserve Bank of Philadelphia believe manufacturers remain optimistic. I did read where there is a slight improvement in the expectation of firms in the area about future plant employment. At the same time, expectations for capital spending did decline slightly. It would appear that the Philly Fed has opened an optical business. They are wearing rose-colored glasses. Upon further analysis, the diffusion index of current general activity has experienced a sharp decline of 7 points this month. The new orders index fell about 9 points. The shipments index fell almost 14 points. Not surprisingly, the current employment index fell. We need to leave. Otherwise, our group could get depressed. There’s plenty of time for that in sunny California.

Now that I have you captive on the long plane ride I thought I would go over the information provided in your welcome aboard packet. Twenty nine states are projecting budget shortfalls totaling up to $41 billion for fiscal 2005, which starts this July 1 for all but four states, according to this month’s report from the Center on Budget and Policy Priorities. Congress doled out $20 billion to help states patch gaps in fiscal 2003 and 2004. The “fiscal relief” package will run out this June 30. Many states used temporary or one-time fixes, such as depleting state rainy day reserves or drawing on tobacco settlement money, to balance the books in 2003 and 2004. The gaps will reappear in 2005. Most state budgets rely heavily on income taxes and earnings from employment. The national economic recovery did not create jobs over the past 12 months. In fact, there were net job losses and this means less revenue for the states. According to a December report from the National Governors Association, last year states collected almost $24 billion less in personal income, corporate income and sales tax revenue than they had originally budgeted. Scott Pattison, executive director of the National Association of State Budget Officers (NASBO) stated “if projections aren’t being met, that’s a definite sign that states are in real trouble and that there might be some structural problems.”

Here we are in Sacramento. Elizabeth Hill has been a nonpartisan analyst who has advised lawmakers on the budget for 18 years. The other day she stated the state of California is facing a $17 billion budget, which is $3 billion more than Governor Arnold projected in his January budget proposal. The problem has grown, Hill stated, in part because of weaker than expected wages, which will lead to less in personal income tax receipts. Hill observed that, even if the $15 billion deficit bond measure passes, the state’s budget gap the following year will be $7 billion. In addition, the state maintains a deficit of at least $5 billion through 2008-2009 because of a consistent imbalance between revenues and expenditures. Hill remarked “the economy will not solve this problem for us. Even with the type of revenue growth that we are estimating, which is moderate economic growth and no recession, we cannot grow our way out of this problem.” She went on to relate that a report released last week showed that sales tax revenue dropped sharply in January, the second month in a row that tax receipts dropped. Hill criticized several of Arnold’s proposals, and suggested the Legislature look at alternative plans. They would be well served to do so.

Before our day ends, I have two pieces of good news. Mortgage rates have tumbled to seven-month lows. Anyone in need of a refinancing fix might consider it at this time. Secondly, that smiling person in the front will be handing out a box of Krispy Kreme donuts for you to take home. We wouldn’t want you to leave without a smile on your face. The company estimates that system wide sales will increase approximately 25% in their new fiscal year, and I wanted to do my part to help them achieve that goal.

Thursday, February 19, 2004

2/19/04 Making Change Your Friend

A new survey by the Business Council revealed that 54% of its members stated their own companies had shifted employment from our shores to abroad over the past twelve months. Bank of America announced yesterday that it will set up an Indian subsidiary in Hyderabad for back-office operations with 1000 employees. You can expect other major financial institutions to make similar announcements.

The weather in January was 6.5 degrees Fahrenheit cooler than average. In fact, it got so cold that U.S. single-family housing starts fell 8% in January. Starts of townhouses, apartments, and other multifamily homes fell 7.8%. This decline will impact the final numbers for January’s economic growth. Residential construction accounts for 5% of the value of all goods and services produced in the U.S., and this does not include furniture, appliances, and other items for the home market.

The cold weather was a blessing for Wal-Mart. The company sold a lot of winter clothing. Overall, Wal-mart reported record earnings and sales for the quarter ended January 31, 2004. Total U.S. comparable sales for the quarter increased 4.8% and for the 12- month period they rose 4.1%. The largest percentage gainer was Sam’s Club. However, the star performer is the International Division. It’s comp sales for the year rose 17.3% and its yearly operating profit rose 18.6% to $2.370 billion. Income from continuing operations after minority interest and taxes for the whole year for the company was $8.9 billion. Wal-Mart now operates 1,355 locations in foreign countries in contrast to 3,551 locations in the United States. In ten years, I would not be surprised to see about the same number of locations inside and outside the United States. Wal-Mart continues to benefit from its television network providing product information. According to Nielsen ratings, 99 million consumers turn to Wal-Mart Television Network for product information each month.

According to the AARP, a fifth of Americans aged 50 and older cut back on vacations last year. Thirteen percent of retirees stated they were considering returning to work. Twenty one percent of working respondents stated they decided in the past year to retire later than previously planned.

A report released by Demos, a nonprofit public policy group, stated that senior households, most are on fixed incomes, owe an average of $4,041 on their credit cards. The report revealed that credit card debt of Americans aged 65 or older has jumped 89% in the past ten years.

For the first time, the U.S. government’s national debt amounted to more than $7 trillion. The government debt ceiling stands at $7.384. Prior to the November election, the Treasury will need to go back to the Congress for approval to raise the debt ceiling. This could become an issue in the upcoming election. Two years ago the debt reached $6 trillion. A trillion here and a trillion there, and before you know it, this becomes mounting and piling debt.

The U.S. government is not accepting any more H1-B applications. This year’s quota of 65,000 has been filled.

George Bush: “I’m not a statistician. I’m not a predictor.” Actually, he predicts all the time. There is good news though. Even a busted clock is right twice a day.

Voltage Security Inc. of Palo Alto has created an Instant Messaging –encryption product that’s designed to protect message exchanges from intercepting hackers.

The number of unemployed still on the benefit rolls after claiming an initial week of aid rose by 106,000 to 3.19 million in the Feb. 7 week, the latest for which figures are available.


Wednesday, February 18, 2004

2/18/04 Reverse Auctions

According to a recent survey by the state of Massachusetts Division of Health Care Finance and Policy, companies with fewer than 50 employees paid more for family coverage. The average premium was $818 per worker per month for a family plan, up 13.6% from 2002 and 37% higher than paid in 2000. For family coverage it was $857 per month, up 17.4% from 2002 and 42% since 2000.

The second annual investor survey on inflation sponsored by the Hartford Financial Services Group indicated that 72% of investors are concerned their investments will not keep pace with inflation, an increase of 14% from the prior year’s survey. The concern increases with age. Of those respondents age 65 and older, 86% believed that inflation would be higher during the next five years.

The British pound rose to $1.90, a 12-year high versus the dollar. The euro rose to an all-time high of $1.29 versus the dollar. While our currency has been declining in value, the Treasury has been experiencing strong net inflows into the U.S. Over the whole year, the inflows have averaged $59 billion per month, up sharply from $48 billion averaged monthly in 2002. With rising deficits, the U.S will need to import even greater monthly inflows this year.

Cingular is paying about $41 billion for AT&T Wireless. That’s a lot of money for advanced digital networks that allow high data transfer speeds as well as significant amount of spectrum that carry cell phone signals. By combining operations, Cingular states they can achieve savings in distribution, billing, marketing, and advertising. AT&T Wireless employs 31,000 people. To achieve significant cost savings it is safe to believe large layoffs can be expected after the merger becomes finalized.

Yesterday the Federal Reserve reported that factory output gained in January, and the main reason was cold weather. Utility output climbed 5.2% while natural gas production increased by 7%. Unfortunately, for some, it doesn’t get very cold in Houston in January. Yesterday Reliant Resources, a company that wholesales and retails electricity, put out a 2004 forecast that was lower than some on Wall Street expected. They initiated a cost-cutting program, and since the start of the year, about 150 jobs have been eliminated. They have 5,300 employees, and management stated total job cuts will end up being a significantly higher number than 150. For this year, Reliant stated it expected to make less money in its wholesale business because of additional plant capacity having come on line in its market last year, and with more expected to begin operating this year. It’s just another example of too much capacity and too little demand.

Fortunately for the Houston community they can fall back on the growth of Wal-Mart, this nation’s largest employer in the private sector. A new two million square-foot distribution center is being built in Baytown in order to expedite shipments from the Port of Houston and rail lines. The company can offload containers from ships and truck them to the distribution center for storage before shipment by truck or rail to other Wal-Mart stores. The facility should be operating by summer 2005. The center is expected to bring between 300 and 400 jobs to the area.

PPD, Inc. of Wilmington, NC announced the opening of a new office in Mumbai, India. This new drug development site will provide patient recruitment and clinical monitoring for Phase II-IV studies in key therapeutic areas. The company’s CEO stated it “allows us to assist clients in offering cost-effective clinical research opportunities to treatment-naïve patients for a number of therapies, including oncology and metabolic disease, such as diabetes.” According to a report in CenterWatch, patients can sometimes be recruited in India three to four times faster than in the West, including heightened acceleration for oncology studies due to the unmet needs in the therapeutic area.

The maker of AstroTurf has filed for Chapter 11 bankruptcy reorganization in Georgia. The parent company, American Sports Products Group, has as some of its largest creditors GE Capital and Blackstone.

Reverse auctions work like eBay only backward. Bidders push the price down rather than up. Reverse auctions enable competitors to see what the going price is and respond accordingly. Auctions are set for a given time, and normally bidders get two minutes to act each time a new low bid is made. Since 2001, Minnesota’s Department of Administration has started using reverse auctions to pit companies against each other to reduce the money the state pays each year for goods and services. Kent Allin, the state’s materials management director, stated that, in 14 of the 20 completed auctions, the online bid undercut the lowest sealed price. Minesota was the fist state to buy software and conduct auctions rather than contract the job out. The range of purchases Minnesota puts up for electronic bidding is wider than those of most states. Bills have been introduced to permit cities within Minnesota to hold reverse auctions. Allin observed “the Internet has revolutionized the way state government can buy and sell goods and services.” GE’s CIO claims the company saves hundreds of millions dollars per year utilizing reverse auctions. FreeMarkets claims it can save its customers at least 20% on purchases using reverse auctions. There are some who claim buyer and supplier relationships will deteriorate with these auctions beating up suppliers on price, and that the buyer’s savings is the seller’s loss of revenue. My belief is the process needs to be good for both the buyer and the seller. Both need to make money or this procurement mechanism will have a limited future. If handled properly, total costs can be reduced along with a reduction in the purchasing cycle.

Tuesday, February 17, 2004

2/17/04 Reality Can Prove Illusory

Bush: “A lot of economic growth depends on psychology of the people making decisions all throughout our economy… people are pretty upbeat all over the country.” These remarks were made yesterday during Bush’s visit to NuAir Manufacturing in Tampa, Florida. He stated this company hopes to hire 40 more workers this year, and remarked “forty workers here, five workers there, begin to add up.” Bush states that the facts bear out his optimism. Here’s a dose of reality. About 24 million people are not counted in the monthly government unemployment rate until they seek employment. Maybe Bush’s optimism will become contagious. Maybe he jolts some of those 24 million into once again seeking employment. Bush is a good salesman. He sold the country on going to war. He certainly can sell some people on seeking employment. He had better not be too good at this selling job. If some of these folks become job seekers, then their entry will elevate the unemployment rate. The government states that there are 4.7 million people who want jobs but did not seek work during the prior four weeks. They are listed in the discouraged category. In January, the government stated the number of job market re-entrants rose by 6% or 143,000. With more entrants, the time required for job search has increased by 16% for managers and executives over the last nine months of 2003. John Challenger of Challenger, Gray & Christmas observed “the hidden network of potential job seekers is below the radar of those who are actively searching for employment, not to mention the economists and others who monitor the economy for significant signs. Imagine the impact nationwide if the unemployment rate suddenly shot up to 7.9%.”

The Georgia Department of Labor has reported 70,271 laid-off workers filed a first-time claim for unemployment insurance benefits in January, an increase of 19% from December when 59,206 claims were filed. Just recently, such companies as Panasonic, Washington Mutual, Hoover Hanes, Fleetwood, Volt Services, and Columbia Forest Products have announced even more job cuts. State Labor Commissioner Michael Thurmond stated “these new losses not only affect workers whose jobs are being terminated, but make it even harder for Georgians who have been out of work for months to find employment.”

Faced with a liquidity crisis and in Chapter 11, One Price Clothing Stores was forced to lay off about 200 people at its home office and distribution center in Duncan, South Carolina. Further layoffs will follow as the company proceeds to liquidate. They employ 3,000 associates in 30 states, Washington DC, Puerto Rico, and the U.S. Virgin Islands.

Friday the 13th proved an unlucky day for a number of employees of the Union Institute and University on McMillan Street in Avondale located in the Cincinnati area. With declining enrollment, 51 of the university’s 485 positions were cut.

Since becoming president, yesterday marked Bush’s 19th visit to the state of Florida. When giving his talk in Tampa, he failed to mention an automatic $133 million increase in the state’s unemployment tax was being activated in April because of high jobless claims. When the fund dropped to just under $1.5 billion in November, that automatic increase was triggered for the 426,000 Florida employers covered by the program. The jobless benefits fund had grown each year for nearly a decade before Bush was elected. According to a state report released yesterday, the jobless benefits fund has dropped steadily since 1999. After 9/11, a large portion of the federal aid Florida received was used to help prop up the fund.

Seventy-five of 130 Ground Round restaurants nationwide that are owned by American Hospitality Concepts Inc. of Braintree, Massachusetts closed suddenly on Friday. Local franchise owners stated about 5,000 workers lost jobs nationwide. There was no advanced notice whatsoever. The Ground Round was launched as a division of the Howard Johnson restaurant chain in 1969.

While evaluating competing takeover offers from Cingular and Vodafone, the AT&T Wireless management still found the time to lay off 220 information technology workers. There are more layoffs to be announced. Employees were told that more IT cuts could be expected in the near term. About an additional 1,000 jobs will be eliminated. That is without the acquisition by Cingular. The latter is paying about $40 billion for the company, and cost savings will need to be accomplished in order to enhance operating cash flow.

Siemens announced that it will move most of the company’s 15,000 software programming jobs from its offices in the U.S. and Western Europe to India, China, and Eastern Europe. Siemens already has 3,000 IT workers located in Bangalore.

In the past week, Tower Automotive announced it would move 500 jobs from a plant that makes frames for the Dodge Ram pickup in Milwaukee to Mexico. Other auto suppliers will be shifting production and jobs overseas to tap cheap labor, according to a recent study by Roland Berger Strategy Consultants. Jim Gillette, director of supplier analysis at CSM Worldwide, stated “ the attitude is spreading that if you’re not ready to do business in these markets, you’re not going to be around in five years.”

Bush may be looking at 40 new jobs in Tampa, Florida. The United States is a big country. He might take a heavy dose of reality. His salesmanship won’t pay the bills for the unemployed. His optimism won’t bring back those soldiers who have lost their lives in Iraq.

According to the India Department of Commerce, the United Kingdom, India’s second largest trading partner, has no plans to restrict the flow of jobs to India. On the other hand, the Indian government pointed to proposed outsourcing restrictions in the U.S. and stated opening the domestic agriculture market to U.S. exports would become very difficult if the U.S. stopped or curtailed the exporting of jobs to India. It should be noted that, unlike in the United States, agriculture is not subsidized in India

With customers purchasing more coats, food, Valentine’s Day items and pharmaceuticals, Wal-Mart stated February sales at U.S. stores are rising at the high end of its forecast, which would be close to 5%. The Southern California supermarket strike has certainly helped their sales growth. One cannot underestimate their continued dedication to providing customers with everyday low prices. Another successful high volume, low cost concept can be found at SRI Shoe Warehouse. They have three locations in Raleigh, Baltimore, and Greensboro. To keep costs down, SRI has the Raleigh store open Thursday through Sunday and Wednesday through Sunday at the two other locations. Each store stocks 45,000 pairs of women’s, men’s, and children’s shoes right on the display floor. The selection is larger than that found at competitors and the prices are lower by 35 to 50%. The three stores generate more than $10 million in sales annually.

In 2003, Freddie Mac financed homes for more than 5.5 million families. The company purchased more than $106 billion of mortgages made to minority families.

San Mateo-based Six Apart Ltd. announced and demonstrated new features in its Typepad personal weblogging software that lets people easily add pictures, audio, and text to their weblogs directly from their mobile phones or PDAs.

Using a biometric fingerprint scan, Philadelphia-based AllenPort has created a system based upon a paradigm that uses bank ATM networks as a model. It centralizes, protects, and provides each individual’s “digital assets”, such as, applications, user settings, and data, at a central personal computer service hosting facility.

Insurers want a law that forces hospitals to make their pricing public. The problem occurs when a hospital is “out-of-network.” This means the insurer has no contract for discounts. When that occurs, and if the insurer and the hospital can’t agree on the charges, then the hospital can charge what’s “usual and customary.” The latter most often means list prices without any discounts, and many insurers believe they represent three to five times Medicare prices.

In turning down the Comcast merger proposal, the Disney board stated “we are committed to creating shareholder value now and in the future and will carefully consider any legitimate proposal that would accomplish that objective.” At the same time, they stated there would not be a search for a white knight. Over time, a proposal most likely will be brought forth that will contain a collar or some protection against a further decline in the price of Comcast shares. This deal will take months to complete. There are several regulatory hurdles, and then there is a final agreement on price.



Monday, February 16, 2004

2/16/04 There Is Plenty Of News

In an attempt to avoid merging with Sanofi, Aventis has been searching for a white knight. Novartis is kicking the tires, and may come to the rescue.

Cingular and Vodafone continue to up their offers for AT&T Wireless. Their bidding has reached the frenzy stage as it approaches $14 per share. I hope each has a good plan as to how to create value for their own shareholders.

Yesterday, Japan’s agriculture minister called a U.S. probe into the outbreak of mad cow disease incomplete and stated his country would not reconsider a six-week ban on American beef until it receives new proposals from Washington for tighter safeguards. This would include testing all cattle for the disease before slaughter. Kamei remarked “it’s unclear where the other 50 cows ended up, and that’s not adequate. I don’t think they made enough of an effort.” I certainly agree with that observation.

A week from today, the Knoxville-based Tennessee Valley Authority will finish cost-cutting reviews. The TVA stated they will cut its workforce with a combination of layoffs and early retirements. The federal utility stated it’s part of an effort to compete under deregulation. Layoffs will be announced on April 22. TVA Chairman Glenn McCullough remarked “forty percent of our workforce is eligible for retirement in the next 16 months. So by looking at some areas where we may be over-staffed, it may be just a matter of some early retirements that sort of thing, as opposed to widespread RIFs. We’re looking at head count. We’re looking at programs. We’re looking at capital expenditures, everything. The TVA needs to pay down debt and become more efficient. That’s true of most areas of the federal government.

It is anticipated that car sales in India will approach 700,000 units in the fiscal year ending March 31, a growth of nearly 30% over the previous year. New Delhi-based National Council of Applied Economic Research predicted in September that car sales would rise to one million vehicles a year by 2012. That estimate now appears much too conservative.

According to Automotive News, Ford is imposing new contract terms on its global suppliers, including a clause that lets the company deduct money from suppliers’ accounts without prior notice. Parts makers state they have been told they could lose future business if they don’t comply. The Automotive News also reports on what is termed “upside-down deals.” They state that more trade-ins these days are worth less than the amount buyers still owe. The result is a growing debt load that many in the industry believe see as an industry time bomb. It is estimated that about 30% of all customers walk into showrooms upside down. In essence, auto sales are being propped up increasingly by longer loans and bulging consumer debt. U.S. supplies of cars and light trucks stood at 90 days on Feb. 1, up from 69 days on Jan.1. The ideal level is 60 to 65 days. Automotive stocks have also been selling at multi-year highs. What’s the incentive to make them go higher? Short covering? The Ford F-150 is so hot that the company started a Fast Cash incentive on Jan. 16 that runs through March 1. I bet it will be extended.

Auto sales in Canada fell 11.6% in January to their lowest total for any month in six years. On the other hand, Japanese new-vehicle sales rose 6.3% in January.

Carrier Corp. is closing its manufacturing facility in McMinnville, Tenn. A total of 1,300 jobs will be eliminated.

Steelcase Inc. is closing its wood-furniture plant in Fletcher, NC. A total of 480 jobs will be eliminated. The company is also closing its wood-furniture plant in New Paris, Indiana and 160 jobs will be eliminated.

Biocon Ltd. Will become India’s first biotechnology IPO. Biocon is India’s largest biotech company. They aim to have $1 billion in revenue within a decade. The CEO “would definitely put growth at 30% per annum.” They employ 1,200 people. Almost all of their revenue comes from enzymes or biopharmaceuticals.

According to the AAA Texas Weekend Gas Watch, prices at the gas pump rose by an average 15.5 cents a gallon in January. According to the Department of Energy, 43% of the price at the pump is accounted for by the amount that goes towards buying crude oil. The remainder is comprised of distribution and marketing costs, refining costs, and taxes.

One place that doesn’t run out of gas is on East 7th Street in the East Village section of New York City. Tomorrow McSorley’s Old Ale House celebrates its 150th birthday. John McSorley opened the place in 1854. The only change was in 1970, the year women were permitted into this establishment. It is still going strong. Matty Maher owns the place now. He stated "the years have been easy. It’s the days that get tough.” This pub is the real deal.

New York City is in for a gastronomic treat. Thomas Keller brings his bag of cooking tricks to his new restaurant, Per Se. It opens this evening. The renovation on his Yountville, California French Laundry restaurant will be completed in May. I would recommend getting on Per Se’s reservation list. You should be seated in about three months. Keller is arguably the most talented chef our nation has today.

Joseph Stiglitz, Nobel laureate in economics: “the U.S.’ economic program for reconstructing Iraq is laying the foundations for poverty and chaos…blinded by ideology, however, the Bush administration seems determined to continue its record of dismal failures by ignoring past experience.”


Sunday, February 15, 2004

2/15/04 Forces Impacting Our Present And Future

According to the National Association of State Budget Offices, thirty six states enacted tax and fee increases for fiscal 2004. In addition, tax amnesty programs and accelerating payment of sales taxes are raising additional billions in order to balance budgets.

The unemployment tax averages about 2% of payroll or taxable wages. A growing number of companies have budgeted for a 20% or higher increase in their unemployment burden. As the number of unemployed rises, there is a corresponding requirement to boost the funds necessary to replenish the unemployment trust funds. This is but one more way to check on the unemployment numbers released by the Labor Department. If the unemployment levels were declining, there would not be the need for additional funding into the unemployment trust fund. It doesn’t take a rocket scientist to catch politicians in lies.

The administration will be providing information to voters on insourcing, a term referring to American jobs supported by U.S. subsidiaries of foreign companies. You will read that there are 6.4 million insourced jobs with an annual payroll of $350 billion. Examples provided will be Honda increasing their U.S. manufacturing employment by 15% last year. Novartis moved its world-wide R&D facility from Switzerland to Massachusetts. Samsung is investing $500 million in its Texas semiconductor plant where it will employ 1200 people. U.S. subsidiaries account for over 22% of total U.S. exports. That is a significant number.

I think it’s time that we pay a bit more attention to Americans age 50 and over. I know I’m in that grouping. That’s not the point. According to Ken Dychtwald, president of the Age Wave think tank in San Francisco, the 50 and over group control $7 trillion, or 70% of the U.S. wealth, and they bring in $2 trillion in annual income and account for 50% of all discretionary spending. Not surprisingly, only 5% of the yearly advertising dollars are directed at this group. Between 1990 and 2000 this age group’s numbers rose by 12 million while the 18-to-34 year olds declined in number by 9 million. According to the AARP, there will be 54 million people between the ages of 50 and 64 by 2010, and 50 and over will total 90 million Americans or over 30% of the U.S. population. Manufacturers had better get used to the growing changes in the lifestyle habits of this age group. I suggest that the investing field will be impacted too. Lower risk levels will be accepted, and the volatility factor in the marketplace will diminish. Trading will be less in vogue, and investing for long-term appreciation will gain greater acceptance.

The Bureau of Labor Statistics has projected employment growth between 2002 and 2012. I don’t know why I mention this. I think government statistics are sorely lacking in their accuracy. The BLS projected employment growth will be greatest in the service sector, particularly in education and health services as well as business and professional services. There will be growing needs to home health assistants, medical assistants, and network systems and data communications analysts. Interestingly, the BLS projects that, between 2002 and 2012, the number of workers 55 and older will increase by about 50% and account for over 19% of the total workforce. These projections will be available at the end of February in the BLS Occupational Outlook Handbook.

U.S. Energy Secretary Spencer Abraham: “With respect to oil, we already import over half the oil we use, and the projection is that in 20 or 25 years that percentage will be up in the 70 percent range. That’s a much greater dependency level than we’re talking about with gas, where it’s possible we would be up into the range of 25% in 20 years.”

Yesterday was Valentine’s Day. Rather than send a Valentine’s message to all Americans, Bush chose to play the fear card and send the following message on his Saturday radio address: “the possibility of secret and sudden attack with weapons of mass destruction is the greatest threat before humanity today… America faces the possibility of catastrophic attack from ballistic missiles armed with weapons of mass destruction. So we are developing and deploying missile defenses to guard our people.” Hundreds of our troops died in Iraq because of a preemptive strike based on a foundation of the above-mentioned WPM that have proven illusory in nature. They were never found. Thosands of our troops were injured and maimed for the same unfounded reason to go to war. I suggest the WPM do exist. They exist in Washington DC, and I have stated this for well over a year’s time. Bush is correct in stating that we must strengthen laws that fight proliferation. I suggest additional changes need to be made in the decision-making process that sends our troops into harm’s way. Timely facts based on recently acquired evidence must be incorporated into congressional approvals to declare or enter war. The evidence cannot be based on 10 year-old material with subjective interpretations.