Saturday, August 21, 2004

8/21/04 Compassionate Conservatism At Work

About 115 million workers are covered by overtime rules in the 1938 Fair Labor Standards Act. Starting Monday, new overtime rules go into effect. They have been brought to 115 working Americans by Bush and the Republican-controlled Congress. Elaine Chao told Congress the new rules would help stop "needless litigation" because it is designed to clarift who's entitled to overtime. Deputy Labor Secretary Law stated the new rules will "provide a stronger and clearer overtime guarantee for more working Americans." This is such a load of shit. In drafting the language, significant changes were made. The draft had said 1.5 million to 2.7 million workers "will be more readily identified as exempt." The final language stated "it is impossible to quantitatively estimate the number of exempt workers."It is impossible to give an exact number but it had been agreed that a range was realistic. These politicians are dangerous. They are taking away your personal freedoms and now your right to receiving compensation for working more than 40 hours a week. If you vote them in for another four years, you are one huge jerk.

Nancy Pelosi: "These new regulations represent the largest middle-class pay cut in history-- starting Monday, more than 6 million workers will lose their right to overtime pay. President Bush and the Republicans simply do not understand that middle-class families need their overtime pay to put food on the table, to make ends meet, to buy a home, and to send their children to college."

According to the BLS, compared with June, July's unemployment rates were lower in 22 states, higher in 18 states and DC, and unchanged in 10 states.

Alaska Air cut up to 150 mangement jobs. Federal Mogul and Southern Mills will close two plants in west Georgia, laying off 340 workers. Moore Wallace is closing its Manchester, VT plant and 97 employees are losing their jobs. Microsoft is cutting production of their Xbox games, closing its video-game studio in Redmond, and laying off 76 employees.

It should come as no surprise that some big automotive retailers and car dealerships are reducing their orders for GM's 2005 models. GM already acknowledged they were cutting production in this third quarter by 5%. With about 1 million unsold vehicles in inventory, where should the dealers put the 2005 models?

Iranian Defense Minister Ali Shamkhani: "We will not sit to wait for what others will do to us. Some military commanders in Iran are convinced that preventive operations which the Americans talk about are not their monoploy...The U.S. military presence will not become an element of strength at our expense. The opposite is true because their forces would turn into a hostage."

Oil demand growth this year is running at a 24-year high. According to new customs data, China's oil imports are up 40% from July 2003 to July 2004. India expects its crude oil imports to rise 11% in 2004-2005. OPEC is pumping oil at its highest level since 1979.

Thursday, August 19, 2004

8/20/04 This Is Not A Soft Patch
The Conference Board reported that the Composite Index of Leading Economic Indicators declined 0.3% in July, the largest drop since February 2003. This followed a 0.1% drop in June. Conference Board economist Ken Goldstein stated "the latest decline in the Leading Index reflects a loss of forward momentum. There are growing concerns about the high cost of gasoline and milk, as well as worries about where economic growth will come from now that tax refunds have been spent and short-term interest rates are rising. Hurricane Charley and renewed concerns about further terrorist attacks may be exogenous but add to overall anxieties." The weakness in the last two months was widespread, stated the Conference Board, and this weakness slowed the growth rate of the leading index into the annual rate range of 1 to 2%. It should be noted that the average annual growth rate of the leading index since 1959 has been about 1.5%. The Conference Board stated that "the slower growth of the leading index so far this year is consistent with a moderate rate of real GDP growth in the near term." In sum, this is not a soft patch but rather is consistent with economic conditions since 1959. If you are expecting more, especially with crude selling near $49 a barrel, then you need to seek professional help.
If Bush thinks he will win Michigan, he needs a reality check. The state lost 16,000 factory jobs in July, and the manufacturing sector jobs dropped to 686,000, the smallest number since the state’s current method of counting them in 1990 and the first time they have dropped below 700,000 since 1990.
Output at U.S. Mid-Atlantic factories slowed in August. The Philadelphia Federal Reserve stated its regional manufacturing index fell to 28.5 in August from 36.1 in July. A gauge of orders for new goods slumped to 19.2 from 35.3 in July. The survey’s employment component also declined.
The number of people who remained on the jobless rolls after collecting an initial week of benefits rose 16,000 to 2.90 million in the week ended August 7. These figures do not include any impact from Hurricane Charley.
Hooker Furniture, a furniture manufacturer and importer, will close its Maiden, NC plant and put 240 employees out of work. After this closure, the company will operate three remaining wood furniture plants.
8/19/04 Uncertainty And Caution
September crude traded at $47.54. As U.S. stockpiles have fallen, U.S. oil demand has risen 3.4% this year. In April, Iraq exported 1.8 million barrels a day. Iraq’s OPEC governor stated "we are exporting right now about a million barrels a day." U.S. Energy Administration inventory data for the week that ended Friday estimated commercial crude stocks had fallen 1.3 million barrels to 293 million, the third week in a row that inventories have declined. ChevronTexaco CEO Reilly stated "this may not be a short term aberration. I believe energy prices are going to face continued pressure- reflecting fundamental changes in demand, supply, and geopolitics. We are, in fact, witnessing a change in the basic energy equation."
German Chancellor Schroeder stated "we don’t currently see any negative impact from the oil price, and we still have very robust global growth." Germany’s unemployment rate exceeds 10%. U.K. July retail sales were down 0.4%. When was the last time Schroeder got out of his limousine and filled its tank with gas? Talk is cheap. Gas is not.
U.S. Air’s Chairman Bonner stated, that without $800 million in new wage and benefit cuts by Sept. 30, the airline could face liquidation.
Yesterday, heating oil futures rose 0.31 cents to $1.225 per gallon.
Knight Ridder said yesterday that its total ad revenue were up 1.4% from last year. CEO Tony Ridder called the revenue increase "soft" with weakness in national ads.
Ciena Corp. stated "short term, we expect revenue for our fourth quarter will be roughly flat with out fiscal third quarter revenue, reflecting ongoing customer uncertainty and caution."
An Iowa Beef plant in Tama, Iowa will close tomorrow, laying off 540 employees. Hahn Elastomer, which supplies plastics to auto and appliance makers, is closing its Plymouth headquarters and two plants in southeast Michigan, putting 273 people out of work. The company could not provide the required 60-day layoff notice because it was not able to obtain the necessary capital to remain open. Nortel to cut 3,500 jobs.
Google cut the size of its IPO sharply and reduced the price to $85. Still the company raised over $1 billion in new capital.
Speaking yesterday in Minnesota, Bush remarked "even though we did not find the stockpiles that we expected to find, I want you to remember that Saddam Hussein had the capability of making weapons, and he could have passed that capability on to our enemies. And that was a risk we could not afford to take after September the 11th." You will notice that he didn’t mention what type of weapons Hussein had the capability to make. The statement was cleverly worded. Hussein was capable of making foreign bank deposits. That’s what we know. We also know Bush has hit a "soft patch" two and one half months before the election. That’s what happens when your mission is not accomplished.

Wednesday, August 18, 2004

8/18/04 Searching
Google reduced the range on its IPO pricing from $108 to $135 to $85 to $95, Selling shareholders are reducing the amount of shares to be offered.
In the plant closing category, Alcoa is closing an automotive components plant in Northwood, just outside of Toledo, Ohio. About 140 people will lose their jobs. Libbey will close an LA plant and also eliminate 140 jobs. Time Warner Cable will consolidate its News 14 Carolina support operations and administration in Raleigh and cut between 40 and 50 workers. Bank of America to layoff 1,500 at FleetBoston branches.
N.Y. crude futures traded at $47 this morning, another new high. Getting less headlines is the price for this winter’s heating oil. The Energy Information Agency estimates it will cost consumers an extra $100 to keep their homes warm this winter using heating oil and an extra $179 using natural gas. That estimate is based on crude dropping down to $38 a barrel. Mark Zandi of Economy.com stated "higher energy prices are the key threat to the contiued strength of the economy. There is a risk if prices move higher and stay there that it would begin to undermine productivity growth and the economy’s long-term potential, as happened in the 1970s and 1980s." Al Qaida doesn’t need to attempt another attack on our soil. They simply have to create dislocations in energy supplies and keep prices escalated. We’re a consumer-based economy. Main Street doesn’t have the extra cash flow to offset higher energy prices. Consumption will be reduced, and that includes holiday shopping.
The International Energy Agency stated that rising crude demand has left OPEC countries with "effective" spare oil-production capacity of 500,000 barrels a day. The U.S. will eat up that spare capacity by simply filling the Strategic Oil Reserve to the brim. Bush will make certain it happens. He wants to keep his "base" happy. In addition, when figuring world daily production, it might be wise to count Venezuela’s at 2.5 million barrels per day rather than the reported 3.1 million barrels a day.
U.S. consumer prices fell 0.1% in July, the first time in 8 months. The core rate rose 0.1%. Through the first seven months of 2004, core prices have risen at a 2.4% rate, up from 1.3% a year earlier. Given the significant rise in crude, heating oil, milk, beef, and lumber, the rise in the overall CPI has been modest. As such, the treasury market viewed the news as quite favorable and the yield on the 10 year Treasury bonds dropped to 4.20%.

Tuesday, August 17, 2004

8/17/04 Sign Of The Times
Costco began selling caskets at two Chicago-area stores.
The poor August employment numbers will be blamed on Hurricane Charley. Meanwhile, little mention is made of plant closings, non-seasonal events. After 50 years in business, Azusa-based Pacific Precision Metals, which makes a wide range of metal products including doorknobs and automotive, furniture, and bathroom accessories, is losing the plant and shifting its workload to Mexico. Layoffs of all 300 employees will begin around September 26. Maytag is closing its refrigerator plant in Galesburg, Illinois. All 1600 employees will lose their jobs. Much of the production will be moved to Reynosa, Mexico.
Swiss chip maker, Unaxis, warned about temporary over-capacity and the slowing investment by its customers.
Since January 2001, Pennsylvania has lost 160,000 manufacturing jobs. Similar experiences have taken place in Ohio and Michigan. Voters vote with their pocketbooks.
Dr. Jane Liu, vice president of Data Analysis for Edmunds.com, stated "new models are being introduced at higher price points, but the competitiveness of the market is dramatically pushing down net prices, resulting in a record average discount." In July, the average discount from MSRP was a record $4,982, or 16.8% of MSRP. Are you still thinking about buying GM or Ford common stock?
The Empire State Manufacturing Index plunged to 12.6 in August from 35.6 in July. The index is at its lowest level since May 2003. The new-orders index fell to 14.9 from 28.6 in July, while shipments fell to 11.9 from 34. The unfilled orders index fell to –4.6 from 14.3 in the previous month. The average employee workweek fell to 6.8 in August from 22.5 in July. The bulls will tell you there is no reason to worry. The overall index is still above zero. My response is Costco has a new item waiting for you.
PricewaterhouseCoopers’ ‘Trendsetter Barometer’ interviewed CEOs of 364 privately-held product and service companies, identified in the media as the fastest growing U.S. businesses over the last five years. The surveyed companies range in size from $5 million to $150 million in revenue/sales. More than half remain concerned about the stability of demand.
According to the Census Bureau, the wealthiest 20% of households in 1973 accounted for 44% of total U.S. income. Their share increased to 50% in 2002. For the bottom fifth, the share dropped from 4.2% to 3.5%. Mark Zandi, chief economist at Economy.com, stated "for those working in the bottom half of the pay scale, they’re under an enormous amount of pressure." On a weekly basis, the average wage of $525.84 is at the lowest level since October 2001. This is the primary reason Bush will lose on November 2. People on Main Street are not better off than they were in 2001.
Ryan Puckett, spokesperson for the Portland Cement Association, a trade group that represents cement companies in the U.S. and Canada, observed that the U.S. has long imported about 25% of its cement, and that much comes from China. Unfortunately, with China in an infrastructure-building boom, that country is now using far more concrete than it exports. Shortages of cement have been declared in 29 states. Puckett stated "it’s impacting customers, employees, company profits, and building projects all over the U.S. Everywhere there is construction, there are cement customers lined up without enough supply to keep them happy." Adding to the problem, are bottlenecked transportation situations at U.S. ports and rail systems, particularly that of the Union Pacific’s.
Senator Tom Harkin was angered by Dick Cheney's remarks questioning John Kerry's ability to understand the war on terrorism. Harkin stated "it just outrages me that someone who got five deferments during Vietnam and said he had 'other priorities' at the time would say that. When I hear this coming from Dick Cheney, who is a coward, who would not serve during the Vietnam War, it makes my blood boil. He'll be tough, he'll be tough with someone else's kid's blood."

Monday, August 16, 2004

8/16/04 Questions

Prior to injecting further funds into either the equity or debt markets, I suggest one ponder the following questions: (1) When was the last time there was such a disconnect between the Fed raising rates and 10 year Treasury bonds declining in yield? What is behind this disconnect? (2) Crude is approaching $47 a barrel. While crude has risen sharply in price over the past two months, prices at the pump have declined? What is the reason for this disconnect? If pump prices begin to rise once again, what impact will that have on consumer spending? (3) Higher prices for crude have had an impact on the world economy as a slowing economic trend is developing around the globe. As this slowing expands with record crude prices, the appetite for our nation's exports will decrease and our trade deficit will expand as it did in the latest figures. What impact will this have on our ability, if any, to attract foreign capital to fund our twin deficits? (4) What impact will the decline in the equity markets have on our economy and consumer and business spending?

Maybe there is a good reason KMart is selling some of its store locations. In the latest reproting period, the company's same-store sales dropped 14.9%.

Sunday, August 15, 2004

8/15/04 The Damage Is Done
In Charley’s wake there are at least 15 dead and possibly $15 billion in damages. It will be many months before the clean-up process is completed. It was the most severe hurricane to hit Florida since Andrew in 1992.
According to the California state Department of Insurance, state workers’ comp insurance rates rose an average of 149% between 2000 and 2003.
According to a recent study by the National Center for Policy Analysis, it is estimated that elderly funding will consume 3.6% of federal income taxes this year, twice that in five years, and twice that again in ten years. The aging of our population is possibly the most significant trend in the U.S.
Bush: "I’d like to be the person known as somebody getting the job done." He should have thought of that before invading Iraq without a supporting coalition of foreign nations. He should have thought of that before going on a discretionary spending spree and constructing record-setting twin tower deficits. He should have thought of that before bragging to our citizenry in February 2002 that our economic recovery would produce 6 million net new jobs. He should have thought of that before parading around the country telling folks he wanted each and every American to have a job. Instead there are less jobs. Jobs are returning less after inflation than they did in January 2001 and the greatest percentage of job growth since February 2002 has been in part-time employment. Families are worse off than they were in January 2001. Maybe if Bush had had to depend on a job for his livelihood he would understand the economic struggles on Main Street. He won’t find them in Medina, Washington. Bush has all but exhausted the reservoir of confidence Americans have in their leaders. He has chipped away at the fabric woven over the past two plus centuries. Fortunately, as we look into the mirror, we can say you can fool us some of the time but not all of the time. In two and one-half months his job will officially be over. He never understood that the job entails leading all the people and not just a few. His mission was never started much less accomplished.
Delta Airlines threatened bankruptcy unless they could achieve more cuts from the pilots and the like. Unfortunately, the company didn’t realize that threats can wear away loyalty. Flights are being canceled because sufficient number of crew members are not showing for work. Planes don’t fly without pilots. Passengers are being stranded in cities, such as, Atlanta and are being provided rooms at the Sheraton Gateway Hotel. Is this any way to run an airline?