Saturday, December 04, 2004

12/4/04 Irrational Monologues

The Snowman: “November’s job creation numbers are a confirmation that the American economy is on a steady growth path.” In November 2004, the average unemployed person was out of work for approximately 20 weeks, almost the identical time as in November 2003. In November 2004, the average weekly wages dropped by $1.25 to $533.47 for most workers on private non-farm payrolls. In the latest monthly jobs report manufacturers shed 5,000 jobs and the manufacturing workweek fell by six minutes to 40.5 hours. According to the BLS, adjusted for seasonal hiring patterns, there was a decline of 16,000 retail jobs, and this is the fourth year in succession that retail hiring in November has declined on a seasonally adjusted basis. Just recently, the International Council of Shopping Centers reported that November same-store sales increased by a paltry 1.7%, and this compares with a gain of 3.7% in November 2003.

Maybe the Administration should root for more hurricanes. According to a government report, the nine states recently impacted by hurricanes added 82,000 jobs. Without those storms, only 11,000 construction jobs were added in November, down from 65,000 in October.

ThatOneGirl: “I used to work for Western Union, so I already knew that anyone associated with the company was an unimaginative prick.”

Fed Governor Ben Bernanke stated inflation is “well contained” for now. U.S. consumer prices in October had their biggest gain since May and are rising at a 3.9% annual rate this year. When average weekly wages are declining and consumer prices are rising at a 3.9% annual rate, there is a problem. Any dipstick would know that.

Philadelphia Fed President Anthony Santomero stated yesterday that “looking ahead, I expect real GDP growth to be in the neighborhood of 4% for 2005…Indeed, honoring our commitment to price stability is essential to ensuring the longevity of the expansion.” A measure of new orders for non-manufacturing companies declined in November, and this gauge was joined by a slippage in the employment index.

Services account for roughly 85% of our GDP. Service jobs increased by about 100,000 in November, and that included temp workers. The gains were 8,000 hospital workers, nursery and residential care 7,000, doctors’ offices 6,000, employment in hospitality 18,000 (including 9,000 returning from strikes), computer systems design 10,000, architectural and engineering services 8,000, credit intermediation 14,000, commercial banks 5,000, telecommunications 6,000, and construction 11,000. With average hourly wages up just 0.1% in November, take-home pay for most workers is falling behind the rising costs of energy and healthcare, said Peter Morici, business professor at the University of Maryland. “American workers can expect their paychecks to buy less and less each month. Economic growth is already likely to slow in the first and second quarters of 2005, and further interest rate increases will chill growth and job creation.”

Walter Shapiro: “The crux of the problem is that voters have yet to feel any pain from red-ink budgets and unfunded future bills for Social Security and Medicare. With interest rates at near-historic lows and inflation minimal, Americans do not feel that their jobs or their purchasing power are menaced by this abstract threat.” Maybe the following isn’t so abstract. A trillion is 1000 billion. Line up all the billionaires in the world. Do you get to 1000 billion dollars? Our debt is 7.5 times 1000 billion. That does not include the unfunded liabilities for Social Security and Medicare. They amount to 45 times 1000 billion. If we stretched dollar bills end to end from NY City to Los Angeles, do you think they would equal 7.5 times 1000 billion + 45 times 1000 billion? Maybe we should get volunteers from the Congress to do just that.

Santomero continues with his monologue: “The recent declines in the value of the dollar, combined with reasonable economic growth in the economies of our trading partners, should help stabilize our net export position, significantly diminishing the negative impact on GDP growth.” The dollar traded at a new record low versus the euro on Friday. All major currencies are gaining against the dollar even though the Snowman states, with a straight face, that we have a strong dollar policy. How long are other countries going to stand by and let the falling dollar negatively impact their own economies? They will increasingly move away from the dollar as a medium of trade exchange. Our current account deficit is running at an annual $664 billion or about two-thirds of one trillion dollars. That takes a concerted effort. It is not surprising that China especially, and Japan to a lesser extent, have been slowing their purchase rate of U.S. Treasury bonds.

Cathy Minehan, President of the Boston Fed, speaking in a forthright manner, stated that the “November job report was somewhat disappointing.” How is it that she and Janet Yellen are able to tell the truth? Maybe it’s a gender thing.

Crude closed at $42.54 a barrel, down 14% for the week. Gold rose to $457.80 an ounce.

After the non-farm payroll report, 10-year Treasury yields plummeted from 4.41% to 4.26%. This provides another opportunity for those still holding these suckers to unload them.

IBM is thinking about getting out of the PC business. Being number three behind Dell and HP does not leave much room for profit. A potential buyer would be China’s Lenovo Group that sells computers under the Legend brand. IBM’s PC division calls RTP, NC home. The sale could affect thousands of Triangle workers. Electrolux is cutting 229 jobs at their St. Cloud, Minn. plant. In October, American Airlines stated they panned to layoff 1,100 employees. Now the company is offering incentives for severance to many employees with at least five years seniority.

According to the U.S. Census Bureau and the Mortgage Bankers Association Mortgage Finance Forecast, U.S. single-family homes represent a $22.3 trillion market or 22 times 1000 billion. The Chicago Mercantile Exchange announced it plans to build a derivatives market to protect homeowners from a bursting housing bubble. I’m sure the average homeowner will have no trouble understanding the ins and outs of these new risk management instruments!

ContraryInvestor.com: “We believe the Fed has two clear choices. Accelerate monetary tightening to head off burgeoning inflationary pressures and risk a debt related negative total economy response to rising rates, or keep short term interest rates in negative territory and jawbone about ‘contained’ inflationary pressures. Oh yes, the second choice contains a certain amount of praying.”


Friday, December 03, 2004

12/03/04 Another Look

In a few hours, the BLS will release its November non-farm payroll report. Last year, initial results indicated a gain of 57,000 jobs with an unemployment rate dropping to 5.9%. This was followed by a disappointing 8,000 job gain in December 2003 followed by an addition of 97,000 jobs in January 2004. It is important to keep in mind that today’s numbers are preliminary, and the sampling error is at least 100,000 jobs. The November report will start with an edge. About 11,000 workers ended their strikes and returned to work. In addition, the hurricane storms required additional contractors to work on repairs. There could be an offset. Thanksgiving arrived later this year on the calendar. It is possible that just-in-time holiday seasonal hiring might have begun after the Thanksgiving data was collected for this non-farm payroll report.

Another visit with Wal-Mart might prove helpful. I rarely read about the company’s online retailing efforts. On Black Friday, Walmart.com had 1.4 million online visitors. In addition, visits to their website in October were up 48% over October 2003. Wal-Mart expects 20 to 30% growth for the entire online shopping season. At the present time, their online sales rank in the top five nationally with Dell number one at $5 billion on an annual basis. In a few years you can expect Wal-Mart to take over the number one position. The sales number may not be significant as a percentage of the total company sales; however, during more stressful economic conditions, the online sales will be greatly appreciated by stockholders. As for the fun and games, they are over. Beginning today, Wal-Mart is starting a price-focused ad blitz in newspapers, and on radio and television. Two dozen items will be featured, and prices on the items are being reduced, some by as much as one-third. Customers will be reminded that Wal-Mart is the low price leader—every day.

Interest rates continue to move higher with 10-year Treasury bonds at 4.41% and the 30-year at 5.04%. Mortgage rates are moving higher.

Oneida Ltd. is shutting down its plant near Syracuse, NY in early 2005 and at least 375 workers will lose their jobs. American Greetings is cutting 300 employees. The Robert Bosch Tool Plant in Heber Springs, SC will begin layoffs in 2005, and 565 employees will be impacted. The circular saw plant is not profitable and management stated that “there are cost advantages to manufacturing products in China.” United Airlines is laying off 825 customer service employees, ramp workers, and other airport staffers. The decision by Delta Air Lines to end most flights at DFW International will cost the local economy more than $700 million or about 1% as well as 7,000 jobs, according to a study commissioned by the airport. Bayer to cut 110 jobs in the U.S.


At China’s 3-day Central Economic Work Conference, stated the South China Morning Post, there will be further consideration towards widen the trading band of the yuan in 2005 as well as further interest rate hikes. China’s foreign reserves are currently growing at $15 billion per month. China will soon provide Airbus with a $1+ billion order for A380 jets.

Susuki will cut output due to the steel shortage.

Walgreen’s November same-store sales rose 11.8% and JC Penney’s rose 12%.

The number of people filing for state unemployment insurance for the first time rose 25,000 to 349,000 last week.

IDC predicted that worldwide sales of semiconductors would decline 2% in 2005.

Do the math. New U.S. October factory orders rose 0.5% with an 8% rise in shipments of petroleum and coal products. These figures were not adjusted for price changes. The orders and shipments rose, not from more demand, but from rising petroleum and coal prices.

MSN is moving into blogging with MSN Spaces.

The Energy department stated natural gas supplies for the week ended Nov. 19 fell 17 billion cubic feet and not 49 billion as originally reported. I’m sure it was an honest mistake! Yesterday, crude futures dropped another $1 to $43.25 a barrel.

Just as gas prices at the pump are coming down a bit, people are beginning to receive their 2005 property tax bill. For several years, home prices have been on the rise, and in some areas by double-digits. This has led to rising assessment valuations, and some communities are assessing property values every year. Rising property taxes are especially squeezing those on fixed incomes. Myron Orfield, a property tax expert at the University of Minnesota stated “there is a property tax crisis. It’s especially bad in states like New Jersey, Ohio, Connecticut, and Illinois, which are property-tax dependent.”

After the close of trading yesterday, Intel raised its sales forecast for the fourth quarter while maintaining its prior prediction of margins at roughly the 56% level. Over the last five years, Intel’s fourth-quarter revenue has grown 8% year-over-year. With this latest forecast, this fourth quarter increase would be 7.5% higher than that of the fourth quarter a year ago. In sum, the news was welcome but still not up to the past five-year average. In my view, Intel shareholders will need to have patience if they are to be rewarded.

Between Nov.1 and Nov. 29, excluding auctions and travel, online consumers spent $6.5 billion, a 22+% gain over the prior year’s corresponding period.

The headline read that the November non-farm payrolls rose by a disappointing 112,000. That excludes the downward revision of 54,000 jobs in the prior month's report. The average workweek declined by a tenth of an hour to 33.7 hours, aggregate hours worked declined 0.2%, and average hourly wages rose all of a single penny. Manufacturing jobs declined by 5,000 while service jobs gained 102,000. Let us not forget about the 11,000 striking workers and the added workers performing repairs in the hurricane-damaged regions. This report was not even as good as the disappointing 112,000. There will be more to say tomorrow.
12/03/04 Another Look

In a few hours, the BLS will release its November non-farm payroll report. Last year, initial results indicated a gain of 57,000 jobs with an unemployment rate dropping to 5.9%. This was followed by a disappointing 8,000 job gain in December 2003 followed by an addition of 97,000 jobs in January 2004. It is important to keep in mind that today’s numbers are preliminary, and the sampling error is at least 100,000 jobs. The November report will start with an edge. About 11,000 workers ended their strikes and returned to work. In addition, the hurricane storms required additional contractors to work on repairs. There could be an offset. Thanksgiving arrived later this year on the calendar. It is possible that just-in-time holiday seasonal hiring might have begun after the Thanksgiving data was collected for this non-farm payroll report.

Another visit with Wal-Mart might prove helpful. I rarely read about the company’s online retailing efforts. On Black Friday, Walmart.com had 1.4 million online visitors. In addition, visits to their website in October were up 48% over October 2003. Wal-Mart expects 20 to 30% growth for the entire online shopping season. At the present time, their online sales rank in the top five nationally with Dell number one at $5 billion on an annual basis. In a few years you can expect Wal-Mart to take over the number one position. The sales number may not be significant as a percentage of the total company sales; however, during more stressful economic conditions, the online sales will be greatly appreciated by stockholders. As for the fun and games, they are over. Beginning today, Wal-Mart is starting a price-focused ad blitz in newspapers, and on radio and television. Two dozen items will be featured, and prices on the items are being reduced, some by as much as one-third. Customers will be reminded that Wal-Mart is the low price leader—every day.

Interest rates continue to move higher with 10-year Treasury bonds at 4.41% and the 30-year at 5.04%. Mortgage rates are moving higher.

Oneida Ltd. is shutting down its plant near Syracuse, NY in early 2005 and at least 375 workers will lose their jobs. American Greetings is cutting 300 employees. The Robert Bosch Tool Plant in Heber Springs, SC will begin layoffs in 2005, and 565 employees will be impacted. The circular saw plant is not profitable and management stated that “there are cost advantages to manufacturing products in China.” United Airlines is laying off 825 customer service employees, ramp workers, and other airport staffers. The decision by Delta Air Lines to end most flights at DFW International will cost the local economy more than $700 million or about 1% as well as 7,000 jobs, according to a study commissioned by the airport. Bayer to cut 110 jobs in the U.S.


At China’s 3-day Central Economic Work Conference, stated the South China Morning Post, there will be further consideration towards widen the trading band of the yuan in 2005 as well as further interest rate hikes. China’s foreign reserves are currently growing at $15 billion per month. China will soon provide Airbus with a $1+ billion order for A380 jets.

Susuki will cut output due to the steel shortage.

Walgreen’s November same-store sales rose 11.8% and JC Penney’s rose 12%.

The number of people filing for state unemployment insurance for the first time rose 25,000 to 349,000 last week.

IDC predicted that worldwide sales of semiconductors would decline 2% in 2005.

Do the math. New U.S. October factory orders rose 0.5% with an 8% rise in shipments of petroleum and coal products. These figures were not adjusted for price changes. The orders and shipments rose, not from more demand, but from rising petroleum and coal prices.

MSN is moving into blogging with MSN Spaces.

The Energy department stated natural gas supplies for the week ended Nov. 19 fell 17 billion cubic feet and not 49 billion as originally reported. I’m sure it was an honest mistake! Yesterday, crude futures dropped another $1 to $43.25 a barrel.

Just as gas prices at the pump are coming down a bit, people are beginning to receive their 2005 property tax bill. For several years, home prices have been on the rise, and in some areas by double-digits. This has led to rising assessment valuations, and some communities are assessing property values every year. Rising property taxes are especially squeezing those on fixed incomes. Myron Orfield, a property tax expert at the University of Minnesota stated “there is a property tax crisis. It’s especially bad in states like New Jersey, Ohio, Connecticut, and Illinois, which are property-tax dependent.”

After the close of trading yesterday, Intel raised its sales forecast for the fourth quarter while maintaining its prior prediction of margins at roughly the 56% level. Over the last five years, Intel’s fourth-quarter revenue has grown 8% year-over-year. With this latest forecast, this fourth quarter increase would be 7.5% higher than that of the fourth quarter a year ago. In sum, the news was welcome but still not up to the past five-year average. In my view, Intel shareholders will need to have patience if they are to be rewarded.

Between Nov.1 and Nov. 29, excluding auctions and travel, online consumers spent $6.5 billion, a 22+% gain over the prior year’s corresponding period.

The headline read that the November non-farm payrolls rose by a disappointing 112,000. That excludes the downward revision of 54,000 jobs in the prior month's report. The average workweek declined by a tenth of an hour to 33.7 hours, aggregate hours worked declined 0.2%, and average hourly wages rose all of a single penny. Manufacturing jobs declined by 5,000 while service jobs gained 102,000. Let us not forget about the 11,000 striking workers and the added workers performing repairs in the hurricane-damaged regions. This report was not even as good as the disappointing 112,000. There will be more to say tomorrow.


Thursday, December 02, 2004

12/2/04 The Market’s Testosterone Patch

The formula is not a secret. It has not been tested by the FDA. The formulary is a combination of several factors. December is historically a very strong up day for the market, and it was with the S&P 500 up by 1.5% and the Dow up 1.6%. The Nasdaq was up even more percentage wise. Yesterday, the first day of December ingredient was assisted by crude having its biggest single-day fall since 9/11 and this morning, in early trading, it has dropped an other buck to $44.48 a barrel. According to the U.S. Energy Information Administration, supplies of distillate fuels, mainly heating oil, jumped by 2.3 million barrels last week. Many had expected an increase. However, inventories still remain 14% year ago levels. Even so, a report by a senior oil analyst at the EIA predicted that U.S. crude prices are “likely to average $45 to $50 a barrel through the winter. Capacity constraints across all aspects of the oil industry should keep prices from falling much below current levels over the next few months.” One should also note that the report stated that heatting oil prices hit $2.03 a gallon, up nearly 62 cents from the same period a year ago. December natural gas prices to the consumer are up 11% from a year ago, stated PGE.

GM’s car and light truck sales dropped 16.7% in November and Ford’s declined 7.4%. Production cuts in the first quarter will average at least 7% for both companies.

Nordstrom’s management stated they had an “outstanding” November. If same-store sales rising 3.1% is outstanding, then it was outstanding. By comparison, Limited, the company that owns Victoria’s Secret and Bath and Bodyworks, had a November same-store sales decline of 5%.

The official tally at Wal-Mart for November was a gain of 0.7% in same-store sales. Their forecast for December was a modest rise of 1 to 3%. Those predicting the demise of Wal-Mart might look at their international division, and that has real testosterone built into its growth engine. This is a strong double-digit growth operation that has left all retailers in the dust. The only thing ailing Wal-Mart is the cash flow squeeze on their paycheck-to-paycheck customer.

Starbucks had November same-store sales up an astounding 13%. Howard Schultz cautioned that this growth rate is “not sustainable.”

Looking ahead to 2005, and that’s in spitting distance of today, we might consider Intel as a good example of what’s to come over the horizon. Their revenue growth is slowing, and more importantly, their margins are somewhat under pressure. Speaking personally, I am willing to weather such news from this company because I believe the stock will prove rewarding as a long-term investment. I can’t say the same for at least 95% of the rest of the public companies trading at their present valuations.

Adjusted for inflation, disposable income rose 0.2% in October. The savings rate in October fell to 0.2%, the lowest level since October 2001. Do the math. This market needs more than a testosterone patch and money from a Microsoft dividend. It requires sustainable buying based on rational fundamentals. That does not include higher energy bills, a plunging dollar, twin-tower deficits, production cuts at GM and Ford, escalating troop numbers in Iraq, and gold prices trading at their best levels since June 1988. Historically, there is sweet demand for stocks in the month of December. While buying stocks, please keep in mind that total spending by U.S. consumers exceeds GDP by about 6%. That surely is not sustainable. If the present rate of consumer spending is not sustainable, and our economy is most heavily dependent on the consumer, then what does that say about future corporate profits? There will be significant valuation changes in our dollar, and our stock and bond markets are dollar denominated. I am not the voice of doom. I’m not a user of testosterone patches. I get my enjoyment au natural.

Springs Industries will close two S.C. plants and lay off about 540 people.

Tuesday, November 30, 2004

12/1/04 Thirty-Year Treasury Yields Top 5%

The yield curve looks a bit less flat these days with the long bond yield jumping up the last few days. Prices for bonds have been moving down recently. They will be joined by prices at Wal-Mart for the next 24 days. The company is moving from a “more balanced” approach to discounting. As a spokesperson stated, “while our prices were generally as low as they have ever been, our competition was even more aggressive. We have learned from this and will move quickly to respond to what our customer has told us during the rest of the holiday season.” This is not good news for those competing with Wal-Mart; however, it’s good news for their paycheck-to-paycheck customers.

As the price for crude has slowly climbed back up above the $50 a barrel level, the bears on crude were head-faked by the short-lived decline below $45. One should remember that OPEC members get paid in U.S. dollars for their crude. The dollar decline has cost them dearly, and they are rooting for crude to have an upward price bias.

The dollar fell to a new record low versus the euro and breached the $!.33 level. The British pound has moved up sharply and the yen has also been participating nicely during the recent sharp decline of the dollar. Our currency was not helped by the U.S. corporations’ before-tax profits from current production falling 2.4% on an annualized basis in the third quarter. The Commerce Dep’t stated the data are adjusted for inventory valuations and capital consumption. The news from the retail front was poor as well with U.S. retail chains’ same-store sales declining 1.5% in the week ended Nov. 27 compared to the prior week.

The Conference Board reported that consumer confidence declined in November for the fourth consecutive month. The Index fell to 90.5 from a reading of 92.9 in October. The November reading was the lowest level since March. Just as important, the Expectations Index dropped to 87.4 from 92.2 in the prior month. Quite a few of the 5,000 respondents are less sanguine about their present jobs, finding a job, or their incomes in the coming months. Lynn Franco, Director of the Conference Board’s Consumer Research Center, stated “looking beyond the upcoming holidays, the continuing erosion in expectations suggests the consumers do not feel the economy is likely to gain major momentum in early 2005.” Delos Smith. a Conference Board economist, observed “the 55% rise in crude oil prices this year really hurts those with lower incomes.”

The International Council of Shopping Centers lowered its estimate for November retail sales gains to 2.5% from 3 to 4%.

Our trade deficit with China could exceed $150 billion this year as their exports to the U.S. are five times as great as their imports from the U.S.

Richard Freeman, Harvard University economist: “What is stunning about China is that for the first time we have a huge, poor country that can compete both with very low wages and in high tech. Combine the two, and America has a problem.” That problem grows daily.

In November, at least 134 U.S. troops died in Iraq.

According to the 2004 U.S. Job Recovery and Retention Survey, 35% of employees stated they are actively job hunting and 40% are passively searching.”

Due to declining exports, the Australian economy is expanding at the slowest rate in 4 years.

Kemp Foods is closing its Lancaster, PA milk and ice cream plant. A total of 240 workers will soon be without a job. Skillsoft is cutting 133 jobs.

SEMI expects global sales of equipment used to make and test semiconductors to decline 5.15% from 2004 to 2005 as “semiconductor manufacturers digest the new manufacturing capacity.”

11/30/04 Making Heads Out Of Tales

Today we will discuss hiring holiday employees, temp workers, rising interest rates, and plant closings. Hopefully, you’ll garner some information that may assist your investment decisions.

According to Monster.com, 71% of the visitors to their job site stated they are applying for seasonal holiday work. The National Retail Federation predicts that U.S. stores will increase staffing by an average of almost 4% during November and December and then layoff that same 4% by late January. Therefore, when viewing the non-farm employment numbers for November, December, January, and possibly even February, the key is to focus on the seasonal hiring or seasonal factors. In sum, at least 800,000 workers for holiday season will be added to the payrolls. In a couple of months, that number will, for the most part, even out in the wash, so to speak.

When analyzing the BLS numbers, it becomes clear that there are at least 2.5 million temp workers employed in the U.S. That does not include those being paid in cash and not on the books. Since the beginning of 2002, approximately 50% of the nation’s new hires were temp workers. Many of these same workers are employed at more than one temp job and are counted twice by the BLS in the monthly non-farm payroll reports. There is no question that the number of jobs created in recent years has been grossly exaggerated due to this double counting. On Friday, the National Labor Relations board ruled that temp workers will no longer be able to bargain for job benefits along with permanent employees. The ability to organize will be permitted only if both the temp agency that placed the temp worker and the company where the temp works consent. The chances of that happening are nil. The temp worker is paid by the temp agency, and the latter wants to continue to place workers with that company. Please keep in mind that the temp worker receives no benefits and now will lose the right to organize. In sum, on Friday, the NLRB overturned the 2000 M.B. Sturgis ruling that stated bargaining units combining permanent and temp employees was permissible.

GM will close its Linden, N.J. plant that was built in 1937 and makes Blazers and Jimmys. The plant’s second production shift was dropped in 2002. GM has not closed an assembly plant since it shuttered the Buick City complex in Flint in 1999. Linden employs 1,650 hourly and 110 salaried workers. J. M. Smucker was honored in January by Fortune Magazine as the best place to work. The company announced plans to close a Salinas, CA processing plant and cut other jobs as part of restructuring efforts. They did not state how many of their 4,500 employees would lose their jobs. Sanmina SCI told its 300 employees at its Westbrook, ME manufacturing facility that the plant will be closed in March 2005. Georgia Gulf will shut its Tiptonville, Tenn. compound plant effective immediately, and all 57 employees will lose their jobs. TriQuint Semi will cut 200 workers.

According to Crain’s Detroit Business, in 1995, Ford, GM, and Chrysler made 73.2% of the cars and light trucks sold in the U.S. That has dropped to 58.9% through October 2004.

According to Foreclosures.com, mortgage defaults will surge by the second quarter of 2005. They stated “the problem now is that too many households are overloaded with debt.” Foreclosures.com remarked that there has always been a correlation between rising interest rates and rising levels of foreclosure activity.

It was only recently that I urged all investors to cease owning debt instruments, and, in particular, Treasury debt. I stated that, in my view, interest rates would rise significantly. In just a few days, we have seen interest rates on 10-year Treasury bonds rise from under 4.10% to 4.34%. Many explanations have been offered. There was the rumor about the Chinese selling some Treasuries. There is the thought that foreign central banks and foreign investors are losing their appetite for Treasuries. Then there are the technical analysts who stated that the 10-year Treasuries broke their 200-day moving average. Others opined that hedge funds were selling. Still others offered that some brokerage firms have their fiscal year-end today, and some rearranging of positions could be taking place. Others believe money managers maybe shifting portfolios and allocating more money to stocks than to bonds. There was a rumor that the Treasury would have to begin reissuing 30-year bonds in order to meet the costs of Social Security reform. There is also the thought that inflation will get worse and erode the returns offered by bonds. As Bloomberg observed, the differential in yield between 10-year TIPS and 10-year nominal securities is 2.68 points, and this is the widest in five months. From my perspective, some or all of the aforementioned reasons for the jump in rates may be credible. For me, rates are unrealistically low given the heightened risks resulting from this nation’s rising federal, state, municipal, and household debt levels. The Fed is searching for the “natural rate” of interest after years of creating a jolly refi way of life. The fun and games are over. Now it’s war. It’s us against the world. Who will blink first and stop buying our debt?

11/30/04 Making Heads Out Of Tales

Today we will discuss hiring holiday employees, temp workers, rising interest rates, and plant closings. Hopefully, you’ll garner some information that may assist your investment decisions.

According to Monster.com, 71% of the visitors to their job site stated they are applying for seasonal holiday work. The National Retail Federation predicts that U.S. stores will increase staffing by an average of almost 4% during November and December and then layoff that same 4% by late January. Therefore, when viewing the non-farm employment numbers for November, December, January, and possibly even February, the key is to focus on the seasonal hiring or seasonal factors. In sum, at least 800,000 workers for holiday season will be added to the payrolls. In a couple of months, that number will, for the most part, even out in the wash, so to speak.

When analyzing the BLS numbers, it becomes clear that there are at least 2.5 million temp workers employed in the U.S. That does not include those being paid in cash and not on the books. Since the beginning of 2002, approximately 50% of the nation’s new hires were temp workers. Many of these same workers are employed at more than one temp job and are counted twice by the BLS in the monthly non-farm payroll reports. There is no question that the number of jobs created in recent years has been grossly exaggerated due to this double counting. On Friday, the National Labor Relations board ruled that temp workers will no longer be able to bargain for job benefits along with permanent employees. The ability to organize will be permitted only if both the temp agency that placed the temp worker and the company where the temp works consent. The chances of that happening are nil. The temp worker is paid by the temp agency, and the latter wants to continue to place workers with that company. Please keep in mind that the temp worker receives no benefits and now will lose the right to organize. In sum, on Friday, the NLRB overturned the 2000 M.B. Sturgis ruling that stated bargaining units combining permanent and temp employees was permissible.

GM will close its Linden, N.J. plant that was built in 1937 and makes Blazers and Jimmys. The plant’s second production shift was dropped in 2002. GM has not closed an assembly plant since it shuttered the Buick City complex in Flint in 1999. Linden employs 1,650 hourly and 110 salaried workers. J. M. Smucker was honored in January by Fortune Magazine as the best place to work. The company announced plans to close a Salinas, CA processing plant and cut other jobs as part of restructuring efforts. They did not state how many of their 4,500 employees would lose their jobs. Sanmina SCI told its 300 employees at its Westbrook, ME manufacturing facility that the plant will be closed in March 2005. Georgia Gulf will shut its Tiptonville, Tenn. compound plant effective immediately, and all 57 employees will lose their jobs. TriQuint Semi will cut 200 workers.

According to Crain’s Detroit Business, in 1995, Ford, GM, and Chrysler made 73.2% of the cars and light trucks sold in the U.S. That has dropped to 58.9% through October 2004.

According to Foreclosures.com, mortgage defaults will surge by the second quarter of 2005. They stated “the problem now is that too many households are overloaded with debt.” Foreclosures.com remarked that there has always been a correlation between rising interest rates and rising levels of foreclosure activity.

It was only recently that I urged all investors to cease owning debt instruments, and, in particular, Treasury debt. I stated that, in my view, interest rates would rise significantly. In just a few days, we have seen interest rates on 10-year Treasury bonds rise from under 4.10% to 4.34%. Many explanations have been offered. There was the rumor about the Chinese selling some Treasuries. There is the thought that foreign central banks and foreign investors are losing their appetite for Treasuries. Then there are the technical analysts who stated that the 10-year Treasuries broke their 200-day moving average. Others opined that hedge funds were selling. Still others offered that some brokerage firms have their fiscal year-end today, and some rearranging of positions could be taking place. Others believe money managers maybe shifting portfolios and allocating more money to stocks than to bonds. There was a rumor that the Treasury would have to begin reissuing 30-year bonds in order to meet the costs of Social Security reform. There is also the thought that inflation will get worse and erode the returns offered by bonds. As Bloomberg observed, the differential in yield between 10-year TIPS and 10-year nominal securities is 2.68 points, and this is the widest in five months. From my perspective, some or all of the aforementioned reasons for the jump in rates may be credible. For me, rates are unrealistically low given the heightened risks resulting from this nation’s rising federal, state, municipal, and household debt levels. The Fed is searching for the “natural rate” of interest after years of creating a jolly refi way of life. The fun and games are over. Now it’s war. It’s us against the world. Who will blink first and stop buying our debt?

11/30/04 Making Heads Out Of Tales

Today we will discuss hiring holiday employees, temp workers, rising interest rates, and plant closings. Hopefully, you’ll garner some information that may assist your investment decisions.

According to Monster.com, 71% of the visitors to their job site stated they are applying for seasonal holiday work. The National Retail Federation predicts that U.S. stores will increase staffing by an average of almost 4% during November and December and then layoff that same 4% by late January. Therefore, when viewing the non-farm employment numbers for November, December, January, and possibly even February, the key is to focus on the seasonal hiring or seasonal factors. In sum, at least 800,000 workers for holiday season will be added to the payrolls. In a couple of months, that number will, for the most part, even out in the wash, so to speak.

When analyzing the BLS numbers, it becomes clear that there are at least 2.5 million temp workers employed in the U.S. That does not include those being paid in cash and not on the books. Since the beginning of 2002, approximately 50% of the nation’s new hires were temp workers. Many of these same workers are employed at more than one temp job and are counted twice by the BLS in the monthly non-farm payroll reports. There is no question that the number of jobs created in recent years has been grossly exaggerated due to this double counting. On Friday, the National Labor Relations board ruled that temp workers will no longer be able to bargain for job benefits along with permanent employees. The ability to organize will be permitted only if both the temp agency that placed the temp worker and the company where the temp works consent. The chances of that happening are nil. The temp worker is paid by the temp agency, and the latter wants to continue to place workers with that company. Please keep in mind that the temp worker receives no benefits and now will lose the right to organize. In sum, on Friday, the NLRB overturned the 2000 M.B. Sturgis ruling that stated bargaining units combining permanent and temp employees was permissible.

GM will close its Linden, N.J. plant that was built in 1937 and makes Blazers and Jimmys. The plant’s second production shift was dropped in 2002. GM has not closed an assembly plant since it shuttered the Buick City complex in Flint in 1999. Linden employs 1,650 hourly and 110 salaried workers. J. M. Smucker was honored in January by Fortune Magazine as the best place to work. The company announced plans to close a Salinas, CA processing plant and cut other jobs as part of restructuring efforts. They did not state how many of their 4,500 employees would lose their jobs. Sanmina SCI told its 300 employees at its Westbrook, ME manufacturing facility that the plant will be closed in March 2005. Georgia Gulf will shut its Tiptonville, Tenn. compound plant effective immediately, and all 57 employees will lose their jobs. TriQuint Semi will cut 200 workers.

According to Crain’s Detroit Business, in 1995, Ford, GM, and Chrysler made 73.2% of the cars and light trucks sold in the U.S. That has dropped to 58.9% through October 2004.

According to Foreclosures.com, mortgage defaults will surge by the second quarter of 2005. They stated “the problem now is that too many households are overloaded with debt.” Foreclosures.com remarked that there has always been a correlation between rising interest rates and rising levels of foreclosure activity.

It was only recently that I urged all investors to cease owning debt instruments, and, in particular, Treasury debt. I stated that, in my view, interest rates would rise significantly. In just a few days, we have seen interest rates on 10-year Treasury bonds rise from under 4.10% to 4.34%. Many explanations have been offered. There was the rumor about the Chinese selling some Treasuries. There is the thought that foreign central banks and foreign investors are losing their appetite for Treasuries. Then there are the technical analysts who stated that the 10-year Treasuries broke their 200-day moving average. Others opined that hedge funds were selling. Still others offered that some brokerage firms have their fiscal year-end today, and some rearranging of positions could be taking place. Others believe money managers maybe shifting portfolios and allocating more money to stocks than to bonds. There was a rumor that the Treasury would have to begin reissuing 30-year bonds in order to meet the costs of Social Security reform. There is also the thought that inflation will get worse and erode the returns offered by bonds. As Bloomberg observed, the differential in yield between 10-year TIPS and 10-year nominal securities is 2.68 points, and this is the widest in five months. From my perspective, some or all of the aforementioned reasons for the jump in rates may be credible. For me, rates are unrealistically low given the heightened risks resulting from this nation’s rising federal, state, municipal, and household debt levels. The Fed is searching for the “natural rate” of interest after years of creating a jolly refi way of life. The fun and games are over. Now it’s war. It’s us against the world. Who will blink first and stop buying our debt?

Monday, November 29, 2004

11/29/04 Statistics And Recommendations

Wall Street is famous for making earnings per share estimates for companies. Few possess enough talent to make an estimate without company guidance. They are almost as helpful as government statistics from the CBO and the BLS. This morning Merrill Lynch raised its estimate for Apple Computer’s 2005 EPS to $1.45 per share from $1.38 and for 2006 from $1.71 to $1.80. Do you really believe Merrill has a crystal ball for consumer spending or for potential competition to the ipod? Merrill raised their target price for Apple stock to $78 from $61, and at $78, that would be 43+ times their 2006 EPS estimate or more than twice their projected growth rate for 2006 earnings. What was Merrill saying about Apple earnings when the stock traded at $20 not so long ago?

Readers need to be wary about statistics, and not just recommendations. The National Retail Federation stated that 133 million Americans out of a population of 295 million shopped over this Thanksgiving weekend. How much money was spent on non-discounted special offerings? Let’s take the case of Fred Meyer in the Pacific Northwest. Each Black Friday they run a six-hour sale from 5AM to 11am. During that sale period, their prices on home electronics are lower than any other competitor in the states where they do business, and that includes Best Buy and the like. Shoppers line up at 4AM for those sale items. At 11:01 AM their stores are like a morgue. The aisles could be used for bowling.

According to a study by the American Bankers Association and Dove Consulting Group, for the first time last year, cash and checks accounted for less than half of in-store purchases or 47%. Just five years ago, they made up 57%. During this five-year period, debit-card transactions increased from 21% to 31%, and are expected to rise even further this year. In fact, among 18 to 34 year olds, 54% stated they would use debit cards.

Going back to 1950, the month of December has provided an average gain of 1.6% on the S&P 500. In only 13 out of the last 54 Decembers has there been a decline. In sum, based on the latest 54 years of trading history, the chances are roughly 4 to 1 that a gain will be forthcoming in December in the S&P 500. This is described as a seasonal trading factor and explains why so many on Wall Street anticipate Santa Claus rallies. If you are going to partake in this activity, I recommend purchases be made on a debit card, so to speak. In other words, do not purchase on credit or margin. I will not be a buyer. I will be a seller. For me, the check-out lines are too crowded. I prefer to shop when the aisles are empty and clearance items do not hold particular interest for others. I noticed there was a foot of snow in Nebraska and that single-digit temperatures were evident in parts of Colorado. It was on November 18 that the National Oceanic and Atmospheric Administration’s final winter outlook predicted a greater likelihood of lower-than-average temperatures in much of the East, Middle Atlantic, and South. I wonder how colder temperatures will impact heating oil supplies and their prices. I wonder if colder temperatures will have an effect on stock prices. It’s just a seasonal factor. Right?

11/29/04 Statistics And Recommendations

Wall Street is famous for making earnings per share estimates for companies. Few possess enough talent to make an estimate without company guidance. They are almost as helpful as government statistics from the CBO and the BLS. This morning Merrill Lynch raised its estimate for Apple Computer’s 2005 EPS to $1.45 per share from $1.38 and for 2006 from $1.71 to $1.80. Do you really believe Merrill has a crystal ball for consumer spending or for potential competition to the ipod? Merrill raised their target price for Apple stock to $78 from $61, and at $78, that would be 43+ times their 2006 EPS estimate or more than twice their projected growth rate for 2006 earnings. What was Merrill saying about Apple earnings when the stock traded at $20 not so long ago?

Readers need to be wary about statistics, and not just recommendations. The National Retail Federation stated that 133 million Americans out of a population of 295 million shopped over this Thanksgiving weekend. How much money was spent on non-discounted special offerings? Let’s take the case of Fred Meyer in the Pacific Northwest. Each Black Friday they run a six-hour sale from 5AM to 11am. During that sale period, their prices on home electronics are lower than any other competitor in the states where they do business, and that includes Best Buy and the like. Shoppers line up at 4AM for those sale items. At 11:01 AM their stores are like a morgue. The aisles could be used for bowling.

According to a study by the American Bankers Association and Dove Consulting Group, for the first time last year, cash and checks accounted for less than half of in-store purchases or 47%. Just five years ago, they made up 57%. During this five-year period, debit-card transactions increased from 21% to 31%, and are expected to rise even further this year. In fact, among 18 to 34 year olds, 54% stated they would use debit cards.

Going back to 1950, the month of December has provided an average gain of 1.6% on the S&P 500. In only 13 out of the last 54 Decembers has there been a decline. In sum, based on the latest 54 years of trading history, the chances are roughly 4 to 1 that a gain will be forthcoming in December in the S&P 500. This is described as a seasonal trading factor and explains why so many on Wall Street anticipate Santa Claus rallies. If you are going to partake in this activity, I recommend purchases be made on a debit card, so to speak. In other words, do not purchase on credit or margin. I will not be a buyer. I will be a seller. For me, the check-out lines are too crowded. I prefer to shop when the aisles are empty and clearance items do not hold particular interest for others. I noticed there was a foot of snow in Nebraska and that single-digit temperatures were evident in parts of Colorado. It was on November 18 that the National Oceanic and Atmospheric Administration’s final winter outlook predicted a greater likelihood of lower-than-average temperatures in much of the East, Middle Atlantic, and South. I wonder how colder temperatures will impact heating oil supplies and their prices. I wonder if colder temperatures will have an effect on stock prices. It’s just a seasonal factor. Right?

Sunday, November 28, 2004

11/27/04 The Latest On Outsourcing

A recent joint report by Cornell University and the University of Massachusetts at Amherst is the first effort to look at offshoring in all industries and to compare the findings in 2001 with 2004. This study, commissioned by a bipartisan congressional commission, revealed that 406,000 jobs will migrate overseas this year, double the estimate put forth by previous reports completed by other organizations, such as, the U.S. Chamber of Commerce. In addition, the authors suggest that offshoring “is absolutely accelerating, and it’s changing in its nature. Whereas in 2001 it was almost all in manufacturing, now we see an increase in information technology, communications, financial services, and white-collar work, from research and design to back office.” It is not surprising that the U.S. Chamber of Commerce’s chief economist, Martin Regalia, criticized the 406,000 job-loss estimate in 2004 as at the “high end of any estimates out there.” On the other hand, the authors of the report defend the findings as “extremely conservative.” I agree. Companies go to great lengths to suppress any information relating to jobs being transferred and/or relocated outside our shores.

Tim King, Group 1 Software Inc. vice president: “When you talk about outsourcing, a lot of people freak out. Our strategy is not to replace jobs but to supplement what we have, to be more cost-effective. Our mantra for some time has been to do more with less, and we’ve tried to be up front about that. You have to be candid and gain credibility, and that goes a long way.” Naturally, people freak out. In India, a computer programmer with a college degree and two or three years’ experience earns about $20,000 a year. Indian workers who process financial transactions make $12,000 to $15,000. Call-center workers in India earn about $1,200 a year.

David Foote, president of IT advisory and research company Foote Partners LLC: “Companies do a lot of things that almost guarantee that there’s going to be a lot of fear, uncertainty, and doubt in their organizations. They tell Wall Street that they’re going to be reducing costs and then fail to communicate to their own employees how that is going to affect them. Some of the people they end up wanting to keep get so pissed off by the process that they split.”

Janet Yellen, President and CEO of the San Francisco Fed: “The jobs that are getting created are not in some sense appropriate jobs for the people who lost the jobs…we have a trend toward widening wage inequality in the U.S.”

Early yesterday, Wal-Mart estimated that, for the period from October 30 through November 26, same-store sales rose 0.7% rather than the previous forecast of 2 to 4%. In November 2003 comparative results rose 3.9%; however, the company had many more promotional items and they cut into overall profitability. There were several reasons for the disappointing results this year, and they are not because the company is doing a bad job. The most significant reason lies with their average customer whose average median income is lower than the overall U.S. average by about 9% or approximately $4,000. Higher gasoline, other energy prices, and increased food costs have taken a big bite out of the sparse discretionary spending Wal-Mart shoppers enjoy. In sum, they don’t have it to spend; however, it should be noted that Wal-Mart stated “average ticket was essentially flat while customer traffic declined towards the end of the week.” Target and J.C. Penney had better starts to the holiday shopping season. Their customers have higher incomes.

April Lane Benson, NY psychologist: “I think one thing that is very important is you can never get enough of what you don’t need.”

Data from ShopperTrak indicated Black Friday sales rose 10.8% from the prior year to $8 billion. Visa stated spending on its cards rose 15.5% to $4.1 billion. Michael Niemira, chief economist for the International Council of Shopping Centers stated “Black Friday is not always considered to be a particularly good predictor for the rest of the season, as factors like weather, discounting patterns, inventory, and general economic conditions come into play.”

The Vix, a volatility indicator, is approaching a nine-year low. At the same time, there is a large appetite for calls with call demand running about 2 for every 1 put purchase. Overall, one might conclude that bullish seasonal patterns have made investors pretty smug and their market swagger gives little recognition to any downside potential. James Oelschlager of the White Oak Growth Stock Fund believes “the next ten years will make the wealth creation of the 1990s look modest.” From his lips to God’s ears.

Two-year Treasury notes yield 3.04% while 10-year Treasury bonds yield 4.24%. The yield curve is flattening week by week.

The Indian rupee was 46.47 to the dollar in July, and it has rebounded to 45.01.

Over a year’s time, Appalachian coal futures have risen from $40 to $60 per ton. According to BP PLC, the U.S. consumes about 22% of the world’s coal and China is the largest user at 31%. Some believe that coal prices are headed significantly higher. Swiss miner Xstrata PLC supposedly signed a contract to sell coal to a South African steelmaker in 2005 for $137 a ton. If that is so, then coal stocks could be the Ebay, Google, Apple Computer, and Research in Motion of 2005. BHP Billiton might be the coal company of choice. I am not a coal maven. As such, my input is worth little at best.

.

11/27/04 The Latest On Outsourcing

A recent joint report by Cornell University and the University of Massachusetts at Amherst is the first effort to look at offshoring in all industries and to compare the findings in 2001 with 2004. This study, commissioned by a bipartisan congressional commission, revealed that 406,000 jobs will migrate overseas this year, double the estimate put forth by previous reports completed by other organizations, such as, the U.S. Chamber of Commerce. In addition, the authors suggest that offshoring “is absolutely accelerating, and it’s changing in its nature. Whereas in 2001 it was almost all in manufacturing, now we see an increase in information technology, communications, financial services, and white-collar work, from research and design to back office.” It is not surprising that the U.S. Chamber of Commerce’s chief economist, Martin Regalia, criticized the 406,000 job-loss estimate in 2004 as at the “high end of any estimates out there.” On the other hand, the authors of the report defend the findings as “extremely conservative.” I agree. Companies go to great lengths to suppress any information relating to jobs being transferred and/or relocated outside our shores.

Tim King, Group 1 Software Inc. vice president: “When you talk about outsourcing, a lot of people freak out. Our strategy is not to replace jobs but to supplement what we have, to be more cost-effective. Our mantra for some time has been to do more with less, and we’ve tried to be up front about that. You have to be candid and gain credibility, and that goes a long way.” Naturally, people freak out. In India, a computer programmer with a college degree and two or three years’ experience earns about $20,000 a year. Indian workers who process financial transactions make $12,000 to $15,000. Call-center workers in India earn about $1,200 a year.

David Foote, president of IT advisory and research company Foote Partners LLC: “Companies do a lot of things that almost guarantee that there’s going to be a lot of fear, uncertainty, and doubt in their organizations. They tell Wall Street that they’re going to be reducing costs and then fail to communicate to their own employees how that is going to affect them. Some of the people they end up wanting to keep get so pissed off by the process that they split.”

Janet Yellen, President and CEO of the San Francisco Fed: “The jobs that are getting created are not in some sense appropriate jobs for the people who lost the jobs…we have a trend toward widening wage inequality in the U.S.”

Early yesterday, Wal-Mart estimated that, for the period from October 30 through November 26, same-store sales rose 0.7% rather than the previous forecast of 2 to 4%. In November 2003 comparative results rose 3.9%; however, the company had many more promotional items and they cut into overall profitability. There were several reasons for the disappointing results this year, and they are not because the company is doing a bad job. The most significant reason lies with their average customer whose average median income is lower than the overall U.S. average by about 9% or approximately $4,000. Higher gasoline, other energy prices, and increased food costs have taken a big bite out of the sparse discretionary spending Wal-Mart shoppers enjoy. In sum, they don’t have it to spend; however, it should be noted that Wal-Mart stated “average ticket was essentially flat while customer traffic declined towards the end of the week.” Target and J.C. Penney had better starts to the holiday shopping season. Their customers have higher incomes.

April Lane Benson, NY psychologist: “I think one thing that is very important is you can never get enough of what you don’t need.”

Data from ShopperTrak indicated Black Friday sales rose 10.8% from the prior year to $8 billion. Visa stated spending on its cards rose 15.5% to $4.1 billion. Michael Niemira, chief economist for the International Council of Shopping Centers stated “Black Friday is not always considered to be a particularly good predictor for the rest of the season, as factors like weather, discounting patterns, inventory, and general economic conditions come into play.”

The Vix, a volatility indicator, is approaching a nine-year low. At the same time, there is a large appetite for calls with call demand running about 2 for every 1 put purchase. Overall, one might conclude that bullish seasonal patterns have made investors pretty smug and their market swagger gives little recognition to any downside potential. James Oelschlager of the White Oak Growth Stock Fund believes “the next ten years will make the wealth creation of the 1990s look modest.” From his lips to God’s ears.

Two-year Treasury notes yield 3.04% while 10-year Treasury bonds yield 4.24%. The yield curve is flattening week by week.

The Indian rupee was 46.47 to the dollar in July, and it has rebounded to 45.01.

Over a year’s time, Appalachian coal futures have risen from $40 to $60 per ton. According to BP PLC, the U.S. consumes about 22% of the world’s coal and China is the largest user at 31%. Some believe that coal prices are headed significantly higher. Swiss miner Xstrata PLC supposedly signed a contract to sell coal to a South African steelmaker in 2005 for $137 a ton. If that is so, then coal stocks could be the Ebay, Google, Apple Computer, and Research in Motion of 2005. BHP Billiton might be the coal company of choice. I am not a coal maven. As such, my input is worth little at best.

.

11/27/04 The Latest On Outsourcing

A recent joint report by Cornell University and the University of Massachusetts at Amherst is the first effort to look at offshoring in all industries and to compare the findings in 2001 with 2004. This study, commissioned by a bipartisan congressional commission, revealed that 406,000 jobs will migrate overseas this year, double the estimate put forth by previous reports completed by other organizations, such as, the U.S. Chamber of Commerce. In addition, the authors suggest that offshoring “is absolutely accelerating, and it’s changing in its nature. Whereas in 2001 it was almost all in manufacturing, now we see an increase in information technology, communications, financial services, and white-collar work, from research and design to back office.” It is not surprising that the U.S. Chamber of Commerce’s chief economist, Martin Regalia, criticized the 406,000 job-loss estimate in 2004 as at the “high end of any estimates out there.” On the other hand, the authors of the report defend the findings as “extremely conservative.” I agree. Companies go to great lengths to suppress any information relating to jobs being transferred and/or relocated outside our shores.

Tim King, Group 1 Software Inc. vice president: “When you talk about outsourcing, a lot of people freak out. Our strategy is not to replace jobs but to supplement what we have, to be more cost-effective. Our mantra for some time has been to do more with less, and we’ve tried to be up front about that. You have to be candid and gain credibility, and that goes a long way.” Naturally, people freak out. In India, a computer programmer with a college degree and two or three years’ experience earns about $20,000 a year. Indian workers who process financial transactions make $12,000 to $15,000. Call-center workers in India earn about $1,200 a year.

David Foote, president of IT advisory and research company Foote Partners LLC: “Companies do a lot of things that almost guarantee that there’s going to be a lot of fear, uncertainty, and doubt in their organizations. They tell Wall Street that they’re going to be reducing costs and then fail to communicate to their own employees how that is going to affect them. Some of the people they end up wanting to keep get so pissed off by the process that they split.”

Janet Yellen, President and CEO of the San Francisco Fed: “The jobs that are getting created are not in some sense appropriate jobs for the people who lost the jobs…we have a trend toward widening wage inequality in the U.S.”

Early yesterday, Wal-Mart estimated that, for the period from October 30 through November 26, same-store sales rose 0.7% rather than the previous forecast of 2 to 4%. In November 2003 comparative results rose 3.9%; however, the company had many more promotional items and they cut into overall profitability. There were several reasons for the disappointing results this year, and they are not because the company is doing a bad job. The most significant reason lies with their average customer whose average median income is lower than the overall U.S. average by about 9% or approximately $4,000. Higher gasoline, other energy prices, and increased food costs have taken a big bite out of the sparse discretionary spending Wal-Mart shoppers enjoy. In sum, they don’t have it to spend; however, it should be noted that Wal-Mart stated “average ticket was essentially flat while customer traffic declined towards the end of the week.” Target and J.C. Penney had better starts to the holiday shopping season. Their customers have higher incomes.

April Lane Benson, NY psychologist: “I think one thing that is very important is you can never get enough of what you don’t need.”

Data from ShopperTrak indicated Black Friday sales rose 10.8% from the prior year to $8 billion. Visa stated spending on its cards rose 15.5% to $4.1 billion. Michael Niemira, chief economist for the International Council of Shopping Centers stated “Black Friday is not always considered to be a particularly good predictor for the rest of the season, as factors like weather, discounting patterns, inventory, and general economic conditions come into play.”

The Vix, a volatility indicator, is approaching a nine-year low. At the same time, there is a large appetite for calls with call demand running about 2 for every 1 put purchase. Overall, one might conclude that bullish seasonal patterns have made investors pretty smug and their market swagger gives little recognition to any downside potential. James Oelschlager of the White Oak Growth Stock Fund believes “the next ten years will make the wealth creation of the 1990s look modest.” From his lips to God’s ears.

Two-year Treasury notes yield 3.04% while 10-year Treasury bonds yield 4.24%. The yield curve is flattening week by week.

The Indian rupee was 46.47 to the dollar in July, and it has rebounded to 45.01.

Over a year’s time, Appalachian coal futures have risen from $40 to $60 per ton. According to BP PLC, the U.S. consumes about 22% of the world’s coal and China is the largest user at 31%. Some believe that coal prices are headed significantly higher. Swiss miner Xstrata PLC supposedly signed a contract to sell coal to a South African steelmaker in 2005 for $137 a ton. If that is so, then coal stocks could be the Ebay, Google, Apple Computer, and Research in Motion of 2005. BHP Billiton might be the coal company of choice. I am not a coal maven. As such, my input is worth little at best.

.

11/27/04 The Latest On Outsourcing

A recent joint report by Cornell University and the University of Massachusetts at Amherst is the first effort to look at offshoring in all industries and to compare the findings in 2001 with 2004. This study, commissioned by a bipartisan congressional commission, revealed that 406,000 jobs will migrate overseas this year, double the estimate put forth by previous reports completed by other organizations, such as, the U.S. Chamber of Commerce. In addition, the authors suggest that offshoring “is absolutely accelerating, and it’s changing in its nature. Whereas in 2001 it was almost all in manufacturing, now we see an increase in information technology, communications, financial services, and white-collar work, from research and design to back office.” It is not surprising that the U.S. Chamber of Commerce’s chief economist, Martin Regalia, criticized the 406,000 job-loss estimate in 2004 as at the “high end of any estimates out there.” On the other hand, the authors of the report defend the findings as “extremely conservative.” I agree. Companies go to great lengths to suppress any information relating to jobs being transferred and/or relocated outside our shores.

Tim King, Group 1 Software Inc. vice president: “When you talk about outsourcing, a lot of people freak out. Our strategy is not to replace jobs but to supplement what we have, to be more cost-effective. Our mantra for some time has been to do more with less, and we’ve tried to be up front about that. You have to be candid and gain credibility, and that goes a long way.” Naturally, people freak out. In India, a computer programmer with a college degree and two or three years’ experience earns about $20,000 a year. Indian workers who process financial transactions make $12,000 to $15,000. Call-center workers in India earn about $1,200 a year.

David Foote, president of IT advisory and research company Foote Partners LLC: “Companies do a lot of things that almost guarantee that there’s going to be a lot of fear, uncertainty, and doubt in their organizations. They tell Wall Street that they’re going to be reducing costs and then fail to communicate to their own employees how that is going to affect them. Some of the people they end up wanting to keep get so pissed off by the process that they split.”

Janet Yellen, President and CEO of the San Francisco Fed: “The jobs that are getting created are not in some sense appropriate jobs for the people who lost the jobs…we have a trend toward widening wage inequality in the U.S.”

Early yesterday, Wal-Mart estimated that, for the period from October 30 through November 26, same-store sales rose 0.7% rather than the previous forecast of 2 to 4%. In November 2003 comparative results rose 3.9%; however, the company had many more promotional items and they cut into overall profitability. There were several reasons for the disappointing results this year, and they are not because the company is doing a bad job. The most significant reason lies with their average customer whose average median income is lower than the overall U.S. average by about 9% or approximately $4,000. Higher gasoline, other energy prices, and increased food costs have taken a big bite out of the sparse discretionary spending Wal-Mart shoppers enjoy. In sum, they don’t have it to spend; however, it should be noted that Wal-Mart stated “average ticket was essentially flat while customer traffic declined towards the end of the week.” Target and J.C. Penney had better starts to the holiday shopping season. Their customers have higher incomes.

April Lane Benson, NY psychologist: “I think one thing that is very important is you can never get enough of what you don’t need.”

Data from ShopperTrak indicated Black Friday sales rose 10.8% from the prior year to $8 billion. Visa stated spending on its cards rose 15.5% to $4.1 billion. Michael Niemira, chief economist for the International Council of Shopping Centers stated “Black Friday is not always considered to be a particularly good predictor for the rest of the season, as factors like weather, discounting patterns, inventory, and general economic conditions come into play.”

The Vix, a volatility indicator, is approaching a nine-year low. At the same time, there is a large appetite for calls with call demand running about 2 for every 1 put purchase. Overall, one might conclude that bullish seasonal patterns have made investors pretty smug and their market swagger gives little recognition to any downside potential. James Oelschlager of the White Oak Growth Stock Fund believes “the next ten years will make the wealth creation of the 1990s look modest.” From his lips to God’s ears.

Two-year Treasury notes yield 3.04% while 10-year Treasury bonds yield 4.24%. The yield curve is flattening week by week.

The Indian rupee was 46.47 to the dollar in July, and it has rebounded to 45.01.

Over a year’s time, Appalachian coal futures have risen from $40 to $60 per ton. According to BP PLC, the U.S. consumes about 22% of the world’s coal and China is the largest user at 31%. Some believe that coal prices are headed significantly higher. Swiss miner Xstrata PLC supposedly signed a contract to sell coal to a South African steelmaker in 2005 for $137 a ton. If that is so, then coal stocks could be the Ebay, Google, Apple Computer, and Research in Motion of 2005. BHP Billiton might be the coal company of choice. I am not a coal maven. As such, my input is worth little at best.

.