Saturday, February 12, 2005

2/12/05 Flowing Freely But Not Free

Interest on the U.S. debt was $321 billion in fiscal 2004 and is forecast to rise to $347.9 billion in fiscal 2005. As interest rates rise and the outstanding government debt expands to $8 trillion and above, what chance is there for the budget deficit to decline?

For the week of January 31, M3 increased $15.6 billion to $9.503 trillion. For the week of February 2, bank credit expanded by $46.7 billion to a record $6.9 trillion. For the past six weeks, bank credit has exploded by $156 billion. As I said yesterday, the world is puking dollars.

Arthur Miller: “Maybe all we can do is hope to end up with the right regrets.”

The Goldman Sachs Commodities index has risen by 5.9% in 2005. Once again, this index is outperforming stocks and bonds.

Janet Yellen, President of the San Francisco Fed, sees neutral interest rates ranging from 3 to 5%. Yesterday, she stated “over time, the degree of accommodation will have to diminish, with policy reverting toward so-called ‘neutral’ for inflation to remain well contained.”

I believe a more telling observation comes from Governor Alan Bollard of the Reserve Bank of New Zealand. He opined that “seeking to stabilize rising house prices or an overheated stock market might mean having to force inflation lower than otherwise would be required with monetary policy.”

This month’s AP-Ipsos consumer confidence index sank to 79.1, down sharply from 92.5 in January. It was the worst showing since October 2003.

Ivan Shaffer: “A man isn’t a man until he has to meet a payroll.”

Citigroup will cut 1,000 investment banking jobs. Solutia is closing its Acrilan fiber plant in Decatur, Ala. and about 210 workers will lose their jobs.

CBO Director Douglas Holtz-Eakin: “I believe private accounts are a policy decision. They are not a solution to the financial problems of Social Security…The central domestic policy challenge of our time is rising health care costs.” The Director stated that, as the President’s plan exempts defense and homeland security from budget cuts, it focuses reductions on just 17% of the federal budget. Holtz-Eakin said “the punch line is that near-term strategy, even if successful, leaves you with a long-term budget problem.” In my opinion, this cements the view that the downtrend in the dollar’s value will continue well into the future.

In 233 pages of documents, specifics were provided on how Bush would meet his goal of limiting discretionary spending growth to 2.1% in fiscal 2006. There would be cuts in job training programs under the Workforce Investment Act of 1998. A number of education programs were slated to get no funding at all in 2006, including Even Start family literacy and low-interest loans for needy students. He plans to abolish a program to help communities hire more police officers. A program that provides block grants to help improve the juvenile justice system would be abolished. However, Bush wants to make his tax cuts permanent, and Holtz-Eakin called these permanent tax cuts “a big deal” in that they would subtract $200 billion in revenue down the road.

According to a recent report from Demos, a research and policy group in New York, young adults aged 18 to 34 saw their debt increase by 55% between 1992 and 2001. This age group has the second-highest bankruptcy rate in the country. I have no doubt they are carrying more debt in 2005 than they did four years ago.

Benjamin Franklin: “Creditors have better memories than debtors.”

Friday, February 11, 2005

2/11/05 Going To School On Valentine’s Day

According to the American Floral Endowment, only 54% of Valentine’s Day flower purchases last year were roses. That percentage is expected to decline to below 50% in 2005. Tulips have risen in demand and even the Teddy Bear has been an attractive alternative. Imports account for 70% of the fresh-cut flowers sold in the U.S. It’s interesting to note that surveys show that men prefer sending red-colored flowers, while the majority of women prefer pastels. Consumers spend an estimated $19 billion a year on cut flowers and potted plants. Tastes are changing. Remember the recent growing trend for gift cards? A survey by Deloitte & Touche found that gift cards represented nearly $18 billion in sales during December and January, an increase of more than 20% from the prior year. The survey noted that “while an estimated $18 billion has already been added to sales from consumers’ gift card redemptions, consumers are likely still likely holding on to another $9 billion of unredeemed value on their cards.” Consumers’ tastes change. That can be true of flowers and gift cards. It hinges on alternatives. That can be true of investments too. However, some things remain the same with 36 million boxes of candy sold for Valentine’s Day annually.

Yesterday represented a reversal in fortunes for the contrarian investor. There was a sharp upturn in yield for the ten-year Treasury bond and the U.S. dollar declined in value versus the euro. For many petroleum forecasters, it was a disappointing day. Rather than declining, crude rallied sharply and settled just above $47 a barrel. So much for the small improvement in the December trade numbers which declined only because the price for oil had its largest one-month drop since 1991. As for our trade with China, it’s headed in the same direction. In 2004, our trade deficit with China was $162 billion. U.S. imports from China increased 29%, while U.S. exports to China grew 22% and reached $35 billion, a yearly high. China’s forex reserves increased to $609.9 billion in 2004, a 41% increase since 2003, and amounts to more than a third of China’s GDP. Their money supply continues to increase at a rate of 12 to 13 percent. Maybe Greenspan & Co.can emulate China and print money at the same double-digit rate. Why delay the inevitable? It’s only a matter of time until the world’s central banks begin to puke up dollars. They’re choking on them.

On Jan. 21, 2005, Comptroller General David Walker of the GAO stated “there are no stocks, or bonds or real estate in the trust fund. It has nothing of real value to draw down.”

Recently, Bush remarked “Some in our country think that Social Security is a trust fund---in other words, there’s a pile of money being accumulated. That’s just simply not true. The money---payroll taxes going into the Social Security are spent. They’re spent on benefits and they’re spent on government programs. There is no trust. We’re on the ultimate pay-as-you-go system--- what goes in comes out. And so, starting in 2018, what’s going in---what’s coming out is greater than what’s going in. It says we’ve got a problem. And we’d better start dealing with it now.” I’m sure he is referring to the problem of “there is no trust.”

Jeremy Siegel wrote a book entitled “Stocks for the Long Run.” He examined returns for stocks and bonds between 1800 and 1950. Interestingly, during those 150 years, stocks only outperformed bonds 57% of the time. In the first 41 days of 2005, bonds have outperformed stocks. I wonder what will take place for the rest of this year.

Last week, the CBO stated the government would run a $12 billion budget surplus in January. Yesterday, they stated the surplus was only $8.7 billion. They were off by 27.4% in one week’s time. This lack of performance is irresponsible. These schmucks should be fired. How can anyone believe any budget numbers coming out of the CBO?

There is speculation that Sumitomo Mitsui Financial Group and Daiwa Securities are discussing a $1.3 trillion merger.

According to the U.S. Government Accountability Office (since when is anyone in government accountable?), American taxpayers face a “fiscal exposure” (sun block won’t help) of at least $43 trillion over the next 75 years, including $3.7 trillion from Social Security and $27 trillion from Medicare. Since the CBO can’t get budget estimates right in one week’s time, can you imagine how wrong the numbers will be from this “Accountability” office? Everyone in Congress can point fingers at one another and then have another drink on the taxpayers.

Economists polled in the Blue Chip Economic Indicators newsletter predicted the core CPI would increase 2.3% this year and 2.4% next year, up sharply from 1.8% in 2004. What does core CPI mean any way? Don’t we buy gas, heat our homes, and buy food? It’s a bullshit number.

Many politicians want to blame China for last year’s $617.7 billion record trade deficit, which represented a 24% rise over 2003. It should be noted that we ran record trade deficits with the EU, Mexico, and major oil-producing countries.


So much for inflation not being a concern. Effective March 1, Union Pacific is raising rail rates into and out of Phoenix’s congested freight yards from 8 to 100% for steel, construction products, aluminum, machinery, paper, salt, and other products.

According to the AP, 54% of people 50 and over disapprove of Bush’s job performance and 58% think the country is headed down the wrong track. Those 65 and over were most responsible for the declining confidence and approval numbers. Therefore, I cannot be held responsible. The poll was taken from Feb. 7-9.

I have a little suggestion. Rather than worry about matching assets with liabilities, the yield curve, and having to retire debt instruments, let’s explore the following. A very long time ago--- when we still had a manufacturing base and farmers milked cows by hand--- the Canadian Pacific issued an instrument called “perpetual 4s.” I propose all outstanding U.S. government debt be converted into perpetual 4s and all future debt be limited perpetual 4s except for small amounts of 3 and 6 month Treasury bills. This will eliminate the need for auctions and will dispense with the thought that the U.S could possibly pay off its debts. In addition, it will lock in the U.S. debts at 4%. There’s something for everyone. Call it 4s in every pot.

General Motors Corp. barred its employees, retirees and others who receive medical coverage from the company from filling prescriptions at Walgreen Co. drugstores, the Detroit News reported. Medco Health, which manages GM's pharmaceutical program, told GM's health-care recipients of the decision. Walgreen's opposes health-care plans that require ordering some drugs in bulk through mail-order companies, the paper reported.

Commenting on the first quarter, Ann Taylor Corp expects to see continued pressure in
its gross margin, specifically at the Ann Taylor division. Partially
offsetting the pressure in gross margin is the anticipated decrease in
selling, general and administrative expenses as a percentage of net sales, as
marketing as a percentage of net sales at the Ann Taylor division is expected
to decline.

Supercuts opened its 2,000th store.

Thursday, February 10, 2005

2/10/05 Contrarian Investors

If you look up at the scoreboard, you’ll notice that, during the first 40 days of 2005, contrarian investors are having a field day. Money is flowing freely in their direction. The most one-sided investment projections for 2005 were for a falling dollar, rising long-term interest rates, and a rising price for gold. In reality, the dollar has risen 5.8% against the euro. Ten-year Treasury bond yields have declined from 4.22% to 3.98%. Gold has declined 5.6% this year. Forty days do not make a year. Let’s see what the next 40 days bring.

Today we’ll read about the trade deficit numbers for December. They are expected to decline from the record $60.3 billion in November to $57 billion. Much will be made of the drop. On an annualized basis it amounts to $40 billion, a drop in the bucket from a total of $660 billion. A deficit of $57 billion would still be the second largest monthly trade deficit in history.

Chad Hudson: “95 companies in the S&P 500 have issued guidance for the first quarter of 2005, 60% of those were negative pre-announcements and only 28% were positive. This 2:1 ratio is the highest since the third quarter of 2003, and the percentage of companies guiding down earnings is the highest in at least eight quarters…soaring commodity costs account for half the earnings growth of the S&P 500 during the fourth quarter.”

The Bush administration was not far from the mark in being concerned about WMD. They were close. Both Iraq and Iran begin with the same three letters. I am confident they’ll get it right on the second try. Iran stated it will not give up its nuclear technology and they intend to maintain the nuclear program as a point of national pride. The IAEA stated Iran has been pursuing nuclear activities covertly for more than 20 years. North Korea chimed in and stated they had nuclear weapons.

According to the Bank for International Settlements, over the past five years, foreign central bank financial claims on the United States have risen to $2.5 trillion.

According to a new study by Boston University’s School of Public Health, rising costs of health care consumed nearly a quarter of the nation’s economic growth over the last five years. That’s a larger impact than defense or education spending. Co-author of the study, Deborah Socolar, stated “health care expenditures are growing so much faster than the economy as whole, and that means there is less money available for everything else that people care about.”

Some economists believe that pension funds will maintain their efforts to overweight the long-end of the yield curve. The reason may lie in Bush’s desire to change defined-benefit funding rules and include the risk of terminating plans. As such, there would be more matching of assets with liabilities.

Inman Real Estate News: “Some appraisers willingly bend numbers on home valuations to satisfy their clients and get more work, a practice known as ‘appraisal inflation.’ In its most destructive form, appraisal inflation can assist predatory lending practices and can play a role in flipping schemes, in which properties are fraudulently assessed to win a high loan amount and then resold for higher prices. Exaggerated appraisals can lead to inflated home prices, increasing the risk of loan default and foreclosure and placing homes out of reach for some prospective buyers.” May real estate professionals believe fraudulent real estate appraisals played a part in the S&L crisis of the 1980s.

According to China’s Cabinet Development Center, that country projects 8% annual economic growth over the next five years. Their GDP should reach 2.8 trillion U.S. dollars by 2010. The Cabinet’s director stated “the next five years will be a ‘golden time’ for China’s economic development… Growth will be driven by China’s strength in materials and technology, a large domestic market, an abundant labor force and a stable society.”

Palatin Technologies, Inc. (Amex: PTN) reported the financial results for its second quarter ended Palatin Technologies, Inc. (PTN) reported the financial results for its second quarter ended December 31, 2004.
Total revenues were $4.8 million, compared to $0.3 million
for the same period in 2003. Palatin reported a net loss of $2.3 million, or
($0.04) per basic and diluted share, for the quarter ended December 31, 2004,
compared to a net loss of $4.6 million, or ($0.10) per basic and diluted
share, for the same period in 2003.
The increase in total revenues and the decrease in net loss for the quarter
ended December 31, 2004, compared to the same period in 2003, primarily
reflects the commercial launch of NeutroSpec(TM) in August of 2004 and revenue
recognized under its PT-141 collaboration agreement with King Pharmaceuticals.
NeutroSpec is Palatin's proprietary radiolabeled monoclonal antibody product
for imaging and diagnosing infections. PT-141 is Palatin's lead drug candidate
under development for male and female sexual dysfunction.
"During the last two quarters, Palatin has made significant progress,"
said Stephen T. Wills, chief financial officer of Palatin. "Our operational
success, which includes the approval and commercial launch of NeutroSpec and
the signing of our strategic alliance with King Pharmaceuticals, has
significantly increased our cash position and provided us substantial revenue
growth. We expect this financial progress to increase and continue throughout
2005."

Sara Lee’s restructuring will create a significant number of layoffs and employee attrition. The final estimate has not been provided.

Although first-time jobless claims dropped by 13,000 to a 4-year low, the number of workers continuing to receive benefits rose by 47,000 to 2.737 million and the 4-week average of continuing claims rose by 22,000 to 2.734 million.

Wednesday, February 09, 2005

2/9/05 Statistics

Consumer borrowing rose at a 1.8% annual rate in December as borrowings increased $3.1 billion over those in November. Outstanding consumer credit stands at $2.1 trillion. That only tells part of the story. That Fed number omits home mortgages and home equity lines of credit. As such, with the trend towards using the home as an ATM, the Fed figures on consumer credit are misleading. Then again, many Fed members are misleading.

Thomas Jefferson: “Sometimes it is said that man cannot be trusted with the government of himself. Can he, then, be trusted with the government of others?”

Other than car sales, if China’s economy is slowing down, you could fool me. Their annualized export growth was 33% in December, but it jumped to 42% in January. On the other hand, imports rose by 25% in December and January.

A significant percentage of China’s export growth to the U.S. comes from the “new affluent” category that is comprised of individuals aged 35-54 whose household income is at least $125,000. It makes up, according to a new Visa USA survey, about 7% of our population; however, they earn nearly half of the total U.S. household annual income and hold nearly half of the nation’s net worth with an average of $100,000-$1 million in investable assets. Rather than seeking prestige and luxury, they focus on value, pragmatism, and spend considerable time clipping coupons.

GM’s Baltimore plant will close May 13. A total of 1,100 workers will be impacted. It will mean the end of the line for the Astro and the Safari. Krispy Kreme will cut 125 to 150 staff members or about 25% of its employees outside retail outlets. Layoffs are on the way from Pfizer.

Visa USA stated that total sales volume on its credit, debit, and prepaid cards in the U.S. grew 19.1% to $1,045 trillion in 2004. Debit cards experienced record volumes and grew 19.7%, while prepaid cards grew 112% year over year.

Prior to the passage of Medicare legislation in late 2003, the Bush administration estimated the cost at $400 billion for the years 2004 to 2013. In September 2004, the cost was revised upward to $534 billion. Yesterday, it was revised upward to $720 billion for the years 2006 to 2015, and that’s after assuming that cost savings of $480 billion will be realized over that period. We know how efficient the federal government is. It would be a gross mistake to place any value on its ability to reduce costs.

Robert L. Bixby, executive director of the Concord Coalition: “But to leave out Social Security, the AMT, and the war costs and say you have a plan to cut the deficit in half over 5 years is beyond chutzpah.”

Not surprisingly, Carly Fiorina stepped down as chairman and CEO of HP. On an interim basis, she will be replaced by the company’s CFO, Robert Wayman. HP stock jumped 12% in early morning trading.

As stated on several occasions in the past, the time to be disappointed with Cisco was when it was trading at $23.50 last year. At its present price of $17.50, it is a different ballgame.

Tuesday, February 08, 2005

2/8/05 Saving For A Rainy Day

Do you think today’s youngsters have heard that refrain? Does it mean much to the more than 2.5 million Americans who work in temporary jobs? By the way, that number has risen by about 10% from one year ago. When, according to the Kaiser Family Foundation, employers paid an average of $3,137 per employee for individual health coverage and $7,289 for family coverage in 2004, do you think employers give much thought to raising wages? Do you think they give much thought to hiring a permanent worker, one who would receive benefits? It’s no wonder that millions of Americans need to work more than one job.

Greenspan: “The growth of home mortgage debt has been the major contributor to the decline in the personal saving rate in the U.S. from almost 6% in 1993 to its current level of 1%.” What created that growth in home mortgage debt? The Fed accomplished it by pushing short-term rates down to 1%. They enabled the consumer to use the home as an ATM.

The median price of a home in Maui has now topped $600,000.

According to the Fed, over the past year, foreign central banks acquired our U.S. government debt at an annual rate exceeding $210 billion. That is quite significant; however, even more significant is that the rate of annual accumulation has slowed by 30% from early January 2004.

Rep. Ron Paul: “Freedom is the absence of government coercion…Few Americans understand that all government action is inherently coercive. If nothing else, government action requires taxes. If taxes were freely paid, they wouldn’t be called taxes, they’d be called donations… So when a politician talks about freedom for this group or that, ask yourself whether he is advocating more government action or less.”

Bush: “We look forward to spreading freedom around the world.”

A recent McKinsey & Co. study finds that 70% of mergers fall short when it comes to achieving their targets for revenue synergies, while 40% lead to cost-synergy disappointments.

A recent National League of Cities study included a survey of 288 municipal CFOs. It found that 61% of municipalities will be less able to meet their financial obligations in 2005 than they were in 2004. Last year was the third year in a row that general fund revenues, adjusted for inflation, declined. At the same time, costs for public safety and health care soared. Many cities are resorting to severe budget cuts and hikes in taxes and fees. Aid from the states to the cities fell 9.2% on average across the nation in 2004.

Insider purchases of company stock hit the lowest point in almost 12 years in January. The buying dropped down to a mere $34.1 million.

According to the Cambridge Consumer Credit Index, 83% of Americans say that debts they have incurred because of medical or dental procedures are burdensome enough to prevent them from buying large ticket items. It should be noted that, of the respondents who have outstanding medical debts, 78% have healthcare or Medicare coverage and 53% have dental insurance.

Kurt Richebacher: “Ultra-low interest rates introduced by central banks to fight threatening recession have triggered an explosion in borrowing for house purchases in many countries…The key question is whether, and to what extent, asset owners convert the asset appreciation into higher borrowing and spending…It is undisputed that the greater part of the escalating mortgage borrowing in the United States was for purposes other than house purchases. In short, it boosted consumption as a share of GDP at the expense of business investment and the trade balance. That is, it radically changed the U.S. economy’s pattern of growth--- actually an unsustainable pattern of growth.”

With 10-year Treasury yields at 4.05%, this week’s mortgage rates are set to decline again.

Nouriel Roubini: “Expect deficits at most as low as $547 billion (and as high as $600 billion) by 2006 and deficits as most as low as $921 billion (and as high as $1.1 trillion) by 2015. This is honest budget accounting. Instead the 2009 figure of $233 billion, shown by the administration today, is a LIE, LIE, LIE, LIE, and as many lies as 233 billion of them. They may think they can fool everyone, the taxpayers, the American people, the media, the bond markets, Wall Street and the disappearing bond vigilantes, the world, and the central bankers of the world that have financed 90% of our budget deficits in the last four years and who would have to finance 100% of these ballooning budget deficits in the next decade. But they are only fooling themselves. No one is so dumb and so idiotic to believe half of the damned lies they have been peddling in their budget…Put it less politely, this is not a budget, it is a multi-trillion dollar decade-long scam, a voodoo black magic to the power of two, the biggest Ponzi game in the financial history of humanity that would lead the U.S. to certain bankruptcy by the next decade.”

Do blue chip stocks have their origins in the blue states?

Palatin Technologies (PTN) and King Pharmaceuticals (KG) said their Phase 2A clinical study of the PT-141 drug for pre-menopausal women diagnosed with female sexual dysfunction showed an increase in sexual desire and genital arousal. Adverse events reported include nausea, headache and nasal congestion, it said.

Playtex Products plans to cut more than 300 jobs, or about 20% of its workforce.

Do you think there is any connection between rousing credit expansion, escalating asset prices, and a record trade deficit?

Ask Jeeves acquires Bloglines. "Bloglines became so popular because it was one of the first Web services
to make blog and RSS feed reading free and easy to understand for average
Internet users. We want to continue this quest to bring our exciting
capabilities into the mainstream," said Mark Fletcher, CEO of Bloglines. "By
joining forces with Ask Jeeves, we will be able to accelerate our growth with
access to the millions of unique visitors to Ask Jeeves' properties.”

2/8/05 Saving For A Rainy Day

Do you think today’s youngsters have heard that refrain? Does it mean much to the more than 2.5 million Americans who work in temporary jobs? By the way, that number has risen by about 10% from one year ago. When, according to the Kaiser Family Foundation, employers paid an average of $3,137 per employee for individual health coverage and $7,289 for family coverage in 2004, do you think employers give much thought to raising wages? Do you think they give much thought to hiring a permanent worker, one who would receive benefits? It’s no wonder that millions of Americans need to work more than one job.

Greenspan: “The growth of home mortgage debt has been the major contributor to the decline in the personal saving rate in the U.S. from almost 6% in 1993 to its current level of 1%.” What created that growth in home mortgage debt? The Fed accomplished it by pushing short-term rates down to 1%. They enabled the consumer to use the home as an ATM.

The median price of a home in Maui has now topped $600,000.

According to the Fed, over the past year, foreign central banks acquired our U.S. government debt at an annual rate exceeding $210 billion. That is quite significant; however, even more significant is that the rate of annual accumulation has slowed by 30% from early January 2004.

Rep. Ron Paul: “Freedom is the absence of government coercion…Few Americans understand that all government action is inherently coercive. If nothing else, government action requires taxes. If taxes were freely paid, they wouldn’t be called taxes, they’d be called donations… So when a politician talks about freedom for this group or that, ask yourself whether he is advocating more government action or less.”

Bush: “We look forward to spreading freedom around the world.”

A recent McKinsey & Co. study finds that 70% of mergers fall short when it comes to achieving their targets for revenue synergies, while 40% lead to cost-synergy disappointments.

A recent National League of Cities study included a survey of 288 municipal CFOs. It found that 61% of municipalities will be less able to meet their financial obligations in 2005 than they were in 2004. Last year was the third year in a row that general fund revenues, adjusted for inflation, declined. At the same time, costs for public safety and health care soared. Many cities are resorting to severe budget cuts and hikes in taxes and fees. Aid from the states to the cities fell 9.2% on average across the nation in 2004.

Insider purchases of company stock hit the lowest point in almost 12 years in January. The buying dropped down to a mere $34.1 million.

According to the Cambridge Consumer Credit Index, 83% of Americans say that debts they have incurred because of medical or dental procedures are burdensome enough to prevent them from buying large ticket items. It should be noted that, of the respondents who have outstanding medical debts, 78% have healthcare or Medicare coverage and 53% have dental insurance.

Kurt Richebacher: “Ultra-low interest rates introduced by central banks to fight threatening recession have triggered an explosion in borrowing for house purchases in many countries…The key question is whether, and to what extent, asset owners convert the asset appreciation into higher borrowing and spending…It is undisputed that the greater part of the escalating mortgage borrowing in the United States was for purposes other than house purchases. In short, it boosted consumption as a share of GDP at the expense of business investment and the trade balance. That is, it radically changed the U.S. economy’s pattern of growth--- actually an unsustainable pattern of growth.”

With 10-year Treasury yields at 4.05%, this week’s mortgage rates are set to decline again.

Nouriel Roubini: “Expect deficits at most as low as $547 billion (and as high as $600 billion) by 2006 and deficits as most as low as $921 billion (and as high as $1.1 trillion) by 2015. This is honest budget accounting. Instead the 2009 figure of $233 billion, shown by the administration today, is a LIE, LIE, LIE, LIE, and as many lies as 233 billion of them. They may think they can fool everyone, the taxpayers, the American people, the media, the bond markets, Wall Street and the disappearing bond vigilantes, the world, and the central bankers of the world that have financed 90% of our budget deficits in the last four years and who would have to finance 100% of these ballooning budget deficits in the next decade. But they are only fooling themselves. No one is so dumb and so idiotic to believe half of the damned lies they have been peddling in their budget…Put it less politely, this is not a budget, it is a multi-trillion dollar decade-long scam, a voodoo black magic to the power of two, the biggest Ponzi game in the financial history of humanity that would lead the U.S. to certain bankruptcy by the next decade.”

Do blue chip stocks have their origins in the blue states?

Palatin Technologies (PTN) and King Pharmaceuticals (KG) said their Phase 2A clinical study of the PT-141 drug for pre-menopausal women diagnosed with female sexual dysfunction showed an increase in sexual desire and genital arousal. Adverse events reported include nausea, headache and nasal congestion, it said.

Playtex Products plans to cut more than 300 jobs, or about 20% of its workforce.

Do you think there is any connection between rousing credit expansion, escalating asset prices, and a record trade deficit?

2/8/05 Saving For A Rainy Day

Do you think today’s youngsters have heard that refrain? Does it mean much to the more than 2.5 million Americans who work in temporary jobs? By the way, that number has risen by about 10% from one year ago. When, according to the Kaiser Family Foundation, employers paid an average of $3,137 per employee for individual health coverage and $7,289 for family coverage in 2004, do you think employers give much thought to raising wages? Do you think they give much thought to hiring a permanent worker, one who would receive benefits? It’s no wonder that millions of Americans need to work more than one job.

Greenspan: “The growth of home mortgage debt has been the major contributor to the decline in the personal saving rate in the U.S. from almost 6% in 1993 to its current level of 1%.” What created that growth in home mortgage debt? The Fed accomplished it by pushing short-term rates down to 1%. They enabled the consumer to use the home as an ATM.

The median price of a home in Maui has now topped $600,000.

According to the Fed, over the past year, foreign central banks acquired our U.S. government debt at an annual rate exceeding $210 billion. That is quite significant; however, even more significant is that the rate of annual accumulation has slowed by 30% from early January 2004.

Rep. Ron Paul: “Freedom is the absence of government coercion…Few Americans understand that all government action is inherently coercive. If nothing else, government action requires taxes. If taxes were freely paid, they wouldn’t be called taxes, they’d be called donations… So when a politician talks about freedom for this group or that, ask yourself whether he is advocating more government action or less.”

Bush: “We look forward to spreading freedom around the world.”

A recent McKinsey & Co. study finds that 70% of mergers fall short when it comes to achieving their targets for revenue synergies, while 40% lead to cost-synergy disappointments.

A recent National League of Cities study included a survey of 288 municipal CFOs. It found that 61% of municipalities will be less able to meet their financial obligations in 2005 than they were in 2004. Last year was the third year in a row that general fund revenues, adjusted for inflation, declined. At the same time, costs for public safety and health care soared. Many cities are resorting to severe budget cuts and hikes in taxes and fees. Aid from the states to the cities fell 9.2% on average across the nation in 2004.

Insider purchases of company stock hit the lowest point in almost 12 years in January. The buying dropped down to a mere $34.1 million.

According to the Cambridge Consumer Credit Index, 83% of Americans say that debts they have incurred because of medical or dental procedures are burdensome enough to prevent them from buying large ticket items. It should be noted that, of the respondents who have outstanding medical debts, 78% have healthcare or Medicare coverage and 53% have dental insurance.

Kurt Richebacher: “Ultra-low interest rates introduced by central banks to fight threatening recession have triggered an explosion in borrowing for house purchases in many countries…The key question is whether, and to what extent, asset owners convert the asset appreciation into higher borrowing and spending…It is undisputed that the greater part of the escalating mortgage borrowing in the United States was for purposes other than house purchases. In short, it boosted consumption as a share of GDP at the expense of business investment and the trade balance. That is, it radically changed the U.S. economy’s pattern of growth--- actually an unsustainable pattern of growth.”

With 10-year Treasury yields at 4.05%, this week’s mortgage rates are set to decline again.

Nouriel Roubini: “Expect deficits at most as low as $547 billion (and as high as $600 billion) by 2006 and deficits as most as low as $921 billion (and as high as $1.1 trillion) by 2015. This is honest budget accounting. Instead the 2009 figure of $233 billion, shown by the administration today, is a LIE, LIE, LIE, LIE, and as many lies as 233 billion of them. They may think they can fool everyone, the taxpayers, the American people, the media, the bond markets, Wall Street and the disappearing bond vigilantes, the world, and the central bankers of the world that have financed 90% of our budget deficits in the last four years and who would have to finance 100% of these ballooning budget deficits in the next decade. But they are only fooling themselves. No one is so dumb and so idiotic to believe half of the damned lies they have been peddling in their budget…Put it less politely, this is not a budget, it is a multi-trillion dollar decade-long scam, a voodoo black magic to the power of two, the biggest Ponzi game in the financial history of humanity that would lead the U.S. to certain bankruptcy by the next decade.”

Do blue chip stocks have their origins in the blue states?

Palatin Technologies (PTN) and King Pharmaceuticals (KG) said their Phase 2A clinical study of the PT-141 drug for pre-menopausal women diagnosed with female sexual dysfunction showed an increase in sexual desire and genital arousal. Adverse events reported include nausea, headache and nasal congestion, it said.

Playtex Products plans to cut more than 300 jobs, or about 20% of its workforce.

Do you think there is any connection between rousing credit expansion, escalating asset prices, and a record trade deficit?

2/8/05 Saving For A Rainy Day

Do you think today’s youngsters have heard that refrain? Does it mean much to the more than 2.5 million Americans who work in temporary jobs? By the way, that number has risen by about 10% from one year ago. When, according to the Kaiser Family Foundation, employers paid an average of $3,137 per employee for individual health coverage and $7,289 for family coverage in 2004, do you think employers give much thought to raising wages? Do you think they give much thought to hiring a permanent worker, one who would receive benefits? It’s no wonder that millions of Americans need to work more than one job.

Greenspan: “The growth of home mortgage debt has been the major contributor to the decline in the personal saving rate in the U.S. from almost 6% in 1993 to its current level of 1%.” What created that growth in home mortgage debt? The Fed accomplished it by pushing short-term rates down to 1%. They enabled the consumer to use the home as an ATM.

The median price of a home in Maui has now topped $600,000.

According to the Fed, over the past year, foreign central banks acquired our U.S. government debt at an annual rate exceeding $210 billion. That is quite significant; however, even more significant is that the rate of annual accumulation has slowed by 30% from early January 2004.

Rep. Ron Paul: “Freedom is the absence of government coercion…Few Americans understand that all government action is inherently coercive. If nothing else, government action requires taxes. If taxes were freely paid, they wouldn’t be called taxes, they’d be called donations… So when a politician talks about freedom for this group or that, ask yourself whether he is advocating more government action or less.”

Bush: “We look forward to spreading freedom around the world.”

A recent McKinsey & Co. study finds that 70% of mergers fall short when it comes to achieving their targets for revenue synergies, while 40% lead to cost-synergy disappointments.

A recent National League of Cities study included a survey of 288 municipal CFOs. It found that 61% of municipalities will be less able to meet their financial obligations in 2005 than they were in 2004. Last year was the third year in a row that general fund revenues, adjusted for inflation, declined. At the same time, costs for public safety and health care soared. Many cities are resorting to severe budget cuts and hikes in taxes and fees. Aid from the states to the cities fell 9.2% on average across the nation in 2004.

Insider purchases of company stock hit the lowest point in almost 12 years in January. The buying dropped down to a mere $34.1 million.

According to the Cambridge Consumer Credit Index, 83% of Americans say that debts they have incurred because of medical or dental procedures are burdensome enough to prevent them from buying large ticket items. It should be noted that, of the respondents who have outstanding medical debts, 78% have healthcare or Medicare coverage and 53% have dental insurance.

Kurt Richebacher: “Ultra-low interest rates introduced by central banks to fight threatening recession have triggered an explosion in borrowing for house purchases in many countries…The key question is whether, and to what extent, asset owners convert the asset appreciation into higher borrowing and spending…It is undisputed that the greater part of the escalating mortgage borrowing in the United States was for purposes other than house purchases. In short, it boosted consumption as a share of GDP at the expense of business investment and the trade balance. That is, it radically changed the U.S. economy’s pattern of growth--- actually an unsustainable pattern of growth.”

With 10-year Treasury yields at 4.05%, this week’s mortgage rates are set to decline again.

Nouriel Roubini: “Expect deficits at most as low as $547 billion (and as high as $600 billion) by 2006 and deficits as most as low as $921 billion (and as high as $1.1 trillion) by 2015. This is honest budget accounting. Instead the 2009 figure of $233 billion, shown by the administration today, is a LIE, LIE, LIE, LIE, and as many lies as 233 billion of them. They may think they can fool everyone, the taxpayers, the American people, the media, the bond markets, Wall Street and the disappearing bond vigilantes, the world, and the central bankers of the world that have financed 90% of our budget deficits in the last four years and who would have to finance 100% of these ballooning budget deficits in the next decade. But they are only fooling themselves. No one is so dumb and so idiotic to believe half of the damned lies they have been peddling in their budget…Put it less politely, this is not a budget, it is a multi-trillion dollar decade-long scam, a voodoo black magic to the power of two, the biggest Ponzi game in the financial history of humanity that would lead the U.S. to certain bankruptcy by the next decade.”

Do blue chip stocks have their origins in the blue states?

Palatin Technologies (PTN) and King Pharmaceuticals (KG) said their Phase 2A clinical study of the PT-141 drug for pre-menopausal women diagnosed with female sexual dysfunction showed an increase in sexual desire and genital arousal. Adverse events reported include nausea, headache and nasal congestion, it said.

Playtex Products plans to cut more than 300 jobs, or about 20% of its workforce.

Do you think there is any connection between rousing credit expansion, escalating asset prices, and a record trade deficit?

Monday, February 07, 2005

2/7/05 Trillions More

Vice President Cheney: “We are being tight. This is the tightest budget that has been submitted since we got here.” There is a slang use for the word “tight.” It can refer to one who has had too much to drink. I want to give Cheney the benefit of the doubt. I know he comes from Wyoming, and I know there is a serious drinking problem in Wyoming. All you have to do is witness the standing room only crowds at AA meetings. Let’s suppose for one moment that Cheney is serious about this spending blueprint for the year that begins October 1, 2005. If he’s serious, then he must believe the American people can’t handle the truth. His tight budget omits billions of dollars --- for Iraq and for Afghanistan. It omits trillions for the proposed transformation of Social Security. If that were not laughable enough, the budget omits the cost for making Bush’s first term tax cuts permanent. This is not a budget. This is a cost-exploding sham. I lost all respect for McCain when he stated “I’m glad the president is coming over with a very austere budget. I hope we in Congress will have the courage to support it.” In sum, when discussing this budget, members of this administration told only one truth this weekend. In referring to additional borrowing required in subsequent decades, Cheney stated “that’s right. Trillions more.”

It will be quite some show watching the infighting over this proposed budget. As the months go by, upward deficit revisions will be forthcoming. That has been the way for Bush’s first term, and I see no change on the horizon. Cutting education, health, farm, law enforcement, and food and nutrition programs while raising co-pays and user fees for Veterans is a sure path to a dead on arrival budget. Bush is seeking a 2.7% increase for the Department of Veterans Affairs health care accounts. It doesn’t require a large brain to know that health care costs have been rising at double-digit rates for the last several years. The latest inflation number for the overall economy was a rise of 3.3%. This administration is expert at spinning. This budget requires more than spinning or revisions. Our country requires more savings and less spending on pork. We need less taxes and less government. We need new industries creating more jobs. Our country is on the road to going broke. There is debt in every pot. Be smart and use the recent strength in the dollar to hedge your dollar-denominated assets with a basket of currencies. That’s the path foreign nations are following.

John P. Hussman, PhD: “Market risk no longer appears worth taking on the basis of an expected return.”

Evidently, GM did not learn from the success of the Toyota Prius and the Honda Civic Hybrid. The company hopes to sell 2,500 hybrids in 2005. Talk about missing the market.

According to a recent Newsweek poll, 56% of Americans think the stock market is too risky for Social Security funds. Cheney has a different view. He stated “the personal accounts will themselves provide a significant return for those who hold them.” Maybe he was referring to Halliburton stock options.

Casey Stengel: “I always heard it couldn’t be done, but sometimes it don’t always work.”

2/7/05 Trillions More

Vice President Cheney: “We are being tight. This is the tightest budget that has been submitted since we got here.” There is a slang use for the word “tight.” It can refer to one who has had too much to drink. I want to give Cheney the benefit of the doubt. I know he comes from Wyoming, and I know there is a serious drinking problem in Wyoming. All you have to do is witness the standing room only crowds at AA meetings. Let’s suppose for one moment that Cheney is serious about this spending blueprint for the year that begins October 1, 2005. If he’s serious, then he must believe the American people can’t handle the truth. His tight budget omits billions of dollars --- for Iraq and for Afghanistan. It omits trillions for the proposed transformation of Social Security. If that were not laughable enough, the budget omits the cost for making Bush’s first term tax cuts permanent. This is not a budget. This is a cost-exploding sham. I lost all respect for McCain when he stated “I’m glad the president is coming over with a very austere budget. I hope we in Congress will have the courage to support it.” In sum, when discussing this budget, members of this administration told only one truth this weekend. In referring to additional borrowing required in subsequent decades, Cheney stated “that’s right. Trillions more.”

It will be quite some show watching the infighting over this proposed budget. As the months go by, upward deficit revisions will be forthcoming. That has been the way for Bush’s first term, and I see no change on the horizon. Cutting education, health, farm, law enforcement, and food and nutrition programs while raising co-pays and user fees for Veterans is a sure path to a dead on arrival budget. Bush is seeking a 2.7% increase for the Department of Veterans Affairs health care accounts. It doesn’t require a large brain to know that health care costs have been rising at double-digit rates for the last several years. The latest inflation number for the overall economy was a rise of 3.3%. This administration is expert at spinning. This budget requires more than spinning or revisions. Our country requires more savings and less spending on pork. We need less taxes and less government. We need new industries creating more jobs. Our country is on the road to going broke. There is debt in every pot. Be smart and use the recent strength in the dollar to hedge your dollar-denominated assets with a basket of currencies. That’s the path foreign nations are following.

John P. Hussman, PhD: “Market risk no longer appears worth taking on the basis of an expected return.”

Evidently, GM did not learn from the success of the Toyota Prius and the Honda Civic Hybrid. The company hopes to sell 2,500 hybrids in 2005. Talk about missing the market.

According to a recent Newsweek poll, 56% of Americans think the stock market is too risky for Social Security funds. Cheney has a different view. He stated “the personal accounts will themselves provide a significant return for those who hold them.” Maybe he was referring to Halliburton stock options.

Casey Stengel: “I always heard it couldn’t be done, but sometimes it

Sunday, February 06, 2005

2/6/05 Risks And Returns

It is essential that one, throughout life, distinguish between thinking and knowing. Too many make the mistake of equating the two. For example, how often have you heard someone say “I thought I knew that person” or “I was married to him for 25 years but there was a side I did not know existed” or “I did not know it was possible to lose everything” or …..? Too often, we think we know only to find out that we only thought and did not know at all. Life can make fools out of each one of us. So can the stock, bond, commodity, and currency markets. One must focus intently. For example, equity market volatility has declined significantly over the past 24 months. That does not mean the risks have declined commensurate with the volatility. Catastrophes can occur out of the blue. As Richard Parsons observed, “the fact that a catastrophe (the recent tsunami) is very unlikely to occur is not a rational justification for ignoring the risk of its occurrence.”

When pondering possible risks and returns, it is wise to begin with the saying “show me the money.” One begins by looking at the flow and generation of funds. For example, the Fed has once again raised short-term interest rates. That’s only a little diversion. After all, at 2.5%, rates are still two full percentage points below the ECRI’s Future Inflation Gauge that rose 4.5% in January to 120.0. In other words, inflation is alive and well and significantly higher than the gains in the wages of workers. But that is still not the whole story. The Fed is busy printing money. M-3 rose by $16.3 billion this week, by $54.1 billion over the past two weeks, and by $71.3 billion over the past five weeks--- for an annual growth rate of approximately 8%. Five weeks do not make a year, but this is consistent with the Fed’s modus operandi for quite some time. It is consistent with destroying the value of our dollar and with attempting to monetize our $7.5 trillion national debt. It might be wise to be reminded by Ron Kirby’s observation that “a dollar today brings about the same amount of goods and services as 3 cents in the 1920s.” Saying it another way, when thinking about the appraisal on your $1 million NYC apartment, do you know what your global purchasing power truly is? Do you know what $1 million U.S. dollars can purchase in other global asset classes? Does it even enter your mind?

We are reminded daily of the record and growing U.S. current account deficit. Even though we have a $160 billion trade deficit with China, do you know that China has only a very small current account surplus? You might have forgotten that I have mentioned this on a few occasions. That small surplus, which could turn into a deficit this year, is the primary reason that China does not believe its currency is valued unfairly and it is an important reason China wants to maintain the current currency peg to the dollar.

G-7 nations are considering selling gold to help poorer countries. That notion may help to explain, at least in part, the recent downturn in the price of gold. Should gold break the $400 an ounce level, one might consider placing some gold in one’s portfolio. A sharp decline in silver would also merit some consideration as an opportunity for an entry buy point.

This week the President will announce the budget. Even though the headlines are for Social Security, a big discussion point will be on the effort to cap the federal government’s share of Medicaid expenses. Just as a reminder, Medicaid expenses total $300 billion, and over the past four years, Medicaid rolls have expanded by more than 30%. The states currently spend $120 on Medicaid, and that represents 22% of state budgets. If a larger share of Medicaid expenses are thrown onto the backs of the state budgets, there will be some giant deficits looming on the horizon.

While the headlines have been focusing on mergers, during the past week several companies announced plant closings. Some examples were two International Paper container plants in Pennsylvania resulting in putting about 120 people out of work and Fleetwood closing its Hancock, MD plant that manufactures and sells travel trailers with about 300 lost jobs.

David MacKay of the Canadian International Pharmacy Association: “Ironically, there is much talk about security in retirement for Americans, yet many of them are forced to give up their life savings to pay for their medications. Retirement dreams are literally being swallowed by Big Pharma greed.”

Sunil Mittal: “To my mind, the next big wave---which will be bigger than telecoms or outsourcing---is in agriculture. India’s strength lies in its huge area of arable land, with great weather conditions. With three, four, or five months Europe doesn’t grow a fig--- but we can grow anything. I want to connect India’s farms with the world.”

2/6/05 Risks And Returns

It is essential that one, throughout life, distinguish between thinking and knowing. Too many make the mistake of equating the two. For example, how often have you heard someone say “I thought I knew that person” or “I was married to him for 25 years but there was a side I did not know existed” or “I did not know it was possible to lose everything” or …..? Too often, we think we know only to find out that we only thought and did not know at all. Life can make fools out of each one of us. So can the stock, bond, commodity, and currency markets. One must focus intently. For example, equity market volatility has declined significantly over the past 24 months. That does not mean the risks have declined commensurate with the volatility. Catastrophes can occur out of the blue. As Richard Parsons observed, “the fact that a catastrophe (the recent tsunami) is very unlikely to occur is not a rational justification for ignoring the risk of its occurrence.”

When pondering possible risks and returns, it is wise to begin with the saying “show me the money.” One begins by looking at the flow and generation of funds. For example, the Fed has once again raised short-term interest rates. That’s only a little diversion. After all, at 2.5%, rates are still two full percentage points below the ECRI’s Future Inflation Gauge that rose 4.5% in January to 120.0. In other words, inflation is alive and well and significantly higher than the gains in the wages of workers. But that is still not the whole story. The Fed is busy printing money. M-3 rose by $16.3 billion this week, by $54.1 billion over the past two weeks, and by $71.3 billion over the past five weeks--- for an annual growth rate of approximately 8%. Five weeks do not make a year, but this is consistent with the Fed’s modus operandi for quite some time. It is consistent with destroying the value of our dollar and with attempting to monetize our $7.5 trillion national debt. It might be wise to be reminded by Ron Kirby’s observation that “a dollar today brings about the same amount of goods and services as 3 cents in the 1920s.” Saying it another way, when thinking about the appraisal on your $1 million NYC apartment, do you know what your global purchasing power truly is? Do you know what $1 million U.S. dollars can purchase in other global asset classes? Does it even enter your mind?

We are reminded daily of the record and growing U.S. current account deficit. Even though we have a $160 billion trade deficit with China, do you know that China has only a very small current account surplus? You might have forgotten that I have mentioned this on a few occasions. That small surplus, which could turn into a deficit this year, is the primary reason that China does not believe its currency is valued unfairly and it is an important reason China wants to maintain the current currency peg to the dollar.

G-7 nations are considering selling gold to help poorer countries. That notion may help to explain, at least in part, the recent downturn in the price of gold. Should gold break the $400 an ounce level, one might consider placing some gold in one’s portfolio. A sharp decline in silver would also merit some consideration as an opportunity for an entry buy point.

This week the President will announce the budget. Even though the headlines are for Social Security, a big discussion point will be on the effort to cap the federal government’s share of Medicaid expenses. Just as a reminder, Medicaid expenses total $300 billion, and over the past four years, Medicaid rolls have expanded by more than 30%. The states currently spend $120 on Medicaid, and that represents 22% of state budgets. If a larger share of Medicaid expenses are thrown onto the backs of the state budgets, there will be some giant deficits looming on the horizon.

While the headlines have been focusing on mergers, during the past week several companies announced plant closings. Some examples were two International Paper container plants in Pennsylvania resulting in putting about 120 people out of work and Fleetwood closing its Hancock, MD plant that manufactures and sells travel trailers with about 300 lost jobs.

David MacKay of the Canadian International Pharmacy Association: “Ironically, there is much talk about security in retirement for Americans, yet many of them are forced to give up their life savings to pay for their medications. Retirement dreams are literally being swallowed by Big Pharma greed.”

Sunil Mittal: “To my mind, the next big wave---which will be bigger than telecoms or outsourcing---is in agriculture. India’s strength lies in its huge area of arable land, with great weather conditions. With three, four, or five months Europe doesn’t grow a fig--- but we can grow anything. I want to connect India’s farms with the world.”