Saturday, February 19, 2005

2/20/05 More On Inflation

According to the BLS, from January 2004 to January 2005, finished goods prices increased 4.2 percent. During the same period, the finished energy goods index jumped 9.8 percent, prices for finished goods other than foods and energy rose 2.7%, and
the index for finished consumer foods went up 4.1%. At the earlier stages of processing, prices for intermediate goods moved up 8.7% during the 12 months ended January 2005, while the crude goods index gained 10.8%. Simply put, the rise in inflation last month was not a one-month aberration. Inflation has been simmering in the pipeline for months. In my view, longer-term treasury yields do not adequately reflect the current rate of inflation. Holding these instruments entails substantial risk. For what it’s worth, Greg Mankiw predicts that the yield on 10-year Treasury bonds will rise to 4.6% this year from the present 4.27% and next year to 5.2%.

As our population seasons(ages), the BLS has provided information showing that spending drops rather significantly(with the exception of health care and reading material) between the years of 49 and 59. In addition, the BLS is projecting a significant increase in those in the workplace between 55 and 74 years of age.

During 2005, Eddie Bauer will close 34 of their Home stores and Circuit City will close 19 of their Superstores.

Most of the health headlines this week went to Merck and Pfizer. Actually, the information coming out of the FDA panel was not unexpected. It might be worthwhile to keep an eye on further news coming out of Dendreon (DNDN) of Seattle. I have been monitoring their progress for the past five years. I like their approach for the treatment of prostate and breast cancer in that it stimulates a patient’s immune system against the cancer rather than using chemotherapy.
2/20/05 More On Inflation

According to the BLS, from January 2004 to January 2005, finished goods prices increased 4.2 percent. During the same period, the finished energy goods index jumped 9.8 percent, prices for finished goods other than foods and energy rose 2.7%, and
the index for finished consumer foods went up 4.1%. At the earlier stages of processing, prices for intermediate goods moved up 8.7% during the 12 months ended January 2005, while the crude goods index gained 10.8%. Simply put, the rise in inflation last month was not a one-month aberration. Inflation has been simmering in the pipeline for months. In my view, longer-term treasury yields do not adequately reflect the current rate of inflation. Holding these instruments entails substantial risk. For what it’s worth, Greg Mankiw predicts that the yield on 10-year Treasury bonds will rise to 4.6% this year from the present 4.27% and next year to 5.2%.

As our population seasons(ages), the BLS has provided information showing that spending drops rather significantly(with the exception of health care and reading material) between the years of 49 and 59. In addition, the BLS is projecting a significant increase in those in the workplace between 55 and 74 years of age.

During 2005, Eddie Bauer will close 34 of their Home stores and Circuit City will close 19 of their Superstores.

Most of the health headlines this week went to Merck and Pfizer. Actually, the information coming out of the FDA panel was not unexpected. It might be worthwhile to keep an eye on further news coming out of Dendreon (DNDN) of Seattle. I have been monitoring their progress for the past five years. I like their approach for the treatment of prostate and breast cancer in that it stimulates a patient’s immune system against the cancer rather than using chemotherapy.
2/20/05 More On Inflation

According to the BLS, from January 2004 to January 2005, finished goods prices increased 4.2 percent. During the same period, the finished energy goods index jumped 9.8 percent, prices for finished goods other than foods and energy rose 2.7%, and
the index for finished consumer foods went up 4.1%. At the earlier stages of processing, prices for intermediate goods moved up 8.7% during the 12 months ended January 2005, while the crude goods index gained 10.8%. Simply put, the rise in inflation last month was not a one-month aberration. Inflation has been simmering in the pipeline for months. In my view, longer-term treasury yields do not adequately reflect the current rate of inflation. Holding these instruments entails substantial risk. For what it’s worth, Greg Mankiw predicts that the yield on 10-year Treasury bonds will rise to 4.6% this year from the present 4.27% and next year to 5.2%.

As our population seasons(ages), the BLS has provided information showing that spending drops rather significantly(with the exception of health care and reading material) between the years of 49 and 59. In addition, the BLS is projecting a significant increase in those in the workplace between 55 and 74 years of age.

During 2005, Eddie Bauer will close 34 of their Home stores and Circuit City will close 19 of their Superstores.

Most of the health headlines this week went to Merck and Pfizer. Actually, the information coming out of the FDA panel was not unexpected. It might be worthwhile to keep an eye on further news coming out of Dendreon (DNDN) of Seattle. I have been monitoring their progress for the past five years. I like their approach for the treatment of prostate and breast cancer in that it stimulates a patient’s immune system against the cancer rather than using chemotherapy.
2/20/05 More On Inflation

According to the BLS, from January 2004 to January 2005, finished goods prices increased 4.2 percent. During the same period, the finished energy goods index jumped 9.8 percent, prices for finished goods other than foods and energy rose 2.7%, and
the index for finished consumer foods went up 4.1%. At the earlier stages of processing, prices for intermediate goods moved up 8.7% during the 12 months ended January 2005, while the crude goods index gained 10.8%. Simply put, the rise in inflation last month was not a one-month aberration. Inflation has been simmering in the pipeline for months. In my view, longer-term treasury yields do not adequately reflect the current rate of inflation. Holding these instruments entails substantial risk. For what it’s worth, Greg Mankiw predicts that the yield on 10-year Treasury bonds will rise to 4.6% this year from the present 4.27% and next year to 5.2%.

As our population seasons(ages), the BLS has provided information showing that spending drops rather significantly(with the exception of health care and reading material) between the years of 49 and 59. In addition, the BLS is projecting a significant increase in those in the workplace between 55 and 74 years of age.

During 2005, Eddie Bauer will close 34 of their Home stores and Circuit City will close 19 of their Superstores.

Most of the health headlines this week went to Merck and Pfizer. Actually, the information coming out of the FDA panel was not unexpected. It might be worthwhile to keep an eye on further news coming out of Dendreon (DNDN) of Seattle. I have been monitoring their progress for the past five years. I like their approach for the treatment of prostate and breast cancer in that it stimulates a patient’s immune system against the cancer rather than using chemotherapy.
2/19/05 Bring It On

In the past week, M3 declined $25 billion; however it has still risen 6.4% over the past 12 months. Home equity lines of credit increased 80.3% to $421.4 billion in 2004.

Fed Chairman: “I do not think that you could claim that the central bank is facilitating the expansion of expenditures in this country.”

B.F. Skinner: “The real problem is not whether machines think but whether men do.”

The core rate of inflation, which excludes food and energy, surged 0.8% in January. It was the biggest rise in 74 months. Core producer prices rose 2.7% in January 2005 over January 2004, the largest jump in 112 months. Two-year treasury bonds rose in yield to 3.43%, close to the highest yield in 3 years. One must still ask how long 10-year treasury bonds can stay at 4.27% and 30-year at 4.65%. Maybe there is a clue. Inflation is clearly on the rise. The Goldman Sachs Commodities index is up 7.6% year-to-date. The place to make consistent money has been in that index. With crude at $48.35 a barrel and copper rising along with other commodities, longer-term bond yields will reflect rising commodity prices. If I were managing a portfolio for other investors, I would want to come to grips with the level of risk in long duration debt instruments.

Mark Minasi: “If McDonalds were run like a software company, one out of every hundred Big Macs would give you food poisoning--- and the response would be, ‘we’re sorry, here’s a coupon for two more.’”

The Semiconductor Equipment and Materials International (SEMI) trade association reported a book-to-bill ratio of 0.80. The bookings figure is 18% below the revised December 2004 level and 18% below the orders posted in January 2004. SEMI stated that “the three-month average bookings figure for new semiconductor equipment is now at the lowest level since November 2003. Total bookings declined sharply in January and are now about 37% below the cyclic peak observed in June 2004.”

According to EmergingPortfolio.com, for the two weeks ending February 16, emerging stock funds received an inflow of $2.6 billion, the most in five years.

Marsh & McLennan is the world’s largest insurance broker. Globally, they have 40,000 employees. Next week, they may announce that 7,000 employees will lose their jobs.
2/19/05 Bring It On

In the past week, M3 declined $25 billion; however it has still risen 6.4% over the past 12 months. Home equity lines of credit increased 80.3% to $421.4 billion in 2004.

Fed Chairman: “I do not think that you could claim that the central bank is facilitating the expansion of expenditures in this country.”

B.F. Skinner: “The real problem is not whether machines think but whether men do.”

The core rate of inflation, which excludes food and energy, surged 0.8% in January. It was the biggest rise in 74 months. Core producer prices rose 2.7% in January 2005 over January 2004, the largest jump in 112 months. Two-year treasury bonds rose in yield to 3.43%, close to the highest yield in 3 years. One must still ask how long 10-year treasury bonds can stay at 4.27% and 30-year at 4.65%. Maybe there is a clue. Inflation is clearly on the rise. The Goldman Sachs Commodities index is up 7.6% year-to-date. The place to make consistent money has been in that index. With crude at $48.35 a barrel and copper rising along with other commodities, longer-term bond yields will reflect rising commodity prices. If I were managing a portfolio for other investors, I would want to come to grips with the level of risk in long duration debt instruments.

Mark Minasi: “If McDonalds were run like a software company, one out of every hundred Big Macs would give you food poisoning--- and the response would be, ‘we’re sorry, here’s a coupon for two more.’”

The Semiconductor Equipment and Materials International (SEMI) trade association reported a book-to-bill ratio of 0.80. The bookings figure is 18% below the revised December 2004 level and 18% below the orders posted in January 2004. SEMI stated that “the three-month average bookings figure for new semiconductor equipment is now at the lowest level since November 2003. Total bookings declined sharply in January and are now about 37% below the cyclic peak observed in June 2004.”

According to EmergingPortfolio.com, for the two weeks ending February 16, emerging stock funds received an inflow of $2.6 billion, the most in five years.

Marsh & McLennan is the world’s largest insurance broker. Globally, they have 40,000 employees. Next week, they may announce that 7,000 employees will lose their jobs.
2/19/05 Bring It On

In the past week, M3 declined $25 billion; however it has still risen 6.4% over the past 12 months. Home equity lines of credit increased 80.3% to $421.4 billion in 2004.

Fed Chairman: “I do not think that you could claim that the central bank is facilitating the expansion of expenditures in this country.”

B.F. Skinner: “The real problem is not whether machines think but whether men do.”

The core rate of inflation, which excludes food and energy, surged 0.8% in January. It was the biggest rise in 74 months. Core producer prices rose 2.7% in January 2005 over January 2004, the largest jump in 112 months. Two-year treasury bonds rose in yield to 3.43%, close to the highest yield in 3 years. One must still ask how long 10-year treasury bonds can stay at 4.27% and 30-year at 4.65%. Maybe there is a clue. Inflation is clearly on the rise. The Goldman Sachs Commodities index is up 7.6% year-to-date. The place to make consistent money has been in that index. With crude at $48.35 a barrel and copper rising along with other commodities, longer-term bond yields will reflect rising commodity prices. If I were managing a portfolio for other investors, I would want to come to grips with the level of risk in long duration debt instruments.

Mark Minasi: “If McDonalds were run like a software company, one out of every hundred Big Macs would give you food poisoning--- and the response would be, ‘we’re sorry, here’s a coupon for two more.’”

The Semiconductor Equipment and Materials International (SEMI) trade association reported a book-to-bill ratio of 0.80. The bookings figure is 18% below the revised December 2004 level and 18% below the orders posted in January 2004. SEMI stated that “the three-month average bookings figure for new semiconductor equipment is now at the lowest level since November 2003. Total bookings declined sharply in January and are now about 37% below the cyclic peak observed in June 2004.”

According to EmergingPortfolio.com, for the two weeks ending February 16, emerging stock funds received an inflow of $2.6 billion, the most in five years.

Marsh & McLennan is the world’s largest insurance broker. Globally, they have 40,000 employees. Next week, they may announce that 7,000 employees will lose their jobs.

Friday, February 18, 2005

2/18/05 A Collision Course

From a square miles perspective, China and the United States are very similar in size. That’s where the similarity begins and ends. For today, I am not including India in this discussion. As we know, China has over four times our population. We have about ten times the amount of cars as does China and consume three times as much oil. However, after taking the consumption of oil off the table, the comparison with China gets quite one-sided. The fact is the American consumer is single-handedly fueling China’s transformation to an industrialized nation. Our consumption of Chinese exports provides the $162 billion surplus China requires to buy goods from other nations. In fact, China could run a small current account deficit this year. Our consumption enables China to buy its needed grain, soybeans, iron ore, coal, copper, steel, aluminum, platinum, nickel, zinc, wood, and meat. As the Earth Policy Institute noted, China is the world’s largest consumer of grain, meat, coal, and steel. With China’s economy growing at a 9% plus annual rate, this trend towards increasing per capita consumption can only grow in future years. This generates demands on supply and raises the inflationary flag higher. To put matters in perspective, Mainland Marketing Research of China stated their industrial production rose in January at the slowest pace in three years. It ONLY rose 8.9%. In April 2004 the rate was 19%. Not surprisingly, copper traded yesterday at a 16-year high. China is using more and more copper for electrical cables and wiring in order to produce additional power. According to Merrill Lynch, global copper demand will exceed production by 172,000 tons this year. In my view, that estimate may prove quite conservative. Not surprisingly, Phelp Dodge’s earnings have been a prime beneficiary of higher copper prices. At $99 per share, the stock is still selling at less than 9 times 2005 estimated earnings. Another beneficiary is Melbourne-based BHP Billton. Phelps Dodge reminds me somewhat of the home builders. The production and sale of homes has been under-estimated for over one year. I have been guilty of that. I don’t believe anyone can truly state with confidence just how much China’s demand for commodities will grow from month to month--- much less from year to year. A safe statement is the demand will increase over the long-term. In sum, the best way to place a governor on future demand is for the American consumer to cut back on China’s exports to the U.S. That will prove beneficial to our current account deficit, the pressure on our dollar, and inflationary trends going forward.

Rep. Ron Paul: “Many Americans don’t realize that Social Security benefits were not taxed until the 1980s. When the program was created in the 1930s, Congress never intended to treat Social Security benefits as taxable income. Those benefits are funded by taxes in the first place, so it’s nonsensical to tax them as ordinary income to raise revenue. The whole process is nothing more than a circular subterfuge that allows Congress to reduce Social Security benefits by stealth. Nobody in Congress claims they want to reduce benefits, but that’s exactly what happens when benefits are taxes. The spending culture in Washington is the real problem…America must vote big-spending politicians from both parties out of Congress.” Paul has introduced the “Senior Citizens Tax Elimination Act.”

Thomas Jefferson: “The national progress of things is for government to gain ground and for liberty to yield.”

Following two straight months of improvement in November and December, the Conference Board’s Index of Leading Economic Indicators declined 0.3% in January. Prior to November and December, the index had declined for five consecutive months. In fact, over the past eight months, the index has been expanding more slowly than its 1.5 percent long-term average growth rate. Simply put, the expansion is also trailing the current rate of inflation. Realistically, there has been contraction and not expansion because, during the six-month span through January, the leading index decreased 0.3%. Conference Board economist Ken Goldstein stated “ the larger concern remains cautious. Business concerns about the direction of cash flow could lead to cautious decisions about hiring and rebuilding inventory.” I think Goldstein might find that rebuilding inventory has remained at muted levels for months and net permanent hiring growth has been basically non-existent for the past four years.

The headlines for the Philly Fed manufacturing sector did not describe the employment index. It was found in the third paragraph down in the news release. It stated that the employment index decreased from a reading of 17.0 in January to 12.3 in February, its lowest point in 15 months.

J.E. Wilson Advisors President James Wilson: “People who are smarting from investment losses or just generally disappointed by relatively low returns are the first to fail to appreciate the importance of liquidity. You can rebalance your portfolio to take into account changing circumstances. But that’s not so easy when you have most of your money tied up in real estate and the ‘bubble’ bursts ---or, at least, deflates a bit.”

If Congress and the President were truly serious about spending disciple, they would once again adopt PAYGO budget rules for all spending, and that includes every area of entitlement spending.

President Bush: “"I signed Medicare reform proudly, and any attempt to limit the choices of our seniors and to take away their prescription drug coverage under Medicare will meet my veto. This law is a landmark achievement in American health care.” Actually, it is inept legislation crafted out of ignorance accompanied by a non-caring mentality.

George Washington: “ No generation has a right to contract debts greater than can be paid off during the course of its own existence.”

Thursday, February 17, 2005

2/17/05 Our Annual Look At Wal-Mart

The latest quarter was a challenging one for Wal-Mart. U.S. comp sales for Wal-Mart stores was limited to a 1.4% increase, while there was a 2.0% comp increase for SAM’S CLUB. Total U.S. comp sales for their fiscal 2005 year were up 3.3%, which is comprised of a 2.9% comp increase for Wal-Mart stores and a 5.8% comp increase for SAM’S CLUB. The star performer was the international division with a 13.5% increase in operating income for the fourth quarter, and, for the full year, operating income just a hair below $3 billion, which represents an annual increase of 26.1% and almost 20% of the total operating income for the entire company. It should be noted that Wal-Mart added almost $29 billion in sales in their fiscal 2005 and net income topped $10 billion for the first time in the company’s history. There is one further note worth mentioning. In the fourth quarter, income from continuing operations before income taxes rose 9% but the provision for income taxes was unchanged from the prior year’s fourth quarter. This helped to explain the 16.2% increase in income from continuing operations for the most recent quarter.

Mahatma Gandhi: “There is enough for everyone’s need, but not for everyone’s greed.”

Greenspan opined “that the decline in long-term rates in the past few months is a ‘conundrum’ that defies easy explanation.” Really? As long as financial institutions continue to experience the carry trade on a daily basis as found money, as well as without risk, long-term rates will decline.

There is much I would normally say about Greenspan’s testimony. The man is well into his seventies. He has less than one year remaining on his term as chairman. I prefer to move on to other areas. I will no longer refer to Greenspan in future commentaries.

I am frequently asked about Splenda. I no longer have an ax to grind. I no longer run a large sugar company. Sugar is a natural product. Splenda is sugar that is chemically modified. It’s not a mystery.

For as long as I can remember, and my memory is not too bad, I have suggested that the present cap of $90,000 on Social Security taxes is grossly unfair. In sum, Bush is not open to raising the payroll tax, and in that I concur. On the other hand, he is open to raising the income cap on Social Security taxes. Combining raising the cap with the elimination of using excess trust funds for general budget purposes could help to stave off the non-crisis for Social Security.

Yesterday, light crude prices rose $1.07 to $48.33 a barrel. OPEC is contemplating second quarter production cuts. At the same time, cruse supplies are 8.5% higher than one year ago. I keep reading that inflation is well contained. If that’s the case, why am I paying 18 cents a gallon more at the pump in just a matter of a few weeks?
l
Delayed clinical trials come at a cost - for a blockbuster drug as much as $8 million in
revenue could be lost each day that a clinical trial is extended beyond
expectations. Meanwhile, niche drugs can lose upwards of $600,000 per day as
clinical trials are prolonged. Most commonly, clinical trial deadlines are
missed due to patient shortfalls. Research from Cutting Edge Information
reveals that forecasts estimate an anticipated 15% shortfall in patients needed for clinical trials in 2005. This is an additional reason why a growing number of clinical trials will find their way to India where there has not been any shortage of patients for such trials.

As for Target, total revenues increased 11.5 percent to $46.839 billion from
$42.025 billion in 2003, driven by a 5.3 percent increase in comparable store
sales combined with the contribution from new store expansion and our credit
card operations. (Total revenues include retail sales and net credit
revenues. Comparable-store sales are sales from stores open longer than one
year.)
For the year, earnings before interest and income taxes (EBIT) increased
14.0 percent to $3.601 billion, compared with $3.159 billion in 2003. The
contribution from the company's credit card operations to EBIT was
$485 million, an increase of $61 million, or 14.4 percent.
The company's gross margin rate improved from the prior year primarily due
to an increase in markup, while the company's expense rate was unfavorable to
prior year primarily due to previously disclosed lease accounting adjustments.
(Gross margin rate represents sales less cost of sales expressed as a
percentage of sales. Expense rate represents selling, general and
administrative expenses expressed as a percentage of sales.)
2/17/05 Our Annual Look At Wal-Mart

The latest quarter was a challenging one for Wal-Mart. U.S. comp sales for Wal-Mart stores was limited to a 1.4% increase, while there was a 2.0% comp increase for SAM’S CLUB. Total U.S. comp sales for their fiscal 2005 year were up 3.3%, which is comprised of a 2.9% comp increase for Wal-Mart stores and a 5.8% comp increase for SAM’S CLUB. The star performer was the international division with a 13.5% increase in operating income for the fourth quarter, and, for the full year, operating income just a hair below $3 billion, which represents an annual increase of 26.1% and almost 20% of the total operating income for the entire company. It should be noted that Wal-Mart added almost $29 billion in sales in their fiscal 2005 and net income topped $10 billion for the first time in the company’s history. There is one further note worth mentioning. In the fourth quarter, income from continuing operations before income taxes rose 9% but the provision for income taxes was unchanged from the prior year’s fourth quarter. This helped to explain the 16.2% increase in income from continuing operations for the most recent quarter.

Mahatma Gandhi: “There is enough for everyone’s need, but not for everyone’s greed.”

Greenspan opined “that the decline in long-term rates in the past few months is a ‘conundrum’ that defies easy explanation.” Really? As long as financial institutions continue to experience the carry trade on a daily basis as found money, as well as without risk, long-term rates will decline.

There is much I would normally say about Greenspan’s testimony. The man is well into his seventies. He has less than one year remaining on his term as chairman. I prefer to move on to other areas. I will no longer refer to Greenspan in future commentaries.

I am frequently asked about Splenda. I no longer have an ax to grind. I no longer run a large sugar company. Sugar is a natural product. Splenda is sugar that is chemically modified. It’s not a mystery.

For as long as I can remember, and my memory is not too bad, I have suggested that the present cap of $90,000 on Social Security taxes is grossly unfair. In sum, Bush is not open to raising the payroll tax, and in that I concur. On the other hand, he is open to raising the income cap on Social Security taxes. Combining raising the cap with the elimination of using excess trust funds for general budget purposes could help to stave off the non-crisis for Social Security.

Yesterday, light crude prices rose $1.07 to $48.33 a barrel. OPEC is contemplating second quarter production cuts. At the same time, cruse supplies are 8.5% higher than one year ago. I keep reading that inflation is well contained. If that’s the case, why am I paying 18 cents a gallon more at the pump in just a matter of a few weeks?
l
Delayed clinical trials come at a cost - for a blockbuster drug as much as $8 million in
revenue could be lost each day that a clinical trial is extended beyond
expectations. Meanwhile, niche drugs can lose upwards of $600,000 per day as
clinical trials are prolonged. Most commonly, clinical trial deadlines are
missed due to patient shortfalls. Research from Cutting Edge Information
reveals that forecasts estimate an anticipated 15% shortfall in patients needed for clinical trials in 2005. This is an additional reason why a growing number of clinical trials will find their way to India where there has not been any shortage of patients for such trials.

As for Target, total revenues increased 11.5 percent to $46.839 billion from
$42.025 billion in 2003, driven by a 5.3 percent increase in comparable store
sales combined with the contribution from new store expansion and our credit
card operations. (Total revenues include retail sales and net credit
revenues. Comparable-store sales are sales from stores open longer than one
year.)
For the year, earnings before interest and income taxes (EBIT) increased
14.0 percent to $3.601 billion, compared with $3.159 billion in 2003. The
contribution from the company's credit card operations to EBIT was
$485 million, an increase of $61 million, or 14.4 percent.
The company's gross margin rate improved from the prior year primarily due
to an increase in markup, while the company's expense rate was unfavorable to
prior year primarily due to previously disclosed lease accounting adjustments.
(Gross margin rate represents sales less cost of sales expressed as a
percentage of sales. Expense rate represents selling, general and
administrative expenses expressed as a percentage of sales.)
2/17/05 Our Annual Look At Wal-Mart

The latest quarter was a challenging one for Wal-Mart. U.S. comp sales for Wal-Mart stores was limited to a 1.4% increase, while there was a 2.0% comp increase for SAM’S CLUB. Total U.S. comp sales for their fiscal 2005 year were up 3.3%, which is comprised of a 2.9% comp increase for Wal-Mart stores and a 5.8% comp increase for SAM’S CLUB. The star performer was the international division with a 13.5% increase in operating income for the fourth quarter, and, for the full year, operating income just a hair below $3 billion, which represents an annual increase of 26.1% and almost 20% of the total operating income for the entire company. It should be noted that Wal-Mart added almost $29 billion in sales in their fiscal 2005 and net income topped $10 billion for the first time in the company’s history. There is one further note worth mentioning. In the fourth quarter, income from continuing operations before income taxes rose 9% but the provision for income taxes was unchanged from the prior year’s fourth quarter. This helped to explain the 16.2% increase in income from continuing operations for the most recent quarter.

Mahatma Gandhi: “There is enough for everyone’s need, but not for everyone’s greed.”

Greenspan opined “that the decline in long-term rates in the past few months is a ‘conundrum’ that defies easy explanation.” Really? As long as financial institutions continue to experience the carry trade on a daily basis as found money, as well as without risk, long-term rates will decline.

There is much I would normally say about Greenspan’s testimony. The man is well into his seventies. He has less than one year remaining on his term as chairman. I prefer to move on to other areas. I will no longer refer to Greenspan in future commentaries.

I am frequently asked about Splenda. I no longer have an ax to grind. I no longer run a large sugar company. Sugar is a natural product. Splenda is sugar that is chemically modified. It’s not a mystery.

For as long as I can remember, and my memory is not too bad, I have suggested that the present cap of $90,000 on Social Security taxes is grossly unfair. In sum, Bush is not open to raising the payroll tax, and in that I concur. On the other hand, he is open to raising the income cap on Social Security taxes. Combining raising the cap with the elimination of using excess trust funds for general budget purposes could help to stave off the non-crisis for Social Security.

Yesterday, light crude prices rose $1.07 to $48.33 a barrel. OPEC is contemplating second quarter production cuts. At the same time, cruse supplies are 8.5% higher than one year ago. I keep reading that inflation is well contained. If that’s the case, why am I paying 18 cents a gallon more at the pump in just a matter of a few weeks?
l
Delayed clinical trials come at a cost - for a blockbuster drug as much as $8 million in
revenue could be lost each day that a clinical trial is extended beyond
expectations. Meanwhile, niche drugs can lose upwards of $600,000 per day as
clinical trials are prolonged. Most commonly, clinical trial deadlines are
missed due to patient shortfalls. Research from Cutting Edge Information
reveals that forecasts estimate an anticipated 15% shortfall in patients needed for clinical trials in 2005. This is an additional reason why a growing number of clinical trials will find their way to India where there has not been any shortage of patients for such trials.

As for Target, total revenues increased 11.5 percent to $46.839 billion from
$42.025 billion in 2003, driven by a 5.3 percent increase in comparable store
sales combined with the contribution from new store expansion and our credit
card operations. (Total revenues include retail sales and net credit
revenues. Comparable-store sales are sales from stores open longer than one
year.)
For the year, earnings before interest and income taxes (EBIT) increased
14.0 percent to $3.601 billion, compared with $3.159 billion in 2003. The
contribution from the company's credit card operations to EBIT was
$485 million, an increase of $61 million, or 14.4 percent.
The company's gross margin rate improved from the prior year primarily due
to an increase in markup, while the company's expense rate was unfavorable to
prior year primarily due to previously disclosed lease accounting adjustments.
(Gross margin rate represents sales less cost of sales expressed as a
percentage of sales. Expense rate represents selling, general and
administrative expenses expressed as a percentage of sales.)

Wednesday, February 16, 2005

2/16/05 Brave New World

When Greenspan takes the stage today, he will fail to mention the following disconnect. On Tuesday, the California Association of Realtors discussed the “homebuyer income gap index.” California households, with a median household income of $53,240, are $56,070 short of the $109,320 qualifying income needed to purchase a median-priced home at $470,920 in the state. The Realtors’ “homebuyer income gap index” for California increased 41.6% during the fourth quarter of 2004 compared to the fourth quarter of 2003, when the gap stood at $39,610, the median household income was $51,860, and qualifying income needed to purchase a median-priced home at $390,250 was $91,460. The San Francisco Bay Area had the highest gap in the state of $84,690, where potential homebuyers had a median household income of $67,750 but needed qualifying income of $152,440 to purchase a median-priced home at $656,690. That was 2004.

It only gets better in 2005. In January, home prices in the San Francisco Bay Area soared 20% from a year ago and sales reached the highest level for the month since 1989. Specifically, in San Francisco, a typical single-family home increased in price to $713,000, a 23% rise from last January’s $580,000. The typical Bay Area buyer committed to a monthly mortgage payment of $2,344 in January, up from $1,940 one year ago. According to DataQuick’s research, which is based on filings with county recorders’ offices, the median price for a single-family home has hit a record in nine of the past twelve months. That’s more than one can say for the Dow, Nasdaq, or S&P 500.

Around San Francisco, there are nine Bay Area counties. Let’s see what Greenspan’s record low interest rate and accommodative policy helped produce from January 2002 to January 2005. Keep in mind that the recession ended in November 2001. The monthly median single-family home price for the nine Bay Area counties was $380,000 in January 2002; $415,000 in 2003; $463,000 in 2004; and $556,000 in January 2005. That’s only part of the story. Essentially, there have not been any price declines during these four years. In many cases, little or no money was put down on these homes. The return on investment has made the Dow, Nasdaq, and the S&P 500 look like junkyard dogs. It gets better. As the price of the home increased, more borrowing against the value of the home was possible. Hence, establishing one’s home as an ATM. The consumer was refueled with additional credit. The good times rolled on, and it’s too much fun to stop. Greenspan might not tell the world that. He wants to appear serious. That’s a joke.

The news gets better. With more buying power from higher home prices, the homebuyer can readily afford any stock in the Dow. Not one is above $100 a share. That’s chicken feed for the homeowner. Heck, there’s no reason why the Dow can’t go to 12,000 or even 36,000. There’s plenty of buying power from those homes.

It gets better, according to Treasury Strategies, corporations have $4.7 trillion in liquid assets. That’s a lot of cash. Think of all the money that can be utilized for stock buybacks. If there is a buying frenzy from corporations and the homeowners, there is no telling how high stocks could go.

There is one fly in the ointment. Capital flows into the U.S. in December dropped 31.4% to $61.3 billion from a revised $89.3 billion in November. However, for all of 2004, foreign net purchases reached $821.8 billion up from $683.6 billion in 2003. We need that foreign money to offset the twin tower deficits projected in 2005. Maybe the next project on the Apprentice should be to create an advertising program to attract more foreign capital.

Knowing how much buying power is around, makes me sleep soundly. Unleaded gas just increased 15 cents a gallon in California. Big deal. They can afford the 15 cents. Their homes are going up thousands each month. The Empire State Mfg. Index declined in February and the Employment index plummeted 30% in February from the prior month. Big deal. Look at the price of apartments in New York. They can take money from their home ATM. In January, auto sales dropped 3.3%. So what. No one needs to own a car. Homeowners are riding in a limo.

I’m a little disappointed that more is not being done for Japan. Their export growth is going nowhere and consumer spending sucks there. Their GDP is contracting and prices are falling. We need to focus some on Japan. We need to help Japan by buying their exports. By extracting some money out of the home ATM, we can direct the purchases to Japanese products. We must start a good neighbor policy and buy Japan. We are the consumers of last resort.

While we’re helping Japan, let’s give a hand to LeapFrog of Emeryville, California. They have run into a small head wind. They cut 180 people from the payroll. Let’s use the ATM and buy some LeapFrog products and get the company going forward once again. We are the consumers of last resort.

I don’t believe Wall Street analysts have a full appreciation for life in our great country. Take a good look at Coca Cola. The lower dollar provided 3 cents a share to Coke’s earnings in the latest quarter. A lower than expected tax rate provided another 3 cents per share. It just goes to show what a weak dollar and lower taxes can do for corporate profits. We need more Coca Colas. Management is doing its part. The Company repurchased approximately $1.7 billion of its common stock during the year, or approximately 37.5 million shares, and in 2005, intends to increase its share repurchase to at least $2 billion or about one-third of the annual cash generated.
2/16/05 Brave New World

When Greenspan takes the stage today, he will fail to mention the following disconnect. On Tuesday, the California Association of Realtors discussed the “homebuyer income gap index.” California households, with a median household income of $53,240, are $56,070 short of the $109,320 qualifying income needed to purchase a median-priced home at $470,920 in the state. The Realtors’ “homebuyer income gap index” for California increased 41.6% during the fourth quarter of 2004 compared to the fourth quarter of 2003, when the gap stood at $39,610, the median household income was $51,860, and qualifying income needed to purchase a median-priced home at $390,250 was $91,460. The San Francisco Bay Area had the highest gap in the state of $84,690, where potential homebuyers had a median household income of $67,750 but needed qualifying income of $152,440 to purchase a median-priced home at $656,690. That was 2004.

It only gets better in 2005. In January, home prices in the San Francisco Bay Area soared 20% from a year ago and sales reached the highest level for the month since 1989. Specifically, in San Francisco, a typical single-family home increased in price to $713,000, a 23% rise from last January’s $580,000. The typical Bay Area buyer committed to a monthly mortgage payment of $2,344 in January, up from $1,940 one year ago. According to DataQuick’s research, which is based on filings with county recorders’ offices, the median price for a single-family home has hit a record in nine of the past twelve months. That’s more than one can say for the Dow, Nasdaq, or S&P 500.

Around San Francisco, there are nine Bay Area counties. Let’s see what Greenspan’s record low interest rate and accommodative policy helped produce from January 2002 to January 2005. Keep in mind that the recession ended in November 2001. The monthly median single-family home price for the nine Bay Area counties was $380,000 in January 2002; $415,000 in 2003; $463,000 in 2004; and $556,000 in January 2005. That’s only part of the story. Essentially, there have not been any price declines during these four years. In many cases, little or no money was put down on these homes. The return on investment has made the Dow, Nasdaq, and the S&P 500 look like junkyard dogs. It gets better. As the price of the home increased, more borrowing against the value of the home was possible. Hence, establishing one’s home as an ATM. The consumer was refueled with additional credit. The good times rolled on, and it’s too much fun to stop. Greenspan might not tell the world that. He wants to appear serious. That’s a joke.

The news gets better. With more buying power from higher home prices, the homebuyer can readily afford any stock in the Dow. Not one is above $100 a share. That’s chicken feed for the homeowner. Heck, there’s no reason why the Dow can’t go to 12,000 or even 36,000. There’s plenty of buying power from those homes.

It gets better, according to Treasury Strategies, corporations have $4.7 trillion in liquid assets. That’s a lot of cash. Think of all the money that can be utilized for stock buybacks. If there is a buying frenzy from corporations and the homeowners, there is no telling how high stocks could go.

There is one fly in the ointment. Capital flows into the U.S. in December dropped 31.4% to $61.3 billion from a revised $89.3 billion in November. However, for all of 2004, foreign net purchases reached $821.8 billion up from $683.6 billion in 2003. We need that foreign money to offset the twin tower deficits projected in 2005. Maybe the next project on the Apprentice should be to create an advertising program to attract more foreign capital.

Knowing how much buying power is around, makes me sleep soundly. Unleaded gas just increased 15 cents a gallon in California. Big deal. They can afford the 15 cents. Their homes are going up thousands each month. The Empire State Mfg. Index declined in February and the Employment index plummeted 30% in February from the prior month. Big deal. Look at the price of apartments in New York. They can take money from their home ATM. In January, auto sales dropped 3.3%. So what. No one needs to own a car. Homeowners are riding in a limo.

I’m a little disappointed that more is not being done for Japan. Their export growth is going nowhere and consumer spending sucks there. Their GDP is contracting and prices are falling. We need to focus some on Japan. We need to help Japan by buying their exports. By extracting some money out of the home ATM, we can direct the purchases to Japanese products. We must start a good neighbor policy and buy Japan. We are the consumers of last resort.

While we’re helping Japan, let’s give a hand to LeapFrog of Emeryville, California. They have run into a small head wind. They cut 180 people from the payroll. Let’s use the ATM and buy some LeapFrog products and get the company going forward once again. We are the consumers of last resort.

I don’t believe Wall Street analysts have a full appreciation for life in our great country. Take a good look at Coca Cola. The lower dollar provided 3 cents a share to Coke’s earnings in the latest quarter. A lower than expected tax rate provided another 3 cents per share. It just goes to show what a weak dollar and lower taxes can do for corporate profits. We need more Coca Colas. Management is doing its part. The Company repurchased approximately $1.7 billion of its common stock during the year, or approximately 37.5 million shares, and in 2005, intends to increase its share repurchase to at least $2 billion or about one-third of the annual cash generated.
2/16/05 Brave New World

When Greenspan takes the stage today, he will fail to mention the following disconnect. On Tuesday, the California Association of Realtors discussed the “homebuyer income gap index.” California households, with a median household income of $53,240, are $56,070 short of the $109,320 qualifying income needed to purchase a median-priced home at $470,920 in the state. The Realtors’ “homebuyer income gap index” for California increased 41.6% during the fourth quarter of 2004 compared to the fourth quarter of 2003, when the gap stood at $39,610, the median household income was $51,860, and qualifying income needed to purchase a median-priced home at $390,250 was $91,460. The San Francisco Bay Area had the highest gap in the state of $84,690, where potential homebuyers had a median household income of $67,750 but needed qualifying income of $152,440 to purchase a median-priced home at $656,690. That was 2004.

It only gets better in 2005. In January, home prices in the San Francisco Bay Area soared 20% from a year ago and sales reached the highest level for the month since 1989. Specifically, in San Francisco, a typical single-family home increased in price to $713,000, a 23% rise from last January’s $580,000. The typical Bay Area buyer committed to a monthly mortgage payment of $2,344 in January, up from $1,940 one year ago. According to DataQuick’s research, which is based on filings with county recorders’ offices, the median price for a single-family home has hit a record in nine of the past twelve months. That’s more than one can say for the Dow, Nasdaq, or S&P 500.

Around San Francisco, there are nine Bay Area counties. Let’s see what Greenspan’s record low interest rate and accommodative policy helped produce from January 2002 to January 2005. Keep in mind that the recession ended in November 2001. The monthly median single-family home price for the nine Bay Area counties was $380,000 in January 2002; $415,000 in 2003; $463,000 in 2004; and $556,000 in January 2005. That’s only part of the story. Essentially, there have not been any price declines during these four years. In many cases, little or no money was put down on these homes. The return on investment has made the Dow, Nasdaq, and the S&P 500 look like junkyard dogs. It gets better. As the price of the home increased, more borrowing against the value of the home was possible. Hence, establishing one’s home as an ATM. The consumer was refueled with additional credit. The good times rolled on, and it’s too much fun to stop. Greenspan might not tell the world that. He wants to appear serious. That’s a joke.

The news gets better. With more buying power from higher home prices, the homebuyer can readily afford any stock in the Dow. Not one is above $100 a share. That’s chicken feed for the homeowner. Heck, there’s no reason why the Dow can’t go to 12,000 or even 36,000. There’s plenty of buying power from those homes.

It gets better, according to Treasury Strategies, corporations have $4.7 trillion in liquid assets. That’s a lot of cash. Think of all the money that can be utilized for stock buybacks. If there is a buying frenzy from corporations and the homeowners, there is no telling how high stocks could go.

There is one fly in the ointment. Capital flows into the U.S. in December dropped 31.4% to $61.3 billion from a revised $89.3 billion in November. However, for all of 2004, foreign net purchases reached $821.8 billion up from $683.6 billion in 2003. We need that foreign money to offset the twin tower deficits projected in 2005. Maybe the next project on the Apprentice should be to create an advertising program to attract more foreign capital.

Knowing how much buying power is around, makes me sleep soundly. Unleaded gas just increased 15 cents a gallon in California. Big deal. They can afford the 15 cents. Their homes are going up thousands each month. The Empire State Mfg. Index declined in February and the Employment index plummeted 30% in February from the prior month. Big deal. Look at the price of apartments in New York. They can take money from their home ATM. In January, auto sales dropped 3.3%. So what. No one needs to own a car. Homeowners are riding in a limo.

I’m a little disappointed that more is not being done for Japan. Their export growth is going nowhere and consumer spending sucks there. Their GDP is contracting and prices are falling. We need to focus some on Japan. We need to help Japan by buying their exports. By extracting some money out of the home ATM, we can direct the purchases to Japanese products. We must start a good neighbor policy and buy Japan. We are the consumers of last resort.

While we’re helping Japan, let’s give a hand to LeapFrog of Emeryville, California. They have run into a small head wind. They cut 180 people from the payroll. Let’s use the ATM and buy some LeapFrog products and get the company going forward once again. We are the consumers of last resort.

I don’t believe Wall Street analysts have a full appreciation for life in our great country. Take a good look at Coca Cola. The lower dollar provided 3 cents a share to Coke’s earnings in the latest quarter. A lower than expected tax rate provided another 3 cents per share. It just goes to show what a weak dollar and lower taxes can do for corporate profits. We need more Coca Colas. Management is doing its part. The Company repurchased approximately $1.7 billion of its common stock during the year, or approximately 37.5 million shares, and in 2005, intends to increase its share repurchase to at least $2 billion or about one-third of the annual cash generated.

Tuesday, February 15, 2005

2/15/05 Revisiting Greenspan One Year Later

It was one year ago that Greenspan stated “the growth of nonfederal debt, at 7-3/4 percent, was relatively brisk in 2003. However, a significant portion of that growth was associated with the record turnover of existing homes and the high level of cash-out refinancing, which are not expected to continue at their recent pace. A narrower measure, that of credit held by banks, also grew only moderately in 2003. All told, our accommodative monetary policy stance to date does not seem to have generated excessive volumes of liquidity or credit.” In fact, in 2004, the savings rate for consumers declined to 1%, the lowest level in 70 years, while personal spending rose 6.1%. Currently, average monthly imports are $155 billion, while average monthly exports total $96 billion. Imports from China have doubled since 2000. Although the trade deficit was a record $617 billion in 2004, we are on track to register a current account deficit of $700 billion in 2005.Year-to-year non-oil imports are up 13%. Greenspan’s forecast for a lower trade deficit this year are off the mark. In addition, Germany’s GDP fell 0.2% in the fourth quarter. Ask yourself whether European firms will be willing to reduce their margins further to protect U.S. market share. Will higher prices on European imports restrain spending? But China will be there to help. Their most recent year-to-year growth in manufacturing was a staggering 42%. There are plenty of goods to fill our import needs.

Janet Yellen, President of the San Francisco Fed: “To keep wealth rising over time, if that’s what households want, people are going to have to do more of the hard work of spending less, saving more.”

Yesterday was another bad day for employment. After acquiring MCI, Vverizon stated 7,000 jobs would be cut. The GAP will close a Maryland distribution center and cut 170 employees. Cavalier Homes will close its Ft. Worth plant and eliminate 150 jobs.

70% of stocks in the Dow are above their thirty-day moving average.

According to the Center for Economic and Policy Research in DC, housing prices, adjusted for inflation, are up 36% since 1995. It certainly seems much more than that. Valerie Patterson of the RealEstateJournal.com stated “as long as prices remain near today’s levels, most homeowners will still have a lot of equity against which they can borrow to finance other types of spending. However, if housing prices take a nosedive, many families would be unable to sell their home for enough to pay off their outstanding mortgage.” I’m confident that long-term rates will remain close to 4% forever. There is no reason to be concerned. Greenspan is here to tuck everyone in bed at night. Consumers can use their homes as an ATM well into the forseeable future. The Fed will be there to print the money. A warm glass of milk (make it soy) and the Fed--- the combination for sweet dreams.

According to TrimTabs.com, the net investments flowing into international funds in 2004 was a record $48.3 billion. However, last year international funds only had $452 billion in assets. This contrasts with domestic stock funds with assets of $3.7 trillion.

Sen. Barack Obama: “When you adjust for inflation, the president’s budget has even less money for veterans than it had a year ago. We have a tendency to applaud our Armed Forces when they are overseas and in uniform and have a tendency to forget about them when they come home.” Obama stated currently nearly half a million veterans’ compensation and pension claims are still waiting a decision. He called Bush “bull-headed” and warned that Bush’s proposed 2.7% increase for the VA doesn’t consider an increased demand from returning Iraqi veterans. We must do right by our veterans. It is both a moral responsibility and the responsibility of a free nation.

According to IMS Health, U.S. prescription drug sales rose 8.35 to $235 billion in 2004.

Skype is presently the leading European VOIP software supplier. They signed a memorandum of understanding to pre-load Skype software into some Motorola Wi-Fi enabled mobile phones and other devices.

Monday, February 14, 2005

2/14/05 Happy Valentine’s Day

Each and every day should be Valentine’s Day for those in love. Each day is special.

Can you imagine having to pay $2 billion for the privilege of not purchasing 90% of a company? What can you say about GM and the $2 billion handed to Fiat. Thank goodness I’m not a stockholder of GM.

If you’re an MCI shareholder, you have begun the week on a strong note. The transaction with Verizon values each MCI share at $20.75, or $6.746 billion. The deal requires MCI shareholder approval as well as regulatory approvals. The Boards of Directors of both companies have approved the agreement. Verizon expects the transaction to be essentially breakeven in year three, and cash flow will turn positive in year three. Time will tell if “this is the right deal at the right time.”

At what point does the Fed come to its senses. Over the past two months, the M3 money supply has been enlarged by $100 billion or about $600 billion on an annualized basis. Enhancing liquidity does not equate with debasing the worth of our currency. This irresponsible printing press must be stopped.

On a lighter note, it’s been a very long time since Bruce Lee died. There has not been anyone to take his place--- until now. He is the Thai warrior---Tony Jaa.

Five Across introduced Bubbler at DEMO@15!. It is available in beta. Bubbler updates text and pages in real time, allows drag-and-drop photo, audio, and video sharing, and has a group model that provides wiki-like collaboration for authorized users. In sum, it delivers advanced technology and produces a superior blogging platform. According to Technorati, 23,000 new weblogs are created every day, yet only 7% of U.S. online consumers currently have blogs, according to the Pew Internet & American Life Project.

According to National Climatic Data in Asheville, NC, the average U.S. temperature last month was 2.5 degrees warmer than the average for the last 100 years.

Motorola will offer a peak of its forthcoming iRadio at the DEMO@15!. This solution will mobilize hundreds of commercial-free Internet radio channels and your personal music collection. It can be enjoyed at home, in the car, or on the go and operates on a high-speed Internet connection and a mobile phone for continuous entertainment.

Over the last several days gold has rallied from $410 per ounce to $422.50. Silver, however, has been the recent real star performer, and it is trading near a two-month high at $7.24.

Japan’s current account surplus rose 35% in December to a record 1.616 trillion yen.

Much press has been devoted to the fact that 65% of the S&P 500 companies surpassed the average analyst estimate in the December quarter. It might be wise to consider the impact of lower taxes and currency adjustments. In addition, higher energy prices have been reflected in higher earnings and higher profit margins for oil and gas companies in the S&P 500.

Sunday, February 13, 2005

2/13/05 Extracting Reality

I believe it is worthwhile to compare two descriptions of Social Security. Each was stated within the last few days. In Pennsylvania, Bush said “every dime that goes in from payroll taxes is spent. It’s spent on retirees, and if there’s excess, it’s spent on government programs. The only thing that Social Security has is a pile of IOUs from one part of the government to the next.” There are excess funds over and above payments to retirees. One would well to remember Bush’s 2/27/01 State of the Union Address in which he pledged “to make sure the retirement savings of American seniors are not diverted in any other program.” By his admission this week in Pennsylvania and North Carolina, that pledge was not kept. He extracted the excess funds and diverted them into the government budget in an effort to limit the record deficit. My statement is confirmed by Douglas Holtz-Eakin, director of the nonpartisan CBO, who observed that “the surplus has been used to cushion things elsewhere in the budget. Right now, payroll taxes, revenues dedicated to the system, exceed benefit payments going out to the tune of $80 billion. Those funds provide a cushion for the remainder of the federal budget. That cushion will peak in 2010. It will diminish every year until, in our projections, 2020, at which point we will switch from cash flow surplus to cash flow deficit for Social Security. It requires funds to come in from 2020 and thereafter to make promised benefit payments.”

Listen to the Bush scare tactics. Does it remind you of statements surrounding WMD in Iraq. On Wednesday, Bush stated “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.” Let’s compare those words with the statement made this week by Holtz-Eakin. He remarked “the trust fund has bred an enormous amount of confusion. There is a trust fund. It has in it U.S. Treasury securities. They are backed by the full faith and credit of the U.S. government, and they will not in fact be defaulted on. The Social Security Administration will present them to the Treasury. The Treasury will honor that commitment by raising taxes, borrowing more, or spending less.”

Holtz-Eakin opined that “the central domestic policy challenge of our time is rising health care costs.” The reason is simple. Historically, health care costs have risen 2.5 times faster than incomes. Recently, the differential is close to four times faster. If the differential is maintained at 2.5 times, by the time Baby Boomers retire, health care costs for Medicare and Medicaid will become 20% of our GDP.

Let’s switch gears for the time being. Let’s touch on low interest rates, low savings, and record consumer debt. Everyone has a hand in this predicament. The Fed reduced interest rates to artificially and unsustainable low levels. In effect, after adjusting for inflation, one could borrow for nothing. Money was a gift. It was a hand-out. It became worth less on the open currency market and also acted as a deterrent to saving. Why save when you cold only receive 1% or less in a money-market or savings account? Instead people went out and spent what could have been saved, and then some. In the last several years an additional $3 trillion of mortgage debt was placed on the books and total mortgage debt presently approximates $9 trillion. That doesn’t include the $2.1 trillion in additional consumer debt. Overall, consumption as a percentage of GDP rose from the average of 67% between 1975 and 2000 to just over 70%. Taking that extra 3 plus percent on an $11 trillion plus GDP, added annual spending of about $350 billion. It’s those funds that have contributed to the record trade deficits, and it’s no wonder we import 50% more than we export. I found Holtz-Eakin’s comments on deficits, borrowing, spending, and saving particularly worth relating. He stated that “deficits have traditionally represented borrowing to spend. If you borrow to spend as a nation, on the whole, you accumulate less for the future. We don’t save as a nation, we don’t have resources to fund all the things that are building blocks of economic growth. In the end, that economic growth is what allows standards of living to rise.” I believe the facts will show that, with heightened spending, record debts and twin tower deficits, and historically low savings, our standard of living is declining. That may not be reflected in the Dow, the S&P 500, the Russell, or other equity indices, but the stock market is not the ultimate barometer of this nation’s economic well-being. The consumer is the first and final arbiter. As Holtz-Eakin observed, “we still face a long-term imbalance that stems from rising spending. As a matter of simple arithmetic, you really do have to look at the spending side.” Wall Street might consider taking a long look in that direction.

In the week ending February 9, the Fed’s holdings of Treasury and agency bonds held on behalf of foreign central banks declined by $5 billion, the second weekly decline.

Seeking an alternative to our 4% Treasury bonds, one might look across the globe to New Zealand with its 6.5% interest rate combined with a 3.6% unemployment rate.

According to the Tax Foundation, only five blue states were net recipients of federal subsidies. Only two red states were net payers of federal taxes. In 2003, the blue states contributed $966 billion to the federal Treasury and got $830 billion back. The red states paid $697 billion and received $909 billion.