Saturday, March 05, 2005

Step Right Up

3/5/05 Step Right Up

There’s plenty of room at the crap table. Step right up. Everyone goes home a winner. You’re playing with the house’s money. Heads you win. Tails you win. The only losers are the ones who sit on the sidelines watching the prices rise. There’s no ceiling. There aren’t any bubbles outside the bathroom.

David Walker, Comptroller General of the U.S.: “The United States of America’s public finances are a shambles and they’re getting rapidly worse.” What does he know? The CBO reported that, for the first five months of fiscal 2005, the U.S. government ran a budget deficit of about $225 billion, but it was about $4 billion less than the same period last year. Noam Neusner, spokesman for the OMB, stated “in the near-term we’re doing exactly what we should be doing---bringing the budget down steadily.” Things are looking up. Yesterday’s CBO report said cumulative deficits over the next decade will be $125 billion worse than it estimated only about one month ago. However, the good news is the deficit projected for 2005 would be about $394 billion and approximately $375 billion in 2006. That’s steady progress from the record deficit of $412 billion in fiscal 2004. I can’t wait to see the next revisions.

I really get ticked off when people say we’re losing our manufacturing base. There is a lack of appreciation for our manufacturing prowess. We manufacture liquidity. We print money, extend credit, assume debt, and save only 1% of earnings. That’s the American way! Just look at M3. Please! It’s up 6% year-over-year and rose $43.5 billion in the last week to $9.5 trillion. Meanwhile, bank credit exploded in the last week to just under $7 trillion, a rise of almost $42 billion. Fortunately, we invited foreigners to the party. We can’t exclude our friends. Their holdings of our government debt rose by $14 billion to $1.379 billion. Over the past two weeks those holdings jumped by $36.4 billion. I hear someone yelling “how about real estate?” I’m getting to it. This is the best part. The National Association of Realtors stated that together investors and second-home buyers bought more than one-third of all homes sold in the U.S. in 2004. That is such great news.

I really get angry when analysts take cheap shots at the non-farm payroll number. Who cares if the January number was revised downward from 146,000 to 132,000? Who cares if the unemployment rate rose in February from 5.2% to 5.4%? It’s been 5.4% for months and months. Big deal. I heard someone say it’s quality not quantity. That’s a cheap shot. In February, there were 30,000 more temp jobs. They need to eat too. There were 33,000 more government jobs. Thank goodness for big government. The weather improved and 30,000 construction workers were able to return to building those homes we so desperately need. The heavens looked kindly on us and those auto workers returned to work and helped manufacturing add 20,000 jobs. All of the aforementioned added 113,000 to the January payroll number of 132,000. And to think we were still able to create another 17,000 jobs, bringing the total in February to 262,000. It’s a miracle. The consumer came to the rescue as there was a net gain of 23,800 retail jobs from January to February. In addition, people are still eating. Food services employment rose by 27,000 in February. I guess that means more jobs were lost in other areas. It’s the bottom line that counts. But there is good news. Over the past year, the number of persons who held more than one job increased by 432,000 to 7.7 million, not seasonally adjusted, and this group represents 5.5% of total employment in February, up from 5.3% a year earlier. It means people can find jobs. They may not be with benefits, but they’re jobs.

There are too many negative people. There are always complaints. The manufacturing workweek fell by 12 minutes in February. Give me a break! Overtime increased by 6 minutes. The good news is that workers’ average hourly earnings and average weekly earnings were unchanged. That means labor costs will not contribute to inflation. That means the bond market can rally and yields can go down. That’s good for the housing investor.

Fortunately, Wall Street found time on Friday to turn its attention from real estate to stocks. The 1215 level on the S&P 500 was broken on the upside without a sweat, and both the Dow and the S&P 500 made new 3+ year highs. More impressive were the record highs recorded by the Dow Transports and the S&P Mid-Cap. It was a great day for creating wealth. Unfortunately, the dollar declined and inflation did rise as the Goldman Sachs Commodities Index is now up 17.6% year-to-date. Maybe inflation will take a rest. After all, the January orders for durable goods were revised down to 1.3% from 0.9%.

The Fed Chairman: “Down the road the impact of an ever-rising deficit, especially as a percent of GDP, creates significant weakness in the structure of the economy.”

Weston Foods is closing biscuit plants in Elizabeth, N.J. and Richmond, Va and 1,100 jobs will be cut.

China’s currency peg presently holds the yuan in a range of 8.276 to 8.28 per dollar. Guo Shuqing, head of the State Administration of Foreign Exchange, stated “we will continue to maintain a managed floating system based on market supply and demand and will gradually increase exchange rate flexibility.” Meanwhile, China’s Premier is forecasting their economy to grow 8% this year.

According to CattBoxx.com, in 2004, U.S. consumers spent $300 billion at online businesses. At the same time, consumers continue to voice security and privacy concerns.

Berkshire Hathaway Inc., the holding company run by Warren Buffett, said on Saturday that profits last year fell 10 percent from a year earlier, as earned insurance premiums and investment gains declined. This morning Buffett will release his 2005 letter to the company’s shareholders. I will include some quotes in tomorrow’s musings.

Friday, March 04, 2005

payrolls

3/4/05 Payrolls

The median estimate of 70 economists in a Bloomberg
News survey is for U.S. February payrolls to rise by
225,000, the biggest jump for any February since 1999.
This would follow a muted gain of 146,000 in the prior
month. Why the difference? The GDP is estimated to be
growing at roughly twice the productivity rate and
therefore more workers are required (despite the fact
that factory orders probably declined for the first
time since August in the past month). At the same
time, added employment has not lessened the slack in
the labor market (despite the stated unemployment rate
dropping to 5.2%) and therefore companies are not
pressured to raise wages. The gains in wages continue
to trail the rate of inflation. Rising employment
estimates are also relying on better weather when the
economic survey was taken. Citigroup stated 342,000
people could not work in January because of bad
weather or 85,000 more than the average. On the other
hand, all the surveys I read suggest that hiring will
continue to be moderate this year. In a few hours
we’ll see the numbers. Those are the pre-revised
numbers. There won’t be surprises in those getting
hired--- the same part-timers and the same service
jobs. Only the numbers will change to protect the
innocent.

The payroll numbers will not include the plant closure
of Ludlow Textiles. Employment was down to 104. Once
there were 4,000 workers in what was once described as
the largest jute factory in the world. The town of
Ludlow, Mass. got its name from the company.
Production will be moved overseas.

February 21, 2001 Bush stated “to make sure the
retirement savings of America’s seniors are not
diverted in any other program, my budget protects all
$2.6 trillion of the Social Security surplus for
Social Security, and for Social Security alone.” On
February 9, 2005 Bush stated “the money-payroll taxes
going into Social Security are spent. They’re spent on
benefits and they’re spent on government programs.
There is no trust.” He is absolutely correct. There is
no trust!

February same-store sales for Wal-Mart increased 4.1%.
In February 2004 they climbed 6.2%. For the March
five-week period, the company forecasts comparative
sales for the U.S. to be similar or better than
February of this year.

Since December, after more than quadrupling to a
record high, the Baltic dry freight index, a basket of
prices for charting vessels on 25 important shipping
routes, has dropped by more than 20%. It has been
estimated that roughly 90% of world trade by weighted
volume is via shipping routes. A new report by Celent
stated derivatives trading on shipping rates rose by
70% in 2004 to $30 billion.

I thought it might be interesting to construct two
portfolios and compare the results between today and
December 31, 2005. One will be comprised of stocks
selling for $100 and over and the other with stocks
selling for $5 and under. Each portfolio will be
weighted with 100 shares of 10 stocks. In the $100 and
over we have Goldman Sachs, Bear Stearns, Whole Foods,
ConocoPhillips, Berkshire Hathaway, Google, KB Home,
Beazer Homes. General Dynamics, and United
Technologies. The other portfolio consists of Blue
Martini Software, Ciena, Selectica, Lucent, Sun
Microsystems, Palatin Technologies, Atmel, Nortel
Networks, ArQule, and Delta Airlines.

Maxtor will cut up to 5,500 jobs in Singapore as it
shifts production to China.

There is trouble with Blogger publishing this morning. Hopefully, it will be cleared
up relatively quickly this morning.

payrolls

3/4/05 Payrolls

The median estimate of 70 economists in a Bloomberg
News survey is for U.S. February payrolls to rise by
225,000, the biggest jump for any February since 1999.
This would follow a muted gain of 146,000 in the prior
month. Why the difference? The GDP is estimated to be
growing at roughly twice the productivity rate and
therefore more workers are required (despite the fact
that factory orders probably declined for the first
time since August in the past month). At the same
time, added employment has not lessened the slack in
the labor market (despite the stated unemployment rate
dropping to 5.2%) and therefore companies are not
pressured to raise wages. The gains in wages continue
to trail the rate of inflation. Rising employment
estimates are also relying on better weather when the
economic survey was taken. Citigroup stated 342,000
people could not work in January because of bad
weather or 85,000 more than the average. On the other
hand, all the surveys I read suggest that hiring will
continue to be moderate this year. In a few hours
we’ll see the numbers. Those are the pre-revised
numbers. There won’t be surprises in those getting
hired--- the same part-timers and the same service
jobs. Only the numbers will change to protect the
innocent.

The payroll numbers will not include the plant closure
of Ludlow Textiles. Employment was down to 104. Once
there were 4,000 workers in what was once described as
the largest jute factory in the world. The town of
Ludlow, Mass. got its name from the company.
Production will be moved overseas.

February 21, 2001 Bush stated “to make sure the
retirement savings of America’s seniors are not
diverted in any other program, my budget protects all
$2.6 trillion of the Social Security surplus for
Social Security, and for Social Security alone.” On
February 9, 2005 Bush stated “the money-payroll taxes
going into Social Security are spent. They’re spent on
benefits and they’re spent on government programs.
There is no trust.” He is absolutely correct. There is
no trust!

February same-store sales for Wal-Mart increased 4.1%.
In February 2004 they climbed 6.2%. For the March
five-week period, the company forecasts comparative
sales for the U.S. to be similar or better than
February of this year.

Since December, after more than quadrupling to a
record high, the Baltic dry freight index, a basket of
prices for charting vessels on 25 important shipping
routes, has dropped by more than 20%. It has been
estimated that roughly 90% of world trade by weighted
volume is via shipping routes. A new report by Celent
stated derivatives trading on shipping rates rose by
70% in 2004 to $30 billion.

I thought it might be interesting to construct two
portfolios and compare the results between today and
December 31, 2005. One will be comprised of stocks
selling for $100 and over and the other with stocks
selling for $5 and under. Each portfolio will be
weighted with 100 shares of 10 stocks. In the $100 and
over we have Goldman Sachs, Bear Stearns, Whole Foods,
ConocoPhillips, Berkshire Hathaway, Google, KB Home,
Beazer Homes. General Dynamics, and United
Technologies. The other portfolio consists of Blue
Martini Software, Ciena, Selectica, Lucent, Sun
Microsystems, Palatin Technologies, Atmel, Nortel
Networks, ArQule, and Delta Airlines.

Maxtor will cut up to 5,500 jobs in Singapore as it
shifts production to China.

payrolls

3/4/05 Payrolls

The median estimate of 70 economists in a Bloomberg
News survey is for U.S. February payrolls to rise by
225,000, the biggest jump for any February since 1999.
This would follow a muted gain of 146,000 in the prior
month. Why the difference? The GDP is estimated to be
growing at roughly twice the productivity rate and
therefore more workers are required (despite the fact
that factory orders probably declined for the first
time since August in the past month). At the same
time, added employment has not lessened the slack in
the labor market (despite the stated unemployment rate
dropping to 5.2%) and therefore companies are not
pressured to raise wages. The gains in wages continue
to trail the rate of inflation. Rising employment
estimates are also relying on better weather when the
economic survey was taken. Citigroup stated 342,000
people could not work in January because of bad
weather or 85,000 more than the average. On the other
hand, all the surveys I read suggest that hiring will
continue to be moderate this year. In a few hours
we’ll see the numbers. Those are the pre-revised
numbers. There won’t be surprises in those getting
hired--- the same part-timers and the same service
jobs. Only the numbers will change to protect the
innocent.

The payroll numbers will not include the plant closure
of Ludlow Textiles. Employment was down to 104. Once
there were 4,000 workers in what was once described as
the largest jute factory in the world. The town of
Ludlow, Mass. got its name from the company.
Production will be moved overseas.

February 21, 2001 Bush stated “to make sure the
retirement savings of America’s seniors are not
diverted in any other program, my budget protects all
$2.6 trillion of the Social Security surplus for
Social Security, and for Social Security alone.” On
February 9, 2005 Bush stated “the money-payroll taxes
going into Social Security are spent. They’re spent on
benefits and they’re spent on government programs.
There is no trust.” He is absolutely correct. There is
no trust!

February same-store sales for Wal-Mart increased 4.1%.
In February 2004 they climbed 6.2%. For the March
five-week period, the company forecasts comparative
sales for the U.S. to be similar or better than
February of this year.

Since December, after more than quadrupling to a
record high, the Baltic dry freight index, a basket of
prices for charting vessels on 25 important shipping
routes, has dropped by more than 20%. It has been
estimated that roughly 90% of world trade by weighted
volume is via shipping routes. A new report by Celent
stated derivatives trading on shipping rates rose by
70% in 2004 to $30 billion.

I thought it might be interesting to construct two
portfolios and compare the results between today and
December 31, 2005. One will be comprised of stocks
selling for $100 and over and the other with stocks
selling for $5 and under. Each portfolio will be
weighted with 100 shares of 10 stocks. In the $100 and
over we have Goldman Sachs, Bear Stearns, Whole Foods,
ConocoPhillips, Berkshire Hathaway, Google, KB Home,
Beazer Homes. General Dynamics, and United
Technologies. The other portfolio consists of Blue
Martini Software, Ciena, Selectica, Lucent, Sun
Microsystems, Palatin Technologies, Atmel, Nortel
Networks, ArQule, and Delta Airlines.

Maxtor will cut up to 5,500 jobs in Singapore as it
shifts production to China.

payrolls

3/4/05 Payrolls

The median estimate of 70 economists in a Bloomberg
News survey is for U.S. February payrolls to rise by
225,000, the biggest jump for any February since 1999.
This would follow a muted gain of 146,000 in the prior
month. Why the difference? The GDP is estimated to be
growing at roughly twice the productivity rate and
therefore more workers are required (despite the fact
that factory orders probably declined for the first
time since August in the past month). At the same
time, added employment has not lessened the slack in
the labor market (despite the stated unemployment rate
dropping to 5.2%) and therefore companies are not
pressured to raise wages. The gains in wages continue
to trail the rate of inflation. Rising employment
estimates are also relying on better weather when the
economic survey was taken. Citigroup stated 342,000
people could not work in January because of bad
weather or 85,000 more than the average. On the other
hand, all the surveys I read suggest that hiring will
continue to be moderate this year. In a few hours
we’ll see the numbers. Those are the pre-revised
numbers. There won’t be surprises in those getting
hired--- the same part-timers and the same service
jobs. Only the numbers will change to protect the
innocent.

The payroll numbers will not include the plant closure
of Ludlow Textiles. Employment was down to 104. Once
there were 4,000 workers in what was once described as
the largest jute factory in the world. The town of
Ludlow, Mass. got its name from the company.
Production will be moved overseas.

February 21, 2001 Bush stated “to make sure the
retirement savings of America’s seniors are not
diverted in any other program, my budget protects all
$2.6 trillion of the Social Security surplus for
Social Security, and for Social Security alone.” On
February 9, 2005 Bush stated “the money-payroll taxes
going into Social Security are spent. They’re spent on
benefits and they’re spent on government programs.
There is no trust.” He is absolutely correct. There is
no trust!

February same-store sales for Wal-Mart increased 4.1%.
In February 2004 they climbed 6.2%. For the March
five-week period, the company forecasts comparative
sales for the U.S. to be similar or better than
February of this year.

Since December, after more than quadrupling to a
record high, the Baltic dry freight index, a basket of
prices for charting vessels on 25 important shipping
routes, has dropped by more than 20%. It has been
estimated that roughly 90% of world trade by weighted
volume is via shipping routes. A new report by Celent
stated derivatives trading on shipping rates rose by
70% in 2004 to $30 billion.

I thought it might be interesting to construct two
portfolios and compare the results between today and
December 31, 2005. One will be comprised of stocks
selling for $100 and over and the other with stocks
selling for $5 and under. Each portfolio will be
weighted with 100 shares of 10 stocks. In the $100 and
over we have Goldman Sachs, Bear Stearns, Whole Foods,
ConocoPhillips, Berkshire Hathaway, Google, KB Home,
Beazer Homes. General Dynamics, and United
Technologies. The other portfolio consists of Blue
Martini Software, Ciena, Selectica, Lucent, Sun
Microsystems, Palatin Technologies, Atmel, Nortel
Networks, ArQule, and Delta Airlines.

Maxtor will cut up to 5,500 jobs in Singapore as it
shifts production to China.

Payrolls

3/4/05 Payrolls

The median estimate of 70 economists in a Bloomberg
News survey is for U.S. February payrolls to rise by
225,000, the biggest jump for any February since 1999.
This would follow a muted gain of 146,000 in the prior
month. Why the difference? The GDP is estimated to be
growing at roughly twice the productivity rate and
therefore more workers are required (despite the fact
that factory orders probably declined for the first
time since August in the past month). At the same
time, added employment has not lessened the slack in
the labor market (despite the stated unemployment rate
dropping to 5.2%) and therefore companies are not
pressured to raise wages. The gains in wages continue
to trail the rate of inflation. Rising employment
estimates are also relying on better weather when the
economic survey was taken. Citigroup stated 342,000
people could not work in January because of bad
weather or 85,000 more than the average. On the other
hand, all the surveys I read suggest that hiring will
continue to be moderate this year. In a few hours
we’ll see the numbers. Those are the pre-revised
numbers. There won’t be surprises in those getting
hired--- the same part-timers and the same service
jobs. Only the numbers will change to protect the
innocent.

The payroll numbers will not include the plant closure
of Ludlow Textiles. Employment was down to 104. Once
there were 4,000 workers in what was once described as
the largest jute factory in the world. The town of
Ludlow, Mass. got its name from the company.
Production will be moved overseas.

February 21, 2001 Bush stated “to make sure the
retirement savings of America’s seniors are not
diverted in any other program, my budget protects all
$2.6 trillion of the Social Security surplus for
Social Security, and for Social Security alone.” On
February 9, 2005 Bush stated “the money-payroll taxes
going into Social Security are spent. They’re spent on
benefits and they’re spent on government programs.
There is no trust.” He is absolutely correct. There is
no trust!

February same-store sales for Wal-Mart increased 4.1%.
In February 2004 they climbed 6.2%. For the March
five-week period, the company forecasts comparative
sales for the U.S. to be similar or better than
February of this year.

Since December, after more than quadrupling to a
record high, the Baltic dry freight index, a basket of
prices for charting vessels on 25 important shipping
routes, has dropped by more than 20%. It has been
estimated that roughly 90% of world trade by weighted
volume is via shipping routes. A new report by Celent
stated derivatives trading on shipping rates rose by
70% in 2004 to $30 billion.

I thought it might be interesting to construct two
portfolios and compare the results between today and
December 31, 2005. One will be comprised of stocks
selling for $100 and over and the other with stocks
selling for $5 and under. Each portfolio will be
weighted with 100 shares of 10 stocks. In the $100 and
over we have Goldman Sachs, Bear Stearns, Whole Foods,
ConocoPhillips, Berkshire Hathaway, Google, KB Home,
Beazer Homes. General Dynamics, and United
Technologies. The other portfolio consists of Blue
Martini Software, Ciena, Selectica, Lucent, Sun
Microsystems, Palatin Technologies, Atmel, Nortel
Networks, ArQule, and Delta Airlines.

Maxtor will cut up to 5,500 jobs in Singapore as it
shifts production to China.

Thursday, March 03, 2005

Employment Surveys

3/3/05 Employment Surveys

In February, the Hudson Employment Index slid 5 points to 102, its lowest level in 12 months. Confidence among U.S. workers dropped reflecting heightened concerns about layoffs, job security, and personal finances. Twenty one percent of surveyed workers reported concern about losing his or her own job, compared to 19% of workers in January. This figure has risen above 19% only once before in December 2003, when it was 20%. Further, the number of workers expecting their firms to lay off staff in the coming months rose to 18% from 16% in January. Jeff Anderson, senior vice president of Hudson Global Resources stated "employment growth has been slower than expected and has been restricted to certain sectors such as services, making U.S. workers cautious and even pesimistic about the general overall job market."

According to the latest findings of the Duke University/CFO Business Outlook survey, chief financial officers are concerned about inflationary labor costs and the depreciating U.S. dollar hurting economic growth in the coming year. They are also concerned about the cost of health care, the U.S. budget deficit, high fuel costs and an increasingly competitive economic environment , all of which will slow earnings and capital spending growth in the coming year. John Graham, professor of finance at Duke's Fuqua School of Business and director of the survey, observed "while there are still more optimists than pessimists, this is the least optimistic that CFOs have been in the last two years." Campbell Harvey, professor of finance at Duke and founding director of the survey, stated that firms cite rising material costs on imported inputs as a major factor hurting their companies. He stated "many businesses cannot pass on the higher import costs and are being squeezed by the dollar. And to make things worse, our exporters are seeing little or no action even after a substantial depreciation." The survey revealed that fewer than half of CFOs expect employment to grow at their firms, in comparison to 60% expecting growth last quarter. Employment growth should average 1.7% domestically, down from 3.1% predicted last fall. This contrasts with expected 3% growth in outsourced employees. Capital spending should show modest growth of 5.4%; however, tech spending will increase just 2.4%. CFOs say advertising and marketing expenditures will rise by only 0.9%, which is less than one-third of the growth predicted in last fall's survey.

Babe Ruth: "Every strike brings me closer to the next home run."

In the February Challenger survey, employers announced plans for 108,387 job cuts, up 17% from January levels and up 43% from February 2004. Employers announced plans last month to hire 41,984 employees, up 41% from the prior month. Challenger stated that mergers have been a big driver of job cut announcements. That certainly is the case, but we should not forget about plant closings.

Casey Stengel: "The trouble is not that players have sex the night before a game. It's that they stay out all night looking for it."

Crude tops $53 a barrel, reaching a 4-month high.

The WSJ reports that ChevronTexaco is considering a bid for Unocal.

The Fed Chairman stated "our budget position is unlikely to improve substantially in the coming years unless major defciit-reducing actions are taken" and observed the record U.S budget deficit is "unsustainable." The problem is no one can identify the tipping point. It's somewhat akin to real estate in San Francisco. Unbelievable as it may sound, a house is on the market in SF for $45 million and a bid of $42 million was just rejected. This is not an office building or a hotel. It's a house--- in my view, an ugly one at that.

According to the National Conference of State Legislatures survey, eighty percent of employees miss work because of child-care problems. On average working mothers lose eight-and-a -half days per year, and fathers lose five.

Redd Foxx: "A girl's legs are her best friends, but the best of friends must part."

Transclick is a New York City privately-owned firm. The company announced the rollout of software that translates e-mail and text messaging with just one click. It can covert text into any of 18 languages. It will soon be available on most mobile devices. The cost is a modest $3 a month for basic service.

Wednesday, March 02, 2005

As The Dow Approaches 11,000

3/2/05 As The Dow Approaches 11,000

Yesterday’s spin was that the nation’s factories expanded in February for the 21st consecutive month. As long as the ISM Manufacturing Index exceeds 50, then there is expansion. It doesn’t matter that the Index declined in February or that employment in our factories is going nowhere. The fact is the Index for February hit a 14-month low. New orders were at their lowest level since June 2003.

As one former comedian might have said, take GM. Please! For the year, GM sales are down 9.9%. Their share of the market has declined to 25.1%. The temporary plant shutdowns will impact 3,200 workers. Ford is not exactly a ball of fire. Their year-to-date sales are off 7.4% and its market share declined to 19.6%. Yesterday, they announced further incentives. They will need to announce further production cutbacks. They’re coming. Just wait. In addition, Ford stated they expect a tough market in Europe this year. DaimlerChrysler turned in a better performance with sales up 2.4% year-to-date.

Yesterday was not a good day for jobs. Wachovia is cutting 4,300 workers. Citigroup is laying off 1,400 employees. GM is closing its Lansing, Michigan plant and 3,200 workers will be cut from the payroll. Johnson Outdoors will layoff 70 workers.

ECB cut their forecast for eurozone growth in 2005 to 1.6% from 1.9%.

According to the recent CNN/USA Today/Gallup poll, only 38% of Americans feel major changes must be made in Social Security within the next two years, and that’s down from 49% in the previous poll. Social Security is not going bankrupt. Fixing it does not require major brains. A tweak on the “cap” and raising the retirement age by one year will do wonders. Of course, it would help if the excess funds were not used for budget purposes. Bush generated fear out of the WMD and now he is trying to generate fear by creating a bankruptcy story for Social Security. A leader does not lead through fear.

Paul Volcker: "Below the favorable surface [of the economy], there are as dangerous and intractable circumstances as I can remember.... Nothing in our experience is comparable…But no one is willing to understand [this] and do anything about it… We are consuming… about six per cent more than we are producing. What holds the world together is a massive flow of capital from abroad… it’s what feeds our consumption binge... the United States economy is growing on the savings of the poor… A big adjustment will inevitably become necessary, long before the social security surpluses disappear and the deficit explodes…We are skating on increasingly thin ice."

According to the Xinhua news agency, China’s central bank spent $195 billion buying foreign currency last year to maintain the yuan’s peg with the dollar, a rise of 40% over 2003. The state media reported last week that the Chinese government will permit more foreign currency to leave the country.

Walgreen’s February same-store sales rose 9.3%. The company is not flashy but just keeps ringing the cash register.

In a recent interview, Sir John Templeton observed that, in his entire money management career, this is the toughest time to find stocks to buy. Saying it a bit differently, there isn’t much value to be found.

Monday, February 28, 2005

Inflation & Interest Rates Rise But Incomes Fall

3/1/05 Inflation & Interest Rates Rise But Incomes Fall

That's not a promising recipe for a successful economy. The core PCE price index rose 0.3% in January, the biggest gain since October 2001. With the CRB making a new high yesterday at 305 and looking at February's higher prices for crude, heating oil, copper, cocoa, wheat, coffee, soybeans, cotton, sugar, and many other commodities, the core PCE price index should be higher than January's. Meanwhile, nominal incomes fell 2.3% in January, the largest decline in 11 years. In addition, interest rates moved to their highest level in two months with the 5-year Treasury at 4.01% and the 10-year at 4.37%. That means mortgage rates will move higher this week. To top it off, new home sales declined 9.2% during January and the median sales price dropped to 199,400 from the prior month's $229,700. It was the lowest median price since December 2003.

The bulls say there is nothing to fear because the Bloomberg survey anticipates that 225,000 jobs will have been created in February. No matter that many will be temp jobs and no matter that the jobs will reflect wage gains trailing the inflation rate. Maybe the bulls should have a bit more concern because U.S. consumer spending was flat in January, and it was the weakest showing since a 0.3% decline in June 2003. In 2004, consumer spending rose by 3.8%. That won't be the case this year. Why? Where's the money for spending? The savings rate was a puny 1% in January. Even debt has its limits for consumers. Only the government keeps raising the debt limit once a year. Then again, it's other people's money!

I highly recommend today's article on inflation and the CPI written by ContraryInvestor.com. The link is http://safehaven.com/article-2672.htm

Walgreens is the country's ninth-largest retailer. The company announced that it is one of 13 featured employers in the AARP's Foundation's new program to help Americans age 50 and over stay in the workforce. Walgreens is actively looking to hire those 50 and over.

Advisor confidence slid for the third month in a row in February, according to Rydex AdvisorBenchmarking. Confidence levels decreased 2.3% last month from 120.95 to 118.08. Their big concern is the U.S. balance of payments and its impact on the dollar.

According to a report issued yesterday by Verisign, Internet commerce dollar volume rose 88% during the November-December holiday season compared with the same period a year earlier. Verisign processed approximately $12 billion in online sales between 11/1 and 12/31/04 compared to $6.4 billion in 2003's last two months. The average purchase price per transaction decreased about 35 to $146. The Monday after Thanksgiving proved to be the peak shopping day for Internet merchants.

Reducing Inventory

2/28/05 Reducing Inventory

Clint Eastwood: "If you want a guarantee, buy a toaster."

GM and Ford decided not to wait for the Tuesday release of their latest car sales. Both announced temporarily closing assembly plants for at least one week. GM will close its
Lansing Grand River and Detroit-Hamptramck assembly plants that make several Cadillac models as well as two Chevy facilities in Louisiana and Colorado. Ford will close a plant in Wayne
that assembles the Focus and a Twin Cities plant making the Ranger. At some point, GM and Ford will realize there is not sufficient demand for all of the models offered. Further cutbacks are on the horizon.

The storm in the Northeast has helped to propel crude above $52 a barrel. Prices at the pump
will rise this week.

Federated Department Stores (FD) and May Department Stores (MAY) confirmed plans to merge early Monday. The deal calls for Federated to acquire May for $17 billion in cash, stock and debt assumption. A per share consideration of $17.75 in cash and 0.3115 shares of Federated stock values May shares at $35.50 each. May's stock closed Friday at $35.35, up almost 4 percent. The cash and stock portion of the transaction has a value of $11 billion, and Federated is assuming $6 billion worth of May's debt. Federated has also agreed to increase its annual dividend to $1 per share. The boards of both companies have approved the deal, which is expected to close in the third quarter. Federated anticipates the transaction will add to earnings per share in 2007. This deal will make Federated the second-largest department chain.

Clint Eastwood: "I tried being reasonable. I didn't like it."

Many businesses could use Clint Eastwood as an example of how to run a business. His crew members have been with him for ten to forty years. There is tremendous loyalty and respect.
Everyone knows their role and they are paid to excel. That they do. His crew is efficient and productive. Million Dollar Baby was made in 37 days. GM and Ford could learn much from Eastwood, and that's also true of many other overpaid CEOs.

Sunday, February 27, 2005

Stick To What You Know Best

2/27/05 Stick To What You Know Best

I don't want to be accused of knowing a little about a lot of things. I'm not even interested in knowing a little about very much. I try and stick to what I know best. To get a handle on the economy I focus on Wal-Mart, Pfizer, Microsoft, GE, ExxonMobil, and GM. I try and learn as much as possible every day about those companies and their industries and their customers. Thta's where my knowledge begins. Everyone needs to recognize what they know best. Build on that knowledge.

When reading surveys, please note its size. The University of Michigan's is tiny when compared with that conducted by the Conference Board. Randstad North America, the Atlanta-based subsidiary of Dutch staffing giant Ranstad, conducted 2,639 interviews, and that's a good-sized survey. It reflected that 80% stated companies are expecting too few workers to handle too much work. Three-quarters of employees and employers said that, even if the economy were to sizzle, workers will be asked to continue their heavy loads because companies aren't likely to add legions of new workers. In sum, too many workers feel the amount of work they're doing is becoming onerous. At the same time, wage gains continue to trail the rate of inflation. Do you think this disparity has a long shelf life?

The Qatari oil minister stated he doesn't believe OPEC will raise output when it meets in March in Iran. One might question how much additional production is available to be increased. Global demand is now averaging 83.6 million barrels. What will the demand be in June, July, and August in comparison to production capabilities?

Brad Williams, a senior economist with the California Legislative Analyst's office, notes that "total property tax revenues statewide are up 8 to 9 percent over the last three years."

Jim Wunderman, Pres. & CEO of the Bay Area Council: "It simply stands to reason that, if people can't afford to live here, companies are not going to add new jobs."

Yesterday, Wal-Mart announced that their February U.S. same-store sales rose approximately 4%, the top of the estimated range. Food sales were stronger than general merchandise.

Talking about food, rice consumption in Japan has fallen to a postwar low. Working women are opting towards bread and pasta. Over the past 41 years, rice consumption per person has declined by about 50%. Spending on bread has risen about 23% over the last 23 years. Helping to shore up rice consumption of late has been the technology to make rice bread.

Stick To What You Know Best

2/27/05 Stick To What You Know Best

I don't want to be accused of knowing a little about a lot of things. I'm not even interested in knowing a little about very much. I try and stick to what I know best. To get a handle on the economy I focus on Wal-Mart, Pfizer, Microsoft, GE, ExxonMobil, and GM. I try and learn as much as possible every day about those companies and their industries and their customers. Thta's where my knowledge begins. Everyone needs to recognize what they know best. Build on that knowledge.

When reading surveys, please note its size. The University of Michigan's is tiny when compared with that conducted by the Conference Board. Randstad North America, the Atlanta-based subsidiary of Dutch staffing giant Ranstad, conducted 2,639 interviews, and that's a good-sized survey. It reflected that 80% stated companies are expecting too few workers to handle too much work. Three-quarters of employees and employers said that, even if the economy were to sizzle, workers will be asked to continue their heavy loads because companies aren't likely to add legions of new workers. In sum, too many workers feel the amount of work they're doing is becoming onerous. At the same time, wage gains continue to trail the rate of inflation. Do you think this disparity has a long shelf life?

The Qatari oil minister stated he doesn't believe OPEC will raise output when it meets in March in Iran. One might question how much additional production is available to be increased. Global demand is now averaging 83.6 million barrels. What will the demand be in June, July, and August in comparison to production capabilities?

Brad Williams, a senior economist with the California Legislative Analyst's office, notes that "total property tax revenues statewide are up 8 to 9 percent over the last three years."

Jim Wunderman, Pres. & CEO of the Bay Area Council: "It simply stands to reason that, if people can't afford to live here, companies are not going to add new jobs."

Yesterday, Wal-Mart announced that their February U.S. same-store sales rose approximately 4%, the top of the estimated range. Food sales were stronger than general merchandise.

Talking about food, rice consumption in Japan has fallen to a postwar low. Working women are opting towards bread and pasta. Over the past 41 years, rice consumption per person has declined by about 50%. Spending on bread has risen about 23% over the last 23 years. Helping to shore up rice consumption of late has been the technology to make rice bread.

Stick To What You Know Best

2/27/05 Stick To What You Know Best

I don't want to be accused of knowing a little about a lot of things. I'm not even interested in knowing a little about very much. I try and stick to what I know best. To get a handle on the economy I focus on Wal-Mart, Pfizer, Microsoft, GE, ExxonMobil, and GM. I try and learn as much as possible every day about those companies and their industries and their customers. Thta's where my knowledge begins. Everyone needs to recognize what they know best. Build on that knowledge.

When reading surveys, please note its size. The University of Michigan's is tiny when compared with that conducted by the Conference Board. Randstad North America, the Atlanta-based subsidiary of Dutch staffing giant Ranstad, conducted 2,639 interviews, and that's a good-sized survey. It reflected that 80% stated companies are expecting too few workers to handle too much work. Three-quarters of employees and employers said that, even if the economy were to sizzle, workers will be asked to continue their heavy loads because companies aren't likely to add legions of new workers. In sum, too many workers feel the amount of work they're doing is becoming onerous. At the same time, wage gains continue to trail the rate of inflation. Do you think this disparity has a long shelf life?

The Qatari oil minister stated he doesn't believe OPEC will raise output when it meets in March in Iran. One might question how much additional production is available to be increased. Global demand is now averaging 83.6 million barrels. What will the demand be in June, July, and August in comparison to production capabilities?

Brad Williams, a senior economist with the California Legislative Analyst's office, notes that "total property tax revenues statewide are up 8 to 9 percent over the last three years."

Jim Wunderman, Pres. & CEO of the Bay Area Council: "It simply stands to reason that, if people can't afford to live here, companies are not going to add new jobs."

Yesterday, Wal-Mart announced that their February U.S. same-store sales rose approximately 4%, the top of the estimated range. Food sales were stronger than general merchandise.

Talking about food, rice consumption in Japan has fallen to a postwar low. Working women are opting towards bread and pasta. Over the past 41 years, rice consumption per person has declined by about 50%. Spending on bread has risen about 23% over the last 23 years. Helping to shore up rice consumption of late has been the technology to make rice bread.