Saturday, April 30, 2005

Abrupt Turns

4/30/05 Abrupt Turns

Today marks the close of the initial one-third of 2005. We have just encountered abrupt turns in our economic roadmap.

Crude oil closed just below $50 a barrel. It was down about 11% for the week, and had its lowest close since Feb. 18th. This fact held most of the market's trading attention.

There was another story I found particularly telling. The U.S. employment cost index in the first quarter had its smallest rise in six years. Total compensation costs for civilian workers increased 0.7 percent from December 2004 to March 2005, seasonally adjusted, virtually unchanged from the 0.8 percent gain from September to December 2004, the Bureau of Labor Statistics of the U.S. Department of Labor reported. Benefit costs rose 1.2 percent, outpacing the gain for wages and salaries of 0.6 percent. The Employment Cost Index (ECI), a component of the National Compensation Survey, measures quarterly changes in compensation costs, which include wages, salaries, and employer costs for employee benefits for civilian workers (nonfarm private and State and local government). Rises in benefit costs accounted for nearly 60 percent of the increase in compensation costs for civilian workers from December 2004 to March 2005. Among private industry workers, benefit costs contributed approximately 60 percent of compensation gains during the quarter, with health insurance costs and nonproduction bonuses accounting for nearly one-third of the gain in compensation costs. Among State and local government workers, benefit costs comprised a little over half of compensation cost gains during the December to March period, with health insurance costs accounting for one-fourth of the gain in compensation costs. For State and local government workers, compensation costs rose 1.0 percent in March, compared with a gain of 0.9 percent for the quarter ended in December. Benefit costs advanced 1.2 percent for civilian workers in the March 2005 quarter, following a gain of 1.6 percent in the December 2004 quarter. Private sector benefit costs rose 1.1 percent for the March quarter, moderating from the 1.6 percent gain in the previous quarter. Benefit costs for State and local government workers increased 1.5 percent in the March quarter, unchanged from the prior quarter. The bottom line is that, even with low employment costs, hiring is muted. If corporations like Microsoft, IBM, Dell, Cisco, and others are pouring billions into stock repurchases, how is it that business spending and hiring are on the lower rungs of the to-do list? Where's all the innovation? Where's the expansion? Is the hiring in India and China?

Solectron announced job cuts of 3,500, Bechtel 350, SunTrust 122, and 1450 at Progressive will take early retirement. With the aging of the population, there will be much more retiring going forward. We're not alone. The population is aging in Japan, China, and throughout Europe.

The government reported that incomes are up, spending is up even more than incomes, and savings is not even scratching the surface. Have you wondered why the savings rate in China is so high?

The University of Michigan April consumer confidence index was 87.7 versus 92.6 in March.

The Chicago PMI in April was 65.6 versus 69.2 in March with new orders declining to 71 from 76.7 but prices paid dropped from 68.2 to 66.1.

As we turn the page and move into May, the Fed will give us another interest rate increase of one-quarter point and this will be consistent with their steady marked increases. The nonfarm payrolls will not be a reason for joy, and that will bring at end to next week's trading. That leaves the run for the roses on Saturday.

The last turn in the road cannot be ignored as the Center for Housing Policy mentioned that, in a recent six-year period, the number of low and middle income working families paying more than half their income for housing has increased 76%. Barbara Lipman, the reserch director for the center, stated "the price (housing) is going up faster than the wages of working families." This is more important, in my view, than the price of gas at your local station.

With the increasing violence in Iraq, 1575 of our soldiers have now been killed since our invasion in March 2003. The number of our wounded escalates daily. Did Chalabi just become their oil minister or was that a misprint? Is this freedom or corruption? Or maybe nothing has changed but the names to protect the guilty.

Thursday, April 28, 2005

Slowing Growth/Rising Inflation

4/29/05 Slowing Growth/Rising Inflation

For the past year I have discussed wages not keeping pace with inflation- - - a bitter pill for Main Street. This morning the Commerce Department reported that the U.S. economy grew at a 3.1% annual rate during the first quarter. It was the slowest pace in two years but it matched the average for the 1991 through 2001 period. A 3.1% rate of growth is just fine for a $11 trillion economy. Anyone who tells you differently is a putz. The problem is the implicit price deflator rose at a 3.2% annual rate in the quarter, up from the prior quarter's 2.3% rise. In other words, growth didn't keep pace with inflation - - - a bitter pill for our GDP. Core consumer prices rose at their fastest rate since the fourth quarter of 2001. There additional points worth noting. Inventories jumped higher at an annual rate of about $80 billion, the fastest addition to inventory levels since the second quarter of 2000. That's a warning sign going forward. In addition, business capital spending and software investment were disappointing. Not surprisingly, the one bright spot was residential construction spending growing at a 5.7% rate in the quarter. We would be in some pickle wthout the multi-year burst in residential construction. Bubbles are not all bad. They can carry a good deal of the economic load. It's just that their staying power is hard to predict.

Nikolai Lenin: "The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation."

In the week ending April 23, U.S. weekly jobless claims rose by 21,000.

The management at Starbucks mentioned they now have 300 stores in China, and many have ome of the best margins in the company. With China having over 100 cities with more than 1 million people, China can be expected to be a growth engine for Starbucks for years to come. The same can be said for Wal-Mart.

On Friday, crude dipped below $50 a barrel before closing at $51.77 a barrel, up 16 cents on the day.

Ernest Hemingway: ""The first panacea for a misguided nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists."

Robert Bosch GMBh, the world's largest auto supplier, lowered its sales forecast for 2005.

The 10-year Treasury bond yield is 4.17%, the lowest in 10 weeks. Miracles never cease.

Jean De La Bruyere: “Out of difficulties grow miracles.”

U.S.-based stock funds took in $22 billion in February and $15 billion in March. After all the house buying frenzy, I’m surprised there was money left over for stocks.

Microsoft repurchased more than 95 million shares of common stock for $2.42 billion during the quarter and has repurchased more shares year to date than it did for all of fiscal 2004. Including stock-based compensation expense, management’s guidance for fiscal 2006 ending June 30 is in the range of $1.26 to $1.30 per share.

Good News And Bad News

4/28/05 Good News And Bad News

The Energy Department reported that crude supplies rose 5.5 million barrels in the latest week; however, distillate supplies fell 1.4 million barrels and gasoline supplies dropped 300,000 barrels. Crude stocks are 9% above year ago levels and stand at the highest level since 5/31/02. One must acknowledge that some of the build up is the result of refining difficulties in three states. The market focused solely on the rising supply number and prices for natural gas, crude, and crude products fell, on average, by 4.2%. Crude is currently trading at $51.35 a barrel, down $7 a barrel from April 4. The decline is long overdue, and hopefully, drivers will begin to see some price relief at the gas pump level. As we move into May, the heavy summer driving season can be expected to bring down gasoline supplies.

The bad news was learning that March durable goods declined 2.8%, the largest drop since September 2002. In addition, February’s numbers were revised downward from a gain of 0.5% to a decline of 0.2%. In sum, we have had three consecutive monthly declines in durable goods orders. The core orders- capital equipment used by businesses- fell 4.7% after a drop of 2.5% in February. It was the largest decline since November 2003. The analysts focus on earnings growing 12% in the first quarter, and yet, unfilled orders fell 0,5% during the month of March. I don’t see businesses investing in capital equipment or in new permanent hires. That doesn’t say much for business going forward.

Miguel Kiguel, Argentina’s former finance undersecretary: “Once you know the markets are there, and there is financing, you behave as if financing will be there forever.”

In March, there were fewer orders for aircraft, cars, and machinery. Interestingly, Boeing’s revenues for commercial aircraft were down 5% in the first quarter. Their earnings from operations in this division rose by a slim $37 million. All the headlines are for plane orders going out to 2009, and the orders are accomplished via deep price discounting. Meanwhile, Integrated Defense Systems carries the day at Boeing. This division had revenues of $7.5 billion in the quarter and dwarfed the results in the commercial plane business. Operating margins were 11.2% versus 7.7% for the plane division, and earnings from operations in the defense business was $458 million higher than for planes. Boeing is merely an arm of the U.S. government. It should be noted that Boeing’s backlog of orders was lower at the end of the first quarter than at the end of 2004. Boeing’s operating margins for the quarter declined to 5.3% from the year ago period.

Sigmund Freud: “Most people do not really want freedom, because freedom involves responsibility, and most people are frightened of responsibility.”

The Bank of Japan stated that deflation will last one more year.

The Reserve Bank of India increased the rate it pays commercial banks to borrow overnight to 5 percent, from 4.75 percent, after raising the so-called reverse repurchase rate by a quarter point Oct. 26.

Between closing a Miami baking plant and thrift stores in 2 states, Interstate Bakeries will eliminate 600 jobs. More layoffs took place at Sears headquarters on Monday and Tuesday. More are expected—at least 500. The AMI Doduco plant in Reidsville, NC, which makes electric conductors and rivets, is closing and 128 people will lose their jobs.

Bill Gates: “The whole idea of the H1-B visa thing is, don’t let too many smart people come into country. The thing basically doesn’t make sense. I’d certainly get rid of the H1-B visa cap. That’s one of the easiest decisions. Anybody who’s got good computer-science training, they are not out there unemployed. We’re just not seeing an available labor pool.” Google doesn’t seem to have difficulty in hiring the best engineers. Maybe the bloom is off the rose at Microsoft.

Texas leads the nation! In Texas, 27% of those with jobs are without health insurance. How come the President doesn’t push his “home boys” to do something to correct the situation? Unfortunately, silver spoons and reality rarely break bread at the same dinner table.

P&G management comments on first quarter results: “Gross margin decreased 10 basis points versus the prior year period. The margin impacts of higher commodity costs were partially offset by the scale benefits of volume growth, pricing actions and cost reduction
programs. The company's operating cash flow for the quarter was $2.65 billion
compared to $2.98 billion in the comparable prior year period. Higher net earnings were offset by an increase in working capital, primarily inventory. Capital expenditures for the quarter were 3.3 percent, slightly lower than the prior year period and below the company's long- term target of about 4 percent of net sales.” Meanwhile. P&G management raised earnings per share guidance to a range of $2.64 to $2.65 for the fiscal year.

ExxonMobil earned $1.22 per share in the first quarter, up from 81 cents in the year ago period.

Palatin Technologies, Inc. today announced that it will present at the Rodman & Renshaw Techvest 2nd Annual Global Healthcare Conference in Paris, France at 9:45 a.m. local time (3:45 a.m. EDT) on Thursday, May 5, 2005. Carl Spana, Ph.D., President and Chief Executive Officer of Palatin Technologies, will provide an update on the Company's corporate and development programs.

Mortgage rates inched lower this week, remaining at the lowest point since late February. The average 30-year fixed rate mortgage ticked lower from 5.86 percent to 5.85 percent,
according to's weekly national survey of large lenders. The 30-year fixed rate mortgages in this week's survey had an average of 0.32 discount and origination points.

Wednesday, April 27, 2005


4/27/05 Uncertainties

According to new numbers from the Leading Indicator of National Employment (LINE), April employment growth slowed slightly, yet the number of manufacturers hiring for open positions increased. Hiring projections for May remain positive as HR professionals expect to increase employment headcount in May. LINE is a collaboration between the Society for Human Resource Management (SHRM) and the Rutgers School of Management and Labor Relations. This is the third straight month where employment growth has slowed, and the sixth month that the number of vacant positions has increased, primarily for nonexempt jobs. In addition, the LINE Recruiting Difficulty Index is at its highest level since July 2004. This reinforces the conclusion that while manufacturers are recruiting, many are having a difficult time finding skilled labor to fill open positions, creating an unmet demand for labor in the U.S. manufacturing sector. The March LINE Report indicated employment growth for March would be between January and February levels, which the BLS later confirmed. This month’s index suggests that job growth in April will be close to the levels achieved in March. It should be noted that HR professionals at over 500 manufacturing firms provide the data for the SHRM/Rutgers LINE Survey. The HR professionals are not making economic forecasts, but instead are reporting on plans already in place to increase hiring or layoffs during upcoming 30 days.

Confucius: “Maturity of mind is capacity to endure uncertainty.”

In March 2005, employers took 1,194 mass layoff actions, seasonally adjusted, as measured by new filings for unemployment benefits during the month, the BLS reported yesterday. Each action involved at least 50 persons from a single establishment, and the number of workers involved totaled 130,848, on a seasonally adjusted basis. The number of layoff events rose by 66, and the number of associated initial claims increased by 13,164 from February. In the manufacturing sector, 371 mass layoff events were reported during March 2005, seasonally adjusted, resulting in 55,3777 initial claims, both figures higher than the previous month. From January through March 2005, the total number of events (seasonally adjusted) at 3,779, and initial claims (seasonally adjusted) at 399,522, were lower than in January 2004 (4,043 and 415,048, respectively). However, with the GDP growing by 4% or so in 2004, the net difference in initial claims resulting from mass layoffs according to the BLS was less than might have been expected. It is a further indication of the muted advances made in nonfarm payrolls.

Humphrey B. Neill: “When everybody thinks alike, everybody is likely wrong.”

Thucydides: “So little do men take in search for the truth; so readily do they accept whatever first comes to hand.”

U.S. April consumer confidence fell to a five-month low. The Conference Board’s index of consumer sentiment dropped to 97.7 in April, a third straight decline, from a revised 103 in March. The April decline was the biggest since last August. A year ago the index stood at 93. Lynn Franco, director of the Conference Board’s Consumer Research Center stated “consumers do not anticipate an improvement in economic growth, nor in their incomes. They expect an even tighter job market over the summer months.” This statement was confirmed by the expectations index which dropped to 87.2, the lowest since July 2003, from the prior month’s reading of 93.7

Lactantius: “The first point of wisdom is to discern that which is false; the second is to know that which is true.”

Clarence Darrow: “To think is to differ.”

Sales of new homes in March climbed to a record. The Commerce Department reported that sales increased 12.2% to 1.431 million houses at an annual rate. However, the median price fell to $212,300 in March from $234,100 a month earlier.

The Michigan Business Activity Index, compiled by Comerica Bank, held steady at 108 in March. The index has been fluctuating in a narrow band around the 108 level since June 2004. Dana Johnson, chief economist at Comerica Bank, stated “the Michigan economy remains in a prolonged bottoming pattern, neither contracting nor expanding. With a number of its flagship companies in the early stages of cost cutting initiatives, key Michigan employers are fighting hard to stay competitive. These structural adjustments are likely to delay a turn up in activity for at least several more months.”

Tom Peters: “If you’re not confused, you’re not paying attention.”

According to a new report by Research and Markets, online advertising spending is projected to increase by 20.2% in 2005, reaching $11.3 billion by year’s end. That means Internet advertising will account for 4% of all U.S. advertising spending during the coming year, up from approximately 3.5% in 2004.

Anyone who reads this daily musing knows that I have been negative on IBM for a long time. It may have come as a surprise that I recently suggested purchasing shares at $72. I envisioned that, with their upcoming annual meeting, cost- cutting measures would be announced. Instead, yesterday, it was the same old IBM. They raised the quarterly dividend by 2 cents a share and authorized $5 billion in additional funds for use in its stock repurchase program. In 2004, IBM spent $7.1 billion on share repurchases and $1.2 billion on dividends. In 2003, they spent $4.3 billion on share repurchases and $1.1 billion on dividends. No mention was made of cost-cutting measures. Their use of cash flow does not meet with my requirements for owning stock. I suggest the sale of any shares recently purchased.

Crude prices remain above the $54 level. In all likelihood, inventories for the latest period will reflect a decline. However, that is simply a guess. As for the dynamics of the oil market, I defer to Simmons & Co. According to this firm, 70% of our oil is pumped from fields that exceed 30 years of age and 20% from 14 fields over 60 years in age. In sum, with projected increases in oil consumption in ASEAN nations and in others as well, the long-term prognosis is for looming supply shortages.

the volume of mortgage applications rose 5.9% on a seasonally adjusted basis in the week ended April 22 compared to the prior week, according to the latest data compiled by the According to the Mortgage Bankers Association, in the week ending April 22, applications for mortgages to purchase homes increased 3.3% on a week-to-week basis, while refinancings jumped 9.8%. Compared to this time last year, however, refinancing activity is down 14.6%, said the MBA's Michael Cevarr. In addition, refinancings accounted for 39.3% of total applications, up from the prior week's 38.0%, while adjustable-rate mortgages slipped to 34.7% from 35.4%.

According to the South China Morning Post, property prices in Shanghai, China's most expensive city, have begun to fall after the government introduced lending curbs and a capital gains tax. Average prices fell 15% to $914 per square meter last week.

Linda Ellerbee: “If men can run the world, why can't they stop wearing neckties? How intelligent is it to start the day by tying a little noose around your neck?”

Tuesday, April 26, 2005


4/26/05 Upside-down

The latest study from Kelley Blue Book Marketing Research is entitled New Vehicle Buyer Attitude Study on Financing. It finds that six out of ten people who are about to buy a new vehicle prefer a longer-term loan with low monthly payments when financing their next vehicle. Industry estimates are that nearly 30% of new-vehicle shoppers currently owe more on their vehicle than it is worth. Additionally, the average term for a consumer vehicle loan grew from 48 months in 2000 to 63 months in 2004. The study states that these consumers who are “upside-down” in their current vehicle loan could put themselves further into financial jeopardy by extending their new-vehicle loan past the average four-to-five year term, yet as a group they do not seem concerned about the ramification. Jack Nerad, editorial director of Kelley Blue Book’s, stated “consumers who purchased vehicles with little or no money down and for a six or seven year term, will find they owe more than the car is worth when seeking out their next new vehicle.” I wonder whether the same observation could be made for the real estate buyer, especially the investment buyer and second-home vacation buyer. Purchases are frequently being made with little or no money down and for a six or seven year interest-only term. PMI Group, a large private mortgage insurance company located in Walnut Creek, Ca, recently completed a study that ranks large cities most likely to experience a downturn in housing prices in the next two years. Boston ranked number one, followed by San Jose/Santa Clara/Sunnyvale in second place and San Francisco/Oakland/Fremont in third. The PMI study looked only at the largest 50 metro areas and did not consider the percentage of investor-owned homes. Instead, it focused on the fundamental factors that influence housing prices -- the job market, net migration and the price of homes relative to incomes relative to historical standards for the area.

Yesterday, it was announced that Boeing had firm orders for 18 777’s and 14 787’s from Air Canada, an airline that emerged from bankruptcy protection in October. Deliveries of the new planes will begin in 2007 and extend through 2009. The bulk of the plane financing would be guaranteed by the Export Import Bank of the United States. Air Canada also recently secured $642 million in U.S. financing, and officials stated they had negotiated a “progressive payment schedule” so that Air Canada would not be forced to put all the cash for the deal up front. As for pricing, Robert Milton, chairman of Air Canada’s parent company, stated “I am confident no one has ever done better on a deal.” Boeing failed to release the discounted pricing information on the order. I feel confident the discount was at least 50%.

Due to rising oil prices, Germany’s six leading economic institutes cut their forecast for growth this year in half to about 0.7%.

BP, the world’s second-largest publicly traded oil company, reported a 29% increase in first quarter profits.

Japan’s consumer spending declined for a second month in March, and the economy lost jobs. Will the U.S. be soon to follow?

North Korea stated that it would regard any sanctions by the United Nations as an act of war.

I expect that April U.S. consumer confidence declined. It would be the third consecutive monthly drop. According to a survey by UBS and Gallup, investor optimism fell to 52 in April, the lowest reading in nearly two years. In May 2003 the reading was 42.

China’s 2004 current account surplus came to a record $59 billion (U.S.) or 4.2% of GDP.

Morgan Stanley’s Stephen L. Jen: “In contrast to Japan and Korea, China, in my view, does not have “too much” official reserves. China needs to accumulate official reserves to ‘pre-fund’ the private sector outflows expected in the years ahead. U.S. $1 trillion in official reserves in the coming years may not be unreasonable.”

Mark O’Byrne: “One billion is a lot of money. Let’s put one billion in perspective. It has nine digits in it and for purposes of illustration:
A billion seconds ago, it was 1959.
A billion minutes ago, Jesus was alive.
A billion hours ago, our ancestors were living in the Stone Age.
A billion dollars ago was only 8 hours and 20 minutes, at the rate Washington is spending today.”

According to Rydex AdvisorBenchmarking, their April Advisor Confidence Index (ACI) declined 7.32% to its lowest level since the indicator’s inception. The ACI dropped from 119.90 to 111.12. The current economic outlook declined by 9.53%, the six-month economic outlook by 8.27%, the 12-month economic outlook by 4.18%, and the stock market outlook by 6.91%. It should be noted that their Consumer Confidence Index had declined in February and March. Higher gas prices, increasing interest rates, sagging stock prices, and a muted labor market have dampened consumer confidence.

According to the California Association of Realtors, the median price for a home in March in the Silicon Valley was $733,000, up $28,000 from February and up from $625,000 in March 2004. According to Freddie Mac, thirty-year fixed mortgage rates averaged 5.93% during March 2005, compared with 5.45% in March 2004. Adjustable rate mortgage interest rates averaged 4.23% in March 2005 compared with 3.41% in March 2004.

In today’s trading, crude has slipped to $54.26 a barrel.

In a survey of 103 economists conducted by the National Association for Business Economics, 35% reported higher wages and salaries in this year’s first quarter, up from 28% in the fourth quarter of 2004. It was the highest reading since the second quarter of 2000. The remainder of those polled reported no change in wages and salaries in this year’s first three months.

Monday, April 25, 2005

Offense And Defense

4/25/05 Offense And Defense

Today marks the beginning of the last trading week in April. It’s no secret that historically the May through October period is the most challenging six months of each year. That means a good offense and a good defense especially will require adept risk management.

As we move into May and face another Fed rate hike, it is well to remember the impact rising interest rates do historically have on the overall construction and building industries. Since November 2001, 450,000 construction jobs and 400,000 mortgage brokers and real estate brokers have been added to nonfarm payrolls. I would hope that economists don’t figure on this sector to be a major engine for employment growth in the next few years. Is there another area of growth to replace this sector?

Goldman Sachs’ senior economist, Jan Hatzius, estimates that homeowners withdrew “mortgage equity” totally $640 billion in 2004. I hope economists are not figuring on consumers garnering this type of cash flow for expenditures in the coming months.

Valero is buying Premcor in a $8+ billion cash and stock deal. It will create the largest crude oil refiner in North America.

Hellman & Friedman will buy Doubleclick, the Internet ad company, for $1+ billion.

President Bush and Crown Prince Abdullah of Saudi Arabia will meet today at the Crawford ranch. Even though the Saudis are pumping about 10 million b/p/d of crude, Bush may blame them for the high gas prices. It’s the Administration’s modus operandi to blame others for troubles in this world and to assume no responsibility.

Microsoft will demonstrate a wafer-thin PC using only flash memory and no hard drive.

Wei Benhua, vice director of the State Administration of Foreign exchange: “I made it clear to them: this is your problem. You should put your own house in order before you blame your neighbors. Wei blamed the U.S. trade deficit on “a flawed U.S. economic policy.” He stated “China has no time table for (currency) reform.”

John P. Hussman, Ph.D: “The current Market Climate – jointly unfavorable valuations and market action – has historically been characterized by negative average returns, but also by relatively high volatility, resulting in a very poor return/risk tradeoff. That also means, by definition, that the range of possible short-term outcomes is likely to be very wide. An unfavorable Market Climate emphatically does not translate into predictable short-term market losses. The small “predictable” component of returns in this Climate – the average daily loss – represents only a few basis points a day. That's a figure that is utterly, absolutely and completely swamped by daily volatility. The same is true for weekly, monthly, and to some extent even quarterly changes. Again, the predictable component of returns, though negative on average in this Climate, is overwhelmed by the volatility.”

As reported by the Financial Times, there are several reasons that voluntary imposition of a tax on its exports may be preferable to a China yuan revaluation, write Lawrence Lau, professor of economic development at Stanford University and Joseph Stiglitz, Nobel laureate in economics.

Business confidence in Germany, Europe's largest economy, fell to a 19-month low in April as the Ifo institute stated its index fell to 93.3 from 94 in March, the third monthly drop in a row. The Ifo says three consecutive declines signal slowing economic growth. The decrease was led by business expectations, with a sub-index dropping to 93.6, the lowest since June 2003, from 94.6.

With refinery problems in Louisiana, Texas, and Kansas, crude climbed to $56 a barrel and currently is trading at $55.75.

Each quarter, McDonald Financial conducts a national survey of randomly selected individuals with investable assets of $500,000 or more, and/or annual personal income of $150,000 or more. Its Affluent Consumer Confidence index fell to 50 this month from 55 in January, when the poll was last conducted.

Reverse mortgages were initiated in 1989. According to HUD’s data, only a few hundred seniors used the loans in 1997. HUD reported the number of reverse mortgages in 2004 doubled to more than 40,000 from the previous year. California, with nearly a third of the mortgages, ranked first, followed by Florida, Texas, and New York. Many seniors make use of reverse mortgages in order to take care of mounting medical bills.

Sunday, April 24, 2005


4/24/05 Networx

MCI reiterated what it expressed over two weeks ago -- namely that
it would deem a Qwest offer of $30 to be superior to the $23.10 provided under
the current Verizon-MCI merger agreement -- apparently concluding that the
difference was sufficient compensation for the increased risks associated with
completing the transaction and executing the business plan thereafter.
Verizon believes its pending transaction with MCI creates long-term, as
well as short-term, value for the shareholders of both companies by protecting
the integrity of MCI's business, ensuring that MCI's customers have continuing
access to the best communications services, retaining key employees, and
stabilizing MCI's financial position and prospects.
Under the terms of the Verizon-MCI definitive merger agreement, Verizon
may elect to require MCI to continue to finalize its proxy statement and to
organize a meeting of MCI's shareholders to consider the agreed transaction
with Verizon. Alternatively, Verizon may elect to terminate the agreement with
MCI. Upon such a termination, Verizon would be entitled to be paid by MCI a
$240 million break-up fee plus an expense reimbursement of up to $10 million,
and the same amounts would be payable following an MCI shareholders meeting if
the Verizon-MCI transaction were not approved and an agreement was signed with

What might influence Verizon to improve its current bid for MCI? The GSA will open up the bidding in May for a 10-year contract, starting in 2007, to run Networx, a communications services program for most federal agencies to utilize. It will combine local, long-distance, data, and wireless services. The contract could potentially be worth $10 to $20 billion. MCI has a global high-speed data network that would be desirable for Verizon. With that network, Verizon could win the Networx contract.

Mark Twain: “Don't part with your illusions. When they are gone you may still exist, but you have ceased to live.”

Through 25 months of fighting in Iraq, approximately 1570 members of our military have been killed in that foreign land. Close to 15,000 soldiers have been wounded. It’s no wonder that the majority of Americans do not approve of the Administration’s invasion of Iraq.

James Zogby, president of the Arab American Institute: “We don’t have a democracy. We have a civil war in the making. We have a very volatile situation that can explode at any time. The rest of the Arab world hate us even more that they did, if you can imagine that.”

Red Skelton: “Congress: Bingo with billions.”

In less than two weeks, the BLS shall provide a report for April nonfarm payrolls. A rational perspective might be achieved by acknowledging that more jobs were available in April than the prior month. However, more frequently, these jobs do not pay a living wage as the cost of living has exceeded compensation due to rising inflationary costs, and this dilemma has been facing Main Street for the past months.

Fed Governor Donald Kohn: “Although the odds seem favorable for an orderly adjustment, the current imbalances are large and--importantly for gauging risks--unusual from a historical perspective. Thus, we have little experience to call on in judging when and how they will be corrected. In such circumstances, we cannot rule out sudden shifts in expectations, whether or not they are unreasonable to begin with, and asset prices may change suddenly. Investors may recognize the unsustainability of some flows and prices, but believe they can adjust in advance of the market--as apparently many thought they could in the tech-stock bubble--and their reactions when prices move could add to volatility. Moreover, we cannot rule out governments engaging in unwise policies--policies that might undermine confidence or might hinder market adjustments and associated changes in asset prices.”

The amount Americans owed on home equity lines of credit, according to the Federal Insurance Deposit Corporation, increased to approximately $491 billion at the end of 2004, up 42 percent from a year earlier, and more than triple the amount at the end of 2000. According to the National Association of Realtors, among first-time home buyers in 2004, the median down payment was 3%, half what it was in 2003.