Saturday, May 14, 2005

The Correlation Trade

5/14/05 The Correlation Trade

I know. You’re asking why in the hell I have chosen to bore you on a Saturday morning. I don’t blame you for being pissed. You think I like this any better than you do? Sometimes it’s necessary to down medicines that taste like crap. We’ve discussed the carry trade, and everyone was able to deal with that subject. Before we get into examples of the correlation trade, it’s important to realize its inherent weakness. Correlation is not static, and relationships change over time. In that sense, it’s a bit like marriage. One person explains he or she is growing while the other doesn’t keep up. Actually, I always thought that statement was bullshit. Let’s take a recent example of a correlation trade. An investor goes long the GM preferred stock and shorts the GM common stock. Why do that? The investor knows GM is not making money and may need to cut or eliminate its $2 a share dividend. If that takes place, GM common stock should decline in price and the extent of this decline should exceed any decline in the price of the preferred. It sounds like a rational thought. Unfortunately, the investor got screwed. Mr. Kerkorian made a tender offer for some GM common stock at $31. No one could anticipate that. No one could anticipate Tiger Woods missing the cut after making it in 140+ consecutive tournaments. In essence, there is risk in the correlation trade but that risk cannot necessarily be defined.

There are other examples of the correlation trade where the investor will make money when yields on the debt of a broad range of companies move in concert. For example, a hedge fund might purchase the equity section of a collateralized debt obligation (CDO) package and sell short a less risky section of the CDO. In addition, investors can make money when corporate bond yields rise or fall in relation to Treasury yields in a correlated manner. However, when one zigs, and the other zags, there’s a problem. As the appetite for more risky credits wane in relation to the demand for Treasury bonds, the investor can go to the cleaners. With 10-year Treasury yields declining to 4.14%, many investors are finding the credit market correlation trades a bit unfriendly.

Chairman Greenspan: "The rapid proliferation of derivatives products inevitably means that some will not have been adequately tested by market stress…A sudden widening of credit spreads could result in unanticipated losses to investors in some of the newer, more complex structured credit products, and those investors could include some leveraged hedge funds."

According to Morgan Stanley, Europe accounts for over 50% of structured credit products. It should be noted that an estimated $800 billion of collateralized debt obligations were issued between 2001 and 2004.

According to Freddie Mac, between home equity cash-outs and second mortgages, home owners have extracted in excess of $700 billion over the last four years. In addition, between Jan 1, 2005 and the present, real estate loans have expanded at close to a 15% rate, and now total almost $2.7 trillion, a staggering figure.

Over the last five years, the median sales price of a home in Florida has risen about 89%.

For the past week, the CRB Index declined 2.2% and the Goldman Sachs Commodity Index dropped 1.7%. Crude was down 4.5% for the week and closed at $48.67 a barrel. Gold dropped to $420.60 an ounce.

The May University of Michigan Consumer Sentiment Index fell to 85.3 from the prior month’s 87.7. It was the lowest level since March 2003.

U.S. April import prices rose 0.8%. Ex oil, import prices rose 0.4%, the largest gain since November.

U.S. March business inventories rose 0.4%. retail inventories increased 0.5%.

Alaska Air outsourced 472 baggage handlers at the Seattle airport. Harley-Davidson muffler maker Gabilan Manufacturing in Salinas, CA is closing because its new owner is moving operations to Nebraska, a move that will put 190 people out of work. The move will create about 90 jobs in Nebraska.

Morgan Stanley: “Structured credit investors could have a fairly leveraged exposure to credit spreads widening.”

China’s trade surplus widened to $21.2 billion in the January through April 2005 period compared with a $11 billion deficit a year earlier.

The U.S. will re-impose quotas on three types of Chinese textiles.

Mel Brooks: “Tragedy is when I cut my finger. Comedy is when you walk into an open sewer and die.”

Friday, May 13, 2005

Changes In The Wind

5/13/05 Changes In The Wind

Delphi Corp revised lower its 2005 estimate for North American vehicle production by General Motors Corp by 6% to 8%. As revised, Delphi now projects that GM's North American operations will turn out 4.5 million to 4.6 million units this year.

The dollar is trading at a 6-month high versus the euro.

After getting trounced yesterday, crude has rebounded slightly toward the $49 level.

China’s producer prices rose 5.8% in April after climbing 5.6% in March.

Yesterday, the Chinese government announced that Beginning June 1 it would impose a nationwide tax on all properties sold within two years of being purchased and occupied. In addition, a tax would be imposed on land that is not developed within a year of being purchased and land rights would be revoked if nothing is built on a parcel of land more than two years after those rights are acquired.

Bay Area real estate values have risen to record heights in 2004 and 2005, while 1 in 10 payroll positions or about 400,000 jobs were lost from 2001 to 2004.

In this year’s first quarter, Apache Corp.’s (APA) cash from operations before changes in operating assets and liabilities totaled $1 billion, up from $737 million in the year-earlier period. (This is a non-GAAP measure.) The company received $46.05 per barrel of oil in the first quarter, $27.68 of natural gas liquids, and $5.30 per thousand cubic feet of gas. Production of oil equivalent per day rose 7% from the first quarter of 2004 and up slightly from last year’s fourth quarter. Apache has a strong cash flow position and a conservative debt/equity ratio. With the stock at the $53+ level and earnings projected at roughly $6.50 per share, Apache, in my view, represents an uncommon value in today’s market.

Star Wars III will be released shortly. Merchandise sales from the first two in the series runs into the billions of dollars. As successful as the movies have been, merchandise sales have exploded beyond all expectations. With the new movie, in the coming months, I expect millions of people will be pouring into Wal-Mart stores for this merchandise. I doubt very much whether analysts have factored Star Wars merchandise into future Wal-Mart results.

Whitley Streiber’s Unknown Country: “Scientists from Cambridge University have confirmed that the Gulf Stream is weakening and this is likely to bring much colder temperatures to Europe within a few years. The weakening is significant: the Gulf Stream is flowing at a quarter of the strength that was present five years ago…An average as low as 62 Farenheit will mean that the summer growing season will be catastrophically curtailed in Europe, leading to huge declines in production from one of the world’s primary surplus production zones…It is likely that the eastern U.S. and eastern Canada will experience climate change as radical as that in Europe, as the Gulf Stream drops south. At the least, food production and livability in the eastern half of North America will be severely challenged.”

Stephen King: “People think that I must be a very strange person. This is not correct. I have the heart of a small boy. It is in a glass jar on my desk.”

Yesterday, I received some interesting emails concerning the possibility that China’s CNOOC Group might still bid for Unocal with the thought of retaining Unocal’s Asian oil and gas properties. I don’t know the management at CNOOC. I only follow the information trail. China’s oil consumption will exceed 300 million tons this year. CNOOC is building a new 16 billion yuan oil refinery at Daya Bay in southern China. It will be completed in late 2007. The facility will be located near their huge petrochemical joint venture with Royal Dutch/Shell, and CNOOC will be transformed into a company providing upstream and downstream products. The acquisition of Unocal’s Asian oil and gas properties makes rational sense.

Thursday, May 12, 2005

News And Noise

5/12/05 News And Noise

Once again, crude has dipped below $50 a barrel. The Energy Department stated U.S. crude supplies rose 2.7 million barrels in the week ended May 6 with gasoline supplies up 200,000 barrels and distillate supplies increased 1.7 million barrels. OPEC production rose 130,000 bpd in April to a daily average of 29.96 million bpd. That’s the news. Below the news, there is much noise. In 2003, China past Japan to become the world’s second biggest consumer of petroleum products after the U.S. In 2004, China’s oil demand grew 15% while its output rose a meager 2%. In sum, China has, according to the U.S. Energy Information Agency, accounted for 40% of the growth in oil demand over the past four years. Prior to Chevron making a deal to buy Unocal, China National Offshore Oil Corporation Ltd. (CNOOC) was reported to be interested in bidding for Unocal. On May 9 and May 10, there were stories in China’s press that CNOOC had hired bankers to price such an acquisition. The CNOOC board meets on May 23-24. A bid is not out of the question should CNOOC buy the Asian properties of Unocal and sell the rest of the company’s assets to Chevron, for example. Even though crude prices have recently declined, the demand for reserves is steadily increasing. Those with the reserves, should benefit. The story on Unocal is far from over. The noise is getting louder.

Talking about China, that country had something to do with the March 9% decline in our trade deficit. How so? The Chinese New Year came at a late date and probably impacted imports from China. That could be the answer to why China’s exports to the U.S. dropped from $13.9 billion in February to $12.9 billion in March. Our exports rose 1.5% in March to a new record. Another reason for the decline in the trade deficit could have been bloated inventories. That would dampen the demand for imports. Despite the 9% decline in March, during this year’s first quarter, there was a 14.7% increase in U.S. imports over the prior year’s period. That fact tells more of the news.

The Treasury Department announced that Government receipts jumped 26% in April from the same month in 2004. A surplus of $57.71 billion was posted, the largest monthly surplus in three years. Not counting monies spent for Iraq and Afghanistan, the deficit for 2005 will ONLY be about $350 billion. I should also mention another piece of good news. With the decline in the March trade deficit, GDP growth numbers for this year’s first quarter will be raised to about 4%. That could help the dollar (unless the news is already discounted).

Ford warned its finance arm may post a significant drop in future profits.

According to SEMI, worldwide semiconductor manufacturing equipment billings reached $9.35 billion in the first quarter or 2.3% above the same quarter a year ago and 6.5% more than the billings for the fourth quarter of 2004. However, bookings for new orders in the first quarter were just $7.25 billion or 21% below the same quarter a year ago and 12% below the bookings for the fourth quarter of 2004.

Sligh Furniture is closing its Holland, Indiana manufacturing plant and eliminating 75 jobs. It is the latest in the line of furniture companies to close their doors. Textile company plant closings get most of the news, but the furniture industry deserves to receive more attention. Thousands of jobs have been lost through plant closings.

Wal-Mart Stores, Inc. reported record sales and earnings for the first quarter ended
April 30, 2005. Net sales for the first quarter were $70.9 billion, an
increase of 9.5 percent over the first quarter of fiscal 2005. Net income for
the quarter was $2.5 billion, an increase of 13.6 percent from $2.2 billion in
the first quarter of fiscal 2005. Earnings per share were $0.58, compared
with $0.50 for the prior year first quarter. First quarter earnings in fiscal
2006 were favorably impacted by two items totaling $145 million after tax or
$0.03 per share: an increase due to favorable tax resolutions of $77 million
and positive legal developments of $68 million after-tax. Excluding these
items, earnings per share were $0.55.
Lee Scott, President and CEO, said "We achieved record results in the
quarter. Yet with higher gasoline prices and a cooler and wetter spring than
normal, we missed our plan. We are making the necessary adjustments and I
anticipate better results in the second half of the year."

Net sales were as follows (Dollars in billions):

Quarter Ended April 30,
2005 2004 Change
Wal-Mart Stores $ 47.641 $ 43.571 9.3%
SAM'S CLUB 9.155 8.641 5.9%
International 14.112 12.551 12.4%
Total Company $ 70.908 $ 64.763 9.5%

Total U.S. comparable sales for the quarter increased 2.9 percent, which
is represented by a 2.8 percent comp increase for Wal-Mart Stores and 3.5
percent comp increase for SAM'S CLUB.
Wal-Mart's annual forecast of $2.70 to $2.74 ``is still possible but far more difficult given our current outlook for the second quarter,'' Chief Financial Officer Thomas Schoewe said on a recorded message.

Wednesday, May 11, 2005


5/11/05 Houdini

It’s survival of the fittest out there. If some of the 7,000 hedge funds don’t make it, maybe the Fed will take up a collection. Don’t cry. We’ll get through this soft in the head patch. Let me ask these genius hedge funds with a GM problem one question? How many companies around the globe have a pension fund with $100 billion in assets? If GM bonds are junk rated, how come its $100 billion pension fund is not hugely underfunded and in danger of being taken over by the Pension Guaranty Corporation?

Talking about assets, China is placing a cap on capital inflows in an effort to limit the country’s short-term foreign borrowings and lessen pressure on the yuan.

The day before the latest trade deficit numbers are released, the 10-year Treasury bond yields plummeted from 4.28% to 4.21%. Houdini had nothing on this magic. What are the chances that the latest monthly trade deficit will be below $63 billion?

Should I worry that Delta raised the bankruptcy flag once again? They stated that low air fares are causing a cash flow problem. When they were making money, what did they do with all the cash? I’m getting to think that maybe, just maybe, there are too many airlines.

Code-named Magneto, Microsoft unveiled its Mobile 5.0 at a conference for developers in Las Vegas. Its features are closer linked to those offered by Symbian rather than by Blackberry.

Talking about Las Vegas, Nevada’s nonfarm employment grew by 5.9% last year, the best in the nation. Nevada saw a 5% jump in manufacturing employment last year, the best in the nation. Arizona came in number two in 2004 with respect to the number of nonfarm jobs created. During March 2005, the Las Vegas Valley unemployment rate was 3.9%, a significant drop from the 4.8% in March 2004. More jobs were created in April of this year with the opening of the Wynn Las Vegas Hotel. It should be noted that the McCarran International Airport in Las Vegas set a new record in passenger volumes during March 2005.

China continues to have 8 to 9 per cent GDP growth; however the Shanghai Composite Index is trading near a 6-year low. The Shenzhen Composite Index is trading near a 9-year low.

According to data surveyed by the Financial Times, real wages in the U.S. are falling at their fastest rate in 14 years. Inflation rose 3.1% in the year to March but salaries climbed just 2.4%, according to the Employment Cost Index. It was pointed out that, even after 274,000 jobs created in April, there are 22,000 fewer private sector jobs than when the recession began in March 2001. Something is wrong with this picture.

For anyone who fails to believe there was a bubble in many Nasdaq stocks, please witness Nuance Communications, a voice recognition company. They went public in 2000 and the stock quickly shot up to $180 per share. Yesterday, they reached an agreement to merge with ScanSoft for a little over $5 a share. I don’t see articles crying for those Nuance shareholders who took a blood bath.

If global stocks are not allowed to build, David Thurtell, commodity strategist at the Commonwealth Bank of Australia, stated that crude prices could easily touch $60 a barrel in the second half of this year.

Some months back, I had suggested Cisco as a choice for long-term portfolios. Since then, the stock has risen sufficiently to enable the purchase of a tea sandwich. It should be pointed out, however, the stock did not decline through this holding period. Yesterday, the company reported a pleasing third quarter report. While all the analysts discuss the improvement in sales and earnings, let me point out the key area that has been ignored by Wall Street. Fr the last few years, Cisco has been experiencing quarterly cash flow ranging from $1.7 to $2.4 billion. With this cash flow, the company spends about $2 billion a quarter on stock repurchases. Since the inception of its stock repurchase program, Cisco has spent about $24.7 billion to retire 1.4 billion shares at an average price of $18.06 a share. If cash flow continues at its present rate and the stock remains at roughly this $18 a share level, Cisco will be repurchasing just under 500 million shares a year. Presently, there are 6.5 billion shares outstanding. Do you get my point? Long-term investors like shareholders in Bill Miller’s fund should reap the benefits.

In assessing today’s economic landscape, we might learn from Harry Houdini. He explained his superior trickery and magic in this fashion: “Spiritualist believers rely on what they though they saw and therefore failed to affirm or negate their misguided and misdirected vision by rational application of their conscious intelligence.”

Mortgage applications activity rose 9.4% in the week ended May 6 compared to the prior week, the latest data from the Mortgage Bankers Association show. Also on a seasonally adjusted basis, refinancing applications were up 9.8% and applications to buy homes increased 9.4%. Purchasing applications thus reached a record as measured by the MBA.

Boots & Coots Int’l Well Control’s activities center on the prevention, emergency response, and restoration of blowouts and well fires around the globe. The company’s management projects $15 million in revenues for 2005. Their CEO reports "The first quarter was a very active one for the company. As we finished
extinguishing six well fires caused by saboteurs in Iraq, we were called in on
several other emergency response events, clearly demonstrating our capacity to
handle multiple situations in diverse geographic locations," stated Jerry
Winchester, President and Chief Executive Officer. "That's half of our story.
The other half is the growth in our non-event revenue as work under our new
Algerian contracts, as well as prevention services in India, were initiated.
This, along with another strong quarter in Venezuela, puts us well on our way
to $15 million in estimated prevention revenues for the year."
"Our prevention business is a critical component of our business model and
a primary focus for growth," continued Winchester. "We have been performing
these services long enough to show results, which are lower incident rates and
fewer well-control events. These are very important goals for our customers,
goals we believe will support growth in prevention services over the next
several years."

Ayn Rand: "The only power any government has is the power to crack down on criminals. Well, when there aren't enough criminals, one makes them. One declares so many things to be a crime that it becomes impossible to live without breaking laws."

Tuesday, May 10, 2005

Results And Forecasts

5/10/05 Results And Forecasts

The U.S. economy will avoid a reoccurrence of the stagflation seen in the 1970s and experience a transitory rise in inflation that will work its way out of the economy by year end announced Diane Swonk, chief economist and senior managing director of Mesirow
Financial, in her monthly newsletter, Themes on the Economy.
Real GDP growth is expected to rise 3% in the second quarter and growth
should reaccelerate in the second half of 2005. The current forecast for an
average of 3.6% rise in real GDP in the third and fourth quarters assumes very
little change in oil prices; gains will be greater if oil prices fall over the
summer. The federal funds rate is expected to rise to 3-3/4% by year end and
hit 4% in early 2006.
According to Swonk, the determinants of inflation -- capacity utilization,
commodity prices, value of the dollar and labor costs -- currently resemble
the low inflation setting of the 1990s rather than the spiraling inflation of
the 1970s, easing fears of stagflation.
Capacity Utilization: Despite some upward movement over the last year,
U.S. factories are still operating at capacity utilization rates well below
the 84% threshold historically linked to inflation. Recent increases in
investment suggest that capacity usage will remain low in the near term.
Commodity Prices and the Rising Cost of Oil: Recent increases in
commodity prices were largely limited to oil and metals. Food remained
affordable as opposed to the 1970s when the rise in consumer inflation was
broad based. Although the increase in oil prices is substantial, it is still
much smaller that what occurred in the 1970s. Our dependence on oil is
substantially less than it was in the 1970s, making price shocks easier to
absorb. Oil prices have also shown signs of stabilizing in recent weeks.
The Dollar: Very little movement resulting from the recent drop in the
value of the dollar against the currencies of our major trading partners has
shown up in inflation as opposed to the 1970s when increased tariffs and
import quotas exacerbated the increase in import prices. The non-petroleum
components of import prices increased about 3% from a year ago March, a
fraction of the more than 20% swing in the value of the dollar over the last
two years. The only major near term risk is threats by Congress to raise the
tariff on imports from China, however Congress is unlikely to risk hurting
large U.S. multinationals who would be adversely affected by such a move.
Labor Costs: Payments to labor account for more than three-quarters of
the economy's total costs, making it the largest single contributor to
inflation. Unlike the highs of the 1970s, the current employment cost index
shows that wages remained suppressed at the start of the year. Additionally,
premium once paid to large corporate employees has narrowed and promises of
health and pension benefits have dissipated.

Mike Shedlock: “It seems increasingly likely to me that the choice is not recession now or recession later, but recession now or depression later.”

Hedge fund returns are down 1.6% in 2005.

At least 1,600 members of the U.S. military have died since our country invaded Iraq in March 2003.

Even though Toyota’s sales rose 4.2% in the three months ended March 31, net income fell 17% as a result of higher steel and plastics prices and a weaker dollar. The yen was 2.5% higher versus the dollar in the first quarter. It was the biggest profit decline in seven quarters.

U.K. April retail sales fell the most in at least 10 years. Same-store sales dropped 4.7% from a year ago, and this followed a gain of 1.8% in March. More than likely, the Bank of England will lower its forecast for GDP growth in 2005.

Capgeminini U.S. LLC’s survey of more than 10,000 people attending the Food Marketing Institute Conference in Chicago found 40% of respondents stated Wal-Mart will be a formidable opponent over the next 10 years. The other 60% must be hallucinating.

Sun Microsystems stated it would double the staff at its Indian engineering center to 2,000 over the next two to three years.

Crude rose $1 a barrel yesterday and is trading at $52.35.

Yesterday, I received several emails inquiring why I continue to mention Palatin Technologies. If those sending the emails did some independent analysis, maybe they would not inquire. It is extremely difficult to find an ethical pharmaceutical company with the potential for a bright future that trades on a rational value basis. It’s even more difficult to find one that trades with a market cap of $100 million with a strong pipeline of products, seasoned management, and a strong cash position. Their CEO sees the current market for NeutroSpec at $15 million, $25 million next year, and $80 to $100 million at maturity. Expanded trials are anticipated for their PT 141 (for male and female sexual dysfunction) in 2005 and 2006. They anticipate filing for trials in 2006 for PT 15, their drug to combat obesity, and are looking to license the product. I feel confident that Palatin has a bright future. Others may disagree or maybe don’t care. In my view, my background provides a sound basis for evaluating the long-term potential for the pharmaceuticals in their pipeline.

U.S. March wholesale inventories rose 0.4% while sales increased 0.2%. Unless retail sales pick up, inventory levels will soon appear bloated.

Luxury homes builder Toll Brothers Inc. said its backlog in the second quarter rose 57% to $5.9 billion, with contracts up 38% to $2.2 billion and home building revenue up 51% to $1.2 billion. The backlog and contracts were the best in the company's history. Unit deliveries came in 13 homes under the low end of its range while the average home price was slightly above the high end. It says it's on track for 60% profit growth in fiscal 2005 and 20% profit growth in fiscal 2006.

From “May 9, 2005 Batvia, Ohio - Two years ago, between August and November 2003, four crop formations in soybeans were reported in the mysterious and ancient mound-builder's region of southern Ohio. Most important in terms of plant and soil anomalies was the first one discovered on the morning of August 24, 2003, not far from the famous Serpent Mound near Locust Grove, Ohio. The tall soybean plants had been laid down in a geometry based around the Vesica Pisces symbol found so often in British crop formations. Its longest length was 271 feet and there were no tracks around the entire perimeter or inside the extraordinary pattern.

Jeff Wilson, Director of the Independent Crop Circle Researchers Association based in Cincinnati, Ohio, said that soybean crop formations are very rare in the United States and of the 100 American crop formations he had personally investigated by August 2003, "the Serpent Mound pattern is one of the most sophisticated geometries that we've seen." All the electronic testing Jeff and his colleagues did and studies of plant samples have shown statistically significant anomalies.

Further, Jeff pointed out that soybeans are "a tough crop to make your way through. It's a vine-like plant, so when you wade through the stuff, you almost have to rip your way through the plants."

What none of us knew in 2003 was there were at least three eyewitnesses the night before (August 23, 2005) at 9 p.m. who watched mysterious lights move for several minutes right over the land near the Serpent Mound. For the first time on the record, Tree Pruitt of Batavia, Ohio, explained what she and her husband and brother-in-law saw during a birthday celebration at her sister's home only about 20 minutes by car from the Serpent Mound.”

Spending some time at might prove worthwhile. It could widen your horizons. No pun intended.

In this year's first quarter, Bill Miller, manager of the Legg Mason Value Trust Fund, bought close to 5 million shares of Cisco, 1.2 million shares of Yahoo, and eliminated the fund's 4.5 million share position in Fannie Mae.

Monday, May 09, 2005

Helping Hand

5/9/05 Helping Hand

GM’s CEO will be meeting in a few days with top Toyota officials. Toyota is open to supplying its hybrid technology to GM. This alliance would benefit both companies. Both will also renew a collaborative pact on zero-emission hydrogen fuel-cell vehicles.

OPEC President Sheikh Ahmad al-Fahd al-Sabah stated yesterday that the oil cartel does not intend to hike its production at its June meeting due to current oversupplied conditions. He said there was “a surplus of more than 1.2 million bpd…The price is not linked to the issue of supply and demand, but rather at this stage in particular, it is linked to the political, economic, and climatic factors, which created the big difference up or down in prices.” Crude is currently holding above the $51 a barrel level.

Economists Nouriel Roubini and Brad Setser put non-performing loans at Chinese banks at somewhere between 46% and 56% of China’s GDP.

The median forecast by 64 economists for the U.S. 2nd quarter GDP has been cut to 3.2%.

U.K. March manufacturing production dropped 1.6% from February, the biggest decline in almost three years.

Today’s Bloomberg Eurozone Retail Purchasing Managers’ Index (PMI), a monthly survey indicating economic conditions in the Eurozone retail sector one month ahead of government issued figures, indicates that month-on-month sales at Eurozone retailers continued to fall in April with the index registering 8.7. It has remained below the 50 mark for the fourth month running and for the eighth time in the past nine months. Lower sales led to reduced purchasing activity and the sharpest rate of job shedding in the sector since last November. The main reason for deteriorating sales was the persistence of depressed consumer demand. It should be noted that planned sales levels have yet to be achieved in the past sixteen months. In sum, the purchasing activity in the Eurozone retail sector fell for the 12th successive month in April.

I was interested in a new survey by Unilever. The company tracked the shopping habits of 2,400 consumers. The results indicated that more and more Americans are grocery shopping one day at a time. In fact, finding showed “62% are quick trips. You’re on your way home from work and you’re looking for something to either create or complete a meal.” Quick trips are defined as 20 minutes or less and $20 or less. Michael Twitty, Unilever’s senior manager of shopper insights, stated “we always suspected that quick trips were important, but we found that quick trips were the most important trips in every single retail channel. And supercenters were no exception.” An example of a company capitalizing on this daily shopping trend has been Whole Foods Markets.

For the first quarter, consumer credit grew at a 4.3% annual pace, up from the fourth quarter's 3.7% rate. Revolving credit grew at a 3.9% pace after rising at a 3.7% rate in the fourth quarter. Non-revolving credit grew at a 4.6% rate in the first quarter, up from 3.8% in the fourth quarter.

Duke Energy announced a deal to buy Cinergy in an all-stock $9.1 billion transaction. About 1,500 job cuts are envisioned.

Johnson Controls will close 8 plants in Europe and cut 3,100 workers, and close 4 plants in North America and terminate 800 workers in the U.S.

Palatin Technologies announced results for its third quarter ended 3/31/05. Total revenues were $2.8 million, compared to $200,000 for the same period in 2004. The company reported a net loss of 7 cents compared with the year ago period’s loss of 16 cents. Stephen Wills, Paalatin’s CFO, stated “our commercialization of NeutroSpec and our ongoing strategic alliance with King Pharmaceuticals has significantly reduced our burn rate and provided us with operational flexibility.” Importantly, Palatin announced the appointment of Trevor Hallam, Ph.D. to the position of Executive VP, Research and Development, and he will be responsible for the management and direction of Palatin’s drug discovery and development efforts. Most recently, Dr. Hallam was Vice President, Biologics, Global R&D, for AstraZeneca and had a 9-year tenure with AstraZeneca. In my view, in three to five years, Palatin will be a much more significant company in the pharmaceutical industry.

Sunday, May 08, 2005

Happy Mother's Day

5/8/05 Happy Mother’s Day

Hopefully, every day is Mother’s Day.

Turning to other global thoughts, India will be one of the main drivers of Asian economic growth, even as high oil prices, high interest rates and weak export markets will slow down other countries in the region, the IIF said. India's economy will grow by 8 percent, even better than the 6.9 percent it saw in 2004, the report said adding that the region's other major economies like South Korea, Indonesia, Malaysia and Thailand’s growth will slow down, the Institute of International Finance said. "The average growth rate for the other leading Asian emerging market economies is forecast at 4.4 percent, down from 5.3 per cent in 2004," an IIF statement said. "High global oil prices and the upward trend in U.S. interest rates translate into slower growth for the region," the statement said.

Volkswagen AG will set up a $900 million car manufacturing facility in India’s southern Andhra Pradesh state. The facility would be spread across 350 acres and generate up to 10,000 jobs.

Talking about jobs, John Succo at Minyanville had an interesting observation. He mentioned that, GDP growth in the first quarter of 2004 rose 4.1% and in April 2004 the BLS reported a gain of 225,000 jobs. By comparison, in this year’s first quarter, GDP growth was 3.1% and the BLS reported on Friday a gain of 274,000 jobs, of which, 257,000 resulted from the BLS 2005 net birth/death adjustments.) In other words, the chances of future downward revisions are, in my view, highly likely.

At Wal-Mart, sales of food have outpaced general merchandise in 14 of the past 17 weeks.

In this year’s first quarter, Mexican citizens living outside of Mexico sent $4 billion back to their homeland, up 20% from the year ago period. Most of these individuals live in the U.S. From a cash flow basis, this $4 billion was exceeded only by oil and gas receipts and income from tourism. I wonder if there is any connection between this year’s first quarter increase in U.S. service jobs and the $4 billion sent back to Mexico?

Chief Maquinna, Nootka: "Once I was in Victoria, and I saw a very large house. They told me it was a bank and that the white men place their money there to be taken care of, and that by and by they got it back with interest. "We are Indians and we have
no such bank; but when we have plenty of money or blankets, we give them
away to other chiefs and people, and by and by they return them with
interest, and our hearts feel good. Our way of giving is our bank."

Investors might consider that, exchange traded derivatives and OTC derivatives, together total at least $500 trillion. The clock is ticking.

Paul Kasriel: “The higher import prices resulting from dollar depreciation vs. Asian currencies could add inflationary pressures in the U.S. This could put upward pressure on U.S. interest rates via an increase in the inflation premium component of interest rates.”

Ann Landers: “Rose-colored glasses are never made in bifocals. Nobody wants to read the small print in dreams.”