Saturday, July 16, 2005

Bulletin-- wrong stock symbol-IMPORTANT

7/16/05 Wrong Stock Symbol--- IMPORTANT

PTZ should have been PKZ !!!!!

Tie A Red Ribbon

7/16/05 Tie A Red Ribbon

Shopping at Wal-Mart is evolving. A good example is their Roanoke, Virginia location where Wednesday is now singles night. Singles tie a red ribbon to their shopping carts and mingle and mix in the aisles. It has been a great success. Another example is where, according to ComScore Networks, in May this website became the third most popular online retail site, up from fourth place. Wal-Mart stated its online sales growth is running at 2 to 3 times the industry average. In June, traffic to the website rose by 37% to 22.6 million visitors. It should get better in July as is charging $16.66 for the new Harry Potter book compared to $17.99 at Amazon, Barnes & Nobles, and Borders. Meanwhile, for the July reporting period, comparative sales for the U.S. are estimated to be within our guidance of 3 to 5 percent. For the week ended July 15, food comparative sales were stronger than general merchandise. Average ticket drove the comp sales and the West was the strongest region.

Discussions at the Unocal boardroom must be getting interesting. On Friday, Senator Byron Dorgan, D-ND, introduced a bill in the Senate to prevent a CNOOC purchase of Unocal. Meanwhile, CNOOC is attempting to garner support at Unocal CNOOC by offering to set aside $2.5 billion in an escrow account in the United States that would be paid to Unocal shareholders if the Chinese firm walked away from the deal. But CNOOC will not owe any money if the U.S. government blocks the deal, as long as it meets all conditions set in its contract to address U.S. security concerns. CNOOC is also offering to put an additional $500 million in escrow, which will be used to pay Chevron as a break-up fee if Unocal accepts the Chinese bid. The problems are simple to contemplate. The upfront good-faith money is not enough to offset the political unrest over this deal and the monetary differential between the Chevron approved deal and the CNOOC proposal is not sufficient to overcome the time risks to possible completion. I firmly believe a small kiss from Chevron will put an end to the discussions.
JP Morgan reports that year-to-date home equity loans amount to $244 billion, 28% higher than year earlier levels.
June import prices for the U.S. rose 7% above year ago levels.
By year end 2005, China’s foreign exchange reserves could exceed $800 billion or at least 30% above 2004 levels.
China consumes close to 7 million barrels of oil a day. With 1.3 billion people, that consumption can only grow in time. With a growing hoard of foreign exchange reserves, it is only to be expected that the country will actively search out potential sources of crude reserves. By purchasing these reserves with dollars, they are able to find an avenue other than buying our Treasury bonds. PetroChina is an active bidder for PetroKazakhstan. They will go head to head in the bidding with India’s Oil and Natural Gas Corp (ONGC). A senior oil minister from India stated yesterday “the Kazakh government is happy with India’s proposal and has assured us of full support. We are in the process of preparing an attractive bid for PetroKazakhstan which the Canadians cannot refuse.” At $38+, PKZ is selling at a low 5-6 p/e. The current price is setting a $5 a barrel value on its reserves. The stock is $8 below its high for the year. ONGC will have strong bidding competition from PetroChina. In my view, there is significant upside with low risk. Goldman Sachs will see to it that PKZ is sold to the highest bidder. PKZ currently produces 150,000 barrels of oil a day and has a refinery. The production and the reserves are attractive to both bidders. I much prefer investing in PKZ than speculating on whether the S&P 500, the Dow, and the Nasdaq will be rising or falling.

Friday, July 15, 2005

The Sleeper

7/15/05 The Sleeper
Consumer worries over rising gas prices, the London terrorist attack and a drop in job security combined to produce a sharp drop in consumer confidence among Americans surveyed by the July RBC CASH (Consumer Attitudes and Spending by Household) Index. The surveyof 1,000 individuals taken across the U.S. this week showed increasing pessimism about the economy, jobs and investing. The RBC CASH Index for July dropped to its lowest level since October2003, exhibiting increasing pessimism by respondents about the current and future state of local economies, job security, and investment. The RBC CASH Index stands at 73.9, down from 84.0 one month ago. This decrease drops consumer confidence to the lowest point in 2005, and represents the lowest level since October 2003, when the index stood at 74.4. The RBC Current Conditions Index dropped significantly this month to 87.0, from 100.8 last month. Similarly, the RBC Investment Index was down sharply this month to81.3,a decrease from 93.0 last month. Both the RBC Current Conditions Index and the RBC Investment Index stand roughly where they were one year ago. The Conference Board’s CEO survey revealed that chief executives are less confident about the state of the economy now than they were in the first quarter of this year. This could negatively impact corporate spending on capital projects as well as hiring. CEOs’ short-term outlook as well as expectations for their own industry deteriorated in the second quarter. Their measure of confidence declined to the lowest level since the first quarter of 2003. Their view of current economic conditions vs. 6 months ago dropped to the lowest level since the second quarter of 2003. Their expectations for the economy looking out six months were lower than any point in the past three and one half years, and that is also true for the expectations for their own industry looking out six months. As for the current condition in their own industry vs. six months ago, expectations dropped to the level of the first quarter in 2002. With the S&P 500 at a 4 year high and the Nasdaq at a 2005 high, one can come to the conclusion that the market has recently climbed a big wall of worry. Sometimes buying breeds buying, and that includes nervous short-covering. I prefer, in most cases, to sell into strength. Taking profits never hurt one’s bank account. Unfortunately, these same profits inflate the tax revenues for the government, and enable our lawmakers and the Administration to chow on the pork programs. Supertanker shipping rates are soaring once again with transporting oil from the Middle East reaching its highest level in 2005 in July. Freight rates to the U.S. Gulf coast have risen by 66 percent over the past three weeks. Those increases help to buoy the cost of oil. Yesterday, there was a decline of 4% to $57.80 a barrel. Yesterday, gold had another bad day as it declined to $420.20 an ounce. I still am waiting to buy at $412 and below. Rep. Richard Pombo, R-CA, is chairman of the House Resources Committee, which has the authority to approve or reject proposed acquisitions by entities controlled by foreign entities. He wants to add language to the energy bill requiring an immediate review of CNOOC’s proposal to buy Unocal. In the week ended July 8, U.S. natural gas supplies rose by 94 billion cubic feet. The CEO of Countrywide Financial made an interesting comment. He stated “high funding volume during the quarter created significant economic value, not all of which will be reflected in second quarter earnings as a substantial portion of this production was retained in portfolio...Had these $9 billion in loans been sold during the quarter, management estimates that an incremental pre-tax gain of approximately $150 million would have been recognized.” PetroKazakhstan Inc. is Calgary-based with assets in Central Asia. They have been exploring in Kazakhstan for the last 8 years, and have proven and probable oil reserves of 550 million barrels in the South Turgai Basin of south-central Kazakhstan. Their cost to get the oil out of the ground is similar to the costs in the Middle East, or about $3+ a barrel. They hired Goldman Sachs to solicit bids for the company. Some of the bidders suggested are from China, India, and Italy. The $700 million pipeline funded by China from this region to China will be operational in 2006. PetroKazakhstan, stock symbol PKZ on the N.Y. Stock Exchange, are trading at about 5 to 6 times estimated earnings. With all the attention on Unocal, this company could well be the oil takeover sleeper. As a reminder, Kazakhstan comprises over 1 million square miles with a population of 15.4 million people. Its literacy rate is 99 percent! Located on the Caspian Sea, the country borders Russia, China, and four former Russian republic countries. It is geographically located close to Afghanistan, Iran, Iraq, Syria, Turkey, and Saudi Arabia. Hence, it is centrally located in this part of the world.

Thursday, July 14, 2005

When The Fog Clears

7/14/05 When The Fog Clears

In Carmel and San Francisco, two of the most beautiful places on the planet, most often there is heavy fog in the summer months. By the Golden Gate Bridge, when the fog makes visibility near impossible, the fog horns will blare. Sometimes the fog will remain until late morning, and then return in early evening. Sometimes it will be a clear day, but that is more of a rarity. This morning the heavy fog is present. One cannot see clearly across the street.

ECB board member Jose Manuel Gonzalez-Paramo: “Global imbalances have widened and disruptive unwinding remains a possibility.”

China’s money supply grew 15.7% in June, up from 14.6% in May. It was the biggest gain since June 2004. Meanwhile, China’s foreign exchange reserves presently stand at $711 billion, and growing.

It serves no purpose to delude Americans by stating core CPI(ex food and energy) is up 2% in the past 12 months—not while the CPI includes rent prices and excludes the prices of homes. We will get a better picture of the CRB with the new weightings. The energy sector will comprise 39% and the metals 20%. Maybe it is time we revamped the way we factor the CPI.

First-time filings for state unemployment rose by 16,000 to a six-week high of 336,000 in the week ending July 9, the Labor Department said Thursday. Meanwhile, the number of former workers collecting unemployment checks rose by 45,000 in the week ending July 2 to 2.62 million, a four-week high.

Are you paying attention to the rising yield on Treasury bonds?

The American Petroleum Institute sated distillate inventories for the week ended July 8 climbed by 5.8 million barrels, gasoline inventories rose by 684,000 barrels, and crude supplies declined by 1.4 million barrels. Meanwhile, crude has dipped below the $60 a barrel mark.

A Wall Street Journal/NBC of 1,090 adults showed that 73% objected to CNOOC’s efforts to buy Unocal. Meanwhile, CNOOC’s board stands by to tweak their offer. Price, in my opinion, will not determine the outcome.

The NAR now sees existing-home sales rising to 6.89 million this year and new-home sales to increase 3.2% to 1.24 million in 2005.

Bush’s overall approval rating stands at 46%. They must be Larry Kudlow clones.

According to the Energy Ministry, recoverable hydrocarbon reserves in the Kazakh sector of the Caspian amount to about 8 billion tones.

Yesterday, nearly 11,000 members of Boeing’s machinists union gathered at Safeco Field in Seattle for the official kickoff of bargaining for the union’s next three-year contract. The 67% turnout was the highest percentage in the union’s history. Of those present, 98.5% approved the strike authorization.

An analysis of California hospital costs and revenues released yesterday by Blue Shield of California indicates that low reimbursement rates paid by Medicare and Medi-Cal may result in cost-shifting onto private insurers amounting to 9.5% of premiums. This translates to an average of $950 per policy for employer-sponsored family coverage.

According to Deloitte Research’s Leading Index of Consumer Spending, the rising tax burden and continued slowdown in home price growth will put pressure on consumer spending during the upcoming back-to-school retail sales season. Federal tax revenues rose 32.3% over the past 12 months, straining consumer purchasing power. Real home prices fell sharply in May but are still up slightly from a year ago.

San Francisco is reporting that the fog horns are blaring away.

Wednesday, July 13, 2005

Waging War Over Oil

7/13/05 Waging War Over Oil

Crude is back over $61 a barrel this morning, and this despite the International Energy Agency cutting its 2005 global demand forecast by 200,000 barrels a day, to 1.58 million barrels a day, due to a weaker outlook for China and the U.S. They said demand should rise 2.1% in 2006. It’s hard to buy a projection of a weaker outlook for China with their growth for 2005 expected at 9% and the Fed comfortable with a growth rate of over 3% for the U.S. for the balance of this year.

May’s trade deficit was $55.3 billion or annualized a mere $663.6 billion. Exports rose to a new record and imports declined a bit. The monthly trade deficit with China was $15.8 billion or almost enough to fund a purchase of CNOOC.

Import prices in June rose 1%. The deflation exported to our shores from China was not enough to overcome inflation from imported energy supplies.

The House energy panel will hold a hearing on CNOOC’s proposed bid for Unocal on July 19. Chairman Barton, R-Texas, stated “it’s my judgment that U.S. strategic interests are not served by the Chinese Communist party.” The Financial Times is reporting that CNOOC’s board is expected to approve changes to its offer. That’s called negotiating with yourself.

Tong Lixia, an energy expert affiliated with China’s Commerce Ministry opined “the turning point in China’s energy strategy was the Iraq war.”

A total of 5 million barrels, or 0.9% of yearly oil output in the Gulf, and 17.7 billion cubic feet , or 0.6% of yearly natural gas output, have been shut in due to Hurricane Dennis between July 8 and July 12, according to the latest report from the U.S. Minerals Management Service.

Demand for ARMs fell to its lowest level in over a year. Possibly it was due to the July 4 holiday shortened week.

The yield on the 10-year Treasury bond has risen to 4.17% this morning.

Steve Saville stated that, in comparing 30-year Treasury bonds with the price of gold, “in real terms, bonds have lost about one-third of their value over the past 4-and-a-bit years.” I don’t believe you have heard Pimco provide that observation.

The Labor Department stated that the number of job openings in May declined 3.1% from April, while hirings rose 3.7% from April’s numbers.

According to a new survey conducted by Investors’s Business Daily and TechnoMetrica Market Intelligence, their economic optimism index slipped 1.9% to 48.6 in July from 50.5 in June. A reading below 50 indicates pessimism.

The Iran-Libya Sanctions Act (ILSA) empowers President Bush to order punitive measures against any international company that invests more than $20 million a year in Iran’s energy sector. The ILSA disallows any move that would aid Iran’s economic expansion. The sanctions provision apply only to investments in Iran and not to any purchase of oil or gas. Behind the scenes the situation is beginning to boil over. Recently, public information sources, such as, a Bulgarian newspaper, point to China and Russia supplying Iran with arms (these are not mortgages) and in return Iran builds a pipeline providing energy supplies to China and Russia. It is public knowledge that there is a Turkestan air base located at Kharsi-Khanabad that served as a base for our efforts in Afghanistan. General Franks mentioned frequently that there was no long-term arrangement made for that base. There have been reports that our troops have been requested to leave that base. The last few days there have been reports that we will have a large troop withdrawal in Iraq. Interestingly, those same reports have not mentioned that our troops are getting ready to mobilize into Iran. Many believed back in 2002 that an invasion of Iraq would only be a prelude to forced entry into Iran and then Syria.

The fight over Unocal has significance. Unocal has gas fields and a pipeline in Burma. There is an important Unocal project on the drawing boards--- transporting energy supplies from Turkmenistan, Uzbekistan, Kyrgyzstan, and Kazakhstan, and acquiring access to most of the oil from the former Soviet republics in Central Asia. These oil supplies are vitally important to both China and the U.S. There is a corporate fight over Unocal, but the fight goes well beyond the boardroom and a shareholder vote. You can buy oil on the commodity exchange but you cannot buy long-term reserve there. It is these reserves that are the battleground, and it will not be just a war of words. Iraq provided proof of that. The weapon of mass destruction is the quest to acquire energy reserves. This quest will not be squelched by sanctions or by words.

Monday, July 11, 2005

Genentech Is On A Roll

7/12/05 Genentech Is On A Roll

The company now expects 2005 earnings of at least 35% over 2004 levels.
"I am tremendously pleased that our efforts to discover and developpotential therapies may change clinical practice and improve the lives ofpatients. We are actively working with the FDA to prioritize the ninepotential filings relating to our significant Phase III trial results, while we continue to develop more than 30 projects in the pipeline primarily in ouroncology and immunology focus areas," said Susan D. Hellmann, M.D., M.P.H.,president of Product Development. "We currently anticipate filing Herceptin for adjuvant breast cancer in the first quarter of 2006 and expect to provide updates on filing timelines for Avastin data upon the completion ofpreliminary discussions with the FDA." Genentech is preparing for potential U.S. Food and Drug Administration(FDA) filings for Avastin for second-line metastatic colorectal cancer; Avastin for first-line non-squamous non-small cell lung cancer; Avastin formetastatic breast cancer; Herceptin for adjuvant breast cancer; Herceptin incombination with Taxotere for first-line metastatic breast cancer; Lucentis inwet age-related macular degeneration; Rituxan for front-line aggressivenon-Hodgkins lymphoma (NHL); Rituxan for front-line indolent/maintenance (1)NHL; and Rituxan for rheumatoid arthritis in inadequate anti-TNF responders. Genentech announced that in the second quarter of 2005 it began enrollingpatients in several Phase III studies, including Rituxan in systemic lupuserythematosus, Avastin in prostate cancer, and combination Avastin and Tarcevain second-line non-small cell lung cancer. It also began enrollment in a PhaseI study of a small molecule hedgehog antagonist in basal cell carcinoma incollaboration with Curis.

An Austin-based consulting firm whose vice chairman, Mark McKinnon, has close ties with President Bush has been tapped by the China National Offshore Oil Co. to wage a public relations campaign in its bid to buy Unocal Corp. Meanwhile, Unocal's board of directors meet on Thursday. I continue to believe it is most probable that Chevron will provide a kiss of 4% before they close on the purchase of Unocal. The sky is not the limit here. As I previously noted, environmental clean-up problems, which are expensive, have been outlined by Unocal. I should also mention that, according to the Financial Times, China will more than double the amount of money foreign investors can put into its stock market to a total of $10 billion. How will Mark McKinnon reconcile that $10 billion ceiling with a possible purchase of $18 billion in Unocal shares? What's good for the goose should be good for the gander.

The CRB Index is revised today. Greater weighting will be given to energy prices.

Pimco's Paul McCulley: "It is not yet time to cyclically go way short duration. That time will be when the bond market starts romancing not just an end to Fed tightening, but the beginning of a Fed easing process."

Now that Dennis has passed through, we can keep our eye on Emily.

According to a Platts survey, OPEC produced 30.1 million barrels per day in June, representing an increase of 80,000 barrels per day over May. Saudi Arabia produced an average of 9.5 million barrels per day, a decrease of 5,000 barrels per day from May. The country with the biggest increase in June was Nigeria with a rise of 50,000 barrels per day.

Coldwell Banker's Luxury Index surveys 300 households with incomes of $100,000 or more and ones that have purchased a million-dollar home within the last 24 months. Some of the findings: 31% expect a tax refund this year, and 51% will put much or all of that refund back into their homes. A total of 31% plan to expand or remodel their homes in the next 12 months. During the past 12 months, 36% have refinanced or taken out home equity loans, and 42% will use the money for home improvement or other real estate purposes.

While we're on the subject of real estate, let's take a look at Centex, a company founded in 1950. You may not know this company. They reported sales for their 2005 fiscal year of $13 billion, up 24%, and earnings of $7.64, a rise of 27% from the previous year. This homebuilder's stock still sells at only 10 times actual earnings. They have more than 17,500 employees in more than 1,500 offices and construction job sites. The company went public in 1969, and has never reported a quarterly or annual loss or a major write-off. Had you purchased stock in 1969, you would have needed immense patience. Until mid-1997, the stock never sold above $10 a share.
Yesterday the stock sold above $76 to a new all-time high. This is a first-class outfit. It's nice to see good guys get their just rewards.

Warren Buffett: "Trust is like the air we breathe. When it's present, nobody really notices. When it's absent, everybody notices."

Sara Lee cut 775 jobs.

Last night, Bobby Abreu of the Phillies really put on some record-breaking show in the Home Run Derby. It was quite a thrill for fans all over the world. Bobby is from Venezuela.

Dodging The Bullet

7/11/05 Dodging The Bullet

It pays to be lucky. At the very last minute, Dennis weakened. There was significantly less damage than Ivan. Dennis missed the U.S. rigs in the Gulf. The price of crude declined towards $58 a barrel, but that was too late for help at the pump. Gas prices hit a record average of $2.33 a gallon. The high gas prices are negatively impacting the values received for used SUVs.

Stephen Roach: “The extraordinary stagnation of earned labor income in the past four years reflects a fundamental breakdown of the relationship between worker pay and productivity. The saga of the income-short American consumer remains very much intact…Not only has private sector job growth fallen nearly 10 percentage points short of the typical recovery path, but fully 42 months into this recovery, the inflation-adjusted hourly wage rate is fractionally below the level prevailing at the trough of the last recession in November 2001. Adding in the benefits piece of worker compensation does not change the bottom line of an unprecedented shortfall in labor income generation.”

China’s exports surged 30.6% in June to $66 billion, while imports rose 15.1% to $56.3 billion. This provided a monthly trade surplus of $9.7 trillion, their third-highest ever. Meanwhile, Japan’s Kyodo news agency reported Russia’s Putin stated his country will prioritize China over Japan as the recipient of oil supplies from a pipeline linking eastern Siberia with the Russian Far East.

Michael Pettis, associate professor of finance at the Guanghua School of Management at Beijing University, observed “since the dollars spent on IBM, Unocal, and Maytag don’t need to be exchanged for local renminbi (yuan), they represent a real contraction of the renminbi money supply.”

Jim Press, president of Toyota Motor Sales USA: “After September 11, it was necessary to provide stronger incentives, and they worked in the short term. But over time, they undermine the value of the product. Generally, we try to pass on savings to our customers so that they get better value.” Transaction prices on Toyota vehicles declined between 2002 and 2005, according to Toyota has been able to offset these lower vehicle prices by driving down its production costs.

John P. Hussman: “In the data since 1970, a 1% increase in the 10-year bond yield has been associated with a 2.63% increase in the S&P 500’s total return over the following year. Similarly, a 1% decline in the 10-year bond yield has been associated with the S&P 500 total returns over the following year being 2.63% lower than they would otherwise have been. Similar results hold if you look at subsequent market returns over longer periods of time…Using the data since 1929, the fitted projection for the S&P 500 is 1.24%. Using the data since 1940, 2.64%. Since 1960, 2.55%, and since 1970,-.32%...Explaining P/E multiples using interest rates is not nearly the same thing as justifying them.” I believe Hussman does really good work, and the performance at his funds reflect that. His web site is

The market’s performance ebbs and flows with psychology, and not simply statistics. It is impossible to get into the head of all buyers and sellers of securities. In the short run, your performance may be impacted by the psychology of others. However, if you ride the right horse, you will finish in the money. It comes down to picking the right stock for investment. That requires hours of analysis, and not the kind associated with a psychiatrist’s couch.

Sunday, July 10, 2005

Will Dennis Be Like Ivan?

7/10/05 Will Dennis Be Like Ivan?

There is a 50 percent chance that Hurricane Dennis will reach landfall within 65 miles of Pensacola or Mobile, and a 27 percent chance it strike near Panama City, said the latest report from the National Hurricane Center. Hurricane Dennis' winds are at 145 mph, making it a dangerous Category 4 storm ( which carry sustained winds between 131 mph and 155 mph). Forecasters expect it to strengthen by landfall, according to the National Hurricane Center. It should hit the northern Gulf Coast between 3pm and 8pm today.

Weather Service official Don Shepherd stated “it’s looking like it will be every bit as strong as Hurricane Ivan.”

Kinky Friedman: "Golf is the only opportunity that middle-aged WASPS have to dress up like a pimp."

Despite the price of gasoline being, on average, 33 cents a gallon higher than 1 year ago, U.S. gasoline demand has risen 2.7% over the last 12 months, and that is higher than the forecasts made by the U.S. Energy Department.

The U.S. Health & Human Services Department estimates that 12 million Americans went to Canada last year to purchase cheaper prescription drugs and/or healthcare products not approved for sale in the U.S., such as, sunscreens containing Mexoryl that protect the skin from Ultraviolet-A rays that cause wrinkles.

Mike Burk pointed out that “for the past 30 years or so the 2nd week of July during the first year of the presidential cycle has had a slightly positive bias.” With 85% of the stocks in the Russell 2000 above their 50-day moving average, it is likely some more attention will be given to the large cap quality growth stocks, such as, the ones I recently mentioned.

Why have so many Americans been unemployed for at least six months while the unemployment rate declined to 5%? How is it that corporate job creation remains so lukewarm while record cash levels rise and profit margins stand at historically-high percentages? The labor participation rate of 66% is inconsistent with an unemployment rate of 5%. Is it possible the latter is a bogus number?

It's a great time to be an oil refiner. Demand for crude keeps growing, supplies are tight, and no refineries are coming on stream. Refiners are operating at 98% of capacity and making a profit of about $16 a barrel. That sure helps to make up for all those lean years.

Kinky Friedman: "Sleep came slower than a frigid woman."