Saturday, November 05, 2005

The Equity Market Shrugs

11/5/05 The Equity Market Shrugs

The BLS Commisssioner: "Job growth in the remainder of the country appeared to be below trend in October. In addition, the direct impact of Hurricane Rita on the national employment data for October was judged to be minimal. It is possible, of course, that employment growth for the nation could have been held down by indirect effects of Hurricanes Katrina and Rita, for example, because of their impact on gas prices.(Hurricane Wilma made landfall after the October survey reference period.)"

Robin Williams: "See, the problem is that God gives men a brain and a penis, and only enough blood to run one at a time."

Berkshire Hathaway stated Hurricanes Katrina and Rita cost the company's insurance subsidiaries $2.99 billion in the third quarter and could end up costing the whole insurance industry $60 billion to $70 billion.

Friedrich Nietzsche: "A casual stroll through the lunatic asylum shows that faith does not prove anything."

Before taking a closer look at yesterday's employment report, let's touch on a few items:
(1) Frank Nothaft, VP and chief economist for Freddie Mac stated "we are forecasting that home equity extraction from the refinancing of prime first mortgage liens will result in extraction of $204 billion in 2005, up from $142 billion converted to cash in 2004." This home ATM helps to explain, at least in part, the continued high level of consumer spending while wage gains have trailed the rate of inflation. At the same time, with mortgage rates increasing along side the recent rise in 10-year treasury yields, it is doubtful that the consumer can depend on much home equity extraction in 2006.
(2) Last week the dollar index jumped 2% and rose above the 91 level. The euro fell to a 1 1/2 year low versus the dollar. As interest rates in the U.S. continue to rise, the ECB has chosen to keep their rates unchanged at 2%. The widening yield spread between the eurozone countries and those in Japan help to explain the bull move in the dollar index.
(3) 10-year treasury bond yields rose to 4.66%, the highest close sinceJune 2004. (4) the equity market shrugged off the weak employment report and rising government bond yields. Transports, for example, hit an all-time high during the weak. In my view, if the equity market is to mount a significant rally from here, then greater participation must come from the S&P100, the OEX.

Stanislaw Lem: "Is it progress if a cannibal uses a knife and fork?"

The U.S. nonfarm payrolls rose by 56,000 in October. However, the September number was revised downward to a loss of 8,000 jobs. In October the gains were among the usual suspects: service industry jobs rose by 7,000, construction by 33,000, temps by 11,000, financial activities by 22,000, and healthcare and social assistance by 23,000. A big swing took place in manufacturing with 19,000 Boeing machinists returning to work. Without that, manufacturing would have lost 7,000 jobs and the overall October gain would have been 37,000.

Kinky Friedman: "If you elect me the first Jewish justice of the peace, I'll reduce the speed limits to 54.95."

Talking about Boeing, remember that the company's stock is in the Dow. Boeing has built 145 C-17s since 1993. Each plane is sold for $175 million. The plane is built at their Long Beach plant, and the company has orders for another 35 more with the last delivery scheduled for 2008. According to the Seattle Times, the Air Force has stated "we got what we need." That would be a huge blow to Boeing and the 6,500 employees working at the facility in Long Beach. Boeing had expected an order for another 42 planes. Boeing has already annoucnced closing a Long Beach plant in 2006 after the last 717 is delivered.

Erma Bombeck: "Marriage has no guarantees. If that's what you're looking for, go live with a car battery."

GM has elected to sweeten cash rebates to $1,000 through November 13.

Steven Wright: "You know when you put a stick in water and it looks bent? That's why I never take baths."

Gold hit a 7-week low while zinc hit a new high.

Denis Leary: "I would never do crack... I would never do a drug named after a part of my own ass, okay?"

Global Insight released a study yesterday that found Wal-Mart saved each American household an average of $2,329 in 2004. In addition, the company had a net positive economic impact in the form of .9% increase in real wages and the creation of 210,000 jobs nationwide.

Rodney Dangerfield: "In the school I went to, they asked a kid to prove the law of gravity and he threw the teacher out of the window."

Regular unleaded gasoline was averaging $2.43 a gallon retail, AAA stated on Friday, down 20% from an all-time high $3.057 on Sept. 5. Before you go out and celebrate, consider what you paid on Nov. 4, 2004.

Dave Barry: "I do think we need to explore the commitment problem, which has caused many women to mistakenly conclude that men, as a group, have the emotional maturity of hamsters. This is not the case. A hamster is much more capable of making a lasting commitment to a woman, especially if she gives it those little food pellets. Whereas a guy, in a relationship, will consume the pellets of companionship, and he will run on the exercise wheel of lust; but as soon as he senses that the door of commitment is about to close and trap him in the wire cage of true intimacy, he'll squirm out, scamper across the kitchen floor of uncertainty and hide under the refrigerator of Non-Readiness."

Many Americans wonder what Bush's daily schedule looks like. Here is an example of a crucial meeting: The President will welcome President Ali Abdullah Saleh of the Republic of Yemento the White House on November 10. The two leaders will discuss a range of bilateral issues, including the President's Freedom Agenda and cooperation on the war on terrorism.
I know the Republic of Yemento is on everyone's lips.

In this week's Barron's in Michael Santoli's column, there is a bullish take on Saks suggesting "a share price above 23" and "the likelihood that greater value should be realized before too long."

According to the Washington Post, a textile agreement between the U.S. and China will be signed next week. The deal would begin on Jan. 1 and last through 2008 -- a concession by China, which wanted it to expire in 2007, a anonymous source was quoted as saying.
It would allow imports of most major textile and apparel products from China to increase by 8 to 10 percent in 2006, by 13 percent in 2007 and by 17 percent in 2008 -- a concession by the United States, which had proposed keeping annual growth close to 7.5 percent, according to the Post.
Although a few details remain to be resolved, the agreement is likely to be signed next week by U.S. Trade Representative Rob Portman and Chinese Commerce Minister Bo Xilai, the report said.

Douglas Adams: "I'm spending a year dead for tax reasons."

Friday, November 04, 2005

Nose To Nose With Reality

11/4/05 Nose To Nose With Reality

A new AP-Ipsos poll found Bush's approval rating was at 37 percent, compared with 39 percent a month ago. About 59 percent of those surveyed said they disapproved, with 42 percent now saying they "strongly disapprove" of how Bush is handling his job — twice as many as the 20 percent who said they "strongly approve." In the AP-Ipsos poll, nearly one in five Republicans disapproved of Bush's handling of his job, compared with nearly nine in ten Democrats. Nearly seven in ten independents disapproved.
The president has lost support from some key groups of constituents over the past year. He's dropped 16 points in his approval rating with men in that time, 18 points with people who have a high school education or less, 16 points among Southerners and 13 points among Republicans.
Congress isn't faring much better. In early October, 35 percent of poll respondents approved of the job being done by Congress, down from 44 percent in February. In December 2004, soon after Bush's re-election, 51 percent approved of his handling of his job, while 47 disapproved, and 28 disapproved strongly.
"I'm surprised it's not even worse" in terms of Bush's latest poll numbers, said GOP consultant Rich Galen. He cited three months of unrelenting bad news that have Republicans "beginning to scratch their heads."

A new survey, the eighth in an annual series of cross-national surveys conducted by Harris Interactive, is the largest to examine health-care quality across several nations during the same period. The survey, published in the journal Health Affairs, questioned 6,957 adults who had recently been hospitalized, undergone surgery or reported health problems between March and June this year.
Nearly a third of U.S. patients reported spending more than $1,000 in out-of-pocket expenses for care. Canadians and Australians came next, with 14 percent of patients spending that much. The proportion reporting similarly high costs was far lower in the other countries.
Americans also were more likely to report forgoing needed treatment because of cost. About half of Americans said they had decided not to fill a prescription, see a doctor when they were sick or get recommended follow-up tests. About 38 percent of patients in New Zealand reported going without care, as did 34 percent in Australia, 28 percent in Germany, 26 percent in Canada and 13 percent in Britain.
About one-third of U.S. patients reported problems with the coordination of their care, such as when test results were not available at the time of their doctor's appointment or when doctors ordered duplicate tests. In the other countries, between 19 percent and 26 percent of patients reported similar problems.
Americans also reported the greatest number of medical errors. Thirty-four percent reported getting the wrong medication or dose, incorrect test results, a mistake in their treatment or care, or being notified late about abnormal test results. Thirty percent of Canadian patients, 27 percent of Australian patients, 25 percent of New Zealanders, 23 percent of Germans and 22 percent of Britons reported errors.
In addition to the findings in this survey, one must remember that at least 47 million Americans do not have health care insurance. This fact, combined with those crossing our borders illegally, creates an imploding health care system.

Ayn Rand: "Reality confronts man with a great many "musts," but all of them are conditional; the formula of realistic necessity is: "You must, if " and the "if" stands for man's choice"

Ten-year Treasury bonds traded yesterday at a 16-month high yield. Mortgage rates reached a 17-month high. In fact, one-year ARMs reached their highest rate in over 3 years. Homeowners with ARMs are beginning to feel the pinch. It's only a matter of time until foreclosures take off.

U.S. September factory orders declined by 1.7% with capital goods orders dropping a whopping 7.8%. Against that backdrop, the ISM Services Index for October rose to 60% from 53.3% in September.

Believe it or not the dollar rose to a 2-year high versus the yen and crossed the 117 level.

Cashmere is making the day at Saks Fifth Avenue. Their same-store sales for October rose by 10%. That's a great beginning for the holiday season.

A total of 520,,000 unemployment benefit claims have been filed since Katrina and Rita hit the Gulf Coast.

There is something wrong with this picture. For several quarters, corporate profits have risen in the double digits. Yet, unit labor costs declined 0.5% in this year's third quarter. In other words, employees produce the double digit gains, work their buns off; however, real wages are actually down 2.3% for the third quarter. Total compensation costs (wages paid + benefits) are down 1.5% on an inflation-adjusted basis. When do the employees get to eat a piece of the pie? If productivity rose 4.1% in the third quarter, who do you think was responsible for this gain? The tooth fairy?

Spitzer sued Guidant over their heart defibrillators, and claimed the company failed to inform doctors about a mechanical problem. The bad news is making it tough for J&J to stay the course.

Aluminum hit a 10-year high.

After a $2 gain yesterday, crude is holding above the $61 a barrel level.

Here is an example of your government at work. Through Nov. 2, there have been 5 meetings been the U.S. and China on textile imports. What has been accomplished? Are you sitting down? There is a new sock agreement, and it places a new quota of just over 10 million dozen pairs of imports of Chinese-made cotton, wool, and man-made fiber socks. Had there been no agreement reached, imports for the next 12 months would have been limited to sslightly more than 61 million dozzen pairs. Thank goodness for the Office of the U.S. Trade Representative.

“It’s turned from a seller’s market to a buyer’s market,” said Greg Spier, who builds large custom homes in suburban Boston. “The marketplace has become astute. There’s more inventory. People are becoming pickier. Maybe there’s eight to 10 homes to look at. A year ago maybe there were one to three.”

In the first nine months of 2005, China's trade surplus jumped to $68 billion from only $4 billion one year earlier.

Ambassador Joseph Wilson: "The documents (falsely alleging Iraqi procurements of 500 tons of yellow cake uranium from Niger) were known to be a forgery and the White House was so advised well in advance of the State of the Union speech."

Executive Order 12958 states unauthorized disclosure of classified information is grounds for losing one's securty clearance.

Dietrich Bonhoeffer: "To understand reality is not the same as to know about outward events. It is to perceive the essential nature of things. The best-informed man is not necessarily the wisest. Indeed there is a danger that precisely in the multiplicity of his knowledge he will lose sight of what is essential. But on the other hand, knowledge of an apparently trivial detail quite often makes it possible to see into the depth of things. And so the wise man will seek to acquire the best possible knowledge about events, but always without becoming dependent upon this knowledge. To recognize the significant in the factual is wisdom."

The National Federation of Independent Business stated its monthly survey revealed member firms added 0.5 employees per business, on average, over the past three months. NFIB said U.S. small businesses expected to further expand their payrolls. The percentage of firms planning to hire, net of those who expect to cut jobs, held steady at a seasonally adjusted 17 percent in October, the same as in August and September.

Thursday, November 03, 2005

Misled Or Lies Or Both?

11/3/05 Misled Or Lies Or Both?

"We're finally going to ... have Phase 2 of the investigation regarding how the intelligence was used to lead us into the intractable war in Iraq," stated Democratic leader Harry Reid (D) of Nevada.
Who gave the State of the Union speech in January 2003? It wasn’t Cheney or Rove or Rumsfeld? At what point is there accountability at 1600 Pennsylvania Avenue? Those 16 words transformed our nation into an invader. Nixon gave the orders to "invade" the DNC. Did anyone get killed? He resigned from office. You get my drift?

Norman Angell: "The capitalist can only make a whole people go to war . . . by capturing the popular will. The only prophylactic against that situation is to make the public aware of the way in which it is being misled."

Mark Twain: "
One of the most striking differences between a cat and a lie is that a cat has only nine lives." In this case, it has 2,028 lives and growing.

The IEA warned of a 50% oil price rise by 2030. With the current rate of inflation, that increase looks low.

Samsung aims to double revenue by 2010.

Do higher interest rates matter? With the 10-year Treasury bond at 4.61%, mortgage rates will rise once again.

Germany will raise the sales tax to 18%. That is not a misprint.

The J&J-Guidant situation is coming to a head. The best Guidant shareholders can receive is a lower price. How committed is J&J to this deal? In my view, the time to walk away was before the FTC approved the combination. Guidant is in a weak bargaining position. My thoughts remain the same. The price will not exceed $65 and could be closer to $60.

I might have been smart to stay away from Guidant and my uncommon values treated me well until I overstayed my welcome. My Dell/Hewlett hedge must have been generated from where I am sitting. That was my putz move for 2005. I apologize to anyone who followed my view on this.

Symantec cut its forecast and the stock got creamed. Mercury Interactive had some roblems with options and it ran into a brick wall. Macrovision missed its
earnings and sales targets and the company will cut jobs by 10%. McAfee provided a disappointing outlook. Novell will cut 600 jobs. Everything is not coming up rosy in tech land.

Ron Ellison: "A recently released report from the big banking firm(Citigroup) noted that every year since 1998 research analysts' forecasts have been either too strong or too shy by, you guessed it, 10 percent. And that's the good news. The bad news came in 2000 during the technology bubble when they were off a whopping 70 percent."

Challenger Gray & Christmas stated that layoffs rose by 13% in October to 81,301. Job rductions year-to-date are up 4.7% to 864,953 compared with 2004.

How is it that the API and the Energy Department have different takes on the weekly oil, gasoline, and distillate inventories? How do we know which one is right? Maybe neither is correct.

In the market place, however, heating oil traded at a 3-month low and natural gas at a 2-month low. The market is the ultimate authority.

In describing the Denver real estate market, Tony Sagami stated "in October, the house sales were up a measly 0.8% higher and the number of homes for sale is 12.4% higher than the same period last year."

A recent poll of Latin Americans in business, government, and education in six Latin American nations showed that just 17 percent of Argentinean leaders and 12 percent of leaders in Brazil viewed Bush positively.
The Miami Herald/University of Miami Business School/Zogby Elite Poll of 523 Latin America opinion leaders was conducted Aug. 17 through Sept. 15. It included respondents in the public and private sectors, mass media and academia in Mexico, Chile, Colombia, Venezuela, Brazil and Argentina.

Wal-Mart Stores, Inc reported net sales for the four-week period ending October 28, 2005. SAM'S CLUB comparable sales without gasoline sales would have been 4.8%for the October four-week period. Total U.S. comparable sales would have been 4.0% without the SAM'S gasoline sales. During the four-week and thirty-nine-week periods, Wal-Mart Stores, Inc. added over $2.2 billion and $20.6 billion in sales, respectively. They estimate comparable sales in the U.S. for the November four-week period to be in the 3 to 5 percent range.

Dr. Paul Zickler of DoctorSolve: "Medicare and You," the handbook designed to aid seniors in understanding Plan D, contains a critical mistake. It tells beneficiaries that if they qualify for an extra subsidy for their drug costs, every plan is available to them with no monthly premium. The truth is only the very basic plans have no premiums for those who qualify for extra assistance. The Centers for Medicare & Medicaid Services do not intend to correct the problem, but instead will rely on insurance companies to do it for them. "This is in fact the second blooper with 'Medicare and You,'" says Zickler. "The first printing omitted mention of the $2,850 coverage gap or donut hole. How many more mistakes are buried in its cumbersome text?"

The ECB maintained the 2% interest rate level.

Can you have a year-end tech rally without the participation of Intel, Cisco, and Microsoft?

CVS operates more than 5,400 stores in the United States, making it the largest drugstore chain by store count. However, it trails Walgreen Co. in revenue.

Adolf Hitler: "Make the lie big, make it simple, keep saying it, and eventually they will believe it."

Wednesday, November 02, 2005

Not Surprising

11/2/05 Not Surprising

The gap between what Bay Area households earn and what they need to buy median-priced homes has grown by 21 percent in the past year, according to the California Association of Realtors (CAR).
CAR said on Tuesday that its quarterly income gap index showed a $100,670 shortfall in the Bay Area, the biggest in the state. Buyers of median-priced $721,850 homes in the region between July and September needed a household income of at least $169,180 to qualify for a typical mortgage.
Statewide, households with a median income of $54,140 are $73,810 short of the $127,950 qualifying income needed to purchase a median-priced home at $545,910. That's up 33.7 percent from last year's third quarter.
CAR calculates its index assuming a 20 percent down payment and a monthly payment for principal, interest, taxes and insurance that is no more than 30 percent of a household's income.

The Fed funds rate and the prime rate are both at their highest point in 4 1/2 years.

Knight Ridder Inc.'s largest shareholder, Private Capital Management LP, wants the nation's second-biggest newspaper publisher to seek a buyer. After spiking higher yesterday on this news, I would be careful about buying stock at these levels.

About 1,500 Boeing machinists went on strike at 12:01 a.m. Wednesday after last-minute talks broke down between their union and the company unit that operates the Delta rocket program.

Australian authorities have received specific intelligence that terrorists are planning an attack on the country, Prime Minister John Howard said Wednesday.

A greater number of Web shoppers will boost holiday spending online to $18 billion this year, a 25 percent increase from 2004, according to a new report by analyst Carrie Johnson of Forrester Research in Boston.
Web shoppers' average household income is $68,000. 2.5 million new households are expected to shop online in 2005, bringing the total to 42 million, or 39 percent of U.S. households.
"These folks may not spend as much as they had originally planned because of rising expenses, but they will keep online sales steady," Johnson said.
The Nikkei traded at a 4-year high.

GM and Ford vehicle sales declined about 25% in October. The domestic market share of the Big Three U.S. automakers slipped to 52.4% from 56.8% a year ago.

Yesterday, natural gas traded at a 2-month low.

The ISM October report had few surprises as the price index rose to 84% from Sept.’s 78%. New orders slipped to 61.7% from 63.8%, but the employment index improved a bit to 55% from 53.1%.

Continental Airlines will be the first U.S. carrier to fly non-stop from our shores to India. They will start non-stop service from NYC to India.

ContraryInvestor.com: "In the past 10 months, Asia has purchased all of $30 billion in U.S. treasuries…The U.K. has purchased $80 billion."

According to LBO Wire, a service published by Dow Jones Newsletters, Saks Inc. "is likely to start a formal sale process for its remaining assets including the flagship Saks Fifth Avenue sometime early next year…Several buyout firms would potentially be interested in the assets, including Bain Capital, Texas Pacific Group, Blackstone Group, Leonard Green & Partners, Thomas H. Lee Partners and Kohlberg Kravis Roberts & Co. A source for this article stated that "Saks Fifth Avenue will have a much higher valuation than Northern Department Stores." If blood is flowing to your brain, you would know that. The brand and the real estate combine to create a generous valuation.

According to Boise’s Idaho Statesman newspaper, Larry Johnston, Albertsons Inc. president, chairman and chief executive officer, could walk away with an estimated $40 million if the Boise company is sold. Johnston could receive about $35 million of the $40 million from the value of his stock options. That bunch of money provides an incentive to sell Albertsons to the highest bidder.

Barry Ritholtz: "The market’s tone has becoming increasingly firmer as of late. The many technical, internal and seasonal factors we track suggest that a modest short-term bottom is being formed. While the bottom has not been fully formed, we are becoming increasingly more comfortable shifting towards a Bullish position (however briefly that may be). We would be even more aggressive if several confirming factors showed improvements.
Regardless, we find that the elements are slowly coming together to support at least a modest year end rally, with a short-term bottom made sometime in early-mid November, and a projected top in mid-December…our expectations for a rally are modest: a 10% move for the Nasdaq 100; the SPX runs into difficulties in the 1280-90 area. Dow Industrials could see 11,400.
Beyond New Year’s Eve we become increasingly Bearish."

Scott Burns provides a list of some of the problems confronting Main Street Americans: •With the typical household consuming about 1,000 gallons of gas a year, an increase from $1.50 a gallon to $3 a gallon means a purchasing power loss of $1,500.•Rate increases for electricity and natural gas.•Rising medical co-pays and other out-of-pocket expenses for health care, plus rising employee insurance premium costs. Premium costs were up 10 percent in 2004 alone.Another way to see the same thing is to examine wage gains. In 2004 the average weekly earnings of private, nonagricultural workers rose by only 2.2 percent. The consumer price index rose by 3.3 percent over the same period. This year has been a replay — year-over-year wage gains are running less than 3 percent, while inflation has ramped up toward 4 percent. And all this assumes we believe the price index is an accurate reflection of the inflation we experience.

Cutera raised its 2005 revenue forecast to $73.6 million from $70 million, as well as its earnings forecast to 87 cents a share from 62 cents a share. It cited better-than-expected third-quarter results and its fourth-quarter outlook for the higher 2005 forecast.

U.S. consumer attitudes have worsened in the past two weeks, ABC News and the Washington Post reported Tuesday. The ABC/Post consumer comfort index fell to negative 21 in the latest week from negative 19 the previous week and negative 17 two weeks ago. The year's low came in mid-September at negative 23.

Gerda Lerner: "We can learn from history how past generations thought and acted, how they responded to the demands of their time and how they solved their problems. We can learn by analogy, not by example, for our circumstances will always be different than theirs were. The main thing history can teach us is that human actions have consequences and that certain choices, once made, cannot be undone. They foreclose the possibility of making other choices and thus they determine future events."

Deutsche Telecom to cut 19,000 jobs.

With many consumers concernedabout higher prices of goods, especially oil and gas, overall spending during the holidays this year could well be lower than it was last year. According to the latest Experian-Gallup Personal Credit Index(SM) survey, 32 percent of consumers expect to spend less this year, while just 12 percent expect to spend more and 56 percent expect to spend about the same.

At least 2,028 members of the U.S. military have died since the beginning of the Iraq war in March 2003. Yesterday Rumsfeld discussed sending moreof our troops to Iraq. How many members of Congress and the Bush administration have or have had family members sent to Iraq to fight in this war?

For fiscal 2006, Beazer Homes expects to earn $10.50 per share.

Ambassador Joseph Wilson: "We the People must know who, precisely, inserted those sixteen words on uranium from Niger into the State of the Union speech, who precisely over-ruled the Department of State and the Central Itelligence Agency when they objected, and who precisely participated in an on-going cover-up of this falsehood until well after the elections...The public has a right to demand, at least, the resignations of Cheney, Rice, Rove, and Rumsfeld."

Tuesday, November 01, 2005

Looking Out

11/1/05 Looking Out

Slowing home sales and higher prices are trends that are expected to continue next year, according to a forecast released Friday at the National Association of Realtors Conference in San Francisco. David Lereah, NAR's chief economist, said existing home sales are projected to decline nationally in 2006 by 3.5 percent to 6.86 million and new home sales are expected to fall 4.5 percent to 1.24 million next year. Next year's figures for 2006 would be the second highest year for each sector. The national median existing-home price for all housing types, after jumping about 12.4 percent to $208,100 for all of this year, is projected to grow by 5.3 percent in 2006 to $219,200. The median new-home price is seen increasing 4.1 percent to $230,200 in 2005, and then rise more sharply next year as higher construction costs work into the market. The typical new home price is forecast to rise 7.3 percent in 2006 to $247,000.
"We are in the process of setting a fifth consecutive annual record for both existing- and new-home sales, but the market will be coming off of a five-year boom and experience a soft landing next year," Lereah said. "An uptrend in mortgage interest rates will cause some slowing of the sales pace, but we forecast 2006 to be the second highest year on record and housing will continue to support the overall economy." Total housing starts this year are forecast to be the highest since 1972, rising 5.7 percent to 2.06 million units, before declining 4.6 percent to 1.97 million in 2006.
"Baby boomers remain in their peak earning years. Their children - the 'echo boomers' - are just entering the period of life when people typically buy their first home. Immigrants, who have been arriving in strong numbers for many years, are buying in to the American Dream," Lereah said. "The market transition will result in a cooling of home price gains, but it'll be fair to say housing activity will remain healthy for some time to come."
The 30-year fixed-rate mortgage is projected to rise slowly to 6.7 percent by the end of next year. "As interest rates rise and home sales ease, it should help to bring the market closer to equilibrium between home buyers and sellers," Lereah said. "That is expected to take pressure off of home prices and allow appreciation to settle to a more normal pace in 2006."

Yesterday’s attacks in Iraq brought the number of Americans killed in October to 92, the highest monthly toll since January, when 106 American troops were killed in violence ahead of national elections there. This month's death toll and January's have been surpassed only twice since the war began: in November 2004 and in April 2004.

JFK: "The wave of the future is not the conquest of the world by a single dogmatic creed but the liberation of the diverse energies of free nations and free men."

Italian Prime Minister Berlusconi: “I tried to get Bush to not invade Iraq.”

It is rare that I am impressed. Last evening I watched a taped speech on C-SPAN that Joseph Wilson delivered to the National Press Club. He spoke for well over 30 minutes without notes. His facts were precise and he spoke with absolute clarity and immense self-confidence. I truly recommend that all Americans take the time to listen to this talk. I would hope it will be re-played and/or a tape may be available.

According to the St. Louis Business Journal, Saks is mulling the sale of Club Libby Lu.
Saks Inc. said Monday it was exploring options for its Club Libby Lu unit as it sheds stores nationwide. Club Libby Lu, a retailer for "tween" girls, has 56 U.S. stores. Among potential buyers could be St. Louis-based Build-A-Bear Workshop Inc., Too Inc. and Claire's Stores Inc., reports said. According to the NY Post, R. Brad Martin, the chief executive of Saks Fifth Avenue, has told financial and industry sources that he would like to continue running the company’s crown jewel, Saks Fifth Avenue, until a long-awaited turnaround takes hold. I strongly believe there have been strategic buyers waiting to purchase the crown jewel and that shareholders will soon see the buyers come forward. In the meantime, Saks may pay a substantial dividend from the funds received in the sale to Bon-Ton and from Club Libby Lu.

The Commerce Department stated consumer spending rose 0.5 percent in September, and this reversed a 0.5 percent August decline. Adjusted for inflation, real spending dropped 0.4% in September and 1% in August. Personal income also increased 1.7 percent last month, compared with a 0.9 percent decrease in August, the department said. The September PCE rose 0.9%, the biggest increase since Feb. 1981.

For the month of October, crude declined about 10% and natural gas approximately 15%. Unleaded gas hit an 11-week low at $2.49. Yesterday, crude closed below the $60-a-barrel mark for the first time since July 21. The dollar rose to a 2-year high against the yen, and my trade here is going in the wrong direction. The October Chicago PMI rose to 62.9% from September’s 57.9%.

The U.S. Treasury borrowed $52 billion in this year’s third quarter, expects to borrow a net $96 billion in this year’s fourth quarter, and a staggering $171 billion in the first quarter of 2006. With that type of borrowing, do you think 2-year Treasury bonds will remain at a yield of 4.40%? Don’t you think rising short-term yields will become significant competition for the equity market?

Barrick Gold offered to buy Placer Dome for about $9.2 billion in cash and stock. Barrick stated it will pay a maximum $1.22 billion in cash and issue a maximum 303 million shares under the deal. Many of Barrick’s operating mines, development projects and exploration sites are located near those of Placer Dome. Maybe Barrrick will tweak the final terms, but, in my opinion, most of the appreciation in Placer Dome took place yesterday.

Lockheed Martin Corp and three private-equity firms are focusing on a purchase price for Computer Sciences Corp. of about $64 to $65 a share, The Wall Street Journal reported.

Dell expects 3rd quarter earnings of 39 cents, about one penny shy of estimates, and revenues will be slightly below its prior outlook. The stock is now knocking on the $30 level. This year has not been kind to Dell stockholders.

Hughes Supply is one of the nation’s largest diversified wholesale distributors of construction, repair and maintenance-related products with over 500 locations in 40 states. Yesterday, the company raised its third quarter sales and earnings outlook. In addition, its Board of Directors formed a Special Committee to explore strategic alternatives in order to maximize shareholder value That news drove the stock to a new all-time high of $35+ in after hours trading. The company retained Lehman as its financial advisor. Not being currently familiar with the company, I will need to do some homework to evaluate the potential in this situation.

Judge Alito’s mother was quite forthcoming and stated that her son is against abortion. Bush’s base must consist solely of men.

Continuing their inability to make a correct decision, the White House announced yesterday that John Hannah would replace Libby as Cheney's national-security adviser. Libby faces his first court appearance Thursday before U.S. District Judge Reggie Walton on charges of perjury, making false statements and obstruction of justice. He is expected to plead not guilty. The White House also announced that David S. Addington, who's been Cheney's legal counsel, would assume Libby's duties as chief of staff.
Addington reportedly helped draft an opinion by then-White House counsel Alberto Gonzales stating that the Geneva Conventions didn't apply to some detainees in the war on terrorism. On June 26, 2002, the Iraqi National Congress, the INC, wrote a letter to the Senate Appropriations Committee staff identifying Hannah as the White House recipient of information gathered by the group through a U.S.-funded effort called the Information Collection Program. The information turned out to be false.

Eric Hoffer: "In times of change, learners inherit the Earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists."

Yesterday Bush tried to change the subject with the nomination of Alito. Today it’s a talk on the avian flu. His knowledge on this subject should overwhelm the nation. I thought Bush would be the worst president in our country’s history, but he has exceeded my worst fears and his daily explorations and decisions are for the record books.

Doug Wakefield points out that, “according to Investors Intelligence, bullish sentiment on the stock market has now had 158 straight weeks with more bulls than bears. In the 42 years that this has been tracked, this is the longest streak of bulls outnumbering bears. It is currently even 6 weeks longer than the 152 weeks that bulls outnumbered bears as we experienced the Crash of 2000.”

Let's say the FTC approves the J&J-Guidant deal today. What happens next? In my view, J&J is in the catbird seat. Going forward, J&J does not need this deal. Given the past product problems at Guidant, I see little upside potential for their shareholders and plenty of risk if J&J takes a walk. Do I believe the deal will occur? Yes, but at a price near present levels.

The DivaCup(TM), manufactured out of medical grade silicon, may become the next generation of feminine hygiene.

In pre-market trading, Lucent has dropped 3.5% to $2.75. Dell has declined to $30.25. This is not a very auspicious beginning to the month of November.

Elaine Maxwell: "My will shall shape the future. Whether I fail or succeed shall be no man's doing but my own. I am the force; I can clear any obstacle before me or I can be lost in the maze. My choice; my responsibility; win or lose, only I hold the key to my destiny."

Monday, October 31, 2005

Around The Globe

10/31/05 Around The Globe

Jonathan Alter, Newsweek’s Senior Editor and Columnist: "According
to Fitzgerald, Libby had conversations with at least seven other government
officials about Joseph and Valerie Wilson that he did not disclose to the
grand jury. Why were top White House officials and Vice President Cheney so
concerned about an obscure former diplomat like Wilson? Because he had the
temerity to offer public dissent. By showing how evidence of Saddam's WMDs had
been cooked, Wilson undermined the very reason Augie Schroeder and the rest of
the U.S. military went to war. He was more than "fair game," as Karl Rove
called him. He was a mortal threat."

The Chinese Academy of International Trade and Economic Cooperation stated that China’s exports and imports are expected to total $1.6 trillion in 2006, an increase of 15% from this year. It should be noted that, during the recent annual two-week Canton fair, orders for textile exports to the U.S. dropped 44% from last year to $310 million.

Japan’s central bank stated that deflation would end this year and that consumer prices would rise by 0.1%. It is expected that there will be a gradual increase in short-term interest rates; however, they will remain at “very low” levels.

According to the WSJ, Saks plans to sell its northern department-store unit to Bon-Ton for $1.1 billion, possibly signaling a sale of the rest of the firm. The sale involves 142 stores in 16 states, such as, Carson Pirie Scott, Younker’s, and Herberger’s, with annual sales of $2.2 billion. I continue to believe that, with Goldman Sachs representing Saks in negotiations, a significant price will be achieved for the Saks Fifth Avenue stores, and thus create approximately $22.50 per share for the shareholders. In my view, the current price of $16.66 does not reflect the potential value within Saks.

Lenders expect to process $2.26 trillion of home loans next year, down from this year's expected $2.78 trillion and sharply lower than 2003's record of nearly $4 trillion worth of loans processed. "As rates move up there'll be more consolidation, mergers and people leaving the business," said Ray Morris, a director of business development at GMAC Mortgage Corp.'s subservicing business. Lenders are cutting loan fees, and some lenders are willing to offer lower mortgage rates even if it takes away from their profits.
"Companies are losing money to keep market share," said Douglas Duncan, chief economist at the Mortgage Bankers Association. "The consumer is being subsidized because the competition is so fierce. For the short run, the consumer is getting a better deal."

This week, India celebrates the festivals of Diwali and Eid al-Fitr.

Tomorrow I anticipate, along with just about everyone else on Wall Street, that the Fed will raise interest rates to 4%.

Crude is somewhat lower this morning at $60.74 a barrel.

I would expect that shortly Goldman Sachs and Blackstone Group should have some positive news out of the bidding groups for Albertsons.

John Hussman: “You can control actions, not outcomes. If you focus on controlling outcomes, you'll find yourself constantly reacting and overreacting to insignificant deviations from what you think you “should” be achieving, and your actions are going to be dictated by an enormous amount of noise.”

ZAP is a California environmentally conscious alternative vehicle distributor. The company has purchased 20% of Obvio! of Brazil. ZAP ordered 50,000 minicars from Obvio!. "What we're getting here is Italian-style quality that people know and love -- with Chinese pricing," said Steve Schneider, ZAP's chief executive. "That sounds like a winning combination to me."
The Obvio! 828, a three-passenger microcar designed for city driving, grabbed ZAP's attention first. Modeled after a similar vehicle briefly sold in Brazil in the 1980s, the 828 will be equipped with a four-cylinder, 1.6-liter, 170-horsepower engine designed to go from zero to 60 miles per hour in just 5.2 seconds.
Obvio! is also developing a sportier model called the 012, with extra horsepower and a race-car design. The 828 is expected to retail for about $14,000, while the price tag on the 012 should be twice that amount.
Both cars will be small enough to fit sideways in a parallel parking space, and will be engineered to run on gasoline or ethanol, or any mix of the two. They will also come with a personal computer on the dashboard that runs Windows XP, allowing drivers to download music and digital radio streams.

Novartis AG agreed to terms with Chiron Corp. (CHIR) to buy the remaining 58% it didn't already own in the U.S. drugmaker for $5.1 billion, or $45 a share.

Reverend Frank Bates: "It is important to remember that from the beginning our
nation has experienced numerous calamities and challenges. With respect to
Thanksgiving, we sometimes forget that the Pilgrims lost over half their
families to starvation and disease in the terrible winter of l620. They could easily have given in to hopelessness and despair. Instead, in the midst of their grief, with hope and faith, they continued to pursue their dreams. The following year, they reaped a bountiful harvest and proclaimed a time of celebration, giving birth to our own Thanksgiving Day."

General Motors Corp plans to explore making hybrid cars for China with its main partner in the country, SAIC Motor Corp. LTD, targeting their introduction by 2008.

Japan's Orix Corp. will purchase Houlihan Lokey Howard & Zukin for $500 million.

Wal-Mart may expand in India.

Economic stats for today: Core PCE Deflator (Sept), personal consumption and personal income (Sept),
and the Oct. Chicago PMI.

Add another hand-me-down to the list. Bush will nominate Samuel Alito to fill the vacancy on the Supreme Court. Alito had been appointed by Bush's father to the Third Circuit court. I trust this nomination shall please the base as well as Scalia.

Elizabeth Dole speaking of her husband Bob Dole: "Sometimes I think we're the only two lawyers in Washington
who trust each other."

Sunday, October 30, 2005

Bits And Pieces

10/30/05 Bits And Pieces

For the October reporting period, Wal-Mart’s U.S. comp sales rose approximately 4.3%. The company stated that, without gasoline, the increase would have been about 30 basis points less.

Will Bush nominate Luttig, Alito, or Owen to the Supreme Court tomorrow?

Since January 2004, the Pentagon estimates that there have been 26,000 Iraqi casualties. If I’m correct, we invaded Iraq in March 2003.

Mike Burk: “The last trading day of October and the first 4 trading days of November are some of the strongest days of the year. This period during the 1st year of the Presidential Cycle has not been quite as strong as the average for all years, still, for the OTC the average return since 1965 has been nearly 1.5%.”

In case you had not noticed, recently the Fed has accelerated the pace of the M-2 and M-3 money supply. This is an effort to stimulate spending and increase demand for goods and services. Once again, too much government leads to too much debt, too little savings, and the on-going devaluation of our dollar. If you believe the Bush administration has produced less government, then you need to see a proctologist.

When the 2008 election comes around, John McCain will be 71.

Improved living standards bring an increasing demand for sugar. China's official statistics predict the country will need extra 2 million tons of sugar, in addition to its production expectation of 9.5 million tons this year. The country's total demand for the 2005-2006 refining season will stand at 11.5 million tons.
Soaring demand by China's prosperous food industries and outputfalls in sugar cane are to blame, according to Feng Zuhua, the top economic official at China's biggest sugar cane producer, Guangxi Zhuang Autonomous Region.
The region accounts for 60 percent of China's annual output of sugar cane, a major source for sugar. The cane is mainly planted in southern provinces. Sugar beets are harvested in northeastern provinces and northwestern Xinjiang Uygur Autonomous Region.

In my view, the long term trend for sugar demand is rising. Whether it is China or India or Korea or some other developing country, greater wealth creates more demand for sweets and therefore sugar. Before you get on your health high-horse, a teaspoon of sugar has but 16 calories.

Senate Budget Committee Chairman Judd Gregg (R-N.H.) called for the reinstatement of a windfall profits tax on oil companies.

OPEC's president Sheikh Ahmad al-Fahd al-Sabah stated yesterday that, after recent decreases, oil prices were approaching a level acceptable to both consumers and producers.

James Madison: ""The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse."