Saturday, April 15, 2006

The Housing And Rig industries

4/16/06 The Housing And Rig Industries

Interest-only and negative-amortization ARMs -- where the principal does not getpaid down and may even grow over the early part of the loan -- now make up nearlyone-third of all ARM originations, up from just 11% two years ago,according to data from LoanPerformance.

Rigzone.com:"About $12 billion was spent on new offshore drilling rigs during the
first four years of the 1980's, that at a time when the price of oil averaged a
little over $30 a barrel.Looking forward at the next 4 years, 2006 thru 2009,
there are only about 1/3 as many rigs to be delivered as during the last rig boom.
Of those, 61 jackups are under construction for an average cost of $135 million. 21
semisubs are being built for an average cost of $410 million. And 6 drillships are
being built for about $535 milliom each.

Mike Burk:"During the week prior the 3rd Friday in April during the 2nd year of the
Presidential Cycle...average returns for both the OTC (since 1966) and SPX (since
1930) have been negative over the week while the returns for all years combinedhave been positive."

China's economic growth accelerated to an estimated 10.2 percent in the first quarter, President Hu Jintao said, exceeding economists' expectations as manufacturing investment and exports surged.

According to today's NY Times, the tax break that expired at the end of 2005 limited
the alternative minimum tax to 3.6 million taxpayers,
of which 2.1 million were families with children.

This year 18.9 million taxpayers are facing the
alternative levy, with 11.8 million representing
families with children. Without Congressional action,
those affected will pay $26.6 billion more in federal
income taxes for this year.
Just one-tenth of 1 percent of the increased
alternative tax is being paid this year by those
making $1 million or more, the Tax Policy Center
estimates, even though this is the only group affected
by the original version of the levy.

Japan's economy is logging its second-longest expansion since the end of World War II, the country's economy minister said Sunday in the latest in a stream of optimistic forecasts.

The upward trend should continue until the summer of 2007, making the current growth streak the longest in postwar history, said Economy Minister Kaoru Yosano.

Friday, April 14, 2006

Pollution And Water Shortages

4/15/06 Pollution And Water Shortages

Today is tax day. As federal, state, and municipal governments continue to spend more, taxes continue to rise. It is a spreading disease.

Doug Noland: "Year-to-date Individual Income Tax Receipts are 8.5% above comparable 2005, and Corporate Tax Receipts are 30.5% ahead. Total Spending is running 8.7% above comparable 2005, with Defense spending up 8.9%, Medicare 15.5%, Social Security 5.7%, and Interest Expense 25.2%."

Talking heads in the media focus on growth-- capacity utilization in our plants or 8.5% GDP growth in China etc. Of course, this growth multiplies the number of millionaires and billionaires in the world. More importantly, it generates more pollution and water shortages. Look at China.
There is a focus in the press on China's growing foreign exchange reserves. How about the fact that pollution is so severe the Ministry of Water Resources estimates 40 percent of water in the country's 1,300 or so major rivers is fit only for industrial or agricultural use. How about the fact that the supply of water per capita is sharply below that of the rest of the industrialized world. It's not just China. Phoenix has the fifth largest population in the United States. It rises out of the sands. So does Las Vegas. Do you think the supply of water is a problem for those cities? With all the driving in Phoenix, have you witnessed the rise in pollution? That's what took place in Denver.

Would you rather invest in oil or water? On a long term basis, that answer is a no brainer.
Would you rather invest in ethanol or pollution control devices? Ethanol represents 3% of the gallons of gas we will put in our cars in the U.S. over the next 12 months. Compare that with the world-wide market for controlling pollution.

The Kansas Agricultural Statistics Service this week rated stock water supplies across the state as 36 percent short to very short.

Fifty nine percent of fish taken from Maryland waters show concentrations of toxic mercury at levels unsafe for infants and children.

In this year's first quarter, China's crude oil imports rose 25.3%, and, during the same period, car sales rose 67% year-on-year to 855,300. Oil demand in China is running about 7 million barrels per day.

Over the last year, India spent $44 billion on oil, up from $30 billion in the prior year.

Thursday, April 13, 2006

Good Friday

4/14/06 Good Friday

As is the custom, all the markets are closed today. That means only five more trading days until option expiration for the month of April.

Fed Governor Donald Kohn: "At this juncture, given the apparent strength in demand and the narrowing margin on unused resources, I am focused on making sure that inflation and inflation expectations remain well anchored. I do not know how much policy firming will be needed to accomplish this objective." That should put to rest the talk that the Fed will stop raising rates after its next meeting. When Lehman Bros. forecast that rates could rise to 5.5%, few agreed with that view. I think that today there would be more in that corner.

Marc Faber: "So, whereas it took over 500 ounces of gold to buy a typical house in the US last summer, now, it only takes around 380 ounces of gold. In other words, home prices have declined over the last 9 months by 25% against the price of gold!"

The yield curve is clearly becoming more traditional. Long-term rates are spiking with the short-end rising at a slower rate. The 30-year has climbed to 5.11% with the 10-year at 5.04%. In addition, 30-year mortgages have risen to 6.49% and the 15-year is up to 6.14%.

Charles Darwin: I dislike this quoteIt is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.

With ethanol replacing MTBE in gas in May, logistics could be tested. Ethanol will not be moving through a pipeline but rather it must be transported via truck, rail, and/or barge. This could create some shortages of gasoline in a few markets. It might be wise to keep the tank near full for awhile.

Ford will close plants in Norfolk, Va., and St. Paul, Minn., in 2008. The two plants employ about 4,300 hourly and salaried workers.

Marc Faber: "My advice remains to be extremely defensive. Most asset markets including stocks and commodities are extremely overbought, and there is far too much speculation in all investment markets. Therefore, severe downside volatility, also in precious metals, should not be surprising in the period directly ahead."

William W. Watt: Do not put your faith in what statistics say until you have carefully considered what they do not say.

China's foreign exchange reserves rose $21.4 billion during March to a new record high of 875.1 billion, consolidating the country's position as the largest holder of foreign reserves in the world. China relaxed its capital controls on Friday to make it much easier for individuals and companies to buy foreign currencies and invest abroad.

As a percentage of your gross income, how much in taxes do you pay? We are talking about Federal, state, local, and that includes all sales taxes, user taxes like tolls, property taxes, etc etc etc. I think you'll find your taxes are rising and have been every year since we landed on the Mayflower.

Much is written about the recycling of petrodollars in our Treasury bonds to fund our twin tower deficits. I wonder whether one can assume that will continue at the same rate. Look at our relations with Venezuela and some other Latin American countries. If you were Dubai, would you buy our bonds? In addition, countries like Russia, China, and India have significant infrastructure needs. Japan needs to stimulate internal consumption. The demand for our bonds has reached its peak. Our market mavens have missed the point. The important point is not when the Fed stops raising rates. The question is when do other nations reduce their pruchases of our bonds. I believe that is happening right now.



Wednesday, April 12, 2006

Happy Passover

4/13/06 Happy Passover

Palatin Technologies announced that it has entered into definitive purchase agreements with certain institutional investors for the sale of 11 million
units, each consisting of one share of its common stock and a warrant to
purchase 0.30 shares of its common stock, at a purchase price of $2.44 per
unit. The warrants have a five-year term and an exercise price of $2.88 per share. The warrants become exercisable six months after purchase of the unit. The transactions will provide gross proceeds of approximately $27 million to Palatin, before deducting costs associated with the offering."This investment significantly enhances our financial resources and provides additional operational flexibility as we advance the clinical
development of our lead product candidate, bremelanotide," said Carl Spana, President and Chief Executive Officer of Palatin.
The lead investor in the offering was Vivo Ventures, with
significant participation from Palo Alto Investors, ProMed Management,
Efficacy Biotech, Greenway Capital, RA Capital Associates and Great Point
Partners.


Ted Butler: "The COMEX silver short position stands out from any other commodity. The gross COMEX short position (open interest), for futures alone, is now over 700 million ounces. This is greater than total world annual mine production and greater than any world inventory amount than I have seen published. In no other commodity can this statement be made."

Today,the 10-year Treasury note's yield rose 3 basis points, or 0.03 percentage point, to 5 percent at 6:24 a.m. in New York, according to Cantor Fitzgerald LP. I still believe investing in long-term Treasury bonds is a fool's game.

GM has said it wants 10 percent market share by 2010 in India, where total sales are expected to double to 2 million cars. GM's unit sales there grew by 17 percent last year.
GM's South Korean unit, GM Daewoo Automotive and Technology Co., aims to increase sales by about a third this year as consumer spending drives an economic recovery.
In China where the company has a 17% market share, GM executives have forecast their sales will beat overall market growth of 10-15 percent this year.

AMD had a bigger-than-expected first-quarter profit of $184.5 million.

According to a new study, proposed changes to the way US companies account for pension obligations could knock an average of 8 per cent off the net worth of 100 of America's biggest companies.

The Treasury Department reported Wednesday that federal spending totaled $250 billion last month, up 13.7 percent from March 2005. As the deficit rises, more dollars are printed, and the dollar depreciates and inflation rises. As the debt rises, the cost to borrow rises, and this cost impacts everyone- from local governments to corporations to those living on Main Street. Given the size of the twin tower deficits, what schmuck would loan our government money at 5% for 10 years?

An antibiotic previously used for treating infections such as sinusitis could help people who suffer serious asthma attacks, scientists believe.
Telithromycin can speed up recovery in patients suffering attacks by three days, researchers found. The drug reduced asthmatic symptoms such as heavy wheezing and a tight chest in patients. It also helped lungs to function more efficiently.

When an individual stock takes a sharp beating, frequently a conservative and profitable strategy is to sell a put. I have previously mentioned the GM $17.50 puts. Over the last month, there were other opportunities in the AMD $27.50 put and the Apple $50 put.

Passover, an eight-day observance that began Wednesday at sundown, celebrates the Jews' deliverance from Egyptian slavery 3,000 years ago and their remaking as a nation under the protection of God.






Tuesday, April 11, 2006

The Controversy

4/12/06 The Controversy

Special Prosecutor Patrick Fitzgerald: There was "a strong desire by many, including multiple people in the White House," to undermine Joseph Wilson..."a plan to discredit, punish, or seek revenge against Mr. Wilson...It is hard to conceive of what evidence there could be that would disprove the exiatence of White House efforts to punish Wilson." In 1400 pages of handwritten notes, there is every reason to believe we will get the true picture of what was happening in the White House in the summer of 2003, and in all probability, some of the events leading up to our invasion of Iraq in 2003. After these revelations, the American electorate may can a taste of what it truly feels like to be duped. It is more than unfortunate that 2350+ of our Finest have died and more than 20,000 have been wounded. That is a price that should not be tolerated.

As a backdrop to the Wilson/Plame incident, in early June 2003, Vice President Dick Cheney met with President Bush and told him that CIA officer Valerie Plame Wilson was the wife of Iraq war critic Joseph Wilson and that she was responsible for sending him on a fact-finding mission to Niger to check out reports about Iraq's attempt to purchase uranium from the African country. Other White House officials who also attended the meeting with Cheney and President Bush included former White House Chief of Staff Andrew Card, then-National Security Adviser Condoleezza Rice, her former deputy Stephen Hadley, and Deputy White House Chief of Staff Karl Rove.

Valero Energy Corp., Exxon Mobil Corp. and Shell Oil Co. stated they will stop putting MTBE into gasoline beginning May 5. Valero estimates that will shrink the nation's gasoline supply by 145,000 barrels a day.

Retail sales rose 3.9% for the week ended April 8 from the year-ago period, according to a survey by the International Council of Shopping Centers Inc. and UBS Securities LLC. This is the strongest showing since the week of March 4 when sales rose by 4.3% on a year-over-year basis, the survey said. On a week-over-week basis, sales rose 1.8%.

Mohammed Sharaf, DP World's CEO: "
The US Navy has trusted us to protect their interests for more than 16 years and have spent the last month going on record repeatedly to say how happy they are with our services."

M/I Homes,Inc. anounced record backlog, new contracts, and homes delivered
for the first quarter. The Company reported the highest first quarter backlog in the Company's
history, with units increasing 4% to 3,112 and sales value increasing 18%
to $1.1 billion. In addition, average sales price in backlog reached an
all-time record of $346,000 -- a 13% increase over March 2005. New
contracts and homes delivered during 2006's first quarter increased 5% and
7%, respectively to 1,137 and 832 compared to 2005 new contracts of 1,078
and homes delivered of 775. M/I Homes had 155 active communities at March
31, 2006 compared to 130 at March 31, 2005.
Robert H. Schottenstein, Chief Executive Officer and President,
commented, "We are pleased to report a 5% increase in new contracts for the
first quarter. Our Florida and North Carolina operations had a strong
quarter for new contracts -- more than offsetting the reduced activity in
our Washington, D.C. market and the continued difficult market conditions
in the Midwest. We are on target to increase our active communities to 175
by year-end with all of our net new communities planned for Florida, North
Carolina and Washington, D.C. Given our record backlog, we are poised to
make 2006 another record year for M/I Homes."

President Bush's approval ratings among Californians have hit a new low, with his numbers among the lowest any president has received in the state in three decades, according to a new poll.
Only 32 percent of registered voters approve of the job Bush is doing, while 62 percent disapprove, according to the statewide Field Poll released Tuesday.

Greenspan warned of a glut of liquidity and the falling of equity prices.

The NAR forecast for 2006: existing home sales to decline 6%, new home sales to drop 10.9%, and housing starts to stumble 3.2%.

Monday, April 10, 2006

Current Status

4/11/06 Current Status

Paul Ballew, GM's top sales analyst, stated he expects industry revenue to grow at a rate of about 5% in 2006 and that April sales are "off to a decent start." He said that the vehicle selling rate so far this month is "slightly better" than it was in March.

Federal Reserve governors said on Monday it was still unclear how much further interest rates need to rise to achieve appropriate levels of balance between growth and inflation. What else is new?

Early estimates indicate hedge fundmanagers again outperformed major indices in March and through Q1 2006. TheHFN Hedge Fund Aggregate Average, an equal weighted average of all singlemanager hedge funds in the HedgeFund.net database, was +2.04% in March and+5.73% through Q1 2006.

For the first time in over a quarter century, gold closed above $600 an ounce. Nickel, meanwhile, closed at a 17-year high. I know Fed members can read.

Crude above $69 this morning.

Nouriel Roubini: "The stagflationary effects of oil at $70 - and possibly higher if the tensions with Iran rise further - in terms of lower real incomes and higher production costs would be more significant than with oil at $45 in 2004 or even $56 average as in 2005...the last thing that a shopped-out consumer with negative savings and increasing debt and debt service ratios needs now is higher oil and energy prices at the time when the housing bubble is fizzling out and the purchasing power support provided by mortgage equity withdrawals is also fizzling out...one does not need to predict a collapse of consumption to forecast a sharp U.S. growth slowdown: with consumption representing 70% of GDP, even a slowdown of consumption from a 4% growth to a moderate 2% growth would be enough to slow down U.S. economic growth from its potential and actual 3.5% growth rate to a rate closer to 2% by the end of 2006 and into 2007...a sustained oil shock would have some inflationary consequences that would force central banks in the U.S., Europe and Japan to tighten monetary policy more than they currently plan to and more than financial markets are currently pricing...from now on it will be harder for firms to squeeze further profit margins: more likely some pass-through from costs to prices would occur; finally, the pass-through from headline to core inflation would be greater if oil prices rise above $70 and stay there for a while in a persistent manner. Here we do not need to assume a sharp and unrealistic increase in headline and core inflation. It is, for example, enough for core inflation to increase from around 2% to 2.5%, a modest 50bps increase, for the Fed to be forced to tighten by an extra 50 to 100bps more than currently expected by the markets at unchanged core inflation; ditto for the ECB and the BoJ."

Comcast Corp. on Monday said it will offer its broadband, digital video and voice services through about 500 Wal-Mart Stores Inc.

Jens Nordvig, currency strategist at Goldman Sachs,
sees signs that China, South Korea, Taiwan and Singapore are intervening less in the markets to weaken their currencies, reducing the flow of funds that need to be recycled into dollar assets. Similarly the issue of central bank reserve diversification from the dollar to the euro has returned after a long hibernation.

David Hu: "The sudden surge of unchanged volume (173% of the mean) on Friday seemed like a deer caught in the headlight. Many investors were stunned by the abrupt sell-off and didn't know how to react to it. They're waiting for further confirmation to make their moves. And unless there's follow-through sell-off this week to confirm the change of market direction, investors are likely to stay in the market. The market is likely to bounce back, but it's only going to get more exhausted from all the driving around."

Earthfiles.com: "Now comes sobering new data from the National Park Service, NOAA and Caribbean scientists that the warm Gulf of Mexico and Caribbean waters of 2005 caused the biggest coral reef die-off on record. “Unprecedented,” says Mark Eakin, Ph.D. in Biological Oceanography and Coordinator for NOAA’s Coral Reef Watch based in Silver Spring, Maryland." Mark Eakin noted "it was the warmest September we have seen in the last 100 years of records."

D.R. Horton, Inc., the largest homebuilder in the United States, reported the highest quarterly net sales orders in Company history. Net sales orders for the second quarter ended March 31, 2006 increased 10% to 15,771 homes ($4.4 billion), compared to 14,401 homes ($4.1 billion) for the same quarter of fiscal year 2005. Net sales orders for the first six months of fiscal year 2006 increased 12% to 27,234 homes ($7.5 billion), compared to 24,302 homes ($6.8 billion) for the same period of fiscal year 2005.

Mitsubishi Motors North America has eliminated 25 jobs -- about 5 percent -- at company headquarters in Cypress, Calif., and one of its five regional offices.
The staffers cut from the headquarters are in sales, marketing and finance.
The North Central region, based in Chicago, has been shut down. That leaves the regions in Philadelphia, Orlando, Los Angeles and Dallas.

GM cut another 100 white collar jobs.

Robert McHugh: "We received a second confirming Hindenburg Omen Monday, April 10, 2006. This means the clock is ticking on the 73.8 percent probability that equities are about to fall over 5 percent from current levels over the next four months, on the 52 percent probability that equities will drop more than 8 percent over the enxt four months, on the 39 percent probability that equities will drop 10 to 14.9 percent over the next four months, and on the 26.1 percent probability that the stock market will crash- either fast or slow motion- over the next four months. Only one out of 11.5 times does the signal fail to generate at least a 2 percent decline from current levels. Most declines are well underway within a month of the signal. This is only the 24th confirmed Hindenburg Omen in the past 21 years."

Little Room For Error Or Complacency

4/10/06 Little Room For Error Or Complacency

John Hussman: "Rich global valuations, predominantly thin risk premiums, and uniformly rising global interest rates haven't rewarded investors historically, on average. As of last week, the Market Climate for stocks was characterized by unusually unfavorable valuations and unfavorable market action (a deterioration from the prior week, primarily on the basis of interest-sensitive securities such as bonds and utilities, as well as measures of breadth and distribution)."

Gas at the pump has risen by 17 cents over the last two weeks. The national average now stands at $2.67 a gallon, and in some locations, the $3 level has been reached. It is utterly ridiculous to buy into the Fed notion that inflation is muted-- other than in wages and salaries where it counts most on Main Street. The squeeze is on for most families, and that is precisely why Bush receives low marks on the economy. Those making $200,000 or more on Wall Street simply don't get it.

It is over 1120 days that the Dow has not experenced a decline of 10% or more, and that is about 15% longer than the longest period without such a retracement since 1896. In sum, there is little room for error or complacency. Remember-- no one rings a warning bell!

Consider crude near $68 in early April. Combine that with surging gold, silver, copper, and zinc. Mix in rising interest rates, increased levels of insider selling, rising twin tower deficits, and a cooling industry. Will consumers be able to withdraw another $600+ billion from their homes in 2006 as they did in 2005? Remember that our economy is based on the strength of consumer spending. Prudence is the watchword. No one can predict the next Katrina; however, it does not have to be a Katrina to shake investor confidence. Maybe it will come from a more subtle arena, such as, derivatives. Globally the derivatives market is estimated by the Bank for International Settlements (BIS) to be $270 trillion for OTC derivatives and another $58 trillion in exchange traded derivatives. We're talking trillions and trillions and trillions!!!!

Schlumberger trades on a 2 for 1 slit basis this morning. That equates to approximately $65 a share.

Aesop: Don't let your special character and values, the secret that you know and no one else does, the truth - don't let that get swallowed up by the great chewing complacency.

Sunday, April 09, 2006

Not Surprisingly

4/9/06 Not Surprisingly

It was only a matter of time. You see the Fed is mad eup of a bunch of economists. They frequently live in the world of data points, and thus not in real time. Not surprisingly, in the state of Washington, an increasing number of commercial construction projects are being put on hold due to the rising cost of building materials, such as, cement, steel, copper, and the like. Why? Financing has been provided based on cost estimates to complete a project, and due to inflation, the costs are now sharply above original estimates.

Mike Burk: "The week prior to the 2nd Friday in April has been stronger during the 2nd year of the Presidential cycle than the average of all years combined. The past 20 years or so have been weaker than the earlier periods."

According to the energy ministry, in India, 40 percent of natural gas is used as a feedstock fuel to make fertilizers. Another 25 percent is used for other heavy manufacturing, and the remaining 35 percent is fed into power plants that generate electricity.

Chuck Palahniuk: “Our real discoveries come from chaos, from going to the place that looks wrong and stupid and foolish.”

In 2005, India replaced the U.S. out of its second-place ranking on the list of countries most favored for foreign direct investment. China holds the first-place spot.

Steve Church: "Consumers currently maintain transactional balances equal to only about 3 weeks of expenditures(6% versus 8.33% based on a monthly amount equal to 1/12th of annual expenditures). Even before we entered the 2001 recession, consumers started at an amount equal to one month worth of balances. Historically, consumers maintained closer to 2 months worth of liquidity. The consumer liquidity question is even more perilous than it appears. Not only have U.S. households allowed their liquidity levels to drop, but our consumer cash flow model shows that they now have negative everyday cash flow on a monthly basis!...With cash flow now mostly dependent on real estate-based debt creation, this analysis is consistent with a faltering consumer ultimately creating U.S. deflation. Of course, we expect the Federal Reserve to resist that deflation."

With respect to the f2005 fourth quarter earnings reports,
of the Standard & Poor's 500 companies, 204 reported earnings that were higher than expected by 5 percent or more, while 60 companies reported earnings that were below expectations by 5 percent or more, according to Zacks Investment Research.

Mark Chen, assistant professor of finance at the Robert H. Smith School of Business at the University of Maryland: "If I were to invest," he said, "I would probably not rely on analysts' recommendations; or, if I did, I would take them with a grain of salt. Which is not to say there is no information there; it just has to be taken with caution." Starting next week, companies will be releasing their first quarter 2006 earnings. The excuses have already started. There was bad weather and Easter arrived in April and not in March as it did the year before. People forget that companies like Apple are really in consumer retail rather than manufacturing. Do they get their earnings from the Mac or the iPod? Does Apple manufacture the iPod or market it?

Gary Lammert: "Money is moving out of long terms bonds, driving long term interest rates higher. Could it be that foreigners prefer electronic cash over US long term debt instruments?"

Barnett Shale is a 5,000 square mile reservoir covering 15 North Texas counties.
Barnett Shale produces about 1.2 billion cubic feet of natural gas a day, enough to power about 10,500 homes a year. Forecasts say that will eventually reach 1.7 billion cubic feet, or 2 percent of the annual domestic production. It has gone from 25 drilling rigs in 2001 to more than 130 by the end of 2005. In production, the gas field only trails the San Juan Basin gas area, Prudhoe Bay, and Wyoming's Pinedale. Devon Energy leases or owns more than 500,000 acres and accounts for about 45% of the area's production. The company acquired this interest through their acquisition of Mitchell Energy.

James Madison: Liberty and order will never be perfectly safe, until a trespass on the constitutional provisions for either, shall be felt with the same keenness that resents an invasion of the dearest rights.