Saturday, June 03, 2006
Late Friday Standard Pacific Corp.said April and May new home orders were 41% lower than during the same period in the prior year. An increase in the home builder's cancellation rate and softening demand drove the fall, the company said. Therefore, Standard Pacific said it expects to lower its earnings and delivery guidance for the full year. The 41% drop is huge and makes me think any thoughts I had of getting my feet wet in this group is wrong.
Doug Noland: "Considering the confluence of problematic global financial flows, acute dollar vulnerability, and U.S. financial and economic fragilities, I see ample evidence to suggest an unambiguous risk of an unfolding liquidation of dollar holdings."
Iran's Supreme Leader, Ayatollah Ali Khamenei, has warned the U.S. that it may halt oil shipments if threatened, the BBC reported on Sunday. "If you make a wrong move regarding Iran, definitely the energy flow in this region will be seriously endangered," he said on state television, the report said. As I have discussed on several occasions, the Iranian bourse has been established where oil would be excanged for petroeuros and not dollars. Combining that with Venezuela and Russia, that is more of a risk than simply withholding oil.
In my view, the consideration for a Fed pause or backdating options or a host of other page one items in the media are not the hot buttons. Keep your eye on the dollar and the VIX. They are reflect real problems for investors.
Friday, June 02, 2006
Corporations' planned job reductions fell by 10% in May to 53,716, the lowest level since November 2000, according to Challenger Gray & Christmas.
Planned job cuts were down 35% from the 82,283 announced in May 2005. So far in 2006, major companies have announced 369,282 job cuts, down 14% from the first five months of 2005. The total doesn't include some 4,000 to 5,000 job reductions announced by Sun Microsystems.
On Friday the bond market took a real liking to the less than anticipated nonfarm payroll numbers. I was on the high side with a forecast of 105,000 jobs being added. The 10-year Treasury bonds closed at 4.99%, below the 5% Fed Funds rate and the 30-year yield dropped to 5.09%. Meanwhile, crude cruised to a nice gain at $72.33 a barrel.
I will have more to say tomorrow.
Thursday, June 01, 2006
In manufacturing, the BLS reported revised productivity changes in the first quarter
3.8 percent in manufacturing,
3.5 percent in durable goods manufacturing, and
3.7 percent in nondurable goods manufacturing.
Manufacturing productivity growth was slower in the first quarter of
2006 than reported on May 4, reflecting downward revisions to output per hour
in both durable goods and nondurable goods industries. Output and hours in
manufacturing, which includes about 13 percent of U.S. business-sector
employment, tend to vary more from quarter to quarter than data for the
aggregate business and nonfarm business sectors.
Schering-Plough Corp. said on Thursday that it will cut about 1,100 jobs at its
manufacturing facilities in Puerto Rico and New Jersey as it
phases out or streamlines its operations.
Yesterday morning I listened to a Meritage Homes audio conference call.
One must remember that only two weeks ago they held their annual
meeting and reinfirmed their year's earning guidance. After the annual
meeting some significant managerial changes were made and the
conference call was to discuss these changes. As an aside, the CEO
mentioned an "increase in cancellations" and "moderating sales" and
that "guidance could be adjusted in July." He also mentioned that there
were factors reducing second quarter earnings by 42 cents per share. He
mentioned increased inventory levels in Ft. Myers and other areas of
the country. He didn't know this at the time of the annual meeting?
Lsst year the company earned $9.55 per share and the stock is now $55+.
I have a problem with the CEO's credibility. Maybe this is unfair but I
have no position long or short and prefer to avoid this situation.
The American Petroleum Institute said motor gasoline supplies fell 1.1 million barrels for the week ended May 26,
contrary to the 800,000-barrel increase reported by the Energy Department. Distillate stocks fell 364,000 barrels, the API
said, though the government data showed an increase of 1.8 million. Crude inventories were up 1.7 million barrels,
the API stated.
The Institute for Supply Management's Index fell to 54.4% in May from 57.3% in
April. The consensus forecast was for the index to fall to 55.8%. The price
index, however, rose to 77.0% from 71.5%. Separately, U.S. construction outlays
fell 0.1% in April, the Commerce Department said. Economists were expecting a
DaimlerChrysler May sales down 8.4% and Ford's down 1.9%. GM sales declined 12.5%
Heinz plans 2,700 job cuts.
Volkswagen offered buyouts to 85,000 workers.I would like to close with a discussion on employment. Forget the headlines. In May, the workweek fell to 33.8 hours from 33.9 hours in April. The manufacturing workweek fell to 41.1 hours and overtime was unchanged at 4.6 hours. In sum, not only did the individual on Main Street work less hours each week but also received average hourly earnings in May that increased all of one penny to $16.62 an hour. That one penny couldn't even begin to offset the inflation found in every day life. Economists will be cheering that the nonfarm payroll rise in May was only 75,000 and that April was revised down to 126,000. The bond market cheered and the yield on the 10-year bond fell to 5.06% from 5.11%. Market mavens will now say the Fed can pause at the next meeting. All of this means crap. How will the average family make do? That's the question. You can't fill your tank with statistics. You can't pay the doctors with statistics. Would it be too much to ask for folks at a Fed meeting to place themselves in the real world? Life on Main Street is quite different than an economics class at Princeton. Folks bleed and cry on Main Street.
Yesterday saw some interesting developments. Gold had closed down $12 a
pound in May, its first monthly decline since February, and began June
with another $15 drop with the head of Gold Fields speculating the gold
metal could decline $100 a pound before resuming its climb. Silver
joined in and dropped 55 cents an ounce. The real action was in copper
where it closed down 15 cents a pound but during the session it was
limit down and trading was halted. With the metals dropping like that
you'd think the dollar would be much stronger but it could only hold a
slight gain and the same with Treasury bonds. Both sectors are truly
weak. Meanwhile, the VIX had closed on Wednesday at 16.44 and began a
slide from the opening bell. It declined down to 14.50 and closed at
14.62. With the VIX heading south, equities had another big rally day.
ContraryInvestor.com: "Historic periods of meaningful rate of change decline in the
Japanese monetary base have preceded each meaningful US recession of the last three
decades.Just eyeing them out, these large percentage drops occurred in '73/'74, '79/'80,
1990, and 2000. If indeed history has the chance of repeating itself ahead,
what should we now be expecting for the macro US economy as we look directly
at current Japanese monetary base contraction? Go ahead and take a guess."
The RealtyTrac 2006 U.S. Metropolitan Foreclosure
Market Report documented a staggering one foreclosure for every 69
Indianapolis homes. In sum, Indianapolis has the highest foreclosure rate for a
The National Association of Realtors said its index for pending home
sales fell for a third straight month in April, dropping 3.7 percent
from the March level. This index tracks sales of previously owned homes
where a contract has been signed but the deal has not yet gone to
Pulte Corp., a homebuilder, warned that second-quarter and 2006 earnings would fall short of
expectations as an increase in inventory, higher cancellation rates and
higher interest rates have led to weaker-than-anticipated buyer demand
through the first two months of the quarter, and sai it now expects earnings of 85 to 95 cents a
share for the quarter ending June and earnings of $4.70 to $5 a share
for the year. Analysts surveyed by Thomson First Call had been
expecting second-quarter earnings of $1.09 a share and 2006 earnings of $5.59 a share, on average. Net new orders for the first two months of
the quarter fell 29% from year-earlier levels to 6,447 units.
May 18 was the first time that trading in the S&P 500 pit topped 1 million contracts. If the daily gyrations
in the VIX should continue, I see even larger amounts of S&P contracts trading.
Venezuela has backed a proposal to sell oil in euros instead of U.S. dollars, Energy
and Mines Minister Rafael Ramirez said on Thursday. Ramirez said "Iran has an
initiative that we support. They are going to start to do oil transactions in euros."
Wednesday, May 31, 2006
The National Association of Purchasing Management-Chicago business barometer rose to 61.5 from 57.2 in April. Economists had forecast the index at 56.0.
The employment component rose to 52.8 from 47.2 in April and new orders rose to 69.6 from 60.8. There was a slight decline in the prices paid index to 76.9 from 77.2.
William Gray and the Colorado State University forecasting team said the six-month season beginning on Thursday will see 17 tropical storms, of which nine will become hurricanes and five will be "major" hurricanes with sustained winds over 110 miles per hour (177 km per hour). On April 4, Gray's team issued the same forecast.
Adjusting for items and its Veritas Software acquisition, Symantec anticipates a profit of between $1 and $1.10 a share for the year, Beer told a gathering of financial analysts broadcast via the Internet. He put the company's adjusted revenue at $5.2 billion to $5.4 billion for the year. The current average estimate of analysts is for a profit of $1.10 a share on revenue of $5.4 billion, according to Thomson First Call.
The VIX had another wide swing on Wednesday. It had a gap opening on the downside of .57 to 18.09 and proceeded to decline to 16.58 before closing slightly above that number. Not surprisingly, equities rallied to finish a very disappointing month for the bulls. Crude dipped to 71.29 and natural gas rallied to 6.38. However, bonds had a dip and the 10-year yield rose to 5.11% and the 30-year to 5.21%. The 2-year climbed to 5%.
Odds of a June rate hike rose to 72% from 56% earlier. The odds of a further rate hike by the end of the year rose slightly, but remained below 20%.
Delphi Corp.'s U.S. operating losses in April ballooned to $181 million, nearly double the operating losses of $93 million in March. Delphi suffered a 25 percent drop in month-to-month sales to its largest customer, General Motors, in April -- from $1 billion in March to $761 million in April, according to a monthly operating report that Delphi filed Wednesday for April.
S&P 500 Index put in its worst May showing in 22 years. The Nasdaq Composite Index also put in its worst May performance in six years.
Sun Microsystems Inc.said it will fire 4,000 to 5,000 workers in the next six months as part of a plan to end almost five years of losses.
Henry To: "There is no doubt that the U.S. housing bubble is in the midst of popping - but unlike the technology bubble in spring of 2000, this process will more resemble a slow leak from a car-tire than a sudden crash in housing prices."
Even though May was a lousy market for equities, it might be wise to focus on the fact that the S&P 500 Index has gone over 800 trading days without a 10% correction. Each day the chances are greater for such a correction to occur -- especially with interest rates trending up, crude holding at a high level, and the VIX having broken out to the upside. It is certainly wise to be extra cautious.
Marc Faber: "For the next long period, which could last 20 or 30 years, money will be harder to come by; real rates will be headed higher, which will mean the bubble days may be over. The codgers may get another chance to say, “I told you so.”
For the third quarter, Hovnanian, a home builder, sees per-share income of $1.40 to $1.50, with analysts looking for $1.75. For the full year, Hovnanian expects per-share income of $7.20 to $7.40, while analysts are looking for $7. This is a further indication of a housing industry slowing but not collapsing. In my view, the street has taken this group down too far. There are values in the sector. Look at Hovnanian. The shares sell for $31+ and are down from $73+.
Jon Markman: "I think there is real potential for a 10% to 25% decline over the next six months -- with the harsher end of the spectrum the more likely. As much as I wish that weren't the case, it seems unavoidable. What's worse, a lot of the stocks that smaller investors are the most heavily invested in -- the small-caps and mid-caps -- could get hurt even worse. "
Brazil’s central bank lowered its benchmark lending rate on Wednesday to 15.25 percent from 15.75 percent, the eighth straight cut to help bolster the economy as inflation eases.
The Monster index rose to a record 167 in May from 163 in April. Online postings are up 25% in the past year, far outplacing the 1.5% growth in nonfarm payrolls.
Wal-Mart forecasts June comp sales up 1 to 3 percent. Given the price of gas at the pump, this range is to be suspected. On the other hand, international comp sales should continue at a strong pace.
There is increasing data to suggest that zinc is truly in short supply. Meanwhile, Teck Cominco is the largest producer of zinc in the world. This is the same company attempting to acquire Inco, the large nickel
Productivity in the U.S. nonfarm business sector rose at an annual rate of 3.7% in the first quarter, stronger than the 3.2% gain reported earlier, the Labor Department said Thursday. Unit labor costs - a key gauge of inflationary pressures stemming from wages - were revised lower to a 1.6% annualized gain from 2.5% reported earlier. Revisions in government numbers never ceases to amaze me. Can you imagine public companies consistently revising their quarterly numbers every couple of months?
Albemarle Corporation will increase the prices of its North AmericanETHANOX(R) lubricant and fuel antioxidants by approximately 30 percenteffective June 15, 2006. Prices of dilutions and blends will be increasedto reflect higher base oil and solvent acquisition costs as needed."Drivers for this price increase include the need to recoverisobutylene, base oil and energy costs," said John McChesney, GlobalBusiness Manager, Antioxidants. "The price increase also supports ourglobal growth, our introduction of new products to meet future engine oilrequirements and regulatory efforts to support existing products."
U.S. consumer confidence slipped in May after hitting almost a four-year high in April, the Conference Board said Tuesday. The consumer confidence index fell to 103.2 in May from a revised 109.8 in April. The decline was not as large as forecast. The expectations index fell to 83.7 from 92.3, its lowest level since October.
There have been $262.9 billion in takeovers announced in the energy industry so far this year, up from $159.5 billion in the same period last year, according to data compiled by Bloomberg. Referring to the management-led buyout of Kinder Morgan,
``If they thought that we were at the peak, I think they'd be selling out to somebody not in the business,'' Matthew Simmons, chairman of investment bank Simmons & Co. International, based in Houston, said in a phone interview from Rockport, Maine. Early Tuesday morning the VIX opened on a gap upward and never looked back. In short order, this index had climbed almost 4 1/2 points and closed at 18.66. Combining that with a weak dollar, crude at $72, and you knew equities were in for a rough day. The news of the day though had to be the big move in the VIX. We should not forget that the VIX closed at the low for the day on Friday at 14.26 and yesterday it closed only 6 cents from the day's high. This is a remarkable turn of events and should not be forgotten. For my money, it was the key trading day of the year and possibly many years.
Organic food only makes up 2.5 percent of U.S. food sales, but it's the fastest growing segment of the market. Sales reached nearly $14 billion last year, up from $6 billion five years earlier, according to the Organic Trade Association in Greenfield, Mass.
Yesterday Wal-Mart shares got punished because their same-store sales for May only rose a bit over 2%. It might be wise to remember that the company operates 2,285 international stores, and this segment represents 20% of their business. In addition, Wal-Mart International plans to open 220 new, relocated or expanded stores in their fiscal year ending 1/31/07. In the latest fiscal year international sales increased 11.4% over the prior year.
Goldman raised its gold price estimate to $635 from $600 in 2006 and to $700 from $650 in 2007.
Yesterday all 30 stocks in the Dow declined.
Blogger had trouble posting today --- thus the late post.
Tuesday, May 30, 2006
A management-led consortium bidding for Kinder Morgan is offering to pay $100 a share for the company, or an 18.5 per cent premium over the company's closing share price of $84.41 on Friday. The group consists of Kinder executives Richard Kinder, Mike and Bill Morgan and Fayez Sarofim, and also includes the buy-out units of Goldman Sachs, American International Group, and US private equity firms Carlyle Group and Riverstone Holdings. The buyers would also take on about $8bn of the company's debt, bringing the total value of the proposed deal near to $22bn - or close to the $30bn Kohlberg Kravis Roberts paid for RJR Nabisco in the largest private equity deal in the late 1980s. Kinder Morgan is one of the largest US midstream energy companies, operating natural gas and oil pipelines and terminals across North America. The company expanded into Canada last year with the acquisition of Terasen for $3.1bn. Kinder Morgan also owns the general partnership in Kinder Morgan Energy Partners.
M3 money supply growth in the eurozone accelerated to 8.8 per cent year-on-year in April, from 8.6 per cent in March. This took the three-month moving average up from 8.1 to 8.4 per cent, well above the European Central Bank’s reference rate of 4.5 per cent. Furthermore private sector lending growth rose to 11.3 per cent, its highest level for 16 years. There should be no question that the ECB will raise rates by 25 basis points next month. That will add to the pressure on the Fed to do the same.
Investor pressure on managment has caused Engelhard to accept BASF's sweetened $39 a share bid for the company. Given the current outlook for the company, shareholders should be pleased.
Monday, May 29, 2006
Heart diseases account for approximately50 per cent of all mortalities in the industrialised world. With one of themajor risk factors for heart disease being elevated cholesterol levels,particularly low-density lipoproteins (LDLs), there is an increasing demandfor foods and beverages containing phytosterols or nutraceuticals thatlower cholesterol levels.
Hurricane season begins Thursday, and federal officials report that 22 percent of crude oil production and 13 percent of natural gas production in the Gulf is still derailed.
Broadband adoption grew 59 percent during the 12 months ending in March among households with incomes between $30,000 and $50,000, according to a survey being released today by the Pew Internet and American Life Project.
It grew 40 percent in households making less than $30,000 a year. Among blacks, it increased 121 percent, according to the study.
Middle- and lower-income households still lag higher-income households. Among the $30,000-$50,000 households, 43 percent have broadband, compared with 68 percent of households over $75,000.
Overall, 42 percent of adult Americans, or 84 million people, have broadband, compared with 30 percent a year ago.
Worldwide, 8,661 hedge funds managed $1.1 trillion at the end of 2005, according to Chicago-based Hedge Fund Research Inc.
According to DigiTimes.com, Intel's August launch of its 64-bit dual-core Merom processors will include the high-end T7600 series and mainstream T7200 and T7400, according to sources. Of the Merom lineup, the T7600 will feature a 2.33GHz core speed and will be priced at over US$600. The 2GHz T7200 and 2.16GHz T7400 will be priced at US$294 and US$423, respectively, close to the 2GHz T2500 and 2.16GHz T2600 (codenamed Yonah).
In addition, Intel plans to introduce the Celeron M 440 and M 450, with respective core speeds of 1.86GHz and 2GHz, later this year, the sources indicated. The chip giant will also reduce prices for the existing Celeron M 420 and M 430 to as low as US$86, with the price-cut strategy improving the company's competitiveness in the entry-level segment, according to the sources.
Intel's new chip design will be delivered in the second half of 2006. It is conceivable that performance will be enhanced by 40% while power consumption is reduced by a like amount. Intel's shares are presently out of favor and trade only a fraction of a point from a 52-week low. That presents an opportunity to jump on board its successful nanotech transformation. The market cap is just above $100 billion, a small price to pay for the leader in productivity advancement in the U.S.
Bergen Evans: "Freedom of speech and freedom of action are meaningless without freedom to think. And there is no freedom of thought without doubt."