Saturday, November 04, 2006

Opinions Galore

11/5/06 Opinions Galore

Nouriel Roubini: "Since last July I have been predicting that the US will enter into a recession in 2007. By now it is clear that several sectors of the economy are already in a recession, that Q4 growth will be lower than Q3 growth and that a formal recession (two or more consecutive quarters of negative growth) will very likely start by Q1 or at the latest Q2 of 2007."

Bill Bonner: "It now takes about 20 ounces of gold to buy the Dow. In 1980, it only took one ounce. And now the total value of U.S. financial assets is 33 times the value of the entire world’s gold above ground. In 1980, U.S. financial assets were only a bit more than three times the value of the world’s gold."

Americans are expected to spend about $38.4 billion this year on their pets, up 35 percent from 2001, according to the American Pet Products Manufacturers Association.

Bill Bonner: "We are still not sure that the great bull market in U.S. residential real estate has come to an end. What we are sure of, on the other hand, is that it isn’t at the beginning. The great housing bubble may be dead, but it already has a certain corpse-like stink to it. The relatives are gathered in the parlor. The silver has already been packed up. The local priest is already on the scene, administering last rites. True, we still don’t know exactly how the story will turn out. But it is time to begin preparing the obituary."

There are 20 stocks in the Dow Jones Transportation Index. All 20 closed lower this past week. Yet, that's only part of the story. Please notice the closing Tick for each day last week. The Tick is the closing sale, for example, on the NYSE and represents the net difference between the last sale on all companies traded on the exchange- subtracting the minus ticks from the plus ticks, and they were plus 600 on several days last week. There remains plenty of optimism around.

India’s Sensex equities index gained 1.7% to a new record high, increasing 2006 gains to 39.7%. China’s Shanghai Composite index surged 3.3%, increasing y-t-d gains to 60.7%.

Bloomberg reported “The United Arab Emirates, the second largest Arab economy, may reduce its holdings of dollars by almost half in an effort to reduce its dependence on the weakening U.S. currency, the country’s central bank governor said.” The UAE has been adding to its gold holdings.

Doug Noland points out that, in the third quarter of 2006, 89% of Freddie Mac-owned loans that were refinanced resulted in new mortgages with loan amounts that were at least 5% higher than the original loan balances, Freddie Mac said… That’s up from 88% in the second quarter, and is the highest share since the second quarter of 1990.

Doug Noland: "Following by a few days Otmar Issing’s warning about global liquidity excess, come pointed comments from the Bank of China: ‘Global economic imbalances are a concern for every country in the world because it leads to worldwide excessive liquidity, low long-term interest rates as well as price hikes in resources and other assets… Adjustments to world economic imbalances (particularly disorderly adjustments) may increase the fluctuation in the world’s major currencies, which will cause a slowdown in US economic growth and price adjustment of US assets, and this in turn may impact China’s export and economic growth.’"

With polls showing evangelical voters deserting the GOP and indicating a sizable defeat for the Republican
Party in the November 7 elections, Richard Viguerie, Chairman of, stated that the GOP has alienated its base.
"It appears that very few Republican seats in Congress are safe. That's
what happens when the Party abandons conservative principles," Viguerie
He said that the Bush Administration and GOP members in Congress have
instituted a massive expansion of government, including a pork barrel
spending spree, that far exceeds anything the Democrats ever did. Viguerie
added that President Bush's embrace of amnesty for illegal aliens, nation
building abroad, and mere lip service on social issues have disturbed much
of the Republican Party's base.
"How could these guys think they could trash conservative principles
and still maintain the allegiance of the grassroots,"
Viguerie asked.

Cheney's Speech in Colorado on Saturday. Notice the fear
tactics: "If the Democrats take control of the House, Charlie
Rangel will be chairman of the Ways and Means Committee. He would be in a
position to block any legislation coming out of the committee. And if
there's no tax legislation renewing the cuts, every tax rate will go back
up to its old level, the marriage penalty will return, and the death tax
will come back to life. The child credit, also, will drop back down from
$1,000 per child to $500 per child. In other words, take the number of
dependent children you receive the tax credit for; multiply it by $500 --
and that's the additional amount you'll be sending to Washington if we get
a Congress that lets the Bush tax cuts expire." The Dems
have no intention to bring back the marriage penalty, for

Friday, November 03, 2006

The Real Skinny

11/4/06 The Real Skinny

While all the news focused on the nonfarm payrolls and the revisions for August and September, the real story was unfolding. ExxonMobil and Chevron traded at 52-week highs. That's right, and that's despite crude having declined $10 a barrel, gasoline prices having dropped by about 65 cents a gallon, and the U.S. Oil Fund cascading down $20 a share from its $72 peak and being only 1 1/2 points from a 52-week low made earlier in the week. Your homework for the weekend is to explain this dichotomy. I realize you may watch the Breeders' Cup races today, and that leaves Sunday for the homework. You'll be doing yourself a favor by figuring out the answer.

As for the nonfarm payrolls, I stopped projecting the monthly figures about one year ago. It was quite obvious they had become nothing more than a government plaything. Each month was revised a couple of times and that made the original announcement completely meaningless -- except to traders who decided to transform themselves into the wazoo bird, which goes in ever decreasing circles until he goes up his own ---hole.

January platinum closed at $1,209.40 an ounce Friday, up $45.20 for the session, and up 12% for the week. December gold rose $1.40 to close at $629.20 an ounce, up 4.7% for the week. December silver closed at $12.635 an ounce, down 1.5 cents for the day, but up 4.6% for the week.

The U.S. Embassy in Nigeria has warned that within days, a militant group may atack up to 20 oil facilities, Dow Jones said.

Average hourly earnings in October increased 6 cents, or 0.4% to $16.91. Earnings are up 3.9% in the past year. The average workweek rose by six minutes to 33.9 hours.

The ISM nonmanufacturing index rose to 57.1% from 52.9% in September. New orders slipped to 56.5% from 57.2%. The employment index inched lower to 51.0% from 53.6%. The price index slipped to 51.9% from 56.7% in the previous month.

Caterpillar estimated 2006 earnings at $5.05-$5.30 a share and 2007 earnings at $5.18-$5.70 a share. The First Call estimates are for $5.21 a share and $5.63 a share for 2006 and 2007, respectively.

Gottschalks Inc. said a board panel will review strategic alternatives for the the Fresno, Calif., retailer, including, among others, a share buyback, a joint venture, or a sale of the company. Gottschalk's operates 61 department stores and five specialty apparel stores in California, Washington, Alaska, Oregon, Idaho and Nevada.

Whole Foods forecast that same-store sales will grow 6 to 8 percent in fiscal 2007, which began in late September. The company blamed the slower growth ahead on competitive pressures, saying it had reached an inevitable period of slowdown after recent robust growth. The stock declined 14+ points to a new 52-week low. My best idea today is to sell the January 2007 puts with a strike price of $37.50 for 45 cents.
I have been waiting for over two years for the stock to have a break like it had on Friday.

The yield on the benchmark 10-year note rose about 12 basis points, or 0.12 percentage point, to 4.72 percent It's the biggest jump in yield since July 1, 2005.

China's central bank ordered lenders to set aside more money as reserves for the third time this year to curtail a credit-fueled investment boom that spurred economic growth by 10.4 percent in the third quarter. Banks must set aside 9 percent of deposits as reserves starting Nov. 15, up from 8.5 percent.

Chinese stocks rose to a five-year high on Friday. In currency trading, the yuan hit a fresh high against the U.S. dollar, trading at 7.8708.

The market for offshore rigs is "going to be particularly strong past ... 2011," Transocean Inc. chief executive Bob Long said.

December crude closed at $59.14 a barrel, up $1.26 for the session but finished the week with a loss of 2.7%. December natural gas gained 7 cents to close at $7.884 per million British thermal units Friday, up 0.7% for the week.

Mark Twain: "Whenever you find that you are on the side of the majority, it is time to reform."

Thursday, November 02, 2006


11/3/06 Getting Dicey

Labor costs in the third quarter increased 3.8%; productivity was flat, and that contrast will keep inflation watchers up late at night. Over the past year, productivity increased 1.3%, the slowest growth since 1997. Unit labor costs are up 5.3% in the past year, the fastest increase in 16 years. Real hourly compensation rose 0.7% in the third quarter, and is up 3.2% in the past year.

Wal-Mart expects their November same-store sales to be flat, and that is a big surprise considering Target is projecting a 4 to 7 percent gain in the same period.

European Central Bank President Jean-Claude Trichet hinted at a December rate hike.

Tribune told prospective suitors it is ready to weigh offers to sell off parts of itself after receiving lower-than-expected bids for the whole firm.

The Financial Times reported between 2000 and 2005, the US economy grew by 12 per cent in real terms. Millions of middle-class Americans, however, are seeing their pay stagnate. We have been discussing this very point for the past several years. It was only a matter of time until productivity took it on the chin, and moving forward, margins will come under pressure.

Taking out transportation orders, factory orders fell by 2.4% in September. Nondurable goods orders, however, rose by 4.6% in September.

The Energy Department said natural-gas inventories fell 9 billion cubic feet for the week ended Oct. 27, marking the first decline of the heating season.

Dave Anderson: "We believe that it requires long-term natural gas prices in excess of $7.00 per mcf in order to generate meaningful returns on most drilling programs in the U.S. This is based on finding and development costs, operating costs, etc., that we won't get into right now. That is later. For now, just be wary of anyone who relies on storage numbers to predict the future."

Doug Wakefield: "In January of 1959, the first date in this data series, the money supply stood at $292 billion. By February of 2006, it had grown 3,419 percent to $10,276 billion. Since 2000 the money supply has grown 55 percent and it has grown by $764 billion in the last twelve months."

Richard Daughty: "The banks are so massively over-leveraged that they have a measly $40 billion lousy bucks as reserves against $5.5 trillion in savings...And with a gigantic $6 trillion dollars in the loans and leases portfolio of the banks, these "assets" only have to decline by a trifling a 1% in price to wipe out their entire reserves! Hahaha! This is the level of absolute, ruinous insanity that reigns in the banks!"

Nouriel Roubini: "The probability of a recession next year is now as high as I expected it to be before - i.e. at least 70% and possibly higher - and Q4 growth is now strongly likely to be sharply lower than Q3. The soft-landing scenario and optimism is now melting by the day being squashed by a mounting range of evidence and indicators all signaling further economic weakness. The hard landing scenario with a 2007 recession is now becoming more and more likely and, increasingly, being accepted by a larger number of analysts and commentators on Wall Street. So, as predicted by me as early as last July, we are on our way to a sharp and ugly recession in 2007. The burden of proving the growing unlikely soft landing scenario is now in the camp of the perma bulls."

Mutual funds invested primarily in U.S. stocks posted net outflows of $2.58 billion for the week ended Nov. 1, swinging to negative flows after they gathered $599 million the previous week, according to TrimTabs Investment Research.

December natural gas rose 10.2 cents to end at $7.814 per million British thermal units. December crude fell 83 cents to close at $57.88 a barrel.

December gold climbed $8.50 to close at $627.80. December silver added 17.5 cents to end at $12.65 an ounce. December copper closed at $3.2915 a pound, up 5.05 cents after losing 3% on Wednesday.

Corn prices soared to a 10-year high in Chicago. This follows wheat rising to record levels. Food prices are on the rise. Make no mistake about it.

In 1994, fewer than 5 percent of mortgage originations were in the subprime market. But by 2005, about 20 percent of new mortgage loans were subprime, Bernanke said.

The Monster index was unchanged at 172 in October. The index peaked at 173 in August. It was at 143 a year ago.

"Our view over the next 12 months is you could see a downside for gold of $20-$35, but on the upside you could very well see $700 gold in 12 months," Newmont Mining Corp. President Pierre Lassonde said.

Oliver Wendell Holmes: "The mind, once expanded to the dimensions of larger ideas, never returns to its original size."

Several Thoughts

11/2/06 Several Thoughts

Mike Shedlock: "I notice that almost no one is talking about the yield curve, the one set of numbers that someone can and should believe. The yield curve is what it is, and it is quite inverted, signaling a recession. Forget Goldilocks. The next recession will be an extremely hard affair, led by a falloff in consumer spending, rising unemployment, and a continued slowdown in housing."

John Hussman: "Investors are eager to overlook the fact that stocks have lagged risk-free Treasury bill returns over the past 8 years, and are instead focused on the gains achieved during the current bull market. Yet even over the most recent 2.8 years since early 2004, the major indices have outperformed Treasury bills by only about 5% annually. Now, 5% annually, retained over the full market cycle, is a respectable margin over risk-free rates. But here the 5% margin has applied to a bull-market-only portion of this cycle, where bull-market-only gains have historically outpaced T-bill yields by upward of 20% annualized, on average. Worse, with stocks strenuously overbought and trading at rich multiples on record profit margins, there's a very slim potential for investors to retain that 5% margin they've earned above T-bill yields during the past few years."

The Institute for Supply Management said its ISM index fell to 51.2% in October from 52.9% in September. This is the lowest level since June 2003. The consensus forecast was for the index to rise to 53.2%. The employment index rose to 50.8% from 49.4%. The price index fell sharply to 47.0% from 61.0%.

Outlays on U.S. construction projects fell 0.3% in September, led by drops in spending on private residential construction and federal building projects, the government said Wednesday. Private residential construction spending fell 1.1% in September after declining by 1.6% in August, according to the Commerce Department. Spending on federal construction projects dropped by 1.5% in September. Total construction spending was revised to neither rise nor fall in August.

The pending home sales index fell 1.1% in September after a 4.7% increase in August. The index is down 13.6% in the past year, in line with declines in sales. "The present level of home sales is relatively high in historic terms, and we can expect generally minor movements around this level," said David Lereah, chief economist for the realtors' group. "We don't expect to see any changes of note until early next year when we're likely to see a modest lift to home sales."

The Energy Department said crude supplies rose 2 million barrels to 334.3 million for the week ended Oct. 27. Motor gasoline supplies fell 2.8 million barrels to 204.6 million. Distillate inventories stocks fell for a fourth-straight week, down 2.7 million barrels to total 141.3 million barrels.

Nouriel Roubini: "The reality is that the corporate emperor has no clothes or it is at least half naked: earnings growth is rapidly slowing down and it will fall further in Q4 and 2007 as the economy spins into a hard and ugly recession. And, as I have analyzed before, in an a typical recession the S&P500 falls by an average of 28%. So, the end of the sucker rally is getting closer. The recent bombardment of bad macro news on Q4 in the last two weeks has definitely broken the momentum of US equities in the last week; the myth of a Q4 growth rebound - after a dismal Q3 -is now rapidly fizzling away. Wait for a few more indicators and the sucker rally will melt faster than you can watch it."

Panda Ethanol Inc. announced thatit intends to build a 100 million gallon-per-year ethanol plant near thecity of Muleshoe in Bailey County, Texas. When finished, the facility willannually refine approximately 38 million bushels of corn into aclean-burning, renewable fuel for the nation's transportation needs. Theethanol produced by the plant will displace approximately 2.6 millionbarrels of imported oil a year.The Muleshoe facility will generate the steam used in the ethanolmanufacturing process by gasifying more than 1 billion pounds of cattlemanure a year. Once complete, it will be one of the most fuel efficientethanol refineries in the nation and equal in size to Panda's Herefordfacility, currently under construction, which will be the largestbiomass-fueled ethanol plant in the United
States.The Muleshoe facility is the sixth 100 million gallon ethanol projectannounced by Panda, and the fourth to be powered by cattle manure. Thecompany has received air permits for three of its six announced ethanolprojects.
CVS Corp. on Wednesday agreed to acquire pharmacy benefits manager Caremark Rx Inc. for $20.8 billion to expand its prescription benefits and mail-order business.CVS will exchange 1.67 of its shares for each Caremark share. The 10-year Treasury note rose 10/32 to 102-14/32 with a yield of 4.563%, its weakest closing level in five weeks and down from 4.608% at Tuesday's close. December natural gas climbed 17.8 cents to close at $7.712 per million BTUs.December unleaded gasoline climbed 3.57 cents, or 2.5%, to end at
$1.463 a gallon. December crude finished little changed, down 2 cents at $58.71 a barrel.
December gold climbed $12.50 to close at $619.30 an ounce in New York. December silver added 20.5 cents, or 1.7%, to end at $12.475 an ounce, but December copper lost 10.45 cents, or 3.1%, to finish the day at $3.241 a pound.

Monday, October 30, 2006

Orderly Adjustment

10/31/06 Orderly Adjustment

Pilgrim's Pride said it will reduce weekly chicken processing by 5%
year over year, or approximately 1.3 million head per week, by January 2007
as part of its continuing effort to better balance supply and demand amid
declining chicken prices and sharply higher costs for corn.
The reduction will begin with eggs set as of October 30, 2006, and will
take effect with weekly processing beginning January 1, 2007. The Company
said it intends that the reduction will remain in effect until average
industry margins return to more normalized levels.
"The U.S. chicken industry is subject to volatility and there are a
number of factors impacting near-term market conditions. Although industry
dynamics improved in the spring and early summer of 2006, market conditions
have weakened over the past few months, as evidenced by a decrease in
prices for boneless breast meat and leg quarters, as well as a sharp
increase over the past two months in the price of corn," said O.B. Goolsby
Jr., Pilgrim's Pride president and chief executive officer.
What implications might this have for the company's efforts to acquire Gold Kist?

Over one hundred of our fighting men and women have been killed in Iraq this month.
Bush says "we are winning the war." The voters will have their say on November 7.

The year-on-year rate of non food and energy inflation registered a strong 2.4 percent increase in September. What would the real inflation rate be with food and energy? Clearly the rate would exceed your monthly income gains. Maybe that's why Lacker of the Richmond Fed finds inflation "discomforting."

Goodyear Tire & Rubber Co. said on Monday that it plans to close a plant in Tyler, Texas, three weeks after workers at the factory and 15 other facilities went on strike in part because of the tire maker's plan to shut down the plant. The move will eliminate about 1,100 jobs and is part of Goodyear's strategy to end some of its private label tire business.

Real disposable incomes - after taxes and after adjusting for inflation - rose 0.8%, the most since last September. Consumer spending increased 0.1% in nominal terms, but rose 0.4% when adjusted for falling prices.

Rep. Ron Paul: “Once we accept that the federal government needs $2.7 trillion from us - and more each year - the only question left is from whom it will be collected.”

Gazprom delayed the start of production at its giant Shtokman offshore natural gas field in the Arctic by two years, to 2013, Interfax said Sunday.

The company had planned to produce its first liquefied natural gas, or LNG, at the field in July 2011, deputy CEO Alexander Ananenkov said in Ufa on Sunday, Interfax reported.

Richard Daughty relates "last night, Japanese Finance Minister Omi said that Japan would ‘welcome Russia’s decision to raise yen exposure in their currency reserves’”...Australia’s “Treasurer Peter Costello has called on East Asia’s central bankers to ‘telegraph’ their intentions to diversify out of American investments and ensure an orderly adjustment.”

Nouriel Roubini: "The first estimate of US Q3 GDP growth came out at a dismal 1.6% but, as reported by Bloomberg, the actual correct figure would have been 0.9% if the production of motor vehicles in Q3 had been measured correctly."

December gold climbed $6.40, or 1.1%, to close at $607.40 an ounce, the contract's loftiest closing level since Sept. 28. Meanwhile, crude closed down 4% at $58.36. December natural gas closed at a more than two-week low of $7.416 per million British thermal units, down 41.1 cents, or 5.3%.

An survey of homeowners conducted for Wells Fargo & Co., the San Francisco-based bank, found that about one in seven respondents had an adjustable-rate mortgage, or ARM. The study found that nearly 80 percent of homeowners with ARMs said they were "somewhat" concerned, "very" concerned or "extremely" concerned about rate increases.

Paul McCulley: "The FOMC's revealed bias is to nurture an increase in the unemployment rate with sustained below-trend growth, so as to pull inflation back down towards target."

Ford plans to cut North American output by up to 12% in the first half of 2007.