Saturday, November 11, 2006

Veteran's Day

11/11/06 Veteran's Day

Mark Twain: "In the beginning of a change, the patriot is a scarce man, and brave, and hated and scorned. When his cause succeeds, the timid join him, for then it costs nothing to be a patriot."

India's industrial production rose 11.4 percent in September, boosting growth for the first half of the fiscal year to 10.9 percent, the government said Friday in a report that indicated momentum is building in the economy.

China's Commerce Ministry said exports this year are expected to total $960 billion this year, with imports rising to $810 billion, the official Xinhua News Agency said. It is easy to see how the size of this trade surplus can lead to A $1 trillion foreign exchange surplus.

I urge all of you to read the article in The Journal Record on Helmerich and Payne

Richard Benson: "Back in 2000, when homes were worth $11.4 trillion, there were only $4.8 trillion in mortgages against them. In the second quarter of 2006, that mortgage debt increased to a whopping $9.3 trillion. Increases in consumer borrowing pushes up economic spending and corporate profits and is far more powerful than wage or salary increases. To put it simply, when a dollar is borrowed, the full amount can be spent; when a dollar is earned, taxes need to be paid so depending on your tax rate, you’re left with about $.60 - $.80 cents. Surprisingly, even with the increases in housing prices over the last few years, the percentage of equity in homes has actually fallen from 58 percent in 2000, to 54 percent today."

The new standard deduction for married couples filing a joint income tax return will rise $400 to $10,700 next year after inflation adjustments that the Internal Revenue Service announced Thursday.The IRS said the deduction for singles and married individuals filing separately will go up $200 to $5,350 and for heads of household up $300 to $7,850. The changes will affect 2007 returns, filed by most taxpayers in 2008. Among other inflation adjustments, the value of each personal and dependency exemption, available to most taxpayers, will increase $100 from the 2006 level of $3,300.

Bill Gates warned against the rush to new Web-based software services, likening the frenzy to the days of the 1990s Internet bubble. Asked to name the next YouTube, the free video exchange Web site that is being acquired by Google for $1.65 billion, Gates said that he was cautious. "There are a hundred YouTube sites out there," Gates said during an interview with a group of journalists in Brussels before a speech to European lawmakers. "You never know. It's very complicated in terms of what are the business models for these sites."

Strengthening expectations of more eurozone interest rate increases helped send yields on 10-year eurozone government bonds briefly below yields on two-year paper on Thursday for the first time in more than six years.

From“If no action is taken to reduce emissions, the concentration of greenhouse gases in the atmosphere could reach double its pre-industrial level as early as 2035."
- Sir Nicholas Stern, British Economist, November 10, 2006,
Report to British Prime Minister and Chancellor of Exchequer

According to the WSJ, Some Democrats are signaling a willingness to conduct tough oversight of Bush policies and to reopen lingering controversies -- particularly over pre-Iraq intelligence -- the Republican-led Congress largely ignored.

Surging demand and lower OPEC production may start to deflate world fuel stockpiles that have been filling at the fastest rate in 15 years, the International Energy Agency said on Friday.

Sudden revaluation of the Chinese yuan or renminbi could lead to massive bankruptcies and layoffs in the manufacturing sector, Chinese central banker Zhou Xiaochuan said Friday.

December crude closed at $59.59 a barrel, down $1.57, or 2.6%, for Friday's session, but up 45 cents, or 0.8%, for the week. December natural gas lost 16.1 cents, or 2%, to close at $7.794 per million British thermal units Friday. The contract was down 9 cents for the week.

December gold closed at $630.10 an ounce Friday, down $6.70, or 1.1%, for the session, but up 90 cents, or 0.1%, for the week. December silver added 6.5 cents to close at $13.115 an ounce, and gained 3.8% for the week. December copper dropped 22.05 cents, or 6.7%, to end at $3.0885 a pound for the day, down 7% from last Friday's close.

The National Association of Realtors said Friday in their 2007 outlook that existing-home sales will probably fall 0.6% to 6.43 million next year after sinking 8.6% this year, said David Lereah, chief economist for the industry group. New-home sales will probably fall 8.7% next year to 975,000 after plunging about 17% this year. Housing starts will probably fall about 12% next year to 1.63 million next year after falling 11% this year, he said.

John Stuart Mill: ""War is an ugly thing, but not the ugliest of things. The decayed and degraded state of moral and patriotic feeling, which thinks that nothing is worth war, is much worse. The person who has nothing for which he is willing to fight, nothing which is more important than his own personal safety, is a miserable creature and has no chance of being free unless made and kept so by the exertions of better men than himself."

Thursday, November 09, 2006

Further Developments

11/10/06 Further Developments

Dana Corp. will close eight plants in North America -- in addition to eight plants it already plans to close. It plans to modify or reject certain labor contracts in bankruptcy court. It plans to “eliminate any company obligation to provide post-retirement health care benefits for all current and future Dana retirees.

The Energy Department said natural-gas inventories fell 7 billion cubic feet for the week ended Nov. 3, marking the second-weekly decline of the heating season.

December crude climbed $1.33, or 2.2%, to close at a two-week high of $61.16 a barrel Thursday. "Surplus stocks narrowed for the third-straight week to stand 12.5 [million barrels] above year-ago levels, which means the supply cushion is slowly eroding," said Michael Fitzpatrick, an analyst at Fimat USA December natural gas climbed 13.2 cents, or 1.7%, to end at $7.955 per million British thermal units, its highest price since late October.

U.S. Nov. UMich consumer sentiment 92.3 vs. 93.6 in Oct.

Inventories at U.S. wholesalers rose to their highest level in relation to sales in more than a year in September, the Commerce Department reported Wednesday. Sales at wholesalers fell 1.2% in September, the first decline since last December and biggest drop in three years, while inventories increased 0.8%. The inventory-to-sales ratio rose to 1.18 in September, the highest since August 2005.

The Labor Department reported a 2% decline in import prices for October, the largest decline in three years. Import prices excluding petroleum fell 0.6% in October. Import prices excluding all fuels fell 0.1% in October, the first monthly decline since November 2005.

The Commerce Department reported the lowest trade gap since April for the month of September. The deficit narrowed by 6.8% in September to $64.3 billion-- the decline due mostly to lower oil prices. The trade gap is still astounding from a size standpoint.

Margaret Mead: "Having two bathrooms ruined the capacity to cooperate."

Delta Air Lines Inc. on Thursday said it plans to recall an additional 1,000 flight attendants in 2007.

Poe Fratt, a drilling-services analyst with A.G. Edwards & Sons in St. Louis:
"A drilling rig can have a life of 20 to 25 years, But right now it costs $12 million to refurbish a new rig and $15 million or more to build a new one, and the build time is up to nine months and lead times are getting longer and longer. So it's hard to see how we're ever going to get back to 4,530 rigs." I have suggested the purchase of Helmerich and Payne several times. Yes the stock has risen 3 points to $25; however, this is a quality company with highly experienced and competent management. In my view, the shares are selling at a ridiculously low valuation based on cash flow projections for their current fiscal year.

The price indexes for imports from Japan and China also decreased in
October, declining 0.3 percent and 0.1 percent, respectively. The October drop
in import prices from Japan was the third decline in the past four months and
the index decreased 1.7 percent for the year ended in October. The fall in
prices from China followed a 0.2 percent decline in September and the index
was down 1.3 percent over the past 12 months.
In contrast, prices for imports from the European Union increased 0.2
percent in October as a 0.4 percent advance in manufactured articles prices
more than offset a 5.5 percent decline in prices for nonmanufactured articles.
Import prices from the European Union rose 4.7 percent for the October 2005-
2006 period.

Meritage Homes Corp. CEO Steven Hilton said the company could see between $15 million and $30 million of charges in its fiscal fourth quarter related to land options and real-estate write-downs, based on recent analysis. The CEO said the home builder has taken about $16 million in charges the last two quarters. "Clearly it's a much different [housing] market than a year ago," Hilton said. He said demand has softened, home inventories are rising and taking longer to sell, incentives are up and profit margins are down.

Toll Brothers Inc.CEO Robert Toll said Thursday the company is seeing record cancellations now in part because its backlog stretched out beyond 12 months during the boom years when the company was selling a high volume of homes. As a result, speculative buyers are now walking away and giving up their deposit as the home comes to completion.

Bayer AG division Bayer HealthCare said Thursday it will realign its global pharmaceutical research and development organization, cutting up to 800 U.S jobs in the process. The actions follow Germany-based Bayer's acquisition of Schering AG in June. Bayer said it expects to lay off 600 workers, mainly research positions, as well as an additional 200 employees within the overall organization. Under the realignment, research programs and activities will be consolidated into three major sites: Berlin and Wuppertal, Germany, and Berkeley, Calif. Research sites in West Haven, Conn., and Richmond, Calif., will close.

December gold climbed $18.50, or 3%, to end at $636.80 an ounce Thursday, the contract's highest closing level since early September. December silver rose 50 cents to end at $13.05 an ounce, also a two-month high. Within the last 30 days Goldcorp has rallied 40% and Eldorado Gold close to 30%.

Zhou Xiaochuan, governor of the People's Bank of China, said at a conference in Frankfurt that China has concrete plans to diversify its reserves and is considering lots of instruments, said Ashraf Laidi of CMC Markets in New York.

Forbes on Microsoft's Zune: "All considered, we could be looking at the biggest consumer electronics flop in recent history here. This is like "Microsoft Bob," only more embarrassing."

Dwight D. Eisenhower: "Only strength can cooperate. Weakness can only beg."

Wednesday, November 08, 2006

The Election

11/9/06 The Election

Barry Ritholtz: "Now we'll find out if some of the more experienced than I market watchers (Jeff Saut, Bill King, John Succo, J) have been right about who/what's been driving the stock market futures for political purposes. Indeed, its now in their interest to let markets slide as a rebuke to the Dems. Negative futures and market dips have been bought in the past; I suspect that pattern may not continue."

The American Petroleum Institute said crude supplies fell 866,000 barrels for the week ended Nov. 3. The Energy Department had reported a rise of 400,000 barrels. Motor gasoline supplies were up 1.3 million barrels, the API said -- contrary to the 600,000-barrel fall reported by the government. Distillate stocks declined by 2.1 million barrels, the API said. The Energy Department had reported a fall of 2.7 million barrels.

Centex Corp. CEO Tim Eller stated it normally takes about two and a half years from the peak to the trough. "So we still have further to go" since most experts place the top of the housing boom in July 2005, the CEO said. "In hindsight, we didn't take our foot off the gas pedal soon enough," he added.

I keep asking myself who is in charge of the executive branch of our government. Is it Bush 41 or Bush 43? A Bush 41 pick, Rumsfeld, has been replaced with another Bush 41 pick-- former CIA head Gates. It will be interesting to see whether Cheney, a Bush 41 choice, steps down for health reasons and Jim Baker, a Bush 41 confidant, takes his place. That only would leave Bush 43 to be replaced.

JFK: "The margin is narrow, but the responsibility is clear."

Vista will be "widely available" on Jan. 30, 2007. Microsoft's Office 2007 suite of software products will be available later this month. How many bugs will be in both of those products when finally released?

December gold fell $9.40 to end at $618.30 an ounce. December copper dropped 12.1 cents, or 3.6%, to close at $3.2445 a pound and December silver lost 12.5 cents to end at $12.55 an ounce.

Billionaires Eli Broad and Ronald Burkle have submitted a bid to acquire Tribune Co., according to a media reports Wednesday. Financial terms of the offer weren't available, the Associated Press reported, citing sources. Chicago-based Tribune publishes the Los Angeles Times, the Chicago Tribune, Newsday in New York and owns the WGN television station in Chicago, among other holdings.

Fortress Investment Group LLC filed plans with the Securities and Exchange Commission late Wednesday for what would be the first initial public offering of shares by a hedge fund firm in the U.S. Fortress, which oversees $26 billion in private-equity, hedge funds and other alternative investment vehicles, said a share sale will help it retain talent, access capital more efficiently to expand its busienss and give it a currency for future acquisitions.

The Dow Jones Industrial Average set a new record high close on Wednesday.

December crude rose 90 cents to end at $59.83. December natural gas closed up 6.8 cents at $7.823 per million British thermal units.

Franklin P. Adams: "Elections are won by men and women chiefly because most people vote against somebody rather than for somebody."

Monday, November 06, 2006


11/7/06 Disconnects

John Hussman: "Analysts may turn out to be correct in forecasting continued earnings growth. It's just that the people running those companies seem to disagree."

The U.S. economy should bounce back from the weak third quarter and average "somewhat below" a 3% real GDP rate over the next year, said Michael Moscow, the president of the Chicago Federal Reserve Bank on Monday.

OSI Restaurant Partners Inc., operator of Outback Steakhouse, Carrabba's Italian Grill and Bonefish Grill, on Monday said it agreed to be acquired by an investor group comprised of Bain Capital Partners, Catterton Partners and company founders Chris Sullivan, Robert Basham and J. Timothy Gannon for $40 a share in cash.

Swift Transportation said it has received a buoyout offer from its largest shareholder Jerry Moyes, offering $29 a share for all outstanding shares.

Palatin Technologies, Inc. and King Pharmaceuticals, Inc. announced today positive results from two Phase 2B trials evaluating bremelanotide for the treatment of male erectile dysfunction (ED). The two Phase 2B clinical trials were double-blind, placebo-controlled, parallel dose trials that included a one month run-in period and a three-month treatment period.
Dr. King Jolly, Executive Vice President of Research & Development for King, stated, "Together with our colleagues at Palatin, we are pleased with the data from these two trials, which demonstrate the potential effectiveness of bremelanotide as a treatment option for patients with ED. Accordingly, we look forward to further assessing the data from these two trials and our other Phase 2 investigations as we move forward with our development plan."
"The trial met its objectives and I feel confident we can develop a scientifically rigorous Phase 3 clinical program incorporating doses that have both adequate efficacy and acceptable tolerability to discuss with the FDA at an upcoming end-of-Phase 2 meeting," said Dr. Trevor Hallam, Executive Vice President, Research and Development of Palatin.
I do not know what investors expected but the stock traded down from $2.75 to $1.85, and then back to $2.29. Some were concerned with certain side effects; however, attention should be centered on the size of the dosage. There is a definite disconnect between the drop in the stock price and the presentation of the facts of the trials filed with the SEC.

George Ure: "The President of the United States recently went on TV and told the American people that the Federal budget deficit, last year, was about $249 billion. What he said was… er… misleading.
The fact is that, last year, the Federal Government had to borrow, not $249 billion to make ends meet, but $620 billion. THAT is the difference between the National Debt, as it stood at the beginning of the year, and the National Debt, as it stood at the end of that same year.
The reason the President could get away with his "misleading assertion" is that the other $380 billion was "off-budget". Yes, the money was spent, but no budget documents recorded it. So the BUDGET deficit was $249 billion, but the ACTUAL deficit was ore than twice as big."

Joseph Stalin: “The people who cast the votes don't decide an election, the people who count the votes do.”

According to the Financial Times, "Investment banks and hedge funds are being forced to rapidly adjust their trading strategies amid a wave of reported “panic selling” in the US and European credit derivatives market last week.
This heavy selling has driven the cost of insuring debt against default in the market for credit default swaps to record low levels – signalling either that investors are extraordinarily optimistic about the outlook for corporate debt, or that prices are so distorted that they are no longer being paid for the risks they are taking on."

Four Seasons Hotels Inc. said on Monday it had received a management-led buyout offer valued at $3.7 billion or $82 a share in cash.
The offer is led by a group which includes Four Seasons controlling shareholder Isadore Sharp and Triples Holdings Limited, Kingdom Hotels International, a company owned by a trust created by Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud, and Bill Gates' Cascade Investment LLC.

Abbott Laboratories Inc. said on Monday it will acquire Kos Pharmaceuticals Inc. for $3.7 billion to boost its presence in the lucrative cholesterol-treatment market.
The agreement provides for Abbott to acquire Kos for $78 per share in cash.

December gold fell $1.30 to close at $627.90 an ounce. December silver closed 12.5 cents higher at $12.76 and December copper finished at $3.337 a pound, up 1.45 cents.

Kinross Gold Corp. has agreed to acquire Bema Gold Corp. in a $3.1 billion deal, the companies said Monday. Under the terms of the deal, each Bema common share will be exchanged for 0.441 of a Kinross common share. After the deal closes, 61% of the combined company will be owned by existing Kinross shareholders and 39% by existing Bema shareholders.

China says its foreign exchange reserves have reached $1 trillion. The reserves have been growing at the rate of $18 billion per month.

December crude rose 88 cents to close at $60.02 a barrel. December natural gas dropped 39.4 cents, or 5%, to end at $7.49 per million British thermal units.

I have been asked frequently about the disconnect between the most BLS numbers on nonfarm payrolls, the increasing number of self-employed people, and the rising amount of employment taxes collected by the government. First, if someone works part-time for himself/herself, and also has a full-time job, there would be double counting to consider the self-employment. Secondly, more taxes are being received as higher income levels place folks under the AMT umbrella. (The Congress has not ko'd the AMT. That is criminal in my view.) Thirdly, fewer people are able to take advantage of itemized deductions, and this can lead to paying higher taxes. No one knows for certain how many real self-emplyed people there are- those working full-time. Many accept cash as payment and don't report. Lastly, rather than being concerned with the number, just know predicting employment with constant monthly revisions is simply a futile exercise.

JFK: "Don't buy a single vote more than necessary."

Sunday, November 05, 2006

More Opinions

11/6/06 More Opinions

Mike Burk: "Last week the rally of the past few months ended going into what seasonally has been the strongest week of the year. I think it is likely that weakness will continue for another week or two. I expect the major indices to be lower on Friday November 10 than they were on Friday November 3."

Brett Steenbarger: "Interestingly, margin debt is below the levels recorded in May, despite the market's recent rise. Year over year, we're up about 9% in margin debt, down from the 2006 peak of over 24%. It is hard to believe this bull swing will have legs if it continues to fail to attract speculative interest. If history is a guide, it will take a significant year-over-year drop in margin debt to usher in a cyclical market bottom."

Doug Noland: "Unlike the 30% to 40% annual earnings growth that many companies were enjoying during the previous tech-centric debt Bubble, today's much more dispersed Credit boom fosters near double-digit revenue growth and greater earnings inflation virtually throughout the entire business sector. There is today little angst related to equities gross overvaluation that we saw in 1999/2000. In fact, the general nature of today's profits inflation is taken as confirmation of the soundness of the underlying U.S. economy, while increasingly confident bullish analysts trumpet today's undervalued equities market."

The world economies, such as China, continue to devour the supplies of nickel, zinc, and copper. As their astounding foreign exchange balances mushroom, attention is turned to other commodities --- gold, silver, and oil. Make no mistake. The long term trend is to purchase more commodities to offset the growing soft currency holdings.

John Mauldin: " The housing price futures market, based upon the Case-Shiller Housing Price Index, suggests a decline of 7.6% from June 2006 to August 2007. As the inventory of homes for sale grows, and as prices drop, watch that number go lower."

Brett Steenbarger: "You may find that just one or two patterns in one or two markets at one or two time frames account for a large part of your success. Don't try to tweak what isn't working: figure out ways to capitalize on your core success in related markets, with steadily increased size. Build upon what you do well; don't try to remake yourself based on preconceived notions."

Three days before midterm elections, the numbers haven't changed much according to the November 2-3, 2006Newsweek Poll. If the election were held today, 54 percent of likely voterswould vote for the Democratic candidate in their district, versus 38percent who would vote for the Republican. Ninety percent of Republicanlikely voters say they would support the Republican candidate; 95 percentof Democrats would support the Democratic candidate. But amongindependents, 51 percent would vote for the Democrat, compared to 26percent who would vote for the Republican. A majority of Americans, 53 percent, say that they would most like tosee the Democrats win enough seats on Tuesday to take over Congress,according to the latest Newsweek Poll; 32 percent would most like to seethe Republicans keep control.IMS Health reported that $23 billion worth of drugs willgo "off patent" this year based on the annual sales of the products.Another $16 billion worth move out of the patented category next year.
Energy analysts around the globe provide the view that oil prices are now hostage to whether there is any chaos in the world. It is a huge mistake to overlook supply and demand. Politics play a part in the trend, but it does not alter long-term supply concerns and the increasing cost to develop reserves.

The Energy Information Administration (EIA) recently predicted that world consumption of natural gas alone will rise by 91% to 182 trillion cubic feet in less than twenty-five years."

Comstock Partners: "After all, when, in its lengthy history, has the Fed ever successfully engineered a soft landing except for 1995? In our view the next few months should clearly indicate that we are headed for a hard landing, resulting in a severe setback for a stock market that is discounting a benign soft landing."

Bill Gross: "On average, total assets in the US have grown by only 1.4% over nominal GDP for the past 37 years... And note that the 1.4% average is mostly the last 25 years, which was a period of disinflation. We are at an end of that period. We should expect lower than 1.4% in the coming years."

I am far from a pundit when it comes to politics. I do believe Democrats will gain control of the House and become the majority for Governors. I believe they will have a net gain of 3 Senate seats and be three short of gaining a majority.

On Sunday Mr Cheney also said that he would "probably not" agree to appear before Congress to be questioned on the conduct of the Iraq war even if a Democratic-controlled house issued subpoenas requiring him and Mr Bush to do so. When you cast your vote on Tuesday, I suggest you vote against anyone running on the party line that is above the law!