Saturday, December 16, 2006

Touchy Feely

12/17/06 Touchy Feely

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (3.0% annualized rate) in November. Over the last 12 months, the median CPI rose 3.7%. Can you feel the pain from inflation? Look at a chart of the dollar over the last 12 months, 24 months, and so forth. That spells out your purchasing power. It spells PUKE.

"The inflation statistics have a Christmas-y feel to them, because they reflect heavydiscounting," said Chicago economist Robert Dederick. "There clearly is a lot of price-cutting taking place, especially in cars, apparel and electronics."

George Ure reported sources with a U.S. Delegation in Beijing have told The Hal Turner Show the Chinese government has informed visiting Bush Administration officials they intend to dump One TRILLION U.S. Dollars from China's Currency Reserves and convert those funds into Euros, gold and silver!
China was allegedly asked to withhold the announcement until Bullion Markets closed for the weekend to prevent an instant spike in gold and silver prices. This delay will give the world the weekend to consider appropriate actions rather than have a knee-jerk reaction which could see the U.S. Dollar totally collapse in value Monday.
According to this Senior source, China told the U.S. delegation they no longer have faith in U.S. Currency for several reasons:

1) The Federal Reserve Bank ceased publishing "M3" data in March, making it nearly impossible for anyone to know how much cash is being printed. China said this act made it impossible to tell how much a Dollar is worth.

2) The U.S. Dollar has lost upwards of thirty percent (30%) of its value against other foreign currencies in the recent past, meaning China has lost almost $300 Billion simply by holding U.S. Dollars in its reserves.

3) The U.S. has no plans whatsoever to reduce deficit spending or ability pay down any of its existing debt without printing money to pay it off.

For these reasons China has decided to implement an aggressive sell-off of U.S. Dollars before the rest of the world does so. China reportedly told the US delegation; "we are the largest holder of U.S. Currency and if the rest of the world unloads theirs before we unload ours, we will lose our shirts."

Douglas A. McIntyre: "Someone forgot to tell the programmers at Microsoft that the new Vista operating system had to work with current version of SQL server database management software. The database management interface is critical if Micorosft wants to take business from Oracle. The global database business is estimated at $14 billion. Microsoft has painted itself in a corner."

"India will overtake China next year as the world's fastest-growing major economy on rising consumer and government spending, Credit Suisse's chief Asia economist Dong Tao said. Credit Suisse raised its 2007 growth forecast for India's $775 billion economy, Asia's fourth biggest, to 10 percent from 8.5 percent... China's $2.2 trillion economy is expected to grow 9.9 percent next year from 10.4 percent in 2006..."

According to a Bloomberg report, "China's crude imports may rise 10.2 percent this year because of rising domestic demand, China Securities Journal reported, quoting a government official. The nation may import 140 million metric tons of crude this year, equivalent to 48 percent of total demand..."

John Mauldin points out that the Liscio Report observed "the weakening consumption trend is now established, and the majority of our tax contacts expressed real concern about slowing in sales tax collections. It now appears clear that consumers are not spending the billions of dollars they have saved on gas in recent months, and comments on the effects of the dual slowdowns in housing and manufacturing centered on how much more is to come." Liscio was referring to his checks on sales tax collections for the month of November.

Mike Burk: "Several short term indicators bottomed last week just in time for the year end rally that should begin next week. I expec the major indices to be higher on Friday December 22 than they were on Friday December 15."

From the BLS: "Real average weekly earnings rose by 0.2 percent from October to November after seasonal adjustment, according to preliminary data released by the Bureau of Labor Statistics of the U.S. Department of Labor. This increase
stemmed from a 0.2 percent increase in average hourly earnings combined with a
0.1 percent decrease in the Consumer Price Index for Urban Wage Earners and
Clerical Workers (CPI-W). Average weekly hours were unchanged...
Average weekly earnings rose by 4.4 percent, seasonally adjusted, from
November 2005 to November 2006. After deflation by the CPI-W, average weekly
earnings increased by 2.6 percent. Before adjustment for seasonal change and
inflation, average weekly earnings were $572.91 in November 2006, compared with
$550.94 a year earlier." Now think about the real inflation for health care and food and tuition etc, and you tell me how far your wage gains went AFTER TAXES.

Friday, December 15, 2006


12/16/06 Reality

Excluding food and energy, the CPI-U advanced at a 2.6 percent SAAR in the first 11 months of 2006 after increasing 2.2 percent in 2005. Some analysts suggested that investors reinterpreted the CPI data as a lagging indicator and noted that there are other signs showing that inflation in fact may be increasing.

On Friday morning, 700,000 of Puget Sound's customers in and around Seattle were without power. The Seahawks had a meltdown in the second half of Thursday's game with the 49ers.

In October, foreign investors bought a net $62.2 billion in securities, the Treasury said. It's up from $57.8 billion in September. In October, Chinese investors held $344.9 billion in Treasurys, up from $342.3 billion in September.

Illinois Tool Works Inc. on Friday warned it was cutting its forecast profit range for the fourth quarter, citing expected weakness in the North American market.
ITW, which also said it had already suffered two months of lower-than-expected base revenue growth, now expects to earn 72 cents to 74 cents a share in the fourth quarter, compared with a previous range of 77 cents to 81 cents.

From Seeking Alpha: "Gambling company Penn National made a mostly cash bid for its much larger competitor Harrah's Entertainment, challenging the current bid for Harrah's placed by private equity partners Texas Pacific and Apollo Management. The private equity group earlier in the week submitted an all-cash bid of $87 a share, and sources indicate Penn is offering $88.50. Harrah's currently trades at $79.10 a share, with a market cap of $14.7 billion vs. Penn's market cap of just $3.3 billion. The Penn offer, backed by Lehman Brothers and Wachovia, would create a joint entity with substantial debt. Harrah's is also considering a leveraged recapitalization, taking on more debt while paying shareholders a dividend or buying back stock. Penn stock has climbed 18.4% year to date, while Harrah's stock still trades well below the takeover prices due to the long period expected for casino licensing clearance."

Crude for January delivery rose 92 cents to $63.43 a barrel. January natural gas fell 14.6 cents to $7.409 per million British thermal units.

February gold fell $11.80 to close at $619.10 an ounce. March silver sank 97 cents to end at $12.98 an ounce after a four-week low of $12.96. March copper closed at six-month low of $3.0165 a pound, down 4.1 cents for the day and down 3.1% for the week.

Bloomberg reported Japanese five-year government notes fell the most in a month after stocks advanced and a Bank of Japan survey showed confidence among manufacturers rose to the highest in two years.
Five-year notes pared their gains for the week after the Tankan showed companies plan to boost spending at the fastest pace in 15 years. The report may restore confidence the world's second- largest economy will recover from slower-than-expected growth in the third quarter, supporting the central bank's case for raising interest rates in coming months.
``The Tankan survey will make it easier for the BOJ to justify raising rates in January,'' said Hiroaki Takai, who helps oversee the equivalent of about $6.8 billion in assets at Sumitomo Mitsui Asset Management Co. in Tokyo. ``Given that, yields look too low and investors probably won't be keen on buying bonds.'' It will be important to watch the yen carry trade if rates in Japan rise in January.

Thursday, December 14, 2006

Option Expiration Day

12/15/06 Option Expiration Day

The Energy Department said natural-gas inventories fell 168 billion cubic feet for the week ended Dec. 8. Total stocks now stand at 3.238 trillion cubic feet, up 245 billion cubic feet from the year-ago level, and 225 billion cubic feet above the five-year average, the government data said.

OPEC's announced intention is to cut another 500,000 [barrels per day] of production, effective February 1st.

The Labor Department said initial jobless claims dropped by 20,000 to 304,000 in the week ending Dec. 9, lower than the 320,000 economists were expecting. Separately, the Department said the prices of goods imported into the U.S. rose 0.2% in November. Imported natural gas prices climbed 30.3% in November, hitting a two-year high, according to the Labor Department. Imported petroleum prices, meanwhile, dropped 1.6%. Excluding petroleum import prices, import prices rose by 0.7%. Import prices excluding all fuels rose by 0.1%.

Tobacco group Gallaher on Thursday confirmed it's received a preliminary offer approach. The group said it's in talks with the third party about the possibility of a recommended cash offer of 1,140 pence a share in cash.

North American production will continue its slide in 2007, despite falling to a longtime low in 2006. Ward's AutoForecasts projects total output in 2007 at 15.65 million units, 1.1% down from 2006's estimated 15.83 million, itself a 3.0% decline
from 2005.

Jim Rogers:"The slowest bull market in commodities lasted 15 years and the longest
23 years which means that investing in commodities will be profitable."
until at least 2013 and up to 2021...Investing in commodity-producing companies can turn out to be an even riskier bet than sticking with buying the things outright. Supply and demand will move the price of copper, for instance, while the share prices of copper miners can depend on less predictable factors such as the overall condition of the stock market, the company`s balance sheet, its executive team, labour problems, environmental issues, and so on."

Marketplace's Dan Grech: "Entertainment mogul David Geffen has offered $2 billion cash for the Los Angeles Times, but Tribune is holding out for a buyer who wants everything on the menu."

The Mortgage Bankers Association, in its quarterly snapshot of the mortgage market released Wednesday, reported that the percentage of mortgage payments that were 30 or more days past due for all loans tracked jumped to 4.67 percent in the July-to-September quarter.
That marked a sharp rise from the second quarter's delinquency rate of 4.39 percent and was the worst showing since the final quarter of last year, when delinquent payments climbed to a 2 1/2-year high in the aftermath of the devastating Gulf Coast hurricanes.

This could be important. YRC Worldwide Inc.'s cut its fourth-quarter per-share earnings outlook to 95 cents to $1.05 from its prior view of $1.40 to $1.50. The company also lowered its 2006 earnings outlook to $5 to $5.10 a share from $5.45 to $5.55 a share. This is the merger of Yellow Freight and Roadway Express.

Manufacturing activity in the New York area slipped in December, the New York Federal Reserve Bank said Thursday. The bank's Empire State Manufacturing index fell to 23.1 in December from 26.7 in November. New orders rose to 25.1 in December from 22.4 in November. Shipments were little changed. The prices paid index fell to its lowest level of the year. The unfilled orders index also fell sharply. The inventories index dropped into negative territory.

January crude rose $1.14, or 1.9%, to close at $62.51 a barrel. January natural gas fell 11.8 cents to close at $7.555 per million British thermal units.

February gold fell $1.50 to end at $630.90 an ounce in New York. March silver was up 3.5 cents to end at $13.95 an ounce and March copper at $3.0575 a pound, closing up 2.45 cents.

Wednesday, December 13, 2006

In The Works

12/14/06 In The Works

Seeking Alpha: "The Chandler Family, 20% owners and long-time critics of the Tribune Company, have begun talking with several private equity firms about forming a consortium to become majority shareholders in Tribune, the New York Times reported this morning.trb The family, one of Southern California's most powerful has clashed with Tribune's management for years and six months ago, got the company to agree to put itself on the auction block. However bids have been slow in coming, and for much less than the company anticipated, in large part due to the heavy tax payments that will accompany any transfer of the company. As insiders, the Chandlers can avoid many of the taxation issues while spinning off segments of the diversified media company, which owns two of the nation's largest papers - the L.A. Times and Chicago Tribune - two dozen TV stations and the Chicago Cubs. Neither the Chandlers nor the Tribune were available for comment."

" just released its latest additions and deletions to its proprietary All Star Analyst portfolio. Members on this exclusive list include BJ Services Company...This exclusive portfolio represents all stocks with a Strong Buy rating from at least four analysts with a 5-Star All Star ranking. These are the brokerage analysts whose stock recommendations proved to be the most profitable for investors. Since July 2002, this portfolio has generated an annualized return of 7.53%. Here is a synopsis of why these stocks are in the All Star Analysts Portfolio: BJ Services Company BJS announced that fiscal fourth quarter earnings per share surged year over year to 76 cents, while consolidated revenue of $1.22 billion jumped 36% from $892.3 million. EPS also bettered the consensus by 2.7%. The rebound in Canadian activity, as well as improvements in Africa, Latin America and the Middle East, led to the solid quarterly results. For the fiscal year, the oilfield services company reported earnings per share of $2.52, compared to $1.38 in the previous year, with consolidated revenue rising 35% to $4.4 billion from $3.2 billion in fiscal 2005. For fiscal 2007, BJ Services expects earnings per share between $3.15 and $3.25 with revenue growth expectations in excess of 20%."

Raymond James strategist Jeff Saut: "Almost 2% of the NYSE's entire market capitalization has been taken private... since the beginning of this year."

The volume of applications for mortgages from major U.S. banks climbed to the highest level in more than a year last week, the Mortgage Bankers Association reported Wednesday.
Applications, encompassing both those for loans to purchase homes and for refinancings of existing mortgages, increased 11.4% last week to the highest level since October 2005. Total applications are up 22.2% compared with the same week a year ago. Application volumes had been down by double-digit percentages for most of the year. Yet, Richard M. Kovacevich, chairman and chief executive of Wells Fargo, tells Barrons the mortgage market has turned "pretty ugly."

Showing surprising strength, seasonally adjusted U.S. retail sales increased by 1% in November, the first gain since July, the Commerce Department reported Wednesday. Excluding the 0.9% gain in motor vehicle sales, retail sales rose 1.1%, the largest gain since January. I continue to believe the stars this holiday shopping season will be gift cards and online sales. This is the same statement I have made for the last three years.

Randall Forsyth of Barrons: "Bridgewater Associates contends wiggles in the yen are having an impact on speculative positions, which are "now massive." The yen-carry trade -- which effectively means shorting the Japanese currency -- has pushed the yen to a record low against the euro, with the common currency fetching nearly 155 yen vs less than 140 yen at the beginning of 2006. Bridgewater sees the current market environment as precarious, and reminiscent of 1998, when the collapse of Long Term Capital Markets threatened the global financial system. They can't say what the catalyst of a break might be -- an increase in the Chinese yuan could be one, for instance. That could lead to an appreciation of all Asian currencies, including the yen, which have been suppressed by the region's central banks who don't want their economies to lose export competitiveness.The yen's rise could again ripple through the emerging markets, some of which already are looking shaky. India's SENSEX has been under pressure in recent days, which could spread to other emerging markets, write Bank of America's Raja Visweswaran and John Schofield. Emerging equity and debt markets are highly correlated, while emerging-market debt also is correlated with high-yield corporates. "We would assume a further widening of the current downward move in select [emerging market] indices would most likely result in a broader market correction across many other risk asset categories."

World energy demand is likely to climb an average 1.6 percent per year to reach about 325 million barrels of oil equivalent a day by 2030, Exxon Mobil predicts. That means global energy demand will be up about 60 percent from 2000 levels, Jaime Spellings, the Irving-based oil giant's general manager for corporate planning, told analysts.

The American Petroleum Institute reported a drop of 8.3 million barrels in crude supplies for the week ended Dec. 8. The Energy Department had reported a fall of 4.3 million. Motor gasoline supplies were down 1.1 million barrels, the API said, vs. the government's reported fall of 100,000. Distillate supplies were down 2.7 million barrels, the API said, compared with the 500,000-barrel fall reported by the government.

Inventories at U.S. businesses rose in October to their highest level in relation to sales in more than two and a half years, the Commerce Department reported Wednesday. Sales at U.S. businesses fell 0.2% in October after a record 2.3% drop in September. Meanwhile, inventories rose 0.4% in October, as expected by economists, after a revised 0.3% gain in September. The inventory-to-sales ratio rose to 1.31 from 1.30. It's the highest since February 2004.

January crude rose 35 cents to end at $61.37 a barrel. January natural gas gained 24.3 cents to end at $7.673 per million British thermal units.

February gold climbed 70 cents to close at $632.40 an ounce Wednesday. March silver fell 6.5 cents to end at $13.915 an ounce and March copper lost 6.15 cents to close at $3.033 a pound, its lowest closing level since late June.

Henry To: "U.S. households now have the most leveraged balance sheets in history. Moreover, in a credit-based and financially-leveraged society such as the United States, one needs to tread very carefully if you are a central banker, and thus the last thing that the Fed wants is a declining net worth of American households... Bottom line: The United States (and even more so, the United Kingdom since it does not have a great agricultural, technology, or entertainment industry such as what we have in the U.S.) today is more dependent on asset appreciation and the financial sector than ever - and both the Federal Reserve and the central banks of the world will continue to do what they can to uphold this trend going forward."

Tuesday, December 12, 2006

No Surprises

12/13/06 No Surprises

The Energy Information Administration said Tuesday that it still expects world oil demand to grow by 1.5 million barrels a day in 2007. The EIA, the official energy statistics arm of the U.S. government, said it expects U.S. petroleum consumption to rise by 300,000 barrels a day in 2007 after a flat 2006. The agency is expecting surplus world crude oil production capacity to increase only slighty. "However, OPEC's production cuts mean that, for the first time in months, surplus production capacity is no longer restricted to just Saudi Arabia," it said.

The Fed remains on hold.

Fiscal fourth-quarter net income for Goldman Sachs surged to $3.15 billion, or $6.59 a share, for the three months ended November 24, from $1.63 billion, or $3.35, in the year-ago period. Goldman's net revenue rose 47 percent to $9.41 billion.

Texas Pacific Group and Silver Lake Partners will buy Sabre Holdings Corp. , owner of the Travelocity hotel and flight-booking Web site, for $4.45 billion as they look to profit from a boom in travel services.

The Commerce Department said the October trade gap in Washington narrowed 8.4 percent to $58.9 billion, less than forecast by economists.

The use of ethanol has caused a surge in the price of corn to an 11 year high.

Gary Gordon of Annaly Mortgage: "We Americans have tested the limits of affordability over the past five years," he says. "Since the end of 2001, disposable personal income is up about 25% and mortgage rates are little changed. That argues for 25% higher home prices. Instead, home prices rose by an average of 50% and in many markets by 100% or more."

Crude closed at $61.02 a barrel.

The White House says President Bush has largely decided on a new approach to the Iraq war that he will announce next month, but he gave no public hint of his plan Tuesday.

Australia's Qantas Airways Ltd. rejected on Wednesday a conditional A$10.9 billion ($8.6 billion) buyout offer from a group led by Macquarie Bank Ltd. and private equity firm Texas Pacific Group.

The WSJ reported that UAL and Continental are holding merger talks.

General Electric Co. on Tuesday affirmed its earnings estimate for the end of 2006 and forecast profit growth of 10% to 13% in 2007
"We will deliver a high-visibility, low-risk 2007," stated Jeff Immelt, General Electric CEO.

Pressure Points

12/12/06 Pressure Points

"The exchange rate issue is A) a sovereign issue and this is our principle. B) We will take internal and external balances into account when making decisions on the yuan," People’s Bank of China assistant governor Yi Gang told reporters on the sidelines of a financial forum. China has let the yuan rise by about 3,45% since it revalued the currency by 2,1% in July last year.

Greenspan: "I expect that the dollar will continue to drift downwards until there will be a change in the U.S. balance of payments," Greenspan told a business conference here via video-link from the United States.
"There has been some evidence that OPEC nations are beginning to switch their reserves out of dollars and into euro and yen," Greenspan said.
"It is imprudent to hold everything in one currency," he said, adding that at some point the dollar will be moving lower.
"That will be the experience of the next few years," Greenspan said.

The inventory-to-sales ratio rose to 1.20 in October from 1.18 in September. The last time the ratio was bigger was in November 2003. The inventory-sales ratio stood at a record low 1.15 in May, June and July. The typical wholesaler has about 37 days of sales on hand, up from 35 days in July. As an aside, the gift card business amounted to $19 billion in 2005, and this year it is anticipated to rise to $30 billion. A good deal of these cards will be redeemed in January and not in December. Retailers cannot count the cards as sales until the merchandise is redeemed.

DuPont Co., the third-largest U.S. chemical maker, will eliminate 1,500 agriculture jobs and cut output of herbicides and pesticides in a plan to increase spending on genetically modified seeds.

Brazilian steelmaker CSN offered on Monday to buy Anglo-Dutch rival Corus Group Plc for 4.9 billion pounds ($9.6 billion) in cash, trumping a bid made only hours earlier by India's Tata Steel.

State-owned Dubai Ports World said on Monday it had agreed to sell its U.S. port operations to an American International Group unit after relinquishing control of them to allay concerns about U.S. national security. It is a 100% cash deal.

Multiple firms including Silver Lake Partners and Texas Pacific Group have bid for Saber Holdings , owner of the Travelocity Web site, according to a source familiar with the situation. The deal could approach $4.3 billion.

Next year will likely bring a second annual decline in existing home sales, the National Association of Realtors predicted on Monday. Sales of existing homes are expected to decline 8.6 percent to 6.47 million for 2006 and contract another 1 percent to 6.40 million units next year. I believe that forecast for 2007 is too optimistic.

Europe's biggest medical device maker, Smith & Nephew Plc , is close to bidding about $11 billion for U.S. rival Biomet Inc. , sources familiar with the situation said on Sunday. One of the sources told Reuters bids were due by Tuesday and other companies were also likely to submit offers for Biomet. A
winning bid of at least $45 a share would not surprise me.

Goldman Sachs reports their quarterly earnings tomorrow. They should surprise on the upside and that may be so for guidance going into 2007. Lehman and Bear Stearns report on Thursday. Morgan Stanley will report on December 19.

On Wednesday bids are due on Harrah's, and a final level of $86 could be in the cards.

Hedge fund S.A.C. Capital disclosed that it owned 5.1% of Phelps Dodge Corp. as of Dec. 7. But the fund said that it plans to vote its shares against Phelps Dodge's pending takeover by Freeport-McMoRan Copper & Gold. In a securities filing, S.A.C. said the deal "would not provide full and fair value to the issuer's shareholders."

DaimlerChrysler AG could lay off up to 16 percent of the workers in its North American truck operations next year due to an expected downturn in demand, the head of the automaker's truck operations said on Monday.

John Hussman: "Over the past three years, profit margins have widened to record levels, which has detached P/E ratios from other fundamental measures – such as price/revenue, price/dividend, and price/book ratios. The S&P 500 is currently about double its historical norms on those metrics. That isn't a forecast that stocks have to eliminate that valuation gap, but it certainly does suggest that stocks are priced to deliver unsatisfactory long-term returns from these prices.It bears repeating that if profit margins were at normal levels – even on the basis of profit margins that prevailed during the 1990's (indeed, anytime prior to the past 3 years) – the price/earnings ratio of the S&P 500 would currently be nearly 25. Unless investors want to speculate on the notion of a “permanently high plateau” in profit margins, the stock market is strenuously overvalued at present. Neither current earnings nor “forward” earnings should be considered – in themselves – as anything close to robust or reliable metrics of value here."

Texas Instruments Inc. cut its fourth-quarter financial targets late Monday, and forecast sales in the range of $3.35 billion to $3.50 billion and earnings per share from operations between 37 cents to 40 cents. Its previous outlook called for sales in the range of $3.46 billion to $3.75 billion and earnings per share between 40 cents to 46 cents.

January natural gas fell 13.4 cents to close at $7.427 per million British thermal units. January crude fell 81 cents to close at a two-week low of $61.22 a barrel.

Barclays Global Investors filed a new 13G on BJ Services and now is the holder of 10.15% of the outstanding shares.

Marsoft: "After a spectacular third quarter performance, the dry bulk market has been a bit more tame over the past couple of months. A brief October rally fizzled in the second half of the month, and a similar pattern was seen in November, with rates moving up at the start of the month before losing some momentum. But in general, the market remains very firm, with most freight rates at their highest levels since the first half of 2005. Over the past month, most rates have moved up, with the Baltic Cape TC index rising from $60,000 per day in mid-October to $63,000 per day by mid-November. Likewise, the Baltic Panamax TC Index rose from $30,000 per day to $33,000 per day over this period. However, the smaller ships saw a mild decline in spot rates over the past month.

Gottschalks Inc.said its board has retained UBS Investment Bank to assist its special strategic committee in exploring "various alternatives."

Benjamin Graham: "Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market."

Sunday, December 10, 2006


12/11/06 Events

Home affordability and the housing industry received a big boost today from Congress, which approved a measure that would for the first time allow lower- and moderate-income home buyers to deduct the full cost of mortgage insurance from their federal taxes in 2007. The provision was included in the omnibus tax bill approved by Congress early Sunday morning.

Mike Burk: "Next Friday is the third Friday of December, one of 4 Triple Witching Fridays during the year when options and futures contracts expire. The tables below show how the OTC and SPX have performed during the week prior to the 3rd Friday in December during the 2nd year of the Presidential Cycle...The OTC has been up about 50% of the time with a very slight positive bias. The SPX has been up about 60% of the time with a stronger bias...Seasonally next week is neutral and at some point the market will take break from its consistent upward move. Many of the breadth indicators have been deteriorating since mid October so next week would be a convenient time for a little adjustment. There has been no build up of new lows so any decline is likely to be brief.I expect the major indices to be lower on Friday December 15 than they were on Friday December 8."

Ludwig von Mises: "Not everything that exists today is reasonable; but this does not mean that everything that does not exist is sensible."

Iraq Study Group member Leon Panetta tells Newsweek that the ISG agreed, in a private discussion not included in its report, that about 60,000 to 70,000 U.S. troops would have to stay on in Iraq after 2008 in order to support a "transition team" program which could put the elite of the Army's professional corps in harm's way for
years. That includes advisers and the quick-reaction forces needed to
protect them, as well as logistical support and Special Operations troops,
report a team of Newsweek correspondents in the December 18 issue.

The Northern Trust December Economic Outlook: "We continue to expect sub-2% annualized real GDP growth in the final quarter of this year and have revised down our first-quarter 2007 forecast to 1.8% from 2.0% -- not much more than a rounding error. In addition to the fifth consecutive quarterly decline in real residential investment expenditures, we expect a considerable deceleration in the growth of real business expenditures for capital equipment and software in the fourth quarter, based on the weak October shipments data for nondefense capital goods excluding aircraft. ...Based on the excesses of the past real estate boom, the considerable supply overhang and the typical peak-to-trough behavior of residential investment expenditures, we continue to expect that the trough of the housing recession is not near at hand."

From "Earlier this week, Ingersoll Rand (IR) filed this 8-K, which said that it was replacing old change-in-control agreements with its senior executives that expired on Dec. 1 with new ones "that decreased the value of the benefits" that the execs would receive following a change of control. That certainly sounded like something worthy of a rare gold star. But a bit more digging into earlier filings appears to indicate that while two executives would see a slight reduction in what they would otherwise receive — from three times salary and bonus to 2.5 times — the new agreements seemingly expand the number of top executives covered.
That’s because according to the proxy filed back in late April, only the five top execs appear to have change agreements. At least they’re the only ones mentioned specifically. That group includes Chairman and CEO Herbert Henkel, CFO Timothy McLevish, General Counsel Patricia Nachtigal, and Senior Vice Presidents Mike Lambach and Chris Vasiloff. But the new agreements include all senior vice presidents. A quick skim of IR’s top management page shows that there’s five additional senior vice presidents who presumably weren’t covered by CIC agreements before."
You may recall that I suggested the purchase of Ingersoll Rand some months back and, on one occasion, my best idea was to sell the 30 and 35 puts, both expired worthless.
IR has once again appeared on a list of possible attractive buyouts by private equity groups. At 40+ the stock certainly does not reflect long-term value, in my view.

November and December inflation rates were exceedingly low. To believe the comparison with those months could be favorable is an irrational thought, in my view.

Ticker Sense: "We're currently a couple of months into year five of the current bull market, and there have only been 3 other S&P 500 bull markets since 1962 that have even lasted five years."

Oil producing countries have reduced their exposure to the dollar to the lowest level in two years and shifted oil income into euros, yen and sterling, according to new data from the Bank for International Settlements.

Assailants hurled a bomb and fired at two vehicles carrying employees of an affiliate of Houston-based Halliburton co. near Algiers on Sunday, killing one Algerian driver, witnesses said. The full extent of the casualties in the attack was not immediately clear.


12/10/06 Surprises

The Financial Times reported "Goldman Sachs’ $10bn flagship hedge fund, Global Alpha, is down nearly 12 per cent for the year, people familiar with the hedge fund’s performance said.The fund, which gained 40 per cent last year, is now on track for its worst annual performance. However, the highly volatile fund has been down more than 12 per cent at times in the past, though it has never finished a year down that much." Can you imagine how the fund would have done had the managers not been privy to so much information!

Doug Noland: " Broker/Dealer Assets have now ballooned $750 billion, or 45%, in just the past two years." That is not astounding. It is totally out of control. At that
rate of growth, the Broker/Dealers will even be able to fund Social Security and Medicare!

Average hourly earnings for private production and
nonsupervisory workers increased 3 cents in November to $16.94, a gain of 0.2 percent. Over the year, average hourly earnings rose by 4.1 percent.

Michael Kahn: "Risk for buying here is getting to be significant. Without considering all the other factors that make a stock market, such as trends in interest rates, inflation and the dollar, there seems to be a lot more downside potential than upside at this point in time."

From the Houston Chronicle: "Prices typically fall in the winter months as Americans do less driving and demand is light. But this week alone, Houston drivers saw an 8-cent hike in the price of regular unleaded gas to $2.15 a gallon, while the statewide average shot up 7 cents to $2.19 a gallon, according to the AAA Texas Weekend Gas Watch, a report released Friday that tracked statewide prices for the week ending Thursday.The national average rose just slightly less, coming in at 5.1 cents over the previous week to $2.29 a gallon, according to Energy Department data. Pump prices are inching up in response to rising crude prices and higher-than-usual demand from U.S. drivers taking advantage of lower fuel costs in recent months, said Jason Toews, co-founder of gas, a Web site based in Brooklyn Park, Minn., that helps consumers find low-cost gas stations in their areas. But he predicts gasoline prices will remain "relatively stable, perhaps slightly increasing" through early spring. That's when refiners draw down supplies and switch to cleaner-burning summer gas blends, a process that can boost fuel prices by 50 cents a gallon, he said. Gasoline is prone to premature price increases or "false starts" in December and January before hitting a higher sustained level during the spring and summer months, said Tom Kloza, chief oil analyst at the Oil Price Information Service in New Jersey." The current spike, he said, has more to do with rising wholesale costs involved in producing gasoline than any year-end retail strategy or supply constraints.

Doug Casey: "78 million is the number of baby boomers who are in or approaching retirement. That’s the biggest demographic bulge in U.S history, fully 26% of the population. And many of those 78 million are in a jam. As they approach retirement, they are still carrying historic levels of debt and, on average, have woefully inadequate net worth -- and much of that based on shaky housing prices. In fact, 25% of the retiring boomers – nearly 20,000,000 in all -- are facing retirement with a net worth of less than $50,000. You don’t need to be an accountant to see that, with today’s degraded currency and longer life expectancies, they won’t get very far on so little. This is a real tragedy in the making. After all, what could be sadder than millions of people striving for a lifetime to reach the American dream and then discovering that the “golden years” are just a fantasy, their wealth having been sucked away by decades of inflation and taxes so that politicians and bureaucrats could squander it to grease the skids for their own political success. In 1930, the total share of the U.S. economy directly controlled by or dependent on government was about 11%, leaving the balance of 89% firmly in the hands of private enterprise. Today, by the late Milton Friedman’s calculations, the government’s share of the U.S. economy – including the time and resources required to comply with all the regulations – has ballooned to over 50%, reducing the wealth-creating machinery of free enterprise to an auxiliary engine for government...In fact, according to the Fed, a majority of retired Americans already rely on Social Security for 80% or more of their income."

Doug Noland: “Fed Funds & Repos” expanded at a 26.9% rate during the quarter and “Funding Corps” grew 25% annualized. Broker/Dealer Assets ballooned at a blistering 28% pace during the quarter, expanding balance sheets much more rapidly than the Banks ($168.3bn vs. $39.5bn). Why the need for such aggressive expansion in the face of a slowing economy?"

John Mauldin: "Hugh (Hugh Moore of Guerite Advisors in South Carolina) tells us that "In the previous seven cycles since 1959, housing starts (seasonally adjusted) have fallen, on average, 50.7% from peak-to-trough. Each time housing starts have fallen more than 25% from their most recent peak, a recession has followed (except during the 'credit crunch' of 1966-67 that ended in an economic contraction, but not an 'official' recession)."1967 saw one quarter of contracting GDP, but the official NBER recessions require 2 quarters. The stock market did not like even one quarter of GDP contraction, dropping almost 20%."

In the current Barrons, you might have noticed an article on page 26 on newspaper stocks. Of the majors mentioned, only Tribune Company was projected to have higher earnings in 2007. Selling at 15 times estimated earnings and an enterprise value/cash flow of 8.9 and a dividend yield of 2.2%, I strongly suggest there is limited risk and an upside that could surprise. An entire buyout or significant asset sales are a catalyst that should not be overlooked.

Last week there were only 14 new lows on the NYSE. I guess the number could go to zero but less than zero is out of the question. Is this a sign of a top? It's a warning sign to keep in your mind. Keep your eye on the closing TICK. Last week that number was negative on Thursday and Friday for the Nasdaq.

Ford Motor Co. will extend buy-out offers to most of its while-collar workforce next week, according to a report in the Detroit Free Press Saturday.

I found it interesting that BJ Services closed at $33.03 on Friday, and yet, on Friday, 500 January 2007 calls with s strike price of $40 traded at 15 cents. That's a strong leap of faith or someone knows something that I do not.