Saturday, December 23, 2006

Holiday Greetings

12/24/06 Holiday Greetings

An explosion rocked the outside of a government building in Nigeria's southern oil hub Saturday, soon after the military reported an overnight bombing of a water pipeline leading into a refinery.
The attacks came at the end of a week of violent strikes against petroleum companies in Africa's largest oil-producing nation. Militant groups say people in the oil region aren't benefiting enough from the wealth.
A suspected car bomb blew up outside the headquarters of Rivers State government in Nigeria's oil capital Port Harcourt on Saturday but no one was killed, officials said.
The explosion occurred moments after militants from the Movement for the Emancipation of the Niger Delta (MEND) said they were about to detonate two car bombs in the region. The MEND is fighting for regional autonomy of Nigeria's oil producing south.

David Chapman: "The seventh year of the decade has a decidedly mixed record. The record for the Dow Jones Industrials since inception is a dead heat of six up and six down.
It doesn't particularly help us if the prior year (ending in 6) was an up year or a down year. When years ending in 6 were up (seven times), the year ending in 7 was down four times and up three times, including the past two. When years ending in 6 were down (five times) the year ending in 7 was up three times and down twice (and down big, both times)...With the record of years ending in 7 a dead heat, following an up year in 6 slightly favoring the bears, the third year of a second-term president favoring the bulls, and a the pre-election year also favoring the bulls we have to turn to our key cycles to look for a hint of what is to come for 2007...
Our conclusions on market direction in 2007 are clear. While the broad market could survive until March, we believe that will be either the high or a secondary high. Following that we will begin a five-year bear market with a big portion of the collapse occurring in 2007-08, very similar to the collapse of 1937-38. Gold and precious metals should resume their bull runs in 2007, with an outside chance of gold running to $1,000 an ounce. Other commodities should also rise. Oil should resume its bull market once again once we break out over $70. The US dollar should go into decline, but we expect it to be orderly, with periodic sharp corrections."

Peter Schiff: "The secondary effects of the 1 in 5 sub-prime default rate will be a chain reaction of rising interest rates and falling home prices engendering still more defaults, with the added foreclosures causing the cycle to repeat. In my opinion, when the cycle is fully played out we are more likely to see an 80% default rate rather than 20%.
The main problem is that the majority of these loans were made to people who really cannot afford to repay them and were collateralized by properties whose true values were but a fraction of the loan amounts. Once the music stops and prices return to earth, borrowers who put little or no money down may decide to simply mail in their house keys rather than make additional mortgage payments. Why would anyone stretch to spend 40% of his or her monthly income to service a $700,000 mortgage on a condo valued at $500,000, especially when there are plenty of comparable rentals that are far more affordable?"

It is hard to believe that 70 million Americans were forecast to go out and shop on Dec. 23.

Essar Shipping and Logistics (ESOL), through its subsidiary Essar Oilfields Services, has acquired a semi-submersible rig for $ 220 million (nearly Rs 1000 crore). Essar was the first Indian company to offer contract drilling services in 1985 both for onshore as well as offshore exploration and production (E&P) activity.
The rig has a drilling depth capacity of 25,000 feet and is equipped with top drive, automatic pipe handling systems and rough weather BOP launch system. Industry analysts pointed out the rates for rig had doubled in last six months and companies were scouting for brand new rigs. Essar stated “The shipyards building drilling rigs are overbooked and there are no second hand quality rigs available in the market."
In my view, it is much more advantageous to go out and buy a drilling company than to
contract to have the rigs built. The market has overlooked the long-range demand for rigs, and Helmerich and Payne, Nabors, and Bronco Drilling are selling for a fraction of their true worth- naturally, this is simply my opinion. The same can be said for the oil service companies, and, in particular, BJ Services. At some point, you will look back and kick yourself for not owning shares in these companies.

A Chevron senior drill-site manager comments, "There's a lot of prospects out here we'd like to drill but can't yet because there aren't enough rigs."

Statoil cut 95,000 barrels per day at North Sea oil and gas field for five months.

Friday, December 22, 2006

Spelling It Out

12/23/06 Spelling It Out

Jas Jain: "For the Year Ending In September 2006:

Number of Housing Units added in a year (Supply) = 2,100,000

Increase In Number of Housing Units Occupied in a year (Demand) = 1,200,000

For the Month of November 2006:

Number of New Housing Units For Which Permits Were Filed = 1,500,000
Number of Housing Units Started = 1,600,000"

You believe the housing market has bottomed?

Paul Kasriel: "The fact that the dollar price of copper has declined along with the fall in the dollar implies that the price of copper has declined in terms of other currencies, not just the dollar. This could suggest that manufacturing activity globally is slowing."

comScore Networks Inc. raised its estimates for total online holiday shopping this season to $24.6 billion, from $24.3 billion, and representing a 25% increase from last year's season.

"For at least the past six years, gas prices have typically been on the decline at this time of year, partly because demand is lower," said Auto Club spokeswoman Carol Thorp. "But lower production levels at California refineries in the past month pushed wholesale gas prices sharply upward around Thanksgiving, and now that increase has been passed on to consumers." Inflation is muted?

George Ure: "Personal saving -- DPI less personal outlays -- was a negative $95.0 billion in November, compared with a negative $71.4 billion in October. Personal saving as a percentage of disposable personal income was a negative 1.0 percent in November, compared with a negative 0.7 percent in October."

Rupert Murdoch's News Corp. will swap its controlling stake in the satellite TV broadcaster DirecTV Group Inc. with Liberty Media Corp. in exchange for Liberty's 16 percent stake in News Corp.

Dan Denning: "The tech bubble may turn out to be a dress rehearsal for an even bigger bubble and threat now. Why do I say that?
"Here's the difference between today and 2000. Seven trillion dollars was wiped out when the tech bubble burst, proving that it was largely fictitious wealth. The real economy didn't really miss a beat…because the money people lost was not money people really had.
"It was paper gains, never realized, and ultimately lost…So all in all, for the most part, it was easy come, easy go.
"Today is much different. People have more at stake (the roof over their head), and less margin for error (fewer real assets on the balance sheet, more liabilities) and there is a connection between private equity/money shuffling capitalism and the housing markets…the connection is debt. And the debt is what makes this bubble different and worse than the last bubble.
"All that is at the household level. If the private equity boom continues (as I believe it will), it will also leave a mountain of debt rubble after the bubble bursts at the corporate level. It's odd, of course, that something as ephemeral as a bubble can leave real debt. Yet because the private equity guys are paying 40 cents for a $1.20 worth of future earnings (making up the difference with borrowed money), the newly-private companies are saddled up with debt they wouldn't have otherwise taken on before. This is, as the article notes, not real investment in new productive assets. It's debt that merely facilitates the transfer of ownership of the company's assets."

The 10-year benchmark Treasury note fell 17/32 to 100-2/32 with a yield of 4.619%, up from 4.55% late Thursday.

February crude closed at $62.41 a barrel, down 25 cents for the Friday session. January natural gas fell 16.5 cents to close at $6.635 per million British thermal units.

February gold closed at $622.30 an ounce, up 70 cents for the session. March silver rose 14.5 cents to close at $12.635 an ounce. March copper was at $2.8525 a pound, down 2.8 cents for the day.

Craig Walters: "A new poll conducted by the Kaiser Family Foundation shows that 65% of Americans strongly favor having the federal government negotiate prescription drug prices for Medicare. An additional 20% are somewhat in favor of this change."

The total U.S. death toll for American troops in Iraq is 2,960. By comparison, the 9/11 death toll was 2,752. You be the judge. Are we winning or losing the war? That does not include 25,000+ of our troops injured in Iraq.

Thursday, December 21, 2006

Rig Shortages

12/22/06 Shortages And Stress

I have written several times about drilling rig shortages and my suggestions to consider the purchase of Helmerich and Payne as well as Transocean. The following is a piece from seeking alpha: "Bloomberg reports a severe shortage of deep-sea oil drilling rig availability is creating delays in exploration and production for oil majors such as Chevron, which is struggling to exploit the "Jack" oil field in the Gulf of Mexico, the deepest well ever tested, announced in September. A Chevron senior drill-site manager comments, "There's a lot of prospects out here we'd like to drill but can't yet because there aren't enough rigs." Amidst the shortage, daily rental fees continue to rise, having doubled over the past 18 months. Transocean, the world's largest rig operator charges as much as $520,000/day. There are only 18 rigs in existence that can reach the deepest discoveries, and there are currently 31 rigs on order globally with such capabilities. Of these, only two will be finished next year and 13 will be ready in '08. Meanwhile, the delay in exploring and producing oil in the Gulf of Mexico means the U.S. will continue to rely on OPEC. Total daily rig operating costs which can exceed $1m/day are seen hurting profits of oil majors. Analysts surveyed by Bloomberg estimate average net income growth of 12% this year, versus 35% in '05. Earlier this month, Chevron announced a 23% increase in capex for '07 to $19.6b."

Arcelor Mittal has a memorandum of understanding with the state of Orissa in India to build a plant there in a project that will cost $9 billion.

China and oil-rich Kazakhstan have decided to work on a trans-border oil pipeline while completing the survey and delimitation of their border areas, the state media reported today.
This was stated in a document signed by Chinese President Hu Jintao and Kazakhstan President Nursultan Nazarbayev here last evening.
China and Kazakhstan also signed 11 cooperation agreements covering trade, energy, science and technology, culture and education.
The agreements include an outline agreement on oil pipeline construction and a framework agreement for Chinese funding worth USD 292.8 million.

The Labor Department reported that 315,000 U.S. workers filed initial claims for jobless benefits in the week ending Dec. 16, an increase of 9,000 from the previous week. Continuing jobless claims rose to 2.52 million, the highest amount since January.

The U.S. economy grew at a 2% real seasonally adjusted annual rate in the third quarter, slightly lower than the 2.2% estimated a month ago, the Commerce Department reported Thursday. It was the slowest growth since the fourth quarter of 2005. The economy grew at a 2.6% pace in the second quarter.

Representatives from the California-based Chandler family, Tribune Co.'s largest shareholder, attended sales presentations for the company at its Chicago headquarters this week, according to a published report.
Citing unidentified sources with knowledge of the situation, the Chicago Tribune reported Thursday that the family seems to be working with at least one of the private-equity firms that have shown interest in the company.

The Conference Board reported that the Composite Index of Leading Economic Indicators
increased 0.1% in November, following a 0.1% increase in October, and a
0.4% increase in September.
Says Ken Goldstein, Labor Economist at The Conference Board: "The
slower economy of the second half of 2006 might continue into the first
half of 2007. But it may not get any slower. Energy prices are down. The
housing slump does not appear to be deepening. And the economy retains
considerable strength. The unemployment rate remains relatively low.
Inflation is low, and so are interest rates. These are all positives with
respect to consumption and investment. At this stage, something else must
develop, either to give the economy a new jolt of energy to speed it up, or
a new snag that could force the economy to slow more."
The Conference Board reported that the Coincident Index increased 0.2%
in November, as well as in October, and increased 0.1 percent in September.
The Lagging Index increased 0.5% in November, compared with a 0.2% rise in
October and September.

About three-fourths of people in the United States, Australia, Canada, France, Germany, Italy, South Korea and the United Kingdom say they experience stress on a daily basis, according to AP-Ipsos polling. Those anxious feelings are even more intense during the holidays.

The Iranian government and China's biggest offshore oil producer, CNOOC Ltd. (0883.HK), have signed a $16-billion natural gas deal, Iranian news agency Mehr reported Wednesday. The deal would cover the development of Iran's northern Pars gas field and the construction of liquefied natural gas facilities which will export gas to China.

Rigzone reported the Iranian Oil Ministry will carry out all its oil-industry related equipment purchases in euros instead of dollars after the Iranian government decided to base its new-year budget in euros, Iran's oil minister, Kazem Vaziri Hamaneh, said Wednesday.
"Based on the government's policy of substituting the euro for the dollar, all oil industry purchase contracts will be done in the euro," the official IRNA news agency quoted Vaziri as saying.
Government spokesman Ghollam Hussein Elham said earlier this week that all national hard currency revenues, including those from oil exports, will be calculated in euros in the Iranian budget being drafted for the Iranian fiscal year beginning March 21.

The Energy Department said natural-gas inventories fell 71 billion cubic feet for the week ended Dec. 15. Global Insight expected a decline of 73 billion. Total stocks now stand at 3.167 trillion cubic feet, up 342 billion cubic feet from the year-ago level, and 274 billion cubic feet above the five-year average, the government data said.

Iran’s oil minister on Wednesday admitted that Tehran was having trouble financing oil projects, in a rare acknowledgment of the economic cost of its nuclear dispute.
“Currently, overseas banks and financiers have decreased their co-operation,” Kazem Vaziri-Hamaneh told the oil ministry news agency, Shana.

Richmond Federal Reserve Bank President Jeffery Lacker said he's not persuaded that inflation has moderated. "Such a moderation is not yet evident, despite the two most recent CPI reports.It would take several months worth of data to provide statistically convincing evidence of a moderation in inflation."

February gold fell $2.70 to close at $621.60 an ounce in New York Thursday. March silver fell 15.5 cents, or 1.2%, to end at $12.49 an ounce and March copper finished at a fresh, six-month low of $2.8805 a pound, down 7.4 cents, or 2.5%.

The Federal Reserve Bank of Philadelphia said its Philly Fed index fell to negative 4.3 in December from positive 5.1 in November. Indicators for new orders and unfilled orders also fell below zero. Shipments remained healthy.

February crude fell $1.06 to close at $62.66 a barrel Thursday. January natural-gas futures finished at $6.80 per million British thermal units.

Wednesday, December 20, 2006

Further Developments

12/21/06 Further Developments

Palatin Technologies and King Pharmaceuticals Complete Enrollment in
Pre-Menopausal Cohort of a Phase 2 Clinical Trial Evaluating Bremelanotide in Pre- and Post-Menopausal Female Sexual Dysfunction Patients. "Based on positive results from a pilot safety/clinical pharmacology study evaluating bremelanotide in FSD patients, Palatin and King Pharmaceuticals are jointly committed to advancing the clinical development of bremelanotide for FSD and are pleased to report continued progress in the execution of our development program," said Trevor Hallam, Ph.D., Palatin's Executive Vice President of Research & Development. "Both female sexual dysfunction and male sexual dysfunction represent significant market opportunities where we believe bremelanotide has the potential to address unmet medical needs."

George Ure: "Turn off all the power (as people in the Pacific Northwest found out last week) and suddenly you can't get milk or gasoline because the credit card machines don't work." That's true of gas pumps and gasoline etc.

Sasol will spend R45 billion in the three years to June 2009 on its capital expenditure programme.
"About 75 percent of this is set to take place within the energy sector, and an estimated 60 percent of the total will be spent in South Africa," Sasol added.
The petrochemicals group again indicated that it was engaged in preliminary feasibility studies to examine the possibility of building a second coal-to-liquids plant in South Africa.

Charlie Bobrinskoy of Ariel Capital Management in Chicago, which owns 6.6 percent of Tribune, said, "We are pleased that the board and its advisers are running a thorough process to explore all opportunities to maximize shareholder value."

M&F Worldwide Corp. said it would buy John H. Harland Company for $1.7 billion, or $52.75 a share in cash, a premium of $8.28, or 19%, over its Tuesday closing price of $44.47 a share. The merger is expected to close in the second half of 2007. M&F is controlled by Ronald Perelman, and hence, I have no interest in following this transaction to possible completion.

Bush said Tuesday for the first time that American forces were not winning in Iraq. He also said the military would be expanded to fight a long-term battle against terrorism.

Research firm Gartner expects there to be over 21 million WiMax connections in North America by 2011.

John Williams: "GAAP-Based Federal Deficit Jumps to $4.6 Trillion. Total Federal Obligations at $54.6 Trillion. Energy Pricing Gimmicks Distort CPI and Trade Deficit."

FedEx Corp. reported lower-than-expected quarterly profit on Wednesday and forecast earnings in the current period below Wall Street estimates.

Talisman Energy Inc. said Tuesday it is expanding its share buyback and will repurchase up to 10 percent of its public float over the year ending March 27.

From time to time, I mention various technology I believe will resonate over the long term. Some has been in the biotech field and some in other technology, such as, Google's search and Skype's voip. Today I'd like to leave you with Arts Alliance Labs, Inc. and their Consumer Recommendation Software for online retail businesses, a secure infrastructure for the growing Digital Cinema network around the globe, and BenTen, a framework for online community applications. I believe the offerings from AAL are the thing of the present and the future.

The American Petroleum Institute reported a drop of 4.3 million barrels in crude supplies for the week ended Dec. 15. The Energy Department had reported a fall of 6.3 million. Motor gasoline supplies were down 300,000 barrels, the API said, but the government's reported a rise of 1 million. Distillate supplies were down 1.4 million barrels, the API said, contrary to the 1.2 million-barrel rise reported by the government.

Bill Cara: "I think markets will only truly revert to normal after the next spike in gold -- something like we saw in the 1970's, where currency imbalances had to be dealt with (and gold spiked), which led to a series of Bear markets (1973-4, 1978, and 1981-2).
At this point, traders can expect a growing number of analyst downgrades and fewer numbers of upgrades because objective analysts on Wall Street can no longer ignore the fact that debt (public and private) is being created faster than wealth (ie, the increase of real enterprise value)."

A new Center for Responsible Lending (CRL) study reveals that 2.2 million American households will lose their homes and as much as $164 billion due to foreclosures in the subprime mortgage market. Titled, "Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners," the CRL study is the first comprehensive, nationwide review of millions of subprime mortgages originated from 1998 through the third quarter of 2006.

February gold fell $1.10 to close at $624.30 an ounce and March silver ended at $12.69 an ounce, down 2 cents for the session. March copper lost 6.3 cents, or 2.1%, to finish at $2.9545 a pound.

It's been about one week since approximately 150,000 of Puget Sound's customers have been without power in the Pacific Northwest. It should be noted that a similar storm hit the area in 1993. In the interim, Puget Sound has had several rate increases but only marginally improved the underground infrastructure of the power delivered to the customers. We are talking about elderly without electricity or heat in 30 degree weather. We are talking about non-working elevators. For a time, pharmacies had no power and prescriptions could not be filled. I have not even begun to discuss the business lost during the holiday season, and that should approach $750 million. Puget Sound will ask for more rate increases. Unfortunately the local PUC is an old boy network. They should make Puget Sound pay each residential customer at least $1,000 for the food thrown out and the extra expense for gasoline ( the local gasoline stations that had power raised their prices by 10 to 20 cents a gallon and the gas lines were an hour long)and for the doctor bills caused by no heat. In addition, the PUC should then all resign for the lack of due diligence. As an aside, I have not dealt with the hundreds of millions of dollars lost by businesses during the past week and going forward into Christmas. Puget Sound should be held accountable. If I were stupid enough to be a Puget Sound stockholder, I would surely sell the shares.

Charles Kingsley: "Pain is no evil, unless it conquers us."

David Walker, Comptroller of the US, recently stated that the GAO had found so many significant material deficiencies in the government’s accounting systems that the GAO was “unable to express an opinion” on the financial statements. Can you imagine if the United States of America were a public company? Enron looks good by comparison. How would you like to be a creditor of the U.S.?

Here's a little more to chew on from David Walker: "Despite improvement in both the fiscal year 2006 reported net operating cost and the cash-based budget deficit, the U.S. government’s total reported liabilities, net social insurance commitments, and other fiscal exposures continue to grow and now total approximately $50 trillion, representing approximately four times the Nation’s total output (GDP) in fiscal year 2006, up from about $20 trillion, or two times GDP in fiscal year 2000.
As this long-term fiscal imbalance continues to grow, the retirement of the “baby boom” generation is closer to becoming a reality with the first wave of boomers eligible for early retirement under Social Security in 2008.
Given these and other factors, it seems clear that the nation’s current fiscal path is unsustainable and that tough choices by the President and the Congress are necessary in order to address the nation’s large and growing long-term fiscal imbalance." Don't be alarmed. The remedy from Bush is to go out and shop!

Natural-gas futures closed down 4.4% ahead of a government supply update on Thursday.
February crude rose 26 cents to close at $63.72 a barrel Wednesday.

ElkCorp said Wednesday it has received an unsolicited cash tender offer to purchase all of its shares for $40 each from Building Materials Corporation of America. It is amazing to me the multiple offers forthcoming for so many companies.

Albert Einstein: "The only justifiable purpose of political institutions is to ensure the unhindered development of the individual."

Tuesday, December 19, 2006


12/20/06 Expectations

Construction on new homes rebounded in November, rising 6.7% after a whopping 14% drop in October, the Commerce Department reported Tuesday. Building permits, meanwhile, fell 3% to a fresh nine-year low, signaling that the housing market remains very weak. Starts rose 6.7% in November to a seasonally adjusted annual rate of 1.588 million. Starts are down 25.5% in the past year. Building permits, considered a leading indicator, fell 3% to a seasonally adjusted annual rate of 1.506 million. Building permits are down 31.3% in the past year.

Producer prices rose by much more than expected in November, with the core producerprice index rising by the most since July 1980, the Labor Department said. The November producer price index climbed by 2%, the biggest rise since November 1974, statistics show. Most of the gain in the headline producer price number was in energy prices, which rose by 6.1%. Of that, 17.9% was gasoline prices, while 14.6% was diesel fuel. I find it interesting that, in other government data, inflation is tame because they state energy prices declined. If you go to the pump and/or pay for heating oil, the answer is pretty clear. By the way, regular unleaded gas in the Seattle area is now $2.77 a gallon.

A Pentagon report found an average of almost 960 attacks on U.S. and Iraqi targets every week from early August to early November.

The Thai government has reversed a decision to impose tough capital controls on foreign investors in the stock market after the benchmark SET index lost 15% overnight, according to The Thai central bank on Monday announced measures that would lock up 30% of new foreign currency deposits for a year and said the measures would become effective Tuesday. The central bank said it was trying to curb speculation that had caused the Thai baht to appreciate by about 17% against the dollar this year. "The government has now reversed the decision after seeing the effect," said

Nouriel Roubini provides some points in a speech by John Duggan, Comptroller of the Currency:
"* 5% of mortgage originations in 1994 were sub-prime; that is now up to 20%.
* Interest-only and payment-option ARMS were 2% of loan originations in 2000, they now account for 40%.
* 20% of payment-option ARMs originated in the past two years have loan value greater than home value, a figure that would double to 40% if home prices were to decline another 10%. Thus many mortgage holders have significant negative equity in their homes.
* 50% of the sub-prime market is now made up of ‘stated income’ mortgages where "the borrower pays the lender not to verify the borrower’s stated income on the loan application, making it possible for the borrower to artificially inflate the size of his or her income in order to qualify for a bigger mortgage."
* A study by the Mortgage Asset Research Institute found that 60% of applications for these ‘stated income’ loans exaggerated income by at least 50%.
* The increase in debt-servicing ("payment shock") coming from negative ammortization mortgages can be severe: if rates are reset even only by 2 percentage points the payment increase will amount to a near doubling of the amount of the initial monthly payments."

Zmann: "Houston Ship Channel has been shut in for 5 days with fog. 60 tankers await unloading. The region accounts for 12% of US refining capacity and I’ve seen one report of reduced throughput due to the delayed unloadings. This should set up some pretty sizable withdrawal expectations for this week and next for gasoline and heating oil."

Circuit City Stores Inc. said it swung to a loss in the fiscal third quarter as deep discounts on flat-panel televisions and computer hardware and software cut into profit margins. It also lowered its full-year sales outlook.

Oracle's sales fell short of expectations.

The peso's 6.2 percent gain against the dollar in the past six months adds to the savings for Mexicans on clothes, shoes and electronics. Mexican shoppers come from Monterrey, the northern industrial hub that is 150 miles south of Laredo, and from as far as Mexico City, 700 miles away. They spend $500 to $1,000 a trip, said Michael Patrick, director of the Texas Center for Border Economic and Enterprise Development at Texas A&M International University in Laredo.

From Daily Reckoning: "Mortgage equity withdrawal (MEW) has faltered, to an annualized rate of $214.2 billion in the third quarter of this year after peaking at $730.5 billion a year earlier."

Harrah's Entertainment Inc. has agreed to be acquired by private-equity firms Apollo Management and Texas Pacific Group for $16.7 billion plus the assumption of $11 billion in debt, according to a media report Tuesday. The private equity firms agreed to pay $90 a share for the Las Vegas casino giant, the Wall Street Journal reported on its Web site, citing a person close to the matter. Two months ago, the firms bid $81 a share, the report said. Harrah's top managers, including CEO Gary Loveman, are expected to be retained by the new owners, the Journal reported. Under the merger agreement, Harrah's may solicit superior proposals from third parties during the next 25 days, and the board of Harrah's intends to solicit superior proposals during this period. The transaction is expected to be completed in one year, and is subject to approval from shareholders and regulators.

January crude rose 94 cents to close at $63.15 a barrel on Tuesday. The February contract, which is now the front-month futures contract, climbed 67 cents to end at $63.46.

February gold climbed $7.50 to close at $625.40 an ounce Tuesday. March silver added 18.5 cents to finish at $12.71 an ounce, but March copper lost 1.2 cents to end at $3.0175 a pound.

Redback Networks Inc. announced a definitive agreement to be acquired by Ericsson for $2.1 billion or $25 dollars per Redback share. The acquisition is expected to occur by means of a tender offer for all of the outstanding shares of Redback common stock.

Monday, December 18, 2006


12/19/06 Happenings

Icos Corp.'s board said on Monday it had agreed to a sweetened takeover offer from Eli Lilly and Co. of $34 per share in cash, up from a previous offer of $32 per share.

Norway's Statoil on Monday said it has agreed to buy the oil and natural-gas division of Norsk Hydro in a deal that will create the world's largest offshore operator.

Pharmacy-benefit manager Express Scripts Inc. is preparing a $26 billion cash-and-stock offer for Caremark Rx Inc., in an effort to break up the company's existing takeover deal with drug chain CVS Corp., according to a media report.

Delta Air Lines Inc. is expected as soon as Tuesday to file a bankruptcy reorganization plan that values the company at $10 billion to $12 billion, substantially more than the $8.4 billion hostile-merger offer from U.S. Airways Group Inc., according to a media report Sunday.

VNU, the closely held media company with businesses like Nielsen Media Research and the publications Billboard and Hollywood Reporter, said it would cut 4000 jobs during 2007.

OPEC on Monday said the fundamentals of the world oil market show signs of weakening in 2007 as economic growth slows and supply from non-OPEC countries rises faster than global demand. In a monthly report, the group that pumps more than a third of the world's oil held its forecast for global demand growth at 1.3 million barrels per day and said a weakening U.S. economy posed risks to the outlook. "Risks for oil demand appear to be more weighed on the downside, given the dangers to global economic growth emanating from a visibly weakening U.S. economy," OPEC said of the 2007 forecast.

Home Depot Inc. said on Monday that investment firm Relational Investors LLC intends to submit a proposal asking the company to appoint a special committee of independent directors to evaluate its direction, management performance and strategic alternatives. Home Depot said it has advised Relational that it will arrange a meeting early in the new year but will oppose the resolution and proxy solicitation that Relational intends to pursue.

The National Retail Federation, a trade group, estimates that shoppers will buy $24.8 billion worth of cards, up 34 percent from last year. About 6 percent, or $4.8 billion, of this year's gift cards will go unused, estimated Laura Lane, vice president of unclaimed property services for Keane Co., a compliance and risk management consulting firm.

A MasterCard Advisors survey, which focuses on credit card spending and other economic indicators, shows that spending in November and December has climbed at half the rate of last year's 8-percent growth.

John Hussman: "So on any given day, what I'm actually doing is running variations of stock selection approaches on historical data – for example, testing the effectiveness of using operating P/E's, earnings momentum, etc. What I find is that the best performing approaches, even over the past decade, are those that emphasize normalized free cash flow, and are conscious of both valuations and market action. What I also find is that the versions that have performed best over the long-term are lagging this year, and that it's difficult to improve on our existing methodology. That's frustrating, but also somewhat comforting... Nothing prevents investors from driving the market higher over the short-term so long as Wall Street analysts propagate the same sort of ignorance that they encouraged in the late 1990's. In any event, further market gains on the hallucination that P/E multiples are “reasonable” will only make the long-term resolution worse. We're willing to accept a limited amount of call option exposure based on the current speculative mood of investors, but a larger speculative exposure is still best executed on a short-term pullback that clears the strenuously overbought condition of the market."

Verizon Communications may sign an agreement as early as Monday with five major Asian telecom carriers to build the first high-speed trans-Pacific undersea cable system directly linking the U.S and China, the Wall Street Journal reported, citing people familiar with the matter. The project is estimated to cost $500 million. The cable system is designed in part to serve the surging volumes of Internet and phone traffic produced by multinational corporations.

The U.S. current account deficit widened to $225.6 billion in the third quarter, or 6.8% of gross domestic product, the Commerce Department reported Monday.

Royal Ahold is in talks with private equity over potentially selling is US food service unit; reports put this as much as $4B to $5B.

Biomet has agreed to be acquired for some $10.9 Billion in cash, a $44 offer from buyers include Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts and the Texas Pacific Group, along with one of Biomet's founders, Dane A. Miller.

ElkCorp is being acquired by the Carlyle Group for $38.00 per share.

MacDermid gets $35 buyout offer from a CEO-led group.

Weight Watchers has launched a self-tender offer for up to 8.3 million shares of its common stock. The New York weight management services company said it would pay between $47 and $54 for each share. The company said the tender offer will expire at 12:00 a.m. Eastern on Jan. 18.

February gold fell $1.20 to close at $617.90 an ounce Monday. March silver dropped 45.5 cents, or 3.5%, to end at $12.525 an ounce. March copper gained 1.3 cents to close at $3.0295 a pound.

January natural gas dropped 33.4 cents, or 4.5%, to close at $7.075 per million British thermal units. January crude fell $1.22 to close at $62.21 a barrel, ahead of Tuesday's futures contract expiration.

The euro rose 0.5% to trade at $1.3164 against the dollar on Tuesday after data from the German Ifo survey showed that its business climate index rose to 108.7, from 106.8 in November, its highest level for 16 years.

For 2006, Cemex expects to meet its EBITDA outlook of $4.1 billion, on revenue of $18 billion. The company sees operating income of more than $2.9 billion. Cemex did not provide any outlook for 2007 due to the "uncertainty around the depth and duration of the ongoing correction in the U.S. residential sector."

Hovnanian Enterprises Inc. said it swung to a fourth-quarter net loss available to shareholders of $117.9 million, or $1.88 a share, as revenue fell and margins narrowed. In the same period last year, the Red Bank, N.J.-based home builder posted net earnings available to shareholders of $165.4 million, or $2.53 a share. Revenue fell 1.5% to $1.75 billion from $1.77 billion. The company expects 2007 per-share earnings of $1.50 to $2, on 16,000 to 18,000 home deliveries. For the first quarter, Hovnanian sees per-share earnings of 5 cents to 10 cents. "We believe that the overall U.S. housing market may hit the bottom in the first half of 2007," said Ara Hovnanian, the company's president and chief executive, in a statement. "However, the housing market is likely to bounce along the bottom for several quarters before pricing and sales pace improves."

A group of Tribune Co. executives led by Chief Executive Dennis FitzSimons together with a consortium of three private investment firms are expected to enter a bid for Tribune, according to a media report Monday. The management consortium includes Providence Equity Partners of Rhode Island, Apollo Management of New York and Madison Dearborn Partners, the Los Angeles Times reported. Tribune's largest shareholder, the Chandler family, is also in talks with investment firm Yucaipa Cos. about making an an offer for some or all of Tribune's assets, the L.A. Times said, citing people familiar with the matter.

Sunday, December 17, 2006


12/18/06 Comparing

According to the BLS, in September 2006, private industry employer compensation costs averaged $25.52 per hour worked. Wages and salaries averaged $18.04 per hour (70.7 percent), while benefits averaged $7.48 (29.3 percent). By comparison,in state and local government, in September 2006, employer costs averaged $37.91 per
hour worked. Wages and salaries, which accounted for 67.3 percent of the total,
averaged $25.53, while benefits, which accounted for the remaining 32.7 percent, averaged $12.38. Benefit costs increased from 31.4 percent of total compensation
and $10.89 per hour for state and local government workers in September 2004.

I realize that I must be in far left field. I continually look for risk. It's much harder to produce on-going excellent returns if your are trying to overcome losses. Wall Street has clearly forgotten about volatility and risk. Just look at the VIX. It closed under 10 on Friday. Money managers dream of fees and soft landings. By comparison, I am always checking under the hood. How can one realistically expect a soft landing from the largest debtor nation in the history of the universe? Think about the scenario: the Fed will be on hold for the next 6 months and then ease. GDP growth will be around 2.5% in 2007. Foreign countries will still treasure U.S. treasuries. Housing prices will land on a soft cushion. U.S. vehicle demand will not decline below 15.5 million in 2007. By comparison, I'd rather side with the tooth fairy.

As for the tooth fairy, an interesting strategy for the wekend was selling the Harrah's Entertainment December 80 puts for 70 cents in Friday's trading. The puts were put to me over this weekend. That places a cost of $79.30 a share. We'll have to see how this works out on Monday or Tuesday. In the meantime, Private equity firms Apollo Management and Texas Pacific Group were near reaching a deal to buy Harrah's Entertainment Inc. on Sunday, with an announcement possible on Monday, sources familiar with the situation said.The Wall Street Journal reported on its Web site that the offer would be worth at least $90 per share, or $16.7 billion, based on 186 million shares outstanding. One must remember it takes quite some time to get all the gaming license approvals in a takeover of this type.

Royal Dutch Shell is on the brink of a deal to bring Russian gas monopoly Gazprom into the $22 billion Sakhalin-2 project, a spokesman said on Sunday.

comScore Networks released its estimates of consumer online non-travel (retail) spending at U.S. sites for the 2006 holiday season through December 15. During the first 45 days of the holiday season, total online retail spending reached $19.48 billion, marking a 25-percent increase versus the corresponding days in 2005.

Realogy Stockholders To Receive $30.00 Per Share. It has entered into a definitive agreement for the Company to be acquired by an affiliate of Apollo Management, L.P., a leading private equity firm, in a transaction valued at approximately $9.0 billion, including the assumption or repayment of approximately $1.6 billion of net indebtedness and legacy contingent and other liabilities of approximately $750 million.

A powerful tool of molecular biology may be able to ensure that breast cancer patients receive a correct
evaluation of lymph node status during initial surgery. Speaking at the 29th Annual San Antonio Breast Cancer Symposium, Peter Blumencranz, MD, from Morton Plant Mease Healthcare, reported the development of a new
assessment system based on reverse transcriptase-polymerase chain reaction (RT-PCR). This new system, called the GeneSearch(TM) Breast Lymph Node (BLN) assay, is being proposed as a more accurate replacement for
techniques currently in use, including frozen section and touch prep cytology.
When patients undergo surgery for breast cancer, lymph nodes suspected of harboring metastases are removed and sent to a pathologist for assessment while the patient is still under anesthesia. In frozen section evaluation, the lymph node is frozen and sliced, and the slice is examined under a microscope. For touch prep cytology, the node is cut open, and the cut surface touched to a slide, leaving behind a small sampling of cells that can be examined microscopically. Both techniques are very fast, but their accuracy is limited. After initially being classified as "node-negative" on the basis of these techniques, a patient may ultimately be reclassified as node-positive once
the node is examined more carefully. She must then undergo additional surgery and anesthesia in order to have an axillary dissection, which can be financially costly, as well as psychologically burdensome for the
patient. The BLN assay analyzes a full 50% of the lymph node, compared with about 5% in even the most meticulous standard approaches. The node is ground and analyzed with special probes that identify specific proteins
associated with breast cancer cells. This technique is so powerful that it can detect the presence of proteins from a single cancer cell. The BLN assay is a rapid, closed-tube system that takes approximately 30 minutes to run (roughly equivalent to the amount of time it takes to obtain a frozen section in many institutions). Because the results of the
assay are an objective "yes" or "no" for the presence of metastases, it can be easily administered by a trained technician, freeing up the valuable time of experienced pathologists. Only half of the lymph node is used, leaving the other half available for more intense study in those cases where the answer is "yes."
Two clinical trials in the US and Europe have validated the use of the BLN assay. These studies showed that the assay was much more accurate in detecting both micro- and macrometastases in suspicious lymph nodes,
compared with frozen section and particularly with touch prep cytology. This high degree of accuracy means that the number of call-backs for secondary axillary node surgery can be reduced, decreasing both cost and patient anxiety.