Saturday, March 03, 2007


3/4/07 Thoughts

Robert McHugh: "We are writing today to warn that there is a large body of technical analysis that suggests that the plunge we saw this past week is just the beginning of what will be an extended correction in equity markets. Further, after a partial retracement of the recent decline, we expect a significant plunge to occur which will dwarf this week's sell-off...our indicators are not Bearish or Bullish, but objective. It is now on a new "sell," the first change since July 19th. The problem with Bear markets is that they often wipe out years of gains within months, and months of gains within weeks or days. Tuesday's stock market plunge wiped out 25 percent of the gains from the July 2006 to February 2007 rally -- in a matter of a few hours!"

Bill Bonner: "But the nice thing about the markets is that the punishments tend to fit the crimes. The greater the deception and scheming...the harder the punishment. The farther out-of -the-ordinary prices go...the more they have to move to get back into the ordinary. The greedier investors become, the more they lose...Ben Bernanke tells investors to relax. Markets are functioning normally, he says. He might as well tell sinners not to fear because God is just. But that's what they should be worried about."

John Mauldin: "I was talking with Dr. Gary Shilling this afternoon, and of course the topic of subprime lending comes up. He told me of a web site that tracks the woes of subprime mortgage firms, at, which he said shows that 27 subprime mortgage lenders have gone belly up. I looked, and it is now 28...Shilling and I did a back-of-the-napkin estimate of the impact on the housing markets of the increased standards, coupled with the demise of interest-only and teaser-rate loans. It is highly likely that the buyers of 10% of the homes that were sold in the last two years would not have qualified to buy those houses, and it is possible it could be 15% or more...If you take 10-15% of the potential buyers from the market going forward, that is a serious problem, especially as you are adding homes to the market from foreclosures. The notion that we saw a bottoming of the housing market in January is ludicrous. Housing bottoms take years to accomplish, not a few quarters."

Bloomberg reported that "China, the world's biggest consumer of copper, imported more of the metal in January than in any month since June 2005."

Doug Noland: "Finance is today hopelessly unsound. And the reality of this predicament is that if you lose your bearings and get your finance terribly wrong, well, other things (so-called "fundamentals") end up not really mattering all that much. In general, a lot of decent economic policymaking can be more than negated by financial system mismanagement. More likely, Credit system misdeeds and resulting pricing distortions will elicit policy decisions which only exacerbate financial excess and Bubble tendencies. Credit Bubbles (and attendant asset inflation) tend to turn conventional analysis on its head, with "good" policies deemed those that work to prolong the fateful boom. Self-reinforcing asset Bubbles and policymaker complicity are virtually guaranteed - and pose a great systemic dilemma...Today's economic policy fanatics haven't met a Bubble they haven't fallen for. This group also seems determined to keep their heads planted firmly in the sand, with analysis incredibly off the mark. In their (over-confident) minds, analyst warnings of the perils of poor lending, leveraged speculation, derivatives, Current Account Deficits and Bubbles have already been proven inept. All the same, the Chinese stock market was certainly not the "trigger" for heightened global market tumult. Instead, look directly to the realm of (U.S. gone global) "contemporary finance" - risky lending; imprudent risk intermediation, packaging and disbursement; rampant leveraged speculation; and sophisticated derivative trading strategies. The consequences of massive liquidity excess, global performance-chasing financial flows, trend exacerbating hedging-related trading, and unavoidable (Ponzi Finance) instability will inevitably come home to roost. It started this week...At some point, financial crisis will force through a wrenching adjustment period. One can expect this process to be instigated and shaped by a radical change in the global liquidity backdrop and the flow of finance...First, we've clearly reached the point where global Bubble excesses are so egregious and prevailing that overextended markets have basically lost their capacity for pullbacks that don't incite fears of attempted mass exits and dislocations. Second, the principal contagion mechanisms are the hedge funds, "brokerage" proprietary trading desks, rampant capricious speculative flows, and ballooning global derivatives markets. Third, and significantly, The Confluence of several key developments quickly pushed the risk markets to a state of heightened tumult. The breakneck meltdown of the subprime originators; Freddie Mac and others scurrying to exit the business; and the great uncertainty associated with tightened mortgage Credit conditions comprised a major Credit market development. The hasty rally in the yen was a second major market occurrence with negative ramifications for global leveraged speculation. At the same time, Treasury prices spiked higher on safe haven buying, the reversal of spread trades, and interest-rate hedging-related buying (unwind of previous hedges as well as MBS-related hedging). Top this off with a synchronized drop in global equities prices and selling in metals and other commodities, and you have a series of market gyrations that epitomizes the nightmare scenario for the leveraged speculating community...So, in short order, global risk markets were hit with self-reinforcing mortgage Credit, yen "carry trade," and Treasury "melt-up". Almost across the board, Credit spreads and risk premiums widened significantly. Credit derivative indices mounted a snappy "V" reversal from record low prices. And not unexpectedly (considering the nature of global speculative financial flows), fears of a reversal in speculations, aggressive derivative-related trading, and de-leveraging quickly mounted. Global markets relishing in the perception of endless liquidity were abruptly walloped with the specter of a liquidity crisis. Chinese policymakers and equities had little to do with these dynamics."

According to reports out of Bloomberg and Associated Press, the price of "credit insurance" on the bonds of the big investment banks has spiked.

Brett Steenbarger: "Of the Dow components, MSFT looks broken. There is a serious exodus of capital from that stock, with only four sessions out of the last 20 showing positive dollar volume flow." This should not be surprising. Clearly, Vista is a major disappointment. When was the last time Microsoft provided a positive technological surprise?

Courtesy of Seekingalpha: "Kurt Wulff (McDep Associates) submits: A ten percent increase in proven reserves and a nine percent increase in production volume in 2006 lend confidence to estimated net present value [NPV] of $92 a share for buy-recommended EOG Resources (EOG)."

Iran's share in the November and February production cuts have totaled 249,000 b/d, of which the February cut amounts to 73,000 b/d. The Iranian oil minister said his country is fully committed to the cuts' implementation. Iran has been a proponent of the crude oil price at $60/bbl, arguing that any lower price would woo capital away from investment in bringing new fields into production.

Jeanette Winterson: "What you risk reveals what you value."

Friday, March 02, 2007

Assessing Risk

3/3/07 Assessing Risk

According to Bloomberg, Goldman Sachs Group Inc., Merrill Lynch & Co. and Morgan Stanley, which earned a record $24.5 billion in 2006, suddenly have become so speculative that their own traders are valuing the three biggest securities firms as barely more credit worthy than junk bonds. Prices for credit-default swaps linked to the bonds of the New York investment banks this week traded at levels that equate to debt ratings of Baa2, according to Moody's Investors Service. For Goldman, Morgan Stanley and Merrill Lynch & Co., that's five levels below the actual Aa3 rating on their senior unsecured notes and two steps above non-investment grade, or junk... Credit-default swaps on the debt of Goldman, the world's biggest securities firm, have risen to $32,775 per $10 million in bonds, up from $21,500 at the start of the year, according to prices compiled by London-based CMA Datavision. The price touched $35,000 on Feb. 28, the highest since June 2005...Contracts tied to Morgan Stanley, Merrill, Lehman Brothers Holdings Inc. and Bear Stearns Cos. also are at 19-month highs. Morgan Stanley credit swaps have risen $10,000 to $32,775 this year, CMA data show. Contracts on Merrill jumped to $33,000 from $16,500. For Lehman, they are up $12,440 to $34,440, and the swaps on Bear Stearns have climbed to $33,830 from $21,750.

Dell posted a fourth- quarter profit excluding some items of 26 cents a share, trailing the 30 cent average analyst estimate compiled by Bloomberg. Sales totaled $14.4 billion, falling short of the analysts' $14.9 billion average projection, after the company lost customers to rivals over the holidays.

The Financial Times reported Thursday that the Blackstone Group, the Carlyle Group and Hellman & Friedman were talking about making bids for TXU. The Wall Street Journal had previously reported that Blackstone was interested.

Rigzone reported that the rising dominance of national oil companies has relegated the Western oil majors to second-tier status and could have a substantial long-term impact on resource development, according to a report from Rice University.

Warren Buffett's To the Shareholders of Berkshire Hathaway Inc.:

"Our gain in net worth during 2006 was $16.9 billion, which increased the per-share book value of both our Class A and Class B stock by 18.4%. Over the last 42 years (that is, since present management took over) book value has grown from $19 to $70,281, a rate of 21.4% compounded annually.

We believe that $16.9 billion is a record for a one-year gain in net worth – more than has ever been booked by any American business, leaving aside boosts that have occurred because of mergers (e.g., AOL’s purchase of Time Warner). Of course, Exxon Mobil and other companies earn far more than Berkshire, but their earnings largely go to dividends and/or repurchases, rather than to building net worth.

All that said, a confession about our 2006 gain is in order. Our most important business, insurance, benefited from a large dose of luck: Mother Nature, bless her heart, went on vacation. After hammering us with hurricanes in 2004 and 2005 – storms that caused us to lose a bundle on super-cat insurance – she just vanished. Last year, the red ink from this activity turned black – very black."

On CBC News: Twenty-five of the company's 205 stations in the Toronto area were deliberately shut down, likely for one to two days, to divert fuel to larger centres in the face of the gas shortage in Ontario. "We have taken the tough decision to close a small number of our smaller sites and so we can focus on replenishing our larger sites," said Petro-Canada spokesman Jon Hamilton. Across the province, 75 of the company's 440 stations ran out of gas on Wednesday.

At sunset tomorrow, if the weather cooperates, we'll see the full March "Sap Moon" or "Crow Moon" rise over the eastern horizon about 6 p.m. It will already be in full eclipse - deep inside the northern half of the circular shadow Earth casts into space.

Tribune agreed to sell its two smallest newspapers, the Greenwich Time and Stamford Advocate, both in Connecticut, to Gannett for more than $65 million. Gannett outbid MediaNews Group of Denver. The two newspapers have a combined circulation of 39,000+.
Sam Zell on Thursday confirmed media reports he may combine with Tribune company employees to bid for the entire company.

According to Bloomberg, China cut the amount that banks can borrow overseas to curb risks and stem foreign-currency inflows that have put pressure on the yuan to appreciate. Chinese banks' quotas for foreign debt will be reduced to 45 percent of the 2006 level by June 30 and then to 30 percent by March next year, the State Administration of Foreign Exchange said on its Web site today. For foreign banks, the reduction is to 85 percent and then 60 percent.

Julian D.W. Phillips: "Central banks are, across a broad front, increasingly diversifying their reserves, including cutting holdings of the U.S. $. Italy, Russia, Sweden and Switzerland have made "major adjustments" in foreign-exchange holdings favoring the € and the Pound Sterling between September and December 2006. Central banks are open to saying they've been diversifying to improve returns and reduce exposure to any single currency, which means, selling the $...The $ accounted for 65.6% of the world's currency reserves in the third quarter of 2006, down from a peak of 76%, according to the International Monetary Fund...But with such diversification added to the efforts of China in moving away from the $, the present levels of exchange rate values will just not hold in a $ crisis and it is naïve to think they will. But then again where else can they go? It is only fair to say that Central Bankers ignore exchange rate moves in their decision-making regarding currency holdings. Yes, they differentiate between 'soft' and 'hard' currencies, but yield has to be the main criteria. So the vulnerability of the $ grows by the day."

The UMich. consumer sentiment index fell to 91.3 in late February from an initial reading of 93.3 earlier in the month. This is the lowest reading since September.
The current conditions index slipped to 106.7 in late February from 108.3 earlier in the month. This is down from 111.3 in January. The expectations index fell to 81.5 in late February from 83.7 previously. The index is down from 87.6 in January.

Bayer AG said Friday that it will cut 6,100 jobs, or 5.5 percent of its work force, as it integrates Schering AG into its health care unit. More than half of the cuts will be in Europe, but about 1,000 positions will be eliminated in the United States.

zmann: "The relationship between gas prices and end of heating season storage levels has changed over the last few years. The cost of getting gas to the end user has risen due to a combination of factors ranging from a tight service market in terms of both rigs and skilled labor to accelerating decline rates to increasing use of gas (although demand really haven’t grown much over the last several years). Because of these inflationary pressures high gas storage levels at the end of the heating season have been less of a factor in determining the direction or level of gas prices."

THE FOLLOWING IS IMPORTANT. I urge all readers to take the time to read Stuart Staniford's analysis on regarding Saudi Arabia oil production. It is a thorough analysis and points to an 8% reduction in Saudi oil production in 2006. He states: "last year's underlying Type II decline rate, before megaprojects like Haradh III, was 14%.
Overall, I feel this data is clear enough that I'm willing to go out on a limb and conclude the following:

* Saudi Arabian oil production is now in decline.
* The decline rate during the first year is very high (8%), akin to decline rates in other places developed with modern horizontal drilling techniques such as the North Sea.
* Declines are rather unlikely to be arrested, and may well accelerate.
* Matt Simmons appears to be right in Twilight in the Desert, but the warning did not come until after declines had actually begun.

I suggest that this is likely to place severe political strains on Saudi Arabia within a year or two at most...I'll bet $1000 with the first person who cares to take me up on it that the international oil agencies will never report sustained Saudi production of crude+condensate of 10.7 million barrels or more."

There is no question in my mind that patient investors will be handsomely rewarded for adding to and/or establishing positions in high grade, well-managed companies in the energy complex.

April crude fell 36 cents to close at $61.64 a barrel Friday, marking its first loss in eight sessions. April natural gas was down 4.5 cents to close at $7.243 per million British thermal units.

April gold closed at $644.10 an ounce Friday -- its lowest closing level since Jan. 22. May silver dropped more than 5% to close at six-week low of $12.96 an ounce, losing 12% for the week.

The number of rigs drilling for oil and natural gas in North America fell by 4, or 0.2%, to 2,353, according to a weekly update by Baker Hughes Inc.The number of active oil rigs rose by 12 to 290, while the number of gas rigs fell by 14 to 1,458. The U.S. rig count fell two to 1,752, while the Canadian rig count also fell by two, to 601. The offshore rig count increased by five to 94.

EMI Group Plc, the world's third- largest music company, rejected a 2.1 billion-pound ($4.1 billion) takeover bid from Warner Music Group Corp. as too low.

Thursday, March 01, 2007

Fasten Your Seat Belts

3/2/07 Fasten Your Seat Belts

You need to be watchful for potholes. The road ahead may require repaving.

Incomes rose 1.0 percent in January, marking their biggest gain in a year. January consumer spending rose 0.5 percent after a 0.7 percent increase in December, the Commerce Department reported. Core consumer prices, which exclude volatile energy and food costs, rose 0.3 percent.
The core prices were up 2.3 percent compared with a year earlier after an unrevised 2.2 percent 12-month gain in December. It doesn't take a big brain to know inflation is much higher than the government reports.
The January saving rate improved slightly to a negative 1.2 percent of disposable personal income after a negative 1.4 percent rate in December. The saving rate has been negative since April 2005.

Oracle is making another acquisition. They are making a tender for Hyperion Solutions at $52 a share.

Crude topped $62 a barrel in early Thursday trading.

China's oil demand may rise 6.1 percent to 7.56 million barrels a day this year, the International Energy Agency said in a Feb. 13 forecast. China's top three oil companies pumped 29 percent more crude from overseas fields last year, the China Petroleum & Chemical Industry Association said on its Web site Feb. 16. China National Petroleum, China Petrochemical and China National Offshore Oil Corp. produced 35 million metric tons of oil from foreign fields in 2006, accounting for 18 percent of the total of 200 million tons, it said.

First-time initial jobless claims climbed by 7,000 in the week ending Feb. 24, to 338,000. The four-week moving average of new claims rose by 7,500 to 335,250, its highest level since the end of October 2005. Meanwhile, the number of people collecting unemployment benefits in the week ending Feb. 17 rose by 134,000 to 2.64 million, the most since Dec. 24, 2005. The four-week average of continuing claims rose by 24,000 to 2.54 million, the most since the end of January 2006.

In seeking shelter from the equity storm, the yield on 10-year Treasury bonds declined to 4.50%. I guess investors believe in the value of the printing press. I prefer Charmin to U.S. government bonds. At least I know what I'm getting.

Discussing crude, 24/7WallSt asks what does the overall picture for supply and demand look like today? According to the EIA, total stocks have come down from record highs and are now approximately in line with the 20-year average.

"If I'm right, we're already at the peak," Boone Pickens said earlier this week in Doha, on the sidelines of the Forbes magazine CEO conference. "The price will have to go up."

Puru Saxena: "At present, our world consumes roughly 84 million barrels of oil per day. If current growth rates continue, Asia's demand alone will increase from 22 million barrels per day to approximately 40 million barrels by 2020. According to the US Energy Information Agency, global consumption is projected to increase to 103 million barrels per day in 2015 and 119 million barrels by 2025. In order to meet this explosive demand, global production must increase by 45%."

zmann: "But El Nino May Be Shifting To La Nina Potentially Bringing More Heat And Hurricanes This Summer. A La Nina event appears to be forming. This could be supportive of natural prices as it generally brings more hurricanes and heat to the eastern seaboard and drought in the west. The actual impact depends on if it’s a strong or weak event and whether or not it forms at all or reverses as often happens. From a psychological standpoint it’s certainly gas bullish."

Private residential construction spending fell for the tenth month in a row in January, the Commerce Department said Thursday, as total construction spending dropped 0.8%. Spending on private residential construction products dropped by 1.8% in January, following a 1.0% drop in December and a 1.4% drop in November.

The Institute for Supply Management's manufacturing index rose to 52.3 from a January reading of 49.3 that was the lowest since April 2003. New orders rose to 54.9% in February from 50.3% in January. Inventories rebounded to 44.6% from 39.9 in the previous month, which was the lowest level since 1984. The employment index rose to 51.1% from 49.5%. The price index rose to 59.0% from 53.0%.

President Bush's health insurance proposals would cost taxpayers $526 billion through 2017, according to a preliminary estimate from Congress' Joint Committee on Taxation.

Devon Energy CEO said that largely as a result of the recent large withdrawals from natural gas storage, prices are rangebound for 2007 - 6.50 to 8.50. Additionally, he went on to say that even in the event of a recession his NG price forecast would not change.

The Energy Department said natural-gas inventories fell 132 billion cubic feet for the week ended Feb. 23. Total stocks now stand at 1.733 trillion cubic feet, down 263 billion cubic feet from the year-ago level, but 179 billion cubic feet above the five-year average, the government data said. Basically, natural gas levels are trending to normal levels.

At times abnormalities occur, and especially in the stock market. Over the past one to two months we have seen crude prices decline from $61+ to $49 a barrel and back to $62. Natural gas prices declined from $8 to $5+ and back to $7.25. Oil and gas company shares weakened at the beginning of the year and have remained weak in spite of strengthening prices of crude and natural gas and continued high level of rig usage. An investor requires patience and discipline. Panic is for the inexperienced and for those still wet behind the ears.

Countrywide Financial Corp., the biggest U.S. mortgage lender, said payments were late at the end of last year on almost 20 percent of the subprime loans it tracks for other companies and investors who own them.

"The market is getting nervous,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``Falling equity shares and the rally in Treasuries put carry trade under pressure. You are going to see yen strength as risk appetite is compressed.''

U.K. manufacturing expanded at the fastest pace since 2004 in February.

Volatility continues to build. In the first two hours of Thursday's trading the VIX had a range of 16.72 to 19.40, up from Wednesday's close of 15.42.

Longs Drug Stores Corp. will close 31 stores in four Western states this year while opening or moving up to 30 other outlets and remodeling 40 more. The store closures will eliminate the drug store operator's presence in Colorado, Washington and Oregon, where the company has a total of 23 stores. California will lose eight locations.

April crude rose 21 cents to close at $62 a barrel. April natural gas closed at $7.288 per million British thermal units, down 1.2 cents.

Gold for April delivery closed down $7.40 at $665.10 an ounce on the New York Mercantile Exchange. May silver closed down 58.5 cents at $13.65 an ounce and April platinum ended down $11.20 at $1,245.20 an ounce. June palladium fell $2.55 at $354.05 an ounce, while May copper edged up 0.3 cent at $2.7545 a pound.

Wednesday, February 28, 2007


3/1/07 Trust

One should ask whether the automated trading system on the NYSE can be trusted. What happened to the Plunge Protection Team?

According to Bloomberg, the U.S. stock market lost a measure of trust with traders after computer malfunctions sent the Dow Jones Industrial Average plummeting 178 points in one minute yesterday.``The system should be able to handle the capacity when you have high-volume days,'' said Thomas Garcia, head of trading at Thornburg Investment Management, which oversees about $34 billion in Santa Fe, New Mexico. ``If I was making decisions based off of bad data, then yeah, I have a huge problem with that.'' Dow Jones & Co. said its computers were responsible for the sudden nosedive in the 30-stock benchmark about an hour before markets closed because they failed to keep up with trades. The New York Stock Exchange said separately that it experienced ``intermittent delays'' in prices. Nasdaq Stock Market Inc. reported slower distribution of some market data. Together the two markets handle almost 90 percent of all shares that trade in the U.S., the world's biggest equity market.

Barry Ritholtz: "If anything, these delays made the sell off look more orderly than it really was. Contrary to what you may have read elsewhere, the glitch only made the selloff look more mild (orderly and less severe) until it turned more wild as the delays spooled out and unwound. I have seen several early news reports and comments that got this exactly ass backwards.Anyone who will uses this as a false excuse for Tuesday is a weasel...What's more likely is the growing recognition that inflation remains "worrisome," that growth is slowing, and that the sub-prime mortgage housing debacle will no longer remained "contained."

Brett Steenbarger: "I went back to 1990 (N = 4304 trading days) and could only find 25 occasions of a single day drop of 3% or more in the cash S&P 500 Index. What's even more rare is to have such a decline in the context of a bull market. How many times in the last 17+ years have we seen a 3+% decline in a market that had been up over the prior 20 and 60 days? It's only occurred three times out of all those trading days...So what happens after big down days? Let's start with the 25 occasions in which we've dropped 3% or more in a single day. At just about every time frame from one to twenty days out, returns following such a large single-day drop are quite bullish. One day later, the S&P averaged a gain of .47% (17 up, 8 down), much stronger than the average single day gain for the rest of the sample of .03% (2256 up, 2023 down). Twenty days later, the S&P was up by an average of a whopping 4.47% (20 up, 5 down), again much stronger than the average 20-day gain of .73% for the remainder of the sample (2641 up, 1638 down). In all, large down days have tended to represent buying opportunities since 1990...In short, big down days have tended to represent panic and, even when they've occurred in relatively strong markets, they have tended to occur nearer to market bottoms than tops."

Those findings may be a bit deceptive, however, because--of those 25 large down days--15 occurred in the context of a market that had *already fallen* 3% or more over the past 20 sessions. In other words, large down days have tended to occur toward the end of market downmoves--as a kind of washout. We don't typically see large down days following intermediate term strength, as noted above.

Figures showed Chinese imports of crude hit a record high in January. China's total energy consumption rose 9.3 percent from a year earlier to 2.46 billion tons of standard coal in 2006, the statistics bureau said today. Coal consumption rose 9.6 percent to 2.37 billion tons, crude oil demand climbed 7.1 percent to 320 million tons and natural gas use surged 20 percent to 55.6 billion cubic meters, it said.

The benchmark Shanghai Composite Index, which tracks shares listed on the bigger of China's two stock markets, ended 3.9% higher at 2881.07. The Shenzhen Composite Index, a gauge of shares on China's smaller exchange, rose 3.8% to 736.81.

Japan's Nikkei 225 Index ended the day 2.9% lower, falling 515.80 points to 17,604.12. The broader-market Topix index staged its biggest single-day decline in eight months, declining 3.2%, or 58.59 points, to end at 1,752.74. The Nikkei average shed more than 700 points in late morning trading before rebounding, reportedly exceeding its intraday decline recorded in the first day of trading following the terror attacks of Sept. 11, 2001.

Fourth quarter GDP revised down to 2.2% growth rate. Does it really matter? Can you trust government numbers? Can you trust this Administration? If you answer yes to either question, I suggest you get high on probiotics.

Home Depot forecast earnings per share would decline 4 percent to 9 percent in 2007 this year.

Airbus to cut 10,000 jobs.

Robert McHugh has a model for his S&P 500/DJIA PPI key trend-finder indicator and noted that, on Tuesday, this indicator gave the first new "sell" signal since July 19th, 2006's "buy" signal, 1,600 points ago from Tuesday's morning's open. He noted that on Tuesday, February 27th, the Dow Industrials dropped below their 50 day moving average for the first time since July 2006. In addition, he noted that Tuesday the weekly MACD triggered a "sell" signal on both the Dow Industrials and S&P 500 (this is an intermediate indicator).

CompUSA plans to shut 126 shops by the end of May, more than half its stores, because of competition in the consumer electronics market.

According to rigzone, GlobalSantaFe Corp. (GSF) is "very positive" on the idea of consolidation in the offshore drilling industry, but cost and compatibility obstacles remain, chief executive Jon Marshall said Tuesday. "It would be healthy for the industry," he said, in a conference call with analysts. "As to the possibilities, I think they remain fairly constant." Acquisition talks have swept the industry for months, focusing alternately on GlobalSantaFe, the second-largest publicly traded offshore driller by market capitalization, and several rivals. Seadrill, a Bermuda-based driller founded in 2005 by Norwegian shipping magnate John Fredriksen, is rumored to be in the market for a US driller.

Nouriel Roubini: "Today we had a meltdown of many stock markets, first in China, then in Europe, the U.S., emerging markets and globally. What happened today is consistent with my outlook for a U.S. hard landing this year...The US is likely to enter into a recession in 2007; and even a likely and early easing of monetary policy by the Fed will not prevent such a recession as there are too many weaknesses in the US economy: a housing recession, an auto recession, a manufacturing recession, a real investment recession (as corporations are reducing real capital investment and inventories are falling), a US consumer that is on the ropes and at its tipping point; a meltdown in sub-prime mortgages that is leading to a generalized credit crunch in the economy. It is already ugly and it will get uglier in the real economy and in the financial markets. We are likely to observe a vicious cycle where a credit crunch and a persistent sell-off in equities leads to a worsening of the real economy with a hard landing (recession) that then weakens further the financial system. One cannot rule out a broader banking crisis if a deep recession occurs. A Fed easing - likely in the next two-three months - will not prevent a recession; it will barely put a floor on it. It will not prevent is as we have in the US a glut of housing, a glut of durable goods, a glut of capital goods. Lower interest rates will not help for the same reasons why slashing the Fed Funds from 6.5% to 1% in 2001 and after did not prevent a recession: once a glut and overhang of capital goods occurs (tech goods in 2000, housing and durable goods today) the demand for such goods becomes interest rate insensitive."

The Chicago Board Options Exchange Volatility Index or VIX, shot up more than 70 percent to a high of 19.01 before subsiding somewhat to 17.97, still a gain of 61.2 per cent. Being long volatility took great patience. It's the old story. Know what you are buying.

Sales of new homes plunged 16.6% in January to a seasonally adjusted annual rate of 937,000, the Commerce Department reported Wednesday.
It was the lowest sales pace in four years, and was the biggest percentage decline in 13 years. Sales are down 20.1% compared with January 2006. New-home sales are down more than 50% year-on-year in the West, the largest percentage drop in the region since 1981.

The American Petroleum Institute reported a rise of 1 million barrels in crude supplies for the week ended Feb. 23. The Energy Department had reported a climb of 1.4 million barrels. Motor gasoline supplies were down 793,000 barrels, the API said, vs. the government's reported fall of 1.9 million. Distillate supplies were down 2.5 million barrels, the API said, compared with the government's 3.8 million-barrel decline.

Last year, China overtook France and the U.K. to become the world's fourth-largest economy. By the end of this year, China could overtake Germany's $3 trillion economy to rank third, behind the U.S. and Japan, according to Tao Dong, Hong Kong-based chief Asia economist for Credit Suisse Group.

Via Bloomberg: Last year, 160 million Chinese took to the skies for leisure and business travel -- a 15 percent increase over 2005, according to the General Administration of Civil Aviation. To keep pace with the increase, China needs about 3,000 new planes by 2025, costing as much as $288 billion combined, according to both Airbus and Boeing. Already, the country is the world's second-largest market for airplanes, after the U.S. (Just think about the growing demand for jet fuel in China.)

The aging of the population will have a profound impact on the economy in the next decades, Federal Reserve Vice Chairman Donald Kohn told lawmakers Wednesday. Kohn said Fed economists believe the labor force will grow just 0.25% per year by 2015, down from about 1.25% now. "A slowdown in the rate of labor-force growth will, all else equal, tend to slow the growth of output," Kohn said.

April crude closed higher for a sixth session in a row, up 33 cents to close at a two-month high of $61.79 a barrel. April natural gas fell 23.3 cents, or 3.1%, to close at $7.30 per million British thermal units.

April gold closed at $672.50 an ounce Wednesday, down $14.70 for the session. May silver dropped 45.5 cents to close at $14.235 an ounce. May copper fell 7.3 cents to end at $2.752 a pound.

In January, 53% of all U.S.-based Internet queries went through Google, compared to the 48.2% from January 2006.

Kenneth Heebner, the manager of the top performing real estate fund over the past 10 years, said the economic damage from high-risk mortgage defaults is only going to get worse.``We have a trillion dollars of subprime mortgages and we're going to have huge defaults,'' Heebner, 66, said in a telephone interview today from his office in Boston. ``If you're looking at the housing market, it's not the darkest before dawn, it's the darkest before pitch black,'' Heebner said.

Tuesday, February 27, 2007


2/28/07 Concerns

China's stocks tumbled the most in 10 years on concern that a government crackdown on investments with borrowed money will end a rally that drove benchmarks to records. China's stock market capitalization, $1.16 trillion as of yesterday, is about 2 percent of the global total, according to data compiled by Bloomberg.

According to the WSJ, the reserves that banks set aside to cover bad loans stand at the lowest level since at least 1990. The issue is causing alarm among regulators.

A suicide bomber killed and wounded two dozen people outside the main U.S. military base in Afghanistan during a visit by Cheney, who was unharmed. The Taliban claimed responsibility, saying Cheney was the target. Cheney was whisked into a bomb shelter immediately after a Taliban suicide bomber struck the main American military base he was visiting in Afghanistan on Tuesday. With all his deferments, this may have been the first time Cheney has come close to war conditions.

From an email to George Ure concerning the bombing of the World Trade Center:

Watch this while it's still there. It's video of a BBC news show where they report WTC7 had collapsed over 20 minutes before it actually happened. About 3/4 of the way through, a live correspondent comes on the air talking about the collapse of WTC7 while the building is still clearly visible in the skyline behind her!

According to the statement from the office of U.S. Ambassador Zalmay Khalilzad, all Iraqi revenues from oil sales would go into a single national account, but all regions and provinces would have a seat on an energy policy-making body, and provinces would receive shares of revenue and have control over how they spend it.

According to 24/7WallSt, as of December 2006, Wal-Mart already had 73 units in 36 cities throughout China, and 68 of these are the supercenter units. The company has acquired a 35% interest in Bounteous Company Ltd., which operates hypermarkets in China under the Trust-Mart name. Trust-Mart has 101 Trust-Mart retail stores in 34 cities across China.

Orders for new U.S.-made durable goods plunged 7.8% in January. Durable orders in December were revised to a 2.8% increase from 2.9% previously estimated. Shipments of durable goods increased 0.2% in January after a 0.5% rise in December. Orders for core capital goods equipment fell 6.0% in January. New orders excluding defense fell a record 7.8% in January. New orders excluding transportation fell 3.1%, the third drop in the past four months.

Freddie Mac, the second-largest provider of funds for U.S. home loans, will stop buying subprime mortgages that have a ``high likelihood'' of borrowers not meeting their monthly payments. One should note that both delinquencies and foreclosures are rising sharply.

President Hugo Chávez has ordered by decree the takeover of oil projects run by foreign oil companies in Venezuela's Orinoco River region. By May 1, the government will also take majority control of oil-upgrading projects from BP PLC, Exxon Mobil Corp., Chevron Corp., ConocoPhillips Co., Total SA and Statoil ASA.

Two of our our aircraft carriers - the Eisenhower and the Stennis - are in the Arabian Sea.

How strongly do foreign countries believe in “The full faith and credit” of the US dollar?

U.S. home prices fell 0.7% in the fourth quarter and are up just 0.4% in the past year, Standard & Poor's reported Tuesday. S&P unveiled its new national Case-Shiller price index, which compares sales on the same homes. Home prices in the top 10 metro areas fell 0.8% in the quarter and are unchanged for the year. Home prices in the top 20 metro areas fell 0.7% in the quarter and are up 0.5% in the past year. "Annual changes in home prices are either in decline, flat or yielding negative returns across all markets," said Robert J. Shiller, chief economist at MacroMarkets LLC, which produces the index for S&P.

In early Tuesday morning trading, oil prices fell about $1 a barrel amid worries that Chinese fuel demand could be dampened by a cooling economy. Chinese stocks dropped nearly 9 percent on Tuesday. I believe these concerns are way off the mark. After one and one half hours of trading, crude was back to unchanged. In the meantime, a U.S. government report due Wednesday will show both distillate and gasoline stockpiles fell significantly in the week ended Feb. 23. Heating oil demand is expected to rise with a winter storm that pounded the U.S. Midwest on Monday with as much as two feet of snow. The storm also dumped more than a foot of snow on some areas of the Northeast.

Sam Zell's proposal to buy the Tribune Co. involves buying the entire company with the participation of an employee stock ownership plan, according to the New York Times.

The Conference Board's index increased to 112.5 from 110.2 the prior month. This is the highest level of confidence since before 9/11.The proportion of people who said jobs are hard to get declined to the lowest since August 2001.

Sales of previously owned homes in the U.S. increased 3 percent last month to an annual rate of 6.46 million, up from a 6.27 million December rate that was higher than previously reported, the National Association of Realtors said today in Washington. Sales fell 4.3 percent compared with a year earlier.

Sanderson Farms Inc. said it narrowed its fiscal first-quarter loss as poultry prices improved, but shares fell as the company warned high feed prices would continue.

Irwin Kellner: "If the Fed slows money growth enough to starve inflation, short-term interest rates will rise further, thereby exacerbating the decline in housing. If the Fed does nothing to rein in the money supply, it will have a credibility problem when it comes to inflation and long-term rates will soar."

`"I would expect that the growth outcome for this year would turn out to be higher than it had earlier been expected,'' Garganas, who also heads the Greek central bank, said in an interview in Athens yesterday. ``The risks to inflation are clearly on the upside, and are growing.''

Money supply in the eurozone grew faster in January than at any time since early 1990, raising expectations of further interest rate rises by the European Central Bank in the coming months.
M3, the money supply measure that the ECB uses as an indicator for the likely course of inflation, was 9.8 per cent higher last month than in January 2006, the bank reported on Tuesday.

Richard Daughty: "All of this economic stupidity will end in tears (as it always has) as inflation in prices destroys economies by destroying a lot of people’s lives. That is the problem with creating money: It shows up in prices, higher and higher. And after awhile you get really sick and tired of hearing the whining and complaining of your family about how they can’t afford to buy anything, and how it is all your fault just because you are lazy and stupid, and how you are the worst parent and worst husband in the whole world. Then one day you find yourself thinking of murder-suicide scenarios and what the newspaper headline would say, until you say to yourself, “Whoa!”

Mike Shedlock reports via the Chicago Tribune that "Housing analyst David Seiders told Chicago-area builders Thursday that the federal estimate of 3.5 million homes for sale at the end of 2006 is "grossly understated." "There is a big inventory overhang out there, and it's bigger than anybody understands," he said. In an annual forecast on the local industry in Addison, Seiders, chief economist of the National Association of Home Builders, cited the high level of sales contract cancellations in 2006. It created a snag in the recordkeeping, so many homes marked as sales in government data ended up back on the market too late to be counted as inventory, he said. "Cancellation rates more than doubled between the end of 2005 and the end of 2006, meaning that net sales for the year nationally may be down 65 percent."

The VIX has finally perked up. The index tracking implied volatility for the S&P 500 ran up to its highest level seen in 5 months as the so-called "fear gauge" reacted to the sharp drop Tuesday morning in the equity market. The CBOE market volatility index for the S&P 500 ($VIX) was last up 14% at 12.72, and was up as much as 17% at its intraday high of 13.10. That was the highest level seen since Sept. 25.
The average retail cost of a gallon of self-serve regular gasoline rose 8.6 cents in California to $2.796, according to the Energy Department's weekly survey of service stations. That was almost 36 cents ahead of the average price a year ago and represents the most expensive tally ever for the first eight weeks of the year.
Nationally, the average price increased 8.7 cents to $2.383 a gallon, 13 cents ahead of the price last year, driven by 10-cent-a-gallon increases in New England and the Gulf Coast.

In parts of Oregon they had snow at sea level. The weather in San Francisco touched 40 degrees and they had some hail.

The Oil Drum: "After two decades of almost continuous growth, global oil production has been stagnant around 84 million barrels a day for the past two years. This, of course, is exactly consistent with the peak oil hypothesis, which predicts that supply constraints will force up prices, destroying growth in demand. It will be some years before we can tell for certain, but it is entirely possible that we're in the middle of peak oil right now. That's certainly consistent with the predictions of Kenneth Deffeyes, Colin Campbell, Matthew Simmons, and other geologists and oil industry analysts."

April gold fell $2.60 to close at $687.20 an ounce Tuesday. May silver fell 14.2 cents to close at $14.69 an ounce.

Bill Cara: "Traders in China are nervous. In a single session, 900 of 1400 stocks traded limit down on the Shanghai Exchange. The composite index dropped -8.9%, eliminating about $100 billion in the space of a few hours...The events in China today are just a symptom of problems in America. I suspect that when this story is complete, traders will think the 2000-2002 Bear was a mild one. But the Gnomes are bulldogs, and they have put their terriers into the U.S. Fed and Treasury. I believe there will be one final attempt to print the way out of a market crash. Ergo; I see one final push in precious metal prices.
But the end of the long-term global stock cycle is near. It has been driven by a credit balloon that cannot be pumped higher. The peak of the cycle would have occurred in May 2006 except for the programs of the U.S. Administration (including the Fed) to ramp up the money printing. The sad thing is that at the end of the day, when inflated stock prices blow up, those holding debt will still be holding the same level of debt. The banks will be demanding payment. That's what bankers do -- real bankers, not trader-bankers.
Yes, there is a storm raging in China, but it has its genesis in the West."

April crude climbed 7 cents to close at a two-month high of $61.46 a barrel Tuesday. Nevertheless, The Amex Oil Index finished the day with a 3.5% loss at 1,143 points, its lowest close since Jan. 29. The Amex Natural Gas Index fell nearly 2.4% to 454.3 points and the Philadelphia Oil Index dropped 3.3% to close at 196.7 points. Meanwhile, April natural gas declined by 17 cents to end at $7.533 per million British thermal units.

The Dow Jones average lost all its gains for the year. The S&P 500 index fell 49 points to 1,399, while the Nasdaq Composite dropped 96 points, or 3.9%, to 2,407.

Monday, February 26, 2007


2/27/07 Amazing

Brad Setser: "I think anyone who visits Dubai right now is bound to be dumbstruck by the sheer scale of the construction. It, quite honestly, puts anything I saw in China in early 2005 to shame. To the naked eye Dubai looks to be building more office space than exists in lower Manhattan -- and Wall Street, despite a bit of competition from the City and Hong Kong, still attracts far more IPOs than Dubai’s new international financial center. Stephen Roach found the actual data -- and it turns out that Dubai is putting up the equivalent of down downtown Minneapolis in 2007, and downtown San Franscisco in 2008. Based on industry sources, 26.8 million square feet of office space is expected to come on line in Dubai in 2007, alone -- more than six times the peak rate of completions in Pudong in 1999 and nearly equal to the total stock of 30 million square feet of office space in downtown Minneapolis. Based on current projections, another 42 million square feet should come on line in Dubai in 2008 -- the equivalent of adding the office space of a downtown San Francisco. There is one obvious and critically important difference between these two urban development projects: Pudong has an indigenous support base of 1.3 billion Chinese citizens. Dubai’s current population is 1.3 million. Throw in the entire native population of the UAE and the support base is still only around 4 million domestic citizens. That's right, a region with less than 0.5% the population of China is out-building the biggest construction boom in modern Chinese history."

The survey of 47 top forecasters, released Monday by the National Association for Business Economics, found a greater expected impact from the ailing housing market this year than did the previous forecast in November. Stronger consumer spending will help offset the housing drag, according to the survey. The panel predicted that the overall economy will grow by 2.7 percent this year. It would be slowest annual increase in the gross domestic product since a 1.6 percent rise in 2002, when the economy was pulling out of the last recession. In 2006, the GDP rose by 3.4 percent. NABE's November forecast put GDP growth this year at 2.5 percent. The slight upward revision occurred even though the forecasters now believe housing construction will plunge by 14.9 percent this year. That would be nearly three times bigger than the 5.5 percent fall in residential construction they had projected in the earlier survey. Construction spending dropped by 4.2 percent for all of 2006.

The independent Postal Regulatory Commission scheduled a Monday morning briefing to announce its ruling on the Postal Service's requests to raise first-class rates 3 cents to 42 cents and to establish the permanent stamp.

Temple-Inland Inc. will spin off its mortgage-lending and commercial and retail banking units in Texas and California and spin off its real estate activities that hold 236,000 acres. Its timber holdings, to be sold, consist of about 1.8 million acres in Texas, Louisiana, Alabama and Georgia.

This year, Warren Buffett will release his shareholder letter on Thursday after U.S. markets close.

Alan Greenspan warned Monday that the American economy might slip into recession by year's end. I guess that means the economy will get stronger.

Chesapeake Energy says cost pressures now appear to be abating.

A fire that has caused a temporary outage at a refinery in Ontario. Fuel supplies are now being rationed in the Canadian province.

In a recent interview with Wall Street Journal, (Saudi Oil Minister) Ali Naimi said that Saudi oil production stood at 8.5 million barrels a day, about one million barrels a day less than the country's output six months ago.

Matthew Simmons, chairman of Simmons & Co. International in Houston, talked with Bloomberg's Rhonda Schaffler about the need to address energy use, his view that global supply has peaked and the likelihood oil prices could reach as much as $300 a barrel. (Source: Bloomberg)

Bill Fleckenstein: "The subprime industry was absolutely critical to the inflating of the real-estate bubble. If loans had been made only on a responsible basis -- to people who put money down and looked like they could actually repay the money, irrespective of rising house prices -- that bubble would never have achieved anything close to the heights it did. That game is obviously over. Let me repeat that -- over. The real-estate market of the past few years will not be seen again in our lifetimes. The only thing we don't know is at what rate this unwinding will play out across the economy and, more importantly (to me), in the minds of the Goldilocks-enthralled community on Wall Street."

Smith & Wollensky Restaurant Group Inc. has agreed to be acquired by Patina Restaurant Group LLC for $9.25 per share in cash.

India's economy is set to expand at a sustained 9 percent annual rate or above and is likely to reach the $1 trillion mark by the next financial year, according to a deputy governor of its central bank.

Washington is one of a group of states where a serious effort is underway to pass joint legislative resolutions that, thanks to Rules of the House penned by Thomas Jefferson and in effect for nearly length of the Republic, would put impeachment back on the table at the House right under Speaker Pelosi’s nose. The significance of the gathering in Olympia is that a freshman senator from Olympia, Eric Oemig, has introduced a bill in the state senate calling for such a resolution. His bill, S6018, is slated to go to a hearing on March 1, to determine whether it can be considered by the full senate. Some of Oemig's reason for impeachment: Bush’s order for the National Security Agency (NSA) to spy on American citizens, his use of so-called “signing statements” to invalidate (so far) 1200 laws or parts of laws passed by the Congress, and his authorization of torture. In the first case, he noted that the president has already been declared, by a federal judge, to have committed a felony by violating the Foreign Intelligence Surveillance Act. In the second case, he explained that Bush is claiming—illegally--that the so-called “War” on Terror makes him a commander in chief unfettered by the Constitution, with not just executive, but also legislative and judicial authority—a claim of dictatorial power that has no basis in the Constitution. Finally, he pointed out that in authorizing and failing to punish torture, the president, by making it less likely that enemy fighters will surrender, has been directly causing death and injury among US troops.

April gold rose $3.10 to close at $689.80 an ounce Monday. May silver climbed 9.6 cents to end at $14.832 an ounce and May copper added 1.7 cents to close at $2.87 a pound.

From The Oil Drum: World oil production (EIA Monthly) for crude oil + NGL. The median forecast is calculated from 9 models that are predicting a peak before 2020 (Bakhiarti, Smith, Staniford, Loglets, Shock model, GBM, ASPO-[70,58,45]).

Executive Summary:
Monthly production records are unchanged:
All Liquids: the peak is still July 2006 at 85.47 mbpd, the year to date average production in 2006 (11 months) is 84.59 mbpd, up 0.01 mbpd from 2005.
Crude Oil + NGL: the peak date remains May 2005 at 82.08 mbpd, the year to date average production for 2006 (11 months) is 81.40 mbpd, down 0.03 mbpd from 2005 (11 months).
Crude Oil + Condensate: the peak date remains May 2005 at 74.15 mbpd, the year to date average production for 2006 (11 months) is 73.48 mbpd, down 0.09 mbpd from 2005 (11 months).
NGPL: the peak date remains February 2005 at 8.05 mbpd, the year to date average production for 2006 (11 months) is 7.92 mbpd, up 0.06 mbpd from 2005 (11 months).
No major revisions on the previous monthly estimates in this month release.
Weak growth continues: November 2006 estimate for crude oil + condensate is 73.41 mbpd compared to 74.11 mbpd one year ago.
In the March issue of GQ, correspondent Wil S. Hylton lays out the case for making Cheney the 18th federal official to face impeachment proceedings under the Constitution. "Over the past six years, as the country has spiraled into military misadventure, fiscal madness, and environmental meltdown, the vice president has not merely been wrong about the issues; he has been duplicitous, deceitful, and deliberately destructive to the American democracy," claims Hylton.

John Nichols: "When the Bush administration was asking in 2002 for Congressional approval of a resolution authorizing the use of force against Iraq, Vice President Cheney told the national convention of the Veterans of Foreign Wars that Saddam Hussein had "resumed his efforts to acquire nuclear weapons." He then claimed that, "Armed with an arsenal of these weapons of terror, and seated atop 10 percent of the world's oil reserves, Saddam Hussein could then be expected to seek domination of the entire Middle East, take control of the world's energy supplies, directly threaten American friends throughout the region, and subject the United States or any other nation to nuclear blackmail."

Crude closed at $61.42 a barrel.

Paladin Resources Ltd., an Australian-based uranium explorer, offered to buy Summit Resources for about A$997 million ($791 million) in shares as it seeks full ownership of a uranium deposit in Queensland.
Paladin is offering one share for every 2.04 Summit shares, the Perth-based company said today in a statement to the Australian Stock Exchange. That implies a price of A$5.05 per Summit share based on yesterday's closing price for Paladin stock, a premium of 26 percent over Summit's closing price.

Looking Out

2/26/07 Looking Out

Mike Burk: "Next week has had a modestly positive bias by most measures. During the 3rd year of the Presidential Cycle the SPX has been up a little less than half of the time (47%) but has had a modest gain (0.14%) over the period...The mid and small cap indices have been leading the market up and are overbought while the large cap indices are oversold. Seasonality doesn't help much either. The pull backs in the small and mid cap indices have been modest and the large cap indices are ready for an oversold rally. I expect the major indices to be higher on Friday March 2 than they were on Friday February 23."

David Zionts, owner of Connecticut Mortgage Lenders LLC: "Some consumers are being squeezed out of the market," Zionts said. "Some of the more forgiving guidelines are beginning to go away."

The U.K. tabloid the Sunday Express stated Dow Chemical will get a takeover bid worth up to $54 billion from a consortium of private-equity firms in the next few weeks. The newspaper didn't identify the source of its information.
It said the buyout team is "likely" to be composed of Kohlberg Kravis & Roberts, Blackstone Group and Carlyle Group. They intend to break up Dow Chemical into smaller companies, the report said. An offer is expected to come in at $60 a share, against Friday's close of $43.45, the report added. Unnamed "speculators" believe the break-up value could be up to $80 a share, it said.

San Francisco Bay Area home sales fell in January for the 24th straight month, and prices dropped to their lowest level in a year and a half. According to DataQuick, January 2006 sales were the lowest for any January in 11 years.

The world's largest economy expanded at an annual rate of 2.3 percent last quarter, compared with the 3.5 percent pace the Commerce Department reported last month, according to the median forecast in a Bloomberg News survey of economists.

Texas power company TXU Corp. said on Monday it agreed to be acquired by a group led by private equity firms Kohlberg Kravis Roberts & Co. and Texas Pacific Group for $31.8 billion in the largest leveraged buyout in history. The investor group will pay $69.25 per share for TXU, a 15.4 percent premium over TXU's closing stock price of $60.02 on Friday.

Station Casinos Inc. said on Monday it agreed to a $5.4 billion management-led buyout, after the investor group buying the company raised its offer by about 10 percent. The Las Vegas-based company, which operates off-strip casinos used mostly by locals, is being taken over by a group called Fertitta Colony Partners, formed by Station Chief Executive Frank Fertitta, his brother and company vice chairman Lorenzo Fertitta, and a unit of private equity firm Colony Capital. The group said on Monday it would take over Station for $90 per share, or $5.4 billion in cash. It will also assume debt of about $3.4 billion.

Tribune Co. board of directors is considering an offer from real estate magnate Sam Zell to take the company private, but is leaning toward restructuring the company on its own, according to published reports.

Palatin released the following study: The results of this Phase IIa study showed that on a 14-item questionnaire, 73 percent of the women reported an increased level of genital arousal while on bremelanotide compared with 23 percent of women on placebo. Also, 46 percent of women on bremelanotide reported an increased level of sexual desire while only 19 percent of women responded similarly after placebo treatment. Additionally, subjects receiving bremelanotide reported a higher incidence of engaging in sexual activity compared to placebo. The current study follows a similarly designed clinical study conducted with pre-menopausal patients with FSAD, the results of which were recently published in the July 2006 issue of The Journal of Sexual Medicine.
Twenty-seven women with a diagnosis of FSAD were enrolled at two investigational sites in this double-blind, randomized, placebo-controlled, single dose, cross-over clinical study. All subjects enrolled in this clinical study were evaluated by an experienced clinical psychologist and were confirmed to have a diagnosis of FSAD. Subjects were administered a 20 mg dose (2 x 10 mg) of intranasal bremelanotide or placebo spray in a randomized manner and were monitored and evaluated for three hours post-dose before being discharged from the clinic. All subjects completed a Treatment Satisfaction Index questionnaire at 24-hours post-dose as a means of measuring their levels of sexual desire, genital arousal and, if applicable, satisfaction with sexual activity. Adverse events reported include nausea, headache and nasal congestion and were comparable to adverse events reported for other clinical studies evaluating this dose.
"The data strongly favor and support the companies' development program for bremelanotide," states Dr. Michael A. Perelman, Co-Director of the Human Sexuality Program at Weill Medical College of Cornell University, New York. "I enthusiastically await data from larger clinical trials which are underway."
Palatin Technologies and King Pharmaceuticals are currently enrolling 150 post-menopausal FSAD patients in a Phase IIb at-home clinical trial at approximately 20 clinical sites throughout the United States. The enrollment of pre-menopausal FSAD patients for this study has completed.