Saturday, March 31, 2007

Welcome To April

4/1/07 Welcome to April

James L. Williams, WTRG Economics: "The U.S. rotary rig count was up 4 rigs to 1,749 for the week of March 30, 2007 and is 11.0 percent higher than last year. The number of rotary rigs drilling for oil is down 10 at 271. The number of rigs targeting oil is 18 rigs higher than last year's level of activity. Rigs currently drilling for oil represent 15.5% percent of total drilling activity. Rigs directed toward natural gas were up 13 at 1,472. The number of rigs currently drilling for gas is 151 greater than last year's level of 1,321. Year-over-year oil exploration in the US is up 7.1 percent. Gas exploration is up 11.4 percent. The weekly average of crude oil spot prices is 3.2 percent lower than last year and natural gas spot prices are 2.4 percent higher. Canadian rig activity* was down 97 at 149 for the week of March 30, 2007 and is 276 lower than last year's rig count. Canadian drilling falls rapidly in the spring to avoid environmental damage during the spring thaw and rainy season.
*The Canadian drilling industry experiences wide seasonal swings and even year over year comparisons can lead to incorrect conclusions."

The Commerce Department reported Friday that consumer spending, bolstered by strong income gains, was up 0.6 percent last month, while consumer income also rose 0.6 percent. Both figures were double what analysts had expected.

Dave Novosel, an investment analyst at Chicago's Gimme Credit research firm, said he thinks a $35-per-share offer would be enough to win over Tribune's special committee. But so far, no one has publicly offered that much.

The Oil Drum: " The USA, then, as we have all heard, has reported proven coal reserves that would allow continued production at current rates for more than 200 years. Three federal states (Wyoming, Montana, Illinois) own more than 70% of US coal reserves, but the low production rates relative to reported reserves in Montana and Illinois cast some doubt on the reliability or suitability of those reported reserves. As many of these reserves are of low quality, with high sulphur content and/or other drawbacks, it may be considered doubtful that they will ever be produced. Measured in terms of produced tons per miner, US productivity steadily increased until 2000, but has declined since, which also implies that ‘easy coal’ is running short. The USA had passed peak production of anthracite (by far the rarest form) by 1950 and peaked in bituminous coal in 1990, but sub-bituminous coal more than made up for this decline in terms of tonnage. However, due to the lower energy content of softer coals, the total energy content of annual US coal production peaked in 1998...Six countries (USA, Russia, India, China, Australia, South Africa) hold about 90% of world coal reserves, when this is measured in terms of energy content. According to the latest assessment by the WEC, total world reserves at the end of 2002 stood at 479bn tons of anthracite and bituminous coal, 272bn tons of sub-bituminous coal and 158bn tons of lignite. According to the Energy Watch Group, global coal production can increase for 10-15 years (mainly driven by China), but then production of anthracite and bituminous coal will peak around 2020 at a production rate around 30% higher than at present. Lignite production is predicted to peak somewhere between 2050 and 2060. However, as the quality of coal produced will be declining continuously the world coal energy peak is projected to come around 2025. It is also important to note that ‘peak coal exports’ should come even earlier, as lower-energy-density coals are not worth transporting long distances."

According to the WSJ, Hershey could consider a merger with U.K. candy rival Cadbury, the chairman of the trust that controls the U.S. firm said. Meanwhile, unionized workers at two Hershey chocolate factories voted overwhelmingly Friday to accept a tentative agreement that would keep the hometown factories open but allow the elimination of hundreds of jobs.

The WSJ opined Productivity Lull May Presage Slower Growth
U.S. productivity growth slowed over the past two years after a boom that began in the mid-1990s. If the trend continues, it could hurt living standards and stock prices and make the economy more inflation-prone.

Brett Steenbarger: "My big concern here, given the lack of follow through to the upside, is that we may be putting in a lower high following the big market drop. If that's the case, I'd expect an eventual test of the lows. I've not been impressed with dollar volume flows into stocks after the initial bounce from the lows."

Bill Bonner: "What we know is that private equities, like hedge funds, have taken on a speculative mentality. Deals are put together...then flipped from one PE firm to another. The objects of their attention - actual, profit-making companies - are loaded down with debt so the private equity investors can take out the profits. And then, the deals are sold back to the public - at a big premium. As more and more money chases quick profit, standards slip; the deals degenerate...from super-prime to subprime. Until investors come to their senses. In 1989, it was junk bond dealers with alpha in their pockets who were in need of wising up. Then, Ohio Mattress was being taken private by a buyout firm just at the time Drexel Burnham collapsed. Lenders got worried...then frightened. All of a sudden, the easy credit that made the deal possible disappeared. First Boston, one of the lenders, reached into its pocket and...lo...no more alpha. The deal fell apart and the bank was so destabilized, it was later sold to Credit Suisse. Junk bond investors learned such a valuable lesson, it took them almost 10 years to forget it."

The Reserve Bank of India increased its overnight lending rate by a quarter percentage point to a 4 1/2 year high of 7.75%.

According to Bloomberg, "The notional value of credit derivatives, the fastest-growing derivatives market, increased 55 percent to $9.0 trillion in the fourth quarter..."

Paul Kasriel: "In fact, in terms of heating degree days, February 2007 was the coldest February since that of 1979. March warmed up. The question is whether households spent their March savings on utilities at the malls or saved these savings. Given that their saving rate remains at Great Depression level lows - that is, they are running a deficit - and given all the angst about the value of their main retirement nest egg, their homes, I have a feeling they did not hit the malls with vigor in March."

A Fox News article that discusses Palatin: http://www.foxnews.com/story/0,2933,2627...

Thursday, March 29, 2007

First Quarter Ends

3/30/07 First Quarter Ends

US Steel is acquiring Lone Star for $67.50 in cash. US Steel says this will make it the largest tubular producer in the US now. U. S. Steel is paying an aggregate value of approximately $2.1 billion, a premium of approximately 39% to Lone Star's closing share price of $48.45 on March 28, 2007, and a premium of approximately 43% to its 90- day average trading price.

King Abdullah of Saudi Arabia said that the American occupation of Iraq was illegal.
The winds of change are occurring inside and outside of Congress.

Ben Bernanke challenged market expectations of early US interest rate cuts, saying he remained comfortable with rates on hold in spite of recent adverse economic data.

The American Bankers Association, in its quarterly survey of consumer loans, reported Thursday that late payments on home equity loans rose to 1.92 percent in the October-December period. That was up sharply from 1.79 percent in the prior quarter and the highest since the first quarter of 2006.
Payments are considered delinquent if they are 30 or more days past due. The survey is based on information supplied by more than 300 banks nationwide. In my view, the delinquency news will get much worse in the months ahead.

The Commerce Department said fourth-quarter gross domestic product grew at s 2.5% pace, faster than a prior estimate of 2.2%.

First-time claims for state unemployment benefits fell to the lowest level in more than two months in the week ending March 24, the Labor Department reported Thursday. Seasonally adjusted initial claims fell by 10,000 to 308,000. The four-week average of new claims fell by 7,250 to 316,750. The initial claims figure is the lowest since Jan. 13, while the four week average is the lowest since Feb. 3. Meanwhile, the number of people collecting unemployment checks rose by 32,000 to 2.52 million in the week ending March 17, the highest since March 3. The four-week average of continuing claims fell by 24,250 to 2.53 million, the lowest in five weeks.

The LA Times reports on the Zell offer for Tribune: "The advantage of using an employee stock ownership plan, or ESOP, in a buyout is primarily that it would allow the new Tribune to escape taxes on principal and interest payments on its loans. Typically, only interest payments are deductible.
In exchange for its role as the borrowing vehicle, the ESOP would receive a significant ownership stake in the company.
The stock would be pledged as collateral for the loans and would be released into the employees' accounts as the loan was paid down. Because the shares would no longer trade on a public exchange, an appraiser would be hired to make an annual valuation of the stock.
Where would the money come from to pay down those loans? Because the ESOP would have no earnings of its own, the company would make tax-free annual contributions to the plan, possibly in lieu of the payments it now makes to the employees' 401(k) plan. That pool would be used to pay off the loans. There is a limit to how much the ESOP could borrow, because federal law allows an employer to contribute a maximum of 25% of an employee's salary — up to $100,000 in salary — on a tax-free basis, according to Willens of Lehman Bros.
And not all of Tribune's 21,000 employees qualify for such contributions. The maximum amount of Tribune's potential ESOP contributions could not be calculated Wednesday, but that would determine the maximum annual tax-free principal and interest it could pay and thus dictate the size of the loan.
Any borrowing beyond the ESOP's limit probably would have to be done by the new Tribune directly, which might lead it to employ another tax-advantaged structure, known as the Subchapter S corporation."

Nouriel Roubini: "Every component of investment has been already falling since Q4: residential investment; non residential structures investment; corporate investment in equipment and software; inventory investment. A key element of the soft landing consensus view is the recovery of business investment in equipment that had already started to falter in Q4. Now two months of data on capital durable goods orders have confirmed that business investment is in free fall: corporations are reducing their investment. So everyone of the four components of investment now looks simply ugly: "

The NY Times reports income inequality grew significantly in 2005, with the top 1 percent of Americans — those with incomes that year of more than $348,000 — receiving their largest share of national income since 1928, analysis of newly released tax data shows. The top 10 percent, roughly those earning more than $100,000, also reached a level of income share not seen since before the Depression.

California home builders focused more on selling homes already under construction than on starting new ones last month, obtaining 42% fewer permits than a year earlier, data released Wednesday showed.

The Conference Board Help-Wanted Advertising Index dipped 1
point in February. The Index now stands at 31. It was 39
one year ago.

Iran won't release a female U.K. sailor whom the government
in Tehran previously said would be freed, the head of the Islamic
Republic's Supreme National Security Council, Ali Larijani,
indicated.

In February, ultra-nationalist leader Vladimir Shirinovsky warned that
the US would launch a strike against Tehran at the end of this month.
Then last week, the Russian News and Information Agency Novosti
(RIA-Novosti) quoted military experts predicting the US will attack
Iran on April 6th, Good Friday. According to RIA-Novosti, the imminent
assault will target Iranian air and naval defense capabilities, armed
forces headquarters as well as key economic assets and administration
headquarters. Massive air strikes will be deployed, possibly tactical
nuclear weapons as well, and the Bush administration will attempt to
exploit the resulting chaos and political unrest by installing a pro-US
government.

Defying a presidential veto threat, the Senate voted 51-47 Thursday to pass a $122 billion emergency war-spending bill that includes a call to begin reducing the number of U.S. troops in Iraq and would cease most combat operations in the country by a non-binding deadline of next March. The bill must be reconciled with a similar House measure that set a mandatory withdrawal deadline of August 2008.

Natural-gas inventories fell 22 billion cubic feet for the week ended March 23, the Energy Department said Thursday. Total stocks now stand at 1.511 trillion cubic feet, down 209 billion cubic feet from the year-ago level, but 267 billion cubic feet above the five-year average, the government data said.

Hanesbrands said Thursday it will close its Stratford Road textile manufacturing plant in Winston-Salem, N.C. eliminating 610 jobs.

"The annual declines in the composites are a good indicator of the dire state of the U.S. residential real estate market," says Robert J. Shiller, Chief Economist at MacroMarkets LLC. "The 10-City and 20-city Composites are both showing negative annual returns, a striking difference from the 15.1 percent and 14.7 percent returns they reported this time last year. The dismal growth in the 10-City composite is now at rates not seen since January 1994."

As the second quarter begins and the peak driving season approaches, it becomes more significant that the Valero refinery, which was to be down for 2 to 3 weeks, is now anticipated to be down for 2 to 3 months.

House Democrats pushed their budget blueprint to passage Thursday, promising a big surplus in five years by allowing tax cuts passed in President Bush's first term to expire.
The plan would award spending increases next year to both the Pentagon and domestic programs, but defers difficult decisions about unsustainable growth in federal benefit programs such as Medicare.
The 216-210 vote sets up negotiations with the Senate, which last week passed a budget blueprint with spending increases similar to the House plan. The Senate plan would not generate surpluses since it assumes lawmakers will renew the most popular of the tax cuts due to expire at the end of 2010.

Dendreon Corp.'s experimental prostate-cancer drug Provenge is safe, a Food and Drug Administration advisory committee meeting concluded Thursday, according to media reports. The panel still needs to vote on whether or not the drug, which acts by stimulating the body's immune system, is effective. Seattle-based Dendreon is asking the FDA to approve Provenge for the treatment of asymptomatic men with advanced prostate cancer who have stopped responding to hormone treatment.

May crude rose $1.95 to close at $66.03 a barrel Thursday, marking the contract's highest closing level since Dec. 20. April reformulated gasoline gained 3.8%, or 7.83 cents, to close at $2.1355, its highest level since late August. May natural gas fell 6.3 cents to close at $7.609 per million British thermal units.

Gold for April delivery closed down $5.30 at $661.50 an ounce on the New York Mercantile Exchange. Copper's May contract climbed 2.4 cents to $3.0865 a pound. May silver fell 11.5 cents at $13.34 an ounce, April platinum ended down $8.20 at $1,242.60 an ounce and June palladium fell $1.85 at $356 an ounce.

The Oil Drum: "There was a press conference yesterday by Reps. Roscoe Bartlett (R-Md.) and Tom Udall (D-N.M.)to discuss the release of an embargoed GAO report. The report revealed the United States is particularly vulnerable to and unprepared to respond to severe consequences from an significant disruptions to world oil supplies from peak oil and other above-ground political and economic factors, which are viewd as an increasing risk. Some very real questions are how "severe" the consequences are and what "increasing risk" means -- and why no mainstream press will cover this."

An internal investigation at Dell Inc. has found evidence of misconduct and accounting errors, forcing the company to delay filing its annual earnings report with stock market regulators, it said Thursday.

Crude

3/29/07 Crude

The British government is freezing bilateral activity with Iran after the seizure of 15 of its personnel in waters that Britain says were in Iraqi territory. On Wednesday British foreign secretary Margaret Beckett cut short an official visit to Turkey to address parliament on the hostage situation. She said in the House of Commons that Iran's original coordinates that it gave for where the seizure took place also were in Iraqi's territory. She reiterated Tony Blair's phrase that the U.K. was in a "new phase" of diplomatic activity. The key word is "original".

Beazer Homes has been in contact with the U.S. Attorney's Office, and at this time only received a request for documents relating to its mortgage business. The company said there have been no allegations of wrongdoing. The company was responding to statements made by a representative of the Federal Bureau of Investigations regarding the possibility of a federal investigation in connection with alleged mortgage fraud. Beazer said it was told by the U.S. Attorney's Office that the statements by the FBI, and published by the weekly magazine Business Week, were not authorized.

New Century Financial, the Irvine, Calif., sub-prime-mortgage lender, could file for protection under the bankruptcy laws as soon as the end of this week, people briefed on the company's plans told The New York Times.

The New York Times reports that the head of the UAW insists that it will not give any more concessions to US car companies.

For all of fiscal 2007, Meredith continues to expect to report earnings per share 12 to 15 percent higher than the $2.86 earned in fiscal 2006.

In January, Seattle's home prices were 11% higher than one year ago but unchanged from November and December of 2006.

Tuesday night, oil spiked $5 to $68 a barrel on "rumors that Iran fired on U.S. Navy warships." Fortunately, those rumors were unfounded. In early Wednesday morning trading, crude was $64.65 and natural gas at $7.69.

Rigzone reported Venezuela and China created a US$6 billion (euro4.5 billion) fund to boost energy cooperation and finance joint development projects between the two countries.
During a televised speech, President Hugo Chavez said the fund "will provide the fuel for the acceleration of new bilateral development projects," including two joint ventures for the exploration and production of heavy crude in
Venezuela's Orinoco Basin and three oil refineries in China.
The fund -- aimed at increasing Venezuelan oil exports to China from 150,000 to 800,000 barrels a day -- was part of a series of agreements signed following a meeting between Chavez and Li Changchun, a top-ranking member of China's ruling Communist Party, at the presidential palace.

The Commerce Department reported that orders for durable goods last month rose 2.5%. The rise in orders for durable goods was mostly powered by an 88.4% increase in orders for non-defense aircraft. Excluding transportation orders, however, durable goods orders declined by 0.1% in February. Orders for defense aircraft and parts rose by 29.2% in February.

There are several gas stations in SF selling super unleaded for $4 a gallon.

George Ure reports "in April, which is 3 1/2 days from now, Russia, Iran, Qatar, Algeria and Venezuela will be forming a new "OPEC for natural gas.": That will mean a new cartel controlling 60% of the world's natural gas right there, and if "me-too" countries like Algeria come along as expected, the control of natural gas will hit 70 percent - and maybe even higher."

The Oil Drum: "Over 2006, Saudi production declined from 9.4 MM bpd to just above 8.5 MM bpd...World oil production reached a peak in 2005 at 85 million barrels per day. We've been easing down the bell-shaped oil-supply curve, losing production slowly and gradually. Next year we will fall off the oil-supply cliff, with an average daily production of less than 78 million barrels." I have provided this information a few weeks back. I am repeating it because a sustained rise in crude, in my view, is not dependent on hostilities in the Gulf.

Turkey's private CNN Turk television network on Wednesday quoted Iran's foreign minister as saying Tehran would release a woman sailor detained with 14 other British servicemen "today or tomorrow". "The British woman soldier detained will be set free today or tomorrow," it quoted Foreign Minister Manouchehr Mottaki as saying. It gave no further details. Earlier, Turkish Prime Minister Tayyip Erdogan held talks with Mottaki during a meeting of the Arab League in Saudi Arabia.

Israeli Defense Forces have carried out another successful test of the Hetz (Arrow) anti-missile system, on the back of a computer simulation carried out last week, its defense ministry said in a statement March 26. "The test succeeded perfectly, the data will be the object of careful analysis by engineers," it said. "This marks an important new step in developing our technological capabilities in the face of a ballistic missile threat." According to the statement, the tests are meant to counter the threat of long-range missiles that adversary Iran has been adding to its inventory. Iran has carried out several tests of long-range missiles in recent years.

The Oil Drum:" Molybdenum is up 1000% in the past five years".Sprott tells investors that a 5,000 foot oil well requires 50 tons of molybdenum-hardened steel to drill; a 15,000 foot well requires a magnificent 1,100 tons. Nearly 80% of all wells drilled today are deeper than 8,000 feet.

The American Petroleum Institute reported a rise of 5.9 million barrels in crude supplies for the week ended March 23. The Energy Department had reported a decline of 900,000 barrels. Motor gasoline supplies were down 2.2 million barrels, the API said. The government reported a fall of 300,000 barrels. Distillate supplies were down 4.1 million, the API said, compared with the government's 700,000-barrel decline.

Tax Freedom Day falls on April 30 this year, two days later than the recalculated date for 2006, but it's about par for the past four decades.

Brad Setser: "China is now paying for its Iranian oil in euros...A euro buys less oil now than it did in 2002. But a dollar buys far less oil now than in 2002. Oil rose relative to both the dollar and euro, but it rose by more v. the dollar. An oil importer would be better off holding its saving in euro, and then converting its euros into dollars when it needed to settle its 2007 oil import bill. "

I continue to believe in the future of The Dubai Gold and Commodities Exchange (DGCX) which launched the Fujairah 380 CST high sulphur fuel oil futures contract, the first in the exchange's energy portfolio and the sixth futures product traded on the DGCX. It is traded in lots of 100 metric tonnes of 4.5 per cent sulphur, 380 centistoke fuel oil - a grade also known as bunker fuel and used to power ships. In addition, the Dubai Mercantile Exchange (DME) expects to launch a jet fuel futures contract by the end of this year after resolving physical delivery issues, its chief executive said on Sunday. DME chief Gary King also confirmed the exchange was on track to launch its crude oil futures contract, the first backed by a Middle East crude producer, on May 1.

Circuit City Stores Inc. said Wednesday it plans to cut costs by laying off about 3,400 store workers and hiring lower-paid employees to replace them, and by trimming about 130 corporate jobs.

Nabors Industries Ltd. expects its first quarter results to be lower than current analyst consensus estimates and is currently estimating first quarter earnings in a range of 80 cents to 85 cents a share. The reduced first quarter outlook is primarily attributable to lower than expected rig activity in U.S. Lower 48 land drilling, Canadian and US Well-servicing units and higher costs associated with startup and moving delays in International and U.S. offshore segments.
In my view, with improving weather and improving natural gas prices, earnings for Nabors will improve and the long-term view is a positive one.

Iran has offered to let the U.K. visit 15 naval and marine personnel who were seized last week in a disputed waterway, the country's foreign minister said, according to news agencies. He also said the only woman being held, Faye Turney, could be released, but also said Britain must admit they entered Iran's territorial waters.

Tribune Co. has responded to a request for additional financial information from Los Angeles billionaires Eli Broad and Ronald Burkle, whose bid for the company appeared to have been dismissed, people close to the company's auction said in The New York Times. The response could reopen a negotiating process that had been perceived as all but over, the Times said.

Tuesday, March 27, 2007

Housing Clouds

3/28/07 Housing Clouds

Lennar withdrew the company's previously stated 2007 target of meeting or topping 2006's earnings per share of $3.69 and didn't set a new goal because it hasn't seen house prices stabilizing. That seems like a smart decision. With declining permits and rising inventories, it would be imprudent to forecast a quick turnaround in fortunes.

According to Bloomberg, Saudi Arabia is shipping less oil to customers. OPEC by February reduced daily output by 1 million barrels. Global inventories this year fell the most in a decade.

24/7WallSt reports Goldman Sachs adopts a buy and hold strategy in oils and gas companies with a 10%+ to 13% upside in the names, but says they prefer to buy on dips rather than chase rallies; says they could see 30%+ upside for the sector to current high-end trading values.

From the LA Times: As medical costs have soared, groups representing professions as varied as law and golf have been forced to stop offering the benefit or been dropped by insurers.
More than 8,000 people with coverage through the California Assn. of Realtors could be next if Blue Shield of California succeeds with its plan to cancel the group's health coverage...Fewer than a quarter of 1,020 professional and small-business associations surveyed in February offer medical coverage, even though a majority of the groups said they would like to. The American Society of Association Executives, which commissioned the survey, views the issue as a crisis.

From The Economist: Increased production of biofuels such as ethanol might help farmers' bottom lines and address climate-change concerns, but it could inflate food prices worldwide, warns a former White House economist. "Worldwide, especially in developing countries ... food price increases are definitely something we're going to have to come to grips with," said David Sunding, who served on former President Bill Clinton's Council of Economic Advisers. All this talk about biofuels is fine. How about concentrating on increasing the mileage on cars to at least 40 miles to the gallon?

You see Bush inviting the heads of GM, Ford, and Chrysler to the White House?
What a schmuck. He leaves out Toyota, the major player in auto production and sales going forward in this country. Bush gets an A for photo-ops and an F in everything else.

Nouriel Roubini: "But in housing – and economy wide - recessions existing homes sales do not move much downward while new home sales tend to fall in a range of 40% to 60%. New home sales are a more important measure of the state of housing as they represent the new demand for housing that is associated with new production and new supply of housing. What enters in the GDP measure is new homes production (i.e. residential investment) and new homes demand (new home sales). Thus, on the supply side the relevant measures of new housing activity are building permits, housing starts, residential construction, and housing completions."

The price of homes in 20 U.S. metropolitan areas fell in January for the first time in seven years, a private survey showed today. Home values dropped 0.2 percent last month from January 2006, according to the S&P/Case-Shiller home-price index. The decrease was the first since the group started the index in January 2001.

Qatar Airways plans to sign a firm order for 80 Airbus A350 XWB long-range planes worth $16 billion.

U.K. Prime Minister Tony Blair said that efforts to release 15 British sailors and Marines seized by Iran will enter a ``different phase'' if negotiations fail.

Libya, the site of Africa's largest oil reserves, is prepared to sell a majority stake in its oilfield- services company to a foreign partner such as Schlumberger Ltd. or Halliburton Co., to boost exploration.

Attorney General Alberto Gonzales and U.S. Attorney Johnny Sutton are now being accused of failing to prosecute officers of the Texas Youth Commission after a Texas Ranger investigation documented that guards and administrators were sexually abusing the institution's teenage boy inmates.

The U.S. Federal Reserve is keeping an eye on inflation because of a risk that price growth will not moderate as much as it had expected, Cleveland Federal Reserve President Sandra Pianalto said on Tuesday. “We still see risks to the inflation environment,” Ms. Pianalto said in response to an audience question after delivering a speech to a banking forum in Prague.

Axel Merk: "But why would a slowdown be something the Fed should be concerned about? The only reason the Fed would try to prevent an economic slowdown is if it were concerned it could spiral out of control. And that's the core of the matter: in our assessment, Fed Chairman Ben Bernanke is concerned we could enter a deflationary spiral akin to what Japan experienced. How could such a deflationary spiral come about? You start with a credit bubble, with a consumer loaded up to their teeth with debt. In a credit crunch, the consumer would be forced to reign in his or her spending to service the debt; given that about 70% of the U.S. economy is comprised of consumer spending, we are talking about a severe recession or possibly a depression to force consumers to become savers rather than spenders."

Tom Helman, a meteorologist with the National Weather Service office in Green Bay, said Appleton registered 79 degrees, shattering the record of 70 degrees in 1991. Other sources had readings above 80.
Record highs were set by similar margins in Oshkosh, Green Bay, Stevens Point and Wisconsin Rapids, Helman said. Will this summer be especially hot and dry? Many forecasts point to this combination. If so, that could have a material impact on crops and the usage of natural gas.

The Conference Board reported Tuesday that the consumer confidence index fell to 107.2 in March from a revised 111.2 in February. The present situation index rose slightly to 137.6 from 137.1 in February. It's the highest since August 2001. The expectations index, however, fell to 86.9 from 93.8 in February.

The Oil Drum: "Petroleo Brasileiro SA, Brazil's state-controlled oil company, is close to confirming the discovery of a ``gigantic'' field of light-grade crude under the Campos Basin, the Globo daily newspaper reported, without saying where it got the information....The field, if economically recoverable reserves are confirmed, would be one of the largest of its type in the world, Globo said. Petrobras, as the company is known, on July 12 said it found a new exploration frontier under a salt layer that sits beneath existing Campos Basin heavy oil fields."

Senate Judiciary Committee Chairman Patrick Leahy, D-Vt.: "The American people are left to wonder what conduct is at the base of Ms. Goodling's concern that she may incriminate herself ... if she appears before the committee under oath."

The US Navy has begun its most extensive manoeuvres in the Gulf region since the 2003 invasion of Iraq, but denies sabre-rattling aimed at Iran. Two aircraft carriers, plus their strike groups, have sailed to the region and have begun war games involving as many as 100 US war planes.

Fred Fielding's March 20 letter to the chairmen and ranking members of the House and Senate Judiciary committees:

* that interviews be conducted behind closed doors;

* that they not be televised or transcribed;

* that there be no "subsequent testimony";

* that no subpoenas be issued following the interviews;

* and that committee members ask no questions concerning internal White House communications.

Enough time has elapsed. Send out the subpoenas. In the most recent poll, the Americans are in favor of issuing the subpoenas by a 3 to 1 margin. It's up to the Congress to act and leave the talk behind.

3/28/07 Housing Clouds

Lennar withdrew the company's previously stated 2007 target of meeting or topping 2006's earnings per share of $3.69 and didn't set a new goal because it hasn't seen house prices stabilizing. That seems like a smart decision. With declining permits and rising inventories, it would be imprudent to forecast a quick turnaround in fortunes.

According to Bloomberg, Saudi Arabia is shipping less oil to customers. OPEC by February reduced daily output by 1 million barrels. Global inventories this year fell the most in a decade.

24/7WallSt reports Goldman Sachs adopts a buy and hold strategy in oils and gas companies with a 10%+ to 13% upside in the names, but says they prefer to buy on dips rather than chase rallies; says they could see 30%+ upside for the sector to current high-end trading values.

From the LA Times: As medical costs have soared, groups representing professions as varied as law and golf have been forced to stop offering the benefit or been dropped by insurers.
More than 8,000 people with coverage through the California Assn. of Realtors could be next if Blue Shield of California succeeds with its plan to cancel the group's health coverage...Fewer than a quarter of 1,020 professional and small-business associations surveyed in February offer medical coverage, even though a majority of the groups said they would like to. The American Society of Association Executives, which commissioned the survey, views the issue as a crisis.

From The Economist: Increased production of biofuels such as ethanol might help farmers' bottom lines and address climate-change concerns, but it could inflate food prices worldwide, warns a former White House economist. "Worldwide, especially in developing countries ... food price increases are definitely something we're going to have to come to grips with," said David Sunding, who served on former President Bill Clinton's Council of Economic Advisers. All this talk about biofuels is fine. How about concentrating on increasing the mileage on cars to at least 40 miles to the gallon?

You observe Bush inviting the heads of GM, Ford, and Chrysler to the White House.
What a dummie. He leaves out Toyota, the major player in auto production and sales going forward in this country. Bush gets an A for photo-ops and an F in everything else.

Nouriel Roubini: "But in housing – and economy wide - recessions existing homes sales do not move much downward while new home sales tend to fall in a range of 40% to 60%. New home sales are a more important measure of the state of housing as they represent the new demand for housing that is associated with new production and new supply of housing. What enters in the GDP measure is new homes production (i.e. residential investment) and new homes demand (new home sales). Thus, on the supply side the relevant measures of new housing activity are building permits, housing starts, residential construction, and housing completions."

The price of homes in 20 U.S. metropolitan areas fell in January for the first time in seven years, a private survey showed today. Home values dropped 0.2 percent last month from January 2006, according to the S&P/Case-Shiller home-price index. The decrease was the first since the group started the index in January 2001.

Qatar Airways plans to sign a firm order for 80 Airbus A350 XWB long-range planes worth $16 billion.

U.K. Prime Minister Tony Blair said that efforts to release 15 British sailors and Marines seized by Iran will enter a ``different phase'' if negotiations fail.

Libya, the site of Africa's largest oil reserves, is prepared to sell a majority stake in its oilfield- services company to a foreign partner such as Schlumberger Ltd. or Halliburton Co., to boost exploration.

Attorney General Alberto Gonzales and U.S. Attorney Johnny Sutton are now being accused of failing to prosecute officers of the Texas Youth Commission after a Texas Ranger investigation documented that guards and administrators were sexually abusing the institution's teenage boy inmates.

The U.S. Federal Reserve is keeping an eye on inflation because of a risk that price growth will not moderate as much as it had expected, Cleveland Federal Reserve President Sandra Pianalto said on Tuesday. “We still see risks to the inflation environment,” Ms. Pianalto said in response to an audience question after delivering a speech to a banking forum in Prague.

Axel Merk: "But why would a slowdown be something the Fed should be concerned about? The only reason the Fed would try to prevent an economic slowdown is if it were concerned it could spiral out of control. And that's the core of the matter: in our assessment, Fed Chairman Ben Bernanke is concerned we could enter a deflationary spiral akin to what Japan experienced. How could such a deflationary spiral come about? You start with a credit bubble, with a consumer loaded up to their teeth with debt. In a credit crunch, the consumer would be forced to reign in his or her spending to service the debt; given that about 70% of the U.S. economy is comprised of consumer spending, we are talking about a severe recession or possibly a depression to force consumers to become savers rather than spenders."

Tom Helman, a meteorologist with the National Weather Service office in Green Bay, said Appleton registered 79 degrees, shattering the record of 70 degrees in 1991. Other sources had readings above 80.
Record highs were set by similar margins in Oshkosh, Green Bay, Stevens Point and Wisconsin Rapids, Helman said. Will this summer be especially hot and dry? Many forecasts point to this combination. If so, that could have a material impact on crops and the usage of natural gas.

The Conference Board reported Tuesday that the consumer confidence index fell to 107.2 in March from a revised 111.2 in February. The present situation index rose slightly to 137.6 from 137.1 in February. It's the highest since August 2001. The expectations index, however, fell to 86.9 from 93.8 in February.

The Oil Drum: "Petroleo Brasileiro SA, Brazil's state-controlled oil company, is close to confirming the discovery of a ``gigantic'' field of light-grade crude under the Campos Basin, the Globo daily newspaper reported, without saying where it got the information....The field, if economically recoverable reserves are confirmed, would be one of the largest of its type in the world, Globo said. Petrobras, as the company is known, on July 12 said it found a new exploration frontier under a salt layer that sits beneath existing Campos Basin heavy oil fields."

Senate Judiciary Committee Chairman Patrick Leahy, D-Vt.: "The American people are left to wonder what conduct is at the base of Ms. Goodling's concern that she may incriminate herself ... if she appears before the committee under oath."

The US Navy has begun its most extensive manoeuvres in the Gulf region since the 2003 invasion of Iraq, but denies sabre-rattling aimed at Iran. Two aircraft carriers, plus their strike groups, have sailed to the region and have begun war games involving as many as 100 US war planes.

Fred Fielding's March 20 letter to the chairmen and ranking members of the House and Senate Judiciary committees:

* that interviews be conducted behind closed doors;

* that they not be televised or transcribed;

* that there be no "subsequent testimony";

* that no subpoenas be issued following the interviews;

* and that committee members ask no questions concerning internal White House communications.

Enough time has elapsed. Send out the subpoenas. In the most recent poll, the Americans are in favor of issuing the subpoenas by a 3 to 1 margin. It's up to the Congress to act and leave the talk behind.

The Strait of Hormuz handles 17 million barrels per day of oil, approximately one third of the world’s sea-borne crude oil shipments. According to Erik Kreil, an analyst at the U.S. Energy Information Administration, “the world has never seen anything close to the size of the Strait of Hormuz closure.”

Concerning Dendreon's Provenge, the Tissue and Gene Therapies advisory committee of the FDA concluded that two studies of Provenge "provide some evidence in support" of using the drug as a treatment for prostate cancer but it did note that key efficacy evidence from the studies, specifically the difference in overall survival between the two arms, is based on post-hoc analyses. This led the committee to add: "It's certain that the level of falsely claiming effectiveness for this product is substantially higher than the one in a conventional setting."

Republican leaders in the U.S. Senate say they will not try to block passage of an Iraq war-spending bill, even if it includes a troop withdrawal deadline.
Republican Senate Minority Leader Mitch McConnell says his party's goal is to pass the bill quickly, because he knows President Bush will veto it. He predicts Democrats will then be forced to redraft the bill without conditions.

Louis Fisher, an expert on congressional and presidential powers at the Library of Congress, said, "I believe the Rove case would be unprecedented, with regard to being White House staff, but the courts have supported broad subpoena powers for Congress to fulfill its constitutional duties, and I would think the ‘privilege’ raised by Rove would be unlikely to overcome the core congressional power," that is the power of Congress to investigate executive branch operations and allegations to wrongdoing in the firing of the United States attorneys.

Wal-Mart Stores Inc. Chief Executive Officer Lee Scott said the world's largest retailer is adopting a cautious stance, considering that rising fuel prices could mean this year will not be easy.
"With fuel pries going up, it feels like it's going to be a challenging year," he said on Tuesday during a television interview on Fox News.
"I wouldn't say worried is the right word. But I think we're cautious thinking through what it means. Fuel prices have an impact on our basic customer," he added.

A senior U.S. Federal Reserve staff member warned on Tuesday that subprime mortgage market troubles could last as long as two years.

Crude for May delivery closed up 2 cents at $62.93 a barrel. Natural-gas futures rose 24.9 cents to $7.503 per million British thermal units.

Gold for April delivery closed down $1.40 at $662.50 an ounce on the New York Mercantile Exchange. May silver ended down 13 cents at $13.28 an ounce, June palladium fell $3 at $356 an ounce and May copper ended down 8.10 cents at $3.0575 a pound. April platinum gained $5.50 at $1,242 an ounce.

Sunday, March 25, 2007

Keep On Truckin

3/26/07 Keep On Truckin

Authorities shut down an important deep-water Amazon River port owned by Cargill Inc. on Saturday, saying the huge U.S. agribusiness firm failed to provide an environmental impact statement required by law.The move by federal police and environmental agents to close Cargill's controversial soy export terminal was a major victory for environmentalists in Santarem, a sleepy jungle city about 1,250 miles northwest of Sao Paulo. It came after a late Friday ruling by Judge Souza Prudente, police and the Agencia Estado news service said.

Mike Burk: "Martin Zweig's up volume indicator got a lot of publicity in technical circles when it was triggered last week. The indicator was also triggered on March 6, but analysts' were probably too afraid to notice that time.
According to Greg Morris in THE COMPLETE GUIDE TO MARKET BREADTH INDICATORS (my bedside reference) "A further concept from Dr. Zweig is to expand the 9-to-1 ratio of up volume to down volume to state that anytime there are two signals in any 3-month period, the evidence suggests a strong market to follow." On March 6 the ratio was 15-to-1 and 10-to-1 last Wednesday. The indicator is calculated on NYSE volume figures...Last week new lows declined to benign levels. Seasonally next week has been weak but the level of new lows suggests there is not much risk. I expect the major indices to be higher on Friday March 30 than they were on Friday March 23."

Robert McHugh: "We believe a credit crunch is underway. It started with the housing slowdown, which resulted in deteriorating real estate prices (collateral values), is now fed by adjustable rate mortgages resetting higher, that make it difficult for many homeowners to make payments on time. Without rising values, refinancing isn't an option, resale isn't an option (folks owe more than they can get, net of real estate sales commissions and taxes), and so they are forced to hand lenders the keys. This has resulted in losses for subprime lenders, who generated loans to marginal borrowers based upon unsubstantiated incomes, and a belief that collateral values would continue rising. Now on the radar screen, politicians have put pressure upon regulators such as the Federal Reserve to account for how this could've happened. Regulators "on the defensive" always generates an overreaction. This overreaction means more frequent and more intense bank examinations, tighter standards imposed upon lenders, subjective classification of loans as worse than they are in reality. If a loan is a few months delinquent, while before that meant "keep an eye on the borrower," now it means the lender must set aside earnings into a reserve for possible loan losses. This kills bank earnings. This intimidates lenders into not lending. This creates a credit crunch, which lowers money supply, which causes/worsens a recession. That is where we are headed fast. It is like a black hole, sucking the life out of the economy. Eventually this loan scrutiny affects all loans, not just residential real estate. In effect, we end up with a bank examiner generated recession. They get tough too late, at the wrong time. It happened before, under George the 1st's regime, in the late 1980's/early 90s."

I pay particular attention when a well-managed company and a leader in its industry forecasts a significant slowdown with accompanying layoffs. Paccar of Bellevue, WA is such a company. They are the maker of Peterbilt and Kenworth trucks. Earlier this year they announced a layoff of 340 workers and now another 140 will be laid off as of April 3, out of 360 at that one plant in Renton. The company stated the cuts are needed "to balance production levels with lower industry demand." Now it should be noted that much of the company's record sales in 2006 was due to buying trucks ahead of tighter federal engine emission rules that took effect in 2007. Paccar's estimate for the entire U.S. and Canadian market is 200,000 to 230,000 heavy trucks versus an estimated 320,000 in 2006.
The stock is at $75+ with a high of $78+. I believe this year's results will disappoint many shareholders.

Oroborean: "The price at the pump is an inflationary factor that hits across the board and is already unseasonably high heading into a period of peak demand. Oil has hovered stubbornly around $60, but production bottlenecks at refineries have kept gasoline expensive. It's difficult to say with certainty, but the less than impressive fourth quarter in retail might be directly related to last year's wild rise in energy prices. While the economy as a whole has so far been resilient, add in potential loss of wealth effect from falling home prices, at least in some local markets, and the straws on the camel are mounting."

Dominick: "Next week we have some work to do in the short term patterns. We should've already seen a pullback, but the market still has a bid from trapped shorts. My short term trend charts have already weakened, but not the 60 min."


James L. Williams, WTRG Economics: " Canadian rig activity was down 163 at 246 for the week of March 23, 2007 and is 393 lower than last year's rig count. Canadian drilling falls rapidly in the spring to avoid environmental damage during the spring thaw and rainy season. Canadian rig activity was down 163 at 246 for the week of March 23, 2007 and is 393 lower than last year's rig count. Canadian drilling falls rapidly in the spring to avoid environmental damage during the spring thaw and rainy season. The Canadian drilling industry experiences wide seasonal swings and even year over year comparisons can lead to incorrect conclusions."

When the sprawling Goodyear Tire & Rubber Co. plant in Tyler, Texas closes next year, the city will lose its largest payroll and a steady presence around which lives have been built for the past 45 years.
Citing a need to trim production in the face of foreign competition, Goodyear announced last fall that it would close the Tyler facility, one of its 16 plants in the U.S. and Canada. As part of a union settlement that ended a three-month, company-wide strike in December, the company said it will keep the plant running through the end of 2007.
About 1,075 skilled jobs paying $46,000 to $50,000 a year — plus full benefits and overtime that can nearly double the base pay — will be lost.

The UN Security Council yesterday agreed to a third resolution for economic sanctions on Iran as punishment for refusing to suspend its nuclear program, voting unanimously to freeze the assets of a state-owned Iranian bank and impose penalties on some military commanders.The resolution, which toughens sanctions approved in December, gives Iran 60 days to suspend uranium enrichment before the new penalties are imposed.