Saturday, November 03, 2007

Another CEO Bites The Dust

11/4/07 Another CEO Bites The Dust

Citigroup Inc.'s CEO Charles Prince will offer to resign on Sunday, reported the Wall Street Journal.

Ford Motor Co. and the union representing its 54,000 U.S. factory workers agreed on a new 4-year contract.

Bank credit now exceeds $9 trillion.

The FT reports five-year credit default swaps tied to Citigroup widened to 60 bps, meaning it cost $60,000 annually to insure Citigroup's debt against default for five years. A couple of weeks ago, that figure stood at $27,000. Contracts on Merrill Lynch…rose $18,000 to $103,000.

Bloomberg reports currency traders are betting in the forward exchange rate market that the Hong Kong Monetary Authority will abandon its currency’s 24-year peg to the U.S. dollar.

According to the FT, November prices for the type of milk used to make cheese are up 85% from a year ago, while yoghurt milk is up 141% and skimmed milk powder 155%.

Doug Noland: " When I read of mounting energy and food shortages and witness the unfolding run on the U.S. financial sector, as an analyst I must contemplate the likelihood we have entered a uniquely unstable monetary environment at home and abroad. In short, the backdrop exists where incredible dollar liquidity flows could be released (from myriad sources) upon key things (notably energy, food, metals and commodities) already in severe supply and demand imbalance. Again, how much are the Chinese willing to pay for energy? The Russians for food? The Indians for commodities in general? How much will investors be willing to pay for precious metals as a store of value? How aggressively will the speculators “front run” all of them? Can the Fed afford to continue fueling this bonfire?...I’ll admit that I am rather amazed that key financial stocks – including the financial guarantors, “money center banks”, and Wall Street firms – were hammered yet the market maintained its composure. NASDAQ was actually up on the week, as major technology indexes added to their robust y-t-d gains. I’ll assume there is a confluence of great complacency and gamesmanship, with operators determined to play aggressively through year-end (bonuses and payouts). I wouldn’t bet on the stock market holding 2007 gains for another eight weeks. The Credit meltdown is now moving too fast and furious. Importantly, confidence is faltering for the entire Credit insurance industry, including the mortgage insurers and the financial guarantors. This is a devastating blow for the securitization marketplace, already reeling from pricing, liquidity and trust issues. The Credit system has lurched to the edge of meltdown, while the economy hasn’t even as yet succumbed to recession. It's absolutely scary. Last week I wrote that subprime and the SIVs were “peanuts” in comparison to the CDO market. Well, the CDO marketplace is chump change compared to Credit Default Swaps and other over-the-counter (OTC) Credit derivatives that, by the way, have never been tested in a Credit or economic downturn...According to the Bank of International Settlements, the OTC market for Credit default swaps (CDS) jumped from $4.7 TN at the end of 2004 to $22.6 TN to end 2006. From the International Swaps and Derivatives Association we know that the total notional volume of credit derivatives jumped about 30% during the first half to $45.5 TN. And from the Comptroller of the Currency, total U.S. commercial bank Credit derivative positions ballooned from $492bn to begin 2003 to $11.8 TN as of this past June. It today goes without saying that this explosion of Credit insurance occurred concurrently with the expansion of the riskiest mortgage (and other) lending imaginable. It’s got “counter-party fiasco” written all over it...There is today no alternative to a wrenching recession. The economy is terribly maladjusted, while the financial sector is at this point incapable of intermediating the massive amount of ongoing Credit necessary to keep this Bubble Economy inflated. Wall Street “structured finance” is today faltering badly, now leaving the highly vulnerable banking system with the task of sustaining the ill-fated boom."

Bus drivers in the bustling southern province of Guangdong have a new daily chore: Hunting for diesel. Amid widespread shortages, service stations allow drivers just a few quarts at a time, forcing buses to stop repeatedly to fill up while passengers fume, said Dai Guowei, an employee of the Zhaoshang Passenger Transport Co.

George Ure: " If you plug in $850 to the Minneapolis Fed inflation calculator, and the year 1980 and simply adjust for inflation to 2007, you'll see that in order for gold to make a new high today, it would need to exceed $2,128.09 per ounce. Of course, there was a lot less actual demand for gold back then, and a lot less industrial and now growing medical demand for silver, too."

The Jerusalem Post reportedthe September 6 raid over Syria was carried out by the US Air Force, the Al-Jazeera Web site reported Friday. The Web site quoted Israeli and Arab sources as saying that two US jets armed with tactical nuclear weapons carried out an attack on a suspected nuclear site under construction. The sources were quoted as saying that Israeli F-15 and F-16 jets provided cover for the US planes. The sources added that each US plane carried one tactical nuclear weapon and that the site was hit by one bomb and was totally destroyed.

This is old news. Sugar groups have used campaign cash and far-reaching alliances with labor unions and politicians to expand their influence far beyond the 15 states and few dozen congressional districts where sugar is grown by fewer than 6,000 farmers. The Government Accountability Office has estimated that the sugar program costs consumers and food processors between $1 billion and $2 billion annually in higher prices for sugar and a vast array of products that contain it. Meanwhile, the new sugar subsidy would cost taxpayers tens of millions of dollars a year, according to economists and U.S. officials.

Lehman's research on BJ Services: Set price target at $33. Earnings in 08 $2.38, 09 $2.90 and 10 $3.55.

Bronco Drilling shares get almost no respect. Much higher than expected drilling margins drove quarterly earnings to $.38 per share after one time items. This topped estimates by 5 cents a share.

Plato: “Those who are too smart to engage in politics are punished by being governed by those who are dumber.”

Friday, November 02, 2007

Diplomacy And Omens

11/3/07 Diplomacy And Omens

A top American diplomat pressed for harsher U.N. sanctions against Iran for its nuclear program on Friday, while Iran's former president said talks with the U.N. atomic watchdog were progressing and warned against threatening his country.
Meanwhile, Obama, if elected, would engage in extensive diplomacy with Iran.
It is hard to imagine that a Democrat-led Congress just passed a resolution giving Bush the authority to invade Iran. Has Iran ever invaded another country? We have though. It's called Iraq.

N.Y. Attorney General Andrew Cuomo accused Washington Mutual of pressuring appraisers to inflate home values. Do you think WaMu has a monopoly on this activity?

An investor group led by former Chief Executive Officer Maurice Greenberg Friday called on American International Group Inc.to consider alternatives for the company, including sale of some of its operations.

Cigna expects 2008 adjusted income from operations of $1.16 billion to $1.22 billion, or $4.00 to $4.20 a share.

The U.S. economy created 166,000 net jobs in October, the best job growth since May, the Labor Department reported Friday. The unemployment rate was steady at 4.7% as expected. A separate survey of 60,000 households showed a loss of 250,000 workers, the third decline in the past four months. Jobs continued to be lost in the manufacturing and construction sectors, offset by growth in public schools, health care, business services, food service, and temporary-help services. Average hourly earnings rose 3 cents to $17.58 an hour, or 0.2%. Average hourly earnings are up 3.8% in the past year.

George Ure: " Now, just how much of it was created by the CES Birth-Death Model, which statistically supposes jobs created? Try 103,000 for October. A true skeptic would say 166 thousand new jobs, backing out 103 thousand CES Birth/Death Model estimated, leaves a real gain of 63-thousand, but any port in a storm, right?"

Merrill Lynch has engaged in deals with hedge funds to delay when it had to record losses on risky mortgage-backed securities, and the Securities and Exchange Commission has started a probe looking at how Wall Street is valuing mortgage securities, The Wall Street Journal reported Friday, citing people close to the situation.

Mazda, Japan's fifth-largest automaker, said net profit for the second fiscal quarter reached 26.6 billion yen ($232.1 million), up from 20.6 billion yen in the year-ago period. Revenue rose 7% to 841.9 billion yen from 787.1 billion yen. For the full year, Mazda kept its forecast for a group net profit of 85 billion yen.

Doug Casey: " The rapidly approaching dilemma for the Federal Reserve comes down to a choice between (1) engineering a standard sort of recovery from the next recession by speeding up monetary growth and reducing interest rates and (2) keeping the dollar afloat.
Choose the “solution” behind Door Number One and trigger a monetary crisis. Open Door Number Two and our heavily indebted economy is devastated by the higher interest rates needed to support the U.S. dollar. For all the reasons discussed above, and with the next presidential election season now kicking off, the odds heavily favor inflation.
In fact, Fed Chairman Ben Bernanke virtually gave the game away in a speech in Frankfurt on November 10, 2006.
“It would be fair to say that monetary and credit aggregates have not played a central role in the formulation of U.S. monetary policy.”
In other words, the total amount of money in the system – what we “print” – plays no serious role in current U.S. policy. That’s a politic way of admitting that the U.S. government is planning to paper over all its many obligations and accelerate a trend that has been in motion since the creation of the Fed in 1913."

The Federal Reserve added $41 billion in temporary reserves to the banking system, the largest one-day cash infusion since the terrorist attacks of September 2001.

Chevron's net income for the three months ended Sept. 30 fell to $3.72 billion, or $1.75 per share, compared with $5.02 billion, or $2.29 per share, during the same period a year earlier. The CEO said "margins were squeezed as escalating costs for crude-oil feedstocks could not be fully recovered in a U.S. marketplace that was well-supplied with gasoline and other refined products."

The mood in credit derivatives markets turned ugly on Thursday, with the cost of insuring corporate debt hitting multi-week highs on both sides of the Atlantic. "It's scary out there - there's blood on the streets," a trader at a US brokerage said. "It's a real mess." Funny. The Dow and the S&P don't look scary. How can that be?

According to market research firm IMS Health, the global pharmaceutical market will grow 5 to 6% during 2008 to as much as $745 billion, after a rather anemic 6 to 7% increase in 2007. In the world's two largest markets for pharmaceuticals, the U.S. and Europe, drugs sales are only projected to grow 4 to 5% next year, their slowest pace since the early 1960s.

Peter Schiff: " Had the government assumed a higher rate of inflation, say 2.6% (identical to the rate used to deflate second quarter GDP,) the 3rd quarter gain would have been only 2.1%, well shy of the consensus forecast. My guess is that inflation is actually running at an annualized rate closer to 10%. Therefore using a more honest deflator, the U.S. economy is actually contracting, which would explain the recent anecdotal evidence provided by various economic polls, voter dissatisfaction and consumer sentiment numbers. In fact, if one simply measures U.S. GDP using gold or any other currency, it is clear that we are already in a recession."

Copper tumbled 3.2%, the most in 11 weeks, after stockpiles monitored by the London Metal Exchange rose 8.3% this week to the highest level since April. Supplies surged 28% in October, according to the LME.

According AMG Data, Including ETF activity, Equity funds report net cash inflows totaling $7.275 billion in the week ended 10/31/07 with Domestic funds reporting net inflows of $4.115 billion and Non-domestic funds reporting net inflows of $3.160 billion;
Excluding ETF activity, Equity funds report net cash outflows totaling -$565 million with Domestic funds reporting net outflows of -$942 million and Non-domestic funds reporting net inflows totaling $376 million.

The Oil Drum: "Industry insider and writer on oil Matthew Simmons bet $5,000 with a New York Times columnist that oil prices would reach $200 in 2010. Simmons calculates that $65 a barrel translates to 10 cents a cup, still 10 times cheaper than bottled water.

Brett Steenbarger: "In short, when the VIX jumps from 15 to 25, the effect is similar to doubling position size overnight. Moreover, markets will--to the eye of the trader--move twice as fast; a given market move will occur in half the time. This will make it feel as though markets are moving *differently*. Finally, when volatility doubles, the average movement against one's positions will double. If stop levels are not adjusted appropriately, it's easy to get stopped out and chopped up unless one's timing is impeccable."

The OPEC will need to pump more than the additional 500,000 barrels a day agreed in September to avoid tight crude and product inventory levels, the head of the U.S. Department of Energy's data section said Thursday.

The ABX index tracks AAA mortgage bonds. Not surprisingly, this index has made new lows this week. It would be wise to keep one's eye on this index. It will provide a clue to the health of the financial indices. Specifically, the AAA-rated ABX Index (for home loans made in the second half of last year) dropped under 80.0, down almost 3.50 from Friday's close of 83.4. The lesser-rated AA-rated ABX Index traded under 48.0 after closing at over 52.0 on Friday.

In early Friday trading, the euro made a fresh record high of $1.4525. The pound sterling was trading at $2.0819, up from $2.0789 Thursday. The dollar index, which measures the greenback against a basket of currencies, was down to 76.26. Does anyone in Congress care about the standard of living for those on Main Street?

Since Jan. 2005, Allstate Insurance has traded between the mid-60's and 50. The stock traded at $50+ on Friday. For patient investors, it might be worth a look.

Robert McHugh: "We have seen now five Hindenburg Omens since October 16th, the other four occurring October 17th, 18th, 25th, and again another Hindenburg Omen observation today, Thursday, November 1st."

Gold for December delivery rallied $14.80 to finish at $808.50 an ounce on the New York Mercantile Exchange. Earlier, the contract hit an intraday high of $810.70, a level not seen since 1980.

Crude-oil futures finished on Friday up $2.44, or 2.6%, at a record closing price of $95.93 a barrel on the New York Mercantile Exchange. Natural gas closed at $8.41.

Berkshire Hathaway's third-quarter net income came in at $4.55 billion, or $2,942 per class A share, up 64% from a year earlier when the the insurance-focused conglomerate run by Warren Buffett made $2.77 billion, or $1,797 a share. Investment and derivative gains of $1.99 billion, or $1,287 per class A share, accounted for all the gains in the period. Operating income, which excludes net realized investment gains and losses, was $2.56 billion, or $1,655 per class A share, down slightly from a year earlier when Berkshire made an operating profit of $2.6 billion, or $1,684 a share, the company said.

Citigroup Inc.is expected to hold an emergency board meeting this weekend, the Wall Street Journal reported Friday.

Jim Rogers: ``Bernanke loves printing money,'' Rogers said in an interview in New York. ``This man is a nut. The dollar is collapsing, commodities are going through the roof, which means inflation's going through the roof. These people are leading us to terrible problems down the line.'' Rogers, the 65-year-old chairman of Beeland Interests Inc., also said he's selling short shares of Citigroup Inc., the biggest U.S. bank, and Fannie Mae, the largest provider of money for U.S. home loans. Investors should buy commodities and the Chinese currency, Rogers said.

Thursday, November 01, 2007

Credit Issues And Headwinds

11/2/07 Credit Issues And Headwinds

Thomas Jefferson: “Banking establishments are more dangerous than standing armies.”

Citigroup was downgraded to sector underperformer from sector performer at CIBC World Markets, with the broker citing worries about its dividend payments. "We believe over near term, Citigroup will need to raise over $30 billion in capital through either asset sales, a dividend cut, a capital raise or combination thereof," the broker said. The stock traded down to a 4 year low at $38+. A management change is long long long overdue. The market cap is now below $200 billion.

Tele Atlas intends to recommend the Garmin offer unless TomTom matches it by the close of business on Nov. 8. Tele Atlas stressed it needs a binding offer from Garmin before it can switch its recommendation. So far Garmin has only declared its intention of making an offer for Tele Atlas of 24.50 euros a share in cash, which represents a 15% premium to the TomTom offer. Should TomTom match the Garmin offer, then Tele Atlas will continue to recommend the Dutch company's bid. If it fails to match the offer then Tele Atlas will terminate its agreement with the firm.

Unilever's third-quarter net profit rose 37% to 1.01 billion euros from 737 million euros as revenue for the period rose 1% to 10.24 billion euros. Underlying sales were up 4.5%. Revenue fell 0.6% in Europe and 2.3% in the Americas, but this was more than offset by strong growth in Asia and Africa, with India and China showing particularly strong growth. Commodity prices pressures have increased sharply, but have been offset through increased prices which helped raise the group's margin by 0.2 percentage points. Earnings were also boosted by increased an increased contribution from joint ventures and lower financing costs. Unilever said it remains confident it will meet its targets for 2007.

Online recruitment rose to its highest level since May, with management and military opportunities leading the rise, the Monster Employment Index showed. The index is published by Monster, the online-recruitment Website. The index reached 188, up two points from September and up 16 points from the year-earlier month. The index was last this high when it reached 189 in May 2007. The biggest jump in industries was in public administration, which rose 29 points, or 19%. That reflected more online job ads from the federal government. The biggest decline was in transportation and warehousing, down 8 points. Geographically, New England showed the highest rate of increase while the Mountain and Pacific regions showed the slowest growth.

China's manufacturing activity reached a 31-month high in October, driven by growth in domestic orders while overseas order growth remained positive. A gauge of purchasing activity rose to 55.2 in October from 55 in September, according to the purchasing managers' index compiled by CLSA Asia-Pacific Markets. October's gains mark the 23rd consecutive month of expansion in Chinese manufacturing, the report said.

A total of 446,726 homes nationwide were targeted by some sort of foreclosure activity from July to September, up 100.1 percent from 223,233 properties in the year-ago period, according to Irvine-based RealtyTrac Inc. The current figure was 33.9 percent higher than the 333,731 properties in foreclosure in the second quarter of this year. There was one foreclosure filing for every 196 households in the nation during the most recent quarter, RealtyTrac said.

Bloomberg's John Berry: "The members of the Federal Open Market Committee also effectively told investors and analysts not to expect another such reduction at the committee's next meeting on Dec. 11. That signal was clear from the FOMC's statement, which said, ``The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth.''

Henry To: "While foreign investment banks, commercial banks, hedge funds, and private equity funds are still creating liquidity (although this is slowing down as well), the Federal Reserve itself has continued to restrain liquidity from the global financial system, despite a lower discount and Fed Funds rate since July 15th. This is evident by the dismal 2.0% growth (a rate that is below that of inflation) in the St. Louis Adjusted Monetary base over the last 12 months. Another indicator of deteriorating liquidity is the blowout of credit spreads in the U.S. markets over the last few months. With the rally off the mid August lows, one would think that credit spreads have settled down since then, but that has not been the case."

China unexpectedly increased fuel prices by as much as 10 percent in an ``urgent step'' to help the nation's oil refiners cover surging costs as crude touched records above $96 a barrel. To ``guarantee domestic refined oil supply and promote energy conservation,'' gasoline, diesel and jet fuel prices will rise 500 yuan ($67) a metric ton starting today, the National Development and Reform Commission said late yesterday. China Petroleum & Chemical Corp., Asia's largest refiner, surged in Hong Kong and Shanghai trading.

According to the FT, the ongoing crisis in the US housing market is pushing a key mortgage-linked derivatives index to new lows, threatening to unleash a further bout of credit market upheaval. The price swing in the index, known as the ABX, is particularly significant, since it is starting to reduce the value of credit instruments that carried high credit ratings, and were therefore supposed to be ultra-safe.

Starbucks launches bottled Frappuccino in China today, a market with lots of potential customers but little history with ready-to-drink coffee drinks. Starbucks kicks off the new drink at stores in Hong Kong, Shanghai and Beijing and at convenience stores and other locations in Hong Kong and Shanghai.

Exxon Mobil Corp., the world's biggest oil company, posted a second straight drop in quarterly profit for the first time in five years after equipment and power failures slowed fuel output and refining margins narrowed. Third-quarter net income fell to $9.41 billion, or $1.70 a share, from $10.5 billion, or $1.77, a year earlier, the Irving, Texas-based company said today in a statement. The company was expected to earn $1.74 a share, the average of 16 analyst estimates compiled by Bloomberg.

Nouriel Roubini: "Consensus for Q4 is for a growth of 1.8% with some mainstream firms, such as JP Morgan, recently predicting 1%. Now that the inventory issue will likely subtract - as the Morgan Stanley commentary suggest - about 0.9% to previous estimates of Q4 growth, the consensus should revise its Q4 forecast to about 1% or below, straight into a "growth recession" territory. Thus, a growth rate in the 1% or below range looks like the most likely current outcome for Q4's growth rate. It is important to keep in mind that several of the bearish factors slowing down the economy emerged only late in Q3 and will thus affect growth only in Q4 and beyond: the sharp rise in oil prices, the severe liquidity and credit crunch that started only two thirds into Q3, the effects of these shocks on consumer and business confidence and planned capital expenditure, the worsening of the housing recession and the acceleration in the rate of fall in home prices. And the headwinds slowing down consumption - that is down in October relative to September based on weekly UBS/ICSC and Redbook data on same store chain store sales - are building up: lower home values, lower home equity withdrawal, credit crunch in mortgages and rising default rates in other parts of consumer debt, rising debt servicing ratios as ARMs reset, falling consumer confidence, rising oil and gasoline prices, slowdown in employment growth. At the same side supply side factors (ISM, regional Feds' ISM reports, inventories, durable goods orders) also suggest a significant slowdown ahead in Q4. So as the WSJ put it today the GDP growth is "Not Built to Last"!

Altria Group Inc.will pay $2.9 billion to buy John Middleton, Inc., a manufacturer of machine-made large cigars, from privately held Bradford Holdings. The net cost of the acquisition, after deducting approximately $700 million in present value tax benefits arising from the terms of the transaction, is $2.2 billion.

For the fourth quarter, Timberland anticipates revenue declines in the mid-single digit range reflecting soft market conditions in the U.S. and Europe and operating margin declines in the range of 200 basis points, excluding restructuring costs. For 2008, Timberland is targeting mid-single digit first half revenue declines and improved operating results. The footwear and apparel maker expects soft market trends will be offset by its "efforts to drive operational efficiencies" and its decision to close about 50 retail stores by the end of the first quarter of 2008. The company also said it would realign its U.S sales team and global product development organization to "eliminate redundancies and improve efficiencies."

Credit Suisse had a 1.1B franc writedown on leveraged loans that the bank was unable to resell after credit markets dried up in July and August, and another 1.1B franc writedown on residential and commercial mortgages and CDOs.

After adjusting for inflation, after-tax incomes rose 0.2% in September and real spending increased 0.1%. Meanwhile, inflation was steady. in September. The personal consumption expenditure index rose 0.2% on the month. The core rate of inflation - which excludes food and energy prices - also rose 0.2%, as expected. In the past year, the PCE price index has risen 2.4%, while the core PCE index was up 1.8%, the same as the previous month. Obviously, there is no validity to these inflation numbers from the government.

First-time claims for state unemployment benefits dropped to their lowest level in three weeks during the week ending Oct. 27, while the number of workers continuing to claim unemployment benefits rose to its highest level since Sept. 1, the Labor Department reported Thursday. Initial jobless claims fell to 327,000, a decrease of 6,000, the government data show. It's the lowest since Oct. 6. Continuing claims for unemployment benefits rose by 65,000 to 2.58 million. The four-week average of those claims also shot up by 13,000, to 2.53 million.

Crude-oil futures for December delivery retreated from Wednesday's record high, closing down $1.04, or 1.1%, at $93.49 a barrel Thursday on the New York Mercantile Exchange.

Natural gas supplies rose by 66 billion cubic feet to 3,509 billion cubic feet as of Oct. 26, the Energy Department reported on Thursday. Natural gas closed up 28 cents to $8.61.

Gold for December delivery finished down $1.60 at $793.70 an ounce on the New York Mercantile Exchange.

MetroPCS Communications Inc. on Thursday withdrew its $4.7 billion offer to acquire rival Leap Wireless International Inc., two months after Leap rejected its unsolicited bid.

CIBC World Markets trimmed their 2008 and 2009 profit forecasts for the Bank of America.

The outstanding level of asset-backed commercial paper fell for the 12th straight week, the Federal Reserve reported Thursday. Asset-backed paper dropped by $9 billion, or 1%, to $875 billion, and this represents a plunge of $308 billion, or 26%, since the crisis of confidence in credit began in early August.

The U.S. manufacturing sector grew at a slower pace for a fourth straight month in October, according to the Institute for Supply Management index released Thursday. The ISM index fell to 50.9% from 52% in September.The new orders index fell to 52.5% from 53.4% in September. The production index dropped to 49.6% in October from 54.6% in September. The prices paid index rose to 63% from 59%.

Chrysler plans to cut more than 10,000 jobs, and that is in addition to the 13,000 layoffs announced in February.

U.S. District Court Judge Patricia Minaldi ruled this week that the Interior Department's Minerals Management Service could not order Kerr-McGee Oil and Gas Corp. � now owned by Houston-based Anadarko Petroleum Corp. � to pay royalties on production in the deep waters of the Gulf of Mexico solely because oil and gas prices rose to specific thresholds.

GMAC Financial Services lost $1.6 billion in the third quarter as it fell victim to the turmoil sweeping through the mortgage industry, the lender said Thursday.The former financing arm of General Motors Corp. said its mortgage business, ResCap, lost $2.3 billion during the third quarter, offsetting profits elsewhere in the business. GMAC cited "unprecedented disruptions" in the mortgage industry, stung by sinking home prices and an aversion among banks and investors to buying home loans.

Democrats, ignoring a veto threat, will try to force President George W. Bush to approve an increase in domestic spending by combining it with legislation funding military construction and veterans' programs.
Lawmakers said they will merge the appropriations bills into a single $750 billion measure, making Bush accept a $10 billion increase for education, health care and job-training programs or veto legislation benefiting active and retired military personnel near Veterans Day.

`"Trade is the only thing holding up manufacturing and otherwise it's looking weak,'' said Edward McKelvey, senior economist at Goldman Sachs Group Inc. in New York. ``The spending numbers suggest softer momentum coming out of the third quarter. The economy is in transition, and the growth we saw in the third quarter is in the rear-view mirror.''

Roche will build a second R&D center in China, spending $100 million to create the first fully functional China clinical drug R&D center that is owned by a multinational pharmaceutical company.

George Friedman: "The United States simply does not have the numbers of ground troops needed to invade and occupy Iran -- particularly given the geography and topography of the country. Therefore, any U.S. attack would rely on the forces available, namely air and naval forces...the United States simply does not have the numbers of ground troops needed to invade and occupy Iran -- particularly given the geography and topography of the country. Therefore, any U.S. attack would rely on the forces available, namely air and naval forces."

John Emerich Edward Dalberg Acton: “The danger is not that a particular class is unfit to govern. Every class is unfit to govern.”

The Dow Jones Industrial Average ended down 362 points, or 2.6%, at 13,567, its worst day since October 19, which marked the anniversary of Black Monday.The S&P 500 index fell 40 points, or 2.6%, to 1,508, while the Nasdaq Composite lost 64 points, or 2.3%, to 2,794. Microsoft bucked the trend and landed 25 cents higher on the day.

Wednesday, October 31, 2007

The Month Ends With Fireworks

11/1/07 October Ends With Fireworks

First Consulting Group Inc., a provider of information-technology products and services for health care and life sciences, agreed to be acquired for $13 a share, or $365 million, cash by Computer Sciences Corp., the companies said.

Clorox Co. will acquire personal-care product company Burt's Bees for $925 million net of an additional $25 million payment for anticipated tax benefits, in a move to capitalize on the popularity in "natural" products. Clorox will fund the all-cash deal through a combination of cash and short-term borrowings.

Uranium spot prices averaged $96.33 a pound in the quarter, compared to $50.83 a pound a year ago.

Japan will experience zero inflation in fiscal 2007 and a 0.4% rise in fiscal 2008, in terms of the consumer price index, excluding fresh foods, the Bank of Japan said in its semi-annual statement on the economy Wednesday.

The Bank of Japan voted 8-to-1 Wednesday to keep its key interest rate unchanged at 0.5%. Board member Atsushi Mizuno voted against the motion.

Garmin Ltd. proposed to buy Tele Atlas NV for 24.5 euros ($35.31) a share, or 2.3 billion euros ($3.31 billion). Separately, Garmin reported third-quarter earnings rose 57%.

Alcatel-Lucent, the world's largest telecommunications equipment company, on Wednesday said it will cut an additional 4,000 jobs in 2009 as it posted its third straight quarterly loss.

Canada's dollar rose to the highest since 1960. Canada's dollar rose to $1.0496 at 4:48 p.m. in Toronto, from $1.0482 yesterday. It touched $1.0511, the highest since March 28, 1960. One U.S. dollar buys 95.26 Canadian cents.

Robert Orben: “Inflation is bringing us true democracy. For the first time in history, luxuries and necessities are selling at the same price."

Mike Burk:"The OTC has been up 68% of the time in November, and including a 22% loss in 2000 and a 14% loss in 1973 it has had an average gain of 1.7% for the month. Performance during the 3rd year of the Presidential Cycle has been only slightly less, up 64% of the time with an average gain of 1.6%...Over all years the SPX has been up 55% of the time in November with an average gain of 0.4%. During the 3rd year of the Presidential Cycle it has been up 53% of the time with an average loss of 0.6%. The losses were distorted by an average loss of 4.48% for the 5 cycles before 1950."

Richard Daughty: "China's General Administration of Customs reported that China alone imported 39.3% more crude oil in July than it did this time last year! Not only that, but Liquefied Natural Gas (LNG) imports soared five-fold, too! 500%!"

Private payrolls grew by 106,000 in October, following a revised 61,000 gain in September, ADP reported Wednesday.

"Our business momentum continued to build in the third quarter," Irene Rosenfeld, Kraft's chairman and chief executive, said in a statement. "Although we face a difficult input cost environment, we are making the necessary investments to strengthen our brand equity."Kraft also maintained its outlook for 2007 earnings per share of $1.60 to $1.62, or $1.80 to $1.82 excluding items.

MasterCard Inc.said third-quarter profit climbed 63 percent as customer spending increased.

Private equity firm Cerberus has terminated its acquisition offer to acquire Affiliated Computer Services Inc. This was a $6.2 Billion deal that valued Affiliated at $62 per share.

The Wall Street Journal stated "Sadad I. Al-Husseini, an oil consultant and former executive at Aramco, Saudi Arabia's national oil company, gave a particularly chilling assessment of the world's oil outlook. The major oil-producing nations, he said, are inflating their oil reserves by as much as 300 billion barrels."

U.S. employment costs increased 0.8% in the third quarter after a 0.9% gain in the second quarter, the Labor Department reported Wednesday. Benefit costs rose 0.8% in the quarter, while wages and salaries also rose 0.8%. Over the past year, employment costs have increased 3.3%, the same rate as in the second quarter. Wages and salary costs have increased 3.3% in the past year, while benefit costs increased 3.2%.

More suspect government numbers: The U.S. economy grew at a 3.9% annual pace in third quarter, the best performance in six quarters, the Commerce Department estimated. There were strong contributions from consumers, exports, capital spending, military spending, and inventory building. And for the big laugh!
The GDP price index, the broadest measure of price changes in the economy, rose just 0.8% annualized, matching a nine-year low. Consumer prices rose 1.7%, while core consumer prices, which exclude food and energy prices, rose 1.8%. With respect to government numbers, fairy tales don't come true.

George Ure pointed out that the 5.6 San Jose quake at 8PM Tuesday happened a mere 26 minutes from a 7.2 shaker off on the other side of the Pacific plate in the northern Mariana Islands.

In early Wednesday trading Google topped $700 a share.

The Treasury Department will auction $18 billion in notes and bonds next week in its quarterly refunding auctions, the government said Wednesday. The department will auction $13 billion in 10-year notes and $5 billion in 29-year, 6-month bonds to refund $51.5 billion in maturing securities and pay down approximately $33.5 billion.

Private nonresidential construction spending climbed by 1.5%, while public construction spending rose by 1.9%, the Commerce Department said. But spending on housing projects fell by 1.4%, the 19th straight decline and a reflection of the ongoing slump in the housing and mortgage markets. That spending is down 16.4% in the last year.

Business activity in the Chicago region contracted in October, according to a survey of corporate purchasing managers released on Wednesday. The Chicago purchasing-managers' index fell to 49.7% in October from 54.2% in September.

Oil refinery capacity utilization down to 86.2%. Heating oil still climbing and now at $2.48, another record high. Forecasters expect lower temperatures to move into the Midwest by mid-month, increasing demand for natural gas to run furnaces. About 79 percent of homes in the Midwest rely on gas for heating, according to the Energy Department.

Crude supplies fell by 3.9 million barrels to 312.7 million barrels in the week ending Oct. 26, the Energy Department said on Wednesday. Gasoline supplies rose by 1.3 million barrels to 195.1 million barrels in the latest week, while distillate stocks grew by 800,000 barrels to 135.3 million barrels, the Energy Department said.

Crude supplies fell by 3.3 million barrels to 311 million barrels in the week ending Oct. 26, American Petroleum Institute reported on Wednesday. Distillate stocks rose by 3.1 million barrels to 136.2 million barrels in the same period, while gasoline stocks fell by 800,000 barrels to 196.1 million barrels, API said.

Palatin Technologies, Inc.announced the initiation of dosing in a Phase 1 clinical trial of PL-3994, a long acting analog of atrial natriuretic peptide, under development for treatment of acute decompensated congestive heart failure (CHF). The trial is being conducted under an Investigational New Drug application Palatin submitted to the U.S. Food and Drug Administration. Future plans include the development of PL-3994 for long term administration in patients with chronic congestive heart failure. Dr. Trevor Hallam, Palatin's Executive Vice President for Research and Development, stated, "We are excited to begin clinical trials of PL-3994, a compound developed by Palatin scientists that has the potential to become a new tool for physicians to advance the treatment of congestive heart failure. CHF is the single most common cause of hospitalization in the U.S. for patients older than 65 years of age and an underserved medical condition." Atrial natriuretic peptide (ANP) is a naturally produced peptide hormone involved in regulation of water and sodium levels in the circulation. Palatin's PL-3994 is a peptidomimetic compound, which incorporates features of both natural ANP and small molecules. Preclinical studies have demonstrated that PL-3994 is highly potent. Its longer duration of action is believed to relate to diminished affinity for the natriuretic peptide clearance receptor and increased resistance to the enzyme neutral endopeptidase, both pathways for clearance of endogenous natriuretic peptides. In animal models, PL-3994 was able to induce diuresis (excretion of fluids) with a limited decrease in blood pressure. The compound is well absorbed by the subcutaneous route of administration.

The euro hit another new high against the dollar and the dollar index made another new low, 76.62, against a basket of currencies.

Crude-oil futures rose 4.6% to $94.53 a barrel on the New York Mercantile Exchange on Wednesday after the Federal Open Market Committee cut the fed funds rate by 0.25% to 4.5%. "The Fed cuts were pretty much as expected but more bad news for the dollar which means oil will likely rally even more," said Kevin Kerr, president of Kerrtrade.com and Editor of Dow Jones MarketWatch's Global Resources Trader.
Crude-oil futures hit a new record high in after-hours trading on Wednesday, surging as high as $95.28 a barrel on the New York Mercantile Exchange. Crude oil for December delivery was last up $4.84, or over 5%, at $95.22 a barrel on Nymex. Crude got all the headlines; however, natural gas had a big move and closed at $8.38. That's the highest price for some time.

Gold for December delivery rose $7.50 to end at $795.30 an ounce on the New York Mercantile Exchange.

Aon Corp. said late Wednesday that it will eliminate 2,700 jobs as part of a new re-organization plan.

Crocs Inc. fell $17.05, or 23 percent, to $57.70 after the official close of U.S. exchanges. Quarterly sales were somewhat less than anticipated.

Treasuries fell after the Federal Reserve lowered interest rates for a second time in two months and suggested additional reductions may prove unnecessary.

Moody's Corp. will begin cutting jobs as soon as next month as the credit-market slump saps demand for its bond-rating services.

Bill Vaughn: “Some idea of inflation comes from seeing a youngster get his first job at a salary you dreamed of as the culmination of your career."

Tuesday, October 30, 2007

More Earning Reports

10/31/07 More Earning Reports

BJ Services Company reported net income of $189.4 million for the fourth fiscal quarter ended September 30, 2007, or $0.64 per diluted share. The quarter's diluted earnings per share increased 12% compared to the $0.57 per diluted share reported in the previous quarter and decreased 16% compared to the $0.76 per diluted share for the fourth quarter of fiscal 2006. For the fiscal year ended September 30, 2007, consolidated revenue of $4.8 billion increased 10% from the $4.4 billion generated during fiscal 2006 and earnings per diluted share of $2.55 improved 1% from the $2.52 reported in fiscal 2006.
Oilfield Services Group fourth quarter 2007 revenue of $224.6 million increased 16% sequentially and increased 27% year over year.
For the first quarter of 2008, the company expects to report earnings of 58 cents to 60 cents per share. BJ Services reported a profit of 70 cents in the first quarter of 2007. Analysts expected earnings, on average, of $2.50 in 2008 and 63 cents in the first quarter, according to a survey by Thomson Financial. "For fiscal 2008, we project revenue and margin improvement in all segments of our business except U.S./Mexico pressure pumping operations where pricing pressure is expected to continue during the year," the company said in a statement.
In my view, the company learned its lesson in making projections during the first part of 2007 and is low balling the numbers for 2008 which began Oct. 1. In addition, despite the pricing pressure for the pumping industry in U.S./Mexico, and taking into consideration the high return on equity for the overall company,
I strongly believe BJ Services will be acquired over the coming months. The present valuation is way out of synch in comparison with Baker Hughes and others.



Division Sequential Year Over Year

Tubular Services 4 % 19 %
Process & Pipeline Services 38 % 52 %
Chemical Services 12 % 32 %
Completion Tools -9 % 23 %
Completion Fluids 8 % -12 %

Under Armour lifted its 2007 revenue estimate to $590 million to $600 million from $580 million to
$590 million. For 2008, the company said it expects net revenue and income from operations to exceed its long-term growth target of 20% to
25%.

The British pound rose to a new 26-year high against the U.S. dollar.

The Reserve Bank of India Tuesday left its short-term interest rates unchanged, as expected,
while raising banks' reserve requirements by 0.5 percentage point to 7.5%. The increase in banks' cash reserve requirement will become
effective Nov. 10. "At the current juncture and looking ahead, on the domestic front, the biggest challenge for monetary policy is the
management of capital flows and the attendant implications for liquidity and overall stability," wrote the central bank in a statement
after announcing its quarterly policy review. The RBI retained its 8.5% forecast for the country's economic growth for the year ending March
31, 2008.

Vulcan Materials, Inc., the largest producer of construction aggregates in the United States,
said net income in the third quarter edged down to $135.4 million, or $1.38 a share, from $135.7 million, or $1.39 a share, in
the year-ago quarter. Profit in the most recent quarter included a 9 cents a share loss from discontinued operations. Earnings from
continuing operations were $144 million, or $1.47 a share. Analysts polled by Thomson Financial were anticipating earnings from ongoing
operations of $1.59 a share. Sales slipped 0.4% to $844.9 million, also missing views of $952.4 million. The Birmingham, Ala. company said it
expects aggregate volumes in the fourth quarter will continue to be "hampered" by a downturn in residential construction and plans to close
its acquisition of Florida Rock Industries then.

Sweden raises rates to 4%. The central bank added it expected growth to continue - although it
will moderate - and rates to be raised to 4.25 per cent in the first
half of 2008.

Australia cut the wheat crop forecast for the third time.

UBS fears credit crunch will last into 2008.

Procter & Gamble Co.'s first-quarter profit increased
14 percent, matching analysts' estimates, on rising overseas
sales of Fusion razors and a weaker dollar.
The weaker dollar will add 3 percentage points to sales and will help revenue climb as
much as 8 percent, the company said. P&G previously had
forecast a sales gain of at most 7 percent.

The CEO of Colgate-Palmolive stated the company "will deliver
double-digit earnings per share growth for the balance of 2007 and full year 2008."

The decline in prices of existing single-family homes accelerated in August and fell at their fastest pace since 1991, according to the Standard & Poor's/Case Shiller national home price index. S&P said its composite month-over-month index of 10 major metropolitan areas declined 0.8 percent in August to 214.35, for a 5 percent year-over-year drop, S&P said in a statement on Tuesday.
"The fall in home prices is showing no real signs of a slowdown or turnaround," Robert Shiller, founder of the indexes and chief economist at MacroMarkets LLC, said in a statement.

"While it is difficult to predict a recovery in our domestic offshore drilling business, there are some early signs of a moderate increase in demand as we enter the fourth quarter," Hercules Offshore said.

Natural gas continues to improve at $8.04 per million BTUs. Patience is being rewarded and the shorts are beginning to feel some pain. Companies like BJ Services are dependent on natural gas as well as oil and should benefit with prices rising.

Crude-oil futures for December delivery closed down $3.15, or 3.4%, at $90.38 a barrel on the New York Mercantile Exchange, after setting a record high close of $93.53 on Monday.

Gold for December delivery closed down $4.80 at $787.80 an ounce on the New York Mercantile Exchange.

Merrill Lynch ousts CEO O'Neal.

Bush said he would reject any attempt by Congress to force him to accept legislation with increased domestic spending by combining it with funding for military operations and veterans health care.

According to Peter Gumbel of Fortune, he quarterly delinquency rate on credit card debt for Capital One, Washington Mutual, Citigroup, J.P. Morgan Chase, and Bank of America rose an average of 13% in the third quarter, compared with a 2% drop in the previous quarter. Is this the next shoe to drop? It may take a bit of time to reveal its true colors, but I believe the consumer's cash flow is in trouble.

Monday, October 29, 2007

Quite A Start To The Week

10/30/07 Quite A start To The Week

Gold for December delivery climbed $9 to $796 per ounce at midday during Asian business hours Monday, after earlier touching a session high of $796.80 an ounce. Crude-oil futures topped $93 a barrel for the first time on Monday.

China trade surplus to reach $250B this year. The yuan rose the most in two years after China's central bank signaled it will allow the currency to appreciate faster to help narrow a record trade surplus and slow inflation.

Mexico's state-owned oil company Pemex was shutting down about one-fifth of its daily output on Sunday due to bad weather, but said it expects to quickly resume output within days. U.S. crude oil futures jumped as much as 1 percent to a record high $92.79 a barrel on news of the outage.

Anglo-Swiss miner Xstrata Plc on Monday offered A$3.1 billion ($2.8 billion) for Australian nickel miner Jubilee Mines NL , seeking to consolidate its position as a global nickel producer. The bid was unanimously recommended by the Jubilee board.

Oracle let its $17-a-share offer for BEA expire and invited holders to confront the company, following Icahn's similar call.

John Hussman: "There is virtually a 1-to-1 correspondence between “improvements” in the U.S. trade deficit and deterioration in U.S. gross domestic investment."

BEA Systems' board said it is "not opposed to an acquisition of the company," adding that it is in the process of exploring ways to maximize shareholder value, including a sale. However, the board called Oracle's bid "unacceptable" because it "significantly undervalues BEA.

Barrick Gold Corp.has entered into an agreement with Arizona Star Resource Corp.that will see Barrick make an offer to acquire Arizona Star at C$18 a share, or a total of C$773 million. Barrick said the offer represents a 27% premium over Arizona Star's 20-day average trading price on the Toronto Stock Exchange. Barrick said its offer has been approved by the board of Arizona Star, and all directors and officers of Arizona Star have entered into written agreements to tender their shares to Barrick's offer.

According to the Washington Post, confronted by mounting U.S. and U.N. pressure, Iran has been steadily shifting its trade from West to East and, with the benefit of record high oil prices, is likely to be able to withstand the new U.S. sanctions, according to U.S., European and Iranian analysts. China, a permanent member of the Security Council that can veto any U.N. resolution, is expected to overtake Germany as Iran's biggest trading partner this year.

The euro climbed to $1.4438 in midmorning Monday trading, the highest level since it began trading in January 1999.

China's Sinopec Corp is seeking another 60,000 tonnes of diesel for November, having bought the same volume for the month, which will take its imports to an 11-month peak, as the country suffered shortages. PetroChina will raise $8.9 billion in the world's biggest share sale this year to expand refineries and increase output at oilfields.

The Treasury Department expects to borrow a total of $201 billion in net marketable debt over the first and second fiscal quarters, the department said Monday. Treasury expects to borrow $68 billion in the first fiscal quarter and $133 billion in the second quarter.

December crude oil futures rose for a fourth day and closed at a record high of $93.53 a barrel on New York Mercantile Exchange.

Sunday, October 28, 2007

The New Week

10/29/07 The New Week

Merrill Lynch & Co.'s directors have reached a consensus on removing E. Stanley O'Neal as chairman and chief executive of the New York investment bank, people briefed on the discussions told the New York Times.

"We will encourage Chinese banks to go abroad to participate in international competition and overseas acquisitions to improve global competitiveness," Wang Zhaoxing, assistant chairman of the China Banking Regulatory Commission, told a financial forum in Xianghe, Hebei province.

Robert McHugh: "Now that the Dollar dropped down to 77.00, we are in a high risk situation of a devaluation of the dollar all the way down to 40.00. Remember, this mess started with the Dollar at 120.00 five years ago. 40.00? Not all at once, but over the course of several years. Perhaps all at once, should the government elect to flat-out issue an edict that a dollar is now worth 50 cents. Would they? Maybe. Why? It is a way to repudiate half of all the debt in the United States. Why would they want to do that? Perhaps if a recession became a depression, or the risk thereof. Perhaps if Housing was to absolutely dive into the tank. It would be a way to relieve mortgage holders of a huge chunk of their obligations in lieu of mass foreclosures, and bailout financial institutions holding substantial portfolios of mortgage backed securities - IF households can get their hands on enough of these hyperinflated dollars. However, the problem for the middle class, is will any of this monetary hyperinflation find its way into their checking or savings accounts? Will their incomes rise from this artificial economics policy? We don't think much of it will."

Vladimir Putin, Russia’s president, on Friday compared US plans to build a missile defence shield near Russia’s borders to the 1962 Cuban missile crisis that brought the world to the brink of nuclear war.

Brad Setser: "A hundred dollars bought about 5 barrels of oil at the end of 2001 (and around 110 euros). A hundred dollars now just buys a single barrel and change, and about 70 euros. Oil may be priced in dollars, but anyone who set aside a bunch of dollars to assure their ability to pay for their oil import bill would be sorely disappointed."