4/22/03 Listen To Your Instincts

First I want to apologize. I may have been the first individual to predict one year ago a $300 billion budget deficit for the government fiscal year ending 9/30/03; however, I was much too low in my forecast. In my current view, the number will come closer to $450 billion. Being off by 50% does not make me very bright. With this burgeoning deficit, the May upcoming quarterly refunding will be of historic proportions- possibly $70 billion. I believe this huge supply of notes will create a rise in interest rates. Additionally, with simply the budget deficit and the account deficit added together (ex Medicare and Medicaid), this country will need to import about $2 billion of foreign capital daily. That is a tall order given the present low level of interest rates and the falling U.S. dollar. As such, in my view treasury notes and the dollar are overvalued. It should be noted that I have been right up to now on the dollar but wrong on treasuries.

Roy W. Walters: "If you're already in a hole, it's no use to continue digging."

There are 10 million households that earn one-third of the U.S. personal income and hold two-thirds of the personal wealth of all Americans. A very recent study shows that the wealthy have curtailed spending and that additional cuts can be expected over the next 12 months.

According to the SEC, 70% of the Fortune 500 do not provide enough analysis in financial disclosure.

Southwest Airlines increased their revenue and net income for the first quarter. They saved $77 million pre-tax in the quarter by hedging their fuel requirements. For the remainder of this year and thru next year they are mostly hedged as well. This is smart management at work. It should be noted that, without the hedging, Southwest would have lost money in the quarter.

Last year the annual Canton Trade Fair greeted more than 120,000 people, "closing deals worth nearly $17 billion," said Brad Glosserman of the CSIS Pacific Forum. Because of SARS, how many visitors to the Fair will be there this year?

Barry Goldwater: "A government that is big enough to give you all you want is big enough to take it all away."

Thousands of UK citizens are discontinuing plans to travel to Hong Kong and China as SARS spreads. Each year 308,000 Britons travel to Hong Kong and 258,000 to China.

Gold traded at a three week high of $333 per ounce.

After the first two weeks of April, WalMart said their same-store sales would be near the low end of its forecast for the month.

Three new SARS cases were announced in India. The Phillipines had its first SARS death. SARS has now impacted 26 countries and deaths mount. Howard Kunreuther, a Wharton School professor, said "I don't remember anything quite like this, at least in recent years. Not this kind of fear. I can't remember any epidemic that has had the impact on business this way."

500,000 respirator masks just reached Hong Kong in an urgent air shipment.

The Mormon Church has been sending missionaries to Hong Kong since 1950. No new missionaries will be sent until the SARS virus and its impact on Hong Kong is evaluated further.

Crude oil futures closed near $31 per barrel.

Milton Friedman: "The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy."

March U.S. leading economic indicators dropped 0.2%

Since November about 500,000 jobs have been lost in the U.S.

Bank of Japan Governor Fukui said his country's financial system is in a "severe state." The yen fell to its lowest level in about four years vs the euro. I give Fukui credit for being forthright. That's more than I can say for our Fed governors. On the other hand, maybe they believe the glass is truly full. That theory does not hold water, however, since hot air is opaque and cannot be seen.

Paul A. Samuelson: "Politicians like to tell people what they want to hear, and what they want to hear is what won't happen."

Chinese Premier Jiabao said their health system was ill prepared in the countryside where 70% of China's 1.3 billion people live and urged citizens not to travel to the countryside because SARS could spread "before we know it and the consequences could be too dreadful to contemplate."

Germany's Infineon, Europe's second-biggest maker of semiconductors, reported its eight consecutive quarterly loss. Results were worse than anticipated.

Lending Tree raised its 2003 guidance from 50 cents to 70 cents per share. The stock sells at about 17 times estimated earnings. The company continues to perform well.

I always welcome receipt of emails from my readers. Last night I received an email from a very respected and dedicated California educator. It was in response to my discussion of how local budget shortfalls are impacting everyone's neighborhoods and stated "Our governor has cut the education dollars to such a degree that it has impacted the lives and educations of millions of school children. Classified employees are no longer replaced with substitutes when they are ill which impacts the learning environment of children with special needs. Even credential teachers are not replaced on a daily basis when they are ill which causes classes to be combined and ratios to be increased. Suddenly, children cannot play on playground equipment due to lack of repair and no funds to replace them. Janitors are "cleaning" 1/2 again as many rooms which leaves learning environments less than desirable at times. After school programs are being cut leaving enrichment and tutoring needs unmet. Music, Art, and Library programs are slashed leaving the chance for creative learning environments ceasing to exist. Counselors in Middle Schools are forced to cover multiple schools per person and reach the needs of over 1200 students, many of whom are considered to be emotionally and academically at risk. Free lunch and breakfast programs are being reviewed and the level of assistance reduced. Teacher supply budgets have been cut forcing them to pay out of pocket for basic things needed on a day to day basis. The days will come when we look back at this time and see that our children were the victims of the choices that were made without their consent or knowledge. Many will say that choices were unavoidable, yet I say, they were avoidable and shame on the governor for making economic change happen on the backs of our children."

The Dow industrials began 2003 down 32% from its all-time high. Compared to the Nasdaq decline this is tame. Given the present debt levels within our economic borders, our growing dependence on foreign capital, the relatively low level of central bank gold holdings in relationship to their assets weighted in U.S. dollars, and the declining inclination for the big consumer spenders to spend as much, I envision very significant risk for the Dow at its present level. In fact, I am as bearish on the Dow now as I was on the Nasdaq in May/June 2000. I would also sell treasury, corporate, and municipals bonds, mortgage backed securities, and, if one were absolutely feeling the necessity to invest, I would purchase convertible bonds and short the underlying security (that strategy worked great in 1973 and 1974). Basically, I would continue to hold as few U.S. dollars as possible and continue to hold gold investments as well as notes issued by New Zealand and Norway.

4/21/03 Forget Syria, N. Korea, Rebuilding Iraq, And Biotoxin Threats

Those headlines avoid the real horror stories. How is it that a sale in the U.S. has to be a give-away and not produce positive cash flow? What we're witnessing, for the most part, is business as not profitable commerce. For example, a year ago Midwest Airlines ordered 25 717s from Boeing. A big deal was made of the sale. I agree it was a big deal because the real buyer was not Midwest. Boeing bought their own planes as Boeing Capital used borrowed money to purchase the 25 jets at the list price of $940 million. Midwest will make monthly payments over 20 years. In reality, Midwest may not survive this year. Just as importantly, to make the induced sale, Midwest this year will receive more money from Boeing Capital than it will pay out. At the end of 2002, Boeing Capital owned 317 planes. Looking at it objectively, Boeing isn't selling planes and can't even give them away successfully. We see this type of induced transaction in all lines of business- ranging from autos to computer software. So I suggest stocks should be valued in a new light. What is the proper price/earnings ratio for give-away sales? How much of GM's revenue and Microsoft's booked sales are so-called induced transactions?

The largest 150 companies in the Silicon Valley lost $18.4 billion on sales of $265.4 billion over the last 4 quarters. In my book losses don't make for success stories and they don't make stocks cheap. 2003 has started out in a disappointing fashion, and the demand is not there to change matters for the better any time soon. In essence, tech stocks as a group are not good values.

Japanese investors are continuing to move into euro denominated assets.

The Metropolitan Chicago area now has a total population of nearly 9 million. Their economy hit the lowest level in February in a year. I don't see March and April numbers showing improvement.

Bloomberg said that UK's economic growth rate probably slowed to 0.3% in the first quarter. I wonder what the growth rate in the U.S truly is ex government spending and private sector induced transactions. You would be right on the money if you said not too hot.

Intel cut the prices of its fastest microprocessors by as much as 38%. I hope those microprocessors are not being utilized in computers manufactured in China and Taiwan. Workers are going to stay home rather than go to work. Living is preferable to dying.

Singapore will quarantine up to 2400 people in an attempt to contain the spreading of SARS.

Nixon thought he was the master of the cover-up. Actually, the Chinese can hold their own. The number of SARS cases is 10 times higher in Beijing than previously reported. Roads to shopping malls are empty. Malls are empty. One accountant said "the best thing is to stay home. What's one month's salary when your life is at stake?" She wants a month off from work- even without pay. She is not alone.

Fourteen million people live in Beijing. How many have died from SARS? How many are infected? How many are suspected to have SARS? The WHO representative in China said that "50% of the cases (suspected) most likely could be probable." Citizens are concerned for their survival. The official Xinhua agency said "any inappropriate methods of work will...evolve into grave catastrophe." Actually, the catastrophe is here. The cover-up sealed China's fate. The Beijing Star Daily said "a cover-up is more scary than an epidemic." I think they're both horrific.

As I have discussed so often, our states and local municipalities have, for the most part, overwhelming budget shortfalls. The payroll cuts, the reductions in services, and higher taxes in several areas will be coming to your local neighborhoods. They'll be with you for quite some time. It's called work harder (if you're lucky enough to have a job) and do with less.

Did you ever wonder how the Chinese accomplished the SARS cover-up? The authorities would transfer hospital patients to hotels, drive some around in ambulances, and drove others all around Beijing. These actions helped to avoid the local WHO representatives from seeing the real SARS picture. It's just a different take on avoiding reality- like with induced commercial transactions. You might say that no one is dying at Boeing. Maybe not but 35,000 people have lost their jobs, and management is still drawing a paycheck.

Does it bother you that Congress got a 3.1% pay raise this year and will get another hike in 2004? Retirees on Social Security got a 1.4% adjustment. How many citizens are really out of work? How many can't find a job? How many have to work part-time? How many are afraid of losing their jobs by the end of the day? How many can't make ends meet and stand on lines at food kitchens all over this country? You want me to read about Syria and N.Korea and rebuilding Iraq? I care about Americans not being able
have a roof over their heads. Surprise!!!! I am not a left wing liberal. I am an American who has his eyes wide open. That's more than I can say about most in the nation's capitol. The lack of performance in that locale should be accompanied by a reduction in salaries and an elimination of perks.

Economists, the Fed, and politicians say the U.S. is poised for expansion. If that's the case, they should rush out and buy common stocks and growth stock funds. They've been talking expansion for three years. They have been wrong for three years. They continue to draw salaries for being wrong. It's the American worker who achieves higher productivity and then gets fired. It's time the system gets changed. Let's eliminate the wrong-sayers. Don't replace them. You won't miss them. I promise.

4/20/03 Unreconciled Federal Spending Transactions

If ever-present Congressional "oinks" were not enough wasters and abusers, Americans are additionally confronted with unreconciled federal spending transactions, and the latter include many payment errors. These faulty accounting practices will cost the taxpayers of this country a mere $35 billion this year and equate to approximately 44% of the supplemental funds approved for the war in Iraq. Possibly, the CBO should go to the "short form" and simplify matters by eliminating unresolved federal spending items- wipe them off the books. While accomplishing this little feat, dump the big Congressional spenders who are back alley examples of waste and abuse rather than upstanding fiscally responsible U.S. tax-payer representatives

Speaking of back alleys, Hong Kong's Secretary for Home Affairs, Patrick Ho, said he was shamed by the city's filthy back alleys. They need to change the name for the Chinese new year to the year of the cockroach.

Royal Philips Electronics NV is Europe's biggest consumer electronics manufacturer. They announced a decline in first quarter sales.

Since March 12, the Dow Jones Stoxx 50 and Stoxx 600 have risen by 22% and 19%, respectively. This is a good time to lighten up on many european stocks. Earnings for Stoxx 600 companies will decline in 2003 for the third consecutive year.

Intel and HP have closed their Hong Kong offices.

We will see whether teleconferencing can effectively replace face-to-face business meetings in many Asian countries. If not, orders will be negatively impacted. In any event, I believe SARS will be utilized as a growing explanation for slowing business conditions in that region of the world. It should be noted that many businessmen in Japan cannot travel to SARS-impacted countries because the health risk can eliminate their insurance coverage.

In Maryland, by law, the state can spend no more than it collects in taxes and other revenues. Deficits are not allowed. For Maryland to achieve this balanced budget, $1 billion in expenses will need to be cut. Governor Ehrlich, Maryland's first Republican governor in nearly four decades, says he can and must accomplish this goal.

U.S. Airways turned its underfunded pension plan for its pilots over to the government's Pension Benefit Guaranty Corp. Retirement benefits were cut in roughly half to $28,500 for 60 year old retirees. So much for union airline agreements.

An economist at the Asian Development Bank said yesterday that SARS could push Hong Kong into a recession. Growth prospects have already been cut to below 1%.

Toronto's business leaders plan on an April 28 summit meeting. SARS is having a serious economic impact in Toronto.

Toronto's Sunnybrook Hospital had to close its trauma unit when 12 medical workers were suspected of contracting SARS after being exposed to 2 SARS cases at the hospital.

Vietnam is closing its northern land border with China.

Air-India suspended all flights to Singapore from Delhi and Hyderabad and temporarily discontinued flights to Kuala Lumpur and Jakarta.

AMR's flight attendants' union cancelled their agreement to accept wage cuts and will hold a new vote. The Transport Workers Union may soon follow by taking legal action. Their representative stated "I believe the failure to disclose the existence of this program(executive compensation package) was a material breach of the company's duty to provide relevant information."

On Saturday 20 more people died from SARS in China and Hong Kong. Another 300 were infected by SARS in China- almost all in Beijing. Chinese authorities cancelled a week-long national holiday (maybe they were going to Ft. Lauderdale's spring break) to dissuade people from travelling and spreading the virus. After the 10 fold increase in the SARS tally was released, so were China's health minister and Beijing's Deputy Party boss. These firings will only increase their already-high unemployment rate.

4/19/03 Imminent Danger

Margaret Thatcher: "Unless we change our ways and our direction, our greatness as a nation will soon be a footnote in the history books, a distant memory of an offshore island, lost in the mists of time like Camelot, remembered kindly for its noble past."

The CBO had expected our March budget deficit to be $54 billion. It came in at $58.7 billion, and would have been higher but for the fact that there were only four fridays this month, and the government normally records refund payments at the end of each week. Last March there were five fridays and the monthly deficit amounted to over $62 billion. From a public statement basis, most economists seem undisturbed by our outlandish and dangerous deficits. It is almost surreal to be faced with a March deficit of about $100 billion dollars when adding together the budget and account deficits. That fails to take into account monthly expenses for Medicare and Medicaid- about another $100 billion. Respectively, the imminent danger is not the WMDs which might or might not be in Iraq but rather this nation's lack of fiscal responsibility. As Margaret Thatcher so succinctly stated, "there can be no liberty unless there is economic liberty." I cherish my freedoms. Whether it's the Iraqi war or the Civil War, Americans have fought and died as well as returned home wounded as they sought to protect our freedoms. We have a Congress which spends with reckless abandon and an Administration which fails to take the lead economically. They will lead us into war but not lead this nation via tough economic decisionmaking. It's not enough to discuss a tax package. It's a great idea but the impact is too far down the road. We require dire spending cuts. That means severe cost cutting. That means big staffing cuts, and that starts right at the top and works its way down thru the Congress. It means wage cuts, perk cuts, and doing without. If there are 41 million Americans without healthcare insurance, then eliminate such insurance for the Congress. Then see what reforms come into existence. It's not enough to get tough with Saddam Hussein and others like him. Get tough with the real evil doers- the budget deficit creators. Either we live within our means or foreigners will storm the exits and bring with them assets formally invested in this country. That storm has begun. Either we change our ways and our direction, or the dollar will be replaced by the euro and other currencies as the accepted medium of commerce exchange. I can assure you of several things- we can no longer depend on foreign capital to fund our deficits; our economic liberty is at risk; and the financial markets are prone to a meltdown.

You probably are thinking that my concerns are not shared by others. Actually, for the first time since 9/11, a new poll found Americans are more concerned about the economy than about terrorism. Pew Research Center said 41% cited the economy, unemployment. or the budget deficit as the nation's biggest problem and ony 29% pointed to terrorism.

Even though the president has an over-all approval rating of 72%, only 48% of registered voters said they would support his re-election.

Spike Milligan: "Money can't buy friends, but it buys a better class of enemy."

Yesterday was Good Friday and tomorrow is Easter. SARS, however, has changed Canada's church-going at this time of year as there is a formal request not to touch holy water or kiss icons. Sharing of a cup of wine has also stopped.

WalMart imports $12 billion a year in goods from China.

Eton College, Britain's most famous private school, will bar students returning fro their Easter holidays in Singapore, Guangdong province, or Hong Kong from returning to their dorms and classrooms when the term starts next week.

SARS is seen hastening loan defaults at Malaysian banks.

The Singapore government is providing a $230 million aid package for industries hit hardest by SARS.

Margaret Thatcher: "No one would have remembered the Good Samaritan if he'd only had good intentions. He had money as well."

Italy's GDP growth forecast was cut to 1.1% from 2.3% for this year, and Germany's was cut in half to 0.5%.

Due to SARS, visitor arrivals in China are down 80%. Thailand and Taiwan both say visitor bookings are down 50%. At this point the economic impact of SARS to Asia is estimated to be at least $15 billion.

Hong Kong reported its highest one day death toll from SARS as more than 12 people died today.

Singapore Prime Minister Tong said "if we fail to contain SARS in Singapore, it may become the worst crisis our country has faced." The services sector makes up 62% of its GDP. On Thursady Singapore slashed its growth forecast to possibly as low as one-half of one per cent.

The EU said the growth in the 12 euro countries may have shrunk by 0.2% in the first quarter and that the second quarter may be only a positive 0.1%.

The shrinking value of the dollar vs the euro is helping many U.S. companies sell more products in Europe. Yesterday Colgate-Palmolive announced a recent sales gain of 19.7%, and Textron also said the lower dollar helped their results.

4/18/03 P/E Based Cost Cutting For The Nasdaq

The Nasdaq gained 5% for the week, and had its highest close in three months. That optimism could not have been realistically generated by present or projected revenue growth. Profit improvement came thru cost cutting. Taking Oracle as an example, I think we can say that overhead reduction has its limits. In the end, topline growth will be necessary to maintain upbeat forecasts as well as P/E ratios. At present a great many tech companies have already issued warnings for the second quarter.

A Deloitte Research survey of the world's 100 largest financial-services companies indicates they expect to transfer an estimated $356 billion of their operations and two million jobs offshore over the next five years in order to reduce costs. India would be a major beneficiary.

According to a Bloomberg article, Indonesia's state oil company is considering replacing the dollar with the euro in its oil and gas transactions. I believe there will be other countries following Indonesia's lead. It should be noted that Indonesia has the world's largest Muslim population. Were countries to dump the dollar, as it were, I wonder how the U.S would fund the huge federal deficits, which the CBO forecast at $1.82 trillion over the coming decade.

The four week jobless claims average was 424,750, the highest level in 11 months. For the week ended April 12, jobless claims rose 30,000 to 442,000. There are about 3.6 million Americans receiving unemployment benefits.

Boeing to cut 1060 workers. U.S. Airways to lay off 890 attendants. Delta Airlines to furlough 200 pilots. Unifi to cut 400 jobs. Seiyu to eliminate 2500 jobs. Since Boeing began its layoff announcements, there have been about 35,000 workers removed from the company's payrolls. That total is larger than the population of most cities in this country.

Brazil began screening cargo ships arriving from high-risk SARS areas.

The University of California has ordered 44 of its students attending two Beijing universities to leave China immediately due to concerns for SARS.

SARS is an equal opportunity disease- it has been found in almost every bodily fluid that has been tested. Additionally, there are many methods of infection- through sewage, person-to-person contacts, environmental contamination, and we shouldn't forget the cockroaches.

If SARS were not enough, a severe Dutch outbreak of bird flu is spreading across Europe. Hopefully, it won't spread to pigeons in N.Y.C.

CenDyne, one of the world's leading suppliers of optical storage and PC peripheral products(CD burners), said because of SARS it is looking into alternative manufacturing facilities for its new product line. Presently its products are manufactured in Asia.

As the focus on looting in Iraq continues, there are now 126 confirmed dead.

N.Y. State's factory index fell to -20.4 from -2.8 in March, the biggest drop since 9/11.

The Bank of Japan sold $20 billion yen in the first quarter in an attempt to limit its currency's gain vs the dollar.

Japan and Europe both have current account surpluses while ours is currently about 5 1/2% of our GDP.

Investors from outside the U.S. sold $3.5 billion of U.S stocks in Januart. In the fourth quarter of 2002 they had purchased $12.5 billion of U.S. stocks.

In Canada, Ontario suggests wider quarantines to stem SARS, and asks anyone with a SARS symtom to remain home for several days.

Verizon is piloting in Virginia the installation of high-capacity fiber-optic hookups directly to homes and businesses.

In order to get the ball rolling on recalling Gray Davis, a total of 800,000 signatures is required. There is an Internet-based movement to accomplish this recall.

4/17/03 Weapons Of Mass Instruction

The WHO said that China may have five times as many cases of SARS as has been reported. I would settle gladly for that number. In Hong Kong retail sales are off 50% or more, restaurant revenues down 80%, and hotel occupancy is in the single digits. The hotel visitation collapse hit Toronto too. There is a very popular 900 room Holiday Inn well situated in Toronto. They have historcally had very high occupancy rates. Due to SARS only one per cent of the hotel is occupied, and 500 hourly employees were laid off. This tells me management does not expect business to improve any time soon. Switching to a different SARS locale, I wonder why health officials in NYC refuse to release information on where the cases are located in the city. Supposedly, there are about 25 acknowledged cases. Maybe the secretive actions are taking a page from the Chinese. Full disclosure would be the best route.

Stanley Myers, president and CEO of SEMI, said "the worldwide semiconductor manufacturing equipment industry experienced a second year of significant(29.6%) decline and fell to its lowest annual level since 1994." I expect 2003 to hold few upward surprises for this industry. We just heard a very downveat forecast from Novellus. The latter placed much of the recent blame on SARS. Analysts scoffed at that explanation. I suggest the analysts fly to Asia and take a first hand look at the present business conditions. Naturally, that would never happen. They'd be too afraid of contracting SARS.

March initial unemployment claims in Georgia rose 27% over year ago numbers.

Nokia cut its forecast for the network infrastructure market and its own accessible market to decline by more than 15% in 2003. This forecast reflects a sharp drop from just a few months ago.

The March housing starts rose 8.3%. This number took me by surprise. I have continually underestimated the strength in the housing market.

Motorola to cut 1000+ jobs and Tellabs to lay off 665. A good clue to the great long term investments is to pay attention to those companies hiring in bad times. As I have repeated time and time again, WalMart, my favorite company, continues to expand and to add employees. They are the number one employer in the private sector. Starbucks just announced the purchase of Seattle Coffee Co. Unlike Starbucks, two-thirds of Seattle Coffee's sales come from its wholesale division. Starbucks continues to hire, and they are growing internationally- as is WalMart. On the other hand, companies like Motorola are shrinking. Even in the good times, Motorola had dificulties. Motorola has proven to be a disastrous investment. There are many many examples like Motorola but few like WalMart and Starbucks. It is wise to stick with the latter and the others in that category. The time to buy such companies is during a market scare, such as, 9/11 or the 1987 debacle.

Michael Jordan ended his 15 year career. His accomplishments were so vast that they spanned the globe. He truly is a legend in his own time.

James Sensenbrenner, the House Judiciary Committee chairman, said "the Justice Department has classified as top-secret most of what it's doing under the Patriot Act..the public debate(as such) is centering on (the Act's) onerousness." He complains not enough information is being shared to make a judgment on how well or poorly the USA Patriot Act is working. That sounds like a rational evaluation and not surprising.

There are an estimated 38 million houses built before 1950 which still have lead-based paint on their walls. There is a future for Benjamin Moore.

Ten countries joined the EU and that makes twenty five.

Once again, Arizona's Maricopa County had the highest annual growth rate among the 10 largest counties nationwide. Second highest is Houston's Harris County.

Reuters CEO told today's annual meeting of shareholders that "I expect financial markets to remain in very poor shape and to stay weak for at least the rest of the year."

China's President Hu Jintao said "since the discovery of the SARS cases, I feel very worried. I feel anxious for the masses." Given the level of sanitation in China, the words "worried" and "anxious" hardly reflect the present dire situation in China. Their economy may have grown 9% in the first quarter but the roach and rat population may have exploded in triple digits.

One out of five web surfers visited online banks and credit unions in March.

According to the latest Field Poll, Gray Davis is the most unpopular governor in California in the past 50 years. With less than expected state income tax receipts and less than anticipated sales tax revenues, California's budget deficit will continue to explode. Key counties have people leaving. Santa Clara County leads the nation in population decline, and San Francisco is right on its heels. Our biggest state represents a large chunk of our country's GDP. It has one of the world's largest economies. Recovery is not around the corner. The exits are too crowded.

4/16/03 $214 Billion And Counting

Direct investment in the U.S. by foreigners is
cascading downward at an alarming rate- $214 billion
of assets left the country in 2002, and that trend can
be expected to continue. It would appear that maybe
our country is no longer viewed as a safe haven and/or
an attractive place to secure a good return on assets.
One cannot fault others for thinking just that. After
all, the federal debt stands at $6.5 trillion and is
about to climb again. There is no one around like Ross
Perot to clamp down on spending and get the cash flow
machine flowing into positive territory. Every
American citizen has their name on a piece of that
debt. Add that to your mortgage payments, your car
payments, your credit card payments, your insurance
payments, student loan payments, etc. and now try
sleeping at night.

GM warns about its 2003 full-year earnings. Who is
left to buy a car?

S&P warns that SARS is a risk to Asian growth in 2003
and that the disease would add pressure to economies
already facing heavy fiscal burdens.

Texas Instruments to cut 800 jobs.

Yesterday the Street was excited about the numbers for Microsoft and Intel.
Microsoft is a great company with $44 billion or so in cash but the stock sells
at 25 times 2004 earnings (the estimates were reduced by management yesterday)
and at over 8 times sales. Is this a value? Intel proved to be a different case as the
company believes "continued uncertainty in global economic conditions makes it particularly
difficult to predict product demand and other related matters. The latter did not stop
management from releasing detailed projections for the next quarter. I was left with a sense
of being had, so to speak. Having run a Fortune 500 company, I am experienced in releasing
quarterly numbers. I am left with the impression that Intel manages its quarterly numbers for
R&D; marketing, general and administrative expenses; and other operating expenses.
The numbers are too similar from quarter to quarter to quarter. Intel is selling at 40 times
earnings and at 4 times sales. I'll leave that to other investors much smarter than I am.

Weyerhaeuser CEO says the lumber producing industry is in "a real struggle..we think
we're riding along the bottom of the business cycle."

SARS, like the AIDS virus, uses RNA to replicate itself. With SARS you can transmit and
infect without major symtoms.

4/15/03 Anuj Gujar:"It All Boils Down To Bullshit And
Money"

Does it really matter whether IBM misses its quarterly
earnings per share number by a penny? They produce
revenue of $20 billion+ per quarter. Projections are
not an exact science. The relevant question might be-
where is the value in IBM trading at $81 per share?
They will earn only $4.30 per share this year, the
stock sells at over 1.5 times sales, and the company
has a debt-to-equity ratio of 6.8 to 1.


February business sales fell 1%, manufacturing sales
were down 1.5%, and inventories rose to their highest
level in two years. Due to weak demand, it would take
about 1.4 months to deplete inventories at the current
sales rate, the highest ratio in a year.

Even with warmer weather and the late Easter,
WalMart's April department store sales have declined.

China's Premier said the outbreak of SARS in China is
"grave". He warned that China's economy might feel the
impact of the disease. It has been, Premier, for the
past month or so.

Hong Kong's leaders call SARS the "21st century
disease".

Philadelphia Federal Reserve Bank President Anthony
Santomero said "it is especially difficult to see how
things will evolve over the next several quarters." If
that's so, then how did he forecast 3-4% growth
towards the fourth quarter? Maybe he has a different
definition of the word "several".

The CDC said the Urbani strain of the SARS-associated
coronavirus is distinct from all previous recognized
coronaviruses. This fact should not be pooh poohed.

It should be noted that hospitals in Hong Kong no
longer have enough intensive care beds or isolation
wards to combat SARS. Plans are in the works to check
the temperature of every passenger departing from
their airport. All Hong Kong schools remain shut until
at least April 21. Seven people died form SARS
yesterday in Hong Kong, and 1200 have now been
infected.

The age 50+ group in the U.S. has grown in the past
five years from 41 to 47 million and now represents
over 36% of the aggregate population of 128 million
adults.

America West to cut 250 jobs, Hillenbrand about 275,
and Hi-Country Foods 65 workers.

WHO's David Heymann said "if SARS maintains its
present pathogenicity and transmisibility, SARS could
become the first severe new disease of the 21st
century with global epidemic potential."

An Illinois judge drops the bond for Philip Morris to
about $7 billion. That's a nice round number.

The Chairman and CEO of Novellus:"The demand for
semiconductor capital equipment remains sluggish."
Over the past two weeks there has been a significant
decrease in the second quarter revenue projections.

The Intel Pentium 4 chip with an 820 megahertz system
fails to perform to specification and shipping has
been halted.

ECB President Duisenberg said "A further cut in
interest rates would not be enough on its own to get
the eurozone economy back on its feet."

About 95% of inbound travelers have cancelled their
trips to Indonesia. Why? Fear of SARS.

The spreading of SARS is accelerating on a daily basis
throughout China. Seventy four new cases were reported
there yesterday by the WHO.

Referring to the sequencing of the SARS genetic code,
the CDC director said "But it is not the magic bullet for
dealing with SARS."

Detroit Mayor Kilpatrick announced the closing of 6 recreational
centers and the layoff of 193 people as part of the plan to balance
the city's $1.4 billion budget.

On Monday there were three more of our soldiers killed and three
more wounded in Iraq.

4/14/03 Forward-Looking Statements

Last Fall I commented that the third quarter corporate earnings releases were not the important statistic but rather what managements had to say about the December quarter. I remarked that I envisioned a poor climate for holiday retail sales, and that the fourth quarter results would be much weaker for the S&P 500 companies. I wrote a similar blog in the winter just before the flurry of quarterly releases in January. By that time, it was well known that the December quarter was going to be weak and that holiday sales were disappointing. I mentioned that the March quarter would be weaker than the one just being released. That brings us to the present. I envision the June quarter to be weaker than the one now being reported. We are in the throws of a recession with enormous overcapacity, dwindling profit margins, and disappointing topline growth failing to produce anticipated profits. Additionally, there are the growing pressures from SARS within the Asian countries as well as Canada. Just because SARS has not hit your neighborhood, do not believe your neighborhood could not be impacted. I will touch on this point several lines from now. The main point is not to focus on catching a fleeting rally. Focus on the trend, and if you do, there is a much better chance you will outperform 95% of the mutual funds in existence. Most money managers are in the wrong business.

About 3000 people worldwide have been infected with SARS and approximately 140 have died.

Hong Kong's Airport Authority warned "our core business is under threat." There are 1150 announced SARS cases in Hong Kong, and the death toll is rising daily.

Philadelphia Federal Reserve President Anthony Santomero said "I see economic growth accelerating over the course of this year toward a healthy and sustainable pace of around 3 or 4% by year's end and into 2004." He cautioned, however, "it is far too soon to declare that the global situation has now been stabilized and the U.S. economy is back on track." My only response is that I have been listening for three years to economists predicting profit growth in our economy. All I see is dwindling profit margins and growing overcapacity and less demand.

Dow theorists are getting more bullish and believe there could be an uptrend in the making. If the trend changes, you'll have plenty of opportunity to get on board. Wait for the change to occur. Let others be a hero with their money and not yours.

Ralph Acampora from Prudential Securities says "I think we could rally to year end, and we rise 20, 25, or 30%, but after that we correct...we really have economic problems and earnings problems." He was correct in predicting some years back that the Dow would go to 10,000 but he also said the Nasdaq would go to 6,000. Why bet on a rally when there are economic and earnings problems? Are you nimble enough to play a rally in quicksand? Maybe the hedge funds are, but certainly not the average investor.

Electronic manufacturers and contract manufacturing companies are faced with potential problems arising from SARS. Demand for their products has continued to weaken, and workforce health problems are not a welcome hurdle. Payrolls will continue to be cut as weak demand produces added excess capacity. Plants will be closed. Solectron has only one known SARS case. Flextronics, Celestica, and Sanmina-SCI hope they will not be infected with the virus. The outsourcing business is in an economic downtrend, and SARS exacerbates an already delicate payroll balancing act.

4000 Lockheed Martin employees at their Ft. Worth, Tx plant will go out on strike today.

Even though Americans believe their tax bill is currently too high, 61% say it would be better to hold off on additional tax cuts now in order to avoid creating larger budget deficits. The man on Main St. sounds smarter than many in the Congress.

Stephen Roach, Morgan Stanley's chief economist, says "America's gaping current account deficit - now likely to be exacerbated by runaway budget deficits- is particularly worrisome. It underscores the growing perils of a world that is far too dependent on the U.S.... a global double-dip recession would not be a fluke-merely a reflection of the systemic flaws that have long been ailing the world."

Rising California workers' comp expenses add more pressure on companies to layoff workers as profit margin declines hasten.

Canada has been dealing with SARS for more than a month with 283 cases and 13 deaths. People are afraid to cough in public. Hospitals have temporarily banned visitors. More people are working from home. WalMart told its employees not to travel to Canada. For those not respecting growing quarantines, tougher measures might be forthcoming, and that is the case of the HP employee who may have committed a criminal offense by going out.

I have often mentioned that the U.S is required to import daily $1.6 billion of foreign capital to fund our account and budget deficits. A good portion of these funds has been arriving from Asian countries, and particularly China. The SARS virus is dramatically impacting many Asian economies, and this can be expected to continue. The stark threat of SARS is not disappearing any time soon, and there will be less free cash flow to purchase our treasury debt. This may create higher interest rates as well as making funds less accessible to many sectors of our economy. This is why SARS may truly impact your neighborhood. Mr. Rogers is sadly no longer with us, and it would be a tragedy to think he has been replaced, even on a temporary basis, by SARS. It might very well happen.

4/13/03 "Temporary Headwinds"

One of the Bush Administration's greatest blunders, I believe, was to replace Treasury Secretary Paul O'Neill with John Snow. I said this at the time it happened, and now feel more than ever that Snow is inept and an embarrassment to the nation he represents. These aforementioned beliefs only refer to his role as Treasury Secretary. Yesterday, Snow remarked that the job market faces "temporary headwinds." That is absolutely disrespectful to the recent years which have resulted in millions in this country being without a job, to those who must settle for part-time work because a full-time job is not available to them, and to even more millions every day who are frightened that their job will be eliminated- like the latest 10,000 N.Y.C. workers. Ari Fleischer said Bush would "cast a wide net" in the search for a successor to O'Neill. His net must have had gaping holes in it. Supposedly our VP played a significant role in choosing Snow. Cheney's business acumen can be evaluated by his performance at Halliburton.

EU's Pedro Solbes says of the U.S. economy that "large and growing deficits in the current account and in the federal budget give rise to concern...raising questions about the sustainability of the present path of public finances." And what does Snow say about this remark and others? He can only state "in a way we got off lightly." Solbes is discussing sustainability and Snow can only make light of the situation. Maybe that's what's wrong in Washington. Members of the Administration need to stand on a bread line and also wait on long lines at an unemployment office. Maybe then there would be a greater appreciation for this country's economic plight. It's truly serious business and threatens our democratic well-being.

Alexander Hamilton, the first U.S. Treasury Secretary, said "for it is a truth, which the experience of all ages has attested, that the people are commonly most in danger when the means of insuring their rights are in the possession of those of whom they entertain the least suspicion."

William E. Simon, former Treasury Secretary, said "bad politicians are sent to Washington by good people who don't vote."

Would you rather have Snow or someone like O'Neill who told it straight and was smart and tough? For example, O'Neill once remarked "I believe in a strong dollar, and if I decide to shift that stance I will hire out the Yankee Stadium and some rousing brass bands, and to announce that change in policy to the whole world."

At present Cathay Pacific Airways is losing $3 million per day.

California's state budget gap rose almost 10% in the first quarter, and is clearly out of control. In my view, Davis is in way over his head.

The war in Iraq has made U.S. investors understandably more wary about business in the Middle East. One CEO stated "the war is making people hold their breath and wait, and the economic effect of when people hold their breath is disastrous."

You think trading on Wall Street is volatile? On Saturday the "Saddam dinar" was 4000 to the U.S. dollar and today it's 2700.

In England's Sunday Telegraph discovered secret Iraqi documents show how extensive were Russia's efforts to assist Hussein's regime prior to the war starting, and this assistance went on for years.

4/12/03 Read The Fine Print Not Just The Headlines

It was reported that GE's first quarter earnings per share were down 9% on a 1% revenue decline. However, provision for taxes dropped 30% and made the already dismal results look better than they actually were. The television and newspaper reporters failed to provide this little tidbit of information. As investors, it's your job to read the fine print.

Cemex SA, the world's third-largest cement maker, said first quarter profits dropped 71%. I thought construction was so booming.

In 2002 only 3.5% of U.S. equity funds produced positive results. Do you still want to invest in a mutual fund?

In Texas wholesale gasoline prices have been trending downward for over a month. The average price for regular unleaded is $1.52 per gallon in Texas. California officials said everything is on the up and up in their state's gasoline pricing. Maybe they should get their heads out of the tank. Gasoline still goes for $2 per gallon or so in the San Francisco area where they have some major refineries.

The U.S. Commerce Department said retail sales rose 2.1% in March. I have serious reservations about that figure. Would you prefer to believe WalMart, Target, Federated, Kohl's, Sears, JC Penney or the government? The latter are not required to attest to their numbers. The government said the sales were supposedly up due to strong auto sales; however, GM, Ford, and Chrysler said their sales were down. Retailers complained about lousy weather in March, and yet the government said sales were strong in garden shops. People must be planting in the snow and rain.

Lee Ah-Miu, age 73, lives in Hong Kong. In discussing SARS she said "I have never seen anything so bad in all my life and I am very old. I don't know if I can live to see the day when I walk around without a mask."

The commander of the 37,000 U.S. troops based in South Korea barred military and associated civilian staff from traveling to China and Hong Kong because of SARS.

The good news is that Chinese doctors recommend a potion containing dead silkworms and cicada skin as a protection against SARS. Now we have nothing to fear.

What will it take for traders and investors to comprehend that we are in a bear market? Yesterday the Dow rose 105 points in the first half hour of trading and the Nasdaq about 20 points. By the end of the first hour the gains were lost, and results would remain negative for the remainder of the day. It would be wise to stop throwing good money after bad. On the other hand, the bears are coining it.

RF Micro Devices announced a bigger than expected loss for the quarter and traded down to the $5 level. A few years ago the stock sold over $90.

Consumer sentiment in April rose to 83.2 from 77.6. This was better than economists had predicted, and was welcome news. At the same time declining stock prices and continuing job layoffs won't do much for the nation's on-going confidence.

Santa Clara-based wireless network equipment maker Netgear filed for an IPO. They had filed for an IPO in September 2000, but pulled the offering several months later due to market conditions. In the prospectus, the company cites SARS as a risk factor for potential investors.

Walt Disney, in a debt filing made Thursday, said SARS could potentially worsen their theme park business and "may also contribute to a reluctance to travel."

While looting continues in Iraq, the war toll is 107 killed, 399 wounded, and 10 missing in action.

Hong Kong's Cathay Pacific Airways is considering stopping all passenger flights in May due to a 70% decline in passenger traffic.

The WHO says SARS could spread worldwide by air travel.

Another 10,000 pink slips may be going to N.Y.C. workers.

4/11/03 Tommy Thompson: "Probably It Will Be A Year Before We Come Up With A Vaccine For SARS"

State Street to lay off 1800 workers. Proctor & Gamble to cut 275 jobs. Brocade Communications to let 115 go.

Crude oil at a three week low.

The Nikkei declined 2% to its lowest level since January 1983. Toyota, Sony, and Ito-Yokado, market leaders, were hit hard. Trading volume was especially heavy on the downside.

The Concorde is no more. Likewise Cypress Gardens.

The eurozone economy could very well have contracted in the first quarter.

As of April 9, 1290 cases of SARS had been identified in China. There is little question that China's outbreak of SARS is bigger than what their government has reported. Hospital statistics reveal a much larger problem.

Four percent of the identified cases of SARS have died. From a medical standpoint, that is a high percentage.

Three times as many companies are giving negative profit warnings as firms providing pleasant earning surprises.

In February the U.S. trade deficit amounted to $40.3 billion. No matter how you spin the number it was the third highest monthly deficit on record.

Microsoft has slashed Xbox prices by 20% in Europe.

SARS is impacting hotels, airlines,restaurants, and other services across Asia. Nine people in Singapore have died from SARS and 126 more have been infected. Singapore's Minister of Manpower, Lee Boon Yang, said on Thursday "we are facing an unprecedented situation. We are dealing with a serious, unseen threat." The country slapped a quarantine on arriving workers from China, Hong Kong, Canada and others for 10 days. In the last three weeks hotel occupancy in Singapore is down more than 50%.

In Kowloon there are over 50,000 people for every square kilometer. That excludes the untold number of cockroaches and rats.

Last Fall I warned of the slowing sales at WalMart. I specifically stated, if the best company in the industry and possibly the country was having difficulty, then watch out for the others in the industry. Yesterday WalMart reported March same-store sales up only 0.7%. The last time their same-store sales rose less than 2% was in December 2000. Therefore, it was not surprising that Target, Federated, Dillard's, JC Penney, and Sears all had declining same-store sales. Only Costco showed good results. By the way, for the thirteen straight month McDonald's had lower same-store sales. Bank of Tokyo-Mitsubishi Ltd economist Michael Niemira said "the consumer isn't just shifting towards discounters. It may be the consumer is holding off spending regardless of the venue." That has been my contention.

Hong Kong-based Political and Economic Risk Consulting ranked China's health care system next to last in the region, ahead of only Indonesia.

Motorola is one of the largest investors in China. The company has restricted travel to SARS-impacted areas and is permitting workers to leave Guangdong and Hong Kong.

India-based IT consulting services firm, Infosys, is cautious for the quarter and for the whole year. The stock dropped 30% yesterday.

A survey of the Business Roundtable indicated that only 9% of U.S. executives expect to hire new workers while 45% expect to have worker layoffs. Twenty seven percent expected to reduce their capital spending. Forty four percent of the companies said rising health care costs were the greatest cost pressure they are facing.

Twenty five percent of Hong Kong's 1000+ SARS cases are health workers. Reportedly, 30 people have died from SARS in Hong Kong. I believe that figure is understated.

The CDC said that SARS does not look like anything they have seen before in animals or in people in the U.S. It's possible, they said, the damage is caused by the body's immune response killing the healthy cells plus the microbes.

2002 was the first negative return year for hedge funds since 1987. Supposedly, there are more than 6000 hedge funds. In my view, there are too many mutual funds, too many hedge funds, and too many VC funds.

Some analysts have said that Yahoo is trading at a discount to both eBay and Amazon.com. That is true; however, that statement fails to suggest that eBay and Amazon.com lack good value at current trading levels. I believe this is the case. No one has proven to me you need to overpay for 20 to 30% annual growth. To illustrate my point, take First Data Corp. They will earn $1.90 per share, the stock trades at 35, and they are the leading processor of credit cards purchases in the U.S.

I have received some emails asking why I am making such a big deal about SARS. It is a big deal, and globally is getting to be a bigger deal every day. It will be in the headlines long after many of our troops have left Iraq.

4/10/03 Headlines Provide An Incomplete Story

Yesterday the world watched a 20 foot statue of Hussein come down in Baghdad. 100 soldiers died, about 180 have been injured, and eight are still missing in action. Hussein ruled for 24 years, and because of our military skills and the determination of our troops, he was overthrown in three weeks. It says a lot about our fighting men and women. As the statue came down, the Dow rose 75 points. It looked like a wonderful day in the neighborhood. The other half of the day emerged. Another U.S. soldier was killed and another 20 were injured in fighting in Iraq. Then we learned that a friendly-fire incident killed 11 civilians in Afghanistan. War is devastating. The toll mounts long after the shooting stops. The market knows from reality. By the end of the trading day the Dow lost 100 points and the Nasdaq declined 26 points.

WalMart is in my view our country's finest public company. They set the standard in many areas. The company consistently is ahead of the pack. Yesterday they limited employee travel because of SARS.

Gold closed up three dollars at $326 per ounce.

AT&T closed at its lowest price $14.67, in almost 20 years. The company expects to report a loss and more job cuts.

Dun and Bradstreet expects earnings to miss expectations. The stock dropped almost 5 points yesterday.

Stanley Works cuts 1000 jobs, Nokia 1800, and Applied Micro Circuits 275.

The director of the CBO said that medicare beneficiaries will spend $1.8 trillion on prescription drugs over the next 10 years. I think that number is low.

Dr. Jim Hughes, head of infectious diseases at the CDC, said "I think we have to assume that the SARS virus is in Asia to stay." He said it may well remain in the U.S. too.

Mexico's inflation rate accelerated in March to a yearly rate of 5.64%.

With Yahoo selling at 60 times estimated earnings, where's the value?

Spirit Airlines, the largest U.S. privately held airline and a leading low-fare carrier, reported a 9% rise in March in their load factor and a 19% increase in revenue pasenger miles. These results are due to good management, fair pricing, and strict attention to the needs of the customer.

Nordstrom as well as American Eagle announced declines in March same store sales.

The Nikkei dropped below 8000 and Sony hit a 4 year low.

The IMF chief economist, Kenneth Rogoff, said he believes the Bush propoed tax cuts were "awkwardly timed" because they would add to a budget deficit already rising sharply. He criticized Alan Greenspan and other central bank officials for failing to combat falling prices which have impacted Japan and which threaten weak growth in the U.S. and Europe.

Microsoft has about $45 billion in cash. About one quarter of its 2002 income came from its investments. Unfortunately, its equity investments have not been nearly as successful as the returns from its software business. For the first time Microsoft is allowing hardware makers to modify the CE code and sell devices based on that code. This will enable "derivative works" to be produced by others.

Currently, Philip Morris has until April 21 to pay the full $12 billion bond. Madison County Judge Nicholas Byron doesn't want to bakrupt the company. The lead plaintiff lawyer believes the company has the funds to pay the $12 billion without bankrupting them. I think they can come up with the money but believe each side will give somewhat.

The Congress won't vote on the proposed Bush tax cut proposal for another thirty days. It must not be such a pressing matter.

Doctors and nurses in Hong Kong are contracting SARS at an astonishing rate. This illness will kill a great many people.

I read every day where long-time bears are throwing in the towel on this bear market. Each person has a perfect right to change an opinion. I give them credit for believing in their own convictions. At the same time I question their analytical processes. I am ecstatic about the three week accomplishments of our troops in Iraq. At the same time my pessimism about the global economy has increased during that period of time. SARS is a growing problem, and second half optimists will be immensely disappointed.

4/9/03 Your Neighborhood Cockroach May Cause SARS

N.Y.C. to lay off 2000 education workers. Qantas Airways to let 1000 go. Tecumseh Products gives pink slip notices to 550. Barra to cut 9% of their workforce.

The war on Iraq has produced 95 dead, 155 wounded, and 8 MIAs.

The Philip Morris judge says the company may not have to post a $12 billion bond to appeal a $10 billion damage suit. They may have to post the damaged lungs of the company's top brass. Just a joke.

Japanese companies plan to cut back on capital spending in 2003 by 2.2% for the third straight year.

Global airlines body IATA warned that SARS could hurt the industry more than the Iraq war. For example, Cathay says SARS has "annihilated" passenger bookings.

Due to SARS, Malaysia bars visitors from China and Hong Kong.

In Chinatowns around the U.S. people are scared. For many, business is down 50% in the last two weeks. People are afraid of SARS, and aren't coming to Chinatown. On the other hand, family medical practices are seeing more patients as they arrive with cold symptoms and want to be checked for SARS.

The dollar is already about two cents weaker vs the euro from its strongest level since the war started. This is a good clue that the war rally on Wall St. has come to a close.

The Federal government gave San Francisco $10 million for the fight on terrorism. I guess the fight is expected to go only a few rounds.

Gartner, Inc. said for the second consecutive year worldwide semionductor manufacturing sales declined by more than 30%.

Sales at major U.S. chain stores fell 2.5% in the week ended April 5 compared with the same week a year ago.

Disney's stock is selling at about 30 times estimated 2003 earnings. Where's the value?

Between 1995 and 2010 the 45+ age bracket will grow 3 times as quickly as the rest of the population. Baby boomers now control 43% of the nation's disposable income.

Joseph DeRisi is a researcher at UCSF and he created a computer "virus chip" which identified SARS as a type of coronavirus which, he said, "is not a simple mutation of a human virus." Despite anything you might read or hear about SARS, DeRisi's statement indicates trouble ahead.

Cockroaches may carry the SARS virus. Everyone needs to be extra careful about the people with whom they associate.

Here's a no brainer. Which economy is more important to you- that of the U.S. or post-war Iraq?

4/8/03 Selling On The News

The weekend war news was so encouraging that the amateurs pounced on the markets in the early going yesterday, and then they got pounded. Before the day was over a significant reversal had taken place. After being up 242 points, The Dow staggered to a meager 21 point gain. The Nasdaq had gained over 3% and barely could hold a plus side of 7 points. The S&P 500 had been at 904 and ended almost unchanged at 880. When your entry point is poor, lessons from Wall Street can be expensive. Follow the leader doesn't hack it on the corner of Broad and Wall streets. In Iraq they take prisoners of war. The stock market doesn't take prisoners.

Another potentially lethal venue is SARS. We know over 100 people have now been killed, 2700 have been infected, and it has found its way into 16 countries. SARS targets the world.Yesterday India reported its first SARS case. We are aware that the disease is spread easily from person to person. It may have multiple ways to spread. It also originated in a part of the world that sees a great many travelers. There is no cure for SARS nor a vaccine. Fast recognition appears the only possible solution. The director of the CDC said yesterday "we may see further spread of the disease in this country...we don't know where this is going to go." It was suggested to avoid travel to Hong Kong, Hanoi, Singapore, and China. Hopefully, SARS will not be like the 1918 flu when more than 20 million people died.

Recently, retail sales have dropped 50% in Hong Kong.

Consumer credit for February increased $1.5 billion vs consensus of $3 billion. Total consumer debt is $1.74 trillion.

N.Y.C. will lay off 3400 workers in the next 30 days.

Citigroup will lay off additional traders and salesmen in its global equities business.

March consumer confidence in Tokyo worsened, and fell 1.5 points to 38.8. This reveals a serious level of pessimism.

U.K. retail sales last month fell the most in 11 years.

Our states are suffering their worst budget crises since WW II.

U.S. movie ticket sales have dropped 8% from last year.

When the Iraqi war started, consumer confidence picked up. More job cuts, disappointing earnings, and growing deaths from SARS will take consumer confidence down again, and to new lows.

The Fed's top monetary policy staffer said "the best policy for dealing with deflation is to avoid it strenuously by acting preemptively." Does preemptively mean waiting from 2001 to do something about deflation?

4/7/03 The Labor "Underutilization" Rate

There are about 5 million workers who have taken part-time jobs because they couldn't get full-time work. If you add them to the country's 8.5 million unemployed, plus discouraged job-seekers who have stopped looking for work, you have just under a 11% labor "underutilization" rate in February.

The labor pool is growing in substitute teaching. In the Chicago public schools the number of substitutes has about doubled in the past year to over 8000.

New York City has lost 223,000 jobs in the past two years. Local unemployment stands at a five year high of 8.6%. Last year applications for food stamps rose 20%. However, business is booming at pawnshops. People want cash rather than Rolex watches.

In 1997 William Strauss and Neil Howe wrote "The Fourth Turning:An American Prophecy". They predicted "a global terrorist group blows up an aircraft and announces it possesses portable nuclear weapons. The United States and its allies launch a preemptive strike. The terrorists threaten to retaliate against an American city. Congress declares war and authorizes unlimited house-to-house searches. Opponents charge the president concocted the emergency for political purposes." The authors predicted an era with 20 years of global crisis.

The Washington Times reports that 14 al Qaeda members are in Mexico working with Mexican crime organizations in an attempt to enter the U.S. covertly and conduct a terrorist attack.

Chemical Ali is dead.

Gordon Brown will deliver the UK's annual budget. The country's growth prospects will be cut.

The Pentagon says the U.S. military will govern Iraq for at least six months. Will that be a situation that pleases Tony Blair? He is our best friend on the global landscape.

Roger Clemens is five wins from the 300 club.

North Sea Brent crude oil declined to $23.50 per barrel. Gas at the pump is not coming down fast enough. It is way too high given current crude pricing.

For the first time the number of people in U.S. prisons and jails exceeds 2 million. That excludes juvenile offenders. This means that one in every 142 U.S. residents is imprisoned or in jail.

The Illinois legislative pension plan provides those with 20 years of government service to collect a pension based on 85% of the salary of their choosing, and they receive a 3% increase in their pensions after that. Pensions grow by 3% annually once an individual turns 60. Still this is not enough of a reward, in my view, for working a government job for 20 years. At the end of each day your soul pays too stiff a price.

Alan Greenspan: "Ownership of physical property is capable of being defended by police, the militia, or private mercenaries. Ownership of ideas is far less easily protected."

Some experts have linked SARS to a new form of coronavirus, other types are usually found in animals. Chinese specialists, however, link many SARS deaths to a rare form of the virus chlamydia, usually transmitted thru sexual contact.

In Texas Cash Today as well as Harrigans have filed for chapter 11.

This morning witnessed stocks soaring on the international markets; government bonds plunged in price and yields increased; the dollar rose to a 2-week high against the euro, yen, and Swiss franc; the Nikkei was up over 2%; and gold hit a 4-month low around $320.50 per ounce in Asia.

When the shelling in Baghdad ceases, stocks will plunge with fervor. Peace will not produce prosperity. Only jobs ring cash registers. The "underutilized" can tell you all about that.

4/6/03 AdJusted For Inflation The GDP Has Declined For The Past Six Months

The average per capita GDP in the whole of China is $900, but it's $5000 in Shanghai.

The latest survey by Investors Intelligence reveals that 47% of investment-newsletter writers are bullish on U.S. stocks and 35% are bearish.

China is Washington state's third-largest trading partner.

Paul Wolfowitz, the U.S. deputy defense secretary, said today that it would take more than six months to create a new Iraqi government after the Hussein regime is defeated. More than six months may mean years. It should also be noted that we still have soldiers in Germany after almost six decades.

With our consumers retrenching, imports are beginning to decline.

The end of the war will not unleash corporate spending. Businesses require confidence in the future, and that is lacking due to contaction in many sectors.

Fed officials continue with heightened surveillance about the economy's "soft patch." Their time might be better spent considering their lack of performance.

Our Treasury secretary does not think a recession is likely. He would were he out of a job, couldn't find a new one for 19 months, and had his unemployment benefits run out. Snow's abilities might make him a good candidate for serving double-dip cones at the local Baskins and Robbins.

Syracuse freshman Carmelo Anthony is something special.

Sumitomo Mitsui warns of a big loss.

The death toll in Iraq keeps rising and the SARS disease continues to topple more as well.

In a few years California's population will amount to 20% of the people in the U.S. The state's budget deficit has a firm strangle hold, and will not let go. California, in my view, has seen its best days. If N.Y.C. can declare bankruptcy in the mid-1970s, so California can do so in the early 21st century.

Our armed forces came home from WW II with what scientists called GWVI. In the Gulf War soldiers returned home with "Gulf War Syndrome," and between 15,000 and 20,000 veterans reported a variety of illnesses when they returned. Maybe it was the smoke from burning oil wells, desert parasites, or other causes which have created on-going health problems these past dozen years. What will our troops bring home from Iraq? It won't be limited to liberating Iraq.

4/5/03 The Bigger The Boom The Bigger The Bust

Over the past few years I have discussed the growing health care crisis, our ever-increasing unemployment, declining retirement pensions, an overpriced stock market, an international economy which is in the midst of a contraction, this country’s over consumption and extended debt position, the federal government’s unwillingness to reduce spending as tax revenues plummet, deficits at the state and local levels, and the potential for a global big D, just to name a few items. It no longer is a matter of looking at a glass being half full or half empty. Now it’s a matter of the glass being empty. Accounting gimmicks won’t work; revising monthly numbers won’t help; the spinmeisters can no longer make it happen. It’s time to swallow the bitter medicine, retrench, and rebuild. That will mean plenty of hardships for everyone. No one will be spared.

At the September 1996 Federal Open Market Committee Alan Greenspan said “ I recognize that this is a stock market bubble problem at this point.” He remarked that the solution was “the possibility of increasing margin requirements… if you want to get rid of the bubble, whatever it is, that will do it.” In my view, many of the present problems might have been avoided with those increased margin requirements.

The Pension Benefit Guaranty Corp, a federal agency, is $3.5 billion in debt. That agency now controls the $7.8 billion Bethlehem Steel pension plan which covers 95,000 workers. Those workers will receive monthly pension payments which are roughly 50% less than they had originally expected. There are examples after examples like this. Yesterday I described the U.S. Airways pension plan.

Close to two dozen software companies have issued warnings about the quarter not living up to prior expectations.

Georgia Pacific is laying off another 300 workers, Infospace fired 115, GE is cutting 56, and Trendwest is eliminating 111 call centers.

J. Paul Getty: “If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.”

The year-to-year net change in private payrolls has been negative for 21 straight months, the longest stretch since WW II. Over the past two years 2.5 million jobs have been lost in the private sector. Morgan Stanley’s chief economist, Richard Berner, said the unemployment rate in the first quarter should have been at least 6.3% and not what has been reported. I totally agree, and have said just that many times in my blog.

Since February 20 I have often inquired how the government was operating with no money. Today we found out. The Treasury has been forced to suspend investing in the Civil Service Retirement and Disability Fund in order to meet spending needs. The government is already at the debt ceiling limit. This action will provide the government with $12 billion in funds thru July 11.

Europe’s biggest chip maker STMicroelectronics issued disappointing results.

The February job loss was revised from 308,000 to 357,000 jobs lost.

Daniel Carp, Eastman Kodak CEO: “It remains to be seen how demand recovers after the war, because I don’t think the slowdown we’re in is all due to the war in Iraq.”

The U.S. economy lost 108,00 jobs in March- three times the amount expected. The percentage of the U.S population holding jobs fell to 62.3% in March, the lowest level in nine years.

Crude oil fell to a two week low of $24.40 a barrel.

For the week ending April 2, funds invested in U.S. stocks had outflows of $1.6 billion.

4/4/03 A Pandemic

In Canada a seventh SARS patient died yesterday. "Unfortunately, it's an epidemic now that will become a pandemic," predicted Donald Low, chief microbiologist at Toronto's Mt. Sinai Hospital. Denis Maki, a University of Wisconsin-Madison infectious diseases expert, spoke about SARS on Thursday at an American College of Physicians meeting in San Diego. He said "when you get a new strain that everyone's susceptible to, you have pandemic disease. There's a very good likelihood this is going to continue to spread."

Federal tax revenues as a percentage of GDP have averaged about 17% over the last four decades. With growing unemployment, less business growth, and our country getting poorer due to massive government spending reflected in the $2.2 trillion proposed budget, I expect tax revenues to be less than 15% of GDP this year.

Altria, parent of Philip Morris, will not be able to make their April 15 payment to 46 states, under the 1998 tobacco settlement agreement, if the company is required to post a $12 billion bond. Some states have issued bonds supported by those yearly payments, which are projected as $206 billion over 25 years. This could be a very messy matter for many parties. The states fought for this day of reckoning, and now they will wish they never opened the lid to this rancid creation.

We have 8.5 million unemployed Americans, and more lose their jobs daily. Yesterday Monaco Coach announced cutting 850 jobs, HealthSouth 165 jobs, and Georgia Pacific 170 jobs. Seven trillion dollars have been lost in the stock market since 2000. Obviously, the lesson of following the trend has been lost on many money managers, most of whom remain bullish. You'll know the lesson has been learned when, at Broad and Wall Street, your love one or someone close to you is left standing without his shirt, so to speak.

Vickers Insiders Weekly noted that the one-week ratio of insider sales to purchases recently surged to 2.95. This is decidedly negative.

In a study entitled "When Bubbles Burst", The IMF states "housing price busts on average occurred about once every 20 years, lasted about 4 years, and involved price declines of about 30%. There has been a 70% rise in U.K. housing prices since 1994 and 27% in the U.S. since 1996. A housing bust in one country will have spillovers in the rest of the world... the risks of a bust in the U.K. are greater than in the U.S."

The June eurodollar futures contract reflects a yield of 1.13% which is lower than the present Fed overnight target rate, and the latter could be cut at any time to 1%.

The spread between a two year and ten year Treasury bond is the widest since November 1992. It approximates 2.38 points.

A house panel is proposing a bill which would let workers choose between paid time off or overtime pay- both at the rate of time and one half. The bill, however, would allow employers to decide when the time could be taken.

Uruguay is set to default on as much as $6.5 billion in bonds.

Alan Greenspan: "Reports of nonbusiness bankruptcy filings reaching record highs in 2002 reveal that many consumers are experiencing significant financial crises." He needed bankruptcy filings to realize this?

There are about 150 major tribes in Iraq. A British official states "the tribes play a long game. For them, the real currency is not just money but privileges and the promise of roles and influence in the post-Saddam government, whatever the UN or the Iraqi exile groups may say."

The ISM for non-manufacturing businesses fell to 47.9 from 53.9 in February. The median forecast of 49 economists was for a reading of 52. The index contracted the most since October 2001. These figures were compiled prior to the start of the war. The services sector accounts for over 75% of the U.S. economy.

The number of U.S. workers filing new claims for state unemployment benefits rose by 38,000 to 445,000, the highest in almost one year. The number of Americans who continue to collect benefits each week surged 107,000 to 3.61 million.

Michael Moskow, president of the Federal Reserve Bank of Chicago, said "my own sense is that in early to mid-February is when things started to slow." He should tell that to the 8.5 million Americans who are unemployed.and can't find a job. Moskow lacks a sense of reality.

The services sector in the euro zone and in the U.K. slowed sharply last month, and Germany's unemployment rose to a 5 year high with about 4.5 million Germans out of work.

Iranian President Khatami: "The result of this war is the death of innocent people and circulating and strengthening extremism and violence...to answer back your violence with violence."

4/3/03 Leon Levy: "People Typically Discount The Risks On Stocks They Own"

Stephen Roach, Morgan Stanley's chief economist, will advise clients on Friday that he is forecasting a world recession in 2003. In my view, as expressed over and over again, that is already taking place. The question I believe is whether we are facing a global big D.

The WHO has confirmed 2,223 cases of SARS with 1898 of them in China and Hong Kong. In the U.S. 27 states have reported suspected SARS cases. There is a growing fear that, because of SARS, companies exposed to China and Hong Kong will see their earnings take a hit.

There have been at least 78 confirmed coalition deaths in the war. In addition, there are 22 soldiers listed as either POWs or MIA.

Mizuho, the world's largest bank by assets, has slid about 11% in the last three trading sessions in Japan and closed at a record low.

Telia Sonera AB, the largest Nordic phone company, will cut 400 jobs in Finland; KLM will cut several thousand jobs; Finnair OYJ will cut 1200 jobs; AMR will furlough 2500 more pilots; and Aloha Airlines is in arrears on about $1 million in airport fees to the state of Hawaii.

Yesterday the FBI issued an alert to all field agents for terrorists trying to make chemical weapons such as ricin.

Factory orders dropped 1.5% in February, the biggest decline in 5 months. These numbers took place prior to the start of the war.

World Bank: "A worrisome characteristic of the current economic environment is that macroeconomic policies maybe running up against their limits... the global trend toward deflation poses new challenges for policy makers."

GM is offering 5-year no interest loans. Ford offers $5 a day lease deals. However, the consumer appears still inclined towards the attractive incentives for a Camry, Corolla, and a Civic. The top Japanese carmakers sold more cars and trucks in the U.S. this March than they did a year earlier.

Applications for mortgages in the U.S. fell 17% from the previous week.

The President's overall budget for fiscal 2004 amounts to $2.2 trillion. Where will the money come from to fight the war as well as to offer seniors a Medicare drug plan which will offset the present high cost for prescription drugs? When will the debt ceiling be increased, and by how much?

The U.S Airways pilots' pension plan was underfunded by $2.5 billion but the Pension Benefit Guaranty Corp. will only fund about $600 million. Federal law sets a minimum benefit of about $44,000 for retirees enrolled in pension plans that terminate this year and are taken over by the government program. In sum, government protection and guaranty are misnomers. That goes for just about all government programs offering such proposed benefits. For example, if many banks go belly up, do you think the FDIC will have the money for complete insured reimbursement? Maybe the saying "let's sleep on it" should have a greater meaning.

Due to a projected $8 million budget deficit, the Scottsdale Arizona Unified School District notified 163 teachers(10% of the teaching staff) that their jobs will be eliminated next year. These teaching pink slips are being delivered all over the U.S.

Jose Narosky: "In war, there are no unwounded soldiers."

Gunnery SGT Bill Hale of Pennsauken, N.J.: "This battle (near Nassiriya) was only supposed to last six hours. We were fighting five days straight, 24 hours a day." Hale is in a wheelchair. He suffered a concussion, nerve damage and injuries to his lower back and knee as a result of being ambushed by Iraqi fire.

First LT James Uwins of South Pasadena, Ca fought alongside Bill Hale. He said they were unable to sleep more than a couple of hours in a time in 36-40 hour periods. He said "that's the thing that really gets you- it's the slow burn." He has shrapnel in his legs and left arm from the ambush of rocket-propelled grenades.

Barbara W. Tuchman: "War is the unfolding of miscalculations."

In the U.S. about one out of every seven jobs is either directly or indirectly linked to the airline and travel sector.

San Francisco's downtown office vacancies rose to a record high 20.3% in the first quarter. Rents fell for the ninth straight quarter to levels, adjusted for inflation, below 1992 levels. The vacancy rate is expected to rise further.

20 years ago the per capita GDP in Iraq was $9000. Now it's $1000.

4/2/03 The Push Into Baghdad Overwhelms The Economy And SARS

Yesterday and again overnight and this morning the markets have been focusing on our troops marching towards Baghdad, and trying to figure out the time required to take control of that city. After all, it's much more pleasurable to think about potential good news and to push the bad into the background. The markets might be well served to listen to Boston Fed President Cathy Minchan who said that issues other than just the war- like the overhang from excessive investment of the 1990s- were also restraining growth and suggested another rate cut might be forthcoming.

U.S. retail sales this year are expected to rise at their slowest rate in at least a decade. I am not so sure they will increase at all. Retail chain sales were down 1.4% in the week ending March 29.

Merrill Lynch: "The equity market is becoming less attractive."

The U.S. March ISM manufacturing index fell for the first time since October to 46.2 from 50.5. Economists had been predicting a reading of 49. European manufacturing shrank for the sixth month in seven in March and dropped to 48.4. Construction spending fell 0.2%. In March new orders fell sharply to 46.2 from 52.3 in February. The ISM employment reading fell to 42.1(a really low number). Industry-wide vehicle inventories reached a record of 4 million units in March as auto sales dropped for the third month in a row.

Fleming, Air Canada, and DNA Sciences filed for Chapter 11.

The average unemployed worker already receiving unemployment insurance is out of a job for 19 months, the highest level in eight years.

Berkshire Hathaway to buy Clayton Homes for $1.7 billion in cash, and First Data to buy Concord EFS for $6.75 billion.

After the market closed yesterday, Asyst Technologies issued a serious revenue warning. The revenue shortfall for the quarter would exceed 20%. They make chip manufacturing equipment and cited "continued weakness in the semiconductor industry." They did not mention the war as the culprit.

The Marines of the 3rd Battalion, 7th infantry are short on supplies of cigarettes and smoking tobacco. 34% of servicement smoke. It is permitted in wartime. Farmers in the countryside have helped to ease the shortage. We ask our soldiers to go into battle and can't even supply them adequately. Something is wrong here.

SARS is having a very negative impact on many Asian economies, and growth estimates are being reduced on a daily basis. I certainly pray that this illness will be brought under control. Right now that does not look like a reality.

4/1/03 I'm Not Foolin. This Is For Real

The consumer is slowly changing. The difficult economic times coupled with the Iraqi war are teaching consumers they can and will do with less. This phenomenon will change the consumer spending landscape and it shall have a profound long term impact on the U.S. economy as well as those economies dependent on our importing appetite. The net result will be, in part, less tax revenues for state and local governments; less service and manufacturing jobs which also translates into reduced tax revenues for the government in Washington; a higher personal savings rate; reduced credit card debt balances; and more price sensitivity when making a purchase. I would expect companies to reduce employment further, to carry lower inventories, to cut cap spending, and to pressure suppliers for price reductions. Deflation will be the by-product of the above environment, and it will be with us for a long period of time.

The percentage of job seekers who said they believe there will be fewer jobs available in six months rose to 40.7%.

David Ogilvy: "The consumer isn't a moron. She is your wife."

Howard Jerome: "We can no longer have everything we want, but we can be more than we imagined."

A Watson Wyatt study shows the percentage of employees nationwide with fully funded pension plans dropped from 84% in 1998 to 37% in 2002, and continues to decline.

The government can print more dollars but they can't manufacture consumer confidence. The consumer will, over time, leave home without their plastic.

Two months ago the inventory of unsold homes was a 3.8 month supply. In February the inventory was up to 5 months, and I expect that to increase and for the median price of a house to decline. The bubble has burst.

The employment component of the Chicago PMI index fell to 45.1 from an already weak 46.6 in February. The new orders index slumped to 52.5 from 59 in February. I expect the March number to be even lower.

WalMart expects sales at stores open for more than a year to be at the low end of its previous estimate for March. Federated, JC Penney, Pier I, and Nordstrom said March sales were below expectations.

March manufacturing activity in the Chicago region plunged sharply to 48.4 from 54.9. Economists had predicted a drop to 51. Economic activity in NYC was reported as weak too.

There were only 5 IPOs in the first quarter, the lowest number in 25 years.

KMart cut their staff by 660. They still employ 170,000. Edgar Online reduced employment by 17%.

Global semiconductor chip sales dropped 3.3% in January. They continue weak.

Violence in Nigeria has slashed crude output by 40% or 800,000 barrels per day, and further reductions are expected.

Saudi Arabia's March oil output was its highest monthly production in 21 years.

Edward Sweda, Jr, senior attorney for the Tobacco Products Liability Project in Boston: "When Philip Morris is talking about the impact of the lawsuits with friends and investors from Wall Street, everything is rosy and the bottom line is fine. When they're talking about the issue with state governments, there's the threat of bankruptcy and their inability to continue paying the settlement and they say they need protection."

China's Huawei Technologies has been selling tech hardware to Iraq. Russia, France, and Jordan are believed to be suppliers to Iraq too.

Japan's biggest manufacturers are pessimistic on their economy for a ninth straight quarter. Large business confidence falls to -10. Sentiment had been expected to rise. Companies with more than 1000 workers will reduce cap spending by 0.8%.

For years the U.S. consumer has been overwhelmed by elevated indebtedness in relation to take-home pay. That won't change overnight, but it will change for the better over time as consumption patterns become increasingly rational.

4/1/03 I'm Not Foolin. This Is For Real

The consumer is slowly changing. The difficult economic times coupled with the Iraqi war are teaching consumers they can and will do with less. This phenomenon will change the consumer spending landscape and it shall have a profound long term impact on the U.S. economy as well as those economies dependent on our importing appetite. The net result will be, in part, less tax revenues for state and local governments; less service and manufacturing jobs which also translates into less tax revenues for the government in Washington; a higher personal savings rate; reduced credit card debt balances; and more price sensitivity when making a purchase. I would expect companies to reduce employment further, to carry lower inventories, to cut cap spending, and to pressure suppliers for price reductions. Deflation will be the by-product of the above environment, and it will be with us for an extended period of time.

The percentage of job seekers who said they believe there will be fewer jobs available in six months rose to 40.7%.

David Ogilvy: "The consumer isn't a moron. She is your wife."

Howard Jerome: "We can no longer have everything we want, but we can be more than we imagined."

A Watson Wyatt study shows the percentage of employees nationwide with fully funded pension plans dropped from 84% in 1998 to 37% in 2002, and continues to decline.

The government can print more dollars but they can't manufacture consumer confidence. The consumer will, over time, leave home without their plastic.

Two months ago the inventory of unsold homes was a 3.8 month supply. In February the inventory was up to 5 months, and I expect that to increase and for the median price of a house to decline. The bubble has burst.

The employment component of the Chicago PMI index fell to 45.1 from an already weak 46.6 in February. The new orders index slumped to 52.5 from 59 in February. I expect the March number to be even lower.

WalMart expects sales at stores open for more than a year to be at the low end of its previous estimate for March. Federated, JC Penney, Pier I, and Nordstrom said March sales were below expectations.

March manufacturing activity in the Chicago region plunged sharply to 48.4 from 54.9. Economists had predicted a drop to 51. Economic activity in NYC was reported as weak too.

There were only 5 IPOs in the first quarter, the lowest number in 25 years.

KMart cut their staff by 660. They still employ 170,000. Edgar Online reduced employment by 17%.

Global semiconductor chip sales dropped 3.3% in January. They continue weak.

Violence in Nigeria has slashed crude output by 40% or 800,000 barrels per day, and further reductions are expected.

Saudi Arabia's March oil output was its highest monthly production in 21 years.

Edward Sweda, Jr, senior attorney for the Tobacco Products Liability Project in Boston: "When Philip Morris is talking about the impact of the lawsuits with friends and investors from Wall Street, everything is rosy and the bottom line is fine. When they're talking about the issue with state governments, there's the threat of bankruptcy and their inability to continue paying the settlement and they say they need protection."

China's Huawei Technologies has been selling tech hardware to Iraq. Russia, France, and Jordan are believed to be suppliers to Iraq too.

Japan's biggest manufacturers are pessimistic on their economy for a ninth straight quarter. Large business confidence falls to -10. Sentiment had been expected to rise. Companies with more than 1000 workers will reduce cap spending by 0.8%.

For years the U.S. consumer has been overwhelmed by elevated indebtedness in relation to take-home pay. That won't change overnight, but it will change for the better over time as consumption patterns become increasingly rational.

3/31/03 Goethe: "The Condition of Freedom Is Risk"

It is the 12th day of the war. We have at least 46 casualties and another 17 soldiers are missing. Britain has lost 25 with 5 of those killed in action. According to yesterday's poll, 55% of Americans believe the U.S. government was too optimistic in assessing the course of the war in Iraq (Cheney certainly was) and one-third would not support the war if more than 500 U.S. troops were to die.

With an extended war now expected, second quarter earnings estimates will be revised downward. They were too high for starters.

Japan's industrial production declined 1.7%, and was the fifth decline in the past six months and twice the drop economists had anticipated. Inventories declined 2.3% to the lowest levels since 1988.

The Nikkei ended the year off 28%. Mitsui Chemicals and Sumitomo Chemical eneded their merger plans. It is anticipated that all of Japan's top seven banks will report losses.

European March consumer confidence dropped to the lowest level since August 1993. I am confident that it can decline further.

Over the past 12 months the euro has risen 23% against the dollar. That's some jump.

The NY Times reports that an Iraqi general says 4000 volunteers from 23 Arab countries stand ready to carry out suicide attacks against U.S. troops.( I need to return to school. I didn't know there were 23 Arab countries.) Tariq Aziz says "when you fight an invader by whatever means available to you, you are not a terrorist, you are a hero." I say you are a hero when you kill a terrorist who is mistaken for a hero.

Between now and 2015 the interest on our public debt is about $3.5 trillion.

Egyptian President Mubarek said the Iraqi war would produce "one hundred new bin Ladens." How would he know? Is Egypt harboring terrorists?

In Northeastern Iraq at the Ansar al-Islam compound, there is a complex of underground tunnels and bunkers. It is possible that, at this location, Muslim guerilla groups and al-Qaeda have been making ricin.

Banning smoking in bars and restaurants in NYC has created quite a debate. They are banning a product which is legal. Then again, this country lived thru Prohibition. I notice that Anheuser Busch's cash flow is growing quite nicely. It should be noted that I do not drink or smoke. However, I do cherish freedom. As Goethe said, the condition of freedom is risk.

3/30/03 Human Illusions

Robert Lynde, an Irish author who wrote in the early 20th century: "The belief in the possibility of a short decisive war appears to be one of the most ancient and dangerous of human illusions."

Assets in money market funds and bank savings accounts total more than $5 trillion, and this amount continues to grow. American investors have been taught a stark gambling lesson from the go-go bubble times of only a few years back. There is a disconnect between the average investor and the professional money managers who remain bullish to the core. It's not surprising because the latter are losing other people's money. It's also not surprising that last year a record $140.5 billion was invested in bond funds. One should remember that money market funds limit risk while bond funds do carry risk-maybe not nearly as much as stock funds, but capital can be lost.

In today's economic environment it is wise to avoid a gamble. I am reminded by a statement made by Field Marshall Erwin Rommel. He referred to the battlefield but it is also true of investing: "A gamble is a chance taken; if it fails, recovery is impossible." Today there is little room for error much less a gamble. In 2002 Americans consumed $435 billion more in goods and services than the U.S. produced. As trade and account deficits continue to mount, the dollar has begun to fall, and that fall is picking up speed. We must reduce private and government spending, and increase savings- war or no war. A weak currency reflects a faltering economy, and the latter produces a declining stock market. People will be rewarded for keeping their savings in money market funds. It won't be lost chasing so-called values which are a reflection of human illusions.

When looking at the great companies, such as, WalMart, it is interesting to note their key suppliers. A growing percentage of the business P&G and Clorox put on their books is with WalMart. It is not surprising, therefore, that these two companies are performing better in this harsh economic environment. They have been able to reduce warehousing costs, inventory management, and shipping expenses.

Ali Hassan Majid is Hussein's cousin and known as Chemical Ali. He is leading the enemy troops in southern Iraq. Over the years Ali has killed and maimed several hundred thousand Iraqi and Kurd civilians with chemical weapons. He too must be eliminated. His words reflect horror: "I will kill them all with chemical weapons. Who is going to say anything? The international community? F--- them. The international community and those who listen to them."

Napoleon: "The battlefield is a scene of constant chaos. The winner will be the one who controls that chaos, both his own and the enemies."

N. Korea wants to issue bonds for the first time. They will be called "People's Life Bonds." Maybe Saddam Hussein will purchase some bonds with the money he stole from the Iraqi people.

Commerzbank may announce 2800 layoffs tomorrow.

Kansas topped Arizona in a thriller. That leaves Kansas the favorite among the final four.

One final word about stock market scrutiny. The long term trend is much more significant than the 50 day or 200 day moving average. If the economy were to turn upward, you would have plenty of time to invest your savings. In the meantime the trend is down, and it has been down for three years and it will stay down for a much longer period of time. Greed can be very real but it is often cemented in human illusion. Investing requires discipline and study. Vince Lombardi said that practice does not make perfect- only perfect practice makes perfect. The stock market as a whole is not priced to perfection. Stocks are wondering down the yellow brick road, and after three years of a bear market, they are still priced to reflect good times being just around the corner. It might be wise to take the enemy into account- the pervasive spending habits in the U.S. We are living beyond our means, and tragedy will be the consequence.