5/21/05 Density Or Dense?
Justin Klosek: “The beautiful thing about mortgages is this: the collateral behind them is not marked to market. As long as you can pay, there is no margin call.”
Alan Greenspan: “The fairly large and still accelerating degree of extraction of equity from existing homes has been a major force in financing consumption of expenditures.”
LoanPerformance’s Mark Carrington stated “we’re seeing borrowers looking at a home as less of an investment but more of a money-management decision.”
Interest-only loans have been hot items for the last two years. For example, the national average was 31% for both 2003 and 2004. However, in Fort Walton, Fla. they amounted to 71% in 2004. San Diego’s was 64%, San Francisco’s 59%, and Reno’s 58%. Not surprisingly, many Florida locations have seen home price appreciation ranging between 35% and 45% over the past 12 months. Meanwhile, the Las Vegas market has been asleep at only a rise of 29+%. There are plenty more interest-only loans available. Just raise your hand. No waiting in line.
I am hardly surprised that Moody’s stated the rated issuance volume of U.S. collateralized debt obligations jumped 72% in this year’s first quarter on a year-on-year basis. Over the past year real estate loans have increased over 12% to $2.67 trillion. Even securities credit chimed in with a 17.5% annualized increase.
If you think we have problems, China cannot slowdown its infrastructure growth engine. Bloomberg reported that investment in China’s factories, roads, etc. rose over 25% in the first four months of 2005. That’s an appetite like we have for collateralized mortgage obligations and mortgage backed securities.
Not surprisingly, China’s imports of steel products rose to a 1-year high in April.
Saudi Arabia plans to invest in oil refineries in India.
Kuwait’s oil minister and head of OPEC stated today that global demand for oil will rise to 85.5 million barrels per day in this year’s fourth quarter. He said that high oil prices are needed to help fund higher oil production and exploration by producer countries. I hope you’re not short crude or oil stocks. That’s a sucker’s bet. How can you win when long-term demand outstrips supply?
Today, auto supplier Tiercon Components closed its Vassar, MI plant and 104 employees lost their jobs. Alcoa will close its Hawesville, KY auto casting facility and this will impact 158 workers.
Saturday, May 21, 2005
Thursday, May 19, 2005
The Patch
5/20/05 The Patch
Economists call it a soft patch. The Conference Board’s Leading Economic Indicators Index has declined at a 1 per cent annual rate over the last six months. For the first four months of 2005, this index has exhibited four consecutive monthly declines.
May’s Empire State Index was a total wipe out. The May Philly Manufacturing Index fell to 7.3 from 23.5 in April. New orders declined to 15.7 from 28. Employment plummeted to 5.4 from 16.8. Prices received fell to 15.7 from 28. The Expectations Index fell to 22.3, the lowest level in 4 years. The Empire State and Philly results are not backward looks, as it were. They are the scoreboard for May.
The four-week average of new unemployment claims rose by 5,000 to 329,750. The number of former workers receiving state unemployment checks rose by 5,000 to 2.60 million in the week ending May 7, while the four-week average of continuing claims dipped 7,500. Considering that the economy has enjoyed continuing GDP gains for the last 3 ½ years, one might rationally expect wages to be higher and that the quality of new jobs would be higher. At the very least, wage gains should exceed the rate of inflation. Maybe one should question the soundness of the foundation of our economy.
Why should anyone be concerned. Long-term interest rates are near multi-decade lows. Mortgage rates are so low that 69% of Americans are homeowners. There might be a reasonable explanation. In 2001, 2% of new mortgages in the state of California were interest only. In 2004, that number had jumped to 49%. In 2005, I would expect it to exceed 60%. Does it get any better than that? Yes it does. With no money down, and only paying monthly interest, you get a big tax deduction. You get the upside and no downside. That’s better than the leverage many hedge funds have been able to create. It gets better. As the appraisals move higher, you can cash out equity from the home even though you haven’t put up any money. And Bush wants to provide more homeowner tax incentives on top of this! Only in America. No wonder everyone wants to cross our borders. We should let everyone in so they too can buy a home and help the prices go even higher. Bubbles have a way of getting bigger. They just need a little extra TLC.
Crude closed on Thursday at $47 a barrel.
Interstate Bakeries to lay off 1,400 workers. DeVry cuts 134 employees.
President Bush in a speech yesterday on Social Security: “The system is solvent for people born before 1950…We’re spending your money and left behind some paper that can only be good if the government decides to redeem the paper.” And how does that differ from Treasury bills or 10-year Treasury bonds? It doesn’t. The U.S. government continues to redeem existing outstanding debt only so long as the Congress authorizes an increase in the U.S. Treasury debt limit. Without that authorization, there is no money for the government to continue running.
Maytag has agreed to be acquired by an investor group for $14 a share in cash, or $2.1 billion including the assumption of $975 billion of debt. The group is led by private equity firm Ripplewood Holdings LLC and includes RHJ International (RHJIF), GS Capital Partners and the J. Rothschild Group of Companies.
Economists call it a soft patch. The Conference Board’s Leading Economic Indicators Index has declined at a 1 per cent annual rate over the last six months. For the first four months of 2005, this index has exhibited four consecutive monthly declines.
May’s Empire State Index was a total wipe out. The May Philly Manufacturing Index fell to 7.3 from 23.5 in April. New orders declined to 15.7 from 28. Employment plummeted to 5.4 from 16.8. Prices received fell to 15.7 from 28. The Expectations Index fell to 22.3, the lowest level in 4 years. The Empire State and Philly results are not backward looks, as it were. They are the scoreboard for May.
The four-week average of new unemployment claims rose by 5,000 to 329,750. The number of former workers receiving state unemployment checks rose by 5,000 to 2.60 million in the week ending May 7, while the four-week average of continuing claims dipped 7,500. Considering that the economy has enjoyed continuing GDP gains for the last 3 ½ years, one might rationally expect wages to be higher and that the quality of new jobs would be higher. At the very least, wage gains should exceed the rate of inflation. Maybe one should question the soundness of the foundation of our economy.
Why should anyone be concerned. Long-term interest rates are near multi-decade lows. Mortgage rates are so low that 69% of Americans are homeowners. There might be a reasonable explanation. In 2001, 2% of new mortgages in the state of California were interest only. In 2004, that number had jumped to 49%. In 2005, I would expect it to exceed 60%. Does it get any better than that? Yes it does. With no money down, and only paying monthly interest, you get a big tax deduction. You get the upside and no downside. That’s better than the leverage many hedge funds have been able to create. It gets better. As the appraisals move higher, you can cash out equity from the home even though you haven’t put up any money. And Bush wants to provide more homeowner tax incentives on top of this! Only in America. No wonder everyone wants to cross our borders. We should let everyone in so they too can buy a home and help the prices go even higher. Bubbles have a way of getting bigger. They just need a little extra TLC.
Crude closed on Thursday at $47 a barrel.
Interstate Bakeries to lay off 1,400 workers. DeVry cuts 134 employees.
President Bush in a speech yesterday on Social Security: “The system is solvent for people born before 1950…We’re spending your money and left behind some paper that can only be good if the government decides to redeem the paper.” And how does that differ from Treasury bills or 10-year Treasury bonds? It doesn’t. The U.S. government continues to redeem existing outstanding debt only so long as the Congress authorizes an increase in the U.S. Treasury debt limit. Without that authorization, there is no money for the government to continue running.
Maytag has agreed to be acquired by an investor group for $14 a share in cash, or $2.1 billion including the assumption of $975 billion of debt. The group is led by private equity firm Ripplewood Holdings LLC and includes RHJ International (RHJIF), GS Capital Partners and the J. Rothschild Group of Companies.
The Patch
5/20/05 The Patch
Economists call it a soft patch. The Conference Board’s Leading Economic Indicators Index has declined at a 1 per cent annual rate over the last six months. For the first four months of 2005, this index has exhibited four consecutive monthly declines.
May’s Empire State Index was a total wipe out. The May Philly Manufacturing Index fell to 7.3 from 23.5 in April. New orders declined to 15.7 from 28. Employment plummeted to 5.4 from 16.8. Prices received fell to 15.7 from 28. The Expectations Index fell to 22.3, the lowest level in 4 years. The Empire State and Philly results are not backward looks, as it were. They are the scoreboard for May.
The four-week average of new unemployment claims rose by 5,000 to 329,750. The number of former workers receiving state unemployment checks rose by 5,000 to 2.60 million in the week ending May 7, while the four-week average of continuing claims dipped 7,500. Considering that the economy has enjoyed continuing GDP gains for the last 3 ½ years, one might rationally expect wages to be higher and that the quality of new jobs would be higher. At the very least, wage gains should exceed the rate of inflation. Maybe one should question the soundness of the foundation of our economy.
Why should anyone be concerned. Long-term interest rates are near multi-decade lows. Mortgage rates are so low that 69% of Americans are homeowners. There might be a reasonable explanation. In 2001, 2% of new mortgages in the state of California were interest only. In 2004, that number had jumped to 49%. In 2005, I would expect it to exceed 60%. Does it get any better than that? Yes it does. With no money down, and only paying monthly interest, you get a big tax deduction. You get the upside and no downside. That’s better than the leverage many hedge funds have been able to create. It gets better. As the appraisals move higher, you can cash out equity from the home even though you haven’t put up any money. And Bush wants to provide more homeowner tax incentives on top of this! Only in America. No wonder everyone wants to cross our borders. We should let everyone in so they too can buy a home and help the prices go even higher. Bubbles have a way of getting bigger. They just need a little extra TLC.
Crude closed on Thursday at $47 a barrel.
Interstate Bakeries to lay off 1,400 workers. DeVry cuts 134 employees.
President Bush in a speech yesterday on Social Security: “The system is solvent for people born before 1950…We’re spending your money and left behind some paper that can only be good if the government decides to redeem the paper.” And how does that differ from Treasury bills or 10-year Treasury bonds? It doesn’t. The U.S. government continues to redeem existing outstanding debt only so long as the Congress authorizes an increase in the U.S. Treasury debt limit. Without that authorization, there is no money for the government to continue running.
Economists call it a soft patch. The Conference Board’s Leading Economic Indicators Index has declined at a 1 per cent annual rate over the last six months. For the first four months of 2005, this index has exhibited four consecutive monthly declines.
May’s Empire State Index was a total wipe out. The May Philly Manufacturing Index fell to 7.3 from 23.5 in April. New orders declined to 15.7 from 28. Employment plummeted to 5.4 from 16.8. Prices received fell to 15.7 from 28. The Expectations Index fell to 22.3, the lowest level in 4 years. The Empire State and Philly results are not backward looks, as it were. They are the scoreboard for May.
The four-week average of new unemployment claims rose by 5,000 to 329,750. The number of former workers receiving state unemployment checks rose by 5,000 to 2.60 million in the week ending May 7, while the four-week average of continuing claims dipped 7,500. Considering that the economy has enjoyed continuing GDP gains for the last 3 ½ years, one might rationally expect wages to be higher and that the quality of new jobs would be higher. At the very least, wage gains should exceed the rate of inflation. Maybe one should question the soundness of the foundation of our economy.
Why should anyone be concerned. Long-term interest rates are near multi-decade lows. Mortgage rates are so low that 69% of Americans are homeowners. There might be a reasonable explanation. In 2001, 2% of new mortgages in the state of California were interest only. In 2004, that number had jumped to 49%. In 2005, I would expect it to exceed 60%. Does it get any better than that? Yes it does. With no money down, and only paying monthly interest, you get a big tax deduction. You get the upside and no downside. That’s better than the leverage many hedge funds have been able to create. It gets better. As the appraisals move higher, you can cash out equity from the home even though you haven’t put up any money. And Bush wants to provide more homeowner tax incentives on top of this! Only in America. No wonder everyone wants to cross our borders. We should let everyone in so they too can buy a home and help the prices go even higher. Bubbles have a way of getting bigger. They just need a little extra TLC.
Crude closed on Thursday at $47 a barrel.
Interstate Bakeries to lay off 1,400 workers. DeVry cuts 134 employees.
President Bush in a speech yesterday on Social Security: “The system is solvent for people born before 1950…We’re spending your money and left behind some paper that can only be good if the government decides to redeem the paper.” And how does that differ from Treasury bills or 10-year Treasury bonds? It doesn’t. The U.S. government continues to redeem existing outstanding debt only so long as the Congress authorizes an increase in the U.S. Treasury debt limit. Without that authorization, there is no money for the government to continue running.
Off To The Races?
5/19/05 Off To The Races?
Three days of gains can lift the spirits and the pocketbooks, but they do not mean we are off to the races; however, there is a race on Saturday with a field of 14 horses at Pimlico in Baltimore. It’s called the Preakness.
Henny Youngman: “The horse I bet on was so slow, the jockey kept a diary of the trip.”
Motorola’s directors approved a $4 billion buyback of its outstanding shares over the next 36 months, subject to market conditions. At its present stock price, that would amount to about 10% of the outstanding shares.
Oil prices are hovering around $47 a barrel this morning, and that is a 3-month low. Yesterday, it was reported that crude inventories climbed by 4.3 million barrels last week to their highest level since July 1999. Part of the build up is due to the 2.1% decline in the year-on-year crude input to U.S. refineries on a 4-week average basis. Several refineries have been off-line for maintenance purposes. In other words, the reason for the recent decline in oil prices is not simply a fall off in demand. In fact, OPEC trimmed its forecast for oil demand for the year by a mere 80,000 barrels a day to 83.94 million barrels a day. OPEC boosted production by 276,000 b/d to 29.95 b/d in April. One should point out that reliance on OPEC is increasing with lagging output from Mexico and Russia. The story on climbing oil prices is far from over. There has been but a short respite. Enjoy it while you can. Memorial Day weekend is around the corner. AAA estimates that there will be a 2% increase in the number of cars on the road over last year. If you’re looking to fill up, now might be a better time than one week from today.
The headlines stated that U.S. consumer prices rose 0.5% in April but that the core rate was unchanged. When I fill up my tank, I don’t get the core rate price. When I ask for the core rate price, the station owner looks at me as if I’m from Saudi Arabia. For the 12 months that ended in April, all consumer prices were up 3.5%. So far this year, consumer prices are rising at a 4.8% annual rate compared with a 4.4% rate of increase at the same time last year. Food accounts for about 20% of the CPI. Food increased 0.7% in price in April, the most since May 2004. One should note that core prices exclude food and energy. When I go to the grocery store, I ask for the core price on vegetables, and the clerk at the check out counter calls over the manager. The manager tells me their posted prices are the prices. Should I give up eating vegetables? The government says I should eat vegetables, and I always do what the government says. Big brother knows best.
According to the BLS, average weekly earnings rose by 3.3%, seasonally adjusted, from April 2004 to April 2005. After deflation by the CPI-W, average weekly earnings decreased by 0.3%. In sum, inflation is eating the average worker alive.
Fed Governor Donald Kohn: “Interest rates still need to rise. But how far they have to rise is anybody’s guess.”
Palatin Technologies announced it will present at the Fourth Annual Needham Biotechnology Conference at 4:30 EST on May 25 at the New York Palace Hotel.
Industrial production fell 0.2% in the eurozone in March 2005 compared to February 2005. In March 2005 industrial production declined by 0.1% compared to March 2004.
Yesterday, the 10-year Treasury traded down to a 4.06% yield, the lowest in 3 months.
Netflix and Wal-Mart announced an agreement whereby Netflix will promote Wal-Mart’s DVD sales both online and in mailers to its 3 million subscribers, and Wal-Mart will offer its online customers the opportunity to sign up with Netflix at their current subscription price for 1 year. With respect to subscriber growth and financial performance, Netflix is not revising the guidance it provided on April 21 for its current fiscal year.
Three days of gains can lift the spirits and the pocketbooks, but they do not mean we are off to the races; however, there is a race on Saturday with a field of 14 horses at Pimlico in Baltimore. It’s called the Preakness.
Henny Youngman: “The horse I bet on was so slow, the jockey kept a diary of the trip.”
Motorola’s directors approved a $4 billion buyback of its outstanding shares over the next 36 months, subject to market conditions. At its present stock price, that would amount to about 10% of the outstanding shares.
Oil prices are hovering around $47 a barrel this morning, and that is a 3-month low. Yesterday, it was reported that crude inventories climbed by 4.3 million barrels last week to their highest level since July 1999. Part of the build up is due to the 2.1% decline in the year-on-year crude input to U.S. refineries on a 4-week average basis. Several refineries have been off-line for maintenance purposes. In other words, the reason for the recent decline in oil prices is not simply a fall off in demand. In fact, OPEC trimmed its forecast for oil demand for the year by a mere 80,000 barrels a day to 83.94 million barrels a day. OPEC boosted production by 276,000 b/d to 29.95 b/d in April. One should point out that reliance on OPEC is increasing with lagging output from Mexico and Russia. The story on climbing oil prices is far from over. There has been but a short respite. Enjoy it while you can. Memorial Day weekend is around the corner. AAA estimates that there will be a 2% increase in the number of cars on the road over last year. If you’re looking to fill up, now might be a better time than one week from today.
The headlines stated that U.S. consumer prices rose 0.5% in April but that the core rate was unchanged. When I fill up my tank, I don’t get the core rate price. When I ask for the core rate price, the station owner looks at me as if I’m from Saudi Arabia. For the 12 months that ended in April, all consumer prices were up 3.5%. So far this year, consumer prices are rising at a 4.8% annual rate compared with a 4.4% rate of increase at the same time last year. Food accounts for about 20% of the CPI. Food increased 0.7% in price in April, the most since May 2004. One should note that core prices exclude food and energy. When I go to the grocery store, I ask for the core price on vegetables, and the clerk at the check out counter calls over the manager. The manager tells me their posted prices are the prices. Should I give up eating vegetables? The government says I should eat vegetables, and I always do what the government says. Big brother knows best.
According to the BLS, average weekly earnings rose by 3.3%, seasonally adjusted, from April 2004 to April 2005. After deflation by the CPI-W, average weekly earnings decreased by 0.3%. In sum, inflation is eating the average worker alive.
Fed Governor Donald Kohn: “Interest rates still need to rise. But how far they have to rise is anybody’s guess.”
Palatin Technologies announced it will present at the Fourth Annual Needham Biotechnology Conference at 4:30 EST on May 25 at the New York Palace Hotel.
Industrial production fell 0.2% in the eurozone in March 2005 compared to February 2005. In March 2005 industrial production declined by 0.1% compared to March 2004.
Yesterday, the 10-year Treasury traded down to a 4.06% yield, the lowest in 3 months.
Netflix and Wal-Mart announced an agreement whereby Netflix will promote Wal-Mart’s DVD sales both online and in mailers to its 3 million subscribers, and Wal-Mart will offer its online customers the opportunity to sign up with Netflix at their current subscription price for 1 year. With respect to subscriber growth and financial performance, Netflix is not revising the guidance it provided on April 21 for its current fiscal year.
Wednesday, May 18, 2005
Facts, Conclusions, And Warnings
5/18/05 Facts, Conclusions, And Warnings
Volumes of mortgage applications dropped 10.5% in the week ended May 13 compared to the prior week, according to the Mortgage Bankers Association. Also on a seasonally adjusted basis, applications to purchase homes fell 10.8% on a week-to-week basis, while refinancings decreased by 10.0%. Refinancings accounted for 39.3% of last week's total applications, up slightly from the prior week's 39.2%, while adjustable-rate mortgages slipped to 33.9% from 35.3%.
The Office of the Comptroller of the Currency, the Fed Board of Governors, the FDIC, the Office of Thrift Supervision, and the National Credit Union Administration concluded “home equity lending is an attractive product for many homeowners and lenders. The quality of these portfolios, however, is subject to increased risk if interest rates rise and home values decline. Sound underwriting practices and effective risk management systems are essential to mitigate this risk…The agencies found that, in many cases, institutions’credit risk management practices for home equity lending have not kept pace with the product’s rapid growth and easing of underwriting standards.”
Pimco’s Bill Gross: “We believe a range of 3 – 4 ½ % for 10-year nominal Treasuries will prevail during most of our secular timeframe.”
The folowing is a tale of two countries. U.S. industrial production fell 0.2% in April, while China’s industrial output growth quickened to 16% in April.
The demand for tobacco is slowing in the U.S., while demand in China is growing and China now represents one-third of the world’s annual consumption.
In this Made-In-America section, Zippo has been making lighters in the U.S. in Bradford, Pennsylvania since 1932. They make 14 million lighters a year, and that’s in spite of counterfeit lighters made in China. They guarantee their lighters for life, and replace worn-out parts for free. Maybe GM, Ford, and Chrysler should go that warranty route. It gives the consumer a different opinion of the product. Recalls don’t provide a warm and fuzzy feeling.
China’s April retail sales rose 12.2%.
The government cautions that housing data is subject to large sampling and other statistical errors, and that it can take five months for a trend in housing starts to emerge from the data. What importance should we place on the fact that construction of new homes in the U.S. rose 11% in April? This April figure is 3.6% higher than the pace reported in April 2004.
According to DataQuick, the median price for a Bay Area home was $586,000, a new record. That was 3.2% higher than the $568,000 recorded in March and 19.1% higher than the April 2004 level.
The PPI for finished goods advanced 0.6% in April, seasonally adjusted. At the earlier stages of processing, prices received by manufacturers of intermediate goods climbed 0.8%, while the crude index moved up 2.7%. Among finished goods, much of April’s increase was due to a 2.1% advance in the energy goods index. Excluding prices for energy goods, the finished goods index inched up 0.1%. The bond market continues unconcerned with inflation, and that fact is reflected in the narrowing yield spread between 2-year and 10-year Treasury bonds. With the differential approaching only 50 basis points, one might conclude deflation is lurking around the corner. As Mel Allen might have said, “how about that!”
In their fiscal second quarter report, Applied Materials reported that new orders fell 30%. I had to read that twice just to make certain my eyes were in focus. I thought everything was off to the races. The Nasdaq closed over 2000 last night and everyone went home with a smile.
I’m sure glad I pay little or no attention to brokerage reports. Between May 6 and May 12, Merrill Lynch polled 339 fund managers. They found that 56% of fund managers now expect global growth to weaken lightly or a lot over the next 12 months, while 23% expected a stronger world economy. A clear majority expected corporate profits to deteriorate slightly, while inflation was seen as likely to increase. The euro was seen as the currency most likely to depreciate over the coming year. Overall, it was the most negative polling result since 2001. One must remember an important point. For the most part, fund managers are investing other people’s money. Their opinions, therefore, are, in my view, worthless dribble.
I found it interesting that Nordstrom’s management increased their company’s forecast for 2005, while seeing only low single-digit comp sales growth in the second quarter. I guess the second half of this year will be a barn burner. Tell that to the 339 fund managers polled by Merrill Lynch.
Crude is trading at $49.15 a barrel this morning.
Volumes of mortgage applications dropped 10.5% in the week ended May 13 compared to the prior week, according to the Mortgage Bankers Association. Also on a seasonally adjusted basis, applications to purchase homes fell 10.8% on a week-to-week basis, while refinancings decreased by 10.0%. Refinancings accounted for 39.3% of last week's total applications, up slightly from the prior week's 39.2%, while adjustable-rate mortgages slipped to 33.9% from 35.3%.
The Office of the Comptroller of the Currency, the Fed Board of Governors, the FDIC, the Office of Thrift Supervision, and the National Credit Union Administration concluded “home equity lending is an attractive product for many homeowners and lenders. The quality of these portfolios, however, is subject to increased risk if interest rates rise and home values decline. Sound underwriting practices and effective risk management systems are essential to mitigate this risk…The agencies found that, in many cases, institutions’credit risk management practices for home equity lending have not kept pace with the product’s rapid growth and easing of underwriting standards.”
Pimco’s Bill Gross: “We believe a range of 3 – 4 ½ % for 10-year nominal Treasuries will prevail during most of our secular timeframe.”
The folowing is a tale of two countries. U.S. industrial production fell 0.2% in April, while China’s industrial output growth quickened to 16% in April.
The demand for tobacco is slowing in the U.S., while demand in China is growing and China now represents one-third of the world’s annual consumption.
In this Made-In-America section, Zippo has been making lighters in the U.S. in Bradford, Pennsylvania since 1932. They make 14 million lighters a year, and that’s in spite of counterfeit lighters made in China. They guarantee their lighters for life, and replace worn-out parts for free. Maybe GM, Ford, and Chrysler should go that warranty route. It gives the consumer a different opinion of the product. Recalls don’t provide a warm and fuzzy feeling.
China’s April retail sales rose 12.2%.
The government cautions that housing data is subject to large sampling and other statistical errors, and that it can take five months for a trend in housing starts to emerge from the data. What importance should we place on the fact that construction of new homes in the U.S. rose 11% in April? This April figure is 3.6% higher than the pace reported in April 2004.
According to DataQuick, the median price for a Bay Area home was $586,000, a new record. That was 3.2% higher than the $568,000 recorded in March and 19.1% higher than the April 2004 level.
The PPI for finished goods advanced 0.6% in April, seasonally adjusted. At the earlier stages of processing, prices received by manufacturers of intermediate goods climbed 0.8%, while the crude index moved up 2.7%. Among finished goods, much of April’s increase was due to a 2.1% advance in the energy goods index. Excluding prices for energy goods, the finished goods index inched up 0.1%. The bond market continues unconcerned with inflation, and that fact is reflected in the narrowing yield spread between 2-year and 10-year Treasury bonds. With the differential approaching only 50 basis points, one might conclude deflation is lurking around the corner. As Mel Allen might have said, “how about that!”
In their fiscal second quarter report, Applied Materials reported that new orders fell 30%. I had to read that twice just to make certain my eyes were in focus. I thought everything was off to the races. The Nasdaq closed over 2000 last night and everyone went home with a smile.
I’m sure glad I pay little or no attention to brokerage reports. Between May 6 and May 12, Merrill Lynch polled 339 fund managers. They found that 56% of fund managers now expect global growth to weaken lightly or a lot over the next 12 months, while 23% expected a stronger world economy. A clear majority expected corporate profits to deteriorate slightly, while inflation was seen as likely to increase. The euro was seen as the currency most likely to depreciate over the coming year. Overall, it was the most negative polling result since 2001. One must remember an important point. For the most part, fund managers are investing other people’s money. Their opinions, therefore, are, in my view, worthless dribble.
I found it interesting that Nordstrom’s management increased their company’s forecast for 2005, while seeing only low single-digit comp sales growth in the second quarter. I guess the second half of this year will be a barn burner. Tell that to the 339 fund managers polled by Merrill Lynch.
Crude is trading at $49.15 a barrel this morning.
Tuesday, May 17, 2005
Net Capital Flows
5/17/05 Net Capital Flows
Most everyone on Wall Street went home happy yesterday. Interest rates held at low levels. Crude remained below $49 a barrel. The Nasdaq climbed above a moving average. The Dow had a triple digit gain. The dollar continued to climb to multi-month highs. You get the picture. As has been the case for the past five months, smiles frequently turn to frowns. In this instance, we have a problem with net capital inflows into the U.S. In the end, the flow of money determines prices for stocks, bonds, commodities, goods, and services.
The Treasury Department stated yesterday that net capital inflows fell to $45.7 billion in March from $84.1 billion in February. Looking beneath the headline, the news is much more disconcerting. Foreign central banks became net sellers of U.S. assets for the first time in nearly 2 years. Chinese holdings of U.S Treasuries dropped in March for the first time in at least a year. Readers might remark that the yield on a 10-year Treasury bond is lower today than in March. That’s true. However, the buyers of $28.4 billion (net) of Treasuries in March just happened to be located in the Caribbean. That type of capital inflow is hardly the warm and fuzzy kind. It’s here today and gone tomorrow. The money to buy these bonds was borrowed from banks and brokerage firms. It did not represent new capital inflows. In sum, if you subtract the $28.4 billion from the $45.7 billion, the real capital inflow number was only $17.3 billion. That is a mere pittance compared to the daily money needed to fund our twin tower deficits. That revelation should begin to reverse the 6-7 month climb in the dollar. In addition, it should be noted that oil is paid for in dollars. When the dollar reverses, and it will in my opinion, the price of crude will resume its climb and so will the price of gold.
Michael Hampton: “Many funds are using a lot of dollar debt to finance assets, including those priced in euros and other currencies. Thus, since they are borrowing in dollars, they tend to benefit from a drop in the dollar, and a rally in non-dollar currencies helps their asset values grow faster than their debt.”
Talking about crude, Norway sold $17 billion of Treasuries in March.
It is interesting to note that recorded central bank inflows to the U.S. were exceeded by U.S. investor purchases of foreign equities.
Light sweet crude is trading around $48.84 a barrel and Brent crude is changing hands at $49.52 a barrel.
Yesterday, the British pound hit a 6-month low versus the dollar.
The New York Federal Reserve Bank reported that manufacturing activity deteriorated sharply for the second straight month in May. The Empire State Manufacturing index fell to –11.1 from 2.0 in April. This was the first negative, and lowest, reading since April 2003. The new orders index dropped to –7.1 from 1.2 in April. Unfilled orders fell to –17.3 from –8.2. The employment index fell to 0.2 in May from 8.5 in April. This is the lowest reading since September 2003. Overall, the index was truly weak and I can only figure that all available monies are plowing into N.Y real estate. After all, it’s a sure thing. Right?
John D. Rockefeller: “Competition is a sin.”
It has been reported that auto parts maker Collins & Aikman may file for chapter 11.
China’s exports rose faster than its imports for a sixth straight month in April. Exports rose 32% and imports increased 16%. I continue to believe that there will be a widening of the yuan’s trading band accompanied by a revaluation approximating 4%. That should quiet the mass currency manipulation hysteria.
From day one, I have been using Blogger.com’s software to write my daily musings. Two years ago, Blogger was purchased by Google. Blogger’s founder, Evan Williams, left and co-founded Odeo, a podcasting company. Their podcasting service goes live this month, and users should be pleasantly surprised.
Retail chains' same-store sales fell 1% in the week ended May 14 compared to the prior week, according to data compiled by the International Council of Shopping Centers and UBS.
This morning is out time! In a recent study by Microsoft, U.S. workers reported that 35 percent of the workweek is unproductive. CareerWomen.com, in an effort to help employers and employees understand when during the workweek they can expect to be most productive, recently polled U.S. workers and found that Tuesdays 10 a.m.-noon is the height of productivity.
Jackie Mason: “It's no longer a question of staying healthy. It's a question of finding a sickness you like.”
Most everyone on Wall Street went home happy yesterday. Interest rates held at low levels. Crude remained below $49 a barrel. The Nasdaq climbed above a moving average. The Dow had a triple digit gain. The dollar continued to climb to multi-month highs. You get the picture. As has been the case for the past five months, smiles frequently turn to frowns. In this instance, we have a problem with net capital inflows into the U.S. In the end, the flow of money determines prices for stocks, bonds, commodities, goods, and services.
The Treasury Department stated yesterday that net capital inflows fell to $45.7 billion in March from $84.1 billion in February. Looking beneath the headline, the news is much more disconcerting. Foreign central banks became net sellers of U.S. assets for the first time in nearly 2 years. Chinese holdings of U.S Treasuries dropped in March for the first time in at least a year. Readers might remark that the yield on a 10-year Treasury bond is lower today than in March. That’s true. However, the buyers of $28.4 billion (net) of Treasuries in March just happened to be located in the Caribbean. That type of capital inflow is hardly the warm and fuzzy kind. It’s here today and gone tomorrow. The money to buy these bonds was borrowed from banks and brokerage firms. It did not represent new capital inflows. In sum, if you subtract the $28.4 billion from the $45.7 billion, the real capital inflow number was only $17.3 billion. That is a mere pittance compared to the daily money needed to fund our twin tower deficits. That revelation should begin to reverse the 6-7 month climb in the dollar. In addition, it should be noted that oil is paid for in dollars. When the dollar reverses, and it will in my opinion, the price of crude will resume its climb and so will the price of gold.
Michael Hampton: “Many funds are using a lot of dollar debt to finance assets, including those priced in euros and other currencies. Thus, since they are borrowing in dollars, they tend to benefit from a drop in the dollar, and a rally in non-dollar currencies helps their asset values grow faster than their debt.”
Talking about crude, Norway sold $17 billion of Treasuries in March.
It is interesting to note that recorded central bank inflows to the U.S. were exceeded by U.S. investor purchases of foreign equities.
Light sweet crude is trading around $48.84 a barrel and Brent crude is changing hands at $49.52 a barrel.
Yesterday, the British pound hit a 6-month low versus the dollar.
The New York Federal Reserve Bank reported that manufacturing activity deteriorated sharply for the second straight month in May. The Empire State Manufacturing index fell to –11.1 from 2.0 in April. This was the first negative, and lowest, reading since April 2003. The new orders index dropped to –7.1 from 1.2 in April. Unfilled orders fell to –17.3 from –8.2. The employment index fell to 0.2 in May from 8.5 in April. This is the lowest reading since September 2003. Overall, the index was truly weak and I can only figure that all available monies are plowing into N.Y real estate. After all, it’s a sure thing. Right?
John D. Rockefeller: “Competition is a sin.”
It has been reported that auto parts maker Collins & Aikman may file for chapter 11.
China’s exports rose faster than its imports for a sixth straight month in April. Exports rose 32% and imports increased 16%. I continue to believe that there will be a widening of the yuan’s trading band accompanied by a revaluation approximating 4%. That should quiet the mass currency manipulation hysteria.
From day one, I have been using Blogger.com’s software to write my daily musings. Two years ago, Blogger was purchased by Google. Blogger’s founder, Evan Williams, left and co-founded Odeo, a podcasting company. Their podcasting service goes live this month, and users should be pleasantly surprised.
Retail chains' same-store sales fell 1% in the week ended May 14 compared to the prior week, according to data compiled by the International Council of Shopping Centers and UBS.
This morning is out time! In a recent study by Microsoft, U.S. workers reported that 35 percent of the workweek is unproductive. CareerWomen.com, in an effort to help employers and employees understand when during the workweek they can expect to be most productive, recently polled U.S. workers and found that Tuesdays 10 a.m.-noon is the height of productivity.
Jackie Mason: “It's no longer a question of staying healthy. It's a question of finding a sickness you like.”
Monday, May 16, 2005
Prepare For The Future
5/16/05 Prepare For The Future
Henry Ford: “Women do not win formula one races, because they simply are not strong enough to resist the G-forces. In the boardroom, it is different. I believe women are better able to marshal their thoughts than men and because they are less egotistical they make fewer assumptions.”
Last year, 31 CEOs of U.S. automakers, suppliers, and publicly traded dealership groups had a median income of $4.2 million. That’s up 72% from 2003. How many of these same companies will file for bankruptcy in 2005 and 2006?
According to Automotive News’ annual ranking of the world’s automakers by sales and production, Toyota gained by nearly 600,000 vehicles on GM to close to within 1.38 million in sales in 2004. In the January-March 2005 quarter, Toyota’s automotive revenues led GM’s $40.31 billion to $37.30 billion.
The dollar is trading at a 7-month high versus the euro. With more bulls moving into the dollar camp, I think the dollar rally should prove to have weak knees and unstable legs. In just five months, we have gone from a large bearish dollar camp to one with bullish overtones. I prefer the side with the least noise. I do my best thinking that way.
Crude is close to a 3-month low and hovering just below $48 a barrel.
eBay’s Meg Whitman stated “ultimately China could be eBay’s largest local market in a 5 to 10 year period.”
The Washington DC unemployment rate is 8.2%. Unfortunately, hard unemployment times have not found their way into the Congress and the Administration.
According to government estimates, the PBGC’s obligations exceed assets by $23 billion. Corporate pension plans are underfunded by approximately $450 billion. That underfunding, combined with mounting woes from Medicare and Social Security, make for sleepless nights for retirees.
China’s April CPI climbed 1.8%, the smallest rise since October 2003. This followed a rise of 2.7% in March. The People’s Bank of China’s one-year lending rate is 5.58%; however, 7-year Chinese government bonds are yielding a record-low 3.71%. That looks like an inverted yield curve to me. What does that tell you about China’s GDP growth rate in the coming months?
This morning is the annual meeting for Goldcorp (symbol GG ). At 11 am EST you can be connected to the conference call by dialing 1-877-677-7774. I suggest it will be time well spent. Goldcorp is the world’s lowest cost million ounce gold producer with total cash costs approximating $94 per ounce. Operating cash flows are up sharply in this year’s first quarter compared with the year-ago period. The acquisition of Wheaton was timely and should prove beneficial over the long-term. Goldcorp’s Red Lake and Luismin mines achieved record gold production for the quarter. I am particularly high on the Red Lake operation. Shares of Goldcorp sell in the $12 a share range. With the dollar trading at a 7-month high versus the euro, it is not surprising that gold shares and gold bullion have provided disappointing returns in 2005. In my opinion, it would be a mistake to dismiss precious metals from one’s portfolio for the long-term. Goldcorp would be my first choice for investment in this sector. Gold is not for everyone. It will not provide any income and it can be volatile. I do not view gold as an inflation hedge. I consider it as an alternative holding for the U.S. dollar for those taking a 3 to 5 year view.
Henry Ford: “Thinking is the hardest work there is, which is probably the reason so few engage in it.”
UPS and Overnite Corporation today jointly announced a definitive agreement for UPS to acquire Overnite for $43.25 per share, or approximately $1.25 billion in cash.
Palatin Technologies, Inc. today announced that it will present at the 2005 UBS Global
Specialty Pharmaceuticals Conference at 10:00 a.m. Eastern Time on Monday, May
23, 2005 at the Grand Hyatt Hotel in New York City.
John P. Hussman, Ph.D.: “The flexibility to vary one's investment stance based on prevailing market conditions, particularly valuations, will most probably be essential to investors focused on achieving strong risk-adjusted returns over time.”
Henry Ford: “Women do not win formula one races, because they simply are not strong enough to resist the G-forces. In the boardroom, it is different. I believe women are better able to marshal their thoughts than men and because they are less egotistical they make fewer assumptions.”
Last year, 31 CEOs of U.S. automakers, suppliers, and publicly traded dealership groups had a median income of $4.2 million. That’s up 72% from 2003. How many of these same companies will file for bankruptcy in 2005 and 2006?
According to Automotive News’ annual ranking of the world’s automakers by sales and production, Toyota gained by nearly 600,000 vehicles on GM to close to within 1.38 million in sales in 2004. In the January-March 2005 quarter, Toyota’s automotive revenues led GM’s $40.31 billion to $37.30 billion.
The dollar is trading at a 7-month high versus the euro. With more bulls moving into the dollar camp, I think the dollar rally should prove to have weak knees and unstable legs. In just five months, we have gone from a large bearish dollar camp to one with bullish overtones. I prefer the side with the least noise. I do my best thinking that way.
Crude is close to a 3-month low and hovering just below $48 a barrel.
eBay’s Meg Whitman stated “ultimately China could be eBay’s largest local market in a 5 to 10 year period.”
The Washington DC unemployment rate is 8.2%. Unfortunately, hard unemployment times have not found their way into the Congress and the Administration.
According to government estimates, the PBGC’s obligations exceed assets by $23 billion. Corporate pension plans are underfunded by approximately $450 billion. That underfunding, combined with mounting woes from Medicare and Social Security, make for sleepless nights for retirees.
China’s April CPI climbed 1.8%, the smallest rise since October 2003. This followed a rise of 2.7% in March. The People’s Bank of China’s one-year lending rate is 5.58%; however, 7-year Chinese government bonds are yielding a record-low 3.71%. That looks like an inverted yield curve to me. What does that tell you about China’s GDP growth rate in the coming months?
This morning is the annual meeting for Goldcorp (symbol GG ). At 11 am EST you can be connected to the conference call by dialing 1-877-677-7774. I suggest it will be time well spent. Goldcorp is the world’s lowest cost million ounce gold producer with total cash costs approximating $94 per ounce. Operating cash flows are up sharply in this year’s first quarter compared with the year-ago period. The acquisition of Wheaton was timely and should prove beneficial over the long-term. Goldcorp’s Red Lake and Luismin mines achieved record gold production for the quarter. I am particularly high on the Red Lake operation. Shares of Goldcorp sell in the $12 a share range. With the dollar trading at a 7-month high versus the euro, it is not surprising that gold shares and gold bullion have provided disappointing returns in 2005. In my opinion, it would be a mistake to dismiss precious metals from one’s portfolio for the long-term. Goldcorp would be my first choice for investment in this sector. Gold is not for everyone. It will not provide any income and it can be volatile. I do not view gold as an inflation hedge. I consider it as an alternative holding for the U.S. dollar for those taking a 3 to 5 year view.
Henry Ford: “Thinking is the hardest work there is, which is probably the reason so few engage in it.”
UPS and Overnite Corporation today jointly announced a definitive agreement for UPS to acquire Overnite for $43.25 per share, or approximately $1.25 billion in cash.
Palatin Technologies, Inc. today announced that it will present at the 2005 UBS Global
Specialty Pharmaceuticals Conference at 10:00 a.m. Eastern Time on Monday, May
23, 2005 at the Grand Hyatt Hotel in New York City.
John P. Hussman, Ph.D.: “The flexibility to vary one's investment stance based on prevailing market conditions, particularly valuations, will most probably be essential to investors focused on achieving strong risk-adjusted returns over time.”
Sunday, May 15, 2005
Ford
5/15/05 Ford
This past week, Wall Street and the media paid particular attention to Moody’s downgrade of Ford’s corporate bond obligations. Not surprisingly, they ignored the significance of a happening at Ford’s annual meeting on May 12. A little background would be helpful.
A shareholder proposal to be included in the 2005 proxy materials for this year’s annual meeting was submitted by Edward Olson and Jack Leeds. This proposal requested that the board “take steps to adopt a recapitalization plan to provide for all of our Company’s outstanding stock to have one vote per share. This would include all practicable steps including any encouragement and negotiation with Ford family shareholders to request that they relinquish for the common good of all shareholders any preexisting rights." Ford and its attorneys fought to have the proposal excluded from the proxy materials. On March 7, the SEC in a No-Action Letter, advised Ford that it may not omit from proxy materials for its 2005 annual meeting the Olson/Leeds shareholder proposal that the board of directors take steps to adopt a recapitalization plan to provide that all outstanding stock have one vote per share. Presently, the Ford family shareholders are allowed 16 votes per share compared to the one vote per share for regular shareholders.
On May 12, Ford held its 50th annual shareholder meeting in Wilmington, DE. A grand total of 92 people attended in person. In total, 89.55% of the outstanding shares were represented by proxy or in person at the annual meeting.
We now come to proposal 7 at the annual meeting. This proposal related to consideration of a recapitalization plan to provide that all of the company’s stock have one vote per share. Voting for the proposal was 25.05%. Against was 74.95%. Abstaining was 1.44%. For those not familiar with proxy votes, you might think this vote was one-sided. On the contrary, without a strong proxy fight, the vote showed much underlying shareholder support for the proposal. In fact, if a well-organized proxy fight were mounted, I believe the proposal could be passed at next year’s annual meeting. (I don’t know anyone more qualified to make that assessment.)
That brings us to the election of directors. With the election of Stephen Friedman, the Ford board now has 11 members, and they are divided into 3 classes. It’s a staggered board where a member comes up for re-election every three years. Theoretically, it would require three years to change the composition of the entire board. Realistically, it would not require that length of time.
If proposal 7 is passed at next year’s annual meeting and 3 dissident members to the board were elected, the landscape at Ford would change overnight. If Ford’s board thought they would lose the vote on proposal 7 as well as the vote for 3 directors, they would look to avoid the embarrassment long before the annual meeting. Of course, there are some companies that are in denial. I have witnessed this first hand, and seen that company lose over 90% of the vote for directors.
In sum, in my view, the control of Ford may very well be in play. Please note that I have no interest in any Ford stock or debt instruments, and I plan on having none in the future. Like so many family-run businesses that are in the domain of public ownership, Ford is mismanaged with an arrogance that pisses me off. Read the words carefully chosen by Ford’s attorneys to the staff of the SEC Commission’s Division of Corporation Finance. “The decision to request the holders of Class B Stock (owned by the Ford family) to redeem their stock for Common Stock is an integral part of the Company’s ability to manage its business and affairs, including its capital raising, capital management, and financing activities.” The lawyers stated that allowing shareholders “to dictate such policies would inevitably result in second-guessing of the day-to-day business decisions of the Board and management of the Company, which shareholders must not be permitted to do by way of misuse of the shareholder proposal process.” In my view, if Ford were managed like Toyota, there would be no shareholder proposal 7. Based on their lack of performance, in my opinion, the appropriate exit strategy would be to escort Ford’s top management out of their ivory tower corporate digs.
Before I leave this subject, a little background information would be helpful to the reader. When the company went public in 1956, the Class B shares, which could only be owned by the Ford family, had a voting stake of 40%, and that approximates 42% today. According to the 1956 prospectus, Ford could not be merged, sold, or liquidated without the approval of the Class B holders. Today, the wording is the majority of the vote of Class B shareholders is required to “merge or consolidate with or into another corporation…dispose of all or substantially of our property and assets…transfer any assets to another corporation…voluntarily liquidate or dissolve.” Now you realize the importance of shareholder proposal 7. Should owners of 5% of a company’s equity control 42% of its votes?
Ford has a market cap of $17+ billion with a cash position of $19+ billion and debt outstanding of approximately $161 billion. Eliminating the stock’s 40-cent cash dividend would save about $750 million. In 2004, Ford Motor Credit provided $4.7 billion in “dividends” to the auto operations. This will not be repeated in 2005.
This past week, Wall Street and the media paid particular attention to Moody’s downgrade of Ford’s corporate bond obligations. Not surprisingly, they ignored the significance of a happening at Ford’s annual meeting on May 12. A little background would be helpful.
A shareholder proposal to be included in the 2005 proxy materials for this year’s annual meeting was submitted by Edward Olson and Jack Leeds. This proposal requested that the board “take steps to adopt a recapitalization plan to provide for all of our Company’s outstanding stock to have one vote per share. This would include all practicable steps including any encouragement and negotiation with Ford family shareholders to request that they relinquish for the common good of all shareholders any preexisting rights." Ford and its attorneys fought to have the proposal excluded from the proxy materials. On March 7, the SEC in a No-Action Letter, advised Ford that it may not omit from proxy materials for its 2005 annual meeting the Olson/Leeds shareholder proposal that the board of directors take steps to adopt a recapitalization plan to provide that all outstanding stock have one vote per share. Presently, the Ford family shareholders are allowed 16 votes per share compared to the one vote per share for regular shareholders.
On May 12, Ford held its 50th annual shareholder meeting in Wilmington, DE. A grand total of 92 people attended in person. In total, 89.55% of the outstanding shares were represented by proxy or in person at the annual meeting.
We now come to proposal 7 at the annual meeting. This proposal related to consideration of a recapitalization plan to provide that all of the company’s stock have one vote per share. Voting for the proposal was 25.05%. Against was 74.95%. Abstaining was 1.44%. For those not familiar with proxy votes, you might think this vote was one-sided. On the contrary, without a strong proxy fight, the vote showed much underlying shareholder support for the proposal. In fact, if a well-organized proxy fight were mounted, I believe the proposal could be passed at next year’s annual meeting. (I don’t know anyone more qualified to make that assessment.)
That brings us to the election of directors. With the election of Stephen Friedman, the Ford board now has 11 members, and they are divided into 3 classes. It’s a staggered board where a member comes up for re-election every three years. Theoretically, it would require three years to change the composition of the entire board. Realistically, it would not require that length of time.
If proposal 7 is passed at next year’s annual meeting and 3 dissident members to the board were elected, the landscape at Ford would change overnight. If Ford’s board thought they would lose the vote on proposal 7 as well as the vote for 3 directors, they would look to avoid the embarrassment long before the annual meeting. Of course, there are some companies that are in denial. I have witnessed this first hand, and seen that company lose over 90% of the vote for directors.
In sum, in my view, the control of Ford may very well be in play. Please note that I have no interest in any Ford stock or debt instruments, and I plan on having none in the future. Like so many family-run businesses that are in the domain of public ownership, Ford is mismanaged with an arrogance that pisses me off. Read the words carefully chosen by Ford’s attorneys to the staff of the SEC Commission’s Division of Corporation Finance. “The decision to request the holders of Class B Stock (owned by the Ford family) to redeem their stock for Common Stock is an integral part of the Company’s ability to manage its business and affairs, including its capital raising, capital management, and financing activities.” The lawyers stated that allowing shareholders “to dictate such policies would inevitably result in second-guessing of the day-to-day business decisions of the Board and management of the Company, which shareholders must not be permitted to do by way of misuse of the shareholder proposal process.” In my view, if Ford were managed like Toyota, there would be no shareholder proposal 7. Based on their lack of performance, in my opinion, the appropriate exit strategy would be to escort Ford’s top management out of their ivory tower corporate digs.
Before I leave this subject, a little background information would be helpful to the reader. When the company went public in 1956, the Class B shares, which could only be owned by the Ford family, had a voting stake of 40%, and that approximates 42% today. According to the 1956 prospectus, Ford could not be merged, sold, or liquidated without the approval of the Class B holders. Today, the wording is the majority of the vote of Class B shareholders is required to “merge or consolidate with or into another corporation…dispose of all or substantially of our property and assets…transfer any assets to another corporation…voluntarily liquidate or dissolve.” Now you realize the importance of shareholder proposal 7. Should owners of 5% of a company’s equity control 42% of its votes?
Ford has a market cap of $17+ billion with a cash position of $19+ billion and debt outstanding of approximately $161 billion. Eliminating the stock’s 40-cent cash dividend would save about $750 million. In 2004, Ford Motor Credit provided $4.7 billion in “dividends” to the auto operations. This will not be repeated in 2005.
Saturday, May 14, 2005
The Correlation Trade
5/14/05 The Correlation Trade
I know. You’re asking why in the hell I have chosen to bore you on a Saturday morning. I don’t blame you for being pissed. You think I like this any better than you do? Sometimes it’s necessary to down medicines that taste like crap. We’ve discussed the carry trade, and everyone was able to deal with that subject. Before we get into examples of the correlation trade, it’s important to realize its inherent weakness. Correlation is not static, and relationships change over time. In that sense, it’s a bit like marriage. One person explains he or she is growing while the other doesn’t keep up. Actually, I always thought that statement was bullshit. Let’s take a recent example of a correlation trade. An investor goes long the GM preferred stock and shorts the GM common stock. Why do that? The investor knows GM is not making money and may need to cut or eliminate its $2 a share dividend. If that takes place, GM common stock should decline in price and the extent of this decline should exceed any decline in the price of the preferred. It sounds like a rational thought. Unfortunately, the investor got screwed. Mr. Kerkorian made a tender offer for some GM common stock at $31. No one could anticipate that. No one could anticipate Tiger Woods missing the cut after making it in 140+ consecutive tournaments. In essence, there is risk in the correlation trade but that risk cannot necessarily be defined.
There are other examples of the correlation trade where the investor will make money when yields on the debt of a broad range of companies move in concert. For example, a hedge fund might purchase the equity section of a collateralized debt obligation (CDO) package and sell short a less risky section of the CDO. In addition, investors can make money when corporate bond yields rise or fall in relation to Treasury yields in a correlated manner. However, when one zigs, and the other zags, there’s a problem. As the appetite for more risky credits wane in relation to the demand for Treasury bonds, the investor can go to the cleaners. With 10-year Treasury yields declining to 4.14%, many investors are finding the credit market correlation trades a bit unfriendly.
Chairman Greenspan: "The rapid proliferation of derivatives products inevitably means that some will not have been adequately tested by market stress…A sudden widening of credit spreads could result in unanticipated losses to investors in some of the newer, more complex structured credit products, and those investors could include some leveraged hedge funds."
According to Morgan Stanley, Europe accounts for over 50% of structured credit products. It should be noted that an estimated $800 billion of collateralized debt obligations were issued between 2001 and 2004.
According to Freddie Mac, between home equity cash-outs and second mortgages, home owners have extracted in excess of $700 billion over the last four years. In addition, between Jan 1, 2005 and the present, real estate loans have expanded at close to a 15% rate, and now total almost $2.7 trillion, a staggering figure.
Over the last five years, the median sales price of a home in Florida has risen about 89%.
For the past week, the CRB Index declined 2.2% and the Goldman Sachs Commodity Index dropped 1.7%. Crude was down 4.5% for the week and closed at $48.67 a barrel. Gold dropped to $420.60 an ounce.
The May University of Michigan Consumer Sentiment Index fell to 85.3 from the prior month’s 87.7. It was the lowest level since March 2003.
U.S. April import prices rose 0.8%. Ex oil, import prices rose 0.4%, the largest gain since November.
U.S. March business inventories rose 0.4%. retail inventories increased 0.5%.
Alaska Air outsourced 472 baggage handlers at the Seattle airport. Harley-Davidson muffler maker Gabilan Manufacturing in Salinas, CA is closing because its new owner is moving operations to Nebraska, a move that will put 190 people out of work. The move will create about 90 jobs in Nebraska.
Morgan Stanley: “Structured credit investors could have a fairly leveraged exposure to credit spreads widening.”
China’s trade surplus widened to $21.2 billion in the January through April 2005 period compared with a $11 billion deficit a year earlier.
The U.S. will re-impose quotas on three types of Chinese textiles.
Mel Brooks: “Tragedy is when I cut my finger. Comedy is when you walk into an open sewer and die.”
I know. You’re asking why in the hell I have chosen to bore you on a Saturday morning. I don’t blame you for being pissed. You think I like this any better than you do? Sometimes it’s necessary to down medicines that taste like crap. We’ve discussed the carry trade, and everyone was able to deal with that subject. Before we get into examples of the correlation trade, it’s important to realize its inherent weakness. Correlation is not static, and relationships change over time. In that sense, it’s a bit like marriage. One person explains he or she is growing while the other doesn’t keep up. Actually, I always thought that statement was bullshit. Let’s take a recent example of a correlation trade. An investor goes long the GM preferred stock and shorts the GM common stock. Why do that? The investor knows GM is not making money and may need to cut or eliminate its $2 a share dividend. If that takes place, GM common stock should decline in price and the extent of this decline should exceed any decline in the price of the preferred. It sounds like a rational thought. Unfortunately, the investor got screwed. Mr. Kerkorian made a tender offer for some GM common stock at $31. No one could anticipate that. No one could anticipate Tiger Woods missing the cut after making it in 140+ consecutive tournaments. In essence, there is risk in the correlation trade but that risk cannot necessarily be defined.
There are other examples of the correlation trade where the investor will make money when yields on the debt of a broad range of companies move in concert. For example, a hedge fund might purchase the equity section of a collateralized debt obligation (CDO) package and sell short a less risky section of the CDO. In addition, investors can make money when corporate bond yields rise or fall in relation to Treasury yields in a correlated manner. However, when one zigs, and the other zags, there’s a problem. As the appetite for more risky credits wane in relation to the demand for Treasury bonds, the investor can go to the cleaners. With 10-year Treasury yields declining to 4.14%, many investors are finding the credit market correlation trades a bit unfriendly.
Chairman Greenspan: "The rapid proliferation of derivatives products inevitably means that some will not have been adequately tested by market stress…A sudden widening of credit spreads could result in unanticipated losses to investors in some of the newer, more complex structured credit products, and those investors could include some leveraged hedge funds."
According to Morgan Stanley, Europe accounts for over 50% of structured credit products. It should be noted that an estimated $800 billion of collateralized debt obligations were issued between 2001 and 2004.
According to Freddie Mac, between home equity cash-outs and second mortgages, home owners have extracted in excess of $700 billion over the last four years. In addition, between Jan 1, 2005 and the present, real estate loans have expanded at close to a 15% rate, and now total almost $2.7 trillion, a staggering figure.
Over the last five years, the median sales price of a home in Florida has risen about 89%.
For the past week, the CRB Index declined 2.2% and the Goldman Sachs Commodity Index dropped 1.7%. Crude was down 4.5% for the week and closed at $48.67 a barrel. Gold dropped to $420.60 an ounce.
The May University of Michigan Consumer Sentiment Index fell to 85.3 from the prior month’s 87.7. It was the lowest level since March 2003.
U.S. April import prices rose 0.8%. Ex oil, import prices rose 0.4%, the largest gain since November.
U.S. March business inventories rose 0.4%. retail inventories increased 0.5%.
Alaska Air outsourced 472 baggage handlers at the Seattle airport. Harley-Davidson muffler maker Gabilan Manufacturing in Salinas, CA is closing because its new owner is moving operations to Nebraska, a move that will put 190 people out of work. The move will create about 90 jobs in Nebraska.
Morgan Stanley: “Structured credit investors could have a fairly leveraged exposure to credit spreads widening.”
China’s trade surplus widened to $21.2 billion in the January through April 2005 period compared with a $11 billion deficit a year earlier.
The U.S. will re-impose quotas on three types of Chinese textiles.
Mel Brooks: “Tragedy is when I cut my finger. Comedy is when you walk into an open sewer and die.”
Friday, May 13, 2005
Changes In The Wind
5/13/05 Changes In The Wind
Delphi Corp revised lower its 2005 estimate for North American vehicle production by General Motors Corp by 6% to 8%. As revised, Delphi now projects that GM's North American operations will turn out 4.5 million to 4.6 million units this year.
The dollar is trading at a 6-month high versus the euro.
After getting trounced yesterday, crude has rebounded slightly toward the $49 level.
China’s producer prices rose 5.8% in April after climbing 5.6% in March.
Yesterday, the Chinese government announced that Beginning June 1 it would impose a nationwide tax on all properties sold within two years of being purchased and occupied. In addition, a tax would be imposed on land that is not developed within a year of being purchased and land rights would be revoked if nothing is built on a parcel of land more than two years after those rights are acquired.
Bay Area real estate values have risen to record heights in 2004 and 2005, while 1 in 10 payroll positions or about 400,000 jobs were lost from 2001 to 2004.
In this year’s first quarter, Apache Corp.’s (APA) cash from operations before changes in operating assets and liabilities totaled $1 billion, up from $737 million in the year-earlier period. (This is a non-GAAP measure.) The company received $46.05 per barrel of oil in the first quarter, $27.68 of natural gas liquids, and $5.30 per thousand cubic feet of gas. Production of oil equivalent per day rose 7% from the first quarter of 2004 and up slightly from last year’s fourth quarter. Apache has a strong cash flow position and a conservative debt/equity ratio. With the stock at the $53+ level and earnings projected at roughly $6.50 per share, Apache, in my view, represents an uncommon value in today’s market.
Star Wars III will be released shortly. Merchandise sales from the first two in the series runs into the billions of dollars. As successful as the movies have been, merchandise sales have exploded beyond all expectations. With the new movie, in the coming months, I expect millions of people will be pouring into Wal-Mart stores for this merchandise. I doubt very much whether analysts have factored Star Wars merchandise into future Wal-Mart results.
Whitley Streiber’s Unknown Country: “Scientists from Cambridge University have confirmed that the Gulf Stream is weakening and this is likely to bring much colder temperatures to Europe within a few years. The weakening is significant: the Gulf Stream is flowing at a quarter of the strength that was present five years ago…An average as low as 62 Farenheit will mean that the summer growing season will be catastrophically curtailed in Europe, leading to huge declines in production from one of the world’s primary surplus production zones…It is likely that the eastern U.S. and eastern Canada will experience climate change as radical as that in Europe, as the Gulf Stream drops south. At the least, food production and livability in the eastern half of North America will be severely challenged.”
Stephen King: “People think that I must be a very strange person. This is not correct. I have the heart of a small boy. It is in a glass jar on my desk.”
Yesterday, I received some interesting emails concerning the possibility that China’s CNOOC Group might still bid for Unocal with the thought of retaining Unocal’s Asian oil and gas properties. I don’t know the management at CNOOC. I only follow the information trail. China’s oil consumption will exceed 300 million tons this year. CNOOC is building a new 16 billion yuan oil refinery at Daya Bay in southern China. It will be completed in late 2007. The facility will be located near their huge petrochemical joint venture with Royal Dutch/Shell, and CNOOC will be transformed into a company providing upstream and downstream products. The acquisition of Unocal’s Asian oil and gas properties makes rational sense.
Delphi Corp revised lower its 2005 estimate for North American vehicle production by General Motors Corp by 6% to 8%. As revised, Delphi now projects that GM's North American operations will turn out 4.5 million to 4.6 million units this year.
The dollar is trading at a 6-month high versus the euro.
After getting trounced yesterday, crude has rebounded slightly toward the $49 level.
China’s producer prices rose 5.8% in April after climbing 5.6% in March.
Yesterday, the Chinese government announced that Beginning June 1 it would impose a nationwide tax on all properties sold within two years of being purchased and occupied. In addition, a tax would be imposed on land that is not developed within a year of being purchased and land rights would be revoked if nothing is built on a parcel of land more than two years after those rights are acquired.
Bay Area real estate values have risen to record heights in 2004 and 2005, while 1 in 10 payroll positions or about 400,000 jobs were lost from 2001 to 2004.
In this year’s first quarter, Apache Corp.’s (APA) cash from operations before changes in operating assets and liabilities totaled $1 billion, up from $737 million in the year-earlier period. (This is a non-GAAP measure.) The company received $46.05 per barrel of oil in the first quarter, $27.68 of natural gas liquids, and $5.30 per thousand cubic feet of gas. Production of oil equivalent per day rose 7% from the first quarter of 2004 and up slightly from last year’s fourth quarter. Apache has a strong cash flow position and a conservative debt/equity ratio. With the stock at the $53+ level and earnings projected at roughly $6.50 per share, Apache, in my view, represents an uncommon value in today’s market.
Star Wars III will be released shortly. Merchandise sales from the first two in the series runs into the billions of dollars. As successful as the movies have been, merchandise sales have exploded beyond all expectations. With the new movie, in the coming months, I expect millions of people will be pouring into Wal-Mart stores for this merchandise. I doubt very much whether analysts have factored Star Wars merchandise into future Wal-Mart results.
Whitley Streiber’s Unknown Country: “Scientists from Cambridge University have confirmed that the Gulf Stream is weakening and this is likely to bring much colder temperatures to Europe within a few years. The weakening is significant: the Gulf Stream is flowing at a quarter of the strength that was present five years ago…An average as low as 62 Farenheit will mean that the summer growing season will be catastrophically curtailed in Europe, leading to huge declines in production from one of the world’s primary surplus production zones…It is likely that the eastern U.S. and eastern Canada will experience climate change as radical as that in Europe, as the Gulf Stream drops south. At the least, food production and livability in the eastern half of North America will be severely challenged.”
Stephen King: “People think that I must be a very strange person. This is not correct. I have the heart of a small boy. It is in a glass jar on my desk.”
Yesterday, I received some interesting emails concerning the possibility that China’s CNOOC Group might still bid for Unocal with the thought of retaining Unocal’s Asian oil and gas properties. I don’t know the management at CNOOC. I only follow the information trail. China’s oil consumption will exceed 300 million tons this year. CNOOC is building a new 16 billion yuan oil refinery at Daya Bay in southern China. It will be completed in late 2007. The facility will be located near their huge petrochemical joint venture with Royal Dutch/Shell, and CNOOC will be transformed into a company providing upstream and downstream products. The acquisition of Unocal’s Asian oil and gas properties makes rational sense.
Thursday, May 12, 2005
News And Noise
5/12/05 News And Noise
Once again, crude has dipped below $50 a barrel. The Energy Department stated U.S. crude supplies rose 2.7 million barrels in the week ended May 6 with gasoline supplies up 200,000 barrels and distillate supplies increased 1.7 million barrels. OPEC production rose 130,000 bpd in April to a daily average of 29.96 million bpd. That’s the news. Below the news, there is much noise. In 2003, China past Japan to become the world’s second biggest consumer of petroleum products after the U.S. In 2004, China’s oil demand grew 15% while its output rose a meager 2%. In sum, China has, according to the U.S. Energy Information Agency, accounted for 40% of the growth in oil demand over the past four years. Prior to Chevron making a deal to buy Unocal, China National Offshore Oil Corporation Ltd. (CNOOC) was reported to be interested in bidding for Unocal. On May 9 and May 10, there were stories in China’s press that CNOOC had hired bankers to price such an acquisition. The CNOOC board meets on May 23-24. A bid is not out of the question should CNOOC buy the Asian properties of Unocal and sell the rest of the company’s assets to Chevron, for example. Even though crude prices have recently declined, the demand for reserves is steadily increasing. Those with the reserves, should benefit. The story on Unocal is far from over. The noise is getting louder.
Talking about China, that country had something to do with the March 9% decline in our trade deficit. How so? The Chinese New Year came at a late date and probably impacted imports from China. That could be the answer to why China’s exports to the U.S. dropped from $13.9 billion in February to $12.9 billion in March. Our exports rose 1.5% in March to a new record. Another reason for the decline in the trade deficit could have been bloated inventories. That would dampen the demand for imports. Despite the 9% decline in March, during this year’s first quarter, there was a 14.7% increase in U.S. imports over the prior year’s period. That fact tells more of the news.
The Treasury Department announced that Government receipts jumped 26% in April from the same month in 2004. A surplus of $57.71 billion was posted, the largest monthly surplus in three years. Not counting monies spent for Iraq and Afghanistan, the deficit for 2005 will ONLY be about $350 billion. I should also mention another piece of good news. With the decline in the March trade deficit, GDP growth numbers for this year’s first quarter will be raised to about 4%. That could help the dollar (unless the news is already discounted).
Ford warned its finance arm may post a significant drop in future profits.
According to SEMI, worldwide semiconductor manufacturing equipment billings reached $9.35 billion in the first quarter or 2.3% above the same quarter a year ago and 6.5% more than the billings for the fourth quarter of 2004. However, bookings for new orders in the first quarter were just $7.25 billion or 21% below the same quarter a year ago and 12% below the bookings for the fourth quarter of 2004.
Sligh Furniture is closing its Holland, Indiana manufacturing plant and eliminating 75 jobs. It is the latest in the line of furniture companies to close their doors. Textile company plant closings get most of the news, but the furniture industry deserves to receive more attention. Thousands of jobs have been lost through plant closings.
Wal-Mart Stores, Inc. reported record sales and earnings for the first quarter ended
April 30, 2005. Net sales for the first quarter were $70.9 billion, an
increase of 9.5 percent over the first quarter of fiscal 2005. Net income for
the quarter was $2.5 billion, an increase of 13.6 percent from $2.2 billion in
the first quarter of fiscal 2005. Earnings per share were $0.58, compared
with $0.50 for the prior year first quarter. First quarter earnings in fiscal
2006 were favorably impacted by two items totaling $145 million after tax or
$0.03 per share: an increase due to favorable tax resolutions of $77 million
and positive legal developments of $68 million after-tax. Excluding these
items, earnings per share were $0.55.
Lee Scott, President and CEO, said "We achieved record results in the
quarter. Yet with higher gasoline prices and a cooler and wetter spring than
normal, we missed our plan. We are making the necessary adjustments and I
anticipate better results in the second half of the year."
Net sales were as follows (Dollars in billions):
Quarter Ended April 30,
Percent
2005 2004 Change
Wal-Mart Stores $ 47.641 $ 43.571 9.3%
SAM'S CLUB 9.155 8.641 5.9%
International 14.112 12.551 12.4%
Total Company $ 70.908 $ 64.763 9.5%
Total U.S. comparable sales for the quarter increased 2.9 percent, which
is represented by a 2.8 percent comp increase for Wal-Mart Stores and 3.5
percent comp increase for SAM'S CLUB.
Wal-Mart's annual forecast of $2.70 to $2.74 ``is still possible but far more difficult given our current outlook for the second quarter,'' Chief Financial Officer Thomas Schoewe said on a recorded message.
Once again, crude has dipped below $50 a barrel. The Energy Department stated U.S. crude supplies rose 2.7 million barrels in the week ended May 6 with gasoline supplies up 200,000 barrels and distillate supplies increased 1.7 million barrels. OPEC production rose 130,000 bpd in April to a daily average of 29.96 million bpd. That’s the news. Below the news, there is much noise. In 2003, China past Japan to become the world’s second biggest consumer of petroleum products after the U.S. In 2004, China’s oil demand grew 15% while its output rose a meager 2%. In sum, China has, according to the U.S. Energy Information Agency, accounted for 40% of the growth in oil demand over the past four years. Prior to Chevron making a deal to buy Unocal, China National Offshore Oil Corporation Ltd. (CNOOC) was reported to be interested in bidding for Unocal. On May 9 and May 10, there were stories in China’s press that CNOOC had hired bankers to price such an acquisition. The CNOOC board meets on May 23-24. A bid is not out of the question should CNOOC buy the Asian properties of Unocal and sell the rest of the company’s assets to Chevron, for example. Even though crude prices have recently declined, the demand for reserves is steadily increasing. Those with the reserves, should benefit. The story on Unocal is far from over. The noise is getting louder.
Talking about China, that country had something to do with the March 9% decline in our trade deficit. How so? The Chinese New Year came at a late date and probably impacted imports from China. That could be the answer to why China’s exports to the U.S. dropped from $13.9 billion in February to $12.9 billion in March. Our exports rose 1.5% in March to a new record. Another reason for the decline in the trade deficit could have been bloated inventories. That would dampen the demand for imports. Despite the 9% decline in March, during this year’s first quarter, there was a 14.7% increase in U.S. imports over the prior year’s period. That fact tells more of the news.
The Treasury Department announced that Government receipts jumped 26% in April from the same month in 2004. A surplus of $57.71 billion was posted, the largest monthly surplus in three years. Not counting monies spent for Iraq and Afghanistan, the deficit for 2005 will ONLY be about $350 billion. I should also mention another piece of good news. With the decline in the March trade deficit, GDP growth numbers for this year’s first quarter will be raised to about 4%. That could help the dollar (unless the news is already discounted).
Ford warned its finance arm may post a significant drop in future profits.
According to SEMI, worldwide semiconductor manufacturing equipment billings reached $9.35 billion in the first quarter or 2.3% above the same quarter a year ago and 6.5% more than the billings for the fourth quarter of 2004. However, bookings for new orders in the first quarter were just $7.25 billion or 21% below the same quarter a year ago and 12% below the bookings for the fourth quarter of 2004.
Sligh Furniture is closing its Holland, Indiana manufacturing plant and eliminating 75 jobs. It is the latest in the line of furniture companies to close their doors. Textile company plant closings get most of the news, but the furniture industry deserves to receive more attention. Thousands of jobs have been lost through plant closings.
Wal-Mart Stores, Inc. reported record sales and earnings for the first quarter ended
April 30, 2005. Net sales for the first quarter were $70.9 billion, an
increase of 9.5 percent over the first quarter of fiscal 2005. Net income for
the quarter was $2.5 billion, an increase of 13.6 percent from $2.2 billion in
the first quarter of fiscal 2005. Earnings per share were $0.58, compared
with $0.50 for the prior year first quarter. First quarter earnings in fiscal
2006 were favorably impacted by two items totaling $145 million after tax or
$0.03 per share: an increase due to favorable tax resolutions of $77 million
and positive legal developments of $68 million after-tax. Excluding these
items, earnings per share were $0.55.
Lee Scott, President and CEO, said "We achieved record results in the
quarter. Yet with higher gasoline prices and a cooler and wetter spring than
normal, we missed our plan. We are making the necessary adjustments and I
anticipate better results in the second half of the year."
Net sales were as follows (Dollars in billions):
Quarter Ended April 30,
Percent
2005 2004 Change
Wal-Mart Stores $ 47.641 $ 43.571 9.3%
SAM'S CLUB 9.155 8.641 5.9%
International 14.112 12.551 12.4%
Total Company $ 70.908 $ 64.763 9.5%
Total U.S. comparable sales for the quarter increased 2.9 percent, which
is represented by a 2.8 percent comp increase for Wal-Mart Stores and 3.5
percent comp increase for SAM'S CLUB.
Wal-Mart's annual forecast of $2.70 to $2.74 ``is still possible but far more difficult given our current outlook for the second quarter,'' Chief Financial Officer Thomas Schoewe said on a recorded message.
Wednesday, May 11, 2005
Houdini
5/11/05 Houdini
It’s survival of the fittest out there. If some of the 7,000 hedge funds don’t make it, maybe the Fed will take up a collection. Don’t cry. We’ll get through this soft in the head patch. Let me ask these genius hedge funds with a GM problem one question? How many companies around the globe have a pension fund with $100 billion in assets? If GM bonds are junk rated, how come its $100 billion pension fund is not hugely underfunded and in danger of being taken over by the Pension Guaranty Corporation?
Talking about assets, China is placing a cap on capital inflows in an effort to limit the country’s short-term foreign borrowings and lessen pressure on the yuan.
The day before the latest trade deficit numbers are released, the 10-year Treasury bond yields plummeted from 4.28% to 4.21%. Houdini had nothing on this magic. What are the chances that the latest monthly trade deficit will be below $63 billion?
Should I worry that Delta raised the bankruptcy flag once again? They stated that low air fares are causing a cash flow problem. When they were making money, what did they do with all the cash? I’m getting to think that maybe, just maybe, there are too many airlines.
Code-named Magneto, Microsoft unveiled its Mobile 5.0 at a conference for developers in Las Vegas. Its features are closer linked to those offered by Symbian rather than by Blackberry.
Talking about Las Vegas, Nevada’s nonfarm employment grew by 5.9% last year, the best in the nation. Nevada saw a 5% jump in manufacturing employment last year, the best in the nation. Arizona came in number two in 2004 with respect to the number of nonfarm jobs created. During March 2005, the Las Vegas Valley unemployment rate was 3.9%, a significant drop from the 4.8% in March 2004. More jobs were created in April of this year with the opening of the Wynn Las Vegas Hotel. It should be noted that the McCarran International Airport in Las Vegas set a new record in passenger volumes during March 2005.
China continues to have 8 to 9 per cent GDP growth; however the Shanghai Composite Index is trading near a 6-year low. The Shenzhen Composite Index is trading near a 9-year low.
According to data surveyed by the Financial Times, real wages in the U.S. are falling at their fastest rate in 14 years. Inflation rose 3.1% in the year to March but salaries climbed just 2.4%, according to the Employment Cost Index. It was pointed out that, even after 274,000 jobs created in April, there are 22,000 fewer private sector jobs than when the recession began in March 2001. Something is wrong with this picture.
For anyone who fails to believe there was a bubble in many Nasdaq stocks, please witness Nuance Communications, a voice recognition company. They went public in 2000 and the stock quickly shot up to $180 per share. Yesterday, they reached an agreement to merge with ScanSoft for a little over $5 a share. I don’t see articles crying for those Nuance shareholders who took a blood bath.
If global stocks are not allowed to build, David Thurtell, commodity strategist at the Commonwealth Bank of Australia, stated that crude prices could easily touch $60 a barrel in the second half of this year.
Some months back, I had suggested Cisco as a choice for long-term portfolios. Since then, the stock has risen sufficiently to enable the purchase of a tea sandwich. It should be pointed out, however, the stock did not decline through this holding period. Yesterday, the company reported a pleasing third quarter report. While all the analysts discuss the improvement in sales and earnings, let me point out the key area that has been ignored by Wall Street. Fr the last few years, Cisco has been experiencing quarterly cash flow ranging from $1.7 to $2.4 billion. With this cash flow, the company spends about $2 billion a quarter on stock repurchases. Since the inception of its stock repurchase program, Cisco has spent about $24.7 billion to retire 1.4 billion shares at an average price of $18.06 a share. If cash flow continues at its present rate and the stock remains at roughly this $18 a share level, Cisco will be repurchasing just under 500 million shares a year. Presently, there are 6.5 billion shares outstanding. Do you get my point? Long-term investors like shareholders in Bill Miller’s fund should reap the benefits.
In assessing today’s economic landscape, we might learn from Harry Houdini. He explained his superior trickery and magic in this fashion: “Spiritualist believers rely on what they though they saw and therefore failed to affirm or negate their misguided and misdirected vision by rational application of their conscious intelligence.”
Mortgage applications activity rose 9.4% in the week ended May 6 compared to the prior week, the latest data from the Mortgage Bankers Association show. Also on a seasonally adjusted basis, refinancing applications were up 9.8% and applications to buy homes increased 9.4%. Purchasing applications thus reached a record as measured by the MBA.
Boots & Coots Int’l Well Control’s activities center on the prevention, emergency response, and restoration of blowouts and well fires around the globe. The company’s management projects $15 million in revenues for 2005. Their CEO reports "The first quarter was a very active one for the company. As we finished
extinguishing six well fires caused by saboteurs in Iraq, we were called in on
several other emergency response events, clearly demonstrating our capacity to
handle multiple situations in diverse geographic locations," stated Jerry
Winchester, President and Chief Executive Officer. "That's half of our story.
The other half is the growth in our non-event revenue as work under our new
Algerian contracts, as well as prevention services in India, were initiated.
This, along with another strong quarter in Venezuela, puts us well on our way
to $15 million in estimated prevention revenues for the year."
"Our prevention business is a critical component of our business model and
a primary focus for growth," continued Winchester. "We have been performing
these services long enough to show results, which are lower incident rates and
fewer well-control events. These are very important goals for our customers,
goals we believe will support growth in prevention services over the next
several years."
Ayn Rand: "The only power any government has is the power to crack down on criminals. Well, when there aren't enough criminals, one makes them. One declares so many things to be a crime that it becomes impossible to live without breaking laws."
It’s survival of the fittest out there. If some of the 7,000 hedge funds don’t make it, maybe the Fed will take up a collection. Don’t cry. We’ll get through this soft in the head patch. Let me ask these genius hedge funds with a GM problem one question? How many companies around the globe have a pension fund with $100 billion in assets? If GM bonds are junk rated, how come its $100 billion pension fund is not hugely underfunded and in danger of being taken over by the Pension Guaranty Corporation?
Talking about assets, China is placing a cap on capital inflows in an effort to limit the country’s short-term foreign borrowings and lessen pressure on the yuan.
The day before the latest trade deficit numbers are released, the 10-year Treasury bond yields plummeted from 4.28% to 4.21%. Houdini had nothing on this magic. What are the chances that the latest monthly trade deficit will be below $63 billion?
Should I worry that Delta raised the bankruptcy flag once again? They stated that low air fares are causing a cash flow problem. When they were making money, what did they do with all the cash? I’m getting to think that maybe, just maybe, there are too many airlines.
Code-named Magneto, Microsoft unveiled its Mobile 5.0 at a conference for developers in Las Vegas. Its features are closer linked to those offered by Symbian rather than by Blackberry.
Talking about Las Vegas, Nevada’s nonfarm employment grew by 5.9% last year, the best in the nation. Nevada saw a 5% jump in manufacturing employment last year, the best in the nation. Arizona came in number two in 2004 with respect to the number of nonfarm jobs created. During March 2005, the Las Vegas Valley unemployment rate was 3.9%, a significant drop from the 4.8% in March 2004. More jobs were created in April of this year with the opening of the Wynn Las Vegas Hotel. It should be noted that the McCarran International Airport in Las Vegas set a new record in passenger volumes during March 2005.
China continues to have 8 to 9 per cent GDP growth; however the Shanghai Composite Index is trading near a 6-year low. The Shenzhen Composite Index is trading near a 9-year low.
According to data surveyed by the Financial Times, real wages in the U.S. are falling at their fastest rate in 14 years. Inflation rose 3.1% in the year to March but salaries climbed just 2.4%, according to the Employment Cost Index. It was pointed out that, even after 274,000 jobs created in April, there are 22,000 fewer private sector jobs than when the recession began in March 2001. Something is wrong with this picture.
For anyone who fails to believe there was a bubble in many Nasdaq stocks, please witness Nuance Communications, a voice recognition company. They went public in 2000 and the stock quickly shot up to $180 per share. Yesterday, they reached an agreement to merge with ScanSoft for a little over $5 a share. I don’t see articles crying for those Nuance shareholders who took a blood bath.
If global stocks are not allowed to build, David Thurtell, commodity strategist at the Commonwealth Bank of Australia, stated that crude prices could easily touch $60 a barrel in the second half of this year.
Some months back, I had suggested Cisco as a choice for long-term portfolios. Since then, the stock has risen sufficiently to enable the purchase of a tea sandwich. It should be pointed out, however, the stock did not decline through this holding period. Yesterday, the company reported a pleasing third quarter report. While all the analysts discuss the improvement in sales and earnings, let me point out the key area that has been ignored by Wall Street. Fr the last few years, Cisco has been experiencing quarterly cash flow ranging from $1.7 to $2.4 billion. With this cash flow, the company spends about $2 billion a quarter on stock repurchases. Since the inception of its stock repurchase program, Cisco has spent about $24.7 billion to retire 1.4 billion shares at an average price of $18.06 a share. If cash flow continues at its present rate and the stock remains at roughly this $18 a share level, Cisco will be repurchasing just under 500 million shares a year. Presently, there are 6.5 billion shares outstanding. Do you get my point? Long-term investors like shareholders in Bill Miller’s fund should reap the benefits.
In assessing today’s economic landscape, we might learn from Harry Houdini. He explained his superior trickery and magic in this fashion: “Spiritualist believers rely on what they though they saw and therefore failed to affirm or negate their misguided and misdirected vision by rational application of their conscious intelligence.”
Mortgage applications activity rose 9.4% in the week ended May 6 compared to the prior week, the latest data from the Mortgage Bankers Association show. Also on a seasonally adjusted basis, refinancing applications were up 9.8% and applications to buy homes increased 9.4%. Purchasing applications thus reached a record as measured by the MBA.
Boots & Coots Int’l Well Control’s activities center on the prevention, emergency response, and restoration of blowouts and well fires around the globe. The company’s management projects $15 million in revenues for 2005. Their CEO reports "The first quarter was a very active one for the company. As we finished
extinguishing six well fires caused by saboteurs in Iraq, we were called in on
several other emergency response events, clearly demonstrating our capacity to
handle multiple situations in diverse geographic locations," stated Jerry
Winchester, President and Chief Executive Officer. "That's half of our story.
The other half is the growth in our non-event revenue as work under our new
Algerian contracts, as well as prevention services in India, were initiated.
This, along with another strong quarter in Venezuela, puts us well on our way
to $15 million in estimated prevention revenues for the year."
"Our prevention business is a critical component of our business model and
a primary focus for growth," continued Winchester. "We have been performing
these services long enough to show results, which are lower incident rates and
fewer well-control events. These are very important goals for our customers,
goals we believe will support growth in prevention services over the next
several years."
Ayn Rand: "The only power any government has is the power to crack down on criminals. Well, when there aren't enough criminals, one makes them. One declares so many things to be a crime that it becomes impossible to live without breaking laws."
Tuesday, May 10, 2005
Results And Forecasts
5/10/05 Results And Forecasts
The U.S. economy will avoid a reoccurrence of the stagflation seen in the 1970s and experience a transitory rise in inflation that will work its way out of the economy by year end announced Diane Swonk, chief economist and senior managing director of Mesirow
Financial, in her monthly newsletter, Themes on the Economy.
Real GDP growth is expected to rise 3% in the second quarter and growth
should reaccelerate in the second half of 2005. The current forecast for an
average of 3.6% rise in real GDP in the third and fourth quarters assumes very
little change in oil prices; gains will be greater if oil prices fall over the
summer. The federal funds rate is expected to rise to 3-3/4% by year end and
hit 4% in early 2006.
According to Swonk, the determinants of inflation -- capacity utilization,
commodity prices, value of the dollar and labor costs -- currently resemble
the low inflation setting of the 1990s rather than the spiraling inflation of
the 1970s, easing fears of stagflation.
Capacity Utilization: Despite some upward movement over the last year,
U.S. factories are still operating at capacity utilization rates well below
the 84% threshold historically linked to inflation. Recent increases in
investment suggest that capacity usage will remain low in the near term.
Commodity Prices and the Rising Cost of Oil: Recent increases in
commodity prices were largely limited to oil and metals. Food remained
affordable as opposed to the 1970s when the rise in consumer inflation was
broad based. Although the increase in oil prices is substantial, it is still
much smaller that what occurred in the 1970s. Our dependence on oil is
substantially less than it was in the 1970s, making price shocks easier to
absorb. Oil prices have also shown signs of stabilizing in recent weeks.
The Dollar: Very little movement resulting from the recent drop in the
value of the dollar against the currencies of our major trading partners has
shown up in inflation as opposed to the 1970s when increased tariffs and
import quotas exacerbated the increase in import prices. The non-petroleum
components of import prices increased about 3% from a year ago March, a
fraction of the more than 20% swing in the value of the dollar over the last
two years. The only major near term risk is threats by Congress to raise the
tariff on imports from China, however Congress is unlikely to risk hurting
large U.S. multinationals who would be adversely affected by such a move.
Labor Costs: Payments to labor account for more than three-quarters of
the economy's total costs, making it the largest single contributor to
inflation. Unlike the highs of the 1970s, the current employment cost index
shows that wages remained suppressed at the start of the year. Additionally,
premium once paid to large corporate employees has narrowed and promises of
health and pension benefits have dissipated.
Mike Shedlock: “It seems increasingly likely to me that the choice is not recession now or recession later, but recession now or depression later.”
Hedge fund returns are down 1.6% in 2005.
At least 1,600 members of the U.S. military have died since our country invaded Iraq in March 2003.
Even though Toyota’s sales rose 4.2% in the three months ended March 31, net income fell 17% as a result of higher steel and plastics prices and a weaker dollar. The yen was 2.5% higher versus the dollar in the first quarter. It was the biggest profit decline in seven quarters.
U.K. April retail sales fell the most in at least 10 years. Same-store sales dropped 4.7% from a year ago, and this followed a gain of 1.8% in March. More than likely, the Bank of England will lower its forecast for GDP growth in 2005.
Capgeminini U.S. LLC’s survey of more than 10,000 people attending the Food Marketing Institute Conference in Chicago found 40% of respondents stated Wal-Mart will be a formidable opponent over the next 10 years. The other 60% must be hallucinating.
Sun Microsystems stated it would double the staff at its Indian engineering center to 2,000 over the next two to three years.
Crude rose $1 a barrel yesterday and is trading at $52.35.
Yesterday, I received several emails inquiring why I continue to mention Palatin Technologies. If those sending the emails did some independent analysis, maybe they would not inquire. It is extremely difficult to find an ethical pharmaceutical company with the potential for a bright future that trades on a rational value basis. It’s even more difficult to find one that trades with a market cap of $100 million with a strong pipeline of products, seasoned management, and a strong cash position. Their CEO sees the current market for NeutroSpec at $15 million, $25 million next year, and $80 to $100 million at maturity. Expanded trials are anticipated for their PT 141 (for male and female sexual dysfunction) in 2005 and 2006. They anticipate filing for trials in 2006 for PT 15, their drug to combat obesity, and are looking to license the product. I feel confident that Palatin has a bright future. Others may disagree or maybe don’t care. In my view, my background provides a sound basis for evaluating the long-term potential for the pharmaceuticals in their pipeline.
U.S. March wholesale inventories rose 0.4% while sales increased 0.2%. Unless retail sales pick up, inventory levels will soon appear bloated.
Luxury homes builder Toll Brothers Inc. said its backlog in the second quarter rose 57% to $5.9 billion, with contracts up 38% to $2.2 billion and home building revenue up 51% to $1.2 billion. The backlog and contracts were the best in the company's history. Unit deliveries came in 13 homes under the low end of its range while the average home price was slightly above the high end. It says it's on track for 60% profit growth in fiscal 2005 and 20% profit growth in fiscal 2006.
From earthfiles.com: “May 9, 2005 Batvia, Ohio - Two years ago, between August and November 2003, four crop formations in soybeans were reported in the mysterious and ancient mound-builder's region of southern Ohio. Most important in terms of plant and soil anomalies was the first one discovered on the morning of August 24, 2003, not far from the famous Serpent Mound near Locust Grove, Ohio. The tall soybean plants had been laid down in a geometry based around the Vesica Pisces symbol found so often in British crop formations. Its longest length was 271 feet and there were no tracks around the entire perimeter or inside the extraordinary pattern.
Jeff Wilson, Director of the Independent Crop Circle Researchers Association based in Cincinnati, Ohio, said that soybean crop formations are very rare in the United States and of the 100 American crop formations he had personally investigated by August 2003, "the Serpent Mound pattern is one of the most sophisticated geometries that we've seen." All the electronic testing Jeff and his colleagues did and studies of plant samples have shown statistically significant anomalies.
Further, Jeff pointed out that soybeans are "a tough crop to make your way through. It's a vine-like plant, so when you wade through the stuff, you almost have to rip your way through the plants."
What none of us knew in 2003 was there were at least three eyewitnesses the night before (August 23, 2005) at 9 p.m. who watched mysterious lights move for several minutes right over the land near the Serpent Mound. For the first time on the record, Tree Pruitt of Batavia, Ohio, explained what she and her husband and brother-in-law saw during a birthday celebration at her sister's home only about 20 minutes by car from the Serpent Mound.”
Spending some time at earthfiles.com might prove worthwhile. It could widen your horizons. No pun intended.
In this year's first quarter, Bill Miller, manager of the Legg Mason Value Trust Fund, bought close to 5 million shares of Cisco, 1.2 million shares of Yahoo, and eliminated the fund's 4.5 million share position in Fannie Mae.
The U.S. economy will avoid a reoccurrence of the stagflation seen in the 1970s and experience a transitory rise in inflation that will work its way out of the economy by year end announced Diane Swonk, chief economist and senior managing director of Mesirow
Financial, in her monthly newsletter, Themes on the Economy.
Real GDP growth is expected to rise 3% in the second quarter and growth
should reaccelerate in the second half of 2005. The current forecast for an
average of 3.6% rise in real GDP in the third and fourth quarters assumes very
little change in oil prices; gains will be greater if oil prices fall over the
summer. The federal funds rate is expected to rise to 3-3/4% by year end and
hit 4% in early 2006.
According to Swonk, the determinants of inflation -- capacity utilization,
commodity prices, value of the dollar and labor costs -- currently resemble
the low inflation setting of the 1990s rather than the spiraling inflation of
the 1970s, easing fears of stagflation.
Capacity Utilization: Despite some upward movement over the last year,
U.S. factories are still operating at capacity utilization rates well below
the 84% threshold historically linked to inflation. Recent increases in
investment suggest that capacity usage will remain low in the near term.
Commodity Prices and the Rising Cost of Oil: Recent increases in
commodity prices were largely limited to oil and metals. Food remained
affordable as opposed to the 1970s when the rise in consumer inflation was
broad based. Although the increase in oil prices is substantial, it is still
much smaller that what occurred in the 1970s. Our dependence on oil is
substantially less than it was in the 1970s, making price shocks easier to
absorb. Oil prices have also shown signs of stabilizing in recent weeks.
The Dollar: Very little movement resulting from the recent drop in the
value of the dollar against the currencies of our major trading partners has
shown up in inflation as opposed to the 1970s when increased tariffs and
import quotas exacerbated the increase in import prices. The non-petroleum
components of import prices increased about 3% from a year ago March, a
fraction of the more than 20% swing in the value of the dollar over the last
two years. The only major near term risk is threats by Congress to raise the
tariff on imports from China, however Congress is unlikely to risk hurting
large U.S. multinationals who would be adversely affected by such a move.
Labor Costs: Payments to labor account for more than three-quarters of
the economy's total costs, making it the largest single contributor to
inflation. Unlike the highs of the 1970s, the current employment cost index
shows that wages remained suppressed at the start of the year. Additionally,
premium once paid to large corporate employees has narrowed and promises of
health and pension benefits have dissipated.
Mike Shedlock: “It seems increasingly likely to me that the choice is not recession now or recession later, but recession now or depression later.”
Hedge fund returns are down 1.6% in 2005.
At least 1,600 members of the U.S. military have died since our country invaded Iraq in March 2003.
Even though Toyota’s sales rose 4.2% in the three months ended March 31, net income fell 17% as a result of higher steel and plastics prices and a weaker dollar. The yen was 2.5% higher versus the dollar in the first quarter. It was the biggest profit decline in seven quarters.
U.K. April retail sales fell the most in at least 10 years. Same-store sales dropped 4.7% from a year ago, and this followed a gain of 1.8% in March. More than likely, the Bank of England will lower its forecast for GDP growth in 2005.
Capgeminini U.S. LLC’s survey of more than 10,000 people attending the Food Marketing Institute Conference in Chicago found 40% of respondents stated Wal-Mart will be a formidable opponent over the next 10 years. The other 60% must be hallucinating.
Sun Microsystems stated it would double the staff at its Indian engineering center to 2,000 over the next two to three years.
Crude rose $1 a barrel yesterday and is trading at $52.35.
Yesterday, I received several emails inquiring why I continue to mention Palatin Technologies. If those sending the emails did some independent analysis, maybe they would not inquire. It is extremely difficult to find an ethical pharmaceutical company with the potential for a bright future that trades on a rational value basis. It’s even more difficult to find one that trades with a market cap of $100 million with a strong pipeline of products, seasoned management, and a strong cash position. Their CEO sees the current market for NeutroSpec at $15 million, $25 million next year, and $80 to $100 million at maturity. Expanded trials are anticipated for their PT 141 (for male and female sexual dysfunction) in 2005 and 2006. They anticipate filing for trials in 2006 for PT 15, their drug to combat obesity, and are looking to license the product. I feel confident that Palatin has a bright future. Others may disagree or maybe don’t care. In my view, my background provides a sound basis for evaluating the long-term potential for the pharmaceuticals in their pipeline.
U.S. March wholesale inventories rose 0.4% while sales increased 0.2%. Unless retail sales pick up, inventory levels will soon appear bloated.
Luxury homes builder Toll Brothers Inc. said its backlog in the second quarter rose 57% to $5.9 billion, with contracts up 38% to $2.2 billion and home building revenue up 51% to $1.2 billion. The backlog and contracts were the best in the company's history. Unit deliveries came in 13 homes under the low end of its range while the average home price was slightly above the high end. It says it's on track for 60% profit growth in fiscal 2005 and 20% profit growth in fiscal 2006.
From earthfiles.com: “May 9, 2005 Batvia, Ohio - Two years ago, between August and November 2003, four crop formations in soybeans were reported in the mysterious and ancient mound-builder's region of southern Ohio. Most important in terms of plant and soil anomalies was the first one discovered on the morning of August 24, 2003, not far from the famous Serpent Mound near Locust Grove, Ohio. The tall soybean plants had been laid down in a geometry based around the Vesica Pisces symbol found so often in British crop formations. Its longest length was 271 feet and there were no tracks around the entire perimeter or inside the extraordinary pattern.
Jeff Wilson, Director of the Independent Crop Circle Researchers Association based in Cincinnati, Ohio, said that soybean crop formations are very rare in the United States and of the 100 American crop formations he had personally investigated by August 2003, "the Serpent Mound pattern is one of the most sophisticated geometries that we've seen." All the electronic testing Jeff and his colleagues did and studies of plant samples have shown statistically significant anomalies.
Further, Jeff pointed out that soybeans are "a tough crop to make your way through. It's a vine-like plant, so when you wade through the stuff, you almost have to rip your way through the plants."
What none of us knew in 2003 was there were at least three eyewitnesses the night before (August 23, 2005) at 9 p.m. who watched mysterious lights move for several minutes right over the land near the Serpent Mound. For the first time on the record, Tree Pruitt of Batavia, Ohio, explained what she and her husband and brother-in-law saw during a birthday celebration at her sister's home only about 20 minutes by car from the Serpent Mound.”
Spending some time at earthfiles.com might prove worthwhile. It could widen your horizons. No pun intended.
In this year's first quarter, Bill Miller, manager of the Legg Mason Value Trust Fund, bought close to 5 million shares of Cisco, 1.2 million shares of Yahoo, and eliminated the fund's 4.5 million share position in Fannie Mae.
Monday, May 09, 2005
Helping Hand
5/9/05 Helping Hand
GM’s CEO will be meeting in a few days with top Toyota officials. Toyota is open to supplying its hybrid technology to GM. This alliance would benefit both companies. Both will also renew a collaborative pact on zero-emission hydrogen fuel-cell vehicles.
OPEC President Sheikh Ahmad al-Fahd al-Sabah stated yesterday that the oil cartel does not intend to hike its production at its June meeting due to current oversupplied conditions. He said there was “a surplus of more than 1.2 million bpd…The price is not linked to the issue of supply and demand, but rather at this stage in particular, it is linked to the political, economic, and climatic factors, which created the big difference up or down in prices.” Crude is currently holding above the $51 a barrel level.
Economists Nouriel Roubini and Brad Setser put non-performing loans at Chinese banks at somewhere between 46% and 56% of China’s GDP.
The median forecast by 64 economists for the U.S. 2nd quarter GDP has been cut to 3.2%.
U.K. March manufacturing production dropped 1.6% from February, the biggest decline in almost three years.
Today’s Bloomberg Eurozone Retail Purchasing Managers’ Index (PMI), a monthly survey indicating economic conditions in the Eurozone retail sector one month ahead of government issued figures, indicates that month-on-month sales at Eurozone retailers continued to fall in April with the index registering 8.7. It has remained below the 50 mark for the fourth month running and for the eighth time in the past nine months. Lower sales led to reduced purchasing activity and the sharpest rate of job shedding in the sector since last November. The main reason for deteriorating sales was the persistence of depressed consumer demand. It should be noted that planned sales levels have yet to be achieved in the past sixteen months. In sum, the purchasing activity in the Eurozone retail sector fell for the 12th successive month in April.
I was interested in a new survey by Unilever. The company tracked the shopping habits of 2,400 consumers. The results indicated that more and more Americans are grocery shopping one day at a time. In fact, finding showed “62% are quick trips. You’re on your way home from work and you’re looking for something to either create or complete a meal.” Quick trips are defined as 20 minutes or less and $20 or less. Michael Twitty, Unilever’s senior manager of shopper insights, stated “we always suspected that quick trips were important, but we found that quick trips were the most important trips in every single retail channel. And supercenters were no exception.” An example of a company capitalizing on this daily shopping trend has been Whole Foods Markets.
For the first quarter, consumer credit grew at a 4.3% annual pace, up from the fourth quarter's 3.7% rate. Revolving credit grew at a 3.9% pace after rising at a 3.7% rate in the fourth quarter. Non-revolving credit grew at a 4.6% rate in the first quarter, up from 3.8% in the fourth quarter.
Duke Energy announced a deal to buy Cinergy in an all-stock $9.1 billion transaction. About 1,500 job cuts are envisioned.
Johnson Controls will close 8 plants in Europe and cut 3,100 workers, and close 4 plants in North America and terminate 800 workers in the U.S.
Palatin Technologies announced results for its third quarter ended 3/31/05. Total revenues were $2.8 million, compared to $200,000 for the same period in 2004. The company reported a net loss of 7 cents compared with the year ago period’s loss of 16 cents. Stephen Wills, Paalatin’s CFO, stated “our commercialization of NeutroSpec and our ongoing strategic alliance with King Pharmaceuticals has significantly reduced our burn rate and provided us with operational flexibility.” Importantly, Palatin announced the appointment of Trevor Hallam, Ph.D. to the position of Executive VP, Research and Development, and he will be responsible for the management and direction of Palatin’s drug discovery and development efforts. Most recently, Dr. Hallam was Vice President, Biologics, Global R&D, for AstraZeneca and had a 9-year tenure with AstraZeneca. In my view, in three to five years, Palatin will be a much more significant company in the pharmaceutical industry.
GM’s CEO will be meeting in a few days with top Toyota officials. Toyota is open to supplying its hybrid technology to GM. This alliance would benefit both companies. Both will also renew a collaborative pact on zero-emission hydrogen fuel-cell vehicles.
OPEC President Sheikh Ahmad al-Fahd al-Sabah stated yesterday that the oil cartel does not intend to hike its production at its June meeting due to current oversupplied conditions. He said there was “a surplus of more than 1.2 million bpd…The price is not linked to the issue of supply and demand, but rather at this stage in particular, it is linked to the political, economic, and climatic factors, which created the big difference up or down in prices.” Crude is currently holding above the $51 a barrel level.
Economists Nouriel Roubini and Brad Setser put non-performing loans at Chinese banks at somewhere between 46% and 56% of China’s GDP.
The median forecast by 64 economists for the U.S. 2nd quarter GDP has been cut to 3.2%.
U.K. March manufacturing production dropped 1.6% from February, the biggest decline in almost three years.
Today’s Bloomberg Eurozone Retail Purchasing Managers’ Index (PMI), a monthly survey indicating economic conditions in the Eurozone retail sector one month ahead of government issued figures, indicates that month-on-month sales at Eurozone retailers continued to fall in April with the index registering 8.7. It has remained below the 50 mark for the fourth month running and for the eighth time in the past nine months. Lower sales led to reduced purchasing activity and the sharpest rate of job shedding in the sector since last November. The main reason for deteriorating sales was the persistence of depressed consumer demand. It should be noted that planned sales levels have yet to be achieved in the past sixteen months. In sum, the purchasing activity in the Eurozone retail sector fell for the 12th successive month in April.
I was interested in a new survey by Unilever. The company tracked the shopping habits of 2,400 consumers. The results indicated that more and more Americans are grocery shopping one day at a time. In fact, finding showed “62% are quick trips. You’re on your way home from work and you’re looking for something to either create or complete a meal.” Quick trips are defined as 20 minutes or less and $20 or less. Michael Twitty, Unilever’s senior manager of shopper insights, stated “we always suspected that quick trips were important, but we found that quick trips were the most important trips in every single retail channel. And supercenters were no exception.” An example of a company capitalizing on this daily shopping trend has been Whole Foods Markets.
For the first quarter, consumer credit grew at a 4.3% annual pace, up from the fourth quarter's 3.7% rate. Revolving credit grew at a 3.9% pace after rising at a 3.7% rate in the fourth quarter. Non-revolving credit grew at a 4.6% rate in the first quarter, up from 3.8% in the fourth quarter.
Duke Energy announced a deal to buy Cinergy in an all-stock $9.1 billion transaction. About 1,500 job cuts are envisioned.
Johnson Controls will close 8 plants in Europe and cut 3,100 workers, and close 4 plants in North America and terminate 800 workers in the U.S.
Palatin Technologies announced results for its third quarter ended 3/31/05. Total revenues were $2.8 million, compared to $200,000 for the same period in 2004. The company reported a net loss of 7 cents compared with the year ago period’s loss of 16 cents. Stephen Wills, Paalatin’s CFO, stated “our commercialization of NeutroSpec and our ongoing strategic alliance with King Pharmaceuticals has significantly reduced our burn rate and provided us with operational flexibility.” Importantly, Palatin announced the appointment of Trevor Hallam, Ph.D. to the position of Executive VP, Research and Development, and he will be responsible for the management and direction of Palatin’s drug discovery and development efforts. Most recently, Dr. Hallam was Vice President, Biologics, Global R&D, for AstraZeneca and had a 9-year tenure with AstraZeneca. In my view, in three to five years, Palatin will be a much more significant company in the pharmaceutical industry.
Sunday, May 08, 2005
Happy Mother's Day
5/8/05 Happy Mother’s Day
Hopefully, every day is Mother’s Day.
Turning to other global thoughts, India will be one of the main drivers of Asian economic growth, even as high oil prices, high interest rates and weak export markets will slow down other countries in the region, the IIF said. India's economy will grow by 8 percent, even better than the 6.9 percent it saw in 2004, the report said adding that the region's other major economies like South Korea, Indonesia, Malaysia and Thailand’s growth will slow down, the Institute of International Finance said. "The average growth rate for the other leading Asian emerging market economies is forecast at 4.4 percent, down from 5.3 per cent in 2004," an IIF statement said. "High global oil prices and the upward trend in U.S. interest rates translate into slower growth for the region," the statement said.
Volkswagen AG will set up a $900 million car manufacturing facility in India’s southern Andhra Pradesh state. The facility would be spread across 350 acres and generate up to 10,000 jobs.
Talking about jobs, John Succo at Minyanville had an interesting observation. He mentioned that, GDP growth in the first quarter of 2004 rose 4.1% and in April 2004 the BLS reported a gain of 225,000 jobs. By comparison, in this year’s first quarter, GDP growth was 3.1% and the BLS reported on Friday a gain of 274,000 jobs, of which, 257,000 resulted from the BLS 2005 net birth/death adjustments.) In other words, the chances of future downward revisions are, in my view, highly likely.
At Wal-Mart, sales of food have outpaced general merchandise in 14 of the past 17 weeks.
In this year’s first quarter, Mexican citizens living outside of Mexico sent $4 billion back to their homeland, up 20% from the year ago period. Most of these individuals live in the U.S. From a cash flow basis, this $4 billion was exceeded only by oil and gas receipts and income from tourism. I wonder if there is any connection between this year’s first quarter increase in U.S. service jobs and the $4 billion sent back to Mexico?
Chief Maquinna, Nootka: "Once I was in Victoria, and I saw a very large house. They told me it was a bank and that the white men place their money there to be taken care of, and that by and by they got it back with interest. "We are Indians and we have
no such bank; but when we have plenty of money or blankets, we give them
away to other chiefs and people, and by and by they return them with
interest, and our hearts feel good. Our way of giving is our bank."
Investors might consider that, exchange traded derivatives and OTC derivatives, together total at least $500 trillion. The clock is ticking.
Paul Kasriel: “The higher import prices resulting from dollar depreciation vs. Asian currencies could add inflationary pressures in the U.S. This could put upward pressure on U.S. interest rates via an increase in the inflation premium component of interest rates.”
Ann Landers: “Rose-colored glasses are never made in bifocals. Nobody wants to read the small print in dreams.”
Hopefully, every day is Mother’s Day.
Turning to other global thoughts, India will be one of the main drivers of Asian economic growth, even as high oil prices, high interest rates and weak export markets will slow down other countries in the region, the IIF said. India's economy will grow by 8 percent, even better than the 6.9 percent it saw in 2004, the report said adding that the region's other major economies like South Korea, Indonesia, Malaysia and Thailand’s growth will slow down, the Institute of International Finance said. "The average growth rate for the other leading Asian emerging market economies is forecast at 4.4 percent, down from 5.3 per cent in 2004," an IIF statement said. "High global oil prices and the upward trend in U.S. interest rates translate into slower growth for the region," the statement said.
Volkswagen AG will set up a $900 million car manufacturing facility in India’s southern Andhra Pradesh state. The facility would be spread across 350 acres and generate up to 10,000 jobs.
Talking about jobs, John Succo at Minyanville had an interesting observation. He mentioned that, GDP growth in the first quarter of 2004 rose 4.1% and in April 2004 the BLS reported a gain of 225,000 jobs. By comparison, in this year’s first quarter, GDP growth was 3.1% and the BLS reported on Friday a gain of 274,000 jobs, of which, 257,000 resulted from the BLS 2005 net birth/death adjustments.) In other words, the chances of future downward revisions are, in my view, highly likely.
At Wal-Mart, sales of food have outpaced general merchandise in 14 of the past 17 weeks.
In this year’s first quarter, Mexican citizens living outside of Mexico sent $4 billion back to their homeland, up 20% from the year ago period. Most of these individuals live in the U.S. From a cash flow basis, this $4 billion was exceeded only by oil and gas receipts and income from tourism. I wonder if there is any connection between this year’s first quarter increase in U.S. service jobs and the $4 billion sent back to Mexico?
Chief Maquinna, Nootka: "Once I was in Victoria, and I saw a very large house. They told me it was a bank and that the white men place their money there to be taken care of, and that by and by they got it back with interest. "We are Indians and we have
no such bank; but when we have plenty of money or blankets, we give them
away to other chiefs and people, and by and by they return them with
interest, and our hearts feel good. Our way of giving is our bank."
Investors might consider that, exchange traded derivatives and OTC derivatives, together total at least $500 trillion. The clock is ticking.
Paul Kasriel: “The higher import prices resulting from dollar depreciation vs. Asian currencies could add inflationary pressures in the U.S. This could put upward pressure on U.S. interest rates via an increase in the inflation premium component of interest rates.”
Ann Landers: “Rose-colored glasses are never made in bifocals. Nobody wants to read the small print in dreams.”
Saturday, May 07, 2005
A Big Day
5/7/05 A Big Day
There is a great deal going on today. We have a V-E Day to celebrate, an important birthday to celebrate, and latter in the afternoon, the running for the roses. I hope all the activities bring smiles to many faces.
When you look at yesterday’s nonfarm payrolls report, some interesting points pop out. Both the number of unemployed persons and the unemployment rate were unchanged in April. About 1 in 5 unemployed persons had been jobless for 27 weeks or longer. The long-term unemployed have accounted for over 20 percent of total unemployment for 31 consecutive months. That’s a real employment soft patch. In addition, not very many of those 274,000 net new jobs really provide a means to support a family of 4. Most are low paying service jobs. As those types of jobs become a greater proportion of our labor force, the disparity between the haves and havenots gets wider and wider. That’s not an encouraging picture going forward.
Maybe it’s a good thing to work for the federal and/or state government. Take the state of Washington, for example. On average, Washington state employees pay $79 towards their monthly health premiums while the state government pays on average $575 per month in health premiums. Yearly benefits to Washington state employees amount to $1 billion. Meanwhile, the number of uninsured in the state continues to rise and the state encounters growing budget deficits. That’s not an encouraging picture going forward.
With one hand, the Fed continues to raise short-term interest rates. With the other hand, M-3 rose by $19.1 billion this week and by $73.2 billion over the past two weeks. This slight of hand does not provide an encouraging picture going forward. Fueling liquidity that leads to greater inflation does not create a neutral stance and/or balance the risk through higher short-term interest rates. In fact, both activities generate a destabilizing economic foundation.
ECRI’s Future Inflation Gauge rose to 119.7 in April from an upwardly revised 118.8 in March. The index’s annualized growth rate rose to 2.6% from 0.6% in March.
In the latest reporting period, bank credit rose by $4.3 billion and total commercial paper by $3.9 billion.
Crude closed out the week at $50.96 a barrel.
No matter how smart you are and no matter how much you know, there is some investor who is smarter and knows more than you do. That person may be a seller when you are a buyer and vice versa.
NeoRx Corp. will cut its staff by 40% and close a plant in Texas.
As of March 31, 2005, the S&P 500 companies had $617 billion in cash on their balance sheets. Charles Mulford, professor of accounting at Georgia Institute of Technology’s College of Management noted that the S&P 100 companies reduced capital expenditures by 19.6% from 2000 to 2003. During the same period, the group’s adjusted operating cash flow grew 20.8%. The average dividend payout ration was 32% in 2004, compared with the 54% historical average.
There is a great deal going on today. We have a V-E Day to celebrate, an important birthday to celebrate, and latter in the afternoon, the running for the roses. I hope all the activities bring smiles to many faces.
When you look at yesterday’s nonfarm payrolls report, some interesting points pop out. Both the number of unemployed persons and the unemployment rate were unchanged in April. About 1 in 5 unemployed persons had been jobless for 27 weeks or longer. The long-term unemployed have accounted for over 20 percent of total unemployment for 31 consecutive months. That’s a real employment soft patch. In addition, not very many of those 274,000 net new jobs really provide a means to support a family of 4. Most are low paying service jobs. As those types of jobs become a greater proportion of our labor force, the disparity between the haves and havenots gets wider and wider. That’s not an encouraging picture going forward.
Maybe it’s a good thing to work for the federal and/or state government. Take the state of Washington, for example. On average, Washington state employees pay $79 towards their monthly health premiums while the state government pays on average $575 per month in health premiums. Yearly benefits to Washington state employees amount to $1 billion. Meanwhile, the number of uninsured in the state continues to rise and the state encounters growing budget deficits. That’s not an encouraging picture going forward.
With one hand, the Fed continues to raise short-term interest rates. With the other hand, M-3 rose by $19.1 billion this week and by $73.2 billion over the past two weeks. This slight of hand does not provide an encouraging picture going forward. Fueling liquidity that leads to greater inflation does not create a neutral stance and/or balance the risk through higher short-term interest rates. In fact, both activities generate a destabilizing economic foundation.
ECRI’s Future Inflation Gauge rose to 119.7 in April from an upwardly revised 118.8 in March. The index’s annualized growth rate rose to 2.6% from 0.6% in March.
In the latest reporting period, bank credit rose by $4.3 billion and total commercial paper by $3.9 billion.
Crude closed out the week at $50.96 a barrel.
No matter how smart you are and no matter how much you know, there is some investor who is smarter and knows more than you do. That person may be a seller when you are a buyer and vice versa.
NeoRx Corp. will cut its staff by 40% and close a plant in Texas.
As of March 31, 2005, the S&P 500 companies had $617 billion in cash on their balance sheets. Charles Mulford, professor of accounting at Georgia Institute of Technology’s College of Management noted that the S&P 100 companies reduced capital expenditures by 19.6% from 2000 to 2003. During the same period, the group’s adjusted operating cash flow grew 20.8%. The average dividend payout ration was 32% in 2004, compared with the 54% historical average.
Friday, May 06, 2005
High Gas Prices Do Matter
5/6/05 High Gas Prices Do Matter
According to a national poll of 1,000 individuals conducted by Sacred Heart Universiyt, 71.3% nationwide said that higher gas prices are very seriously or somewhat impacting their quality of life. Additionally, 43.5% stated their summer plans will be slowed as a result of increased gas prices. Sacred Heart University economics professor, John Gerlach, opined "it is not surprising that Americans are making adjustments in their lifestyle, as they realize that the increase in gas prices is not a temporary spike but it likely to be with us for some time as the worldwide demand for oil continues to increase faster than supply." According to the poll, 51.2% of thise surveyed suggest their next car will be smaller and more gas efficient than their existing car. Gerlach stated "the impact on the types of cars Americans buy was reflected in the sales of vehicles in the U.S. in March when there was a significant downturn in the number of large SUVs purchased. If the higher gas prices persist for another six months, as I expect they will, it is logical to infer that the number of Americans who make adjustments in the types of vehicles they buy will be even greater than shown in the poll."
UT Starcom announced plans to cut 17% of its workforce or 1,400 jobs. HP will cut 1,900 jobs. Woodbridge Corp. in Brodhead, WI makes foam seats for autos and is laying off at least 115 workers. Riverside Paper is closing its Appleton, WI paper mill and 101 employees will lose their jobs.
Once again, yesterday, crude traded jus tbelow $50 a barrel but rallied to close at $50.83.
Ken Wood, founder of Woodie's CCI Room: "85% of trading is psychological, and 15% is made up of what we use to trade...people who don't feel good about themselves aren't going to feel good about their trading. Ego is a big problem."
It is not a coincidence that there has been support for the dollar over the past 4+ months. In my view, there are a few reasons for this turnaround in demand for dollars. There was a realization that the Fed would continue to raise short-term rates, and the upward path could take us to the 3.5% to 4% range in 2005. These measured one-quarter point increases would create a growing disparity with the ECB rates and thos ein Japan. In other words, the returns would be higher in the U.S. In addition, even though higher rates would most likely slow the U.S. economy, the latter's growht rate would still be higher than those in the eurozone countries and Japan. Why am Ibringing this discussion up today? Simply put, the April nonfarm payroll report will be out in afew hours. My software service is non-opertaional at this time, and therefore, my posting for today will be delayed. It is important to focus on the relevant facts in order to reach a rational conclusion. As always, it is best to keep one's mind focused on the simple. That's correct. To be right, most frequently the answer is obvious. The economic growth in the first quarter was less than expected. Interest rates were rising. Gas prices were rising. Inflation was rising. Consumer confidence was falling. The stock market was falling. The yield curve was getting flatter. March nonfarm payrolls were disappointing. Knowing all that, what possible reason would there be to forecast a job gain of 175,000 for April? What had changed in April? Yet, that is the average forecast by 60+ economists. The same trends that existed in March apparently existed in April.
Yesterday, GM and Ford bonds were downgraded to junk status. Do you think this was a surprise? Smart investors buy on bad news and sell on good news. Why? The news should ahve been anticipated and the market pricing should already have reflected the news. Interestingly, yesterday there was selling on the news. In never realized there were so many amateurs participating in daily market trading. That gives me reason to believe greater profit opportunities exist in the future.
My software has just begun to function once again. The market has been closed for one hour. Maybe my brain is not working. The nonfarm payrolls for April showed a gain of 274,000 net new jobs and February and March were revised upward by a total of 93,000 jobs. Those are whopping figures and I'm happy for the new jobs but pissed that my forecast stunk the house out. In April, the service sector gained 229,000 jobs, including 58,000 in leisure, hospitality, and food services; movies and telecommunications 12,000; mining 8,000; hospitals and doctors' offices 25,000; construction 47,000; retail 24,000; professional and technical 18,000; and financial services 17,000. Manufacturing lost 6,000 jobs. In other words, the hiring was widespread. The weekly gain in workers' pay was 5 cents an hour to $16 an hour. Over the past year, the average hourly earnings rose 2.7% and still trailed inflation, which is in a cyclical upturn. I will need to go back to ground zero and see where I could have been so far of in my forecast for net new job creation. For example, I never thought there were 35,000 new food service jobs in April or 24,000 new retail jobs--- not with rising gas prices.
According to a national poll of 1,000 individuals conducted by Sacred Heart Universiyt, 71.3% nationwide said that higher gas prices are very seriously or somewhat impacting their quality of life. Additionally, 43.5% stated their summer plans will be slowed as a result of increased gas prices. Sacred Heart University economics professor, John Gerlach, opined "it is not surprising that Americans are making adjustments in their lifestyle, as they realize that the increase in gas prices is not a temporary spike but it likely to be with us for some time as the worldwide demand for oil continues to increase faster than supply." According to the poll, 51.2% of thise surveyed suggest their next car will be smaller and more gas efficient than their existing car. Gerlach stated "the impact on the types of cars Americans buy was reflected in the sales of vehicles in the U.S. in March when there was a significant downturn in the number of large SUVs purchased. If the higher gas prices persist for another six months, as I expect they will, it is logical to infer that the number of Americans who make adjustments in the types of vehicles they buy will be even greater than shown in the poll."
UT Starcom announced plans to cut 17% of its workforce or 1,400 jobs. HP will cut 1,900 jobs. Woodbridge Corp. in Brodhead, WI makes foam seats for autos and is laying off at least 115 workers. Riverside Paper is closing its Appleton, WI paper mill and 101 employees will lose their jobs.
Once again, yesterday, crude traded jus tbelow $50 a barrel but rallied to close at $50.83.
Ken Wood, founder of Woodie's CCI Room: "85% of trading is psychological, and 15% is made up of what we use to trade...people who don't feel good about themselves aren't going to feel good about their trading. Ego is a big problem."
It is not a coincidence that there has been support for the dollar over the past 4+ months. In my view, there are a few reasons for this turnaround in demand for dollars. There was a realization that the Fed would continue to raise short-term rates, and the upward path could take us to the 3.5% to 4% range in 2005. These measured one-quarter point increases would create a growing disparity with the ECB rates and thos ein Japan. In other words, the returns would be higher in the U.S. In addition, even though higher rates would most likely slow the U.S. economy, the latter's growht rate would still be higher than those in the eurozone countries and Japan. Why am Ibringing this discussion up today? Simply put, the April nonfarm payroll report will be out in afew hours. My software service is non-opertaional at this time, and therefore, my posting for today will be delayed. It is important to focus on the relevant facts in order to reach a rational conclusion. As always, it is best to keep one's mind focused on the simple. That's correct. To be right, most frequently the answer is obvious. The economic growth in the first quarter was less than expected. Interest rates were rising. Gas prices were rising. Inflation was rising. Consumer confidence was falling. The stock market was falling. The yield curve was getting flatter. March nonfarm payrolls were disappointing. Knowing all that, what possible reason would there be to forecast a job gain of 175,000 for April? What had changed in April? Yet, that is the average forecast by 60+ economists. The same trends that existed in March apparently existed in April.
Yesterday, GM and Ford bonds were downgraded to junk status. Do you think this was a surprise? Smart investors buy on bad news and sell on good news. Why? The news should ahve been anticipated and the market pricing should already have reflected the news. Interestingly, yesterday there was selling on the news. In never realized there were so many amateurs participating in daily market trading. That gives me reason to believe greater profit opportunities exist in the future.
My software has just begun to function once again. The market has been closed for one hour. Maybe my brain is not working. The nonfarm payrolls for April showed a gain of 274,000 net new jobs and February and March were revised upward by a total of 93,000 jobs. Those are whopping figures and I'm happy for the new jobs but pissed that my forecast stunk the house out. In April, the service sector gained 229,000 jobs, including 58,000 in leisure, hospitality, and food services; movies and telecommunications 12,000; mining 8,000; hospitals and doctors' offices 25,000; construction 47,000; retail 24,000; professional and technical 18,000; and financial services 17,000. Manufacturing lost 6,000 jobs. In other words, the hiring was widespread. The weekly gain in workers' pay was 5 cents an hour to $16 an hour. Over the past year, the average hourly earnings rose 2.7% and still trailed inflation, which is in a cyclical upturn. I will need to go back to ground zero and see where I could have been so far of in my forecast for net new job creation. For example, I never thought there were 35,000 new food service jobs in April or 24,000 new retail jobs--- not with rising gas prices.
Thursday, May 05, 2005
GM
5/5/05 GM
Yesterday’s announcement by Kirk Kerkorian that, he wished to purchase an additional 28 million shares of GM at $31, generated a $5 gain in the stock or a market cap increase of $2.8 billion. The stock, surprisingly, opened for trading at only $30.52. Quickly, the buyers came to their senses and appreciated the untapped value in GM. Of course, it didn’t hurt that almost every hedge fund is short the stock. These same self-professed geniuses also took it on the chin in the GM bonds. These are the same bonds everyone considered junk. You might recall I mentioned that I would prefer owning these GM bonds to a U.S. treasury bond. Why? If you want to restructure GM, the bonds will come before the equity holder’s interests. In the meantime, they were yielding close to 11%. Don’t you know that, if the GM management omitted the common dividend, you are talking about saving $1.150 billion dollars? These bonds represent real value--- in my view. I don’t care how they are rated.
Yesterday, the U.S. ISM non-manufacturing index for April showed a decline to 61.7% from 63.1%. Importantly, the employment index dropped to 53.3% from 57.1%. This is the third important piece of information indicating the April nonfarm payrolls number will be below expectations. That maybe one reason why long-term Treasury bond yields remain so low. We should keep in mind that the Treasury indicated they would reintroduce the sale of 30-year U.S. Treasury bonds. Yes, the yields on these instruments did rise, but still remain extremely low on an historical basis.
Yesterday, was another bad day for layoffs. IBM, finally, announced cutting 13,000 jobs. They didn’t have the guts to make the announcement at the recent annual meeting. Interstate Bakeries stated they would close a Charlotte bakery and cut 950 jobs. Ericsson will cut 250 in the U.S. Gemini Cap mentioned they would be cutting jobs.
Yesterday, information was released showing that oil supplies rose to their highest levels since mid-1999 and that gasoline inventories rose to their highest point in a month. Yet, crude rose and is trading just under $51 a barrel. Interestingly, this is the same level, $50.85, that the price of crude has averaged for the first four months of 2005.
Comparable sales for Wal-Mart for the four-week periods ending April 29, 2005 and April 30, 2004 were as follows:
Wal-Mart Stores division—a gain of 0.1% versus the prior year’s 3.7%.
SAM’s CLUB--- a gain of 4.9% versus 8.3%.
Total U.S. comp sales--- a gain of 0.9% versus 4.4%.
The company estimates comp sales in May will rise between 2 to 4 %.
According to the California Association of Realtors, the median household income for the Bay Area is $67,770 a year, and with this income, Bay Area households fall $92,930 short of the income needed to qualify to buy the region’s median priced house. Statewide, California households, with a median income of $53,540, are $60,380 short of the $113,920 qualifying income needed to purchase a median-priced home at $488,600 in the state. This trend cannot continue well into the future.
Edmunds. com reported overall combined incentives extended by domestic Chrysler, Ford, and GM averaged $3,339 per vehicle sold in April, down $133 from the prior month. In April, Chrysler spent the most on incentives with $3,535 per vehicle.
Average domestic incentives have never been higher in any prior April. The combined market share of the Big Three reached an historic low of 56.1% in April 2005.
India’s forex reserves have ballooned by $13.5 billion since January to a record $142.6 billion, the sixth largest in the world. It is believed that, the composition of these forex reserves, have begun to shift more towards the euro and less towards our dollar.
Garrett Jones: “Had you held U.S. T-bills since 2001 you would have earned a nickel’s worth of interest and lost a quarter’s worth of purchasing power. If you had held $10 million worth of U.S. T-bills since 2001, your money would have lost $3 million of real value in terms of purchasing power. Municipal bonds, corporate bonds and mortgage debt all would have exhibited similar results since 2001. The point is that yield is irrelevant in a depreciating currency.” An investor had better be sure that a safe haven is a safe haven. When they raid the whorehouse, they take all the girls. That includes T-bills. The world is a small place. It’s tough to find a place to hide. Those short GM and its bonds can tell you that. You can wake up one morning, and boom!!!!! The world has changed. Before you plan on going to the bank, you had better make certain its location is still there.
First quarter productivity in the U.S. rose at a 2.6% annual rate, and that was better than expected.
U.S. jobless claims rose by 11,000 in the week ending April 30, and the number of people collecting unemployment checks rose by 38,000. These numbers were higher than expected.
Yesterday’s announcement by Kirk Kerkorian that, he wished to purchase an additional 28 million shares of GM at $31, generated a $5 gain in the stock or a market cap increase of $2.8 billion. The stock, surprisingly, opened for trading at only $30.52. Quickly, the buyers came to their senses and appreciated the untapped value in GM. Of course, it didn’t hurt that almost every hedge fund is short the stock. These same self-professed geniuses also took it on the chin in the GM bonds. These are the same bonds everyone considered junk. You might recall I mentioned that I would prefer owning these GM bonds to a U.S. treasury bond. Why? If you want to restructure GM, the bonds will come before the equity holder’s interests. In the meantime, they were yielding close to 11%. Don’t you know that, if the GM management omitted the common dividend, you are talking about saving $1.150 billion dollars? These bonds represent real value--- in my view. I don’t care how they are rated.
Yesterday, the U.S. ISM non-manufacturing index for April showed a decline to 61.7% from 63.1%. Importantly, the employment index dropped to 53.3% from 57.1%. This is the third important piece of information indicating the April nonfarm payrolls number will be below expectations. That maybe one reason why long-term Treasury bond yields remain so low. We should keep in mind that the Treasury indicated they would reintroduce the sale of 30-year U.S. Treasury bonds. Yes, the yields on these instruments did rise, but still remain extremely low on an historical basis.
Yesterday, was another bad day for layoffs. IBM, finally, announced cutting 13,000 jobs. They didn’t have the guts to make the announcement at the recent annual meeting. Interstate Bakeries stated they would close a Charlotte bakery and cut 950 jobs. Ericsson will cut 250 in the U.S. Gemini Cap mentioned they would be cutting jobs.
Yesterday, information was released showing that oil supplies rose to their highest levels since mid-1999 and that gasoline inventories rose to their highest point in a month. Yet, crude rose and is trading just under $51 a barrel. Interestingly, this is the same level, $50.85, that the price of crude has averaged for the first four months of 2005.
Comparable sales for Wal-Mart for the four-week periods ending April 29, 2005 and April 30, 2004 were as follows:
Wal-Mart Stores division—a gain of 0.1% versus the prior year’s 3.7%.
SAM’s CLUB--- a gain of 4.9% versus 8.3%.
Total U.S. comp sales--- a gain of 0.9% versus 4.4%.
The company estimates comp sales in May will rise between 2 to 4 %.
According to the California Association of Realtors, the median household income for the Bay Area is $67,770 a year, and with this income, Bay Area households fall $92,930 short of the income needed to qualify to buy the region’s median priced house. Statewide, California households, with a median income of $53,540, are $60,380 short of the $113,920 qualifying income needed to purchase a median-priced home at $488,600 in the state. This trend cannot continue well into the future.
Edmunds. com reported overall combined incentives extended by domestic Chrysler, Ford, and GM averaged $3,339 per vehicle sold in April, down $133 from the prior month. In April, Chrysler spent the most on incentives with $3,535 per vehicle.
Average domestic incentives have never been higher in any prior April. The combined market share of the Big Three reached an historic low of 56.1% in April 2005.
India’s forex reserves have ballooned by $13.5 billion since January to a record $142.6 billion, the sixth largest in the world. It is believed that, the composition of these forex reserves, have begun to shift more towards the euro and less towards our dollar.
Garrett Jones: “Had you held U.S. T-bills since 2001 you would have earned a nickel’s worth of interest and lost a quarter’s worth of purchasing power. If you had held $10 million worth of U.S. T-bills since 2001, your money would have lost $3 million of real value in terms of purchasing power. Municipal bonds, corporate bonds and mortgage debt all would have exhibited similar results since 2001. The point is that yield is irrelevant in a depreciating currency.” An investor had better be sure that a safe haven is a safe haven. When they raid the whorehouse, they take all the girls. That includes T-bills. The world is a small place. It’s tough to find a place to hide. Those short GM and its bonds can tell you that. You can wake up one morning, and boom!!!!! The world has changed. Before you plan on going to the bank, you had better make certain its location is still there.
First quarter productivity in the U.S. rose at a 2.6% annual rate, and that was better than expected.
U.S. jobless claims rose by 11,000 in the week ending April 30, and the number of people collecting unemployment checks rose by 38,000. These numbers were higher than expected.
Wednesday, May 04, 2005
There Is Real News
5/4/05 There Is Real News
Eight raises are not enough for the Fed. Inflation is contained--- or is it? How can it be contained with 10-year Treasury bond yields near an all-time low? Those suckers determine mortgage rates, and mortgage rates grease the wheels of the housing ATMs heard round the clock.
From Nouriel Roubini, Stern School of Business, and Brad Sester, University College: "Credit is too cheap in China. Nominal interest rates are very low for a fast-growing economy. Real interest rates are negative for many firms, as the nominal rate is lower than in the increase in producer prices. This has led to the substitution of capital for labor, even in the face of China's enormous reservoir of underused labor (labor that can be drawn in from the countryside as well as employees in some state firms). Work by some Chinese economists suggests a sharp falloff in the marginal productivity of capital, and total factor productivity. Labor productivity has been growing in large part because each unit of labor is now combined with more capital. The cheap price of capital is one reason why investment has soared in relation to GDP."
The IEA chief stated investment in new capacity by oil producing nations and energy companies is too small to meet future growth in demand. Meanwhile, crude dropped below $50 a barrel yesterday. Big deal. The recent decline has produced a blip at the pump. That’s where it counts. If the hedge funds want to play with themselves every day in the oil market, that’s up to them. Something has to keep 7,900+ hedge funds busy. At some point, most will disappear up their you know what.
Challenger, Gray, & Christmas announced that planned job cuts in the U.S. fell to their lowest level in almost five years in April as only 57,861 job cuts were announced by U.S. employers. However, job cuts this year are still 3% higher than in the first four months of 2004. Challenger stated that employers seem to be shifting from job elimination to worker retention. I don’t believe that. VF announced the close of a jeans plant in Wilson, NC with 445 jobs being lost. M.J. Soffe, another textile company, will cut 160 jobs in Fayetteville,NC and those jobs will go to El Salvador. Giant Supermarket will close several operations and cut up to 500 jobs.
GM’s April sales declined 7.4% and Ford’s were down 5%. By comparison, Toyota had its best sales month ever. Ever! Their sales rose 21.3%.
Warren Buffett: “You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right—that’s the only thing that makes you right.”
If real M2 growth is slowing as well as aggregate demand growth, what will the impact be on GDP growth and corporate earnings going forward?
Napoleon Hill: “Accurate thinkers permit no one to do their thinking for them.”
Corporate earnings as a percentage of GDP are at their highest level ever. Consumption as a percentage of our GDP is at our highest level yet. The rate of savings as a percentage of our GDP is declining towards record low levels. Short-term rates are still below the inflation rate. The United States market cap is roughly 50% of the total market cap in the entire world. With China, India, and other Asean economies growing faster than we are, our equity markets remain, in my view, comparatively too high. If the U.S. offered terrific value, you’d see companies eager to build new plants and increase their capital expenditures. Rather, they focus on stock buybacks and dividend increases. The real money should be made in investing in one’s business. I don’t see that happening. How many CEOs and CFOs do you see buying their own stock with new money aside from exercising cheap stock options? Enough said.
Tracinda Corp. on Wednesday said it plans to make a cash tender offer of $31 a share for up to 28 million shares of General Motors. The offer from Kirk Kerkorian's buyout firm is worth about $868 million. The offer price, which is 13% above GM's closing price of $27.77 on Tuesday, is without regard to General Motors' regular quarterly dividend of 50 cents per share expected to be paid in June 2005, Tracinda said. Stockholders will be entitled to retain the dividend expected to be paid in June 2005. Tracinda would own 8.8% of GM after the offer. Kerkerian presently owns 22 million GM shares. At age 87, Kerkorian has more balls than 99.4% of other investors around the globe. He puts his money where his mouth is.
Thank you Mr. Kerkorian. Our hedge is working. Long GM, Ford, and Harley Davidson and short DaimlerChrysler. The parts of GM and Ford are worth more than the whole--- at least in my opinion. If GM and Ford can’t compete with Toyota, Honda, Nissan, and others, sell the pieces. They are not American idols.
Azulstar Networks today announced the launch of the world's first metro-wide Voice over Wi-Fi telephone service. The carrier class fixed and mobile service, which was developed by Azulstar Networks and its partners, operates over the converged city-wide Wi-Fi wireless network that already spans over 60% of Rio Ranch, NM.
Eight raises are not enough for the Fed. Inflation is contained--- or is it? How can it be contained with 10-year Treasury bond yields near an all-time low? Those suckers determine mortgage rates, and mortgage rates grease the wheels of the housing ATMs heard round the clock.
From Nouriel Roubini, Stern School of Business, and Brad Sester, University College: "Credit is too cheap in China. Nominal interest rates are very low for a fast-growing economy. Real interest rates are negative for many firms, as the nominal rate is lower than in the increase in producer prices. This has led to the substitution of capital for labor, even in the face of China's enormous reservoir of underused labor (labor that can be drawn in from the countryside as well as employees in some state firms). Work by some Chinese economists suggests a sharp falloff in the marginal productivity of capital, and total factor productivity. Labor productivity has been growing in large part because each unit of labor is now combined with more capital. The cheap price of capital is one reason why investment has soared in relation to GDP."
The IEA chief stated investment in new capacity by oil producing nations and energy companies is too small to meet future growth in demand. Meanwhile, crude dropped below $50 a barrel yesterday. Big deal. The recent decline has produced a blip at the pump. That’s where it counts. If the hedge funds want to play with themselves every day in the oil market, that’s up to them. Something has to keep 7,900+ hedge funds busy. At some point, most will disappear up their you know what.
Challenger, Gray, & Christmas announced that planned job cuts in the U.S. fell to their lowest level in almost five years in April as only 57,861 job cuts were announced by U.S. employers. However, job cuts this year are still 3% higher than in the first four months of 2004. Challenger stated that employers seem to be shifting from job elimination to worker retention. I don’t believe that. VF announced the close of a jeans plant in Wilson, NC with 445 jobs being lost. M.J. Soffe, another textile company, will cut 160 jobs in Fayetteville,NC and those jobs will go to El Salvador. Giant Supermarket will close several operations and cut up to 500 jobs.
GM’s April sales declined 7.4% and Ford’s were down 5%. By comparison, Toyota had its best sales month ever. Ever! Their sales rose 21.3%.
Warren Buffett: “You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right—that’s the only thing that makes you right.”
If real M2 growth is slowing as well as aggregate demand growth, what will the impact be on GDP growth and corporate earnings going forward?
Napoleon Hill: “Accurate thinkers permit no one to do their thinking for them.”
Corporate earnings as a percentage of GDP are at their highest level ever. Consumption as a percentage of our GDP is at our highest level yet. The rate of savings as a percentage of our GDP is declining towards record low levels. Short-term rates are still below the inflation rate. The United States market cap is roughly 50% of the total market cap in the entire world. With China, India, and other Asean economies growing faster than we are, our equity markets remain, in my view, comparatively too high. If the U.S. offered terrific value, you’d see companies eager to build new plants and increase their capital expenditures. Rather, they focus on stock buybacks and dividend increases. The real money should be made in investing in one’s business. I don’t see that happening. How many CEOs and CFOs do you see buying their own stock with new money aside from exercising cheap stock options? Enough said.
Tracinda Corp. on Wednesday said it plans to make a cash tender offer of $31 a share for up to 28 million shares of General Motors. The offer from Kirk Kerkorian's buyout firm is worth about $868 million. The offer price, which is 13% above GM's closing price of $27.77 on Tuesday, is without regard to General Motors' regular quarterly dividend of 50 cents per share expected to be paid in June 2005, Tracinda said. Stockholders will be entitled to retain the dividend expected to be paid in June 2005. Tracinda would own 8.8% of GM after the offer. Kerkerian presently owns 22 million GM shares. At age 87, Kerkorian has more balls than 99.4% of other investors around the globe. He puts his money where his mouth is.
Thank you Mr. Kerkorian. Our hedge is working. Long GM, Ford, and Harley Davidson and short DaimlerChrysler. The parts of GM and Ford are worth more than the whole--- at least in my opinion. If GM and Ford can’t compete with Toyota, Honda, Nissan, and others, sell the pieces. They are not American idols.
Azulstar Networks today announced the launch of the world's first metro-wide Voice over Wi-Fi telephone service. The carrier class fixed and mobile service, which was developed by Azulstar Networks and its partners, operates over the converged city-wide Wi-Fi wireless network that already spans over 60% of Rio Ranch, NM.
Monday, May 02, 2005
This Is Uninsured Week
5/3/05 This Is Uninsured Week (May 1-May 8)
Forty nine percent of uninsured adults with chronic conditions forgo needed medical care or prescription drugs due to cost, according to researchers at the University of Maryland, County of Baltimore, and the Urban Institute. Uninsured adults with chronic conditions were 4.5 times as likely as their insured counterparts to report an unmet need for medical care or prescription drugs. They more than 7 times as likely as insured adults with chronic conditions to lack a usual source of health care, and 27% reported no visits to health professionals in the past year compared to 7% of insured adults. Even so, 21% of uninsured adults with a chronic condition report spending at least $2,000 out of pocket on medical care in the 12 months prior to the survey.
Albert Einstein, Why Socialism? "The economic anarchy of capitalist society as it exists today is, in my opinion, the real source of [society's] evil… The owner of the means of production is in a position to purchase the labor power of the worker. By using the means of production, the worker produces new goods which become the property of the capitalist. The essential point about this process is the relation between what the worker produces and what he is paid, both measured in terms of real value. In so far as the labor contract is 'free,' what the worker receives is determined not by the real value of the goods he produces, but by his minimum needs and by the capitalists' requirements for labor power in relation to the number of workers competing for jobs. It is important to understand that even in theory the payment of the worker is not determined by the value of his product."
Nationally, the market value of real estate is approaching 200% of disposable income. In California, for example, few homeowners would qualify to buy the home they presently own.
Winston Churchill: "Play for more than you can afford to lose and you will learn the game."
U.S. March construction spending rose 0.5% and topped forecasts.
J.P. Morgan reduced its equity weighting to 55% from 70% with bond weighting at 25% and recommended cash levels at 20%.
The National Association of Realtors stated U.S. pending home sales fell by 0.3% in March.
The ISM Index for April fell more than had been projected. It declined to 53.3 from 55.2 in March. It was the fifth straight monthly decline and reached the lowest level since July 2003. Meanwhile, the prices paid sector dropped to 71 from 73, but employment also declined to 52.3 from 53.3 and new orders were disappointing with a slump to 53.7 from the prior month's 57.1.
Oil rebounded to close at 50.92 a barrel.
Elmer Davis: "The first and greatest commandment is, don't let them scare you."
Worldwide sales of semiconductors grew by 13.2 percent in the first quarter of 2005 compared to the same period of 2004, the Semiconductor Industry Association (SIA) reported Monday. Global sales of semiconductors in the first three months of 2005 amounted to $55.3 billion compared to $48.9 billion in the first quarter of 2004.
According to rigzone.com, the Permian Basin, which stretches from Lubbock and Midland to the New Mexico border and has long been the state's center of production, showed a decline in oil production from 304 million barrels in 1994 to 236 million barrels last year.
Hut Landon: "If a pit bull romances your leg, fake an orgasm."
Forty nine percent of uninsured adults with chronic conditions forgo needed medical care or prescription drugs due to cost, according to researchers at the University of Maryland, County of Baltimore, and the Urban Institute. Uninsured adults with chronic conditions were 4.5 times as likely as their insured counterparts to report an unmet need for medical care or prescription drugs. They more than 7 times as likely as insured adults with chronic conditions to lack a usual source of health care, and 27% reported no visits to health professionals in the past year compared to 7% of insured adults. Even so, 21% of uninsured adults with a chronic condition report spending at least $2,000 out of pocket on medical care in the 12 months prior to the survey.
Albert Einstein, Why Socialism? "The economic anarchy of capitalist society as it exists today is, in my opinion, the real source of [society's] evil… The owner of the means of production is in a position to purchase the labor power of the worker. By using the means of production, the worker produces new goods which become the property of the capitalist. The essential point about this process is the relation between what the worker produces and what he is paid, both measured in terms of real value. In so far as the labor contract is 'free,' what the worker receives is determined not by the real value of the goods he produces, but by his minimum needs and by the capitalists' requirements for labor power in relation to the number of workers competing for jobs. It is important to understand that even in theory the payment of the worker is not determined by the value of his product."
Nationally, the market value of real estate is approaching 200% of disposable income. In California, for example, few homeowners would qualify to buy the home they presently own.
Winston Churchill: "Play for more than you can afford to lose and you will learn the game."
U.S. March construction spending rose 0.5% and topped forecasts.
J.P. Morgan reduced its equity weighting to 55% from 70% with bond weighting at 25% and recommended cash levels at 20%.
The National Association of Realtors stated U.S. pending home sales fell by 0.3% in March.
The ISM Index for April fell more than had been projected. It declined to 53.3 from 55.2 in March. It was the fifth straight monthly decline and reached the lowest level since July 2003. Meanwhile, the prices paid sector dropped to 71 from 73, but employment also declined to 52.3 from 53.3 and new orders were disappointing with a slump to 53.7 from the prior month's 57.1.
Oil rebounded to close at 50.92 a barrel.
Elmer Davis: "The first and greatest commandment is, don't let them scare you."
Worldwide sales of semiconductors grew by 13.2 percent in the first quarter of 2005 compared to the same period of 2004, the Semiconductor Industry Association (SIA) reported Monday. Global sales of semiconductors in the first three months of 2005 amounted to $55.3 billion compared to $48.9 billion in the first quarter of 2004.
According to rigzone.com, the Permian Basin, which stretches from Lubbock and Midland to the New Mexico border and has long been the state's center of production, showed a decline in oil production from 304 million barrels in 1994 to 236 million barrels last year.
Hut Landon: "If a pit bull romances your leg, fake an orgasm."
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