Saturday, April 19, 2003

4/19/03 Imminent Danger

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

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

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

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

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

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

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

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

SARS is seen hastening loan defaults at Malaysian banks.

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

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

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

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

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

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

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

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


Friday, April 18, 2003

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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




Thursday, April 17, 2003

4/17/03 Weapons Of Mass Instruction

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

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

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

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

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

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

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

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

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

Ten countries joined the EU and that makes twenty five.

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

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

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

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

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

Wednesday, April 16, 2003

4/16/03 $214 Billion And Counting

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

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

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

Texas Instruments to cut 800 jobs.

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

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

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

Tuesday, April 15, 2003

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Monday, April 14, 2003

4/14/03 Forward-Looking Statements

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

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

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

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

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

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

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

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

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

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

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

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

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

Sunday, April 13, 2003

4/13/03 "Temporary Headwinds"

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

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

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

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

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

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

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

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

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

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