12/31/04 Not The End--- Just The Beginning

Approximately, one in five full-time workers do not have health insurance, and that number rises to one in four with part-time workers. According to Mercer Resource Consulting, the average cost for employer-sponsored health care coverage rose 7.5% in 2004.

The British Medical Journal alleged that Eli Lilly suppressed evidence that Prozac could cause behavioral disturbances. This may help to explain some of the decisions at 1600 Pennsylvania Ave. and those originating on Capitol Hill.

The death toll in south Asia continues to mount, and now exceeds 125,000 with millions lacking safe drinking water, food, shelter, and medical care.

Boeing has orders for 126 7E7s, of which 56 are under firm contract. The company projected it would have orders for 200 of these planes by today’s close of business. Boeing shares were the second best performer in the Dow in 2004 behind McDonald’s.

Gold closed 2004 at $438.40 an ounce for a yearly gain of 5.4%. Crude ended at $43.45 a barrel, up 33.7% in 2004, and the 10-year Treasury bond ended at 4.27% or about unchanged. That last fact is quite remarkable and hardly believable. Meanwhile, the U.S. two-year notes were auctioned on Wednesday at 3.12%, the first time in 31 months that securities of that maturity were sold at yields above 3%.

Economists Nouriel Roubini and Brad Setser: “The U.S. has to mortgage one year’s worth of export revenues every two years to finance its trade deficit. That is not a sustainable pace. It is hard to run a current account deficit of more than 5% of GDP off a roughly 10% of GDP export base. U.S. external debt is no longer small in relation to the United States small export sector.”

The National Association of Purchasing Management-Chicago Index was 61.2 for December, compared with 65.2 in November. The purchasers’ employment index dropped to 49.1, the lowest since July.

In September, Japan reduced its holdings of U.S. Treasuries by $1.9 billion. In October, the reduction was increased to $5.1 billion, the first back-to-back decline in about two years. Meanwhile, China has become an active buyer in recent months of U.S. mortgage-backed securities.

The Conference Board’s Help-Wanted Advertising Index dipped one point in November to 36. It was 38 one year ago. In the last three months, help-wanted advertising declined in six of the nine regions across the country. Conference Board economist Ken Goldstein stated “job growth continues to be sluggish…This is reflected in the Conference Board’s Leading Economic Index, which has declined in five of the last six months, and by dips in consumer confidence. The widely-awaited turnaround in job growth has yet to arrive.”

Verisign tracks year-over-year merchant activity in key e-commerce categories. There were some interesting findings in this Thanksgiving through December 27 period compared with the equivalent time period in 2003. Online transactions for the electronics category increased 17%, apparel transactions rose 45%, the entertainment category increased 54%, general retail rose 24%, and photo-printing-and-sharing increased a whopping 120%.

John P. Hussman, Ph.D: “With the S&P 500 just over 1200, the price/peak earnings multiple on the index has returned to 21. Aside from the 2000 bubble peak, the multiple exceeds the valuation seen at any historical market peak including 1929, 1972, and 1987. Meanwhile, junk bond yields have been compressed to the point where the bond market is pricing in negligible probability of corporate defaults in the years ahead. Corporate BBB yields are just a half percent over AAA yields, while spreads on pure junk are only about 25 over comparable Treasuries. This will end badly…With regard to the S&P 500, the average multiple of peak-earnings has been just over 14, while the historical median is closer to 11. The 2002 market low occurred at a still-high 16 times peak earnings, while the median of 11 was last seen at the market’s 1990 low. Multiples of about 7 attended the 1974 and the 1982 market troughs…Avoiding market risk at high valuations has never penalized long-term returns.”

According to the International Monetary Fund, at the end of last year, almost 64% of central bank reserves globally were denominated in U.S. dollars, and Asian central banks own more than $2.2 trillion in forex reserves out of a global total of $3.4 trillion.

As interest rates rise in 2005, what impact will that have on interest payments on existing U.S. external debt? Over the last four years, several economists have estimated that the fall in interest rates during this 2000-2004 period reduced payments on existing U.S. external debt by approximately $130 billion.

“The promise Creator gives us

Comes with every new day,

The gift of breath, the gift of life,

Opportunities in a vast array.

How do we count our blessings,

Through the choices life can bring?

Is it through joyful lessons?

Or the fears to which we cling?

Are we learning to show gratitude,

For the victories over human pain?

By honoring the feeling choices,

We grasp the will we've regained.

Can we change our focus,

With no need to defend?

Acknowledging joy and sorrow,

Without judging foe or friend?

Tomorrow promises the fullness

Of every human way to know:

How we master each challenge

Determines our balance -

reflecting how we grow.”



The Promise of Tomorrow

Jamie Sams

"Earth Medicine"

12/30/04 Aftershocks

Chief Seattle’s 1854 letter to President Franklin Pierce: “You must teach your children that the ground beneath their feet is the ashes of your grandfathers. So that they will respect the land, tell your children that the earth is rich with the lives of our kin. Teach your children what we have taught our children, that the earth is our mother. Whatever befalls the earth befalls the sons of the earth. If men spit upon the ground, they spit upon themselves.”

Since Sunday, there have been more than 70 aftershocks recorded, such as, the 5.3 in magnitude that hit Sumatra yesterday. The death toll rises by the hour, and the latest is at least 87,000. Millions have been left homeless, and the challenge is to deliver safe drinking water, food, medicine, and temporary shelter. That will require a dedicated, organized, and global effort.

Crude is trading at $42.56 a barrel, and that remains about $10 a barrel higher than year-ago levels. Lehman Bros. cut its 2005 forecast for global oil demand by 200,000 barrels a day to 84 million barrels.

The Fed’s Trade-Weighted Major Currency Dollar Index is trading near a 9-year low and is down 28% over the last two years.

Russia’s Energy Minister stated China may get a 20% stake in the main Yukos oil asset.

Microsoft will stop marketing its Passport service.

The Wall Street Journal reported that last month China posted net steel exports rather than imports. Their steel production rose 22% in 2004 and is anticipated to rise 14% in 2005.

In his first term in office, Bush increased the Federal debt by $2.2 trillion. The debt limit was raised three times in these first four years by $2.234 trillion. The rising Federal debt level is so monumental that there is zero chance that the Fed will be able to inflate and make our debts disappear. Foreign government holders of our daily-devaluing currency resulting from daily-burgeoning twin-tower deficits will exact a price from the U.S. for inflicting such losses. I assure you that the price will create shock and awe through our economic system. In my view, such an event is drawing near. One might recall that Paul Volcker opined that, in the next five years, there was a 75% chance of some type of financial disaster hitting the U.S.

Goldman Sachs stated that their Goldman Sachs Commodity Index has risen 25% in 2004, and since 1970, yearly returns have averaged 12%, and that exceeds the annual returns for bond and equity indices during these 34 years.

According to a national survey conducted by Roper for Bankrate, 36% of Americans polled are focused on weight loss as opposed to 31% who are concerned with eliminating outstanding debt. This is the first time in the three years that Bankrate has conducted the survey that Americans have chosen weight loss over controlling debt as their New Year’s resolution. The average amount of debt needed to pay off was $11,288 and the average desired weight loss was approximately 23 pounds.

U.S. continuing jobless claims increased by 29,000 to 2.755 million in the week ending December 18th.

12/29/04 Expectations

As the death toll nears 70,000 in Indonesia and 11 other countries, what further tragedies do you expect from possible cholera, typhoid, and malaria?

Yesterday, the Conference Board stated their Consumer Confidence Index rebounded to 102.3 from November’s 92.9. The Index had been on the decline since August. Financial writers reported that the Expectations Index surged to 99.9 from the prior month’s 90.2. Both indexes had their highest reading since July. Nowhere did I read that the Expectations Index this month was lower than December 2003’s reading of 102.9. In December 2004, 22 percent of the 5,000 consumers surveyed stated they expect conditions to improve. A year earlier at this time 26.8 percent expected conditions to improve.

John Lubbock: “What we see depends mainly on what we look for.” I prefer to see the world through non-colored glasses. In sum, I seek out a 360-degree view of the facts.

The U.S. dollar index is inching its way towards the 80 level. The chart does not present a pretty picture for those holding dollar-denominated assets. The last time I checked millions of Americans had most, if not all, of their wealth invested in overvalued dollar-denominated real estate, equities, and bonds. The illusion of value permits a restful night’s sleep for many people with their eyes shut.

A long-time friend emailed me and asked why Newmont Mining had dropped about 10% in price this year while the price of gold bullion had risen from about $420 per ounce to the present $445. I reminded him that, in January 2001, based on my suggestion, he had purchased Newmont at $16 per share and that the stock was close to tripling in price based on last night’s close. In fact, the stock closely mirrored the rise in the CBOE Gold Index since January 2001. Meanwhile, the price of gold bullion had increased slightly less than $200 per ounce or close to 80%. It’s important to keep relationships in perspective and not to have unrealistic expectations.

Mark Twain: “The thing long expected takes the form of the unexpected when at last it comes.”

With the decline in crude prices from $55 a barrel to $42 a barrel, tanker rates have also declined.

India is the world’s largest user of gold. The country’s population owns at least 9,000 tons of gold. As its forex holdings increase, it is reasonable to expect that India’s gold ownership will also rise.

The ECB is supporting a rising euro. The strength in the euro has helped to contain inflation while still maintaining interest rates at the low 2% level.

Our nation’s largest trade imbalance occurred with China, where the 10-month trade deficit was $131.1 billion. The next largest deficits were Japan ($61.1 billion), Canada ($54.9 billion), Mexico ($37.8 billion), and Germany ($37.4 billion). By comparison, our largest trade surplus was with the Netherlands ($9.8 billion) followed by Australia ($5.7 billion), Hong Kong ($5.3 billion), Singapore ($3.9 billion), and Belgium ($3.7 billion).

Wet Seat will close 150 stores and cut 2,000 employees from the payroll.

Air travel in China is growing about 10% a year, nearly twice the world average. Yang Yuanyuan, China’s aviator regulator, stated “the demand in aviation and transportation has shown a heated situation not seen in many years. In principle, the Civil Aviation Administration of China will not approve any additional aircraft purchases in 2005.” Any airplane order in China must be approved by the Chinese government.

According to the Cambridge Credit Counseling Corp., the average U.S. household carries a $14,000 credit card debt. Consumers owe a record $750 billion in credit card debt. Chris Viale, Cambridge Credit’s president and CEO, stated “what consumers don’t realize is that they are spending fake money which nevertheless has to be repaid. Today there are close to 30 million U.S. households, or one in four consumers, spending more than they can afford.” I wonder whether these are the same consumers who expect conditions to improve over the next six months. On the other hand, economists often state that debt is a lagging indicator of what consumers actually did and does not reflect what they will do. I know one thing. They don’t have the money to repay their credit card balances, their home equity lines of credit, and/or their mortgage balances. Of course, why should they worry? The Fed is inflating away everyone’s debt obligations. Or are they?

Richard Benson: “The Fed needs inflation, wants inflation, and is getting inflation. Without inflation to inflate away a massive amount of personal, corporate, and government debt, our financial system could collapse.” Do you think anyone expects our financial system to collapse? It’s too big for that to happen. Isn’t that so?

12/28/04 Evading Reality

Ayn Rand: “We can evade reality, but we cannot evade the consequences of evading reality.”

The death toll in Indonesia has mounted to 30,000. What do you think will be the consequences of thousands of decaying corpses?

It was Italy that first announced no plans to sell 120 tons of gold. Germany soon followed and decided not to sell gold until September 2005. What country will come next? France? Switzerland? What will be the consequences of less gold coming on the market for sale?

Foreign central bank holdings of U.S. Treasuries at the Fed slightly exceed $1 trillion on an average daily basis. What happens when those central banks stop increasing their Treasury holdings? What entities will fill the void resulting from rising budget and trade deficits? Together those annual deficits exceed the level of Treasuries held by those foreign central banks.

Yesterday was a most interesting trading day. Crude declined 4.8%. The dollar traded at its fourth consecutive record daily low against the euro. The yield on 10-year Treasury bonds jumped from 4.21% to 4.29%. The Dow dropped 51 points. This isn’t the normal script for the first trading day after the Christmas holiday.

The price of West Texas intermediate crude decreased 5.10 cents for January delivery to $43.98-$44.00 per barrel. Platts, the global energy information division of McGraw-Hill, stated “it’s important to note that this decline took place as refiners are looking to buy crude oil to process in January. Although heating-related demand is obviously a big factor in the market, the fact remains that the fourth quarter is traditionally the heaviest for demand, and that’s behind us. So January demand looks to be sliding, and the market has plenty of crude to process, hence the drop in crude prices.”

Franco Modigliani won the Nobel Prize in economics in 1985 for his “life-cycle theory.” He stated that saving was not just for the rich, and that all people generally borrow when they are young, save in middle age, and then begin to spend their savings in their retirement years. It is safe to say that currently our population, which is aging, is not in a saving mode. His thoughts were important. Modigliani had this to say about inflation. He observed that “the poor are more likely to be debtors. And debtors benefit from inflation because of the reduced real burden of the debt…So I concluded that inflation is good for the poor and not for the rich.” Since we are the largest indebted nation in the history of the world, Modigliani, if he were alive, might state that inflation is a benefit to our $7.5 trillion debt level. But, there is more to the debt picture for Modigliani, and he makes a key point in his remarks that “the distribution of indebtedness matters. For every borrower who gets a boost in purchasing power, there is a lender who loses. They may be different people, but it is the net effect that matters for the macro economy.” The consequences of this net effect is a daily reality. It would be a huge mistake for the markets to evade the consequences of this reality. Even on a clear day, mass tragedies can take place.

Franco Modigliani: “A negative wealth effect tells me it can’t go on forever. And that’s when I revert to the life-cycle theory. Sadly, the large cohort of aging baby boomers is not adequately prepared for old age. The personal saving rate is too low. It has been depleted by individuals betting on asset markets. Life-cycle theory suggests that the saving rate should have gone up by now. Obviously, it hasn’t--- at least, not yet. While that puzzles me, it doesn’t dissuade me from the basic view that the balance between consumption and saving will have to adjust. It’s just a matter of time when. That leads me to conclude that the American consumer is the most dangerous portion of the picture.”

Echo boomers were born between 1982 and 1995. There are about 80 million echo boomers, and presently they spend about $170 billion a year of their own and their parents’ money.

Economist Allen W. Smith: “The IOUs in the Social Security trust fund are different. The government could default on these special issue IOUs without defaulting on its general debt.”

Gerrit Zalm, Dutch finance minister: The euro’s rise is “evolving within acceptable margins.”

Michael Niemera, chief economist at the International Council of Shopping Centers: “MasterCard and Visa numbers are usually stronger than in-store sales because they include gift card purchases and internet shopping.”

CHD Meridian Healthcare of Nashville runs more than 25 employee-only pharmacies. They have a new customer in Toyota, which provides health coverage for 40,000 employees in the U.S. Currently, about 88% of their prescriptions are filled at retail pharmacies. Toyota hopes to reduce annual prescription costs by having company-run drugstores that are managed by CHD Meridian Healthcare.

12/27/04 On A Clear Day

Yesterday the earthquake hit at 6:58am and the Tsunami waves arrived as much as 2 ½ hours later. The sky was blue and one could see for miles on this clear day. Hours later, about 20,000 people were declared dead. If the 8.9 quake was not enough, when the Tsunami hit, the water level rose at least 15 feet in a less than a minute. It all took place on a clear day. There was no warning. Those working in the Twin Towers had no warning either. Those buildings, however, did not collapse from a natural disaster. It too was a clear day.

Concours Group, a Texas-based consulting firm, stated in a new report that “the fastest-growing source of ‘new’ labor will be older people, including those already retired. Corporations will have little choice but to employ more older people, and that means making the terms of employment much more attractive to them.” Among the options mentioned were part-time work, job sharing, flextime, consulting arrangements, extended time off, and temporary work.

It is estimated that over $17 billion of gift cards were sold this holiday season. That estimate might prove conservative.

In Mexico, November auto sales rose 19% over the year-ago month, and results are closing in on one million vehicles sold for all of 2004.

In 2004, the state of Connecticut suffered from layoffs at Bayer Pharmaceuticals in West Haven, insurers in Hartford, and Purdue Pharma in Stamford. Over the past four years through July, the state lost 61,000 jobs or 3.6% of its jobs. Pete Gioia, economist with the Connecticut Business and Industry Association, stated “I’d say the job picture in Connecticut right now is stagnant. There is no way to sugarcoat this. We have a problem here.” John Tirinzonie, state labor economist, remarked the state, through November, added only 7,400 jobs in 2004. He described the situation as “I would say it’s weak at best. Anemic--- that’s probably the best way to describe it.”

Under a traditional pension plan, an employee’s pension benefits are typically calculated based on his or her last years of service. Usually, that’s when the employee earns the most. IBM, with 130,000 current and former employees, changed to a cash-balance pension plan in the mid-1990s whereby an employee is credited on a regular yearly basis with a percentage of a person’s annual pay, and that amount earns interest at an assigned rate. This plan would favor younger employees and work to the detriment of older workers. There is little question that a cash-balance program can be less costly to a company. IBM was sued by its current and former employees in a class-action lawsuit. A federal judge ruled last year that the changes in IBM’s pension plan were discriminatory against older employees who would receive less retirement benefits at retirement than those of younger workers. IBM plans to appeal this decision. Studies have shown that the older IBM employees had their benefits slashed by 30 to 40% after the conversion to a cash-balance pension plan. The Pension Benefit Guaranty Corp. stated, that in 2000, more than 1,200 companies provided cash-balance pension plans. With the continuing effort on the part of corporations to reduce costs, it is likely that the number is much higher today than the 1,200 reported in 2000. Should IBM lose on appeal, and that seems a strong possibility, that decision would likely lead to further lawsuits in this pension-benefits arena.

John Plender of the Financial Times: “The flight to garbage is the inelegant but accurate phrase that best captures the overheating in residential property, astonishing yield compression in the bond market and the return of commodities as an adventure playground for high rollers.”

A recent forecast for online advertising projects a gain of 30% in 2005 to $10.2 billion, and that’s on top of the 25% gain in 2004 over last year. It is anticipated that search ads will be especially strong.

Because of “disappointing” holiday sales, Sharper Image lowered its 4th quarter and 2004 earnings outlook.

12/26/04  The Horizon



According to the International Council of Shopping

Centers, the seven-day period ended December 27th

accounted for 20.6% of holiday sales in 2003, up from

19.6% in 2002. The seven-day period ended January 3rd

accounted for 14.1% in 2003, up from 12.8% in 2002.

With the rapid growth of gift cards, the period from

December 26th through January 2nd will take on

increased importance this holiday season. Jan. 1 and

Jan. 2 fall on the weekend this year.



Tom Peters: “If no one is pissed off with you then you

are dead but just haven’t figured it out yet.”



The most powerful earthquake in 40 years struck near

Sumatra this morning. It measured 8.9 on the Richter

scale and at least 5,600 people are known dead in five

countries. The earthquake was accompanied by Tsunami

waves.



Senator John McCain will shortly become chairman of

the Airland Subcommittee of the Senate Armed Services

Committee with direct oversight of the Air Force,

which happens to be Boeing’s largest customer. That

fact spells trouble for Boeing and the infamous $24.5

billion tanker program.



Peter Drucker: “The most important thing in

communication is to hear what isn’t being said.”



Yearly Medicaid expenditures amount to $190 billion

and average 22% of state budgets. Medicare costs tally

about $375 billion a year. As our population ages,

those costs can be expected to escalate. Bush wants to

shift more of the Medicaid costs onto the states and

is endeavoring to restrain Medicare spending for the

elderly and disabled. Undermining our frayed health

safety net could spell trouble for a significant

percentage of our nation’s citizens.



Warren Bennis: “Leaders keep their eyes on the

horizon, not just on the bottom line.”



One of the best ways to reduce the cost of health care

is through the deliverance of hope. It can arrive

through the spoken word and/or through actions taken.

When there is a loss of hope, the individual’s

well-being is compromised and society’s burdens take

on more hurdles. Budget constraints are necessary but

they must be accompanied by a realistic assessment of

the horizon. Such is the case at home, at work, and at

play. One must have contingency plans to deal with

emergencies. In today’s world, emergency measures are

becoming the norm. The unthinkable does happen.

12/25/04 Merry Christmas

It is a special time for family, togetherness, thanks, and prayer. There is delicious food and wonderful gifts that bring much joy. For most Americans, the daily stress and grind will be lessened this Christmas day. For others, the winter cold in Ohio, Michigan, Minnesota, Kentucky, and even south Texas have created added pressures on homeless shelters. For others, low-paying jobs, temporary work, plant closings, and layoffs have increased the growing demand at food pantries, food banks, and soup kitchens. A growing number of working Americans live in poverty. A growing number of American families live in poverty. Hopefully, through the generosity found in our communities, most Americans will not be hungry this Christmas day. However, reports have shown that many food banks are in “crisis mode.” Challenger Gray & Christmas stated the Ohio Food Bank has seen a 17 to 20% increase in the number of working poor seeking assistance this year. Even though Congressional pork spending is at record high levels, “donations and government funding are at all-time low levels” for food banks and community assistance centers. To make matters worse, especially during harsh winters, sickness rises. There will be increased pressures for local community medical assistance as only 41% of workers who earn less than $10 an hour have employer-provided insurance. Without employer coverage, how can the working poor afford the average monthly health insurance premium of $282 for an individual and/or $756 for a family? The Institute of Medicine is a branch of the National Academy of Sciences. The Institute estimated that providing health insurance to those without coverage would save between $65 billion and $130 billion a year because it would increase life expectancies and worker productivity and reduce healthcare costs. That certainly would make for merrier Christmases for years to come for all Americans.

For the last 12 decades, the Dow has risen about 80% of the time during the last five trading days of the year. That’s a happy thought.

The China Daily reported that “china is likely to experience a ‘catastrophic’ drought next year.” This could have a major negative impact on water supplies as well as grain production.

According to the Ministry of Communication, China’s cargo turnover of all sea and river ports increased 126% year-on-year in 2004.

According to the Comptroller of the Currency, total U.S. commercial bank derivative holdings grew at a 16% rate in this year’s third quarter. Do you think these bankers have a firm understanding of their derivative positions and their potential risk?

In the twelve months ended Dec. 11, wholesale prices only rose 6.73% in India due to lower food prices and a marginal fall in energy rates. It is estimated that, by the end of March 2005, the inflation rate will moderate further to 6.5%, and this would equate to the present yield on the country’s 7.38% 2015 bonds.

State-run Indian railways raised freight rates for most commodities 7.7% last month due to higher diesel and steel prices. The railways are India’s biggest consumer of steel and diesel.

The malls across our nation are closed today. The Internet never closes. When the meal is over and the dishes are done, shoppers will get to view marked-down items. The day can end with consumers gobbling up early bird specials.

12/24/04 Father And Son

On October 13, 1989, Senator Fritz Hollings spoke on the Senate floor and stated “of course, the most reprehensible fraud in this great jambalaya of frauds is the systematic and total ransacking of the Social Security trust fund in order to mask the true size of the deficit…the Treasury is siphoning off every dollar of the Social Security surplus to meet current operating expenses of the Government…the hard fact is that, in the next century, the Social Security system will find itself paying out vastly more in benefits than it is taking in through payroll taxes. And the American people will wake up to the reality that those IOUs in the trust fund vault are a 21st century version of Confederate banknotes.”

On January 24, 1990, Senator Daniel Moynihan spoke on the Senate floor and remarked “Mr. President… If there is a problem of dissimulation, I would suggest that it resides with the present practice of using Social Security trust funds as general revenues. My distinguished friend, the Republican Senator from Pennsylvania, Senator Heinz, has used a very direct word for this. He says it is called embezzlement.”

On November 5, 1990, Bush Sr. signed into law Section 13301 of the Budget Enforcement Act of 1990. It made it unlawful to include Social Security funds in budget calculations. Despite the signing of this law, Bush Sr. continued to use Social Security funds for budget purposes.

Bush Jr., in his first State of the Union Address, said “To make sure the retirement savings of America’s seniors are not diverted to any other program, my budget protects all $2.6 trillion of the Social Security surplus for Social Security, and for Social Security alone.” During his first term, Bush Jr. spent the entire $509 billion in surplus Social Security revenue generated. Each and very day almost $440 million is being embezzled from the Social Security trust fund.

While everyone is enjoying eggnog and being merry, I thought the aforementioned would be a jolly reminder of what it means to get stuffed in real-time. So, while you’re opening your loot during this holiday, know you and your neighbor are being looted by someone you and millions of others invited back into that big white house for another four years.

Just because the cost of money is cheap, doesn’t mean stocks and bonds are cheap.

From November 2003 to November 2004, the M3 money supply rose at a 5.4% rate; however, between August 2004 and November 2004, the rate of growth slowed to 1.6%. Between November 2003 and November 2004, the monetary base of depository institutions, adjusted for changes in reserve requirements and seasonally adjusted, rose each and every month. However, from December 1 through December 22, 2004, the monetary base has declined below the prior month’s level. I mention this changing flow of funds pattern as a very real red flag. Changes are in the wind, and those changes can bring some unwelcome surprises in the coming year.

The euro rallied to a new high of 135.40 versus the dollar.

Almost 2 million people are employed in department stores this day before Christmas. Stars of this holiday shopping season have been gift cards, the iPod, plasma-screen TVs, Delphi XM Satellite MyFi, and cashmere sweaters.

COX-2 selective inhibitors are associated with an increased incidence of serious adverse events as compared to non-selective NSAIDS (non-steroidal anti-inflammatory drugs).

The Commerce Department reported that November new home sales declined 12% to the lowest level since July. It was the largest drop in more than a decade. November inventory of new homes for sale represented a 4.5 month supply. It was the largest inventory since 1979. The median price of a new home sold in November declined 8.2% to $206,300. It means that new home prices have dropped 0.4% since November 2003. However, residential real estate represents 29% of the value of total household assets while the household financial obligation ratio exceeds 18%, both near record levels.

The housing market in California is a different story with 2004 being a record year for home prices. The annual median price of a home rose 22% to more than $450,000. The median number of days required to sell a home has been only 29 days, the third lowest on record. Even though more than 200,000 permits were issued in 2004, the total fell short of household growth estimated at between 220,000 and 250,000 this year. The state’s Housing Affordability Index has fallen to about 19% this year.

Sales and earnings at American Greetings are below expectations due to lower revenue at the retail level and from the seasonal gift-wrap business.

Real disposable income rose 0.2% in November and the savings rate rose 0.3% in the month. At the same time, consumer spending rose 0.2% in November. Over the past year, real spending has risen 3.4% while real disposable income has increased by 2.2%. In 2004, we spent more than we earned.

Kurt Wulff: “2004 was the year in which the world production of light oil peaked… Just by replaying the old oil cycle, starting in 1976, we could have a three-to-fivefold gain in the oil price in the next five to 13 years.”

12/23/04 The End Game

How do you know it’s the end game? In basketball, it’s the last 2 minutes that count. In elections, such as the Governor’s race in the state of Washington, it’s the third recount, the hand recount, that counts--- even if the difference is only 10 votes out of 10 million ballots cast. In the bond and stock markets, there is no end game. The music doesn’t stop unless you can’t meet a margin call. Sometimes the direction of the game takes on a life of its own. Since August 2004, the Dow Transports have risen over 800 points or about 28% without a correction. What does that signify? It means that price points are moving up almost daily with strong investor buying power and the willingness to pay a premium for designer labels, so to speak. At some point, promotions come into play. Then the scramble for bargains takes place. It’s like the old free-for-all days at Loehmann’s. Be careful not to get trampled. Shoppers hunting for bargains can get aggressive and vicious. The problem now is that there are few bargains and prices continue to escalate--- not just for equities but also in real estate, for example, in San Francisco. Multiple bids turn into a feeding frenzy. It’s not for the faint of heart.

Can you explain to me how the GDP rose 4% in the third quarter while corporate profits declined by 4.2%?

According to Redbook, chain store sales have fallen for three straight weeks. There is another side to the end game. Walmart.com introduced gift cards during the 2002 holiday season. The company expects its sales of online gift cards to triple this season from last year.

The end game is still alive. According to the International Council of Shopping Centers and UBS, one in five consumers plan to shop on December 26. That’s a Sunday. I thought it was a day of rest.

VeriSign stated that this year’s average online transaction increased 10% to $140.

For many, when a plant closes, it is the end game. Hopefully, that will not be the case for all the employees at the Shaw Industries wool plant in Dallas. It is closing.

Is the end game approaching for Medicare? Comptroller General Walker stated “the Medicare problem is about seven times greater than the Social Security problem. It is much bigger, it is much more immediate, and it is going to be much more difficult to effectively address.” John Palmer, one of the six trustees of Social Security and Medicare finances, stated “costs are going to soar, and that is going to put tremendous pressure on federal revenues.” According to the GAO, unfunded Medicare liabilities amount to about $28 trillion.

The Medicare Part B premium for visits to doctors’ offices will rise by 17% or $11.60 in 2005. The typical monthly COLA for Social Security is $25 in 2005.

Air Europa, Spain’s third-largest airline, is currently an all-Boeing operator with 737 and 767 aircraft. The airline ordered 10 A350 planes from Airbus. In addition, Decan Air, India’s low-cost airline, ordered 30 A320s from Airbus and Kingfisher Airline ordered 10 A320s. Meanwhile, JAL ordered 30 Boeing 7E7s. Boeing now has 112 firm orders for the 7E7. The company predicted it would have firm orders for 200 by the end of 2004. Time is getting short for that to occur.

Our economic expansion has been slowing while interest rates have remained at near record-low levels. What happens when rates rise?

Bush’s approval rating stands at 49%. Now I know why he is the Man of the Year. He is the first President in the history of the U.S. to be re-elected with an approval rating under 50% and to also have that approval rating remain under 50% a month after the election. He made history.

Blockbuster cut the price for online rentals to $14.99 per month? Is this the end game?

Excluding transportation, durable goods orders fell 0.8% in November after falling 1.3% in October.

12/22/04 Let The Good Times Roll

When there are 29 out of 30 Dow stocks up in a day, and that was the case yesterday, you know the flow of funds is decidedly moving into equities. Over the past several weeks, many companies have announced buybacks of their own stock. Microsoft paid out that $32 billion dividend. Companies have over $1 trillion in cash on their balance sheets. Merger activity has moved to the front pages. It's no wonder there is a big seasonal rally. Yet, I remain convinced that the right course of action, at leats for me, is to sell into the strength. As previously stated, I have also eliminated all Treasury bond holdings.

With all that cash you would think companies would be increasing wages and salaries and hiring more permanent workers. As with this holiday's retail sales, permanent hiring is lackluster. Meanwhile, workers are content to work at least 16 hours a week at Safeway as a courtesy clerk and receive $8.39 an hour. Why? By working 16 hours a week, they receive full medical and dental coverage and that provides peace of mind. That's a trade off for working at $8.39 per hour and, for many, being over-qualified.

Bilateral trade between China and India surpassed the $10 billion mark for the first time. Growth in the first 10 months was an impressive 82.5%.

For many months I have written about the weakness in the UK housing market. There is talk that the Bank of England will soon lower interest rates.

12/21/04 Precarious Looting

Bush on Social Security: “It’s now in a precarious position. And the question is whether or not our society has got the will to adjust from a defined benefit plan to a defined contribution plan.”

Economist Allen W. Smith, Ph.D. is author of the “Looting of Social Security: How the Government is Draining America’s Retirement Account.” According to Smith, “most of the participants in the debate argue that, when benefit payments begin to exceed payroll tax revenue in 2018, Social Security can just start redeeming that hoard of government ‘bonds’ that are in the trust fund to supplement the inadequate tax revenue, and that it will last until 2042.” He says people who make this argument are wrong. Simply stated, he says, “every penny of the Social Security surplus has been ‘borrowed’ and used to fund other things… since the money was spent, and not invested in paying down the public debt by buying marketable Treasury bonds as the supporters of the 1983 Social Security legislation intended, the trust fund holds only non-marketable ‘special issue’ IOUs that are simply accounting entries that keep track of how much the government owes to Social Security. These IOUs are not real assets because they have no cash value. So, unless the government begins repaying its debt to Social Security now, when Social Security begins to run deficits in 2018, it will be necessary to raise taxes, borrow massive additional amounts from the public, or cut benefits. This is what the privatization smoke screen is intended to keep the public from seeing…The solution to the short-term Social Security imbalance would be for the government to immediately stop looting Social Security and begin repaying the $1.5 trillion that it has already looted from the fund.”

H. Stanley Judd: “The ultimate security is your understanding of reality.”

Dwight Eisenhower: “We will bankrupt ourselves in the vain search for absolute security.”

The key to resolving Social Security, as well as for most problems, is rational decision making rooted in common sense judgments and choices. Invading Iraq was one of choice. There was significant evidence in the winter of 2001 to suggest that, at the very least, doubt surrounded the existence of WMD. I expressed this view quite frequently at that time. Now, Bush is making another precarious judgment. Solving the problems of Social Security is not about society’s will. It is about the federal government’s will--- the will of the Administration and the Congress--- to sharply reduce spending and to begin the repayment of the $1.5 trillion looted from the fund. Approving federal budgets does not equate to right-doing, so to speak. It does not create a good housekeeping stamp of approval and a pat on the head. It is wrong to loot, and people who loot are convicted and sent to prison--- unless they reside at 1600 Pennsylvania Avenue. The government has made no provision to repay the $1.5 trillion that was looted. No federal budget should be approved without repayment provisions.

For the first time in six months, the Conference Board stated the U.S. index of leading economic indicators rose. It was up by 0.2%. In November, six of the ten indicators that make up the index increased. The main improvements were rising stock prices and real money supply. At the same time, the growth rate of the leading index has slowed below its long-term trend.

According to the Holiday eSpending Report, online shoppers in the U.S. spent $16.7 billion during the first six weeks of the holiday season, rising 28% from the prior year. The fastest growing categories year-over-year were music, video/DVD, jewelry, books, and toys/Video games (hardware and software). By comparison, ShopperTrak reported that retail sales on Saturday and Sunday fell 3.3% from the final pre-Christmas weekend a year ago. In the week that ended December 18, sales dropped 5.9% compared with the same week a year ago. Describing this shopping season, Michael Niemira, chief economist at the International Council of Shopping Centers, stated “it’s slow; it’s very uneven; and, at times, it’s worrisome.” Kurt Barnard of Barnard’s Retail Consulting Group stated “so far the season has been a considerable disappointment for most retailers.” One reason, Barnard opined, was “it’s just the same old, same old, same old.” He could just as easily been describing the rhetoric coming out of Washington DC. There is a big difference. Spending by the Administration and the Congress is far from lackluster or slow. It is, however, quite disappointing and extremely worrisome.

Dana Corp. is closing its Stateville, NC plant. It will result in 300 lost jobs. The facility supplies equipment to makers of industrial equipment, such as, graders, loaders, and tractors.

12/20/04 Winter Has Arrived

The winter solstice maybe tomorrow, but don't tell that to Washington DC. It's 10 degrees F, and with the winds blowing 20 to 30 miles per hour, it feels like 10 below. With temperatures like that across many sections of the country, it doesn't take long to use up a lot of heating oil, natural gas, and propane. Combine that with bin Laden's call to attack Saudi oil supplies, and you have some strong bidding for crude. The 10 cent drop in the price of gas at the pump was a welcome relief, but it appears to be short-lived. Santa arrived on Wall Street and that's more than enough to line the pockets of many investors and speculators. Unfortunately, all good things come to an end--- just like warm weather.

According to WebSideStory, Microsoft has started to lose browser market share for the first time in four years. Internet Explorer's share in the U.S. has dropped from 96% in early 2003 to 92% as of Dec. 3. Firefox and Opera have over 10 million users, and Firefox was officially on the market less than 2 months ago. As I mentioned about three months ago, Firefox will make a dent in the browser market, and that dent will get bigger in time.

According to an AP poll, one-half of Americans say they worry about the money they owe---even more so with the holiday purchases, and three-fourths in the poll stated they have credit cards. More than half expect their debt will cause them problems over the next five years. They shouldn't worry. Greenspan is not worried about consumer debt levels, and he is all-knowing. He is Carnac the non-magnificent. As for Federal spending, the Snowman stated it will be reduced in 2006. He seems to have by-passed 2005. Maybe the stock market has taken 2005 for granted too. Years ending in 5 are often clear sailing. It always stays warm too.

12/19/04 A State Of Mind

The holiday season is one of faith, compassion, giving, and joy. It is a state of mind that, unfortunately, is seasonal, and has a partial resemblance to the yearly Claus rally on Wall Street. All good things come to an end---- even the two-day economic conference in DC., which reminds us that this season is often mindless and comprised of senseless dribble.

Harry and David of Medford, Oregon had quite a surprise this holiday shopping season. They received more online orders than they did from their catalog. Could this spell trouble for the catalog business in years to come?

I hope everyone has a wonderful holiday, and one filled with peace of mind and a quality of life cherished and sought by all.

12/18/04 One Week Until Christmas

Overstock reported sales for the holiday season peaked yesterday. That was a full week later than in previous years, and mentioned Thursday the 16th was the largest day in the company’s history. Patrick Byrne, Overstock’s president, observed the trend is significant. “Sales historically peak around Dec. 10th and taper off from there… The fact that business has continued to swell so late in the month suggests to me that last-minute shoppers, who have traditionally flocked to the malls in the last few days before Christmas, are increasingly going online. This phenomenon may be the reason why some market tracking firms have recently increased projections for online holiday spending this year.” Consumers are able to buy later online this year. Companies, such as Wal-Mart.com, are providing guaranteed delivery by the 24th if purchasing by the 20th. Blue Nile is going a step further. They are providing free FedEx shipping to attract late holiday shoppers. This new market trend of last-minute shoppers going online is not a one-season phenomenon. Next year it will be bigger. This spells trouble for companies like Kmart and Sears. In my view, that merger will be the vision for shoppers living in the dark ages when online offerings and comparative pricing were not available to the consumer.

The Bush Administration predicted a 3.5% growth rate for the economy in 2005 and an inflation rate of 2%. They are predicting that the economy will add about 175,000 jobs in 2005. The question is how many revisions will be made to this forecast in the coming months?

The Schwartzenegger (remember him?) Administration stated California’s budget deficit for the coming year has grown to $8.1 billion, more than $1 billion higher than previously forecast. How many upward revisions will be made in the coming months?

The Treasury Department reported that the Alternative Minimum Tax currently applies to 3 million taxpayers and that it will strike 30 million Americans by 2010. Bush wants to eliminate the AMT, which brings $1 trillion in revenue to the Treasury. How will this be accomplished? The proposal is to end the deduction for state and local taxes, which generate $900 billion in revenue.

According to SEMI, the November book-to-bill ratio was 1.00. “Total orders for semiconductor equipment have declined about 16% from the peak observed in June of this year,” stated SEMI.

The news on Celebrex created a market cap loss of close to $30 billion for Pfizer shareholders. Astra Zeneca’s marketing suspension of its cancer drug was a blow to its stockholders. As I have stated over the years, more research needs to be done on drug interaction as well as the size of dosages prescribed to patients with cancer, heart disease, and other leading causes of death.

Blinkx TV is a search engine now in beta. I think readers will appreciate its ability to “capture and index video streams across news, sports, and entertainment programming from 22 channels, including Fox News, ESPN, and Biography.” In sum, it is the first search engine to make TV programs searchable on demand.

The WSJ reports that Excelon is in talks to acquire PSEG in a $12 billion stock deal.

American Express will cut 2,000 jobs. Danaher Tool will close its Springfield, Mass plant and idle 335 workers. The average wage at the facility is $14 per hour.

The BLS reported that real average weekly earnings fell by 0.4% from October to November after seasonal adjustment. A 0.1% increase in average hourly earnings was more than offset by a 0.3% decline in average weekly hours and a 0.2% increase in the CPI for urban wage earners and clerical workers. Earnings of both full-time and part-time workers holding production or non-supervisory jobs are included. Average weekly earnings rose by 2.1%, seasonally adjusted, from November 2003 to November 2004. Adjusted for the CPI, average weekly earnings decreased by 1.6%. GDP growth absent an increase in real average weekly earnings is a formula for a dwindling quality of life. This has been the dour landscape throughout the Bush years. There will be a steep payment.

Oil rose 14% this past week to $46.28 a barrel. Gold also had a better week and closed at $442.90 per ounce

AirAsia will buy 40 Airbus A320s for $2.5 billion and phase out its all-Boeing fleet. Boeing is in discussions with All Nippon Airways to sell several 7E7s.

The Department of Energy in its December 2004 Short-Term Energy Outlook forecast a 34% increase in the average Northeasterner’s heating costs, for a total of $1,279, up from $953 last year.

Mexico’s Finance Secretary Francisco Gil Diaz: “Public foreign debt today is just 12.7% of GDP versus 32.4% in 1995. In 1994, we had almost $19 billion dollars worth of internal debt that was indexed to the dollar. Today we have no indexed debt, no short-term debt, and we’re raising the necessary resources to pay debts in 2006. We’ve already financed 2005 debt.”

In this Saturday’s weekly sales update, Wal-Mart maintained its expectations for a 1% to 3% increase in December sales at its U.S. stores open at least one year. The company mentioned that sales of general merchandise and winter items improved in the latest week. Food sales were strong but the star performer was gift sales which were “up significantly over last week.” Customer traffic continued to drive sales this week.

Before the holiday season shopping season began, I predicted that the major growth would be in online shopping and gift cards. It appears that these two areas will be even stronger than I had anticipated, and for mainstream retailing, as a generalization, the results will be mixed and not very promising.

12/17/04 Surprises In Store

As previously mentioned, there are two additional shopping days this season compared with a year ago. Many retail analysts have suggested that may be one reason shoppers are waiting longer to make their holiday purchases. It’s also possible that traditional shopping venues will see less traffic and that this may be the new trend that gains traction. For several years I have written about increased online shopping. This holiday period has been the mother lode. Business is off the charts, and significantly above pre-holiday forecasts. According to comScore Networks, online holiday shopping had been projected to rise 25% this season to $15 billion. ComScore now predicts the figure will exceed $20 billion, up 63% from the 2003 holiday season. Some of the major beneficiaries have been Blockbuster.com, BestBuy.com, Wal-Mart.com, and Target.com.
Combine online sales with the growth in gift card purchases, and one can expect many surprises in store for the traditional retailer. A growing percentage will be disappointed by their results--- even with two more shopping days. This Saturday and Sunday and next Friday, the 24th, will be key days for the malls and free-standing retailers. They need to start moving their winter apparel inventory. Meanwhile, shoppers will find whether late holiday season shopping found more markdowns and bargains. With many online retailers offering free shipping and/or low cost shipping, more shoppers have found their way conveniently to bargains through comparative pricing on the Internet. It sure beats fighting the crowds.

Yesterday, the U.S. National Weather Service predicted that temperatures in the East, Southeast, much of the Midwest extending east from Kansas and Texas, the Pacific Northwest, Idaho, and Wyoming would be below normal for the next six to ten days. This cold snap might spell trouble for near-term heating oil and natural gas prices.

According to Nielsen/NetRatings, online consumers spent $919 million on travel in November 2004, up 11% from November 2003. In fact, 23% of Americans flocked to online travel destinations during this November. That amounted to 68 million people compared with 60 million in the comparable month of 2003, and “during this November, much of online travel spending stemmed from lower to upper middle class households.”

Wal-Mart quietly launched a new house consumer electronics brand named iLo. You might find that brand on DVD recorders, flat-panel TVs, plasma-screen TVs, and portable DVD players. Not all stores will carry the iLo brand. Prices represent significant savings from those found at other consumer electronics stores, such as, Best Buy. You will be seeing more iLo products in the future. That’s good news for Wal-Mart’s customers where over 52% make less than $45,000 a year compared to 29% at Best Buy, according to the NPD Group.

According to AMR, over the next six years, 15% of IT jobs required by U.S. companies will be done in India. The new report estimates that the Indian IT labor force will be larger than 3 million by 2010, and half of the workers will be performing jobs for U.S. companies.

According to the CBO, Social Security represents about 4.4% of our GDP and Medicare accounts for 12% of the Federal Budget.

Yesterday, volatility again returned to the Treasury market, and the 10-year increased in yield from 4.07% to 4.19% and the spread between the 10-year and the 2-year widened a bit to 1.19% from 1.13%. The increase in yields was connected to the dollar and to U.S. weekly jobless claims falling by 43,000. That decline could only be explained by the possible hiring of 43,000 Santa Clauses and/or a combination of increased military troops and/or a combination of double-counting of part-time seasonal jobs. For me, the number of 43,000 is fantasy and akin to wishful market thinking for the new Gillette women’s vibrating.razor.

Cirrus Logic is cutting 100 jobs. Kewaunee Scientific is cutting its workforce by 18% or 100 positions.

Housing starts plummeted 13.1% in November; however, housing permits only declined 1.5%.

In the third quarter, the U.S. current account deficit widened to a record $164.71 billion.

According to Wal-Mart, the average wage for their U.S. employees is $10 an hour. According to Costco, the wage at Costco starts at $10 an hour.

12/16/04 The Math Is Undeniable

Our October net capital inflows dropped to $48.1 billion, the lowest in a year. In the same month, the trade deficit was $55.1 billion and that does not include the budget gap or the unfunded liabilities for Medicare and Social Security. At the present rate, we will not meet this generation’s obligations--- never mind the obligations being discussed at the so-called two-day economic conference in DC. As I have stated repeatedly, nations vote with their money. Nations around the globe are expressing a growing no-confidence vote in our economic policies. Meanwhile, by comparison, fixed asset investment in China’s urban areas rose 24.9% in November from year earlier levels. Their economic growth will amount to 9% in 2004 and is projected at 8.5% in 2005.

United Airlines employs more than 6,000 people at its Denver hub. United forecasts an $804 million operating loss in 2004 and a $725 million operating loss in 2005. According to a lending agreement, United must maintain a cash balance of at least $750 million. In early May, the airline anticipates its cash balance will drop below that figure.

ABN Amro, the Dutch bank, will cut 2,850 jobs. Some of the global shared services positions to be cut will be in the U.S. The company did not specify how many. Intermet Corp. intends to close its two Sturtevant, Wisc. plants, and this will result in a loss of 603 jobs.

Yesterday Larry Ellison sent a letter to all PeopleSoft employees and stated “we have agreed to target January 14th to communicate the organizational structure of the combined organization. We will inform all affected employees of their roles by this time wherever possible… we need to understand the need to provide clarity as soon as practicable to all employees.” In a month’s time, the thousands of PeopleSoft employees will learn how many will lose their jobs.

Yesterday, the yield curve became a little flatter with the 10-year Treasury yield dropping to a 6-week low yield of 4.07% and the 2-year closing at 2.94%. Meanwhile,
with inflation supposedly under control, crude, heating oil, and unleaded gas futures closed at their highest levels in two weeks and jumped between 4.7% and 6.4%. The markets realized that the winter months do produce cold weather, and the latter impacts stocks of heating oil.

Who would have thought that a shortage of iPods could take place during the holiday season? Apple didn’t.

Accounting disagreements can take its toll. In the case of Fannie Mae it meant restating various earnings releases. It wasn’t a big deal--- only the creation of a $9 billion loss on derivatives, and that eliminated 38% of its reported income since 2001.

Over the course of decades, it has been proven that only a very small percentage of large mergers work out successfully. Hopefully, JNJ’s $25 billion acquisition of Guidant, the $35 billion merger between Sprint and Nextel, and Symantec’s $13.5 billion purchase of Veritas will prove exceptions. First, government approvals must be forthcoming.

In November, Michigan’s unemployment rate rose to 7%.

The BLS reported that the average employer costs for employee wages, salaries, and benefits amounted to $25.36 per hour, of which wages and salaries were 70.8% and benefits were $7.40 for the remaining 29.2%. With those costs, it’s difficult to compete with China, India, and other low-cost countries.

According to the Defense Department, more than 5,500 personnel have deserted since the Iraq war began. They acknowledge that the Army National Guard is short 5,000 new citizen-soldiers. Ivan Eland, national security analyst at the Independent Institute, stated “when you are risking your life on the battlefield, the importance of knowing why you are doing so cannot be underestimated. If soldiers don’t know why they are fighting there or believe they’ve been hoodwinked, we may see the same phenomenon happen in Iraq as occurred in Vietnam.”

The EU will delay the Jan. 1 removal of trade sanctions against the U.S. because our country continues to provide Boeing with tax credits amounting to more than $150 million annually.

October represented the strongest month for net purchases of foreign equities and foreign fixed income instruments by U.S. investors since July 2000.

Gateway cautioned that its first quarter revenue could fall 15% or more from fourth quarter levels.

Paul Samuelson: “Politicians like to tell people what they want to hear--- and what they want to hear is what won’t happen.”

12/15/04 Appropriations And Supplementals

Back in June, only six months ago, the CBO estimated that the 2005 supplemental for Iraq and Afghanistan would be between $55 and $60 billion. This is a non-partisan office; however, being non-partisan is not a pathway leading to accurate forecasting. According to the Pentagon and White House officials, the administration’s funding request for Iraq and Afghanistan will be raised close to $100 billion, and this is on top of the three special budget requests that have provided $152.6 billion through December 31, 2004. As one military think tank member suggested, “I think we’re probably getting up to $2 billion a week fairly soon.”

Abraham Lincoln: “You cannot keep out of trouble by spending more than your income.”

Cold weather provides relief from pests and bugs and fleas but not from spenders in our nation’s capitol.

For the first 10 months of 2004, the trade deficit amounted to $500.5 billion, and exceeded the record gap for all of 2003. The October trade deficit of $55.5 billion placed our nation’s annualized trade deficit rate at $666 billion. You can see that a declining dollar has not been of assistance. As long as we import about 50% more goods and services than we export, this trade gap problem will persist and grow in cancerous proportions.

Charles Jaffe: “It’s not your salary that makes you rich, it’s your spending habits.”

The U.S. trade deficit with China was $16.8 billion in October, and this year’s deficit with China is expected to reach $160 billion by year-end. In the first ten months of 2004, foreign direct investment in China amounted to $53 billion. Their foreign exchange earnings are approaching $515 billion, almost $100 billion greater than the comparable period a year ago. It is not surprising that China’s money supply is growing 17 to 20% annually and that inflation exceeds a 5% rate.

The Reserve Bank of India reported that, in the week ended Dec. 3, the country’s flow of funds from other countries grew by $3.79 billion. India’s foreign exchange reserves now stand at a record-high of $130.72 billion.

Not everyone is excited about Oracle’s acquisition of PeopleSoft. In June 2003, J.D. Edwards agreed to merge with PeopleSoft. J.D. Edwards is the largest sofware company in Denver with 2,000 workers. Many of these workers will be cut by Oracle. During the 18 months that Oracle battled to acquire PeopleSoft, Oracle threatened to layoff 6,000 of PeopleSoft’s workers. The final figure may not be 6,000, but it will be a large number. David Duffield, founder of PeopleSoft, wrote the employees and stated “I offer my sincere apologies for not figuring out a different conclusion to our 18-month saga."

Merck will cut another 700 jobs, bringing the total layoffs to 5,100. Charles Craft Inc. will close its last two remaining textile plants in North Carolina early in 2005, laying off more than 300 people. As of November, Carolina’s textile industry employed 76,600 people, less than half the industry’s 1993 levels. Eaton Corp. announced it will close down part of its automotive components plant in Roxboro, NC and layoff 150 workers or about one-third of its workforce there.

Anew survey of large private employers by the Kaiser Family Foundation and Hewitt Associates found a typical worker under age 65 who retired in 2004 would pay $2,244 annually in premiums--- $4,644 with spousal coverage--- a 27% increase over the cost for a similar worker who retired in 2003. A typical worker 65 or older, and thus eligible for Medicare health coverage, would pay $1,212 annually in premiums--- $2,508 with spousal coverage--- this year, up 24% from 2003.

Kaiser Family Foundation President Drew E. Altman: “The prospects for retiree health coverage are slowly disappearing for America’s workers.” Given the trend towards aging of our population, this is a massive problem. Overall, about 85% of employers expect to raise premiums for retirees next year, and 75% expect to raise them on retirees’ dependents. More than 50% expect to raise co-insurance or co-payments.

In the first seven days on retail shelves, there were 5 million DVD and VHS units sold of “The Bourne Supremacy.” By comparison, the movie grossed $176 million domestically.

Since June, the Fed has raised interest rates five times from 1% to 2.25%. Meanwhile, during this time, the difference between two-year and 10-year Treasury note yields have narrowed from about 2.8 percentage points to roughly 1.2 percentage points. I doubt very much whether the Fed had anticipated the 10-year declining in yield from 4.7% to 4.15% in six months. With more anticipated Fed rate increases in 2005, it’s possible an inverted yield curve might occur.

Veritas is the leader in backup and archiving storage software. It would be an excellent acquisition for Symantec, but it would also be quite a plus for other companies, particularly EMC.

12/14/04 Buy And Hold

Generalizations generally do not have much meaning. Examples are often provided about the long-term advances in stock prices that lead to a successful buy and hold strategy. Studies upon studies have been done on this subject. Let’s take some varying examples. Yesterday was a big up-day for stock indices. The S&P 500 rallied up to the 1198 level, up 50% from the low of about 800 reached in early 2003; however, the present near-1200 level has only rallied back to the mid-2001 area. Hence, the success of the buy and hold strategy is highly dependent on your entry point. Here's another example, and one that illustrates my stupidity. On a split-adjusted basis, in 2000, I purchased Krispy Kreme stock at $10. Recently, the stock has been in a major down-draft. Rather than sell it or reduce my holdings, I continue to own the stock and it is back to $10. My substantial profit has disappeared, but the doughnuts still taste great.

The New York Times reports that Symantec of Cupertino is in merger talks to acquire Veritas of Mountain View. Symantec has a market cap of $21 billion and Veritas’ is $11 billion. Here is another example of buy and hold. As you know, I recommended that readers consider the purchase of Veritas stock in July at $18. The stock languished for some weeks and even dropped down close to $16. In my view, the company has good management and superior technology. The stock is back up to $25, but still a long ways from the lofty levels reached some years ago. Should the merger be effectuated, some long-term holders in Veritas may still experience a loss. It will depend on their entry point. Should you decide that a buy and hold strategy is right for you, then it is necessary to be prepared for periods of disappointment that require substantial patience.

Talking about potential mergers, the Wall Street Journal suggests that Vodafone and its U.S. partner Verizon are considering bidding for Sprint, the company supposedly in merger talks with Nextel.

Cardinal Health is the second-largest distributor of pharmaceuticals and other medical supplies and equipment in the U.S. The company announced it would cut 4,200 jobs, or 7% of its workforce and close 25 facilities. Corixa, a maker of cancer drugs, will cut 43% of its workforce, or 160 jobs.

Google will digitize millions of books.

According to the Holiday eSpending Report, 27% of online consumers are reported to have finished their holiday shopping, compared to 31% during the same time-frame in 2003. So far this season, the latest weekly report showed consumers have spent $12.7 billion online to date, excluding travel. Online holiday shopping peaks this week as the free shipping deadline for Dec. 24 delivery arrives in mid-December. In fact, today is the biggest online shopping day of the year.

Yesterday was the peak holiday shipping day for FedEx. The company expected to deliver 7.7 million packages. UPS expects to deliver 20 million packages on its peak day of Dec. 21.

PricewaterhouseCoopers’ “Trendsetter Barometer” interviewed CEOs of 355 privately held product and service companies identified as the fastest growing U.S. businesses over the last five years. The survey revealed that fewer CEOs of America’s fastest-growing companies are optimistic about the U.S. economy’s prospects over the next 12 months, and concern is increasing about weak market demand.

CareerBuilder.com released the findings from its latest survey. Forty-three percent of workers want to change jobs in 2005. The top five areas hiring managers plan to recruit for in 2005 include customer service, sales, healthcare, retail, and accounting/finance. Fifty percent of hiring managers plan to hire temporary workers. Nearly half of hiring managers say that hourly workers will make up to 50% or more of their new hires. Eighty-eight percent of hiring managers will add recent college grads to their staffs and 52% plan to recruit high school students. Next year’s hiring appears to be a continuation of 2004--- more temps and more hourly lower-paying jobs, a lousy landscape for the consumer and the potential saver.

A market-basket survey taken by Prudential Equity Group revealed that Wal-Mart lowered prices on only 23 of 160 items on Dec. 6 compared with late October. A separate report by FTN Midwest Research in Cleveland showed that Wal-Mart, Sears, JC Penney, and other retailers had raised prices on select items after the holiday season started on November 26. In my view, shoppers are not stupid. The Internet makes comparative shopping a great deal easier. Consumers are waiting for prices to be cut. C. Britt Beemer, chairman of America’s Research Group, stated “there are more consumers waiting to finish their holiday shopping on Dec. 24 than any other time in the last five years.”

Philip Arestis of the Cambridge Centre for Economic and Public Policy at the University of Cambridge in England opined “the rate of growth of profits, industrial production, and job creation is slowing. While consumers’ spending continues to grow, their incomes are rising less rapidly, calling into question the sustainability of their purchasing power.”

According to Pittiglio Rabin Todd & McGrath, during the past four years, the 20 largest U.S. and foreign companies in 15 capital-intensive industries reduced their capital expenditures by 17.9 percent. The decline in spending came despite a 9% increase in revenue for the group during the same period.

According to the NY Fed, private sector productivity growth should average 2.6% over the next 10 years. They don’t know what productivity will be next year much less 10 years from now.

India’s exports are up 24% so far in 2004. The U.S. imports 80% of its footwear and toys from China.

Fred Bergsten, director of the Institute for International Economics: “The U.S. already must borrow $5 billion from the rest of the world every working day to finance America’s own foreign investments as well as the trade imbalance.”

As of Jan. 1, 2005, Blockbuster is eliminating late fees.

I am quite enthusiastic about the research conducted by Dr. Vladimir Makarov, founder and CSO of Rubicon Genomics, and his staff at this Ann Arbor, Michigan company. They invented a more effective technology for the diagnosis and prognosis of cancer compared to what hospitals and reference labs use today. Specifically, their methylplex microarray profiling will analyze the methylation patterns from patients in an effort to detect prostate and esophageal cancer. Rubicon hopes to soon prepare for an FDA filing.

12/13/04 Setting The Record Straight

According to a report released today by the University of Massachusetts and Harvard University school’s of Law and Public Health, 48% of the 19,000 or so Massachusetts workers in construction are misclassified as independent workers. Misclassifications enable employers to avoid payroll taxes, unemployment insurance, and workers’ compensation insurance. Utilizing the state Division of Unemployment Assistance insurance tax audits, researchers discovered that, between 2001 and 2003, 36,531 Massachusetts employers misclassified up to 248,000 workers, robbing the state of $152 million in uncollected income tax revenue. In addition, $35.1 million in unemployment insurance taxes were lost. Often employees will sign waivers absolving the employer from paying unemployment benefits or workers’ comp insurance. Why? That may be a condition to getting hired or not being fired. As medical and workers’ comp premiums continue to increase, you can expect this growing trend towards independent contractors to continue. Misclassifications may also explain some of the differences between the household and non-farm payroll employment surveys.

N.Y and London crude oil futures closed Friday below their average price for the past 52 weeks for the first time that has occurred in a year.

Over the weekend, at least 8 Marines were killed in Iraq. Approximately 1,300 members of the U.S. military have died since the beginning of the Iraq war in March 2003. If there have been nine wounded for every combat death, that would equate to close to 12,000 wounded soldiers.

Oracle announced that it signed a definitive agreement to acquire PeopleSoft for $26.50 per share. Larry Ellison stated “we intend to enhance PeopleSoft 8 and develop PeopleSoft 9 and enhance a JD Edwards 5 and develop a JD Edwards 6. We intend to immediately extend and improve support for existing JD Edwards and PeopleSoft customers worldwide.” In July 2003 Oracle made an offer to acquire PeopleSoft for $16 a share. They objected to the PeopleSoft and JD Edwards merger and stated they would fire 7,500 PeopleSoft employees and deep-six the applications business for PeopleSoft and JD Edwards, thus only leaving the offerings made by Oracle. It reminds me of the movie Pretty Woman where Richard Gere wants to buy Ralph Bellamy’s shipbuilding company and dismantle it, but in the end acquires the company and builds more boats. Maybe Ellison thinks this is a $10.3 billion movie script.

About 800 employees of Swift & Co.’s Greeley, Colorado meatpacking plant will lose their jobs five days before Christmas. Swift stated they have been impacted by restrictions imposed on the export of beef due to the mad cow scare. It has had to supply Asian countries through its plants in Australia. I thought the America public was informed that our beef was safe. I guess foreign countries don’t believe our ag officials.

The Kansas City Board of Trade began overnight electronic trading of wheat futures contracts. It is part of the game plan to make risk-management products available around the clock.

This should be an eventful week. We can expect to read about capital flows, the Fed raising rates, a widening U.S. trade deficit, a slowing rate of U.S. industrial production, Bush’s economic plans for his second term, and the November Treasury budget. With such a backdrop of non-enthusiastic news, I guess the markets will rally. After all, it’s December, the best month for the stock market. That far outweighs five steps and stumble. After all, the market totally ignored three steps and stumble.

U.S. October demand for machine tools plunged in all regions of the nation, declining between about 32% and 52% in the five regions surveyed by the AMTDA and the AMT. Overall, October demand was 38.9% lower than September’s numbers, which had the highest monthly total demand in nearly four years. Unless extended, the administration’s tax relief bill provided for a 50% expensing allowance for machine tools.

12/12/04 Chocolate Candy, Social Security, And Medicaid

Cocoa beans contain flavonoids, an antioxidant that some maintain can protect the heart. Walnuts contain omega-3 fatty acids, and studies have linked them to lowering the risk of heart disease. Apricots have healthful beta carotene. Putting all these ingredients together, it is not surprising that St. Louis- based Bissinger’s Handcrafted Chocolatier advertises to their customers to “treat yourself to good health.” The packaging states the candies contain ingredients “linked to improved cardiovascular health, lowered risk for certain types of cancer, a reduction in body weight and a lowing of the aging process.” Bonnie Liebman is the director of nutrition at the Center for Science in the Public Interest and stated “the claims that these candies can help you lose weight, fight cancer, or improve your short-term memory are not supported by good evidence. The bottom line is they’re trying to trick people into thinking these chocolates are good for them.” At a cost of more than $2 each, I know they’re not good for the pocket book.

Yesterday, Bush’s radio address to the nation was on Social Security. He mentioned that “in the 1950s, there were about 16 workers paying for every Social Security beneficiary. Today there are about three…In the year 2018, for the first time ever, Social Security will pay out more in benefits than the government collects in payroll taxes…By the time today’s workers in their mid 20s begin to retire, the system will be bankrupt, unless we act to save it.” The measures taken to save it will be good for you. “Saving Social Security for future generations will not be easy.” It will be hard work. You will be told that the government is trying to trick people into thinking the changes will be good for them. “Nothing will change for those who are receiving Social Security and for those who are near retirement. We must not increase payroll taxes. We must tap into the power of compound interest” and the latter would be accomplished through private accounts giving workers a “better rate of return.” In addition, Bush’s plan will also include shifting the calculation of benefits from the current system of wage indexing (which according to the Heritage Foundation usually rises about 1 to 1.5% faster than the price index) to one that relies on price indexing, and this change will cut benefits by 6.2% for someone turning 65 in the year 2022, stated the Heritage Foundation, while those with a private account would earn 4.7%, plus inflation. If nothing is done, that same person in 2022 would see benefits cut by 10.7% unless the Social Security system cashed in trust funds to offset the shortfall, suggests the Heritage Foundation, a conservative think tank. In sum, the diet of private accounts and re-indexing of benefits will be good for your health. You will now be able to breathe comfortably and exhale without worry. Fortunately, I have been eating a lot of chocolates and my memory is still alive and well. It was in a 2000 presidential debate that Bush stated that he would pay for the overhaul of Social Security by using half of the budget surplus. So much for that plan. You can’t fault the president. After all, about two out of three Americans are overweight (Bush said he has been eating too many doughnuts) and about two out of every three Americans spend and consume too much (Bush is a healthy discretionary spender).

Congress gave the states $10 billion t help cover the costs of Medicaid in 2003. In 2004, no federal funds were forthcoming. Medicaid is the health safety-net program for 52 million disabled and poor Americans. According to the National Council of State Legislatures (NCSL), sixteen states are already over budget and will have to find more money this fiscal year for Medicaid. Michigan, Nebraska, and New Hampshire report that they may run out of money, and will have to find a way to fill the gaps. In sum, spiraling health care costs and less federal aid will mean another year of belt-tightening with budget cuts on the way. Whereas Social Security does not represent a problem in 2005, Medicaid and health matters represent serious hurdles for our states.

Several years ago, Dave Winer and Adam Curry devised the software for blogging. Ever since, I have been posting on a daily basis. I have greatly appreciated their efforts. Blogging has gained tremendous traction, and it has revolutionized written communication. Dave and Adam have turned their attention to audio. They have developed software for the creation of personalized media channels. It is called “podcasting” that delivers audio programming created on a PC, and the latter is distributed via RSS to an iPod or other MP3 device. You can subscribe to the podcast as the software enables the automatic transfer of the RSS feed from the user’s computer to their MP3 device for on-demand listening. Aspiring DJs will now have podcasting, and just as there are hundreds of thousands of blogs, there will be tens of thousands of new radio programs and radio stations. Naturally, you don’t need FCC permission to podcast. There will be talk and there will be music. Adam Curry ventures there are 33 million MPs players and 600 million cell phones with MP3 capability and they have a network connection. Next stop? Incorporating video into podcasting and delivering it to MP3 equipped cell phone screens, thereby creating your personalized broadcast television channel. It may not be a large screen, but it will contain your content of choice.

Yesterday, Wal-Mart reaffirmed their estimate for December U.S. comp sales to rise by 1 to 3%. They “continue to see strength in food sales while general merchandise sales were not as strong. Sales for winter related items are below expectations. Average ticket drove the comp sales this week.” In other words, despite advertising sales, traffic did not drive sales.

When it comes to my investment history in Research in Motion or RIMM, I have made a zillion mistakes. How is that possible if I bought the stock in 1999 at $8 (adjusted for splits) and it’s presently trading at $88? I purchased the stock because I thought, and continue to think, their Blackberry is a great product. It was introduced in 1999. I let my love of the product close my eyes to the volatility in the stock. I have ridden the stock up and down, up and down, up and down. I have had faith in the long-term growth of the company; however, I should have taken some profits off the table. Taking profits too early is not a sin unless it’s in Berkshire Hathaway stock. So why I am writing about RIMM now? Mark Veverka’s article in Barron’s mentioned RIMM and he stated how folks have been predicting for some time that their “proprietary business model would catch up with the company. The question has been, not if, but when?” Along comes this competitor, Visto, a private company out of Redwood Shores, CA, the town Oracle calls home. Brian Bogosian, chairman and CEO of Visto, proclaims “my belief is that, in the long-term, the Blackberry is toast.” Visto has an open system for wireless email and PIM solutions. I visited Visto in 1999. They had some good venture backers. Since 1999, RIMM has run rings around Visto. Maybe that will change, but I’ll continue to stick with RIMM stock. If owning the stock had interfered with my sleeping, I would have sold long ago. I have seen other competition enter the market, and the market is large enough to accommodate many offerings without toast being served. Visto is but one entry in the wireless email market. An open system does not equate to a market leader.

12/11/04 The Cost Of Doing Business

Fed Governor Bernanke: “Under a paper-money system, a determined government can always generate higher spending and hence positive inflation.” Unfortunately, over the last several years, the Fed has reached many irrational conclusions. Growing out of excess capacity so that U.S. businesses would regain their ability to raise prices is but one example. The Fed made a crucial error in judgment. This is not a normal economic expansion. In a real economic expansion, people earn more money. In this so-called period of economic growth, real wages have been declining for four years. As we approach the start of 2005, as a generalization, businesses hope to boost domestic revenues by raising prices. (Please do not write about Dell and others lowering the price of computers. As component prices come down, the cost of the hardware declines.)

There is a growing need for businesses to raise prices. Core intermediate goods prices have risen 8% in the past year, the worst inflation since 1981. In November, the prices of raw materials rose 8.7%, the biggest increase since March 2003. In the midst of this landscape, Philadelphia Fed Bank President Santomero stated “I think, at the moment, inflation is contained.” Maybe his moments are different from my moments. Santomero did, however, state “but I am hearing from businessmen that there is pressure on margins.” You bet there is pressure on margins. To combat that pressure, companies have attempted to first cut costs. Hence, hiring is limited to the have to category, and then, mostly part-time workers to avoid the cost of benefits. Secondly, companies have been closing plants, and mostly because of foreign competition. Thirdly, firms have placed a ceiling on overtime hours and attempt to squeeze more productivity out of their workforce. All the while, workers are seeing their wages, adjusted for inflation, declining. That is not an encouraging backdrop for raising prices. As Santomero remarked, “even though there is some pressure on costs, so far, it’s not translating to inflation at the retail level.”

There are other Fed forces at work. Wages are not rising but the Fed has generated the movement to monetize asset inflation, convert that to consumptive purchasing power despite the national net savings rate at record low levels, and not so gently, assist in making record household debt the icing on the cake. This recipe for disaster cannot be found in a Julia Child cookbook. As our real economic growth, adjusted for inflation, falters, the government appetite for deficits continues to grow. The U.S. government posted a $57.8 billion budget shortfall in November. The deficit for the first two months of the 2005 fiscal year is $115.2 billion versus $112.5 billion in the same period one year ago.

Comerica Bank’s National Recession Watch Index forecasts the likelihood of a national recession occurring six to 12 months in the future. The Index registered a 17% probability in November, up from 12% in October. November’s reading was the least favorable outlook since July 2001.

This past week the U.S. dollar broke an eight-week losing streak.

Crude closed under $41 a barrel for the first time in four months.

Wal-Mart has 40 stores in China and expects to increase that number by about 15 in 2005. In the first six months of 2004, Wal-Mart’s revenues in China increased 32%. IBM, Cisco, and Microsoft’s revenue growth should be so good.

Stephen Roach: “Lacking domestic savings, the U.S. must then import surplus savings from abroad in order to grow--- and then run massive current account and trade deficits to attract that capital.”

John Leahy, Airbus’s chief marketing official: “You will see a significant portion of customers that Boeing thought they might have for the 7E7 now switching to the Airbus A350 because of performance of the aircraft.” The A350 will be offered in two different passenger versions with capacities ranging from 245 to 285 seats with a range of 15,900 km or more. Airbus will soon announce several multi-billion dollar orders for the A350.

Up until now, the State Department’s immigrant visa control division has permitted thousands of foreign nurses to get fast-track work permits. After Jan. 1, this will not be allowed. Beginning in 2005, approval could take several years. Thousands of nurses from the Philippines will be impacted, and they have been our major source of imported nurses. Many hospitals have been experiencing a nursing shortage. That shortage can be expected to get worse in the new year.

China’s consumer prices in November slowed to a rise of 2.8%. This is significantly lower than the 4 to 5% increases over the last several months.

UBS’ Gary Gordon: “You can sustain very high levels of consumer debt when rates are falling, but not when they are rising.”

12/11/04 The Cost Of Doing Business

Fed Governor Bernanke: “Under a paper-money system, a determined government can always generate higher spending and hence positive inflation.” Unfortunately, over the last several years, the Fed has reached many irrational conclusions. Growing out of excess capacity so that U.S. businesses would regain their ability to raise prices is but one example. The Fed made a crucial error in judgment. This is not a normal economic expansion. In a real economic expansion, people earn more money. In this so-called period of economic growth, real wages have been declining for four years. As we approach the start of 2005, as a generalization, businesses hope to boost domestic revenues by raising prices. (Please do not write about Dell and others lowering the price of computers. As component prices come down, the cost of the hardware declines.)

There is a growing need for businesses to raise prices. Core intermediate goods prices have risen 8% in the past year, the worst inflation since 1981. In November, the prices of raw materials rose 8.7%, the biggest increase since March 2003. In the midst of this landscape, Philadelphia Fed Bank President Santomero stated “I think, at the moment, inflation is contained.” Maybe his moments are different from my moments. Santomero did, however, state “but I am hearing from businessmen that there is pressure on margins.” You bet there is pressure on margins. To combat that pressure, companies have attempted to first cut costs. Hence, hiring is limited to the have to category, and then, mostly part-time workers to avoid the cost of benefits. Secondly, companies have been closing plants, and mostly because of foreign competition. Thirdly, firms have placed a ceiling on overtime hours and attempt to squeeze more productivity out of their workforce. All the while, workers are seeing their wages, adjusted for inflation, declining. That is not an encouraging backdrop for raising prices. As Santomero remarked, “even though there is some pressure on costs, so far, it’s not translating to inflation at the retail level.”

There are other Fed forces at work. Wages are not rising but the Fed has generated the movement to monetize asset inflation, convert that to consumptive purchasing power despite the national net savings rate at record low levels, and not so gently, assist in making record household debt the icing on the cake. This recipe for disaster cannot be found in a Julia Child cookbook. As our real economic growth, adjusted for inflation, falters, the government appetite for deficits continues to grow. The U.S. government posted a $57.8 billion budget shortfall in November. The deficit for the first two months of the 2005 fiscal year is $115.2 billion versus $112.5 billion in the same period one year ago.

Comerica Bank’s National Recession Watch Index forecasts the likelihood of a national recession occurring six to 12 months in the future. The Index registered a 17% probability in November, up from 12% in October. November’s reading was the least favorable outlook since July 2001.

This past week the U.S. dollar broke an eight-week losing streak.

Crude closed under $41 a barrel for the first time in four months.

Wal-Mart has 40 stores in China and expects to increase that number by about 15 in 2005. In the first six months of 2004, Wal-Mart’s revenues in China increased 32%. IBM, Cisco, and Microsoft’s revenue growth should be so good.

Stephen Roach: “Lacking domestic savings, the U.S. must then import surplus savings from abroad in order to grow--- and then run massive current account and trade deficits to attract that capital.”

John Leahy, Airbus’s chief marketing official: “You will see a significant portion of customers that Boeing thought they might have for the 7E7 now switching to the Airbus A350 because of performance of the aircraft.” The A350 will be offered in two different passenger versions with capacities ranging from 245 to 285 seats with a range of 15,900 km or more. Airbus will soon announce several multi-billion dollar orders for the A350.

Up until now, the State Department’s immigrant visa control division has permitted thousands of foreign nurses to get fast-track work permits. After Jan. 1, this will not be allowed. Beginning in 2005, approval could take several years. Thousands of nurses from the Philippines will be impacted, and they have been our major source of imported nurses. Many hospitals have been experiencing a nursing shortage. That shortage can be expected to get worse in the new year.

China’s consumer prices in November slowed to a rise of 2.8%. This is significantly lower than the 4 to 5% increases over the last several months.

UBS’ Gary Gordon: “You can sustain very high levels of consumer debt when rates are falling, but not when they are rising.”

12/10/04 By The Nation But To The Nation

The mounting debt pile mounts each and every day. We have talked and talked about our national debt of $7.5 trillion that is equal to 7.5 times 1000 billion dollars. We have discussed the unfunded liabilities for Medicare and Social Security that amount to over $43 trillion or 43 times 1000 billion dollars. Let us not forget to include the $10 trillion of debt levels accumulated by U.S. households. The latter increased by an annualized 9.1% in the third quarter while household net worth rose 4.5% in the same period to $46.7 trillion, according to the Federal Reserve. There is more. Total U.S. debt, excluding the aforementioned liabilities, increased at a 7.4% annual rate in the third quarter to $23.6 trillion. Debt owed by U.S. businesses increased at a 5.1% rate, the fastest in five quarters. If you take everything together, we have an $11 trillion economy with a household worth of $46.7 trillion balancing on a debt picture of $23.6 trillion + $43 trillion or rounded out to 67 times 1000 billion dollars. Are you still wondering why the dollar has collapsed against all major currencies?

FDR: “Our national debt after all, is an internal debt, owed not only by the nation but to the nation. If our children have to pay the interest they will pay that interest to themselves.” How about the principal?

Morgan Stanley expects credit card companies in 2004 to lose $17 billion in receivables to mortgage refinancings and $89 billion to home-equity loans.

The Bank Credit Analyst points out that, since 1992, emerging Asia’s exports have grown 80% faster than consumption. It’s no wonder our trade deficit is out of control.

According to Cardweb.com, 20% of all holiday-related transactions this year are being placed on debit cards, and that figure continues to grow at 16% annually.

Greenspan stated that the record weight of debt carried by American households and soaring home prices do not represent serious threats to the U.S. economy. He remarked that the vast majority of consumers “appear to calibrate their borrowing and spending to minimize financial difficulties…household finances appear to be in reasonably good shape.”

Publilius Syrus: “Debt is the slavery of the free.”

Ronald Reagan: “We don’t have a trillion-dollar debt because we haven’t taxed enough; we have a trillion-dollar debt because we spend too much.”

According to the recent findings of the Duke University/CFO Magazine Business Outlook survey, chief financial officers of U.S. corporations are less bullish about the economy in 2005, and are particularly concerned about health care costs and operating in an increasingly competitive economic environment. More than two-thirds of the CFOs believe that addressing the U.S. budget deficit should be at the top of the president’s list.

Charlie Chaplin: “The saddest thing I can imagine is to get used to luxury.”

The IEA stated “the market is amply supplied with sour crude which can not be readily processed.”

According to the BLS, import prices for non-petroleum industrial supplies and materials were up 16% over the past 12 months. In contrast, agricultural export prices fell for a fifth time in the past 6 months. Over the past year, agricultural prices were down 5.2%; however, for the year ended November, overall export prices increased 4.3% while overall import prices rose 9.5% for the November 2003-2004 period. That is not a healthy tonic for profit margins.

Halliburton is the largest U.S. contractor in Iraq. They have received $10.8 billion in work orders from the Army. Maybe Boeing and Halliburton should merge.

The Conference Board reported that Japan’s leading economic index declined 0.3% in October. It was the third consecutive monthly decline. At the same time, real GDP growth slowed to a 0.3% annual rate in the third quarter of 2004, down from 1.1% in the second quarter and a 5.2% average rate over the previous year.

Private and foreign investors showed little interest in the sale of $9 billion of 10-year Treasury notes. At a yield of 4.15%, one cannot blame them.

Have you ever considered that Santa Claus rallies coincide with the time of holiday bonuses on Wall Street? As a generality, higher stock prices lead to higher bonuses.

Delphi Corp. will cut 3,000 U.S. hourly employees and 5,500 non-U.S. workers. With lower production levels and higher health care and commodity price increases, the company expects a pro-forma net loss of $200 million in 2005 but operating cash flow of at least $900 million. Sprint will cut 700 jobs. Domtar Ltd. is eliminating 790 jobs. Sitel is cutting170 jobs, Reuters is reducing the number of editing positions by 100.

Over a year ago I wrote about beta glucan. There is an increasing amount of research being done on the medicinal power of maitake mushrooms. This “dancing mushroom” has beta glucan, or polysaccharide, a constituent frequently credited for its immuno-stimulant properties. In a recent issue of the Journal of Medicinal Food, it was noted that a polysaccharide extract of maitake increased both innate and adaptive immune responses in mice. In the Winter 2003 issue there was an article indicating that maitake’s immune-enhancing effects may play a role in cancer prevention. In prior studies, there were indications beta glucan had therapeutic value against type 2 diabetes by reducing fasting blood glucose and insulin resistance. During this study period, Maitake SX-Fraction also lowered systolic blood pressure in subjects.

Reportedly, starting early next year, OPEC will cut production by 1 million barrels per day.

Bernard Baruch: “I made my money by selling too soon.”