Saturday, January 24, 2004

1/24/04 Another Look

Yesterday I “visited” with some good folks in Michigan. December, I learned, was the seventh consecutive month that Michigan’s unemployment rate was at or above 7%. In December, the unemployment rate edged up to 7.2% from November’s 7.1%. The number of jobless Michigan residents rose by 4,000 to 365,000, about twice what it was three years ago. The number of employed people dropped by 31,000 in December. Michigan’s 2003 average unemployment rate was 7%, the highest since 1993. In addition, 2003 was the third consecutive year that the state’s annual average unemployment rate increased. Prior to 2001, Michigan’s annual average unemployment rate declined nine years in a row. Some pundits state the reason the unemployment data is so dismal for Michigan is the fact it is heavily dependent on manufacturing. The fact is total manufacturing job losses amounted to 30,000 during 2003. The job losses extend into transportation, utilities, trade, professional and business services, and even education and health services.

It was raining hard here on Friday. I had some extra time on my hands so I “visited” with some good folks in Houston. The Texas Workforce Commission was upbeat. They stated the Houston area only lost 8,700 jobs in 2003. They stated the trend is turning because 500 jobs were added in November and 4,000 more jobs were added in December. Then I got the real selling story. They stated the National Association of Purchasing Management indicated employers added jobs in December for the first time in 27 months. My gut told me these folks were not telling me something. I told them, which of course they already knew, that I check in with them monthly and today they sounded too upbeat. I politely told them to stop with the bullshit and to tell me the whole story. I soon learned that December’s employment gain included 7,700 new state and local government jobs. Without those, Houston would have had a month of 3,700 less jobs. What this country does not require is larger government. I wished them all a successful Super Bowl.

I have tried very hard to avoid writing about Oracle’s bid for PeopleSoft. About eight months ago I wanted to puke from covering their daily war of words. Unfortunately, I am back at it again thanks to Oracle launching a proxy fight to gain control of PeopleSoft. Most people read about such fights. Having waged the most successful proxy fight in corporate history, I know a bit about the subject. Oracle plans to nominate five nominees for directors to PeopleSoft’s board. Only four board members are up for re-election. Oracle argues that PeopleSoft’s newest board member, Michael Maples, was never elected by the stockholders and therefore should stand for re-election. If PeopleSoft refuses to place Maples for re-election, Oracle will submit a proposal to amend PeopleSoft’s bylaws to expand the board to nine members. Maples was added to the board after completion of PeopleSoft’s acquisition of J.D. Edwards last year. Are you still with me? The PeopleSoft shareholder meeting will take place in May. There are a couple of sticking points to this situation. One is price. Oracle is offering $19.50 to PeopleSoft shareholders, and the latter’s stock is now three points higher than Oracle’s offer. Unfortunately, for Oracle, in the tech rally PeopleSoft stock has risen about 60% since Oracle’s initial bid. Secondly, there is a potential antitrust problem. The Justice Department needs to approve this acquisition, and this government agency will not provide their take on this matter for another month or two. In addition, in June the state of Connecticut filed a lawsuit to block the proposed merger. California, Texas, Colorado, and other states are also probing the merger. Finally, there is the matter of foreign regulators approving this merger. Hopefully, I will not find another reason to write on this subject for another month or two.

A month or so ago I wrote that David Kay would resign his post, and that he would announce there were no WMD in Iraq. Yesterday the resignation became official. Kay stated “I don’t think they (WMD) existed. What everyone was talking about is stockpiles produced after the end of the last Gulf War, and I don’t think there was a large-scale production program in the ‘90s.” Kay waited to resign until after Bush’s State of the Union address. Kay went on to state “you could not find any physical evidence that supported a larger program. I think there were stockpiles at the end of the first Gulf War… a combination of UN inspectors and unilateral Iraq action got rid of them.” It should be noted that Kay’s Iraq Survey Group, working for the CIA since June, employed at least 1,000 inspectors, and they searched daily for the WMD. The question remains whether there was a “massive intelligence failure” or lies about the existence of WMD or a combination of both. Any way you cut the cheese, in my book the matter has a huge smell and a toxic cloud hovers over the decision to invade Iraq.

According to Global Insight, Inc. and its Agriculture Group, the overall impact from the recent mad cow occurrence will be a 10% decline in net farm income in 2004 from the prior year’s level. The drop is primarily due to its impact on cattle prices and beef exports. According to Global Sight’s managing director Harry Baumes, “the U.S. consumer is what drives the beef sector, and although the export market is important and reopening those markets to U.S. beef is a priority with the USDA, it is more important for the Department of Agriculture to maintain the confidence of U.S. consumers.”

Preliminary sales data released yesterday by Toyota showed the Japanese company became the world’s No. 2 automaker behind GM by outselling Ford in 2003. Unit sales for Toyota rose 9.9% last year while Ford’s decreased 3.6%. It was Toyota’s best performance in its 46-year history. For the second year in a row and the sixth time in the past seven years, Toyota’s Camry was America’s best-selling car. In their latest fiscal year, group profits at Toyota amounted to $8.83 billion, and that makes Toyota the world’s most profitable auto company.

According to Ward’s Automotive Reports, to date in calendar 2004, vehicle output in North America is down 14.4% from the like period in 2003. Car production has declined 24.2% while light, medium, and heavy-duty truck output is down 6.6%.

Wilsons Leather decided to liquidate its El Portal and Bentley’s Luggage Stores in late 2002 after finding no buyers. Prior to yesterday, Wilsons had planned to close 28 stores in January and as many as 50 during their fiscal year. On Thursday the company laid off 70 corporate workers, including 60 people at its Brooklyn Park headquarters and distribution center. Brooklyn Park is in Minnesota and not a borough of New York City. Wilsons posted double-digit sales decreases at stores open at least a year in both October and November and a 6.8% decline in December. Yesterday the company announced the closing of about 100 stores, nearly 20% of its total, and the elimination of more than 1,000 jobs after a dismal holiday season.

The Group of Seven (G7) summit will take place on February 6 and 7 in Florida. There is some speculation that European officials will push for the ECB to lower interest rates, and thereby stem the rise in the euro as it is hurting exports. The ECB has maintained its rate at 2%, twice the Fed’s level. In September the G7 called for “more flexible exchange rates,” and since then the dollar has declined sharply against the euro, yen, and other major currencies. Should the ECB lower rates, the dollar should begin to stabilize. Last week ECB President Trichet stated he was concerned with “brutal moves” in the currency exchange rate. Meanwhile, the Fed announced yesterday last week’s holdings of U.S. treasuries on behalf of foreign central banks was the biggest weekly increase since May. Foreign central bank Treasury holdings exceed $1.1 trillion, with Japan the largest owner of our U.S. government debt.

Swedish Medical Center is the largest hospital in the Northwest and has 7,000 employees. Yesterday they announced the lay off of 160 employees in March, and the shifting of lab work performed at its Providence campus to an outside vendor. The lab employees earn about $18 per hour.

There is more troubling mad cow news, and it indicates how lacking the testing procedures truly are. Dave Louthan remembers the Holstein with the mad cow disease. He stated it was a “fluke” the animal was tested. Had the animal been deemed a downer, it would have been sent to a rendering plant, and tests are not performed. Louthan worked at Vern’s Moses Lake Meat Co. (and since has been laid off.) The Holstein was walking. He noticed blood on the tail. He should have herded the cow into a holding pen with other ambulatory animals. It was late in the day, and Louthan stated “I was cutting corners.” As such, he put the animal down, and a piece of the brain was sent for testing. Had a vet simply examined the Holstein, mad cow would not have been discovered. The diseased particles are not visible to the vet’s eyes. Louthan stated, under ordinary circumstances, the cow would not have been tested. The testing is totally voluntary, and the industry chooses the animals to be tested. Under new procedures, downer animals are banned and sent directly to rendering plants. In many states no testing is performed there. Without a birthing injury, the Holstein would still be out and about with BSE.

Friday, January 23, 2004

1/23/04 Sanofi And Aventis

There is speculation that Sanofi-Synthelabo, the French pharmaceutical company, is preparing a hostile bid for Aventis Pharmaceuticals, the large French-German manufacturer of prescription drugs, human vaccines, and animal health products. The price mentioned is at least $60 billion, or 30 times the yearly profit generated by Aventis. Igor Landau, Aventis chairman, was quoted as stating Aventis was not in merger talks with Sanofi, and that he believed Sanofi would not make a takeover bid. L’Oreal owns 19.5% of Sanofi, and Nestle controls 26.3% of L’Oreal. Total, the large oil entity, owns 24.4% of Sanofi. A combination of Sanofi and Aventis would create one of the world’s largest pharmaceutical companies. Sanofi has been looking to make an acquisition. Aventis would prove attractive to many others, and that could include Merck. The difficulty is structuring a transaction not too dilutive to the acquiring company.

I don’t see why analysts have such difficulty in understanding the results for Microsoft. Here’s a company that just announced quarterly revenues exceeding $10 billion. They raised their revenue forecast for the year ending June 30. They increased their earnings per share projections for the fiscal year. The company’s CFO stated he expects Microsoft to end its fiscal year with about the same amount of unearned revenue it has now, and that unearned revenue should stabilize in the future. Windows operating systems rose to over $3 billion in the latest quarter. Revenues for Microsoft Office and other business software increased 27% in the quarter to just under $3 billion. Revenue for the MSN division was up 19%. The company generates more cash than any other technology company in the world. I suggest Wall Street analysts take a refresher course in scrutinizing financial operating results.

Yesterday I received an email from a bright guy questioning my views on unemployment, and commenting that possibly I should become more upbeat on the subject. Just as many analysts don’t grasp Microsoft’s operations, many money managers don’t get the unemployment picture. It’s not that difficult. Let me give a few more helping hands. Citibank will close a former Sears, Roebuck credit-card processing center in Neshaminy, Pennsylvania, and 930 workers will lose their jobs. Last year Citigroup paid $3 billion for Sears’ credit card portfolio. The pending acquisitions of FleetBoston and Bank One are expected to result in additional job losses in the area. The caususes are over in Des Moines, and now we can get back to the business of layoffs. Iowa Packing has been a significant employer in Des Moines for decades, and the history of meatpacking on the plant site at 1801 Maury St. dates back more than 100 years. The Ochylski has operated the plant for decades. Unfortunately, they are in financial trouble and owe $22 million to secured creditors. A sale of the business is expected to close Monday. The business employs 520 workers. The city of Des Moines received notice that all of the plant’s workers would be laid off, with “some portion” rehired after the sale closed. At least one-half of the workers will lose their jobs. In sum, I do not exaggerate the severity of the job loss problem in our country, and I do not exaggerate the difficulty in finding a job. The facts are there for all to see. It’s the same with Microsoft. Just open your eyes and your mind.

Yesterday the government reported first-time applications for unemployment had declined. For the past six plus months they stated the jobless rolls had fallen by 637,000. The Labor Department also reported that 45 states and territories had reported an increase in new claims and eight had reported a decrease. The Labor Department’s figures did not include some 788,000 workers who were receiving extended federal unemployment benefits until December 21, 2003, the date the program was not extended. Therefore, unemployment figures actually rose and are sitting at higher levels than late June, 2003.

Prior to the U.S. invasion of Iraq, Bush and Cheney both claimed “there is no doubt that Saddam Hussein has weapons of mass destruction… to use against our friends, against our allies, and against us.” Without the discovery of WMD, Bush has changed the rhetoric to “weapons of mass destruction-related program activities.” When asked about the wording change, Bush replied "What’s the difference." Yesterday the Bush administration issued a new federal rule that limits pollution testing. I wonder whether that covers monitoring and oversight of the art of “misspeaking.”

Thursday, January 22, 2004

1/22/04 “Some People Could Conceivably Be—Are Being Left Behind”

This statement was made yesterday by Bush at the Owens Community College in Toledo, Ohio. He stated “Americans should be able to trust that what the president tells them is true.” I’m all for that. Bush was highlighting his $250 million proposal for new job-training grants channeled through community colleges. Bush recently proposed to cut almost $700 million in the same job training and education programs, such as, $225 in funding youth job training grants, $230 million in vocational community college education, and reducing the Pell Education Grant that will impact 84,000 students and reduce grants for “an additional one million students,” as observed the U.S. Government Education Department.

In the State of the Union Address Bush stated “in two weeks, I will send you a budget that funds the war, protects the homeland, and meets important domestic needs, while limiting the growth in discretionary spending to less than 4%.” He did not tell the American public that, according to the Defense News and the Center for Strategic and Budgetary Assessments, a $50 billion request would be made by the president after the November election for additional spending in Iraq. It should be noted that, prior to the start of the war, House Budget Director Daniels stated the cost of the Iraq war would “be in the range of $50 billion. It should also be noted federal spending for the year ending September 30, 2004 was estimated by the president to be 3.34% above the 2003 level. In actuality, the increase will approach 6%.

Yesterday was a bit different in New York City. More than 150 corporate executives, many paying $1,400 per person, participated in an “offshore outsourcing “ conference. The executives chose to close the conference to the press. Outside the Times Square hotel where the meeting took place a programmer held a sign “will code for food.”

Bush is absolutely correct. There are people who are being left behind, and not necessarily all in Ohio. Eastman Kodak, in its efforts to convert to digital photography, will cut 21% of its workforce or about 15,000 jobs. These will be manufacturing, support, and corporate staff positions. I envision future layoffs. The company will close photo- finishing labs serving the retail trade. PalmOne is firing 100 workers or 12% of its entire workforce. Ahold, Giant Food’s Dutch parent company, will shut down its U.S. corporate headquarters in Chantilly, Virginia where it employs 100 people. Haworth Inc, a Michigan-based furniture manufacturer, will close a plant and layoff 161 workers. They stated another plant would likely be closed this year.

Interestingly, starts of single-family homes fell 0.6% in December to a level just shy of the monthly record set in November. However, starts of townhouses, apartments, and other multifamily homes rose 11.6% to a 424,000 annual rate in December. Much of the strength in the economy in 2002 and 2003 has been in home building and residential construction and remodeling.

In 2000 four people in three New Jersey counties died from CJD (Creutzfeldt-Jakob disease) and for the four-year period from 2000 to 2003 a total of eight people in those southern New Jersey counties died from the disease. This is a very large number considering the disease occurs in about one in a million people. Humans can contract variant CJD from eating infected meat; however, it is believed none of the aforementioned deaths is tied to mad cow disease. At the same time, the CDC has only investigated three of these cases. All of the cases involved people who ate at or lived near the Garden State Race Track in Cherry Hill, NJ.

Lewis Gossett, president of the South Carolina Manufacturers Alliance, stated “it’s almost like the reports from Iraq, where you hear about a soldier or two being killed each day. You pick up a newspaper and you read about a facility closing… the problem with these textile mill closings in particular is that oftentimes they are the mainstay of that community’s economy… when you take that tax base out of the community, a number of other things die with it.” The community is frequently left behind. Gossett remarked “something has to support service industry. Something has to form the foundation that provides those people with an opportunity to make a living and prosper. Somebody at some point needs to be making something.”


Wednesday, January 21, 2004

1/21/04 Testifying But Not Debating

Yesterday truly exemplified Bush’s state of the union. It would prove disastrous for millions of workers. Labor Secretary Chao told a Senate appropriations subcommittee on labor that her department intends to move forward with the new overtime regulations by March 31. She mentioned that employers are spending $2 billion a year on “needless litigation” by workers seeking overtime pay. Chao testified but was unwilling to hear opposing views, and replied “enough time has been spent on delays and studies of all sorts.” I want to reiterate that initially both the House and the Senate voted to omit the changes in the overtime laws requested by Bush. Unfortunately, they succumbed to ongoing White House lobbying. That should tell you about the backbone of many in the House and the Senate. The Department of Labor will make changes in the Fair Labor Standards Act of 1938. Anyone earning less than $22,100 automatically becomes eligible for overtime pay, up from the present $8,060. Anyone “in a position of responsibility” or earning more than $65,000 a year would be exempt from mandatory overtime pay. Employers can change a worker’s job description, and place them in a position of responsibility. It requires only a stroke of a pen. Similarly, said Sen. Patty Murray, D-Wash., “without any hearings, with the stroke of a pen, the secretary of labor is about to adversely affect the lives of millions of Americans.” Under Bush, the average American worker has seen weekly work hours decline and wages remain unchanged when compared with an inflation rate which is the lowest in years. The American worker is under siege. Millions of jobs have been lost since he took office in January 2001. Now millions of workers will lose millions of dollars in overtime pay. The American worker is not safer in the workplace. In my view, this should not be the state of the union.

Kerry Killinger, Washington Mutual’s CEO, stated “rising interest rates for mortgages in the second half of the year placed pressure on our business results. Total home-loan volume fell 42% during the last quarter from the year earlier period. The bank will cut 2,900 jobs this quarter after eliminating 4,500 employees in its home-loan business in the fourth quarter. Real estate closings in the state of Washington were 1.2% below the year-ago levels statewide, and represented the first decline in 15 months. The Office of Forecast Council stated “the decline in activity was a little sooner and more abrupt than expected.”

Yesterday a large explosion killed 13 workers and injured at least 74 in a terrible explosion at Algeria’s largest refinery in the Mediterranean port city of Skikda about 300 miles east of Algiers. Skikda is the country’s largest port and handles most of Algeria’s exports of crude, refined, and petrochemical products. About 12,000 people work at the oil and gas facilities. The port of Skikda exports 335,000 barrels per day of oil as well as 60 billion cubic meters per year of liquefied natural gas. In 2002 Algeria was the world’s second largest exporter of LNG. U.S. fuel inventories have fallen to the lowest levels in about 30 years. OPEC’s next meeting is on February 10 in Algiers. Yesterday, after the explosion, U.S. light crude oil futures for February delivery rose to a new 10-month high at $35.90 a barrel. We can expect gas at the pumps to keep rising. During winters one does not often witness higher gas prices at the pump.

Gene Jolley, founder of Kingdom Financial Principals LLC, stated “I’m already seeing more families choosing to buckle down and learn how to eliminate their debt without gimmicks. Now we just need to get the message out on a large scale. Imagine the effect it will have on our economy when more people are living completely debt-free, including mortgages, after just five to ten years.”

Tuesday, January 20, 2004

1/20/04 The State Of The Union

Tonight Bush will ask the nation to stay the course on terrorism. Last year at this time, according to a White House transcript, he claimed Hussein had enough anthrax to “kill several million people,” enough botulinum toxin to “subject millions of people to death by respiratory failure,” and enough chemical agents to “kill untold thousands.” In addition, Bush proclaimed Hussein “has given no evidence that he has destroyed” any of the chemical weapons. It is fair to say that tonight no mention will be made of WMD, the 500+ U.S. soldiers killed in Iraq, or the 100+ U.S. soldiers killed in Afghanistan. There is an explanation for why Dr. Kay and his 1000+ searchers for WMD have not discovered them. Cheney has the answer. He maintains they are “perishable.” That’s right. They don’t keep. They spoil, as in lies spoil the truth.

In an effort to “continue to confront the challenges of our time,” Bush stated in his radio address on Saturday, he will ask the Congress to make his tax cuts permanent. He will ask for federal funding for job training. He will ask for tax breaks for health care costs, including making health care expenses tax deductible for low and medium income families, the group that can least benefit from tax breaks. He will suggest initiating IRAs for younger workers. He will push for specific family values, including same sex marriages. Bush will increase Medicare payments to HMOs by 10.6% in an effort to persuade them to join the Medicare market, and he will increase benefits for the elderly. The new Medicare law gave private health plans a larger role in the program. The CBO estimates that the extra payments to private plans will exceed $500 million this year and will total $14 billion from 2004 to 2013. I don’t believe Bush will be discussing our twin budget and trade deficits or his excessive discretionary government spending. Bush must decide whether he wants to be a compassionate conservative, a strong leader with good intentions, or simply a president with a mandate to “make America a more secure, more prosperous and more hopeful place.”

I am certain that Bush will discuss jobs for all Americans. He won’t discuss the millions who have lost jobs during his term as president. He won’t discuss a growing trend in India with “overseas professionals from countries as far as the U.S., Britain, and South Africa who started to call us to inquire about job opportunities here. This has now become a trend,” stated Anil Mahajan, executive director of Talent Hunt Private Ltd. in New Delhi. He mentioned “with many new leading global technology companies now moving high-profile jobs to India, the country has become an attractive job destination. Earlier only call center jobs were coming to India. But now as companies start to ship high-end research and senior managerial jobs too to India, foreign workers see huge opportunity for themselves here.” Maybe, with Bush’s job training program, more U.S. workers will be able to get a job in India. There are fewer opportunities in the U.S. and the job search often takes 20 months or more. Do you think Bush will discuss the failure to extend unemployment benefits or the effort to do away with overtime in the workplace for 8 million workers? That probably won’t make it into tonight’s speech.

Coming from Texas, Bush has a preference for eating beef. I do not believe he will include a discussion of mad cow disease or the mention made yesterday by Japan’s Ministry of Agriculture, Forestry and Fisheries that “there is no assurances that no further cases of mad cow disease will be found in the United States. Compared with the measures Japan is taking, the U.S. measures are fairly weak and inadequate in terms of safety.”

In discussing the current economic conditions in the United States, I don’t believe Bush will second the words proclaimed by Wal-Mart yesterday that “the mid-month paycheck cycle continues to be pronounced.” He probably will leave out a section on millions of American workers living paycheck to paycheck and rather shall focus on the need for continued tax cuts.

I doubt whether Bush will discuss White House forecasts for the budget deficit expanding to $475 billion this year. I question whether Bush will discuss our $500 billion trade or current account deficit. As long as consumers continue to have an appetite for imported goods, we shall run trade deficits with China and Japan. Meanwhile, Bush may discuss on-going tax incentives to promote business investment, but companies, such as, Motorola will “keep on investing in China to benefit from the strong growth.” China’s economy grew just under 10% in the fourth quarter. That country’s industrial production rose a record 18% in December. Retail sales grew 11%. By comparison, the U.S. economy is standing still. It is not a surprise that Motorola had invested $3.4 billion in China by the start of last year. With the growth in investment and production, China created 8.5 million jobs last year. I don’t believe Bush will discussion this job growth. By comparison, it makes our job losses look even worse.

I don’t believe Bush will discuss the economies of other countries. He will not mention the Bank of Japan’s assessment that the world’s second largest economy is “recovering gradually. Exports are increasing and business fixed investment continues a gradual recovery. As for the outlook, Japan’s economy is anticipated to continue recovering, albeit at a moderate pace.” Bush will avoid discussing the weak dollar and the downward risks the latter poses to the Japanese economy from a strong yen. With Japan’s aging population and its need for social welfare spending, the country’s debt levels are rising to unwieldy heights. That could spell big trouble for the United States. It may not prove viable for Japan to continue its massive purchases of U.S. treasuries in its efforts to stem the rising tide of the yen versus the dollar. Bush will not touch on this subject. The Bank of Japan will buy asset-backed securities to help boost the recovery of small and mid-sized companies. I wonder if our Federal Reserve will find a similar need.

I know that Bush can speak some Spanish. Will he close tonight’s speech with Donas Calientitas al Instante! That’s “hot donuts now” in Spanish. That might give everyone a pick me up. He can close by stating that Krispy Kreme opened its doors to its first store in Mexico, located in Interlomas, a suburb in Mexico City, this morning. Donuts, immigration, and NAFTA. What a finish to a speech!

Monday, January 19, 2004

1/18/04 IRS Form 6251 And Form 8801

Over the past year I have discussed the alternative minimum tax (AMT) several times. I have referred to it as a WMD. Yesterday a friend called and asked whether I had read the article in Barron?s on the AMT. I had not, and did not get an opportunity to state I would not be reading it. Before I had the chance, he mentioned that he?d be emailing it to me, and asked that I give my opinion. Politely, I remarked that I don?t critique the work by others. I did state I would mention AMTagain this morning. The AMT is an important matter. It is not to be taken likely. It is a cancer. The growth is exploding within our society. I highly recommend speaking to a tax accountant, and a good one. This is not a malady for an HMO. It is essential to plan wisely. In 1970, 19,000 taxpayers were impacted by the AMT. In 2003, the figure could be over 4 million. The Urban-Brookings Tax Policy Center study indicated the number will jump to 35.6 million by 2010. Do I have your attention? Let?s examine the AMT. It is not indexed to inflation. It is a separate tax system. A good many filing with incomes approximating $75,000 or higher will be hit by the AMT. The bloodshed is not pretty. You begin by adding back your personal and dependent exemption deductions. You lose personal exemptions under AMT. Deductions for state and local taxes are disallowed. That home-equity loan interest deduction becomes a problem. Deductions on rental properties, partnership interests, S corporations, exercised incentive stock options, large capital gains, foreign-income write-offs, property tax write-offs, some itemized deductions for investment expenses, employee business expenses, and interest deductions on second mortgages become problems with AMT. Dental and medical expenses must exceed 10% of adjusted gross income to be allowable as deductions. In addition, real property taxes cannot be deducted until they are actually paid to the taxing authority. I have attempted to highlight some of the more striking elements under AMT. I have not mentioned all of them.

The Federal Reserve estimates about 13.5 percent of disposable monthly income for all Americans goes towards monthly credit card payments. The average credit card holder carries about $8500 in such debt and pays about $1,000 a year in interest charges. Consumer credit totals about $2 trillion. Paul Kasriel, chief economist at Northern Trust, remarked "I think we?ve got a what?s-my-monthly-payment kind of society." Susan Boas, president of Consumer Credit Counseling Services of Greater Atlanta, stated "people think that, if they can make the minimum payment, they are OK. There is a significant proportion of the American population that lives one paycheck away from disaster- when they lose a job, it is a very serious problem." According to the ABA, credit card delinquencies climbed to a record 4.09 percent of all accounts during the third quarter of 2003, and in the year ending September 30, 2003, 1.66 million personal bankruptcies were filed, a 7.4 percent rise from the prior year. CardWeb, a research firm tracking the payment card industry, observed the average household pays interest charges of $1,000 a year; however, add in fees of various kinds for those who carry a balance, and companies are making an average of $1,700 a year per household, stated Robert Manning, professor at the Rochester Institute of Technology and author of "Credit Card Nation." Dimitri Papadimitriou, president of Bard College?s Levy Economics Institute, stated "if the economy isn?t growing and doesn?t produce jobs, then the time of reckoning comes nearer."

By an overwhelming majority (83.6%), employees of Dow Jones, publisher of the Wall Street Journal and Barron?s, have rejected a proposal for a new three-year contract that would have slashed health benefits. The proposed contract also included a wage increase that failed to keep pace even with the small current state of inflation. The vote marked the first time in the history of the Independent Association of Publishers? Employees, Dow Jones?s primary union, members voted to repudiate a contract proposal on which they were asked to vote.

In 1965 The U.S. deployed 184,300 troops in Vietnam. In that year, after a cumulative four-year period, a total of 500 U.S. troops were killed. Since the start of the war in Iraq in March 2003, our military has employed about 130,000 troops and the death toll of 500 was reached this weekend. Over the 14-year U.S. engagement in Vietnam more than 58,000 troops were killed.

University of Michigan professor Juan Cole: "The press has concentrated on the significance passing the 500 mark (346 from hostile fire) with regard to deaths. But in this war, the injuries that have been survived have been horrific. Thousands of U.S. soldiers are coming home with their faces blown off, or missing limbs, facing a lifetime in a wheel chair. The military medicine is good, and swift, and saves more lives. But the result is large numbers of permanently maimed vets. These have largely been hidden away from the public view, and they haven?t even always been treated very well on their return by the military. The other complaint I have is the fetish about daily number of attacks (down to 18, the military says, from a high of 50 a few months ago). But the rise to 15 attacks a day had once seemed intolerable, in the aftermath of the military victory. And the "reduction" to 18 a day appears to have been achieved over and over again. The important statistic is the number of our guys getting killed or wounded. That isn?t down appreciably in the past month, so fewer attacks that are more deadly seem to me to be just as bad as more attacks that are less effective."


1/18/04 IRS Form 6251 And Form 8801

Over the past year I have discussed the alternative minimum tax (AMT) several times. I have referred to it as a WMD. Yesterday a friend called and asked whether I had read the article in Barron’s on the AMT. I had not, and did not get an opportunity to state I would not be reading it. Before I had the chance, he mentioned that he’d be emailing it to me, and asked that I give my opinion. Politely, I remarked that I don’t critique the work by others. I did state I would mention AMTagain this morning. The AMT is an important matter. It is not to be taken likely. It is a cancer. The growth is exploding within our society. I highly recommend speaking to a tax accountant, and a good one. This is not a malady for an HMO. It is essential to plan wisely. In 1970, 19,000 taxpayers were impacted by the AMT. In 2003, the figure could be over 4 million. The Urban-Brookings Tax Policy Center study indicated the number will jump to 35.6 million by 2010. Do I have your attention? Let’s examine the AMT. It is not indexed to inflation. It is a separate tax system. A good many filing with incomes approximating $75,000 or higher will be hit by the AMT. The bloodshed is not pretty. You begin by adding back your personal and dependent exemption deductions. You lose personal exemptions under AMT. Deductions for state and local taxes are disallowed. That home-equity loan interest deduction becomes a problem. Deductions on rental properties, partnership interests, S corporations, exercised incentive stock options, large capital gains, foreign-income write-offs, property tax write-offs, some itemized deductions for investment expenses, employee business expenses, and interest deductions on second mortgages become problems with AMT. Dental and medical expenses must exceed 10% of adjusted gross income to be allowable as deductions. In addition, real property taxes cannot be deducted until they are actually paid to the taxing authority. I have attempted to highlight some of the more striking elements under AMT. I have not mentioned all of them.

The Federal Reserve estimates about 13.5 percent of disposable monthly income for all Americans goes towards monthly credit card payments. The average credit card holder carries about $8500 in such debt and pays about $1,000 a year in interest charges. Consumer credit totals about $2 trillion. Paul Kasriel, chief economist at Northern Trust, remarked "I think we’ve got a what’s-my-monthly-payment kind of society." Susan Boas, president of Consumer Credit Counseling Services of Greater Atlanta, stated "people think that, if they can make the minimum payment, they are OK. There is a significant proportion of the American population that lives one paycheck away from disaster- when they lose a job, it is a very serious problem." According to the ABA, credit card delinquencies climbed to a record 4.09 percent of all accounts during the third quarter of 2003, and in the year ending September 30, 2003, 1.66 million personal bankruptcies were filed, a 7.4 percent rise from the prior year. CardWeb, a research firm tracking the payment card industry, observed the average household pays interest charges of $1,000 a year; however, add in fees of various kinds for those who carry a balance, and companies are making an average of $1,700 a year per household, stated Robert Manning, professor at the Rochester Institute of Technology and author of "Credit Card Nation." Dimitri Papadimitriou, president of Bard College’s Levy Economics Institute, stated "if the economy isn’t growing and doesn’t produce jobs, then the time of reckoning comes nearer."

By an overwhelming majority (83.6%), employees of Dow Jones, publisher of the Wall Street Journal and Barron’s, have rejected a proposal for a new three-year contract that would have slashed health benefits. The proposed contract also included a wage increase that failed to keep pace even with the small current state of inflation. The vote marked the first time in the history of the Independent Association of Publishers’ Employees, Dow Jones’s primary union, members voted to repudiate a contract proposal on which they were asked to vote.

In 1965 The U.S. deployed 184,300 troops in Vietnam. In that year, after a cumulative four-year period, a total of 500 U.S. troops were killed. Since the start of the war in Iraq in March 2003, our military has employed about 130,000 troops and the death toll of 500 was reached this weekend. Over the 14-year U.S. engagement in Vietnam more than 58,000 troops were killed.

University of Michigan professor Juan Cole: "The press has concentrated on the significance passing the 500 mark (346 from hostile fire) with regard to deaths. But in this war, the injuries that have been survived have been horrific. Thousands of U.S. soldiers are coming home with their faces blown off, or missing limbs, facing a lifetime in a wheel chair. The military medicine is good, and swift, and saves more lives. But the result is large numbers of permanently maimed vets. These have largely been hidden away from the public view, and they haven’t even always been treated very well on their return by the military. The other complaint I have is the fetish about daily number of attacks (down to 18, the military says, from a high of 50 a few months ago). But the rise to 15 attacks a day had once seemed intolerable, in the aftermath of the military victory. And the "reduction" to 18 a day appears to have been achieved over and over again. The important statistic is the number of our guys getting killed or wounded. That isn’t down appreciably in the past month, so fewer attacks that are more deadly seem to me to be just as bad as more attacks that are less effective."


1/19/04 Preference And Viability

Watching the Iowa political scene has been a great learning experience for me. Focusing on the happenings in the heartland has been an ever-increasing important part of my life. I find it essential to grasp what makes those on Main Street tick. Watching the pre-caucus meetings, my appreciation and understanding of Iowans has been enhanced.

The turnout for the caucuses at 1,993 locations in the 99 Iowa counties should be extraordinary. Young and old will make themselves heard. The process is about preference and viability. If your preferred choice does not get 12 to 15% support of those present, then you must move on to your second choice, and so on. Your choice must be viable. In the last three presidential elections, I cast my vote knowing the Libertarian candidate was not viable. I could not do that in the Iowa caucuses. In the end, your vote must count. That’s a good thing. In other words, it is important for your voice to be heard in our democratic system, but when few are listening, so to speak, your voice counts for little. It may make you feel better to stand up and be counted, but the count needs to have traction. In my view, the voices expressed tonight in the caucuses will not be forgotten. They will carry forward into other states. It is quite possible that, the turning point in this presidential election, took place a few days ago when the Des Moines Register newspaper endorsed John Edwards. Since then, his time has come. He has made the most of this opportunity. No matter the final tally, John Edwards, I believe, will be declared the real winner. Professional politicians will begin to count potential electoral votes, and they will realize he, along with Kerry as a running mate, could truly win in November 2004. Just as our troops are vulnerable in Iraq, so is George W. Bush vulnerable in the election process. When push comes to shove, Bush is unfamiliar with those on Main Street. That’s where the battle is fought. Preference and viability will rule in 2004.

The Iowa caucus process also proved a learning experience as it relates to our economy and Wall Street. I often write about the businesses and the workers in Iowa. Watching their faces over the past few weeks, I learned even more. These people represent the heart, the soul, and the very best in America. They appreciate the core values of honesty, family, community, hard work, and respect for others. Iowans fight for our freedom, pay taxes, and try and make ends meet. Often they go unappreciated. They don’t make the covers of magazines or get idolized by the public. However, they will be heard beginning at 6:30 Iowa time this evening. Frequently, the state’s infrastructure has not been able to accommodate the rush of reporters. Some hotels have run out of hot water during this caucus time. The 1,993 locations will accommodate the participants. When the chips are on the table, you can count on Iowans.

Over the weekend I received an email about IBM hiring more workers this year, especially recent college graduates. The information had come from a company news release. In a reply, I mentioned this didn’t feel right to me because IBM’s revenue growth has been overseas, and particularly in the Asia Pacific region. In this morning’s Wall Street Journal, the paper notes “internal documents from IBM show that it expects to save $168 million annually starting in 2006 by sifting several thousand high-paying jobs overseas… IBM plans to shift the jobs from various U.S. locations to China, India, and Brazil, where wages for skilled programmers are substantially lower.” Including salary and benefits, IBM expects to pay about $12.50 per hour versus $56 per hour for a comparable U.S. employee.

MCI plans to cut about 1,700 workers in the coming weeks. I expect that future layoffs will greatly exceed that number. MCI does have one distinguished employee. Vinton Cerf is senior vice president of technology strategy at MCI. During his tenure at the U.S. Department of Defense’s Advanced Research Projects Agency in the 1970s, Cerf co-designed the TCP/IP protocol and architecture of the Internet. He is often described as one of the founders of the Internet. When he talks, people listen, or they should. This past week he said “I’m also expecting to see some significant increase in the use of speech understanding as an alternative way of interacting with the Net. It’s been a prospect for some time. Even when I was at the Defense Department, we were doing research in speech understanding in the mid-1970s with some fairly good results. But we couldn’t do it in real time, with continually spoken speech. Now we have enough computer power to make it possible to literally recognize connected speech in real time.” Vinton Cerf is quite correct. Next week I will call him and provide the opportunity to see voice recognition in real time. The day for the melding of voice recognition technology and text messaging is now. After 30 years, it is viable and it shall become the preference for millions who wish to be mobile, hands free, and leave their desktops at home and in the office.