7/17/04 A Funny Thing Happened

Without angst and worry the public might shy away from the media. It's quite possible there would be less reading of newspapers and magazines, less watching of TV news and financial stations, and decreased listening to talk radio. In addition, politicians would have smaller audiences. At the same time, with less angst it's possible there could be decreased discretionary federal spending. Now don't get me wrong. There are plenty of worries. Ford recalled 900,000 cars. Mine is too old to be recalled. Boston Scientific recalled 96,000 stent systems. I never had use for one, thanks God. There is worry with GM. According to Global Insight, North American vehicle production is running 4.5% behind last year's pace, and yet, inventories of unsold vehicles are rising despite ever increasing incentives. If you want to pace the halls at night, here is a fright. Funding the deficit has become more problematic. U.S. asset inflows declined in May to $56.4 billion from net inflows of $76 billion in April. Should that downward trend continue, you might be faced with a combination of less federal spending and increased taxes. The shortfall must be made up somehow. It may as well be your pocketbook. In spite of these worries, the University of Michigan told us that, in July, sentiment was slightly more positive than in June. In essence, even though your paychecks after inflation continue to dwindle, you are jumping for joy. A shrink might be in order.

A funny thing happened on the way to angstville. Those rising interest rates you've been worried about are not rising. Ten year treasuries are yielding 4.36% or essentially the same rate they were on April 13. All that Fed speak about increasing rates on a measured basis was just there to mislead the markets and sell newspapers. It was part of the war on terror-- to create more terror. Don't worry. The markets forgot more about forecasting than Greenspan and company ever knew. If you listen to a consultant, you are a schmuck of the first order.

My remedy is to burn your newspapers and magazines. Turn off the TV and radio. Start thinking for yourself. You might discover your brain, the one that hasn't been used in quite some time. If it's atrophied, don't worry. A funny thing happened. Dormant doesn't equate with dead.

7/16/04 Why Bush Will Lose The Election

It's quite straightforward. The Labor Department provided the reason. The average weekly earnings of U.S. workers decreased 0.8% in June. The average American is going economically backwards.

The core CPI, excluding food and energy costs, rose only 0.1% in June, the lowest rate of increase since last December. Overall, this is good news for the bond market. It would be good news for stocks except for one thing-- top line growth is muted. Look at IBM. Their second quarter revenues rose only 4%, adjusted for currency, and this is only marginally better than the rate of inflation. Their gross margins declined from the year ago period. You'd never know this reading from the optimistic headlines. I don't trade with headlines. Dell raised their profit outlook for this quarter. They didn't raise revenue forecasts. The raise is due to a lower tax rate. I can't get excited over a lower tax rate.

UAL is deferring a $72.4 million pension fund payment. At the end of 2003, their pension plans were underfunded by $6.2 billion. That's not a misprint.

Breuners Furniture is going out of business and closing their 47 furniture stores. They operate in the Bay Area and Sacramento.

Michigan's factories shed another 10,000 jobs in June.

AMR will furlough 123 pilots.

San Jose University's recent study of California's consumer optimism indicates a drop of 2 points from the end of March and down 6 points from the end of December 2003.

Fed Governor Susan Schmidt Bies: "You cannot keep short term interest rates below the rate of inflation- it's too accomodative. We've got to get to what we call a neutral level." Don't look now in real time, Ms. Bies, but the rate of inflation is dropping, and quickly. That's what happens when demand hits a brick wall.

Elise Gould of the Economic Policy Institute stated "the idea of a preferred provider isn't necessarily based on quality of care. It's based on who's making the best deals."

When Krispy Kreme opened their first outlet in Northern California just before their IPO, the lines stretched and stretched and the police assisted with the traffic. The excitement has switched to chicken. Thousands were there in Corona, Queens for the opening of Pollo Campero, a Guatemalan chain founded 33 years ago. It operates in 6 countries and this was the first N.Y outlet. The next one will open in Brooklyn. They have locations in California and Washington. This is the real deal.

Sy Hersh relates that young Iraqi men were sodomized by U.S. troops at Abu Ghuraib. It's on film.

7/15/04 Profit Margins And Market Share

As the forecast for Intel's gross profit margins declined from 62% to 60%, the stock plunged to an 11 month low of $23.25. Intel had company. Nokia, the leader in the mobile device market, provided a disappointing revenue and profit report and outlook. In an effort to reverse the decline in market share from 32% to 31%, Nokia cut prices and yet sales still declined 5% even as the market for mobile phones increased. The stock plunged 17% to the lowest price in about 6 years. Intel and Nokia are the leaders in their respective industries. The fact that industry leaders are trading at new lows is not good news, in my opinion, for the overall market. It provides increased reason for caution.

June import prices had the first decline in 9 months. Excluding petroleum, import prices were unchanged, the first time in 8 months. Export prices declined 0.6% in June as the price of agricultural goods dropped 4.3%. It was the first drop in 11 months and the largest drop since October 2001.

There was nothing surprising in the weekly U.S. initial jobless claims. They rose by 40,000 to 349,000, and have been at that number for three of the past 4 weeks. However, the number of Americans receiving state benefits rose by 12,000 to 2.97 million, a six week high.

U.S. wholesale prices fell 0.3% in June. The decline was the result of drops in energy and food prices. With the price of oil recently jumping to $41 per barrel, the bond market has ignored the core PPI rising only 0.2%. There is more to inflation or deflation than the price of petroleum and natural gas.

Total inventories have risen 4% since May 2003 due in large part to the increase in wholesale inventories rather than retail inventories. With the slowdown in various sectors of the economy, one should not be surprised if the growth in wholesale inventories is cut sharply in coming months.

7/14/04 Gas Tank To Gas Tank Forecasting

Last week the price of gas rose 2 cents on average per gallon nationally. That was after a few weeks of declines. Yesterday the price of gas rose once again and heating oil futures soared. I know it's summer, but supplies for the winter are viewed with suspicion. U.S. retail sales declined 1.1% in June, a big drop. Then we came to the July 4th weekend and Target stated they did better than expected. That gave hope to their July results improving over the disappointing June sales. My feelings are that the once again rising gasoline prices will put a damper on retail sales from mid-July through the end of the month. Therefore, July retail sales will not be anything too terrific. Importantly, as retail sales continue to be muted, new orders for manufactured goods will fall for the third straight month.

Capacity is outstripping supply and airline prices are dropping. American Air, Delta, and United are all under the gun. It's not a pretty picture.

Fixed investment comprises about 45% of China's economy.

Of the 44 million uninsured adults in the U.S., 41% are young, and since 1987, the number of uninsured young adults has grown at twice the rate of older adults, even though the demographics would suggest that group is shrinking in size.

After Intel reported their quarterly results, the stock got hammered by 5%. In my view, on further declines a long-term holder should consider adding to or initiating a position. Intel's move to nanometer process technology is around the corner, and significant positive results should be forthcoming.

7/13/04 Plant Closings And The Trade Deficit

With all the talk about the strength in the economy it is surprising that the number of plant closings is, in fact, picking up from the lull in April and May. The industries are quite varied. Here are afew examples of recent announcements. Collins and Aikman will close its plant in Manchester, Michigan ands eliminate 500 jobs. Temple-Inland will close its Mishawaka, Indiana plant and cut 119 workers. Gerber Scientific will close its Muskogee, Oklahoma facility and cut 130 workers. Vaughn-Bassett Furniture is closing its Sumter, South Carolina facility and laying off 350 workers.

This morning there was an announcement that the trade deficit had narrowed for the first time in six months, and that the 4.5% decline was the largest since October 2002. The May deficit was $46 billion. There were two main reasons for the decline. Our exports rose above expectations with the delivery of 14 planes by Boeing up from the prior month's 8. Importantly, imports of consumer goods dropped 3%. The yields on treasuries increased as the market interpreted the numbers to reveal greater than anticipated economic strength. For Boeing, plane deliveries for the first six months have been only a few above the year before. It's just that April's deliveries were below average. However, the focus should have been oncom/w/hiphopper/serenity.jpg" width=225 height=295>

7/12/04 It's Wise To Focus On Wal-Mart

When the Fed checked in with Wal-Mart in June before the FOMC meeting, they were told that consumer spending was slowing and that higher gasoline prices were taking a toll. In fact, Wal-Mart was lowering its forecast for same-store sales growth for the month of June. Fed members had already made the rounds of the country making speeches and told the investing world that rates would be increased. They locked themselves in to a rate hike. They had better listen to Wal-Mart more closely this time. Wal-Mart is sticking to its present projection of a 2 to 4 percent same-store sales increase for July. My checks indicate that their business is not much different from the prior month. That would indicate a rise of only about 1 to 1 1/2 percent at the Wal-Mart stores and thus still lagging inflation. Management reiterates that high gasoline prices are hindering consumer spending. There are far more paycheck to paycheck consumers than those shopping at Tiffany's or Nordstrom's. The latter maybe Bush's base but that won't carry the day for the economy. Unless salaries and wages rise above inflation, the consumer will remain on the spending sidelines. There is no reason to raise rates. The dollar is going nowhere but down, and as an example, the pound just made a four-month high versus the dollar.

As of July 1, the inventory of light trucks in the U.S. hit the scales at 85 days, up from 75 days a month earlier. Keep in mind that incentives are increasing while inventories are rising, and that combination is a trainwreck for the light truck manufacturers.

There is another type of inventory rising and that's for seven figure homes in California. All of a sudden they have hit a brick wall. That spells trouble for the housing market. There still is stroing demand for condos in the $250,000 to $300,000 range.

7/11/04 Forced Productivity

It's not a picnic in Germany. Unemployment is averaging at least 10%. On the other hand, there is plenty of time to have a picnic with workers averaging 42 days off a year. That is not a misprint. Times are changing. In an effort to compete and lower overhead costs, Siemens, Daimler, Continental, Thomas Cook, the German railways, and others are demanding that workers discard their 35-hour workweek and extend it to 40 hours for no extra pay. The alternative is to see those jobs outsourced.

Economists and analysts have recently stated that the U.S. economy has hit a soft patch and that growth is slowing. Judging from the June retail as well as auto sales numbers, it would appear that the economy has done more than hit a soft patch. In all probability, the July hiring figures will not make for pleasant reading. The technology sector is, for the most part, struggling with sluggish customer demand, the auto companies are cutting back on production to offset bulging inventories, and the paycheck to paycheck Wal-Mart and Target customers have taken a respite from buying. One should not forget that Wal-Mart is the largest private sector employer in the U.S. Hiring in the retail sector is slowing. With slowing consumer demand for goods and services, it will not be just the auto companies offering larger concessions to make sales. The rate of inflation will moderate to acceptable levels. This is not stagflation. It is making do with what you have. It's not pretty but it's the price you pay for too many years of a zero down payment no interest payment economy. Too many free lunches cause overheating and eventual upchucking.