7/24/04 The Gauges Are There
For the holders of U.S. equities, yesterday was discouraging. The Dow, the S&P 500, and the Nasdaq fell below their 200-day moving averages, an important support level for many money managers. Another sign for me is the strength in the bond market. Ten year treasury bonds closed at 4.43%, or very close to their recent low yield of 4.36%. In other words, despite the repeated warnings by Greenspan of future measured rate hikes, the bond market is quite sanguine that. at the very least, growth is slowing in our economy. Looking back, investors will blame Kerry for this malaise. The seeds were planted long before Kerry.
Besides stocks, gold had a bad week and dropped over $15 to $392.50. The long term dynamics for gold seem more promising than equities. There is increasing demand by India for gold jewelry, and the twin deficits in the U.S. are not diminishing. The deficits help to account for the diminishing value of the dollar.
After lying to protect his boss and after accepting a payoff, Douglas Faneuil was fined $2,000. Under sentencing guidelines, he faced up to six months in prison. He was an assistant to Peter Bacanovic, Martha Stewart's stockbroker. There are a million stories in our "justice system."
As long as it remains in bankruptcy, United Airlines stated that it would cease making payments to employee pension funds. Half of United's slated cost cuts of $5 billion in 2005 will be taken from workers' wages and benefits. I wonder if the company's top management will have their salaries and perks cut in the same relationship as the union workers.
Thursday, July 22, 2004
7/23/04 What Is The Color Of The Flashing Signal?
The Conference Board's index of leading economic indicators fell 0.2% in June, the first decline since March 2003. May's rise was adjusted downward slightly.
S&P recommended investors reduce their exposure to U.S. equities to only 45% of their portfolios and to increase the cash portion to 30%.
Washington Mutual will close mortgage operations in as many as 10 states . The company is cutting 2,500 jobs.
From January through June 2004, the total number of events (mass layoffs), at 8,114, and of initial claims, at 795,612 were lower than in January through June 2003 (9,860 and 959,589 respectively.) Given the large number of non-farm payrolls created in the first six months of 2004, one might have thought the difference in mass layoffs with 2003 would have been larger. Maybe the rise in payrolls will be adjusted downward again.
Sears stated "we experienced weak demand in June." They provided a disappointing forecast for the third quarter.
I have been meaning to provide a look into conditions in the Napa Valley. The annual wine auction, which raises money for charity, collected less revenue for the third consecutive year. Old-time merchants report that store traffic is down slightly; however, the average purchase is down about 10%. In restaurants there is a trend for diners to order somewhat lower priced wines than in 2003. In sum, even the wealthier individuals are parting reluctantly with their money.
The Conference Board's index of leading economic indicators fell 0.2% in June, the first decline since March 2003. May's rise was adjusted downward slightly.
S&P recommended investors reduce their exposure to U.S. equities to only 45% of their portfolios and to increase the cash portion to 30%.
Washington Mutual will close mortgage operations in as many as 10 states . The company is cutting 2,500 jobs.
From January through June 2004, the total number of events (mass layoffs), at 8,114, and of initial claims, at 795,612 were lower than in January through June 2003 (9,860 and 959,589 respectively.) Given the large number of non-farm payrolls created in the first six months of 2004, one might have thought the difference in mass layoffs with 2003 would have been larger. Maybe the rise in payrolls will be adjusted downward again.
Sears stated "we experienced weak demand in June." They provided a disappointing forecast for the third quarter.
I have been meaning to provide a look into conditions in the Napa Valley. The annual wine auction, which raises money for charity, collected less revenue for the third consecutive year. Old-time merchants report that store traffic is down slightly; however, the average purchase is down about 10%. In restaurants there is a trend for diners to order somewhat lower priced wines than in 2003. In sum, even the wealthier individuals are parting reluctantly with their money.
7/22/04 What's Going On?
When the doors are closed, no outsider knows what goes on between a husband and a wife. When the doors are shut to an investor's psyche, no one truly knows why that individual is buying or selling. (Margin calls are an exception.)
There are so many factors behind decision making. Yesterday can be viewed as particularly disappointing. The Dow had quickly risen right out of the shoot. Before you could adjust your chair, it was up 85 points. The Nasdaq never caught the same frenzy. When the day was offer, the indices were badly in the red. I'm not in the mind of investors. I can only provide many possible scenarios, and some or all could have played a part.
This is not a latte market. You cannot expect Starbucks to carry the entire market on its shoulders. Same-store sales in the quarter rose 11% and profits increased by 43%. Projections were raised for the second time. The stock has been hitting new all-time highs. Earning 95 cents per share and selling at $46 per share, where would you like the stock to go? The price of a latte may rise next year, but at this rich P/E, this great one needs a rest. The same can be said for eBay, which did tank yesterday. These have been your most relaible high growth stocks for some time.
We know that the earnings growth for companies is slowing. The question is how much, and will that growth turn to flat numbers or even decline. Office Depot said sales had been below expectations for the last few weeks and they "approach the second half with a mixture of caution and optimism." Right now the market is focusing more on the caution and less on the optimism.
Demand for gasoline is slowing and inventories rose 2.5 million barrels last week, up 600,000 barrels from a year ago and the highest since mid-January. While the world is looking at gasoline, heating oil futures are trading at $1.0827 and natural gas at $5.931 per thousand cubic feet. If the winter is exceptionally cold, heating bills will be exceptionally high. You can cut back on driving, but you can reduce your thermostats just so much.
Getting back to yesterday, there were suggestions that the S&P could not hold the 1104 level and that inspired selling pressure. Another factor could be the deadlock on tax cut extensions. For me, there is dwindling demand for goods and services, and that includes equities. Right now supply exceeds demand and there is a lack of equilibrium. The pricing power is, at least temporarily, in decline for equities. This is not a new phenomenon. Unfortunately, it is new for those who make their living buying on weakness. That modus operandi is not working.
Eckerd is cutting 1,200 jobs and Mitsubishi 1,400 workers and reducing capacity by 22%. Santomero may think this economy is having its "usual fits and starts." He's a government worker and on salary. His money is not at risk in this economy. He is not a risk taker. He feeds off tax dollars. He gets paid even with record government deficits. In the business world, he might have lost his job. He creates no revenue. He is expendable. He is strictly a cost item. Businesses are still focusing on cutting costs. Why? Generating revenue continues to be a daunting task. Profit margins have made headway over the past year but the workers on Main Street are not seeing the fruits of their labors. The economy is feeling the impact of the paycheck to paycheck worker's cash flow dilemma.
When the doors are closed, no outsider knows what goes on between a husband and a wife. When the doors are shut to an investor's psyche, no one truly knows why that individual is buying or selling. (Margin calls are an exception.)
There are so many factors behind decision making. Yesterday can be viewed as particularly disappointing. The Dow had quickly risen right out of the shoot. Before you could adjust your chair, it was up 85 points. The Nasdaq never caught the same frenzy. When the day was offer, the indices were badly in the red. I'm not in the mind of investors. I can only provide many possible scenarios, and some or all could have played a part.
This is not a latte market. You cannot expect Starbucks to carry the entire market on its shoulders. Same-store sales in the quarter rose 11% and profits increased by 43%. Projections were raised for the second time. The stock has been hitting new all-time highs. Earning 95 cents per share and selling at $46 per share, where would you like the stock to go? The price of a latte may rise next year, but at this rich P/E, this great one needs a rest. The same can be said for eBay, which did tank yesterday. These have been your most relaible high growth stocks for some time.
We know that the earnings growth for companies is slowing. The question is how much, and will that growth turn to flat numbers or even decline. Office Depot said sales had been below expectations for the last few weeks and they "approach the second half with a mixture of caution and optimism." Right now the market is focusing more on the caution and less on the optimism.
Demand for gasoline is slowing and inventories rose 2.5 million barrels last week, up 600,000 barrels from a year ago and the highest since mid-January. While the world is looking at gasoline, heating oil futures are trading at $1.0827 and natural gas at $5.931 per thousand cubic feet. If the winter is exceptionally cold, heating bills will be exceptionally high. You can cut back on driving, but you can reduce your thermostats just so much.
Getting back to yesterday, there were suggestions that the S&P could not hold the 1104 level and that inspired selling pressure. Another factor could be the deadlock on tax cut extensions. For me, there is dwindling demand for goods and services, and that includes equities. Right now supply exceeds demand and there is a lack of equilibrium. The pricing power is, at least temporarily, in decline for equities. This is not a new phenomenon. Unfortunately, it is new for those who make their living buying on weakness. That modus operandi is not working.
Eckerd is cutting 1,200 jobs and Mitsubishi 1,400 workers and reducing capacity by 22%. Santomero may think this economy is having its "usual fits and starts." He's a government worker and on salary. His money is not at risk in this economy. He is not a risk taker. He feeds off tax dollars. He gets paid even with record government deficits. In the business world, he might have lost his job. He creates no revenue. He is expendable. He is strictly a cost item. Businesses are still focusing on cutting costs. Why? Generating revenue continues to be a daunting task. Profit margins have made headway over the past year but the workers on Main Street are not seeing the fruits of their labors. The economy is feeling the impact of the paycheck to paycheck worker's cash flow dilemma.
Wednesday, July 21, 2004
7/21/04 You Gotta Believe! Right?
Greenspan: "I think the effect of increasing concentration of incomes is not desirable in a democratic society."
The BLS: "Median weekly earnings of the nation's 101.3 million full-time wage and salary workers were $639 in the second quarter of 2004 or 3.7% higher than a year ago while the CPI gained 2.8% over the same period. " Information was taken from the Current Population Survey of 60,000 households covering all our 50 states and DC. Income excluded the self-employment sector.
Greenspan: "Business caution remains a feature of the economic landscape. Temporary hires relative to total employment continue to rise, and investment spending is still below cash flows inside U.S. companies."
The BLS: "Compared with May, June's unemployment rates were higher in 20 states , lower in 18 states and DC, and unchanged in 12 states."
Philly Fed's Santomero described our economy as having the "usual fits and starts" with "ample positive momentum" and with "inflation well contained." He has all the right answers.
GMAC posted record quarterly earnings driven by financing and insurance. GMAC earned $860 million. GM's sales in China rose 58%. GM Asia earned $236 million in the quarter. Unfortunately, the remaining auto operations only produced $529 million and GM's market share in North America dropped even though the company offered record incentives. Inventories rose. Prospects for the third quarter will be less than analysts had been expecting.
Next to the Federal Reserve, Microsoft is the greatest consistent generator of cash in our nation. The company has been on close to a 30 year run. To top it off, they will distribute a special dividend of $3 per share or $32 billion. This represents 2 year's cash flow. In addition, over a four year period, they intend to repurchase $30 billion in stock. In case you think this is an income stock, Microsoft announced they will file for more than 3,000 patents this year. The company spends about $7 billion a year on research. You can see that you are getting a lot of patent for your buck. I never thought of Microsoft as a think tank. Hopefully they won't turn into another Xerox PARC. It's most unfortunate that a special dividend and a stock buyback were the best ideas promoted by management. A sequel to Windows would have been nice. Maybe one of those 3,000 patents will turn into gold. You gotta believe. Right?
Greenspan: "I think the effect of increasing concentration of incomes is not desirable in a democratic society."
The BLS: "Median weekly earnings of the nation's 101.3 million full-time wage and salary workers were $639 in the second quarter of 2004 or 3.7% higher than a year ago while the CPI gained 2.8% over the same period. " Information was taken from the Current Population Survey of 60,000 households covering all our 50 states and DC. Income excluded the self-employment sector.
Greenspan: "Business caution remains a feature of the economic landscape. Temporary hires relative to total employment continue to rise, and investment spending is still below cash flows inside U.S. companies."
The BLS: "Compared with May, June's unemployment rates were higher in 20 states , lower in 18 states and DC, and unchanged in 12 states."
Philly Fed's Santomero described our economy as having the "usual fits and starts" with "ample positive momentum" and with "inflation well contained." He has all the right answers.
GMAC posted record quarterly earnings driven by financing and insurance. GMAC earned $860 million. GM's sales in China rose 58%. GM Asia earned $236 million in the quarter. Unfortunately, the remaining auto operations only produced $529 million and GM's market share in North America dropped even though the company offered record incentives. Inventories rose. Prospects for the third quarter will be less than analysts had been expecting.
Next to the Federal Reserve, Microsoft is the greatest consistent generator of cash in our nation. The company has been on close to a 30 year run. To top it off, they will distribute a special dividend of $3 per share or $32 billion. This represents 2 year's cash flow. In addition, over a four year period, they intend to repurchase $30 billion in stock. In case you think this is an income stock, Microsoft announced they will file for more than 3,000 patents this year. The company spends about $7 billion a year on research. You can see that you are getting a lot of patent for your buck. I never thought of Microsoft as a think tank. Hopefully they won't turn into another Xerox PARC. It's most unfortunate that a special dividend and a stock buyback were the best ideas promoted by management. A sequel to Windows would have been nice. Maybe one of those 3,000 patents will turn into gold. You gotta believe. Right?
Tuesday, July 20, 2004
7/20/04 Storm Clouds
Ford's financial services sector recorded a June quarter pre-tax profit of $1.6 billion, up from $800 million a year ago. On a pre-tax basis, Ford's worldwide automotive sector reported a loss of $57 million. Vehicle sales dropped 5.2% and their market share fell to 19.7% from 20.9%. Management was pleased with the results. Third quarter forecasts were provided, and they are below analyst projections.
OPEC forecasts demand for crude will rise by 340,000 bpd in 2005 to an average 27.36 million bpd after an increase of 590,000 bpd in 2004. Petrologistics estimated OPEC production ex Iraq at 27.81 million bpd in July.
Peoples Energy offers buyouts to 1,200 workers.
AT&T Wireless to launch its 3G service in 4 markets. It will offer a high-speed data network.
June housing starts dropped 8.5%. Building permits also fell sharply. These declines spell trouble for the economic growth numbers and will assist in bond rates dropping further.
August crude futures are bumping close to $42 pb once again.
According to CardWeb.com, the average credit card debt in the U.S. is $8,400.
We account for 21% of the world's GDP but only 5% of the population. I have a feeling that ratio is about to change.
Ford's financial services sector recorded a June quarter pre-tax profit of $1.6 billion, up from $800 million a year ago. On a pre-tax basis, Ford's worldwide automotive sector reported a loss of $57 million. Vehicle sales dropped 5.2% and their market share fell to 19.7% from 20.9%. Management was pleased with the results. Third quarter forecasts were provided, and they are below analyst projections.
OPEC forecasts demand for crude will rise by 340,000 bpd in 2005 to an average 27.36 million bpd after an increase of 590,000 bpd in 2004. Petrologistics estimated OPEC production ex Iraq at 27.81 million bpd in July.
Peoples Energy offers buyouts to 1,200 workers.
AT&T Wireless to launch its 3G service in 4 markets. It will offer a high-speed data network.
June housing starts dropped 8.5%. Building permits also fell sharply. These declines spell trouble for the economic growth numbers and will assist in bond rates dropping further.
August crude futures are bumping close to $42 pb once again.
According to CardWeb.com, the average credit card debt in the U.S. is $8,400.
We account for 21% of the world's GDP but only 5% of the population. I have a feeling that ratio is about to change.
Monday, July 19, 2004
7/19/04 Automaker Woes
Rising gasoline prices and rising sales incentives on new vehicles are driving down the wholesale price of large used SUVs. The decline could signal trouble for profitable sales of new full-sized SUVs.
There has been abrupt slowdown in sales of passenger cars in China. Automakers have begun cutting production plans. GM's major profit sector will still make money, but not as much.
A 1992 agreement permits Boeing to have a level of indirect subsidies through R&D programs of the FAA, NASA, and the Defense Department. That alone will not offset the onslaught of Airbus. The latter's CEO suggested his company's A380 would kill the aging 747 and leave Boeing competing in just two parts of the commercial jet market. Judging from recent orders, the Airbus executive seems to have the facts to support that viewpoint.
Rising gasoline prices and rising sales incentives on new vehicles are driving down the wholesale price of large used SUVs. The decline could signal trouble for profitable sales of new full-sized SUVs.
There has been abrupt slowdown in sales of passenger cars in China. Automakers have begun cutting production plans. GM's major profit sector will still make money, but not as much.
A 1992 agreement permits Boeing to have a level of indirect subsidies through R&D programs of the FAA, NASA, and the Defense Department. That alone will not offset the onslaught of Airbus. The latter's CEO suggested his company's A380 would kill the aging 747 and leave Boeing competing in just two parts of the commercial jet market. Judging from recent orders, the Airbus executive seems to have the facts to support that viewpoint.
Sunday, July 18, 2004
7/18/04 Shelf Life
Another business spending incentive's shelf life is winding down. Bonus depreciation ends on December 31. If you place an asset in service in 2004, your business, regardless of size, can deduct 50% of the asset's cost this year. In addition, should the asset have a five-year life for depreciation purposes, then one can deduct one-fifth of the remaining depreciation. In sum, that would mean a 60% deduction for tax purposes in 2004, and would represent a big boost to cash flow. When forecasters predict strong business spending in the future, they often fail to acknowledge the importance of this bonus depreciation, which was created in 2002, and what it has recently meant. Unless extended, business spending will be impacted. Many are counting on business spending to compensate for the slowdown in consumer spending. It has not been lost on the stock market that such thinking is unrealistic.
In a recent interview with Kevin Rollins, Dell's CEO, he was asked about HP's price-cutting tactics for the last 18 months and whether Dell had anticipated the emergence of a competitor with this kind of a model. Rollins replied "well, they don't have a new model. I mean losing money is never a model." Dell continues to chip away at HP's main meal, the printer business. Dell will pressure the margins in HP's ink business. As Rollins observed, "that ink costs more than a Dom Perignon or a Chanel No. 5. It's the most expensive liquid on the planet."
The National Auctioneers Association documented that live auctions account for $203.2 billion a year in sales, and that more than 50% of Americans have attended live auctions.
Another business spending incentive's shelf life is winding down. Bonus depreciation ends on December 31. If you place an asset in service in 2004, your business, regardless of size, can deduct 50% of the asset's cost this year. In addition, should the asset have a five-year life for depreciation purposes, then one can deduct one-fifth of the remaining depreciation. In sum, that would mean a 60% deduction for tax purposes in 2004, and would represent a big boost to cash flow. When forecasters predict strong business spending in the future, they often fail to acknowledge the importance of this bonus depreciation, which was created in 2002, and what it has recently meant. Unless extended, business spending will be impacted. Many are counting on business spending to compensate for the slowdown in consumer spending. It has not been lost on the stock market that such thinking is unrealistic.
In a recent interview with Kevin Rollins, Dell's CEO, he was asked about HP's price-cutting tactics for the last 18 months and whether Dell had anticipated the emergence of a competitor with this kind of a model. Rollins replied "well, they don't have a new model. I mean losing money is never a model." Dell continues to chip away at HP's main meal, the printer business. Dell will pressure the margins in HP's ink business. As Rollins observed, "that ink costs more than a Dom Perignon or a Chanel No. 5. It's the most expensive liquid on the planet."
The National Auctioneers Association documented that live auctions account for $203.2 billion a year in sales, and that more than 50% of Americans have attended live auctions.
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