11/13/04 Different Meals For Different Folks

Sometimes you need to be there to get it. Kola’s in Riverview, Michigan delivers muskrat dinners along with alligator and pizza. Michigan diners have a wish for venison as the state’s 16-day firearms deer hunting season begins Monday. More than 700,000 are expected to participate. On Wall Street the game has a different taste- a search for mouthwatering profits. Recently, glee has blasted through the portfolios of millions of investors as the S&P closed at a 3-year high, the Nasdaq at a 9-month high, and gold at its highest level since July 1988. Icing on the cake was crude’s 5% decline for the week to $47.32 a barrel. Even the average price of gasoline declined 3.3 cents to $2 a gallon. In tech land, Dell climbed to a 4-year high and Microsoft investors chewed on a $3 dividend. The latter would have been tastier had the payout been on January 2 instead of December 2. I guess tax planning is not an active part of a billionaire’s life. Lastly, the consumer came through and delivered U.S. retail sales up 0.2% in October. When you cheer 0.2%, then you know you are feeding on leftovers.

Peter Sellers: “There used to be a real me, but I had it surgically removed.”

I have not been eating much of late. I am still munching on my dreams. Hopefully, I can sleep a bit longer. In my dreamland, there are historically low interest rates combined with historically large budget and trade deficits, leaving me with less purchasing power, but I don’t have a worry. I went out and bought a new home with nothing down and put a new car in the driveway via zero percent financing. This is truly the dream of a lifetime.

Peter Ustinov: “Beliefs are what divide people. Doubt unites them.”

Henry Groppe, a long-time oil consultant and partner with Groppe, Long, & Littell: I think the real key is the peaking of world oil production. In this new environment, the key question is what is going to be required in future years to cause enough demand destruction to match the total available supply. We think it’s $50 or above on a year-round average.”

Dale Steffes: “What hasn’t happened since we got to $50 oil, the exploration people haven’t come in yet and the conservation people haven’t come in yet. Neither side has believed in $50 oil. When those two sides decide to do something, it’s going to fall back, most likely. But before then, my judgment is that it will go to $70…with a severe disruption.”

In the third quarter, the euroland economies grew at the slowest pace in a year. Japan’s economy also slowed dramatically. China is trying to put on the brakes to a bristling economy. Our Fed is applying the brakes through rising interest rates to an economy that is stalling. Do not be fooled by giveaways or by the exceptions, the real growers, such as, Starbucks, Dell, Walgreens, Sysco, eBay, Yahoo, and Pixar. There is a slowdown in the global economy. Growth forecasts will keep coming down. That does not mean meals will cease to exist. One simply has to spend more time hunting, and hopefully, without a firearm.

Textbook printer Von Hoffman Corp. is closing its Frederick, Md. Printing plant and idling 165 workers. Troy, Michigan-based Oxford Automotive Group will close its Alma plant and layoff 260 workers. Visteon Corp. will offer buyouts to a substantial number of its 8,100 white-collar workforce. Luzerne County, Pa. has been hit by job losses at Techneglas, Owens Corning, and Schott Glass, and now it’s New Dana Perfume Co. that’s closing its plant and laying off 200 workers.

11/12/04 Something Has To Give

The share of the economy accounted for by corporate profits is the highest since 1929. On the other side of the spectrum, the worker’s share of 45.7% is at the lowest level since the beginning of the Depression. This disparity is not long for this world.

According to a study by Robert Arnott in the latest issue of the Financial Analysts Journal, the average U.S. pension fund is using an average yearly return assumption of 8.5%, and public pension funds are assuming a return of 8%. Unfortunately, rose-colored glasses don’t create returns, and ignoring valuation effects, the above-mentioned returns have never been achieved over a 10-year period since 1871. Rather, the range averages 5.7% with a standard deviation of 1.3%. In reality, the pension funds will need to cough up more contributions.

According to Edmunds.com, total U.S. market share for domestic vehicles fell to 56.5% in October, the lowest in recorded history. Keep those incentives coming. Unfortunately, they aren’t working.

In Germany, an estimated 20% of shoppers say they will not buy U.S. products. So much for nation building.

According to a new survey by American Affluence Research Center, the wealthiest 11 million households show declining optimism in their 12-month outlook. The survey participants have an average income of $329,000 and an average net worth of almost $3 million. They control 70% of the private wealth in the U.S. An increasing percentage is showing concern about business conditions, the stock market, and their own personal household income 12 months from now. The overall index for these three factors continued a decline that began 6 months ago and is now back to the Fall 2002 level, the record low for these surveys.

Armstrong Corp. announced the closing of their 60-year-old plant in Marietta, PA, throwing 440 out of work.

Not surprisingly, shares of Microsoft made a new yearly high this morning. Today is the last day to buy shares and get the $3 dividend. The price rise does not take into account the company’s slowing sales picture for this fiscal year. Increasing effort is being placed on cost cutting. Microsoft has about 625 employees working in Hyderabad, India. Next week, they are breaking ground on a 250,000 square foot building that will double the size of its new facilities in Hyderabad, which are scheduled to open in January. At present, Microsoft has 57,000 employees world-wide. One can expect their presence in India to become more important.

11/11/04 Veterans Day

According to the National Hospice and Palliative Care Organization, more than 1,800 Veterans die every day in our country- that’s about 54,000 a month. Dying Veterans represent a quarter of all deaths in the U.S.

Former Wal-Mart CEO David Glass: “Sam has been gone for a number of years now, but he’s still alive and well in this company to a large extent. There’s not a day that goes by that I don’t hear conversations around here about what Sam would do or how he felt about something.”

Intel’s chip inventory is a bloated $3 billion.

As exports fell, Germany’s third quarter GDP rose a scant 0.1%.

According to a report by comScore Networks, consumer spending for non-travel goods on U.S.-based websites will exceed $15 billion during the November through December holiday season, about 23% to 26% more than during last year’s period. More people are buying products online that were once traditionally purchased in stores. In addition, more consumers use the Internet to research products and compare prices.

In an effort to reduce inventories and increase market share, GM introduced Lock ‘n’ Roll for the next 20 days. It’s an opportunity to purchase selected vehicles with 0% APR for as long as 10 years, and to duplicate the deal on a second vehicle for up to ten years. Not all consumers will qualify.

Heating-oil supplies fell 74,000 barrels in the week ended Nov. 5, the sixth straight decrease. Stockpiles of distillate fuels, which include heating oil and diesel, fell 137,000 barrels. Heating oil futures are up about 69% from a year ago. Demand for gasoline is running at a rate of 9.2 million barrels a day, and is at its highest level in two months. Many OPEC members are producing close to their maximum capacity limits. According to John Kingston, global director of oil for Platts, “the big question continues to surround not crude, but heating oil, and whether supplies are adequate should we have a cold winter. Continued tightness in heating oil inventories remain a concern”

The U.S. trade deficit for the first nine months of 2004 was $444.5 billion. For all of 2003, it was a record $495 billion. It would appear that the deficit for all of 2004 will approach $600 billion, about an increase of 20% over 2003. That coupled with the budget deficit of $413 billion, brings the total to $1 trillion or one-eleventh of our GDP. With no spending caps going forward and/or a pay-as-you-go plan, our economic well-being is in jeopardy.

In September, our imports of capital goods were the highest in four years.

Sam Walton: “There is only one boss. The customer. And he can fire anybody in the company from the chairman on down, simply by spending his money somewhere else.”

As anticipated, the Fed lifted the funds rate 25 basis points to 2%. It’s message and policy statement remain unchanged. The Fed fails to analyze the quality of our GDP and ignores the double-counting in our employment picture. Of course, the vast majority of investors also ignore the same facts. Ignorance is not the conduit to bliss.

Wal-Mart’s CEO Scott: “What makes us different is our logistics, our information systems, our culture.”

Coke stated its long-term growth targets don't apply to fiscal 2004 or 2005. The company is experiencing weakness in North America, the Phillippines, and Germany.

Tiffany's quarterly income declined 26%. As a result, the company lowered its 2004 earnings outlook.

11/10/04 Trading Was Light But The News Was Not

According to a survey by Deloitte & Touche USA, for the first time since their inception, gift cards will replace apparel as the gift purchase of choice. This year, 64% of consumers stated they intended to buy gift cards, up from 60% in 2003. The increase in gift cards comes at the expense of apparel, CDs, DVDs, tapes, and books. On average, respondents reported they planned to buy 4.7 cards each. These same respondents reported holding 2.3 cards unused from last year. The survey indicated half will purchase cards for stores or products; 34% for restaurants; and 27% for services or experiences. As a reminder, a card is not counted as revenue until redeemed, and many cards are not redeemed until January. A word of caution- 66% of consumers stated they will shop at fewer stores.

Generic drugs now account for more than 50% of all prescriptions filled in the U.S. and more than $40 billion in prescription sales worldwide. More than $80 billion of global blockbuster drugs face U.S. patent expiration by 2007.

Ten months ago Bush pushed for temporary legal status for 10 million undocumented immigrants. Leading up to his re-election, the plan was not mentioned. Yesterday, while in Mexico with five other cabinet members, Colin Powell stated “the president is committed to comprehensive immigration reform as a high priority in his second term.” In other words, people who broke the law when crossing the border will now be rewarded. I wonder how that will sit with the vocal moralists in rural America.

Gail D. Fosler, chief economist for the Conference Board: “The asset inflation that infected the U.S. stock market is increasingly apparent in the housing market.”

Cisco’s cash flow from operations was $1.5 billion for their first quarter of fiscal 2005, compared with $2.1 billion for the fourth quarter of fiscal 2004. During this year’s first quarter, Cisco repurchased 156 million shares of common stock at an average price of $19.24 for an aggregate purchase price of $3 billion. Yesterday, the board of directors authorized up to $10 billion in additional purchases of its common stock.

Greenbrier Cos., a railcar equipment manufacturer, stated “order backlogs are at their highest levels in the industry since 1998.” D.R. Horton, a homebuilder, reported a record backlog. Honda announced a $270 million expansion in the U.S., including plans to construct a new transmission assembly plant in Georgia. Dell received $242 million in state incentives and will build a new plant in North Carolina. To qualify for the incentives, the plant must employ 1,500 by 2009. If Boeing were to introduce a stretch version of the 7E7, then Qatar would provide the company with a multi-billion order. Boeing will introduce the smaller version of the 7E7 in 2008, and has been holding off on a stretch version. A senior Microsoft games executive stated that first-day sales of the company’s new video game, “Halo 2,” will reach $100 million. Microsoft is set to launch their internet search engine.

The Bank of England cut their 2005 growth forecast to 2.5% from 3.1%.

Marsh & McLennan is cutting 3,000 jobs. Capital One is cutting 750 jobs. Nokia is closing a plant in Florida and cutting 400 jobs. American Greetings is closing a plant in Tennessee and cutting 450 jobs. Crotty Corp. is also closing a plant in Tennessee and cutting 300 jobs. Overseas, Cable & Wireless is cutting 600 jobs and Swisscom is cutting 390 jobs.

Crude broke through $47 barrel on the downside as the IAE suggested that prices may have peaked. With regular unleaded at close to $2.50 a gallon in San Francisco, many in the Bay Area hope the prediction is correct.

In response to many inquiries, I will repeat the situation in the non-farm payroll reports. Should an individual, for example, work two jobs, then that individual is counted as two employees. That is double counting, and grossly overstates the number of employed people in the U.S. inasmuch as 8 million workers work more than one job. That figure comes from the BLS.

The U.S. trade deficit declined 3.7% in September to $51.6 billion. The gap would have been larger except that the importation of crude was disrupted by a hurricane.

11/9/04 Foreigners Vote Every Day

The folks who live in Ohio were pretty angry after receiving thousands of letters from the UK attempting Clarke County voters to cast ballots for Kerry. In fact, record numbers turned out to vote, and that turned a deficit in 2000 to a plus 1,000 margin for Bush this year. Unfortunately, for the U.S., foreigners vote every day in the U.S. They own over half of our $3.7 trillion of Treasury debt, and they vote with their buy and sell orders. Two weeks ago, the U.S. Treasury Dept stated that foreign investors became net sellers of our Treasury notes in the most recent auction of govt securities. Individual foreign lenders, in particular, have been sellers. With a record high budget deficit and the U.S. trade deficit on its way to reaching its highest level in two decades, investors can expect continued dumping of our Treasury notes by foreigners. The daily votes will create a mounting toll. It is insane for investors to ignore the risks created by net selling by foreigners. Bush may want to spend his political capital; however, foreign investment in our country is far more important than Bush strutting over our landscape. He might not like the French, but their Finance Minister Nicholas Sarkozy echoed the sentiment of the majority as stated "the U.S. must cut its budget deficit. This is a unanimous message from Europe and the IMF, which we're sending to our American friends."

The Detroit Free Press reports that incentives are no longer enough to move cars, and that automakers could have to eat more costs. A study by CNW suggests that about 44% of the amount spent on incentives comes from profits. An incentives war is expected in December in an effort to move inventory and hit market share targets.

The euro came close to trading at $1.30, a record high.

Mozilla releases its open source browser, Firefox, today. In my view, it is far superior to Microsoft's IE.

According to Coinstar's National Currency Poll, about 64% of Americans expect to spend the same this holiday season as last year or $805, while 16.3% anticipate spending more, and 18.5% plan to spend less.

IT Group Cap Gemini Ernst & Young will cut another 1,000 jobs.

Germany's Infeon issued a cautious outlook. In November, Germany's consumer confidence declined to the lowest level in almost two years.

Multi-billion plane deals don't grow on trees. Boeing lost another deal to Airbus, and the buyer was another previous all-Boeing airline, AirAsia of Malaysia. The deal for 40 planes is worth over $5 billion. It should be noted that, with the continued decline in the U.S. dollar, foreign buyers' purchasing power increases for Boeing planes. The opposite is true for the euro and Airbus planes. Nevertheless, buyers prefer the Airbus A 320 to the Boeing 737. Additionally, Boeing has an added advantage of paying almost zero income tax in the latest quarter. This was the result of numerous tax credits received. Boeing's inability to compete rests with their management and inefficiencies in their production line.

11/8/04 Telephone Numbers

Interest on the national debt was $318 billion in 2003 and $322 billion in fiscal 2004. Only record low interest rates kept the amount of interest on the $7.4 trillion national debt to its present level. In 2005, as interest rates rise by a significant percentage and the debt continues to accumulate, the interest will approach $350 billion. Interest expense is the third largest expense in the federal budget. With the present trend, in a few years, it could top the defense budget and become the largest budget item. It won’t be long before the daily interest expense amounts to $1 billion. When that happens, the Dow won’t be at or above 10,000 and the Nasdaq won’t be at or above 2000. Those will seem like telephone numbers.

Frank Zappa: “It would be easier to pay off the national debt overnight than to neutralize the long-range effects of our national stupidity.”

Tyler Refrigeration Co. has been in Waxahachie, Texas since 1947. Their North Texas plant, which is owned by Carrier Corp., will close in 2005 and slash more than 500 jobs, with most of the work expected to go to Mexico after the closure.

11/7/04 You’re In Charge

There will always be talk about this “play” or this “break-up value” or this “technical indicator.” There’s something for everyone; however, no one can prove in advance when it is the right time to walk away from the table and to take a breather. Each person must learn the best way to sell to the sleeping point. The idea is not to get over-confident but to remain focused on what you do best as an investor. Straying is for animals.

Donald Trump: “It’s the people you don’t fire who make your life miserable.”

According to Barron’s, fractional jet operators account for no more than 6% of all jet aircraft in use in the U.S. but they have been placing about 40% of all new orders for planes.

Although the dollar is making new multi-year lows against other major currencies, the monthly trade deficits are recording record highs.

Bob Gillis, executive director of the Cathedral Center for Faith & Work, in downtown Kansas City: “There are more people coming now who are looking for something better. They’re underutilized in the job they’re in.”

Including discouraged workers and those who have had to settle for part-time work because full-time work isn’t available, the October unemployment rate is 9.7%.



Jacqueline Midkiff, a Kansas City economist employed by the BLS, noted that the pace of compensation growth did not keep up with the Midwest’s 2.3% inflation rate in the costs of consumer goods.

On Saturday, 20 Marines were wounded at Ramadi.

According to the CBO, in 2003, Medicare and Medicaid outlays accounted for 3.9% of the GDP. In 2004, the price tag for both programs will approach $600 billion. The budget office director stated that the entire federal budget is 20% of this nation’s GDP. A March 2004 report signed by the secretaries of the Treasury, Labor & Health, and Human Services departments stated that “Medicare’s financial difficulties come sooner- and are much more severe- than those confronting Social Security… the financial problem in Medicare is five times as great.”

As of September 30, Microsoft had $64.4 billion in cash. On December 2, the company will pay a $3 a share special dividend to shareholders amounting to $30 billion. The last day to buy shares and receive the dividend is this Friday. Scott Di Valero, Microsoft’s controller, stated that the company’s cash flow for fiscal 2005 would approach $14 or $15 billion on sales growth of 6%.

Yesterday, I mentioned that Delta Airlines is planning to lay off 5,100 workers beginning Jan 1. The company released new details. The number has been raised to 6,900 workers.

Yesterday, Wal-Mart stated it still anticipates a 2 percent to 4 percent increase in November same-store sales. Traffic is currently accounting for most of the sales increase.

According to a new survey by CFO Magazine, more than 60% say their spouses want them to work less and more than 60% believe pressure at work is damaging their health. In addition, one-third of the companies that can’t certify their internal controls on time say the problem is the lack of qualified people to do so.

India’s Finance Minister Palaniappan Chidambaram stated that India is capable of sustaining annual economic growth of 7 to 8 percent over the next 10 to 12 years and is on its way to becoming a “global economic superpower.” He remarked that the economic boom will be fueled largely by higher household savings and investment due to rising literacy levels and growing confidence among foreign investors. Honeywell, for example, mentioned they would be hiring 1,000 additional programmers in India in 2005, adding to their present staff of 3,000. As previously mentioned, Microsoft is building a major technical center in India, adding to their current presence. It is well to note that approximately 80% of our nation’s economy is based on services provided. India’s strength is in services. Their present and future growth will be in services. We have lost a good portion of our manufacturing base. Currently and over time, a good portion of our services base will be lost- to countries like India. I assure you the “Faith Community” won’t be replacing the lost jobs. They’ll be asking you for donations.

The OECD stated an early warning indicator showed the economic outlook weakened in September in the U.S. That indicator, the six-month rate of change, was down for the eighth month in a row, falling to 1.7 in September from 2.3 in August. In addition, they predicted slowing expansion lies ahead for the 30 industrialized countries comprising the OECD.

According to the National Bureau of Statistics, China’s central government’s investment along with local government and state-controlled companies’ spending in roads, bridges, and other fixed assets increased 28% in the first nine months of 2004. At a recent conference in Beijing, senior government officials remarked that State investment will be reduced in 2005 in an effort to cool the economy. Maybe that will occur; however, China’s M2, the broadest measure of the money supply, is expected to increase 16 to 17 percent in 2005. That’s red-hot money supply growth. Meanwhile, the People’s Bank of China continues to proclaim that, in a gradual and steady manner, the central bank will “create a more flexible exchange-rate mechanism.” The latter implies a small downward revision in the peg from 8.3 yuan to the U.S. dollar to about 7.9 to the dollar. An alternative would be to peg the yuan to a basket of currencies, and that could include the U.S. dollar, the yen, the euro, the Singapore currency, the South Korean won, and the Taipei dollar. Looking out over the horizon, our dollar will be less important as a medium of exchange. The same will be true for investment in our equities and bonds. There are too many alternatives in other corners of the world. Our population is aging and our economic growth prospects are diminishing. We are in serious need of a new cash flow generator. Hopefully, one will be discovered in some garage in the Silicon Valley.

Peter Lynch: “I remember a company that this fireman owned, and he had a system. He made $400,000 on a $5,000 investment. He held it for 25 years. And he said, ‘as long as they keep hiring, I’m going to hold onto it. When they stop hiring, I leave.’ So when they stopped hiring, he sold.”

Lenny Bruce: "Every day people are straying from the church and going back to God."