1/1/2005 Happy New Year
I wish you a very happy and healthy New Year. May you have the peace of mind and quality of life you so desire.
Whenever I drive into Berkeley, California, I notice the sign indicating a population of 120,00. This morning I read where a 6.5 aftershock hit Indonesia and that the death toll had passed 140,000. In the name of the American population that totals 292 million, the Bush administration is pledging $350 million in aid. That amount approaches the accumulated pork programs approved by the Congress over the past year.
The headlines do not tell The Wall Street story in 2004. On the surface, the Dow rose 3.15%, the Nasdaq 8.6%, and the S&P500 9%. Those increases are all dollar-denominated. By comparison, in 2004, the U.S. dollar declined 8% versus the euro as well as the Canadian dollar, 9% against the Swiss franc, 10% versus the New Zealand dollar, about 5% versus the Indian rupee, 4.7% against the yen, and 15% versus the South Korean won. In other words, if you keep your stock market gains in U.S. dollars, you are sitting pretty. If you use those dollars in any of the aforementioned countries and your gains can evaporate. Your buying power is eroded with the loss of value in our currency. Import prices rose 9 ½% in 2004.
The headlines do not tell the Wall Street story in 2004. Corporate insiders sold 51.3 billion of shares in their companies, up 20% from 2003. Purchases rose 13% to 2.11 billion shares. Interestingly, while corporate insiders were selling, corporations were repurchasing stock, raising dividends, and/or paying out special dividends. That’s a disconnect for any investor.
Byron Katie: “When you argue with reality, you lose--- but only 100% of the time.”
The Federal Reserve continued to expand credit. M3 money supply (ex money market funds) expanded at an annual rate of 10.3% in 2004. Bank loans expanded by 10.6%, commercial paper rose by 11.5%, and real estate loans by 14.4%. In fact, in 2004, we experienced over $1 trillion in total mortgage growth. Not surprisingly, the Bloomberg REIT index climbed 26% this year.
Real estate inflation drove consumption, and, despite a disappointing job market, spending was still able to exceed meager personal income gains.
Sigmund Freud: “Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces.”
The headlines don’t tell the Wall Street story in 2004. There was an incredible flight to investing in lesser quality credit risks. The above-mentioned liquidity expansion led to credit spreads collapsing. All you need to do is look at the junk bond spreads or the emerging bond spreads. However,there is another side to the story. Maybe investors are taking the view that our best credit risk, U.S. Treasury bonds, are not as credit worthy as once thought. Maybe the printing of dollars and our twin tower deficits have begun to unravel the credit worthiness and trust placed in our currency and government bonds. If that is the case, then continued speculation in our equity and debt markets could be unwound by a quake or tsunami waiting around the bend. Volatile and turbulent times could be forthcoming this year. Let’s discuss that possibility tomorrow.
Friday, December 31, 2004
12/31/04 Not The End--- Just The Beginning
Approximately, one in five full-time workers do not have health insurance, and that number rises to one in four with part-time workers. According to Mercer Resource Consulting, the average cost for employer-sponsored health care coverage rose 7.5% in 2004.
The British Medical Journal alleged that Eli Lilly suppressed evidence that Prozac could cause behavioral disturbances. This may help to explain some of the decisions at 1600 Pennsylvania Ave. and those originating on Capitol Hill.
The death toll in south Asia continues to mount, and now exceeds 125,000 with millions lacking safe drinking water, food, shelter, and medical care.
Boeing has orders for 126 7E7s, of which 56 are under firm contract. The company projected it would have orders for 200 of these planes by today’s close of business. Boeing shares were the second best performer in the Dow in 2004 behind McDonald’s.
Gold closed 2004 at $438.40 an ounce for a yearly gain of 5.4%. Crude ended at $43.45 a barrel, up 33.7% in 2004, and the 10-year Treasury bond ended at 4.27% or about unchanged. That last fact is quite remarkable and hardly believable. Meanwhile, the U.S. two-year notes were auctioned on Wednesday at 3.12%, the first time in 31 months that securities of that maturity were sold at yields above 3%.
Economists Nouriel Roubini and Brad Setser: “The U.S. has to mortgage one year’s worth of export revenues every two years to finance its trade deficit. That is not a sustainable pace. It is hard to run a current account deficit of more than 5% of GDP off a roughly 10% of GDP export base. U.S. external debt is no longer small in relation to the United States small export sector.”
The National Association of Purchasing Management-Chicago Index was 61.2 for December, compared with 65.2 in November. The purchasers’ employment index dropped to 49.1, the lowest since July.
In September, Japan reduced its holdings of U.S. Treasuries by $1.9 billion. In October, the reduction was increased to $5.1 billion, the first back-to-back decline in about two years. Meanwhile, China has become an active buyer in recent months of U.S. mortgage-backed securities.
The Conference Board’s Help-Wanted Advertising Index dipped one point in November to 36. It was 38 one year ago. In the last three months, help-wanted advertising declined in six of the nine regions across the country. Conference Board economist Ken Goldstein stated “job growth continues to be sluggish…This is reflected in the Conference Board’s Leading Economic Index, which has declined in five of the last six months, and by dips in consumer confidence. The widely-awaited turnaround in job growth has yet to arrive.”
Verisign tracks year-over-year merchant activity in key e-commerce categories. There were some interesting findings in this Thanksgiving through December 27 period compared with the equivalent time period in 2003. Online transactions for the electronics category increased 17%, apparel transactions rose 45%, the entertainment category increased 54%, general retail rose 24%, and photo-printing-and-sharing increased a whopping 120%.
John P. Hussman, Ph.D: “With the S&P 500 just over 1200, the price/peak earnings multiple on the index has returned to 21. Aside from the 2000 bubble peak, the multiple exceeds the valuation seen at any historical market peak including 1929, 1972, and 1987. Meanwhile, junk bond yields have been compressed to the point where the bond market is pricing in negligible probability of corporate defaults in the years ahead. Corporate BBB yields are just a half percent over AAA yields, while spreads on pure junk are only about 25 over comparable Treasuries. This will end badly…With regard to the S&P 500, the average multiple of peak-earnings has been just over 14, while the historical median is closer to 11. The 2002 market low occurred at a still-high 16 times peak earnings, while the median of 11 was last seen at the market’s 1990 low. Multiples of about 7 attended the 1974 and the 1982 market troughs…Avoiding market risk at high valuations has never penalized long-term returns.”
According to the International Monetary Fund, at the end of last year, almost 64% of central bank reserves globally were denominated in U.S. dollars, and Asian central banks own more than $2.2 trillion in forex reserves out of a global total of $3.4 trillion.
As interest rates rise in 2005, what impact will that have on interest payments on existing U.S. external debt? Over the last four years, several economists have estimated that the fall in interest rates during this 2000-2004 period reduced payments on existing U.S. external debt by approximately $130 billion.
“The promise Creator gives us
Comes with every new day,
The gift of breath, the gift of life,
Opportunities in a vast array.
How do we count our blessings,
Through the choices life can bring?
Is it through joyful lessons?
Or the fears to which we cling?
Are we learning to show gratitude,
For the victories over human pain?
By honoring the feeling choices,
We grasp the will we've regained.
Can we change our focus,
With no need to defend?
Acknowledging joy and sorrow,
Without judging foe or friend?
Tomorrow promises the fullness
Of every human way to know:
How we master each challenge
Determines our balance -
reflecting how we grow.”
The Promise of Tomorrow
Jamie Sams
"Earth Medicine"
Approximately, one in five full-time workers do not have health insurance, and that number rises to one in four with part-time workers. According to Mercer Resource Consulting, the average cost for employer-sponsored health care coverage rose 7.5% in 2004.
The British Medical Journal alleged that Eli Lilly suppressed evidence that Prozac could cause behavioral disturbances. This may help to explain some of the decisions at 1600 Pennsylvania Ave. and those originating on Capitol Hill.
The death toll in south Asia continues to mount, and now exceeds 125,000 with millions lacking safe drinking water, food, shelter, and medical care.
Boeing has orders for 126 7E7s, of which 56 are under firm contract. The company projected it would have orders for 200 of these planes by today’s close of business. Boeing shares were the second best performer in the Dow in 2004 behind McDonald’s.
Gold closed 2004 at $438.40 an ounce for a yearly gain of 5.4%. Crude ended at $43.45 a barrel, up 33.7% in 2004, and the 10-year Treasury bond ended at 4.27% or about unchanged. That last fact is quite remarkable and hardly believable. Meanwhile, the U.S. two-year notes were auctioned on Wednesday at 3.12%, the first time in 31 months that securities of that maturity were sold at yields above 3%.
Economists Nouriel Roubini and Brad Setser: “The U.S. has to mortgage one year’s worth of export revenues every two years to finance its trade deficit. That is not a sustainable pace. It is hard to run a current account deficit of more than 5% of GDP off a roughly 10% of GDP export base. U.S. external debt is no longer small in relation to the United States small export sector.”
The National Association of Purchasing Management-Chicago Index was 61.2 for December, compared with 65.2 in November. The purchasers’ employment index dropped to 49.1, the lowest since July.
In September, Japan reduced its holdings of U.S. Treasuries by $1.9 billion. In October, the reduction was increased to $5.1 billion, the first back-to-back decline in about two years. Meanwhile, China has become an active buyer in recent months of U.S. mortgage-backed securities.
The Conference Board’s Help-Wanted Advertising Index dipped one point in November to 36. It was 38 one year ago. In the last three months, help-wanted advertising declined in six of the nine regions across the country. Conference Board economist Ken Goldstein stated “job growth continues to be sluggish…This is reflected in the Conference Board’s Leading Economic Index, which has declined in five of the last six months, and by dips in consumer confidence. The widely-awaited turnaround in job growth has yet to arrive.”
Verisign tracks year-over-year merchant activity in key e-commerce categories. There were some interesting findings in this Thanksgiving through December 27 period compared with the equivalent time period in 2003. Online transactions for the electronics category increased 17%, apparel transactions rose 45%, the entertainment category increased 54%, general retail rose 24%, and photo-printing-and-sharing increased a whopping 120%.
John P. Hussman, Ph.D: “With the S&P 500 just over 1200, the price/peak earnings multiple on the index has returned to 21. Aside from the 2000 bubble peak, the multiple exceeds the valuation seen at any historical market peak including 1929, 1972, and 1987. Meanwhile, junk bond yields have been compressed to the point where the bond market is pricing in negligible probability of corporate defaults in the years ahead. Corporate BBB yields are just a half percent over AAA yields, while spreads on pure junk are only about 25 over comparable Treasuries. This will end badly…With regard to the S&P 500, the average multiple of peak-earnings has been just over 14, while the historical median is closer to 11. The 2002 market low occurred at a still-high 16 times peak earnings, while the median of 11 was last seen at the market’s 1990 low. Multiples of about 7 attended the 1974 and the 1982 market troughs…Avoiding market risk at high valuations has never penalized long-term returns.”
According to the International Monetary Fund, at the end of last year, almost 64% of central bank reserves globally were denominated in U.S. dollars, and Asian central banks own more than $2.2 trillion in forex reserves out of a global total of $3.4 trillion.
As interest rates rise in 2005, what impact will that have on interest payments on existing U.S. external debt? Over the last four years, several economists have estimated that the fall in interest rates during this 2000-2004 period reduced payments on existing U.S. external debt by approximately $130 billion.
“The promise Creator gives us
Comes with every new day,
The gift of breath, the gift of life,
Opportunities in a vast array.
How do we count our blessings,
Through the choices life can bring?
Is it through joyful lessons?
Or the fears to which we cling?
Are we learning to show gratitude,
For the victories over human pain?
By honoring the feeling choices,
We grasp the will we've regained.
Can we change our focus,
With no need to defend?
Acknowledging joy and sorrow,
Without judging foe or friend?
Tomorrow promises the fullness
Of every human way to know:
How we master each challenge
Determines our balance -
reflecting how we grow.”
The Promise of Tomorrow
Jamie Sams
"Earth Medicine"
Thursday, December 30, 2004
12/30/04 Aftershocks
Chief Seattle’s 1854 letter to President Franklin Pierce: “You must teach your children that the ground beneath their feet is the ashes of your grandfathers. So that they will respect the land, tell your children that the earth is rich with the lives of our kin. Teach your children what we have taught our children, that the earth is our mother. Whatever befalls the earth befalls the sons of the earth. If men spit upon the ground, they spit upon themselves.”
Since Sunday, there have been more than 70 aftershocks recorded, such as, the 5.3 in magnitude that hit Sumatra yesterday. The death toll rises by the hour, and the latest is at least 87,000. Millions have been left homeless, and the challenge is to deliver safe drinking water, food, medicine, and temporary shelter. That will require a dedicated, organized, and global effort.
Crude is trading at $42.56 a barrel, and that remains about $10 a barrel higher than year-ago levels. Lehman Bros. cut its 2005 forecast for global oil demand by 200,000 barrels a day to 84 million barrels.
The Fed’s Trade-Weighted Major Currency Dollar Index is trading near a 9-year low and is down 28% over the last two years.
Russia’s Energy Minister stated China may get a 20% stake in the main Yukos oil asset.
Microsoft will stop marketing its Passport service.
The Wall Street Journal reported that last month China posted net steel exports rather than imports. Their steel production rose 22% in 2004 and is anticipated to rise 14% in 2005.
In his first term in office, Bush increased the Federal debt by $2.2 trillion. The debt limit was raised three times in these first four years by $2.234 trillion. The rising Federal debt level is so monumental that there is zero chance that the Fed will be able to inflate and make our debts disappear. Foreign government holders of our daily-devaluing currency resulting from daily-burgeoning twin-tower deficits will exact a price from the U.S. for inflicting such losses. I assure you that the price will create shock and awe through our economic system. In my view, such an event is drawing near. One might recall that Paul Volcker opined that, in the next five years, there was a 75% chance of some type of financial disaster hitting the U.S.
Goldman Sachs stated that their Goldman Sachs Commodity Index has risen 25% in 2004, and since 1970, yearly returns have averaged 12%, and that exceeds the annual returns for bond and equity indices during these 34 years.
According to a national survey conducted by Roper for Bankrate, 36% of Americans polled are focused on weight loss as opposed to 31% who are concerned with eliminating outstanding debt. This is the first time in the three years that Bankrate has conducted the survey that Americans have chosen weight loss over controlling debt as their New Year’s resolution. The average amount of debt needed to pay off was $11,288 and the average desired weight loss was approximately 23 pounds.
U.S. continuing jobless claims increased by 29,000 to 2.755 million in the week ending December 18th.
Chief Seattle’s 1854 letter to President Franklin Pierce: “You must teach your children that the ground beneath their feet is the ashes of your grandfathers. So that they will respect the land, tell your children that the earth is rich with the lives of our kin. Teach your children what we have taught our children, that the earth is our mother. Whatever befalls the earth befalls the sons of the earth. If men spit upon the ground, they spit upon themselves.”
Since Sunday, there have been more than 70 aftershocks recorded, such as, the 5.3 in magnitude that hit Sumatra yesterday. The death toll rises by the hour, and the latest is at least 87,000. Millions have been left homeless, and the challenge is to deliver safe drinking water, food, medicine, and temporary shelter. That will require a dedicated, organized, and global effort.
Crude is trading at $42.56 a barrel, and that remains about $10 a barrel higher than year-ago levels. Lehman Bros. cut its 2005 forecast for global oil demand by 200,000 barrels a day to 84 million barrels.
The Fed’s Trade-Weighted Major Currency Dollar Index is trading near a 9-year low and is down 28% over the last two years.
Russia’s Energy Minister stated China may get a 20% stake in the main Yukos oil asset.
Microsoft will stop marketing its Passport service.
The Wall Street Journal reported that last month China posted net steel exports rather than imports. Their steel production rose 22% in 2004 and is anticipated to rise 14% in 2005.
In his first term in office, Bush increased the Federal debt by $2.2 trillion. The debt limit was raised three times in these first four years by $2.234 trillion. The rising Federal debt level is so monumental that there is zero chance that the Fed will be able to inflate and make our debts disappear. Foreign government holders of our daily-devaluing currency resulting from daily-burgeoning twin-tower deficits will exact a price from the U.S. for inflicting such losses. I assure you that the price will create shock and awe through our economic system. In my view, such an event is drawing near. One might recall that Paul Volcker opined that, in the next five years, there was a 75% chance of some type of financial disaster hitting the U.S.
Goldman Sachs stated that their Goldman Sachs Commodity Index has risen 25% in 2004, and since 1970, yearly returns have averaged 12%, and that exceeds the annual returns for bond and equity indices during these 34 years.
According to a national survey conducted by Roper for Bankrate, 36% of Americans polled are focused on weight loss as opposed to 31% who are concerned with eliminating outstanding debt. This is the first time in the three years that Bankrate has conducted the survey that Americans have chosen weight loss over controlling debt as their New Year’s resolution. The average amount of debt needed to pay off was $11,288 and the average desired weight loss was approximately 23 pounds.
U.S. continuing jobless claims increased by 29,000 to 2.755 million in the week ending December 18th.
Wednesday, December 29, 2004
12/29/04 Expectations
As the death toll nears 70,000 in Indonesia and 11 other countries, what further tragedies do you expect from possible cholera, typhoid, and malaria?
Yesterday, the Conference Board stated their Consumer Confidence Index rebounded to 102.3 from November’s 92.9. The Index had been on the decline since August. Financial writers reported that the Expectations Index surged to 99.9 from the prior month’s 90.2. Both indexes had their highest reading since July. Nowhere did I read that the Expectations Index this month was lower than December 2003’s reading of 102.9. In December 2004, 22 percent of the 5,000 consumers surveyed stated they expect conditions to improve. A year earlier at this time 26.8 percent expected conditions to improve.
John Lubbock: “What we see depends mainly on what we look for.” I prefer to see the world through non-colored glasses. In sum, I seek out a 360-degree view of the facts.
The U.S. dollar index is inching its way towards the 80 level. The chart does not present a pretty picture for those holding dollar-denominated assets. The last time I checked millions of Americans had most, if not all, of their wealth invested in overvalued dollar-denominated real estate, equities, and bonds. The illusion of value permits a restful night’s sleep for many people with their eyes shut.
A long-time friend emailed me and asked why Newmont Mining had dropped about 10% in price this year while the price of gold bullion had risen from about $420 per ounce to the present $445. I reminded him that, in January 2001, based on my suggestion, he had purchased Newmont at $16 per share and that the stock was close to tripling in price based on last night’s close. In fact, the stock closely mirrored the rise in the CBOE Gold Index since January 2001. Meanwhile, the price of gold bullion had increased slightly less than $200 per ounce or close to 80%. It’s important to keep relationships in perspective and not to have unrealistic expectations.
Mark Twain: “The thing long expected takes the form of the unexpected when at last it comes.”
With the decline in crude prices from $55 a barrel to $42 a barrel, tanker rates have also declined.
India is the world’s largest user of gold. The country’s population owns at least 9,000 tons of gold. As its forex holdings increase, it is reasonable to expect that India’s gold ownership will also rise.
The ECB is supporting a rising euro. The strength in the euro has helped to contain inflation while still maintaining interest rates at the low 2% level.
Our nation’s largest trade imbalance occurred with China, where the 10-month trade deficit was $131.1 billion. The next largest deficits were Japan ($61.1 billion), Canada ($54.9 billion), Mexico ($37.8 billion), and Germany ($37.4 billion). By comparison, our largest trade surplus was with the Netherlands ($9.8 billion) followed by Australia ($5.7 billion), Hong Kong ($5.3 billion), Singapore ($3.9 billion), and Belgium ($3.7 billion).
Wet Seat will close 150 stores and cut 2,000 employees from the payroll.
Air travel in China is growing about 10% a year, nearly twice the world average. Yang Yuanyuan, China’s aviator regulator, stated “the demand in aviation and transportation has shown a heated situation not seen in many years. In principle, the Civil Aviation Administration of China will not approve any additional aircraft purchases in 2005.” Any airplane order in China must be approved by the Chinese government.
According to the Cambridge Credit Counseling Corp., the average U.S. household carries a $14,000 credit card debt. Consumers owe a record $750 billion in credit card debt. Chris Viale, Cambridge Credit’s president and CEO, stated “what consumers don’t realize is that they are spending fake money which nevertheless has to be repaid. Today there are close to 30 million U.S. households, or one in four consumers, spending more than they can afford.” I wonder whether these are the same consumers who expect conditions to improve over the next six months. On the other hand, economists often state that debt is a lagging indicator of what consumers actually did and does not reflect what they will do. I know one thing. They don’t have the money to repay their credit card balances, their home equity lines of credit, and/or their mortgage balances. Of course, why should they worry? The Fed is inflating away everyone’s debt obligations. Or are they?
Richard Benson: “The Fed needs inflation, wants inflation, and is getting inflation. Without inflation to inflate away a massive amount of personal, corporate, and government debt, our financial system could collapse.” Do you think anyone expects our financial system to collapse? It’s too big for that to happen. Isn’t that so?
As the death toll nears 70,000 in Indonesia and 11 other countries, what further tragedies do you expect from possible cholera, typhoid, and malaria?
Yesterday, the Conference Board stated their Consumer Confidence Index rebounded to 102.3 from November’s 92.9. The Index had been on the decline since August. Financial writers reported that the Expectations Index surged to 99.9 from the prior month’s 90.2. Both indexes had their highest reading since July. Nowhere did I read that the Expectations Index this month was lower than December 2003’s reading of 102.9. In December 2004, 22 percent of the 5,000 consumers surveyed stated they expect conditions to improve. A year earlier at this time 26.8 percent expected conditions to improve.
John Lubbock: “What we see depends mainly on what we look for.” I prefer to see the world through non-colored glasses. In sum, I seek out a 360-degree view of the facts.
The U.S. dollar index is inching its way towards the 80 level. The chart does not present a pretty picture for those holding dollar-denominated assets. The last time I checked millions of Americans had most, if not all, of their wealth invested in overvalued dollar-denominated real estate, equities, and bonds. The illusion of value permits a restful night’s sleep for many people with their eyes shut.
A long-time friend emailed me and asked why Newmont Mining had dropped about 10% in price this year while the price of gold bullion had risen from about $420 per ounce to the present $445. I reminded him that, in January 2001, based on my suggestion, he had purchased Newmont at $16 per share and that the stock was close to tripling in price based on last night’s close. In fact, the stock closely mirrored the rise in the CBOE Gold Index since January 2001. Meanwhile, the price of gold bullion had increased slightly less than $200 per ounce or close to 80%. It’s important to keep relationships in perspective and not to have unrealistic expectations.
Mark Twain: “The thing long expected takes the form of the unexpected when at last it comes.”
With the decline in crude prices from $55 a barrel to $42 a barrel, tanker rates have also declined.
India is the world’s largest user of gold. The country’s population owns at least 9,000 tons of gold. As its forex holdings increase, it is reasonable to expect that India’s gold ownership will also rise.
The ECB is supporting a rising euro. The strength in the euro has helped to contain inflation while still maintaining interest rates at the low 2% level.
Our nation’s largest trade imbalance occurred with China, where the 10-month trade deficit was $131.1 billion. The next largest deficits were Japan ($61.1 billion), Canada ($54.9 billion), Mexico ($37.8 billion), and Germany ($37.4 billion). By comparison, our largest trade surplus was with the Netherlands ($9.8 billion) followed by Australia ($5.7 billion), Hong Kong ($5.3 billion), Singapore ($3.9 billion), and Belgium ($3.7 billion).
Wet Seat will close 150 stores and cut 2,000 employees from the payroll.
Air travel in China is growing about 10% a year, nearly twice the world average. Yang Yuanyuan, China’s aviator regulator, stated “the demand in aviation and transportation has shown a heated situation not seen in many years. In principle, the Civil Aviation Administration of China will not approve any additional aircraft purchases in 2005.” Any airplane order in China must be approved by the Chinese government.
According to the Cambridge Credit Counseling Corp., the average U.S. household carries a $14,000 credit card debt. Consumers owe a record $750 billion in credit card debt. Chris Viale, Cambridge Credit’s president and CEO, stated “what consumers don’t realize is that they are spending fake money which nevertheless has to be repaid. Today there are close to 30 million U.S. households, or one in four consumers, spending more than they can afford.” I wonder whether these are the same consumers who expect conditions to improve over the next six months. On the other hand, economists often state that debt is a lagging indicator of what consumers actually did and does not reflect what they will do. I know one thing. They don’t have the money to repay their credit card balances, their home equity lines of credit, and/or their mortgage balances. Of course, why should they worry? The Fed is inflating away everyone’s debt obligations. Or are they?
Richard Benson: “The Fed needs inflation, wants inflation, and is getting inflation. Without inflation to inflate away a massive amount of personal, corporate, and government debt, our financial system could collapse.” Do you think anyone expects our financial system to collapse? It’s too big for that to happen. Isn’t that so?
Tuesday, December 28, 2004
12/28/04 Evading Reality
Ayn Rand: “We can evade reality, but we cannot evade the consequences of evading reality.”
The death toll in Indonesia has mounted to 30,000. What do you think will be the consequences of thousands of decaying corpses?
It was Italy that first announced no plans to sell 120 tons of gold. Germany soon followed and decided not to sell gold until September 2005. What country will come next? France? Switzerland? What will be the consequences of less gold coming on the market for sale?
Foreign central bank holdings of U.S. Treasuries at the Fed slightly exceed $1 trillion on an average daily basis. What happens when those central banks stop increasing their Treasury holdings? What entities will fill the void resulting from rising budget and trade deficits? Together those annual deficits exceed the level of Treasuries held by those foreign central banks.
Yesterday was a most interesting trading day. Crude declined 4.8%. The dollar traded at its fourth consecutive record daily low against the euro. The yield on 10-year Treasury bonds jumped from 4.21% to 4.29%. The Dow dropped 51 points. This isn’t the normal script for the first trading day after the Christmas holiday.
The price of West Texas intermediate crude decreased 5.10 cents for January delivery to $43.98-$44.00 per barrel. Platts, the global energy information division of McGraw-Hill, stated “it’s important to note that this decline took place as refiners are looking to buy crude oil to process in January. Although heating-related demand is obviously a big factor in the market, the fact remains that the fourth quarter is traditionally the heaviest for demand, and that’s behind us. So January demand looks to be sliding, and the market has plenty of crude to process, hence the drop in crude prices.”
Franco Modigliani won the Nobel Prize in economics in 1985 for his “life-cycle theory.” He stated that saving was not just for the rich, and that all people generally borrow when they are young, save in middle age, and then begin to spend their savings in their retirement years. It is safe to say that currently our population, which is aging, is not in a saving mode. His thoughts were important. Modigliani had this to say about inflation. He observed that “the poor are more likely to be debtors. And debtors benefit from inflation because of the reduced real burden of the debt…So I concluded that inflation is good for the poor and not for the rich.” Since we are the largest indebted nation in the history of the world, Modigliani, if he were alive, might state that inflation is a benefit to our $7.5 trillion debt level. But, there is more to the debt picture for Modigliani, and he makes a key point in his remarks that “the distribution of indebtedness matters. For every borrower who gets a boost in purchasing power, there is a lender who loses. They may be different people, but it is the net effect that matters for the macro economy.” The consequences of this net effect is a daily reality. It would be a huge mistake for the markets to evade the consequences of this reality. Even on a clear day, mass tragedies can take place.
Franco Modigliani: “A negative wealth effect tells me it can’t go on forever. And that’s when I revert to the life-cycle theory. Sadly, the large cohort of aging baby boomers is not adequately prepared for old age. The personal saving rate is too low. It has been depleted by individuals betting on asset markets. Life-cycle theory suggests that the saving rate should have gone up by now. Obviously, it hasn’t--- at least, not yet. While that puzzles me, it doesn’t dissuade me from the basic view that the balance between consumption and saving will have to adjust. It’s just a matter of time when. That leads me to conclude that the American consumer is the most dangerous portion of the picture.”
Echo boomers were born between 1982 and 1995. There are about 80 million echo boomers, and presently they spend about $170 billion a year of their own and their parents’ money.
Economist Allen W. Smith: “The IOUs in the Social Security trust fund are different. The government could default on these special issue IOUs without defaulting on its general debt.”
Gerrit Zalm, Dutch finance minister: The euro’s rise is “evolving within acceptable margins.”
Michael Niemera, chief economist at the International Council of Shopping Centers: “MasterCard and Visa numbers are usually stronger than in-store sales because they include gift card purchases and internet shopping.”
CHD Meridian Healthcare of Nashville runs more than 25 employee-only pharmacies. They have a new customer in Toyota, which provides health coverage for 40,000 employees in the U.S. Currently, about 88% of their prescriptions are filled at retail pharmacies. Toyota hopes to reduce annual prescription costs by having company-run drugstores that are managed by CHD Meridian Healthcare.
Ayn Rand: “We can evade reality, but we cannot evade the consequences of evading reality.”
The death toll in Indonesia has mounted to 30,000. What do you think will be the consequences of thousands of decaying corpses?
It was Italy that first announced no plans to sell 120 tons of gold. Germany soon followed and decided not to sell gold until September 2005. What country will come next? France? Switzerland? What will be the consequences of less gold coming on the market for sale?
Foreign central bank holdings of U.S. Treasuries at the Fed slightly exceed $1 trillion on an average daily basis. What happens when those central banks stop increasing their Treasury holdings? What entities will fill the void resulting from rising budget and trade deficits? Together those annual deficits exceed the level of Treasuries held by those foreign central banks.
Yesterday was a most interesting trading day. Crude declined 4.8%. The dollar traded at its fourth consecutive record daily low against the euro. The yield on 10-year Treasury bonds jumped from 4.21% to 4.29%. The Dow dropped 51 points. This isn’t the normal script for the first trading day after the Christmas holiday.
The price of West Texas intermediate crude decreased 5.10 cents for January delivery to $43.98-$44.00 per barrel. Platts, the global energy information division of McGraw-Hill, stated “it’s important to note that this decline took place as refiners are looking to buy crude oil to process in January. Although heating-related demand is obviously a big factor in the market, the fact remains that the fourth quarter is traditionally the heaviest for demand, and that’s behind us. So January demand looks to be sliding, and the market has plenty of crude to process, hence the drop in crude prices.”
Franco Modigliani won the Nobel Prize in economics in 1985 for his “life-cycle theory.” He stated that saving was not just for the rich, and that all people generally borrow when they are young, save in middle age, and then begin to spend their savings in their retirement years. It is safe to say that currently our population, which is aging, is not in a saving mode. His thoughts were important. Modigliani had this to say about inflation. He observed that “the poor are more likely to be debtors. And debtors benefit from inflation because of the reduced real burden of the debt…So I concluded that inflation is good for the poor and not for the rich.” Since we are the largest indebted nation in the history of the world, Modigliani, if he were alive, might state that inflation is a benefit to our $7.5 trillion debt level. But, there is more to the debt picture for Modigliani, and he makes a key point in his remarks that “the distribution of indebtedness matters. For every borrower who gets a boost in purchasing power, there is a lender who loses. They may be different people, but it is the net effect that matters for the macro economy.” The consequences of this net effect is a daily reality. It would be a huge mistake for the markets to evade the consequences of this reality. Even on a clear day, mass tragedies can take place.
Franco Modigliani: “A negative wealth effect tells me it can’t go on forever. And that’s when I revert to the life-cycle theory. Sadly, the large cohort of aging baby boomers is not adequately prepared for old age. The personal saving rate is too low. It has been depleted by individuals betting on asset markets. Life-cycle theory suggests that the saving rate should have gone up by now. Obviously, it hasn’t--- at least, not yet. While that puzzles me, it doesn’t dissuade me from the basic view that the balance between consumption and saving will have to adjust. It’s just a matter of time when. That leads me to conclude that the American consumer is the most dangerous portion of the picture.”
Echo boomers were born between 1982 and 1995. There are about 80 million echo boomers, and presently they spend about $170 billion a year of their own and their parents’ money.
Economist Allen W. Smith: “The IOUs in the Social Security trust fund are different. The government could default on these special issue IOUs without defaulting on its general debt.”
Gerrit Zalm, Dutch finance minister: The euro’s rise is “evolving within acceptable margins.”
Michael Niemera, chief economist at the International Council of Shopping Centers: “MasterCard and Visa numbers are usually stronger than in-store sales because they include gift card purchases and internet shopping.”
CHD Meridian Healthcare of Nashville runs more than 25 employee-only pharmacies. They have a new customer in Toyota, which provides health coverage for 40,000 employees in the U.S. Currently, about 88% of their prescriptions are filled at retail pharmacies. Toyota hopes to reduce annual prescription costs by having company-run drugstores that are managed by CHD Meridian Healthcare.
Monday, December 27, 2004
12/27/04 On A Clear Day
Yesterday the earthquake hit at 6:58am and the Tsunami waves arrived as much as 2 ½ hours later. The sky was blue and one could see for miles on this clear day. Hours later, about 20,000 people were declared dead. If the 8.9 quake was not enough, when the Tsunami hit, the water level rose at least 15 feet in a less than a minute. It all took place on a clear day. There was no warning. Those working in the Twin Towers had no warning either. Those buildings, however, did not collapse from a natural disaster. It too was a clear day.
Concours Group, a Texas-based consulting firm, stated in a new report that “the fastest-growing source of ‘new’ labor will be older people, including those already retired. Corporations will have little choice but to employ more older people, and that means making the terms of employment much more attractive to them.” Among the options mentioned were part-time work, job sharing, flextime, consulting arrangements, extended time off, and temporary work.
It is estimated that over $17 billion of gift cards were sold this holiday season. That estimate might prove conservative.
In Mexico, November auto sales rose 19% over the year-ago month, and results are closing in on one million vehicles sold for all of 2004.
In 2004, the state of Connecticut suffered from layoffs at Bayer Pharmaceuticals in West Haven, insurers in Hartford, and Purdue Pharma in Stamford. Over the past four years through July, the state lost 61,000 jobs or 3.6% of its jobs. Pete Gioia, economist with the Connecticut Business and Industry Association, stated “I’d say the job picture in Connecticut right now is stagnant. There is no way to sugarcoat this. We have a problem here.” John Tirinzonie, state labor economist, remarked the state, through November, added only 7,400 jobs in 2004. He described the situation as “I would say it’s weak at best. Anemic--- that’s probably the best way to describe it.”
Under a traditional pension plan, an employee’s pension benefits are typically calculated based on his or her last years of service. Usually, that’s when the employee earns the most. IBM, with 130,000 current and former employees, changed to a cash-balance pension plan in the mid-1990s whereby an employee is credited on a regular yearly basis with a percentage of a person’s annual pay, and that amount earns interest at an assigned rate. This plan would favor younger employees and work to the detriment of older workers. There is little question that a cash-balance program can be less costly to a company. IBM was sued by its current and former employees in a class-action lawsuit. A federal judge ruled last year that the changes in IBM’s pension plan were discriminatory against older employees who would receive less retirement benefits at retirement than those of younger workers. IBM plans to appeal this decision. Studies have shown that the older IBM employees had their benefits slashed by 30 to 40% after the conversion to a cash-balance pension plan. The Pension Benefit Guaranty Corp. stated, that in 2000, more than 1,200 companies provided cash-balance pension plans. With the continuing effort on the part of corporations to reduce costs, it is likely that the number is much higher today than the 1,200 reported in 2000. Should IBM lose on appeal, and that seems a strong possibility, that decision would likely lead to further lawsuits in this pension-benefits arena.
John Plender of the Financial Times: “The flight to garbage is the inelegant but accurate phrase that best captures the overheating in residential property, astonishing yield compression in the bond market and the return of commodities as an adventure playground for high rollers.”
A recent forecast for online advertising projects a gain of 30% in 2005 to $10.2 billion, and that’s on top of the 25% gain in 2004 over last year. It is anticipated that search ads will be especially strong.
Because of “disappointing” holiday sales, Sharper Image lowered its 4th quarter and 2004 earnings outlook.
Yesterday the earthquake hit at 6:58am and the Tsunami waves arrived as much as 2 ½ hours later. The sky was blue and one could see for miles on this clear day. Hours later, about 20,000 people were declared dead. If the 8.9 quake was not enough, when the Tsunami hit, the water level rose at least 15 feet in a less than a minute. It all took place on a clear day. There was no warning. Those working in the Twin Towers had no warning either. Those buildings, however, did not collapse from a natural disaster. It too was a clear day.
Concours Group, a Texas-based consulting firm, stated in a new report that “the fastest-growing source of ‘new’ labor will be older people, including those already retired. Corporations will have little choice but to employ more older people, and that means making the terms of employment much more attractive to them.” Among the options mentioned were part-time work, job sharing, flextime, consulting arrangements, extended time off, and temporary work.
It is estimated that over $17 billion of gift cards were sold this holiday season. That estimate might prove conservative.
In Mexico, November auto sales rose 19% over the year-ago month, and results are closing in on one million vehicles sold for all of 2004.
In 2004, the state of Connecticut suffered from layoffs at Bayer Pharmaceuticals in West Haven, insurers in Hartford, and Purdue Pharma in Stamford. Over the past four years through July, the state lost 61,000 jobs or 3.6% of its jobs. Pete Gioia, economist with the Connecticut Business and Industry Association, stated “I’d say the job picture in Connecticut right now is stagnant. There is no way to sugarcoat this. We have a problem here.” John Tirinzonie, state labor economist, remarked the state, through November, added only 7,400 jobs in 2004. He described the situation as “I would say it’s weak at best. Anemic--- that’s probably the best way to describe it.”
Under a traditional pension plan, an employee’s pension benefits are typically calculated based on his or her last years of service. Usually, that’s when the employee earns the most. IBM, with 130,000 current and former employees, changed to a cash-balance pension plan in the mid-1990s whereby an employee is credited on a regular yearly basis with a percentage of a person’s annual pay, and that amount earns interest at an assigned rate. This plan would favor younger employees and work to the detriment of older workers. There is little question that a cash-balance program can be less costly to a company. IBM was sued by its current and former employees in a class-action lawsuit. A federal judge ruled last year that the changes in IBM’s pension plan were discriminatory against older employees who would receive less retirement benefits at retirement than those of younger workers. IBM plans to appeal this decision. Studies have shown that the older IBM employees had their benefits slashed by 30 to 40% after the conversion to a cash-balance pension plan. The Pension Benefit Guaranty Corp. stated, that in 2000, more than 1,200 companies provided cash-balance pension plans. With the continuing effort on the part of corporations to reduce costs, it is likely that the number is much higher today than the 1,200 reported in 2000. Should IBM lose on appeal, and that seems a strong possibility, that decision would likely lead to further lawsuits in this pension-benefits arena.
John Plender of the Financial Times: “The flight to garbage is the inelegant but accurate phrase that best captures the overheating in residential property, astonishing yield compression in the bond market and the return of commodities as an adventure playground for high rollers.”
A recent forecast for online advertising projects a gain of 30% in 2005 to $10.2 billion, and that’s on top of the 25% gain in 2004 over last year. It is anticipated that search ads will be especially strong.
Because of “disappointing” holiday sales, Sharper Image lowered its 4th quarter and 2004 earnings outlook.
Sunday, December 26, 2004
12/26/04 The Horizon
According to the International Council of Shopping
Centers, the seven-day period ended December 27th
accounted for 20.6% of holiday sales in 2003, up from
19.6% in 2002. The seven-day period ended January 3rd
accounted for 14.1% in 2003, up from 12.8% in 2002.
With the rapid growth of gift cards, the period from
December 26th through January 2nd will take on
increased importance this holiday season. Jan. 1 and
Jan. 2 fall on the weekend this year.
Tom Peters: “If no one is pissed off with you then you
are dead but just haven’t figured it out yet.”
The most powerful earthquake in 40 years struck near
Sumatra this morning. It measured 8.9 on the Richter
scale and at least 5,600 people are known dead in five
countries. The earthquake was accompanied by Tsunami
waves.
Senator John McCain will shortly become chairman of
the Airland Subcommittee of the Senate Armed Services
Committee with direct oversight of the Air Force,
which happens to be Boeing’s largest customer. That
fact spells trouble for Boeing and the infamous $24.5
billion tanker program.
Peter Drucker: “The most important thing in
communication is to hear what isn’t being said.”
Yearly Medicaid expenditures amount to $190 billion
and average 22% of state budgets. Medicare costs tally
about $375 billion a year. As our population ages,
those costs can be expected to escalate. Bush wants to
shift more of the Medicaid costs onto the states and
is endeavoring to restrain Medicare spending for the
elderly and disabled. Undermining our frayed health
safety net could spell trouble for a significant
percentage of our nation’s citizens.
Warren Bennis: “Leaders keep their eyes on the
horizon, not just on the bottom line.”
One of the best ways to reduce the cost of health care
is through the deliverance of hope. It can arrive
through the spoken word and/or through actions taken.
When there is a loss of hope, the individual’s
well-being is compromised and society’s burdens take
on more hurdles. Budget constraints are necessary but
they must be accompanied by a realistic assessment of
the horizon. Such is the case at home, at work, and at
play. One must have contingency plans to deal with
emergencies. In today’s world, emergency measures are
becoming the norm. The unthinkable does happen.
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