2/5/05 Close Call
Thank goodness for the annual benchmarking process and the updating of seasonal adjustment factors. They provided 203,000 more jobs being created between March 2003 and March 2004. This chiropractic revision meant that the U.S. gained 119,000 jobs since Bush took office in January 2001. Before you jump out of your pants with unrelenting joy, I should mention that there are 7.2 million Americans holding more than one job, representing 5.2% of the total labor force. The number of persons who work part time is 4.4 million. The share of the unemployed who have been without a job for more than six months has increased to 20.9%. The unemployment rate for African Americans is 10.6%, and for African American teens it’s over 30%. Hispanic teens face an unemployment rate of 19.6%. Manufacturing employment fell by 25,000 in January. Over the past four years, 2.8 million manufacturing jobs have been lost. On the other hand, employment in service-producing industries, such as, retailers, education and health, banks, transportation, warehousing, and government agencies, rose 177,000 in January after a rise of 123,000 in December. In case you think workers are getting rich, please think again. The average hourly earnings for workers rose 3 cents in January, and over the month, the average workweek declined by 0.1 hour to 33.7 hours. Over the year, the factory workweek was down by 0.3 hour. The labor participation rate edged lower to 65.8%. When was the last time it was lower? Some people actually drive to work. Crude is $47 a barrel or 35% higher than one year ago. In sum, the January gain of 146,000 new jobs was disappointing, and the Labor Department also trimmed the number of jobs created in the fourth quarter of 2004 by 59,000. I wonder what the revision will be for January?
As is the norm, the 1.8 million marginally attached persons were not counted as unemployed. They included 515,000 discouraged workers. They are described as discouraged because they are not currently looking for work specifically because they believed no jobs were available for them. Had they been non-specifically and non-currently looking for work, who knows whether they would be counted as unemployed.
The disappointing job report helped to push 10-year Treasury yields down to 4.09%. Adjusting for inflation, the yield on the 10-year is only about 0.9 percentage point above the rate of consumer price inflation. Over the last ten years, the average differential has been 2.9% higher. With the yield curve getting flatter, my long 2-year and short 10-year trade has turned into a poor decision. I took a 20 basis point loss. I firmly believe that 10-year Treasury yields are significantly too low. The market says I’m wrong. It’s important to undo a trade that has not worked out from day one.
Yesterday I read a brilliant analysis of the current interest rate landscape. It should be required reading for all Fed members. It’s entitled “Things Change” and was written by Gary Carmell of CWS Capital in Newport Beach. The link is http://www.cwscapital.com/pubs/qupdates/050130/change.html
There were several comments coming from the G-7 finance ministers. ECB president Trichet stated “the industrialized world as a whole is in deficit, there is a current account deficit, and there is no offsetting of the U.S. current account deficit by other industrialized countries.” Bank of England Governor King discussed “global imbalances” from trade and budget deficits and that governments must agree on the “nature of the risks inherent in current international monetary arrangements. There is likely to be a limit to the amount of debt that one country can issue as a result of persistent deficits before investors start to worry about its ability or willingness to repay.” On the other hand, Greenspan now says the current account deficit won’t create a crisis because the U.S. economy will adjust “without any significant consequences.” Why? Because of the falling dollar and plans to cut the budget deficit. Maybe Greenspan failed to notice the recent rise in the dollar versus the euro from 1.36 to 1.29, and maybe he failed to notice that the projected record budget deficit for 2005 will be higher than the record in 2004. It’s been a long time since Greenspan has been right on any important economic matter. Maybe the U.S. needs a new generation of bankers.
Greenspan noted that “interestingly, the change in U.S. home mortgage debt over the past half-century correlates significantly with our current account deficit.” If that is so, then, according to Freddie Mac’s projections, there isn’t much near-term hope for the current account declining very much. Freddie Mac estimates that cash-out mortgage refinancing added over $100 billion to the economy in 2004 and that it will boost the economy by $96 billion in 2005.
According to Trim Tabs, investors put $3.6 billion into U.S. and international stock mutual funds in the week ended Feb. 2 compared to $747 million of outflows the previous week. On the other side of the coin, in 2004, the ratio of insider selling to buying was 28:1, the most one-sided on record. It would not surprise me to see that ratio get more bearish in this year’s first quarter.
Mark Twain: “It could probably be shown by facts and figures that there is no distinctly native American criminal class except Congress.”
Friday, February 04, 2005
2/4/05 Closing Remarks
I thought it only fair that I provide the real closing remarks that the President had prepared for the State of the Union Address. They were changed because the Vice President did not give his nod of approval.
The remarks began with a bit of a swagger. They projected an increase in January 2005 employment that would offset the job losses during the first term in office. To date, the U.S. lost 122,000 jobs since the President took office. Employment is down 241,000 jobs from the high point reached in March 2001. With some helpful revisions, it’s possible that figure can be eliminated. Unfortunately, there is a cautionary note to this rosy picture. The latest jobs component of the ISM service-sector index fell to its lowest point since September 2003. We are essentially a service economy, and the service sector has been carrying the job creation load since the economic recovery began in November 2001. With slowing service sector hiring and slowing productivity growth, unit labor costs will rise in the future and they will lead to further inflationary concerns and, ultimately, to higher interest rates. It will create additional borrowing costs for our nation, and this will create greater budget deficits than previously forecast. Of course, as previously mentioned, forecasts are meant to be broken.
Much of the President’s speech was devoted to reforming Social Security. Left out of the closing remarks was a word of caution. If investments in the proposed private accounts earn less than 3 percent a year above inflation, then a worker would do worse than in the existing system. Many conservative Republicans and all Senate Democrats object to the idea of financing accounts with money earmarked for the Social Security trust fund. Privately, there is a move on by the aforementioned Republicans and Democrats to bolster the existing Social Security program with money from general revenues. In sum, it’s doubtful that the proposed President’s plan will travel well into the corners of our nation’s populace. The idea of private accounts creates fear in most people.
The President explained that we don’t have an exit strategy in Iraq. Nevertheless, 15,000 U.S. troops will leave Iraq in February. Much was made of the sacrifices made and of our 1400 + troops dying and of our 15,000 wounded U.S. soldiers so that the Iraqis could be free to vote. Nothing was said about the projected outcome of the election. The President had them in the closing remarks but the Vice President asked to have them removed. They indicated that the U.S. choice, Allawi, was getting skunked in the voting by a “Sistani tsunami.” As the head of the Constitutional Monarchy Party remarked, “Americans are in for a shock. We’ve got 150,000 troops here protecting a country that’s extremely friendly to Iran, and training their troops.” If it works out that way, this would be shock and awe. Making matters worse, Gen. Richard Myers testified that more than two-thirds of the 136,000 members of the Iraqi security forces that we have trained and equipped were unready to combat the insurgency.
The President wanted to include some additional remarks about inflation. It is well appreciated that higher costs for materials and transportation are impacting the bottom line for many corporations. Cost controls have helped to partially offset the pressure on operating margins. However, as productivity growth eases, there has been an increasing desire to raise prices and offset higher costs. Whirlpool, for example, estimates that its material costs will increase another 7 to 8% during 2005. As such, Whirlpool implemented global price increases of 5 to 10%, effective January 1. The company has to do what is best for its shareholders. At the same time, if Americans are to afford higher priced appliances, then their job income must rise to offset inflation. That has not happened over the recent period. Job creation without sufficient income growth cannot sustain a consumer-based economy.
The President had included remarks on various currencies. He included a statement that there has been much speculation about China easing its current peg against the U.S. dollar. It has been suggested that the peg has been responsible in large part for the record trade deficit with China. One should note that a change in the peg would not alter the differential in unit labor costs that favor China. In addition, more countries are moving towards a dual currency basket. Russia is the latest example.
Finally, the President wanted to say a word about our economy. We are at war. Our defense budget has been escalating during this time of war. Defense contractors have benefited. Boeing is the second largest defense contractor. In less than three weeks, Boeing will announce the sale of its Wichita facility. The company has approximately 7,000 employees working there. Boeing Wichita builds 75% of the 737 airframe and assemblies for all of Boeing’s commercial aircraft, which are then shipped to Renton and Everett for final assembly. The President expects those 7,000 employees will continue to be employed by the new buyer. Over the past 48 months, Boeing cut thousands and thousands of workers from its payroll. Over the past 48 months, Boeing has received hundreds of millions of dollars in tax benefits. When does Boeing start benefiting the communities in which they serve?
I thought it only fair that I provide the real closing remarks that the President had prepared for the State of the Union Address. They were changed because the Vice President did not give his nod of approval.
The remarks began with a bit of a swagger. They projected an increase in January 2005 employment that would offset the job losses during the first term in office. To date, the U.S. lost 122,000 jobs since the President took office. Employment is down 241,000 jobs from the high point reached in March 2001. With some helpful revisions, it’s possible that figure can be eliminated. Unfortunately, there is a cautionary note to this rosy picture. The latest jobs component of the ISM service-sector index fell to its lowest point since September 2003. We are essentially a service economy, and the service sector has been carrying the job creation load since the economic recovery began in November 2001. With slowing service sector hiring and slowing productivity growth, unit labor costs will rise in the future and they will lead to further inflationary concerns and, ultimately, to higher interest rates. It will create additional borrowing costs for our nation, and this will create greater budget deficits than previously forecast. Of course, as previously mentioned, forecasts are meant to be broken.
Much of the President’s speech was devoted to reforming Social Security. Left out of the closing remarks was a word of caution. If investments in the proposed private accounts earn less than 3 percent a year above inflation, then a worker would do worse than in the existing system. Many conservative Republicans and all Senate Democrats object to the idea of financing accounts with money earmarked for the Social Security trust fund. Privately, there is a move on by the aforementioned Republicans and Democrats to bolster the existing Social Security program with money from general revenues. In sum, it’s doubtful that the proposed President’s plan will travel well into the corners of our nation’s populace. The idea of private accounts creates fear in most people.
The President explained that we don’t have an exit strategy in Iraq. Nevertheless, 15,000 U.S. troops will leave Iraq in February. Much was made of the sacrifices made and of our 1400 + troops dying and of our 15,000 wounded U.S. soldiers so that the Iraqis could be free to vote. Nothing was said about the projected outcome of the election. The President had them in the closing remarks but the Vice President asked to have them removed. They indicated that the U.S. choice, Allawi, was getting skunked in the voting by a “Sistani tsunami.” As the head of the Constitutional Monarchy Party remarked, “Americans are in for a shock. We’ve got 150,000 troops here protecting a country that’s extremely friendly to Iran, and training their troops.” If it works out that way, this would be shock and awe. Making matters worse, Gen. Richard Myers testified that more than two-thirds of the 136,000 members of the Iraqi security forces that we have trained and equipped were unready to combat the insurgency.
The President wanted to include some additional remarks about inflation. It is well appreciated that higher costs for materials and transportation are impacting the bottom line for many corporations. Cost controls have helped to partially offset the pressure on operating margins. However, as productivity growth eases, there has been an increasing desire to raise prices and offset higher costs. Whirlpool, for example, estimates that its material costs will increase another 7 to 8% during 2005. As such, Whirlpool implemented global price increases of 5 to 10%, effective January 1. The company has to do what is best for its shareholders. At the same time, if Americans are to afford higher priced appliances, then their job income must rise to offset inflation. That has not happened over the recent period. Job creation without sufficient income growth cannot sustain a consumer-based economy.
The President had included remarks on various currencies. He included a statement that there has been much speculation about China easing its current peg against the U.S. dollar. It has been suggested that the peg has been responsible in large part for the record trade deficit with China. One should note that a change in the peg would not alter the differential in unit labor costs that favor China. In addition, more countries are moving towards a dual currency basket. Russia is the latest example.
Finally, the President wanted to say a word about our economy. We are at war. Our defense budget has been escalating during this time of war. Defense contractors have benefited. Boeing is the second largest defense contractor. In less than three weeks, Boeing will announce the sale of its Wichita facility. The company has approximately 7,000 employees working there. Boeing Wichita builds 75% of the 737 airframe and assemblies for all of Boeing’s commercial aircraft, which are then shipped to Renton and Everett for final assembly. The President expects those 7,000 employees will continue to be employed by the new buyer. Over the past 48 months, Boeing cut thousands and thousands of workers from its payroll. Over the past 48 months, Boeing has received hundreds of millions of dollars in tax benefits. When does Boeing start benefiting the communities in which they serve?
Thursday, February 03, 2005
2/3/05 This Is Hard Work
The President could not include everything he wanted to say last night. It’s hard trying to include everything in an hour or so. He wanted me to pass on some of the thoughts not included due to time constraints.
He mentioned the 2.3 million jobs created in the past year. Unfortunately, five million + jobs were not created as previously forecast in the first four years of the presidency. These things happen. Forecasts are made to be broken. We did create a significant number of outpatient health services positions, educational service providers, and thanks to low interest rates, many jobs in building, selling, financing, and landscaping homes. The U.S. is in the service business. We manufacture very little for export. The 767 is gone. We have to wait until 2008 for the 7E7. Fortunately, due to the lack of fiscal responsibility, defense and government salaries rose in 2004, according to Dice Inc., the leading job board for technology, but computer software salaries fell in 2004 to levels not seen since 2001. There was a continued decline of salaries for contractors and consultants. That’s just the way the cookie crumbles. Working as a security-cleared professional in the government and defense sectors pays well. That’s why Boeing, our number two defense contractor, had profit margins in their defense business 2 ½ times those in commercial aircraft. Boeing stockholders think the company makes its money from commercial airplanes. That’s probably what the company wants you to believe. Defense contracts feed their cash flow. We take care of our own.
There was a discussion on reducing the deficit in half by 2009. Now, please understand this is just a forecast, and forecasts are made to be broken. The budget deficit will increase to a new record in 2005. It can’t be helped. I need to have discretion in my spending. That’s why discretionary spending rose 10% from 2002 to 2004. The President did not want to scare the American people. The national debt stands at $7.6 trillion and unfunded liabilities for Medicare and Social Security total $72 trillion. If he tries to do away with waste, fraud, and abuse, there won’t be any government workers or government contractors. Think of the loss of jobs. We need to keep America’s consumers on the front lines spending, spending, and spending.
The President talked about rising home ownership. There was not enough time to discuss the fact that home prices are outpacing income gains. For example, according to Arizona State University’s Arizona Real Estate Center, the reading on its key affordability index for existing homes fell, at the end of 2004, to its lowest level in 15 years. Despite the sagging affordability index, new and used-home sales broke records in 2004 in metropolitan Phoenix. This story is repeated in San Francisco and many other areas of the county.
The President took great pride in the recent elections in Iraq. There wasn’t sufficient time to discuss the significance of a Shi’ite government in power and their building an alliance with Iran. It would mean that Iraq and Iran together would control over 50% of the oil reserves in the Middle East. This would necessitate our invading Iran. That would mean more defense spending, more jobs, and more supplemental budgets that would increase the record deficits to even higher record deficits.
The President did not have time to discuss the daily funding of our twin tower deficits. Each day we need to import at least $2 billion in foreign capital. It’s the price the foreigners have to pay for America to be the world’s growth engine. We’re top economic dog. We’re the economic super power. Let’s take Malaysia. Not many folks know where it’s located. I didn’t either until Laura told me. She knows theses things. She taught school. Malaysia’s reserves are 54% of their GDP, and that’s up 20 percentage points from just two years ago. Then you look at China and their reserves. The world is afloat in dollars. There are too many dollars. I tell Greenspan to stop printing so many, but he won’t listen. He says there’s no alternative but to monetize our debts. I wanted to bring Volcker back but he wouldn’t take the job. The problem is the dollar is still number one on the world scene but it’s beginning to share the stage with other currencies, and, in particular, the euro. They built alliances over there but we really haven’t. I’m told things could get worse if we don’t save more and spend less. The American people don’t want to hear that.
The President wanted to discuss all these recent mergers. They are killing the job numbers. Every time there is a big merger 13,000 jobs are cut or 6,000 or some number in the thousands. It’s very bad for spending morale.
The President touched on the graying of the population. Hair coloring looks like a growth business. According to CSIS, by 2040, 26% of the U.S. population will be at least 60 years old, up from 16.3% in 2000. That’s why we need to encourage illegal aliens to come across our borders. They are young. They will reduce the age of our population. Someone has to work the fields. We don’t want to end up like China. By 2040, 28% of China’s population will be at least 60.
The President wanted to say a few words to corporations. There have been numerous tax breaks afforded them over the past four years. Worker productivity has helped the bottom line but hiring has not kept pace. More and more capital investments are flowing to China and India. According to Corporate Office Perspectives, the San Francisco Bay Area has more than 83 million square feet of vacant office, flex, and R&D space. That’s a story found in many other tech cities. Something has to be done about those vacant buildings. Either fill them or the tax breaks disappear. There may be pork in Washington but there’s no free lunch.
Finally, the President wanted to say a few words about the changes taking place in the work place. The average worker has toiled for the last several years creating positive productivity results that aided corporate profits but taking it in the butt with wages falling behind inflation. We are beginning to face a different picture. Productivity in the nonfarm sector slowed to a 0.8% annual rate in the fourth quarter of 2004, the smallest gain in nearly four years. With unemployment declining, the labor market is beginning to tighten in certain areas. Employees want higher wages and benefits. Without them, it’s not possible to make ends meet and still spend. Wages will need to rise and the majority of productivity gains are behind us. Corporations will need to find new ways to increase profits, and they had better not come from increased prices. If that happens, the Fed will fight inflationary forces and increase interest rates far beyond the most recent forecasts. Remember that forecasts are meant to be broken.
The President could not include everything he wanted to say last night. It’s hard trying to include everything in an hour or so. He wanted me to pass on some of the thoughts not included due to time constraints.
He mentioned the 2.3 million jobs created in the past year. Unfortunately, five million + jobs were not created as previously forecast in the first four years of the presidency. These things happen. Forecasts are made to be broken. We did create a significant number of outpatient health services positions, educational service providers, and thanks to low interest rates, many jobs in building, selling, financing, and landscaping homes. The U.S. is in the service business. We manufacture very little for export. The 767 is gone. We have to wait until 2008 for the 7E7. Fortunately, due to the lack of fiscal responsibility, defense and government salaries rose in 2004, according to Dice Inc., the leading job board for technology, but computer software salaries fell in 2004 to levels not seen since 2001. There was a continued decline of salaries for contractors and consultants. That’s just the way the cookie crumbles. Working as a security-cleared professional in the government and defense sectors pays well. That’s why Boeing, our number two defense contractor, had profit margins in their defense business 2 ½ times those in commercial aircraft. Boeing stockholders think the company makes its money from commercial airplanes. That’s probably what the company wants you to believe. Defense contracts feed their cash flow. We take care of our own.
There was a discussion on reducing the deficit in half by 2009. Now, please understand this is just a forecast, and forecasts are made to be broken. The budget deficit will increase to a new record in 2005. It can’t be helped. I need to have discretion in my spending. That’s why discretionary spending rose 10% from 2002 to 2004. The President did not want to scare the American people. The national debt stands at $7.6 trillion and unfunded liabilities for Medicare and Social Security total $72 trillion. If he tries to do away with waste, fraud, and abuse, there won’t be any government workers or government contractors. Think of the loss of jobs. We need to keep America’s consumers on the front lines spending, spending, and spending.
The President talked about rising home ownership. There was not enough time to discuss the fact that home prices are outpacing income gains. For example, according to Arizona State University’s Arizona Real Estate Center, the reading on its key affordability index for existing homes fell, at the end of 2004, to its lowest level in 15 years. Despite the sagging affordability index, new and used-home sales broke records in 2004 in metropolitan Phoenix. This story is repeated in San Francisco and many other areas of the county.
The President took great pride in the recent elections in Iraq. There wasn’t sufficient time to discuss the significance of a Shi’ite government in power and their building an alliance with Iran. It would mean that Iraq and Iran together would control over 50% of the oil reserves in the Middle East. This would necessitate our invading Iran. That would mean more defense spending, more jobs, and more supplemental budgets that would increase the record deficits to even higher record deficits.
The President did not have time to discuss the daily funding of our twin tower deficits. Each day we need to import at least $2 billion in foreign capital. It’s the price the foreigners have to pay for America to be the world’s growth engine. We’re top economic dog. We’re the economic super power. Let’s take Malaysia. Not many folks know where it’s located. I didn’t either until Laura told me. She knows theses things. She taught school. Malaysia’s reserves are 54% of their GDP, and that’s up 20 percentage points from just two years ago. Then you look at China and their reserves. The world is afloat in dollars. There are too many dollars. I tell Greenspan to stop printing so many, but he won’t listen. He says there’s no alternative but to monetize our debts. I wanted to bring Volcker back but he wouldn’t take the job. The problem is the dollar is still number one on the world scene but it’s beginning to share the stage with other currencies, and, in particular, the euro. They built alliances over there but we really haven’t. I’m told things could get worse if we don’t save more and spend less. The American people don’t want to hear that.
The President wanted to discuss all these recent mergers. They are killing the job numbers. Every time there is a big merger 13,000 jobs are cut or 6,000 or some number in the thousands. It’s very bad for spending morale.
The President touched on the graying of the population. Hair coloring looks like a growth business. According to CSIS, by 2040, 26% of the U.S. population will be at least 60 years old, up from 16.3% in 2000. That’s why we need to encourage illegal aliens to come across our borders. They are young. They will reduce the age of our population. Someone has to work the fields. We don’t want to end up like China. By 2040, 28% of China’s population will be at least 60.
The President wanted to say a few words to corporations. There have been numerous tax breaks afforded them over the past four years. Worker productivity has helped the bottom line but hiring has not kept pace. More and more capital investments are flowing to China and India. According to Corporate Office Perspectives, the San Francisco Bay Area has more than 83 million square feet of vacant office, flex, and R&D space. That’s a story found in many other tech cities. Something has to be done about those vacant buildings. Either fill them or the tax breaks disappear. There may be pork in Washington but there’s no free lunch.
Finally, the President wanted to say a few words about the changes taking place in the work place. The average worker has toiled for the last several years creating positive productivity results that aided corporate profits but taking it in the butt with wages falling behind inflation. We are beginning to face a different picture. Productivity in the nonfarm sector slowed to a 0.8% annual rate in the fourth quarter of 2004, the smallest gain in nearly four years. With unemployment declining, the labor market is beginning to tighten in certain areas. Employees want higher wages and benefits. Without them, it’s not possible to make ends meet and still spend. Wages will need to rise and the majority of productivity gains are behind us. Corporations will need to find new ways to increase profits, and they had better not come from increased prices. If that happens, the Fed will fight inflationary forces and increase interest rates far beyond the most recent forecasts. Remember that forecasts are meant to be broken.
Wednesday, February 02, 2005
2/2/05 Giving Thanks
In a preview to tonight’s State of the Union speech, I thought it would be helpful to provide an inside look at what the President will tell the nation. The theme will be giving thanks. He will give a special thanks to Greenspan for raising short term rates, calming fears about inflation, and not saying a disparaging word about the carry trade. He will thank the Fed members for printing money at well over twice the inflation rate and, thus, enable the declining dollar to make U.S. assets look cheap to foreigners. According to Fed statistics, at the end of the third quarter of 2004, foreigners owned $4.5 trillion more in U.S. assets than the U.S. own of foreign assets. The President will give a special thanks to foreigners for exporting their savings to our shores, thus enabling our nation to live well beyond our needs. He will give special thanks to the 45 million Americans who continue to live without health insurance and make sacrifices each and every day. As a show of good faith, the President will have Medicare pay for Viagra and this should provide an economic helping hand in creating a “neocon” erection. The President will give special thanks to investors for overlooking high market valuations while providing a landscape for stocks that exhibit resiliency and hope for riches. He will give special thanks to the construction trade and those participating in the housing boom--- builders, appraisers, mortgage brokers, bankers, buyers, sellers, and all believers in our ownership society. Through intense focus on execution, the housing boom has been extended beyond anyone’s dreams, and this, despite the affordability index declining to record lows. It just goes to show that miracles can happen. They do happen. I got re-elected. That, in itself, is a miracle. I thank one and all for not seeing the light.
Tonight the President will state that, according to new Brookings Institute and CBO projections, in just 10 years, spending on the elderly will total nearly $1.8 trillion, almost 50% of the federal budget. In 2000, it was 35% and in 1990 the total was 29%. The bulk of that growth is spending on Medicare and Medicaid. Because of the enormity of this accident waiting to happen, the President has elected to use his political capital and skip over this problem and focus on Social Security which the CBO stated will not be a problem until 2020. It’s easy to appreciate the reasoning because Holtz-Eakin, a recent White house economist, stated “Medicare and Medicaid spending triples, maybe quintuples by 2050, while Social Security goes up by 50%.” The CBO chimed in and observed that “over the long term, the increasing resources needed for Medicare, Medicaid, and Social Security will exert pressure on the budget that will make current fiscal policy unsustainable.” That brings us to another area of special thanks, and it is directed towards members of Congress. The President wants to thank these members for raising the debt limit on a yearly basis and, without a whimper. That cooperation has made believers out of all Americans in the American way---- spend, spend, and spend--- like there is no tomorrow.
In closing, the President will thank the American people for remaining steadfast and supportive while wages trail inflation, while benefits are cut, and the standard of living for Main Street deteriorates. These are necessary pills to swallow in a time of war. We invaded Iraq. It was part of the plan to bring democracy to the Middle East. There may not be a chicken in every pot, but the Iraqis have had an opportunity to vote.
We have a great nation. Through everyone’s dedication and sacrifice, it will get greater. Good night and God bless America.
In a preview to tonight’s State of the Union speech, I thought it would be helpful to provide an inside look at what the President will tell the nation. The theme will be giving thanks. He will give a special thanks to Greenspan for raising short term rates, calming fears about inflation, and not saying a disparaging word about the carry trade. He will thank the Fed members for printing money at well over twice the inflation rate and, thus, enable the declining dollar to make U.S. assets look cheap to foreigners. According to Fed statistics, at the end of the third quarter of 2004, foreigners owned $4.5 trillion more in U.S. assets than the U.S. own of foreign assets. The President will give a special thanks to foreigners for exporting their savings to our shores, thus enabling our nation to live well beyond our needs. He will give special thanks to the 45 million Americans who continue to live without health insurance and make sacrifices each and every day. As a show of good faith, the President will have Medicare pay for Viagra and this should provide an economic helping hand in creating a “neocon” erection. The President will give special thanks to investors for overlooking high market valuations while providing a landscape for stocks that exhibit resiliency and hope for riches. He will give special thanks to the construction trade and those participating in the housing boom--- builders, appraisers, mortgage brokers, bankers, buyers, sellers, and all believers in our ownership society. Through intense focus on execution, the housing boom has been extended beyond anyone’s dreams, and this, despite the affordability index declining to record lows. It just goes to show that miracles can happen. They do happen. I got re-elected. That, in itself, is a miracle. I thank one and all for not seeing the light.
Tonight the President will state that, according to new Brookings Institute and CBO projections, in just 10 years, spending on the elderly will total nearly $1.8 trillion, almost 50% of the federal budget. In 2000, it was 35% and in 1990 the total was 29%. The bulk of that growth is spending on Medicare and Medicaid. Because of the enormity of this accident waiting to happen, the President has elected to use his political capital and skip over this problem and focus on Social Security which the CBO stated will not be a problem until 2020. It’s easy to appreciate the reasoning because Holtz-Eakin, a recent White house economist, stated “Medicare and Medicaid spending triples, maybe quintuples by 2050, while Social Security goes up by 50%.” The CBO chimed in and observed that “over the long term, the increasing resources needed for Medicare, Medicaid, and Social Security will exert pressure on the budget that will make current fiscal policy unsustainable.” That brings us to another area of special thanks, and it is directed towards members of Congress. The President wants to thank these members for raising the debt limit on a yearly basis and, without a whimper. That cooperation has made believers out of all Americans in the American way---- spend, spend, and spend--- like there is no tomorrow.
In closing, the President will thank the American people for remaining steadfast and supportive while wages trail inflation, while benefits are cut, and the standard of living for Main Street deteriorates. These are necessary pills to swallow in a time of war. We invaded Iraq. It was part of the plan to bring democracy to the Middle East. There may not be a chicken in every pot, but the Iraqis have had an opportunity to vote.
We have a great nation. Through everyone’s dedication and sacrifice, it will get greater. Good night and God bless America.
Monday, January 31, 2005
2/1/05 TGIF
Thank goodness it's February. Last month left everyone with at least a gripe or two. I'm reminded that the best three months of the year just ended. I guess we have our work cut out for us. Let's get started.
For years I have been discussing the aging of the population as the number one trend in our nation. The importance of that trend continues and will continue into the future. There is another area that requires attention, and that's obesity. It is becoming more and more of a problem. The 4th Annual Metabolic Diseases Drug Discovery World Summit will convene in San Diego on April 11-12. It will feature the latest industry and academic advances by leaders in the fields of diabetes and obesity. The conference will focus on new targets and the development of therapeutic prospects for controlling the set of early risk factors that can develop into metabolic diseases. Some of the research efforts that will be presented shall focus on MC 4 Receptor Agonists. A leader in this effort is Palatin Technologies (symbol PTN), and they will be a presenter at the conference.
Palatin's research has involved the administration of Melanocortin-4 Receptor, and has resulted in this small molecule decreasing food intake by 30-50%---in rodents---and reducing body weight, and importantly, without adverse effects. In November 2004, Carl Spana, Ph.D, President and CEO of Palatin, stated "we will continue to aggressively pursue the development of this molecule with the intent of filing an IND in the second half of 2005." To date, five melanocortin receptor subtypes have been identified as playing a key role in sexual dysfunction, obesity, inflammation, and cachexia (extreme wasting). The company's melanocortin compound for erectile dysfunction currently is in Phase II clinical trials. Additionally, NeutroSpec, Palatin's proprietary radiolabeled monoclonal antbody product for imaging and diagnosing infections, has been approved by the FDA and is marketed and distributed by Mallincrodt Imaging.
As an investment, Palatin is not for everyone. The total market cap is only $124 million. The company is not cash flow positive and is losing money. The stock, however, sells for a modest price of $2.30 per share. In my view, it's work in obesity has merit as does its efforts in treating male and female sexual dysfunction as well as its product for imaging patients. For those taking a long-term view, Palatin might have a place in your portfolio.
Bernard Baruch: "A speculator is a man who observes the future, and acts before it occurs."
Thank goodness it's February. Last month left everyone with at least a gripe or two. I'm reminded that the best three months of the year just ended. I guess we have our work cut out for us. Let's get started.
For years I have been discussing the aging of the population as the number one trend in our nation. The importance of that trend continues and will continue into the future. There is another area that requires attention, and that's obesity. It is becoming more and more of a problem. The 4th Annual Metabolic Diseases Drug Discovery World Summit will convene in San Diego on April 11-12. It will feature the latest industry and academic advances by leaders in the fields of diabetes and obesity. The conference will focus on new targets and the development of therapeutic prospects for controlling the set of early risk factors that can develop into metabolic diseases. Some of the research efforts that will be presented shall focus on MC 4 Receptor Agonists. A leader in this effort is Palatin Technologies (symbol PTN), and they will be a presenter at the conference.
Palatin's research has involved the administration of Melanocortin-4 Receptor, and has resulted in this small molecule decreasing food intake by 30-50%---in rodents---and reducing body weight, and importantly, without adverse effects. In November 2004, Carl Spana, Ph.D, President and CEO of Palatin, stated "we will continue to aggressively pursue the development of this molecule with the intent of filing an IND in the second half of 2005." To date, five melanocortin receptor subtypes have been identified as playing a key role in sexual dysfunction, obesity, inflammation, and cachexia (extreme wasting). The company's melanocortin compound for erectile dysfunction currently is in Phase II clinical trials. Additionally, NeutroSpec, Palatin's proprietary radiolabeled monoclonal antbody product for imaging and diagnosing infections, has been approved by the FDA and is marketed and distributed by Mallincrodt Imaging.
As an investment, Palatin is not for everyone. The total market cap is only $124 million. The company is not cash flow positive and is losing money. The stock, however, sells for a modest price of $2.30 per share. In my view, it's work in obesity has merit as does its efforts in treating male and female sexual dysfunction as well as its product for imaging patients. For those taking a long-term view, Palatin might have a place in your portfolio.
Bernard Baruch: "A speculator is a man who observes the future, and acts before it occurs."
1/31/05 The View From The CBO
Did anyone read about the CBO's view of the dollar? They chimed in by stating the "CBO expects that the exchange value of the dollar will decline during the next two years, largely because continued deficits in the nation's current account will raise net liabilities to foreigners to new highs. In CBO's view investors will be less willing to add to their holdings of dollar assets at current exchange rates and interest rates." Did you get the last part about interest rates? The CBO says don't worry because the dollar's fall will be orderly. Of course, who would expect the decline to pick up speed from exaggerated heights? Eventually, the CBO believes the dollar's decline will boost U.S. net exports and economic growth. They never mentioned the negative impact on the purchasing power of all U.S. consumers.
While the Iraqis were voting, SBC and AT&T were doing a $16 billion deal; MetLife was talking to Travelers Life about a $12 billion acquisition; Eastman Kodak was finalizing a $980 million deal with Creo; Lee Enterprises and Pulitzer Newspapers were getting together in a $1.46 billion deal; and KKR and Providence were looking to acquire Adelphia. It was a normal weekend.
Over in San Francisco, the loud talk in restaurants was not about the money being made in stocks. That was back in 1999 and 2000. The chatter revolves around real estate deals. You can't get a table at a hot restaurant unless you have at least a half a dozen deals in the works.
As the value of real estate increases, I'm told not to worry. There's plenty of equity to cover the total debt of Amercian households that now exceeds $10 trillion. That knowledge helps me to sleep so much better each night. The consumer doesn't even need to visit a bank as a homeowner can use the home as an ATM. That's real convenience.
Steven Wood, chief economist at Insight Economics: "The cost of hiring workers is rising but the wage income of workers is not keeping up with inflation."
Blaming it on poor winter weather, Wal-Mart stated that same-store sales would rise 2.5% for the month of January, lower than the mid-point of the previous 2 to 4% growth expectation.
Currency trading is averaging about $2 trillion a day.
Rather than counting on the yuan's peg to the dollar to change, maybe we should focus more on the Chinese increasing their direct investments in U.S. businesses within our boundaries. As long as U.S. consumers fail to harness their appetite for Chinese imports, the best we can hope for is to attract Chinese investment to our shores--- and not in U.S. Treasury bonds. Japan has built factories here and made other investments. The Chinese can be expected to do the same. There is more to attract the Chinese than "think pads." It's conceivable China might wish to invest in one of the 'Big Four" U.S. coal producers.
Did anyone read about the CBO's view of the dollar? They chimed in by stating the "CBO expects that the exchange value of the dollar will decline during the next two years, largely because continued deficits in the nation's current account will raise net liabilities to foreigners to new highs. In CBO's view investors will be less willing to add to their holdings of dollar assets at current exchange rates and interest rates." Did you get the last part about interest rates? The CBO says don't worry because the dollar's fall will be orderly. Of course, who would expect the decline to pick up speed from exaggerated heights? Eventually, the CBO believes the dollar's decline will boost U.S. net exports and economic growth. They never mentioned the negative impact on the purchasing power of all U.S. consumers.
While the Iraqis were voting, SBC and AT&T were doing a $16 billion deal; MetLife was talking to Travelers Life about a $12 billion acquisition; Eastman Kodak was finalizing a $980 million deal with Creo; Lee Enterprises and Pulitzer Newspapers were getting together in a $1.46 billion deal; and KKR and Providence were looking to acquire Adelphia. It was a normal weekend.
Over in San Francisco, the loud talk in restaurants was not about the money being made in stocks. That was back in 1999 and 2000. The chatter revolves around real estate deals. You can't get a table at a hot restaurant unless you have at least a half a dozen deals in the works.
As the value of real estate increases, I'm told not to worry. There's plenty of equity to cover the total debt of Amercian households that now exceeds $10 trillion. That knowledge helps me to sleep so much better each night. The consumer doesn't even need to visit a bank as a homeowner can use the home as an ATM. That's real convenience.
Steven Wood, chief economist at Insight Economics: "The cost of hiring workers is rising but the wage income of workers is not keeping up with inflation."
Blaming it on poor winter weather, Wal-Mart stated that same-store sales would rise 2.5% for the month of January, lower than the mid-point of the previous 2 to 4% growth expectation.
Currency trading is averaging about $2 trillion a day.
Rather than counting on the yuan's peg to the dollar to change, maybe we should focus more on the Chinese increasing their direct investments in U.S. businesses within our boundaries. As long as U.S. consumers fail to harness their appetite for Chinese imports, the best we can hope for is to attract Chinese investment to our shores--- and not in U.S. Treasury bonds. Japan has built factories here and made other investments. The Chinese can be expected to do the same. There is more to attract the Chinese than "think pads." It's conceivable China might wish to invest in one of the 'Big Four" U.S. coal producers.
Sunday, January 30, 2005
1/30/05 M&A
With the P&G deal with Gillette, over the past three months, M&A activity has exceeded $850 billion. This is significant volume and the most since the $933 billion in the final one-third of 2000. I place a great deal of weight on whether an acquisition is done for cash or stock. As a former Chairman of a NYSE listed company, I considered our stock as the ultimate currency. For me to part with it in an acquisition, the opportunity would need to be extraordinary. I never found one that extraordinary. There is at least one other fairly bright person who feels the same way--- Warren Buffett. Only in a rare occasion did he ever offer even a small number of Berkshire Hathaway shares in an acquisition. Just like the Fed printing money, it is so easy to print more stock certificates when buying another company. Parting with cash, makes you think a good deal harder. Maybe that's why most acquisitions disappoint.
There is an element in M&A activity that rarely is mentioned. When should talks between companies be announced? There isn't a hard and fast legal rule and there is a good deal of leeway in this area. Talks between P&G and Gillette commenced in mid-November. P&G's CFO stated "most of us lost our Thanksgiving weekend to this." Some time in December negotiations stalled over price. In the second week of January, talks resumed and they remained in a tight circle of about 15 top P&G managers. The problem of price soon was eliminated. Even so, it is difficult for an acquisition to be a win-win situation for both parties to a transaction.
In January 2003, there was a $1.3 billion outflow from mutual funds. In January 2004, there was a $28 billion inflow. With only one trading day left in the month, this January could show close to a $10 billion outflow, possibly a record for the first month of the year.
With the P&G deal with Gillette, over the past three months, M&A activity has exceeded $850 billion. This is significant volume and the most since the $933 billion in the final one-third of 2000. I place a great deal of weight on whether an acquisition is done for cash or stock. As a former Chairman of a NYSE listed company, I considered our stock as the ultimate currency. For me to part with it in an acquisition, the opportunity would need to be extraordinary. I never found one that extraordinary. There is at least one other fairly bright person who feels the same way--- Warren Buffett. Only in a rare occasion did he ever offer even a small number of Berkshire Hathaway shares in an acquisition. Just like the Fed printing money, it is so easy to print more stock certificates when buying another company. Parting with cash, makes you think a good deal harder. Maybe that's why most acquisitions disappoint.
There is an element in M&A activity that rarely is mentioned. When should talks between companies be announced? There isn't a hard and fast legal rule and there is a good deal of leeway in this area. Talks between P&G and Gillette commenced in mid-November. P&G's CFO stated "most of us lost our Thanksgiving weekend to this." Some time in December negotiations stalled over price. In the second week of January, talks resumed and they remained in a tight circle of about 15 top P&G managers. The problem of price soon was eliminated. Even so, it is difficult for an acquisition to be a win-win situation for both parties to a transaction.
In January 2003, there was a $1.3 billion outflow from mutual funds. In January 2004, there was a $28 billion inflow. With only one trading day left in the month, this January could show close to a $10 billion outflow, possibly a record for the first month of the year.
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