8/13/05 Confusion
Despite the price of crude reaching $67 a barrel, PetroKazakhstan shares declined on Friday. I had mentioned earlier in the week that PetroChina had an important meeting set for yesterday. That did not mean a bid for PKZ would materialize on the same day. Interestingly, Xinhua Finance cited a report by Fitch analyst Ma Shang that stated “they (PetroChina) are expected to announce a bid on Monday, the deadline set by Goldman Sachs.” Further, Ma stated only India’s ONGC Videsh and PetroChina are expected to bid on Monday, and he expects a bidding war between those two parties. It will be interesting to see whether Sinopec enters the process.
Anthony de Mello: “An Italian poet said, "We live in a flash of light; evening comes and it is night forever." It’s only a flash and we waste it. We waste it with our anxiety, our worries, our concerns, our burdens.”
This week the U.S. Treasury had a successful auction for its 10-year bonds. Over the last two trading days, government bond yields declined despite the CRB Index reaching its highest level since December 1980 and the Goldman Sachs Commodity Index surging to an all-time high. Year-to-date it has jumped 42.3%. In addition, copper prices traded at record high levels. Gold rallied to $451.40 an ounce. Equity investors ignored the dollar index declining 1.3% this week.
When discussing fair value for the S&P 500, it might be helpful to differentiate between the historical breakdown of earnings with the present. Clearly, normalized levels do not resemble today’s reliance on the financial/real estate services sector, and in particular, the relationship between the debt/income levels ascribed to the borrowers and the quality of risk in derivative exposure assumed by the lenders.
Our June trade gap rose to $58.8 billion, and we are headed for a $700 + billion annual trade deficit. Combine that with the projected $300 + billion budget deficit, and you have twin tower deficits amounting to about 9% of our GDP. Interestingly, that same 9% equates to the real unemployment rate in our country.
For the fourth consecutive month, the CPI in China in July was less than 2%. In July 2004 it was 5.3%. Because of overproduction in most manufacturing sectors since 1998 and the to-be-overcapacity from over-investment in 2003 and 2004, some Chinese economists warn that the country’s economy could see deflation in the near future. I find this view quite unusual given the fact that, during the January-July period, China’s imports of iron ore rose 31.9%, coal imports surged 55.4%, and soybean imports jumped 38.4%. Imported crude oil was up 5.5% but refined oil was down 20% year on year. On the other hand, car imports were down 29.4% and imported rolled steel dropped 24.4%.
It is quite true that, in June, the U.S. imported $21 billion in goods from China. However, during the January-July period, the EU continued to be China’s largest trading partner. The U.S. was number 2, Japan number 3, and ASEAN number 4.
Beijing reported that the Russian and Chinese prime ministers will sign a mid-term cooperation program in the fall of 2005. Next week China and the U.S. launch a new round of negotiations over the textile conflicts. Talks will resume in San Francisco.
John Williams wrote an updated report on the July nonfarm payrolls. He maintains that, if June and July 2005 numbers are recast on a largely consistent basis with last year’s seasonal factors, then the gain in July payrolls would only amount to 44,000.
An AP-AOL poll of 1,000 adults found that 64% say gas prices will cause money problems for them in the next six months, and that is up from 51% in April.
I don’t put much stock in the University of Michigan Consumer Sentiment Index, but many others do. For August, it declined to 92.7 from July’s 96.5.
On Friday, Apple Computer closed at a new all-time high. It’s market cap now exceeds $38 billion.
The Tarim Basin is northwest China’s Xinjiang Uygur Autonomous Region. The Tarim Oilfield Company expects to produce 11 million tons of oil and natural gas this year. Last year, the Tarim Basin yielded 8.86 million tons. Estimated reserves are 10.7 billion tons of crude oil and 8.39 trillion cubic meters of natural gas, while its proven geological reserves stand at 440 million tons of oil and 664 billion cubic meters of natural gas.
On this Saturday morning is a passage for a friend from My Antonia: “I tried to go to sleep, but the jolting made me bite my tongue, and I soon began to ache all over. When the straw settled down, I had a hard bed. Cautiously I slipped from under the buffalo hide, got up on my knees and peered over the side of the wagon. There seemed to be nothing to see; no fences, no creeks or trees, no hills or fields. If there was a road, I could not make it out in the faint starlight There was nothing but land: not a country at all, but the material out of which countries are made. No, there was nothing but land--slightly undulating, I knew, because often our wheels ground against the brake as we went down into a hollow and lurched up again on the other side. I had the feeling that the world was left behind, that we had got over the edge of it, and were outside man's jurisdiction. I had never before looked up at the sky when there was not a familiar mountain ridge against it. But this was the complete dome of heaven all there was of it. I did not believe that my dead father and mother were watching me from up there; they would still be looking for me at the sheep-fold down by the creek or along the white road that lead to the mountain pastures. I had left even their spirits behind me. The wagon jolted on, carrying me I knew not wither. I don't think I was homesick. If we never arrived anywhere, it did not matter. Between that earth and that sky I felt erased, blotted out. I did not say my prayers that night: here, I felt, what would be would be.”
Saturday, August 13, 2005
Friday, August 12, 2005
Looking Ahead
8/12/05 Looking Ahead
Jesse Livermore: “The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.”
For the bulls, where do we go from here? At the moment, it doesn’t appear that Dell, Cisco, Intel, Microsoft, and Oracle will power the Nasdaq much higher. Between July 7 and August 11 shares in McDonald’s moved 7 points higher to $34+. The rise can’t be based simply on salads. Has MCD become the newest real estate play? I doubt MCD is enough to power the Dow much higher. Boeing already sports a hefty P/E. Do we go higher because of more buybacks, cash and stock acquisitions, or possibly P/E expansion? What do you pay for 11% quarterly earnings growth? If the earnings for Dell and Cisco are not satisfying, what does that say about the rest of the market that is growing more slowly? You can’t have it both ways. Consumer companies have to fight $3 a gallon gas at the pump paid by our nation of SUV owners. Housing companies are battling higher mortgage rates and the rising inventory of unsold homes. Believe it or not, when house flipping becomes more difficult, rising prices do become a problem.
For the bears, where do we go from here? Goldcorp traded at a new all-time high yesterday. Gold futures rose 2% to close at $450 an ounce, its highest close since March 18 and nearing a 17-year high. Over the last few years, gold has risen $200 an ounce. Oil is trading at $66 a barrel. Yesterday, the Amex Oil Index traded above 1,000 for the first time.How much higher can it go in the near term? Heating oil is $1.89 a gallon. It is almost mid-August. The weather has not turned cold. Gasoline futures are nearing $2 a gallon. The peak-driving season is coming to a close.
The idea is to be flexible. Don’t be too set in your ways. There are too many variables that can make one look stupid. It’s costly to be wrong. Pick your spots. It’s important to realize that making money every day sounds great but the likelihood is truly slim. When in doubt, sit on your hands. It's not a shameful act.
According to the International Energy Agency, hurricanes in the U.S. Gulf of Mexico alongside unscheduled summer stoppages elsewhere are set to have a major impact this year on oil output from producers outside OPEC.
The dollar dropped to a 10-week low versus the euro.
July retail sales in China rose 12.7% from a year earlier.
Fred Cooper, head of investor relations at Toll Brothers: “Four months ago, we could sell a new home in 2 hours. Now it takes a week or two.” How long will it take come December?
Are some MBS having delinquency problems?
Ford stated it may need to cut more than the previously-mentioned number of 2,750 of its 35,000 North American white-collar workers. Since not enough employees have quit through early retirement, buyouts, and letting positions go unfilled, the company has resorted to firing employees and immediately escorting them from corporate buildings. The problem is that some of those fired have been with the company for decades.
China’s GDP is doubling every 8 years. By comparison, India’s GDP is doubling every 12 years.
How long can China’s growth rate in exports, investments, and savings exceed its GDP growth rate?
According to yesterday’s Federal Reserve data, foreign central banks purchased $12.749 billion of Treasury and agency debt in the week ended August 10. It was the biggest week of buying by central banks since the week ended May 25.
Venezuela’s Hugo Chavez: “For no one should it be a secret, neither is it a secret, that the greatest threat that the world faces today is the government of Mr. Danger, Mr. George Bush. That is the biggest threat that the planet faces today.”
Pork spending is alive and well in the Bush administration. The highway bill contains 6,300 special projects that total $24 billion in pork or 8.4% of the total bill signed by the president.
India's industrial production expanded 11.7% in June, the fastest pace in 9 years.
Jesse Livermore: "Markets are never wrong, opinions are."
Energy and Mineral Resources Minister Vladimir Shkolnik stated Kazakhstan may join the Baku-Tbilisi-Ceyhan oil pipeline project within the next two months.
When will U.S. corporations accelerate capital expenditures within our borders?
In the latest edition of Business Week, according to SMR Research Corp. of Hackettstown, N.J., this debt-research firm collected data nationally on 2 million debt-financed purchases of owner-occupied homes from 2004 and more than 600,000 through roughly May of this year. It found that 95.1% or more of the purchase price was borrowed in 38% of all transactions so far this year. That was up from 34% of sales in all of 2004. Leverage is not a one-way street.
Edgar R. Fiedler: "The herd instinct among forecasters makes sheep look like independent thinkers."
Jesse Livermore: “The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.”
For the bulls, where do we go from here? At the moment, it doesn’t appear that Dell, Cisco, Intel, Microsoft, and Oracle will power the Nasdaq much higher. Between July 7 and August 11 shares in McDonald’s moved 7 points higher to $34+. The rise can’t be based simply on salads. Has MCD become the newest real estate play? I doubt MCD is enough to power the Dow much higher. Boeing already sports a hefty P/E. Do we go higher because of more buybacks, cash and stock acquisitions, or possibly P/E expansion? What do you pay for 11% quarterly earnings growth? If the earnings for Dell and Cisco are not satisfying, what does that say about the rest of the market that is growing more slowly? You can’t have it both ways. Consumer companies have to fight $3 a gallon gas at the pump paid by our nation of SUV owners. Housing companies are battling higher mortgage rates and the rising inventory of unsold homes. Believe it or not, when house flipping becomes more difficult, rising prices do become a problem.
For the bears, where do we go from here? Goldcorp traded at a new all-time high yesterday. Gold futures rose 2% to close at $450 an ounce, its highest close since March 18 and nearing a 17-year high. Over the last few years, gold has risen $200 an ounce. Oil is trading at $66 a barrel. Yesterday, the Amex Oil Index traded above 1,000 for the first time.How much higher can it go in the near term? Heating oil is $1.89 a gallon. It is almost mid-August. The weather has not turned cold. Gasoline futures are nearing $2 a gallon. The peak-driving season is coming to a close.
The idea is to be flexible. Don’t be too set in your ways. There are too many variables that can make one look stupid. It’s costly to be wrong. Pick your spots. It’s important to realize that making money every day sounds great but the likelihood is truly slim. When in doubt, sit on your hands. It's not a shameful act.
According to the International Energy Agency, hurricanes in the U.S. Gulf of Mexico alongside unscheduled summer stoppages elsewhere are set to have a major impact this year on oil output from producers outside OPEC.
The dollar dropped to a 10-week low versus the euro.
July retail sales in China rose 12.7% from a year earlier.
Fred Cooper, head of investor relations at Toll Brothers: “Four months ago, we could sell a new home in 2 hours. Now it takes a week or two.” How long will it take come December?
Are some MBS having delinquency problems?
Ford stated it may need to cut more than the previously-mentioned number of 2,750 of its 35,000 North American white-collar workers. Since not enough employees have quit through early retirement, buyouts, and letting positions go unfilled, the company has resorted to firing employees and immediately escorting them from corporate buildings. The problem is that some of those fired have been with the company for decades.
China’s GDP is doubling every 8 years. By comparison, India’s GDP is doubling every 12 years.
How long can China’s growth rate in exports, investments, and savings exceed its GDP growth rate?
According to yesterday’s Federal Reserve data, foreign central banks purchased $12.749 billion of Treasury and agency debt in the week ended August 10. It was the biggest week of buying by central banks since the week ended May 25.
Venezuela’s Hugo Chavez: “For no one should it be a secret, neither is it a secret, that the greatest threat that the world faces today is the government of Mr. Danger, Mr. George Bush. That is the biggest threat that the planet faces today.”
Pork spending is alive and well in the Bush administration. The highway bill contains 6,300 special projects that total $24 billion in pork or 8.4% of the total bill signed by the president.
India's industrial production expanded 11.7% in June, the fastest pace in 9 years.
Jesse Livermore: "Markets are never wrong, opinions are."
Energy and Mineral Resources Minister Vladimir Shkolnik stated Kazakhstan may join the Baku-Tbilisi-Ceyhan oil pipeline project within the next two months.
When will U.S. corporations accelerate capital expenditures within our borders?
In the latest edition of Business Week, according to SMR Research Corp. of Hackettstown, N.J., this debt-research firm collected data nationally on 2 million debt-financed purchases of owner-occupied homes from 2004 and more than 600,000 through roughly May of this year. It found that 95.1% or more of the purchase price was borrowed in 38% of all transactions so far this year. That was up from 34% of sales in all of 2004. Leverage is not a one-way street.
Edgar R. Fiedler: "The herd instinct among forecasters makes sheep look like independent thinkers."
Thursday, August 11, 2005
Unstable
8/11/05 Unstable
Governor Zhou Xiaochuan, The People’s Bank of China: “In comparison with an exchange rate regime of pegging to the US dollar solely, it can better reflect the competitiveness of RMB against major currencies, better absorb the impact generated by an unstable US dollar and moderate the fluctuations of RMB exchange rates at the multilateral level, safeguard the overall stability of China's foreign economic and trade environment and consequently promote the basic equilibrium of balance of payments as well as the sustained, coordinated and healthy growth of the Chinese economy.” This statement was part of a speech delivered yesterday. I view the word “unstable” to describe our dollar as being highly significant.
Dr. Franz Pick: "The fate of the nation and the fate of the currency are one and the same... It is the greenback which is unstable, and not bullion."
An explosion and fire at British Petroleum’s Chocolate Bayou petrochemical plant shook the Alvin area Wednesday night, the second incident to strike one of the company's Gulf Coast facilities in 24 hours. Earlier Wednesday, a unit at BP's Texas City refinery sprung a leak, causing the company to shut down parts of the plant for inspection. Crude remains above $64 a barrel.
If Fed Funds reach 4.25% by 2005 year-end, what will be the yield on 10-year Treasury bonds? What will be the rate on a 15-year fixed rate mortgage?
Chad Hudson: “The 8.3% annualized appreciation for the home refinanced during the second quarter experienced the highest annualized appreciation since at least 1996. The average annualized increase has been only 4.4% over the past 9 years.”
Alan Greenspan: "Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."
Richard Russell: "Gold will be around, gold will be money when the dollar and the euro and the yuan and the ringgitt are mere memories."
The Nikkei rallied to its highest level since August 2001.
China’s July trade surplus widened to $10.4 billion from $1.97 billion a year earlier.
Lakshmi Mittal, CEO of Mittal Steel: “ Looking ahead to the third quarter, we are expecting conditions to remain difficult."
How is it possible that Fannie Mae needs to “verify some 20,000 derivative prices” before it can file a re-stated 2004 annual report? That report will not be available until the second half of 2006. How many other public companies need to verify past derivative prices?
The Treasury Department and the CBO boasted that the U.S. federal budget deficit had declined to $52.8 billion in July from $69 billion a year ago. Through the first 10 months of 2005, the federal deficit is only $302.6 billion. How many times has our federal deficit exceeded this figure for 10 months? How many billions of dollars have been excluded from this year’s deficit number? In other words, what’s the real cash flow picture? In what way does our twin tower deficit picture make our dollar appear “unstable” to the Chinese government? When you purchase U.S. Treasury debt instruments, you are blessing our growing deficit position. Maybe you should check your mental faculties.
Turkish president Ahmet Necdet Sezer called the May 25, 2005 opening of the1768 km long Baku-Tbilissi-Ceyhan (BTC) pipeline connecting the Caspian and the Mediterranean Sea the new “Silk Road of the 21st century.” It has the capability to transport over 1 million barrels of oil a day. The biggest investor in the project is British Petroleum, and the U.S. provided substantial support. The project bypassed Russia. Soon thereafter, Uzbekistan gave notice to the U.S. to move out of the Karshi-Khanabad air base (K2) serving Afghanistan. The U.S. forces will continue to use Manas air base in Kyrgyzstan to back up its efforts in Afghanistan.
Today’s investor would be wise to become familiar with the oil-rich Eurasian crescent area. It comprises the Caspian Sea basin of Russia, Turkmenistan, Kazakhstan, Azerbaijan, and Georgia. In addition, knowledge of Kosovo’s mineral resources are a must. Specifically, the Trepca mining complex produces gold, silver, lead, zinc, and cadmium. In addition, Kosovo has 17 billion tons of coal reserves and 335 million barrels of oil reserves. Serbia and Albania also have resource potential. As the maximum oil extraction potential of Saudi Arabia is attained, the world’s focus will turn to the Eurasian crescent area. In place, is a strong alliance between China and Russia and between China and Kazakhstan. I should mention that tomorrow PetroChina has an important meeting.
While a report from the CommerceDepartment this week showed the national savings rate at 0%, EARN (EarnedAssets Resource Network), a San Francisco-based non-profit, shows that over 700 of the Bay Area's poorest households are saving at rates consistently
above 5%. EARN's mission is to demonstrate how better access to financial services and more equitable asset-building policy could permanently reduce rates of poverty. EARN offers its clients 401k-like matched savings accounts, used to save for a first home, higher education or a small business. EARN's clients, called Savers, are working-poor families in the Bay Area with an average household income of $17,000 who save on average $75 per month. EARN CEO Ben Mangan explained, "Our findings show that financial institutions regularly underestimate the capacity of the working poor to save and the
demand for financial services from this market."
Asarco LLC, a copper mining company hampered by a 40-day strike, filed for bankruptcy protection Wednesday, saying its decision was at least partially driven by environmental and other claims. Asarco, a subsidiary of the Mexican company Grupo Mexico SA, said Wednesday it filed for Chapter 11 protection in U.S. Bankruptcy Court in Corpus Christi, Texas, although its operations are headquartered in Tucson.
In addition to the strike, the company is facing about 95,000 asbestos-related personal injury claims. Two non-operating subsidiaries filed for Chapter 11 protection in April in Corpus Christi under special provisions of the bankruptcy code for asbestos-related liabilities, the company said.
Governor Zhou Xiaochuan, The People’s Bank of China: “In comparison with an exchange rate regime of pegging to the US dollar solely, it can better reflect the competitiveness of RMB against major currencies, better absorb the impact generated by an unstable US dollar and moderate the fluctuations of RMB exchange rates at the multilateral level, safeguard the overall stability of China's foreign economic and trade environment and consequently promote the basic equilibrium of balance of payments as well as the sustained, coordinated and healthy growth of the Chinese economy.” This statement was part of a speech delivered yesterday. I view the word “unstable” to describe our dollar as being highly significant.
Dr. Franz Pick: "The fate of the nation and the fate of the currency are one and the same... It is the greenback which is unstable, and not bullion."
An explosion and fire at British Petroleum’s Chocolate Bayou petrochemical plant shook the Alvin area Wednesday night, the second incident to strike one of the company's Gulf Coast facilities in 24 hours. Earlier Wednesday, a unit at BP's Texas City refinery sprung a leak, causing the company to shut down parts of the plant for inspection. Crude remains above $64 a barrel.
If Fed Funds reach 4.25% by 2005 year-end, what will be the yield on 10-year Treasury bonds? What will be the rate on a 15-year fixed rate mortgage?
Chad Hudson: “The 8.3% annualized appreciation for the home refinanced during the second quarter experienced the highest annualized appreciation since at least 1996. The average annualized increase has been only 4.4% over the past 9 years.”
Alan Greenspan: "Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."
Richard Russell: "Gold will be around, gold will be money when the dollar and the euro and the yuan and the ringgitt are mere memories."
The Nikkei rallied to its highest level since August 2001.
China’s July trade surplus widened to $10.4 billion from $1.97 billion a year earlier.
Lakshmi Mittal, CEO of Mittal Steel: “ Looking ahead to the third quarter, we are expecting conditions to remain difficult."
How is it possible that Fannie Mae needs to “verify some 20,000 derivative prices” before it can file a re-stated 2004 annual report? That report will not be available until the second half of 2006. How many other public companies need to verify past derivative prices?
The Treasury Department and the CBO boasted that the U.S. federal budget deficit had declined to $52.8 billion in July from $69 billion a year ago. Through the first 10 months of 2005, the federal deficit is only $302.6 billion. How many times has our federal deficit exceeded this figure for 10 months? How many billions of dollars have been excluded from this year’s deficit number? In other words, what’s the real cash flow picture? In what way does our twin tower deficit picture make our dollar appear “unstable” to the Chinese government? When you purchase U.S. Treasury debt instruments, you are blessing our growing deficit position. Maybe you should check your mental faculties.
Turkish president Ahmet Necdet Sezer called the May 25, 2005 opening of the1768 km long Baku-Tbilissi-Ceyhan (BTC) pipeline connecting the Caspian and the Mediterranean Sea the new “Silk Road of the 21st century.” It has the capability to transport over 1 million barrels of oil a day. The biggest investor in the project is British Petroleum, and the U.S. provided substantial support. The project bypassed Russia. Soon thereafter, Uzbekistan gave notice to the U.S. to move out of the Karshi-Khanabad air base (K2) serving Afghanistan. The U.S. forces will continue to use Manas air base in Kyrgyzstan to back up its efforts in Afghanistan.
Today’s investor would be wise to become familiar with the oil-rich Eurasian crescent area. It comprises the Caspian Sea basin of Russia, Turkmenistan, Kazakhstan, Azerbaijan, and Georgia. In addition, knowledge of Kosovo’s mineral resources are a must. Specifically, the Trepca mining complex produces gold, silver, lead, zinc, and cadmium. In addition, Kosovo has 17 billion tons of coal reserves and 335 million barrels of oil reserves. Serbia and Albania also have resource potential. As the maximum oil extraction potential of Saudi Arabia is attained, the world’s focus will turn to the Eurasian crescent area. In place, is a strong alliance between China and Russia and between China and Kazakhstan. I should mention that tomorrow PetroChina has an important meeting.
While a report from the CommerceDepartment this week showed the national savings rate at 0%, EARN (EarnedAssets Resource Network), a San Francisco-based non-profit, shows that over 700 of the Bay Area's poorest households are saving at rates consistently
above 5%. EARN's mission is to demonstrate how better access to financial services and more equitable asset-building policy could permanently reduce rates of poverty. EARN offers its clients 401k-like matched savings accounts, used to save for a first home, higher education or a small business. EARN's clients, called Savers, are working-poor families in the Bay Area with an average household income of $17,000 who save on average $75 per month. EARN CEO Ben Mangan explained, "Our findings show that financial institutions regularly underestimate the capacity of the working poor to save and the
demand for financial services from this market."
Asarco LLC, a copper mining company hampered by a 40-day strike, filed for bankruptcy protection Wednesday, saying its decision was at least partially driven by environmental and other claims. Asarco, a subsidiary of the Mexican company Grupo Mexico SA, said Wednesday it filed for Chapter 11 protection in U.S. Bankruptcy Court in Corpus Christi, Texas, although its operations are headquartered in Tucson.
In addition to the strike, the company is facing about 95,000 asbestos-related personal injury claims. Two non-operating subsidiaries filed for Chapter 11 protection in April in Corpus Christi under special provisions of the bankruptcy code for asbestos-related liabilities, the company said.
Wednesday, August 10, 2005
Statistics
8/10/05 Statistics
The Bureau of Labor Statistics of the U.S. Department of Labor
reported preliminary productivity data--as measured by output per hour of
all persons--for the second quarter of 2005. The preliminary seasonally
adjusted annual rates of productivity change in the second quarter were:
1.2 percent in the business sector and
2.2 percent in the nonfarm business sector.
Productivity growth in the business sector reflected increases of 4.2
percent in output and 3.0 percent in hours. Output per hour increased
more in the nonfarm business sector because output grew more, 4.4
percent, and hours rose less, 2.1 percent, than in the business sector.
In manufacturing, the preliminary productivity changes in the second
quarter were:
4.1 percent in manufacturing,
3.8 percent in durable goods manufacturing, and
5.0 percent in nondurable goods manufacturing.
Manufacturing productivity grew 4.1 percent in the second quarter as
output increased 1.2 percent and hours declined 2.8 percent (seasonally
adjusted annual rates). Output and hours in manufacturing, which
includes about 13 percent of U.S. business-sector employment, tend to
vary more from quarter to quarter than data for the aggregate business
and nonfarm business sectors.
Unit labor costs rose 1.3% in the second quarter after a 3.6% rise in the first quarter. More importantly, real hourly compensation fell 0.6%, and that fact bodes poorly for buoyant consumer spending in coming months.
Ursula K. Le Guin: “Legends of prediction are common throughout the whole Household of Man. Gods speak, spirits speak, computers speak. Oracular ambiguity or statistical probability provides loopholes, and discrepancies are expunged by Faith.”
According to the Financial Times, the basket of currencies to which the yuan is now pegged include the U.S. dollar, the yen, the euro, and the South Korean won as the dominant currencies as well as the Singapore dollar, U.K.'s sterling, the Malaysian ringgit, the Russian rouble, the Australian dollar, the Thai baht and the Canadian dollar.
According to Bloomberg, Japan's currency is up 2.3 percent from a 14-month low on July 20 as reports show rising factory production, a seventh week of net purchases of Japanese equities by foreigners and higher government forecasts for investment and consumer spending. The Nikkei 225 Stock Average rose to a 15-month high today.
The Economic Fractalist: “The higher order multi-yearly fractals represent very
fundamental and powerful macroeconomic consumer saturation levels- too
much debt, too much forward consumption, paying relatively too high a
price for assets based on weekly wages and no real long term job
guarantee in a world replete with overcapacity.”
Before investing in the U.S. auto parts sector, one might consider a statement reported by Dow Jones. GM is slated to buy $1 billion worth of auto parts from India in 2008, up from $120 million this year. The company anticipates savings ranging from 15% to 30% with quality on a par.
The new bankruptcy law takes effect October 17. How many public companies will file for Chapter 11 over the next 9 ½ weeks?
David Lerach, chief economist at the National Association of Realtors: “The housing market is probably close to a peak right now in terms of sales activity, but there is tremendous momentum. Sales are expected to coast at historically high levels into next year, but they will trend slightly downward.” Lerach might take a closer look at the advertising commitments now being prepared by companies within the industry, such as, Countrywide. Those commitments for 2006 are being cut by 20% or more. I pay more attention to what people do rather than what is said.
It has been suggested by some oil economists that China’s demand for oil is on the downswing. If that were the case, then China’s long-term energy expansion plans would be in a cooling period. Let’s take a closer look. Calgary-based Enbridge operates the longest crude oil pipeline in the world from Alberta to Illinois. The company proposed a $2.5 billion oil pipeline across the Rockies to a deep-water port on the West Coast. This would enable oilsands crude to be exported to a variety of new Asian markets. The new pipeline would transport 400,000 barrels per day of which PetroChina would take 200,000. Extracting crude from oilsands and then transporting that crude is an expensive proposition. It gives a clue as to where companies believe the price of crude is headed over time. It gives a further clue as to the extent a country will go to in order to satisfy long-term crude needs.
According to Coordinating Minister for the Economy Aburizal Bakrie, Indonesia, Southeast Asia's sole member of OPEC, will be a net oil importer in 2005.
According to MarketWatch, with interest rates again moving higher, the volume of mortgage applications as tracked by the Mortgage Bankers Association slipped 0.9% in the week ended Aug. 5 compared to the prior week. The seasonally adjusted decrease reflected a 3.3% drop in refinancing applications, with the number of applications for mortgages to purchase homes gaining by 0.9%. Refinancings accounted for 40.9% of total applications last week, down from 41.7% a week earlier, while the proportion of adjustable-rate mortgages rose to 29.7% from 28.5%.
Herbert Asquith: “The War Office kept three sets of figures - one to mislead the public, another to mislead the Cabinet and the third to mislead itself.”
The United States relies on foreign oil to meet 60 percent of its daily demand of almost 21 million barrels. Gasoline use accounts for 2 out of every 5 barrels consumed. With China, India, and Japan competing for foreign oil, the chances are more than remote that the U.S. can depend on foreign oil reserves in the future to the extent that it does in the present. As the transportation of oil from distant lands becomes more affordable for developing nations, competition for reserves intensifies. As the value of the yuan increases, China's ability to cushion added costs of transportation becomes a reality. It’s more than a matter of price. Focus on potential supply as well as the currency accepted for payment.
The Bureau of Labor Statistics of the U.S. Department of Labor
reported preliminary productivity data--as measured by output per hour of
all persons--for the second quarter of 2005. The preliminary seasonally
adjusted annual rates of productivity change in the second quarter were:
1.2 percent in the business sector and
2.2 percent in the nonfarm business sector.
Productivity growth in the business sector reflected increases of 4.2
percent in output and 3.0 percent in hours. Output per hour increased
more in the nonfarm business sector because output grew more, 4.4
percent, and hours rose less, 2.1 percent, than in the business sector.
In manufacturing, the preliminary productivity changes in the second
quarter were:
4.1 percent in manufacturing,
3.8 percent in durable goods manufacturing, and
5.0 percent in nondurable goods manufacturing.
Manufacturing productivity grew 4.1 percent in the second quarter as
output increased 1.2 percent and hours declined 2.8 percent (seasonally
adjusted annual rates). Output and hours in manufacturing, which
includes about 13 percent of U.S. business-sector employment, tend to
vary more from quarter to quarter than data for the aggregate business
and nonfarm business sectors.
Unit labor costs rose 1.3% in the second quarter after a 3.6% rise in the first quarter. More importantly, real hourly compensation fell 0.6%, and that fact bodes poorly for buoyant consumer spending in coming months.
Ursula K. Le Guin: “Legends of prediction are common throughout the whole Household of Man. Gods speak, spirits speak, computers speak. Oracular ambiguity or statistical probability provides loopholes, and discrepancies are expunged by Faith.”
According to the Financial Times, the basket of currencies to which the yuan is now pegged include the U.S. dollar, the yen, the euro, and the South Korean won as the dominant currencies as well as the Singapore dollar, U.K.'s sterling, the Malaysian ringgit, the Russian rouble, the Australian dollar, the Thai baht and the Canadian dollar.
According to Bloomberg, Japan's currency is up 2.3 percent from a 14-month low on July 20 as reports show rising factory production, a seventh week of net purchases of Japanese equities by foreigners and higher government forecasts for investment and consumer spending. The Nikkei 225 Stock Average rose to a 15-month high today.
The Economic Fractalist: “The higher order multi-yearly fractals represent very
fundamental and powerful macroeconomic consumer saturation levels- too
much debt, too much forward consumption, paying relatively too high a
price for assets based on weekly wages and no real long term job
guarantee in a world replete with overcapacity.”
Before investing in the U.S. auto parts sector, one might consider a statement reported by Dow Jones. GM is slated to buy $1 billion worth of auto parts from India in 2008, up from $120 million this year. The company anticipates savings ranging from 15% to 30% with quality on a par.
The new bankruptcy law takes effect October 17. How many public companies will file for Chapter 11 over the next 9 ½ weeks?
David Lerach, chief economist at the National Association of Realtors: “The housing market is probably close to a peak right now in terms of sales activity, but there is tremendous momentum. Sales are expected to coast at historically high levels into next year, but they will trend slightly downward.” Lerach might take a closer look at the advertising commitments now being prepared by companies within the industry, such as, Countrywide. Those commitments for 2006 are being cut by 20% or more. I pay more attention to what people do rather than what is said.
It has been suggested by some oil economists that China’s demand for oil is on the downswing. If that were the case, then China’s long-term energy expansion plans would be in a cooling period. Let’s take a closer look. Calgary-based Enbridge operates the longest crude oil pipeline in the world from Alberta to Illinois. The company proposed a $2.5 billion oil pipeline across the Rockies to a deep-water port on the West Coast. This would enable oilsands crude to be exported to a variety of new Asian markets. The new pipeline would transport 400,000 barrels per day of which PetroChina would take 200,000. Extracting crude from oilsands and then transporting that crude is an expensive proposition. It gives a clue as to where companies believe the price of crude is headed over time. It gives a further clue as to the extent a country will go to in order to satisfy long-term crude needs.
According to Coordinating Minister for the Economy Aburizal Bakrie, Indonesia, Southeast Asia's sole member of OPEC, will be a net oil importer in 2005.
According to MarketWatch, with interest rates again moving higher, the volume of mortgage applications as tracked by the Mortgage Bankers Association slipped 0.9% in the week ended Aug. 5 compared to the prior week. The seasonally adjusted decrease reflected a 3.3% drop in refinancing applications, with the number of applications for mortgages to purchase homes gaining by 0.9%. Refinancings accounted for 40.9% of total applications last week, down from 41.7% a week earlier, while the proportion of adjustable-rate mortgages rose to 29.7% from 28.5%.
Herbert Asquith: “The War Office kept three sets of figures - one to mislead the public, another to mislead the Cabinet and the third to mislead itself.”
The United States relies on foreign oil to meet 60 percent of its daily demand of almost 21 million barrels. Gasoline use accounts for 2 out of every 5 barrels consumed. With China, India, and Japan competing for foreign oil, the chances are more than remote that the U.S. can depend on foreign oil reserves in the future to the extent that it does in the present. As the transportation of oil from distant lands becomes more affordable for developing nations, competition for reserves intensifies. As the value of the yuan increases, China's ability to cushion added costs of transportation becomes a reality. It’s more than a matter of price. Focus on potential supply as well as the currency accepted for payment.
Tuesday, August 09, 2005
Auto Manufacturers And Airlines
8/9/05 Auto Manufacturers And Airlines
There is a revised economic forecast making the rounds. It goes like this. Recent auto incentives are driving consumer spending. Auto manufacturers sold vehicles at a 20.9 million annual rate in July, and this spurt in sales will drive inventory rebuilding and the latter will create more GDP growth. More growth will generate higher interest rates. Goldman Sachs stated the FOMC will raise Fed Funds to 5% by the middle of 2006. Freddie Mac is forecasting 30-year mortgages to carry a 6.30% interest rate next year. Meanwhile, unit labor costs and inflation are both estimated to approximate 2.9%.
In my view, it would be nonsense to simply focus on auto incentives and to ignore the troubles confronting the airline industry. There are large airlines, such as, Delta and Northwest, suggesting they might need to file for bankruptcy protection. Let’s examine the Northwest situation and its impact on their employees. A government order keeping 900 Detroit area Northwest Airlines employees on the job expires at 12:01 a.m. on August 20. Northwest is Michigan’s most important airline, with 8,800 employees and nearly 1,200 flights per day in and out of Detroit Metro Airport. According to the Aircraft Fraternal Association, the state of Michigan, and Northwest Airlines, company-paid health care for striking employees lasts until the end of August. Striking employees are not eligible for unemployment in Michigan. Neither are employees who are locked out of their jobs. Workers would be eligible if Northwest permanently hires its replacement workers and terminates employment for its union mechanics. In that case, Northwest employees lose the right to their jobs but could be reinstated as vacancies are available, if there is an agreement that ends the strike. Northwest proposes to cut nearly half of its more than 4,000 mechanics, nearly all aircraft cleaners, and ask the mechanics to take a 25.7% cut on their average $70,000 annual salary. In all, the airline wants the mechanics union to give up $176 million a year.
Escalating jet fuel prices have taken a heavy toll on the airline industry. Escalating diesel fuel prices are impacting the trucking companies and the ability of truck stops to retain their profitability. The media pretty much focuses on record gas prices at the pump. There is no question that record crude prices are leading the way to higher inflation and to higher trade deficit numbers. This winter consumers will be complaining about the pump prices as well as heating oil prices and the cost of natural gas.
It’s the little guy who gets hurt the most. Sure, the value of the average individual’s home has risen sharply over the past five years; however, salary and wages have risen at a most disappointing rate during this same time period. It has been shown that most jobs in our country are generated by small businesses. The SurePayroll Small Business Scorecard tracks the health of small businesses. There has been only one down month in hiring in the past 16 months. That fact is quite misleading. As of the end of July, the SurePayroll Hiring Index showed annual growth in small-business hiring at just under 0.6% for all of 2005. In fact, the Midwest is down 2.5%, and that’s after the auto incentives.
Crude is trading around a record $64 a barrel.
The 10-year Treasury bond is yielding about 4.42%.
The Xinhua News Agency reported that 4 Chinese airline companies have agreed to buy 42 Boeing 787 jets for a total of $5.04 billion.
The dollar traded at a 2-month low versus the euro and the Swiss franc.
Whirlpool is bidding $20 a share for Maytag.
According to the AP, as of Monday, at least 1,834 members of the U.S. military have died in Iraq since March 2003.
There is increasing concern about a possible attack on Saudi Arabia as well as Iran’s nuclear program.
Women's Wear Daily cited unnamed sources in reporting that Bon-Ton Stores and Cerberus Capital Management might team up on a possible bid for Saks. The stock rose almost 10% to close at $22.10. The paper mentioned that other interested parties have also been meeting with managment.
According to the Wall Street Journal, Ford could cut 20% to 25% of its current sales and marketing staff in North America.
There is a revised economic forecast making the rounds. It goes like this. Recent auto incentives are driving consumer spending. Auto manufacturers sold vehicles at a 20.9 million annual rate in July, and this spurt in sales will drive inventory rebuilding and the latter will create more GDP growth. More growth will generate higher interest rates. Goldman Sachs stated the FOMC will raise Fed Funds to 5% by the middle of 2006. Freddie Mac is forecasting 30-year mortgages to carry a 6.30% interest rate next year. Meanwhile, unit labor costs and inflation are both estimated to approximate 2.9%.
In my view, it would be nonsense to simply focus on auto incentives and to ignore the troubles confronting the airline industry. There are large airlines, such as, Delta and Northwest, suggesting they might need to file for bankruptcy protection. Let’s examine the Northwest situation and its impact on their employees. A government order keeping 900 Detroit area Northwest Airlines employees on the job expires at 12:01 a.m. on August 20. Northwest is Michigan’s most important airline, with 8,800 employees and nearly 1,200 flights per day in and out of Detroit Metro Airport. According to the Aircraft Fraternal Association, the state of Michigan, and Northwest Airlines, company-paid health care for striking employees lasts until the end of August. Striking employees are not eligible for unemployment in Michigan. Neither are employees who are locked out of their jobs. Workers would be eligible if Northwest permanently hires its replacement workers and terminates employment for its union mechanics. In that case, Northwest employees lose the right to their jobs but could be reinstated as vacancies are available, if there is an agreement that ends the strike. Northwest proposes to cut nearly half of its more than 4,000 mechanics, nearly all aircraft cleaners, and ask the mechanics to take a 25.7% cut on their average $70,000 annual salary. In all, the airline wants the mechanics union to give up $176 million a year.
Escalating jet fuel prices have taken a heavy toll on the airline industry. Escalating diesel fuel prices are impacting the trucking companies and the ability of truck stops to retain their profitability. The media pretty much focuses on record gas prices at the pump. There is no question that record crude prices are leading the way to higher inflation and to higher trade deficit numbers. This winter consumers will be complaining about the pump prices as well as heating oil prices and the cost of natural gas.
It’s the little guy who gets hurt the most. Sure, the value of the average individual’s home has risen sharply over the past five years; however, salary and wages have risen at a most disappointing rate during this same time period. It has been shown that most jobs in our country are generated by small businesses. The SurePayroll Small Business Scorecard tracks the health of small businesses. There has been only one down month in hiring in the past 16 months. That fact is quite misleading. As of the end of July, the SurePayroll Hiring Index showed annual growth in small-business hiring at just under 0.6% for all of 2005. In fact, the Midwest is down 2.5%, and that’s after the auto incentives.
Crude is trading around a record $64 a barrel.
The 10-year Treasury bond is yielding about 4.42%.
The Xinhua News Agency reported that 4 Chinese airline companies have agreed to buy 42 Boeing 787 jets for a total of $5.04 billion.
The dollar traded at a 2-month low versus the euro and the Swiss franc.
Whirlpool is bidding $20 a share for Maytag.
According to the AP, as of Monday, at least 1,834 members of the U.S. military have died in Iraq since March 2003.
There is increasing concern about a possible attack on Saudi Arabia as well as Iran’s nuclear program.
Women's Wear Daily cited unnamed sources in reporting that Bon-Ton Stores and Cerberus Capital Management might team up on a possible bid for Saks. The stock rose almost 10% to close at $22.10. The paper mentioned that other interested parties have also been meeting with managment.
According to the Wall Street Journal, Ford could cut 20% to 25% of its current sales and marketing staff in North America.
Monday, August 08, 2005
Signposts
8/8/05 Signposts
The number of listings of single-family houses in 17 towns in Greater Boston was up 25 percent or more last week compared with one year ago. And those houses are taking longer to sell. In four towns, listings increased 50 percent or more. Needham, Framingham and Milton are among the towns with the highest increase in listings that have also been seeing longer sales times, according to the Multiple Listing Service Property Information Network Inc. of Shrewsbury. Of the towns included in MLSPIN's Greater Boston data, 24 towns that have seen the time it takes for a house to sell increase also have seen the number of listings jump.
Nearly 3,000 home and condo owners in Santa Clara County, most of whom bought in 2000 and 2001, are holding properties not worth what they paid -- all during what is likely the nation's most robust housing boom with home prices leveraged by historically low interest rates and liberal mortgage-lending practices. The overwhelming majority of Santa Clara County homes that lost value this year are those whose owners paid well more than $1 million. But that is not universally true. Homes sold to people considered middle-income buyers in the South Bay -- those with purchase prices well below $1 million -- show up in sizable numbers on the assessor's list from every city from Morgan Hill to tony Monte Sereno. It's impossible to know if buyers today, especially those outbidding others and forking over well more than list price, are setting themselves up for the same kind of correction in the future. But the data is a grim reminder that Silicon Valley home values are not immune from the forces of economic reality. Even years after purchase, many valley home values rest hundreds of thousands of dollars and even millions of dollars below what their owners paid. The findings are based on a Business Journal analysis of more than 3,200 public records from the Santa Clara County assessor's office. The records reflect all of the single-family homes and condos in the county where the assessor believes current market value is less than what a homeowner paid.
Steven Rattner: "Over the past 30 years, the share of income going to the highest-earning Americans has risen steadily to levels not seen since shortly before the Great Depression."
In midyear 2000, U.S. corporate profits were 7% of GDP. In midyear 2005, they had risen to 11%.
Over the weekend, a British newspaper suggested that Cisco was considering the purchase of Nokia. I am far from being an expert in telephony, but I don't see the rationale for such a move. Cisco's presence is in the area of IP communications, and they have more than 20,000 customers worldwide within this arena. On the other hand, Nokia is the world's largest manufacturer of mobile phones, and the 2005 market volume for such devices is estimated at 760 million.
Denmark's A.P Moeller-Maersk and UK utility Centrico Plc purchased the North Sea oil and gas interests of Kerr-McGee for $3.5 billion. The price equates to $10.70 per barrel. I raise this point because a couple of weeks ago I did an anlaysis of a projected buyout price for PetroKazakhstan. You might recall that I took discounts off a price of $10 per barrel for PKZ's reserves. Using this latest price of $10.70 per barrel, I am raising my estimated buyout value for PKZ to $58 a share.
Crude hit an intraday record of $62.90 a barrel.
In the correction department, I stated that, in the Spring of 2000, EPNY traded for $220 million per share. It
should have read $220 per share.
According to Forbes.com, Yahoo Inc. is in advanced talks to buy about 35% of Alibaba.com, China's biggest homegrown e-commerce company, for almost $1 billion. Alibaba operates Taobao.com, an online auction site, and Alibaba.com, an online trading site.
John Hussman: "The 3.5% annual growth in employee wages and salaries over the past 5 years is the lowest on record since 1947. That containment of labor compensation has been the primary force behind the recent growth of corporate profits... the ratio of corporate profits to employee wages and salaries has never been higher."
Toyota sold more than 50,000 hybrids in the United States last year and expects to sell 600,000 early in the next decade.
Since invading Iraq in March 2003, at least 1,825 members of our U.S. military have been killed.
The yield on the benchmark 10-year note may reach 4.63 percent by year-end from 4.39 percent last week, according to the median estimate of the 22 firms that trade U.S. government securities with the Fed.
Rep. Ron Paul: " The president’s press secretary called the CAFTA vote “a real victory for the American people.” The problem is the vast majority of Americans have not even heard of CAFTA, and those who have overwhelmingly oppose it. CAFTA was conceived and created by corporate interests, and to claim otherwise is preposterous. The CAFTA vote had nothing to do with the American public, or even trade policy per se. CAFTA was driven by politics and nothing more. Multinational corporations and political globalists share the same goals, namely the centralization of political power in international bodies and the diminution of national sovereignty. What we witnessed last week was not just the selling of votes, but also a sellout of American control over our own trade regulations."
About 100,000 South African gold miners launched their first industrywide strike in 18 years Sunday to demand higher wages, the country's main mining union said.
The yield on the benchmark 10-year note may reach 4.63 percent by year-end from 4.39 percent last week, according to the median estimate of the 22 firms that trade U.S. government securities with the Fed.
Sunday, August 07, 2005
Looking Back And Looking Forward
8/7/05 Looking Back And Looking Forward
Last week brought back memories. Many of you might not know a small company called E.Piphany of San Mateo, California. A few days ago, the company agreed to be purchased for about $4.20 in cash or approximately $329 million by SSA Global Technologies. In the Spring of 2000, this same stock sold for about $220 million per share. Why do I bring this up? Sometimes I suggest investing in a company for as much as a five-year period, and in the first few years, the movement of the stock can be as exciting as watching paint dry.
I lived in Jackson, Wyoming for several years. It’s not too close to anything but moose and buffalo and the Tetons and Yellowstone. If you are willing to drive some mountainous terrain, then you arrive at a thriving metropolis called Pinedale. It’s in the middle of nowhere--- except the Pinedale Anticline area. That is the heart of Wyoming’s Green River Basin and its oil and gas reserves. That brings me to the Spring of 2001. I suggested a 5-year investment in Ultra Petroleum, a company with large holdings in the Pinedale Anticline area. The stock traded on the American Stock Exchange for $3. In the Spring of 2003, it was trading at $4. My friends were growing tired of watching paint dry. I reminded them this was only 2 years in a 5-year period. Oil and gas are now in the headlines and prices have improved quite a bit over the last few years. So has the stock. It’s now $38.
Why do I bring that up? Palatin trades on the American Stock Exchange for $2+. I suggested it for a 3 to 5 year investment. It’s market cap is only $100 million but its NeutraSpec, which diagnoses equivocal appendicitis, is marketed and distributed by Mallinkrodt and has seen increasing acceptance with rising yearly revenues and cash flow. Palatin is in phase 2 clinical trials with PT-141 for the treatment of male and female sexual dysfunction. The company has a potential drug discovery platform based on protein conformation. In the background, is a drug to assist in weight loss. All of these medical advances have been with little or no side effects. I don’t know where Palatin will trade in 2008 or 2010. I felt confident in Ultra’s management and I feel the same way with Palatin’s. Maybe the next two years will be like watching paint dry. That’s okay with me. As an investor, I believe time is on my side.
Barbara Johnson: "Patience is the ability to idle your motor when you feel like stripping your gears."
On Friday, the contract for delivery of natural gas in January closed at $9.917 per million Btu.
According to Mike Burk, August is typically weak during the first year of the presidential cycle.
Julian D.W. Philips: "The use of the $ as a global reserve currency is falling and may well prove to be a heavy source of inflation inside the States in the future. For this reason the Fed will likely keep increasing interest rates."
In the last two weeks, OPEC increased oil production by 300,000 barrels a day to around 30.4 million barrels per day. During this same time period, there have been operating problems at a number of refineries.
According to the most recent AP-Ipsos poll, only 48% of Americans surveyed now say they think President Bush is honest, while 50% say he is not. Bush’s job approval rating is 42% and his approval on handling Iraq is at 38%. The poll of 1,000 adults was conducted August 1-3. Bush maintains "we are at war." If that is so, why would the commander-in-chief go on a 5-week vacation while troops are fighting in a foreign land and a growing number are killed each week?
When making investments, nuances can prove significant. In the case of CNOOC and Unocal, the heads of the Chinese government never fully endorsed the acquisition proposal and never came out in print with an endorsement. Now let’s turn to Chinese-Kazakhstan relations. Kazakhstan has remained the largest border trade partner of China’s Xinjiang Uygur Autonomous Region for a continuous 12 years. Helgus, the biggest land port in West China, is also China’s largest land port to countries of Central Asia and Europe. According to an official with the Helgus port, construction of a Sino-Kazakhstan international trade center kicked off Friday in the Helgus port, signaling a new era in bilateral trade between China and Kazakhstan. It represents a free port city with functions of investment, trade, financial service and tourism. In my view, this is further evidence of the growing likelihood that PetroChina will be the winning bidder for PetroKazakhstan. The Chinese government is very much in favor of advancing bilateral trade with Kazakhstan. The new pipeline will further that endeavor.
Last week brought back memories. Many of you might not know a small company called E.Piphany of San Mateo, California. A few days ago, the company agreed to be purchased for about $4.20 in cash or approximately $329 million by SSA Global Technologies. In the Spring of 2000, this same stock sold for about $220 million per share. Why do I bring this up? Sometimes I suggest investing in a company for as much as a five-year period, and in the first few years, the movement of the stock can be as exciting as watching paint dry.
I lived in Jackson, Wyoming for several years. It’s not too close to anything but moose and buffalo and the Tetons and Yellowstone. If you are willing to drive some mountainous terrain, then you arrive at a thriving metropolis called Pinedale. It’s in the middle of nowhere--- except the Pinedale Anticline area. That is the heart of Wyoming’s Green River Basin and its oil and gas reserves. That brings me to the Spring of 2001. I suggested a 5-year investment in Ultra Petroleum, a company with large holdings in the Pinedale Anticline area. The stock traded on the American Stock Exchange for $3. In the Spring of 2003, it was trading at $4. My friends were growing tired of watching paint dry. I reminded them this was only 2 years in a 5-year period. Oil and gas are now in the headlines and prices have improved quite a bit over the last few years. So has the stock. It’s now $38.
Why do I bring that up? Palatin trades on the American Stock Exchange for $2+. I suggested it for a 3 to 5 year investment. It’s market cap is only $100 million but its NeutraSpec, which diagnoses equivocal appendicitis, is marketed and distributed by Mallinkrodt and has seen increasing acceptance with rising yearly revenues and cash flow. Palatin is in phase 2 clinical trials with PT-141 for the treatment of male and female sexual dysfunction. The company has a potential drug discovery platform based on protein conformation. In the background, is a drug to assist in weight loss. All of these medical advances have been with little or no side effects. I don’t know where Palatin will trade in 2008 or 2010. I felt confident in Ultra’s management and I feel the same way with Palatin’s. Maybe the next two years will be like watching paint dry. That’s okay with me. As an investor, I believe time is on my side.
Barbara Johnson: "Patience is the ability to idle your motor when you feel like stripping your gears."
On Friday, the contract for delivery of natural gas in January closed at $9.917 per million Btu.
According to Mike Burk, August is typically weak during the first year of the presidential cycle.
Julian D.W. Philips: "The use of the $ as a global reserve currency is falling and may well prove to be a heavy source of inflation inside the States in the future. For this reason the Fed will likely keep increasing interest rates."
In the last two weeks, OPEC increased oil production by 300,000 barrels a day to around 30.4 million barrels per day. During this same time period, there have been operating problems at a number of refineries.
According to the most recent AP-Ipsos poll, only 48% of Americans surveyed now say they think President Bush is honest, while 50% say he is not. Bush’s job approval rating is 42% and his approval on handling Iraq is at 38%. The poll of 1,000 adults was conducted August 1-3. Bush maintains "we are at war." If that is so, why would the commander-in-chief go on a 5-week vacation while troops are fighting in a foreign land and a growing number are killed each week?
When making investments, nuances can prove significant. In the case of CNOOC and Unocal, the heads of the Chinese government never fully endorsed the acquisition proposal and never came out in print with an endorsement. Now let’s turn to Chinese-Kazakhstan relations. Kazakhstan has remained the largest border trade partner of China’s Xinjiang Uygur Autonomous Region for a continuous 12 years. Helgus, the biggest land port in West China, is also China’s largest land port to countries of Central Asia and Europe. According to an official with the Helgus port, construction of a Sino-Kazakhstan international trade center kicked off Friday in the Helgus port, signaling a new era in bilateral trade between China and Kazakhstan. It represents a free port city with functions of investment, trade, financial service and tourism. In my view, this is further evidence of the growing likelihood that PetroChina will be the winning bidder for PetroKazakhstan. The Chinese government is very much in favor of advancing bilateral trade with Kazakhstan. The new pipeline will further that endeavor.
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