Toxic Negates Toxic

9/10/05 Toxic Negates Toxic

Wayne Krautkramer: "Congressmen and regulators are just wannabe shamans by another name. Don't let their secular disguise deceive you! It wasn't long ago that your leaders were wearing loincloths, strange headdresses, had bones in their noses, and were dripping blood from their teeth! Today, we have better looking shamans, compliments of Max Factor, Vidal Sassoon, Clairol, and cosmetic surgery. For further proof, see Michael Jackson."
U.S. Commerce Secretary Carlos Gutierrez today announced a formal determination of a fishery failure in theGulf of Mexico due to the devastation following Hurricane Katrina. Theaffected area includes the Florida Keys and from Pensacola, Fla., to the Texas border. The determination came in response to a virtual fishery shutdown in the affected states due to major flooding, damage to fishing boats and fishing ports, waterways clogged with debris and closed processing facilities.

"We are taking action now because of the significant economic effects of
Hurricane Katrina on fishing communities in the Gulf of Mexico," Secretary
Gutierrez said. "Major commercial fisheries in the Gulf of Mexico include
finfish, shrimp and oysters, with an estimated value of almost $700 million
per year." Although the extent of the damage to Gulf fishing industries is not yet
known, fishing in the region has been essentially halted. NOAA will work with
the states to assess damage to the 15 major fishing ports and the 177 seafood
processing facilities in Alabama, Mississippi and Louisiana. Based on
preliminary estimates, there are 432 federally permitted fishing vessels in
Alabama; 3,738 in Florida; 1,033 in Louisiana, and 351 in Mississippi.
Additional fishermen hold state permits.
It is anticipated that the only sign of life in these toxic waters will be
government employees. Toxic negates toxic.

Mark Twain: "It could probably be shown by facts and figures that there is no
distinctly native American criminal class except Congress."

The RBC CASH Index, based on polling by Ipsos, showed that consumer
confidence sank to 61.5 in September, the lowest since early March
2003, when confidence dropped to 61.4 as a nervous country hunkered
down for the start of the Iraq war.
September's decline -- the third straight month that confidence fell --
followed a reading of 72.6 in August. The latest showing also
underscored just how much consumers' confidence has deteriorated
compared with a year ago. In September 2004, consumer confidence was a
robust 103.4.

Richard Benson: "China is printing money at an
annual rate of 16 percent; Denmark is 15+ percent; Australia, Britain, and
Canada are over 10 percent and broad money growth in Europe is 8%. While the
broad measure of money growth in the United States is only 5 percent, growth
of total credit is double digit!"

Import prices continued a steady upward trend in August, increasing 1.3
percent following advances of 1.2 percent and 0.8 percent in June and July,
respectively.  The August increase was the largest monthly gain since a 2.2
percent increase in March, and import prices rose 7.6 percent over the past
year.  Following the pattern of the prior two months, the August increase was
driven by higher petroleum prices, which rose 7.1 percent.  August marked the
third consecutive month that the price index for petroleum imports recorded
its highest level since the index was first published in 1982.  Petroleum
prices rose 42.5 percent over the past 12 months.  Nonpetroleum prices were
unchanged in August after decreasing 0.2 percent in each of the three
preceding months.  Despite those recent declines, nonpetroleum prices
increased 1.8 percent for the year ended in August.

It is 112 days until 2006 begins. In other words, the AMT is just around the corner
for 14 million Americans. What a cancer!

I am fully supportive of private philanthropy, and my annual giving reflects that
belief. At the same time, I am totally against the Federal government taking money
from the pockets of the citizens and giving that money as a chartitable gift, such as, the
the $2,000 debit card or the $1 million gift to the families impacted by 9/11.
The Constitution covered this matter quite adequately and James Madison stated
"I cannot undertake to lay my finger on that article of the Constitution which granted a right
to Congress of expending, on objects of benevolence, the money of their
constituents."

I strongly suggest Bush, his Administration, the Congress, State, City,
and Municipal workers take a refresher course on the meaning of liberty
and property rights. It would serve them all well to fully comprehend
and follow the words of John Stuart Mill: "The only purpose for which
power can be rightfully exercised over any member of a civilized community
against his will is to prevent harm to others. His own good, either physical
or moral, is not a sufficient warrant. He cannot rightfully be compelled
to do or to forebear because it will be better for him to do so, because it
will make him happier, because in the opinions of others to do would be wise
or even right. There are good reasons for remonstrating with him, or
reasoning with him, or pursuading him, or entreating him, buy not for compelling
him, or visiting him with any evil in case he do otherwise." In sum, the people in
New Orleans and the environs cannot be compelled to leave their homes. Understanding
and appreciating the rights of a citizen as delineated under our Constitution is
an absolute requisite for public office. The voters had better take their rights
more seriously. Otherwise, our democracy is doomed.

7-Eleven, Inc. announced on Friday that the special committee of its board of directors has
retained Greenhill & Co., LLC as its financial advisor and Weil, Gotshal &
Manges, LLP as its legal advisor to assist the special committee with its
evaluation of the unsolicited tender offer commenced by Seven-Eleven Japan
Co., Ltd.  As announced last week, the special committee comprised solely of
independent directors of 7-Eleven is analyzing the unsolicited tender offer by
Seven-Eleven Japan Co., Ltd. of $32.50 per share in cash for all of the
outstanding shares of 7-Eleven's common stock that it does not currently own.
7-Eleven, Inc., headquartered in Dallas, Texas, operates or franchises approximately 5,800 7-Eleven(R) stores in the United States and
Canada and licenses approximately 22,700 7-Eleven stores in 17 countries and
U.S. territories throughout the world.  During 2004, 7-Eleven stores worldwide
generated total sales of approximately $41 billion. SE is trading at an all-time high
of $35+.

Kazakhstan has the oil resources to
help stabilize world oil prices, but needs increased investment to bring
transport capacity up to production capacity, the nation's minister of energy
said today at U.S.-Kazakh business conference here.
"We have invested billions of dollars over the years to develop and
upgrade our pipeline and transport system," said Minister of Energy Vladimir
Shkolnik. "Still, we need to improve our ability to move more oil from the
Caspian Sea to world markets, and that requires greater investment in this
infrastructure."
Shkolnik then cited Kazakhstan's oil production outlook as follows:

-- In 2005, the country expects to produce 1.3 million barrels of oil a
day and 28.7 billion cubic meters of natural gas per year.

-- By 2010, those figures are expected to climb to 1.8 million barrels a
day and 52.5 billion cubic meters of natural gas per year.

-- By 2015, the Central Asian nation could produce 3 million barrels of
oil a day and 79.4 billion cubic meters of natural gas per year, which
could make Kazakhstan the world's fifth largest oil producer.
I trust ONGC/Mittal are familiar with these projections. I continue to believe
PKZ is undervalued at $54. It won't take long to see whether I am correct.

The Internal Revenue Service, citing rising gasoline prices, said Friday it would boost by nearly 20 percent the mileage reimbursement limit for taxpayers who use their cars for work IRS Commissioner Mark Everson said the agency would raise the limit to 48.5 cents a mile from the current 40.5 cents, the biggest increase ever and more than double last year's 3 cent rise. The adjustment was effective Sept. 1 and will expire Dec. 31.

Allen Wallenwein: "Either Greenspan or his successor have exactly two choices: Keep on hiking and drag the Dow back into the valley of death (with the dollar and the entire US economy soon to follow) - or stop hiking and make the dollar lose its footing completely."

Two days ago local police officers began confiscating weapons from civilians in New Orleans. Quite clearly,
this action is in violation of the 2nd Amendment of the Constitution. I have never owned a weapon and I have no plans to so. At the same time, Americans have the right to bear arms. As Thomas Jefferson stated, "no free man shall ever be debarred the use of arms." Speaking personally, I don't believe in impeachment. I think it's too much of a milk-toast punishment. Rather, for every government employee who blatantly violates the constitutional rights of Americans, I support life imprisonment. Throw away the key. There are others, such as, U.S. Rep. John
Conyers who favor impeachment.

The S&P had its highest weekly close in over 4 years.

HP is seeking to cut 6,000 jobs in Europe.

Gold closed nicely at $453 an ounce.

Speaking of Hewlett Packard, it's market cap is up to $80 billion and Dell's is slightly above at $83 billion. That's close enough to even for me. I believe this represents an uncommon value and an opportunity. I would suggest you consider going long Dell and shorting Hewlett Packard on a 1 for 1 basis.

What a difference a week can make. On September 2, Albertson's announced it was seeking alternatives, and that included a possible sale of the company. At the opening for trading, the stock rose about 6 points to $26.40 and then declined during the rest of the day and closed at $23.05. The volume was about 56.5 million shares or
almost 15% of the outstanding shares. Yesterday was a very different picture. On Thursday evening the stock had closed at $23.05. On Friday morning, the stock opened at $24, the low for the day, and traded up to $25.10 and closed at $25.01 in after market trading. The volume was 47 million shares. In other words, there was very little down volume. It's possible that Friday's trading was due to an article in The Deal.com that mentioned several large financial buyers were interested in Albertson's. In fact, every single suggested buyer was on a list of usual suspects. More importantly, the article simply confirmed the company is for sale to the highest bidder. Some folks need hand holding. That's typical of those who don't think for themselves--- like 95%+ of
investors. Understanding Albertson's is not too difficult. It has an important franchise, and there is significant
untapped value in this franchise. When money is lying on the floor, someone will pick it up. You can be sure of that.

Ralph W. Sockman: "The hope of free man in a frightened world is the values which man puts ahead of
inventions when his back is to the wall. These values are beauty, truth, goodness, and having a faith, all
of which are bombproof."

As The Water Recedes

9/9/05 As The Water Recedes

The stench worsens. The dead bodies come into view. Cameras turn away. Bush has declared September 16 a day of mourning. Tears will not wash away the guilt. This level of devastation was avoidable. Riverboat gambling provides games of chance. New Orleans crapped out. As Dan Gilligan the Petroleum Marketing Association head noted, “if the Gulf is the heart of the oil industry, we’ve suffered a heart attack.” As toxic waste pours into the water supply, the Mississippi River and its tributaries will be adversely impacted for years. Disease will be on the rise. Waterfowl will slowly cease to exist. The fishing industry will disappear. Barges will not be able to transport commodities for months. The breached levees saw to that. Life is a great deal more than a $2,000 debit card. Printing money is not an economic levee. Building debt on top of collapsing cash flow is a precursor to an economic freefall. If you look out your window, storm clouds appear in view. Don’t take my word for it. Try and make ends meet without taking on more debt. That’s the litmus test. The U.S. Treasury has failed that test for four plus years. There is no end in sight.

"Foreclosure inventory has been steadily increasing since May, representing a slowdown in the purchase of foreclosed homes," said Brad Geisen, president and CEO of Foreclosure.com.

Barry Ritholtz, The Big Picture: “Despite what some of the more bullish pundits have been saying, the stimulus of rebuilding New Orleans will not outweigh the overall loss to the economy; if it did, we would level a different city each year and rebuild it from the ground up, shiny and new. But it doesn’t, and so we don’t.”

This is the latest Katrina damage report for Wal-Mart:
* Of the 126 facilities that were originally shut down, 15 stores and
clubs remain closed.
* A total of 89 facilities have reported damage. Nine have major
damage, 41 moderate, and 39 minor damage or loss of merchandise.

Gasoline prices have increased 132% since last year. Natural gas prices
have increased 124%. On a single day - Monday, August 29th, as Hurricane
Katrina came ashore - natural gas prices rose 20%. To put that in
perspective, it would be as if the Dow Jones Industrial Average increased - or
decreased - 2000 points in a single morning!

Meanwhile, the EIA stated that, this winter, petroleum will cost 34% more than 1 year ago, natural gas will be 52% more expensive, and electricity will cost 11% more than in 2004.

Hot Water Music: "No matter who we are, where we're going, or where we've been, we all struggle. everyone has battles. everyone, at one time or another, faces the every moment, to day, to year, trials of existence. such is life.sometimes simple. sometimes complicated. when we wake up with challenges, we wake up with choices. to either overcome all that holds us down by going against what opposes us - or to continue sitting quietly in the foul stench of our own shit, while at the same time surendering ourselves to dear and failure. life shifts, spins, and relocates. as we do. we all have the ability to switch our fear of failure into an energy to overcome any trial. just as sure as we all have a spine."

Biogen Idec will cut 17% of their workforce.

Northwest Airlines Corp. wants to lay off roughly two-thirds of its mechanics and is seeking concessions worth $203 million under its latest proposal to the striking mechanics union, a union local president said Thursday.

On September 2, the U.S. Department of Homeland Security Customs and Border Protection blocked Grant Cameron from entering the U.S. It occurred at the Vancouver, BC International Airport. Grant Cameron is a Canadian UFO researcher who was scheduled to speak at the NUFOC Conference in Hollywood.

The proportion of California households able to afford a median-priced home fell to 16% in July from 19% a year earlier as prices remained sky-high, according to a report released Thursday. The percentage has been under 20% for the last year and is approaching a record low 14% set in the summer of 1989, according to the California Assn. of Realtors.

Gasoline inventories fell to 190.1 million barrels as of Friday, down 8.6 percent from the period a year earlier. The U.S has inventories that could last 20.4 days given normal demand and no additional production."That's the lowest in five years," said Fadel Gheit, an energy analyst at Oppenheimer & Company.

Continental Airlines expects to post a "significant" loss for the year, citing record high fuel prices, according to a regulatory filing on Friday. It expects to end the year with a cash balance of about $1.5 billion.

According to the US Minerals Management Service (MMS) Thursday survey, the volume of oil not flowing out of federal offshore waters in the Gulf rose to 901,726 barrels per day, or about 41,000 b/d more than was reported shut in on Wednesday.

In the aftermath of Katrina, it has been reported that the cost of shipping crude and products to the U.S. has gone up by about 30% in the past week

Mexican researchers have found that a diet rich in soy protein may alleviate fatty liver, a disease which often accompanies diabetes, according to a study published in the recent issue of the Journal of Lipid Research.

Over the years, I have written frequently about the aging of the population in the U.S., Japan, and China. In my view, it is the most significant trend going forward. At the same time, I believe research on anti-aging will become one of the long-term focuses for the pharmaceutical industry. Increased money will be spent on undertanding sirtuins, which are crucial to extending life(anti-aging), as well as a small set of genes that have the ability to control life span through caloric restriction. It should be noted that sirtuins enhance cell survival during times of stress-- especially if that stress is lack of food. As previously mentioned, Palatin has identified several molecules that are now in preclinical development as potential treatments for obesity, cachexia, and conjestive heart failure. They are: MC 3/4R agonists as a treatment for obesity and cachexia; NPR agonists as a treatment for conjestive heart failure. The company will report fourth quarter and fiscal year 2005 financial results on 9/14.

Emiliano Zapata: "It is better to die on your feet than to live on your knees."

The Need To Reinvent

9/8/05 The Need To Reinvent

In Louisiana itself, while the Port of New Orleans is operational, the Port of South Louisiana which runs from St. Charles Parish to Baton Rouge on the Mississippi River, is damaged. That impacts the inflow and outflow of goods. While most of the press focuses on refineries and the price of gasoline, silt, as a result of the breached levees, has clogged the mouth of the Mississippi River. This is a major problem. Engineers are attempting to determine how long it will take to make the river navigable for barges.

With one million barrels of crude off-line, the price of crude is trading around $65 a barrel.

EBay is reportedly in negotiations to buy Skype.

The Asian Development Bank predicts 9.2% economic growth for China and 6.9% for India in 2005.

Mervyn’s will close 62 stores and layoff 4,800 workers. That’s a possible scenario for Albertson’s should it be sold to a financial buyer.

Delta Airlines is cutting another 1,000 positions. Soon there won’t be anyone to fly the planes.

Remember when Toys R Us was sold? Supposedly, Deutche Bank valued the real estate on their 898 stores at $3.7 billion.

The Bureau of Labor Statistics of the U.S. Department of Labor today
reported revised productivity data--as measured by output per hour of all
persons--for the second quarter of 2005. The seasonally adjusted annual
rates of productivity change in the second quarter were:

0.7 percent in the business sector and
1.8 percent in the nonfarm business sector.

In both sectors, increases in productivity were smaller than reported on
Aug. 9, as output was revised down and hours were revised up.

In manufacturing, the revised productivity changes in the second quarter
were:

3.6 percent in manufacturing,
3.3 percent in durable goods manufacturing, and
4.4 percent in nondurable goods manufacturing.

In total manufacturing, the change in productivity was revised down from
a preliminary estimate of 4.1 percent. 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 increased 2.5 percent in the second quarter of 2005,
somewhat more than the 2.2-percent increase posted in the first quarter of
the year. The implicit price deflator for nonfarm business output rose 2.4
percent in the second quarter of 2005 and 3.0 percent one quarter earlier.

I would like to take a moment and return to the situation at Albertson’s. In the announcement yesterday, the company stated it was “articulating its new core/non-core asset groups without divulging the specific assets.” How can I put this delicately? That statement is a hand job. Long before the company stated it was “exploring our strategic alternatives including a possible sale of the company” it had posted on its web site real estate for sale. Because of that listing, it made me think the company was readying itself for sale. A company doesn’t need to hire two prominent investment banking firms, Goldman Sachs and Blackstone Group, to sell real estate. As for aggressively running the company prior to its sale, Albertson’s needs to be reinvented. Who shops at Albertson’s? Women. Are they going to be attracted to buying office products at a supermarket? I can just see a woman jumping up and down at home delighting in a writing pad or a folder. How about a kiosk with jewelry? Cosco makes a bundle selling jewelry. How about a kiosk with cosmetics or perfume? A supermarket doesn’t need 25,000 SKUs or whatever the number is. There are too many choices. Offer what sells. A supermarket chain is not going to compete effectively with Wal-Mart on price. There needs to be a reason to shop at Albertson’s or Kroger or Safeway. On occasion there is strong customer loyalty, such as, at Wegman’s, but that is the exception.

Today we saw Mervyn’s close 62 stores, and that will unlock value for the recent buyer of that company. The same will happen at Albertson’s. The company will not, in my view, “emerge as a smaller but more profitable and growing entity” and remain independent at the same time. That’s for bedtime stories.

Bill Gates stated that Microsoft has been “f****d” by the Chinese government.

It has been suggested that the Kazakh government will approve CNPC’s purchase of PetroKazakhstan between September 14 and September 17. After that approval has been received, it would be a strategically perfect time for ONGC/Mittal to top China’s $55 per share offer.

China National Offshore Oil Corp., the country's largest offshore oil producer, said it will join with China National Petroleum Corp. to explore for oil and gas in the northern Caspian Sea.

Living According To Borrower's Time; Albertson's

9/7/05 Living According To Borrower’s Time And Albertson's

Stephen Church: “Prior to 1993, the sources of household cash flow were split about 55% from income and 45% from new debt. Beginning in 1993, new debt increasingly became the source of cash flow. In 2005, new debt of about 12% of GDP should provide nearly 86% of household cash flow…Until 1992, households usually generated over 50% of new cash flow from “operating” activities. Beginning in 1993, New Debt surpassed “operating” cash flow as the source of new cash. In 2005, new debt is expected to provide 86% of new household cash. In 1992, “operating” cash flow provided enough money to cover repayments of debt and new residential investment with $82 billion left for other investing. In 2004, “operating” cash flow left households about $800 billion short of the cash needed to cover repayments of debt and new residential construction. In 2005, “operating” cash flow should provide $1.0 trillion less than debt repayment and residential construction needs…Our analysis of the Statement of Cash Flows shows that U.S. households require access to new cash sources in excess of 13% of GDP in order to maintain a strong economy. Since current operating cash flow generates only 2% of GDP, households depend on minimum debt financing needs of about 11% of GDP.”

Bernie Schaeffer: “Never confuse a market that is structurally supported by complacent derivatives players and by abnormally high liquidity that is threatened by a tightening Fed and an inverting yield curve with a market that is invulnerable to external shocks.”

Paul Kasriel: “The negative supply-side shock to economic growth emanating from the destruction caused by Hurricane Katrina is bad news for an U.S. housing market bubble. To the degree that personal income growth is constrained nationwide, already debt-burdened households will find it more difficult to make their monthly mortgage payments and purchase necessities, much less luxuries. This could set in motion a slow-motion rise in mortgage defaults.”

George Friedman: “Rather, it was geography -- the extraordinary system of rivers that flowed through the Midwest and allowed them to ship their surplus to the rest of the world. All of the rivers flowed into one -- the Mississippi -- and the Mississippi flowed to the ports in and around one city: New Orleans. It was in New Orleans that the barges from upstream were unloaded and their cargoes stored, sold and reloaded on ocean-going vessels. Until last Sunday, New Orleans was, in many ways, the pivot of the American economy.
The ports of South Louisiana and New Orleans, which run north and south of the city, are as important today as at any point during the history of the republic. On its own merit, the Port of South Louisiana is the largest port in the United States by tonnage and the fifth-largest in the world. It exports more than 52 million tons a year, of which more than half are agricultural products -- corn, soybeans and so on. A larger proportion of U.S. agriculture flows out of the port. Almost as much cargo, nearly 57 million tons, comes in through the port -- including not only crude oil, but chemicals and fertilizers, coal, concrete and so on.
A simple way to think about the New Orleans port complex is that it is where the bulk commodities of agriculture go out to the world and the bulk commodities of industrialism come in. ... . If these facilities are gone, more than the price of goods shifts: The very physical structure of the global economy would have to be reshaped. Consider the impact to the U.S. auto industry if steel doesn't come up the river, or the effect on global food supplies if U.S. corn and soybeans don't get to the markets.
The problem is that there are no good shipping alternatives. River transport is cheap, and most of the commodities we are discussing have low value-to-weight ratios. The U.S. transport system was built on the assumption that these commodities would travel to and from New Orleans by barge, where they would be loaded on ships or offloaded. Apart from port capacity elsewhere in the United States, there aren't enough trucks or rail cars to handle the long-distance hauling of these enormous quantities -- assuming for the moment that the economics could be managed, which they can't be.”

"I don't feel the US is threatened if China accesses Venezuelan energy because in an emergency situation if we had to interrupt the energy flow, we would rather interrupt it in the Caribbean than some place in Russia," stated Robert Zoellick, deputy Secretary of State.

U.S. retail gas prices rose to $3.07 per gallon at the pump.

Endesa rejected the hostile bid from Gas Natural as “clearly insufficient” and stated “the Board of Directors will adopt all available legal actions in order to defend both the company and shareholder’s interests.” I always thought company and shareholder interests were one and the same. Maybe in Spain they are not.

Surprisingly to some, the ISM Services Index rose to 65% in August from 60.5% in July.

Crude is trading around $65.58 a barrel.

Hu’s visit to Canada is the first by a Chinese president since 1997, and only the third since 1970. Hu will be in eastern Canada from September 8 to September 11, and then will fly to western Canada for two days on September 16 after the UN Summit. A senior Canadian government official told Reuters “obviously China has a strong interest in getting a piece of the action in the key areas where they see themselves as along term customer--- minerals and energy are key…what we’re seeing with China is a strategic partnership, a strategic alliance in those areas which can be mutually beneficial.” One day we will wake up to the fact that, under the Bush administration, our strategic alliances with trading partners were greatly diminished. When was the last time Bush spent five days in Canada? When was the last time he spent five days in Mexico? I know when he last spent 5 days in Crawford, Texas.

Fifty-nine percent of U.S. in-market vehicle shoppers say that gas prices have either changed their minds or strongly influenced purchase decisions, according to the August 2005 AutoVIBES, a monthly automotive study from Harris Interactive(R) and Kelley Blue Book Marketing Research tracking consumer automotive buying intentions. This is an increase of 13 percentage points since last month and an all-time
high since AutoVIBES began tracking the effect of gas prices on vehicle choice in April 2004. In addition, 42 percent of vehicle shoppers indicate that they would seriously consider a more fuel-efficient vehicle if gas prices were to increase an additional $0.25 above the current national average (which was $2.61 per gallon on August 26, 2005). This is an increase of 12 percentage points since last month and an all-time high since tracking began in April 2004.

According to a new Transatlantic Trends 2005 survey of Americans and Europeans released today finds that six months after George W. Bush's ambitious outreach to Europe, European public opinion toward the United States remains unchanged. Both Americans and Europeans feel relations have stayed the same (52% EU9, 50% Americans).(1) The survey also reveals that 55% of Europeans (EU9) desire a more independent approach from the United States on international security and diplomatic affairs.While opinion toward the United States has not improved, there seems to be no increase in anti-Americanism as some had feared. Despite their 72% disapproval rating of President Bush's handling of international policies, Europeans put disapproval of U.S. leadership in world affairs at just 59% (the same as in 2004). Furthermore, warmth of feeling toward the United States remains at 50 degrees on a thermometer scale of 100 (51 in 2004). Americans on the other hand continue to want closer relations with the European Union and desire strong EU leadership in world affairs.

Transocean has seven rigs earning over $200,000 a day. The company's president stated that would rise to 15 in six months and 19 a year from now. By this time next year, he said, six rigs would be over $300,000 a day and "a number" would surpass $400,000. Those numbers, he indicated, could be conservative.

If the Machinists strike at Boeing extends through the end of September, it could force the company to postpone delivery of 42 airplanes worth more than $4.1 billion at list prices, according to an analysis by The Seattle Times. Thirty of the expected deliveries, or more than 70 percent, are the popular narrow-body 737s assembled at the company's Renton plant. The delivery projections were obtained from the Airclaims CASE database.

British Prime Minister and EU President Tony Blair and Indian Prime Minister Dr. Manmohan Singh announced today that the public sector air carrier Indian Airlines will buy 43 Airbus aircraft for 2.2 billion dollars.

Now I would like to turn to the second quarter for Albertson's and a further analysis. Reported net earnings for the quarter were $107 million or $0.29 per diluted share versus net earnings of $104 million or $0.28 per diluted share for last year's second quarter. Earnings from continuing operations were $110 million or $0.30 per diluted share versus $125 million or $0.34 per diluted share in the same period last year.

Year to date through the first half of fiscal year 2005, reported net
earnings reached $207 million or $0.56 per diluted share versus $140 million
or $0.38 per diluted share in last year's first half.  First half earnings
from continuing operations reached $217 million or $0.59 per diluted share
versus $181 million or $0.49 per diluted share in the same period last year.
During the second quarter, total sales reached $10.2 billion, just
slightly higher than last year's second quarter revenue.  Revenue was helped
by a continuing recovery in Southern California but was pressured by the
deflationary impact of continuing price cuts through the company's "Check The
Price" program. The company continued to make investments in improving its
price positioning versus non-traditional price competitors during the quarter.
Comparable store sales were flat for the quarter and identical store sales
fell slightly by (0.1)%.
Gross margin in the quarter declined 21 basis points to 28.04% versus last
year's second quarter at 28.25%.  Selling, general and administrative expenses
were up 7 basis points from last year's second quarter at 25.07%.  The company
stayed on track to meet its $1.25 billion cost reduction goal by the end of
fiscal year 2006, recording $31 million in new cost reductions during the
second quarter of 2005, bringing the total cost reduction achieved since
mid-2001 to $1.085 billion.
"The company affirmed that it is moving even more aggressively to divest
underperforming assets or what it now refers to as "Non-Core" assets.  These
divestitures would allow it to focus more intently on its growing "Core" asset
base. In aggressively pursuing this strategy, the company plans to unlock the
significant value that is embedded in the "Non-Core" portion of its owned real
estate portfolio.  The company pointed out that Albertsons now owns
approximately 70 million square feet or 60+% of its nearly 120 million square
feet of real estate.  This valuable real estate portfolio has been accumulated
over the past several decades across its stable of strong local/regional
banners, including Shaw's, Jewel, Sav-on, Acme, Osco and Albertsons in 37
states.
The company is providing this information to give investors better
transparency into the company's real estate holdings and the positive impact
they can have on the company's future.  For obvious competitive reasons, the
company is articulating its new "Core/Non-Core" asset groups without divulging
the specific assets, divisions or properties within each sector.  As Non-Core
assets are divested and monetized for their real estate/business value... the
company, anchored by its Core divisions, expects to emerge as a smaller but
more profitable and growing entity.
Larry Johnston, Chairman, CEO and President, said "The announcement Friday
that we are exploring our strategic alternatives including a possible sale of
the company is important. At the same time, I want to be clear that while we
are going through this process we will also be aggressively running this
company and continuing to execute on the same strategy that we unveiled when
the turnaround began over four years ago.  In that regard, we don't plan to
slow down or take any time off!  We are now at the point in our turnaround
where we are clarifying our end game... preparing to exit even more
underperforming markets in order to monetize their embedded real estate and
business value for shareowners... driving even harder for operational
excellence with programs like Six Sigma and Check The Price.  This will enable
us to focus on a strong and growing set of 'Core' assets that will form a
smaller yet more profitable best-in-class company with leading market
positions and a very exciting future."
The company reaffirmed its previous guidance for fiscal year 2005 earnings
of between $1.37 - $1.47 per diluted share from continuing operations
excluding any extraordinary events and also reaffirmed its outlook for
positive comparable and identical store sales for fiscal year 2005.
Capital expenditures are now expected to be $300 million lower for the
year, or between $1.0 and $1.1 billion, due to a more refined focus on the
Core divisions coupled with improvements in both new and remodeled store
construction processes as well as productivity improvements in technology
investments.
For the 26 weeks ended August 4, operating cash flow amounted to $645 million
or $1.43 per share.
It should be noted that the net value of land, buildings, and equipment totals
only a slim $10.1 million on the company's books. The company's CEO has clearly
delineated an ownership of 70 million square feet of real estate accumulated over
several decades. At the end of last week, I focused on the hidden values embedded
in the real estate. Almost one fifth of a square foot of company owned real estate
sits behind every share of Albertson's stock. As I mentioned, Joe Albertson took
pride in getting the best locations. I am not a real estate analyst; however, I know
that, from visiting many Albertson's locations, the effort to monetize the embedded
real estate will create shareholder value certainly exceeding last night's closing
price for the stock.
It should be noted that, over the last two trading days, 20% of the 370 million
shares have traded. Johnson has hung a for-sale sign on the company and wet the
appetite of the buyers by mentioning the 70 million square feet of owned real estate.
Let's be patient and wait for the froth to come to the top.

Perception Of Risk

9/6/05 Perception Of Risk

John P. Hussman: “In effect, recessions are periods when there is a mismatch between the mix of goods supplied by the economy and the mix of goods demanded. That mismatch causes a buildup of inventories in some industries, and shortages in others. There is no such thing as a “representative consumer” who just consumes less, as Keynes' simplistic modeling of the economy would have people believe. The defining features of a recession are dislocations and mismatches, not “general weakness in aggregate demand.”

Lehman Brothers cut its equities weighting to 65% from 70% and fixed-income weighting to 15% from 17.5%, while increasing its cash weighting to 20% from 12.5%. "Hurricane Katrina appears to have increased the level of economic risk and we believe that warrants a more modest overweight position in equities. Rising energy prices and health care costs put the consumer under more pressure adding to the economic risk and warranting a more modest overweight position in equities," the brokerage firm stated.

"I think what we have in store is a slow deflating of the housing bubble, not a bursting of the bubble," said Mark Zandi, chief economist at Economy.com. "But if mortgage rates rise more sharply than I am expecting, then the downturn in housing could be more severe."

Henry To: “Readers should be reminded that the halt in the rise of the Fed Funds rate in the face of an economic slowdown isn't exactly bullish news. Don't forget that the market declined for another 21 months after the Fed started easing in January 2001.”

CNPC denied a news report Tuesday that it is negotiating to sell part of PetroKazakhstan Inc. to a Kazak state-owned company.

China Southern Airlines ordered 10 Airbus A 330s.

For long-term investors, Ranbaxy, India’s largest pharmaceutical company, is looking to list its shares in the U.S. market.

Bombay’s Sensex index is at an all-time high and closing in on the 8,000 level.

Chiron rejected the Novartis offer as “inadequate.” In all likelihood, shareholders will receive a kiss but, in my view, a greater return can be expected, as I noted over the weekend, in Albertsons.

Gas Natural plans to launch a hostile offer for Endesa SA, Spain’s largest utility company, and is offering 0.569 shares of stock and 7.34 euros in cash or about $28.75 billion.

Wood Mackenzie’s Eugene Kim: "Only when you reman the platforms and push the start button will you know the damage level. It's early estimates, but the numbers look quite staggering . . . these are three times greater than with Hurricane Ivan."

Declines in GDP, Mfg ISM, and Factory orders, dropped the BullBearWise Index below 50 at the end of last week.

According to Bloomberg, traders are the most bearish on the dollar since March. It still appears that the Fed will raise rates at their Sept. 20 meeting.

On September 1, Albertsons declared a regular quarterly cash dividend of $0.19, payable on Nov. 8 to stockholders of record on Oct.12. This yield of 3.38% should provide an adequate return while you wait for the board of Albertsons to maximize shareholder value.

Jeanette Winterson: "What you risk reveals what you value."

Private Equity Firms And Mature Companies

9/5/05 Private Equity Firms And Mature Companies

In the 1990s, attracting capital to the food industry was more difficult than it is today.
"We had to work like heck to find anyone to co-invest with us on anything," said John Trucano, who ran the Food Fund, a venture-capital firm that specialized in food investments. "Our timing was very bad."
Private-equity funds, which raise money to invest in, acquire and lend money to mature companies, were then active in the high-growth tech sector and paid little attention to food.
"There's a fad element to investing, and food wasn't in vogue," said Scott Richardson, managing director for Houlihan Lokey Howard & Zukin in Minneapolis. Today, investors are more interested in stable, mature companies. Food companies offer that security.
"You will pay a premium to get [these companies] and you may hit a double with your investment and not a home run. But guess what? A double right now is pretty good," Richardson said.
Darren Acheson of Minneapolis-based Goldner Hawn Johnson & Morrison said his firm has invested in food companies for 16 years, but he understands why the sector has become more popular with some of his contemporaries.
"It's defensive, it has strong recurring revenue and cash flow, and parts of it are still growing nicely," he said.
In my view, there will be a host of private equity firms lined up to buy Albertsons. They will be competing with companies in the supermarket business from abroad and U.S. firms looking to expand within our borders.

"As regulatory guidelines are introduced over the next two to three years
and some of the biggest biopharmaceutical blockbusters lose patent
protection, the biogenerics market is expected to see exceptional growth and
rapidly reach billion-dollar levels," notes Frost & Sullivan (http://biotech.frost.com) Industry Analyst Himanshu Parmar. "The markets in Europe and the United States have the potential to generate sales of USD16.39 billion by 2011."

Mike Burk provides some fine background analysis on the month of September. The following are his findings: “September is widely understood to be the worst month of the year and by some measures it has been. Measured by the OTC, September is the only month that has had an average (mean) negative return (-0.3%), however, since 1963 the OTC has been up during 60% of Septembers.
As measured by the percentage of the months that have been up September beats July - 51%, February - May - June - 56% each, March - 58% and October 59% putting it firmly mid pack. The problem is that when September is bad it has been really bad.
Breaking OTC performance down further, to Septembers in the 1st year of the Presidential cycle, the results are even better. During the 1st year of the Presidential cycle Septembers have been up 70% of the time, but the average return has been a loss of 0.9%. Septembers 70% winning percentage has only been surpassed by April and July at 73% each and, measured by average return, September is ahead of March at -1.9% and June at -1.5%.
When measured by the S&P 500 (SPX) from 1928 it is easy to see where September got its reputation as the worst month of the year. For all years, September is the worst of 3 that have averaged negative returns at -1.2%. The other two months with negative returns, February and May have had average returns of -0.2%. September is the only month that has been up less than half of the time at 43%, the next worst are February and November, both up 54% of the time. Breaking SPX performance down further to the 1 st year of the Presidential cycle September has been much worse, up only 26% of the time with an average loss of 2.5%. Three other months have up less than 50% of the time, February (40% avg. rtn. -1.7%), June (42% avg. rtn. +0.8%) and April (45% avg. rtn. +2.5%)."

China has become the second largest trade partner of the European Union (EU) only after the United States, moving up from the fourth place in 1999, according to a report issued on Friday by Eurostat, the statistical office of the 25-nation bloc.

Crude is trading around $65 a barrel. The LOOP is reported to be operating at 75% of capacity. Before you get too excited, the Chevron refinery and the ConocoPhillips refinery suffered “major damage.” Together, they process 580,000 barrels of crude daily.

China will sign a contract to purchase aircraft from Airbus SAS, Europe's biggest plane maker, during a visit of U.K. Prime Minister Tony Blair to Beijing this week, a spokesman for Blair said.

Steve Scalise, Louisiana State Representative on the 17th St. Canal:
“I checked on the progress of the breach in the Canal. As many of you have probably seen by now, it was roughly a 200-foot wide break in the cement structures on the Orleans Parish side of the Canal just south of the Old Hammond Highway Bridge. I watched as military helicopters dropped large sand bags into the opening. Based on what I saw I would estimate that they are 2/3rds completed with the project. You can finally start to see the break being filled up, as they drop sand bags up to the water line. Then they have dump trucks dropping large chunks of cement on top of the sand bags to form a wall. They will finally be able to pump out the water once the temporary wall is restored.”

William Hester, CFA: " The shares of companies deleted from the S&P 500 have consistently outperformed those that took their place. Since the beginning of 1998, the median annualized return of all stocks deleted from the index and held from their exit date through March 15 of this year was 15.4 percent. The median annualized return of all stocks that were added to the index was 2.9 percent."

John Roberts, who clerked for William Rehnquist in 1980 and 1981, was nominated by Bush for Chief Justice.

Albert Einstein: "Laws alone can not secure freedom of expression; in order that every man present his views without penalty there must be spirit of tolerance in the entire population."

U.S. Citizens Are Not Refugees In The U.S.

9/4/05 U.S. Citizens Are Not Refugees In The U.S.

Wage stagnation spread throughout most of the Pennsylvania wage distribution in 2004, with the lowest-paid workers losing ground for the third year in a row, according to the State of Working Pennsylvania 2005 released Saturday by the Harrisburg-based Keystone
Research Center. In spite of three years of overall economic recovery, the inflation-
adjusted hourly earnings of typical low-wage Pennsylvania workers fell 10
cents per hour between 2003 and 2004 and 15 cents per hour since 2001, to
$7.16 per hour. Falling wages contributed to a rise in Pennsylvania poverty
rates by 20 percent since 1999-2000. According to the KRC report, low-wage Pennsylvania workers earn less in inflation-adjusted terms than they did in 1979 as well as in 2001 and 2003. Their current wage level amounts to about $15,000 per year if these workers are employed full-time, full-year. "What the wage data suggest," says Stephen Herzenberg, an economist and executive director of the Keystone Research Center, "is that Pennsylvania's half-million lowest-paid workers will be hard hit by rising energy costs. A dramatic energy price spike could push many low-wage families over the edge."
Herzenberg notes that the Pennsylvania wage pinch is not limited to low-
wage workers. "The data also show that most wage earners lost ground in 2004, including
typical high-wage workers. This leads to the current near-zero household
savings rate and means that rising energy costs may well force a reduction in
consumer spending." It is the possibility of a decline in consumer spending that has led some Wall Street economists, even before Hurricane Katrina struck the Gulf Coast,
to express concern about the possibility of a general economic slowdown.
"Given the current economic context and wage performance over the last
year, the Pennsylvania General Assembly should raise Pennsylvania's minimum
wage above the federal level this year, as 17 other states have already done,"
said Herzenberg. A rise in the state's minimum wage would stabilize the state's economy in a moment of uncertainty by enabling those who are working hardest to make ends
meet and maintain their standard of living. According to the report, a large body of economic research examining the real-world performance of state economies after minimum wage hikes shows that these do not lead to job loss. "Our estimate is that about 510,000 Pennsylvania low-wage workers would benefit from a minimum wage increase. 71 percent of these are over the age of 20 and two-thirds are women. We also estimate that nearly a third of the benefit of a minimum wage rise would go to the poorest fifth of Pennsylvania households," said Herzenberg. He adds that another 350,000 Pennsylvanians would benefit indirectly as a
result of minimum wage increase. According to Herzenberg, "The minimum wage has lost 41 percent of its inflation-adjusted value since 1968, and more than two-thirds of its value relative to the value of what the average worker produces in an hour. Pennsylvania's low-wage workers are at least as deserving of a pay raise as Pennsylvania's legislators." I am confident that a similar study for 2005 will show the same results for the state of Pennsylvania as well as many other states in the nation, and that includes Louisiana, Mississippi, and Alabama.

U.S. Senator Mary Landrieu, D-La., issued the following statement this afternoon regarding her call yesterday for President Bush to appoint a cabinet-level official to oversee Hurricane Katrina relief and recovery efforts within 24 hours.

Sen. Landrieu said:

“Yesterday, I was hoping President Bush would come away from his tour of the regional devastation triggered by Hurricane Katrina with a new understanding for the magnitude of the suffering and for the abject failures of the current Federal Emergency Management Agency. 24 hours later, the President has yet to answer my call for a cabinet-level official to lead our efforts. Meanwhile, FEMA, now a shell of what it once was, continues to be overwhelmed by the task at hand.
I understand that the U.S. Forest Service had water-tanker aircraft available to help douse the fires raging on our riverfront, but FEMA has yet to accept the aid. When Amtrak offered trains to evacuate significant numbers of victims – far more efficiently than buses – FEMA again dragged its feet. Offers of medicine, communications equipment and other desperately needed items continue to flow in, only to be ignored by the agency.
But perhaps the greatest disappointment stands at the breached 17th Street levee. Touring this critical site yesterday with the President, I saw what I believed to be a real and significant effort to get a handle on a major cause of this catastrophe. Flying over this critical spot again this morning, less than 24 hours later, it became apparent that yesterday we witnessed a hastily prepared stage set for a Presidential photo opportunity; and the desperately needed resources we saw were this morning reduced to a single, lonely piece of equipment. The good and decent people of southeast Louisiana and the Gulf Coast – black and white, rich and poor, young and old – deserve far better from their national government.
Mr. President, I’m imploring you once again to get a cabinet-level official stood up as soon as possible to get this entire operation moving forward region-wide with all the resources – military and otherwise – necessary to relieve the unmitigated suffering and economic damage that is unfolding.”

Firefox 1.5 beta will be released on September 8.

China’s Hu Jintao will visit Microsoft on Monday and have dinner at the home of Bill Gates in Medina, a section of Bellevue, WA. According to a court document, Kai-Fu Lee, a former Microsoft VP who left to work for Google in July, Microsoft is scheduled to outsource more than 1,000 jobs a year to China. Company spokeswoman Stacy Drake stated “we are growing our work force there and will continue to do so; however, that growth has not and will not replace jobs here in Redmond.” That begs the question. Shifting jobs to India and China has cut down on expansion in Redmond’s backyard, such as, a new campus to be built in Issaquah, WA. That expansion was put on hold, and likely will not go forward.

Meanwhile, Bush had to cancel his meeting with Hu because of Katrina but that the two leaders agreed to talk in New York in mid-September. Hu and Bush agreed to meet when they attend ceremonies in New York for the 60th anniversary of the founding of the United Nations, the Chinese Foreign Ministry said. That event takes place Sept. 14-16.

UC Berkeley researchers found that, after adjusting for inflation, wages statewide fell during the first half of 2005. According to Dube, the UC Berkeley economist, this was the second year in a row that real wages fell in California.
"What that tells you is that the labor market is still soft,'' he said. The Berkeley labor economists noted that the state's economy has gotten a huge boost from housing. Construction and related fields such as real estate or lending, all related to the housing boom, accounted for half of all the net job growth in the state between 2002 and 2005.

"I think shopper spending could be a train wreck under the Christmas tree," said Burt Flickinger III, managing director for New York-based Strategic Resource Group. He estimated there will be $35 billion less for consumer spending purchases for the holiday season as shoppers pay more for fuel and consumer goods.
Michael P. Niemira, chief economist at the International Council of Shopping Centers, said stores face their biggest challenge in four years, since the Sept. 11, 2001, terror attacks depressed Christmas sales. "If Katrina was simply a devastation of the area, we could have weathered it," said Niemira. "But because of these ripple effects, Katrina is having a nationwide impact. There were already red flags out there, but this just makes us feel more uncomfortable."

W.D. Crotty: Based on yesterday's closing price, Albertsons traded for 5.7 times EBITDA ( trailing annual earnings before interest, taxes, depreciation, and amortization)-to-EV( enterprise value). Kroger, Safeway, and Wal-Mart traded for 7.1, 7.6, and 9.8 times EBITDA-to-EV, respectively. This does not reflect the hidden value of the real estate in the 2,500 Albertson stores located in 37 states.

Andrew Lo writes of a possible hedge fund shake-out at
http://web.mit.edu/alo/www/papers/systemic2.pdf

Yesterday, I wrote that I have not sold one share of PetroKazakhstan stock. It might be well to remember that exactly one year ago Mittal hired Roeland Baan to run Mittal Steel Europe. That is but a small part of the story. Baan joined Mittal from SHV Holdings, where he spent 8 years as a member of the executive comittee of the company's ebergy division. Before that he spent 16 years with Shell, holding a variety of positions around the world. I feel confident that Baan is in a position to assess the true worth of PKZ to ONGC/Mittal. As such, I believe ONGC/Mittal will top CNCP's bid. Laying low does not equate to leaving the bidding contest.

From Cynical-C Blog: “I’m not meeting again with that goddamned bitch,” Bush screamed at aides who suggested he meet again with Cindy Sheehan, the war-protesting mother whose son died in Iraq. “She can go to hell as far as I’m concerned!”
“Who gives a flying fuck what the polls say,” he screamed at a recent strategy meeting. “I’m the President and I’ll do whatever I goddamned please. They don’t know shit.”
Bush’s behavior, according to prominent Washington psychiatrist, Dr. Justin Frank, author of “Bush on the Couch: Inside the Mind of the President,” is all too typical of an alcohol-abusing bully who is ruled by fear.