Saturday, September 24, 2005

Pre The Next Storm

9/24/05 Pre The Next Storm

“Investing some of China’s massive foreign reserves into U.S. Treasurys is ‘not worthwhile,’ a senior party official said… ‘I think it’s better that China should invest its huge forex reserves in overseas energy resources stocks as reserves,’ said Zheng Xinli, deputy minister of China’s Central Policy Research Office.”

Doug Noland: “The confluence of booming mortgage Credit, ballooning Wall Street balance sheets, surging “repo” finance and unprecedented ABS issuance is seductively problematic. “Financial conditions” are patently and conspicuously much too easy. The “confluence” works magically in loose monetary conditions, creating only more liquidity and the loosest environment imaginable. This “confluence,” however, will function especially poorly when financial conditions eventually tighten, a development increasingly necessary to rein in heightened global inflationary pressures and precarious asset Bubbles.”

According to iSuppli, the 2GB iPod Nano retails in the US for $199. Of that, iSuppli states, less that half - $90.18 - goes on components. Add in $8 per unit labor costs, and Apple's base margin is a whopping $100.82. In addition, one can probably add a little more for software development.

Keith Olbermann: “No one is suggesting that mayors or governors in the afflicted areas, nor the federal government, should be able to stop hurricanes. Lord knows, no one is suggesting that we should ever prioritize levee improvement for a below-sea-level city, ahead of $454 million worth of trophy bridges for the politicians of Alaska.”

Palm Inc. is expected to end years of rivalry with Microsoft Corp. on Monday and announce that a version of its popular Treo handheld unit will run on Microsoft’s operating system.

Hurricane Rita has weakened to a Category 2 storm as it has moved farther inland, the National Hurricane Center said in its latest advisory. Maximum sustained winds have decreased to about 100 miles per hour and further weakening is expected during the day.

Wal-Mart: “In the Hurricane Rita location stores, we saw an increase in items such as canned foods, water, candles, batteries, and lighting (flashlights and lanterns). In Hurricane Katrina areas, we are seeing increased sales in items such as basic apparel, hardware, and cleaning supplies. Average ticket drove the comp sales and the strongest regions were the South and Southeast. We anticipate increased fuel supply issues with Hurricane Rita versus Hurricane Katrina due to the number refineries that could be impacted.”

Irish Blessings: "May God give you...For every storm a rainbow, for every tear a smile, for every care a promise and a blessing in each trial. For every problem life sends, a faithful friend to share, for every sigh a sweet song and an answer for each prayer."

Friday, September 23, 2005

A Changing World

9/23/05 A Changing World
The People's Bank of China said in a statement that it has widened the trading band against non-US dollar currencies to 3% on either side of a central parity rate from 1.5%, AFX reported. The changes are effective immediately.
It said the yuan-dollar trading band for retail transactions has been widened to 1%, around the central parity rate, also with immediate effect. The previous trading band was 0.2% on either side of parity.
The central bank said the retail yuan-dollar trading band for cash transactions has been widened to 4% from 1%, according to AFX.
Sears’ medical costs for retirees last year equated to 17% of the company’s operating income. Sears will stop subsidizing health care coverage for new employees and cut some retiree health benefits.
Ford will announce another round of cost cutting and reorganization on October 20.
Delta will cut up to 9,000 jobs by the end of 2007 and continue to reduce management’s salaries.
Analyst Charlie Di Bona of Sanford Bernstein stated that, if Oracle had included the corresponding year-ago applications sales of PeopleSoft and Retek, another Oracle acquisition, its application license sales would have actually fallen. To make matters worse, new sales of Oracle’s database software rose 1%. This information was announced after the close. However, during the day, Ellison gave a rosy long-tern outlook on Oracle doubling its business- - naturally it won’t happen organically. Just a piece of advice from the cheap seats. Before making more acquisitions, it might be wise to grow database and application revenues.
"The same things that harm the heart, such as smoking, high cholesterol,
obesity, high blood pressure, stress and genetic factors, harm the blood
vessels throughout your body," says Peter Henke, M.D., a vascular surgeon and
medical director of the Noninvasive Diagnostic Vascular Laboratory at the U-M
Cardiovascular Center. "Vice President Cheney is like millions of Americans who have lived with all of these risk factors for many years, and like many Americans, especially
men, his blood vessels are showing signs of wear and tear. Fortunately, he
was diagnosed and is being treated before something more serious happens,"
Henke adds.
Cheney's operation this weekend is for a condition called a popliteal aneurysm
(POP-li-teel ANN-yur-ism), which is a bulging, weakened spot in the main
artery that travels up the back of the leg. They're often diagnosed when a
physical exam reveals a bulge in the leg or a patient complains of leg pain
and tiredness. Cheney's spokespeople have said he has one of these aneurysms
behind each knee; the operation this weekend will fix one of them.
Popliteal aneurysms can encourage the formation of blood clots that can
block blood flow to the legs and can lead to amputation of a limb. Once a
person begins having symptoms from their popliteal aneurysm, they have a 1 in
5 chance of losing a leg, and a 1 in 20 chance of dying, unless the problem is
treated.
But even more seriously, the presence of popliteal aneurysms can mean that
a person has a high risk of having other aneurysms elsewhere in their body,
says Henke, an Associate Professor of Vascular Surgery who specializes in
diagnosing and repairing aneurysms and other blood vessel problems in the
legs, neck and trunk. And those kinds of aneurysms carry even higher risks of death and
disability. The biggest threat, Henke explains, are aneurysms in the aorta,
the giant artery that brings blood out of the heart and branches off to feed
the body. Like popliteal aneurysms, aortic aneurysms are much more common among
people who have smoked, and who have had high cholesterol and high blood
pressure for years. Men, and people with a family history of aneurysms, have
a much higher risk. Risk also rises with a person's age. With every beat of the heart, the high pressure of blood rushing through the aorta presses on the blood vessel's muscular walls. "Hardened" artery walls, made stiff by cholesterol deposits and the effects of smoking and high blood pressure, can become weak in spots. At any of those spots, the force of the blood can cause an aneurysm to bulge out, and to grow over time. Or, it
can cause the layers of the aorta wall to come apart, a condition called
aortic dissection that killed actor John Ritter.
President Bush: "To leave Iraq now would be to repeat the costly mistakes of
the past that led to the attacks of September the 11th, 2001. The terrorists
saw our response to the hostage crisis in Iran, the bombings in the Marine
barracks in Lebanon, the first World Trade Center attack, the killing of
American soldiers in Somalia, the destruction of two U.S. embassies in Africa,
and the attack on the USS Cole. The terrorists concluded that we lacked the
courage and character to defend ourselves, and so they attacked us." The fact that advanced warnings were provided- - that fact was not included in yesterday’s speech.
According to AFX News Limited, China National Petroleum Corp's board (CNPC) held an emergency meeting yesterday and has decided not to raise its original bid of 4.18 bln usd for PetroKazakhstan Inc, a CNPC official said.
'CNPC held an emergency meeting yesterday to discuss PetroKazakhstan,' the official said. He said CNPC's bid for the New York and Toronto-listed oil and gas company has been facing several difficulties including potential new bids and complications with joint-venture partners. He said an Abu Dhabi investment fund had expressed interest in acquiring PetroKazakhstan. He also said CNPC's bid was facing difficulties with PetroKazakhstan's joint venture with Russian oil company Lukoil. 'If CNPC wants to buy PetroKazakhstan, it must consider the joint venture which is very profitable,' he said.
ONGC has submitted a 1.2 bln usd bid for the A-1 21 block in Nigeria through ONGC-Mittal Energy, the joint venture with steel tycoon LN Mittal, the Economic Times reported citing oil industry sources. ONGC has bid for deepwater oil blocks along with Nigeria-based Equator Exploration, it said.
The report also said the company is seeking shareholder approval to raise its borrowing limit to about 620 bln rupees. Now compare this $1.2 billion bid with the current CNPC $4.1 billion accepted offer for PKZ and the latter’s stated reserves as well as the close proximity to pipeline transportation.
Peter Schiff: "Do not be fooled by the President's pledge not to raising taxes. Inflation acts like a hidden tax, allowing government to transfer purchasing power from the public to itself. The government finances spending though inflation by issuing bonds that are subsequently purchased by the Federal Reserve, thereby creating new dollars that reduce the purchasing power of existing dollars. The result is that consumer prices rise to reflect the dollar's diminished value. Therefore, if the public does not pay higher income taxes to pay to rebuild the Gulf, it will certainly pay higher inflation taxes instead, as the real values of their incomes and savings will be diminished."
At this point, I don’t believe anyone can predict the damage from Hurricane Rita. This storm is both powerful and large—stretching from Galveston to Cameron. However, the impact will be felt for up to 200 miles away. Communities will need to contend with wind gusts of up to 140 miles per hour, rainfall possibly exceeding 18 inches, and waves as high as 25 feet.
AccuWeather Meteorologist Gerald Mohler: "It is not often that we as meteorologists throw out terms like catastrophic or life-threatening. However, when dealing with a storm the magnitude of Rita, these terms are certainly appropriate. Rita will still be moving over warm water into Friday. This should allow it to still be a Category 4 storm when it makes landfall late Friday night or early Saturday. If you live within a few miles of the coast, this is NOT a storm that you want to stay and try to ride out."

Thursday, September 22, 2005

Rita And Katrina

9/22/05 Rita And Katrina
Business Roundtable's new CEO Economic Outlook Survey, taken in the aftermath of Hurricane Katrina, suggests that CEOs expect their businesses and the U.S. economy to absorb a significant, but not overwhelming, hit in the aftermath of the epic August disaster. Business Roundtable is an association of chief executive officers of leading corporations with a combined workforce of more than 10 million employees and $4 trillion in annual revenues.
Key indicators -- capital expenditures, sales and employment plans for the
next six months trended downward in the wake of Hurricane Katrina. The survey showed a 14 percentage-point decline in anticipated capital expenditure
increases from the third quarter Economic Outlook Survey, which was taken
prior to Hurricane Katrina and released September 7.
Sales expectations declined slightly from the pre-Katrina survey as well,
with those anticipating higher sales over the next six months dropping by 9
percentage points.
Employment expectations were impacted the least with only a 2 percentage-
point drop in the number of those planning on hiring. The responses reflected
50 percent maintaining current employment, with some increases in sectors that
will be increasing activity to help in recovery, such as energy, equipment
manufacturing and construction.
"While the economy, as reflected in our survey results, clearly took a
hit, it does not appear to be uniformly negative," said Hank McKinnell,
Chairman of Business Roundtable and Chairman and CEO of Pfizer Inc. "Decreased capital spending is a cause for concern because these investments have been a significant driver of long term economic growth. It is a number we will be watching in the next survey."

I would like to re-print and re-emphasize the importance of information from one week ago: ATYRAU. September 14. KAZINFORM /Andrey Sokolov/ - Kazakhstan Prime Minister Daniyal Akhmetov, visiting Atyrau oblast, answered a number of questions of journalists. Concerning the sale of PetroKazakhstan shares, he stated, we are the country with open market economy. Kazakhstan does not interfere into the process of selling. They are realized at Toronto stock market. One who pays more will own PetroKazakhstan company. We will demonstrate the economic world we hold to sound economy and have no political interests. We want the companies, functioning in Kazakhstan, to be comfortable, Daniyal Akhmetov pointed out.

Please do not get caught up in a lot of noise. It can only create unnecessary thought and increased stress.

According to today’s India Business, "NEW DELHI: Oil and Natural Gas Corporation is rebidding for acquiring Petro kazakhstan, a Canadian exploration and refining firm with business in Kazakhstan, even as the country's most valuable company on Wednesday promised to start pumping gas from deep sea field from April and ramp up oil output 13% by 2009-10. A committee of secretaries has cleared ONGC's plans to rebid for Petrokazakhstan, which was lost last month to China National Petroleum Corporation narrowly when it was denied a chance to clarify certain conditions for raising the offer."

According to the California Association of Realtors, the projected median price of $523,150 set this year will increase 10 percent to $575,500 in 2006. Sales for 2006 are projected to reach 630,610 units, falling 2 percent compared with 2005. Home sales for California in 2005 are expected to reach a record 643,480 units, surpassing the prior sales record of 624,740 set last year, according to economists for the association.

A late August survey by the International Council of Shopping Centers found 58% of consumers cut back on discretionary spending because of high gas prices. One out of five middle-income customers said they had reduced spending.

Mish stated that The Guardian is also reporting 34% of Britons are running out of money five days before payday.

What I am about to say may sound trite. If it does, then don’t bother reading any further. I write for me and not for you. Katrina and Rita should illustrate the importance of making the most of every day, and not taking anyone or any thing for granted. After Katrina, I wrote that the hurricane season is not over. After Rita, the hurricane season will not be over. Maybe 1.3 million or more people will flee and evacuate pre-Rita hitting the Louisiana-Texas coast. People can hide inland but the infrastructure and the services cannot. You can shut down refineries and rigs. You can shut off power. You can shut down 175 mile per hour winds. I cannot even imagine winds like that. Last year I experienced winds of 120 miles per hour in Florida. The power was unimaginable. The surf was something I had never witnessed up close. Maybe a miracle will spare this coastline and the cities from parts of Louisiana to Galveston. Don’t bet on miracles. Despite the words from Bush and Greenspan, the economic foundation of our country rests on debt. Hurricanes do not wipe out country and household debt. Hurricanes wipe out homes and businesses, the core of the equity in the U.S. I wish everyone well.

From The Economic Times (India): "The Committee of Secretaries has already given the nod to ONGC Videsh, to go ahead with a counter bid(PKZ). Industry sources said that OME has to also keep in mind that CNPC would get a chance to match the revised bid or better it. This development comes close on the heels of the recent controversy regarding the Nigerian blocks. OVL, which submitted the highest bid was denied operatorship or majority control of the blocks as Kogas was allowed to use its premption right. The preemption right over these blocks, which was given to Kogas just two days before the bids were submitted, was not known to the other players. Meanwhile, OVL is now getting ready for pumping out the first commercial gas from the Sakhalin fields in Russia from October."

"Ladies and gentlemen, the majority equity in your company(ONGC) is owned by the people of India, and the first citizen has articulated the desire of the people for sustained growth of your company into a global, integrated, multi-fuel energy business tasked to secure energy independence for India," Mr Raha said after quoting from President Abdul Kalam’s address to ONGC where he stressed on ONGC’s role in the "broader business of energy".

The IMF raised its forecast for Japan to 2 per cent from the 0.8 percent it expected in April. The lender increased its forecast for the rest of Asia to 7.3 per cent from 7, raising its projection for China to 9 per cent from 8.5 and for India to 7.1 per cent from 6.7. It cut its forecasts for economies such as South Korea, Taiwan, Malaysia and Thailand.

The IMF reported that "after averaging some 40 per cent of GDP during the 1990s, China's gross domestic savings rate has increased sharply to close to 50 per cent of GDP over the past five years."

Northwest Airlines to lay off 1,400 attendants. Sony plans 10,000 job cuts.

Wednesday, September 21, 2005

PKZ Bulletin

9/21/05 PKZ Bulletin

There is a Dow Jones release indicating the PetroKazakhstan gov't is trying to prevent the sale of PKZ. The key sentence is: "However, this amendment doesn't regulate deals involving listed companies, Nekhoroshev said. " Obviously, PKZ is a listed company.

Going Forward

9/21/05 Going Forward
The damage caused by Hurricane Katrina, coupled with higher gas prices, is expected to contribute to an increasingly difficult outlook for certain retailers as the holiday season approaches, according to Deloitte Research's Leading Index of Consumer Spending. Amidst weakening home prices, a rising tax burden and slow job growth, rising inflation and Katrina could trigger heightened challenges for consumer spending through the end of 2005.
"Retailers face hurdles in the coming months," says Carl Steidtmann, chief
economist of Deloitte Research and author of the monthly index. "A natural
disaster of this magnitude will almost certainly have a negative impact on
consumer spending in the short run, and will likely hurt some retail segments
during the upcoming holiday season."
"However, we can anticipate an upturn in consumer spending in communities
to which storm victims are migrating, such as Houston and Baton Rouge,"
continued Steidtmann. "As rebuilding efforts begin, we should see a boost in
sales of home-related goods and building materials, as well as basic clothing
and kitchen goods."
"With the current level of uncertainty surrounding the consumer's ability
to spend, retailers need to continue to be vigilant about their inventory
levels, costs, and effective promotional strategies," said Pat Conroy, vice
chairman and national managing principal of Deloitte's Consumer Business
practice. "They must also increase their focus on converting consumers they
have attracted into their stores into buyers. Finding better ways to
positively impact these conversion rates will be a critical element to
retailers' success this upcoming season."

Federated Department Stores may lay off up to 6,200 employees. The N.Y. Times will cut 500 jobs. Philly papers cut 100 jobs.

India imports 70% of its oil. As such, bidding for PetroKazakhstan should not come as a surprise.

With all the concerns about Rita and the Fed raising rates, it was easy for this news on Palatin to get lost. Stan Hull is joining their Board of Directors. He has 27 years of experience with Glaxo and their predecessor company, and is currently Senior Vice President for Glaxo’s U.S. Pharmaceuticals-RTP Business Division. His expertise is in sales and marketing and strategic planning. It is quite a feat to get someone of his caliber on the board of a $100 million market cap company. You might ask what potential Hull sees that the market is missing.

Lennar Corporation, one of the nation's largest homebuilders, announced
today that earnings per share for the quarter ended August 31, 2005 will
exceed $2.00 per diluted share when the Company announces earnings in its
regularly scheduled earnings release next week. Additionally, deliveries will
exceed 10,900 homes vs. the previously announced goal of 10,800 homes,
homebuilding gross margin will exceed 26.0% (more than 300 basis points higher than last year) and net new orders will grow more than 20% compared to the prior year. Greater detail will be provided in next week's regularly
scheduled earnings conference call.

It is good to remember that Texas accounts for 25% of our nation’s total oil output. Rita has been upgraded to a Category 3 hurricane, and crude has topped $67 a barrel once again.

Petroleum ONGC Videsh Ltd, the overseas arm of state-owned Oil and Natural Gas Corp (ONGC), has acquired a 30 per cent stake in seven oil and gas blocks in Cuba, which hold more than 4 billion barrels of oil reserves.

Mittal Steel Co., the world's biggest steel maker, received final approval from the Commerce Ministry to buy 36.67 percent of China's Hunan Valin Steel Tube & Wire Co. for 2.56 billion yuan ($316 million).

According to the OECD, the most affluent one-fifth of China's population earn 50% of total income, with the bottom one-fifth taking home only 4.7%. Last year the average rural income was 2,936 yuan ($362), less than one-third of the urban income of 9,422 yuan.

The Mortgage Bankers Association said its index of total mortgage applications for home purchase and refinancing loans rose 1.5 percent to 772.2 in the week ended September 16. The index fell 1.4 percent in the previous week. The MBA's purchase index fell 2.6 percent to 500.3, reversing the previous week's 2.9 percent gain. The refinancing index rose 7.0 percent to 2,353.7, more than offsetting the previous week's 6.7 percent loss.

According to Businessweek.com, S&P sees the S&P Food Retail index outperforming the S&P 500; that margins will stabilize; that consolidation is likely; that Albertson's recent announcement on exploring alternatives focuses attention on underlying real estate values; and S&P's top picks are Albertson's, Kroger, and Safeway.

Rita is the 17th named hurricane of 2005. There has been only one year that the Atlantic had 21 hurricanes and that was seventy-two years ago in 1933. The National Hurricane Center emphasizes that the 2005 hurricane season is not expected to be over until November.

Qualcomm increased financial guidance for the 4th quarter and its fiscal year ending 9/30/05.

Mark Twain: "A thing long expected takes the form of the unexpected when at last it comes."

Tuesday, September 20, 2005

The Counterbid

9/20/05 The CounterbidIndia's ONGC Videsh Ltd (OVL) has decided to counter China National Petroleum Company's (CNPC's) 4.18 bln usd bid to acquire PetroKazakhstan, India's Financial Express newspaper reported in its online edition.The counter-offer will be made by ONGC Mittal Energy Ltd (OME), the joint venture floated by OVL and LN Mittal-promoted Mittal Investment Sarl, it said.ONGC Videsh has formally informed the Indian government of its decision, the paper said, adding that its proposal to make a 'superior counter offer' was discussed by senior Indian government officials earlier this month.'Consultations did take place on this issue and the committee had finally left it to the ONGC/OVL board to take a commercial call,' a senior government official was quoted as saying when asked to comment on the outcome of the meeting.OVL is the international arm of Oil and Natural Gas Corp (ONGC).Senior ONGC and OVL officials confirmed that a counter-offer is being prepared in consultation with their technical advisor GCA, legal advisor Ashurst and commercial advisor UBS, the paper said.It said OME will be required to pay a 'break fee' of 125 mln usd to PetroKazakhstan if its counterbid is accepted. PetroKazakhstan will in turn pay the money to CNPC.A bid price was not specified; however, it could be measurably better than $55. This sleeper could turn out to be the best risk arbitrage deal of 2005.Rita has certainly rattled the markets. Natural gas traded up to its highest level ever. Heating oil rallied back to over $2 a gallon, and unleaded gas knocked on the $2 a gallon area. Crude rallied over $4 to exceed $67 a barrel. All these escalating energy prices fueled inflation worries, and gold soared $7 an ounce to $470+, its highest price in 18 years.Peter DeLorenzo of Autoextremist.com: "SUV sales aren’t just slowing –they’re crashing to a halt."The NAHB-Wells Fargo housing index fell to 65 in September from 67 in August, the 3rd decline in a row and the lowest reading since July 2003.Delta stated "layoffs will not be small."Bombay’s Sensex crossed 8,400 on the upside.EnCana Corporation's wholly-owned partnership EnCana Midstream & Marketing hassigned an agreement with Methanex Corporation under which Methanexwill provide terminalling services to EnCana at Methanex's terminal facilitiesin Kitimat, British Columbia. EnCana plans to import up to 25,000 barrels perday of offshore diluent to help transport its growing oilsands production innortheast Alberta to markets in the U.S."Diluent is a necessary component for the pipeline transportation ofheavy oil, but Canadian supply is tight due to increased production fromAlberta's vast oilsands. However, cost-effective diluent is readily availableon the world market and this can help us manage transportation costs as weadvance our oilsands growth and integration strategy," said Bill Oliver,EnCana's President of Midstream & Marketing."With access to the ideally-located Kitimat terminal, we expect to beable to import diluent at a competitive cost and move it to where it's mostneeded - in northeast Alberta - then blend it with our growing oilsandsproduction for transport to key U.S. markets," Oliver said.In addition to the projected 25,000 barrels per day of additional supplyto be transported from Kitimat, EnCana is close to completing a newdebutanizer installation at its Empress, Alberta natural gas liquidsextraction plant. Planned to come on stream in October, the debutanizer isexpected to generate about 5,000 barrels per day of diluent. The combined30,000 barrels per day of added diluent expected from these two EnCanainitiatives represents an increase of more than 15 percent to the currentWestern Canadian diluent supply.The Kitimat terminal has an existing dock and tanks at an ice-free port,plus a railway car loading facility for ease of transport to an Albertapipeline connection that feeds EnCana's oilsands operations. EnCana expects tostart importing diluent through Kitimat early in 2006. Under the agreementwith Methanex, EnCana has an option to buy the Kitimat terminal within thefive-year term of the agreement.In conjunction with U.S. oil refiner Valero Energy Corporation, EnCana isconducting a feasibility study into the construction of heavy oil processingfacilities at Valero's existing refinery in Lima, Ohio. The study, which isexpected to be completed over the coming months, will examine the engineeringand economics of EnCana supplying an estimated 200,000 barrels of blendedheavy oil per day to the Lima refinery. The establishment of an offshoresupply of diluent is a key component in EnCana's market integration strategywhich is aimed at maintaining industry-leading low operating costs as thecompany expands in-situ oilsands production to an estimated 200,000 barrelsper day over the next several years.I continue to believe that EnCana offers excellent long-term potential. In my view, the stock should continue to be accumulated during periods of price weakness.John Menzer, President and Chief Executive Officer of Wal-Mart International announced today the purchase of a 33-1/3 percent interest in Central American RetailHolding Company (CARHCO). CARHCO is Central America's largest retailer, with 363 supermarkets and other stores in the following five countries: Guatemala (120), El Salvador(57), Honduras (32), Nicaragua (30) and Costa Rica (124). CARHCO hasapproximately 23,000 associates. Its sales during 2004 were approximately$2.0 billion.Wal-Mart acquired its interest in CARHCO from the Dutch retailer RoyalAhold NV. The purchase price was not disclosed. CARHCO was formed as a jointventure in 2001 with three equal partners: Ahold and two Central Americangroups: the Paiz family, the major shareholders of La Fragua, withheadquarters in Guatemala, and Corporacion de Supermercados Unidos (CSU), withheadquarters in Costa Rica."We are delighted to have this opportunity to invest in the future ofCentral America," said Menzer, adding that the alliance had been underdiscussion for several years. "We are joining a strong partnership that isdelivering outstanding service to customers throughout the region. We believeour investment will add strength to the partnership by helping to keep priceslow for consumers and will offer new opportunities to suppliers in the regionfor additional business development." As part of the agreement, Wal-Mart willacquire additional interests over time in CARHCO, including interests towardachieving majority ownership in the company.The new partnership demonstrates confidence in the region's economicpotential, Menzer said, adding that significant investments are planned in theyears ahead to open new stores and serve customers better with improvedservices, high quality and innovative products and lower prices.In addition, specialized training programs are planned for CARHCOassociates and for suppliers to assist in career and business development. Aconsolidated network of Central American supermarkets will have vast potentialfor product commercialization and regional economic development.The investment in CARHCO is Wal-Mart's first in Central America, althoughthe region is a major source of apparel for the company. Wal-Mart directlyimports more than $350 million in goods from Guatemala, Honduras, El Salvador,Nicaragua and Costa Rica. In addition, Wal-Mart purchases goods from manysuppliers with farms and factories in Central America.I have frequently stated that the major future potential for Wal-Mart is its international business. In my view, a long-term holder of WMT shares will be handsomely rewarded.The present price weakness offers an opportunity of uncommon value. That may be a minority view; however, I don’t see anyone creating terrific returns by swimming with the majority.Norsk Hydro’s purchase of Spinnaker works out to paying $41 per barrel for stated reserves. Now that’s putting your money where your mouth is. Compare that with the purchase price per barrel for PKZ’s reserves. I know Kazakhstan is not the Gulf, but maybe it’s underrated as a source of oil and gas reserves.As evening approaches, Rita is currently forecast to become a hurricane rather than a tropical storm. That brings me to a question. Is the panacea to sell protection against the risk of systemic crises and bad outcomes? I’ve been hedging for 40 years. Hedging exposure is a tall order, and especially for supposed sophisticated bankers and hedge funds—many of them just beginning to shave. It might be wise to watch your ass- - -especially during hurricane season.

The Counterbid

9/20/05 The Counterbid
India's ONGC Videsh Ltd (OVL) has decided to counter China National Petroleum Company's (CNPC's) 4.18 bln usd bid to acquire PetroKazakhstan, India's Financial Express newspaper reported in its online edition.
The counter-offer will be made by ONGC Mittal Energy Ltd (OME), the joint venture floated by OVL and LN Mittal-promoted Mittal Investment Sarl, it said.
ONGC Videsh has formally informed the Indian government of its decision, the paper said, adding that its proposal to make a 'superior counter offer' was discussed by senior Indian government officials earlier this month.
'Consultations did take place on this issue and the committee had finally left it to the ONGC/OVL board to take a commercial call,' a senior government official was quoted as saying when asked to comment on the outcome of the meeting.
OVL is the international arm of Oil and Natural Gas Corp (ONGC).
Senior ONGC and OVL officials confirmed that a counter-offer is being prepared in consultation with their technical advisor GCA, legal advisor Ashurst and commercial advisor UBS, the paper said.
It said OME will be required to pay a 'break fee' of 125 mln usd to PetroKazakhstan if its counterbid is accepted. PetroKazakhstan will in turn pay the money to CNPC.
A bid price was not specified; however, it could be measurably better than $55. This sleeper could turn out to be the best risk arbitrage deal of 2005.

Rita has certainly rattled the markets. Natural gas traded up to its highest level ever. Heating oil rallied back to over $2 a gallon, and unleaded gas knocked on the $2 a gallon area. Crude rallied over $4 to exceed $67 a barrel. All these escalating energy prices fueled inflation worries, and gold soared $7 an ounce to $470+, its highest price in 18 years.

Peter DeLorenzo of Autoextremist.com: "SUV sales aren’t just slowing –they’re crashing to a halt."

The NAHB-Wells Fargo housing index fell to 65 in September from 67 in August, the 3rd decline in a row and the lowest reading since July 2003.

Delta stated "layoffs will not be small."

Bombay’s Sensex crossed 8,400 on the upside.

EnCana Corporation's wholly-owned partnership EnCana Midstream & Marketing has
signed an agreement with Methanex Corporation under which Methanex
will provide terminalling services to EnCana at Methanex's terminal facilities
in Kitimat, British Columbia. EnCana plans to import up to 25,000 barrels per
day of offshore diluent to help transport its growing oilsands production in
northeast Alberta to markets in the U.S.
"Diluent is a necessary component for the pipeline transportation of
heavy oil, but Canadian supply is tight due to increased production from
Alberta's vast oilsands. However, cost-effective diluent is readily available
on the world market and this can help us manage transportation costs as we
advance our oilsands growth and integration strategy," said Bill Oliver,
EnCana's President of Midstream & Marketing.
"With access to the ideally-located Kitimat terminal, we expect to be
able to import diluent at a competitive cost and move it to where it's most
needed - in northeast Alberta - then blend it with our growing oilsands
production for transport to key U.S. markets," Oliver said.
In addition to the projected 25,000 barrels per day of additional supply
to be transported from Kitimat, EnCana is close to completing a new
debutanizer installation at its Empress, Alberta natural gas liquids
extraction plant. Planned to come on stream in October, the debutanizer is
expected to generate about 5,000 barrels per day of diluent. The combined
30,000 barrels per day of added diluent expected from these two EnCana
initiatives represents an increase of more than 15 percent to the current
Western Canadian diluent supply.
The Kitimat terminal has an existing dock and tanks at an ice-free port,
plus a railway car loading facility for ease of transport to an Alberta
pipeline connection that feeds EnCana's oilsands operations. EnCana expects to
start importing diluent through Kitimat early in 2006. Under the agreement
with Methanex, EnCana has an option to buy the Kitimat terminal within the
five-year term of the agreement.
In conjunction with U.S. oil refiner Valero Energy Corporation, EnCana is
conducting a feasibility study into the construction of heavy oil processing
facilities at Valero's existing refinery in Lima, Ohio. The study, which is
expected to be completed over the coming months, will examine the engineering
and economics of EnCana supplying an estimated 200,000 barrels of blended
heavy oil per day to the Lima refinery. The establishment of an offshore
supply of diluent is a key component in EnCana's market integration strategy
which is aimed at maintaining industry-leading low operating costs as the
company expands in-situ oilsands production to an estimated 200,000 barrels
per day over the next several years.
I continue to believe that EnCana offers excellent long-term potential. In my view, the stock should continue to be accumulated during periods of price weakness.

John Menzer, President and Chief Executive Officer of Wal-Mart International announced today the purchase of a 33-1/3 percent interest in Central American Retail
Holding Company (CARHCO). CARHCO is Central America's largest retailer, with 363 supermarkets and other stores in the following five countries: Guatemala (120), El Salvador(57), Honduras (32), Nicaragua (30) and Costa Rica (124). CARHCO has
approximately 23,000 associates. Its sales during 2004 were approximately
$2.0 billion.
Wal-Mart acquired its interest in CARHCO from the Dutch retailer Royal
Ahold NV. The purchase price was not disclosed. CARHCO was formed as a joint
venture in 2001 with three equal partners: Ahold and two Central American
groups: the Paiz family, the major shareholders of La Fragua, with
headquarters in Guatemala, and Corporacion de Supermercados Unidos (CSU), with
headquarters in Costa Rica.
"We are delighted to have this opportunity to invest in the future of
Central America," said Menzer, adding that the alliance had been under
discussion for several years. "We are joining a strong partnership that is
delivering outstanding service to customers throughout the region. We believe
our investment will add strength to the partnership by helping to keep prices
low for consumers and will offer new opportunities to suppliers in the region
for additional business development." As part of the agreement, Wal-Mart will
acquire additional interests over time in CARHCO, including interests toward
achieving majority ownership in the company.
The new partnership demonstrates confidence in the region's economic
potential, Menzer said, adding that significant investments are planned in the
years ahead to open new stores and serve customers better with improved
services, high quality and innovative products and lower prices.
In addition, specialized training programs are planned for CARHCO
associates and for suppliers to assist in career and business development. A
consolidated network of Central American supermarkets will have vast potential
for product commercialization and regional economic development.
The investment in CARHCO is Wal-Mart's first in Central America, although
the region is a major source of apparel for the company. Wal-Mart directly
imports more than $350 million in goods from Guatemala, Honduras, El Salvador,
Nicaragua and Costa Rica. In addition, Wal-Mart purchases goods from many
suppliers with farms and factories in Central America.
I have frequently stated that the major future potential for Wal-Mart is its international business. In my view, a long-term holder of WMT shares will be handsomely rewarded.
The present price weakness offers an opportunity of uncommon value. That may be a minority view; however, I don’t see anyone creating terrific returns by swimming with the majority.
Norsk Hydro’s purchase of Spinnaker works out to paying $41 per barrel for stated reserves. Now that’s putting your money where your mouth is. Compare that with the purchase price per barrel for PKZ’s reserves. I know Kazakhstan is not the Gulf, but maybe it’s underrated as a source of oil and gas reserves.
As evening approaches, Rita is currently forecast to become a hurricane rather than a tropical storm. That brings me to a question. Is the panacea to sell protection against the risk of systemic crises and bad outcomes? I’ve been hedging for 40 years. Hedging exposure is a tall order, and especially for supposed sophisticated bankers and hedge funds—many of them just beginning to shave. It might be wise to watch your ass- - -especially during hurricane season.

Monday, September 19, 2005

Questions

9/19/05 Questions
Will the Fed raise rates this week?
If the Fed does raise rates, what impact might there be on the slope of the yield curve?
Will Katrina help to move rates higher than originally forecast?
When will the U.S. and China finalize an agreement on textiles?
How do companies place orders for Chinese textiles when they don’t know whether the order can be filled?
Have you been following tropical storm Rita? Those living in the Florida Keys have been asked to evacuate.
Will Rita become a hurricane and damage the refineries in the Gulf along the southern Texas coastline?
Lloyd Alexander: "We learn more by looking for the answer to a question and not finding it than we do from learning the answer itself."
Have you ever heard of Google’s G drive? It’s not a drive honing in on the G spot. Rather, it is a drive that will facilitate the storage of information on Google servers.
Did you know that Google is looking at having its own WiFi service that would provide its own nationwide ISP?
Is Google TV in the works?
Isn’t it a long way for Norsk Hydro to be buying Spinnaker Exploration (with operations in the Gulf) and then pay $65.50 in cash per share? Does the purchase price provide any indication of future price spikes in natural gas?
How many more jobs will Siemens eliminate in Germany after the announcement to cut 2,400 positions at their computer services unit?
Who won the election in Germany?
With the current federal government spending spree, how long will it be before the Congress is asked to vote on authorizing the raising of the ceiling on the national debt level?
Have you considered going long gold and shorting crude oil as a hedge?
What percentage of the Gulf coast evacuees will move permanently to other areas?
Friedrich Nietzche: "What if a demon were to creep after you one night, in your loneliest loneliness, and say, 'This life which you live must be lived by you once again and innumerable times more; and every pain and joy and thought and sigh must come again to you, all in the same sequence. The eternal hourglass will again and again be turned and you with it, dust of the dust!' Would you throw yourself down and gnash your teeth and curse that demon? Or would you answer, 'Never have I heard anything more divine'?"
Why has the number of Category 4 and 5 hurricanes nearly doubled around the globe in the last 35 years?
Starbucks brought music to its 40 million weekly customers. Will books be the next offering on the list?
Rainer Maria Rilke: "Have patience with everything that remains unsolved in your heart. Try to love the questions themselves, like locked rooms and like books written in a foreign language. Do not now look for the answers. They cannot now be given to you because you could not live them. It is a question of experiencing everything. At present you need to live the question. Perhaps you will gradually, without even noticing it, find yourself experiencing the answer, some distant day."

Sunday, September 18, 2005

Stark Comparison

9/18/05 Stark Comparison

According to Tang Xu, head of the central bank’s research bureau in China, the country’s foreign exchange reserves rose by at least $29 billion in July, and thus its end-July reserves exceeded $740 billion. He stated the change in August should be normal, and therefore, heading into September, China’s foreign exchange reserves in all likelihood exceeded $765 billion. By comparison, the U.S. current account deficit amounted to $394 billion in the first six months of 2005, and is expected to approach $820 billion for the entire year. There are those who state there is no reason to be concerned, and cite capital flows into the U.S. in the month of July amounting to $87.4 billion. The problem is the average monthly capital inflow for the past 12 months is less than $87.4 billion, and there is no cushion. It’s a bit like the present savings rate in the U.S. It too has dwindled to nothing.

Robert McHugh: "There is also a Fibonacci price relationship between the stock market crashes of 1929, 1987, and now September 2005."

As of September 16, a total of 1,898 U.S. soldiers had died in Iraq since our invasion of March 2003. With Katrina getting all the news, I wanted to make certain our memory was able to walk and chew gum at the same time.


"Beware the leader who bangs the drums of war in order to whip the citizenry into a patriotic fervor, for patriotism is indeed a double-edged sword. It both emboldens the blood, just as it narrows the mind. And when the drums of war have reached a fever pitch and the blood boils with hate and the mind has closed, the leader will have no need in seizing the rights of the citizenry. Rather, the citizenry, infused with fear and blinded with patriotism, will offer up all of their rights unto the leader, and gladly so. How do I know? For this is what I have done! And I am Caesar."

There is increased speculation that Tesco might be interested in Albertson’s. Timing is everything. Reuter's in London just reported that Tesco has sent an in-house team to the U.S. to consider a bid for Albertson's.
As an aside, Albertson's operates 120 stand-alone supermarkets, 331 stand-alone drug stores and 320 combination supermarkets and drugstores throughout California. I would not be surprised if Raley’s of Northern California and/or Stater Bros. of Southern California would have an interest in these Albertson’s California operations.

Thomas Jefferson: "If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."

Siemen’s will cut 1,290 jobs.

There is a widening gap between rural inland China and the booming coastal cities in that country.

Kazakhstan Prime Minister Daniyal Akhmetov, visiting Atyrau oblast, answered a number of questions. Concerning the sale of PetroKazakhstan shares, he stated, we are the country with open market economy. Kazakhstan does not interfere into the process of selling. They are realized at Toronto stock market. One who pays more will own PetroKazakhstan company. We will demonstrate the economic world we hold to sound economy and have no political interests. We want the companies, functioning in Kazakhstan, to be comfortable, Daniyal Akhmetov pointed out.

Over the past year, the U.S. national debt has been increasing at an average of $1.66 billion per day, and now totals $7.966 trillion.

For those unfamiliar with Tesco, the company currently operates in the Czech Republic, Hungary, Japan, Malaysia, Poland, Republic of Ireland, Slovakia, South Korea, Taiwan, Thailand, Turkeyand the UK. At the end of their last financial year they had a total of 2,334 stores, with 49.1 million square feet of sales area. Tesco had 1,780 stores in the UK, with 24.2 million square feet of sales area and 554 stores in their international operations with 24.9 million square feet of sales area. In sum, the company has no operations in the U.S. and is large enough to acquire the whole of Albertson's. The Sunday Times reveals that Tesco has assembled a land bank of more than 185 development sites across the UK which could create 4.5m sq ft of new supermarket space. Tesco’s land bank is bigger than that of Asda, Sainsbury and Morrison combined.

Frank Zappa: "It would be easier to pay off the national debt overnight than to neutralize the long-range effects of our national stupidity." In both cases, it sounds like daunting heavy lifting.

Garrison Keillor: "One day Donald Trump will discover that he is owned by Lutheran Brotherhood and must re-negotiate his debt load with a committee of silent Norwegians who don't understand why anyone would pay more than $120.00 for a suit."