The Status

10/15/05 The Status

President Bush's overall job approval ratings continue to sag in Illinois -- down to 33 percent from 45 percent in October 2004, according to the latest Chicago Tribune/WGN-TV poll. Recent national polls show the presidents' approval rating among voters nationwide at 38 percent. Factors driving this pervasive decline in Illinois are even higher disapproval levels for how Bush is handling the economy (63 percent), how he is handling Iraq (64 percent) and a similar rebuke for his handling of Katrina (60 percent). Notably, Bush is losing support even among the most reliable segments of Illinois Republicans. The president now has a 77 percent approval rating among Republican voters versus 85 percent in May. For the first time in his presidency, half of the voters in Chicago's collar counties disapprove of Bush, and among voters Downstate, 54 percent say they disapprove of Bush's performance. Party officials fear this could complicate their efforts in next year's Congressional and gubernatorial races.

Social Security beneficiaries in 2006 will see a relatively large increase in their monthly checks, according to CCH INCORPORATED (CCH), a leading provider of tax and payroll law information and software. As a result of inflation, an increase of 4.1 percent will be applied to this coming year's benefits, starting with December 2005 benefits, which are paid in January 2006. This is the largest annual increase since 1991. The 4.1-percent cost-of-living adjustment, or COLA, will produce an estimated monthly benefit of $1,002 for all retired workers in 2006, $47 a month more than in 2005. However, $10.30, or 22 percent, of that increase will be eaten up by a rise in the premium paid by beneficiaries enrolled in Medicare Part B in 2006. With a total monthly Medicare Part B premium of $88.50 in 2006, Social Security beneficiaries enrolled in Medicare Part B will see that average $47 benefit increase reduced to $36 after rounding required by law.

Albert Einstein: "Not everything that can be counted counts, and not everything that counts can be counted."

President George W. Bush, in October 2005, received his lowest positive job performance rating recorded by the Sacred Heart University Polling Institute. According to the national poll, the President's favorable job performance rating is 42.0%. This is down from 52.3% in April 2005, 57.7% in April 2004, 53.2% in February 2004, 58.4% in October 2003, 77.9% in April 2003 and 65.1% in March 2003. "Although public approval ratings normally decline throughout a President's term of office, the severe decline in President Bush's ratings suggest an unusual degree of dissatisfaction among the American people with the President's policies as well as a loss of confidence in his leadership ability," said Dr. Gary Rose, professor and chair of the Department of Government and Politics at Sacred Heart University. Among Republican leaning voters, the President's rating was 78.6% positive while those who vote mostly Democrat provided a 14.8% positive rating. Among unaffiliated voters, the positive rating was 42.7%. Among Hispanics, President Bush received a 20.7% favorable rating while whites provided 46.7% and African-Americans provided a positive rating of 19.8%.

Seneca: "While we are postponing, life speeds by."

Wal-Mart customers found items they wanted in stock more often due to the retailer's use of electronic product codes (EPCs) powered by radio frequency identification (RFID) technology when compared to control stores. This is according to an independent University of Arkansas study's initial findings. Researchers at the University of Arkansas found a 16 percent reduction in out-of-stocks. Additionally, the study also showed that out-of-stock items with EPCs were replenished three times faster than comparable items using standard bar code technology. Equally important, Wal-Mart experienced a meaningful reduction in manual orders resulting in a reduction of excess inventory. "This is no longer a take-it-on-faith initiative," said Linda Dillman, executive vice president and CIO for Wal-Mart. "This study provides conclusive evidence that EPCs increase how often we put products in the hands of customers who want to buy them, making it a win for shoppers, suppliers and retailers."

 Real average weekly earnings fell by 1.2 percent from August to September
after seasonal adjustment, according to preliminary data released today by the
Bureau of Labor Statistics of the U.S. Department of Labor.  This decline
stemmed from a 1.4 percent increase in the Consumer Price Index for Urban Wage
Earners and Clerical Workers (CPI-W), which was partially offset by a 0.2
percent increase in average hourly earnings.  Average weekly hours were
unchanged. Average weekly earnings rose by 2.3 percent, seasonally adjusted, from
September 2004 to September 2005.  After deflation by the CPI-W, average weekly
earnings decreased by 2.7 percent.  Before adjustment for seasonal change and
inflation, average weekly earnings were $548.24 in September 2005, compared with
$530.54 a year earlier.

Barry Riholtz: "The only real bright
spot in the inflation data is worker earnings relative to inflation.
They fell, as the the Labor Department reported 'real average weekly
earnings of U.S. workers, adjusted for inflation, fell 1.2% in
September.' That marks the third consecutive monthly  decline of real
wages (average hourly earnings rose 0.2%). So the only place where there is no
inflation is in the pocketbooks of the consumer, whom I must remind you accounts
for 70% of the economy."

According to J.D. Power, in the first nine days of October, new-vehicle sales
plunged 57% at GM and 45% at Ford compared with the first nine days of September.
"The aftermath of the employee pricing programs is having a dramatic impact," stated
Jeff Schuster, executive director of global forecasting at J.D. Power. He remarked
that "at this pont, we're on track for an October like we haven't seen since the
early 1990s." Toyota overtook GM and Ford in U.S. retail market share in
in early October and gained 4 percentage points to 18.2 percent.

Comair to cut up to 1,000 jobs.

Socrates: "My advice to you is to get married. If you find a good wife you'll
be happy; if not, you'll become a philosopher."

September industrial production declined 1.3%, the largest monthly drop in 23
years. Capacity utilization slumped to 78.6 from 79.8 in August. The drop in
capacity utilization and industrial production pushed the BullandBearWise Index
to match the lowest level of the year.

In case anyone cares other than the Fed, core inflation is up 2% in the past year.

In the first part of October, the Univ. of Michigan Consumer Sentiment Index
dropped to 75.4 and the expectations index declined to 62.4, a 13-year low.

John Murphy: “The most dangerous time for the market is the autumn of 2005 to
the autumn of 2006."

According to GM, UAW workers pay 7% of their health care costs, while white-collar
workers pay 27% of these costs. The differential is about to narrow. There is no
alternative available at the bargaining table.

"All countries, major economies in particular, should keep
major currencies reasonably stable and prevent trade
protectionism," Hu said today in Beijing, in an opening speech
for the Group of 20 nations gathering of finance ministers and
central bankers being held near the Chinese capital.

In the first nine months of this year, actual foreign direct investment
in China dropped 2.11 percent from a year ago to US$43.25 billion, the
country's Ministry of Commerce stated.

Kierkegaard:"People demand freedom of speech to make up
for the freedom of thought which they avoid."

According to Marsoft, from mid-August to mid-September, the Baltic Dry Index
registered its largest monthly increase since the end of 2004. During this
period, the index gained 700 points or roughly 30%, as it climbed above 3000
for the first time since early June.

Techenguiz and 2 partners agreed to buy Sommerfield plc,U.K.'s 5th largest grocer,
for $1.9 billion.
The Tchenguiz group is paying 8.6 times cash flow from
operations for Somerfield, according to data compiled by Bloomberg.
William Morrison Supermarkets Plc paid 20.7 times cash flow for
Safeway Ltd. in 2004. When viewing the deal for Sommerfield and its
less than appealing operating history, one can see that Albertson's
is significantly undervalued at present price levels.

Store-bought swordfish contained mercury
levels above the legal limit in a study released Thursday by
environmental groups.

The printing presses are alive and well at the Fed. In the week of October 3,
M3 topped $10 trllion for the first time. Recently, M3 has been surging at
a double-digit annualized rate. Do you think that has contributed to the
spike in inflation?

Bayou Group, Wood River, and now Refco. How many more black holes will
soon rise to the surface? There are a million stories in the naked city.
But only the Shadow knows....

Kazakhstan's Energy Minister Vladimir Shkolnik claims that CNPC did not
consult with the Kazakh government prior to reaching an agreement to buy
PKZ. From my perspective, he has two choices-- to grow up and get over it
or learn to swim with sharks. Is there any doubt that Shkolnick would have told
his cronies and they would have rushed out to buy PKZ prior to the public
annuncement of the deal?

Gary Lammert: "The cash reserves in US equity mutual funds are at a historically low
level, lower than immediately before the peak of the Wilshire in March
2000, and equalling the low in 1972 before the 50 percent steady
decline in equity valuations into 1974. The difference between 1974
and now is the additional massive siphoning effect that a declining
housing market will soon have on the monies available to the equity
market and the impetus to liquidate equities in order to futilely
continue mortgage payments on houses with growing negative worth
during a rapidly developing economic and money contraction."

Rising spending by Chinese consumers will make China the second-largest
market in terms of household consumption in the world by 2014, next
only to the United States, said a study by Credit Suisse First Boston.
China's consumption is likely to grow 18 percent annually by 2014, against an
average growth of 11 percent globally and 2.1 percent in the United
States, CSFB estimates. The estimate is based on its
assumption that the Chinese economy will expand 7 percent annually and
the proportion of consumption in the gross domestic product will rise
5.5 percentage points a year in the runup to 2014.

Prime Minister Paul Martin told some New York executives last week that
Washington's refusal to adhere to NAFTA rulings on lumber tariffs was
threatening North American trade relations, and he reminded them that
China was thirsty for the Canadian oil and natural gas that pours into
the United States each year. You can thank Bush for reneging on lumber
agreements with Canada. You cannot spin reneging.

Gardenburger filed for bankruptcy in California. Having tasted one in
a weak moment, I am not surprised.

For those who eat salmon two or three times a week, you might consider
spicing up the fish by making a rub of the following:
1 tablespoon garlic powder and black pepper.
1 teaspoon ground cumin and sugar.
1/2 teaspoon paprika, cayenne pepper, dried oregano and dried thyme.
1/4 teaspoon salt.

Don't look now, but there have been increased sightings of UFOs. Please visit
earthfiles.com and ufosnw.com.

The Missouri Department of Transportation is finalizing a contract to
monitor thousands of cell phones, using their movements to map
real-time traffic conditions statewide on all 5,500 miles of major
roads. Of course, the information will be kept confidential and anonymous!

Mary Manin Morrissey: "Even though you may want to move forward in life, you may have
one foot on the brakes. In order to be free, we must learn how to let go. Release the
hurt. Release the fear. Refuse to entertain your old pain. The energy it takes to
hang onto the past is holding you back from a new life. What is it you would let
go of today?"

















        


   

        


   

Thinking For Yourself

10/14/05 Thinking For Yourself

The August trade deficit rose 1.8% to $59 billion, the third highest monthly ever.

Import prices rose 2.3% in September, the biggest one month rise in 15 years. The Treasury market reacted negatively and the the yield on 10-year government bonds rose during the day to 4.50%. This yield is still ridicously low, in my view, given our twin tower deficits and the direction of spending in the Congress and by the nation as a whole. Thirty-year mortgages rates topped 6%, and it is only a matter of time until the home owners with ARMs are feeling the pinch of higher interest rates. What goes down can also go up.

U.S. consumer inflation surged at the fastest pace in more than 25 years in September, rising a bigger-than-expected 1.2%, the Labor Department said Friday.

The number of lost jobs resulting from Katrina jumped to 438,000 last week. The amount of flooding in the Northeast is rising to devastating proportions, ad has impacted many families in several states.

According to briefing.com, Bear Stearns downgraded Albertsons from Peer Perform to Underperform. The downgrade is based on Bear's increasing skepticism that a single strategic buyer or private equity participant acquires the co, and the risk that the current deal premium embedded in the stock evaporates accordingly. They continue to assign a low probability that a buyer (or group of buyers) emerges to purchase the entire co. Removing the deal halo, firm believes that the stock would trade down to roughly $18. This is a more negative view than Lehman took a week or so ago, but the basis premise is the same. At 23, the stock already reflects a low probability of one buyer or group of buyers. Before the news that they were seeking alternatives, ABS shares were selling at about $20.50. In my view, the risk at this level is minimal compared to the upside worth imbedded in the company. This situation is very different from that of Saks.

An international team led by a dermatologist at The University of Manchester has found that the treatment with
the emerging drug infliximab, marketed as Remicade, can quickly and
significantly improve psoriasis symptoms.
The European Infliximab for Psoriasis Efficacy and Safety Study (EXPRESS)
was a placebo-controlled trial on 378 patients with moderate to severe
psoriasis, to test the efficacy and safety of the drug.  The findings,
published in the 15 October issue of The Lancet, show that 80% of patients
achieved at least a 75% improvement in symptoms after ten weeks treatment with
the drug, as opposed to just 3% of those receiving a placebo.

Palatin Technologies today announced that it will present at the 2005 BIO
Investor Forum in San Francisco at 10:40 a.m. local time (1:40 p.m. eastern) on
Wednesday, October 19, 2005.  This conference is being organized by the
Biotechnology Industry Organization.
 Carl Spana, Ph.D., President and Chief Executive Officer of Palatin
Technologies, will provide an update on the Company's commercial and
development programs.  To access the live audio broadcast or the subsequent
archived recording, log onto http://www.palatin.com.

Frequently, I write that, as an investor, one must think for oneself and know
what you own. You don't listen to rumor or garner information from message
boards. Investors in PetroKazakhstan entered the world of risk arbitrage
after the deal to sell to CNPC was struck. This is a very different environment
and PKZ already operates in a hostile part of the world. There were some basic
backgroud facts that needed to be at the forefront. China looked like an
amateur with the botched deal between CNOOC and Unocal. They did not want to
lose face twice in a matter of months. Losing face is a no no. Then there
is the new 1,000-km pipeline pumping crude from the Caspian region to China.
In a matter of months it goes on stream. In addition, CNPC is building a
refinery in NW China to process the Kazakh crude and then transport it thru the
pipeline. This means CNPC could afford to sell PKZ's refinery to the Kazakh
government and make peace with the acquisition. Another important piece to
the analysis is one of the advisors to PKZ. He is former Prime Minister
Jean Chretian. He will help guide the company through the rough and tumble world
of Kazakh and Rusian politics. I expected a bumpy ride until deal completion on Oct.
18 but yesterday was out of the ordinary. For the everyday investor it must
have been quite unnerving for the stock dropped from 50 to 46.50 in a matter of
minutes. This is not watching paint dry. If you were prepared with the facts,
the sharp intraday decline was an unexpected opportunity. It requires self-
confidence built on experience and quick thinking of the facts. It is but for
a handful of investors. After the close, the Asian WSJ stated China's CNPC
is poised to sell a 33 percent stake in PKZ to Kazakh state oil firm KazMunaiGaz
for $1.4 billion. "China National Petroleum Corp. (CNPC) is close to agreeing to a side deal that is likely to help it seal the controversial acquisition," it said, citing people familiar with the situation. One should have remembered that
well over a month ago there was discussion between CNPC and the Kazakh government
to sell a piece of the company. One should always keep in mind that, when various
parties sit down at the table, each one needs to get a piece of the pie,
so to speak. CNPC knew that in the beginning before they sealed the deal with
PKZ. (It is a point that Bush has not learned and has no interest in learning.
It is his way or no way. That's not the way the world works. That's why the
U.S. has few if any friends left.) In sum, don't invest scared. Invest smart. Know
your stuff. Knowledge really can be power. It can make you money while others
are running for the hills.

Consequences And Circumstances

10/13/05 Consequences And Circumstances

According to the Hindu news, Kazakhstan is believed to have discouraged India from making a rebid for acquiring PetroKazakhstan.
Kazakhstan's Minister for Energy and Mineral Resources V Shkolnik had last week told Petroleum Minister Mani Shankar Aiyar in no uncertain terms that Kazakhstan was looking at nationalising oil properties being sold by foreign companies and would not want ownership to pass on to another foreigner, sources stated.

Kazakhstan's upper house of parliament, the Senate, passed a bill on Wednesday to allow the state to intervene in the sale of foreign-held stakes in oil firms, a move that may hinder CNPC's bid for PetroKazakhstan. The bill, which also seeks to limit property rights for "strategic resources" like oil and gas assets, was passed unanimously by the lower house last week. It now needs President Nursultan Nazarbayev's signature to become law.

China National Petroleum Corp, which has made an agreed takeover offer for Canada-based PetroKazakhstan, is confident it will see the deal through despite the move by Kazakhstan's upper house of parliament, said Tong Xiaoguang, an advisor to CNPC International -- the wholly owned unit of CNPC which is conducting the deal. "Several of our company's main leaders are gone to Kazakhstan for the PetroKazakhstan takeover deal," said Tong, who is also a former vice president of CNPC International.
Tong reaffirmed to Reuters by telephone that CNPC had reached an understanding with the Kazakh government on the transaction. "Before deciding to acquire the company, CNPC communicated with the Kazakh government, and they allowed us to go ahead. As for what is on the mind of the (Kazakh) parliament, I'm not sure," said Tong. "If the Kazakh government had not given the OK for us to bid for the company, why we would bother to do it to begin with?," he asked.

I know it is sundown and the start of Yom Kippur, and this may be the wrong time to discuss consequences; however, when governments or any other entity attempt to reneg on an agreement, it is not enough to be civil and put on a face that does not reflect reality. As such, in my opinion, CNPC needs to dole out consequences to those attempting to create harm. This is not a game. Thugs need to be taught a lesson they will never ever forget.

Joseph Addison: "When a man is made up wholly of the dove, without the least grain of the serpent in his composition, he becomes ridiculous in many circumstances of life, and very often discredits his best actions."

According to an NBC/WSJ poll, for the first time in the poll, Bush’s approval rating has sunk below 40 percent, while the percentage believing the country is heading in the right direction has dipped below 30 percent. In addition, a sizable plurality prefers a Democratic-controlled Congress, and just 29 percent think Supreme Court nominee Harriet Miers is qualified to serve on the nation’s highest court.

Golda Meier: "There will be no peace in the Middle East until the Arabs love their children more than they hate the Jews."

Google Inc. and Comcast Corp are in serious discussions with Time Warner Inc. about buying a minority stake in America Online, the Wall Street Journal reported on its Web site Wednesday, citing people familiar with the situation. The negotiations focus on AOL's Web portal, rather than its dial-up Internet access business, the paper reported.

The Energy Dept stated that heating bills would be 48% higher this winter.

10-year Treasury bonds closed at a six-month high yield of 4.45%. The higher the yield the more mortgage rates will rise. Those with adjustable rate mortgages may begin to feel a pinch.

Research shows that credit card debt in America has almost tripled since1989 and increased 31 percent since 2000. Americans now owe some $800 billion in credit card debt. In addition, owing largely to job instability and medical costs, bankruptcies rose from 616,000 in 1989 to over 1.8 million in 2004. However, too little is known about the causes of America's household debt crisis. Existing data sources tracking debt, such as the Federal ReserveBoard's triennial Survey of Consumer Finances, provide limited information and do not answer basic questions about how long households have been in debt and about the type of charges that lead to outstanding balances. Prior to the survey findings presented in The Plastic Safety Net, there have been few studies that analyze how households are using credit cards and how they are managing their debt. "American families are facing financial hardship not experienced for generations, and we commissioned this survey to tell us precisely why they are turning to credit cards so often," says Tamara Draut, Director of the Economic Opportunity Program at Demos and co-author of the report. "The results are clear: wages have stagnated while medical and housing costs have skyrocketed, and if confronted with a layoff or health emergency there are few, if any, personal or public safety nets adequate enough to help in a crisis. Households are turning to high-cost credit cards to keep afloat." Key survey findings from The Plastic Safety Net: - $8,650 is the average credit card debt of a low- and middle-income indebted household in America. - 59 percent of respondents were in credit debt for longer than one year, with an average length of just over three and a half years. - Seven out of 10 low- and middle-income households reported using their credit cards as a safety net -- relying on credit to pay for car repairs, basic living expenses, medical expenses or house repairs. - One out of three households reported using credit cards to cover basic living expenses on average four out of the last 12 months; households that reported a recent job loss or unemployment, and those without health insurance in the last three years, were almost twice as likely to use credit cards for basic living expenses. - 20 percent of survey homeowners had paid off some credit card debt with a mortgage refinance in the last three years, reducing their home equity $12,000 on average. Further, these households still had average credit card debt over $14,000. As a result, they were carrying 18% more debt than homeowners who had refinanced a mortgage but not paid down credit card debt -- even though their incomes were almost identical. In other words, they were trading unsecured credit card debt for higher mortgage debt secured by their home. The Plastic Safety Net also reports that, as Americans are increasingly relying on credit cards to pay for essentials that wages no longer cover, reliance on credit cards is having a multiplying effect that is creating millions of "debt-stressed" families: - 47 percent of households had been called by a bill collector. - Almost half missed or were late with a payment in the last year, with nearly a quarter of households reporting paying a late fee at least one or two times in the past year. - In addition to charging late fees ranging from $30 and $39, most issuers also penalize cardholders for late payments by increasing the interest rate on the account two- or three-fold, often after only one late payment. A household with the average amount of credit card debt in the survey ($8,650) would pay an additional $1,100 in costs each year if their card's interest rate were increased from the typical 12 percent to the average 25 percent "default rate" for one late payment. "American families are losing the fight against an economy and lending practices that are working against them," said Mark Pearce, President of the Center for Responsible Lending. "It's time for Washington to address this crisis head-on and create policy that protects, and promotes economic vitalityfor all American households."

U.S. 5-year Treasury notes hit a yield of 4.27%, the highest in 3 years.

Countrywide Financial closed at a new 52-week low.

Plato: "Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws."

Updating

10/12/05 Updating

Investor's Business Daily and TechnoMetrica Market Intelligence stated their economic optimism index rose to 42.0 from a record low of 41.2 in September in the aftermath of Hurricane Katrina. Even a baby step is better than the alternative. Unfortunately, anything below 50 still reflects a lack of optimism.

Michael Asbaugh: "Yet with last week's losses, both the S&P and the Dow are positioned under their major moving averages, and the Nasdaq is getting a good solid test of its 200-day moving average. As suggested repeatedly last week, a more cautious approach to the U.S. markets is probably well advised until better signs of a bottom are in place."

When it comes to Habitat for Humanity, Jimmy Carter builds houses. Bush creates photo-ops.

With tens of millions of people affected by natural disasters over the past 10 months, the American public "may be
reaching an unprecedented level of 'compassion fatigue,'" according to the
president of World Vision.
"These last few months may be unprecedented in regard to human suffering
from earthquakes, hurricanes, droughts and other emergencies," says Richard
Stearns, president and CEO of the U.S. offices of the international
Christian humanitarian organization. "Some people probably are becoming
numb to these tragedies. What we call 'compassion fatigue' may be setting
in."

According to Supermarket News, at least three investor consortiums interested in acquiring Albertsons are scheduled to make presentations this week to corporate management, industry observers said last week. The three consortiums, which trade sources said have completed due diligence and are likely to present offers this week, are: 1) Thomas H. Lee Partners, Boston; Bain Capital, Boston; and Warburg Pincus, New York, which are said to be receiving financial input from Morgan Stanley, Banc of America Securities and J.P. Morgan; 2) Kohlberg Kravis Roberts & Co., New York; Apollo Management, New York; and Texas Pacific Group, San Antonio, which are reportedly working with Deutsche Bank, Citigroup and Credit Suisse First Boston; and 3) Cerberus Group, New York, and Kimco Realty Corp., New Hyde Park, N.Y., which sources said are receiving financial advice from UBS and Wachovia Corp. Sources told SN that Yucaipa Cos., Los Angeles, may be involved with one of the groups, but would like to have operational control in any buyout and may prefer to make its own bid to avoid potential conflicts with partners in the future.

Microsoft Corp. and RealNetworks Inc. stated yesterday they have reached three agreements valued at $761 million in favor of RealNetworks to settle an antitrust lawsuit and create a new partnership to develop and promote digital music and games. It seems that every quarter Microsoft is settling lawsuits out of court for hundreds of millions of dollars, and, in the case, of Sun Microsystems, for a few billion dollars. There is something wrong with this picture.

The Federal Trade Commission has cleared Kirk Kerkorian to increase his stake in GM from the present 9.53% to more than 9.9% and to seek a seat on the company's board of directors.

Ten-year treasury bonds traded up to a 4.40% yield on Tuesday, and gold traded at the $480 an ounce level. Crude rallied back to the $63 a barrel mark.

According to the notes released yesterday of last month's FOMC meeting, the majority of Fed officials said they did not believe the longer-term growth path of the economy was affected by the hurricane, but did think upside risks to inflation had increased. It's taken two years for the Fed members to seriously worry about the risk of inflation. In my view, they have come very late to the party. As such, since I have little faith in the ability of government employees, I will turn my vigil to deflation rather than inflation.

In New Delhi, Mittal stated they are awaiting clarity in Kazakhstan law before deciding on making a revised bid for PetroKazakhstan."Kazakhstan has amended its oil policy and has preemption rights in any deal where foreign companies acquire Kazakh firms. We will wait for clarity before deciding on the rebid," Mittal Group Chairman and CEO Lakshmi N Mittal told reporters here.

Tolstoi: "The more is given the less the people will work for themselves, and the less they work the more their poverty will increase."

As anticipated, China's planning agency reported Tuesday that the country's gross domestic product grew by 9.4 percent in the first nine months of the year, and is forecast to grow by 9.2 percent for the full year.

Bertrand Russell: "It is preoccupation with possession, more than anything else, that prevents men from living freely and nobly."

The damaging effects of HurricaneKatrina and Hurricane Rita, rising heating oil prices, and escalating housingcosts present challenges for the 2005 holiday retail season, according toDeloitte Research's Leading Index of Consumer Spending and "Outlook for theHolidays" report. High inventories and moderated consumer demand will driveretailers to pursue more substantial promotional strategies. "Consumers have done a heroic job in holding up their end of the economy over the past eight months, with real consumer spending rising by four percent, despite real wages declines, falling savings rates, slow employment growth, and a rising tax burden," says Carl Steidtmann, chief economist of Deloitte Research and author of the monthly index. "Continued weakness in the index poses a challenging sales environment for retailers as they move intothe all important holiday season."

Third Wave Technologies Inc. announced that it has filed two patent suits in federal court in Madison, Wis. The company last Friday filed suit against Digene Corp., seeking a court ruling supporting Third Wave's right to sell its human papilloma virus (HPV) products. Third Wave also filed suit against Chiron Corp., Bayer Corp., and Bayer HealthCare LLC asking for a similar ruling about its right to sell its hepatitis C virus products. Chiron is the owner of several patents relating to HCV; Bayer is its licensee for clinical diagnostics.

Donald Kohn: "The need to compete for business in a globalized economy has quite likely raised the efficiency and flexibility of economic systems as well as reinforcing the requirement for noninflationary monetary policies... the extent and duration of (globalization's) damping influence on inflation are open questions... Inflation will still rise if central banks allow economies to run 'too hot' -- beyond sustainable potential -- and such a pickup could become self-perpetuating if it became embedded in inflation expectations."

Natural gas prices are expected to rise at least $59 a month to an average of nearly $200 starting in November, according to the Michigan Public Service Commission’s latest Winter Energy Appraisal report released in Lansing today.

Norman Cousins: "People are never more insecure than when they become obsessed with their fears at the expense of their dreams."

A Closer Look

10/11/05 A Closer Look

I find that a good way to get a closer look at the housing market is to peek at the results for Countrywide Financial. The company provided this information for the month of September as well as forthe entire third quarter:
Operational highlights for the month of September and the third quarter of 2005 included the following: * Mortgage loan fundings for the month of September reached $49 billion, a 58 percent increase from September 2004. For the third quarter, mortgage loan fundings were a record $146 billion, rising 59 percent over last year's third quarter. Year-to-date mortgage loan fundings were $358 billion. Monthly purchase volume was $23 billion, 35 percent greater than September 2004. For the third quarter, purchase volume was a record $69 billion, up 32 percent over the same period a year ago. Year-to-date purchase activity totaled $171 billion. Adjustable-rate loan fundings for the month were $24 billion, up 14 percent from September 2004. For the quarter, adjustable-rate loan fundings were $75 billion, an increase of 32 percent over last year. Year-to-date adjustable-rate fundings totaled $190 billion. Home equity loan fundings for September advanced 21 percent over last year to $3.8 billion, bringing home equity production for the quarter to $12 billion which was up 28 percent over last year's third quarter. Year-to-date home equity loan fundings reached $31 billion. Nonprime loan fundings totaled $4.0 billion in September, which compares to $3.9 billion for the same period last year. For the third quarter, nonprime fundings reached $12 billion, a gain of 2 percent over last year's third quarter. Year-to-date nonprime fundings totaled $32 billion. On a consolidated basis, Countrywide funded $9.9 billion in pay-option ARM loans and $8.8 billion in interest-only loans for the month of September 2005. This compares to $2.8 billion and $6.3 billion, respectively, for the same periods a year ago. Average daily mortgage loan application activity in September was $3.0 billion, 45 percent higher than the September 2004 level. The mortgage loan pipeline advanced by 51 percent from September 30, 2004 to $77 billion at September 30, 2005. The mortgage loan servicing portfolio continued its uninterrupted growth, reaching a new high of $1.05 trillion at September 30, 2005. This is an increase of $262 billion, or 33 percent, from September 2004. Delinquencies in the servicing portfolio rose 35 basis points from August 2005 to 4.03 percent at the end of September. This increase is primarily attributed to the forbearance granted to customers in the areas affected by Hurricane Katrina and normal seasonal fluctuations.

Further confirming the robust housing market, D.R. Horton stated that 4th quarter comp net sales orders rose 33%. The housing market will not rollover without a fight. Low interest rates are still spurring demand in many sections of the country.

The IEA estimates that global oil demand should approximate 1.75 million barrels a day in 2006. That should keep oil prices at historically high levels.

The Nikkei rose 2.5%, the biggest one day percentage increase in a year.

Inco offered to buy Falconbridge in a cash and stock deal representing a 9% premium over yesterday's closing price. Boards of both companies approved the deal.

Natural gas closed at a 2-week low of $12.975 per million BTU. Crude ended at $61.80 per barrel.

Xilinx and International Rectifier issued warnings for the quarter.

Sugar prices have recently hit 7-year highs. More and more suger is being blended into the manufacture of gasoline. Flexible fuel cars are the rage in Brazil. The cars offer fuel savings as well as appealing to those who wish to drive a vehicle on cleaner fuel. According to the National Ethanol Vehicle Association, there are about 4 million flex cars in the U.S. but there are 14 states without even one ethanol pump.

Due to inflation, next year's Social Security benefits will rise about 3.8% or approximately an additional $36 per month.

Douglas Malloch: "The river belongs to the Nation,
the Levee they say, to the State;
the Government runs navigation,
the Commonwealth, though, pays the freight.
Now, here is the problem that's heavy--
Please, which is the right or the wrong--
When the water runs over the Levee,
To whom does the river belong?"

Nature As A Risk

10/10/05 Nature As A Risk

If Columbus were sailing the seas today, he would need to be careful where he put into port. Nature and its impact on the planet is quite different today. In my view, there is a lack of appreciation of this specific risk in the management of equity and debt portfolios. Unless you had a real reason to own property and casualty insurance stocks and/or reinsurance companies, I would steer clear of them. If you were looking at a chart of the number of natural disasters over the last three years, the trend would be clearly visible. It's not the recent days of the horrible earthquake in Pakistan/India, the mudslides in Guatemala, or the floods from North Carolina to New Hampshire. The world's growing population is altering nature's landscape, and that change is decidedly negative. I don't know where the next natural disaster will occur, but I would not dismiss this risk as I would not dismiss the growing risk created by derivatives.

It is not unsual for me to disagree with analysts, and today's take by Lehman on Albertson's is no exception. According to marketwatch.com, Lehman Brothers cut supermarket chain Albertson's, Inc. to underweight from neutral weight, saying it believes the company will break up as no buyer will want to purchase and operate all of its assets in the long term. The broker told clients it values most of the stores as ongoing businesses rather than as pure real estate since its analysis shows the ongoing business value as higher. In my view, the parts are clearly worth more than the whole and that's what would be enticing to a financial buyer. The 750 free-standing drug stores alone have significant worth. Just look at the purchase price realized by JC Penney in its sale of Eckerd's, and the latter was not operating smoothly. In the end, the parts will drive the price and not the operating company by itself.

Lincoln Financial will purchase Jefferson Pilot for $7.5 billion in cash and stock.

U.S. trade rep Portman offered to end farm export subsidies in 5 years and substantially reduce U.S. domestic subsidies. I'm sure Portman is sincere. In my view, most of these reductions will not to come to pass. I've had significant experience with farm politics and I would not underestimate the power of the farm bloc, and particularly, the sugar growers.

According to the Detroit Free Press, GM could be forced to pay the Delphi pensions and that would cost $12 billion. In addition, it is likely that at least 11 plants will be closed, creating large layoffs.

There are 16,000 homes listed for sale in Las Vegas, and that is up from 10,000 last year.

It was over a year ago that I suggested going long the Nikkei and shorting the Dow as a hedge. In answer to some emails, I would not alter that position. I consider it a core part of a portfolio.

John Hussman: "Wednesday was particularly decisive – to an extent that I closed the bulk of our remaining exposure to market fluctuations in the Strategic Growth Fund about mid-afternoon. There has to be a lot wrong with market action to provoke me to increase hedges when the market is down rather than up. There was a lot wrong on Wednesday – it was singularly the worst technical showing I can recall in years...We don't have sufficient reason to accept broad market risk. Both valuations and market action are unfavorable here."

This morning gold hit a new 18-year high of $480 an ounce.

Today, crude has stabilized aroud $62 a barrel.

Joann Wolfgang von Goethe: "Nature knows no pause in progress and development, and attaches her curse on all inaction."

Round Numbers

10/9/05 Round Numbers

The M3 money supply is about to reach the $10 trillion mark. When you have year-to-date M3 expanding at a 7% rate, how can you expect inflation to subside and the dollar to retain value in the long-term? The U.S. federal debt will soon touch the $8 trillion level, and that excludes liabilities for Medicare and Medicaid in the coming years. It is a matter of pure math that the interest on the growing debt will prevent deficits from decreasing. Should there be a recession over the horizon, then the tax receipts will plunge. Will the Congress pass legislation to cut spending to offset the decline in tax receipts? I'd prefer the odds on winning the lottery.

The Economic Cycle Research Institute said its Future Inflation Gauge rose to 122.7 last month, its highest since June 2000, the tail end of the late 1990s economic boom. August's reading was revised down to 120.7. However, all that was last month. In the just-in-time market world, last week crude dropped $4.40 a barrel, unleaded gas declined 13%, and natural gas had a downdraft of 5%. These are not insignificant drops. Will they be a mere blip in the long-term rise of energy products? Part of the answer depends on the winter weather for natural gas and heating oil usage. As for gasoline and crude, the peak driving period is behind us. However, Spring is only six months from now.

Inflation in the 12 eurozone nations rose to 2.5% in September. As such, the ECB may have a need to raise its 2% benchmark rate in the coming months. This possibility might provide a further lift to the euro.

Delphi, the largest U.S. auto parts manufacturer, filed for bankruptcy protection. This action was anticipated; however, it will have an impact on employee wages and benefits as well as layoffs.

On this Sunday morning, I would like to re-visit a statement that Freddie Mac recently made. The company mentioned that 74% of Freddie Mac-owned loans that were refinanced in the second quarter resulted in new mortgages with loan amounts that were at least 5% higher than the original mortgage balances, the highest such share since early 2000. This statement reflects significantly on the rise of real estate prices as well as the increasing spending appetite on the part of consumers. The last chapter has not been written.

Thomas Jefferson: "I sincerely believe that banking establishments are more dangerous than standing armies, and that the principles of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."