Saturday, December 24, 2005

Negative Signals

12/24/05 Negative Signals

Sales of new homes in the United States fell 11.3% in November, the biggest decline since January 1994, to a seasonally adjusted 1.245 million units from October's 1.404 million pace, originally reported as 1.42 million. Sales jumped 11.4% in October. Sales in November were up 6% from a year earlier.. Inventories of homes on the market rose 3.3% to a record 503,000, representing a 4.9-month supply at the November sales pace. This is the largest monthly supply since December 1996.The median price of a new home fell for a third straight month to $225,200. The price is still up from $224,500 a year earlier.

Led by demand for transportation equipment, orders for new U.S.-made durable goods jumped 4.4% in November. However, excluding transportation orders, durable good orders fell 0.6% in November, the third straight monthly drop. Orders for core capital goods equipment fell 2.0% in November. Shipments of durable goods fell 0.2% in November after a 1.2% gain in October.

Robert McHugh: “For the past two weeks, the Fed added $93.5 billion to the money supply, a 24% annual clip. Over the past 6 weeks it is up $192.9 billion, a 16.7% Banana
Republic hyperinflationary pace.”

In some areas, including New York City, Los Angeles, San Diego, San Francisco and Miami, housing affordability has dropped to levels not seen since the early to mid-1980s, according to mortgage giant Fannie Mae. In addition, Fannie Mae predicted Tuesday that U.S. home sales are set to decline by as much as 10% in 2006 as higher interest
rates and housing market jitters reverse a five-year run that helped fuel consumer spending and economic growth.

According to a recent survey from Deloitte & Touche, U.S. consumers plan to spend an average of $628 on improving their house this holiday season, up 84% from the $341 they said they'd spend in 2003 at this time.

For the holidays, I have given myself a dunce cap. It is a reminder of my ineptness when analyzing my thinking on Albertsons. Maybe I should say lack of thinking.

Japan's Cabinet approved plans to cut spending to the lowest in eight years to stop the expansion of their public debt.

U.S. consumers spent a record $17.48 billion buying products online from Nov. 1 through Dec. 21, according to comScore Networks. That's up 24% from the year-ago period.

As a Reagan administration lawyer, Supreme Court nominee Samuel Alito argued that federal officials can't be sued for damages for wiretapping Americans without warrants in national security cases, a document released Friday showed.

According to the NY Times, the volume of information harvested, without court warrants, is much larger than the White House has acknowledged. I hope that does not come as a surprise.

Thomas G. Donlan, Editorial Editor of Barrons: “Willful disregard of a law is potentially an impeachable offense. It is at least as impeachable as having a sexual escapade under the Oval Office desk and lying about it later. The members of the House Judiciary Committee who staged the impeachment of President Clinton ought to be as outraged at this situation. They ought to investigate it, consider it carefully and report either a bill that would change the wiretap laws to suit the president or a bill of impeachment.”

The NY Times reported that Guidant officials projected that some patients might die as a result of short circuits in a company heart device, but it did not publicize the flaw, records show.

Gary Lammert: “What is clear at this point is that America cannot produce and manufacture itself out of the debt hole and entitlement money obligation system that it now finds itself in. The Comptroller for the United States knows this. The only option is to lower interest rates and loan terms to an extent that the consumer, now unable to use bankruptcy protection, can both gradually pay off his substantial debt relative to earnings and perhaps borrow more based on asset inflation. The Japanese banking system used this ploy in 1990 and and experienced 13 years of equity deflation temporarily ending in 2003.
Like any pyramid scheme, the scam fails when there are not sufficient bottom feeders supporting the base. If the remaining entry level American service sector workers cannot support the pyramid base, or if there is a contraction in consumer spending secondary to the disconnect between ongoing wages and the cost of living including inflated real estate taxes and fuel costs, the pyramid scheme will falter and implode just as occurred many times before every 60-80 years over the last 450 years for every leading hegemony.”

The biggest U.S. companies have underfunded their health-care benefits and other obligations to retirees by about $292 billion, according to Standard & Poor’s.

It is important to remember that a busted clock is right twice a day. In other words, even schmucks are capable of having a minute or two on the right side of the ledger. It is not enough to follow the trend. Nor is it wise enough to state going against the trend will generate disappointing results. In the end, decisions need to be grounded in rationality. There are no short cuts to 2+2= 4. If it doesn’t add up correctly, don’t follow that path. What is right for you might not be right for me, and vice versa. I am not here to convince you my thinking is correct. I simply offer it for your consideration. Should you dismiss it out-of-hand, I could care less. Next week we are entering days that seasonally favor a rally in equities. If that does occur, I suggest you take advantage of this strength to cut back positions in your weak sisters, as they say. Times are tough, and will get tougher. If you are uncomfortable with a holding, then do something about it. Don’t think the market will make up for your errors. They don’t for me. When it comes to equities, some believe time is on your side. At this stage of credit expansion and the velocity of Fed money printing, I do not believe time is on your side or mine. When government officials authorize exploding debt that cannot be repaid and when the value of the dollar’s purchasing power is, over time, eradicated by inflation, then you know it is not business as usual. It’s not just the clock that is busted. The economic system has been compromised.

I wish all my good friends a happy and healthy holiday season.

Thursday, December 22, 2005

SOP Time

12/23/05 SOP Time

For the month of November consumer spending and personal incomes both rose by 0.3% and the savings rate remained at a minus 0.2%.

Brad Setser: "If US households don't save, the US government cannot run a fiscal deficit without adding to the overall national savings shortage, and a worrying large current account deficit."

Last week, sales at U.S. retailers rose at the fastest pace since Thanksgiving as shoppers stepped up purchases in the second-to-last full week of the holiday season, according to the International Council of Shopping Centers and UBS Securities LLC. Part of the reason may be attributed to price cutting and added extra incentives, such as, gift wrapping.

The Conference Board reports today that the Composite Index of Leading Economic Indicators increased 0.5% in November, following a 1.0% increase in October, and a 0.7% decline in September.
Ken Goldstein, Labor Economist at the Conference Board: "The Leading
Economic Indicators have been anything but consistent -- flat to declining
from July through September, and recovering in October and November. The
recent two-month snap back in the leading indicators raises the probability of
the coincident economic index remaining on a moderate rising trend through
early spring. High and potentially rising energy prices are one consideration
in this outlook. A second consideration is the effect of spillover -- that is,
prices for derivative materials (rubber, paint, plastic and chemicals) are
starting to increase faster now. Rising costs and questions about whether they
will be matched by price hikes are also a factor in how fast the economy grows
this spring."

The Dannon Company, the U.S.fresh dairy unit of Groupe Danone, announced today plans for the U.S. introduction of Activia(R). Activia is the first and only probiotic yogurt
that is clinically proven to help naturally regulate your digestive system in
two weeks, when eaten daily as part of a healthy and balanced diet. Activia
will be available nationwide beginning in January 2006.

Placer Dome Inc. has agreed to a sweetened buyout offer by Barrick Gold Corp. for $10.4 billion. Under the deal, Placer Dome shareholders can choose to receive either $22.50 in cash or 0.8269 of one Barrick share plus 5 cents a share in cash. The revised offer includes a $259.7 million breakup fee, but Placer Dome has the right to consider other proposals until Jan. 19.

Natural gas in storage declined by 162 billion cubic feet in the week ended Dec. 16, but remained 2.3% above its five-year average, the Department of Energy said Thursday.

The difference between the 2-year and 10-year Treasury bond yields is just 0.04 percentage points. This portion of the yield curve hasn't inverted since 2000.

On September 2 Albertsons announced the exploration of strategic alternatives. The news was greeted enthusiastically. The stock rose over 2 points, traded 56.5 million shares, and ended the day at $23.05. Over the past 3 ¾ months the average daily volume has approximated 5 million shares. On Wednesday, December 21, the stock closed at $24.10. Shareholders as well as CVS expected a deal to be announced by yesterday morning. When the WSJ, the NYT, and the FT suggested a deal could be in question, nervous stockholders dumped the shares. The stock closed at $23.28 on 29.9 million shares. In sum, between 9/2 and 12/22, hundreds of millions of shares have changed hands while lots of buying groups kicking the tires. It’s time to move on from the foreplay to the real deal. It's SOP time. Towards 8PM, that time arrived. Albertsons CEO Johnson stated the board of directors decided to halt efforts to sell because "put simply, we did not receive a bid that we could accept." He said the company will continue to discuss selling off its "underperforming assets" with several parties. Despite what Johnson stated, it will not be "business as usual." The status of the company will remain uncertain, and that is not a positive for shareholders, employees, and/or the communities served by the company. Albertsons needs to compete on all cylinders in the supermarket arena. Uncertainty will make that more than a daunting task. I appreciate walking away when the bids are inadequate. However, when walking away, there needs to be an alternative safety net in place. Unless I am missing something, that is not in place. There is one final point. During the deliberations on the $26 deal, I would like to know whether the Board of Directors had been supplied with a fairness opinion relating to that $26 value. There could be many lawsuits resulting from this bidding process. Hopefully, from a financial point of view, the Board had their decision to walk away firmly backed up.

Bayle Roche: "Disappointment is the nurse of wisdom."

Senator Russ Feingold: "We could have avoided these last-minute negotiations if the House had just adopted the Senate version of the Patriot Act that passed unanimously earlier this year. As we move forward, I hope that the Republican leadership in the Senate and the administration will continue down the path they started on tonight so that we don't find ourselves in this same situation six months from now. One thing is clear - what happened in the Senate over the past few weeks shows that (long-term reauthorization of the Patriot Act in the version favored by Bush) is dead."

Adnan Shihab-Eldin, the acting secretary general of OPEC, and Sheik Ahmad Fahad al-Ahmad al-Sabah, the Kuwaiti oil minister and president of OPEC, met yesterday with Chinese officials in Beijing. Industry analysts expected the discussions to concentrate on increasing Chinese imports from OPEC countries, which supplies about 40 percent of the world's oil. China now gets more than 60 percent of its oil imports from the Middle East and North Africa, mostly from OPEC producers, and has become increasingly anxious to diversify its supplies. It is anticipated that China will import about 4.5 million barrels of oil daily. The U.S. imports over 10 million barrels per day. There is speculation that China is willing to pay a premium to OPEC for a guaranteed daily supply of oil over a period of time.

Home sales in the San Jose region slowed in November, while prices continued to rise, according to the California Association of Realtors Thursday.
Year-to-year sales drops ranged from 15.1 percent in the Santa Clara region and 23.2 percent in the Monterey region to 31.4 percent in Santa Cruz County. The October-to-November declines were 8.4 percent for Santa Clara, 9 percent in Monterey and 9.8 percent in Santa Cruz. That compares to an 11.2 percent drop in single family home sales statewide compared to last year, and a 6.8 percent drop from October.
Statewide, the median price of an existing home in November increased 16.2 percent over last year to $548,400, but sales decreased 11.2 percent compared with the same period a year ago. November's median price was 1.8 percent higher than October's.
"While year-to-date sales in November were 1.7 percent above last year's pace, we are starting to see the 'soft landing' we have been expecting," said CAR vice president and chief economist Leslie Appleton-Young.
The association also reported that its index for unsold inventory of existing, single-family detached homes in November 2005 was 3.9 months, compared with 2.8 months for the same period a year ago. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

In November 2005, employers took 1,183 mass layoff actions, seasonally
adjusted, as measured by new filings for unemployment insurance benefits
during the month, the Bureau of Labor Statistics of the U.S. Department
of Labor reported today. Each action involved at least 50 persons from
a single establishment, and the number of workers involved totaled 118,098,
on a seasonally adjusted basis. The number of layoff events in November rose by 95 from October and the number of associated initial claims increased by 11,860.
From January through November 2005, the total number of events (seasonally
adjusted), at 14,306, was lower than in January-November 2004 (14,689), while
the number of initial claims (seasonally adjusted), at 1,563,837, was higher
(1,468,844).

For those owning shares of Guidant, it might serve you well to read today's NY Times article on Medicare and how its plan could impact the growth trajectory for electronic defibrillators.

Benjamin Disraeli: "What we anticipate seldom occurs; what we least expect generally happens."

Consider The Possibilities

12/22/05 Consider The Possibilities

The International Energy Agency has stated that current oil production exceeds worldwide oil demand by a mere
1%. In 2006, the IEA predicts world wide oil consumption will increase by 2.1%. Do you think production will match or exceed that 2.1% rise? Inventories of distillates, including heating oil and diesel, plunged 2.8 million barrels last week, the U.S. Department of Energy reported yesterday. That decrease exceeded analyst estimates by a wide margin. In addition, Royal Dutch Shell Plc said today it will miss some oil deliveries after an explosion and fire at a Nigerian pipeline cut output by 180,000 barrels a day.

Housing affordability sank in October to its lowest level since 1991.

I have been attempting to piece together various reports on the acquisition talks for Albertsons and what took place at yesterday's board meeting. It appears that the Cerberus group, which includes SuperValu and CVS, had planned to split the company into three parts-- the supermarket business in two and then merging the drugstore business with CVS. Their proposal was to buy Albertsons for slightly more than $26 per share, with $6 a share in SuperValu stock and the remainder in cash. For some reason, at a late stage in the negotiations, the Albertsons board of directions decided not to accept this offer. Talks will contiue but not on the offer that was not accepted. I do not believe Albertsons will simply sell the drugstore business to CVS and proceed to close
unprofitable stores. Over the past three months, the board has had the time to consider many alternatives. Discussions will continue, and, in my view, a deal will be struck--- just like it was with the Saks division and Bon Ton Stores.I believe the investment bankers for Albertsons will generate a positive outcome for the shareholders. However, any deal will not come at the value of $31 a share that I had expected. It is obvious that my analysis stunk the house out.
Interestingly, CVS must have thought the acquistion of Albertsons was a done deal. .CVS today announced that it is confirming that it has been in discussions with Albertson's, Inc. regarding a purchase of Albertsons' standalone Sav-on and Osco drugstores. CVS also announced that, on Wednesday evening, it inadvertently issued an invitation by email to investment analysts and other interested parties inviting them to participate in an analyst call on Thursday morning, December 22, regarding this transaction. CVS subsequently recalled the email and advised the recipients that the email was sent in error because no agreement on any transaction between CVS and Albertsons has been reached. When was the last time you saw this happen on a multi-billion dollar
transaction? One last point is that Albertsons has not issued any press release concerning the acquisition talks since they stated back in September that the board was seeking alternatives to maximize value for shareholders. All the reports in the media are unconfirmed other than CVS's release last night.

Madison Marquette, a Washington, D.C.-based retail developer, confirmed Wednesday it had acquired the former KMart 40-acre headquarters site at Big Beaver Road and Coolidge Highway from Sears Holdings Corp.

The Senate on Wednesday passed a six-month extension of the terror-fighting USA Patriot Act as a last resort after Democrats and a small group of GOP senators blocked President Bush and Republican congressional leaders' attempt to make most of the anti-terrorism law permanent. In addition, Sen. Ted Stevens' drive to open the Arctic National Wildlife Refuge to oil drilling failed in the Senate on Wednesday when he fell several votes short of the 60 votes he needed to avoid a filibuster. The vote was 56-44. One might consider polling all members of Congress and inquire whether Bush's all-mighty power is waning.

As Doug Kass points out, according to Ned Davis Research, there have been 16 separate tightenings over the last 100 years (defined as at least two consecutive rate increases). The Dow, on average, has declined by 4.90% in the four-month period following the last tightening date and by 3.90% in the eight-month period following the last tightening date.

"We will nationalize (Bolivia's) natural resources," Morales said at a news conference Tuesday in La Paz.
"Many of these contracts signed by various governments are illegal and unconstitutional. It is not possible that our natural resources continue to be looted, exploited illegally, and as the lawyers say, these contracts are legally void and must be adjusted," Morales said. Bolivia's proven and potential reserves total 48.7 trillion cubic feet of natural gas, second only to Venezuela in South America, according to the U.S. Department of Energy's Energy Information Administration.

Rob Peebles reminds us that, according to the Investor's Business Daily, the alternative minimum tax (AMT)
will generate more revenue than the real income tax by 2008, and that, according to CNN/Money and BEA, property tax revenues have risen 34% in five years. It is well to remember the words of Chief Justice Marshall --
"the power to tax is the power to destroy." The words were spoken in 1819 and they are alive and well today.

I would like to say a few more words about Albertsons. I know what it takes to run a board meeting of a public company. I did it for many years. Albertsons has 12 members on its board. The insiders are the current CEO and the retired president of American Stores, a company now owned by Albertsons. In sum, there are 10 outside board members. These individuals are sophisticated and have been around the block. I believe they will negotiate the best possible deal for the shareholders and not be influenced by the day-to-day movements of the stock price. This morning the stock will be down, and most shareholders will have losses. I too will have a loss marked to the market. As always, I remain calm and rational and consider the various alternatives available to the company and the most likely scenario. That scenario remains to sell the whole company. If SuperValu believes a purchase will be accretive to their company, then maybe they can pay a touch more and still make it a good deal for their shareholders. I think they can. It's well to remember that equity holdings are not the same as holding your loved ones. There is no room for no emotions when deciding on whether to buy, sell, or hold.

Tuesday, December 20, 2005

Beyond The Headlines

12/21/05 Beyond The Headlines

From November 2004 to November 2005, prices for finished goods increased 4.4 percent.Over the same period, the finished energy goods index jumped 17.8 percent,prices for finished goods other than foods and energy advanced 1.7 percent,and the finished consumer foods index inched up 0.8 percent. For the 12months ended November 2005, prices received by manufacturers ofintermediate goods rose 8.4 percent, and the index for crude goods went up 21.0 percent.

Mike Burk: "Many of the momentum type indicators are at or near their lows for the year suggesting there is little downside potential remaining and a snap upward could occur any time soon. Seasonally the week following options and futures expiration turns positive on Wednesday."

Paul Kasriel: "Each of the past six recessions was preceded by an inversion in the spread between the Treasury 10-year yield and the fed funds rate. But there were two other instances of inversion - 1966:Q2 through 1967:1 and 1998:Q3 through 1998:Q4 - immediately after which no recession occurred. It would appear, then, that an inverted yield curve is more of a necessary condition for a recession to occur, but not a sufficient condition. That is, if the spread goes from +25 basis points and to -25 basis points, a recession is not automatically triggered. Rather, whether an inversion results in a recession would seem to depend on the magnitude of the inversion and, to a lesser extent, the duration of it."

Builders broke ground on 2.123 million homes at an annual pace, up 5.3 percent from a revised 2.017 million in October, the Commerce Department said today in Washington. Building permits, a sign of future construction, rose to 2.155 million from 2.103 million. Part of this strength may have been due to the rebuilding efforts after the hurricanes.

Kirk Kerkorian's Tracinda Corp. disclosed in an SEC filing that it sold 12 million GM shares over the past few sessions, bringing its stake in the Detroit giant down to 7.8% from 9.9%.

"Any time you hear the United States government talking about wiretap, it requires - a wiretap requires a court order," Bush said during an April 2004 town hall meeting on the Patriot Act in Buffalo, N.Y. "Nothing has changed, by the way. When we're talking about chasing down terrorists, we're talking about getting a court order before we do so." Does that sound like the same President during this week's press conference?

Calpine Corp. said Tuesday evening it has filed to restructure under Chapter 11 of the U.S. Bankruptcy Code.

Seagate and Maxtor today jointly announced they
have entered into a definitive agreement under which Seagate will acquire
Maxtor in an all stock transaction. Under the terms of the agreement, which
has been unanimously approved by the boards of directors of both companies,
Maxtor shareholders will receive .37 shares of Seagate common stock for each
Maxtor share they own. When the transaction is completed Seagate shareholders
will own approximately 84% and Maxtor shareholders will own approximately 16%
of the combined company. The value of the transaction is approximately
$1.9 billion.

Chevron Corp. said hurricanes in the Gulf of Mexico that shut oil wells
and the company's biggest refinery probably cut fourth-quarter profit
by more than $600 million.

I have a thing about government numbers. Here is an example of why I do.
Yesterday, China discovered a small statistical oversight. It appears that
China's economy is $285 billion larger than first thought. The statistical
difference is a mere 17%.

With only 8 trading days remaining in 2005, the S&P 500 is up about 4%.
It is the third consecutive year for gains in this index. According to
Barry Ritholtz "
there were only two out of eleven occasions when the span of winning
or losing years exceeded three consecutive winners over the past five
decades. One of those two periods were during the late-1990s bubble
years (1995-1999 ); the other was from the beginning of the secular
bull market that began in 1982 (1982-1989); Even 1987, the year of the
crash was up 2.03%. Under the circumstances, that implies pretty good odds that 2006 is
less than likely to be an up year, just based uon historical averages.
Furthermore, on the seven (out of nine) occasions when the market has
had a 2 or 3-year winning streak, the median return in the following
year has been -11.36%."

In considering the recent sale of GM shares by Kerkorian, is it possible
he is simply taking a tax loss for 2005 rather than on his way to
eliminating a position? Since purchasing the shares, what new information
has surfaced to make him a seller? If selling begets selling over the next 31 days,
he could be in a position to tender for more shares at a much lower price
than $31. In fact, $25 might look appealing to many holders.

In the recent Iraqi election, Ayad Allawi, the former prime minister and
Bush's choice, received much fewer votes than even the most pessimistic
forecasts. If he were a horse, he'd still be running to the finish line.
Bush's stamp of approval is the kiss of death.

According to Forbes.com, the top investors at Marketocracy decided to invest
in Saks. With the stock continuing to languish in the $16-$17 range, all
savvy support is appreciated.

The Mortgage Bankers Association said its seasonally
adjusted index of mortgage application activity for the week
ended December 16 decreased 4.0 percent to 594.6 from the
previous week's 619.3. Volume was at its lowest since the week
ended January 7, when the index reached 587.8.

The Talmud: Fish die when they are out of water, and people die without law and order.

















Monday, December 19, 2005

Under Funded

12/20/05 Under Funded

Standard & Poor's reported Monday that the under funded OPEB liability of the S&P
500 companies is significantly higher than that of under funded pensions.
According to Standard & Poor's data, at $292 billion, the S&P 500 under funded
OPEB balance is 95% higher than the under funding of pensions at $150 billion.
OPEB consists mostly of medical costs paid for the benefit of retired
workers. These benefits may be contractual or implied, and usually require
retiree contributions in the form of monthly premiums and direct co-payments
for services and products rendered. Unlike pensions, which are regulated,
OPEB has no legal requirement to create a trust entity to fund the current or
future costs. Additionally, specific tax treatments and credits, set up to
encourage pension funding, do not exist for OPEB funds. Standard & Poor's
data shows that pensions, while under funded, have 88% of the their
obligations set aside in pension trusts, compared to only 22% for OPEB
obligations.
"The state of OPEB is extremely unsettling, as many companies have not
created trust accounts to fund their OPEB obligation," says Howard
Silverblatt, Equity Market Analyst at Standard & Poor's. "Those that have
created trust accounts fund them to significantly lower levels than are
required under current pension funding rules."
It should be noted that Ford and General Motors account for 32% of the unfunded OPEB amount in the
S&P 500 compared to 13% of the pension under funding. Together, the two auto
giants are a combined $20 billion under funded in pensions, and $94 billion
under funded for OPEB.

RealtyTrac(TM)yesterday released its November 2005 Monthly U.S. Foreclosure Market
Report, which showed 71,606 properties nationwide entered some stage of
foreclosure in November, a 12 percent decrease from the previous month. The
report shows a November national foreclosure rate of one foreclosure for every
1,615 U.S. households.

The Goldman Sachs & Co., Nielsen//NetRatings and Harris Interactive's Holiday eSpending Report
reveals today that online shoppers spent $18.6 billion, excluding travel,
during the first six weeks (October 29 -- December 9) of the 2005 holiday
season. This year's U.S. online spending resulted in a 16 percent increase
(+/- 3.1 percent margin of error) from the same time period in 2004, with 19
percent of consumers having indicated that they have yet to start their
holiday shopping. The eSpending Report is based on a weekly national survey of
approximately 1,000 online adult consumers, capturing consumer spending,
attitudes and motivations of more than 6,500 shoppers during the first six
weeks of the 2005 holiday season.

Attorney General Alberto Gonzales said Congress had essentially given
President Bush the authority for domestic surveillance after the Sept.
11 attacks."Our position is that the authorization to use military force which was
passed by the Congress shortly after Sept. 11 constitutes that
authority,'' Gonzales said.

Despite rising healthcare costs and
repeated calls for universal healthcare, nine in 10 healthcare leaders in the
United States say that a primarily taxpayer-funded healthcare system, as in
Canada and Britain, is not the best way to solve the nation's healthcare
problems, according to new survey findings released Monday by
PricewaterhouseCoopers. Nonetheless, nearly all leaders surveyed (95 percent)
expect healthcare spending to rise, with more than half (51 percent) expecting
accelerated spending at much higher rates than in the past.

"Consumers are stepping aside and manufacturing and other business sectors
are stepping in," said Dr. Jim Paulsen, chief investment strategist of Wells
Capital Management during Wells Fargo's first-annual economic forecast
teleconference. "The U.S. business sector is looking very healthy, and this
will help alleviate the slight slowdown in consumer spending and housing. I
believe we're in the early stages of what will be considered a 'manufacturing
renaissance period' in the next several years that's tied to steady trade
improvements. We're also seeing renewed strength in the stock market, and
foreign economic growth is accelerating, which further positions the U.S.
economy for a more sustainable recovery."
According to Wells Fargo senior economist Dr. Scott Anderson, "a housing
price slowdown, in part triggered by the Federal Reserve's policy actions,
will become more pronounced as the year 2006 progresses, placing consumer
spending, credit-quality, and job creation at some risk. The challenges are
mounting for U.S. consumers, restricting their ability to spend." Anderson
also said that, "real earnings are being squeezed by the spike in inflation,
job growth will remain subdued and energy prices elevated, home equity
borrowing and wealth creation from the housing market will dry up."

Sentiment among U.S. homebuilders continued to deteriorate in December,
according to the monthly survey by the National Association of Home Builders.
The index fell to 57 in December from 61 in the previous month, the NAHB said
Monday. It's the lowest level since April 2003.

The 3 and 5-year U.S. Treasury bonds yield less than the 2-year and
the 10-year only yields 7 basis points more than the 2-year. Maybe some
believe the world is different now, but inverted yield curves are
meaningful to me.

Eye-catching

12/19/05 Eye-catching

Honda Motor Co. stated on Monday it plans to start mass-producing solar cells in 2007, eyeing growing demand for environmentally friendly energy sources.

Energy companies FPL Group Inc. and Constellation Energy confirmed Monday they have agreed to merge in an $11 billion deal that will create the nation's largest energy supplier. Under the terms of the transaction, each share of Constellation Energy held will be converted into 1.444 shares at the time of the merger, while each FPL Group share will be converted into one share of Constellation Energy at the time of the merger.

''This was a healthy weekend, but it wasn't something to knock your socks off,'' said Marshal Cohen, chief analyst at NPD Group Inc., a market research company based in Port Washington, N.Y. ''But stores aren't panicking because the season has more time to go. The trickiness of the season is that consumers are calling the shots on where they were going shopping.''

Light, sweet crude for January delivery rose 42 cents to $58.48 a barrel on the New York Mercantile Exchange by midday in Europe. The contract had fallen $1.93 to settle at $58.06 Friday, its lowest close since Nov. 30. It will expire Tuesday.

At 11.5 percent, German unemployment is still close to a post-World War II record of 12 percent reached in March. Meanwhile, Germany's PPI rose 5% in November due to higher energy prices.

The pump price of gasoline rose 8 cents in the past two weeks to a national average of $2.21 a gallon, analyst Trilby Lundberg said Sunday, citing her company's biweekly survey of about 7,000 filling stations nationwide.

John Hussman: "There have been 13 tightening cycles since 1950 where the Fed has raised rates at least twice. In the six month period following the last hike of the cycle, the S&P 500 has delivered annualized total returns averaging 2.47% over the following 6 months, 5.06% over the following year, and 8.55% over the following 18 months. All figures are on a monthly closing basis...If you look at periods where the price/peak earnings multiple was 16 or higher on the S&P 500, the final rate hike of a tightening cycle was actually associated with losses on an annualized total return basis, averaging -7.18% over the following 6 months, -9.94% over the following 12 months, and -5.87% over the following 18 months. Given the current multiple of 19 times peak earnings on the S&P 500, this would be the relevant set of comparisons even if the latest rate hike was the final one."

Microsoft Corporation has announced that it will stop supporting the Mac OS X version of its Internet Explorer (IE) Web browser from December 31.

Bolivia elected a new president-- Evo Morales, the Socialist candidate and a coca farmer.

Google has introduced a "mobile version" of its Gmail service, which allows mobile phone subscribers quick access to their e-mail.

I'm a slow learner. I could never figure why Wall Street paid such big year-end bonuses. Now I know. An analyst at Lehman Bros. originally figured that Albertsons would fetch $20 a share in an auction. Now, after a zillion of articles on the subject, this same analyst projects a more accurate evaluation is $26 a share. We have yet to hear from Albertsons.

Palatin Technologies,Inc. announced today that, as a result of safety concerns recently
raised in connection with the use of NeutroSpec(R) diagnostic imaging agent
kits for the preparation of Technetium (99m Tc) fanolesomab, identified during
routine pharmacovigilance, Palatin and Tyco Healthcare Mallinckrodt have
decided to voluntarily suspend the sales, marketing and distribution of
NeutroSpec and recall all existing customer inventories of this product.
Palatin and Mallinckrodt acted at the request of the U.S. Food and Drug
Administration (FDA). NeutroSpec, the only diagnostic agent approved for
imaging equivocal appendicitis, was approved for marketing by the FDA on July
6, 2004. Since it was introduced to the marketplace in September 2004, NeutroSpec
net sales to customers, through September 30, 2005, totaled $9.8 million, of
which Palatin received royalty payments of $2.5 million and product transfer
sales of $2.5 million from its marketing partner, Tyco Healthcare
Mallinckrodt. For the quarter ended September 30, 2005, NeutroSpec net sales
to customers totaled $3.7 million, of which Palatin received royalty payments
of $0.9 million and no product transfer sales.
The FDA also stated that they would convene an Advisory Panel early next
year to discuss the use of NeutroSpec with additional safeguards, and evidence
needed to continue use of the product for equivocal appendicitis, as well as
plans for other indications, most notably being osteomyelitis.
Palatin and Mallinckrodt are reviewing data and assessing approaches for
understanding the relationship between NeutroSpec use and the observed serious
adverse events. No final decisions concerning future activities involving
NeutroSpec have been made by Palatin or Mallinckrodt.

Just a reminder-- as a result of the judge's decision upholding Pfizer's
two Lipitor patents, the shares are up close to 3 points in early trading.
The stock is in the Dow.

Sunday, December 18, 2005

The Seal Of Approval

12/18/05 The Seal Of Approval

The approximately $9 billion kosher market is growing at a rate of 15 percent a year. Meanwhile, total grocery store sales grew 4.4 percent during the first 11 months of the year over the same time last year, to $424.8 billion, according to the Food Marketing Institute. Marcia Mogelonsky, a senior research analyst with Mintel International Group, a Chicago-based consulting firm, recently completed a nationwide study in April. She found 55 percent of the people who buy kosher products believed the food was better for them — almost double the number in a similar study Mogelonsky conducted in 2003. "They trust the kosher symbol like they'd trust the Good Housekeeping seal," she said. Part of the trust, Mogelonsky said, is derived from how the animals are raised. According to Jewish law, they cannot be pumped with antibiotics, additives, hormones or fed animal byproducts. As such, vegetarians and younger customers looking for healthier food — the same demographic that has helped the organic market take off- are helping to fuel the demand for kosher products. Interestingly, Albertsons, has, over the last few years, dramatically expanded kosher aisles at hundreds of its supermarkets across the country. The company has also launched more than two dozen kosher destination stores that include everything from bakeries to delis.

John Adams: "The happiness of society is the end of government."

Over the past several months, Weyerhaeuser has announced closing the Dryden Pulp and Paper mill in Ontario, Canada; the Prince Albert Pulp and Paper mill in Saskatchewan, Canada; 3 corrugated sheet plants in Little Rock, Memphis, and Shreveport; a specialty packaging plant in Valley View, Ohio; corrugated packaging plants in Bedford Heights, Ohio, Elmira Heights, NY, Little Rock, Ark, and Matthews, NC; and other facilities in Tenn, TX, CA, OKLA, and WA. "As a result of our ongoing strategic review, we anticipate future changes," according to the company's statement Friday. That's a busy company. Why all the hectic activity?

James Madison: "I believe there are more instances of the abridgement of the freedom of the people by gradual and silent encroachments of those in power than by violent and sudden usurpations." President Bush, are you listening?

Do you think the Federal Reserve would agree with this statement by James Garfield that
"Whoever controls the volume of money in any country is absolute master of all industry and commerce."

Last year at this time almost every financial wizard thought the dollar was dead and buried for good. As January came into view, some of the skeptics, like me, had second thoughts. We had had a very nice ride for the past 18 months. It was time for a reality check. Markets don't go up or down in a straight line. Long-term, the dynamics don't favor the dollar. The same can be said for manufacturing in our country; however, could manufacturing be the dollar in 2006? All the financial wizards think manufacturing is dead and buried for good. Hundreds of plants have been closed. When everyone says black, the answer frequently is white. We saw that this week in Pfizer. Could 2006 be a better year for GM and its bonds?