Cash Flow

3/4/06 Cash Flow

Carl Swenlin points out that Rydex cash flow isbearish: "since November, bear plus money market fundscash flow has been flat to slightly rising,demonstrating clearly that the bears have beenrelatively patient. On the other hand, cash flow for bull plus sectorfunds has decreased dramatically. This means thatmoney has been moving out of bullish funds even thoughprices have moved higher. This is almost always a bad sign. "

Bloomberg News(R) today reported on theresults of the latest Bloomberg/Los Angeles Times national public opinionpoll, which shows that 54 percent of American's disapprove of President Bush'shandling of terrorism -- marking a significant reversal in public sentimentfrom a year ago. According to the Bloomberg/Los Angeles Times poll, support for Bush waneddue to the administration's defense of the Dubai port deal and Americanfrustration with the Iraq war. The Bloomberg/Los Angeles Times poll revealedthat 58 percent of respondents oppose allowing DP World, Dubai's state-ownedport operator, to acquire facilities at six U.S. ports. On Iraq, Bush has anapproval rating of 34 percent in the Bloomberg/Los Angeles Times poll, downseven points since last month. In addition, the Bloomberg/Los Angeles Times poll revealed that 64 percentof Americans think the country is headed in the wrong direction.

Stubborn, Stupid, Or Smart

3/3/06 Stubborn, Stupid, Smart Or A little Of All Three

It takes a certain mentality and a certain personality to buy into a falling knife, so to speak. When a stock is under tremendous selling pressure, why be a hero and stick one's neck out?
It depends on the situation. One needs to pick the spots. When the noise gets louder and louder, and I cannot hear myself think, then I start to take a serious look at a stock. There was Merck and Vioxx and the stock got creamed-- only to rally 50%. There was McDonald's and the unhealthy food. The stock has been a three bagger from the bottom. Pfizer did not have a friend in the world and has since rallied about 25%. So why choose GM at $20+? There are catalysts and it is in a lot of interests to get this puppy back on its feet. KK is out a bundle. Next week York goes on the board-- just in time to consider the Cerberus/Citi bid for 51% of GMAC. Despite what Goldman Sachs said, this sale will take place. The delay is a little negotiating. Then there is the commercial-mortgage business. That too will be sold. GM's CEO stated the company has $19 billion in liquidity outside of GMAC. The new SUVs are a hit. They carry good profit margins. Things are improving in Europe and at Saab. China's business is on the uptake and highly profitable. Sales are advancing nicely in India. Have you ever taken a look at GM's real estate portfolio? You can't buy at the bottom. Consequently, when buying against the grain, there will be a loss in the beginning. Buying at lower prices is not for everyone. Do you remember the scare with J&J's recall as well as the recall from Intel? What do all these prior examples have in common? The companies are leaders in their field.
You think the auto business is not important in the U.S? Think again. It's the domino theory and it invades many walks of life and many communities. When a worker in the industry nad/or dependent on the industry gets a paycheck, that money can turn over 7 times. You get my point? The auto industry has tenacles-- and large ones. GM, Ford, and Chrysler are not going away. They are in the process of reinventing themselves. That's a good thing.

Estimates by Autodata Corp. of Woodcliff Lake, N.J., show that Chrysler has led the industry in incentive spending the past two months. Chrysler, it said, bested former incentives champ General Motors Corp. in February by nearly $800 per vehicle on average, spending about $3,881 in incentives for each new vehicle.
The consumer Web site Edmunds.com, meanwhile, said its data shows that Chrysler has been leading in incentive spending the past six months. And the site shows Chrysler leading GM by more than $1,000 per vehicle in incentives.

Silver futures closed above $10 an ounce Thursday for the first time in more than two decades. April silver climbed 41.8 cents, or 4.3%, to close at $10.208 an ounce after a high of $10.235.

Planned layoffs by U.S. corporations dropped 15.5% in February to 87,437, the lowest level since October, according to a monthly tally compiled by Challenger Gray & Christmas. Planned job cuts were down 19% from a year ago. Year-to-date layoff announcements are down 4.9%. Layoffs had increased in each of the four final months of 2005 before falling in January and February.

Behind The Numbers

3/2/06 Behind The Numbers

When it comes to sales for GM, all revenue is not the same. Retail carries a bigger profit than a fleet sale and Tahoe revenue has higher profit margins than seen on a car. As such, the story is not simply that the company's Feb. sales were down 2.5%. Retail sales were 1% higher and light truck sales rose 5.3%. Overall, profit margins improved from one year ago. Emphasizing the changes, GM's sales of redesigned large sport-utility vehicles are doing ``very well'' this year and meeting the company's plans, Chief Executive Officer Rick Wagoner said in Geneva.
`All the new vehicles, especially the large SUVs, are doing what they are supposed to do,'' he said.

The average U.S. home increased 12.95% in value in 2005, the Office of Federal Housing Enterprise Oversight said Wednesday. The typical home's value increased 2.9% in the fourth quarter of 2005 from the third quarter. "Despite recent indications that a slowdown may be forthcoming, house price appreciation during 2005 continued to hover at near-record levels," said OFHEO Chief Economist Patrick Lawler.

The personal savings rate fell to negative 0.7%, the lowest since August. Savings have been negative for eight of the past 10 months.

Factory activity in the United States accelerated in February, the Institute for Supply Management reported Wednesday. The ISM index rose to 56.7% in February from 54.8% in January.

Richard Daughty: "In 1995 the banks' reserves were about $60 billion, insuring against $206 billion in loans and leases, and $87 billion in savings. M3 was $4.3 trillion.
Now, in 2006, notice the amazing difference! Today, required reserves are only a measly $41 billion (down almost 33%!) as a cushion against a whopping $5,540 billion in loans and leases (2,700 percent bigger than in 1995) and an astonishing $5,150 billion in savings (5,900 percent bigger)! M3 is now $10.3 trillion."

With GM closing below $20, the company's market cap now trails that of Fiat. Hard to believe!

February Results

3/1/06 February Results

GM's February incentives were 17 percent lower than in January and down 10 percent from February 2005, according to Autodata Corp.

U.S. February Chicago PMI came in at 54.9 vs. 58.5 for January.

Timothy Geithner, NY Fed President: ""We still face considerable uncertainty about how market liquidity will behave in the context of a major deterioration in credit conditions or a sharp increase in volatility in equity and credit spreads."

The Conference Board Consumer Confidence Index for February dropped to 101.7 from the prior month's 106.8.

Henry To: "Total short interest on the NYSE for the month ending February 15, 2006 declined 423 million shares - a record monthly decrease. Over the last three months, NYSE short interest decreased 8.32% - the highest rate of decrease since September 2003. Given the maturity of this cyclical bull market, this does not bode well for the stock market going forward. Should there be a general market decline, there will be much less support than what we have previously experienced."

U.S. January existing home sales declined 2.89%, the lowest rate in 2 years. Importantly, inventory of unsold existing homes rose to 5.3 months.

Even though the price of gold declined in February, the metal still finished the month
above $563 per ounce, a pretty good showing.

Crude remains above $60 a barrel. Just consider the following: if Saudi Arabia pumps one barrel of water for each two barrels of oil, and their spare capacity is essentially sour crude, do you think this is a warning sign their reserves may be in question?

The U.S. claims that 4th quarter GDP rose 1.6%. Isn't it possible that the growth was due to price inflation and therefore there was truly negative growth?

Gneral Motors Vice Chairman Bob Lutz: "I would rather have 25 percent share with low incentives, lots of retail, low daily rental than 28 or 29 percent with heavy rebates, heavy daily rental and all that business that gets you market share numbers but no profitability." In January, the company's market share in the U.S was 25.6%. It should be about the same for February-- even with the 17% monthly decline in incentives. GM's inventory is under control and the profit margins are improving. That has not been reflected in the price of the stock. As the trends continue to improve, the share price will follow in a positive direction.

Yesterday, EnCana Corp completed the $1.42 billion sale of its oil and pipeline interests in Ecuador to Andes Petroleum Company, a joint venture of Chinese oil companies. EnCana announced the deal, which covers proved reserves that totaled 143 million barrels at the end of 2004, last September.

Henry To: "The Market Vane's Bullish Consensus for copper hit 95% on February 6th, and was at 90% as recently as February 9th - suggesting that virtually all shorts have been squeezed from the commodity (it is interesting to note that copper failed to rally despite the production stoppages at Freeport's Papua mines last Wednesday)."

According to the Detroit Free Press, GM also is close to finalizing the sale of a majority of its separate commercial-mortgage business to a consortium of buyers, Simonetti, a spokeman for GM, said. The company stated in August that it would sell a 60% stake in the business.

The GM division, which last made a profit in Europe in 1999, narrowed its loss in the region last year to $375 million from $742 million. GM's CEO hopes to break-even or do better than that in Europe this year.

Tides

2/28/06 Tides

In January, there was a 5.2 month supply of new homes on the market. The total was 528,000
homes for sale. Combine that with the affordability index at a 15-year low, and you have the makings of the tide turning.

Yesterday, during regular trading hours, the S&P 500 hit a 5-year high.

Interestingly, GM's vice chairman of global product development, Bob Lutz, stated
"Saab has really turned the corner. It is close to making money as a brand." This is but one more indication of GM turning the tide positively for stockholders. By the time analysts are on board, I believe the shares will trade 50% higher than present levels. It reminds me a great deal of McDonald's at $12+ when the latter did not have a friend in the world. GM and McDonald's are two of the world's most valuable brands. Sometimes the biggest bargains are right under your nose (no pun intended).

April natural gas closed at $6.789 per million British thermal units, down 52.4 cents, or 7.2%. The contract marked its lowest closing level since mid-March 2005.

Crude closed down $2 a barrel at $60+, still a lofty level heading into March.

According to today's Financial Times, GM is putting pressure on its negotiators and investment banks to reach an outline agreement to sell a majority stake in the carmaker's finance unit before a board meeting on Monday. According to people close to the company, a deal could be worth about $11.5 billion, exceeding the present market cap for GM shares.

General Motors Corp. expects an increase in its European market share this year, the automaker's Europe chief, Carl-Peter Forster, said today. "We are certainly (looking) for share growth in Cadillac. Saab could grow or at least maintain its share. Chevrolet most probably is up for another year of strong growth. Put it all together, most probably we will grow share," Forster said. The Opel brand, its largest in Europe, is looking for more profitable sales and will be moving away from some low-margin business, he said. The auto industry in Europe, overall, could see a slightly better year in 2006, Forster said. "Slightly better means 3 percent growth or so."

In March 2001, according to the BLS, employment in the real estate and mortgage industry stood at 283,000. The peak was 504,000 in October 2005. Since then, it has slowly trended downward.

GM And China

2/27/06 GM And China

GM's combined China sales rose 35% to a record in 2005. Importantly, the company finished the year with a market share in China of 11.2%, up almost a full two percentage points over 2004. It is significant to note the growth potential in China's automotive market. In the U.S., for every 1,000 drivers, there are 700 people who own a car. By comparison, in China it is a mere 20 that own a car.

Shanghai General Motors Co.'s sales will increase about 20 percent this year, down from a 29 percent gain in 2005, Chris Gubbey, executive vice president at Shanghai GM, said in a recent interview. China's passenger car market may grow by 16 percent this year after increasing by 23 percent last year, he said.

The General Motors-China relationship dates back more than eight decades. GM has approximately 13,000 employees in China and operates seven joint ventures and two wholly owned foreign enterprises. It has participated in investment of over $2 billion in China. GM, along with its joint ventures, offers one of the broadest lineups of vehicles among foreign automakers in China. Products are sold under the Buick, Chevrolet, Wuling, Cadillac, Opel and Saab nameplates. Shanghai General Motors Co. Ltd. (Shanghai GM) is a 50-50 joint venture with Shanghai Automotive Industry Corporation Group (SAIC), a leading passenger car manufacturer in China. Shanghai GM was formed in June 1997. GMAC-SAIC Automotive Finance Co., Ltd. is China's first automotive financing company. The joint venture between General Motors Acceptance Corporation (GMAC) and Shanghai Automotive Group Finance Co. Ltd. (SAICFC) provides retail financing for vehicles manufactured by GM's joint ventures with SAIC. It also supports Shanghai GM dealers by providing financing for their vehicle inventories.

With its growing market share in China, and the double digit growth prospects for GM's automotive operations, as a stand alone public entity, I feel confident that GM China would command a P/E ratio exceeding 20 and a market cap of at least $12+ billion. The current $20 price tage for GM stock surely ignores this potential.

General Motors has shifted its worldwide electronics purchasing unit from Warren, Mich., to Shanghai to place it at the hub of China's electronics industry.

The Chevrolet HHR has joined two much more expensive Hummer models as one of the three most accessorized vehicles in the General Motors lineup. A little over 50 percent of the HHRs sold last year were purchased with one or more accessories, GM says. The greater the accessories the greater the profit margins.

John Hussman: "If we split year two of the Presidential Cycle into two periods – the first nine months of the year compared with the final quarter - the patterns become apparent. The average market performance during the period from January through September of each second year of the Presidential Cycle has been roughly flat since 1933. The market has been down during these periods nearly as much as it's been up.
Things have usually been more interesting in the fourth quarter, where the average gain has been 8.7 percent. This is the highest average fourth-quarter return of any of the four years of the cycle, including the last quarter of year three and year four. The fourth quarter of the second year is actually where many third-year rallies are born."

Developments

2/26/06 Developments

Mike Burk: "In the 1970's, Norman Fosback researched end of month, beginning of month seasonality. He found the last day of the previous month and first four days of the new month had unusually high returns. He would add the second to the last day of the ending month and the fifth day of the new month if they were not Mondays. Monday is the second to the last day of the month so it is does not qualify as part of the trade, but the rest of the week does."

Robert McHugh: "When Iran starts accepting only Euros for oil(3/20), those who have been holding Dollars, or Dollar denominated U.S. financial instruments with the intent to exchange them for oil, will upset the global currency markets by suddenly exchanging them for Euros. Foreign demand for Euros will increase and demand for Dollars will decrease. 49 percent of the U.S. debt is owned by foreign interests. As that U.S. debt is exchanged for oil, via Euros, somebody is going to have to buy excess U.S. debt instruments. That someone will have to be the Fed. They will have to print a ton of Dollars to buy these U.S. debt instruments which will no doubt be unloaded by foreign interests to acquire Euros and Oil. Those excess Dollars will then be exchanged for Euros, driving the value of Dollars down and Euros up."

Chinese carmakers like Chery and Geely captured a quarter of the Chinese market last year, up from less than 10 percent just two years earlier, said Michael Dunne, the president of Automotive Resources Asia, a consulting firm.
"Why the spurt? Small cars powered by gas-sipping engines that start at $4,000," Dunne said.
Raymond Bierzynski, the president of General Motors' Pan Asia Technical Automotive Center in Shanghai, said that gasoline costs were more important to consumers in China than elsewhere because these costs represent a higher share of the low household incomes in China. GM sells its Buick Excelle compact sedan with special, low-rolling-resistance tires in China, which it does not do in any other market and which increases gas mileage by up to 2 percent, he said

Wal-Mart's February same-store sales rose 3.2%.