It Matters

3/11/06 It Matters

According to the Federal Reserve, as of 12/31/05, foreign investors held a total of $11.154 trillion of US financial assets, up $325 billion from revised holdings of $10.829 trillion as of 9/30. From 12/31/04, the increase was about $1.32 trillion, or 13.4%. As of 12/31/05, foreign financial liabilities totaled $5.344 trillion, creating a net foreign claim against the US of $5.810 trillion.

According to the RBC CASH Index, consumer confidence dropped in early March to 86.2 from February's 96.1.

According to the BLS, 243,000 new jobs were created in February. However, the workweek was 33.7 hours, down 0.1% from January but the earnings per hour rose by 5 cents or 0.3%. What do the numbers really mean?
There are about 135 million folks in the work place. If they work 0.1% per week less, that's 135,000 less hours at $16.47 per average hourly wage or $2,223,450. If 243,000 make $16.47 per hour, that's a bit more than $4 million. When you look at it realistically, the picture is not rosy.

Carl Jung: "People cannot stand too much reality."

DTE Energy Corp. told the leadership of the Utility Workers Union of America Local 223 that it expects to lay off 1,200 union workers over the next two years as part of an internal review of operations.

Happenings

3/10/06 Happenings

The number of homes entering some stage of foreclosure -- from notice of default to bank ownership -- increased 45% in January from the same period a year earlier, according to Irvine, Calif.-based RealtyTrac. That was one new foreclosure for every 1,117 U.S. households.
The number of foreclosures is still low on a historical basis, but it has been rising steadily over the past year, RealtyTrac reported. Job 3/10/06 Happenings

Japan's central bank scrapped itssuper-loose monetary policy on Thursday but --reflecting concerns about fallout for world marketsand the domestic economy -- said it will keepshort-term interest rates around zero for now.

Fueled by mortgage borrowing, U.S. households' debt increased 11.7% to a record $11.5 trillion in 2005,the fastest growth since 1985, the Federal Reservereported Thursday. Total financial debt in the U.S.economy grew 9.5% to a record $26.4 trillion in 2005, the biggest increase since 1986, the Fed said in itsquarterly flow of funds report. Corporate borrowing increased 7.8% to $8.4 trillion, the biggest increase since 2000. Net worth of U.S. households - assets minus liabilities - increased 8% to a record $52.1 trillion at the end of 2005. It was the slowest growthin net worth since a 4% decline in 2002.

King Pharmaceuticals, Inc. and Palatin Technologies, Inc. announced yesterday that a scientific presentation will be given at the International Society for the Study of Women's Sexual Health (ISSWSH) annual meeting on Friday, March 10, 2006 at 7 A.M. at the Marriott Lisbon Hotel in Lisbon, Portugal.
The session, titled "Advances in the Development of Pharmacologic Treatment for Female Sexual Dysfunction", will be moderated by Dr. Cindy Meston, PhD, Associate Professor of Clinical Psychology at the University of Texas - Austin. Presentations will be made by James Pfaus, PhD, Professor in the Center for Studies in Behavioral Neurobiology, Department of Psychology at Concordia University in Montreal, Canada, and Michael A. Perelman, PhD, Co-Director of the Human Sexuality Program, Payne Whitney Clinic of New York Presbyterian Hospital in New York City, and Clinical Associate Professor of Psychology at Weill Medical College of Cornell University, with a joint appointment at New York Presbyterian Hospital.
This presentation to healthcare professionals dedicated to the effective treatment of female sexual dysfunction (FSD) will cover emerging therapies for the treatment of FSD and the previously disclosed data from a clinical trial evaluating the effects of bremelanotide on pre-menopausal women diagnosed with FSD. Additionally, Michael A. Perelman will present a poster at the meeting, detailing the same information presented at the scientific session, titled "The Potential Role of Bremelanotide (PT-141) as a Pharmacologic Intervention for FSD."

Apple Computer is setting up a technical support center in Bangalore, India, according to a report Thursday in The Times of India.
The paper said Cupertino-based Apple will hire 1,500 to staff the technical center by the end of this year, and have 3,000 staff at the end of next year.

The bids for both Knight Ridder and Univision are in the process of getting finalized.

Americans imported $68.5 billion more in goods and services than they exported at the start of the year, up 5.3 percent from December, the Commerce Department in Washington said; it was the largest deficit since October, when the gap swelled to $67.8 billion.
A 3.5 percent jump in imports in January appears to reflect the sharply higher consumer spending during the month and the rising prices of oil, gasoline and other energy products.
Imports of automobiles and car parts increased 5.3 percent during the month, and the country spent 4.3 percent more on petroleum-based imports.
Exports were up 2.5 percent from December, with soybean shipments doubling and airplane sales up 44 percent. But sales of most other American goods and services changed only modestly in January.
The closely-watched U.S. trade deficit with China jumped almost 10 percent in January, to $17.9 billion. As an aside, Chinese companies operate ports at Long Beach and the LA area. I guess the Chinese are not as toxic as the folks from Dubai. Listening to Sen. Shelby explain why
the heat was on Dubai, he explained that Bush didn't explain the situation well enough to satisfy his base. I suggest Shelby get over his nose being out of joint. Someone should take him over their shoulder and burp him.

According to the Detroit Free Press, in January, GM set aside at least $3.6 billion, or $2.3 billion after taxes, to pay for retirement benefits for Delphi workers.
GM and the UAW have been in discussions on an early-retirement package that would create job openings for Delphi workers, UAW local union leaders said. About 40,000 of GM's more than 100,000 U.S. hourly workers are eligible to retire, and many are eager for a buyout package.

Changing Times

3/9/06 Changing Times

Bank of Japan Governor Toshihiko Fukui has proposed scrapping the central banks' loose monetary policy, according to Japanese media reports. The report circulated after the BoJ concluded its two-day policy board meeting in Tokyo.

According to the WSJ, Delphi and GM are nearing agreement on the broad points of a potential deal with the UAW that could encourage early retirement for thousands of workers and pave the way for Delphi to shrink its work force. This is a significant step towards the restructuring of GM and paves the way for avoiding labor strife as well as on-going cost-cutting for both GM and Delphi. The importance of this agreement cannot be stated strongly enough. It is a milestone for GM and Delphi.

According to the Financial Times, Dubai has received approaches to sell the 5 U.S. port terminals. Mohammed Sharaf, chief executive of Dubai Ports World, which bought the assets from Britain’s P&O in a deal that closed yesterday, continued to insist that the operations would not be sold. He said in an interview with the Financial Times: “We have not even thought of that yet. We have a business to run – the USA is part of it.”
Mr Sharaf acknowledged, however, that the US facilities were a small part of the deal and less profitable than other P&O container terminals.

Benjamin Franklin: "By failing to prepare, you are preparing to fail."

Workers

3/8/06 Workers

The Pew Center estimates that there are 11.5 million to 12 million illegal immigrants in the U.S. with about 500,000 arriving here each year since 2000. In addition, they figure that 1 in 20 workers in the U.S. is here illegally.

Since we invaded Iraq in March 2003, over 2,300 of our fighting men and women have been killed and over 20,000 wounded.

GM is shifting out of defined pension benefit plans to 401K plans for its 42,000 salried workers. GM will contribute 4% of annual base salary to a 401K plan. Between the savings from the reduction in health care benefits and the pension cost savings, GM will reduce its cost for salaried workers by $1 billion annually. In addition, by year-end 2006, its pension liability will be cut by $1.6 billion. Those hired after Jan. 1, 2001, or about 10% of GM's U.S. white-collar workforce, will shift to a 401(k) program from a more traditional pension plan. Salaried employees hired before Jan. 1, 2001, or about 90% of the U.S. workforce, will shift to a new pension that is based on a simpler formula. However, the number of workers in that plan will decline as years pass, and a greater percentage of the salaried workforce will be enrolled in the new 401(k) program. GM's revised plans do not affect the benefits of GM's current U.S. salaried retirees or the vested benefits of former employees working elsewhere. Pension benefits earned prior to the transition date to the new plan will be preserved.

I expect Norinchukin Bank will join Cerberus and Citigroup and invest at least $1 billion in the purchase of 51% of General Motors Acceptance Corp. As I stated previously, the addition of Norinchukin should materially improve the credit rating of GMAC and thereby lower its borrowing costs.

Yesterday, 2-year Treasury bond yields moved above 4.75%. It is not surprising to find market strategists looking for a more defensive posture in equities. Most investors are unnerved by the growing disparity between advancing and declining issues. As such, large cap stocks are in greater demand, such as, Microsoft, Cisco, and even GM.

The Yield Curve

3/7/06 The Yield Curve

Yesterday the world of money was flatter, more costly, and less inverted. The 2-year Treasury yield rose to 4.76%. At the same time, the 5-year closed the gap at 4.75%, the 10-year at 4.74%, and the 30-year at 4.72%. Another move like the one yesterday, and the inverted yield curve will be no more. On the other hand, a Treasury that requires an expansion in the debt limit
to function surely will have the $400-$500 billion deficit hit higher numbers with higher interest rates.

All the talk yesterday was on the AT&T - BellSouth deal and the announced 10,000 job cuts to take place in 2007 and 2008. No press was provided to the activities surrounding the proposed health care benefits for GM workers. A substantial change is in the works. U.S. District Judge Robert Cleland has already given preliminary approval to the deal, but he scheduled a hearing to listen to UAW retirees who oppose it. According to the Detroit Free Press, under the proposed settlement, GM hourly retirees would pay monthly contributions, annual deductibles and coinsurance costs for the first time. They would pay a maximum of $752 per family each year for health care, or $370 annually for an individual. About 74,000 of GM's hourly retirees who receive pensions of less than $8,000 a year would be exempt from the new costs. These changes will save GM billions of dollars on an on-going basis.

Henry To: "The only source of funding (with the European Central Bank tightening and being hawkish as well) left in the world today and that is holding the financial market together is the Yen - and given that the Yen carry trade is now in danger of ending, there is a good chance that liquidity will literally "fall off the cliff" within the next couple of months." Just a short comment. I believe Henry To is one of the most astute financial observers. In addition, he puts his money where his mouth is.

Yesterday's trading saw particularly heavy volume. By the end of the day, there were significantly less new high and many more new lows- not an auspicious start to the week.

Mike Shedlock: "Accu-Weather.com meteorologists have warned oceanic conditions similar to those that triggered the ruinous "Dust Bowl" drought again appear to be in place. Conditions similar to those that led to 1930s drought.The exceptionally warm Atlantic waters that played a major role in the record-breaking 2005 hurricane season, coupled with cooler-than-normal Pacific waters, are weakening and changing the course of a low-level jet stream that normally channels moisture into the Great Plains."

Pieces Falling Into Place

3/6/06 Pieces Falling Into Place

In 1984, AT&T was broken up into separate companies. One of those pieces, BellSouth, is being purchased for $67 billion or $37 per share. It will bring Cingular Wireless under one roof. The new combination will also create thousands of job cuts. When Cingular purchased AT&T wireless, 7,000 workers lost their jobs.

You won't hear it from Wall St. analysts but the pieces are falling into place at GM. Over the weekend, the company announced selling 17.4% of the 20.4% stake it has held in Suzuki for the past 25 years for $2 billion. Today is GM's board meeting. They will give preliminary approval to the Cerberus/Citigroup purchase of GMAC for $11 billion. In addition, the board will give preliminary approval to provide financial packages to 20,000 retirement-eligible workers eager to accept such an arrangement. This will make space available to Delphi workers to fill spots vacated by the retirees. It is important to note that, at the end of 2005, GM's pension fund was overfunded by $6 billion, a point rarely pointed out by the financial media or analysts.

A frequent trading strategy has been to short GM common stock and buy GMAC bonds. At their prresent prices, in my view, it makes more sense to buy both the bonds and the common. From here on out, the news on GM will turn much more positive-- as it has recently with AT&T. Important world-wide brands have a way of having many lives.

Life In America

3/5/06 Life In America

The Washington Post relates that, according to the Federal Reserve's Board's Survey of Consumer Finances, "it has about $3,800 in the bank. No one has a retirement account, and the neighbors who do only have about $35,000 in theirs. Mutual funds? Stocks? Bonds? Nope. The house is worth $160,000, but the family owes $95,000 on it to the bank. The breadwinners make more than $43,000 a year but can't manage to pay off a $2,200 credit card balance." That's quite a picture. What does that tell you about the present and the future in this country? We're strapped and, in actuality, that does not tell the whole story. Each American family is on the hook for its share of the U.S. $8+ trillion national debt and the $40+ trillion in benefits for Social Security, Medicare, and Medicaid.

LNG imports tripled in the '90s, rising to 226 billion cubic feet per year by 2000.
They nearly tripled again by 2004, climbing to 652 billion cubic feet, or 3 percent of the country's total natural-gas consumption.

The following is a sign of the times. I have written about the tarsands in Canada. This week something quite remarkable took place. The Houston Chronicle aptly described the happenings.

Enbridge, a Calgary-based oil delivery and storage company, opened the taps to its Spearhead Pipeline, a 650-mile stretch of steel from Chicago to Cushing, and the first western Canada crude sloshed into the company's mammoth Cushing terminal early Thursday.
"The moment was more than two years in the making for Enbridge, which is rapidly expanding its Cushing terminal with new storage tanks that will add another 3.5 million barrels of oil space to the 10.3-million-barrel capacity it already has. Enbridge completed four new 575,000-barrel storage tanks in 2005.
While oil flowing through an underground pipeline may seem mundane, the $190 million Spearhead project has special significance.
That's because Enbridge reversed the flow of the Spearhead pipeline, which is also something of a reversal of fortunes.
For years the pipe, which used to be owned by BP, carried Gulf of Mexico crude to northern markets that needed the oil. But as the Gulf slowly but surely plays out, and Canada's oil sands production picks up steam, the crude is flowing in a different direction.
It's a sign of the times. Canada, which is already the biggest exporter of oil to the U.S., outranking Mexico, Venezuela and Saudi Arabia, will likely double its oil production in the next decade, thanks to production from the oil sands." Significantly, Cevron just announced five leases in the oilsands region of Canada. Is it wiser to buy EnCana and Enbridge? Time will tell. If I were running a U.S. major, I'd be considering EnCana for sure.

The wonderful thing about the stock market is the daily challenge. There is no room for carelessness. Tim Wood points out currently "that yes, the Secondary Trend is positive. But, with deteriorating internals this Secondary advance is obviously beginning to get just a bit tired." At the same time, last week, Mike Burk points out that the Dow Jones Transports, the Russell 2000, and the S&P midcap all made all-time highs. The market is ebbing and flowing, as it always does, and requires the nimble investor to pick the low-hanging fruits. It is not a time to be smug. You will be carried out.

The more things change the more they remain the same. Greenmail may have been buried but there are rumblings from the grave. We have Icahn at Warner Communications and Peltz at Wendy's and Heinz. What do they have to add to the mix? Any board of directors who gasps from this type of investor should be removed. In the whole of Wendy's, Baja Fresh isn't even a pimple on an elephant's ass. Tim Horton's is where the action is.

As for the Fed, they help to create inflation as M3 continues to expand by an 8% growth rate. Maybe more attention could be focused on unsound asset-based lending, which clearly will not be offset in the derivatives market. Anyone who thinks the derivatives market is akin to aspirin for a headache is mistaken. Derivatives create complacency, and the latter compounds a dysfunctional economy. Just look at the typical American family trying to make ends meet.