Saturday, March 18, 2006

Changes In The Wind

3/18/06 Changes In The Wind

General Motors, bankrupt Delphi Corp., and leaders from the United Auto Workers held talks into Friday afternoon in hopes of reaching a deal for attrition and contract buyouts of thousands of Delphi employees, according to a report in the Wall Street Journal. ``Talks are constructive, and progress is being made,'' said Paul Krell, a UAW spokesman. I have stated frequently that I strongly believe an agreement will be reached in these talks. The $17.50 and the $20 March GM puts expired worthless yesterday. I expect the April $17.50 and $20 GM puts to follow suit.

"The $2 billion adjustment was a housekeeping move, doesn't involve any added cash outlay and will have no effect on GM's finances," said Dave Healy, analyst with Burnham Securities. "It was anticipated when GM in January said writeoffs for plant closings and layoffs were estimates.” "One reason to change the Delphi estimate is because progress is being made in discussions with Delphi and the UAW and we have a better idea now of how things are going so we updated the charge," said GM spokeswoman Toni Simonetti, who declined to say how close the two sides are.
"We aren't at the end of the road yet, but we are further down the road and better able to make a more accurate [cost] estimate," she said.
"GM wouldn't have changed its estimate unless it was closer to a settlement with Delphi and the UAW, so that's encouraging news," Healy said. In my view, the selling in GM shares on Friday was based on stupid thinking.

Top Tankers Inc. repeated on Friday that March 28 is the ex-dividend date for its special dividend of $5 a share. The dividend is payable March 27 to shareholders as of March 22. In addition, Top Tankers added that it expects to declare an additional special dividend of $2.50.

Genentech Inc. expects 40% to 50% growth in its 2006 earnings per share, excluding certain items. Its goal is now to achieve an average compound annual earnings per share growth rate of 25% by 2010, excluding items; free cash flow of $12 billion; to bring at least 15 major new products or indications onto the market; and to become the top U.S. oncology company as measured by sales. The company’s goals are aggressive but certainly doable.

Treasury bonds and equities had a broad rally this week, and this was based on the thought that inflation is tame and that the Fed will stop raising rates at 5%. Meanwhile, yesterday silver traded at a new 22-year high, copper at an all-time high, and gold and crude were up smartly for the week. The dollar slumped to a 7-week low. Prices at the pump continued to rise. Come May, refineries, instead of adding the usual additive methyl tertiary-butyl ether to gasoline, will have to use ethanol, which some industry observers worry is in short supply. Specifically, worries about ethanol supplies and distribution are probably also pushing prices up, said John C. Felmy, chief economist for the American Petroleum Institute.

My stomach tells me this quarter’s gains in equities have been an exercise in chasing fool’s gold. Complacency can teach hard lessons. The lack of appreciation for risk can teach expensive lessons. In my view, March 20th will be the beginning of a time our citizens will wish they could forget.

This should come as no surprise. U.S. Justice Department antitrust staff lawyers are opposed to Whirlpool Corp.'s proposed acquisition of rival Maytag Corp. as the deadline for a decision nears, a source close to the matter said on Friday. Lawyers in the department's antitrust division "have made it clear" to the antitrust chief, Thomas Barnett, that they believe the $1.7 billion deal would hurt competition. This is a no-brainer. Just look at the top-loading market for washers. How many companies compete with Maytag and Whirlpool?

These are the results of the just completed Harris poll on Bush and the Iraq war:
- President Bush's ratings on his handling of events in Iraq are currently
68 percent negative, 30 percent positive. This has worsened from 61
percent negative, 36 percent positive in January.
- In this new poll, 46 percent of U.S. adults believe that the situation
for U.S. troops is getting worse, up 10 percentage points from the 36
percent who felt this way in December. Only 17 percent now think things
are getting better, down from 22 percent in January.
- By a three-to-one majority (61% to 20%), U.S. adults are not confident
"that U.S. policies in Iraq will be successful." This has worsened from
the 55 to 26 percent majority who felt this way in January.
- By 48 to 37 percent, a plurality of U.S. adults believe that "taking
military action against Iraq" is the wrong thing to do. In January, a 46
to 40 percent plurality felt this way.
March 20 represents the third anniversary of our country’s invasion of Iraq.

I acknowledge that at times I can be rough around the edges. The following is one of those times. Ford Motor Co.'s president, chief operating officer and a board member, Jim Padilla, sold 150,000 Ford shares at $7.79 on Friday. He retains at least 152,742 shares. In addition, on March 10, Padilla got 888,889 Ford stock options, at $7.83 a share, and 231,166 restricted stock equivalents that will be converted into common shares on March 10, 2007. Padilla is responsible for the global automotive business, overseeing marketing, manufacturing, engineering and other operations in more than 200 markets with 327,000 employees. If Padilla needed money, then he should have borrowed against his holdings. Selling at $7.79 a share, basically a multi-year low, sends a terrible message to shareholders and the 327,000 employees. If I were running the company, I’d send him packing. Friday would have been his last day at work.

Doug Noland: “Household Debt expanded 8.6% in 2000, 8.6% in 2001, 9.7% in 2002, 11.4% in 2003, 11.1% in 2004, and 11.7% last year. After slowing to 4.8% in 2000, Total Non-Financial Debt expanded 6.1% in 2001 and growth accelerated each year to 2005’s blistering 9.5%. One would expect the financial system and economy to demonstrate robustness during such a bout of unparalleled Credit expansion. But is it sustainable? What is the endgame? And, “without the onset of deflation, how large is the risk?” Well, I’ve for some time argued that the issue is not “deflation” as much as it is the risk of debt crisis and collapse.”

According to Rigzone.com, this week’s street protests in Central Ecuador against the free trade treaty with the US and against Occidental Petroleum have broadened.

The last big year for apricots was 1994, when about 132,000 tons of the fruit were sold, said Bill Ferriera, the president of the Apricot Producers of California. By 2000, production had fallen to 81,000 tons. Last year, the crop was down to 70,100 tons. Prunes, raisin grapes, olives, and garlic are following the same trend as apricots in California.

The average Costco warehouse last fiscal year posted $122 million in sales.

In the media, much was made of the S&P 500 rising for 5 consecutive days this week and this index closing above 1300. Little was stated about fewer new highs in this index compared with January 2006 or even July 2005. Before you get too excited, calm your jets.

Brazil’s real traded to a five-year high this week. Argentina’s economy grew 9.2 percent in 2005, the fastest pace in 13 years.

Friday, March 17, 2006

Dangers

3/17/06 Dangers

James Turk: “As a consequence of constrained revenue and uncontrolled spending, the federal government has come to increasingly rely upon debt in order to obtain the dollars it spends with gay abandon. In 2000, 1.1% of the federal government's cash flow (revenue plus the annual increase in debt) came from new debt. This reliance on debt grew to 20.4% in 2005. In other words, for every $100 spent by the federal government in 2005, $20.40 came from borrowed money, compared to only $1.10 in 2000.”

According to earthfiles.com, “new satellite data shows Antarctica is now melting 36 cubic miles of ice annually. That's equal to dumping California's Lake Tahoe into the ocean every year. Greenland's southern glaciers are melting faster than anyone expected and contributing to about one-third of current sea level rise. Mt. Kilimanjaro's famous snowcap will be gone by 2015, or earlier. Antarctica, Greenland, and mountain glaciers around the world are now putting so much melt water from land into the oceans, that the computer projection for sea level rise in this century has risen from a foot to a meter - or more. One hundred million people live along the Earth's shorelines. Where will they move as the 21st century unfolds on a warming planet?”

April crude climbed $1.41 to close at $63.58 a barrel, marking its highest close since March 3. On an intraday basis, the contract's high of $63.90 was its loftiest level since Feb. 10. April natural gas climbed 12.4 cents to close at a three-week high of $7.267 per million British thermal units. Yesterday, Treasury bonds rallied smartly due to the belief that inflation in the U.S. is tame. Tell that to the person on Main Street. Real average weekly earnings were unchanged from January to February after
seasonal adjustment, according to preliminary data released today by the Bureau
of Labor Statistics of the U.S. Department of Labor. A 0.3 percent increase in
average hourly earnings was offset by a 0.3 percent decrease in average weekly
hours. Average weekly earnings rose by 3.5 percent, seasonally adjusted, from
February 2005 to February 2006. After deflation by the CPI-W, average weekly
earnings decreased by 0.1%. Thus, any wage gains are being outstripped by inflation.
Does that sound tame to you?

The Federal Reserve has no intention of preserving all of the recent gains in home price values, said Federal Reserve board governor Donald Kohn on Thursday. "If real estate prices begin to erode, homeowners should not expect to see all the gains of recent years preserved by monetary policy actions,” Kohn said in a speech prepared for delivery to a European Central Bank forum in Frankfurt, Germany.

By a 52-48 vote, the Senate raised the debt ceiling by $781 billion to approximately $9 trillion or about $30,000 for each of our citizens. The debt limit increase was the fourth of Bush's presidency, totaling $3 trillion. With the budget deficit expected to approach $400 billion both this year and next, an increase in the debt limit almost certainly will be required next year.

The U.S. Senate approved a 2007 budget plan that rejects President George W. Bush's calls to trim Medicare spending, while it boosts federal spending by at least $11 billion more than the administration's request. The Senate voted 51-49 last night to approve a budget blueprint of about $2.8 trillion that also allows oil drilling in the Arctic National Wildlife Refuge. The plan omitted procedural protections needed to enact any controversial tax-cut legislation.

Late Thursday, GM said it delayed its 10-K filing due to errors in the classification of cash flows for mortgage loan transactions at Residential Capital Corp., one of the GMAC units it wants to sell. "Unfortunately, we had an accounting issue surface at ResCap that did cause us to delay the filing," said GM's Simonetti.

Bay Area home sales tumbled in February for the 11th month in a row and prices rose at their slowest clip in two years as the region's real estate market showed further signs of easing after several years of feverish activity.

U.S. military spending in Iraq and Afghanistan will average 44 percent more in the current fiscal year than in fiscal 2005, the nonpartisan Congressional Research Service said. Spending will rise to $9.8 billion a month from the $6.8 billion a month the Pentagon said it spent last year, the research service said.

On the plus side, according to the Detroit Free Press and the Detroit News, General Motors Corp. revealed Thursday that it lost $10.6 billion last year -- $2 billion more than it announced in January -- as it anticipates higher costs for trying to save Delphi Corp., its largest supplier. The news suggests that GM may have worked out a broad agreement with the UAW on the costs of a bailout at Delphi, which would avert a crippling strike that would be a financial disaster for the world's largest automaker, financial analysts said. In its revised 2005 results, GM increased the charge for liabilities related to Delphi to $5.5 billion, on a pretax basis, from $3.6 billion after reassessing its exposure.
In January, GM had estimated its exposure in a wide pretax range between $3.6 billion and $12 billion but now puts them at between $5.5 billion and $12 billion. The automaker's charge reflects its belief that its liability will be at the low end of the range.

On the plus side, the BOJ Governor stated there are no immediate plans to raise interest rates. That gives a short-term reprieve to the carry trade.

China's investment in factories, real estate and other fixed assets soared by 26.6 percent in January and February over the same period last year, the government announced Friday, despite official efforts to rein in such spending. Total fixed-asset investment in the two-month period was 529.4 billion yuan (US$65.9 billion; euro53 billion), the National Bureau of Statistics reported.

Abraham Maslow: “The neurosis in which the search for safety takes its clearest form is in the compulsive-obsessive neurosis. Compulsive-obsessive to frantically order and stabilize the world so that no unmanageable, unexpected or unfamiliar dangers will ever appear.”

I trust everyone will survive quintuple expiration day and the green beer on St. Patrick's.

Thursday, March 16, 2006

Contradictions

3/16/06 Contradictions

Healthcare accounts for approximately 15% of our nation’s GDP. However,
according to a major new study published in today's issue of the New England Journal of Medicine, the care is described as mediocre. The study found that, though there are some disparities, the world's most affluent health system fails to provide all patients with optimal care at least 40 percent of the time. "Differences exist, but they pale in comparison to the chasm between where we are today and where we should be," said chief author Dr. Steven Asch of Rand Health and the Veterans Affairs Health Care System in Los Angeles. "No matter who you are, it's almost a flip of the coin as to whether you get the care that experts want for you."

Yesterday, DuPont raised its earnings guidance. At the same time, the company announced the closing of 4 facilities and the intention to cut 1,500 job. The stock rose in price.

While Sears Holding announced higher than expected quarterly earnings, sales at Kmart and Sears continued to languish. In fact, same-store sales were lousy. The stock rose over 10% in price.

The S&P 500 closed above 1300 for the first time in 5 years, and the 400 S&P Midcaps and the 600 S&P Smallcaps joined in the bullish parade. However, percentage-wise there were substantially less new highs posted yesterday in all three indices than there were just 60 days ago.

Last year's energy bill required that ethanol be added to gasoline beginning Jan. 1. Since then, ethanol has ranged from 50 cents to $1 per gallon more than gasoline. Thus, it has added several cents to the pump price. The mandate, currently at 4 billion gallons for 2006, nearly doubles to 7.5 billion gallons in 2012. The Environmental Protection Agency also is phasing in costly new limits on the sulfur content of gasoline and diesel fuel, and it recently proposed another rule designed to reduce benzene and other components from gasoline. All these new regulations mean higher gasoline prices.

In February, the government mailed out tax refunds to early tax filers, and many refunds were sent out. As we approach April, filers will be making added tax payments.

The Russell 2000, the NYSE Composite, and the Dow Transports all made new all-time highs yesterday. The railroads were particularly a standout. At the same time, Arkansas Electric has a problem that is a growing concern for many U.S. utilities: It can't get enough coal to run its power plants because the trains that serve as its supply line aren't running on time. Delays in coal shipments to the Arkansas generator began last May with rail disruptions in Wyoming and forced the utility to burn more natural gas, lifting its 2005 power-generation costs by 21 percent, or $100 million. Nearly a year after problems began, "coal deliveries still aren't back to normal," says Steve Sharp, head of fuel procurement for Arkansas Electric, which furnishes power to 17 utilities. That, in turn, inflated power bills by about $20 a month for residential electricity consumers across much of Arkansas. For big industrial energy users, the hit was even greater. Matt Szymanski, general manager of Green Bay Packaging Inc., which operates a paper mill in Morrilton, Ark., says he "freaked out when I saw the power bill for December," which was double that from a year ago. The railroad stocks are surging in price and yet their supply lines are not running on time.

GM has made more money from auto loans and mortgages than building cars and trucks since 2002.

The exchanges in China and Dubai are beginning to trade silver. It is noteworthy that yesterday silver traded at $10.35 an ounce, a 22-year high. One might consider adding to positions in silver on near-term pullbacks.

People ask me daily why I continue to sell into strength. In turn, I ask when was the last time the equity market had a 10% correction in price? Is it meaningful that petroeuros come into being on March 20? Is it important that the debt limit needs to be increased once again? Is it significant that, on March 23, the Fed no longer provides weekly M3 money supply numbers? On Tuesday, interest rates declined in the Treasury market while oil prices rose to $63 a barrel. Yesterday, interest rates rose as the price of crude declined to just above $62 a barrel. What’s more important higher interest rates or lower crude prices? Before you answer, remember that gasoline prices might still rise as crude stays at $60 a barrel—it’s the new regulations! Meanwhile, according to the WSJ, outlays for net interest will be about 20% higher at the end of the government’s fiscal year than they were last year. Net interest outlays for the first five months of the fiscal year were estimated at $92 billion, compared with $72 billion a year earlier.

Is it significant that monthly net capital inflows continue to trail the monthly trade deficit?

Do you care that the United Arab Emirates plan to shift 10% of its FX reserves from US dollars to euros?

Oliver Wendell Holmes: “People who honestly mean to be true really contradict themselves much more rarely than those who try to be “consistent.''

Wednesday, March 15, 2006

Current Account Deficit

3/15/06 Current Account Deficit

The U.S. current account deficit widened by 21.3% to a record $224.9 billion in the fourth quarter, the Commerce Department reported Tuesday. The deficit amounted to a record 7.0% of gross domestic product. The current account gap was wider than expected. Economists forecast the current account to rise to $218.0 billion in the fourth quarter. For all of 2005, the current account deficit grew to a record $804.9 billion, totaling a record 6.4% of GDP. It's the ninth annual record in the past ten years.
The questions to be asked: (1) does the current account deficit matter? (2) if it does matter, is there a tipping point as a percentage of GDP? (3) how can the U.S. reduce the current account deficit? (4) do you believe Americans even care about the current account deficit?

Bernanke: "I am quite concerned about the intermediate to long-term federal budget outlook," he said in a letter to Sen. Robert Menendez following up on the Fed chief's February 16 testimony to the Senate Banking Committee.
"In particular, the budget is expected to come under severe pressure as impending demographic changes fuel rapid increases in entitlement spending. By holding down the growth of national saving and real capital accumulation, the prospective increase in the budget deficit will place at risk future living standards of our country," Bernanke said.
"As a result, I think it would be very desirable to take concrete steps to lower the prospective path of the deficit," he said in the letter, which was dated March 9.

The global market for credit derivatives grew 39 percent to $17.3 trillion in the second half of 2005 on demand for contracts to bet on corporate credit quality or insure against defaults. Credit-default swaps, which pay compensation in the event of borrowers defaulting on their debt, expanded 105 percent in the full year, leading gains in the overall market for contracts based on underlying assets. Growth slowed from the 123 percent increase in 2004, the International Swaps and Derivatives Association said in a report today in Singapore at its annual meeting. In other words, the global market for credit derivatives is far outstripping the growth of global GDPs. One might note that
dealers in the huge market for credit derivative contracts have committed to reducing 70% of trade confirmation problems by the end of June, the Federal Reserve Bank of New York said Monday.

Premier Wen Jiabao stated the market will play a greater role in setting exchange rates.
Wen said China will expand the currency market and allow for more movement in the exchange rate. The yuan strengthened to 8.0379 against the dollar as of the close of trading in Shanghai at 3:30 p.m., from 8.0473 yesterday, according to data Bloomberg compiled.

China's automotive market maintained steady growth in 2005 to reach almost 3.8 million new vehicle registrations, a 19 percent increase compared to 2004, according to
R. L. Polk & Co. GM passenger cars captured 14.2 percent of the segment's market share,
with Volkswagen following closely at 13.3 percent of passenger car market share.

Sony announced a six-month delay of its next-generation PlayStation 3, benefitting Microsoft.

Yesterday morning Goldman Sachs reported that its quarterly earnings surged 64%, much higher than analyst forecasts. In addition, according to a report from Medley Global Advisors, the Fed is becoming more comfortable that inflationary pressures from the labor market and energy costs have stabilized. Thus, it may stop raising interest rates after its next policy meeting in late March. This report struck a positive chord with bond investors and interest rates dropped dramatically. The rally brought the yield on 10-year Treasury bonds down to 4.70% and clearly left the yield curve in a more comforting non-inverted state. In my opinion, this is simply a rally in a bear market for bonds. As the twin tower deficits continue to rise, the need for more financing will expand monthly. However, between the Goldman report and the Medlay report, the equity market had a strong rally with the S&P 500 closing at its highest level since May 2001 and the Dow at its highest level since June 2001. There was above average volume in advancing issues.

Amerada Hess Corp. said Tuesday that over the weekend it unexpectedly shut a gasoline-producing unit at a refinery in St. Croix that it co-owns with Petroleos de Venezuela. The spokesman said repairs to the unit, which refines roughly 150,000 barrels of crude per day, could take up to two weeks. Crude rallied to close just above $63 a barrel. "We are looking at retail prices that will soon be above $2.50 gallon nationally, and could perhaps eclipse the $2.60 per gallon" level, said analyst Tom Kloza at Wall, N.J.-based Oil Price Information Service. The average retail price of unleaded gasoline was $2.37 a gallon last week — the highest level since November, according to the Energy Department.

Our national debt totals $8.3 trillion, a level that is expected to force Congress this week to raise the debt ceiling for the fourth time in George W. Bush's presidency. The bigger our debt becomes, the bigger the 'risk premium' that foreigners are going to demand," in the form of higher interest rates, says Barry Eichengreen, an economist at the University of California, Berkeley.

Snow: "I am urging members of Congress in the strongest possible terms to resist coupling an increase in the debt ceiling with other issues," Snow said.
"Rather, they should vote to raise the ceiling this week. It would be unthinkable for them not to take action," he said, warning that the "full faith and credit" of the US government was too precious to be compromised. Snow has issued increasingly urgent warnings to Congress that the statutory debt limit of 8.184 trillion dollars will be hit this week, and that the government will then lose its borrowing power.

Ford Motor Co. is reducing health care benefits for its salaried work force, including an unconventional move to charge extra to cover spouses who have access to other health care insurance. At the same time, DaimlerChrysler AG's Chrysler Group is expected to detail changes to its health care coverage today for salaried workers and retirees.
On June 1, Ford will begin charging workers $110 a month for health insurance and $11 a month for dental benefits for spouses or same-sex domestic partners who want Ford coverage but are eligible for non-Ford health insurance. Last year, the cost of health care benefits for Ford was $3.5 billion. Ford has about 40,000 salaried workers in North America, including those in Canada and Mexico. It pays health benefits for some 550,000 white-collar workers, blue-collar workers, retirees, spouses and dependents.
"There's an additional cost to Ford to have additional spouses on the policy," Ford spokeswoman Marcey Evans said of the surcharge for spouses. "If the spouse can get other coverage, our employee needs to help share some of those additional costs."

Dudley Baker: “The Housing Affordability Index Affordability (HAI) continues to drop and is expected to reach a 16 year low in 2006. In March 2006 it was 136 (down from 149 in December and 155 in December 2004) meaning that the median family has 136% of the necessary income to qualify for the median priced home using a twenty percent down payment and a thirty year fixed rate mortgage. If the down payment were only 10% the HAI would be 116 and if the down payment were only 5% the HAI would only be 108.”

According to the WSJ, a group of investors led by private equity firm Kohlberg Kravis Roberts & Co. has submitted a nonbinding bid of $12.5 billion to $13 billion for General Motors Corp.'s GMAC. KKR has obtained financing from equity sources such as Wachovia Corp., Merrill Lynch, General Electric Co., and the Bank of Nova Scotia the report said. A nonbinding bid sounds similar to the highly confident letters from Drexel Burnham in the 1980s.

Jobless claims in Britain rose by the most since 1992. U.K. claims rose 14,600 to 919,7000 in March, with the unemployment rate over the last three months up 0.1 percentage points to 5%.

Employer costs for employee compensation averaged $26.46 per hour worked in
December 2005, the U.S. Department of Labor’s Bureau of Labor Statistics reported yesterday. Wages and salaries, which averaged $18.59, accounted for 70.2 percent of these costs, while benefits, which averaged $7.87, accounted for the remaining 29.8 percent.

Sandra Day O’Connor: "I am against judicial reforms driven by nakedly partisan reasoning…We must be ever vigilant against those who would strong-arm the judiciary into adopting their preferred policies. It takes a lot of degeneration before a country falls into dictatorship, but we should avoid these ends by avoiding these beginnings."

Tuesday, March 14, 2006

Housing

3/14/06 Housing

China's trade surplus narrowed to the lowest since July 2004 as imports grew at the fastest pace in 15 months and exports cooled. The surplus fell to $2.45 billion from $9.49 billion in January, the customs bureau said today on its Web site. That was below the median $7.5 billion forecast in a Bloomberg News survey of economists. Imports jumped 30 percent as higher oil prices boosted the value of overseas purchases.

General Motors Corp. expects the amount it spends on sales incentives to fall by an average of $1,000 or more per vehicle this month, despite the launch this week of its March Madness sale. GM told dealers on Monday that from March 16 to April 4, it will offer a cash bonus of $500 or $1,000 on vehicles that have been sitting on dealer lots for 120 days or more. In addition to current incentives, consumers will get another $500 cash back on all cars and $1,000 back on Cadillacs, pickups, minivans and SUVs that arrived in dealer showrooms before Nov. 17. "We're still continuing to bring the incentive spending down," GM spokeswoman Deborah Silverman said Monday.
GM's incentives fell by an average of $1,000 per vehicle in January and February, Silverman said. In an effort to break its feast-or-famine cycle of huge incentives, GM slashed the sticker price of most vehicles by an average of $1,300 in January.

The former head of Blockbuster Entertainment and AutoNation Inc., Steve Berrard, chairman of Services Acquisition Corp. International, is spearheading the acquisition of Jamba Juice Co. for $265 million in the hopes of expanding the 532-store chain. "With a long-established operating history and an excellent opportunity for organic growth, we believe the opportunity for Jamba Juice is tremendous," Berrard said in a statement Monday. The privately owned juicemaker, founded in San Francisco in 1990, reported $345 million in sales last year.

Above ground corn supplies in China are now at 30-year lows. China is the second-largest corn exporter in the world and the largest in Asia.

The National Association of Realtors stated the national median existing-home price should rise to $220,300 this year while the median price on a new home should increase 5.4% to $250,200. At the same time, they predicted resales of U.S. homes will likely decline 5.7% to 6.67 million in 2006 from the record 7.08 million in 2005. New-home sales should fall 7.7% to 1.18 million from a record 1.28 million in 2005. Still those sales levels would be the third highest after 2005 and 2004, the group said.
Housing starts should hit 1.98 million this year, down from 2.06 million in 2005, the group said. The 30-year fixed-rate mortgage should increase to 6.9% in the fourth quarter of the year, the Realtors said. If inventories of unsold homes continue to rise, what are the chances prices will continue to rise?

Monday, March 13, 2006

Unusual Events

3/13/06 Unusual Events

Over the weekend violent storms could be seen in many sections of the U.S. Twisters hit Missouri, Illinois, Kansas, the Miss. Valley, and the Ohio Valley. Similar events are expected to take place today.

According to the Lundberg survey, over the last two weeks gas at the pump rose 11 cents a gallon to $2.38.

A National Association of Home Builders survey of 500 builders in January found 41 percent are offering free appliances, 31 percent are paying closing fees and 15 percent are paying up-front financing.

McClathy, the owner of the Sacramento Bee, announced a merger agreement to buy Knight Ridder for $67.25
a share, comprised of $40 in cash and 0.5118 a share of McClathy stock. I would surprised whether the deal can hold at that value. McClathy stock will come under pressure.

Capital One announced an agreement to buy North Fork, a Melville, N.Y. bank for $31.18, represented by $11.25 in cash and .2216 of a share of Capital One stock.

According to the WSJ, Japan's Aozora Bank will invest $1 billion with the Cerberus/Citigroup consortium to purchase 51% of GMAC.
Japan's Norinchukin Bank, one of the country's largest financial institutions, is also considering joining the Cerberus-led push for GMAC, a source close to the bank said last week.

Mike Burk: "The week does have an extremely positive bias especially during the 2nd year of the Presidential Cycle. Since 1930, during the 2nd year of the Presidential Cycle, the SPX has been up 74% of the time and the OTC, since 1966 has been up 70% of the time. Seasonally next week is one of the stronger weeks of the year."

Bob Hoye: "The yield curve is reversing to steepening and that is reliable in signaling the beginning of the credit contraction."

John Maudlin: "Our ports are run by a number of companies that are not US based companies. Five ports have Danish firms running them, for instance. Two are run by the Chinese. Basically these companies move freight. Pick it up here and put it there. They have nothing to do with port security. Port security is the province of US Customs and the Coast Guard. And they hire American union workers. The U.A.E may be the largest non-US port service for the US Navy in the world, based in Dubai. They are a solid ally and a voice of moderation and stability in an area of the world where such is needed."

Mish reminds us of some thoughts on the possible dust bowl. "It is not a coincidence that the Dust Bowl years of the 1930s were marked by years of tremendous hurricane activity," said AccuWeather.com Hur-ricane Center Chief Forecaster Joe Bastardi.
"For example, the record-shattering 2005 hurricane season was the first to eclipse 1933 in number of tropical cyclones, and that may only have been because we didn't have satellites in the 1930s to identify the major storms that failed to reach the U.S. coast." Added Bastardi, "While we cannot yet tell how long this current pattern will last, if you trust history, then the 2005 hurricane season just may portend the return of a major drought to the Great Plains."

Verizon Communications has made an informal approach to Vodafone Group Plc about buying the latter's 45 percent stake in Verizon Wireless for about $40 billion, British newspaper the Business reported on Sunday. "We have made our interest in acquiring Vodafone's stake in Verizon Wireless clear," a Verizon source told the paper. "The ball is now in Vodafone's court."

According to Economy.com, "more than $2 trillion of U.S. mortgage debt, or about a quarter of all mortgage loans outstanding, comes up for interest-rate resets in 2006 and 2007." What do you think the
impact on American families will be?

John Hussman: "In March 2000, near the stock market's bubble peak, the median price/earnings ratio on the largest 50 S&P 500 stocks was 35.6, while the median P/E on the smallest 50 S&P 500 stocks was just 10.1. Currently, the median P/E ratios on the largest and smallest 50 stocks in the S&P 500 are 17.3 and 20.3, respectively. So while the valuation multiples of the largest stocks have dropped by over 50%, the valuation multiples of the smallest stocks have more than doubled. The same is true if we examine price/book and price/revenue ratios."

Hong Kong was the fifth-largest market for U.S. beef products in 2003. At that time, they banned the importation of U.S. beef. Last December, the country partially lifted the ban. Hong Kong just announced the ban on all imports of Swift Beef because skeletal bones were found in some products. The beef industry in the U.S. never learns.

Sunday, March 12, 2006

Double Standard

3/12/06 Double Standard

United Arab Emirates' central bank governor, Sultan Nasser al-Suweidi, stated today that the row kicked up by U.S. lawmakers over the ports deal betrayed a double standard. "It is against the principles of international trade ... which the U.S. was instrumental in making. They are contravening their own principles in this respect," Suweidi told reporters. "Investors are going to take this into consideration ... They will look at investment opportunities (in the United States) through new binoculars."

According to the Wall Street Journal, Iran will no longer consider a proposal to move its uranium enrichment program to Russian territory and is instead considering large-scale uranium enrichment at home.

Lapses by private port operators, shipping lines or truck drivers could allow terrorists to smuggle weapons of mass destruction into the United States, according to a government review of security at American seaports.The $75 million, three-year study by the Homeland Security Department included inspections at a New Jersey cargo terminal involved in the dispute over a Dubai company's now-abandoned bid to take over significant operations at six major U.S. ports.The previously undisclosed results from the study found that cargo containers can be opened secretly during shipment to add or remove items without alerting U.S. authorities, according to government documents marked "sensitive security information" and obtained by The Associated Press.The study found serious lapses by private companies at foreign and American ports, aboard ships, and on trucks and trains "that would enable unmanifested materials or weapons of mass destruction to be introduced into the supply chain."

Brett Steenbarger: "The odds of the market rising five minutes after a five minute rise (or declining after a five-minute decline) are worse than one in three. The reason for this is that a number of five-minute periods close unchanged. The low volatility conspires to restrain very short-term trending behavior. This makes momentum trading near impossible. Either one must extend one's holding period well beyond five minutes--in which case you're really no longer a scalper--or one be willing to fade any movement whatsoever, risking those one in three occasions when the market can run you over."

At the end of last week's trading, the yield curve was no longer inverted. Let's see whether this reversal is on-going.

Doug Noland: "I will continue to suggest that we have entered a much more volatile and uncertain market environment across virtually all asset classes, the Problematic Terminal Bubble Phase where underlying fragilities and vulnerabilities begin to emerge."

In the voters must be schmucks category, Bush stated yesterday "by helping the Iraqi people build a free and representative government, we will deny the terrorists a safe haven to plan attacks against America. The security of our country is directly linked to the liberty of the Iraqi people."

A Cleveland Clinic-led international study has found that long-term therapy with low-dose aspirin plus another
antiplatelet agent, clopidogrel (Plavix(R)), is not more effective than
aspirin alone in preventing heart attack, stroke, and cardiovascular death in
a broad patient population.
Results from the study will be presented at the 55th Annual Scientific
Session of the American College of Cardiology (ACC) in Atlanta on March 12 and
simultaneously published online in the New England Journal of Medicine.
The majority of patients in the study, those who had already experienced a
heart attack or stroke or who had symptomatic blockages in their legs
(Peripheral Arterial Disease or PAD), did benefit from the dual therapy,
demonstrating a significant 12.5% reduction in their risk of heart attack and
stroke. Unexpectedly, researchers also found that the subgroup of patients
with multiple risk factors for heart attack or stroke but who did not have
established cardiovascular disease may have experienced some harm, including
higher rates of severe bleeding.
"There are several important findings from this study," says Deepak L.
Bhatt, M.D., lead author and director of the Cardiovascular Trials Unit and
associate director of the Cleveland Clinic Cardiovascular Coordinating Center.
"Although the study found that clopidogrel plus aspirin was not effective in
patients with multiple risk factors only, it may be effective in secondary
prevention, or preventing a second heart attack or stroke in people who have
already experienced one of these events or who have PAD. This is a large
population that is in need of improved therapies."
CHARISMA (Clopidogrel for High Atherothrombotic Risk and Ischemic
Stabilization, Management, and Avoidance) was a prospective, multicenter,
randomized, double-blind, placebo controlled study of the safety and efficacy
of clopidogrel plus aspirin compared to aspirin alone in stable patients at
high risk for a cardiovascular event. Prior studies had established the
efficacy of clopidogrel plus aspirin in patients with acute coronary
syndromes, but long-term dual therapy had not been evaluated in a broad
population of stable patients.
The CHARISMA study included 15,603 patients with either diagnosed
cardiovascular disease (~80% of the study population) or multiple risk factors
for cardiovascular disease (~20% of study population). Patients were randomly
assigned to receive clopidogrel (75 mg per day) plus low-dose aspirin (75 to
162 mg per day) or placebo plus low-dose aspirin for a median of 28 months.
The primary endpoint was measured as a combination of heart attack, stroke, or
death from cardiovascular causes.

The deal for Knight Ridder probably will be announced on Monday morning.
A stated worth of $67 a share would not be surprising.