No Fun For Employees

4/29/06 No Fun For Employees

While much is made of the GDP rising 4.8% in the latest quarter, your attention should focus on the fact that, over the past year, employment costs have increased 2.8%, wages and salary costs have increased 2.7% in the past year, and benefit costs increased 3.4%.In sum, the average worker is sucking on a hind tit. One should also note something the BLS mentioned-- "severance pay and supplemental unemployment benefit plans,formerly included in compensation and benefits,are no longer collected."

The Chicago purchasing managers index fell to 57.2% in April from 60.4% in March. The new orders index fell to 60.8% from 62.2%. The prices paid index rose to 77.2% from 71.1%.

Gold traded up $20 to a new 25-year high. The silver ETF began trading and quickly rose in price.

According to the Financial Times, Venezuela, the world's fifth-largest oil exporter, has struck a $2bn deal to buy about 100,000 barrels a day of crude oil from Russia until the end of the year. Venezuela has been forced to turn to an outside source to avoid defaulting on contracts with "clients" and "third parties" as it faces a shortfall in production, according to a person familiar with the deal. Since Hugo Chavez became president, the country's oil production has declined 60%.

In the last several days there have been numerous brokerage downgrades on the homebuilding stocks. As a group they have been drifting down in price. One though has gone up and stayed up-- Meritage Homes. One could state that's because their latest earnings report was above estimates; however, new orders etc were nothing great. I'm wondering whether there will be consolidation in this industry.

In 2005, Iraq's exports averaged just 1.4 million barrels a day. Approximately 15 years ago, their peak production was 3.5 million barrels per day. The country requires significant investment to get their oil operations in good working order.

April became the deadliest month for U.S. forces in Iraq this year. So far in April, 70 of our fighting men and women have been killed. Since our invasion of Iraq, 2401 of our fighting forces have been killed.

Thirty plus years ago there were days that the volume on the New York Stock Exchange was only 10 million shares. Yesterday, while dropping 11% or $32 billion in value, Microsoft traded an astounding 600 million shares. Now trading at a new 52-week low, one might ask whether the shares represent a good value. I would ask a different question. Would I want to purchase the entire company at the present market price that equates to $250 billion? If I had that type of money, I'd rather buy other companies. In sum, I believe there is better value elsewhere.

Marty Chenard: "These are not normal trending market conditions ... these are times of liquidity injections, with the dollar dropping, strong economic growth, government over spending, and an uncontrolled deficit."

Our government works this way: we provide 61 cents per gallon in tax credits to ethanol producers and farmers but we hit Brazil ethanol with a tariff of 54 cents per gallon.

Over the past year as well as year to date, bank credit, real estate loans, commercial paper, and asset-backed securities issuance have all exploded at double digit plus rates. It is only fitting that Citigroup and Bank of America were standout performers in Friday's market.

Doug Wakefield: "With our banking system’s current exposure to low doc/no doc risky real estate loans, credit card, and auto loans, and with the credit default swap markets soaring, we would all do well to remember banks have not always been synonymous with safety."

The dollar traded at an 11-month low versus the euro and a 3-month low against the yen.

The cost of putting each U.S. military service member in the Iraq war zone approached a record-high $400,000 by the end of 2005 and is continuing to rise sharply, according to a government study. The figure did not include basic pay.

Every sports forecaster stated Reggie Bush would be the first pick in the NFL draft. Going against the crowd was the right move--- again. Mario Williams, a defensive end, will be the first pick. He has signed a 6-year deal for $50+ million.

Congressman Ron Paul: " One of the characteristics of commodity money-- one that originated naturally in the marketplace-- is that it must serve as a store of value. Gold and silver meet that test-- paper does not. Because of this profound difference, the incentive and wisdom of holding emergency funds in the form of gold becomes attractive when the official currency is being devalued. It’s more attractive than trying to save wealth in the form of a fiat currency, even when earning some nominal interest. The lack of earned interest on gold is not a problem once people realize the purchasing power of their currency is declining faster than the interest rates they might earn. The purchasing power of gold can rise even faster than increases in the cost of living. "

Fed Expectations

4/28/06 Fed Expectations

Think for yourself. Don't let Bernanke do your thinking. Maybe the Fed will raise in June. Maybe the Fed will pause. So what. The direction of interest rates is up. The twin tower deficits are rising to the moon, Alice. Even Bernanke recognizes that more government spending and higher deficits will lead to higher taxes andnot tax cuts. The Fed does not control long-term interest rates. Our lenders dictate the rates by expressing their pleasure or displeasure in our monetary policies. Look at the three treasury auctions this week. They were from hunger. Don't get caught up in Wall Street fixation with the Fed. It will put you on a merry-go-round to palookaville.

Fed Governor Kohn wonders why capital spending has been so "sluggish" for the last five years. Maybe he should look at the caiptal spending by U.S. companies outside of our country.

Robert McHugh noted another Hindenburg Omen on Wednesday. They are coming fast and furious in the month of April. It was the seventh since April 7. Watch out for the fallout in May.

China raised its lending rate from 5.58% to 5.85%. The last raise only had a temporary impact on slowing down their
country's growth.

Microsoft predicted earnings per share for the year of $1.36-1.41, far short of the $1.53 most analysts expected. They stated that costs were "snowballing." Despite being in the minority for the last several years, I continue to believe theses shares should be sold whenever they exceed $27. Gates and Ballmer have not shown me that they can effectively manage a company of this size.

The CHC Helicopter privatization plan was dropped. The stock declined to just below the $25 level. In sum, shareholders did not take much of a hurt. The company should continue to do well.

The dollar index continues to decline, and broke below the 87 level. Yesterday, the dollar traded at a 7 1/2 month low verus the euro and at a 3 month low versus the yen.

On Thursday, even though the Dow rose 28 points to a new 6 year closing high, Robert McHugh reported another Hindenburg Omen occurrence, the 8th one seen in the last 13 days, and the 4th this week. By the way, have you noticed the weakness in the Russell 2000?

This morning's announcement will probably show that the GDP grew about 5% in the first quarter. That doesn't mean your wages grew after allowing for inflation. Did the GDP really grow if inflation is closing in on a 7 percent plus rate? You doubt that number? Margins for oil refiners are up 100% over the last 12 months. The price of ethanol has risen over 100% in the past year. Does it surprise you that the dollar is tanking and that treasury bonds have been a lousy investment over the past year?

An Interesting Wednesday

4/27/06 An Interesting Wednesday

There were plenty of fireworks. March durable goods, ex transportation, gained 2.8%. Sales of new U.S. homes rose a much larger-than-expected 13.8 percent in March to a 1.213 million unit annual rate, the biggest one-month gain since April 1993. However, prices fell sharply and the number of unsold homes hit a record high, the department also reported.
Despite the strong March new homes sales pace, there were renewed signs the housing boom is losing momentum. The median home price slipped 2.2 percent from a year earlier to $224,200, the first year-over-year decline since December 2003, the Commerce Department said. Also, the March sales pace was down 7.2 percent from March 2005. Inventories increased as well as new homes available for sale at the end of March reached a high of 555,000.
A separate report showed U.S. mortgage applications fell for a third consecutive week, with demand for home purchase loans falling to its lowest level since November 2003 despite a drop in interest rates, an industry trade group said.
The Dow finished at a new 6-year high with GM a standout after Merrill Lynch upgraded the stock. Meanwhile, the upbeat economic data pushed 10-year Treasury yields to a new 4-year high and the 2-year Treasury is now yielding 4.99%. This week the 5-year, 2-year, and TIPS treasury auctions have been disappointing. Who can blame the buyers for staying away?

Both Pulte and Dallas-based Centex, the No. 4 U.S. home builder, said the number of orders for new homes fell 11 percent in the quarter compared with the year-earlier quarter. Beazer stated its new orders fell 19.4%.
Centex cut its forecast for the year and its stock fell sharply in after-hours trading. Pulte and Beazer basically maintained their full year earnings expectations. With interest rates moving higher, that could be optimistic.

Cascade Natural Gas reported earnings that rose 22% for the quarter and the first six months. Importantly, buried in a long press release and in the last sentence, Cascade said "the Company is considering other strategic alternatives, including a possible business combination. The Company plans to make no further announcement until its evaluation of strategic alternatives is concluded." In my view, once agin, this is a real sleeper like PetroKazakhstan.

The Consumer

4/26/06 The Consumer

Recently, I wrote about the UBS Investor Survey and that indicated a low level of confidence. Yesterday, The Conference Board Consumer
Confidence Index, which had increased in March, improved further in April.
The Index now stands at 109.6 (1985=100), up from 107.5 in March. This is
the highest level since May 2002 (110.3).
The Present Situation Index rose to 136.2 from 133.3. The Expectations
Index improved to 91.9 from 90.3 last month.
The Consumer Confidence Survey is based on a representative sample of
5,000 U.S. households. The monthly survey is conducted for The Conference
Board by TNS. TNS is the world's largest custom research company. The
cutoff date for April's preliminary results was April 18th.
"Improving present-day conditions continue to boost consumers'
spirits," says Lynn Franco, Director of The Conference Board Consumer
Research Center. "Recent improvements in the labor market have been a major
driver behind the rise in confidence in early 2006. Looking ahead,
consumers are not as pessimistic as they were last month. However,
expectations for the economy and labor market have been trending downward
since peaking in 2003. And, while prices at the pump have yet to impact
confidence, further increases could dampen consumers' mood."
With soaring gas prices I would have thought this index would have shown a decline.

I was also surprised by the housing numbers. Sales of existing homes rose unexpectedly in March by 0.3% to a seasonally adjusted annual rate of 6.92 million, the National Association of Realtors said Tuesday. After five months of declines, existing home sales have risen two months in row, prompting David Lereah, chief economist for the realtors, to say, "This is additional evidence that we're experiencing a soft landing." Economists expected sales to fall to a 6.70 million pace in March. The number of homes for sale rose 7% to a record 3.194 million, representing a 5.5-month supply at the March sales pace, the largest supply since July 1998. Median prices are up 7.4% in the past 12 months to $218,000, the smallest price gain since January 2004.

Robert McHugh: "We received a fifth Hindenburg Omen on Monday, April 24th, 2006, the fifth since April 7th, 2006."

The 10-year Treasury bonds are yielding about 5.08%, the highest in 4 years. Why go out 10 years when the 2-year provides a yield of 4.98%. I wouldn't buy either with your money.

Bill Miller, co-manager of Legg Mason Value Trust Fund: "I can't help but be skeptical of the advice to start or increase a position in commodities after the biggest bull move in 50 years." His performance over the last 10-15 years speaks for itself.

There is continued weakness in the dollar index.

WellPoint's Medical enrollment grew to 34.2 million members as of March 31, 2006.
Net income was $1.09 per share, exceeding expectations by $0.02 per share.
Full year 2006 earnings guidance raised to $4.63 per share, including net
realized investment losses of $0.01 per share.
Operating cash flow totaled $1.8 billion in the quarter.
During the first quarter, the Company repurchased 24.7 million shares of
its common stock for $1.9 billion.

The percentage of working-age Americans with moderate to middle incomes who lacked health insurance for at least part of the year rose to 41 percent in 2005, a dramatic increase from the 28 percent in 2001 without coverage, a study released on Wednesday found. More
than half of the uninsured adults said they were having problems paying their medical bills or had incurred debt to cover their expenses, according to a report by the Commonwealth Fund, a New York-based private health care policy foundation. The study of 4,350 adults also found that people without insurance were more likely to forgo recommended health screenings than those with coverage, and were less likely to have a regular doctor than their insured counterparts.

The volume of loans to fund takeovers has soared 91 per cent to $347bn in the year to date, compared with the same period last year, data from Dealogic, the information provider, show.

Babcock and Brown, an Australian utility investment company, bought Northwestern Tuesday in a $2.2 billion deal besting Montana Public Power's bid of two-billion dollars. I believe there will be a great deal more utilty acquisitions in coming months.

Diamond Offshore Drilling said first-quarter net income rose to $145.3 million, or $1.06 a share from $30.1 million, or 23 cents a share in the year-ago period. Revenue nearly doubled to $447.7 million from $258.8 million. Diamond Offshore cited record-high average dayrates and rig utilization for the company's entire fleet. The company said its order backlog is at about $5 billion, up from $1 billion last year.

Jones Apparel has a "cautious" outlook for the year, and forecast earnings for the year of $2.19 a share. Analysts polled by Thomson First Call forecast $2.23 a share.

Engelhard Corp. is offering to buy 20% of its shares at $45 each and unanimously rejected German chemicals company BASF AG $38 a share offer.

Investor Confidence

4/25/06 Investor Confidence

Investor optimism tumbled to a five-month low in early April on lowered expectations for economic growth and concerns over signs of quickening inflation, a survey showed Monday.The UBS/Gallup index of investor optimism fell 16 points from March to a reading of 63 this month, UBS Securities said. It was the third straight monthly decline. The year began with a surge in January to a 19-month high in investor optimism. Only 45 percent of investors are optimistic about economic growth, down from 50 percent in March. Confidence in the performance of the stock market also dipped below 50 percent, according to the survey. Investors also see inflation as increasingly troublesome. In March, only 37 percent of those polled were pessimistic about the impact of inflation on the investment climate; this month that number rose to 42 percent.

A jury awarded Rambus $306.5 million and found that all 10 Rambus patent claims are valid and that Hynix Semiconductor had infringed on the patents. Additional suits have been filed against Micron, Samsung, and Nanya Technology. Even though the stock rallied 15% on the news, the May $20 puts and the May $90 calls collapsed in price.

Ford stated its U.S. auto operations would not be profitable until 2008. Meanwhile, all othe rparts of the company are showing a profit and free cash flow is still $2 billion. It is interesting to note Ford Motor is planning to add 2,000 employees for its ventures in China, where sales more than doubled in the first quarter. Cheng Meiwei, chief executive of Ford Motor China, said sales there rose about 120 percent, led by a 147 percent increase in sales of Focus compact cars, Mondeos and Fiestas, to about 27,000 units. Even though the shares have recently declined to the $7 level, I believe they represent an outstanding value. GM and Ford are underappreciated and poorly understood.

For the fiscal years 2003 through 2006, Cascade Natural Gas will have spent approximately $130+ million on capital expenditures. This compares with a market cap of $225 million and a dividend yield of 4.8%. The company's potential is going unrecognized.

Sun President Jonathan Schwartz has been promoted to chief executive, replacing Scott McNealy, but McNealy will continue serving as chairman of the board and a full time employee. Schwartz joined Sun in 1996 when the company acquired Lighthouse Design, Ltd., where he served as chief executive officer. He was named Sun's president and chief operating officer in April 2004, and has been responsible for Sun's product development, sales, marketing and operations. Schwartz has held numerous positions at Sun including executive vice president, software, senior vice president, corporate strategy and planning and vice president of the ventures fund. Sun has reported a net loss in 16 out of the past 20 quarters, and in January announced plans to close more than 120 offices in coming months and eliminate jobs in legal, administration and other areas as it consolidates the companies.

A message from the Chairman of the Putz dept-that's me. I like to invest in companies I understand, where management is seasoned and have a vested interest, and where the shares are clearly not followed in the investment community. In 2001 the Andersons Inc. fit the bill perfectly. This billion dollar plus business was in grain storage and railcars and the stock was $6+. No one wanted it. The company was a nice grower and conservatively run. About 15 months ago I thought adding to it at $24+ was a good idea. Then about six months ago I began to see members of the Anderson family take some chips off the table. The company was still doing well but at $40 or so it was getting a bit pricey. In March the stock rallied further to $55 on the news the company was building a second ethanol plant, a tiny part of their business. Then Cramer, recommended it 30 points higher, and last night it closed at $103+. Now I'm not complaining. I wish all my investments were this successful, but I left an awful lot on the table and therefore I am the resident Chairman of the Putz dept.

This morning in London copper traded at a record $7000 a ton and nickel approached $20,000
a ton.

Money Power And Palatin

4/24/06 Money Power And Palatin

Douglas V. Gnazzo: "By what authority does the State transgress the Constitution, first taking the money power from the people, and then handing it over to the Federal Reserve?"

The dollar sank to a three month low against the yen in trading this morning.

Vito Corleone: "Politics and crime are the same thing."
According to the WSJ, Venezuela's Chavez is taking steps to nationalize the country's oil industry. This should not come as a surprise.

Washington Mutual said Sunday it had agreed to buy Commercial Capital Bancorp in California to strengthen its commercial and retail-banking business. The cash deal was valued at $983 million. The company will pay $16 a share for Commercial Capital's outstanding shares, representing a 13 percent premium to where shares of the Irvine, Calif., company closed Friday. WaMu is the nation's largest lender for multifamily projects, such as apartment buildings, after Fannie Mae and Freddie Mac. Commercial Capital is the No. 3 multifamily lender in California. It also has 24 branches, which will supplement WaMu's network of more than 600 branches in the state.

John Hussman: "investors should recognize that since the 1960's, when the 10-year Treasury yield, the 3-month Treasury bill yield, and the Consumer Confidence index have all been rising (say, above their levels of 6 months earlier), the S&P 500 has underperformed risk-free T-bill yields by an average of -5.13% annualized, on average. But it gets worse. If we look at periods since 1975 when the Philadelphia Gold Stock Index (XAU) was also above its level of 6 months earlier, it turns out that the S&P 500 has followed with annualized losses of -12.37% on an absolute basis (nearly a -20% shortfall versus risk-free Treasury bill yields). All four conditions are true today."

From Sunday's Observer Magazine on Palatin's PT 141: This is the link

http://observer.guardian.co.uk/magazine/story/0,,1759109,00.htm

The Same Thing

4/24/06 The Same Thing

Douglas V. Gnazzo: "By what authority does the State transgress the Constitution, first taking the money power from the people, and then handing it over to the Federal Reserve?"

The dollar sank to a three month low against the yen in trading this morning.

Vito Corleone: "Politics and crime are the same thing."

According to the WSJ, Venezuela's Chavez is taking steps to nationalize the country's oil industry. This should not come as a surprise.

Washington Mutual said Sunday it had agreed to buy Commercial Capital Bancorp in California to strengthen its commercial and retail-banking business. The cash deal was valued at $983 million. The company will pay $16 a share for Commercial Capital's outstanding shares, representing a 13 percent premium to where shares of the Irvine, Calif., company closed Friday. WaMu is the nation's largest lender for multifamily projects, such as apartment buildings, after Fannie Mae and Freddie Mac. Commercial Capital is the No. 3 multifamily lender in California. It also has 24 branches, which will supplement WaMu's network of more than 600 branches in the state.

John Hussman: "investors should recognize that since the 1960's, when the 10-year Treasury yield, the 3-month Treasury bill yield, and the Consumer Confidence index have all been rising (say, above their levels of 6 months earlier), the S&P 500 has underperformed risk-free T-bill yields by an average of -5.13% annualized, on average. But it gets worse. If we look at periods since 1975 when the Philadelphia Gold Stock Index (XAU) was also above its level of 6 months earlier, it turns out that the S&P 500 has followed with annualized losses of -12.37% on an absolute basis (nearly a -20% shortfall versus risk-free Treasury bill yields). All four conditions are true today."

The average price of gasoline is now $2.92. It's a good thing that inflation is under control.