Sharing Thoughts

6/25/06 Sharing Thoughts

Henry Kaufman: "The expansion in debt has been much greater than the increase in nominal gross domestic product...Today, anyone who really wants to borrow can borrow. Today, anyone who wants to borrow creates credit. And the Federal Reserve is not yet at that point where there is some pain in the system... I really feel that somewhere in the next 12 months we'll head to at least 6%."

"This year, more than $300 billion worth of hybrid ARMs will readjust for the first time. That number will jump to approximately $1 trillion in 2007, according to the MBA. Monthly payments will leap too, many beyond what homeowners can afford."... "Last year, foreclosures hit a historical low nationwide at about 50,000. But that number has more than doubled since then, according to Foreclosure.com..."ARMs are a ticking time bomb," said Brad Geisen, president and chief executive of property tracker Foreclosure.com. "Through 2006 and 2007, I'm pretty sure we'll see a high volume of foreclosures."

John Maudlin: "The next Fed meeting is August 8. They will have the first estimates of GDP for the second quarter. My guess now is the number comes in above 3%, which along with another uncomfortable inflation number in July will give them reason to raise rates yet one more time. That will take the Fed funds rate to 5.5%. Unless, and this is a big unless, the August and September inflation numbers come in sequentially higher than July's number, I think we will see the Fed finally pause in September. But the Fed will be driven by the inflation data. The yield curve will be fully and decidedly inverted in August, as opposed to flat which it will be after next week's raise it rates. The economy will be starting to slow and we should see long rates begin to drop, which will make the yield curve even more inverted by the end of the third quarter."

As I have stated previously, I believe the economy will grow faster than 3% in the near term. The following is an indicator that I value, and this information was provided by Doug Noland: EconoPlay.com (Gary Rosenberger): "A surge in packaging shipments in May, accompanied by aggressive price increases, points to an accelerating economy entering the summer - and possibly the most promising prospects for the packaging industry in decades, producers say. Few would have predicted May's year-over-year jump of 9.5% in corrugated container demand reported last week by the Fibre Box Association, which more than tripled the year-to-date average of 2.9%. The packaging industry has pushed through three aggressive price increases since October - and there's talk of two more by January. Prices now stand at about $510 to $520 a ton for linerboard and $490 to $500 a ton for corrugated medium (the main components of paper packaging), up 30% from the pre-Katrina bottom last August and fast approaching the 1995 peak of $530 a ton."

The Real Skinny

6/24/06 The Real Skinny

In any discussion of interest rates one must consider the real rate of inflation and not simply a core government number. Government economists figure the inflation rate does not exceed 2.5% and I look at the numbers and come up with 6.5%. So let's cut it down the middle and arrive at 4.5%. Historically, real interest rates are 2.5 percentage points above the real rate of inflation. Today they rest at 5.25%. In sum, real interest rates are a low .75% and historically should be at 7%, and that is precisely where I stated I believed they were headed. I made that statement about one month ago.

Dr. Reddy's Laboratories Ltd. said Friday it has launched the authorized generic versions of Merck's Proscar and Zocor tablets. Proscar is used to treat benign prostatic hyperplasia, and Zocor is a cholesterol-lowering drug. Zocor's patent protection expired yesterday.

Teva Pharmaceutical Industries Ltd. on Friday said the Food and Drug Administration has granted final approval to market its generic version of Merck & Co.'s cholesterol-lowering drug, Zocor, in 5 mg, 10 mg, 20 mg, and 40 mg tablets.

The 2-year and the 30-year Treasuries both traded at 5.26%. The market is doing the Fed's bidding, so to speak. Looking at the Fed funds futures, the odds of an August rate hike rose to 66% from 62%. The odds of a further rate hike by the end of the year increased to 23% from 16%. So much for all the pausing chit chat.

A couple of years ago my favorite stock was Anadarko Petroleum. I probably wrote about it every week. It has been extremely rewarding to shareholders. Yesterday, Anadarko Petroleum Corp's agreed to a $21.1 billion combined takeover bid for Kerr-McGee Corp. and Western Gas Resources. It was an aggressive move with the buyouts occurring at a 40% premium to the last trade in each company's shares. Anadarko stated the acquisitions would be accretive to earnings.
It certainly creates a spotlight on other compaies in the Gulf of Mexico and the Rocky Mountains. I have been suggesting further consolidation in the energy sector and big deal of $50+ billion would not surprise me.

Orders for new U.S.-made durable goods fell 0.3% in May, the second decline in a row, the Commerce Department said Friday. Orders for new aircraft plunged 17.9%. Excluding transportation goods, new orders rose 0.7%.

George Ure:
"Did the suspects themselves generate the discussion of Sears Tower, or was that "suggested" or "planted" by the undercover agent?"
"How many groups of young, sincere but suggestible and presently non-violent Muslims has the FBI/DHS presently infiltrated with 'undercover agents' and what "suggestions" do they make?"
"What is the FBI's legal threshold in such undercover operations defining when an investigation becomes entrapment? Specifically, when does an "informant" turn into an agent provocateur?"
"How long has the 'informant' been on the government payroll and was the government the major or sole source of his income?"
As I say, with a government informant - who may have (like was?) paid, and no explosives found - not to mention the remarkably coincidental timing, I'll just sit over here in the corner with my skeptical hat on and watch to see what pops and how MSM(Mainstream media) whitewashes the entrapment/ agent provocateur issue."

An oil service strike that began Wednesday in Norway - the world's 3rd-largest crude oil exporter - will have a large economic impact on companies hit by the action, with 30 operations already affected, stated the Norwegian Oil Industry Association.

Oil accounts for 30 percent of Mexico's $185 billion federal budget. Mexico is the second-largest oil supplier to the United States, accounting for nearly 8 percent of U.S. consumption. Pemex officials have been saying they need $10 billion to $20 billion a year for drilling offshore to maintain production at 3.4 million barrels a day.

Patience And Foreplay

6/23/06 Patience And Foreplay

Employer costs for employee compensation averaged $26.86 per hour worked in
March 2006, the U.S. Department of Labor’s Bureau of Labor Statistics reported
today. Wages and salaries, which averaged $18.82, accounted for 70.1 percent of these
costs, while benefits, which averaged $8.04, accounted for the remaining 29.9 percent.
Costs for legally required benefits, including Social Security, Medicare,
unemployment insurance, and workers’ compensation, averaged $2.16 per hour (8.0 percent of
total compensation). Employer costs for life, health, and disability insurance
benefits averaged $2.18 (8.1 percent); paid leave benefits (vacations, holidays, sick leave, and
other leave) averaged $1.88 (7.0 percent); and retirement and savings benefits averaged $1.15
(4.3 percent) per hour worked.

Solectron Corp. on Thursday reported a third-quarter profit of $42.4 million, or 5 cents a share, on revenue of $2.7 billion, compared to a loss of $66.7 million, or 7 cents a share, on $2.6 billion in revenue a year ago. Excluding charges and one-time items, the electronics contract manufacturer would have earned $38.9 million, or 4 cents a share. By that measure, analysts surveyed by Thomson First Call had forecast Solectron to earn 4 cents a share on $2.6 billion in revenue. Looking ahead, the company forecast revenue of $2.60 billion to $2.80 billion, or 4 cents to 6 cents a share.

Gold for August delivery closed down $5.60 at $585.4 an ounce on the New York Mercantile Exchange. Silver dipped 21 cents to $10.21 an ounce. Platinum dropped $17.8 at $1,176.1 an ounce, palladium was down 60 cents at $313.90 an ounce and copper edged down 0.55 cent to $3.1355 a pound.

Medtronic Inc. on Thursday raised its quarterly cash dividend 14.3% to 11 cents from 9.625 cents a share.

U.S. natural-gas inventories rose 79 billion cubic feet for the week ended June 16, the Energy Department reported Thursday. Crude continued to rally up to the $71 level.

U.S. leading economic indicators fell 0.6% in May, suggesting that the economy is likely to grow at a "slow to moderate' pace in the near term, the Conference Board said Thursday. Seven of 10 leading indicators were negative in May. In May, the coincident index rose 0.1%. The lagging index rose 0.2%.

The U.S. dollar index rallied back up to the 86 level. Meanwhile, the 10-year Treasury bond traded at 5.20%, the highest yield since May 2002. The 2-year and the 30-year settled at 5.23%. Between the weakness this year in the dollar, rising inflation, and rising interest rates, foreign investors are losing capital in both the equity and the debt markets.

Saint Augustine: "Patience is the companion of wisdom."

Frequently, I have mentioned that it is imperative to be patient should you desire to be a successful investor. It also requires discipline. In February, Univision placed a for sale sign on the company. I knew the bidding process would take many months. I have been waiting to make a share purchase for about 5 months. Early yesterday morning was
the time I chose. In arbitrage, ime is needed for foreplay. You can't rush things. There is a whole mating ritual. The media just reports. They rarely think. Who cares whether KKR or Blackstone drop out of a bidding group. Televisa has plenty of access to outside capital. Televisa is a strategic buyer with a significant economic impetus to win the auction. There might be more words spoken, but in the end, the company will be sold. At $32.52 a share, a ham sandwich will land on the plate. Whether it's $35.50 or $36.50, patience will, in my opinion, be rewarded. Watching the foreplay will be worth the price of admission.

Given the fact that during rading on Thursday the Dow broke 11,000 on the downside and closed down 60 points on the day, and given the poor showing for the S&P, Nasdaq, and the Russell, I was surprised that the VIX traded in a one point range and basically had little change.

If your recent portfolio performance is giving you headaches, do not fret. There may be a silver lining. Dr. Timothy Houle, professor of anesthesiology at Wake Forest University School of Medicine in North Carolina and lead author of a small pilot study exploring the link between migraines and libido, suggests there might be a reward for headache pain. In the June edition of the journal Headache, researchers found that young adults with migraines reported higher levels of sexual desire. The key is to focus on patience and foreplay!

The Boys Of Summer

6/22/06 The Boys Of Summer

This is not about baseball, but rather another game. It's called keeping the money in my fund. If your fund lost money in May and June, would you elect to reduce your interest in that fund or maybe even withdraw all of your money? Maybe the fund even lost all the gains it had in the first four months. That's when the game begins. We are approaching the end of the quarter, and that's when the results get posted. Beginning with Wednesday, there were only eight trading days left in the quarter. Next week will be about the Fed and everyone has put the qurater point increase into the market, and that includes bonds. The idea is to mark up prices between now and June 30. You consider me cynical. I'm not. Ihave been around the block for too many decades.

Gold for August delivery ended up $10.50 at $591.0 an ounce on the New York Mercantile Exchange. Other metals also turned higher. Silver added 15.0 cents at $10.420 an ounce. Platinum added $25.40 at $1,193.9 an ounce, palladium rose $10.50 at $314.50 an ounce and copper added 0.19 cent at $3.1905 a pound.

It might be wise to watch the U.S. dollar index. It is declining again and making lower highs.

Crude rallied back to $70.35 and the stocks I had mentioned the day before all rose nicely in price. Diamond Offshore was a standout. The energy sector had a large impact on the Dow and the S&P.

Ford Motor Co. said on Wednesday it was on track to meet its goal of making its North American auto business profitable by 2008 and remained committed to that target. The stock traded at a 13-year low on Tuesday. I recommended the stock at $8 and now it's $1.50 lower. Obviously, up to now, this has not been one of my finest hours. I continue to believe the shares are significantly undervalued.

Apache Corp. said Wednesday that it has closed or is in the process of closing on the previously announced acquisition of BP's remaining producing properties on the Outer Continental Shelf of the Gulf of Mexico for approximately $845 million.

According to earthfiles.com, the National Hurricane Center in Miami, Florida, reports the waves traveled 2000 miles and were at least 15 feet high when they hit beaches in Nicaragua. Other coast lines hit with 7 to 12-foot-high waves ranged from Ecuador's Galapagos Islands to Chile, Costa Rica, El Salvador, Guatamala, and up to Acapulco, Mexico.

Given the strength in the Dow, Nasdaq, S&P, and Russell, one might have thought the VIX would have declined further than 1.17 points. In fact, the range was 16.72 to 14.88 with a close at 15.52. That, combined with relatively low volume and the end of the quarter coming up, makes me question the quality of the rally.

Ashleigh Brilliant: "Life is the only game in which the object of the game is to learn the rules."

Too Much Government

6/21/06 Too Much Government

Michael Hodges: In the U.S."FY 2005 Federal Govt. Spending of $2.5 Trillion Consumed > 26% of the Economy, or $8,805 per man, woman and child, or 36% of the economy counting regulatory compliance. The Social Spending portion consumed 58% of the total, and has increased 14 Times Faster Than The Economy and - individual incomes pay 82% of all federal revenue compared to a 51% share in 1950."

Rob Kirby: "In Canada, June 19, 2006 marks tax freedom day. Tax freedom day marks the date on the calendar when citizens have paid their share of incomes, to all levels of government in taxes, and begin working for themselves."

Mark Bail: "So, why is the VIX important? For one, it provides you with a reasonable projection of the expected range within which the S&P 500 is likely to trade within the next month. To use the current environment as an example, the S&P 500 closed on June 19 at 1240.14. The June 19 closing VIX reading of 17.83 suggests that options traders and investors anticipate that between now and July 19, the S&P 500 is likely to trade roughly within 1.49% range (17.83 divided by 12) of 1240.14 -- or between 1221.71 and 1258.57. Now, that doesn’t mean the S&P 500 will actually trade within that range. Keep in mind that the VIX changes on a minute-by-minute basis, according to the ongoing changes in the implied volatility in the S&P 500’s nearest two months’ option premiums. Therefore, the VIX -- and hence the projection of the S&P 500’s trading range for the next month -- is being constantly revised. Nevertheless, that projection -- as gleaned from the latest VIX reading -- is an accurate reflection of the attitude of traders and investors about current market conditions. And that reflection of traders and investors’ attitudes is the heart of the VIX’s value. When you can correctly gauge market participants’ attitudes -- and then use that information to anticipate likely future price action -- you have acquired an additional edge in your efforts to make money in stocks."

Yesterday, the VIX traded in a narrow range from 16.39 to 17.65, and closed down 1.14 at 16.69. The overall market was mixed with the Dow up, the Nasdaq and the Russell down, and the S&P flat. However, I would like to return to crude which was flat on the day at $69 and down from its high of $75. Energy shares act much worse than crude. ExxonMobil and Chevron have a tough time holding on to even a slim rally. Conoco Phillips is only 1+ point from a 52-week low. Schlumberger is down 20 points from its recent all-time high and Diamond Offshore is 25 points from its recent all-time high. The energy sector is beginning to look a bit like the housing stocks did late last year. The news is good but it doesn't seem to help. We need to keep an eye on the group. The stocks I mentioned are the cream of the energy sector.

Yesterday, we had a reverse of Monday. Gold and the metal group rallied. The dollar weakened and interest rates had a small rise. We can expect another increase in mortgage rates by Thursday.

Mark Twain: "The government is merely a servant -- merely a temporary servant; it cannot be its prerogative to determine what is right and what is wrong, and decide who is a patriot and who isn't. Its function is to obey orders, not originate them."

ConocoPhillips said that it may spend as much as $10 billion to more than double capacity at its liquefied natural gas plant in Northern Australia to meet an estimated 40-percent surge in world demand.

Aesop: "We hang the petty thieves and appoint the great ones to public office."

Martin Taylor, a high-profile lieutenant to CEO Steve Ballmer, has left Microsoft.

Hugo Chávez, Venezuela’s president, has ordered the country’s central bank and legislature to introduce a new national currency that would knock three zeroes off the exchange value and could be renamed the “nuevo bolivar”.

A rising tide of protectionism could endanger European investment in the US, the president of the European Commission said ahead of a European Union-US summit in Vienna on Wednesday.

H.L. Mencken: "I believe that liberty is the only genuinely valuable thing that men have invented, at least in the field of government, in a thousand years. I believe that it is better to be free than to be not free, even when the former is dangerous and the latter safe. I believe that the finest qualities of man can flourish only in free air – that progress made under the shadow of the policeman's club is false progress, and of no permanent value. I believe that any man who takes the liberty of another into his keeping is bound to become a tyrant, and that any man who yields up his liberty, in however slight the measure, is bound to become a slave."

A Funny Thing

6/20/06 A Funny Thing

With the Dow dropping 72 points, the Nasdaq 20, the S&P 11, and the Russell 12, the VIX traded differently from the past month's action. It was a funny thing. The range was 15.73 to 18.10 with a close at 17.83. Even though equities took a hit, the VIX was only up .58 on the day.

Interest rates continued to rise and that despite crude closing just below $69 and gold dropping $9.30, silver 16 cents, platinum $6.80, palladium $10.95, and copper 13.90 cents. In sum, inflation fears had reason to subside but rates still rose.

Mogambo Guru: " I notice that required reserves in the banks dropped back to the insignificant $42.459 billion. What fraud! What audacity! What an embarrassment that the self-important nitwits at the nation's universities see nothing wrong with not only an out-of-control fractional-reserve banking system, but one where there are literally No Freaking Reserves At All (NFRAA)! Money is literally created out of thin air, with no backing from deposits whatsoever! This level of risk and multiplication of the money supply is insane! This is beyond insane! And yet, there it is!"

Oscar Wilde: "A thing is not necessarily true because a man dies for it."

U.S. stocks erased this year's gain for the Standard & Poor's 500 Index.

Solectron Corporation announced two of its Singapore facilities have received ISO 13485:2003 medical certification. With these two new certifications at Solectron's Chai Chee and Kallang facilities, Solectron now offers medical device OEMs seven certified contract manufacturing sites. The shares sell for 30 cents on the sales dollar and roughly 1.25 times book value.

New Orleans Mayor Ray Nagin Monday asked Louisiana Gov. Kathleen Blanco to send in the National Guard to help curb lawlessness. Which has been more successful -- our effort in Iraq or in New Orleans?

Researchers have discovered that vegetables are good for you because they reduce hardening of the arteries. Scientists at the Wake Forest University School of Medicine conducted their research on mice that were predispose to developing atherosclerosis, the formation fatty plaques on blood vessel walls which will eventually protrude into the vessel's opening and can reduce blood flow. Do you know a lot of healthy mice?

Sentiment

6/20/06 Sentiment

Sentiment among U.S. home builders fell for the sixth month in a row to an 11-year low in June, the National Association of Home Builders said Monday. The housing market index dropped four points to 42, the lowest since April 1995.

A period of stagflation -- low growth and high inflation -- is not in the cards for the United States, said Richard Fisher, president of the Dallas Federal Reserve Bank.

Mutual funds investing in U.S. stocks posted their sixth consecutive week of net selling as investors pulled $5.44 billion for the week ended June 14.

The dollar rose to an eight-week high versus the yen and gained against other major currencies early Monday.

Interest rates moved higher with the 10-year at 5.15% and the 30-year at 5.19%.

John Hussman: "In my view, the stock market remains richly valued, and investors should not rule out an S&P 500 trading in the 700-800 range in the years ahead as a reasonable (not catastrophic) probability. Investors should not be misled to believe that broad exposure to stock market risk represents sound investment here, or that a shallow decline of a few percent has suddenly made the stock market a bargain."