Think Outside Of Your Buns

4/17/06 Think Outside Of Your Buns

Paul Kasriel: "The household debt-service burden hit a new record high of 13.93% in Q1:2006... This ratio has been trending higher since 2000, the beginning of the housing boom. Low financing rates mitigated the debt-service burden for a while even as household borrowing exploded. But with the Fed having raised the funds rate by 425 basis points in a 25-month span - the largest 25-month funds rate increase since the Volcker era - the combination of rapid borrowing and rising financing rates is pushing up the debt-service burden at a faster rate. With employment growth slowing, which will retard growth in disposable personal income, and a massive amount of mortgage debt subject to interest rate resets this year and next, the household debt-service ratio is destined to reach even higher levels as we go forward."

Robert McHugh: "The Dow Industrials completed their third triple-digit loss in a row, and are down over 4 percent over the past three days. This is what happens with wave threes, which is why we spend so much time watching for them. This one isn't over. The first sub-wave down within it may be close to completing, but there are five waves to an impulse, and we are just finishing the first one."

Mike Burk: "In the 8 trading days since the rally high that ended on the 1st trading day of July all of the major indices have all declined including:

Dow Jones Industrial Average 4.4%
S&P 500 (SPX) 3.4%
NASDAQ composite (OTC) 7.0%
S&P Mid cap 5.6%
Russell 2000 (R2K) 6.8%
Wilshire 5000 4.0%

Unfortunately there is no divergence in the indicators or anything I can see that would suggest a change of trend. Most of the indices are slightly above their mid-June lows and those levels might offer a little support, however, there is no reason to be optimistic about that support holding... Last week was, on average, the best week of the month.
Next week is, on average, the worst week of the month... There is no evidence of a bottom."

Dan Basch: "In my last essay, "Bernanke's Test Has Arrived", I predicted a severe decline had just begun and luckily nailed it. Since the essay was published, the NASDAQ index declined from 2272 to today's close at 2037, or just over 10%. This essay is to serve as a brief update: I expect this may be the beginning of what will soon become an outright market meltdown. This is partially indicated by a Bearish Diamond formation which has formed on the NASDAQ and broke down this week. "

Volkmar Hable: "In every issue of this Investment Commentary since January I have warned to get out of stocks and prepare for a serious decline. Here we are in the middle of the second leg down, and there are still people owning stocks and hoping for a reversal. This rally into mid-July was the last chance (very likely for this year) to get out of long positions. Remember: managing risk and avoiding losses is key for long-term success. Don't risk your capital and forget risk management for some short term gains. In a sideways market traders and investors should focus on opportunistic strategies!"

George MacDonald: "Attitudes are more important than facts."

Toyota Motor Corp. is considering making a bid to link with General Motors, according to a report in BusinessWeek magazine. The move would be aimed at trumping a proposed alliance between GM and Renault-Nissan.The magazine reported Saturday that Toyota "is considering its options and looking at different opportunities that they could propose to GM." It said Toyota executives have "war gamed" possible scenarios by which it could help GM with its turnaround.BusinessWeek quoted an unnamed Toyota executive who said, "Toyota has no interest in seeing an alliance like this [involving Renault, Nissan and GM] take place."(GM denied this report on Sunday). Maybe this report is accurate and maybe it is not. The point is Chrysler is hooked up with Daimler, Renault/Nissan is eyeing GM, and Ford will not be left out in the cold.

Brett Steenbarger: "Go with the odds, but make sure you can survive the odds you're wrong. Better advice than that I cannot give."

According to the Financial Times, Ford Motor will on Monday announce it is to spend £1bn ($1.8bn) over the next six years on British research and development projects designed to improve the fuel efficiency of its vehicles, as the European arm of the US carmaker realigns investment priorities.

Freud: "Thought is action in rehearsal."

$65.9 Trillion

7/16/06 $65.9 Trillion

Andrew Bosworth: "The American economy is now underwritten by $9 trillion of debt and depends upon $2 billion dollar infusions of foreign capital every day, largely from China." I do not want to belittle Bosworth's statement. It is well-known and often repeated in the press.
However, you might want to go a bit further into the problem, and it explained in the July/Aug
St. Louis Federal Reserve Bank of St. Louis review, and I have now mentioned it three days running. The review stated "the current U.S. fiscal gap is $65.9 Trillion." Prior to buying dollars and U.S. treasury bonds, it might be wise to chew on that number. It will get bigger next year.

With all of these second quarter earnings reports, it might also be wise to take note of the tax rate ( in GE's case only 11%) and the number of shares repurchased in the quarter ( in IBM's case). In sum, it pays to read the fine print and not simply the headline numbers.

Paul Volcker: "For a long time now - if we believe the statistics - the average working guy has not had an increase in income. But he's working pretty darn hard these days... But there doesn't seem to be much concern about it partly because, I guess, people find it fairly easy to get a job - at least they're employed... I think given the problems we have, given our dependence on foreign capital, given our lack of savings - one thing we better be very careful about is that we maintain confidence in our currency. And that most of all means price stability. And there are some tendencies now toward greater inflation. I wouldn't say it's out of hand, but we better not let it get out of hand."

Bush blocked Russia's entry into the World Trade Organization on Saturday and President Vladimir Putin mockingly said Moscow doesn't want the kind of violence-plagued democracy the United States has fostered in Iraq.

During the prior market meltdown when the VIX rallied from 12 to 24, I suggested you consider purchasing shares in Chevron, ConocoPhillips, and Schlumberger. Since then, each has rallied 10 points or so. With all the fighting in Israel and Lebanon and unrest in other parts of the Middle East, there is increased talk of crude moving up to $80, $90, and even over $100 a barrel. It's getting very crowded in the oil patch. I like it quiet with few occupants. As such, I suggest you take your 10 point gains and wait for a more friendly entry level. One should not forget that oil is a cyclical industry.

The growth of the M2 money supply continues to outpace our country's GDP.

The Facts

7/15/06 The Facts

Is inflation benign or muted as the Fed would suggest? Let's take a closer look.
Import prices rose for the third consecutive month, although the 0.1 percent advance in June was modest compared to the 2.0 percent and 1.7 percent increases in April and May, respectively. The June rise was dampened by a 1.4 percent decrease in petroleum prices, which had risen 17.8 percent over the previous two months. Despite the June downturn, petroleum prices rose 32.6 percent over the past year. In contrast, the price index for nonpetroleum import prices advanced 0.4 percent in May following increases of 0.1 percent in April and 0.7 percent in May. For the year ended in June, nonpetroleum import prices rose 2.2 percent while overall import prices increased 7.2 percent. A 1.1 percent rise in nonpetroleum industrial supplies and materials prices was the largest contributor to the June increase in prices for nonpetroleum imports. Continued price rises for most metals more than offset lower prices for natural gas and building materials. The price index for nonpetroleum industrial supplies and materials increased 11.2 percent over the past 12 months. Maybe you should read that last sentence again.

Yesterday the Bank of Japan raised interest rates for the first time in six years -- no big deal but a beginning of a gradual raising of rates.

With all the unrest and explosions involving Israel and Lebanon we are told there has been a flight to quality. In this case, money moving into U.S. Treasury bonds as the yield on the 10-year dipped to 5.06% and the 2-year to 5.10%. Of course, the real safe haven, gold, continued its upward price movement.

For a good part of the Friday trading day, the Dow had a triple digit decline. Despite that, the VIX only managed a half point gain. In sum, it is still about 6 points below the most recent high of 24. Maybe money managers believe the market is oversold. In my view, the fear factor is not anywhere near the boiling point.

Canadian independent Nexen said on Thursday that capital spending for 2006 could exceed its original C$2.9 billion ($2.6 billion) budget by 10%, mainly because of cost escalation at its Long Lake oil sands project in northern Alberta.

Russian oil giant Rosneft on Friday priced its initial public offering at $7.55 a share, valuing the company at $79.8 billion and making the issue the world's fifth-largest IPO and the largest ever for a Russian company.

Marsoft: "After a mixed performance in April and May, the dry bulk market has witnessed a broad-based strengthening in June, with freight rates rising significantly during the first three weeks of the month. Although the Baltic Dry Index fell from 2500 in mid-May to just over 2400 by the end of the month, it rebounded to more than 2800 in the latter half of June."

Confidence

7/14/06 Confidence

Before you buy into the notion that the U.S. Treasury bonds are a safe haven or that even imagine that God trusts in the U.S. dollar, I strongly suggest you read the St. Louis Federal Reserve Bank Review (July/August). This is the one I referenced yesterday. It's one thing to be a proud American. It's quite another thing to be a schmuck.

Peter Schiff: "Over the years, the government has managed to "solve" economic problems merely by changing the way they are measured. By re-jiggering the manner in which CPI and GDP are calculated, the government misrepresents the true health of the economy, making it easier for incumbents to be re-elected. President Bush demonstrated this to perfection in his televised speech earlier this week. Despite a building sense among the population that the economy is shaky, the President was able to effectively say, "What are you complaining about, look how good you have it? Inflation is just 2.5% and the economy is growing at 4% per year. Why back in the seventies and eighties people had to struggle with 8% - 10% inflation and 1%- 2% growth." The reality is that today's generation is experiencing similar struggles. Despite the rosy numbers, today the typical American family pays for groceries with a Visa card, utilities with a home equity loan, has a six-year loan on their SUV, has no savings, and has both parents working just to keep the family one-step ahead of its creditors. With all this supposed non-inflationary economic growth, why do Americans borrow to pay for everyday necessities which used to be easily financed from incomes, and why has a nation of savers been transformed into one of debtors? From the government's perspective, all the misrepresentations are part of a giant confidence game that it meant to keep all the marks, most of them foreign, from wising up. A fiat-based monetary system only functions as long as confidence is maintained. The minute it's lost, the whole scheme implodes. Since confidence is the only thing holding up the U.S. dollar, and by extension the entire U.S. economy, maintaining that confidence is the government's highest priority. If elected officials and central bankers have to obfuscate a bit to do it, so be it."

Yesterday was the second straight triple digit decline for the Dow. The S&P is now down for the year and the Nasdaq is at its lowest point since October. Is it because of the explosions and fighting in Israel and the neighboring land? Or $78 crude or $2.10 heating oil or $2.30 gasoline? On the other hand, we have sufficient levels of crude and gasoline. Or maybe the pending rate rise in Japan or China could be the reason for the drop in equity prices. Or it could be Ford cutting the dividend (I think it is a good move). Beginning in the third quarter, Ford's dividend will fall to five cents from 10 cents, a move that will save the company $93.5 million on a quarterly basis, or $374 million a year. Fees paid to board members will also fall by half, bringing compensation for each of the 12 directors to $100,000, saving $1.2 million a year, not including cuts to other fees paid to directors.
Or possibly it was the report from D.R Horton, the nation's largest homebuilder. D.R. Horton Inc. after Thursday's closing bell said third-quarter sales orders fell 7.3% to $3.8 billion, or 14,316 homes, from $4.1 billion, or 14,980 homes, during the same period in the prior year. Donald Horton, chairman, noted the "difficult selling conditions the homebuilding industry is experiencing." Due to the conditions, D.R. Horton said it expects per-share earnings for the third quarter of 93 cents, and lowered its per-share view for the year to $3.65 or more on 50,000 homes closed. In April, the company said it expected fiscal year per-share income of $5.25 and $5.35. The stock declined to $20+ in after hours trading.

Let me ask you this. Do you have more confidence in gold or the dollar? Do you believe the U.S. deficit will continue to grow throughout the remainder of Bush's term? Do you have confidence in Bush as a leader? Is he an effective Commander-in-Chief? Confidence counts for a lot. It can mean the difference between seeing the purchasing power of your dollar vanish or seeing the equity in your home hit a pothole. When the VIX rises by 3+ points to 17+ ( as it did yesterday), don't you realize a confidence as well as a fear factor come into play?

Venezuelan oil shipments to the U.S. fell 6 percent in the first four months of the year. State-run Petroleos de Venezuela SA has been sending more tankers of oil and fuel to India and China, markets that are up to seven times more distant than the U.S. customers that traditionally take most of the country's exports. Venezuela was the third-biggest OPEC producer last month, with output of about 2.6 million barrels. ``Two things are clear,'' said Roger Tissot, an oil analyst with PFC Energy, a consulting firm in Washington. ``Venezuela wants to reduce its dependence on the U.S., and it wants to position itself in the world's fastest growing markets, such as India and China.''

Intel announced cutting 1,000 managerial jobs, Washington Mutual 900 jobs, and Disney stated there would be a round of layoffs without noting a specific number.

Really?

7/13/06 Really?

In the latest Federal Reserve Bank of St. Louis July/August Review, Laurance J. Kotlikoff states "there are strong reasons to believe the United States may be going broke." I hope this has sunk in for all of you. This is what I have written for the last three years.

Bill Gates: 80 Percent Chance Microsoft's Vista Operating System Will Be Ready in January. How reassuring is that?

Martin D. Weiss: "Almost all of this oil and gas passes through the Strait of Hormuz. Only a very small percentage leaves the region through alternate routes, such as the East-West oil pipeline across Saudi Arabia.
So just as soon as the West threatens Iran with sanctions, Iran can threaten the Strait of Hormuz, cut off up to one-third of the world’s energy supply, and drive prices into the stratosphere."


Mark Bail: "So, with a rising VIX reflecting an increase in fear in the market, we should expect a VIX that trends higher should generally correspond with lower stock prices, right? That’s in fact what tends to happen. If you look back at a chart of the S&P 500 and compare it with a chart of the VIX, you will see that the two tend to move opposite one another. Therefore, a rising VIX is a sign of increasing volatility -- and a declining market.

But the VIX can provide the astute technical analyst with other valuable information as well. Remember that emotions -- fear and greed -- are reflected in the price of the VIX. Emotions can have a powerful effect on stock prices -- and can peak at market extremes. Well, since those emotions are encapsulated in the price of the VIX, when the VIX reaches an extreme level -- relative to its recent price range – you have a signal that the market is overextended in one direction and set to make a turn.

That’s been true when the market has been in a lengthy downtrend -- and the VIX is at a significant top. For example, peaks in the VIX in 1990, 1994, 1997, 1998, 2001 and 2002 have coincided with important market lows. And major lows in the VIX have coincided with a number of significant market tops as well.

Therefore, if you think S&P 500 may have reached an extreme level, check to see if the VIX has reached a major peak or trough relative to its recent price trend. If it has, odds are good you have pinpointed a major turning point in the market.

So, next time you think you’ve spotted a major market turn, be sure to check a chart of the VIX. If you find it trading at an extreme, your forecast of a significant trend change could be right on the money. And if you’ve caught the VIX trading at a bearish extreme, you may get to buy those stocks you’ve been watching at just the right time."

Thanks to George Ure for bringing this to light: "Russia’s uranium exploration and mining assets at home and in the CIS will be combined into a single, purely state-owned enterprise, nuclear energy chief Sergei Kiriyenko said Wednesday, scotching hopes that private investors would be allowed to retain minority stakes in uranium enterprises.

The announcement follows President Vladimir Putin’s approval on June 9 of a plan to gather all civilian nuclear sector enterprises into a single, market-driven corporation along the lines of France’s Areva or Germany’s Urenco."

Biofuels such as ethanol are "not a practical long-term solution" and their widespread use, even from non-food crop sources, could have a "devastating" impact on agriculture, two researchers at the Magleve Research Center of the Polytechnic University of New York argued recently.
"Ethanol from 300 million acres of switchgrass still could not supply our present gasoline and diesel consumption, which is projected to double by 2025," the researchers, James Jordan and James Powell, wrote in an op-ed article in the Washington Post. "The agricultural effects of such a large-scale program would be devastating."

"Spot Henry Hub natural gas prices, which averaged $8.86/Mcf in 2005, are expected to average under $7/Mcf over the next few months. Thus, barring extreme weather for

the rest of the year, we expect a decline in the annual Henry Hub spot price to about $7.61/Mcf for 2006," the EIA said in its July energy outlook, which was released Tuesday.

"However, the respite is expected to be short-lived, as concerns about potential future supply tightness and continuing pressure from high oil market prices could drive spot natural gas prices to just over $9/Mcf this coming December and January. The Henry Hub price is expected to average $8.13/Mcf in 2007," according to the statistical arm of the Department of Energy (DOE).

Yesterday's rally in equities and bonds looked like amateur night. You say really?

Here we are a day later with crude at $75 a barrel, a May trade deficit of $63.84 billion, a drawdown in crude of 6 billion barrels and gasoline of 400,000 gallons, another rally in metals, a conflict between Israel and Lebanon, and Fed Funds futures factoring in a 67% chance of a rate hike next month. No wonder the Dow is down in triple digits.The VIX managed a 1+ gain but still sits at the 14.50 level.

Dell's consumer and small business sales account for 15% of the company's total revenues. Tomorrow they will announce cutting prices in this area. The price of the stock has already been cut to $22+. Basically, the gains over the last few years in the stock have been puked away.

Citgo, the old Cities Service Company, is owned by Venezuela. Over the next year Citgo will cease distributing gasoline in 10 states and stop supplying some stations in four additional states, Citgo spokesman Fernando Garay said Wednesday. The states where Citgo will stop selling gasoline are: Iowa, Kansas, Kentucky, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma and South Dakota. A limited number of stations in Illinois, Texas, Arkansas and Iowa will also be affected. Venezuela is the world's fifth-largest oil exporter and the U.S. is its top buyer. The United States relied on Venezuela for about 11 percent of its oil supply in 2005.

For the second half of fiscal 2006, Brunswick lowered its expectations, citing significant declines in retail demand for its 2006 model year marine products that has increased inventories, forcing the company to reduce production levels.

China and Russia introduced a resolution Wednesday deploring North Korea's missile tests but

dropping language from a rival proposal that could have led to military action against Pyongyang. The draft, obtained by The Associated Press, "strongly deplores" North Korea's missile tests last week and urges Pyongyang to re-establish a moratorium on such launches.

Top senators have reached a bipartisan agreement that will allow the chamber to vote on legislation that would open parts of the eastern Gulf of Mexico to oil and gas exploration, Senate Majority Leader Bill Frist, R-Tenn., announced Wednesday.

Red To Green

7/12/06 Red To Green

Yesterday there was a turnaround in equities, and the impetus came in part from the CEO at KLA Tencor who was speaking at a semicinductor symposium at the Moscone Center in SF. He stated the company's orders for the quarter topped its 10% target. "We've exceeded the top end of the range," the company's chief executive officer Rick Wallace told analysts at a meeting in San Francisco. It was a "very good quarter" for the company, the CEO said. Driving orders was demand for machines that produce NAND flash and DRAM memory chips used in consumer electronics. That statement reversed much of the weakness in semiconductor stocks and many other techs. Still, many large caps acted poorly --- Home Depot, GE, IBM, Pfizer,Microsoft, and Cisco.

The standout group was energy with crude closing up at $74.16 a barrel. Chevron and ExxonMobil rose about $1 a share, Schlumberger over $3, and Weatherford Int'l close to $2.

With the explosions in Mumbai, gold rose $17 an ounce. The U.S.dollar index closed just above 85, but treasuries rallied again with the 10-year at 5.11%, the 30-year at 5.15%, and the 2-year at 5.16%. Yes, we are inverted again.

Bush made a big deal of the estimated budget deficit being reduced from roughly $400 billion to about $300 billion in 2006. Now how did this occur? The Homeland Investment Act, H.R. 767, and The Invest in America Act, S. 596, reduced for one year the tax rate on foreign earnings gained by American companies to 5.25 percent. Before that, U.S. firms operating overseas paid a 35 percent tax, minus any taxes they’ve paid abroad, when they bring foreign earned income back to the U.S. This one-time repatriation of foreign earnings provided an added $50 billion in revenue for the government. Then there was the damage created by the AMT (alternative minimum tax). That generated an addiitonal $25 billion. In sum, the Bush policies created greater tax burdens for those on Main Street, and this helped to widen the gap between the haves and havenots.

The revenue growth is not expected to continue, according to the OMB, which forecast a 2.4 increase in receipts next year. You can be certain that the growth in government spending will continue and the deficit will only get larger in 2007. By that time, Bush will ask for another increase in the debt limit.

Christopher Galakoutis: "So far in 2006 we have a slowing US real estate market and declining refinance activity. With the Fed funds rate now at 5.25%, and a large portion of ARMS coming due this year and next, consumers would arguably be more than hard-pressed to come up with that extra cash that 2-3% mortgage rate loans were generating the last few years. With the nation dependent on consumer spending for 70% of its economic prowess, it should be clear as day that trouble looms for the economy. With its inverted yield curve the bond market is predicting as much, as well as an eventual Fed reversal on interest rates. It also appears - for the time being - to be unconcerned about any future dollar weakness and is pricing itself accordingly. But if a lower fed funds rate is expected in the near future, it is difficult to see how the dollar keeps from falling out of the blocks altogether. In all likelihood it may very well be the degree of US economic weakness, and the realization that things are much worse than initially assumed, that will catch many - foreign central bankers included - by surprise. That may be the point where even the worst of habits, admittedly so totally and completely ingrained in money printers, finally get broken as a certain "faith" threshold is breached."

I received several emails in the last few days asking whether I have lost my mind. It seems many are concerned that I continue to add to my position in Univision -- as recently as yesterday. I appreciate everyone's concern. Not to worry. I enjoy going to the bank.

Summer Heat

7/11/06 Summer Heat

Corn prices rose to a two-year high in Chicago on speculation that rains this week will miss the driest areas of the main growing regions in the Midwest, compounding drought damage to the biggest U.S. crop. Corn is up 28 percent this year. There is another side to the story.
A week of warm sunny weather has helped Indiana corn gain some height and improve in development. It has also allowed the winter wheat harvest to progress. Winter wheat harvest made good progress especially in central and northern areas of the state. The corn crop is reported to be very uneven in development, with some only knee high and some already tasseling. Soybean plant development also varies greatly with some fields blooming to some fields just emerging due to replanting.Irrigation systems were running in some northwest and north central areas as rain showers have been spotty.
Corn condition is rated 60 percent good to excellent compared with 34 percent last year at this time. Thirteen percent of the corn acreage has silked compared to 28 percent last year and 24 percent for the 5-year average. Soybean condition is rated 59 percent good to excellent compared with 37 percent last year at this time. Twelve percent of the soybean acreage is blooming compared to 43 percent last year and 27 percent for the 5-year average.
Harvest of winter wheat is 70 percent complete compared to 81 percentlast year and 74 percent for the 5-year average. By area, wheat harvest is 45 percent complete in the north, 75 percent in the central, and 94 percent in the south. Of course, Indiana may not be representive of the entire "heartland."

Oil surged to $75.78 a barrel on July 7 after the missile tests. Prices have risen 22 percent this year in part on concern that exports from Iran may be disrupted because of its nuclear research. U.S. inventories of crude oil, diesel and heating oil in the week ended June 30 were above the five-year average for the period, the Energy department said last week. Crude oil for August delivery fell to $73.61 a barrel on the New York Mercantile Exchange. Meanwhile, prices at the pump have risen 11 cents per gallon to $3.

The BBC News in Moscow stated "Russia is moving fast to develop its Arctic territories, all part of a strategy to become the world's dominant energy supplier. It has the world's biggest gas deposits and already supplies a quarter of Europe's needs. But it wants to seize more of the European market, and capture consumers in Asia and the United States too."

Univision Communications Inc. after Monday's closing bell estimated that 50 million viewers tuned in to the 2006 World Cup tournament on its three television networks - Univision, TeleFutura and Galavision. Viewers included 29 million Hispanics and 21 million non-Hispanics, with an average audience of more than 5 million above the age of 2.

Alcatel and Lucent Technologies Inc. after Monday's closing bell said they are on track to complete their $13.45 billion merger by the end of 2006. Meanwhile, Lucent's revenues and earnings for the June quarter badly trail previous projections.

Consumers took on a bigger-than-expected $4.4 billion more in debt in May, the Federal Reserve said, mostly in revolving debt like credit cards. U.S. borrowers pushed up overall outstanding consumer credit by 2.4%, or $4.4 billion, to $2.173 trillion, the Fed said Monday.

Representative Ron Paul: "The coming dollar crisis is not likely to be "fixed" by politicians who are unwilling to make hard choices, admit mistakes, and spend less money. Demographic trends will place even greater demands on Congress to maintain benefits for millions of older Americans who are dependent on the federal government. Faced with uncomfortable financial realities, Congress will seek to avoid the day of reckoning by the most expedient means available-- and the Federal Reserve undoubtedly will accommodate Washington by printing more dollars to pay the bills. The Fed is the enabler for the spending addicts in Congress, who would rather spend new fiat money than face the political consequences of raising taxes or borrowing more abroad. The irony is that many of the Fed's biggest cheerleaders are the same supposed capitalists who denounced centralized economic planning when practiced by the former Soviet Union. Large banks and Wall Street firms love the Fed's easy money policy, because they profit at the front end from the resulting loan boom and artificially high equity prices. It's the little guy who loses when the inflated dollars finally trickle down to him and erode his buying power. Someday Americans will understand that Federal Reserve bankers have no magic ability -- and certainly no legal or moral right -- to decide how much money should exist and what the cost of borrowing money should be."

It's really shameful that more Americans are not familiar with the efforts of Ron Paul. He is, in my view, the best candidate to be President of the U.S. I also made this statement in 2000 and 2004. It's not unusual for me to talk just to myself.

Alcoa Inc. on Monday posted a 62 percent boost in profit on higher aluminum prices and aerospace demand, but second-quarter sales dipped below Wall Street estimates, sending its shares down 4 percent.

China asked member governments of the United Nations Security Council to adopt a non-binding statement critical of North Korea's ballistic missile program, a proposal the U.S. and Japan rejected as too weak.

A Bird In The Hand

7/10/06 A Bird In The Hand

Late yesterday Afternoon Cascade Natural Gas announced a written agreement to sell the company for $26.50 per share in cash to MDU Resources (the former Montana Dakota Utilities, a company I have know well for the past 25 years.) There is no overlap in operations for the two companies, and the utility commissions will have no difficulty in approving the transaction, which will take place in the spring of 2007. Therefore, as a CGC shareholder, you will receive three more quarterly dividends of 24 cents per share, and bring the total received to $27.22. Of that, you will not need to pay a tax until April 2008 on one dividend of 24 cents and the $26.50. I recommend holding onto your shares until completion of the deal next year.

In the meantime, I would continue to add to holdings in Univision. There is at least a $3 profit to be made and that will be received in 2007. Therefore, a tax will not be due until 2008. I still believe Televisa will return with a higher bid.

John Hussman: " As I've noted in recent months, it's likely that China and Japan will at least stabilize in their willingness to absorb the flood of government liabilities that they've been snapping up in recent years. That means that more of these liabilities will be forced into the hands of U.S. investors. As that happens, we're likely to observe an accumulation of “cash on the sidelines” that might look like a hopeful sign for stocks. It will be helpful to remember that the accumulating pile of “sideline cash” actually represents money already spent."

In this market of increasing uncertainties, I would stick with the bird in the hand. It's nice to go to the bank and not pay a tax until 2008.

Brett Steenbarger: "Since 2004 (N = 628 trading days), we've had 142 down days at the end of down weeks. Four days later, the S&P 500 Index (SPY) has been up by an average .21% (85 up, 57 down). That is considerably stronger than the average four-day gain of .05% (259 up, 227 down) for the remainder of the sample.
Interestingly, however, during 2006 this pattern has not been profitable (N = 29). Four days after we've had a down day at the end of a down week, SPY has been down on average -.11% (16 up, 13 down).
This is but one example of how patterns that were showing up earlier in the bull market are not panning out well in the present environment. A similar shift of patterns occurred early in 2000 and was a helpful alert to a major change in trend."

"Recent checks and a lack of publicly announced deals point toward lower-than-expected bookings for IBM," Benjamin Reitzes of UBS said. "While software sales seem stable, high-end server sales seem to be impacted by product transitions near-term."

EMC Corp. lowered its outlook for the second quarter to reflect later than expected orders from customers, and a faster than anticipated customer transition to its Symmetrix DMX-3 platform.

Richard Daughty: "To show you how clueless The Federal Reserve is, the statement released with the latest change in interest rates read: "the moderation in the growth of aggregate demand should help to limit inflation pressures over time." Huh? Do these halfwit Federal Reserve twits actually think that the United States is the only engine of growth in the world? Hahaha! While there will certainly be a "moderation" in aggregate demand in the United States, there are many, many, many people in China and India alone who do not have an upscale diet, a washing machine, a television, a microwave, a computer, a car, central air and heat, a jet ski, lots of disposable income, or any of that fun, fun stuff you can buy with money and credit."

China's monthly trade surplus surged to 14.5 billion in June, surpassing the previous record of $13 billion recorded in May, according to data released Monday by the Ministry of Commerce.

KB Home said in a Securities and Exchange Commission filnig after markets closed Friday that negative trends in the U.S. housing market may continue next year. "While we expect the current negative trends in the U.S. housing market to continue for the remainder of 2006 and, possibly, into 2007, we anticipate individual markets will normalize at different rates depending on the degree of disparity in the balance of these characteristics presently. In the long run, we believe the underlying fundamentals of strong demographics and job growth continue to support favorable domestic housing demand," the home builder said.

In the latter part of this week, the Bank of Japan will finally raise interest rates. Their zero rate policy has been going on for far too long and has helped to create the yen carry trade.

Bill Buckler: "The global paper currency system is very young. It depends for its continued functioning on the BELIEF that the debt upon which it is based will, someday, be repaid. The one thing, above all others, that could shake that faith, and therefore the foundations of the modern financial system itself, is a rise (especially a sharp rise) in the U.S. Dollar price of Gold."