6/4/03 Exfoliate And Lubricate

I have said this many times. There are too many
companies making too many of the same and/or similar
thing. How many auto companies are needed? Chrysler
answered that question last night. They are
forecasting a $1.17 billion operating loss in the
second quarter. The company blamed the loss on the
price war in the U.S. and selling incentives. Just as
important, the company said "the result is primarily
attributable to a revaluation of dealer stocks and
residual values." Basically, after you exfoliate the
jargon, they're telling you management can't get out
of its own way. It comes as no surprise that S&P cut
its rating outlook on the company to "negative". Is
Chrysler the next KMart? I only know Toyota is in the
same business. Last year they captured 10% of the
global auto market and reported $11.3 billion in
operating income in the fiscal year ended 3/31/03, the
most ever by a car company. Toyota U.S. has been in
this country for 46 years. May was their best-ever
month. You can talk about p/e ratios and all other
measures for supposedly rational valuation; however,
for me, the top priority is management, management,
management. Toyota is the perfect example. Ford and GM
announced they would cut third quarter auto production
as a result of disappointing May sales. This means
there will be "temporary" layoffs on the horizon.

The most successful business in San Francisco is Visa
USA. Over the past 12 months they recorded in excess
of $1 trillion in transactions. Stating it simply, an
average of $32,000 went through their Visa systems
every second during the 12 month period ending
3/31/03. That exceeds 10% of this country's GDP. For
every $100 consumers spent over the past 12 months,
$12 was expended on a Visa card. That $1 trillion
volume figure is greater than the combined volume of
Master Card, American Express, and Discover. Yesterday
central bankers exhaled in Berlin. We're going to
exfoliate the proclamations and come away with some
reprehensible goings-on. Free speech is a great right
in our country. It's not ok to malign free speech. Let
there be no misunderstandings. This is not about
agreeing or disagreeing with the words and thoughts
spoken. This is not about the Fed easing. I said a
month or so ago it doesn't matter exactly which
meeting the Fed decided to ease. Greenspan proclaimed
yesterday that “acceleration has not yet begun.” Any
man on the street can look at the current data and see
that. Greenspan has told us that the data suggests May
stabilized but "it's too early yet to get any real fix
on the American economy in the period immediately
ahead." That's obvious. The man on the street could
tell you that. Greenspan went over the line though. He
lubricated the treasury and equity markets. That's the
nicest way I can put it. As Greenspan said, something
is happening. What's happening are his purposeful
words. No longer is he concerned about "deflation in
the sense of falling prices per se, but the issue of
what I would call corrosive deflation. That is
deflation that essentially feeds on itself, creates
falling asset prices, which in turn brings down levels
of economic activity through the wealth effect,
contracting profit margins and a type of weakness
which we all...conclude is far more of a concern than
inflation." I think he might mean VA Linux falling
from $350+ to $1. It was ok for the bubble to burst on
the Nasdaq. The Fed was still fighting inflation
during that period. He wants me to believe that a 13th
rate cut will be insurance against deflation? He says
"We are learning as we are going. But one thing is
certain, we are going to learn as much about it as
possible." Are you for real here? In the space of a
month or so we have gone from a concern with price
deflation, and that concern is "a low probability" to
a concern with "corrosive deflation." I have said for
months on end that the Fed is out of ammo. I was
wrong. I was terribly wrong. I didn't realize they
could lubricate. And it's Ivory soap time because 99
44/100% of the people are buying the act. They are
buying a sage Fed chairman saying "we are far more
unclear on the issue of deflation and as a consequence
in one sense we need a much wider firebreak, in
logging and foresting terms, because we know so little
about it, so we lean over backwards to make certain we
contain deflationary forces." It sounds to me like we
need a proctologist. Greenspan has done his selling.
He pushed two year notes to an all-time low yield and
below the Fed funds rate. The economists will tell you
it's all because Greenspan uttered the "D" word. They
can blame themselves for buying the act. They'll be
lubricated all the way to another "D" word. That one
they won't hear from Greenspan.

When the stock market stopped rising three years ago,
the Fed turned their attention to housing and the
mortgage market. Yesterday the National Association of
Realtors predicted a third consecutive year of
record-breaking sales. According to the Mortgage
Bankers Association of America applications for home
loans rose over 13% last week as 30 year mortgage
rates fell to 5.13%. It was, according to
Bankrate.com, the lowest rate since 1958. Greenspan
talks about the resiliency of the American economy. I
think he should give himself more of the credit. No
one can lubricate the system better. I hope I'm wrong.
I think the price for the lubrication will be severe.

6/3/03 FedEx

Over the years FedEx has been one of my favorite companies. It is, in my view, a great company along with WalMart and some others I have mentioned over time. Yesterday FedEx announced that they would be laying off 14,000 workers. This is a company that employs 116,000 people. My first reaction was of complete surprise. The economy has hit a "soft patch" but they have grown revenue 10% and earnings per share by 17% for the first three quarters of their 2003 fiscal year. The problem is situated at FedEx Express where "domestic growth rates have declined in recent periods." In order to improve the profitability of its FedEx Express unit, the company will offer voluntary early retirement and severance programs, and the company stated that the net cost will be $130 million to $160 million in 2004. FedEx expects to experience "significant increases in pension and health care costs in 2004." During 2003 FedEx has contributed in excess of $1 billion "to fully fund the accumulated benefit obligations of the company's qualified U.S. pension plans." Because of sluggish U.S. economic growth, FedEx had reduced its 2003 capital expenditure plans to $1.6 billion. The company has remained cash flow positive. However, due to the higher pension and health care expenses, the company expects to miss its fourth quarter estimates as well as its projections for all of 2004. At the same time, management stated that "during fiscal 2004, the company expects the U.S. economy to remain sluggish in its first fiscal quarter. Year-over-year economic improvement is expected to be evident in the second half of fiscal 2004, although sequential improvement may come earlier." For the second consecutive year, FedEx ranked 8th on Fortune magazine's "America's Most Admired Companies" annual survey. I have gone into the aforementioned detail for the same reason I discussed WalMart, my favorite company, in the early fall of last year. When the great companies begin to experience slower growth, when the industry leaders point to specific on-going problems, such as rising pension expenses and health care costs, I ask myself what's the story with other companies in the industry as well as companies which depend on them for their well-being. We have seen what's taken place in the past nine months within the retail industry. WalMart has nudged ahead but very slowly for them. The same will be true for FedEx in the near future. There is one important similarity between WalMart and FedEx. In recent years, their greatest growth has been internationally. U.S. FedEX Express and Sam's Club have both suffered by comparison. I again ask the question- when the great ones are experiencing a slowdown, isn't that a reason for concern? Is this concern reflected in the Dow at almost 9000 and the Nasdaq at about 1600? It's your money. For my money, the concern has created risks for which I am not being adequately compensated. I trust in the management at FedEx. They stay ahead of the curve. I certainly can't say the same for too many other companies.

On Friday Steve Ballmer, Microsoft's CEO, sold 4.1 million shares. He still owns 410 million shares. Is anyone concerned that he has sold about $1.6 billion in Microsoft stock in the past two weeks? It's interesting. At the beginning of June last year the Nasdaq dropped below 1600. Then, yesterday the Nasdaq for the first time in a year, stuck its head through 1600. In all, over the past 12 months the Nasdaq is unchanged. Not much has happened with Microsoft stock either in that time.

The Financial Times reports that the semiconductor industry group has lowered sales forecasts on chip growth for 2003 and 2004 due to SARS. I noticed yesterday where Intel cut prices for some mobile products, including some Centrino packages. Price cuts ranged up to 34%. I was surprised. Centrino was recently introduced with much publicity. Maybe Intel overestimated their industry pricing power.

Colin Powell recently stated "There were weapons of mass destruction in Iraq. It wasn't a figment of anyone's imagination." Powell did not touch on a subject which has created much debate in the British press- the September 24 published British intelligence finding which claimed that Iraq had WPM that could be deployed within 45 minutes of an order being given.

Edward Laird, head of Air Cargo Management Group, said freight forwarders in Hong Kong are having trouble moving cargo as a result of Cathay Pacific and Dragonair and others having canceled flights. International freight and express shipments were down 1.7% in April, and this was the first time such a decline had taken place for U.S. carriers in a year.

Paul McCulley, managing director of Pimco, said in November 2002 "the time has come for America to stick a lower dollar into the deflationary ears of the European and Japanese monetary authorities, until they scream reflationary Keynesian aggregate demand uncle." This past week we have begun to hear such screams.

I received a wonderful present from my family yesterday. It's a tee shirt which says in bold lettering: "I stand up to incredible intellectual scrutiny." I got a great laugh and it will make me smile when wearing it. Others will scream. That's what makes horse racing. The Belmont Stakes is fast approaching.

6/2/03 Driving Through Potholes Impacts Wheel Alignments

Everywhere you look there are tolls or some use tax. You pay them and know it's the current cost of driving through life. Over the years I have said that the risk taker should be compensated for assuming risk. When the risk rises, the compensation should be larger and vice versa. Assessing the risk and the proper compensation are matters for each individual's consideration. It's not my personal interest whether my thoughts influence your thinking. I only hope you think rationally and are successful.

I found it interesting that Bill Fleckenstein, a very bright guy, happened yesterday in his Contrarian Chronicles to outline items I have been analyzing as well. He states "a precarious economy, rotten fundamentals, a debt-ridden government that says 'sell our currency' are a recipe for disaster...I think fixed-income is a bubble that is destined to end in an ugly mess...but it's a given that we face financial and economic turmoil." Hopefully, Bill's thoughts will not prove too disturbing. They, too, are meant to serve investors well.

Before I touch once again on the tax cuts, I would like to revisit what took place yesterday in Texas where a $117 billion budget was officially passed. Some might consider it progress. Some might consider it disaster. Maybe it's somewhere in-between. They "saved" $800 million by delaying payment for public schools by 5 days. They "saved" $524 million by assuming lower caseload projections for Medicaid! They drained the "rainy day fund" for the Medicaid shortfall etc. They "shifted burdens for indigent health care to county district hospitals," said Republican Sen. Whitworth of San Antonio. Hundreds of thousands of children were removed from the Children's Health Insurance Program. Teachers lost health benefits and must pay more for their retirement. I don't believe the aforementioned budget process is a recipe for success. It is going on in most of our states. According to the National Conference of State Legislatures, states face revenue shortfalls totalling $21.5 billion for the fiscal year ending this month, and this amount is 23% more than what was projected in November. "This year's budget crisis will feel like 'The Perfect Storm',"said Governor Bob Taft of Ohio, a Republican. Gov. Dirk Kempthorne of Idaho, a Republican, calls it "the worst budget crisis among the states since World War II."

I have mentioned the state budget process and the state budget crisis for an important reason. In my view, a discussion of the recent tax cuts cannot be effective without bringing up the impact the budget crisis among the states is having on its state citizens. Let me say I do not feel there is a belief or opinion which can be proven today with respect to the recent tax cuts and their impact on stock market performance. It will be proven in hindsight only. Historically, budget cuts do have a positive impact on the stock market; however, today does not resemble history. We are setting new records, and those records have disaster written on them. I am talking about the size of the federal budget deficit, the size of the federal trade account deficit, the size of the federal debt, the size of the state budget shortfalls, the size of the cost of Medicare and Medicaid, the number of Americans without health insurance, the ever-increasing cost of health insurance-- put them together and you do have a recipe for disaster. The latter, in my view, far outweighs the benefits from the tax cuts.

May eurozone manufacturing Purchasing Manufacturers Index dipped to 46.8 from 47.8 in April. This was a surprise, The consensus was that the PMI would rise to 48.2. Overall, European manufacturing has fallen for three straight months and orders have fallen to their lowest level in 18 months.

As I have said so often with glee, I am not an economist. At the same time, I do keep my eyes open. Over this past weekend there was the biggest social event of the year in San Francisco- the Black and White Ball. Two years ago 10,000 tickets were sold for the Ball. The tickets are not inexpensive. This weekend 5000 tickets were purchased. In the environs of Seattle there are two areas where the extremely wealthy live. The top area is the Medina section of Bellevue. That's where Bill Gates has his home. The other is an island not far from where Bill Gates lives. The island is located in a beautiful setting with magnificent coves and much privacy. Ttwo years ago there was hardly a home for sale. Now there are for sale signs on almost every block. These are signs in both newer as well as very established neighborhoods. Whether its San Francisco or the aformentioned island on the outskirts of the Seattle skyline, the economic downturn continues to impact the wealthy. In my view, the wealthy will need more than a reduction in the taxes on the dividends received to provide a path to recovery. Whether its the $2.65 budget shortfall in Washington state or the staggering multi billion dollar budget shortfall in California, the fallout from the growing state budget crises will dwarf the positive impacts from the tax cuts coming out of Washington DC. Given the recent run-ups in the stock market and the bond market, I believe investors might reassess the current and future risks.

6/1/03 Systemic Mold

We have a growing mold problem in this country. As such. homeowner insurance rates have been increasing, and, in some states, dramatically. Texas has the biggest problem with mold claims, and the average premium has risen 45% over the past two years.

"As I tell my students, this is a great time to be studying governmental accounting, because the bigger the fiscal problems, the more they resort to gimmicks," said Michael Granof, a University of Texas public finance professor. "These gimmicks are basically off-the-balance sheet debt. It's what Enron did."

Over the past two years California, Colorado, Illinois, Kentucky, New Jersey, North Carolina, and Wisconsin have had their credit rating lowered. S&P has issued credit outlooks for 11 other states, and it is highly likely one or more of those 11 will join the credit downgrade list.

According to Jared Bernstein, a researcher for the Economic Policy Institute in Washington, the average length of unemployment is now 19.6 weeks, the longest since 1983; 21% of jobless workers have been unemployed for more than 6 months. Manpower's Chairman Jeffey Joerries said "the survey results are clearly showing a dominating sense of uncertainty, as hiring intentions have dropped for the first time in over a year."

William Clay Ford Jr., Ford's chairman, told the Detroit Regional Chamber on Friday "healthcare is just out of control. It's a system that's broke. It really scares me enormously...If we had three up years in the stock market, the pension issue would be ameliorated. The health issue is more intractable. I don't see a good solution." Mr. Ford should put his fears to rest. The Congress will be reconvening and shall tackle the healthcare problem.

According to a study by A.T. Kearney, over the next five years, financial services companies nationwide are planning to relocate more than 500,000 jobs overseas, reducing annual operating costs by more than $30 billion.

Frank Navarette, Arizona's homeland security director, said his state is considering not following the federal alert moves in the future. He said "I believe that, based on our own intelligence, I'm of the mind-set that we don't have to follow suit. It creates incredible problems- overtime, financial, functional."

According to new forecasts by House Budget Committee Democrats, the federal budget deficit will be nearly $500 billion next year and could help to drive up the federal debt by $3.6 trillion through 2011. In my view, that's not too enlightening. Citigroup has already forecast a federal budget deficit of $500 billion for 2003, and Goldman Sachs doesn't believe the tax cuts will improve GDP growth. It is worth remembering that, in 2001, the Administration predicted a $5.6 trillion surplus between 2002 and 2011.

In January 2003 we experienced eight 100+ point loss days in the Dow; 5 in March; 3 in April; and 1 in May. Traditionally, the ensuing summer months produce more challenging results. Maybe this year will be different. Given the recent insider selling, I see no reason to expect a change for the positive.

In the June 9 issue of Newsweek, the Princeton Survey Research Associates poll indicates Bush's approval rating is 61%, down from the prior month's 65%, and 46% view the President's handling of the economy in a favorable light.

"We've discovered a weapons system -- biological labs that Iraq denied she had and labs that were prohibited under the U.N. resolutions," Bush told reporters after talks with Russian President Vladimir Putin.

"My opinion is that we must work together to improve the lives of the Iraqi citizens, that we must cooperate closely to make sure that the Iraqi infrastructure is in place so that Iraqi citizens can live decently," Bush said

5/31/03 The Money Trail And Possibly "Cherry-Picking" The Flow Of Information

As yesterday's trading day ended, May marked the fourth straight monthly gain for the Nasdaq. The last time this took place was in late 1999, and what a great time that was to be a seller. Steve Ballmer, Microsoft's CEO, was not a seller in 1999. As I wrote the other day, up until about one week ago, he had not sold one share of Microsoft since 1991. I noted he had just sold 49.4 million shares, and then, this past Wednesday he sold another 2 million shares and then another 4 million on Thursday. Bill Gates has sold Microsoft on a regular basis for a period of years. The other day Jeff Bezos of Amazon sold a large amount of shares in the company he founded. I noted Michael Dell was a recent seller too. May had a positive money inflow into U.S. stock funds. You might consider asking yourself a basic question. Microsoft, Dell, and Amazon are three of the leading companies on the Nasdaq. Over and over again, I have mentioned that Microsoft and Dell are two of my favorite companies, and have been for years. I have also said many times I am in love with my family but not with my portfolio positions. Now for the question. If you see Ballmer, Dell, and Bezos lightening up, should you be a buyer or a seller- not just of the companies they run- but the market as a whole? What's more important- the market making new highs or the selling by some of our most successful technology entrepreneurs? Data can be devoid of information, it can be manipulated, and it can be massaged. I look at it this way. There are words, there are numbers, and there are people intertwined. I prefer to pay attention when smart people talk with their personal flow of money. You may think otherwise. It's your money. It's your choice.

Rick Carlisle was just fired as head coach of the Pistons. In his first season with the Pistons, 2001-2002, he was named NBA Coach of the Year. This season the Pistons went 50-32, and this was the best record in the East. His team went to the conference finals where they lost 4 straight to the Nets, a better team. The Pistons may hire Larry Brown who recently left the 76ers. Carlisle had been paid $2 million for the season. He is considered one of the best coaches in the league, and his two year record supports that view. He had every reason to believe he would receive a new contract, and probably a raise as well. Life is unpredictable. The market is unpredictable. You can never be sure enough in today's world. If you believe that last statement, then it might be wise to get paid for the risks in today's world. The problem is insurance can be expensive. There is one advantage should you so choose. The sellers of options generally make money 80% of the time. You might consider hedging your portfolio. It all depends on your point of view, and your ability to sleep at night. There is an old saying- sell to the sleeping point.

I was particularly interested in Fed Board Governor Ben Bernanke's speech today to the Japan Society of Monetary Economics. He said "there is no immediate threat of deflation in the U.S. economy and that the concern is that inflation may become uncomfortably low." He expects second half growth of between 3% and 3.5% and rising to 4% in 2004. He recommended that the Bank of Japan should focus on reflation. "Specifically, the Bank of Japan should consider increasing still further its purchases of government debt, preferably in explicit conjunction with a program of tax cuts or other fiscal stimulus. Consumers and businesses should be willing to spend rather than save the bulk of their tax cut. They have extra cash on hand, but-- because the BOJ purchased government debt in the amount of the tax cut-- no current debt service burden has been created to imply future taxes." This sounds a great deal like what is taking place in the U.S. I hope Bernanke doesn't believe, however, that consumers and businesses have extra cash lying around. In addition, as he well knows, Japan runs large trade account surpluses and that makes it feasible to reflate.

Because of SARS, Hong Kong's economy actually shrank 0.3% in the first quarter, and the government reduced its growth estimate for the year to 1.5% from 3%. The government expects SARS to reduce the 2003 GDP by 1.8%.

An annular eclipse is one where the sun is but a bright ring behind the moon. In early hours, the North Atlantic region witnessed its biggest such solar event in almost 50 years.

Quietly, over the past month or so, the Nikkei has climbed without fanfare from 7600 to 8400. Many companies are still having major problems. For example, Mitsui Mining reported a yearly loss of $445 million, and the loss created a negative net worth. It will be interesting to see how the performance of the Nikkei compares with that of the Nasdaq over the next 12 to 18 months.

This is our government attempting to be at work. In March Energy Secretary Abraham commissoned the National Petroleum Council to do a study on natural gas supplies, consumption, and prices and to make recommendations. The study will be completed in December. In the private sector I would hope a more realistic timetable would be 48 hours.

Albert Einstein: "Whoever is careless with the truth in small matters cannot be trusted with the important matters." Are we learning to think in different terms? Cross currents can be created by various flows of information and data. We know it is possible to manipulate data. Forks in the road are generated, and they lead on one side to mistrust and to the other side to wise leadership. The path you take is your choice, and yours alone. However, as Sandra Carey said, "never mistake knowledge for wisdom. One helps you make a living; the other helps you make a life." Let's focus for a moment on the question of intelligence. A senior intelligence official spoke on the condition of anonymity and said that only Colin Powell's February 5 speech at the UN Security Council was reviewed by intelligence agencies in detail and backed by detailed intelligence. In my opinion, that speech mostly provided an historical picture and did not feature current views of WMD. I am convinced to this day that Powell believed in the speech he gave. The cross current is generated by the opinions put forth by the Veteran Intelligence Professionals for Sanity, a group mostly comprised of CIA intelligence analysts. This group wrote Bush on May 1 about "a policy and intelligence fiasco of monumental proportions." In essence, they maintain intelligence data was skewed and that the Administration played up "fraudulent" intelligence, and before declaring war, there was a "moral obligation to use the best information available, not just information that fits your preconceived ideas." A former head of worldwide human intelligence gathering for the Defense Intelligence Agency said the administration "cherry-picked the intelligence stream." Upon a good deal of reflection, I think the kindest thing one can say is that a good deal of information provided was flawed. A good example would be yesterday's statement by Lt. Gen. James Conway, who is the top Marine Corps officer in Iraq. He said U.S. intelligence was "simply wrong" to make our military commanders indicate to our troops that they should be fearful of being attacked with chemical weapons in Iraq. We are now sending a 1300 person team of intelligence officers, scientists, and document specialists to aid in the search for WPM. Yesterday, Bush was interviewed and said "But for those who say we haven't found the banned manufacturing devices or banned weapons, they're wrong. We found them." He was referring to two trailers where the CIA had concluded no pathogens had been found.

Coco Chanel: "It's amazing how many cares disappear when you decide not be something, but to be someone."

Today Bush visited Auschwitz, and in a speech to Polish television he mentioned that his visit to the "Death Wall" is "to remind people that we must confront evil when we find it." Speaking for myself, I don't need the reminder. I remember it every day, and every day I am unfortunately reminded of new evils. I am not skilled in the art of selective forgetfulness.

Yesterday morning I was flipping the TV channel and saw an old familiar face. He was providing his current views, and he has been a successful money manager for some years. He mentioned about hs partner's description of tension in the boardroom, and that this tension was good for stocks. Specifically, he said boards are under pressure to make acquisitions, to do stock buybacks, and/or to declare dividends. I thought for a moment. This is good for stocks? At least 75% of acqusitions are unsuccessful. That number has been proven. In fact, it might be closer to 80%. Buybacks are not necessarily the best use of cash flow. Speaking from experience as chairman of an executive committee and chairman of a finance committee, we purchased stock on three separate occasions when the market was depressed and below the then last sale price. However, our best use of cash flow day in and day out was investing in our plants, and the annualized ROI was never below 50%. We never paid out a dividend just for that reason. The stockholders didn't do too badly. From the third week of December, 1981 thru the spring of 1988 the stock rose from $19 to the buyout price of $109.

Having money and the uses for the money is on everyone's mind. In April wages and salaries fell 0.2%. It was not surprising, therefore, to see the personal consumption expenditures index to also fall 0.2%. There's a lot of data out there. We have the lowest interest rates in four decades. Unemployment levels are way too high. Business spending is a misnomer. Everyone knows the numbers. The point is what do you feel the picture is telling your guts? Not what I say or Joe Blow says or even Bush says. What do you think? Please avoid bureaurocratic leanings. You might wind up like Deputy Defense Secretary Paul Wolfowitz and his explanation for going to war with Iraq: 'the truth is that for reasons that have a lot to do with the U.S. government bureaucracy, we settled on the one issue that everyone could agree on which was weapons of mass destruction as the core reason."

5/30/03 The Bad, The Bad, And The Ugly

Our Speaker of the House is Dennis Hastert. Many wondered why Boeing moved its long-time headquarters from Washington state to Illinois. Boeing said they got a better deal. I guess they did. How did Boeing just win a $16 billion Pentagon contract to lease modified jetliners for use as refueling tankers? Hastert proudly told the world "We did that kind of on our own. But I think the important thing is that we were able to have the muscle to get it done, and that means not just 100 planes but probably, long-term, it'll be 500 tankers." Some question why the $16 billion lease cost is more than an outright purchase would be. I'm sure everyone knows that Hastert, who represents Illinois, is third in line to run this country should a calamity befall our President and Vice-President. I'm certain that there are those snickering and are saying that's how business is done. Maybe it's done this way because no one does anything about it. In my view, things need to change.

The Boeing matter reminds me of IPOs. All the news relates to feeding the hot deals to the heads of companies who direct their business to the IPO managers who control the distribution of the stock. I think it goes much further than that. How about all the fund managers who direct millions of dollars in commission business to these same firms managing the hot IPO deals? I realize they should be treated differently. They are the best customers. They already are paying a lower commission than the average person doing business with that same firm. The large fund manager does something else though. That fund manager getting the hot issue, such as, VA Linux, will agree to take a lemon every once in a while. My comments come from experience. I have been offered these hot IPOs and turned each down. I also don't knowingly take on lemons. I can make money working hard and being my own man. Yesterday I mentioned Krispy Kreme. I really like this company. I like the product too much. I was offered the stock at the IPO price. When the stock opened for trading, I paid 60% higher than the IPO price. I still own those original shares. As for lower commission rates, I was always happy with the deal I struck in 1980. I still do business with that firm as I do with WalMart where they are pleased to give me a 10% discount. I am a valued repeat customer and spend a good deal of money there. What I buy is my choice though.

Yesterday, another U.S. soldier was killed in Iraq. Lt. Gen. David McKiernan told a Thursday news conference "The war has not ended, that's a point I need you to understand." Don't tell us, McKiernan. Tell it to the families whose near and dear were killed after combat was declared over on May 1. I am not one with military experience and don't understand how the troops in Iraq can still be receiving combat pay when the combat is declared over. In my view, the aftermath of the combat, that of chaos, could have been prevented with much different planning. I would like to believe that Ross Perot or Barry Goldwater would have handled this situation with much greater adroitness.

The Investment Company Institute reported April stock fund inflows amounted to $16.1 billion, and that this was the first inflow since November.

The World Semiconductor Trade Statistics group said April global semiconductor sales growth was flat compared with March, and was much weaker than expected.

Last week initial jobless claims amounted to 424,000, and for 15 straight weeks claims have remained above 400,000. Japan can relate to difficult times. Tokyo CPI prices have declined for 44 straight months. That's deflation!

In the first quarter in the U.S., earnings after taxes, adjusted for the value of inventories and capital consumption, fell 0.8%. We should see what results show in the second quarter.

S&P cut J.C.Penney's debt to a "junk" rating.

When Congress reconvenes and focuses on Medicare, I will be interested to see how Medicare's unfunded liability is handled.

You just have to love some of these airlines. U.S. Air is offering a $7 breakfast and a $10 dinner. Next to that, the $19 hot dog at the Old Homestead is looking a lot better.

In discussing the euro currency market, David Schoenthal, senior managing director of Bear Stearns, said "the market is focused on the deficits here, tainting the appeal of the dollar." The stock market does not appear to focus on the deficits nor does the Administration or the Congress.

Toronto now changed how it counts SARS cases. I need to take a course in counting. I didn't realize there were different ways to count SARS. No wonder the number of cases shot up to 70 and thousands were placed into quarantine. A big 4 accounting firm must have done the audit. Depending on the length of sickness, the hospital may be permitted to change to a double declining patient depreciation schedule.

ECB's chief economist, Otmar Issing, doesn't believe there is deflation in Germany. The fact is business hit a soft patch there, and they are the largest economy in the eurozone.

San Jose Congresswoman Zoe Lofgren serves on the House Select Committee on Homeland Security and is the top Democrat on the Cyber Security Committee (I didn't know we had one). She complains that air cargo, nearly a quarter of which is transported on passenger planes, is uninspected, and so is most of the cargo on ships. I wonder if that includes cruise ships. The latter may only have room to store SARS and other viruses.

According to the Conference Board, the volume of help-wanted ads in major U.S. newspapers fell in April to the lowest level in more than 41 years.

Joe Mysak is a Bloomberg News columnist. He wrote an interesting article on the Muni bond market and potential negative yields. He quotes John Hanley, the national sales manager at George A. Baum, who says "Investors are making a bet that bonds will make it past the call date. If that happens, incremental yields may pick up significantly. The approach requires some research but can generate decent returns. To this point it's been a safe bet as negative arbitrage has slowed municipal refundings." It got me to thinking. I'm familiar with arbitrage. I need to research whether similar negative arbitrage exists in the stock market.

5/29/03 Different Perspectives And The $19 "Dog" And Giant Holes

Having been born, raised, and lived most of my life in New York, I have always felt a kinship to the real-deal hot dog made by Sabrett and sold at carts manned by street vendors. The Old Homestead Restaurant in New York City is considerably older than I am, therefore ancient, and now offers a different perspective on the "dog"-- a $19 Kobe beef hot dog.

CBS Evening News offers a different perspective on the opening night of the Iraqi war. They just reported there was no bunker bombed. They quote Col. Tim Madere who said "When we came out here, the primary thing they were looking for was an underground facility, or bodies, forensics, and basically, what they saw was giant holes created. No underground facilities. No bodies." There were no traces of DNA indicating whether Hussein or his sons had been killed or wounded.

Goldman Sachs offers a different perspective on the possible economic impact of the tax cut on 2003 GDP results. They maintain it will not have any impact at all and are sticking with their projected 2.2% GDP growth for 2003.

Some financial publications offer a different perspective on the economic upturn which is supposedly just around the corner. Some suggest that growth will in fact pick up but that unemployment will continue at the same level. In other words a jobless recovery, as it were, is foreseen in a different perspective.

Senator Graham is a candidate for the Democratic nomination. He is not well-known by many but, of all the candidates, he has been privy over the past 10 years to the most classified information. He offers a different perspective on the Iraqi war. Basically, he maintains that Saudi Arabia aided and financed al-Qaeda's 9/11 calamity, and that the whereabouts and existence of WPM were not truly known at the time our bombing began. It's possible, therefore, that the U.S. could get control of the Iraqi oil and make use of that source in order to minimize the importance of Saudi Arabia's oil and that of the mideast oil cartel.

Microsoft will be dropping prices by $80 to $110 on its Office XP suite of business software. This represents a reduction of about 15%. Later this year, the company will be inroducing Microsoft Office System 2003.

According to market research firm GfK Asia Pte. Ltd., a survey of 134 electronics retailers in Hong Kong and Singapore projects slow business to continue until at least July, and the reason is the impact from SARS. Yesterday Taiwan reported 14 new SARS cases and 5 more deaths. In Toronto a high school was shut down, and 2000 from the school and a total of 6400 were placed into quarantine. Russia announced its first confirmed case of SARS yesterday.

Unlike the recent headlines on home prices, Economist magazine provides a different perspective. They say U.S. and U.K. home prices will drop "dramatically" in the next few years, and that some nations will experience a recession.

The Christian Science Monitor reports that more and more states, such as, Alabama, New York, California, and Nevada, are moving to raise taxes by record amounts. Nicholas Jenny, a tax analyst at the Rockefeller Institute of Government in Albany, states that in most states "we're going to see big tax increases this year. It almost seems inevitable." David Lanoue, a political scientist at the University of Alabama at Tuscaloosa, offers an interesting perspective when he says "many governors are in the first year of their term, which gives them three years to recover. And three years is a lifetime in politics."

The May 29 Far Eastern Economic Review makes some very interesting points about China and its currency. Much is discussed about the renminbi's debut as both a regional reserve currency, a growing international currency, as well as a currency which is fully convertible. The IMF estimates that 40% of total trade within non-Japan Asia is intra-regional and trading with China accounted for 40% of the increase in 2002. It is suggested by John Wadsworth, an advisory director of Morgan Stanley, that "it is highly likely that there will be four major currencies in the world within 10-15 years." Taking it one step further, might be the future potential of the renminbi to float against the dollar, the euro, and the yen. With China's $300 billion of foreign reserves, its future growth prospects, and the evolution of the renminbi, the country should have a major global economic impact for years to come. Jonathan Woetzel, a Shanghai-based director of MCkinsey & Co., says of China "What makes it distinctive is its growth. By 2010, it is expected to almost double in size to rival Germany. With continued growth it will surpass Japan by 2020."

The average forecast from auto analysts peg the industry's May sales below the results of April, where orders for cars and auto parts were off by 3%. May figures will be released June 3. Because of continued high inventory levels, production cutbacks are expected for the third quarter.

In Japan industrial production fell in April.

Air Canada is laying off nearly 2000 flight attendants.

Our nation continues to have a sweet tooth- me included. Krispy Kreme's same store sales increased 11.2% in the latest quarter. An estimated 7.5 million Krispy Kreme doughnuts are made every day and more than 2.7 billion are produced each year. I am a big fan of this business. Owning an itty bitty bitty piece makes each doughnut taste even better.

Just a short closing remark. I appreciate hearing from readers. I appreciate the constructive comments as well as the ones with praise and laugh off any that reach me with unkind tones. Many have requested that I should endeavor to place my blog before a larger audience . For new readers I will reiterate. I like writing the blog the way it's now done. I no longer give interviews and no longer provide comments to reporters. The last filmed interview was several years ago when CNBC named me their "Player of the Week." My family bore the brunt of that publicity. It will not take place again. I don't make the same mistake twice. I hope all my new and old readers appreciate my point of view.

5/28/03 The Balanced Bar

The Yankees had lost their last eight games in the house that Ruth built. Yesterday, they responded with a win and "stopped the bleeding."

Another piece of good news. In describing the WMD, Rumsfeld said "It is also possible that they decided that they would destroy them prior to a conflict." If that were the case, we were really lucky because the casualties would have been much greater. Further clarification came from Maj. Gen. David Petraeus, commander of the Army's 101st Airborne Division. He said "I just don't know whether it was all destroyed years ago-- I mean, there's no question that there were chemical weapons years ago-- whether they were destroyed right before the war, or whether they're still hidden." The fact is on May 1 the combat was declared over. We can be thankful to all our troops- those remaining, those wounded, and those laid to rest. We can also be thankful because our recent huge rally originated with the ending of the conflict. It has generated increased consumer confidence and created greater equity wealth for most stockholders. Consumers are feeling better about the future six months from now.

Record low 30-year fixed mortgage rates have continued to stoke new home sales. According to the California Association of Realtors, the median price of an exisiting home in California increased 14.8% compared to the same period a year ago, and stood at $363,930. Just in the past month the median price increased 3.2% over the prior month. If employment picks up, prices might jump even further.

As I was reading the latest mortgage rates, I got to thinking. Interest is deductible. The national debt is like having a second mortgage. Each family's share of the national debt is $70,531. I think it's only fair for the interest on that amount to be deductible for every American.

The Conference Board said that 17.8% of consumers anticipate that more jobs will become available, and this was up from 16.4%. A slightly smaller percentage anticipate their income to increase.

The Rocky Mountain News reported that home foreclosures in the Denver area rose by 38% in the first quarter compared with the period a year ago. Foreclosures are expected to rise 20% in 2003. The good news is that the number of forclosures is far below the record set in 1988.

Honda cut production in Japan in April by 26% from the prior year period. Ricoh, Japan's number two office equipment maker, closed its Beijing factory in May because of SARS. Clarion, the Japanese car audio equipment manufacturer, cut 5% of its workforce yesterday. As in the U.S., medical costs are rising in Japan.

The Pew Center on the States released its first ever comprehensive national survey of state legislators. There were 770 state legislators included in the study. Over the next two years the survey paints continued belt tightening, on-going budget shortfalls, continued cuts in social services are likely, and lawmakers in states with population above 6 million paint the darkest picture of economic conditions and budget shortfalls. The entire survey can be viewed at http://www.stateline.org.

Boeing will deliver about 280 aircraft in 2003 and roughly the same next year. Their CEO said "one thing remains unknown and is the impact of SARS and how long this will affect a number of businesses." This statement reveals to me that the lower dollar will not have much positive impact on Boeing's export sales. As we know, Boeing is this country's number one exporter.

Michael Dell recently sold 10 million shares of Dell common stock at an average price of $29.70. He still owns 278 million shares. As the market has risen in price, some important CEOs have sold shares. Last week it was Steve Ballmer of Microsoft. Talking about Microsoft, since 2001, the company has written down $7 billion in its investments. Yesterday, after purchasing shares in Telewest Communications three years ago for $2.6 billion, Microsoft sold this stock for $5 million in cash. Even the brightest technology people were caught in the dotcom and telecom bubble. As the saying goes, when they raid the whorehouse, they take all the girls.

According to the U.S. Commodity Futures Trading Commission, as of May 20 hedge funds and other speculators (not my description) held a net 65,741 gold futures contracts, the most since the 7 year high reached on February 4.

The new Illinois proposed budget calls for a $112 million cut to public universities. As such, an average tuition increase of 11.5% will be instituted in the fall at Illinois' public universities. How many will be able to afford this increase?

Pt. Reyes National Seashore is a 71,000 acre national park. It is my most favorite recreational area in and around San Francisco. On Sunday they had their first bear sighting in more than 100 years. I hope this isn't an omen. The market is just now working up a head of steam.

Finally, I would like to end today's blog focusing on a very important subject. After the euro was introduced, there was a period of a few years where it was quite weak and it dropped from roughly 1.18 to about the low 80s. The eurozone countries had been running surpluses, and therefore, did not require a daily capital inflow. Japan's yen also was very weak for a time, and they too have large surpluses and do not have the need to attract outside capital on a daily basis. As we know, over the past several years the Fed has reduced interest rates a dozen times, and, as a result, treasuries have had a big rise in price while yields declined. However, that's only half the story. Over the past year the dollar has fallen 22% vs the euro. If treasuries had risen 22% during this period, then there would not have been a loss of capital on the part of the eurozone investors. In other words, the fall in the dollar decreases the willingness of foreign investors to commit their capital into the U.S. The Administration and many economists and many market analysts have simply focused on rising exports with the dollar's decline. This is a very small part of the overall picture. Speaking just for me, investing is a matter of assessing risk/reward. I have placed my shoes in those of foreign investors. I cannot see a reason to assume the risks residing in our economic system. The Nasdaq market, for example, sits at an 11 month high. Had one purchased during the third week in October, and held on until now, the rise would have wiped out the currency loss from the declining dollar by a wide margin. How many bought at that time and are still holding on? The point is this. The U.S. needs to attract $2 billion a day into this country to fund our capital shortfalls. Interest rates aren't going to decline below zero and the economic climate won't make the equity markets go to the moon. Ballmer and Dell aren't stupid. I know they still own billions worth of their respective company's shares. I know they want to diversify their holdings. I also know they must believe they are selling at a good time. Ballmer hadn't sold a share of Microsoft for about a dozen years until a week ago. On the other hand, consumer confidence is rising and the outlook on the part of consumers is rosier. The refinancing boom continues and additional cash flow is released to the consumer. Housing prices continue to rise, and consumers feel wealthier. The stock market has risen beautifully since the Iraqi combat ended. There are plenty of reasons to cheer. There will be opportunities in every market. It's a matter of weighing the risks and the rewards and how you see the world. If I were in Mexico, I'd be looking at a 2.5%+ economic expansion in 2003. Their formal economy will generate 250,000 jobs this year! That is fantastic. There's another side to the story. That nation's workforce is growing by more than 1 million people a year. That's the balanced bar. I myself go for the Pria bar. It gives me energy and the risks are minimal. I prefer it that way.

5/27/03 We Remember And We Contemplate

I often have said that every day should be Mother's Day and Father's Day. I feel the same way about Memorial Day. The Wall at Arlington National Cemetery has 58,235 names. More names will be added as two U.S. soldiers were killed and nine others injured yesterday in and around Fallujah, Iraq. I was reminded by a reader that "all of the top members of the Administration have repeadedly said that, although major combat is over, there are still significant risks to the troops and lives may be lost." I apologize for not having included that statement in yesterday's remarks. I am certain it will be a comfort to the families of the 27 soldiers killed in Iraq since May 1. I only hope and pray more troops will not lose their lives in the combat-free period than did during combat.

A study by Matthew Shapiro and Joel Slemrod, economists at the University of Michigan, found that only about 25% of those surveyed said they spent the rebate they got under Bush's 2001 tax cut. Since that tax cut, 2.7 million Americans have found themselves without a job. As such, I believe it is reasonable to expect less than 25% will spend their tax rebate this time around.

Micron Technology, with approximately 10,000 employees in Boise, is Idaho's largest private employer. In February 10% of the workforce was laid off. With additional quarterly losses anticipated, more layoffs can be expected at Micron.

The state of California has $11 billion worth of debt, and that number continues to rise. Carole Migden, chair of the state Board of Equalization, is a former assemblywoman and a veteran of seven budgets. She says "the state is busted, and we don't have a lot of options." She might also have been talking about the United States and the Fed. This country has debt of $6.4 trillion and that too is about to increase. The Fed has few options. They slip in a concern about deflation but I believe that concern is truly only a dot on their radar screen. Their cup runneth over with concerns. They print money and print money and can't get the economy going. They have a dozen rate cuts and the jobless rate rolls just increase. The largest tax cut in this country's history was nice- just like a warm glass of milk. It didn't really get to our economic woes. The lower interest rates have not gotten businesses to invest. Why should they? Factory utilization is at about a 75% rate. As I have said for three years, we have oversupply and underdemand. We'll remember these days. They won't be with fondness.

According to CNW Marketing Research, an estimated 525,000 auto loans with a total balance of $10 billion will be refinanced in 2003. In 2001 there were 297,000 loans with a balance of $4.5 billion. In years to come, we will remember these refinancing days. It was great while it lasted. As with other good things, they come to an end.

Across the nation this weekend hundreds of thousands of travelers abandoned their plans to travel on the roads. In some areas it might have been due to the weather. Others said it was the result of people just not having money to spend or being unwilling to spend the money they had.

The ECB said the euro zone had an inflow of $12.7 billion euros in March up from February's inflow of $11.4 billion.

Hong Kong has found a new way to fight SARS- an anti-spitting and anti-littering campaign. In Toronto more than 1400 people were asked to go into quarantine.

The euro hit a new high of over 1.19 vs the dollar, and it's now up 13% for the year vs the greenback. That's better than the New Zealand dollar which is up 11.5% this year vs the greenback. While I'm on the subject of New Zealand, which is my country of choice for investment, let me leave you with this question. The Fed funds rate is 1.25% and in New Zealand it's 5.5%. In the U.S.we have record budget deficits. In New Zealand they have 10 straight years of budget surpluses. Why buy a 10 year Treasury at about 3.30% when I can buy a 10 year New Zealand bond providing a yield of 5.45%? The Fed can't answer the question either or maybe they can and don't want the public to know their opinions on this matter. Just as money is pouring into euros, so is money pouring into the New Zealand dollar and their bonds. It's provides a better yield and with less risk. If an educated consumer makes the best customer, then an educated investor should make for the best performance, and the latter will be remembered with fond memories.

5/26/03 Supposedly

Supposedly, on this Memorial Day, after May 1 we would not be mourning the death of more soldiers in Iraq. That's when the fighting was declared done and over and finito. Tell that to the families of the 23 who have died since May 1.

Supposedly, Matrix Reloaded's box office receipts were going to make everyone forget about the results from other movies. Surprise. From Friday thru Sunday Bruce Almighty pulled in $70.5 million vs the Matrix's $37 million. Bruce Almighty cost $81 million to produce. We shouldn't take up a collection for the Matrix. It has grossed $200 million in 11 days. There are many public companies that don't gross that amount in a year.

Supposedly, Canada and Taiwan had conquered SARS. The travel advisories had been lifted. The fighting was deemed over. No one informed the virus. It never left the neighborhood. It was just resting comfortably. Yesterday there were 12 deaths in Taiwan, 3 in Canada, 7 in China, and 4 in Hong Kong. I feel comfortable in stating there's more where they came from- and in the near future.

Supposedly, all Americans were created equally. Not in Cook County, Illinois. There a new study reports that thousands of uninsured people are charged higher rates for services at 59 hospitals than those with insurance.

Supposedly, Boeing is this country's largest exporter and second largest defense contractor. I said supposedly because I don't know whether companies like Singapore Airlines are still buying planes. You would think Homeland Security would consider Boeing pretty important. Boeing's Chief Security Officer Greg Gwash has been concerned about "apparent Middle Easterners" conducting surveillance at the company's facilities in the Seattle area. Gwash emailed staff members to increase "surveillance detection measures...especially during hours of darkness, to detect any reconnaissance being done in advance of a future attack." The FBI agent in charge of the agency's Seattle office said his department is not aware of specific threats.

Supposedly, the airline business has seen its worst times. The group has recently had a dramatic market rally. Maybe the airline world is not created equally. Singapore Airlines is offering $198 round trip fares from JFK or Newark to Frankfurt or Amsterdam. This airline was voted the world's best by Conde Nast Traveler magazine. I wonder what the fares are like on the worst airlines.

Supposedly, what's good for bonds is good for stocks. What happens if the reverse is true? Can there be a bubble in bonds, mortgage rates, housing prices, and eBay all at the same time? If Greenspan knew that a bubble existed in stock prices years ago, and did nothing about it, and then lied that he didn't know there was such a bubble (contrary to Fed meeting notes), what makes you think he doesn't recognize a bubble exists in bond prices today and is doing nothing about it? I predict down the road we will find that plenty of Fed presidents and Greenspan recognized the treasury bond bubble but hoped that low mortgage rates would create the refinancing which would generate free cash flow for the consumer and thus prevent an economic meltdown. Now, this is a market vacation day. You're thinking I am just challenging you with outlandish comments. Sorry. I didn't mean to burst your bubble.

5/25/03 The Check Is In The Mail

Job creation. What job creation? Tax cuts. What tax cuts? The check is in the mail. Keep a firm grip on your checkbook. It's three card monte. Please watch carefully. I do not have anything up my sleeve. My cards will be on the table. I won't touch them. I give you my word. It's all about shifting the nation's burdens and priorities. Let's take a peek at two of our biggest states- Texas and California. Bush should know Texas pretty well. He has a ranch in Crawford and I believe he may have been governor for a spell. They are cheering in the Texas state house. A $118 billion budget has been produced where taxes were not raised for Texans. It did, however, produce a few itty bitty problems. Annual health benefits to actiive public teachers were cut by $500 and they are now charged $8 more a month for retirement benefits. Retirement teachers will get a 30% premium hike for their health care. The average Texas family will be paying higher local taxes. The burden on many services has been shifted from the state capitol to cities and counties throughout Texas. For example, the tuition will be raised at the local colleges and universities as state funds were cut for education. The headlines in the papers will read "No Tax Increase For Texans." Actually, Texans will be paying more for services and the quality of the those services will be declining. They shouldn't worry though. The Federal government's rebate checks should be arriving in July. Texans are lucky. They could be living in California where there is a $38 billion budget shortfall. Over the past 12 months over 450,000 Californians have signed up for Medi-Cal. An estimated 7 million peple are in this state program or 20% of the state's population. Medi-Cal will cost California $12 billion this year alone. To help reduce California's budget deficit, Davis wants to reduce Medi-Cal payments to doctors and health facilities by 15%. California is in a pile of trouble. The workers' comp costs are escalating out of control. Who wants to hire a new employee in the face of these soaring workers' comp costs? I don't know any company other than Microsoft that might be hiring. They are hiring for their operations in India. Of course, they also have over $45 billion in cash. In sum, Californians need not worry. The government's tax rebate check will be in the mail in July.

I didn't mean to gloss over medical expenses. Medicaid costs rose 13% in 2002. The program provides health insurance to 50 million low-income Americans. This year the program will cost almost $300 billion with 57% of the expenses borne by the Federal government and 43% by the states. The headlines may have read "Bush's $350 tax cut plan approved" but it didn't state that the burdens from Medicaid are unable to be borne by the states in 2003 and unwilling to be borne by the Federal government. At the same time, the Congress is willing to approve a $400 billion defense budget. I keep looking at the faces of our soldiers killed in Iraq. I read their names. It's a long list. Then I ask myself whether anyone has found the WMD or seen Osama bin Laden or Hussein. I wonder about the 45 million uninsured Americans who cannot afford healthcare, the millions of Americans without a job, the millions who cannot get a full-time job, the homeless, those standing on line at soup kitchens, and knowing that social security benefits will run out in about a decade when the seasoned citizens need it most. Then I sit back and tell myself that this wall of worry is different. The government rebate check will soon be in the mail. Then I remind myself that Social Security, Medicare, and Medicaid are still at large. It's too bad the Administration doesn't have the acumen to reform them. I know the costs are running wild. Capturing these culprits would be too much to ask. Then I say to myself. Bush just mailed out 1 million fund raising letters. Maybe the funds will go to worthy causes.

I'm not a great photographer but I know a picture that's out of focus. In yesterday's radio address Bush said "Moving toward a balanced budget also requires that we hold federal spending to a responsible level. Spending discipline is crucial to my economic program." Really? We are moving toward a balanced budget? We have the largest budget deficit in this nation's history. It's growing monthly. We have the largest trade account deficit in this nation's history. It's growing monthly. We have spending discipline? The debt ceiling limit was raised by about $1 trillion shortly after the tax cut plan in the senate was approved via Cheney's tie-breaking vote. Bush went on to say that "Governments should follow the example of American families by setting priorities and staying with them." And what priorities have been set by the Administration? Certainly not spending discipline or a balanced budget. The hallmark of this Administration's economic program has been a weakened dollar, the loss of 2.7 million jobs, and the most disappearing check the Federal government has voted to mail to the American people. This has been a very sad beginning to the Memorial Day weekend.

Sometimes my hearing is not too terrific. I could have sworn I heard Bush say in his radio address that "Discretionary federal spending will rise by 4%, about the same as the increase in the average American family's income." He must have been talking about the working family not the unemployed or underemployed family. The $1 trillion increase in the debt ceiling might cover the 4% increase in federal government discretioary spending; however, who is to cover the consumer's rising health care, insurance, education, local services and tax costs? Certainly not the rebate check which will be mailed in July.

Is it possible for the yield curve and the stock market to be out of focus? Let's take a look. In the treasury market a 5 year note yields about 1% more than a 2 year note. A 10 year yields about 1% more than the 5 year. The 30 year yields slightly less than 1% above the 10 year. In other words, the yield curve is pretty flat. Not inverted. Just pretty flat. If inverted, it would signal a future business contraction. A flat curve signals a very slow growth economy. A steepened yield curve indicates strong future economic growth. Now we've recently experienced a pretty snappy rally in the S&P 500, the Dow, and the Nasdaq, and this rally has been accompanied by some fancy falling treasury bond yields. In other words, both investment worlds are in harmony. If you were in California, you'd consider them centered. In N.Y.C. they would be in sync. For me, since I grew up on the streets, they are in 3 card monte land. Our economic policy is diseased. We are not going to reduce government spending. Bush said so in his address. The deficits will increase. The debt ceiling was raised to accomodate greater deficits. Rising costs for workers' comp, health care, insurance, and benefits will wipe out any chance for more jobs. In fact, unemployment will continue to increase. IBM and Boeing, two Dow companies, will add to future jobless rolls. There will be others. China will continue to export deflation to the U.S. The flat yield curve is telling you that growth is limited going forward. The question is whether the yield curve will become inverted? Will interest rates rise in order to attract foreign capital to fund our deficit? Has everyone enjoyed the rallies? Keep your hands in your pockets. Going forward in the bond and stock markets, the rebate check being mailed will not bail you out. Getting liquid will bail you out. Just stay away from the dollar.

5/24/03 The Congress And The Administration Did Not Make The Cut

This is about telling the truth, focusing on reality, and acting responsibly. Please take a moment to read these remarks made by Bill Frist, the Senate Majority Leader: "Economists tell me that the economy is like a great ship. It cannot be turned around quickly." Another time during the day he said the tax stimulus package will "provide immediate relief to millions of American families and businesses and indeed states. And it will, it will, create jobs." Notice he stammered when he mentioned creating jobs. The Administration said it will create 1 million jobs in the next 12 months. It should be noted that 2.7 million jobs have been lost since Bush's first $1.35 trillion tax cut in 2001. If you want a tax cut to have meaning across all income levels, then the social security and medicare taxes should have been cut. I said that a year ago, and I repeat myself today.

Just think. With this new tax cut, small businesses will be able to immediately write off $100,000 in new equipment purchases. The Administration might consider getting a grip on making the reality cut. Businesses are failing daily. Jobs are being eliminated daily. How many businessmen do you know have the extra jack to buy new equipment? How many have the confidence in future business conditions to buy new equipment? The good news is that businesses will be able to expense half their investments this year, such as, new brakes on the business car.

If 9 million fake Lipitor tablets can be recalled, and Ford can recall 185,000 pickups and SUVs, then why can't fake and faulty politicians be recalled? If researchers can find the Civet cat-SARS link, then why have they no clues to unlocking the irresponsibility link to government spending?

Our forefathers were truly geniuses. They knew the true reason to have a vice president- to deliver tiebreaking votes. Clearly, the reason could not be to run the country in a crisis situation. There was only one Harry Truman.

A recent study shows 1 in 5 women are depressed during pregnancy. I think the reason might be that the child tax credit was only raised to $1000 per child per year, and we know this doesn't even cover the cost of delivering a child into the world.

With 5 new cases, SARS has raised its head again in Toronto.

For the first time since 1991 Microsoft CEO Ballmer sold stock in that company. This week he sold about $950 million worth. He still owns over 431 million shares.

Since 2001, the Fed has lowered rates 12 times. Maybe in June they'll make it a baker's dozen. Maybe they'll also buy long term treasuries. However, their short and long game are not up to par. 4Cast director Alan Ruskin said "Greenspan has always been known for asking the question 'What's the least worst decision I can make?'" Unfortunately, the Congress and the Administration did not ask that question. They didn't even make the cut.

5/23/03 Getting A Crawford

'It's always nice to have a nice quiet dinner with a few friends." That's how the President described his first political fundraiser for the 2004 elections on Wednesday night. It might have been a nice quiet dinner but, after a 20 minute speech, Bush did not stay to eat. About 7400 people paid-in $22 million for this Republican gala. In Texas the aformentioned is described as getting a Crawford.

Yesterday the House passed $330 billion in tax cuts and $20 billion in aid to the states. Now it goes to the Senate for approval, and then the President will sign off on it. The dividend tax cuts have been approved only on a temporary basis. It would not have been approved on a permanent basis. That was tried and it failed several times. However, after the temporary measure is signed, Bush will push for it to be permanent and then he will go around the country pressing for another trillion dollars in tax cuts. It's a little like asking others to pay about $3000 a plate to have a quiet dinner with you, and then you walk out before the dinner is served. It leaves a bad taste before the food arrives. The Congress and the taxpayers are about to get a Crawford after Bush signs this tax bill. Let me make one thing clear. I am very much against taxation in the first place. For over three decades I have had only one sign up on my office wall. It is an 1819 quote from Chief Justice Marshall: "The power to tax is the power to destroy."

If the Congress made an attempt to reduce spending, we would not be at the debt ceiling limit again. The Congress has shown an unwillingness to cut spending. It is time, in my view, to open the discussion again on a balanced budget amendment but with new features. Unlike most Acts of Congress, the proposal of an amendment does not involve the President of the United States. Once passed by two-thirds of both houses of Congress, the proposed amendment is sent directly to the Office of Federal Register at the National archives, and there a "slip law" is prepared and sent to governors with notice to refer it to the legislatures of their states. When 38 states have ratified a proposed amendment, the Archivist of the United States proclaims it as a new amendment to the Constitution. The last amendment to be so ratified was the 27th in 1992 and concerned congressional pay increases. It should be noted that details of the ratification process are left to the states themselves.

What I am suggesting is an add-on to the 1992 Bill of Rights (TABOR) passed by Colorado voters. It has served to keep their state government spending in check and to have control over surpluses should they be created by the tax payers. The Colorado state legislature must seek voter approval before it can collect taxes above the TABOR limit. Any taxes collected above this limit must be returned to taxpayers in the form of rebates. The TABOR law limits the amount of tax revenue the state can keep each year to the sum of inflation plus population growth. Between 1997 and 2002 Colorado residents received a tax rebate every year, for a total of $3.2 billion over the five-year period. I would suggest an add-on to Colorado's TABOR. I would recommend that, prior to the tax rebates, 20% of any yearly surplus of funds be utilized towards the paying down of this country's debt. Such an amendment would serve the taxpayers, the members of Congress, and the President well. While other states are in dire trouble, Colorado has been able to keep its head above water.

Initial claims for state unemployment insurance benefits rose 7000 to 428,000 in the May 17 week. This is the 14th consecutive week jobless claims have been above the 400,000 mark. Yesterday more layoffs were announced: Boeing 1150; Silicon Graphics 400; Legato 100; and IBM 65.

Yesterday Congress approved a $400 billion defense spending budget for next year. This was $800 million more than the Pentagon requested. The mass exodus continues with the retirement announcement by Tommy Franks. In Washington DC they are calling it the resignation virus. No cure is on the horizon.

In 2002 mortgage lending set a record of more than $2.6 trillion.

With the enormous debt level in this country and oversupply dwarfing demand, it is no surprise that the dollar traded today at $1.18 per euro.

New data from Gartner Inc. shows that IBM's share of the database software market exceeds Oracle's by 36% to 34%. The overall database software market fell by about 7% in 2002.

Warren Buffett: "If past history was all there was to the game, the richest people would be librarians."

According to an analysis conducted by Pembroke Consulting, deflation may pose a serious threat to the profits of an estimated 25,000 U.S. industrial distribution companies. "Over the last decade, wholesale prices for industrial products increased a mere 1.4% per year and were actually deflating in early 2002. Personnel costs for distributors are growing at 4% per year. If this scenario continues over the next three years, we estimate a typical industrial distribution company could experience profit declines ranging from 25% to 50% or more. Imports from Asia are an important force behind price deflation as industrial supplies account for approximately 25% of domestic imports," said Pembroke Consulting President Adam Fein, Ph.D.

After months of analysis, Chrysler will not build a new manufacturing facility in Windsor, Canada. Said Chrysler Group President and CEO Dieter Zetsche, "The state of the automotive market has created a formidable hurdle...competitive pricing, ongoing incentives, and increasing overcapacity in North America led us to conclude that this is not the time to add new capacity."

Yesterday Paul Dean of Dow Chemical testified before the House Subcommittee on Water and The Environment and said "Since 1940, water consumption has quadrupled and will continue to increase as the world's population grows." According to the UN Geo 2000 Report, four billion of the world's people are expected to have insufficient water by 2050. Maybe, over time, water will become more valuable than oil. We can do without oil but we are unable to survive without water.

As I read the Congressional proceedings concerning the pending temporary tax cuts, I recalled a passage from John Kenneth Galbraith's "The Culture of Contentment":
"The controlling role of taxation continues. The only effective design for diminishing the income inequality inherent in capitalism is the progressive income tax. Nothing in the age of contentment has contributed so strongly to income inequality as the reduction of taxes on the rich; nothing, as has been said, so contributes to social tranquility as some screams of anguish from the very affluent. That taxes should now be used to reduce the inequality is, however, clearly outside the realm of comfortable thought. Here the collision between wise and social action and the culture of contentment is most apparent."

5/22/03 Investing In A World Gone Temporary

Mike Todd: "I've never been poor, only broke. Being poor is a frame of mind. Being broke is only a temporary situation." Mike Todd would have understood the temporary world of today: "little bitty" tax cuts are temporary; historically low interest rates, mortgage rates, and low-interest home equity loans are temporary; temporary job security(a misnomer); a temporary rise in consumer confidence; all government budget surpluses are temporary; reduction in the size of government is temporary; decreasing inflation is temporary; covering retiree health care costs is temporary; the Social Security trust fund surplus is temporary; unemployment benefits are temporary; aid to state and local governments is temporary; and savings on the part of consumers is temporary. What's permanent? Government spending, taxation, bankruptcies, foreclosures, home runs, strikeouts, and belief in the tooth fairy.

According to the book, "businessThink", by the end of your first coffee break today 46 businesses will be shut down and 3 will file for bankruptcy. By the time you leave the office, over 2100 businesses will close their doors and accounts for the long unemployment lines. This makes me want to give up coffee and to work at home.

Sales at U.S. chain stores fell 0.1% last week, the third decline in the past four weeks.

South Korea's economy fell for the first time in two years. They have plenty of company.

The Head Start program serves about 1 million at-risk children in communities across the U.S. Why would the Administration want to turn over the program to cash-strapped states and therby limit the comprehensive services now provided? SaveHeadStart.org provides a wealth of information on this subject.

Taiwan reported 65 new SARS cases yesterday and 8 more people died.

Roger Clemens needs just one more win to reach 300.

U.K.'s economy grew 0.2% in the first quarter. A three month sterling deposit yields 3.54%, and this is quite attractive when compared to the yields available in the U.S.

Houston's West Nile season began on May 14.

Since January, we have imported 90,000 head of beef cattle from Canada. Our government tells us not to worry. I always believe what the government says.

Warren Buffett: "In the end, we want to get further and further ahead of our customers. We do what needs to be done and we do it fast."

Paul Allen's Vulcan investment firm cut 100 employees or 20% of its workforce. A bear market impacts everyone. Charter Communications, Metricom, and others have taken a toll.

As I have said so often over the years, when they raid the whorehouse, they take all the girls.

5/21/03 Hazards Create Susceptibility To Triple Bogeys

The mad cow might have been grazing in the low country. A cousin of the West Nile virus, Eastern equine encephalitis, has infected nine horses in South Georgia and killed six this year. I hope Canada has put an import ban on our horse meat. If SARS should infect dogs, then China is in real trouble. Things have gotten so bad that I am participating in a meditation class this afternoon. No, I will not be contemplating my navel. We must now turn attention away from food.

Our economy has one thing in common with Alberta's mad cow- they both reside in the low country. The U.S. fixed income market is at 45 year lows in yield; consumer prices ex food and energy rose at the low rate of 1.5% in the 12 months ending April, the lowest since 1966; the latest GDP growth of 1.6% is low; the latest Philly Fed Survey indicates that growth rates for the second quarter will stay low as the forecast was cut from 2.7% to 1.8%; the U.S. April budget surplus was a very low number due to lower than anticipated tax revenues; the value of the dollar is low vs the euro, the yen, and the Swiss franc; Congressional fiscal restraint is low; cash balances in the U.S. Treasury are low; our ability to attract foreign capital is low; cushions for entitlement programs, such as, Medicare and Social security, are low; state and municipal coffers are low; the ability of the Fed to maneuver is low; many foreign countries hold us in low esteem; our ability to compete in several areas against China and India, for example, is low; the free cash flow of our consumers is low; the capacity utilization of our factories is low; the hours in the work week are low; selective hiring is at a low level; voter turnout is low; the paper trail on our election systems is low; the President's handling of the economy has a low approval rating; global aggregate demand is low; the corporate pension system has a low level of capabilty to cover funding; there is a low level of confidence in the fairness of the public marketplaces and their corporate CEOs; business investment remains low; Kodak's senior unsecured debt rating is a low "BBB"; import prices are low; and the savings rate remains low. What does this all mean? Does it indicate business will do a uturn and get strong? I suggest the economic terrain makes it much more likely for us to shoot a triple bogey rather than a par. If I am correct, then the Dow and the Nasdaq are still much too high. Whether Bill Gross is right about a Dow 5000 or Bill Fleckenstein is right about a Dow 4000, I don't know. If my name were Bill, I might suggest a Dow 3000.

Does it matter what Greenspan says about the economy today? What is the Fed going to do? Lower interest rates to zero? Buy long bonds? They've been printing money at about a 7% rate for the last year, and it hasn't improved demand. A year ago I wrote the Fed was behind the curve. Now I believe the salaries of the Fed presidents and its chairman should be reduced. In my view, their lack of performance warrants this cut.

How come the Republicans can't agree on spending cuts? Maybe they fear the electorate only supports local pork programs.

The pay for local supervisors, for state office holders, and those in Congress are anything but low, and the same can be said for their medical and pension plans. Does performance mean anything today?

Carl Tannenbaum, chief economist at ABN Amro North America Inc. in Chicago said "We have deflation in a wide swath in the American economy. It is causing the kinds of distortions the Fed and others would be worried about."

Gold rises to $366 per ounce.

The World Health Assembly, comprised of 192 countries, unanimously approved its first ever international treaty against smoking, and this includes an eventual advertising ban.

The pound has fallen almost 10% against the euro this year.

What impact does the terror alert color orange have on consumer confidence? I wonder whether a survey has been compiled.

There is good news out of Washington. The government has found a way to cut expenses. The Administration is closing embassies in Saudi Arabia. This is our new reduce the budget gap policy.

If the Fed is woried about deflation, they should all move down to S.Florida where consumer prices are rising faster than anywhere else in the nation.

How awful. Microsoft maintains that, only twice in the last year in Europe, has the company used discounts to win business. That's why the stock hasn't gone anywhere in months. They need to compete harder and offer more discounts. I say beat the crap out of the competition.

5/20/03 The Debt Limit Road Map

Yesterday was the third trip around the debt limit track. This is the last time the Treasury has enough gas, they maintain, to pay bills. Of course, they said this on Feb. 20 and then just a couple of months later, and now yesterday. Let me make this clear. The facts are still the facts. The Treasury can rob Peter to pay Paul just so often. There are a limited number of loop-holes in the government trust funds and accounts. The government is out of money, and that makes for a dangerous and volatile economic landscape which is not a platform for a bull market in stocks and bonds. Listen to Brian Roseboro, assistant Treasury secretary for financial markets, who said yesterday "We have had to disrupt the Treasury bill market, which we do not like to do. We were able to justify the last $20 billion but we are at an end. We have exhausted every prudent and legal fiscal management thing we can use." The $20 billion will only last until May 28. No, Mr. Roseboro, there are a few prudent fiscal management things you could use- cut expenditures and start with the Snow man's salary. Reduce salaries in every government office by 5%. If that isn't sufficient, then layoff employees. I assure you there will be no difference in productivity.

According to Bloomberg data, S&P 500 companies had a 5.1% drop in sales per employee in 2002 while net income per worker plunged 73% and employment was lowered by 1.5%. How is it that the U.S. government reported productivity gains of 4.7% in 2002? The S&P 500 companies have audited financial statements. Who audits the government numbers?

Our U.S. Health Secretary said there are likely to be some SARS deaths in Europe and the U.S. later this year. He said "I don't think SARS is going to go away."

Matsushita temporarily closed its two plants in China after experiencing an outbreak of SARS.

My methods for looking at markets is a bit different. My thinking is a bit different. I know I know. Enough already. Any way, I look at the market leaders. For the Nasdaq I focus solely on Microsoft. They are the dominant player in technology for my money. For starters, they must be doing something right with $45+ billion in cash in the bank. They don't need to juggle the books to get there like our government does. They earned it. Microsoft's market cap is about $266 billion. Look at the stock at $24 and change. The Nasdaq bottomed in roughly mid October of last year. Microsoft was $22. Sure it rallied to $29 but it also dropped in March back to $22 and change. What I'm saying is simple. For about 11 months the stock with all the gyrations is still roughly the same. The leader has not been in a new Nasdaq bull market. On the N.Y. Stock Exchange my proxy is WalMart. Yes, it's my favorite company. It should be. It's got the best record on the Big Board. WalMart has a market cap of $230 billion. The stock is at $52 and change. In October it traded down to $48. It was $46 in March of this year. Roughly a year ago the stock was the same as it is now. The leader has not been in a bull market. Microsoft has 50,000 employees and the average salary is $77,000. They make a difference economically in this country. WalMart is our largest non-government employer with 1.4 million employees. They dominate the consumer landscape with sales which dwarf any other company in America. The point is simple. If the leaders aren't in a bull market, how can we be in a bull market? You may not share my viewpoint. That's ok. Maybe you run a hedge fund and think you're hot stuff. Actually, according to the HedgeFund.net-PerTrac Universes, hedge funds year to date gained an average of 3.40% while the S&P is up over 4% since the start of the year. These figures were taken from a universe of 2400 hedge funds.

For the very first time a head of the Fed appeared in a public service announcement. Greenspan was on radio and TV and pleaded with consumers to be careful with their finances. He said "Making informed financial decisions about what to do with your money will help build a more stable future for you and your family." Now listen to this. Fed Governor Gramlich said "Educated consumers know how to save for their goals, use credit wisely, and avoid getting in over their heads." Shouldn't Greenspan and Gramlich be preaching to the Congress and the Administration? Doesn't the Fed realize the government is way over its head in debt? It's ok to preach to the public but not to those employed by the public?

The drug industry won a court order in October 2000 blocking the Maine discount-drug program. The 1st U.S. Circuit Court of Appeal later upheld the Maine program. Yesterday the Supreme Court let Maine begin their Rx program. It's straightforward. There are 325,000 uninsured individuals in Maine. That state wants to provide the uninsured with the same discounts the insurance companies provide the insured, and that is about a 20-25% discount. I expect this program to become popular in all of our states. There isn't a law which sets income limits on those eligible to buy discounted drugs. The pharmaceutical industry will make a great many enemies should they fight this ruling in other states.

On Sunday it was reported that three U.S. troops were killed and four injured in Iraq. Yesterday it was reported that a Marine Corps transport helicopter crashed in central Iraq with at least four aboard, and there were no survivors indicated. Does this sound like the war is over? How many more of our soldiers need to be reported dead before Americans realize we no longer belong in this country? I would love to know the cause for which our soldiers are now dying? Liberation? WMD? Maybe to free Iraq of foreign debts? If that's it, please bring our soldiers home. We have big big debts to free at home.

Oregon has the highest unemployment rate in the country. Today ends a mail-in election. Portland voters are considering a temporary countywide income tax. It would mean a resident with $45,000 in taxable income would pay more than $440 a year in taxes. The slogan at tax campaign Portland headquarters reads "Sometimes even pigs must fly." Oregon has no state sales tax. The personal income tax generates 87% of the state general fund. The temporary tax is basically a school tax in order to prevent significant teacher layoffs.

5/19/03 The Facts Are The Facts

Often I am criticized for describing the facts as I see them. Actually, that is not true. I describe the facts as the facts are, and then and only then, do I entertain thoughts going forward. A perfect example is SARS. Maybe I have an advantage in that I have had a health care business for several years. However, the facts were presented for everyone to see. This was and is a virus similar to AIDS. Yes, there are differences, but the fundamental similarity made this virus lethal. There would be serious social and financial implications from this virus. There is no entity that can hide the truth forever- no government and no group of individuals- especially in this wired world. As such, one could project forward from the SARS facts. To date, the world has gotten off relatively easy. Yet, just when you get overconfident, the virus returns as it did yesterday in Singapore. It was the first case in 19 days. Taiwan was also doing ok for awhile, and then wham. Now there are 4 hospitals closed in Taiwan, another one 25 miles west of Taiwan, and there were five more deaths yesterday and 36 new cases. It is wise to keep a watchful eye out for the facts and often the bad news is not what we wish to see or hear. Overconfidence is an achilles heel for those possessing it.

Circumstances change and public opinion with them. The question is whether all situations are neutral and whether only our opinions make them otherwise. About 20 years ago many experts suggested American industry might be better served by mirroring the Japanese where companies were coining it and the Nikkei was flying higher and higher. Years later, how many nice words does one hear about the Japanese economy and the Nikkei? I am hardly an expert on Japan but I do recognize certain facts. Real estate in certain sections of Tokyo was being valued by the inch and that real estate was an important source of collateral. I found these circumstances difficult to fathom. Of course, I am often criticized for my emphasis on risk/reward and value. As I said just yesterday, my investing vision is highly limited and this I recognize. I wish I were smarter but I am not.

Why do I bring up Japan and recognizing facts? I was criticized for my views on Japan and I am criticized for my views on the United States and questioning the stability of our economic system. Please do not tell me this is heresy. I am projecting forward based on the facts as the facts are. We have a $9.5 trillion GDP. Our budget deficit will be at least $400 billion this year and even the CBO says it will be at least $300 billion next year. The trade account deficit will also be at least $400 billion. The expenditures for entitlement programs, such as, Medicare and Medicaid, exceed the combined number for the budget and trade account deficits. As such, the deficit as a percentage of our GDP is considerably higher than what is reported in the press or deemed in the acceptable historical range. In addition, we know that the facts state the U.S. imports more than we export. Therefore, a weak dollar can only create a net negative impact rather than one which is positive. Additionally, we do not live in a perfect world. If we have deflation, that doesn't mean all prices have to go down at once. The vast majority are. I paid $1.39 for regular unleaded gas yesterday at Arco. At the same time I know natural gas has been rising in price. Mortgage rates are at all-time lows while the affordability of a home based on income levels maybe at all-time lows in certain regions of the country. Health care costs keep rising and so do auto insurance rates as incentives offered on new cars keep increasing too. The facts reflect though, that net net, prices are coming down. That paints a deflationary picture. Interest rates on U.S. treasuries are at all-time lows. They are credit obligations. Moody's and Fitch rate corporate bonds and other country bonds every day. When was the last time anyone took a hard look to see whether the U.S. treasury bonds should have their credit rating changed? They look at N.Y.C. and the state of California. I say the facts, just the facts, reflect a weakened financial state for the U.S. and I believe that is one of the reasons the dollar keeps dropping to new lows against the euro, and if it weren't for Japan supporting the dollar, it too would be much lower against the yen. It's not just that the facts state that bonds are overpriced. It's much more serious than that. We have been able to roll over some of our debt (with the help of lower interest rates) but we can no longer reduce our debt. In fact, when the debt ceiling is increased by the Congress that refuses to reduce spending, our ability to rollover the debt will be lessened. The higher the debt the higher the risk. The higher the risk the higher the payment should be for that risk. Ten Cents A Shine may have been a bad bet at 15-1 but it was a lot worse at 6-1. It was a bad bet at any price- that's in hindsight. Japan, in hindsight, was a lousy bet too for the past 20 years. The facts are the U.S. dollar should state "hope springs eternal". Unfortunately, you can't take hope to the bank. I am not asking anyone to accept my thoughts. Aristotle, after all, said "it is the mark of an educated mind to be able to entertain a thought without accepting it."

5/18/03 There Was One Undervalued Entry And Too Many That Were Overvalued

Once again, the Preakness reminded me so much of the stock market. It was a schooling day for me, and I learned more than I have in a very long time. For that I can thank the horses and the betting public. I am limited by the scope of my investing intelligence. My focus is risk/reward and value. Often what saves me is my willingness to change on a dime as values and risks evolve. The early morning line on Ten Cents A Shine was 15-1. As I have said, I am not a handicapper. The duo of Lukas and Bailey plus a good workout changed that betting line despite the horse's last three races which produced consecutive eighth place finishes. By the time I started watching Breakfast at the Preakness, the morning line had been reduced to 6-1 and the horse went off at 7-1. This wasn't value. To begin with, the risk was high and now anyone investing $2 or more on this horse was not getting paid for that risk. This is not said in hindsight. When we first turned on the TV, I mentioned to my family how nuts 6-1 was. I decided to cut back on what would have been waggered at 15-1. The opposite was true with Funny Cide. At 9-5 there was value. I figured the horse might go off at 6-5 with Peace Rules the second choice. The odds made it a different wager. In the end, I left with a tiny loss even though Peace Rules finished out of the money and Ten Cents A Shine was still running.

Changing on a dime comes with experience but, more importantly, it comes when you leave your ego out of investing. Making money requires disciplined thinking. You can't get attached to a pre-conceived idea or get stubborn because you won't accept being wrong or conversely that circumstances, as you see them, will prove you correct. Either you're on the right horse or you're not. When they turned for home yesterday, the jockey on Peace Rules knew he was in trouble. He admitted it after the race. Funny Cide made it look easy. As it turned out, there was only one horse to beat and that was himself. The same can be said for investing. You are only competing with yourself. Only you can beat yourself. The market is never wrong. Only you can be wrong. A horse must finish in the money to make money. To come out ahead the investor does not have to be in the top three or four. As such, maybe we're lucky not to make a living as a four-legged animal!

On Wednesday Bill Gates has Microsoft's annual CEO Summit. Normally there are at least 100 CEOs who participate. It will be interesting to read about the various technology trends envisioned on the horizon.

The Congressional debate on tax reform requires much in the way of reconciliation. The Senate's version incorporates $72 billion in tax increases as well as $20-30 billion in financial aid to the states. A big problem is the CBO analysis which the Republican leadership had requested. The study showed that, the revenue generated by proposed tax cuts, would at most reduce the deficit by 15% over the next 10 years.

I would like to offer an apology. During the heat of battle, so to speak, I said I would never purchase another product made in France because of their government's attitude leading up to the Iraq war. I was wrong. That country is a sovereign nation and entitled to be run the way they so choose as long as it is not harmful to others. A difference of opinion is not harmful. It is unfortunate that our leaders have not reached the same conclusion. The Paris Air Show beginning June 15 is a big deal in France. Our Defense Department is cutting back on the number of people and aircraft we are sending to the Show. Rumsfeld said: "It's not as if people won't be going from the United States. It may be at a certain level." Only lower-ranking officals will be sent. Joel Johnson, a VP at the Aerospace Industries Association of America, said "A quasi-boycott of the Paris Air Show will undercut the U.S. industry and discourage current and future customers."

Yesterday Taiwan reported its biggest oe day rise in SARS cases- 34. There have been 35 people in Taiwan who have died from this disease. Globally, 610 have died and there have been about 7770 cases. In July Honda had scheduled the start of production of subcompact sedans in China. Production is being delayed by one to two months because of SARS. A local paper stated that the disease has made parts procurements in Guangdong province more difficult.

N.Y.C.'s Independent Budget Office (IBO) said that the deficits through 2007 will continue to escalate as the average annual rate of spending will be more than double the average annual rate of revenues. Their report states that the main culprits are growing debt service, rising pension costs, escalating fringe benefits., and Medicaid. Doug Turetsky, a spokeman for IBO, said "We don't see the city economy growing its way out of this problem." Similar words have recently been uttered in Japan and the euro countries. If the Fed, the Administration, and our Congress come to accept that notion, then maybe we have an opportunity to solve some of our problems. A willingness to change can often produce more desired results. You might not come out a winner but the loss can be quite modest, and therefore, it will not require a financial bailout.