6/26/03 Waiting For Hope to Arrive
It's important that each one of us has hope. I wake up with hope and go to bed with it. However, hope does not run wild. It is tempered by reality. That's a fine line for everyone to find and realize. Emotion and psychology and hope play an important role in the stock market- not just today but every day. Lately, hope has played a role which has overshadowed reality. Others may disagree. It doesn't matter who is right or wrong. Over time we will find what the fine line of reality and hope produced. Opinions, such as mine, don't mean much in the scheme of things. We have enjoyed a magnificent stock market rally for the past three months. We have been blessed by new-found riches. The stock market had not produced much in the way of smiling since 2000.
Let's examine the past three months and revisit the hope shared in March. The Iraq war was a successful campaign. Everyone is agreed there were, at one time, WMD. We probably won't find them, but it was a successful campaign. However, it is disrespectful to announce the war is over on May1 and for our soldiers to be killed daily as the battle continues. A loving leader doesn't paint a false picture of hope. The latter has not arrived in Iraq. It won't as long as our soldiers are killed.
Over the past three months we have witnessed the scuttles between the Senate and the House over the Bush tax package. It finally arrived in a diluted format, but it arrived. It's never too late to get reduced taxation. However, hope is not realized when discretionary spending continues at the 4% level at the same time the economy is expanding at half that rate. Such a ratio makes for disappointment and not a hopeful outcome. The state and local governments are hurting across this land. Make no mistake about it. There will be increased taxes and fees to make up for the deficits. They won't bring hope. They won't end soon. The deficits will be with us for some time to come- many moons. The bottom line is that consumers won't have much more cash in their pockets- they will be nickeled and dimed to daily dismay. Just ask WalMart. The consumer is not spending much more money. It's a teeny bit more. We did not have a teeny bit stock market rally.
There are only two elements of our economy that continue strong- housing and the refinancing market, and both have been manufactured by the Fed's lower interest rates. Unless we join Japan and pay people to borrow, it is clear that interest rates can only drop 1% to get to zero. The bottom is in sight. We hoped for lower interest rates and got them. However, those lower rates did not produce increased business spending and did not produce job hiring. In fact, business leaders appear quite content to part with their company ownership shares as insider selling continues to rise monthly. That is a very bad sign. It should also be pointed out, as John Talbott has, the national growth rate for existing home sales prices in the six months ended March 31, 2003 is zero per cent. That is something to consider.
I am also concerned by the battle on overtime pay. Some time back I wrote about the auto company who has made it more difficult to realize overtime pay. An analysis is being released today by the Economic Policy Institute. They discuss the Labor Department's revisions to the overtime rules proposed in March. I pay attention to what happens to people on Main Street. Wall Street has a way of ignoring these folks. Under this plan, the Institute states that 8 million workers would lose overtime pay. How can this happen? The Bush Administration has permitted the Labor Department to reclassify the definitions of job classifications in many of 257 white-collar occupations. The new definitions of professional, administrative, and executive employees remove specific duties and education requirements, and thus employers are provided wide latitude to reclassify workers. Union contract workers will not be affected. This is but one more event which screws the average American. It should be noted that this is a proposal. The comment period ends on Monday. You can bet much of this proposed plan will be put into effect. There must be trust in the workplace for the workplace to be effective. I see this trust fading into the sunset. Main Street will impact Wall Street. It always does.
Over the past three months not much has changed in the workplace. Employment continues to drop. The news on the factory floor is gloomy. Numbers for durable goods can't get out of their own way. Shipments of business equipment produce yawns. They are a non-event. Orders for transportation equipment continue on their monthly decline. Economists continue to hope that business spending will be a factor in the anticicpated second half recovery. Month after month hope does not arrive. It's not that it's late arriving. The arrival is nowhere in sight.
On a national scale the trade deficit growth continues unabated. The monthly budget deficits continue their cancerous growth. The Fed continues to wallow in their meaningless chit chat. The dollar has bounced around and has settled at the 1.15-1.16 level for a bit. However, we have new offerings from banks. A St. Louis bank now is offering the person on Main Street an opportunity to buy China's currency, the renminbi. In addition, Everbank has started to offer renminbi accounts to its depositors. The renminbi has a fixed peg to the dollar. It won't be long before this peg is revised upward in value to favor the renminbi. The U.S. currency is in a state of decline around the globe. This decline is in the early stages. It doesn't help to be running a $100 billion annual trade deficit with China.
As I have mentioned so often, in Europe much trouble persists. Fiat will cut 12,300 workers between now and 2006. French manufacturers have seen their confidence level drop to the lowest level since 2001. There are economic problems throughout Europe and Japan. The dollar may have declined in value, but our exports are still hurting.
Over the past three months we have seen an increase in the optimism index- both for the consumer and the small business owner. That's great to see. Unfortunately, without more economic meat on the bone, that hope does not count for much. The expectation is for the economy to improve over time. That is a nebulous thought. It is an expectation expressed yesterday by the Fed. Would you want to stake the on-going success of your investments on an economy which "has yet to exhibit sustainable growth?" Maybe it will. Maybe it won't. I only know hope does not always deliver the goods.
Wednesday, June 25, 2003
6/25/03 Chachmah (Wisdom), Binah (Comprehension), And Da'at (Knowledge)
We sure could use more wisdom, comprehension, and knowledge in today's world. Unfortunately, they appear in short supply. They seem to have been replaced by the three stooges- consumer optimism about the future, the surging money supply, and higher stock prices. Yesterday the headlines read: Consumers' outlook in June rises for third month; consumer confidence better than expected; and The Conference Board's Consumer Confidence Index turns flat in June but expectations are up. The headlines did not say that the present index fell to 65 from 67. The headlines omitted that less consumers rated the current conditions as good and that less consumers felt jobs were plentiful. Plenty of economists state that the economy will acelerate to 3.5% in the second half of the year; however, if there were more wisdom, comprehension, and knowledge on the part of those economists they would know that only 3% of households expect to buy a home in the next 6 months- the lowest figure since September 2000. They would know that only 6% plan to purchase an auto in the next 6 months, the lowest level since October 1996. They would have absorbed a survey by Grant Thornton which revealed that only 41% of middle-market executives (middle-market companies have annual revenues between $100 million and $2.5 billion) expect to increase hiring in the next six months, down from 50% in November 2002. If you want to trade with the headlines, be a stooge. Now we come to rising stock prices. According to a survey sponsored by Ariel Mutual Funds and Charles Schwab and Co. Inc., 33% of whites said they don't trust the stock market. That's up from 23% in 2000, and 49% of blacks don't trust the stock market, and that's up from 34% in 2000. Not surprisingly, a smaller percentage of whites and blacks are invested in the stock market today than they were in 1998. Stock prices may be enjoying a bear market rally, but the latter will not be sustained due to the erosion of trust on the part of investors. Fifty two per cent of blacks are bearish and 40% of whites are bearish. The survey has shown that more and more investors have turned to real estate and away from the stock market. The trend is not bullish for stock prices. A little wisdom, comprehension, and knowledge will bear fruit in this arena. Lastly, we come to the surging money supply. Dollars can be found everywhere- even in the toilet. That's where the value of the dollar has been headed over the past 12 months. Economists proclaim that the increased liquidity will produce a rejuvenation in our job market and in business investment. The money supply surges and just yesterday I read of job losses at Northern Trust, Viacom, KLM, AMP, and Ericsson. Tomorrow I'll probably read about more at Boeing. You get the picture? Do you see business investment spending rising? I see plants closing. I don't see expansion. It doesn't take much.- just a bit of wisdom, comprehension, and knowledge. It's there for the taking. It's free. It's not even taxed- at least not yet.
Do you think I should move to Japan? I need to give this consideration. Japan's overnight call rate is now below zero. That is so wonderful. That means as a borrower the lenders would pay me interest. Does it get better than this? I need to learn the language immediately. The first word I'll learn is schmuck. You need to be a schmuck to move there.
I need to acknowledge an interesting development. Yesterday, Ericsson announced it signed an agreement to outsource the development, implementation, and maintenance of IT applications supporting its business to IBM. As such, there will be a day of mourning in India, the king of outsourcing countries.
A great deal of credit must be given to the present regime in Mexico. Since 1998, 28 day Treasury yields have dropped from 48% to 4.72%. Over the past two years, Mexican pension funds have increased 85% to 356 billion pesos. Because of low rates and demand from pension funds, companies are beginning to offer peso-denominated bonds. Volkswagen de Mexico plans to sell about 1 billion pesos and Kimberly-Clark de Mexico sold 2 billion of 10 year bonds. This development is very positive for Mexico's present and future.
Italy, on the other hand, continues to languish. Italian June consumer confidence fell to its lowest level in more than 6 1/2 years. Bernardo Bocc, president of Confturismo, an organization which represents about 30,000 Italian hotels and tour operators, said "we are certainly in a recessionary climate. It's worrying and I don't see an improvement this year."
AMD, the world's number 2 maker of personal-computer processor chips behind Intel, cut its second quarter sales forecast by 14%. Intel had said its sales will rise about 7 1/2% this quarter. It appears that AMD has been hurt in the Asian market and has more exposure there than does Intel.
Jo Ann Bass is the granddaughter of the founder of Joe's Stone Crab in Miami and its current owner. Her restaurant was hit with a discrimination suit which was filed by two women. Both were interested in applying to the restaurant for a job in 1990 but did not because some acqaintances had told them Joe's did not hire women. That is not true, and never has been true. I know. I've been going to that restaurant for 30 years. A lower court had ruled that the restaurant had discriminated against two women between 1986 and 1991. These two women had applied years later for jobs and were rejected. The U.S. Supreme Court rejected the restaurant's appeal of the lower-court ruling. The legal battle cost Jo Ann Bass between 1 and 2 million dollars, and the legal award is $103,662 and with interest about $150,000. Currently, about 20% of the server staff are women. Bass said "we just have to accept it and accept the fact that life isn't fair. I don't think there's any place else to go, except God." She went on to say that "I learned there's a lot of truth to the adage that you can't fight City Hall and you can't fight the government. Their pockets are too deep, and they have all the time in the world." Unfortunately, the pockets are lined with taxpayer money and they have nothing but time because the taxpayers provide the time. What City Hall and the government don't have are wisdom, comprehension, and knowledge. That we know.
We sure could use more wisdom, comprehension, and knowledge in today's world. Unfortunately, they appear in short supply. They seem to have been replaced by the three stooges- consumer optimism about the future, the surging money supply, and higher stock prices. Yesterday the headlines read: Consumers' outlook in June rises for third month; consumer confidence better than expected; and The Conference Board's Consumer Confidence Index turns flat in June but expectations are up. The headlines did not say that the present index fell to 65 from 67. The headlines omitted that less consumers rated the current conditions as good and that less consumers felt jobs were plentiful. Plenty of economists state that the economy will acelerate to 3.5% in the second half of the year; however, if there were more wisdom, comprehension, and knowledge on the part of those economists they would know that only 3% of households expect to buy a home in the next 6 months- the lowest figure since September 2000. They would know that only 6% plan to purchase an auto in the next 6 months, the lowest level since October 1996. They would have absorbed a survey by Grant Thornton which revealed that only 41% of middle-market executives (middle-market companies have annual revenues between $100 million and $2.5 billion) expect to increase hiring in the next six months, down from 50% in November 2002. If you want to trade with the headlines, be a stooge. Now we come to rising stock prices. According to a survey sponsored by Ariel Mutual Funds and Charles Schwab and Co. Inc., 33% of whites said they don't trust the stock market. That's up from 23% in 2000, and 49% of blacks don't trust the stock market, and that's up from 34% in 2000. Not surprisingly, a smaller percentage of whites and blacks are invested in the stock market today than they were in 1998. Stock prices may be enjoying a bear market rally, but the latter will not be sustained due to the erosion of trust on the part of investors. Fifty two per cent of blacks are bearish and 40% of whites are bearish. The survey has shown that more and more investors have turned to real estate and away from the stock market. The trend is not bullish for stock prices. A little wisdom, comprehension, and knowledge will bear fruit in this arena. Lastly, we come to the surging money supply. Dollars can be found everywhere- even in the toilet. That's where the value of the dollar has been headed over the past 12 months. Economists proclaim that the increased liquidity will produce a rejuvenation in our job market and in business investment. The money supply surges and just yesterday I read of job losses at Northern Trust, Viacom, KLM, AMP, and Ericsson. Tomorrow I'll probably read about more at Boeing. You get the picture? Do you see business investment spending rising? I see plants closing. I don't see expansion. It doesn't take much.- just a bit of wisdom, comprehension, and knowledge. It's there for the taking. It's free. It's not even taxed- at least not yet.
Do you think I should move to Japan? I need to give this consideration. Japan's overnight call rate is now below zero. That is so wonderful. That means as a borrower the lenders would pay me interest. Does it get better than this? I need to learn the language immediately. The first word I'll learn is schmuck. You need to be a schmuck to move there.
I need to acknowledge an interesting development. Yesterday, Ericsson announced it signed an agreement to outsource the development, implementation, and maintenance of IT applications supporting its business to IBM. As such, there will be a day of mourning in India, the king of outsourcing countries.
A great deal of credit must be given to the present regime in Mexico. Since 1998, 28 day Treasury yields have dropped from 48% to 4.72%. Over the past two years, Mexican pension funds have increased 85% to 356 billion pesos. Because of low rates and demand from pension funds, companies are beginning to offer peso-denominated bonds. Volkswagen de Mexico plans to sell about 1 billion pesos and Kimberly-Clark de Mexico sold 2 billion of 10 year bonds. This development is very positive for Mexico's present and future.
Italy, on the other hand, continues to languish. Italian June consumer confidence fell to its lowest level in more than 6 1/2 years. Bernardo Bocc, president of Confturismo, an organization which represents about 30,000 Italian hotels and tour operators, said "we are certainly in a recessionary climate. It's worrying and I don't see an improvement this year."
AMD, the world's number 2 maker of personal-computer processor chips behind Intel, cut its second quarter sales forecast by 14%. Intel had said its sales will rise about 7 1/2% this quarter. It appears that AMD has been hurt in the Asian market and has more exposure there than does Intel.
Jo Ann Bass is the granddaughter of the founder of Joe's Stone Crab in Miami and its current owner. Her restaurant was hit with a discrimination suit which was filed by two women. Both were interested in applying to the restaurant for a job in 1990 but did not because some acqaintances had told them Joe's did not hire women. That is not true, and never has been true. I know. I've been going to that restaurant for 30 years. A lower court had ruled that the restaurant had discriminated against two women between 1986 and 1991. These two women had applied years later for jobs and were rejected. The U.S. Supreme Court rejected the restaurant's appeal of the lower-court ruling. The legal battle cost Jo Ann Bass between 1 and 2 million dollars, and the legal award is $103,662 and with interest about $150,000. Currently, about 20% of the server staff are women. Bass said "we just have to accept it and accept the fact that life isn't fair. I don't think there's any place else to go, except God." She went on to say that "I learned there's a lot of truth to the adage that you can't fight City Hall and you can't fight the government. Their pockets are too deep, and they have all the time in the world." Unfortunately, the pockets are lined with taxpayer money and they have nothing but time because the taxpayers provide the time. What City Hall and the government don't have are wisdom, comprehension, and knowledge. That we know.
Tuesday, June 24, 2003
6/24/03 Irrational Transparency
Before I get to all the news that's fit to print, there's a bit of housekeeping that needs to be accomplished. Several readers had their nose out of joints that I had abandoned the U.S. dollar in favor of the New Zealand dollar. Had the readers been carefully assessing my postings, they would have realized that this was not a new revelation. I am a very compassionate person. As such I shall provide a primer for stress management:
1. Picture yourself near a stream. 2. Birds are softly chirping in the cool mountain air. 3. No one but you knows your secret place. 4. You are in total seclusion from the hectic place called "the world." 5. The soothing sound of a gentle waterfall fills the air with a cascade of serenity. 6. The water is crystal clear. 7. You can easily make out the face of the f---er you're holding underwater.
George W. Bush: "Terrorists declared war on the United States of America, and war is what they got."
Thomas Paine: "The sublime and the ridiculous are often so nearly related, that it is difficult to class them separately. One step above the sublime makes the ridiculous, and one step above the ridiculous makes the sublime again."
Thomas Paine: "War involves in its progress such a train of unforeseen and unsupposed circumstances that no wisdom can calculate the end. It has but one thing certain, and that is to increase taxes."
Robert Elliott: "Two rules for stress management- rule one- don't sweat the small stuff. Rule 2- it's all small stuff."
The Fed has provided a roadmap whereby rates will be lowered for the 13th time. They say it is cheap insurance against the threat of deflation. Interestingly, in all the prior cuts, the Fed has been unsuccessful in its attempt to influence business spending. It has influenced the housing market with lower interest rates producing historically low mortgage rates and with them a boiling refinancing market which has thrown off some needed cash flow for the home owner. Unfortunately, weak European and Japanese economic conditions have resulted in weak demand for U.S. exports and this has served to exacerbate our trade deficit. The Fed knows this week's rate decrease will only serve as a diversion. The real story is to target the quantity of bank reserves and thereby increase the money supply and inflation. All depository institutions in the U.S. are subject to reserve requirements on customer deposits. It may be a surprise to many that no reserves are required against time deposits or savings accounts. None. Your money in the latter two are completely unprotected save for the insurance provided by the government. Since the government is busted, that insurance is worthless. It may come as a surprise that no reserves are required on the first $6 million of checkable deposits a bank holds. None. Between $6 million and $42.1 million deposits are subject to a 3% reserve. Above $42.1 million they are subject to a 10% reserve. These breakpoints are adjusted annually in accordance with money supply growth, and the money supply is growing like rabbits multiply (a gross exaggeration but amusing nevertheless). But one thing is very important. Despite what you might think, reserves bear no likeness to the size of the money supply. That's what I call irrational transparency. For example, over the past eight years or so the M2 money aggregate increased by two thirds while the banking system reserves decreased by one third. How could the Fed let this happen? The Fed let banks violate Federal Reserve banking requirements by implementing overnight sweep accounts. It's ok for the customer to do that but not a bank. The sweep accounts place the banks in violation of their reserve ratios. The Fed knows this and they have looked the other way. The Fed has violated a trust, the trust provided by depositors, and banking institutions also in violation are, in my opinion, not worthy of our deposits. How can anyone have trust in the dollar if you can't trust the Fed or our banks? It's your money. It's your decision. I've made mine.
In May the UBS Index on investor optimism rallied from 42 to 77. Sixty five per cent of those surveyed in June believe now is a good time to invest, and that is up from fifty eight per cent in May. Hope springs eternal.
Mexico, Latin America's largest economy, sells about 90% of its exports to the U.S. and they account for one quarter of its $600 million GDP. Mexico's May manufacturing exports slid about 6% as U.S. demand weakened due to our slow economy and to our increased imports from China.
Yesterday it was like old times in the Silicon Valley. Venture capitalists put a significant amount of money to work. Mobile software maker Visto of Redwood Shores extended its recent financing round with an additional $20 million; Wi-fi products maker Vivato of San Francisco raised $44.5 million; and Cradle Technologies of Mountain View, a fabless semi company, rang the register for $21.5 million.
With the aging of the population there will be a growing need for long-term care. Should a growing number of families be wiped out financially paying for that care? Should the government (really the taxpayers) pay for that care? Should long-term care premiums be made available to all Americans? We know that 44 million Americans are uninsured for health care at this time. It is unaffordable for too many. Who should pay for those premiums? As a nation we need to answer these questions. Don't leave it up to government officials. You will regret the outcome.
Before I get to all the news that's fit to print, there's a bit of housekeeping that needs to be accomplished. Several readers had their nose out of joints that I had abandoned the U.S. dollar in favor of the New Zealand dollar. Had the readers been carefully assessing my postings, they would have realized that this was not a new revelation. I am a very compassionate person. As such I shall provide a primer for stress management:
1. Picture yourself near a stream. 2. Birds are softly chirping in the cool mountain air. 3. No one but you knows your secret place. 4. You are in total seclusion from the hectic place called "the world." 5. The soothing sound of a gentle waterfall fills the air with a cascade of serenity. 6. The water is crystal clear. 7. You can easily make out the face of the f---er you're holding underwater.
George W. Bush: "Terrorists declared war on the United States of America, and war is what they got."
Thomas Paine: "The sublime and the ridiculous are often so nearly related, that it is difficult to class them separately. One step above the sublime makes the ridiculous, and one step above the ridiculous makes the sublime again."
Thomas Paine: "War involves in its progress such a train of unforeseen and unsupposed circumstances that no wisdom can calculate the end. It has but one thing certain, and that is to increase taxes."
Robert Elliott: "Two rules for stress management- rule one- don't sweat the small stuff. Rule 2- it's all small stuff."
The Fed has provided a roadmap whereby rates will be lowered for the 13th time. They say it is cheap insurance against the threat of deflation. Interestingly, in all the prior cuts, the Fed has been unsuccessful in its attempt to influence business spending. It has influenced the housing market with lower interest rates producing historically low mortgage rates and with them a boiling refinancing market which has thrown off some needed cash flow for the home owner. Unfortunately, weak European and Japanese economic conditions have resulted in weak demand for U.S. exports and this has served to exacerbate our trade deficit. The Fed knows this week's rate decrease will only serve as a diversion. The real story is to target the quantity of bank reserves and thereby increase the money supply and inflation. All depository institutions in the U.S. are subject to reserve requirements on customer deposits. It may be a surprise to many that no reserves are required against time deposits or savings accounts. None. Your money in the latter two are completely unprotected save for the insurance provided by the government. Since the government is busted, that insurance is worthless. It may come as a surprise that no reserves are required on the first $6 million of checkable deposits a bank holds. None. Between $6 million and $42.1 million deposits are subject to a 3% reserve. Above $42.1 million they are subject to a 10% reserve. These breakpoints are adjusted annually in accordance with money supply growth, and the money supply is growing like rabbits multiply (a gross exaggeration but amusing nevertheless). But one thing is very important. Despite what you might think, reserves bear no likeness to the size of the money supply. That's what I call irrational transparency. For example, over the past eight years or so the M2 money aggregate increased by two thirds while the banking system reserves decreased by one third. How could the Fed let this happen? The Fed let banks violate Federal Reserve banking requirements by implementing overnight sweep accounts. It's ok for the customer to do that but not a bank. The sweep accounts place the banks in violation of their reserve ratios. The Fed knows this and they have looked the other way. The Fed has violated a trust, the trust provided by depositors, and banking institutions also in violation are, in my opinion, not worthy of our deposits. How can anyone have trust in the dollar if you can't trust the Fed or our banks? It's your money. It's your decision. I've made mine.
In May the UBS Index on investor optimism rallied from 42 to 77. Sixty five per cent of those surveyed in June believe now is a good time to invest, and that is up from fifty eight per cent in May. Hope springs eternal.
Mexico, Latin America's largest economy, sells about 90% of its exports to the U.S. and they account for one quarter of its $600 million GDP. Mexico's May manufacturing exports slid about 6% as U.S. demand weakened due to our slow economy and to our increased imports from China.
Yesterday it was like old times in the Silicon Valley. Venture capitalists put a significant amount of money to work. Mobile software maker Visto of Redwood Shores extended its recent financing round with an additional $20 million; Wi-fi products maker Vivato of San Francisco raised $44.5 million; and Cradle Technologies of Mountain View, a fabless semi company, rang the register for $21.5 million.
With the aging of the population there will be a growing need for long-term care. Should a growing number of families be wiped out financially paying for that care? Should the government (really the taxpayers) pay for that care? Should long-term care premiums be made available to all Americans? We know that 44 million Americans are uninsured for health care at this time. It is unaffordable for too many. Who should pay for those premiums? As a nation we need to answer these questions. Don't leave it up to government officials. You will regret the outcome.
Monday, June 23, 2003
6/23/03 The Crossroads
The question is not how far Greenspan will lower rates. The question is not where the S&P and the Nasdaq will be at year end. The question is not whether the new Harry Potter book will sell more than its first printing of 8.5 million copies. There are answers to all those questions. Some are more difficult to answer with conviction. There are other questions, such as, where are the WMD? I am not in any way belittling any other important questions of our time. We're talking investing. I am certain that John Templeton or Jim Rogers or George Soros considers the question I am about to present on a constant basis. I'm new to this. It's been only a short time for me. For that, I may come up short. I apologize in advance.
Some time back I felt uncomfortable placing money in treasury bills. The government's fiscal landscape is foreign and unacceptable to me. I chose the New Zealand dollar. I have been most comfortable with my choice. That decision led to my asking this question: should I be looking elsewhere for investments? Should I leave the U.S. stock and bond markets to others until matters are more to my liking? I wrestled with this question. It seems unAmerican. Then I realized that emotion does not play a part in my investment decisions. Companies are not my family. They are a vehicle for making money. I decided to limit any new investments to specific risk arbitrage opportunities. I would look outside the U.S. for any other new investments. I am comfortable with that decision, and I recommend such an alternative to everyone. There is much value elsewhere, and, in countries devoid of our financial hysteria.
There was a program on the History channel, and my family was nice enough to tape it for me. It was an interview with Frank Langone. He's not a household name. He should be. He is a financial man, and, with Bernie Marcus, co-founded Home Depot, a company where I have had an investment for years and years. Frank has always talked smart. He doesn't have a Ph.D or come from a fancy background. Frank said "if you don't have a customer, you don't have a business." Too bad all the money lost in dotcom start-ups didn't figure that out ahead of time. Home Depot, Frank said, kept it simple, and still does. The formula for success: low prices, high service, and wide assortment. This year Home Depot will hire over 100,000 new employees. As I have said over and over again, stay over time with the growing great companies. Home Depot stumbled a bit. McDonald's stumbled a bit. They are on the road to being better than ever. Great managements recognize mistakes, and in the case of Home Depot, they got so big so fast that their systems, processes, and IT were way behind their size. In addition, there was a learning curve for Nardelli. Bernie Marcus and Frank Langone made certain Nardelli wuld not fail. They gave him the tools and the support. They had a sincere interest in so doing. Home Depot is a member of their family. It's one of their children. It's not just any investment.
It pains me to read that personal bankruptcy filings in NYC are up 25% over the past two years. NYC went through so much in the 1970s, and now it's deja vu all over again.
The question is not how far Greenspan will lower rates. The question is not where the S&P and the Nasdaq will be at year end. The question is not whether the new Harry Potter book will sell more than its first printing of 8.5 million copies. There are answers to all those questions. Some are more difficult to answer with conviction. There are other questions, such as, where are the WMD? I am not in any way belittling any other important questions of our time. We're talking investing. I am certain that John Templeton or Jim Rogers or George Soros considers the question I am about to present on a constant basis. I'm new to this. It's been only a short time for me. For that, I may come up short. I apologize in advance.
Some time back I felt uncomfortable placing money in treasury bills. The government's fiscal landscape is foreign and unacceptable to me. I chose the New Zealand dollar. I have been most comfortable with my choice. That decision led to my asking this question: should I be looking elsewhere for investments? Should I leave the U.S. stock and bond markets to others until matters are more to my liking? I wrestled with this question. It seems unAmerican. Then I realized that emotion does not play a part in my investment decisions. Companies are not my family. They are a vehicle for making money. I decided to limit any new investments to specific risk arbitrage opportunities. I would look outside the U.S. for any other new investments. I am comfortable with that decision, and I recommend such an alternative to everyone. There is much value elsewhere, and, in countries devoid of our financial hysteria.
There was a program on the History channel, and my family was nice enough to tape it for me. It was an interview with Frank Langone. He's not a household name. He should be. He is a financial man, and, with Bernie Marcus, co-founded Home Depot, a company where I have had an investment for years and years. Frank has always talked smart. He doesn't have a Ph.D or come from a fancy background. Frank said "if you don't have a customer, you don't have a business." Too bad all the money lost in dotcom start-ups didn't figure that out ahead of time. Home Depot, Frank said, kept it simple, and still does. The formula for success: low prices, high service, and wide assortment. This year Home Depot will hire over 100,000 new employees. As I have said over and over again, stay over time with the growing great companies. Home Depot stumbled a bit. McDonald's stumbled a bit. They are on the road to being better than ever. Great managements recognize mistakes, and in the case of Home Depot, they got so big so fast that their systems, processes, and IT were way behind their size. In addition, there was a learning curve for Nardelli. Bernie Marcus and Frank Langone made certain Nardelli wuld not fail. They gave him the tools and the support. They had a sincere interest in so doing. Home Depot is a member of their family. It's one of their children. It's not just any investment.
It pains me to read that personal bankruptcy filings in NYC are up 25% over the past two years. NYC went through so much in the 1970s, and now it's deja vu all over again.
Sunday, June 22, 2003
6/22/03 A Pitcher's Pitch
Alex Rodriguez (aka A-Rod) is currently recognized as the greatest all-around short-stop of all time. He is a future Hall-of-Famer. Growing up in Miami, he wasn't always the star he is presently. As a sophomore, he was benched for one game, and didn't win the starting job unil well into the season. He hit .270 and was placed seventh in the batting order. As a sophomore, his coach said A-Rod often swung at a "pitcher's pitch." Over the next summer Rodriguez practiced hard and learned the art of patience. As a junior, he hit .477 with six homers, stole 42 bases, scored 51 runs, and made the All-Dade first team. The rest is history. Investors can learn a great deal from A-Rod. He still works hard at honing his skills, and is still patient at the plate as he waits for "his pitch." I know from experience that the market will serve up "your pitch." When it does arrive, pull the trigger. Have the confidence to believe in yourself. Ignore what others say. It's your money. It's "your pitch." Don't wait for the pitch thrown from the pundits. They didn't earn your investing nest egg.
Silicon Valley's employment plunge is not unique. Silicon Valley has lost one of every six jobs, and employment is at the 1996 level. Since the December 2000 peak, 191,000 jobs have been lost. In Detroit employment is somewhat lower than the levels in 1996, and jobs peaked there in 1978. In Los Angeles County an employment record was set in 1990. In April 2003 there were 166,000 fewer jobs than the record of 1990.
Talking about employment, a study by Challenger, Gray, and Christmas shows that job searches for managers and executives in the first quarter of 2003 hit 128 days, a record high, and is double the 64 days for the average such job search in the second quarter of 2001, which was a record low. In addition, in the first quarter of 1977, discharged executives and managers received an all-time high severance of about six months. In the first quarter of this year that number has dropped to 2.3 months.
Health insurance premiums increased about 13% in 2002 and are anticipated to rise 15% this year. Roberta Grossman of Merrill Lynch points out an interesting fact. In 1960 consumers were paying almost 50% of national health care costs out-of-pocket. That fiure is about 15% today, and, for the next few years, is expected to remain at that level.
Even though about $16 billion in drugs went off-patent in 2002, and only 10 new drugs came to the market in 2002, prescription drug costs continue to increase. That rise is anticipated to be 11% in 2004 and 12% in 2005. One further note. The patent-expiration period will accelerate in the coming years. The waiting period for an FDA drug approval has not been reduced. That agency only approved 17 new drugs in 2002. The drug prescription market will only grow 1% this year. You can expect pharmaceutica companies to increase their focus on reducing costs. That will mean more job cuts and less spent on r&d as the latter is tied to revenue growth. The coming years will be challenging for the consumer, corporate health plans, Medicare, Medicaid, and for many of the drug companies.
The Fed is paying more attention to the field of behavioral economics. One of the pioneers in this field, Daniel Kahneman, last year won the Nobel Prize in economics. Recently, the Boston Federal Reserve held its annual conference. The topic for discussion was "How Humans Behave-Implications for Economics and Policy." Next year's topic could be on "how Federal Reserve members behave- implications for market manipulation." Any way, this aforementioned conference included looking at MRI scans of the brain. Like these folks really understand the workings of the brain. I guess because many economists are Ph.Ds they consider themselves real doctors. Inflated egos have the potential to be quite destructive. Maybe the conference participants should take a primer and read Adam Smith's "The Theory of Moral Sentiments." Since its an ancient work, there may be dust on the cover.
I don't play favorites. As such, I am not a subscriber to Barron's, Fortune, Business Week, the Wall Street Journal, Investor's Business Daily, the N.Y. Times, etc. It's amazing I am able to exist. One of my oldest friends has been one of the original participants in Barron's twice-yearly roundtable discussion. He emailed me, and said I needed to read the mid-year roundtable. I knew that would make me $3.50 poorer but I decided to be a big spender. Felix Zulauf talked about the big Fed manipulation. He talked about buying the Nikkei and shorting Japan's bonds. He still likes gold. Mario Gabelli talked about the aging of the population. Barton Biggs has a short postion in U.S. treasury bonds. Meryl Witner does not see many inexpensive stocks. Scott Black sees a weak economy. Marc Faber talks about the imbalance between U.S. consumption and Asian production. He feels that anyone buying the S&P now might not make money for the next five years. Others talked of the bubble in bonds. These are subjects I have covered in my blog for some time- with the exception of shorting Japanese bonds.
Alex Rodriguez (aka A-Rod) is currently recognized as the greatest all-around short-stop of all time. He is a future Hall-of-Famer. Growing up in Miami, he wasn't always the star he is presently. As a sophomore, he was benched for one game, and didn't win the starting job unil well into the season. He hit .270 and was placed seventh in the batting order. As a sophomore, his coach said A-Rod often swung at a "pitcher's pitch." Over the next summer Rodriguez practiced hard and learned the art of patience. As a junior, he hit .477 with six homers, stole 42 bases, scored 51 runs, and made the All-Dade first team. The rest is history. Investors can learn a great deal from A-Rod. He still works hard at honing his skills, and is still patient at the plate as he waits for "his pitch." I know from experience that the market will serve up "your pitch." When it does arrive, pull the trigger. Have the confidence to believe in yourself. Ignore what others say. It's your money. It's "your pitch." Don't wait for the pitch thrown from the pundits. They didn't earn your investing nest egg.
Silicon Valley's employment plunge is not unique. Silicon Valley has lost one of every six jobs, and employment is at the 1996 level. Since the December 2000 peak, 191,000 jobs have been lost. In Detroit employment is somewhat lower than the levels in 1996, and jobs peaked there in 1978. In Los Angeles County an employment record was set in 1990. In April 2003 there were 166,000 fewer jobs than the record of 1990.
Talking about employment, a study by Challenger, Gray, and Christmas shows that job searches for managers and executives in the first quarter of 2003 hit 128 days, a record high, and is double the 64 days for the average such job search in the second quarter of 2001, which was a record low. In addition, in the first quarter of 1977, discharged executives and managers received an all-time high severance of about six months. In the first quarter of this year that number has dropped to 2.3 months.
Health insurance premiums increased about 13% in 2002 and are anticipated to rise 15% this year. Roberta Grossman of Merrill Lynch points out an interesting fact. In 1960 consumers were paying almost 50% of national health care costs out-of-pocket. That fiure is about 15% today, and, for the next few years, is expected to remain at that level.
Even though about $16 billion in drugs went off-patent in 2002, and only 10 new drugs came to the market in 2002, prescription drug costs continue to increase. That rise is anticipated to be 11% in 2004 and 12% in 2005. One further note. The patent-expiration period will accelerate in the coming years. The waiting period for an FDA drug approval has not been reduced. That agency only approved 17 new drugs in 2002. The drug prescription market will only grow 1% this year. You can expect pharmaceutica companies to increase their focus on reducing costs. That will mean more job cuts and less spent on r&d as the latter is tied to revenue growth. The coming years will be challenging for the consumer, corporate health plans, Medicare, Medicaid, and for many of the drug companies.
The Fed is paying more attention to the field of behavioral economics. One of the pioneers in this field, Daniel Kahneman, last year won the Nobel Prize in economics. Recently, the Boston Federal Reserve held its annual conference. The topic for discussion was "How Humans Behave-Implications for Economics and Policy." Next year's topic could be on "how Federal Reserve members behave- implications for market manipulation." Any way, this aforementioned conference included looking at MRI scans of the brain. Like these folks really understand the workings of the brain. I guess because many economists are Ph.Ds they consider themselves real doctors. Inflated egos have the potential to be quite destructive. Maybe the conference participants should take a primer and read Adam Smith's "The Theory of Moral Sentiments." Since its an ancient work, there may be dust on the cover.
I don't play favorites. As such, I am not a subscriber to Barron's, Fortune, Business Week, the Wall Street Journal, Investor's Business Daily, the N.Y. Times, etc. It's amazing I am able to exist. One of my oldest friends has been one of the original participants in Barron's twice-yearly roundtable discussion. He emailed me, and said I needed to read the mid-year roundtable. I knew that would make me $3.50 poorer but I decided to be a big spender. Felix Zulauf talked about the big Fed manipulation. He talked about buying the Nikkei and shorting Japan's bonds. He still likes gold. Mario Gabelli talked about the aging of the population. Barton Biggs has a short postion in U.S. treasury bonds. Meryl Witner does not see many inexpensive stocks. Scott Black sees a weak economy. Marc Faber talks about the imbalance between U.S. consumption and Asian production. He feels that anyone buying the S&P now might not make money for the next five years. Others talked of the bubble in bonds. These are subjects I have covered in my blog for some time- with the exception of shorting Japanese bonds.
Saturday, June 21, 2003
6/21/03 1974 Revisited
I was a young man. I’m still a young man. It was November, 1974 and the cupboard was getting very bare. We were down to rice, oatmeal, and powdered milk. On a day of splurging I was able to spring for a big bag of Idaho potatoes. I was so damn sure. My friends thought I was nuts. My family hung tough. Then one day I came home a bit on the shaky side. I saw a man pass my office window at 120 Broadway in NYC’s Wall Street arena. He passed on his way to the pavement below. My office was on the 20th floor. I thought of Jesse Livermore committing suicide 40 plus years before. Bear markets can do that. We were in the midst of a beauty of a bear market in early November of 1974. It was the worst since the depression. I was so sure of myself. I didn’t know any better. I was buying great companies yielding 6 to 10 per cent, at 4 and 5 price earnings ratios, and many stocks selling for less than the cash per share. These were not dotcom companies. These were the real deal. They made money. I just kept buying and buying and buying. I knew the food would not last forever. I was sure I was right. I got lucky. God must have watched out for me. The Dow bottomed in early December at 574. I never looked back until about five weeks ago. As Yogi would say, it was déjà vu all over again.
I had been taking a look at the economy for days, for weeks, for months. Just like in 1974. The bond market, I thought, was selling at crazy low yields. Who in his right mind would loan money to the U.S. government at these low interest rates when the country was busted? No one in their right mind. I was sure of that. This time around I had a bit more than just the rice, oatmeal, and powdered milk. The yields kept getting lower. The market said I was wrong. Just like 1974. I kept asking myself should I buck the trend? Will I get carried out? This time around I hedged a bit. I couldn’t get carried out. Every time I hedged I got angry at myself. I did it any way even though I believed in myself. I was only competing within myself. I have nothing to prove to anyone else. Never did. God looked out for me again. The bond market has tanked over the last two weeks. From December, 1974 the market did not look back for some time. Will it be the same this time for the bond market? I wrote not long ago that it didn’t matter whether Greenspan lowered rates at the last Fed meeting or in June. It doesn’t matter whether the rates are lowered by a quarter or a half a point. In fact, as I have said for a year, the Fed is a non-event. They are a figment of their own imagination. Whatever they do they cannot reverse what has been done. They cannot reverse the budget and trade deficits, they can’t create jobs, they can’t make business owners invest in their businesses, they can’t make people save, they can’t stop increased government spending. They can stop making speeches. Their words are a crock. They aren’t worried about price deflation. They’re worried about asset deflation. They should worry about people on fixed incomes earning squat on money market funds, savings accounts, and treasury bills. The population is aging a lot faster than people buying homes with low interest mortgages. When interest rates are lowered this week, what impact will that have on money market funds? When long term interest rates rise, what will happen to the well-being of mortgage backed securities. The Fed has gotten themselves into a catch 22, and there’s no way out. The Snowman said this week “conditions for this recovery are looking better and better.” He also said unemployment would continue to rise for a bit longer. On Friday Bush said the latest tax cut is “going to put wind at our back as this economy recovers from what has been a very tough period of time.” He also said the economy is not growing fast enough to make much improvement in the unemployment situation.
We have a situation where the Fed is pouring money into the system. The government is spending money like never before. Deficits are rising to incredible levels. The CBO says we will have deficits thru at least 2010. Governments do not create economic growth. They produce nothing. They only spend. They consume tax receipts. They are the weapon of mass destruction. There is only one way for the government to help- shrink federal services, employees, and benefits. The solution is to outsource the government to China and India. The citizens must take away the federal checkbook and create a governor on federal spending. When the free lunches end, when the pork programs are extinguished, then the path to sanity will be restored. Until that time, I continue to believe there will be a very long and painful bear market in government bonds. I’m a young man. I’ll live thru this period. Others will jump to their death. It’s will be déjà vu all over again. But don’t worry. Everything will be just fine. Goldman Sachs told their clients “what’s important here is the shift in the Fed’s regime-to focus on keeping short-term rates low for a sustained period in order to prevent deflation.” What the hell has been going on with a dozen rate cuts and the thirteenth on its way? The focus has not changed one bit. The Fed has followed the bond market down step by step by step. They have followed and not led. The guy who ran Greenspan Townsend does not lead markets.
The Mortgage Bankers Association said on Friday that U.S. mortgages in foreclosure climbed to a record high in the first quarter of this year, and that home loans in the process of foreclosure climbed to 1.2% of all mortgages, a record high.
Don Imus: “When you’re talking to someone, you better know which side of the chicken wire you’re on.”
General Motors is planning to sell $13 billion of bonds and will use most of the proceeds to reduce deficits in its world-wide pension plans which amounted to $25.4 billion at the end of 2002. Because of rising pension costs, Moody’s and Fitch Ratings just cut their ratings on GM’s long term debt.
Boeing previously announced a 35,000 ceiling for job cuts in their commercial airplanes division. Now the company says more layoff plans may be announced next month. The June quarter for Boeing will not be pretty. Fittingly, Boeing’s CEO, Phil Condit, was named the new head of the Business Council. That says a lot for that organization.
The landscape in the PeopleSoft/J.D.Edwards/Oracle fracas changed a bit on Friday. That was anticipated. The PeopleSoft board rejected the sweetened Oracle bid saying it “undervalues the company and is not in the best interest of PeopleSoft shareholders.” However , the PeopleSoft board “determined that future circumstances might make it advisable or necessary for the company to engage in discussions or negotiations with third parties regarding extraordinary transactions.” Needless to say, should a judge stop the Oracle tender, such circumstances would not be necessary. It is difficult to envision what company could serve as a white knight. I ruled out IBM, Microsoft, and SAP. I took a long look at Intuit. They could do it, but would they want to. I have no idea. PeopleSoft is quite aware that, if Oracle’s bid is successful, 5000 of the 8000 PeopleSoft employees will be fired. Oracle also changed their tune on Friday. They now state they “will continue to develop and improve PeopleSoft’s products for at least the next ten years-even longer, if customers require further support.We will have more than 4000 engineers supporting PeopleSoft customers all over the world, and they can stay on PeopleSoft applications or migrate to Oracle applications at their discretion. It’s entirely their choice." Let me make this clear. PeopleSoft doesn’t want to find a white knight or sell out. They said that to protect themselves legally with shareholders. Oracle wants to have PeopleSoft customers convert to Oracle E-Business Suite applications. They are not looking to enhance PeopleSoft’s existing product offerings. They said they would not shut down PeopleSoft products in order to look better in court before the judge hearing the motion for the TRO. As I have said so often, don’t believe what you read. Think for yourself.
I was a young man. I’m still a young man. It was November, 1974 and the cupboard was getting very bare. We were down to rice, oatmeal, and powdered milk. On a day of splurging I was able to spring for a big bag of Idaho potatoes. I was so damn sure. My friends thought I was nuts. My family hung tough. Then one day I came home a bit on the shaky side. I saw a man pass my office window at 120 Broadway in NYC’s Wall Street arena. He passed on his way to the pavement below. My office was on the 20th floor. I thought of Jesse Livermore committing suicide 40 plus years before. Bear markets can do that. We were in the midst of a beauty of a bear market in early November of 1974. It was the worst since the depression. I was so sure of myself. I didn’t know any better. I was buying great companies yielding 6 to 10 per cent, at 4 and 5 price earnings ratios, and many stocks selling for less than the cash per share. These were not dotcom companies. These were the real deal. They made money. I just kept buying and buying and buying. I knew the food would not last forever. I was sure I was right. I got lucky. God must have watched out for me. The Dow bottomed in early December at 574. I never looked back until about five weeks ago. As Yogi would say, it was déjà vu all over again.
I had been taking a look at the economy for days, for weeks, for months. Just like in 1974. The bond market, I thought, was selling at crazy low yields. Who in his right mind would loan money to the U.S. government at these low interest rates when the country was busted? No one in their right mind. I was sure of that. This time around I had a bit more than just the rice, oatmeal, and powdered milk. The yields kept getting lower. The market said I was wrong. Just like 1974. I kept asking myself should I buck the trend? Will I get carried out? This time around I hedged a bit. I couldn’t get carried out. Every time I hedged I got angry at myself. I did it any way even though I believed in myself. I was only competing within myself. I have nothing to prove to anyone else. Never did. God looked out for me again. The bond market has tanked over the last two weeks. From December, 1974 the market did not look back for some time. Will it be the same this time for the bond market? I wrote not long ago that it didn’t matter whether Greenspan lowered rates at the last Fed meeting or in June. It doesn’t matter whether the rates are lowered by a quarter or a half a point. In fact, as I have said for a year, the Fed is a non-event. They are a figment of their own imagination. Whatever they do they cannot reverse what has been done. They cannot reverse the budget and trade deficits, they can’t create jobs, they can’t make business owners invest in their businesses, they can’t make people save, they can’t stop increased government spending. They can stop making speeches. Their words are a crock. They aren’t worried about price deflation. They’re worried about asset deflation. They should worry about people on fixed incomes earning squat on money market funds, savings accounts, and treasury bills. The population is aging a lot faster than people buying homes with low interest mortgages. When interest rates are lowered this week, what impact will that have on money market funds? When long term interest rates rise, what will happen to the well-being of mortgage backed securities. The Fed has gotten themselves into a catch 22, and there’s no way out. The Snowman said this week “conditions for this recovery are looking better and better.” He also said unemployment would continue to rise for a bit longer. On Friday Bush said the latest tax cut is “going to put wind at our back as this economy recovers from what has been a very tough period of time.” He also said the economy is not growing fast enough to make much improvement in the unemployment situation.
We have a situation where the Fed is pouring money into the system. The government is spending money like never before. Deficits are rising to incredible levels. The CBO says we will have deficits thru at least 2010. Governments do not create economic growth. They produce nothing. They only spend. They consume tax receipts. They are the weapon of mass destruction. There is only one way for the government to help- shrink federal services, employees, and benefits. The solution is to outsource the government to China and India. The citizens must take away the federal checkbook and create a governor on federal spending. When the free lunches end, when the pork programs are extinguished, then the path to sanity will be restored. Until that time, I continue to believe there will be a very long and painful bear market in government bonds. I’m a young man. I’ll live thru this period. Others will jump to their death. It’s will be déjà vu all over again. But don’t worry. Everything will be just fine. Goldman Sachs told their clients “what’s important here is the shift in the Fed’s regime-to focus on keeping short-term rates low for a sustained period in order to prevent deflation.” What the hell has been going on with a dozen rate cuts and the thirteenth on its way? The focus has not changed one bit. The Fed has followed the bond market down step by step by step. They have followed and not led. The guy who ran Greenspan Townsend does not lead markets.
The Mortgage Bankers Association said on Friday that U.S. mortgages in foreclosure climbed to a record high in the first quarter of this year, and that home loans in the process of foreclosure climbed to 1.2% of all mortgages, a record high.
Don Imus: “When you’re talking to someone, you better know which side of the chicken wire you’re on.”
General Motors is planning to sell $13 billion of bonds and will use most of the proceeds to reduce deficits in its world-wide pension plans which amounted to $25.4 billion at the end of 2002. Because of rising pension costs, Moody’s and Fitch Ratings just cut their ratings on GM’s long term debt.
Boeing previously announced a 35,000 ceiling for job cuts in their commercial airplanes division. Now the company says more layoff plans may be announced next month. The June quarter for Boeing will not be pretty. Fittingly, Boeing’s CEO, Phil Condit, was named the new head of the Business Council. That says a lot for that organization.
The landscape in the PeopleSoft/J.D.Edwards/Oracle fracas changed a bit on Friday. That was anticipated. The PeopleSoft board rejected the sweetened Oracle bid saying it “undervalues the company and is not in the best interest of PeopleSoft shareholders.” However , the PeopleSoft board “determined that future circumstances might make it advisable or necessary for the company to engage in discussions or negotiations with third parties regarding extraordinary transactions.” Needless to say, should a judge stop the Oracle tender, such circumstances would not be necessary. It is difficult to envision what company could serve as a white knight. I ruled out IBM, Microsoft, and SAP. I took a long look at Intuit. They could do it, but would they want to. I have no idea. PeopleSoft is quite aware that, if Oracle’s bid is successful, 5000 of the 8000 PeopleSoft employees will be fired. Oracle also changed their tune on Friday. They now state they “will continue to develop and improve PeopleSoft’s products for at least the next ten years-even longer, if customers require further support.We will have more than 4000 engineers supporting PeopleSoft customers all over the world, and they can stay on PeopleSoft applications or migrate to Oracle applications at their discretion. It’s entirely their choice." Let me make this clear. PeopleSoft doesn’t want to find a white knight or sell out. They said that to protect themselves legally with shareholders. Oracle wants to have PeopleSoft customers convert to Oracle E-Business Suite applications. They are not looking to enhance PeopleSoft’s existing product offerings. They said they would not shut down PeopleSoft products in order to look better in court before the judge hearing the motion for the TRO. As I have said so often, don’t believe what you read. Think for yourself.
Friday, June 20, 2003
6/20/03 "The Weather Is Too Hot"
Often I am critical of government agencies. When praise should be forthcoming, I provide it. In NYC we make jokes about the 120-year-old Brooklyn Bridge. They've been retold for years. So will the foiled plot to destroy the bridge. Iyman Faris pleaded guilty on May 1 to charges he was involved in a plot to cut the bridge's suspension cables with "gas cutters" and obtaining "torque tools" to derail trains in the Washington area. The plea document clearly indicates that he was an operative for Osama bin Laden's al Qaeda organization. Faris discontinued plans for the attack on the bridge because security was too tight and the suspension cables did not appear vulnerable. He sent a coded message stating "the weather is too hot."
Houston's unemployment rate increased from 6.3% to 6.7% in May, and was the largest one month jump in a decade. The Texas Workforce Commission said the area produced 15,000 fewer jobs, the 16th consecutive month of year-over-year losses. Bill Gilmer, senior economist with the Federal Reserve Bank in Houston is surprised that Houston's unemployment continues to mount as the U.S. drilling rig count improves, the ISM index improves, the dollar declines in value, consumer confidence is up, the stock market is up, and interest rates decline. However, employers are not hiring. What do employers think they know?
What do insiders know? Argus Research provided an 8 week ratio of selling to buying by corporate insiders. The ratio is approaching 4 shares sold for each share purchased. Wall Street climbs a wall of worry. The insiders aren't worried. They're cashing in. They've got the green. A bird in the hand.
In a few minutes GE will be starting its webcast with analysts. Yesterday the company released its May orders. Remember Mrs. Robinson and plastics? Plastics is not hacking it for GE. Actually, its hacking away at profits. The division is hurt by lower prices and higher material costs. A company the size of GE cannot pass along the cost increases. Maybe investors should think about that. Orders for plastics fell about 20% last month. First quarter profits from plastics were down 56%. In May orders for appliances declined 5%. That means Sears can't be knocking the cover off of the ball. GE's earnings for 2003 will slightly exceed $1.55 per share. At yesterday's close the p/e was a bit over 19, but the stock does yield 2.5%. From when GE was mentioned back in October, the stock has done ok. It's up about 36%. That's a ham sandwich. All joking aside, GE has a market cap of close to $300 billion. I consider this company one of the proxies for business in America. They're doing ok but nothing to write home about. The outlook for 2004 for them is ok but nothing to write home about.
More than 130 million customers worldwide visit a WalMart store each week. Excluding autos, WalMart accounts for 9 cents out of every retail dollar spent in the U.S. They are the proxy for the consumer. I follow this company closer than any other public company. Why? It's the most important American company. They employ 1.4 million people. They are Main Street. WalMart's same store sales are ok. They're nothing to write home about.
The Justice Department will review the takeover issues surrounding the fracas at PSFT/JDEC/ORCL. More than 20% of PeopleSoft's 5000 customers are government agencies or universities.
Since June 10, the 10 year Treasury note yield has increased from 3.11% to 3.34%. 15 year mortgage yields have risen to 4.62%.
U.S. jobless claims have exceeded 400,000 for 18 straight weeks. The number of workers still collecting unemployment checks rose to a new 20 year high. The figures do not include some 850,000 workers receiving federal checks available to those who exhaust state benefits. One might note that the U.S. economy shrank by 325,000 non-agricltural jobs in April 2003 over April 2002, and the latter month didn't exactly knock the cover off the ball either.
I know that some of my readers have a thing for counting. Here's the count. Prior to May 1, the date the Iraq war was declared over, 138 Americans died in combat in Iraq. Since May 1, there have been 51 fatalities or 1 every day. Other than the families of those fallen soldiers, how many other Americans care? If anyone does care, I don't hear much noise.
Yesterday Krispy Kreme opened its first store outside North America. It's located in a suburb of Sydney, Australia. Over the next 5 years the company plans to open 30 additional stores throughout Australia and New Zealand. That might be a good reason for me to move there. I need to personally investigate my Krispy Kreme investment. It makes me smile when I read that the company makes almost 2.8 billion doughnuts a year.
Earlier in the month I had mentioned that GE was cutting 414 employees in Macon and Atlanta. Those cuts were directly related to the loss of business from Home Depot. You read correctly. Yesterday GE said they would be cutting an additional 62 employees in its Atlanta office. Georgia got another piece of bad news yesterday. Herman Miller, the furniture manufacturing company, will move its Canton, Georgia operations to its home-base in Michigan and cut about 500 jobs. Wilbur Ross is right on when he said "manufacturing has a peculiar problem, which is our trade deficit. Imports account for about 14% of the economy and contribute to the loss of manufacturing jobs." Our first quarter trade deficit was a record $136 billion. On an annualized basis, that's just shy of 6% of our GDP. The worst part is that deficit is a cancerous growth. It just keeps getting bigger.
On Wednesday the American Electronics Association reported that U.S. exports of high-tech goods fell by 26% from $223 billion in 2002 to $166 billion in 2002. During that same period U.S. electronic imports were down 19%. During this 2000-2002 period the Association said there was a 10% drop in U.S. tech employment. China became the United States' top supplier of high-tech goods, surpassing Japan and Mexico. During this time span imports from China increased by 32% or $8.4 billion.
I was especially interested in something Chang Mook Sohn, the state of Washington's chief economist said. Sohn is a very astute guy. He is increasingly concerned about the prospect of deflation in the state. Sohn said the sate of Washington is heavily reliant on sales taxes for revenues. The more prices fall, the less the state collects in sales taxes. That's a point I had not adequately considered. Sohn believes there is a one in four chance that deflation will take hold nationwide.
Often I am critical of government agencies. When praise should be forthcoming, I provide it. In NYC we make jokes about the 120-year-old Brooklyn Bridge. They've been retold for years. So will the foiled plot to destroy the bridge. Iyman Faris pleaded guilty on May 1 to charges he was involved in a plot to cut the bridge's suspension cables with "gas cutters" and obtaining "torque tools" to derail trains in the Washington area. The plea document clearly indicates that he was an operative for Osama bin Laden's al Qaeda organization. Faris discontinued plans for the attack on the bridge because security was too tight and the suspension cables did not appear vulnerable. He sent a coded message stating "the weather is too hot."
Houston's unemployment rate increased from 6.3% to 6.7% in May, and was the largest one month jump in a decade. The Texas Workforce Commission said the area produced 15,000 fewer jobs, the 16th consecutive month of year-over-year losses. Bill Gilmer, senior economist with the Federal Reserve Bank in Houston is surprised that Houston's unemployment continues to mount as the U.S. drilling rig count improves, the ISM index improves, the dollar declines in value, consumer confidence is up, the stock market is up, and interest rates decline. However, employers are not hiring. What do employers think they know?
What do insiders know? Argus Research provided an 8 week ratio of selling to buying by corporate insiders. The ratio is approaching 4 shares sold for each share purchased. Wall Street climbs a wall of worry. The insiders aren't worried. They're cashing in. They've got the green. A bird in the hand.
In a few minutes GE will be starting its webcast with analysts. Yesterday the company released its May orders. Remember Mrs. Robinson and plastics? Plastics is not hacking it for GE. Actually, its hacking away at profits. The division is hurt by lower prices and higher material costs. A company the size of GE cannot pass along the cost increases. Maybe investors should think about that. Orders for plastics fell about 20% last month. First quarter profits from plastics were down 56%. In May orders for appliances declined 5%. That means Sears can't be knocking the cover off of the ball. GE's earnings for 2003 will slightly exceed $1.55 per share. At yesterday's close the p/e was a bit over 19, but the stock does yield 2.5%. From when GE was mentioned back in October, the stock has done ok. It's up about 36%. That's a ham sandwich. All joking aside, GE has a market cap of close to $300 billion. I consider this company one of the proxies for business in America. They're doing ok but nothing to write home about. The outlook for 2004 for them is ok but nothing to write home about.
More than 130 million customers worldwide visit a WalMart store each week. Excluding autos, WalMart accounts for 9 cents out of every retail dollar spent in the U.S. They are the proxy for the consumer. I follow this company closer than any other public company. Why? It's the most important American company. They employ 1.4 million people. They are Main Street. WalMart's same store sales are ok. They're nothing to write home about.
The Justice Department will review the takeover issues surrounding the fracas at PSFT/JDEC/ORCL. More than 20% of PeopleSoft's 5000 customers are government agencies or universities.
Since June 10, the 10 year Treasury note yield has increased from 3.11% to 3.34%. 15 year mortgage yields have risen to 4.62%.
U.S. jobless claims have exceeded 400,000 for 18 straight weeks. The number of workers still collecting unemployment checks rose to a new 20 year high. The figures do not include some 850,000 workers receiving federal checks available to those who exhaust state benefits. One might note that the U.S. economy shrank by 325,000 non-agricltural jobs in April 2003 over April 2002, and the latter month didn't exactly knock the cover off the ball either.
I know that some of my readers have a thing for counting. Here's the count. Prior to May 1, the date the Iraq war was declared over, 138 Americans died in combat in Iraq. Since May 1, there have been 51 fatalities or 1 every day. Other than the families of those fallen soldiers, how many other Americans care? If anyone does care, I don't hear much noise.
Yesterday Krispy Kreme opened its first store outside North America. It's located in a suburb of Sydney, Australia. Over the next 5 years the company plans to open 30 additional stores throughout Australia and New Zealand. That might be a good reason for me to move there. I need to personally investigate my Krispy Kreme investment. It makes me smile when I read that the company makes almost 2.8 billion doughnuts a year.
Earlier in the month I had mentioned that GE was cutting 414 employees in Macon and Atlanta. Those cuts were directly related to the loss of business from Home Depot. You read correctly. Yesterday GE said they would be cutting an additional 62 employees in its Atlanta office. Georgia got another piece of bad news yesterday. Herman Miller, the furniture manufacturing company, will move its Canton, Georgia operations to its home-base in Michigan and cut about 500 jobs. Wilbur Ross is right on when he said "manufacturing has a peculiar problem, which is our trade deficit. Imports account for about 14% of the economy and contribute to the loss of manufacturing jobs." Our first quarter trade deficit was a record $136 billion. On an annualized basis, that's just shy of 6% of our GDP. The worst part is that deficit is a cancerous growth. It just keeps getting bigger.
On Wednesday the American Electronics Association reported that U.S. exports of high-tech goods fell by 26% from $223 billion in 2002 to $166 billion in 2002. During that same period U.S. electronic imports were down 19%. During this 2000-2002 period the Association said there was a 10% drop in U.S. tech employment. China became the United States' top supplier of high-tech goods, surpassing Japan and Mexico. During this time span imports from China increased by 32% or $8.4 billion.
I was especially interested in something Chang Mook Sohn, the state of Washington's chief economist said. Sohn is a very astute guy. He is increasingly concerned about the prospect of deflation in the state. Sohn said the sate of Washington is heavily reliant on sales taxes for revenues. The more prices fall, the less the state collects in sales taxes. That's a point I had not adequately considered. Sohn believes there is a one in four chance that deflation will take hold nationwide.
Thursday, June 19, 2003
6/19/03 Migration Is For The Birds
Completing a tender offer is more than just about the money offered to shareholders. It always was, and always will be. Larry Ellison is a smart guy. From the outset he should have appreciated this fact. He didn't. He should have also realized the potential impact from an investor suit against Oracle. Late Friday A Delaware judge refused to dismiss a shareholder suit against Oracle. Chancery Court Vice Chancellor Leo Shrine found that Oracle's special litigation committee looking into insider trading was "fraught" with conflicts. Specifically, he wrote, "material considerations other than the best interests of Oracle could have influenced the committee's inquiry and judgments." Ellison has been questioning PeopleSoft's responsiveness to shareholder rights. I think he would be best served to watch his own back. The Chancellor criticized Oracle for having two Stanford professors prepare the 1,110 page report. Shrine wrote "by any measure this was a social atmosphere painted in too much vivid Stanford Cardinal red for the committee members to have reasonably ignored." At the time of the report Ellison was considering a $170 million gift to the Stanford scholarship program and donating his $100 million home to Stanford after his death. It should be noted that this special committee was formed in 2002 to investigate the stock sales of board members, and that included Ellison's $700 million sale of Oracle stock shortly before Oracle warned of a third quarter earnings shortfall. Now let's migrate to migration. At the time of the original $16 tender, Ellison said Oracle would support the PeopleSoft products, discontinue further development of PeopleSoft's products, stop actively selling PeopleSoft products, and encourage PeopleSoft customers to switch to Oracle products. Basically, that meant Oracle would be phasing out PeopleSoft's products. I knew that would be a nail in the coffin of the tender offer. Yesterday, after raising the tender price to $19.50, Ellison said Oracle would provide a way to have PeopleSoft's customers gradually migrate to Oracle's products. Ellison says he understands CRM. I don't believe that. He wants to dictate the marketplace to the customer. Understandably, the state of Conn. sued to block the tender and other states will follow suit(no pun intended). Let's take a look at another customer's view of migration. Santa Clara University has invested five years installing PeopleSoft's software and training people to use it. The university's CIO, Ronald Danielsen, is concerned. Shortly, his students will have a web-based PeopleSoft application which will effectuate ordering transcripts, paying tuition bills, and other university matters. He says "if Oracle were to succeed in the takeover and phase out PeopleSoft software, we would have to go through another implementation of another administrative software suite. That makes me really uncomfortable." ChartOne is a medical chart technology company located in San Jose. They use PeopleSoft's products. Their CFO George Abatjoglou said "I think it's a terrible deal the way Larry Ellison is laying it out there. When you buy a technology company, you buy it for its customers and technology. If Larry Ellison is going to throw away the technology, then you're down to the customers. And I don't think he'll be able to keep them." Ellison should have thought of that prior to his making a tender offer. He may captain his own plane and his own racing boat, but he doesn't captain customers. Winning managers listen to their customers. He might try listening for a change. He'll get that opportunity in court, and won't like the message. Chancellor Shrine was just the beginning. Lastly, I read the filing that PeopleSoft made with the SEC. It states that the revised merger agreement with J.D. Edwards will boost its operating earnings by 50% next year. Specifically, PeopleSoft expects its non-GAAP earnings to be between 84 and 92 cents per share. As such, the stock is presently selling at a completed merger p/e of about 20 times 2004 anticipated results. That should provide some needed downside protection should the Oracle tender be blocked or fail.
A good deal of economic data will be released today. We'll probably see an increase in the leading economic indicators as stock prices have moved higher and the money supply has increased. The Philly Fed factory index will show improvement as did N.Y.'s the other day. The May budget deficit will be another whopper. Finally, weekly unemployment claims should continue to signal a weak job market. Talking about unemployment, EDS is cutting 2700 jobs; Thomson SA is cutting 1,200 jobs in the U.S.; British American Tobacco will cut more than 1000 jobs in Britain and Canada; and Spanish telecom Telefonica will cut 4500 jobs or 10% of its workforce, and plans to cut another 4500 jobs in 2004 and 2005.
According to International Strategy and Investment(ISI), only twice since 1953 has the S&P gained more than 20% in the first three months after reaching a low. Both times, it returned less than 7% in the next three months and even less during the next 18 months. Since March 11 the S&P 500 has gained 26%. ISI is forecasting a 4% rise in the S&P 500 from its present level to year end.
Nielsen Media Research anticipates that China's present $10 billion advertising market is set for double digit growth annually in the next 10 years and should exceed Japan's market by 2010, and this would make China the second largest advertising arena. Hosting the 2008 Olympics should aid the boom.
Airbus won an order from Korean Air to buy five A380s worth $1.4 billion, and brought orders for the company's super jumbojet to 129.
Yesterday Larry Doby, a baseball Hall of Famer, passed away. Soon after Jackie Robinson joined the Dodgers, Larry became the first black baseball player in the American League. He was a gifted and fine individual.
Tom Campbell, a former Congressman and now Dean of the Haas School of Business at the University of California-Berkeley, said the Silicon Valley will not lead the nation out of a recession, and remarked "we are in some ways the victim of our own success." He was referring to the flexibility and productivity developed by the IT industry having created a situation where companies seeing a growth in revenues are not necessarily hiring more people. He said the current jobless recovery "is unlike any recovery we've experienced before." Campbell went on to say that "consumption as the driving force of the economy is over."
According to numbers by the Tax Foundation and Citizens For Tax Justice, Bush's tax cuts in 2001 and 2003 have removed about 4 million taxpayers from the income tax rolls, and about 40 million families will have no income tax liability in 2003. That's great. There's just one small problem. The Congress will increase discretionary spending by 4% in the current fiscal year. I guess the Fed will just keep printing money and the Congress will just keep increasing the debt limit and everyone will be happy forever in la la land. If America wants to lose its freedoms, this is the way to go. Please hold the gloom and doom theory. That's total crap. But there is hope. It brings a smile to my face. Within 5 years, 30% of the government's 1.6 million full-time employees will be eligible to retire and another 20% could seek early retirement. If we can hold out another 5 years, we can lop off 800,000 government workers! It gets better. Sixty five per cent of the Senior Executive Service will be eligible for retirement in 2004. Don't you just love this? There really is hope. Now I know why the S&P 500 rallied so sharply. The Street recognized future government payroll savings. It was never about the tax cuts. It was never about the benefits for those receiving dividends. It was pending government downsizing. Some believe the market will continue to climb a wall of worry. In this case it will be the worry of a government brain drain. Don't lose any sleep. Please.
Completing a tender offer is more than just about the money offered to shareholders. It always was, and always will be. Larry Ellison is a smart guy. From the outset he should have appreciated this fact. He didn't. He should have also realized the potential impact from an investor suit against Oracle. Late Friday A Delaware judge refused to dismiss a shareholder suit against Oracle. Chancery Court Vice Chancellor Leo Shrine found that Oracle's special litigation committee looking into insider trading was "fraught" with conflicts. Specifically, he wrote, "material considerations other than the best interests of Oracle could have influenced the committee's inquiry and judgments." Ellison has been questioning PeopleSoft's responsiveness to shareholder rights. I think he would be best served to watch his own back. The Chancellor criticized Oracle for having two Stanford professors prepare the 1,110 page report. Shrine wrote "by any measure this was a social atmosphere painted in too much vivid Stanford Cardinal red for the committee members to have reasonably ignored." At the time of the report Ellison was considering a $170 million gift to the Stanford scholarship program and donating his $100 million home to Stanford after his death. It should be noted that this special committee was formed in 2002 to investigate the stock sales of board members, and that included Ellison's $700 million sale of Oracle stock shortly before Oracle warned of a third quarter earnings shortfall. Now let's migrate to migration. At the time of the original $16 tender, Ellison said Oracle would support the PeopleSoft products, discontinue further development of PeopleSoft's products, stop actively selling PeopleSoft products, and encourage PeopleSoft customers to switch to Oracle products. Basically, that meant Oracle would be phasing out PeopleSoft's products. I knew that would be a nail in the coffin of the tender offer. Yesterday, after raising the tender price to $19.50, Ellison said Oracle would provide a way to have PeopleSoft's customers gradually migrate to Oracle's products. Ellison says he understands CRM. I don't believe that. He wants to dictate the marketplace to the customer. Understandably, the state of Conn. sued to block the tender and other states will follow suit(no pun intended). Let's take a look at another customer's view of migration. Santa Clara University has invested five years installing PeopleSoft's software and training people to use it. The university's CIO, Ronald Danielsen, is concerned. Shortly, his students will have a web-based PeopleSoft application which will effectuate ordering transcripts, paying tuition bills, and other university matters. He says "if Oracle were to succeed in the takeover and phase out PeopleSoft software, we would have to go through another implementation of another administrative software suite. That makes me really uncomfortable." ChartOne is a medical chart technology company located in San Jose. They use PeopleSoft's products. Their CFO George Abatjoglou said "I think it's a terrible deal the way Larry Ellison is laying it out there. When you buy a technology company, you buy it for its customers and technology. If Larry Ellison is going to throw away the technology, then you're down to the customers. And I don't think he'll be able to keep them." Ellison should have thought of that prior to his making a tender offer. He may captain his own plane and his own racing boat, but he doesn't captain customers. Winning managers listen to their customers. He might try listening for a change. He'll get that opportunity in court, and won't like the message. Chancellor Shrine was just the beginning. Lastly, I read the filing that PeopleSoft made with the SEC. It states that the revised merger agreement with J.D. Edwards will boost its operating earnings by 50% next year. Specifically, PeopleSoft expects its non-GAAP earnings to be between 84 and 92 cents per share. As such, the stock is presently selling at a completed merger p/e of about 20 times 2004 anticipated results. That should provide some needed downside protection should the Oracle tender be blocked or fail.
A good deal of economic data will be released today. We'll probably see an increase in the leading economic indicators as stock prices have moved higher and the money supply has increased. The Philly Fed factory index will show improvement as did N.Y.'s the other day. The May budget deficit will be another whopper. Finally, weekly unemployment claims should continue to signal a weak job market. Talking about unemployment, EDS is cutting 2700 jobs; Thomson SA is cutting 1,200 jobs in the U.S.; British American Tobacco will cut more than 1000 jobs in Britain and Canada; and Spanish telecom Telefonica will cut 4500 jobs or 10% of its workforce, and plans to cut another 4500 jobs in 2004 and 2005.
According to International Strategy and Investment(ISI), only twice since 1953 has the S&P gained more than 20% in the first three months after reaching a low. Both times, it returned less than 7% in the next three months and even less during the next 18 months. Since March 11 the S&P 500 has gained 26%. ISI is forecasting a 4% rise in the S&P 500 from its present level to year end.
Nielsen Media Research anticipates that China's present $10 billion advertising market is set for double digit growth annually in the next 10 years and should exceed Japan's market by 2010, and this would make China the second largest advertising arena. Hosting the 2008 Olympics should aid the boom.
Airbus won an order from Korean Air to buy five A380s worth $1.4 billion, and brought orders for the company's super jumbojet to 129.
Yesterday Larry Doby, a baseball Hall of Famer, passed away. Soon after Jackie Robinson joined the Dodgers, Larry became the first black baseball player in the American League. He was a gifted and fine individual.
Tom Campbell, a former Congressman and now Dean of the Haas School of Business at the University of California-Berkeley, said the Silicon Valley will not lead the nation out of a recession, and remarked "we are in some ways the victim of our own success." He was referring to the flexibility and productivity developed by the IT industry having created a situation where companies seeing a growth in revenues are not necessarily hiring more people. He said the current jobless recovery "is unlike any recovery we've experienced before." Campbell went on to say that "consumption as the driving force of the economy is over."
According to numbers by the Tax Foundation and Citizens For Tax Justice, Bush's tax cuts in 2001 and 2003 have removed about 4 million taxpayers from the income tax rolls, and about 40 million families will have no income tax liability in 2003. That's great. There's just one small problem. The Congress will increase discretionary spending by 4% in the current fiscal year. I guess the Fed will just keep printing money and the Congress will just keep increasing the debt limit and everyone will be happy forever in la la land. If America wants to lose its freedoms, this is the way to go. Please hold the gloom and doom theory. That's total crap. But there is hope. It brings a smile to my face. Within 5 years, 30% of the government's 1.6 million full-time employees will be eligible to retire and another 20% could seek early retirement. If we can hold out another 5 years, we can lop off 800,000 government workers! It gets better. Sixty five per cent of the Senior Executive Service will be eligible for retirement in 2004. Don't you just love this? There really is hope. Now I know why the S&P 500 rallied so sharply. The Street recognized future government payroll savings. It was never about the tax cuts. It was never about the benefits for those receiving dividends. It was pending government downsizing. Some believe the market will continue to climb a wall of worry. In this case it will be the worry of a government brain drain. Don't lose any sleep. Please.
Wednesday, June 18, 2003
6/18/03 Pfizer
It was many months ago that I recommended Pfizer and Merck for your consideration. Pfizer was 25 and Merck was at 40. In the interim, the latter has outperformed Pfizer by a large margin. These are two companies which can produce highly profitable results over the long term. At its present price, Pfizer's current p/e is somewhat above its current growth rate. The CFO has projected 2004 earnings per share of $2.13. The company's 20 new products in the pipeline could create an opportunity for much stronger future growth. This is a company which should benefit its shareholders. The healthcare field continues to be my favorite area of investment for the long term. Currently, this industry comprises over 15% of our GDP. With the aging of our population, Pfizer should be a major beneficiary of this trend. I have never been a fan of investment diversification. I don't believe there are a host of great companies around the globe. I have found that the greatest long term investment success is to stay with the great ones. When the opportunity presents itself, add to those holdings. Over the years, this simple formula has proven to be a welcome tonic. There are many avenues for making money in the stock market. There are many more avenues for losing money. Make it easy on yourself. Don't knock yourself out betting on the next Secretariat, so to speak. The results might add you to the list of the depressed in this country. The list is long enough.
UBS is cutting 3% of their global investment banking workforce, or 500 employees. The reduction will be evenly spread in Asia, Europe, and the Americas. This company has 16,000 folks in their investment banking department. I feel confident that there is plenty of room for more cuts- let's say at least a few thousand for starters.
Quite frequently I make reference to the parking lot in the Mojave. I'm talking airline jets. We need to bring our cameras. The parking lot is growing. There are now 2,186 planes parked. By the time I finish this blog, there could be more. Only a masochist would invest in the airline industry on a long term basis. I've been negative on this industry for a very long time. Some wise guy will tell me how much these stocks have risen over the past three months. How have they performed over the past three years? Would you rather own Boeing or Pfizer? If you say Boeing, I'll send the paramedics right over.
Almost every week I discuss the importance of ROI. In the July issue of Business 2.0, they have a worthwile article on this subject and opine that "it's not enough that companies are in the black. They ought to return more of their cost of capital." More investors should pay attention to this subject matter. In their table of companies they cite HP, Amazon, AMD, Motorola, Dell, Microsoft, and Merck. Only three companies on that list produce results where the return on capital exceeds the cost of capital. To be expected, they are the great ones- Microsoft, Dell, and Merck. In this same Business 2.0 issue, there is an article on Leroy Hood, MD, Ph.D, director of the Institute for Systems Biology, and the inventor of the automated DNA sequencer. The article is entitled "Beyond the Genome." I recommend that, all investors interested in the healthcare field, make this must reading.
According to a report from Harvard University's Joint Center for Housing Studies, if layoffs continue to increase, some neighborhoods could be facing declines in house prices as the result of a glut of homes put up for sale. I have thought this for well over a year, and have been right on rising unemployment and wrong on house prices. Maybe Harvard's timing will be better than mine. The report does say, however, that the fundamentals for housing are still strong as the number of immigrant and minority households grow and provide a big source for housing demand. The report closes by focusing on affordability of housing as a problem, a subject I have mentioned frequently. Up to now, the latter has had no impact whatsoever on the upward movement of house prices. Lower mortgage rates have proven a tremendous salvo.
The May book-to-bill ratio for semiconductor equipment fell for the third consecutive month, and stood at 0.89. Excess capacity and weak demand make for tough competition.
The Australian dollar rose to its highest level in almost four years. The interest rate gap is pretty darn wide, and about to get wider. Our overnight Fed rates stand at 1.25% vs Australia's 4.75%. You have to love the differential and park your U.S. dollars in Australian dollars.
Instead of whining about the amended PSFT/JDEC merger agreement, Oracle's Ellison would do well to focus on a money making area. The real future for Oracle's database prowess is in the field of bioinformatics. Ellison should concentrate on that. He won't find SAP in that arena- only IBM and a handful of other upstarts.
Moody's cut the ratings on the long term debt of R.J. Reynolds to junk status, and warned that the credit status of the $1.8 billion worth of debt could be cut even more. Moody's said "the downgrade reflects RJR's uncompetitive operating cost structure; Moody's expectation of significant volume drops in the U.S. tobacco market; increased competition from small manufacturers; and the difficult litigation environment that RJR Tobacco faces over the medium term." As I have previously noted, several states have sold bonds secured by their anticipated tobacco litigation revenue stream. They had better hope RJR and others can continue to fund their bonds. I wouldn't want to be a holder of those bonds.
The Snowman said "unemployment is unaceptably high at 6.1% (in May) but it could well rise to 6.2 or 6.3 per cent before the higher growth rates begin to bring it down." He said "the current account deficit is something to be monitored for sure but nothing to be alarmed about." He really deserves to be a guest host on Saturday Night Live. When other finance ministers raise our current account deficit as a worry, he says "I suggest to them how much less do you want to sell to us." The man is a regular riot.
According to a U.S. Institute of Medicine study, the medical expenses for the 41 million uninsured Americans cost the taxpayers as much as $130 billion a year. The study suggests that, if the uninsured had equal access, the cost of their care would probably be reduced by 50% to $65 billion.
New home sales continue at a pace which exceeds 1 million units on an annual basis. Over the past nine months, eight of those months have exceeded the million unit rate.
Even though U.S. industrial production rose a smidgen in May, the factory utilization rate continues at a two decade low. Some say the worst is over for our factories. Tell that to China. Tell that to India and their growing outsourcing industry. However, there are CEOs ready to fight. Said Carly Fiorina of HP, "we are not going to let our compeitive position erode because of others ability to price beneath us." You tell them, Carly. While you're at it, explain to your stockholders why the total cost of HP capital is 11.9% and the return on capital is 2.9%. Talk is cheap and the cost of HP capital appears way too dear.
It was many months ago that I recommended Pfizer and Merck for your consideration. Pfizer was 25 and Merck was at 40. In the interim, the latter has outperformed Pfizer by a large margin. These are two companies which can produce highly profitable results over the long term. At its present price, Pfizer's current p/e is somewhat above its current growth rate. The CFO has projected 2004 earnings per share of $2.13. The company's 20 new products in the pipeline could create an opportunity for much stronger future growth. This is a company which should benefit its shareholders. The healthcare field continues to be my favorite area of investment for the long term. Currently, this industry comprises over 15% of our GDP. With the aging of our population, Pfizer should be a major beneficiary of this trend. I have never been a fan of investment diversification. I don't believe there are a host of great companies around the globe. I have found that the greatest long term investment success is to stay with the great ones. When the opportunity presents itself, add to those holdings. Over the years, this simple formula has proven to be a welcome tonic. There are many avenues for making money in the stock market. There are many more avenues for losing money. Make it easy on yourself. Don't knock yourself out betting on the next Secretariat, so to speak. The results might add you to the list of the depressed in this country. The list is long enough.
UBS is cutting 3% of their global investment banking workforce, or 500 employees. The reduction will be evenly spread in Asia, Europe, and the Americas. This company has 16,000 folks in their investment banking department. I feel confident that there is plenty of room for more cuts- let's say at least a few thousand for starters.
Quite frequently I make reference to the parking lot in the Mojave. I'm talking airline jets. We need to bring our cameras. The parking lot is growing. There are now 2,186 planes parked. By the time I finish this blog, there could be more. Only a masochist would invest in the airline industry on a long term basis. I've been negative on this industry for a very long time. Some wise guy will tell me how much these stocks have risen over the past three months. How have they performed over the past three years? Would you rather own Boeing or Pfizer? If you say Boeing, I'll send the paramedics right over.
Almost every week I discuss the importance of ROI. In the July issue of Business 2.0, they have a worthwile article on this subject and opine that "it's not enough that companies are in the black. They ought to return more of their cost of capital." More investors should pay attention to this subject matter. In their table of companies they cite HP, Amazon, AMD, Motorola, Dell, Microsoft, and Merck. Only three companies on that list produce results where the return on capital exceeds the cost of capital. To be expected, they are the great ones- Microsoft, Dell, and Merck. In this same Business 2.0 issue, there is an article on Leroy Hood, MD, Ph.D, director of the Institute for Systems Biology, and the inventor of the automated DNA sequencer. The article is entitled "Beyond the Genome." I recommend that, all investors interested in the healthcare field, make this must reading.
According to a report from Harvard University's Joint Center for Housing Studies, if layoffs continue to increase, some neighborhoods could be facing declines in house prices as the result of a glut of homes put up for sale. I have thought this for well over a year, and have been right on rising unemployment and wrong on house prices. Maybe Harvard's timing will be better than mine. The report does say, however, that the fundamentals for housing are still strong as the number of immigrant and minority households grow and provide a big source for housing demand. The report closes by focusing on affordability of housing as a problem, a subject I have mentioned frequently. Up to now, the latter has had no impact whatsoever on the upward movement of house prices. Lower mortgage rates have proven a tremendous salvo.
The May book-to-bill ratio for semiconductor equipment fell for the third consecutive month, and stood at 0.89. Excess capacity and weak demand make for tough competition.
The Australian dollar rose to its highest level in almost four years. The interest rate gap is pretty darn wide, and about to get wider. Our overnight Fed rates stand at 1.25% vs Australia's 4.75%. You have to love the differential and park your U.S. dollars in Australian dollars.
Instead of whining about the amended PSFT/JDEC merger agreement, Oracle's Ellison would do well to focus on a money making area. The real future for Oracle's database prowess is in the field of bioinformatics. Ellison should concentrate on that. He won't find SAP in that arena- only IBM and a handful of other upstarts.
Moody's cut the ratings on the long term debt of R.J. Reynolds to junk status, and warned that the credit status of the $1.8 billion worth of debt could be cut even more. Moody's said "the downgrade reflects RJR's uncompetitive operating cost structure; Moody's expectation of significant volume drops in the U.S. tobacco market; increased competition from small manufacturers; and the difficult litigation environment that RJR Tobacco faces over the medium term." As I have previously noted, several states have sold bonds secured by their anticipated tobacco litigation revenue stream. They had better hope RJR and others can continue to fund their bonds. I wouldn't want to be a holder of those bonds.
The Snowman said "unemployment is unaceptably high at 6.1% (in May) but it could well rise to 6.2 or 6.3 per cent before the higher growth rates begin to bring it down." He said "the current account deficit is something to be monitored for sure but nothing to be alarmed about." He really deserves to be a guest host on Saturday Night Live. When other finance ministers raise our current account deficit as a worry, he says "I suggest to them how much less do you want to sell to us." The man is a regular riot.
According to a U.S. Institute of Medicine study, the medical expenses for the 41 million uninsured Americans cost the taxpayers as much as $130 billion a year. The study suggests that, if the uninsured had equal access, the cost of their care would probably be reduced by 50% to $65 billion.
New home sales continue at a pace which exceeds 1 million units on an annual basis. Over the past nine months, eight of those months have exceeded the million unit rate.
Even though U.S. industrial production rose a smidgen in May, the factory utilization rate continues at a two decade low. Some say the worst is over for our factories. Tell that to China. Tell that to India and their growing outsourcing industry. However, there are CEOs ready to fight. Said Carly Fiorina of HP, "we are not going to let our compeitive position erode because of others ability to price beneath us." You tell them, Carly. While you're at it, explain to your stockholders why the total cost of HP capital is 11.9% and the return on capital is 2.9%. Talk is cheap and the cost of HP capital appears way too dear.
Tuesday, June 17, 2003
6/17/03 Credibility Of Intelligence
Yesterday the latest information on the N.Y. State manufacturing index was off the charts. It was much stronger than expected. That's great news. In my view, it's exaggerated great news. The real news was at the Paris Air Show. That's the real deal. Why? Because Boeing is our largest exporter. That's the one company which will have the greatest impact on our ability to improve on this nation's trade account deficit, which lately has been running an uncool $40 billion or so a month. Yesterday Airbus received an order for 41 planes worth $12.5 billion from Emirates Air. Boeing, on the other hand, received only 4 new plane orders from the same airline- all leased planes. The Emirates order from Airbus includes 21 doubledecker A380s, a plane that seats 500 to 650 passengers. By comparison, Boeing's 747 seats 420. Boeing has maintained that there wasn't a market for a superjumbo jet. This week will bring more bad news for Boeing from the Paris Air Show. Qatar Airways will place an order for 30 Airbus A330s and A340s. Boeing was counting on that Qatar order. So was our trade account deficit. Boeing thought they had the inside track because the U.S. had recently made Qatar its new Middle East air operations center. Boeing will be introducing a new jetliner in 2008. On Sunday the company named the plane the Dreamliner. Between now and 2008 I wonder how pleasant the dreams will be for Boeing. Of course, there's always the freight business.
The skies are unfriendly for others and not just for Boeing. Summer is the peak airline travel time to Europe. I know the airline stocks have been rallying like crazy. What a run! I like to look at the real time data and not what's on a wish list. Yesterday Virgin Airways announced a package that is available between July 1 and August 31, the prime travel period. Between JFK in NY and London you get round-trip airfare, 6 nights of hotel accomodations, daily Continental breakfast, hotel taxes and service charges all included in a package for $499. That price makes for strong competition, and eases the pain from a weak dollar.It increases the pain for the U.S airlines with routes to Europe.
Manpower, the staffing firm, released information from their recent poll of 16,000 companies. It found that 65% of U.S. firms plan to keep their workforce the same in the third quarter. Only 20% plan to add new workers while 9% plan to eiminate positions. Adjusting for seasonal factors, however, only 6% of employers plan to add workers. That's the weakest forecast for hiring in 12 years. Jeff Joerres, Manpower's CEO, said "we are continuing to see companies struggling with predicting future demand for their products and services and being very careful about hiring people. It's a difficult time for job seekers, and so much of that is related to the cautious hiring by companies. Since the war has been concluded, we haven't seen any indications that would give us the sense that the war was a big muffler. Companies are playing a bit of a wait and see game. They want to wait and see if demand picks up before they commit to hiring." In sum, lack of business confidence has undercut the willingness to hire. It has also undercut the willingness to increase business investment. Both are needed for a recovery. The retail index made a new high for the year. WalMart has not changed its expectations for same store sales growth. Wall Street seems to have all the answers for intelligence. I'll put my money on WalMart. They know more about the consumer than any other entity in this country.
According to a new poll conducted by ComPsych Corporation, American workers are sacrificing vacation and family time due to the dire job situation. They found that 56% of employees are postponing vacation time until the work situation improves, and 44% of employees are taking limited vacation time this year. That should certainly have an impact on travel-related industries. They won't be able to blame it only on SARS. Dr. Richard Chaifetz, chairman and CEO of ComPsych, said "enormous workloads, as well as the feeling of job insecurity, are prompting employees to stay close to the office." The poll was conducted from May 30 to June 6.
Ford hopes to break even on its auto operations this year. I'm certain the employees join them in that hope. Ford's pension obligations exceed assets by about $16 billion worldwide.
Yesterday the latest information on the N.Y. State manufacturing index was off the charts. It was much stronger than expected. That's great news. In my view, it's exaggerated great news. The real news was at the Paris Air Show. That's the real deal. Why? Because Boeing is our largest exporter. That's the one company which will have the greatest impact on our ability to improve on this nation's trade account deficit, which lately has been running an uncool $40 billion or so a month. Yesterday Airbus received an order for 41 planes worth $12.5 billion from Emirates Air. Boeing, on the other hand, received only 4 new plane orders from the same airline- all leased planes. The Emirates order from Airbus includes 21 doubledecker A380s, a plane that seats 500 to 650 passengers. By comparison, Boeing's 747 seats 420. Boeing has maintained that there wasn't a market for a superjumbo jet. This week will bring more bad news for Boeing from the Paris Air Show. Qatar Airways will place an order for 30 Airbus A330s and A340s. Boeing was counting on that Qatar order. So was our trade account deficit. Boeing thought they had the inside track because the U.S. had recently made Qatar its new Middle East air operations center. Boeing will be introducing a new jetliner in 2008. On Sunday the company named the plane the Dreamliner. Between now and 2008 I wonder how pleasant the dreams will be for Boeing. Of course, there's always the freight business.
The skies are unfriendly for others and not just for Boeing. Summer is the peak airline travel time to Europe. I know the airline stocks have been rallying like crazy. What a run! I like to look at the real time data and not what's on a wish list. Yesterday Virgin Airways announced a package that is available between July 1 and August 31, the prime travel period. Between JFK in NY and London you get round-trip airfare, 6 nights of hotel accomodations, daily Continental breakfast, hotel taxes and service charges all included in a package for $499. That price makes for strong competition, and eases the pain from a weak dollar.It increases the pain for the U.S airlines with routes to Europe.
Manpower, the staffing firm, released information from their recent poll of 16,000 companies. It found that 65% of U.S. firms plan to keep their workforce the same in the third quarter. Only 20% plan to add new workers while 9% plan to eiminate positions. Adjusting for seasonal factors, however, only 6% of employers plan to add workers. That's the weakest forecast for hiring in 12 years. Jeff Joerres, Manpower's CEO, said "we are continuing to see companies struggling with predicting future demand for their products and services and being very careful about hiring people. It's a difficult time for job seekers, and so much of that is related to the cautious hiring by companies. Since the war has been concluded, we haven't seen any indications that would give us the sense that the war was a big muffler. Companies are playing a bit of a wait and see game. They want to wait and see if demand picks up before they commit to hiring." In sum, lack of business confidence has undercut the willingness to hire. It has also undercut the willingness to increase business investment. Both are needed for a recovery. The retail index made a new high for the year. WalMart has not changed its expectations for same store sales growth. Wall Street seems to have all the answers for intelligence. I'll put my money on WalMart. They know more about the consumer than any other entity in this country.
According to a new poll conducted by ComPsych Corporation, American workers are sacrificing vacation and family time due to the dire job situation. They found that 56% of employees are postponing vacation time until the work situation improves, and 44% of employees are taking limited vacation time this year. That should certainly have an impact on travel-related industries. They won't be able to blame it only on SARS. Dr. Richard Chaifetz, chairman and CEO of ComPsych, said "enormous workloads, as well as the feeling of job insecurity, are prompting employees to stay close to the office." The poll was conducted from May 30 to June 6.
Ford hopes to break even on its auto operations this year. I'm certain the employees join them in that hope. Ford's pension obligations exceed assets by about $16 billion worldwide.
Monday, June 16, 2003
6/16/03 There's Little To Cheer About On Main Street
Over the years there have been 31 attempts at recalling a California governor. It won't be long before the 32nd comes into view. This time the outcome may produce a different ending. To cover the $38 billion California budget deficit Davis will propose higher fees of $8 billion and a temporary sales tax increase of $2.3 billion. Education will be cut by $1.5 billion. It's also possible that some schools would need to be closed down.
In Iowa there are 950 cities, and each is attempting to weather the $60 million state budget cut beginning July1. There will be layoffs of city workers, police, and firefighters. There could be increased parking and garbage fees, salary freezes, and park closures.
The cost for a Harvard MBA is almost $100,000. At the University of Miami it is $30,000. The salary differential with an MBA degree is estimated by the Graduate Management Admissions Council to be $23,000. Jeffrey Pfeffer, a Stanford University management professor, says "there's an enormous number of MBAs being produced, so their value has gone down." In other words, the ROI on an MBA degree is declining.
PeopleSoft's CEO Conway described Oracle's bid to Bloomberg News this way: "It's like me asking if I could buy your dog so I can go back and shoot it."
Oracle's Ellison: "Most companies spend too much on IT and get very little in return." Should Oracle be successful in its PeopleSoft bid, then Ellison won't be disappointed with Oracle's multi-billion expenditure when the PeopleSoft software engineers walk out the door and don't return. Oracle will get little in return.
Since March 11 the Dow has gained 21%, the Nasdaq 28%, and the S&P 23%. Bullish sentiment now approaches 60%. I wonder how many investors grasp the facts. How many of those same investors believe U.S. forces have found WMD in Iraq? According to a recent poll, one in three Americans think the military has found Iraq's WMD. Heck. If the HULK has returned, so can the bulls. Animation is a wonderful form of entertainment. An industry has flourished from it. Long live cognitive dissonance.
Talking about WMD, Bush is now certain that Iraq had a "weapons program." A program is not the same as finding the WMD. It isn't even a subtle difference. Prior to the conflict with Iraq, 41% of Americans said in a Gallup poll that only conclusive evidence of the weapons' existence would justify the war. Now 56% of Americans say the war was justified whether WMD are found or not. Patience might possibly be warranted but clearly accountability is. I feel the same way about the current thinking behind the bull move in the market. Each quarter economists say profits will improve, investment spending will rise, and unemployment will drop. This has been going on since January 2001. In the interim there have been tax cuts. There have been 12 interest rate cuts. Maybe Wall Street believes the American public no longer cares about improved economic conditions. After all, it's refi time, baby. That's the new casino. Forget the hot IPOs. Get me a lower mortage rate. I say where's the cedibility? Show me the green! Put up or shut up! That's not asking too much.
Over the years there have been 31 attempts at recalling a California governor. It won't be long before the 32nd comes into view. This time the outcome may produce a different ending. To cover the $38 billion California budget deficit Davis will propose higher fees of $8 billion and a temporary sales tax increase of $2.3 billion. Education will be cut by $1.5 billion. It's also possible that some schools would need to be closed down.
In Iowa there are 950 cities, and each is attempting to weather the $60 million state budget cut beginning July1. There will be layoffs of city workers, police, and firefighters. There could be increased parking and garbage fees, salary freezes, and park closures.
The cost for a Harvard MBA is almost $100,000. At the University of Miami it is $30,000. The salary differential with an MBA degree is estimated by the Graduate Management Admissions Council to be $23,000. Jeffrey Pfeffer, a Stanford University management professor, says "there's an enormous number of MBAs being produced, so their value has gone down." In other words, the ROI on an MBA degree is declining.
PeopleSoft's CEO Conway described Oracle's bid to Bloomberg News this way: "It's like me asking if I could buy your dog so I can go back and shoot it."
Oracle's Ellison: "Most companies spend too much on IT and get very little in return." Should Oracle be successful in its PeopleSoft bid, then Ellison won't be disappointed with Oracle's multi-billion expenditure when the PeopleSoft software engineers walk out the door and don't return. Oracle will get little in return.
Since March 11 the Dow has gained 21%, the Nasdaq 28%, and the S&P 23%. Bullish sentiment now approaches 60%. I wonder how many investors grasp the facts. How many of those same investors believe U.S. forces have found WMD in Iraq? According to a recent poll, one in three Americans think the military has found Iraq's WMD. Heck. If the HULK has returned, so can the bulls. Animation is a wonderful form of entertainment. An industry has flourished from it. Long live cognitive dissonance.
Talking about WMD, Bush is now certain that Iraq had a "weapons program." A program is not the same as finding the WMD. It isn't even a subtle difference. Prior to the conflict with Iraq, 41% of Americans said in a Gallup poll that only conclusive evidence of the weapons' existence would justify the war. Now 56% of Americans say the war was justified whether WMD are found or not. Patience might possibly be warranted but clearly accountability is. I feel the same way about the current thinking behind the bull move in the market. Each quarter economists say profits will improve, investment spending will rise, and unemployment will drop. This has been going on since January 2001. In the interim there have been tax cuts. There have been 12 interest rate cuts. Maybe Wall Street believes the American public no longer cares about improved economic conditions. After all, it's refi time, baby. That's the new casino. Forget the hot IPOs. Get me a lower mortage rate. I say where's the cedibility? Show me the green! Put up or shut up! That's not asking too much.
Sunday, June 15, 2003
6/15/03 Don't Mess With Success
I was watching Tiger Woods. My first thought was how unhappy he looked. He appeared uncomfortable. Then I realized the difference. He had changed his appearance. His hair was a different color, and just as importantly, he wasn't wearing his normal colored shirt and pants. He had on a lime green shirt and blue pants. You can't win looking like that. An outfit like that isn't even suitable for a prairie dog or a Mormon beetle. Tiger had gone and changed his winning formula. He messed with success. It's done in business too. Coke is the most recognized brand name world wide. Some years back a genius recommended changing the Coke formula. Naturally, sales tanked. When teams are on a winning streak, they will repeat their same daily routines for fear of interrupting their winning ways. On Wall Street there are a few lessons of the investing road people have learned over the years to ensure winning ways. For example, don't buy auto stocks at low P/Es. They may look cheap then, but actually they are at the top of the auto cycle. Another example is to wait until stocks in general offer a decent yield. An individual might say today's 1.7% yield looks good compared with the Fed funds rate of 1.25% and the less than 1% yield on money market funds. By comparison, that's true; however, these historic low yields are not maintainable. That we know. Hence, it's better to wait for yields on stocks to improve. Don't mess with prior successes. Place risk at a disadvantage to reward. New hairstyles come and go. In vogue styles for clothing come and go. There's nothing wrong with the new. The question one must ask-- is the new worth the risk of messing with success? Is it an improvement? Just trying something new won't hack it in the market. It's tough enough to make money without changing what has worked over time.
On Friday there was a photo op at the State Department with Colin Powell and Mexican Foreign Affairs Secretary Luis Ernesto Derbez. The occasion was giving the stamp of approval to the identification cards the government of Mexico has issued to both legal and illegal aliens. The idea is for our government and our police departments to officially recognize these cards. It will be interesting to see the spin placed on authorizing amnesty for illegal aliens.
In the last presidential election Bush lost the state of Illinois badly. In today's paper, the Chicago Tribune released the results of their latest poll. When asked if they would vote next year for Bush or for an unnamed Democratic candidate for president, 38% sided with Bush, 36% for the unnamed Democrat, and 26% were undecided. Additionally, 42% said Bush should get another term and 42% said he shouldn't. Since becoming president, Bush has visited Illinois nine times.
So far this year Airbus has announced 156 plane orders to 36 for Boeing. At the Paris Air Show, the Airbus CEO said "our market share is considerably better than we'd forecast." For this year as a whole, Airbus will deliver 300 planes and Boeing 280.
On Friday BellSouth said it would eliminate 595 jobs in nine states. The company describes those targeted workers as "surplused employees". A total of 1,077 jobs were described surplus in the first quarter. Last year BellSouth eliminated 11,500 union and nonunion jobs. Over the past two years the company's operating revenue has declined 14% while net income has dropped 66%. If the company can describe an employee as "surplus", maybe the customer should recognize BellSouth's product offerings as "surplus" too.
Not everyone has heard of the "Wrigley Three". These are three men who were charged with murdering a young couple near the Cubs' ballpark in 1997. The three spent five years in Cook County jail awaiting trial for murder. Last month they got their 15 minutes in court. That's how long it took for the judge to rule the state's key witness was "worthless". The three were sent free. There are 95 other inmates who have been held at least 4 years in that same jail, and most have never had their day in court. I appreciate the goal of reducing crime. I also appreciate that a defendant is innocent until proven guilty and clearly has the right to equal justice under the law, and that goes for the entire legal system. This is an instance where one does not have to worry about messing with success. The legal system is filled with far too many "Wrigley Threes".
The recent stock market rise reflects the cheering for lower overall tax rates, lower capital gains taxes, and lower taxes on dividend income. There is a small fly in the ointment. It is called the alternative minimum tax(AMT). As tax rates decline, there is a greater chance for the taxpayer to be hit in the checkbook by the AMT, which requires the taxpayer to add back into taxable income such deductions as state and local taxes(including property) and then subtracting the AMT exemption amount. The latter is phased out at $58,000 for married couples and surviving spouses and at $40,250 for singles. There is one more gnat with which to contend. Most state and local governments have serious budget problems. As such, they may continue to fully tax dividends and capital gains at the state and local level. They have the perfect right to do so even though the federal government has lowered the rates at the federal level. In sum, there will be plenty of opportunity to reconsider the benefits of the recent so-called tax reduction package. Before plunging ahead, it's wise to learn the rules of the road.
I was watching Tiger Woods. My first thought was how unhappy he looked. He appeared uncomfortable. Then I realized the difference. He had changed his appearance. His hair was a different color, and just as importantly, he wasn't wearing his normal colored shirt and pants. He had on a lime green shirt and blue pants. You can't win looking like that. An outfit like that isn't even suitable for a prairie dog or a Mormon beetle. Tiger had gone and changed his winning formula. He messed with success. It's done in business too. Coke is the most recognized brand name world wide. Some years back a genius recommended changing the Coke formula. Naturally, sales tanked. When teams are on a winning streak, they will repeat their same daily routines for fear of interrupting their winning ways. On Wall Street there are a few lessons of the investing road people have learned over the years to ensure winning ways. For example, don't buy auto stocks at low P/Es. They may look cheap then, but actually they are at the top of the auto cycle. Another example is to wait until stocks in general offer a decent yield. An individual might say today's 1.7% yield looks good compared with the Fed funds rate of 1.25% and the less than 1% yield on money market funds. By comparison, that's true; however, these historic low yields are not maintainable. That we know. Hence, it's better to wait for yields on stocks to improve. Don't mess with prior successes. Place risk at a disadvantage to reward. New hairstyles come and go. In vogue styles for clothing come and go. There's nothing wrong with the new. The question one must ask-- is the new worth the risk of messing with success? Is it an improvement? Just trying something new won't hack it in the market. It's tough enough to make money without changing what has worked over time.
On Friday there was a photo op at the State Department with Colin Powell and Mexican Foreign Affairs Secretary Luis Ernesto Derbez. The occasion was giving the stamp of approval to the identification cards the government of Mexico has issued to both legal and illegal aliens. The idea is for our government and our police departments to officially recognize these cards. It will be interesting to see the spin placed on authorizing amnesty for illegal aliens.
In the last presidential election Bush lost the state of Illinois badly. In today's paper, the Chicago Tribune released the results of their latest poll. When asked if they would vote next year for Bush or for an unnamed Democratic candidate for president, 38% sided with Bush, 36% for the unnamed Democrat, and 26% were undecided. Additionally, 42% said Bush should get another term and 42% said he shouldn't. Since becoming president, Bush has visited Illinois nine times.
So far this year Airbus has announced 156 plane orders to 36 for Boeing. At the Paris Air Show, the Airbus CEO said "our market share is considerably better than we'd forecast." For this year as a whole, Airbus will deliver 300 planes and Boeing 280.
On Friday BellSouth said it would eliminate 595 jobs in nine states. The company describes those targeted workers as "surplused employees". A total of 1,077 jobs were described surplus in the first quarter. Last year BellSouth eliminated 11,500 union and nonunion jobs. Over the past two years the company's operating revenue has declined 14% while net income has dropped 66%. If the company can describe an employee as "surplus", maybe the customer should recognize BellSouth's product offerings as "surplus" too.
Not everyone has heard of the "Wrigley Three". These are three men who were charged with murdering a young couple near the Cubs' ballpark in 1997. The three spent five years in Cook County jail awaiting trial for murder. Last month they got their 15 minutes in court. That's how long it took for the judge to rule the state's key witness was "worthless". The three were sent free. There are 95 other inmates who have been held at least 4 years in that same jail, and most have never had their day in court. I appreciate the goal of reducing crime. I also appreciate that a defendant is innocent until proven guilty and clearly has the right to equal justice under the law, and that goes for the entire legal system. This is an instance where one does not have to worry about messing with success. The legal system is filled with far too many "Wrigley Threes".
The recent stock market rise reflects the cheering for lower overall tax rates, lower capital gains taxes, and lower taxes on dividend income. There is a small fly in the ointment. It is called the alternative minimum tax(AMT). As tax rates decline, there is a greater chance for the taxpayer to be hit in the checkbook by the AMT, which requires the taxpayer to add back into taxable income such deductions as state and local taxes(including property) and then subtracting the AMT exemption amount. The latter is phased out at $58,000 for married couples and surviving spouses and at $40,250 for singles. There is one more gnat with which to contend. Most state and local governments have serious budget problems. As such, they may continue to fully tax dividends and capital gains at the state and local level. They have the perfect right to do so even though the federal government has lowered the rates at the federal level. In sum, there will be plenty of opportunity to reconsider the benefits of the recent so-called tax reduction package. Before plunging ahead, it's wise to learn the rules of the road.
Saturday, June 14, 2003
6/14/03 The Proxy
Today we journey to the land of the proxy. Some take me to task for the examples I use. In every case, I have given further consideration to my position, and do not believe a change is warranted. Each month various polls provide us with indications of consumer sentiment. Because consumer spending powers about 70% of our nation's GDP, the sentiment of the consumer can be viewed as a proxy for the economy. Fifty three economists polled had predicted that there would be a rise in consumer sentiment in June. They were very wrong. The University of Michigan reading dropped from 92 to 87. More importantly perhaps, the expectations index which reflects sentiment on optimism going out one to five years, dropped dramatically from 91 to 84. I have always placed great weight in how the consumer feels. Maybe those plowing into the Dow and the Nasdaq will ignore the sentiment expressed on Main Street. Often Wall Street believes they have all the answers about the future. I heard from someone early Friday morning who was certain the answers were right there in a folio of information. I don't read analyst reports. I do listen to the consumer. There's an old ad campaign: "an educated consumer makes our best customer." Never underestimate the consumer.
Our international trade reflects the level of our exports. With the dollar having dropped this year against all major currencies, one might think that our exports would look more attractive since they'd be more affordable. The April trade deficit of $42 billion was the third largest on record. April had the largest month to month decline in oil prices in 12 years. Overall imports declined about 2% in April but exports also dropped approximately 2%. The problem is weak demand. Even though our exports look more attractive price-wise, the economic conditions in most developed countries are weak, such as, in the euro nations. In addition, China continues to export competitive products, and they still make our exports look pricey. Prices of imported goods fell 0.3% in May. U.S. May producer prices also declined 0.3%. It is anticipated that May consumer prices dropped as well.
Some years back, the saying was as GM goes so does the economy. That is less true today, but the auto industry is still important to our GDP. It is an industry which impacts many other businesses. GM has $200 billion in debt. That's larger than the GDP of most countries. Moody's Investors Service cut the rating on that debt to Baa1 from A3 and from General Motors Acceptance to A3 from A2. The rating service said "the negative outlook reflects Moody's concerns that the competitive environment in the U.S. could become even more intense, that the weakness in the U.S. economy could extend well into 2004 and that GM might fall short of achieving various operating and financial objectives." Moody's said that GM faces rising pension costs with 2.5 retirees for every active employee and unfunded pension liabilty of $19 billion. GM's May incentives averaged $3,916 per car and truck up from 2002's May incentives of $2,733. GM may not be the same proxy for the economy; however, their unfunded pension liabilities combined with their health care liabilities make them a proxy for those nationwide business problems. If a stockholder looks at GM's overall liabilities, and compares them with the equity portion of the balance sheet, it might be a cause of concern. Of course, other might call me a worry wort. Then again, they have all the answers.
A month does not go by that I do not write about WalMart. By now, you know that this is my favorite company. I have said so often that WalMart is the proxy for the consumer, and, in my view, the overall economy. We know they are the largest employer with 1.4 million employees. We know their sales amount to about 3% of our GDP. I have said in the past that WalMart is the biggest customer for giants like P&G and Clorox and Campbell Soup and Disney. Back in the Fall of 2002 I wrote how WalMart's sales were slowing. It is nine months later, and the sales are still slowing. There has not been one indication of a pick-up in this entire period. Economists maybe forecasting a better second half. WalMart has not confirmed that view. I'll stick with WalMart. No one entity knows more about the consumer than WalMart. Buck WalMart and you will be a loser.
Yesterday PeopleSoft filed a lawsuit against Oracle in Alameda County Superior Court. The complaint alleges that Oracle has engaged in unfair business practices, trade libel and tortious interference with PeopleSoft's customer relationships. "By making an offer with the acknowledged intent of eliminating PeopleSoft's business, Oracle seeks to disrupt PeopleSoft's efforts to complete new sales, thus, effectively damaging PeopleSoft's business even if Oracle never buys a single share of PeopleSoft stock," said PeopleSoft's CEO. The latter reaffirmed his company's plan to move forward on its merger with J.D. Edwards. The lawsuit seeks an injunction barring Oracle from proceeding with its tender offer. I am not a lawyer; however, as a risk arbitrageur, I have spent countless hours in courts listening to various arguments. I believe, at the very least, PeopleSoft will be granted a temporary restraining order against Oracle's tender. I do believe, in the short run, PeopleSoft's business will be harmed. More importantly, I believe this tender, which will prove unsuccessful, shall damage Ellison's reputation and Oracle's business on a long range basis. He has, in my view, made the worst business decision since forcing Ray Lane out of his company. Beginning Monday, Oracle's Henley and Phillips will be in Boston trying to sell large shareholders on their tender. Ellison doesn't get it. There are only two factors that matter right now: the hearing on the TRO and the price of the tender. The price is too low, and, in my view, the shareholders won't get the opportunity to tender. The courts will see to that, and their decision will be the correct one. As I said from day one, Ellison blew it out of the shoot. He is an example of how not to execute a company takeover.
I have felt for years that the companies who provide the best place for employees to work very often represent the greatest shareholder opportunities. For a long time Coke was an admired employer. Things have changed. They have a facility in Sylmar, CA. Rick Bronson is a 12 year route driver for Coke. Based on a second hand report, Bronson was fired for drinking a Pepsi. The company maintains that, by so doing, Bronson slandered the Coke product. At this same facility, Arrowhead brand spring water is dispensed for all employees. Arrowhead competes directly with Dasani, Coke's brand of spring water. The fact is Bronson, as a Teamster, is an organizer of Coke merchandisers. Teamsters Local 848 has filed unfair labor practice charges against Coke. I think they'll win. Shareholders, on the other hand, come out losers when companies treat their employees in this fashion. If I owned Coke stock, I'd sell it.
Coke is not alone in their mishandling of employees. Take Imperial Sugar. Please! That company shut their sugar refinery and packaging and distribution operations in Sugar Land, Texas. A total of 455 employees were terminated. This was not a new operation. It had been in business for 150 years or so- this is not a misprint. The employees were members of the International Association of Machinists and Aerospace Workers Local 517. Most of the employees were with the companies for years and years. Imperial Sugar maintains the employees are not eligible for severance. Lupe De La Cruz, who followed his grandfather and father into the plant, says he and his wife are owed about $50,000 in severance pay. The company maintains that severance pay only is applicable if the job losses were caused by technological improvements. Over the past dozen years Imperial Sugar has proven to be an embarrassment for the founding family's offspring and a terrible jolt to the stockholders and employees. They took a viable, debt free, money making business and filed for Chapter 11 with over $600 million in debt. It's a sad story. I know it well. My shareholders and employees fared a good deal better. We sold out to Imperial in 1988. Had I still been running this company, employees would have been treated a good deal differently. The team produced respectable cash flow with no debt on the books.
Roger Clemens sets an example for professional athletes. He works and practices hard, and competes with continuous desire. Yesterday he won his 300th game and recorded his 4000th strikeout. He is 40 years old, and became only the 19th pitcher to win 300 games and only the third to strikeout 4000.
This country has had to confront a good many difficulties over the past couple of years. Now we have Mormon crickets marching across the West. They hatch in the spring and feed through the summer. Experts say this year's infestation in Nevada, Utah, and Idaho could be the worst in decades.
Today we journey to the land of the proxy. Some take me to task for the examples I use. In every case, I have given further consideration to my position, and do not believe a change is warranted. Each month various polls provide us with indications of consumer sentiment. Because consumer spending powers about 70% of our nation's GDP, the sentiment of the consumer can be viewed as a proxy for the economy. Fifty three economists polled had predicted that there would be a rise in consumer sentiment in June. They were very wrong. The University of Michigan reading dropped from 92 to 87. More importantly perhaps, the expectations index which reflects sentiment on optimism going out one to five years, dropped dramatically from 91 to 84. I have always placed great weight in how the consumer feels. Maybe those plowing into the Dow and the Nasdaq will ignore the sentiment expressed on Main Street. Often Wall Street believes they have all the answers about the future. I heard from someone early Friday morning who was certain the answers were right there in a folio of information. I don't read analyst reports. I do listen to the consumer. There's an old ad campaign: "an educated consumer makes our best customer." Never underestimate the consumer.
Our international trade reflects the level of our exports. With the dollar having dropped this year against all major currencies, one might think that our exports would look more attractive since they'd be more affordable. The April trade deficit of $42 billion was the third largest on record. April had the largest month to month decline in oil prices in 12 years. Overall imports declined about 2% in April but exports also dropped approximately 2%. The problem is weak demand. Even though our exports look more attractive price-wise, the economic conditions in most developed countries are weak, such as, in the euro nations. In addition, China continues to export competitive products, and they still make our exports look pricey. Prices of imported goods fell 0.3% in May. U.S. May producer prices also declined 0.3%. It is anticipated that May consumer prices dropped as well.
Some years back, the saying was as GM goes so does the economy. That is less true today, but the auto industry is still important to our GDP. It is an industry which impacts many other businesses. GM has $200 billion in debt. That's larger than the GDP of most countries. Moody's Investors Service cut the rating on that debt to Baa1 from A3 and from General Motors Acceptance to A3 from A2. The rating service said "the negative outlook reflects Moody's concerns that the competitive environment in the U.S. could become even more intense, that the weakness in the U.S. economy could extend well into 2004 and that GM might fall short of achieving various operating and financial objectives." Moody's said that GM faces rising pension costs with 2.5 retirees for every active employee and unfunded pension liabilty of $19 billion. GM's May incentives averaged $3,916 per car and truck up from 2002's May incentives of $2,733. GM may not be the same proxy for the economy; however, their unfunded pension liabilities combined with their health care liabilities make them a proxy for those nationwide business problems. If a stockholder looks at GM's overall liabilities, and compares them with the equity portion of the balance sheet, it might be a cause of concern. Of course, other might call me a worry wort. Then again, they have all the answers.
A month does not go by that I do not write about WalMart. By now, you know that this is my favorite company. I have said so often that WalMart is the proxy for the consumer, and, in my view, the overall economy. We know they are the largest employer with 1.4 million employees. We know their sales amount to about 3% of our GDP. I have said in the past that WalMart is the biggest customer for giants like P&G and Clorox and Campbell Soup and Disney. Back in the Fall of 2002 I wrote how WalMart's sales were slowing. It is nine months later, and the sales are still slowing. There has not been one indication of a pick-up in this entire period. Economists maybe forecasting a better second half. WalMart has not confirmed that view. I'll stick with WalMart. No one entity knows more about the consumer than WalMart. Buck WalMart and you will be a loser.
Yesterday PeopleSoft filed a lawsuit against Oracle in Alameda County Superior Court. The complaint alleges that Oracle has engaged in unfair business practices, trade libel and tortious interference with PeopleSoft's customer relationships. "By making an offer with the acknowledged intent of eliminating PeopleSoft's business, Oracle seeks to disrupt PeopleSoft's efforts to complete new sales, thus, effectively damaging PeopleSoft's business even if Oracle never buys a single share of PeopleSoft stock," said PeopleSoft's CEO. The latter reaffirmed his company's plan to move forward on its merger with J.D. Edwards. The lawsuit seeks an injunction barring Oracle from proceeding with its tender offer. I am not a lawyer; however, as a risk arbitrageur, I have spent countless hours in courts listening to various arguments. I believe, at the very least, PeopleSoft will be granted a temporary restraining order against Oracle's tender. I do believe, in the short run, PeopleSoft's business will be harmed. More importantly, I believe this tender, which will prove unsuccessful, shall damage Ellison's reputation and Oracle's business on a long range basis. He has, in my view, made the worst business decision since forcing Ray Lane out of his company. Beginning Monday, Oracle's Henley and Phillips will be in Boston trying to sell large shareholders on their tender. Ellison doesn't get it. There are only two factors that matter right now: the hearing on the TRO and the price of the tender. The price is too low, and, in my view, the shareholders won't get the opportunity to tender. The courts will see to that, and their decision will be the correct one. As I said from day one, Ellison blew it out of the shoot. He is an example of how not to execute a company takeover.
I have felt for years that the companies who provide the best place for employees to work very often represent the greatest shareholder opportunities. For a long time Coke was an admired employer. Things have changed. They have a facility in Sylmar, CA. Rick Bronson is a 12 year route driver for Coke. Based on a second hand report, Bronson was fired for drinking a Pepsi. The company maintains that, by so doing, Bronson slandered the Coke product. At this same facility, Arrowhead brand spring water is dispensed for all employees. Arrowhead competes directly with Dasani, Coke's brand of spring water. The fact is Bronson, as a Teamster, is an organizer of Coke merchandisers. Teamsters Local 848 has filed unfair labor practice charges against Coke. I think they'll win. Shareholders, on the other hand, come out losers when companies treat their employees in this fashion. If I owned Coke stock, I'd sell it.
Coke is not alone in their mishandling of employees. Take Imperial Sugar. Please! That company shut their sugar refinery and packaging and distribution operations in Sugar Land, Texas. A total of 455 employees were terminated. This was not a new operation. It had been in business for 150 years or so- this is not a misprint. The employees were members of the International Association of Machinists and Aerospace Workers Local 517. Most of the employees were with the companies for years and years. Imperial Sugar maintains the employees are not eligible for severance. Lupe De La Cruz, who followed his grandfather and father into the plant, says he and his wife are owed about $50,000 in severance pay. The company maintains that severance pay only is applicable if the job losses were caused by technological improvements. Over the past dozen years Imperial Sugar has proven to be an embarrassment for the founding family's offspring and a terrible jolt to the stockholders and employees. They took a viable, debt free, money making business and filed for Chapter 11 with over $600 million in debt. It's a sad story. I know it well. My shareholders and employees fared a good deal better. We sold out to Imperial in 1988. Had I still been running this company, employees would have been treated a good deal differently. The team produced respectable cash flow with no debt on the books.
Roger Clemens sets an example for professional athletes. He works and practices hard, and competes with continuous desire. Yesterday he won his 300th game and recorded his 4000th strikeout. He is 40 years old, and became only the 19th pitcher to win 300 games and only the third to strikeout 4000.
This country has had to confront a good many difficulties over the past couple of years. Now we have Mormon crickets marching across the West. They hatch in the spring and feed through the summer. Experts say this year's infestation in Nevada, Utah, and Idaho could be the worst in decades.
Friday, June 13, 2003
6/13/03 SEC Filings
There is a real benefit in reading filings with the SEC. That is especially true when the documents involve mergers and acquisitions. They can be a roadmap to the truth. In yesterday's regulatory filing, it was pointed out that PeopleSoft's CEO had approached Oracle's Ellison last year about buying the latter's business software application business. Ellison confirmed that saying "last year Conway would have been running the company." Maybe to many this is not an important point. To me it is highly important. When Oracle started the Oracle tender for PeopeSoft, Ellison mentioned that they had been talking and could not arrive at a satisfactory price and so they began the tender. I pointed out what the facts really were. Ellison should have done the same. The filing made yesterday places the question of trust on the table. This matter will not be lost on PeopleSoft employees, JD Edwards employees, and possibly customers thinking about purchasing software from Oracle. SAP, the leader in this field, took advantage of this battle. Yesterday SAP ran a newspaper ad:"A few words of comfort for customers of PeopleSoft and J.D. Edwards. Just when you need it most. If the ground under your feet is feeling a bit unsteady these days, it's with good reason: the proposed acquisitions of PeopleSoft and J.D. Edwards could leave you questioning the future of your IT investments." The ad is certainly fair. If Oracle is successful in its bid, Oracle would drop the PeopleSoft product line, and the future acquisition of J.D. Edwards would be doubtful. Ellison has figured that PeopleSoft shareholders will be happy to take a low cash price because the immediate outlook for the latter company is not upbeat. (Oracle's competing division reported flat quarterly sales yesterday.) In the short term SAP will probably increase its market share, and that would include Oracle and not just PeopleSoft. They are a better company and customers prefer their products. I don't believe PeopleSoft will be purchased on the cheap, and I am not convinced the company will be acquired. I am convinced that one should question Ellison's motives as well as his words. I would prefer to read Oracle's regulatory filings. In the meantime, PeopleSoft's CEO said, they are "working closely with customers who are empathetic, sympathetic, surprised, incensed, and in some cases 'outraged' by the bid." By potentially eliminating product choice for customers, Ellison has placed the well-being of Oracle before its customers. That is a losing strategy.
The continuing claims of people collecting unemployment benefits in the last week of May increased to 3.8 million, the highest in 20 years. For the month of May retail sales rose 0.1%. Gasoline prices at the pump have just begun to rise again. It will be interesting to see whether consumer buying habits are impacted. At the same time one should note that import prices fell in May for the second consecutive month.
I thought it might be interesting to take a look at the heartland. Yesterday the Commerce National Bank of Columbus, Ohio released information on the local and state labor markets. It states that "the duration of the present jobless recovery is the worst for both the overall state and for the Columbus metropolitan area since jobs have been collected. In the case of Columbus, this means the longest bout of job losses during a period of economic growth since 1964, while the losses for Ohio are the poorest since 1939." In making economic forecasts as well as prognostications for the Dow, it can be helpful to break down the analysis state by state and company by company, as the case may be. That is not a monumental task. I have done this analysis. In my view, the economic forecasts for the second half are significantly too high, and I feel the same way about estimates for the companies in the Dow. For example, in the state of Washington, the Office of Forecast Council now expects 2003 to be the third year in a row of lower employment, and salaries are anticipated to fall 0.3% this year. Back in February, an increase in employment had been expected.
The average 30 year fixed rate mortgage fell to a new record low of 5.2%. Freddie Mac forecasts record mortgage originations this year of $3.3 trillion. In a $9.6 trillion GDP, that is an astounding number.
Additional layoffs were recently announced at 3Com, Safeway, and Dan River.
There is a real benefit in reading filings with the SEC. That is especially true when the documents involve mergers and acquisitions. They can be a roadmap to the truth. In yesterday's regulatory filing, it was pointed out that PeopleSoft's CEO had approached Oracle's Ellison last year about buying the latter's business software application business. Ellison confirmed that saying "last year Conway would have been running the company." Maybe to many this is not an important point. To me it is highly important. When Oracle started the Oracle tender for PeopeSoft, Ellison mentioned that they had been talking and could not arrive at a satisfactory price and so they began the tender. I pointed out what the facts really were. Ellison should have done the same. The filing made yesterday places the question of trust on the table. This matter will not be lost on PeopleSoft employees, JD Edwards employees, and possibly customers thinking about purchasing software from Oracle. SAP, the leader in this field, took advantage of this battle. Yesterday SAP ran a newspaper ad:"A few words of comfort for customers of PeopleSoft and J.D. Edwards. Just when you need it most. If the ground under your feet is feeling a bit unsteady these days, it's with good reason: the proposed acquisitions of PeopleSoft and J.D. Edwards could leave you questioning the future of your IT investments." The ad is certainly fair. If Oracle is successful in its bid, Oracle would drop the PeopleSoft product line, and the future acquisition of J.D. Edwards would be doubtful. Ellison has figured that PeopleSoft shareholders will be happy to take a low cash price because the immediate outlook for the latter company is not upbeat. (Oracle's competing division reported flat quarterly sales yesterday.) In the short term SAP will probably increase its market share, and that would include Oracle and not just PeopleSoft. They are a better company and customers prefer their products. I don't believe PeopleSoft will be purchased on the cheap, and I am not convinced the company will be acquired. I am convinced that one should question Ellison's motives as well as his words. I would prefer to read Oracle's regulatory filings. In the meantime, PeopleSoft's CEO said, they are "working closely with customers who are empathetic, sympathetic, surprised, incensed, and in some cases 'outraged' by the bid." By potentially eliminating product choice for customers, Ellison has placed the well-being of Oracle before its customers. That is a losing strategy.
The continuing claims of people collecting unemployment benefits in the last week of May increased to 3.8 million, the highest in 20 years. For the month of May retail sales rose 0.1%. Gasoline prices at the pump have just begun to rise again. It will be interesting to see whether consumer buying habits are impacted. At the same time one should note that import prices fell in May for the second consecutive month.
I thought it might be interesting to take a look at the heartland. Yesterday the Commerce National Bank of Columbus, Ohio released information on the local and state labor markets. It states that "the duration of the present jobless recovery is the worst for both the overall state and for the Columbus metropolitan area since jobs have been collected. In the case of Columbus, this means the longest bout of job losses during a period of economic growth since 1964, while the losses for Ohio are the poorest since 1939." In making economic forecasts as well as prognostications for the Dow, it can be helpful to break down the analysis state by state and company by company, as the case may be. That is not a monumental task. I have done this analysis. In my view, the economic forecasts for the second half are significantly too high, and I feel the same way about estimates for the companies in the Dow. For example, in the state of Washington, the Office of Forecast Council now expects 2003 to be the third year in a row of lower employment, and salaries are anticipated to fall 0.3% this year. Back in February, an increase in employment had been expected.
The average 30 year fixed rate mortgage fell to a new record low of 5.2%. Freddie Mac forecasts record mortgage originations this year of $3.3 trillion. In a $9.6 trillion GDP, that is an astounding number.
Additional layoffs were recently announced at 3Com, Safeway, and Dan River.
Thursday, June 12, 2003
6/12/03 Does The Market Know Best?
I never believed father knew best. I'm a father of seven. Mother didn't know best either. Together we did a pretty good job. What does that have to do with the market knowing best? In my view, no one indicator of the future knows best. Each indicator can have its moments of brilliance. The market is a forward looking indicator. We've had a gigantic rally in almost all market segments for well over two months. As an overall assessment, it is fair to say that the economy is providing, at best, mixed signals. With the jobless rate at a 9 year high and consumer spending depressed, it is not surprising that yesterday Fed Vice Chairman Ferguson described the near-term outlook for the economy as "still somewhat clouded." The latest Fed beige book reflected an economy which had expanded at a "subpar" rate in April and May with continued downward pressure on wages and prices. Manufacturing remains mixed and certain service areas are upticking. The lower dollar has helped exports out of San Francisco while SARS has hurt international tourism in San Francisco. The picture is mixed; however, the stock and bond markets reflect clear sailing. I wouldn't want to take a sailing cruise right now. There have been too many confirmed reports of illnesses on these boats. Who needs to take that risk? I don't feel like spending the money anyway.
In some sections of the country agricultural production is impaired by unusually wet weather. In other areas crop conditions are so dry, as in parts of Texas, that planting is delayed. Farming is a tough business.
Moody's downgraded Oracle's outlook to negative. Marc Benioff, a former Oracle executive and CEO of Salesforce.com, a company where Ellison has an interest, said a takeover of PeopleSoft "would mean Larry has decided Oracle can't innovate on its own any more and needs to buy customers...Larry is testing his student to see how well he has learned from the master." I figure the student will teach the master a lesson or two.
Growth prospects are being scaled down in euroland. The ECB said the eurozone economy will grow as little as 0.4% this year and 1.1% next year. The euro region's economy didn't grow at all in the first quarter, and the EU said the economy may not grow at all in the second and third quarters. Investment budgets are not increasing. With the strength of the euro, exports are on the decline in some countries, such as, France.
Two years ago a techie friend suggested I take a look at Form Factor in Livermore, Ca, a town down the road apiece from where PeopleSoft is located. At the time this wafer test manufacturer was making a little money and sales were pretty modest. A lot has changed over the past two years. The market for their cards, which test 32 chips at a time, has exploded. They earned $10 million on sales of $79 million in 2002. Today they are going public. It will be the first high tech deal of the year. The size of the deal was increased from 5 million to 6 million shares and the price range upped from $9-11 to $11-13. Some of the proceeds will be used to expand their Livermore facility.
Anything can happen in this world. A PeopleSoft employee won $3.8 million in the lottery. She had been carrying the April 2 winning ticket in her purse, and had not checked it until Tuesday of this week.
I never believed father knew best. I'm a father of seven. Mother didn't know best either. Together we did a pretty good job. What does that have to do with the market knowing best? In my view, no one indicator of the future knows best. Each indicator can have its moments of brilliance. The market is a forward looking indicator. We've had a gigantic rally in almost all market segments for well over two months. As an overall assessment, it is fair to say that the economy is providing, at best, mixed signals. With the jobless rate at a 9 year high and consumer spending depressed, it is not surprising that yesterday Fed Vice Chairman Ferguson described the near-term outlook for the economy as "still somewhat clouded." The latest Fed beige book reflected an economy which had expanded at a "subpar" rate in April and May with continued downward pressure on wages and prices. Manufacturing remains mixed and certain service areas are upticking. The lower dollar has helped exports out of San Francisco while SARS has hurt international tourism in San Francisco. The picture is mixed; however, the stock and bond markets reflect clear sailing. I wouldn't want to take a sailing cruise right now. There have been too many confirmed reports of illnesses on these boats. Who needs to take that risk? I don't feel like spending the money anyway.
In some sections of the country agricultural production is impaired by unusually wet weather. In other areas crop conditions are so dry, as in parts of Texas, that planting is delayed. Farming is a tough business.
Moody's downgraded Oracle's outlook to negative. Marc Benioff, a former Oracle executive and CEO of Salesforce.com, a company where Ellison has an interest, said a takeover of PeopleSoft "would mean Larry has decided Oracle can't innovate on its own any more and needs to buy customers...Larry is testing his student to see how well he has learned from the master." I figure the student will teach the master a lesson or two.
Growth prospects are being scaled down in euroland. The ECB said the eurozone economy will grow as little as 0.4% this year and 1.1% next year. The euro region's economy didn't grow at all in the first quarter, and the EU said the economy may not grow at all in the second and third quarters. Investment budgets are not increasing. With the strength of the euro, exports are on the decline in some countries, such as, France.
Two years ago a techie friend suggested I take a look at Form Factor in Livermore, Ca, a town down the road apiece from where PeopleSoft is located. At the time this wafer test manufacturer was making a little money and sales were pretty modest. A lot has changed over the past two years. The market for their cards, which test 32 chips at a time, has exploded. They earned $10 million on sales of $79 million in 2002. Today they are going public. It will be the first high tech deal of the year. The size of the deal was increased from 5 million to 6 million shares and the price range upped from $9-11 to $11-13. Some of the proceeds will be used to expand their Livermore facility.
Anything can happen in this world. A PeopleSoft employee won $3.8 million in the lottery. She had been carrying the April 2 winning ticket in her purse, and had not checked it until Tuesday of this week.
Wednesday, June 11, 2003
6/11/04 The Financial Report Of The United States Government
Once again, the government failed to get a clean audit. There are 24 reporting agencies, and the Department of Defense, the SBA, and the U.S. Agency for International Development failed to receive clean audit opinions. Some might consider this harsh, but I don't believe any government agency should be funded until they do receive a clean bill of health, as it were.
Carl English, Consumers Energy CEO, testified before the House committee on energy and commerce. He said "natural gas consumers enjoyed stable prices from the mid-1980s to 2000, with prices that actually fell when adjusted for inflation. Today, however, the balance between supply and demand has become extremely tight, creating a tightrope effect...unless significant actions are taken on the supply side, gas markets will remain tumultuous, and the 64 million homes and businesses in our country usng natural gas will suffer the consequences...current prices may represent a new, and regular, level of natural gas prices for the foreseeable future." According to Energy Secretary Spencer Abraham, natural gas storage levels are at their lowest levels in almost three decades and 42% below their five year average.
Peter Rose, Expeditors International CEO: "An economist, after all, has been defined as someone who would marry Cindy Crawford for her money."
Of the major retailers, only WalMart and Target provide weekly sales figures. I guess Sears, JC Penney, Federated, and others didn't like the numbers their companies were reporting.
The CBO now estimates the federal budget deficit will be above $400 billion. Many weeks ago I said it would be at least $460 billion. Nicholas Johnson, a state and fiscal policy analyst at the Center on Budget and Policy Priorities, said "when people look at their reduction in federal taxes their positive feelings about those cuts will be tempered by the recognition that they'll have to pay greater state taxes, greater local taxes and greater fees of various sorts." At least 31 states have raised or are considering raising taxes and fees this year in order to eliminate deficits of over $80 billion. Yet, according to the latest IBD/TIPP poll, 50% of the American public express confidence in the federal government's economic policies and, on the handling of the economy, 38% give an A or B rating to Bush. I thought it would be closer to 1%.
Timing has never been my strong point. It was 30 years ago that I became bullish on the potential for Mexico as a business partner for the U.S. Now Mexico is our second biggest trading partner with $232 billion annually flowing both ways across the border. Mexican immigrants send about $12 billion annually back to their homeland, and this amount equates to the direct foreign investment in Mexico.
Texas Instruments is the world's biggest maker of semiconductors for cellular phones. Yesterday they warned that current quarter sales and earnings would be lower than expected because of SARS which they stated has created slow-moving cell phone chip inventories in Asia.
Intel's COO Paul Ortellini said "we can access incredible talent for software engineering in India. To get these skills, we may not be able to hire and train people quickly in the United States." Intel is investing $100 million in India and expanding staff there and creating a new software development center in Bangalore.
Once again, the government failed to get a clean audit. There are 24 reporting agencies, and the Department of Defense, the SBA, and the U.S. Agency for International Development failed to receive clean audit opinions. Some might consider this harsh, but I don't believe any government agency should be funded until they do receive a clean bill of health, as it were.
Carl English, Consumers Energy CEO, testified before the House committee on energy and commerce. He said "natural gas consumers enjoyed stable prices from the mid-1980s to 2000, with prices that actually fell when adjusted for inflation. Today, however, the balance between supply and demand has become extremely tight, creating a tightrope effect...unless significant actions are taken on the supply side, gas markets will remain tumultuous, and the 64 million homes and businesses in our country usng natural gas will suffer the consequences...current prices may represent a new, and regular, level of natural gas prices for the foreseeable future." According to Energy Secretary Spencer Abraham, natural gas storage levels are at their lowest levels in almost three decades and 42% below their five year average.
Peter Rose, Expeditors International CEO: "An economist, after all, has been defined as someone who would marry Cindy Crawford for her money."
Of the major retailers, only WalMart and Target provide weekly sales figures. I guess Sears, JC Penney, Federated, and others didn't like the numbers their companies were reporting.
The CBO now estimates the federal budget deficit will be above $400 billion. Many weeks ago I said it would be at least $460 billion. Nicholas Johnson, a state and fiscal policy analyst at the Center on Budget and Policy Priorities, said "when people look at their reduction in federal taxes their positive feelings about those cuts will be tempered by the recognition that they'll have to pay greater state taxes, greater local taxes and greater fees of various sorts." At least 31 states have raised or are considering raising taxes and fees this year in order to eliminate deficits of over $80 billion. Yet, according to the latest IBD/TIPP poll, 50% of the American public express confidence in the federal government's economic policies and, on the handling of the economy, 38% give an A or B rating to Bush. I thought it would be closer to 1%.
Timing has never been my strong point. It was 30 years ago that I became bullish on the potential for Mexico as a business partner for the U.S. Now Mexico is our second biggest trading partner with $232 billion annually flowing both ways across the border. Mexican immigrants send about $12 billion annually back to their homeland, and this amount equates to the direct foreign investment in Mexico.
Texas Instruments is the world's biggest maker of semiconductors for cellular phones. Yesterday they warned that current quarter sales and earnings would be lower than expected because of SARS which they stated has created slow-moving cell phone chip inventories in Asia.
Intel's COO Paul Ortellini said "we can access incredible talent for software engineering in India. To get these skills, we may not be able to hire and train people quickly in the United States." Intel is investing $100 million in India and expanding staff there and creating a new software development center in Bangalore.
Tuesday, June 10, 2003
6/10/03 Pieces To The Puzzle
The National Association of Manufacturers is releasing a study today. In it "the result suggests that economies with no economic growth in manufacturing would experience economic growth of less than 1.5 per cent a year." The study represents growth rates in 40 countries. The NAM represents 14,000 U.S. manufacturers. They are warning a further decline in this manufacturing sector might halve U.S. economic growth as well as reduce the standards of living here.
The senior economist at Lehman Bros, Joseph Abate, studied rising pension liabilities and their impact on investment and hiring. The study indicates that over the past four years pension funds of the S&P Index 500 companies have seen the value of their shares drop 25%, and this drop has raised their obligations by $289 billion. In addition, declining interest rates have worked to decrease the returns as well. As such, Abate writes, "firms no longer are able to rely on appreciating stock prices to bail them out of their pension obligations and have been forced to divert profits, reducing capital expenditures and cutting labor costs." Over the past two years I have frequently written on this subject.
The CDC reported yesterday that the West Nile Virus has resurfaced in two dozen states. No human cases have been reported this year.
Nokia blamed weaker than expected sales in handsets in the second quarter on economic weakness in Europe and the U.S., the impact of the weaker dollar, and SARS.
UBS Warburg upgraded SAP today. This firm said SAP would benefit if PSFT's product line were to be replaced by Oracle's-- assuming a successful takeover by Oracle. They cite the superiority of SAP's products over Oracle's. The latter is pretty well accepted by those in the industry. SAP's 36% market share indicates that customers would much prefer their use to that of Oracle's. This is just one more reason to question the viability of Oracle's bid. Rick Allen, the CFO for JD Edwards, said "to the extent that victory is fear, uncertainty and doubt in the marketplace, Oracle has done that. It will all be sorted out in the coming weeks."
The National Association of Manufacturers is releasing a study today. In it "the result suggests that economies with no economic growth in manufacturing would experience economic growth of less than 1.5 per cent a year." The study represents growth rates in 40 countries. The NAM represents 14,000 U.S. manufacturers. They are warning a further decline in this manufacturing sector might halve U.S. economic growth as well as reduce the standards of living here.
The senior economist at Lehman Bros, Joseph Abate, studied rising pension liabilities and their impact on investment and hiring. The study indicates that over the past four years pension funds of the S&P Index 500 companies have seen the value of their shares drop 25%, and this drop has raised their obligations by $289 billion. In addition, declining interest rates have worked to decrease the returns as well. As such, Abate writes, "firms no longer are able to rely on appreciating stock prices to bail them out of their pension obligations and have been forced to divert profits, reducing capital expenditures and cutting labor costs." Over the past two years I have frequently written on this subject.
The CDC reported yesterday that the West Nile Virus has resurfaced in two dozen states. No human cases have been reported this year.
Nokia blamed weaker than expected sales in handsets in the second quarter on economic weakness in Europe and the U.S., the impact of the weaker dollar, and SARS.
UBS Warburg upgraded SAP today. This firm said SAP would benefit if PSFT's product line were to be replaced by Oracle's-- assuming a successful takeover by Oracle. They cite the superiority of SAP's products over Oracle's. The latter is pretty well accepted by those in the industry. SAP's 36% market share indicates that customers would much prefer their use to that of Oracle's. This is just one more reason to question the viability of Oracle's bid. Rick Allen, the CFO for JD Edwards, said "to the extent that victory is fear, uncertainty and doubt in the marketplace, Oracle has done that. It will all be sorted out in the coming weeks."
Monday, June 09, 2003
6/9/03 Monkey Business
Just as an aside, the saying goes that things happen in threes. The server for this blog went down Saturday and Sunday mornings. Hopefully, the week will begin on a better foot. The title of the blog reflects my N.Y.C. humor, and that requires an acquired taste and some patience at times for the distasteful. Federal and state health officials are investigating the "monkeypox" virus in Wisconsin, Indiana, and Illinois. About 30 people were stricken with this small-pox like disease. It is spread by rodents and monkeys. The prairie dog is thought to be the root of this outbreak. It can be passed from animal to animal and from animal to human. In Africa it has been spread from human to human. The good news is that the mortality rate is significantly less than what is experienced with smallpox. I hope and pray that this disease does not spread like SARS. We have had enough loss of life in 2003, and secondarily, business cannot afford another jolt in the ear. The Pacific Asia Travel Association said job losses in China, Hong Kong, Singapore, and Vietnam could be as high as seven million in tourist related lines of work. This association said "the impact of SARS on our region has been greater than September 11, the Bali bombs, and the Iraq war." The Bush Administration does not want to play host to more job losses. They already are approaching 3 million. He is beginning to feel the Herbert Hoover disemployment(I figure economists say disinflation so I'll say disemployment) syndrome. I'll call it HHDS for short. God knows. No one wants to lose an election over a hanging prairie dog. It's bad enough to win an election over a hanging chad. I am optimistic. I just don't believe the 'monkeypox" will kill almost 800 people and infect more than 8400 as is the case with SARS.
I do believe we need to keep a watchful eye out for Pie. I am not talking blueberry or apple. Pie is an 18 month old bantam hen located at a farm near Cape Town, South Africa. She has been sitting on a pile of garlic for 24 hours a day, 7 days a week, for more than 2 months. She refuses to move. Nobody knows why she is sitting there. I think I have the answer. She is guarding the garlic with her life. The WPM have been disguised in the form of garlic cloves. Who would have thought? This is the ultimate switch.
Due to the SARS breakout in Asia, Motorola cut its second quarter sales and earnings estimates. This company is a master at cutting estimates. I really think they should be rewarded for this ability. How about a clean sweep of the top officers and the board room?
In a few hours UK's Chancellor Gordon Brown is expected to provide reasons why it is not the right time for Great Britain to join the euro currency zone. The pound has fallen 8% vs the euro this year, and Simon Wren-Lewis, an Exeter University professor, wrote the Chancellor that the pound would need to fall at least another 5% in order for the UK to adopt the euro. Meanwhile, Poland, in a weekend referendum, voted overwhelmingly in favor of joining the EU.
Over the next five years Warren Buffett has projected that the cost of capital created by the float at Berkshire Hathaway will be negative. Does that mean we will have deflation or disinflation or disemployment or possibly any possible combination of the three over the next five years?
According to the U.S. Food and Drug Administration, as many as 40% of all U.S. residents who travel to Mexico return with purchased pharmaceuticals that cost significantly less than their counterparts in the U.S. And I thought visitors from the states were returning with the Mexican two step.
We are fast approaching second quarter earnings season. At some point, investors will realize that companies manage their forecasts so the surprise hopefully will be on the upside. Microsoft has been doing that forever. We are bombarded by news that a company beat the street or didn't beat the street. Honest guidance would be helpful, but more importantly, I'd like to hear more about free cash flow, inventory turnover, the number of days receivables are outstanding, and the reserve for bad debts and other areas of future charge offs. Just like the news in this country is frequently managed, so are the earnings of public companies. There are many who believed that the beloved General Electric did it for years, and wrapped it in Sigma whatever. I'm not interested in "confessions". I'm not a priest. I have no expectations. Just give it to me straight up- in a shot glass. My Mother would have liked it that way.
Just as an aside, the saying goes that things happen in threes. The server for this blog went down Saturday and Sunday mornings. Hopefully, the week will begin on a better foot. The title of the blog reflects my N.Y.C. humor, and that requires an acquired taste and some patience at times for the distasteful. Federal and state health officials are investigating the "monkeypox" virus in Wisconsin, Indiana, and Illinois. About 30 people were stricken with this small-pox like disease. It is spread by rodents and monkeys. The prairie dog is thought to be the root of this outbreak. It can be passed from animal to animal and from animal to human. In Africa it has been spread from human to human. The good news is that the mortality rate is significantly less than what is experienced with smallpox. I hope and pray that this disease does not spread like SARS. We have had enough loss of life in 2003, and secondarily, business cannot afford another jolt in the ear. The Pacific Asia Travel Association said job losses in China, Hong Kong, Singapore, and Vietnam could be as high as seven million in tourist related lines of work. This association said "the impact of SARS on our region has been greater than September 11, the Bali bombs, and the Iraq war." The Bush Administration does not want to play host to more job losses. They already are approaching 3 million. He is beginning to feel the Herbert Hoover disemployment(I figure economists say disinflation so I'll say disemployment) syndrome. I'll call it HHDS for short. God knows. No one wants to lose an election over a hanging prairie dog. It's bad enough to win an election over a hanging chad. I am optimistic. I just don't believe the 'monkeypox" will kill almost 800 people and infect more than 8400 as is the case with SARS.
I do believe we need to keep a watchful eye out for Pie. I am not talking blueberry or apple. Pie is an 18 month old bantam hen located at a farm near Cape Town, South Africa. She has been sitting on a pile of garlic for 24 hours a day, 7 days a week, for more than 2 months. She refuses to move. Nobody knows why she is sitting there. I think I have the answer. She is guarding the garlic with her life. The WPM have been disguised in the form of garlic cloves. Who would have thought? This is the ultimate switch.
Due to the SARS breakout in Asia, Motorola cut its second quarter sales and earnings estimates. This company is a master at cutting estimates. I really think they should be rewarded for this ability. How about a clean sweep of the top officers and the board room?
In a few hours UK's Chancellor Gordon Brown is expected to provide reasons why it is not the right time for Great Britain to join the euro currency zone. The pound has fallen 8% vs the euro this year, and Simon Wren-Lewis, an Exeter University professor, wrote the Chancellor that the pound would need to fall at least another 5% in order for the UK to adopt the euro. Meanwhile, Poland, in a weekend referendum, voted overwhelmingly in favor of joining the EU.
Over the next five years Warren Buffett has projected that the cost of capital created by the float at Berkshire Hathaway will be negative. Does that mean we will have deflation or disinflation or disemployment or possibly any possible combination of the three over the next five years?
According to the U.S. Food and Drug Administration, as many as 40% of all U.S. residents who travel to Mexico return with purchased pharmaceuticals that cost significantly less than their counterparts in the U.S. And I thought visitors from the states were returning with the Mexican two step.
We are fast approaching second quarter earnings season. At some point, investors will realize that companies manage their forecasts so the surprise hopefully will be on the upside. Microsoft has been doing that forever. We are bombarded by news that a company beat the street or didn't beat the street. Honest guidance would be helpful, but more importantly, I'd like to hear more about free cash flow, inventory turnover, the number of days receivables are outstanding, and the reserve for bad debts and other areas of future charge offs. Just like the news in this country is frequently managed, so are the earnings of public companies. There are many who believed that the beloved General Electric did it for years, and wrapped it in Sigma whatever. I'm not interested in "confessions". I'm not a priest. I have no expectations. Just give it to me straight up- in a shot glass. My Mother would have liked it that way.
Sunday, June 08, 2003
6/8/03 The Federal Budget
I had written a very long blog this morning, but the blogger server went down and I lost the entire blog prior to posting. I will try and make up some of the subject matter lost but not this evening.
I wrote I thought a pretty good blog today on the rubber
>match with Funny Cide, Ellison, and the budget. I
>really need to quote from today's Seattle Times business section. Kent
>Smetters, an expert on Social Security and Medicare(unfortunately also a
>professor at the Wharton School which might place doubt on his data),
>Jagadeesh Gokhale, a senior economist for the Federal Reserve Bank of
>Cleveland(I have previously quoted him), and Laurence Kotlikoff, a Boston
>University economist, were asked by Paul O'Neill to write a report on the
>true, long-term obligations of the U.S. government and the information was
>to be included in the new budget presented to Bush and the Congress. It was
>purposely omitted. It stated that the new accounting shows the United Staes
>is broke- NOT MY WORDS THIS TIME. It states we are in the hole by $43
>trillion- that's over and above the government debt held by the public($3.8
>trillion). The $43 trillion is the present value of the Medicare and Social
>Security obligations and certain other government programs. The American
>Enterprise Institute will be issuing a pamphlet containing these numbers and
>it will be co-authored by Smetters.
I had written a very long blog this morning, but the blogger server went down and I lost the entire blog prior to posting. I will try and make up some of the subject matter lost but not this evening.
I wrote I thought a pretty good blog today on the rubber
>match with Funny Cide, Ellison, and the budget. I
>really need to quote from today's Seattle Times business section. Kent
>Smetters, an expert on Social Security and Medicare(unfortunately also a
>professor at the Wharton School which might place doubt on his data),
>Jagadeesh Gokhale, a senior economist for the Federal Reserve Bank of
>Cleveland(I have previously quoted him), and Laurence Kotlikoff, a Boston
>University economist, were asked by Paul O'Neill to write a report on the
>true, long-term obligations of the U.S. government and the information was
>to be included in the new budget presented to Bush and the Congress. It was
>purposely omitted. It stated that the new accounting shows the United Staes
>is broke- NOT MY WORDS THIS TIME. It states we are in the hole by $43
>trillion- that's over and above the government debt held by the public($3.8
>trillion). The $43 trillion is the present value of the Medicare and Social
>Security obligations and certain other government programs. The American
>Enterprise Institute will be issuing a pamphlet containing these numbers and
>it will be co-authored by Smetters.
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