7/24/03 Here Comes The Dreckorator
It won’t be long before California sees its debt obligations downgraded to junk bond status. That downgrade will cost the state almost $1 billion more in higher interest charges. That’s assuming someone wants to buy these bonds. Maybe they will serve as wallpaper to investors. The call can be heard: here comes the dreckorator.
The Wendover-Global Insight IT Spending Index fell 14% in the June quarter from the prior quarter and hit its lowest point since the index was published in 1999’s fourth quarter. According to the Precursor Group, businesses account for two-thirds of all tech spending and $340 billion was spent on technology in 2002 and that’s $50 billion less than the peak reached in 2000.
Juniper Networks CEO Kriens: “We’re encouraged about a recovery but not convinced.” I’m encouraged about the recovery in Juniper’s stock price but not convinced.
According to Stephen Roach, chief economist at Morgan Stanley, mortgage debt stands at 67% of GDP. The Mortgage Bankers Association of America reported yesterday that in the week ending July 18 mortgage apps in the U.S. decreased 5.8%. The refi share decreased to 68% from 70%. The MBAA forecasts mortgage apps to amount to $3.34 trillion dollars in 2003 or 30% of the GDP and that 68% will be refinancing existing mortgages.
Sen. Dick Durbin (D-ILL) “If you come to this floor of the Senate and stand before a microphone and are critical of this administration for their policy or use of intelligence be prepared for the worst.”
Today Rumsfeld and Co. will hold up pictures of Saddam’s two dead sons. Meanwhile, three more soldiers were killed in an Iraqi ambush. There is something wrong with this picture.
Today Bush visits Michigan for the ninth time since being elected President. He might consider spending as much time visiting soup kitchens and unemployment offices. Only then will he get in touch with Main Street. It must run in the family. His father didn’t get it either. The democrats don’t need to find a candidate to run against Bush. Their best candidate is Bush. He’s his own worst enemy.
Boeing’s second quarter deliveries of commercial airplanes decreased 34% to 74 planes and revenues fell 24% from the year ago levels. Operating margins dropped to 5.4% from last year’s 7.3%. Forecasts for 2004 were cut. Don’t worry. They’ll be cut again. Boeing’s management is a case study for mismanagement.
Sony’s quarterly profits plunged 98%. It reflects a growing reluctance on the part of the consumer to part unnecessarily with cash.
Kodak will eliminate as many as 6,000 jobs. That’s about 8% of their workforce. Sales have dropped for three straight years. Last year Kodak was the best performing stock in the Dow. This year it’s the worst performing Dow stock. The company has a negative operating cash flow and refuses to cut the dividend. This is just stupid decision making.
Fed Governor Bernanke: “Very low inflation and deflation pose qualitatively similar economic problems, though the magnitude of the associated costs can be expected to increase sharply as deflationary pressures intensify.”
Christopher Ranch is the nation’s largest grower of garlic. They are located in Gilroy, Ca. The company, for the first time, started to import garlic from China last week. Says Don Christopher, “we held off the Chinese for 12 years, but now it’s time to give up. We know there’s a market for California-grown garlic. But if you look at history, people always go for the least expensive price. There are no secrets to the garlic business- it’s all about price. I’m a realist. When we have our customers telling us, we want to buy Chinese garlic, it doesn’t give us a choice.”
On Wednesday, Congressional investigators designated the government –sponsored program that insures the pensions of 44 million private-sector workers as ‘high risk.” Steven Kandarian, the program’s executive director said “it would take about 12 years of premiums (insurance) to cover just the claims from 2002.” It was revealed that airlines have $26 billion in pension underfunding and automakers $60 billion in unfunded obligations.
Two months before 9/11 a Phoenix FBI agent specifically accused Osama bin Laden of using flight schools in Arizona and other parts of the U.S. to train “a cadre of individuals” to carry out aviation terrorism, according to a congressional report. Agent Kenneth Williams concluded “the individuals will be in a position in the future to conduct terror activity against civil aviation targets.” Williams’ eight-page memo and its warnings were ignored by FBI higher-ups until after 9/11.
Wednesday, July 23, 2003
7/23/03 Planting Seeds
In all markets there are opportunities. Dana Corp. maybe one of them. As I mentioned ten days ago, this company is the subject of a hostile tender offer by ArvinMeritor. There are some anti-trust issues here as both companies manufacture axles, driveshafts, and foundation brakes for the truck market. The overlap is not insurmountable. Yesterday Dana’s board rejected the $15 bid as inadequate, risky, speculative, and lacking strategic value. In other words, the board was pissed that the price was too low and their nose was out of joint because Arvin Meritor is smaller by some margin than Dana. At 15.28 the risks are not too great because the company will earn $1.15-1.20 even though their revenues are declining somewhat. The restructuring program they initiated is paying dividends. I continue to believe Goldman Sachs, Dana’s advisor, should be able to find a buyer in the 17-18 range. In addition, ArvinMeritor will pay more to get a friendly deal accomplished.
It’s been over a year since we discussed Amazon. The stock didn’t have a friend in the world except for its CEO. I thought its technology made it viable from a long -term basis, and felt Amazon was potentially the most interesting of the public Internet companies, and that included eBay. I still feel that way. My observations were that the company needed to bite the bullet and provide yearly free shipping and to concentrate more on international business. The stock has done pretty well in the interim. It’s increased in value almost four times, and that’s better than a kick in the ass, and I get plenty of them. I didn’t think Amazon’s stock would go up to these levels in such a short amount of time. They will generate sales of $5 billion this year, and operating income will be about $330 million. They’ll continue to generate cash and pay down debt. Jeff Bezos and his team should be given more credit. These folks know how to stick to their knitting.
Amgen is another company which continues to perform. Since mentioning the stock a year or so ago, it too has done well, and more than doubled in price. For the first time, revenues for the quarter exceeded $2 billion. If one wants to have long- term participation in biotech, this is, in my opinion, the horse to be riding. Forget the rest. This is the class of the field. I can say that with confidence after experience with them for 20 years.
Warren Buffett expanded Berkshire Hathaway’s investments in oil and gas this week. Houston-based Seitel will be acquired through a bankruptcy reorganization plan. Seitel’s debt load was too burdensome. Actually, the company is operating profitably and they have a very large seismic library. They charge oil and gas companies for surveys made years ago, and this without sending out crews for more information. The surveys provide promising areas for drilling. In recent months, Berkshire has provided financing to CenterPoint Energy, purchased Kern River Gas Transmission, and bought Northern Natural Gas. In addition, they have made a significant investment in China’s oil and gas endeavors. Many years ago Loews Corp.made a big bet on the drilling rig business when it was flat on its back. They made a ton of money. Buffett is not buying at the bottom, but oil and gas has cash flow potential over the next several years.
According to Veronique de Rugy, a fiscal policy analyst at the Cato Institute, discretionary government spending in 2002 rose 12.3% and will rise 12.6% in 2003. With an inflation adjusted economy barely growing, this spending is irresponsible and undermines our liberties and is a WMD. I suggest the Administration get its purse strings together, and snap it shut tight.
Bank Of Canada Governor David Dodge said their economy is slowing faster than expected, and in all likelihood, interest rates will probably be cut on Sept. 3 when the bank meets again.
Siebel Systems will layoff 490 employees, eliminate certain facilities, and migrate certain business operations offshore. The company barely produced a profit for the latest quarter. Sun Microsystems saw revenues drop 13% in the quarter, and they too had disappointing earnings. In a poor business climate, corporations are reluctant to spend on the customer analytic applications offered by Siebel or the high-end servers produced by Sun.
In Hong Kong consumer spending is anticipated to drop almost 3% this year. They have had 55 consecutive months of deflation and six years of declining property values. Japan is not the only country with deflation problems.
Lastly, I would like to revisit the reason for the Iraq war. We have not been fighting for our liberties for 227 years so that an Administration could exert pressure in order to produce the right evidence to validate the war. Everyone in the Administration is responsible. No one is excused. The American people did not vote for this behavior. We have checks and balances in this country. They can be found at the exits. The first loss is the best loss but it won’t bring our dead soldiers back to life. It will prevent this fiasco from ever happening again.
In all markets there are opportunities. Dana Corp. maybe one of them. As I mentioned ten days ago, this company is the subject of a hostile tender offer by ArvinMeritor. There are some anti-trust issues here as both companies manufacture axles, driveshafts, and foundation brakes for the truck market. The overlap is not insurmountable. Yesterday Dana’s board rejected the $15 bid as inadequate, risky, speculative, and lacking strategic value. In other words, the board was pissed that the price was too low and their nose was out of joint because Arvin Meritor is smaller by some margin than Dana. At 15.28 the risks are not too great because the company will earn $1.15-1.20 even though their revenues are declining somewhat. The restructuring program they initiated is paying dividends. I continue to believe Goldman Sachs, Dana’s advisor, should be able to find a buyer in the 17-18 range. In addition, ArvinMeritor will pay more to get a friendly deal accomplished.
It’s been over a year since we discussed Amazon. The stock didn’t have a friend in the world except for its CEO. I thought its technology made it viable from a long -term basis, and felt Amazon was potentially the most interesting of the public Internet companies, and that included eBay. I still feel that way. My observations were that the company needed to bite the bullet and provide yearly free shipping and to concentrate more on international business. The stock has done pretty well in the interim. It’s increased in value almost four times, and that’s better than a kick in the ass, and I get plenty of them. I didn’t think Amazon’s stock would go up to these levels in such a short amount of time. They will generate sales of $5 billion this year, and operating income will be about $330 million. They’ll continue to generate cash and pay down debt. Jeff Bezos and his team should be given more credit. These folks know how to stick to their knitting.
Amgen is another company which continues to perform. Since mentioning the stock a year or so ago, it too has done well, and more than doubled in price. For the first time, revenues for the quarter exceeded $2 billion. If one wants to have long- term participation in biotech, this is, in my opinion, the horse to be riding. Forget the rest. This is the class of the field. I can say that with confidence after experience with them for 20 years.
Warren Buffett expanded Berkshire Hathaway’s investments in oil and gas this week. Houston-based Seitel will be acquired through a bankruptcy reorganization plan. Seitel’s debt load was too burdensome. Actually, the company is operating profitably and they have a very large seismic library. They charge oil and gas companies for surveys made years ago, and this without sending out crews for more information. The surveys provide promising areas for drilling. In recent months, Berkshire has provided financing to CenterPoint Energy, purchased Kern River Gas Transmission, and bought Northern Natural Gas. In addition, they have made a significant investment in China’s oil and gas endeavors. Many years ago Loews Corp.made a big bet on the drilling rig business when it was flat on its back. They made a ton of money. Buffett is not buying at the bottom, but oil and gas has cash flow potential over the next several years.
According to Veronique de Rugy, a fiscal policy analyst at the Cato Institute, discretionary government spending in 2002 rose 12.3% and will rise 12.6% in 2003. With an inflation adjusted economy barely growing, this spending is irresponsible and undermines our liberties and is a WMD. I suggest the Administration get its purse strings together, and snap it shut tight.
Bank Of Canada Governor David Dodge said their economy is slowing faster than expected, and in all likelihood, interest rates will probably be cut on Sept. 3 when the bank meets again.
Siebel Systems will layoff 490 employees, eliminate certain facilities, and migrate certain business operations offshore. The company barely produced a profit for the latest quarter. Sun Microsystems saw revenues drop 13% in the quarter, and they too had disappointing earnings. In a poor business climate, corporations are reluctant to spend on the customer analytic applications offered by Siebel or the high-end servers produced by Sun.
In Hong Kong consumer spending is anticipated to drop almost 3% this year. They have had 55 consecutive months of deflation and six years of declining property values. Japan is not the only country with deflation problems.
Lastly, I would like to revisit the reason for the Iraq war. We have not been fighting for our liberties for 227 years so that an Administration could exert pressure in order to produce the right evidence to validate the war. Everyone in the Administration is responsible. No one is excused. The American people did not vote for this behavior. We have checks and balances in this country. They can be found at the exits. The first loss is the best loss but it won’t bring our dead soldiers back to life. It will prevent this fiasco from ever happening again.
Tuesday, July 22, 2003
7/22/03 Soul Searching And Investing
Only you know why you invested in a stock. You pulled the trigger. No one else. It's important that you be honest with yourself. It will impact your results as well as your relationships with others. Accept the fact that we all make mistakes. We are not perfect. We're working on making changes and honing our skills- as investors in stocks and bonds and as investors in life's experiences. It's ok to lose money as long as we learn from that experience and don't repeat the same mistake. It's easy to acknowledge your mistake in the stock market and divorce your holding. It's a matter of facing reality and accepting responsibility for the mistake. In investing there are no WMD. It's only you and your mind. In Iraq there are no WMD. It's only the Administration and their willingness to tell the truth. Don't look at yourself in the mirror and face a face that failed to tell the truth. That's a one-way ticket to loserville.
Often I have written about the 44-45 million Americans who do not have health insurance. Now we have another calamity brewing, and that's with the Pension Guaranty Corporation, a government vehicle for 44 million Americans with pensions. This entity is running out of money. No surprise. The government is busted. People with pensions have reasons to worry. These individuals thought their retirement years would have some financial stability. It is a looming problem. Unfortunately, people are realizing they can't rely on the government and its leaders long after the horse is out of the barn.
IBM will be grilled for their conference call discussion yesterday. The subject matter was the company's growing need to move white collar jobs overseas. They'll be calling the company Big Overseas instead of Big Blue.
Nationwide 80% of all businesses are family businesses and they total 13 million in number. According to labor statistics, about 70% of family businesses fail to transfer from the first to the second generation, and, of those remaining, less than 50% transfer from the second to the third generations.
As I mentioned the other day, the U.S. economy is expected to expand 2.4% this year, according to the latest Blue Chip Economic Indicators survey. At the same time, second quarter profits for the S&P 500 are expected to rise by 6.9%, revised from 5.2% in early July. Analysts seem to be much more optimistic than those participating in the Blue Chip survey.
According to the latest Zogby Poll, the president's appoval rating has dropped from a high of 82% right after 9/11 to 53% last week. His disapproval ratings have risen from a low of 17% after 9/11 to last week's 46%. G.W. Bush said 1992 "was the most painful year in our family's history." The operative word is "was." If GW were a stock, the profit would have been locked in months ago- soon after the trend changed.
Only you know why you invested in a stock. You pulled the trigger. No one else. It's important that you be honest with yourself. It will impact your results as well as your relationships with others. Accept the fact that we all make mistakes. We are not perfect. We're working on making changes and honing our skills- as investors in stocks and bonds and as investors in life's experiences. It's ok to lose money as long as we learn from that experience and don't repeat the same mistake. It's easy to acknowledge your mistake in the stock market and divorce your holding. It's a matter of facing reality and accepting responsibility for the mistake. In investing there are no WMD. It's only you and your mind. In Iraq there are no WMD. It's only the Administration and their willingness to tell the truth. Don't look at yourself in the mirror and face a face that failed to tell the truth. That's a one-way ticket to loserville.
Often I have written about the 44-45 million Americans who do not have health insurance. Now we have another calamity brewing, and that's with the Pension Guaranty Corporation, a government vehicle for 44 million Americans with pensions. This entity is running out of money. No surprise. The government is busted. People with pensions have reasons to worry. These individuals thought their retirement years would have some financial stability. It is a looming problem. Unfortunately, people are realizing they can't rely on the government and its leaders long after the horse is out of the barn.
IBM will be grilled for their conference call discussion yesterday. The subject matter was the company's growing need to move white collar jobs overseas. They'll be calling the company Big Overseas instead of Big Blue.
Nationwide 80% of all businesses are family businesses and they total 13 million in number. According to labor statistics, about 70% of family businesses fail to transfer from the first to the second generation, and, of those remaining, less than 50% transfer from the second to the third generations.
As I mentioned the other day, the U.S. economy is expected to expand 2.4% this year, according to the latest Blue Chip Economic Indicators survey. At the same time, second quarter profits for the S&P 500 are expected to rise by 6.9%, revised from 5.2% in early July. Analysts seem to be much more optimistic than those participating in the Blue Chip survey.
According to the latest Zogby Poll, the president's appoval rating has dropped from a high of 82% right after 9/11 to 53% last week. His disapproval ratings have risen from a low of 17% after 9/11 to last week's 46%. G.W. Bush said 1992 "was the most painful year in our family's history." The operative word is "was." If GW were a stock, the profit would have been locked in months ago- soon after the trend changed.
Monday, July 21, 2003
7/21/03 Searching For Value
I am an observer of human behavior. It provides an on-going crash course on what impacts future business results. You can laugh all you want. It works every time. Don't be fooled by how busy the parking lot is at a store. Watch what people are buying and how much they are spending. There are many small businesses doing their shopping at Costco. On the other hand, many individuals shop there. I stop and talk with a variety of shoppers. It doesn't surprise me that Costco's domestic same store sales are showing very small growth while foreign results are often in double digits. For the most part the shoppers here are consistently buying just what they need and nothing more. This is quite different from a couple of years ago when the carts were filled to the top. I do the same thing at WalMart, and the results are almost identical. Then I take myself to the Nordstrom Rack. I will be one of the few men in the store. I have no fear. I have prior experience at Loehmann's in the N.Y. area which was more dangerous than the running of the bulls in Spain. Female shoppers can be oblivious to the welfare of others when a true bargain is in their midst. At the Nordstrom Rack I'm out of harm's way. It's civilized. I can leave my boxing gloves at home. The results are the same. No extra buying. It's a focus on the outfits required in the near term, and invariably, price is an overriding factor in making a decision to buy.
How is it then that much less time is spent looking for values on Wall Street? The buyers are willing to buy on the recommendations of analysts? The buyers do very little checking of the merch. Maybe before buying a stock they should come from shopping at Costco, WalMart, or the Nordstrom Rack. Maybe there would be less "returns." I strongly suggest that buyers of equities pay much closer attention to the price tags on the "goods." I have a feeling you will find a good part of the merchandise is last season's merch priced as the new "fall line". It pays to have a keen eye. Feel the goods in your hand. Will it last? Are you getting value? You might save yourself a lot of angst.
I am an observer of human behavior. It provides an on-going crash course on what impacts future business results. You can laugh all you want. It works every time. Don't be fooled by how busy the parking lot is at a store. Watch what people are buying and how much they are spending. There are many small businesses doing their shopping at Costco. On the other hand, many individuals shop there. I stop and talk with a variety of shoppers. It doesn't surprise me that Costco's domestic same store sales are showing very small growth while foreign results are often in double digits. For the most part the shoppers here are consistently buying just what they need and nothing more. This is quite different from a couple of years ago when the carts were filled to the top. I do the same thing at WalMart, and the results are almost identical. Then I take myself to the Nordstrom Rack. I will be one of the few men in the store. I have no fear. I have prior experience at Loehmann's in the N.Y. area which was more dangerous than the running of the bulls in Spain. Female shoppers can be oblivious to the welfare of others when a true bargain is in their midst. At the Nordstrom Rack I'm out of harm's way. It's civilized. I can leave my boxing gloves at home. The results are the same. No extra buying. It's a focus on the outfits required in the near term, and invariably, price is an overriding factor in making a decision to buy.
How is it then that much less time is spent looking for values on Wall Street? The buyers are willing to buy on the recommendations of analysts? The buyers do very little checking of the merch. Maybe before buying a stock they should come from shopping at Costco, WalMart, or the Nordstrom Rack. Maybe there would be less "returns." I strongly suggest that buyers of equities pay much closer attention to the price tags on the "goods." I have a feeling you will find a good part of the merchandise is last season's merch priced as the new "fall line". It pays to have a keen eye. Feel the goods in your hand. Will it last? Are you getting value? You might save yourself a lot of angst.
Sunday, July 20, 2003
7/20/03 The Mop Up
As investors, we can learn a great deal about this war with Iraq. On May 1 the main fighting had ended, the President said. We were entering the mop up stage. The fact is we were quite unprepared for what followed, and that is the guerilla war which confronts our troops on a daily basis and our dead mount each day and now surpasses the human loss of the war fought a dozen years ago. It is wrong to gloat in war and wrong to gloat as an investor. It is unprofessional on both fronts. After the first month of the war Rumsfeld stuck out his chest and patted himself and others on the back for a job well done. The job hadn't been completed. Not by a long shot. Never ever let a profit turn into a loss. It is unforgivable and stupidity of the highest order.
I have mentioned that prior to investing one must have an exit strategy, a strategy which will be effective in all markets. Our exit strategy in Iraq must have been designed by amateurs. These are people who are out of their element, and thus the dead keep mounting. Do you want your head to roll as an investor? Suppose you bought a stock for the wrong reason? Suppose you bought a stock for the right reason but the market did not agree with your reason? Suppose you bought on someone else's advice? Is it your money or the advisor's? What are you going to do? Take whopping losses and get killed? That's what happens to amateurs and followers. You had better have plenty of discipline. You had better have had plenty of diligence as it relates to your exit strategy. I've seen people jump from above the 20th floor in 1974. That's a permanent exit strategy. I would hope you have something else in mind. So what's it going to be? Think before you mop up. Buy smart. Don't buy tips. Think for yourself and assume responsibility for your decisions. Keep a journal on why you buy and sell and where you went right and where you went wrong. You only go around once. Make it pleasurable and profitable.
As investors, we can learn a great deal about this war with Iraq. On May 1 the main fighting had ended, the President said. We were entering the mop up stage. The fact is we were quite unprepared for what followed, and that is the guerilla war which confronts our troops on a daily basis and our dead mount each day and now surpasses the human loss of the war fought a dozen years ago. It is wrong to gloat in war and wrong to gloat as an investor. It is unprofessional on both fronts. After the first month of the war Rumsfeld stuck out his chest and patted himself and others on the back for a job well done. The job hadn't been completed. Not by a long shot. Never ever let a profit turn into a loss. It is unforgivable and stupidity of the highest order.
I have mentioned that prior to investing one must have an exit strategy, a strategy which will be effective in all markets. Our exit strategy in Iraq must have been designed by amateurs. These are people who are out of their element, and thus the dead keep mounting. Do you want your head to roll as an investor? Suppose you bought a stock for the wrong reason? Suppose you bought a stock for the right reason but the market did not agree with your reason? Suppose you bought on someone else's advice? Is it your money or the advisor's? What are you going to do? Take whopping losses and get killed? That's what happens to amateurs and followers. You had better have plenty of discipline. You had better have had plenty of diligence as it relates to your exit strategy. I've seen people jump from above the 20th floor in 1974. That's a permanent exit strategy. I would hope you have something else in mind. So what's it going to be? Think before you mop up. Buy smart. Don't buy tips. Think for yourself and assume responsibility for your decisions. Keep a journal on why you buy and sell and where you went right and where you went wrong. You only go around once. Make it pleasurable and profitable.
Saturday, July 19, 2003
7/19/03 Keeping It Simple
This morning I have a good deal of computer problems and this is the reason for the late posting and the shoert posting. I shall discuss this subject more fully in the future.
The essence of today's thought is focusing on companies which have created a huge bond with their customers and this has created a fierce customer loyalty. The latter, in my mind, should be an important element in making an investment decison. Some of the companies on my great list have such a relationship with customers- WalMart, Starbucks, Krispy Kreme, and Dell. People want to know where the nearest WalMart is, where can I find a Starbucks and a Krispy Kreme, and when buying a computer there is customer loyalty to Dell while this is not found with HP or IBM. There are people who prefer Macs but we are talking about a 3% market share, and this is rather insignificant.
Before making a long term investment in a stock, please consider the factor of customer loyalty because it is through that loyalty that a business begins to build on repeat business and your loyal customer becomes your best form of advertising. Without the customer base a business has no long term viability and lives day to day. Please give this some thought, and then make a list of the companies which are good examples of having customer loyalty. Do you own any of these companies? How have the companies on your list done over the long term appreciation wise? You might be on to something you might not have considered in the past.
This morning I have a good deal of computer problems and this is the reason for the late posting and the shoert posting. I shall discuss this subject more fully in the future.
The essence of today's thought is focusing on companies which have created a huge bond with their customers and this has created a fierce customer loyalty. The latter, in my mind, should be an important element in making an investment decison. Some of the companies on my great list have such a relationship with customers- WalMart, Starbucks, Krispy Kreme, and Dell. People want to know where the nearest WalMart is, where can I find a Starbucks and a Krispy Kreme, and when buying a computer there is customer loyalty to Dell while this is not found with HP or IBM. There are people who prefer Macs but we are talking about a 3% market share, and this is rather insignificant.
Before making a long term investment in a stock, please consider the factor of customer loyalty because it is through that loyalty that a business begins to build on repeat business and your loyal customer becomes your best form of advertising. Without the customer base a business has no long term viability and lives day to day. Please give this some thought, and then make a list of the companies which are good examples of having customer loyalty. Do you own any of these companies? How have the companies on your list done over the long term appreciation wise? You might be on to something you might not have considered in the past.
Friday, July 18, 2003
7/18/03 Greenspan's Recent Testimony
Today I would like to revisit some points which I believe, will have a bearing on the bond and equity markets.
1. with surpluses turning to deficits the issuance of 30 year treasuries will "presumably be revisited." This is important. Due to the deficits, it is necessary to fund these obligations with long-term bonds. The financing burden will be shifted to the 10 and 30 year bonds, and this will impact, in my view, the growing steepness of the yield curve. Bond pits have missed the simple fact that deficits are not jst at record levels. They are off the charts and will continue that way for a very long time. Therefore, long rates will come under pressure for years.
2. Greenspan firmly stated that the level of government deficits affect long-term rates. Obviously, mortgage rates will be impacted and have begun to rise.
3. Greenspan said that worsening deficits necessitate paying for any further tax cuts either by reductions in government spending, which has not happened, or increases in taxes in other areas, which has and is happening at state, municipal, and local levels.
4. Greenspan stated that he did not believe that tax cuts were the right way to provide short-term stimulus to the economy, and many feel these cuts have an impact only after the economy has begun to improve.
5. Greenspan said it was necessary to deal with the deficits otherwise it will be difficult to maintain the growth rates that will bring the unemployment rate down. We are not dealing with the deficits and interest rates shall increase, in my view, and unemployment shall remain at untenable levels.
6. Greenspan mentioned that 75 million baby boomers would begin rtiring at the beginning of the next decade. He said that the government's Social Security and Medicare benefit plans mean Congress has promised a level of spending "in excess of our capability to finance it...we are running into potentially serious troubles.
In sum, the spending boom has shaken the foundation of our economic well-being. There will be a price. It won't just impact the benefits to be received under Social Security and Medicare. We must pay at the register, and IOUs will outlive their welcome. You may not share my viewpoint. That is your choice. You had better have plenty of staying power in the marketplace. You'll need it.
Today I would like to revisit some points which I believe, will have a bearing on the bond and equity markets.
1. with surpluses turning to deficits the issuance of 30 year treasuries will "presumably be revisited." This is important. Due to the deficits, it is necessary to fund these obligations with long-term bonds. The financing burden will be shifted to the 10 and 30 year bonds, and this will impact, in my view, the growing steepness of the yield curve. Bond pits have missed the simple fact that deficits are not jst at record levels. They are off the charts and will continue that way for a very long time. Therefore, long rates will come under pressure for years.
2. Greenspan firmly stated that the level of government deficits affect long-term rates. Obviously, mortgage rates will be impacted and have begun to rise.
3. Greenspan said that worsening deficits necessitate paying for any further tax cuts either by reductions in government spending, which has not happened, or increases in taxes in other areas, which has and is happening at state, municipal, and local levels.
4. Greenspan stated that he did not believe that tax cuts were the right way to provide short-term stimulus to the economy, and many feel these cuts have an impact only after the economy has begun to improve.
5. Greenspan said it was necessary to deal with the deficits otherwise it will be difficult to maintain the growth rates that will bring the unemployment rate down. We are not dealing with the deficits and interest rates shall increase, in my view, and unemployment shall remain at untenable levels.
6. Greenspan mentioned that 75 million baby boomers would begin rtiring at the beginning of the next decade. He said that the government's Social Security and Medicare benefit plans mean Congress has promised a level of spending "in excess of our capability to finance it...we are running into potentially serious troubles.
In sum, the spending boom has shaken the foundation of our economic well-being. There will be a price. It won't just impact the benefits to be received under Social Security and Medicare. We must pay at the register, and IOUs will outlive their welcome. You may not share my viewpoint. That is your choice. You had better have plenty of staying power in the marketplace. You'll need it.
Thursday, July 17, 2003
7/17/03 The Tech Rally
The Nasdaq has had a pretty dynamic rally from the bottom hit in October, 2002. Basically, the QQQ has rallied from 20 to 32. My pencil shows that to be a gain of 80%. I know the Nasdaq got creamed from the 5000 level but we need to take a rational look at the current situation. Where’s the sales growth? I’m not just going to pick on the weak sisters like Motorola or Lucent. Let’s look at one of the other big names, such as, Cisco. I didn’t pick that name because I’m short at 19. I advised selling this stock many ten spots above this level. It was trading in the nose bleed section. Cisco is showing little or no topline growth and sells at 30 times earnings. That’s no bargain by my standards. IBM reports earnings and shows improvement thru acquisitions and cost cutting. The CFO at Intel, and that stock is up about 100% from the bottom, said he doesn’t see signs of computer upgrading or increased spending for tech. Philips warned that low consume confidence would hit its consumer electronics unit, which happens to be the largest in Europe. Maybe tech will recover somewhat or maybe it will stay along the bottom. Few companies are coining it. Investors have placed their bets on a tech rebound in the second half of the year. I suggest choose another game in town. They will come up short, and disappointment will reign supreme. I will place my bet on that outcome.
In the quarterly Business Roundtable survey for the next six months of 2003 only 14% of the CEOs surveyed expect their U.S. capital expenditures to rise during the second half of the year, and that’s down from 18% in April. Only 16% expect employment growth during this period. These CEOs expect GDP growth of 2.3%. These are the folks who are the leading CEOs in the U.S. Despite what you read and hear, these are the people who will greatly impact business spending and hiring, and the latter will impact consumer spending. Basically, growth is a no show across the board in this survey. I put more stock in this than the forecasts of the Fed. This survey is but one more indication that the overall equity market got way ahead of the GDP growth curve, which is modest at best. This country has a great deal of debt- $31 trillion to be precise. It far outweighs the ability to pay off that debt. I see rising credit defaults and rising bankruptcies. Other than that I see clear sailing.
At the end of 2002, according to the Federal Reserve Bank, the fair market value of the net derivative contracts held by large institutions was $27 billion, and the top ten banks by assets held in excess of 97% of the value of all those contracts.
The Nasdaq has had a pretty dynamic rally from the bottom hit in October, 2002. Basically, the QQQ has rallied from 20 to 32. My pencil shows that to be a gain of 80%. I know the Nasdaq got creamed from the 5000 level but we need to take a rational look at the current situation. Where’s the sales growth? I’m not just going to pick on the weak sisters like Motorola or Lucent. Let’s look at one of the other big names, such as, Cisco. I didn’t pick that name because I’m short at 19. I advised selling this stock many ten spots above this level. It was trading in the nose bleed section. Cisco is showing little or no topline growth and sells at 30 times earnings. That’s no bargain by my standards. IBM reports earnings and shows improvement thru acquisitions and cost cutting. The CFO at Intel, and that stock is up about 100% from the bottom, said he doesn’t see signs of computer upgrading or increased spending for tech. Philips warned that low consume confidence would hit its consumer electronics unit, which happens to be the largest in Europe. Maybe tech will recover somewhat or maybe it will stay along the bottom. Few companies are coining it. Investors have placed their bets on a tech rebound in the second half of the year. I suggest choose another game in town. They will come up short, and disappointment will reign supreme. I will place my bet on that outcome.
In the quarterly Business Roundtable survey for the next six months of 2003 only 14% of the CEOs surveyed expect their U.S. capital expenditures to rise during the second half of the year, and that’s down from 18% in April. Only 16% expect employment growth during this period. These CEOs expect GDP growth of 2.3%. These are the folks who are the leading CEOs in the U.S. Despite what you read and hear, these are the people who will greatly impact business spending and hiring, and the latter will impact consumer spending. Basically, growth is a no show across the board in this survey. I put more stock in this than the forecasts of the Fed. This survey is but one more indication that the overall equity market got way ahead of the GDP growth curve, which is modest at best. This country has a great deal of debt- $31 trillion to be precise. It far outweighs the ability to pay off that debt. I see rising credit defaults and rising bankruptcies. Other than that I see clear sailing.
At the end of 2002, according to the Federal Reserve Bank, the fair market value of the net derivative contracts held by large institutions was $27 billion, and the top ten banks by assets held in excess of 97% of the value of all those contracts.
Wednesday, July 16, 2003
7/16/03 The Turning Point
Alan Greenspan missed the turning point. It came exactly one month ago on June 16. That’s the day to remember. Interest rates fell on that day to 45 year lows. As we look into the future, I can’t see 45 years from now; however, I promise you interest rates won’t be at these levels again in most of our lifetimes. Greenspan talked about keeping rates low for a long time. He’s a follower. He can print money but he can’t make ensure that its worth something in the marketplace. Greenspan is talking about short term rates. After all, the economy is managed via adjustable rates on a daily basis rather than the prudent approach of locking in long term rates to fund multi-year liabilities and future deficits. Our Fed chairman is in a dream state, and believes the economy might grow at a 4.25% next year while rates remain low and inflation declines to the 1% level. This truly is irrational exuberance. I give this man a lot of credit. He has been a public servant for many many years, and put up with plenty of BS in DC. There’s no reason for him to make his swan song to the public one filled with the same BS. I’m sure he’s frustrated after all these years, but please don’t take it out on a gullible American public. They have a right to expect some respect.
Standard and Poor’s released a forecast for the remainder of the year and for next year. They expect the S&P 500 Index to close 2003 at 1,030 and believe there will be corporate earnings growth of 16% in 2003 and 14% for 2004. Hopefully they will be correct. I don’t put stock in forecasts by analysts or organizations.
A surprise did take place yesterday. The Bank of Canada lowered its overnight lending rate to 3%. They cited declining inflation expectations, the impact from SARS, and the fallout from the isolated case of Mad Cow disease. As a result of the cut in rates, the Canadian dollar fell vs the U.S. dollar.
Loral Space and Communications filed for Chapter 11. They hope to successfully reorganize. They haven’t had an annual profit in six years.
More bad news for Boeing. Since 1982 Boeing has built more than 1000 757s. They are running out of orders for this plane. Unless lightening strikes, the company could close the production line for this plane by next summer. The planes are made in Renton, just outside of Seattle. Washington’s current unemployment rate is 6.7%.
Yesterday the U.S. 3rd Infantry Division was told they would be staying in Iraq indefinitely despite previous plans to send them home in July and August. “We were told three times we would be going home in a couple of months. It is not a good time to announce this. We are demotivated,” said Sergeant Chris Grisham, a military intelligence officer. “It’s a big shock,” said Sergeant Josh Holt of Montgomery, Alabama.” “I am hoping that as long as I can get my mail and make some calls home, I can survive,” said Private Torrence Gilliam, from Spartanburg, Soth Carolina.
Could 9/11 have been anticipated? In 1987, in The Futurist, terrorism expert Brian Jenkins mentioned the possibility of aerial suicide attacks. In the same magazine in 1994 an article by forecaster Marvin Cetron specifically identified the World Trade Center as a choice terrorist target: “Targets such as the World Trade Center not only provide the requisite casualties but, because of their symbolic nature, provide more bang for the buck.” In reviewing the 1993 attack testimony revealed the Center’s towers could not withstand the crash of larger airliners. Cetron suggested that multiple targets might be selected for attack.
Futurist John Petersen, president of the Arlington Institute, discusses possible big surprises for the future: the secession of a western state from the U.S.; the collapse of the UN; the collapse of Mexico’s economy,
followed by a U.S. takeover of Mexico; and an attack by nuclear terrorists on the U.S.
According to Jon Spayde, bank-issued credit card debt has more than doubled since 1994. Eight times as many people are going bankrupt as during the Great Depression even though our population has only a little more than doubled since then. To put it in perspective, there were 1,539,111 “non-business” bankruptcy filings in 2002 alone or roughly equivalent to the population of Philadelphia.
Hazel Henderson, economist and futurist: “Personally, I believe that the U.S. dollar’s days as the world’s “defacto” reserve currency are numbered. Some 35% of world trade and other countries” currency reserves are now in euros. Many countries have diversified their currency reserves out of U.S. dollars.
I don’t know what the future holds. I just know it will hold many surprises, and many will not be welcome surprises. Few would have expected the rise in rates which have occurred in 10 year treasuries between June 16 and today. I certainly don’t believe the stock market’s current level in any way reflects the turning point in interest rates. Several years from now you will be able to look back and know the signs for another 9/11 were clearly in view. It will be self-created and not from a third world country terrorist group. The seeds of destruction are right under your nose.
Alan Greenspan missed the turning point. It came exactly one month ago on June 16. That’s the day to remember. Interest rates fell on that day to 45 year lows. As we look into the future, I can’t see 45 years from now; however, I promise you interest rates won’t be at these levels again in most of our lifetimes. Greenspan talked about keeping rates low for a long time. He’s a follower. He can print money but he can’t make ensure that its worth something in the marketplace. Greenspan is talking about short term rates. After all, the economy is managed via adjustable rates on a daily basis rather than the prudent approach of locking in long term rates to fund multi-year liabilities and future deficits. Our Fed chairman is in a dream state, and believes the economy might grow at a 4.25% next year while rates remain low and inflation declines to the 1% level. This truly is irrational exuberance. I give this man a lot of credit. He has been a public servant for many many years, and put up with plenty of BS in DC. There’s no reason for him to make his swan song to the public one filled with the same BS. I’m sure he’s frustrated after all these years, but please don’t take it out on a gullible American public. They have a right to expect some respect.
Standard and Poor’s released a forecast for the remainder of the year and for next year. They expect the S&P 500 Index to close 2003 at 1,030 and believe there will be corporate earnings growth of 16% in 2003 and 14% for 2004. Hopefully they will be correct. I don’t put stock in forecasts by analysts or organizations.
A surprise did take place yesterday. The Bank of Canada lowered its overnight lending rate to 3%. They cited declining inflation expectations, the impact from SARS, and the fallout from the isolated case of Mad Cow disease. As a result of the cut in rates, the Canadian dollar fell vs the U.S. dollar.
Loral Space and Communications filed for Chapter 11. They hope to successfully reorganize. They haven’t had an annual profit in six years.
More bad news for Boeing. Since 1982 Boeing has built more than 1000 757s. They are running out of orders for this plane. Unless lightening strikes, the company could close the production line for this plane by next summer. The planes are made in Renton, just outside of Seattle. Washington’s current unemployment rate is 6.7%.
Yesterday the U.S. 3rd Infantry Division was told they would be staying in Iraq indefinitely despite previous plans to send them home in July and August. “We were told three times we would be going home in a couple of months. It is not a good time to announce this. We are demotivated,” said Sergeant Chris Grisham, a military intelligence officer. “It’s a big shock,” said Sergeant Josh Holt of Montgomery, Alabama.” “I am hoping that as long as I can get my mail and make some calls home, I can survive,” said Private Torrence Gilliam, from Spartanburg, Soth Carolina.
Could 9/11 have been anticipated? In 1987, in The Futurist, terrorism expert Brian Jenkins mentioned the possibility of aerial suicide attacks. In the same magazine in 1994 an article by forecaster Marvin Cetron specifically identified the World Trade Center as a choice terrorist target: “Targets such as the World Trade Center not only provide the requisite casualties but, because of their symbolic nature, provide more bang for the buck.” In reviewing the 1993 attack testimony revealed the Center’s towers could not withstand the crash of larger airliners. Cetron suggested that multiple targets might be selected for attack.
Futurist John Petersen, president of the Arlington Institute, discusses possible big surprises for the future: the secession of a western state from the U.S.; the collapse of the UN; the collapse of Mexico’s economy,
followed by a U.S. takeover of Mexico; and an attack by nuclear terrorists on the U.S.
According to Jon Spayde, bank-issued credit card debt has more than doubled since 1994. Eight times as many people are going bankrupt as during the Great Depression even though our population has only a little more than doubled since then. To put it in perspective, there were 1,539,111 “non-business” bankruptcy filings in 2002 alone or roughly equivalent to the population of Philadelphia.
Hazel Henderson, economist and futurist: “Personally, I believe that the U.S. dollar’s days as the world’s “defacto” reserve currency are numbered. Some 35% of world trade and other countries” currency reserves are now in euros. Many countries have diversified their currency reserves out of U.S. dollars.
I don’t know what the future holds. I just know it will hold many surprises, and many will not be welcome surprises. Few would have expected the rise in rates which have occurred in 10 year treasuries between June 16 and today. I certainly don’t believe the stock market’s current level in any way reflects the turning point in interest rates. Several years from now you will be able to look back and know the signs for another 9/11 were clearly in view. It will be self-created and not from a third world country terrorist group. The seeds of destruction are right under your nose.
Tuesday, July 15, 2003
7/15/03 Extreme Makeover
That’s ‘bull.’ I’m a calm person. My first reaction was I’m from NYC. You can’t shit a shitter. Were I from Intercourse, Pennsylvania I might have had a different thought. Yesterday was Ari Fleischer’s last day on the job. He said it best. “We don’t know if it’s true but nobody- but nobody- can say it was wrong. That is not known.” What does that have to do with the price of good intelligence or “an apple in Cincinnati and an orange in the State of the Union”? I have confidence in the American public. They’ll sort through the bull.
I’ll deal with the economic BS. Back in December, November, October, and September of 2002 I called the Administration’s budget forecasts one big crock. Then, over a period of months, they ramped up their deficit forecasts from $160 billion to $210 billion to $296 billion. This had nothing to do with an Iraq war. Yesterday the same people forecast a deficit of more than $410 billion in 2003.
These are dangerous people. It is not a question of being misleading. Statistically they knew what they were saying was an impossibility. At no time was the deficit going to be below $360 billion. Greenspan and the Fed knew that. I’m not the only one who can add. You have a triple whammy here. The government did not provide truthful budget forecasts, the Fed printed money in double digits, and government non-interest, non-defense spending was up 10% in 2002 and so far this year is up about 6%. Keep in mind that discretionary government spending is only authorized at the 4% level. This is big government at work. These are irresponsible spenders at work. The voters are responsible and the non-voters even more responsible. To exacerbate the situation the government is borrowing short and ignoring the ability to lock in long term financing at historically low rates. This is fiscally irresponsible and a lose-lose situation. I promise you that short term rates will not stay at these levels. The Fed knows that. The Administration turns a deaf ear. We need an extreme makeover and that’s no bull. Over the history of our nation we certainly didn’t have hundreds of thousands of our fighting men and woman die to produce these present shambles. As Martin Hutchinson said, “the truth is, taxpayer’s money is not in good hands.”
A report by California’s Chamber of Commerce discovered California’s tax burden has increased over the past decade to more than 24% above the national average. California’s corporate tax burden is almost 40% above the national average. Electricity costs in California are nearly double the national average. California’s overall business costs are 32% above the national average. In 2002, California lost 125,500 non-farm jobs. In the past 12 months, California has proposed or passed an additional 94 job-killing bills. There is a crisis in the state’s workers’ compensation insurance as premiums are now astronomical. San Francisco has had the greatest exodus of people in cities with a population in excess of 100,000. San Francisco now has more than 31,000 employees, and this is an increase of about 30% in eight years. This while the private sector lost 60,000 jobs. Pretty soon they’ll call San Francisco the land of the homeless by the bay.
H.L. Mencken: “The government consists of a gang of men exactly like you and me. They have no special talent for the business of government; they only have a talent for getting and holding office.”
Atlanta-based Mirant filed for Chapter 11 bankruptcy late yesterday. That made it the tenth largest
bankruptcy by assets in U.S. history, according to BankruptcyData.com.
Yesterday Mexico declared a state of emergency against the West Nile virus. It’s only a matter of time until it reaches our borders.
Delta Airlines recently told 1.050 flight attendant that they could be furloughed as soon as September 1.
John Lichtblau, chairman of the Petroleum Industry Research Foundation, said due to problems with oil pipelines and refineries, current commercial production in Iraq may be at only 500,000 barrels per day, which is used for domestic needs. Once again, government estimates are off by a wide margin. We have been told current production is estimated at 800,000 barrels per day. Before the war, 2.5 to 3 million barrels per day were produced. It will be interesting to see how Iraq’s reconstruction will be funded from oil revenues. That is the Bush plan. It sounds like another Administration economic forecast gone sour. How do you account for this on-going lack of intelligence? The FBI can’t assume the responsibility.
In a recent IBD/TIPP survey there were some interesting findings. While 73% of Republicans are optimistic regarding the economy, only 42% of Democrats share that view. They didn’t ask a Libertarian. Slightly less than those 65 and over are optimistic. Overall confidence in the six-month economic outlook declined from June’s 57 to the present 54.7, and represents the first such decline since the postwar market rally in April. Most importantly, the survey shows “about one-fifth say that an immediate family member lost a job in the past 12 months. Over one-fourth fear they may lose a breadwinner in the next 12 months. Further, three-fourths say that it is difficult to get a god job where they live.” This is not the stuff which makes for an economic recovery, and without an economic recovery this market rally will do a 180 degree about face. Most investors are not prepared for this scenario.
Prior to a market drop, it is always wise to make a list of companies which may prove rewarding over the long term. One such company could be Paychex, a 32 year old payroll and benefits outsourcing business which has grown from its founder and CEO, Thomas Golisano, to a 7500 employee corporation with sales approximating $1 billion. The company has never had a layoff. In tough economic times their annual profits still exceed a growth rate of 20%. They have 475,000 clients with 100+ offices in 36 states and DC, and reflecting the strength of the company is its ability to retain old clients and attract new ones. Should interest rates begin to rise, Paychex will benefit as the earnings generation from the float shall increase. This is a company with a history of strong cash flow.
That’s ‘bull.’ I’m a calm person. My first reaction was I’m from NYC. You can’t shit a shitter. Were I from Intercourse, Pennsylvania I might have had a different thought. Yesterday was Ari Fleischer’s last day on the job. He said it best. “We don’t know if it’s true but nobody- but nobody- can say it was wrong. That is not known.” What does that have to do with the price of good intelligence or “an apple in Cincinnati and an orange in the State of the Union”? I have confidence in the American public. They’ll sort through the bull.
I’ll deal with the economic BS. Back in December, November, October, and September of 2002 I called the Administration’s budget forecasts one big crock. Then, over a period of months, they ramped up their deficit forecasts from $160 billion to $210 billion to $296 billion. This had nothing to do with an Iraq war. Yesterday the same people forecast a deficit of more than $410 billion in 2003.
These are dangerous people. It is not a question of being misleading. Statistically they knew what they were saying was an impossibility. At no time was the deficit going to be below $360 billion. Greenspan and the Fed knew that. I’m not the only one who can add. You have a triple whammy here. The government did not provide truthful budget forecasts, the Fed printed money in double digits, and government non-interest, non-defense spending was up 10% in 2002 and so far this year is up about 6%. Keep in mind that discretionary government spending is only authorized at the 4% level. This is big government at work. These are irresponsible spenders at work. The voters are responsible and the non-voters even more responsible. To exacerbate the situation the government is borrowing short and ignoring the ability to lock in long term financing at historically low rates. This is fiscally irresponsible and a lose-lose situation. I promise you that short term rates will not stay at these levels. The Fed knows that. The Administration turns a deaf ear. We need an extreme makeover and that’s no bull. Over the history of our nation we certainly didn’t have hundreds of thousands of our fighting men and woman die to produce these present shambles. As Martin Hutchinson said, “the truth is, taxpayer’s money is not in good hands.”
A report by California’s Chamber of Commerce discovered California’s tax burden has increased over the past decade to more than 24% above the national average. California’s corporate tax burden is almost 40% above the national average. Electricity costs in California are nearly double the national average. California’s overall business costs are 32% above the national average. In 2002, California lost 125,500 non-farm jobs. In the past 12 months, California has proposed or passed an additional 94 job-killing bills. There is a crisis in the state’s workers’ compensation insurance as premiums are now astronomical. San Francisco has had the greatest exodus of people in cities with a population in excess of 100,000. San Francisco now has more than 31,000 employees, and this is an increase of about 30% in eight years. This while the private sector lost 60,000 jobs. Pretty soon they’ll call San Francisco the land of the homeless by the bay.
H.L. Mencken: “The government consists of a gang of men exactly like you and me. They have no special talent for the business of government; they only have a talent for getting and holding office.”
Atlanta-based Mirant filed for Chapter 11 bankruptcy late yesterday. That made it the tenth largest
bankruptcy by assets in U.S. history, according to BankruptcyData.com.
Yesterday Mexico declared a state of emergency against the West Nile virus. It’s only a matter of time until it reaches our borders.
Delta Airlines recently told 1.050 flight attendant that they could be furloughed as soon as September 1.
John Lichtblau, chairman of the Petroleum Industry Research Foundation, said due to problems with oil pipelines and refineries, current commercial production in Iraq may be at only 500,000 barrels per day, which is used for domestic needs. Once again, government estimates are off by a wide margin. We have been told current production is estimated at 800,000 barrels per day. Before the war, 2.5 to 3 million barrels per day were produced. It will be interesting to see how Iraq’s reconstruction will be funded from oil revenues. That is the Bush plan. It sounds like another Administration economic forecast gone sour. How do you account for this on-going lack of intelligence? The FBI can’t assume the responsibility.
In a recent IBD/TIPP survey there were some interesting findings. While 73% of Republicans are optimistic regarding the economy, only 42% of Democrats share that view. They didn’t ask a Libertarian. Slightly less than those 65 and over are optimistic. Overall confidence in the six-month economic outlook declined from June’s 57 to the present 54.7, and represents the first such decline since the postwar market rally in April. Most importantly, the survey shows “about one-fifth say that an immediate family member lost a job in the past 12 months. Over one-fourth fear they may lose a breadwinner in the next 12 months. Further, three-fourths say that it is difficult to get a god job where they live.” This is not the stuff which makes for an economic recovery, and without an economic recovery this market rally will do a 180 degree about face. Most investors are not prepared for this scenario.
Prior to a market drop, it is always wise to make a list of companies which may prove rewarding over the long term. One such company could be Paychex, a 32 year old payroll and benefits outsourcing business which has grown from its founder and CEO, Thomas Golisano, to a 7500 employee corporation with sales approximating $1 billion. The company has never had a layoff. In tough economic times their annual profits still exceed a growth rate of 20%. They have 475,000 clients with 100+ offices in 36 states and DC, and reflecting the strength of the company is its ability to retain old clients and attract new ones. Should interest rates begin to rise, Paychex will benefit as the earnings generation from the float shall increase. This is a company with a history of strong cash flow.
Monday, July 14, 2003
7/14/03 The Open Sea Of Thought
Francois Gautier: “Many live in the ivory tower called reality; they never venture on the open sea of thought.”
The disease is back on Wall Street. Stocks are moving on analyst upgrades and downgrades. Of course, it is rare to see an outright sell recommendation. That might be considered independent thought. The vast majority of investors are sheep. It’s commonly referred to as the herd mentality. I prefer momentum masturbation. Vast commissions are paid to analysts to get the early call, to be the first to learn of the upgrade or the downgrade. It’s a little like the allotment of hot IPOs. The big commission dollars get a larger allocation of a hot issue. In this instance, you receive the first analyst call. Such allotments and such first calls give a jumpstart to a money manager’s returns. That doesn’t make that money manager a more proficient manager of money. It means he has a greater ability to shoot fish in a barrel. Everyone has their own style of investing. Over the long term I believe thinking for yourself brings forth less mistakes. The good news is the mistakes will be your own. The better news is you will be your own man. That is a meal for a lifetime.
Total U.S. debt is estimated at $31 trillion. Our annual GDP is $9.6 trillion. I wonder how Moody’s and Fitch’s would rate a company with that ratio. On its “currency” I am certain it would not read “In God We Trust.” It might say “Buyer Beware.”
Jeff Immelt, GE’s CEO: “What remains is excess capacity, and I think that’s just going to take time.” I certainly agree with that statement. It might serve investors well to focus on the revenue growth in the second quarter reports for public companies. That growth is estimated at 3%. Any increase above 3% would result from cost cutting. I again ask. What is the proper p/e for cost cutting? For a couple of years I asked this question of Oracle shareholders. Eventually, there were diminishing returns from expense reduction, and profits began to slide. Top line growth did not materialize.
Sandra Anderson has trained what is reputed to be the world’s best-trained human remains sniffing dog, Eagle. She has worked on 1000 cases across the U.S. in her 17 years as a handler. She was arrested for planting evidence at 3 scenes in Michigan. Burt Turvey, author of “Criminal Profiling,” said “every one of her cases needs to be reviewed. All of them. It will potentially unseat so many convictions.” When credibility comes into question, the whole ball of wax can unravel. It can happen in Michigan. It can happen in Washington, DC.
The annual income for people 65 and older is $29,487, according to the demographic research firm of Environmental Systems Research Institute. When you take that income, and figure the return on a CD or a money market fund, you realize seniors have a serious cash flow problem. The average one-year CD purchased last week yields 1.59%, and that’s according to Bankrate.com.
Continental Air deferred delivery of 36 Boeing 737s it had on order until 2008. The estimated cost is $2.5 billion. If Continental had confidence in their business outlook, such action would not have been taken. I suggest the consideration of all airline positions being eliminated except for Southwest Air and Jet Blue, and with those I suggest a hedged position. I have never liked the airline business. Even Warren Buffett had an experience which was not worthy of memory.
Prior to 9/11, former Senator Warren Rudman had warned of a terrorist attack on the U.S. He heads up a task force under the auspices of the Council on Foreign Relations. Last week that task force issued a report which stated “although in some respects the American public is now better prepared to address aspects of the terrorist threat than it was two years ago, the U.S. remains dangerously ill-prepared to handle a catastrophic attack on American soil.”
Francois Gautier: “Many live in the ivory tower called reality; they never venture on the open sea of thought.”
The disease is back on Wall Street. Stocks are moving on analyst upgrades and downgrades. Of course, it is rare to see an outright sell recommendation. That might be considered independent thought. The vast majority of investors are sheep. It’s commonly referred to as the herd mentality. I prefer momentum masturbation. Vast commissions are paid to analysts to get the early call, to be the first to learn of the upgrade or the downgrade. It’s a little like the allotment of hot IPOs. The big commission dollars get a larger allocation of a hot issue. In this instance, you receive the first analyst call. Such allotments and such first calls give a jumpstart to a money manager’s returns. That doesn’t make that money manager a more proficient manager of money. It means he has a greater ability to shoot fish in a barrel. Everyone has their own style of investing. Over the long term I believe thinking for yourself brings forth less mistakes. The good news is the mistakes will be your own. The better news is you will be your own man. That is a meal for a lifetime.
Total U.S. debt is estimated at $31 trillion. Our annual GDP is $9.6 trillion. I wonder how Moody’s and Fitch’s would rate a company with that ratio. On its “currency” I am certain it would not read “In God We Trust.” It might say “Buyer Beware.”
Jeff Immelt, GE’s CEO: “What remains is excess capacity, and I think that’s just going to take time.” I certainly agree with that statement. It might serve investors well to focus on the revenue growth in the second quarter reports for public companies. That growth is estimated at 3%. Any increase above 3% would result from cost cutting. I again ask. What is the proper p/e for cost cutting? For a couple of years I asked this question of Oracle shareholders. Eventually, there were diminishing returns from expense reduction, and profits began to slide. Top line growth did not materialize.
Sandra Anderson has trained what is reputed to be the world’s best-trained human remains sniffing dog, Eagle. She has worked on 1000 cases across the U.S. in her 17 years as a handler. She was arrested for planting evidence at 3 scenes in Michigan. Burt Turvey, author of “Criminal Profiling,” said “every one of her cases needs to be reviewed. All of them. It will potentially unseat so many convictions.” When credibility comes into question, the whole ball of wax can unravel. It can happen in Michigan. It can happen in Washington, DC.
The annual income for people 65 and older is $29,487, according to the demographic research firm of Environmental Systems Research Institute. When you take that income, and figure the return on a CD or a money market fund, you realize seniors have a serious cash flow problem. The average one-year CD purchased last week yields 1.59%, and that’s according to Bankrate.com.
Continental Air deferred delivery of 36 Boeing 737s it had on order until 2008. The estimated cost is $2.5 billion. If Continental had confidence in their business outlook, such action would not have been taken. I suggest the consideration of all airline positions being eliminated except for Southwest Air and Jet Blue, and with those I suggest a hedged position. I have never liked the airline business. Even Warren Buffett had an experience which was not worthy of memory.
Prior to 9/11, former Senator Warren Rudman had warned of a terrorist attack on the U.S. He heads up a task force under the auspices of the Council on Foreign Relations. Last week that task force issued a report which stated “although in some respects the American public is now better prepared to address aspects of the terrorist threat than it was two years ago, the U.S. remains dangerously ill-prepared to handle a catastrophic attack on American soil.”
Sunday, July 13, 2003
7/13/03 I Pray The Country Has Not Been Betrayed
A Newsweek poll conducted July 10 and July 11 found Bush’s overall approval rating at 55%, compared with 61% in a May 29-30 survey. Like his father before him, he has lost touch with the man on the street. When individuals can’t find work, they cast their vote from the bread lines.
That’s what I wrote before I read this morning’s Washington Post. I know they are described as a left-wing newspaper. At the same time they uncovered the Watergate story. That took guts to keep at that subject matter. I admire that type of dedication and courage. I could care less about someone’s political preferences. Yesterday, I saw where Bush gave his support to George Tenet. Before he did that, I had told my family that George Tenet is a good man and way too careful and way too smart for a blunder like the uranium buy. I didn’t buy that story. My instincts told me otherwise. I waited for the other shoe to drop. It did. The Washington Post writes “CIA Director George J. Tenet successfully intervened with White House officials to have a reference to Iraq seeking uranium from Niger removed from a presidential speech last October, three months before a less specific reference to the same intelligence appeared in the State of the Union address, according to senior administration officials. Tenet argued personally to White House officials, including deputy national security adviser Stephen Hadley, that the allegation should not be used because it came from only a single source, according to one senior official. Another senior official with knowledge of the intelligence said the CIA had doubts about the accuracy of the documents underlying the allegation, which months later turned out to be forged.” The article is a long one and goes on to say that “seeking uranium from Niger” was never in drafts of the State of the Union address. Despite what Bush says, this is not a “flap”. Clinton was impeached. Nixon stepped down in disgrace. This country does not need another bombshell. The question is not whether Bush supports Tenet. Bush is responsible for his words spoken to the American people. The question is whether the American people believe Bush. Prior to the Washington Post article, Newsweek said 55% of the public gave Bush a favorable overall rating, and, as of this morning, I believe that rating would be in serious jeopardy.
We might learn something from Japan’s Takenaka and Shiokawa. Economics and Financial Services Minister Heizo Takenaka told a local television program “there are some bright spots for the future, such as more capital investment. But in the midst of these bright signs the economy as a whole is flat. While stocks have gone up in the past ten weeks, it doesn’t mean that GDP has.” Japanese Finance Minister Masajuro Shiokawa said the fundamental weakness of the economy had not changed despite some bright spots. Exports remain flat, and an improvement in corporate profits and investment remain slow.
On Friday Boeing Commercial Airplanes hands out its next round of 60-day layoff notices. About a month ago I mentioned further layoffs were coming. To the best of my knowledge, Lucent did not mention about further internal consolidation, and layoffs which are resulting in July, August, and September. Maybe the company felt the layoffs were not of a material nature. Only those fired would consider the action material.
Since Memorial Day, the Dow is up about 500 points. By Labor Day I predict the picture will be quite different. Why? How many people are not laboring? In addition, Bush will be laboring under a cloud, and Wall Street doesn’t like clouds.
ASEAN was established in 1967. The original members were Indonesia, Malaysia, the Philippines, Singapore, and Thailand. Currently, added to that group are Vietnam, Laos, Cambodia, Myanmar, and Brunei. ASEAN is only ten years younger than the EEC. In 1992 AFTA(ASEAN Free Trade Agreement) was introduced and it’s intent was to lower the tariff and non-tariff barriers among member countries, and thereby have closer economic integration. In recent years there has been a discussion of pegging ASEAN currencies to the Japanese yen, and such action may provide greater currency resiliency and it would help to stabilize exchange rates. Presently, the ASEAN countries have a population in excess of 500 million people, a combined GDP of about three-quarters of $1 trillion, and trade volume of approximately the same amount. At present the exchange rates of the ASEAN currencies against the U.S. dollar has a correlation coefficient of a bit more than 0.7 except for Myanmar’s Kyat. In the past year the drop in the value of the dollar has had a negative impact on the ASEAN group. If that decline continues, ASEAN will take a much closer look at the yen as a replacement. It will be one more instance of the loss of U.S. global economic influence.
A Newsweek poll conducted July 10 and July 11 found Bush’s overall approval rating at 55%, compared with 61% in a May 29-30 survey. Like his father before him, he has lost touch with the man on the street. When individuals can’t find work, they cast their vote from the bread lines.
That’s what I wrote before I read this morning’s Washington Post. I know they are described as a left-wing newspaper. At the same time they uncovered the Watergate story. That took guts to keep at that subject matter. I admire that type of dedication and courage. I could care less about someone’s political preferences. Yesterday, I saw where Bush gave his support to George Tenet. Before he did that, I had told my family that George Tenet is a good man and way too careful and way too smart for a blunder like the uranium buy. I didn’t buy that story. My instincts told me otherwise. I waited for the other shoe to drop. It did. The Washington Post writes “CIA Director George J. Tenet successfully intervened with White House officials to have a reference to Iraq seeking uranium from Niger removed from a presidential speech last October, three months before a less specific reference to the same intelligence appeared in the State of the Union address, according to senior administration officials. Tenet argued personally to White House officials, including deputy national security adviser Stephen Hadley, that the allegation should not be used because it came from only a single source, according to one senior official. Another senior official with knowledge of the intelligence said the CIA had doubts about the accuracy of the documents underlying the allegation, which months later turned out to be forged.” The article is a long one and goes on to say that “seeking uranium from Niger” was never in drafts of the State of the Union address. Despite what Bush says, this is not a “flap”. Clinton was impeached. Nixon stepped down in disgrace. This country does not need another bombshell. The question is not whether Bush supports Tenet. Bush is responsible for his words spoken to the American people. The question is whether the American people believe Bush. Prior to the Washington Post article, Newsweek said 55% of the public gave Bush a favorable overall rating, and, as of this morning, I believe that rating would be in serious jeopardy.
We might learn something from Japan’s Takenaka and Shiokawa. Economics and Financial Services Minister Heizo Takenaka told a local television program “there are some bright spots for the future, such as more capital investment. But in the midst of these bright signs the economy as a whole is flat. While stocks have gone up in the past ten weeks, it doesn’t mean that GDP has.” Japanese Finance Minister Masajuro Shiokawa said the fundamental weakness of the economy had not changed despite some bright spots. Exports remain flat, and an improvement in corporate profits and investment remain slow.
On Friday Boeing Commercial Airplanes hands out its next round of 60-day layoff notices. About a month ago I mentioned further layoffs were coming. To the best of my knowledge, Lucent did not mention about further internal consolidation, and layoffs which are resulting in July, August, and September. Maybe the company felt the layoffs were not of a material nature. Only those fired would consider the action material.
Since Memorial Day, the Dow is up about 500 points. By Labor Day I predict the picture will be quite different. Why? How many people are not laboring? In addition, Bush will be laboring under a cloud, and Wall Street doesn’t like clouds.
ASEAN was established in 1967. The original members were Indonesia, Malaysia, the Philippines, Singapore, and Thailand. Currently, added to that group are Vietnam, Laos, Cambodia, Myanmar, and Brunei. ASEAN is only ten years younger than the EEC. In 1992 AFTA(ASEAN Free Trade Agreement) was introduced and it’s intent was to lower the tariff and non-tariff barriers among member countries, and thereby have closer economic integration. In recent years there has been a discussion of pegging ASEAN currencies to the Japanese yen, and such action may provide greater currency resiliency and it would help to stabilize exchange rates. Presently, the ASEAN countries have a population in excess of 500 million people, a combined GDP of about three-quarters of $1 trillion, and trade volume of approximately the same amount. At present the exchange rates of the ASEAN currencies against the U.S. dollar has a correlation coefficient of a bit more than 0.7 except for Myanmar’s Kyat. In the past year the drop in the value of the dollar has had a negative impact on the ASEAN group. If that decline continues, ASEAN will take a much closer look at the yen as a replacement. It will be one more instance of the loss of U.S. global economic influence.
Saturday, July 12, 2003
7/12/03 DC Leechfields And Cesspools Require Septic Treatment
Next week the Snowman goes to England and Germany to meet with European finance officials. He shall create more anti-American sentiment as he spreads his message of blaming other countries for the economic ills in the U.S. He said “I want to talk to them about their consequences of their weak growth rates on us, on our (overall trade) deficit, and the importance to us of their having stronger domestic economies so they can buy more. We’d like Europe to take countermeasures appropriate to the circumstances of the individual economies.” Here is a Treasury Secretary demeaning other countries and he couldn’t even run a railroad properly. The man is inept and is perfect for the job. He believes our $400+ billion budget deficit for 2003 and $500 billion for next year are manageable. That’s just what Bush wants to hear. Like others in the Administration, he blames others and takes no responsibilities for failings. He is ideal for the job. His words fill up the leechfields and cesspools in DC. He has stated that the financial markets are not affected by the budget deficits. He must think everyone in the bond market is brain dead. He says the White House insists on tight spending discipline going forward. That is such BS. The fact is the Bush budget endorses a 4% increase in discretionary government spending levels at the same time the economy has grown by about 1 ½% in each of the last three quarters. That is hardly discipline. It reflects a CEO who is unwilling and incapable of making the tough decisions- like saying “read my lips. No more spending exceeding anticipated revenues.”
It’s been five months since I wrote about an interim WTO ruling concerning various tariffs imposed by the U.S. Yesterday, in Brussels, in a formal finding, the panel said that our steel tariffs had been introduced without proper justification and had broken trade rules. The European Commission has drawn up a list of $2 billion in goods that could face sanctions. There was no reason to have this matter carried to such lengths. The U.S. has had more than enough time to lift the steel tariffs, and the latter will not save this industry from foreign competition. It will only delay the funeral procession. In the meantime, the Administration has created additional ill-feelings at a time when we most need foreign capital to fund our deficit. It’s another case of biting the hand that supports our governmental spending habits.
WalMart opened its first store in Beijing and the company plans to open another 35 stores in China. They just keep making the smart moves.
Henry Boye: “The most important trip you may take in life is meeting people halfway.”
Penn State to raise tuition by 9.8% and Rutgers by 9%. Service sector prices rose 3.4% from a year ago in May but core wholesale prices fell 0.1% from May and 0.3% from a year ago as prices for autos, computers, and appliances declined. Core consumer prices in May rose just 1.6% from a year ago and slightly more than April’s 1 ½% rise which was the smallest since 1966. Core import prices rose 1.1% from a year ago in June due to the falling dollar.
Iraq’s purchase of 200 tons of uranium from Niger took place in the 1980s. Over a 20 year span I presume that information must have been known to several administrations.
A former Federal Reserve economist calls this the “manana forecast”- an economy that always will get better tomorrow.
Laura Chappelle, chairwoman of the Michigan Public Service Commission, warned that the state’s home owners will pay between $53 and $172 more each month this winter for gas heat.
The recent Washington Post-ABC News poll showed Bush’s overall job approval rating dropped to 59%, down 9% percentage points in the past 18 days. 52% believe there has been an “unacceptable” level of U.S. casualties in Iraq.
James Pike, 41, an auto mechanic from Ogdensburg, N.Y. : “If we have the capability of finding out that Joe Blow No-Name has dodged his taxes for the past 10 years, why don’t we have the capability of…finding a foolproof method of finding out whether the intelligence we gather is accurate and making it rock-solid before we jump into another situation?”
On Monday the Justice Department must decide whether to issue a second request for additional information on the proposed PeopleSoft/J.D. Edwards merger. In my view, there aren’t significant antitrust issues, and the combination could be completed in about a week.
In Korea the number of credit card delinquents has soared to 3 million.
Imports in May rose to the second highest level in two years, and contributed to a widening of the U.S. May trade gap to almost $42 billion. Maybe the Snowman should give a lecture to the American consumer on how to save. That would be the pot calling the kettle black.
The unemployment rate has risen for four consecutive months, and in June stood at 8.5%, the highest rate in nearly 17 years. It equals the jobless rate in California’s Santa Clara County.
Next week Tony Blair will be speaking to our Congress. Hopefully, the discussion will move past the uranium buy from Africa issue and hopefully focus on the ineptness of the occupation plans for post-war Iraq. A former senior official who left our government recently said “there was no real planning for post-war Iraq.” Said a former senior Pentagon official who is still a Defense Department advisor, “we could have done so much better.” The responsibility for this ineptness rests with Rumsfeld, Condoleeza Rice, Undersecretary of Defense for Policy Douglas Feith, William Luti, and ultimately, VP Cheney and Pres. Bush. It has been described that the work of the “Future of Iraq” project, which involved 17 U.S. agencies, was ignored and not utilized after Hussein’s regime fell. In a speech on Tuesday, Feith stated “we are facing some of the problems brought on by our very success in the war.” Inept planning has nothing to do with the initial success of this war. In the hands of Gen. Schwartzkopf this nightmare would not have taken place. A former senior White House official said “You let him (Bush) go into this without a serious plan…for the endgame. It was staggeringly negligent on their part.” The “their” should be canned, and promptly. They have risked the lives of our fighting troops and this has led to casualties and wounded soldiers. It is time to protect our troops and our American families. Let’s get rid of the sewage in DC. Our environment must meet minimum ISDS regulations.
Next week the Snowman goes to England and Germany to meet with European finance officials. He shall create more anti-American sentiment as he spreads his message of blaming other countries for the economic ills in the U.S. He said “I want to talk to them about their consequences of their weak growth rates on us, on our (overall trade) deficit, and the importance to us of their having stronger domestic economies so they can buy more. We’d like Europe to take countermeasures appropriate to the circumstances of the individual economies.” Here is a Treasury Secretary demeaning other countries and he couldn’t even run a railroad properly. The man is inept and is perfect for the job. He believes our $400+ billion budget deficit for 2003 and $500 billion for next year are manageable. That’s just what Bush wants to hear. Like others in the Administration, he blames others and takes no responsibilities for failings. He is ideal for the job. His words fill up the leechfields and cesspools in DC. He has stated that the financial markets are not affected by the budget deficits. He must think everyone in the bond market is brain dead. He says the White House insists on tight spending discipline going forward. That is such BS. The fact is the Bush budget endorses a 4% increase in discretionary government spending levels at the same time the economy has grown by about 1 ½% in each of the last three quarters. That is hardly discipline. It reflects a CEO who is unwilling and incapable of making the tough decisions- like saying “read my lips. No more spending exceeding anticipated revenues.”
It’s been five months since I wrote about an interim WTO ruling concerning various tariffs imposed by the U.S. Yesterday, in Brussels, in a formal finding, the panel said that our steel tariffs had been introduced without proper justification and had broken trade rules. The European Commission has drawn up a list of $2 billion in goods that could face sanctions. There was no reason to have this matter carried to such lengths. The U.S. has had more than enough time to lift the steel tariffs, and the latter will not save this industry from foreign competition. It will only delay the funeral procession. In the meantime, the Administration has created additional ill-feelings at a time when we most need foreign capital to fund our deficit. It’s another case of biting the hand that supports our governmental spending habits.
WalMart opened its first store in Beijing and the company plans to open another 35 stores in China. They just keep making the smart moves.
Henry Boye: “The most important trip you may take in life is meeting people halfway.”
Penn State to raise tuition by 9.8% and Rutgers by 9%. Service sector prices rose 3.4% from a year ago in May but core wholesale prices fell 0.1% from May and 0.3% from a year ago as prices for autos, computers, and appliances declined. Core consumer prices in May rose just 1.6% from a year ago and slightly more than April’s 1 ½% rise which was the smallest since 1966. Core import prices rose 1.1% from a year ago in June due to the falling dollar.
Iraq’s purchase of 200 tons of uranium from Niger took place in the 1980s. Over a 20 year span I presume that information must have been known to several administrations.
A former Federal Reserve economist calls this the “manana forecast”- an economy that always will get better tomorrow.
Laura Chappelle, chairwoman of the Michigan Public Service Commission, warned that the state’s home owners will pay between $53 and $172 more each month this winter for gas heat.
The recent Washington Post-ABC News poll showed Bush’s overall job approval rating dropped to 59%, down 9% percentage points in the past 18 days. 52% believe there has been an “unacceptable” level of U.S. casualties in Iraq.
James Pike, 41, an auto mechanic from Ogdensburg, N.Y. : “If we have the capability of finding out that Joe Blow No-Name has dodged his taxes for the past 10 years, why don’t we have the capability of…finding a foolproof method of finding out whether the intelligence we gather is accurate and making it rock-solid before we jump into another situation?”
On Monday the Justice Department must decide whether to issue a second request for additional information on the proposed PeopleSoft/J.D. Edwards merger. In my view, there aren’t significant antitrust issues, and the combination could be completed in about a week.
In Korea the number of credit card delinquents has soared to 3 million.
Imports in May rose to the second highest level in two years, and contributed to a widening of the U.S. May trade gap to almost $42 billion. Maybe the Snowman should give a lecture to the American consumer on how to save. That would be the pot calling the kettle black.
The unemployment rate has risen for four consecutive months, and in June stood at 8.5%, the highest rate in nearly 17 years. It equals the jobless rate in California’s Santa Clara County.
Next week Tony Blair will be speaking to our Congress. Hopefully, the discussion will move past the uranium buy from Africa issue and hopefully focus on the ineptness of the occupation plans for post-war Iraq. A former senior official who left our government recently said “there was no real planning for post-war Iraq.” Said a former senior Pentagon official who is still a Defense Department advisor, “we could have done so much better.” The responsibility for this ineptness rests with Rumsfeld, Condoleeza Rice, Undersecretary of Defense for Policy Douglas Feith, William Luti, and ultimately, VP Cheney and Pres. Bush. It has been described that the work of the “Future of Iraq” project, which involved 17 U.S. agencies, was ignored and not utilized after Hussein’s regime fell. In a speech on Tuesday, Feith stated “we are facing some of the problems brought on by our very success in the war.” Inept planning has nothing to do with the initial success of this war. In the hands of Gen. Schwartzkopf this nightmare would not have taken place. A former senior White House official said “You let him (Bush) go into this without a serious plan…for the endgame. It was staggeringly negligent on their part.” The “their” should be canned, and promptly. They have risked the lives of our fighting troops and this has led to casualties and wounded soldiers. It is time to protect our troops and our American families. Let’s get rid of the sewage in DC. Our environment must meet minimum ISDS regulations.
7/12/03 DC Leechfields And Cesspools Require Septic Treatment
Next week the Snowman goes to England and Germany to meet with European finance officials. He shall create more anti-American sentiment as he spreads his message of blaming other countries for the economic ills in the U.S. He said “I want to talk to them about their consequences of their weak growth rates on us, on our (overall trade) deficit, and the importance to us of their having stronger domestic economies so they can buy more. We’d like Europe to take countermeasures appropriate to the circumstances of the individual economies.” Here is a Treasury Secretary demeaning other countries and he couldn’t even run a railroad properly. The man is inept and is perfect for the job. He believes our $400+ billion budget deficit for 2003 and $500 billion for next year are manageable. That’s just what Bush wants to hear. Like others in the Administration, he blames others and takes no responsibilities for failings. He is ideal for the job. His words fill up the leechfields and cesspools in DC. He has stated that the financial markets are not affected by the budget deficits. He must think everyone in the bond market is brain dead. He says the White House insists on tight spending discipline going forward. That is such BS. The fact is the Bush budget endorses a 4% increase in discretionary government spending levels at the same time the economy has grown by about 1 ½% in each of the last three quarters. That is hardly discipline. It reflects a CEO who is unwilling and incapable of making the tough decisions- like saying “read my lips. No more spending exceeding anticipated revenues.”
It’s been five months since I wrote about an interim WTO ruling concerning various tariffs imposed by the U.S. Yesterday, in Brussels, in a formal finding, the panel said that our steel tariffs had been introduced without proper justification and had broken trade rules. The European Commission has drawn up a list of $2 billion in goods that could face sanctions. There was no reason to have this matter carried to such lengths. The U.S. has had more than enough time to lift the steel tariffs, and the latter will not save this industry from foreign competition. It will only delay the funeral procession. In the meantime, the Administration has created additional ill-feelings at a time when we most need foreign capital to fund our deficit. It’s another case of biting the hand that supports our governmental spending habits.
WalMart opened its first store in Beijing and the company plans to open another 35 stores in China. They just keep making the smart moves.
Henry Boye: “The most important trip you may take in life is meeting people halfway.”
Penn State to raise tuition by 9.8% and Rutgers by 9%. Service sector prices rose 3.4% from a year ago in May but core wholesale prices fell 0.1% from May and 0.3% from a year ago as prices for autos, computers, and appliances declined. Core consumer prices in May rose just 1.6% from a year ago and slightly more than April’s 1 ½% rise which was the smallest since 1966. Core import prices rose 1.1% from a year ago in June due to the falling dollar.
Iraq’s purchase of 200 tons of uranium from Niger took place in the 1980s. Over a 20 year span I presume that information must have been known to several administrations.
A former Federal Reserve economist calls this the “manana forecast”- an economy that always will get better tomorrow.
Laura Chappelle, chairwoman of the Michigan Public Service Commission, warned that the state’s home owners will pay between $53 and $172 more each month this winter for gas heat.
The recent Washington Post-ABC News poll showed Bush’s overall job approval rating dropped to 59%, down 9% percentage points in the past 18 days. 52% believe there has been an “unacceptable” level of U.S. casualties in Iraq.
James Pike, 41, an auto mechanic from Ogdensburg, N.Y. : “If we have the capability of finding out that Joe Blow No-Name has dodged his taxes for the past 10 years, why don’t we have the capability of…finding a foolproof method of finding out whether the intelligence we gather is accurate and making it rock-solid before we jump into another situation?”
On Monday the Justice Department must decide whether to issue a second request for additional information on the proposed PeopleSoft/J.D. Edwards merger. In my view, there aren’t significant antitrust issues, and the combination could be completed in about a week.
In Korea the number of credit card delinquents has soared to 3 million.
Imports in May rose to the second highest level in two years, and contributed to a widening of the U.S. May trade gap to almost $42 billion. Maybe the Snowman should give a lecture to the American consumer on how to save. That would be the pot calling the kettle black.
The unemployment rate has risen for four consecutive months, and in June stood at 8.5%, the highest rate in nearly 17 years. It equals the jobless rate in California’s Santa Clara County.
Next week Tony Blair will be speaking to our Congress. Hopefully, the discussion will move past the uranium buy from Africa issue and hopefully focus on the ineptness of the occupation plans for post-war Iraq. A former senior official who left our government recently said “there was no real planning for post-war Iraq.” Said a former senior Pentagon official who is still a Defense Department advisor, “we could have done so much better.” The responsibility for this ineptness rests with Rumsfeld, Condoleeza Rice, Undersecretary of Defense for Policy Douglas Feith, William Luti, and ultimately, VP Cheney and Pres. Bush. It has been described that the work of the “Future of Iraq” project, which involved 17 U.S. agencies, was ignored and not utilized after Hussein’s regime fell. In a speech on Tuesday, Feith stated “we are facing some of the problems brought on by our very success in the war.” Inept planning has nothing to do with the initial success of this war. In the hands of Gen. Schwartzkopf this nightmare would not have taken place. A former senior White House official said “You let him (Bush) go into this without a serious plan…for the endgame. It was staggeringly negligent on their part.” The “their” should be canned, and promptly. They have risked the lives of our fighting troops and this has led to casualties and wounded soldiers. It is time to protect our troops and our American families. Let’s get rid of the sewage in DC. Our environment must meet minimum ISDS regulations.
Next week the Snowman goes to England and Germany to meet with European finance officials. He shall create more anti-American sentiment as he spreads his message of blaming other countries for the economic ills in the U.S. He said “I want to talk to them about their consequences of their weak growth rates on us, on our (overall trade) deficit, and the importance to us of their having stronger domestic economies so they can buy more. We’d like Europe to take countermeasures appropriate to the circumstances of the individual economies.” Here is a Treasury Secretary demeaning other countries and he couldn’t even run a railroad properly. The man is inept and is perfect for the job. He believes our $400+ billion budget deficit for 2003 and $500 billion for next year are manageable. That’s just what Bush wants to hear. Like others in the Administration, he blames others and takes no responsibilities for failings. He is ideal for the job. His words fill up the leechfields and cesspools in DC. He has stated that the financial markets are not affected by the budget deficits. He must think everyone in the bond market is brain dead. He says the White House insists on tight spending discipline going forward. That is such BS. The fact is the Bush budget endorses a 4% increase in discretionary government spending levels at the same time the economy has grown by about 1 ½% in each of the last three quarters. That is hardly discipline. It reflects a CEO who is unwilling and incapable of making the tough decisions- like saying “read my lips. No more spending exceeding anticipated revenues.”
It’s been five months since I wrote about an interim WTO ruling concerning various tariffs imposed by the U.S. Yesterday, in Brussels, in a formal finding, the panel said that our steel tariffs had been introduced without proper justification and had broken trade rules. The European Commission has drawn up a list of $2 billion in goods that could face sanctions. There was no reason to have this matter carried to such lengths. The U.S. has had more than enough time to lift the steel tariffs, and the latter will not save this industry from foreign competition. It will only delay the funeral procession. In the meantime, the Administration has created additional ill-feelings at a time when we most need foreign capital to fund our deficit. It’s another case of biting the hand that supports our governmental spending habits.
WalMart opened its first store in Beijing and the company plans to open another 35 stores in China. They just keep making the smart moves.
Henry Boye: “The most important trip you may take in life is meeting people halfway.”
Penn State to raise tuition by 9.8% and Rutgers by 9%. Service sector prices rose 3.4% from a year ago in May but core wholesale prices fell 0.1% from May and 0.3% from a year ago as prices for autos, computers, and appliances declined. Core consumer prices in May rose just 1.6% from a year ago and slightly more than April’s 1 ½% rise which was the smallest since 1966. Core import prices rose 1.1% from a year ago in June due to the falling dollar.
Iraq’s purchase of 200 tons of uranium from Niger took place in the 1980s. Over a 20 year span I presume that information must have been known to several administrations.
A former Federal Reserve economist calls this the “manana forecast”- an economy that always will get better tomorrow.
Laura Chappelle, chairwoman of the Michigan Public Service Commission, warned that the state’s home owners will pay between $53 and $172 more each month this winter for gas heat.
The recent Washington Post-ABC News poll showed Bush’s overall job approval rating dropped to 59%, down 9% percentage points in the past 18 days. 52% believe there has been an “unacceptable” level of U.S. casualties in Iraq.
James Pike, 41, an auto mechanic from Ogdensburg, N.Y. : “If we have the capability of finding out that Joe Blow No-Name has dodged his taxes for the past 10 years, why don’t we have the capability of…finding a foolproof method of finding out whether the intelligence we gather is accurate and making it rock-solid before we jump into another situation?”
On Monday the Justice Department must decide whether to issue a second request for additional information on the proposed PeopleSoft/J.D. Edwards merger. In my view, there aren’t significant antitrust issues, and the combination could be completed in about a week.
In Korea the number of credit card delinquents has soared to 3 million.
Imports in May rose to the second highest level in two years, and contributed to a widening of the U.S. May trade gap to almost $42 billion. Maybe the Snowman should give a lecture to the American consumer on how to save. That would be the pot calling the kettle black.
The unemployment rate has risen for four consecutive months, and in June stood at 8.5%, the highest rate in nearly 17 years. It equals the jobless rate in California’s Santa Clara County.
Next week Tony Blair will be speaking to our Congress. Hopefully, the discussion will move past the uranium buy from Africa issue and hopefully focus on the ineptness of the occupation plans for post-war Iraq. A former senior official who left our government recently said “there was no real planning for post-war Iraq.” Said a former senior Pentagon official who is still a Defense Department advisor, “we could have done so much better.” The responsibility for this ineptness rests with Rumsfeld, Condoleeza Rice, Undersecretary of Defense for Policy Douglas Feith, William Luti, and ultimately, VP Cheney and Pres. Bush. It has been described that the work of the “Future of Iraq” project, which involved 17 U.S. agencies, was ignored and not utilized after Hussein’s regime fell. In a speech on Tuesday, Feith stated “we are facing some of the problems brought on by our very success in the war.” Inept planning has nothing to do with the initial success of this war. In the hands of Gen. Schwartzkopf this nightmare would not have taken place. A former senior White House official said “You let him (Bush) go into this without a serious plan…for the endgame. It was staggeringly negligent on their part.” The “their” should be canned, and promptly. They have risked the lives of our fighting troops and this has led to casualties and wounded soldiers. It is time to protect our troops and our American families. Let’s get rid of the sewage in DC. Our environment must meet minimum ISDS regulations.
7/12/03 DC Leechfields And Cesspools Require Septic Treatment
Next week the Snowman goes to England and Germany to meet with European finance officials. He shall create more anti-American sentiment as he spreads his message of blaming other countries for the economic ills in the U.S. He said “I want to talk to them about their consequences of their weak growth rates on us, on our (overall trade) deficit, and the importance to us of their having stronger domestic economies so they can buy more. We’d like Europe to take countermeasures appropriate to the circumstances of the individual economies.” Here is a Treasury Secretary demeaning other countries and he couldn’t even run a railroad properly. The man is inept and is perfect for the job. He believes our $400+ billion budget deficit for 2003 and $500 billion for next year are manageable. That’s just what Bush wants to hear. Like others in the Administration, he blames others and takes no responsibilities for failings. He is ideal for the job. His words fill up the leechfields and cesspools in DC. He has stated that the financial markets are not affected by the budget deficits. He must think everyone in the bond market is brain dead. He says the White House insists on tight spending discipline going forward. That is such BS. The fact is the Bush budget endorses a 4% increase in discretionary government spending levels at the same time the economy has grown by about 1 ½% in each of the last three quarters. That is hardly discipline. It reflects a CEO who is unwilling and incapable of making the tough decisions- like saying “read my lips. No more spending exceeding anticipated revenues.”
It’s been five months since I wrote about an interim WTO ruling concerning various tariffs imposed by the U.S. Yesterday, in Brussels, in a formal finding, the panel said that our steel tariffs had been introduced without proper justification and had broken trade rules. The European Commission has drawn up a list of $2 billion in goods that could face sanctions. There was no reason to have this matter carried to such lengths. The U.S. has had more than enough time to lift the steel tariffs, and the latter will not save this industry from foreign competition. It will only delay the funeral procession. In the meantime, the Administration has created additional ill-feelings at a time when we most need foreign capital to fund our deficit. It’s another case of biting the hand that supports our governmental spending habits.
WalMart opened its first store in Beijing and the company plans to open another 35 stores in China. They just keep making the smart moves.
Henry Boye: “The most important trip you may take in life is meeting people halfway.”
Penn State to raise tuition by 9.8% and Rutgers by 9%. Service sector prices rose 3.4% from a year ago in May but core wholesale prices fell 0.1% from May and 0.3% from a year ago as prices for autos, computers, and appliances declined. Core consumer prices in May rose just 1.6% from a year ago and slightly more than April’s 1 ½% rise which was the smallest since 1966. Core import prices rose 1.1% from a year ago in June due to the falling dollar.
Iraq’s purchase of 200 tons of uranium from Niger took place in the 1980s. Over a 20 year span I presume that information must have been known to several administrations.
A former Federal Reserve economist calls this the “manana forecast”- an economy that always will get better tomorrow.
Laura Chappelle, chairwoman of the Michigan Public Service Commission, warned that the state’s home owners will pay between $53 and $172 more each month this winter for gas heat.
The recent Washington Post-ABC News poll showed Bush’s overall job approval rating dropped to 59%, down 9% percentage points in the past 18 days. 52% believe there has been an “unacceptable” level of U.S. casualties in Iraq.
James Pike, 41, an auto mechanic from Ogdensburg, N.Y. : “If we have the capability of finding out that Joe Blow No-Name has dodged his taxes for the past 10 years, why don’t we have the capability of…finding a foolproof method of finding out whether the intelligence we gather is accurate and making it rock-solid before we jump into another situation?”
On Monday the Justice Department must decide whether to issue a second request for additional information on the proposed PeopleSoft/J.D. Edwards merger. In my view, there aren’t significant antitrust issues, and the combination could be completed in about a week.
In Korea the number of credit card delinquents has soared to 3 million.
Imports in May rose to the second highest level in two years, and contributed to a widening of the U.S. May trade gap to almost $42 billion. Maybe the Snowman should give a lecture to the American consumer on how to save. That would be the pot calling the kettle black.
The unemployment rate has risen for four consecutive months, and in June stood at 8.5%, the highest rate in nearly 17 years. It equals the jobless rate in California’s Santa Clara County.
Next week Tony Blair will be speaking to our Congress. Hopefully, the discussion will move past the uranium buy from Africa issue and hopefully focus on the ineptness of the occupation plans for post-war Iraq. A former senior official who left our government recently said “there was no real planning for post-war Iraq.” Said a former senior Pentagon official who is still a Defense Department advisor, “we could have done so much better.” The responsibility for this ineptness rests with Rumsfeld, Condoleeza Rice, Undersecretary of Defense for Policy Douglas Feith, William Luti, and ultimately, VP Cheney and Pres. Bush. It has been described that the work of the “Future of Iraq” project, which involved 17 U.S. agencies, was ignored and not utilized after Hussein’s regime fell. In a speech on Tuesday, Feith stated “we are facing some of the problems brought on by our very success in the war.” Inept planning has nothing to do with the initial success of this war. In the hands of Gen. Schwartzkopf this nightmare would not have taken place. A former senior White House official said “You let him (Bush) go into this without a serious plan…for the endgame. It was staggeringly negligent on their part.” The “their” should be canned, and promptly. They have risked the lives of our fighting troops and this has led to casualties and wounded soldiers. It is time to protect our troops and our American families. Let’s get rid of the sewage in DC. Our environment must meet minimum ISDS regulations.
Next week the Snowman goes to England and Germany to meet with European finance officials. He shall create more anti-American sentiment as he spreads his message of blaming other countries for the economic ills in the U.S. He said “I want to talk to them about their consequences of their weak growth rates on us, on our (overall trade) deficit, and the importance to us of their having stronger domestic economies so they can buy more. We’d like Europe to take countermeasures appropriate to the circumstances of the individual economies.” Here is a Treasury Secretary demeaning other countries and he couldn’t even run a railroad properly. The man is inept and is perfect for the job. He believes our $400+ billion budget deficit for 2003 and $500 billion for next year are manageable. That’s just what Bush wants to hear. Like others in the Administration, he blames others and takes no responsibilities for failings. He is ideal for the job. His words fill up the leechfields and cesspools in DC. He has stated that the financial markets are not affected by the budget deficits. He must think everyone in the bond market is brain dead. He says the White House insists on tight spending discipline going forward. That is such BS. The fact is the Bush budget endorses a 4% increase in discretionary government spending levels at the same time the economy has grown by about 1 ½% in each of the last three quarters. That is hardly discipline. It reflects a CEO who is unwilling and incapable of making the tough decisions- like saying “read my lips. No more spending exceeding anticipated revenues.”
It’s been five months since I wrote about an interim WTO ruling concerning various tariffs imposed by the U.S. Yesterday, in Brussels, in a formal finding, the panel said that our steel tariffs had been introduced without proper justification and had broken trade rules. The European Commission has drawn up a list of $2 billion in goods that could face sanctions. There was no reason to have this matter carried to such lengths. The U.S. has had more than enough time to lift the steel tariffs, and the latter will not save this industry from foreign competition. It will only delay the funeral procession. In the meantime, the Administration has created additional ill-feelings at a time when we most need foreign capital to fund our deficit. It’s another case of biting the hand that supports our governmental spending habits.
WalMart opened its first store in Beijing and the company plans to open another 35 stores in China. They just keep making the smart moves.
Henry Boye: “The most important trip you may take in life is meeting people halfway.”
Penn State to raise tuition by 9.8% and Rutgers by 9%. Service sector prices rose 3.4% from a year ago in May but core wholesale prices fell 0.1% from May and 0.3% from a year ago as prices for autos, computers, and appliances declined. Core consumer prices in May rose just 1.6% from a year ago and slightly more than April’s 1 ½% rise which was the smallest since 1966. Core import prices rose 1.1% from a year ago in June due to the falling dollar.
Iraq’s purchase of 200 tons of uranium from Niger took place in the 1980s. Over a 20 year span I presume that information must have been known to several administrations.
A former Federal Reserve economist calls this the “manana forecast”- an economy that always will get better tomorrow.
Laura Chappelle, chairwoman of the Michigan Public Service Commission, warned that the state’s home owners will pay between $53 and $172 more each month this winter for gas heat.
The recent Washington Post-ABC News poll showed Bush’s overall job approval rating dropped to 59%, down 9% percentage points in the past 18 days. 52% believe there has been an “unacceptable” level of U.S. casualties in Iraq.
James Pike, 41, an auto mechanic from Ogdensburg, N.Y. : “If we have the capability of finding out that Joe Blow No-Name has dodged his taxes for the past 10 years, why don’t we have the capability of…finding a foolproof method of finding out whether the intelligence we gather is accurate and making it rock-solid before we jump into another situation?”
On Monday the Justice Department must decide whether to issue a second request for additional information on the proposed PeopleSoft/J.D. Edwards merger. In my view, there aren’t significant antitrust issues, and the combination could be completed in about a week.
In Korea the number of credit card delinquents has soared to 3 million.
Imports in May rose to the second highest level in two years, and contributed to a widening of the U.S. May trade gap to almost $42 billion. Maybe the Snowman should give a lecture to the American consumer on how to save. That would be the pot calling the kettle black.
The unemployment rate has risen for four consecutive months, and in June stood at 8.5%, the highest rate in nearly 17 years. It equals the jobless rate in California’s Santa Clara County.
Next week Tony Blair will be speaking to our Congress. Hopefully, the discussion will move past the uranium buy from Africa issue and hopefully focus on the ineptness of the occupation plans for post-war Iraq. A former senior official who left our government recently said “there was no real planning for post-war Iraq.” Said a former senior Pentagon official who is still a Defense Department advisor, “we could have done so much better.” The responsibility for this ineptness rests with Rumsfeld, Condoleeza Rice, Undersecretary of Defense for Policy Douglas Feith, William Luti, and ultimately, VP Cheney and Pres. Bush. It has been described that the work of the “Future of Iraq” project, which involved 17 U.S. agencies, was ignored and not utilized after Hussein’s regime fell. In a speech on Tuesday, Feith stated “we are facing some of the problems brought on by our very success in the war.” Inept planning has nothing to do with the initial success of this war. In the hands of Gen. Schwartzkopf this nightmare would not have taken place. A former senior White House official said “You let him (Bush) go into this without a serious plan…for the endgame. It was staggeringly negligent on their part.” The “their” should be canned, and promptly. They have risked the lives of our fighting troops and this has led to casualties and wounded soldiers. It is time to protect our troops and our American families. Let’s get rid of the sewage in DC. Our environment must meet minimum ISDS regulations.
Friday, July 11, 2003
7/11/03 False Pretenses
I am sure President Bush is a humanitarian. There is an earnest effort to provide AIDS relief for Botswana and to assist Liberians. The interest in those areas, however, pales in comparison to the focus on oil and natural gas. According to the World Market Research Center in London, Africa already supplies between 15% and 18% of the oil the U.S. imports, and that is projected to increase to 25% by 2015. Daniel Yergin, chairman of Cambridge Energy Research Associates, says “African oil is going to be of increasing importance to the world oil market, and topping the list are Nigeria and Angola.” Nigeria produces 2 million barrels of crude a day, and that’s a third of Africa’s total output. Of that, Nigeria exports 742,000 barrels a day to the U.S. or 8% of the total U.S crude oil imports of 9.2 million barrels a day. Angola accounts for 5.4% of U.S. oil imports. Nigeria also holds the world’s ninth largest storehouse of natural gas. According to the U.S. Geological Survey, there are 1.2 trillion barrels of proven oil reserves in the world. Of that, 77 billion are in Africa, about three times as much as in the U.S. In a recent analysis, James Burkhart of Cambridge Energy Research Associates stated “one out of every five barrels of growth in global oil production capacity to 2010 could come from West Africa.” The real purpose of the trip was quite transparent. The Johannesburg daily, the Mail & Guardian wrote about Bush’s trip that it “must be seen for what it is- hard-eyed self-service posing as a mercy mission…Bush’s primary concerns, as they were before the invasion of Iraq, are domestic security, the advancement of corporate America and the securing of strategic assets, mainly oil.” I have no problem with those concerns. Just say it up front. West Africans might be more appreciative and not have anti-Bush riots as they did in Pretoria earlier in the week.
The budget crisis is coming to a head in California. Sen. Tom Torlakson, D-Antioch, said Thursday “the reality is we’re heading toward insolvency. We are heading toward fiscal harm of a very significant nature.” The plan ,which will be signed, shall involve shifting taxes rather than imposing new ones. For example, there shall be a transfer of a half cent of the current sales tax from local government to a state fund dedicated to paying off a $10.7 billion loan over five years. To offset this loss, the state would shift to local governments property tax money that currently funds schools. To compensate the schools, money would come from the state general fund, and this plan would reduce the general fund during each of the next five years by $2.3 billion. Californians will need to adjust to musical tax chairs. Make no mistake. California is running out of funds. The state will quit paying contractors working on construction projects after July 20 due to the lack of funds in the state highway account.
If the Euronations talk down the euro, Japan sells the yen, and our Treasury department welcomes a weak dollar, who will be the long-term buyers of the respective currencies? German Chancellor Schroeder suggested the ECB should weaken its currency to help the region’s exports. Domestic demand remains weak. The European Commission said this week that Europe’s economy may fail to grow in the second and third quarters. The Bank of Japan sold significant amounts of yen in June after a record 4 trillion yen in May. Japan’s Ministry of Finance wants to limit yen appreciation in an effort to spur exports. The United States, unlike Germany and Japan, has a current account deficit and therefore has a need to attract about $2 billion a day to offset the deficit. As such, the U.S. is limited in its efforts to support a weak dollar policy. Nevertheless, our Treasury has suggested that our exports would be helped by a weaker dollar exhange rate vs the euro, pound, and yen. In sum, the Euronations, Japan, and the U.S. want to export themselves out of economic weakness. There is limited reality in this plan.
The landmark bilateral agreement between New Delhi and Beijing opens border trade through the northeastern state of Sikkim and its ancient trade pass at Nathula and China’s Tibet Autonomous Region. It is hoped that this agreement will lead to $10 billion in bilateral trade with India. Right now trade between the two countries is only $5 billion a year. The two governments also signed an agreement liberalizing issuing visas, and the latter would be six-month multiple entry visas with multiple stays of less than 90 days each to promote short-term travel.
In the headlines in the U.S. I read about a jobless recovery, a sluggish job market, and a spiritless economic start. Just like Bush’s trip to Africa is under false pretenses, so are the headlines about our economy misleading. The Labor Department said the number of unemployed workers who remained on the benefit rolls after filing an initial claim jumped by 87,000 to 3.82 million in the June 28 week, and this was the highest level since February 1983. This is not a sluggish job market. The job market sucks. There is no recovery. As for spiritless, it would be accurate to state we are still in a recession. There’s enough BS to fertilize all of the farmland in this country.
Penn Companies plans to close its manufacturing facility in Atlanta and will layoff 123 employees. They make and distribute embroidered emblems and their primary market is the uniform service and industrial laundry industries.
Since May 1, 77 of our soldiers have died in Iraq. Bush said there is a “security issue” in Iraq but vowed to “remain tough.” Gen. Tommy Franks told Congress “I anticipate we’ll be involved in Iraq in the future. Whether that means two years or four years, I don’t know.” We do know that this military campaign is costing at least one soldier’s life per day and $4 billion per month. If our cause is truly a just one, then we should have no trouble arranging for UN and NATO troops to join our efforts. If they balk, we should walk. A senior British official said Thursday it would be “extremely difficult” to find banned weapons whch justified the war. The British Broadcasting Corporation said on Thursday senior figures in London no longer believed banned missiles or chemical weapons would be found in Iraq. Rep. Ike Skelton, D-MO, the senior Democrat on the House Armed Services Committee, said “we cannot leave Iraq. This must be a success.” War and Wall Street have one thing definitely in common. Buy and hold strategies work in very few instances. To be truly successful, one must have an adroit exit strategy mapped out prior to entry. With respect to the latter, the U.S failed our troops miserably. Smart generals and smart investors know the first loss is the best loss. Americans recognize the joys of freedom and the responsibilities that come with freedom. Let’s keep it real. Iraq is not Nazi Germany.
Lastly, I get daily emails with respect to my bearish leanings. I take full responsibility. Readers don’t know me very well. I can be bullish on the Nikkei and bearish on the Nasdaq. I can be bearish on the U.S. dollar and bullish on the New Zealand Dollar. I always find good supportive evidence to be bearish in an area and bullish somewhere else. My timing is rarely on the mark, and probably never will be. Timing is an immense challenge. I will get the timing right on the money when it comes to risk arbitrage but not as it pertains to movements in the Dow or the Nasdaq, for example. In sum, I am never simply bullish or bearish.
I am sure President Bush is a humanitarian. There is an earnest effort to provide AIDS relief for Botswana and to assist Liberians. The interest in those areas, however, pales in comparison to the focus on oil and natural gas. According to the World Market Research Center in London, Africa already supplies between 15% and 18% of the oil the U.S. imports, and that is projected to increase to 25% by 2015. Daniel Yergin, chairman of Cambridge Energy Research Associates, says “African oil is going to be of increasing importance to the world oil market, and topping the list are Nigeria and Angola.” Nigeria produces 2 million barrels of crude a day, and that’s a third of Africa’s total output. Of that, Nigeria exports 742,000 barrels a day to the U.S. or 8% of the total U.S crude oil imports of 9.2 million barrels a day. Angola accounts for 5.4% of U.S. oil imports. Nigeria also holds the world’s ninth largest storehouse of natural gas. According to the U.S. Geological Survey, there are 1.2 trillion barrels of proven oil reserves in the world. Of that, 77 billion are in Africa, about three times as much as in the U.S. In a recent analysis, James Burkhart of Cambridge Energy Research Associates stated “one out of every five barrels of growth in global oil production capacity to 2010 could come from West Africa.” The real purpose of the trip was quite transparent. The Johannesburg daily, the Mail & Guardian wrote about Bush’s trip that it “must be seen for what it is- hard-eyed self-service posing as a mercy mission…Bush’s primary concerns, as they were before the invasion of Iraq, are domestic security, the advancement of corporate America and the securing of strategic assets, mainly oil.” I have no problem with those concerns. Just say it up front. West Africans might be more appreciative and not have anti-Bush riots as they did in Pretoria earlier in the week.
The budget crisis is coming to a head in California. Sen. Tom Torlakson, D-Antioch, said Thursday “the reality is we’re heading toward insolvency. We are heading toward fiscal harm of a very significant nature.” The plan ,which will be signed, shall involve shifting taxes rather than imposing new ones. For example, there shall be a transfer of a half cent of the current sales tax from local government to a state fund dedicated to paying off a $10.7 billion loan over five years. To offset this loss, the state would shift to local governments property tax money that currently funds schools. To compensate the schools, money would come from the state general fund, and this plan would reduce the general fund during each of the next five years by $2.3 billion. Californians will need to adjust to musical tax chairs. Make no mistake. California is running out of funds. The state will quit paying contractors working on construction projects after July 20 due to the lack of funds in the state highway account.
If the Euronations talk down the euro, Japan sells the yen, and our Treasury department welcomes a weak dollar, who will be the long-term buyers of the respective currencies? German Chancellor Schroeder suggested the ECB should weaken its currency to help the region’s exports. Domestic demand remains weak. The European Commission said this week that Europe’s economy may fail to grow in the second and third quarters. The Bank of Japan sold significant amounts of yen in June after a record 4 trillion yen in May. Japan’s Ministry of Finance wants to limit yen appreciation in an effort to spur exports. The United States, unlike Germany and Japan, has a current account deficit and therefore has a need to attract about $2 billion a day to offset the deficit. As such, the U.S. is limited in its efforts to support a weak dollar policy. Nevertheless, our Treasury has suggested that our exports would be helped by a weaker dollar exhange rate vs the euro, pound, and yen. In sum, the Euronations, Japan, and the U.S. want to export themselves out of economic weakness. There is limited reality in this plan.
The landmark bilateral agreement between New Delhi and Beijing opens border trade through the northeastern state of Sikkim and its ancient trade pass at Nathula and China’s Tibet Autonomous Region. It is hoped that this agreement will lead to $10 billion in bilateral trade with India. Right now trade between the two countries is only $5 billion a year. The two governments also signed an agreement liberalizing issuing visas, and the latter would be six-month multiple entry visas with multiple stays of less than 90 days each to promote short-term travel.
In the headlines in the U.S. I read about a jobless recovery, a sluggish job market, and a spiritless economic start. Just like Bush’s trip to Africa is under false pretenses, so are the headlines about our economy misleading. The Labor Department said the number of unemployed workers who remained on the benefit rolls after filing an initial claim jumped by 87,000 to 3.82 million in the June 28 week, and this was the highest level since February 1983. This is not a sluggish job market. The job market sucks. There is no recovery. As for spiritless, it would be accurate to state we are still in a recession. There’s enough BS to fertilize all of the farmland in this country.
Penn Companies plans to close its manufacturing facility in Atlanta and will layoff 123 employees. They make and distribute embroidered emblems and their primary market is the uniform service and industrial laundry industries.
Since May 1, 77 of our soldiers have died in Iraq. Bush said there is a “security issue” in Iraq but vowed to “remain tough.” Gen. Tommy Franks told Congress “I anticipate we’ll be involved in Iraq in the future. Whether that means two years or four years, I don’t know.” We do know that this military campaign is costing at least one soldier’s life per day and $4 billion per month. If our cause is truly a just one, then we should have no trouble arranging for UN and NATO troops to join our efforts. If they balk, we should walk. A senior British official said Thursday it would be “extremely difficult” to find banned weapons whch justified the war. The British Broadcasting Corporation said on Thursday senior figures in London no longer believed banned missiles or chemical weapons would be found in Iraq. Rep. Ike Skelton, D-MO, the senior Democrat on the House Armed Services Committee, said “we cannot leave Iraq. This must be a success.” War and Wall Street have one thing definitely in common. Buy and hold strategies work in very few instances. To be truly successful, one must have an adroit exit strategy mapped out prior to entry. With respect to the latter, the U.S failed our troops miserably. Smart generals and smart investors know the first loss is the best loss. Americans recognize the joys of freedom and the responsibilities that come with freedom. Let’s keep it real. Iraq is not Nazi Germany.
Lastly, I get daily emails with respect to my bearish leanings. I take full responsibility. Readers don’t know me very well. I can be bullish on the Nikkei and bearish on the Nasdaq. I can be bearish on the U.S. dollar and bullish on the New Zealand Dollar. I always find good supportive evidence to be bearish in an area and bullish somewhere else. My timing is rarely on the mark, and probably never will be. Timing is an immense challenge. I will get the timing right on the money when it comes to risk arbitrage but not as it pertains to movements in the Dow or the Nasdaq, for example. In sum, I am never simply bullish or bearish.
Thursday, July 10, 2003
7/10/03 Twenty One Consecutive Weeks
Filings for unemployment benefits have exceeded 400,000 for 21 consecutive weeks. That’s the longest since a near 2 year period which ended in July 1992. The average number of jobless workers filing for initial state unemployment benefits over the past four weeks rose by 1,000 to 426,750 in the week ending July 5. The number filing in the most recent week increased 5,000 to 439,000, the most in five weeks.
William Cheney, chief economist at John Hancock Financial Services, “unless the labor market starts growing again soon, the odds of another recession will rise.”
The Bank of England cut its benchmark interest rate a quarter of a point to 3.5%. Interest rates were last lower in 1954. The bank said in a statement: “the global economy recovery has remained hesitant. Although the preconditions for recovery remain in place, the prospects for external demand for U.K. output is weaker than previously expected.” That is a sage observation, and one which, in my view, is an apt description of the current conditions for external demand for U.S. output. The U.K.’s GDP grew at its slowest pace in a decade in the first quarter, falling short of the bank’s forecasts. I believe the same thing will be stated for the second quarter. The bank will release new quarterly forecasts next month.
In the current CFO they discussed a subject which I had just touched on the other day in my blog. It is a matter which disturbs me greatly. CFO states: “the Administration may extend the current 2002 law that allows employers to use a slightly higher discount rate to value their pension liabilities-which shrinks the mandatory funding obligations. Or it may issue a proposal for long term funding changes, including use of a yield curve.” In 2002 companies faced pension shortfalls of $220 billion. They are obligations. Fund the obligations promptly. There is already enough unrest in the workplace.
Springs Industries will close plants and layoff 630 employees. DuPont Photomasks will cut 5% of the workforce or about 100 jobs.
WalMart said June same-store sales rose 2.7%; however, inventory levels remained higher than expected.
China has set a target for 7% annual economic growth for the current 10th Five-Year Plan (FYP, 2001-2005). China’s GDP growth rates for 2001 and 2002 were 7.3% and 8.1%, respectively, according to the National Bureau of Statistics.
The monthly Western Washington report from the NAPM showed the regional index falling to 49.8 in June from May’s 51.8. For the past three months this index has been around the 50 level. Importantly, only 9% of survey respondents currently expect to add employees while 60% expect employment levels to remain the same.
For the second straight month U.S. wholesale inventories decreased 0.3%. Wholesale sales for the month of May declined 0.5%, and this was an improvement from April’s drop of 2.5%. It should be noted that wholesale inventories account for 25% of business inventories while retail and factory stockpiles make up the rest.
It was reported that Moody’s delinquency index on credit card payments 30 days late rose to 5.20% in May from 4.86% a year earlier.. May’s charge-offs rose to 7.05% from 6.46% a year ago and from 7% in April. In addition, May bankruptcy filings were up 10% from year-ago levels.
The consumer group, FAMILIES USA, reported that the price of the 50 prescription drugs most commonly prescribed to senior citizens in the U.S. rose nearly 3.5 times faster than inflation in 2002. They said: “for seniors on fixed incomes with no drug coverage, increases at that level make it impossible to continue purchasing the medications they need…more and more are being forced to go without much-needed medication.”
In Europe, the May unemployment rate rose to 8.8%, and it remains higher than that of other major industrial economies. South Korea reported that its economy shrank into a recession as its economy continues to have difficulty. Hyundai’s Choi K. Seon said “we have a strong won, high labor cost, and the uncertainty of the U.S. economic rebound.”
J.P. Morgan airline analyst Jamie Baker said “we see little evidence to suggest that the overall demand for air travel is increasing.” Cost-cutting remains a major focus for the airlines, and this means lower wages and more layoffs.
Oracle’s Ellison in talking about PeopleSoft’s Conway: “at one point Craigey thought I was going to shoot his dog. I love animals. If Craigey and Bear (Conway’s dog) were standing next to each other and I had one bullet, trust me, it wouldn’t be for the dog.” Actually, he wouldn’t have one bullet left. Ellison already shot himself in the foot when he started his hostile offer. But there is good news on the way for Ellison. Kimberly-Clark is introducing a jumbo roll of toilet paper with a filled-in hole. He can be the first on his block to use it after PeopleSoft completes the acquisition of J.D. Edwards and after receiving bad news from the Justice department as well as the courts.
President Bush: “Look, there is no doubt in my mind that Saddam Hussein was a threat to world peace.” Iraq did not have a nuclear warhead and wasn’t buying uranium to make one. No one has found any WMD. Hussein may have been a threat to his own people. That doesn’t make him a threat to world peace.
Filings for unemployment benefits have exceeded 400,000 for 21 consecutive weeks. That’s the longest since a near 2 year period which ended in July 1992. The average number of jobless workers filing for initial state unemployment benefits over the past four weeks rose by 1,000 to 426,750 in the week ending July 5. The number filing in the most recent week increased 5,000 to 439,000, the most in five weeks.
William Cheney, chief economist at John Hancock Financial Services, “unless the labor market starts growing again soon, the odds of another recession will rise.”
The Bank of England cut its benchmark interest rate a quarter of a point to 3.5%. Interest rates were last lower in 1954. The bank said in a statement: “the global economy recovery has remained hesitant. Although the preconditions for recovery remain in place, the prospects for external demand for U.K. output is weaker than previously expected.” That is a sage observation, and one which, in my view, is an apt description of the current conditions for external demand for U.S. output. The U.K.’s GDP grew at its slowest pace in a decade in the first quarter, falling short of the bank’s forecasts. I believe the same thing will be stated for the second quarter. The bank will release new quarterly forecasts next month.
In the current CFO they discussed a subject which I had just touched on the other day in my blog. It is a matter which disturbs me greatly. CFO states: “the Administration may extend the current 2002 law that allows employers to use a slightly higher discount rate to value their pension liabilities-which shrinks the mandatory funding obligations. Or it may issue a proposal for long term funding changes, including use of a yield curve.” In 2002 companies faced pension shortfalls of $220 billion. They are obligations. Fund the obligations promptly. There is already enough unrest in the workplace.
Springs Industries will close plants and layoff 630 employees. DuPont Photomasks will cut 5% of the workforce or about 100 jobs.
WalMart said June same-store sales rose 2.7%; however, inventory levels remained higher than expected.
China has set a target for 7% annual economic growth for the current 10th Five-Year Plan (FYP, 2001-2005). China’s GDP growth rates for 2001 and 2002 were 7.3% and 8.1%, respectively, according to the National Bureau of Statistics.
The monthly Western Washington report from the NAPM showed the regional index falling to 49.8 in June from May’s 51.8. For the past three months this index has been around the 50 level. Importantly, only 9% of survey respondents currently expect to add employees while 60% expect employment levels to remain the same.
For the second straight month U.S. wholesale inventories decreased 0.3%. Wholesale sales for the month of May declined 0.5%, and this was an improvement from April’s drop of 2.5%. It should be noted that wholesale inventories account for 25% of business inventories while retail and factory stockpiles make up the rest.
It was reported that Moody’s delinquency index on credit card payments 30 days late rose to 5.20% in May from 4.86% a year earlier.. May’s charge-offs rose to 7.05% from 6.46% a year ago and from 7% in April. In addition, May bankruptcy filings were up 10% from year-ago levels.
The consumer group, FAMILIES USA, reported that the price of the 50 prescription drugs most commonly prescribed to senior citizens in the U.S. rose nearly 3.5 times faster than inflation in 2002. They said: “for seniors on fixed incomes with no drug coverage, increases at that level make it impossible to continue purchasing the medications they need…more and more are being forced to go without much-needed medication.”
In Europe, the May unemployment rate rose to 8.8%, and it remains higher than that of other major industrial economies. South Korea reported that its economy shrank into a recession as its economy continues to have difficulty. Hyundai’s Choi K. Seon said “we have a strong won, high labor cost, and the uncertainty of the U.S. economic rebound.”
J.P. Morgan airline analyst Jamie Baker said “we see little evidence to suggest that the overall demand for air travel is increasing.” Cost-cutting remains a major focus for the airlines, and this means lower wages and more layoffs.
Oracle’s Ellison in talking about PeopleSoft’s Conway: “at one point Craigey thought I was going to shoot his dog. I love animals. If Craigey and Bear (Conway’s dog) were standing next to each other and I had one bullet, trust me, it wouldn’t be for the dog.” Actually, he wouldn’t have one bullet left. Ellison already shot himself in the foot when he started his hostile offer. But there is good news on the way for Ellison. Kimberly-Clark is introducing a jumbo roll of toilet paper with a filled-in hole. He can be the first on his block to use it after PeopleSoft completes the acquisition of J.D. Edwards and after receiving bad news from the Justice department as well as the courts.
President Bush: “Look, there is no doubt in my mind that Saddam Hussein was a threat to world peace.” Iraq did not have a nuclear warhead and wasn’t buying uranium to make one. No one has found any WMD. Hussein may have been a threat to his own people. That doesn’t make him a threat to world peace.
Wednesday, July 09, 2003
7/09/03 Intelligence+Fraudulent Information=Refuse
As Al Pacino said in Scent of a Woman, “I’ve been around you know.” Yesterday, I received an email stating I like to argue. On the contrary, I do not like to argue. There are just so many hours in the day, and I don’t have the temperament or patience to sift through garbage. I don’t collect garbage, and I refuse to clean up after it. On Wall Street, to be successful, one must diligently mine thru the information released to the investing public. A good deal of information is worthless and some is fraudulent. We’re not trying to reinvent the wheel. We’re simply trying to make money the old-fashioned way- we earn it.
Risk arbitrage is one avenue for making a living. In the last few days several M&A deals have been announced. That has gotten the media all excited. They have a story which has been in moth balls. Don’t get too worked up. Most big acquisitions don’t work, and most of these announced deals are flawed from the start- just like Oracle’s bid for PeopleSoft, which will become a textbook example at Harvard Business School of how not to make a hostile merger offer. The best of the four deals just announced is Alcan’s offer for Pechiney. Alcan has been around the block before with this company. They want to buy Pechiney and will pay the necessary price to get Pechiney’s board of directors on board. Eventually, after much postering, the European government officials will approve the deal. It will be a bit like Nestle’s takeover of Dreyers in the U.S. There might be some scares along the way. If so, take advantage of the scares and I believe the rewards will come your way. Ignore reading the papers and listening to the media and ignore analysts. They haven’t a clue about risk arbitrage.
Next is EMC’s acquisition of Legato. It’s straightforward. There won’t be another bidder. You get 0.9 of a share of EMC for each Legato share, and that’s generous. The deal will close in the fourth quarter. Legato employs 1500 people, and maybe 150 shall be let go. The deal makes some sense for EMC as Legato’s software analyzes, backs up, and recovers data on computers.
Yellow Corp. is buying the larger Roadway Corp. At the outset I tell you I do not like trucking deals. I try to stay away from the Teamsters. Why do I need to go looking for trouble? Roadway deals with the retail customer and Yellow more to the manufacturing end. This deal involves and centers around lowering costs. These two companies have not grown their revenues for years. Their profit margins are an embarrassment.
Roadway has already told analysts that earnings would be disappointing. This deal will be done with part cash and part stock. You get $48 for the cash portion. The remainder you get 1.924 shares of Yellow common and there is a collar of plus or minus 15% from the $24.95 per Yellow share.
The last deal to be discussed is the smaller ArvinMeritor hostile $15 tender for Dana. Arvin has made prior overtures to no avail. Dana employs 60,000 people and has revenues of almost $10 billion. Arvin’s workforce is half the size and revenues are about 45% less. Arvin will pay more for Dana but the latter will sell to another party more to its liking. If successful, the combination of Arvin and Dana would have a highly leveraged balance sheet in an industry, auto parts, which offers limited growth potential. Full year earnings for Dana will approximate $1.15 per share. The industry is marked by poor ROI and suppliers like Dana are under pressure to provide cost reductions to customers. Dana has a respected name. Maybe another company will pay $19 for Dana. There is some upside but not much. The stock traded at $17+ yesterday. You might consider pulling the trigger on a Dana put- as a seller.
All of the above acquisitions involve consolidation and not growth. They involve layoffs and not hiring. They are a sign of the times and not an indication that business is about to turn the corner. I’ve been a buyer of companies. I did not lay off people. I expanded facilities I purchased. I didn’t consolidate. I aggressively expanded the presence in the marketplace. These acquisitions are not moneymakers for shareholders. They leave too many questions unanswered. For me it’s simple. The people making the buying decisions have trouble running their own show. Making the show larger just creates more opportunities for disappointment down the line.
Yesterday GM announced their cash rebates and interest-free loans would be extended through July 31. The company said customers had developed “incentive burnout,” a term that refers to customers taking incentives for granted and for the failure of those incentives to draw customers into the showroom. Significantly, GM’s inventories are about 21% above normal at the end of June.
Consumer debt in May increased by 5% or $7.3 billion to $1.76 trillion. That’s a pile of debt.
I would like to turn the attention to a very important area. The thinking about a weak dollar helping our exports is flawed. Yes, there will be some improvement but not a great deal. It took me some time to realize why that is. In 2002, for the first time since 1961, Japan imported more from China than the U.S. Taiwan and South Korea, along with other ASEAN countries, all reported 50% increases in their exports to China in 2002 while their exports to the U.S remained flat. The economies in Asia, which are seeing above average growth rates, are becoming less reliant on the U.S. market and focusing more on regional trade throughout Asia. It is highly important to note that, in 2001, 25% of the United States’ total exports went to the Pacific Rim. Their value amounted to $182 billion, and equated to the same percentage and same dollar value as our exports to Europe. In 2002 the percentages changed slightly to 26% and 24%, respectively. More than a third of our exports in 2002 went to Canada and Mexico. The U.S. share of world exports is roughly 12-13%. The economies in Europe are weak. Mexico is showing limited growth. The Pacific Rim nations are emphasizing regional transactions, and this is not a short-run situation. The growth potential for our exports is not expanding. Our horizon is shrinking. This is just one more reason why GDP estimates for the second half of 2003 and for next year are way too high.
A U.S. federal appeals court yesterday rejected Vice President Cheney’s request that it block a lawsuit seeking papers from his energy task force. U.S. District Court Sullivan said “carefully focused discovery will fully protect the vice president.” It will, hopefully, provide some transparency to the American people.
The new Pew Research Center poll shows increasing criticism for Bush’s handling of the economy and health care problems. His overall approval rating slipped to 60%. On April 9 it was 74%.
As Al Pacino said in Scent of a Woman, “I’ve been around you know.” Yesterday, I received an email stating I like to argue. On the contrary, I do not like to argue. There are just so many hours in the day, and I don’t have the temperament or patience to sift through garbage. I don’t collect garbage, and I refuse to clean up after it. On Wall Street, to be successful, one must diligently mine thru the information released to the investing public. A good deal of information is worthless and some is fraudulent. We’re not trying to reinvent the wheel. We’re simply trying to make money the old-fashioned way- we earn it.
Risk arbitrage is one avenue for making a living. In the last few days several M&A deals have been announced. That has gotten the media all excited. They have a story which has been in moth balls. Don’t get too worked up. Most big acquisitions don’t work, and most of these announced deals are flawed from the start- just like Oracle’s bid for PeopleSoft, which will become a textbook example at Harvard Business School of how not to make a hostile merger offer. The best of the four deals just announced is Alcan’s offer for Pechiney. Alcan has been around the block before with this company. They want to buy Pechiney and will pay the necessary price to get Pechiney’s board of directors on board. Eventually, after much postering, the European government officials will approve the deal. It will be a bit like Nestle’s takeover of Dreyers in the U.S. There might be some scares along the way. If so, take advantage of the scares and I believe the rewards will come your way. Ignore reading the papers and listening to the media and ignore analysts. They haven’t a clue about risk arbitrage.
Next is EMC’s acquisition of Legato. It’s straightforward. There won’t be another bidder. You get 0.9 of a share of EMC for each Legato share, and that’s generous. The deal will close in the fourth quarter. Legato employs 1500 people, and maybe 150 shall be let go. The deal makes some sense for EMC as Legato’s software analyzes, backs up, and recovers data on computers.
Yellow Corp. is buying the larger Roadway Corp. At the outset I tell you I do not like trucking deals. I try to stay away from the Teamsters. Why do I need to go looking for trouble? Roadway deals with the retail customer and Yellow more to the manufacturing end. This deal involves and centers around lowering costs. These two companies have not grown their revenues for years. Their profit margins are an embarrassment.
Roadway has already told analysts that earnings would be disappointing. This deal will be done with part cash and part stock. You get $48 for the cash portion. The remainder you get 1.924 shares of Yellow common and there is a collar of plus or minus 15% from the $24.95 per Yellow share.
The last deal to be discussed is the smaller ArvinMeritor hostile $15 tender for Dana. Arvin has made prior overtures to no avail. Dana employs 60,000 people and has revenues of almost $10 billion. Arvin’s workforce is half the size and revenues are about 45% less. Arvin will pay more for Dana but the latter will sell to another party more to its liking. If successful, the combination of Arvin and Dana would have a highly leveraged balance sheet in an industry, auto parts, which offers limited growth potential. Full year earnings for Dana will approximate $1.15 per share. The industry is marked by poor ROI and suppliers like Dana are under pressure to provide cost reductions to customers. Dana has a respected name. Maybe another company will pay $19 for Dana. There is some upside but not much. The stock traded at $17+ yesterday. You might consider pulling the trigger on a Dana put- as a seller.
All of the above acquisitions involve consolidation and not growth. They involve layoffs and not hiring. They are a sign of the times and not an indication that business is about to turn the corner. I’ve been a buyer of companies. I did not lay off people. I expanded facilities I purchased. I didn’t consolidate. I aggressively expanded the presence in the marketplace. These acquisitions are not moneymakers for shareholders. They leave too many questions unanswered. For me it’s simple. The people making the buying decisions have trouble running their own show. Making the show larger just creates more opportunities for disappointment down the line.
Yesterday GM announced their cash rebates and interest-free loans would be extended through July 31. The company said customers had developed “incentive burnout,” a term that refers to customers taking incentives for granted and for the failure of those incentives to draw customers into the showroom. Significantly, GM’s inventories are about 21% above normal at the end of June.
Consumer debt in May increased by 5% or $7.3 billion to $1.76 trillion. That’s a pile of debt.
I would like to turn the attention to a very important area. The thinking about a weak dollar helping our exports is flawed. Yes, there will be some improvement but not a great deal. It took me some time to realize why that is. In 2002, for the first time since 1961, Japan imported more from China than the U.S. Taiwan and South Korea, along with other ASEAN countries, all reported 50% increases in their exports to China in 2002 while their exports to the U.S remained flat. The economies in Asia, which are seeing above average growth rates, are becoming less reliant on the U.S. market and focusing more on regional trade throughout Asia. It is highly important to note that, in 2001, 25% of the United States’ total exports went to the Pacific Rim. Their value amounted to $182 billion, and equated to the same percentage and same dollar value as our exports to Europe. In 2002 the percentages changed slightly to 26% and 24%, respectively. More than a third of our exports in 2002 went to Canada and Mexico. The U.S. share of world exports is roughly 12-13%. The economies in Europe are weak. Mexico is showing limited growth. The Pacific Rim nations are emphasizing regional transactions, and this is not a short-run situation. The growth potential for our exports is not expanding. Our horizon is shrinking. This is just one more reason why GDP estimates for the second half of 2003 and for next year are way too high.
A U.S. federal appeals court yesterday rejected Vice President Cheney’s request that it block a lawsuit seeking papers from his energy task force. U.S. District Court Sullivan said “carefully focused discovery will fully protect the vice president.” It will, hopefully, provide some transparency to the American people.
The new Pew Research Center poll shows increasing criticism for Bush’s handling of the economy and health care problems. His overall approval rating slipped to 60%. On April 9 it was 74%.
Tuesday, July 08, 2003
7/08/03 Sun Valley
Wall Street started the week with a big fireworks display. By week’s end, my feeling is the big news will come out of Sun Valley, Idaho. This week is the Allen & Co. conference in Sun Valley. Most investors have never heard of Allen &Co. I have. It has been my pleasure to have a relationship with that firm going back 30 years. The company was started by Charlie Allen, and his nephew now runs the business. Charlie started as a runner in the 1920s and rose to become the most successful venture capitalist of his time. He helped start Syntex, which provided the birth control pill, and the precursor toWorldComm, among others. WorldComm had quite an uphill battle against the then all-powerful AT&T. This conference brings key businessmen together for one week, and that includes Bill Gates and Warren Buffett. From this conference has come various deals- Capitol Cities/ABC, Viacom and Blockbuster, Disney and the Fox Family Channel, and many others. This year a deal for Vivendi Universal could be finalized.
In the June 2003 volume of The Journal of Finance there is an important paper entitled “The Impact of Jumps in Volatility and Returns” by Eraker, Johannes, and Polson. Normally I don’t make reference to such studies for fear that my readers could get the idea I have the potential to be erudite. God forbid. These writers have been quite meticulous, and have left me with the feeling they know something about this subject matter. That is refreshing. Some of their findings: “Jumps in returns can generate large movements such as the crash of 1987, but the impact of a jump is transient. A jump in returns today has no impact on the future distribution of returns.” Another thought is “jumps in volatility fill the gap between jumps in returns and diffusive volatility by providing a rapidly moving but persistent factor that drives the conditional volatility of returns.” Importantly, they state, “jump risk, either in returns or in volatility, cannot typically be hedged away, and investors may demand a large premia to carry these risks.” Lastly, the writers point out the persistent effect of jumps in volatility on the distribution of returns; however, they state, “the presence of jumps in volatility does not eliminate the need for jumps in returns.” They provide formal evidence that jumps in volatility may remove the misspecification documented in models with diffusive stochastic volatility.
In 2002 our trade deficit with Japan was $70 billion. If Japan’s economy is to improve and GNP to expand by 1%, the major beneficiary will be the shipping industry as 90% of Japan’s cargo moves by ocean. During the past five years Japan’s big three ocean carriers- “K” Line, MOL, and NYK Line- reported increased sales and earnings. In a country slightly smaller than California, there are 127 million people. According to Bloomberg, 10 year U.S. treasury yields have tracked the Nikkei in the past year with a correlation of 0.77. Ten year U.S. treasuries are yielding about 3 ¾% and 10 year Japanese government bonds yield 1.17%. The latter were yielding 0.43% on June 11.
For months and months I have been describing the future fallout from state deficits. Yesterday you witnessed an example in realtime. Wendy’s lowered its projections for the second quarter and for the full year. New Ohio laws will make Wendy’s effective tax rate for the second quarter 39.5% and in the second half about 37%. Wendy’s is headquartered in Ohio, and that state has increased the rate at which it taxes franchise companies such as Wendy’s.
Investor Intelligence sentiment data indicates no bear market since 1964 has ended without at least 55% of newsletter writers turning bearish at or near the bottom. Over the past three years such bearishness has not exceeded 45%.
Yesterday A June survey by Goldman Sachs showed that 2003 IT spending outlaws are likely to remain little changed from a year earlier. That survey did not help BMC Software, as they said earnings and revenues would miss second quarter estimates. They blamed the disappointment on delays in purchasing decisions by larger customers. We have heard that refrain from others. Goldman Sachs expects IT spending to increase by 3.5% in 2004. That was a major reason for tech stocks to do better yesterday. In my view, a pick-up of 3.5% would make the Nasdaq overvalued by a significant amount. Today EMC announced buying Legato for .9 share of EMC. Consolidation will continue as growth prospects are limited, in my view.
Madness is in the works over this FT article on Microsoft possibly paying out a dividend of $10 billion. Can everybody be this stupid? It’s not going to happen. Listen to John Connors, Microsoft’s CFO: “But the most important thing that shareholders really have to understand is we’ve got to get our legal situation resolved and things behind us in terms of what those situations could have on our product development strategy, our licensing strategy, and our distribution strategy.” The company will continue to buyback shares and raise the dividend which is now a “starter dividend.” The increase will not knock your socks off.
According to Bloomberg, WalMart and Target account for 48% of the billions in products the 50 largest retailers sold in the U.S. last year. As such, it is wise to focus mainly on those two companies when assessing the retail industry and the consumer. Until they say differently, retail sales can be expected to grow at a very modest level.
The White House acknowledged that Bush (isn’t he the White House?) was incorrect in his State of the Union address to say that Iraq recently sought significant quantities of uranium. The blame was placed on incorrect intelligence. In my view, a smart leader takes full responsibilities for mistakes, and doesn’t place blame on others.
In the June 24 Ha’aretz there is a Bush quote related by Palestinian Prime Minister Mahmoud Abbas: God told me to strike al Qaida and I struck them, and then he instructed me to strike at Saddam, which I did, and now I am determined to solve the problem in the Middle East. If you can help me I will act, and if not, the elections will come and I will have to focus on them. I trust Bush has not received instructions from Above to change the pension rules and the contributions to those pensions. I trust this is his own doing. Let me indicate how strongly I feel on this subject. In Deleon Springs, Fla. a motorist drove home about a mile with the legless body of a pedestrian in his front windshield before calling authorities that he hit the man with his car. Investigators believe the legs were severed by the impact with the car. The driver didn’t stop to report the accident because he didn’t have a cell phone. Let me make this absolutely clear. There are strict pension laws in this nation. I have pointed out that corporations are severely in arrears in their pension contributions. They must make up those arrearages which are in the hundreds of billions of dollars. Bush wants to make it possible for corporations to alleviate this problem by reducing contributions. This will cut the legs out from those in the pension plans, and endanger their well-being. I know they have phones in the White House. Hopefully, Bush will make the calls necessary to take his idea off the table. That way it won’t be dead on arrival.
Wall Street started the week with a big fireworks display. By week’s end, my feeling is the big news will come out of Sun Valley, Idaho. This week is the Allen & Co. conference in Sun Valley. Most investors have never heard of Allen &Co. I have. It has been my pleasure to have a relationship with that firm going back 30 years. The company was started by Charlie Allen, and his nephew now runs the business. Charlie started as a runner in the 1920s and rose to become the most successful venture capitalist of his time. He helped start Syntex, which provided the birth control pill, and the precursor toWorldComm, among others. WorldComm had quite an uphill battle against the then all-powerful AT&T. This conference brings key businessmen together for one week, and that includes Bill Gates and Warren Buffett. From this conference has come various deals- Capitol Cities/ABC, Viacom and Blockbuster, Disney and the Fox Family Channel, and many others. This year a deal for Vivendi Universal could be finalized.
In the June 2003 volume of The Journal of Finance there is an important paper entitled “The Impact of Jumps in Volatility and Returns” by Eraker, Johannes, and Polson. Normally I don’t make reference to such studies for fear that my readers could get the idea I have the potential to be erudite. God forbid. These writers have been quite meticulous, and have left me with the feeling they know something about this subject matter. That is refreshing. Some of their findings: “Jumps in returns can generate large movements such as the crash of 1987, but the impact of a jump is transient. A jump in returns today has no impact on the future distribution of returns.” Another thought is “jumps in volatility fill the gap between jumps in returns and diffusive volatility by providing a rapidly moving but persistent factor that drives the conditional volatility of returns.” Importantly, they state, “jump risk, either in returns or in volatility, cannot typically be hedged away, and investors may demand a large premia to carry these risks.” Lastly, the writers point out the persistent effect of jumps in volatility on the distribution of returns; however, they state, “the presence of jumps in volatility does not eliminate the need for jumps in returns.” They provide formal evidence that jumps in volatility may remove the misspecification documented in models with diffusive stochastic volatility.
In 2002 our trade deficit with Japan was $70 billion. If Japan’s economy is to improve and GNP to expand by 1%, the major beneficiary will be the shipping industry as 90% of Japan’s cargo moves by ocean. During the past five years Japan’s big three ocean carriers- “K” Line, MOL, and NYK Line- reported increased sales and earnings. In a country slightly smaller than California, there are 127 million people. According to Bloomberg, 10 year U.S. treasury yields have tracked the Nikkei in the past year with a correlation of 0.77. Ten year U.S. treasuries are yielding about 3 ¾% and 10 year Japanese government bonds yield 1.17%. The latter were yielding 0.43% on June 11.
For months and months I have been describing the future fallout from state deficits. Yesterday you witnessed an example in realtime. Wendy’s lowered its projections for the second quarter and for the full year. New Ohio laws will make Wendy’s effective tax rate for the second quarter 39.5% and in the second half about 37%. Wendy’s is headquartered in Ohio, and that state has increased the rate at which it taxes franchise companies such as Wendy’s.
Investor Intelligence sentiment data indicates no bear market since 1964 has ended without at least 55% of newsletter writers turning bearish at or near the bottom. Over the past three years such bearishness has not exceeded 45%.
Yesterday A June survey by Goldman Sachs showed that 2003 IT spending outlaws are likely to remain little changed from a year earlier. That survey did not help BMC Software, as they said earnings and revenues would miss second quarter estimates. They blamed the disappointment on delays in purchasing decisions by larger customers. We have heard that refrain from others. Goldman Sachs expects IT spending to increase by 3.5% in 2004. That was a major reason for tech stocks to do better yesterday. In my view, a pick-up of 3.5% would make the Nasdaq overvalued by a significant amount. Today EMC announced buying Legato for .9 share of EMC. Consolidation will continue as growth prospects are limited, in my view.
Madness is in the works over this FT article on Microsoft possibly paying out a dividend of $10 billion. Can everybody be this stupid? It’s not going to happen. Listen to John Connors, Microsoft’s CFO: “But the most important thing that shareholders really have to understand is we’ve got to get our legal situation resolved and things behind us in terms of what those situations could have on our product development strategy, our licensing strategy, and our distribution strategy.” The company will continue to buyback shares and raise the dividend which is now a “starter dividend.” The increase will not knock your socks off.
According to Bloomberg, WalMart and Target account for 48% of the billions in products the 50 largest retailers sold in the U.S. last year. As such, it is wise to focus mainly on those two companies when assessing the retail industry and the consumer. Until they say differently, retail sales can be expected to grow at a very modest level.
The White House acknowledged that Bush (isn’t he the White House?) was incorrect in his State of the Union address to say that Iraq recently sought significant quantities of uranium. The blame was placed on incorrect intelligence. In my view, a smart leader takes full responsibilities for mistakes, and doesn’t place blame on others.
In the June 24 Ha’aretz there is a Bush quote related by Palestinian Prime Minister Mahmoud Abbas: God told me to strike al Qaida and I struck them, and then he instructed me to strike at Saddam, which I did, and now I am determined to solve the problem in the Middle East. If you can help me I will act, and if not, the elections will come and I will have to focus on them. I trust Bush has not received instructions from Above to change the pension rules and the contributions to those pensions. I trust this is his own doing. Let me indicate how strongly I feel on this subject. In Deleon Springs, Fla. a motorist drove home about a mile with the legless body of a pedestrian in his front windshield before calling authorities that he hit the man with his car. Investigators believe the legs were severed by the impact with the car. The driver didn’t stop to report the accident because he didn’t have a cell phone. Let me make this absolutely clear. There are strict pension laws in this nation. I have pointed out that corporations are severely in arrears in their pension contributions. They must make up those arrearages which are in the hundreds of billions of dollars. Bush wants to make it possible for corporations to alleviate this problem by reducing contributions. This will cut the legs out from those in the pension plans, and endanger their well-being. I know they have phones in the White House. Hopefully, Bush will make the calls necessary to take his idea off the table. That way it won’t be dead on arrival.
Monday, July 07, 2003
7/7/03 A Programmed Cyborg Meets Its Terminator: Productivity
I thought I might use a catchy heading to get your attention. I know Wall Street as a whole is ignoring this no-spin blog. Let me set the table in neat fashion. The average workweek of 33.7 hours is the lowest level since the government began keeping records in 1964. The number of part-time workers is 4.6 million, and that's up from 3.3 million only three years ago. No one can get an exact handle on the number of people who have stopped their job search. These are folks who have given up after 21 months of trying to find a job. Maybe the number is 3 million, as the Labor Department suggests. From my research I would estimate a more accurate number to be about five million. When you total those who are unemployed, those who are part-timers, and those who no longer are looking for a job, you arrive at a total of about 16 million people. That is approximately 6% of this nation's population, and that includes children and youngsters not yet eligible for the workforce, retirees, infirmed, etc. Erica Groshen, an economist with the Federal Reserve Bank of N.Y., says jobs are scarce and work hours limited because of increased productivity. In other words, advances in computers, telecommunications, and the internet have helped to make job cuts permanent and enabled service-sector jobs to be accomplished overseas. That may tell part of the story. Another part is the absence of top-line growth in industry. It should be noted that June was the 35th consecutive month of job losses in the manufacturing area. I do not believe for one second that an economic recovery will take place while this job picture is present. We should remember that, according to Thomson Financial, earnings increases for the third and fourth quarters of last year fell short of analysts' average midyear estimates by at least 60%. Analysts estimate that profit for companies in the S&P 500 will increase 12.8% this quarter and 21.4% next quarter. Last year analysts forecast that earnings would increase 16.6% in the third quarter and 28.5% in the fourth quarter. The actual numbers were 6.8% and 9.7%. Now you know why I don't read any reports by analysts. By the way, this wasn't a one-time mental error. Two years ago the estimate was for a profit decline of 6.2% and 5.3% in the third and fourth quarters. Actual earnings dropped 22% in both quarters.
Operation Sidewinder began a week ago. We have seen more of our soldiers wounded and killed in Iraq than before this offensive took place. We might rethink our plan of attack in this region.
The Nikkei closed at its highest level since August 27, 2002, and it was the 28th consecutive day where over 1 billion shares traded. The last time that happened was in February, 1989, the height of Japan's market bubble. Ten year Japanese government bond yields rose to 1.08%.
VF to acquire Nautica for $17 per share in cash., a 28% premium over the closing price on July 3. The dissident shareholders pushed and got a nice ROI.
At age 46 Martina Navratilova won her 20th Wimbleton title. This one was in mixed doubles with Leander Paes of India.
Finding Nemo will soon become the top grossing animated film of all time.
Yesterday's elections in Mexico were devastating to Vincente Fox, and the results were much worse than anticipated. The National Action Party lost 44 seats, the Party of the Democratic Revolution gained 37 seats, and the PRI added 20 seats. Lopez Obrador, with a popularity of over 80%, will become the prime mover in Mexico's political arena.
Alcan Inc. made a hostile offer for Pechiney SA. They made an offer of 123 euros and three Alcan shares for five Pechiney shares. That works out to about 41 euros per share. If successful, this would make Alcan the world's largest aluminum company. They are currently number two behind Alcoa. Alcan is being advised by Morgan Stanley and Lazard LLC, a good combination for a hostile offer. Last week Pechiney rose almost 9% in price. In August 1999 Alcan agreed to buy Pechiney and the aluminum and packaging units of Algroup. European regulators objected to the deal. Since then, Alcoa and Norsk have made large acquisitions. Thus, Alcan will have a better regulatory reception this time. I believe the deal will be completed but at a higher price.
I thought I might use a catchy heading to get your attention. I know Wall Street as a whole is ignoring this no-spin blog. Let me set the table in neat fashion. The average workweek of 33.7 hours is the lowest level since the government began keeping records in 1964. The number of part-time workers is 4.6 million, and that's up from 3.3 million only three years ago. No one can get an exact handle on the number of people who have stopped their job search. These are folks who have given up after 21 months of trying to find a job. Maybe the number is 3 million, as the Labor Department suggests. From my research I would estimate a more accurate number to be about five million. When you total those who are unemployed, those who are part-timers, and those who no longer are looking for a job, you arrive at a total of about 16 million people. That is approximately 6% of this nation's population, and that includes children and youngsters not yet eligible for the workforce, retirees, infirmed, etc. Erica Groshen, an economist with the Federal Reserve Bank of N.Y., says jobs are scarce and work hours limited because of increased productivity. In other words, advances in computers, telecommunications, and the internet have helped to make job cuts permanent and enabled service-sector jobs to be accomplished overseas. That may tell part of the story. Another part is the absence of top-line growth in industry. It should be noted that June was the 35th consecutive month of job losses in the manufacturing area. I do not believe for one second that an economic recovery will take place while this job picture is present. We should remember that, according to Thomson Financial, earnings increases for the third and fourth quarters of last year fell short of analysts' average midyear estimates by at least 60%. Analysts estimate that profit for companies in the S&P 500 will increase 12.8% this quarter and 21.4% next quarter. Last year analysts forecast that earnings would increase 16.6% in the third quarter and 28.5% in the fourth quarter. The actual numbers were 6.8% and 9.7%. Now you know why I don't read any reports by analysts. By the way, this wasn't a one-time mental error. Two years ago the estimate was for a profit decline of 6.2% and 5.3% in the third and fourth quarters. Actual earnings dropped 22% in both quarters.
Operation Sidewinder began a week ago. We have seen more of our soldiers wounded and killed in Iraq than before this offensive took place. We might rethink our plan of attack in this region.
The Nikkei closed at its highest level since August 27, 2002, and it was the 28th consecutive day where over 1 billion shares traded. The last time that happened was in February, 1989, the height of Japan's market bubble. Ten year Japanese government bond yields rose to 1.08%.
VF to acquire Nautica for $17 per share in cash., a 28% premium over the closing price on July 3. The dissident shareholders pushed and got a nice ROI.
At age 46 Martina Navratilova won her 20th Wimbleton title. This one was in mixed doubles with Leander Paes of India.
Finding Nemo will soon become the top grossing animated film of all time.
Yesterday's elections in Mexico were devastating to Vincente Fox, and the results were much worse than anticipated. The National Action Party lost 44 seats, the Party of the Democratic Revolution gained 37 seats, and the PRI added 20 seats. Lopez Obrador, with a popularity of over 80%, will become the prime mover in Mexico's political arena.
Alcan Inc. made a hostile offer for Pechiney SA. They made an offer of 123 euros and three Alcan shares for five Pechiney shares. That works out to about 41 euros per share. If successful, this would make Alcan the world's largest aluminum company. They are currently number two behind Alcoa. Alcan is being advised by Morgan Stanley and Lazard LLC, a good combination for a hostile offer. Last week Pechiney rose almost 9% in price. In August 1999 Alcan agreed to buy Pechiney and the aluminum and packaging units of Algroup. European regulators objected to the deal. Since then, Alcoa and Norsk have made large acquisitions. Thus, Alcan will have a better regulatory reception this time. I believe the deal will be completed but at a higher price.
Sunday, July 06, 2003
7/06/03 Decompression
When one goes diving without scuba gear, it can get a bit scary in the depths of the ocean. Should your upward return to the water’s surface be too fast, the nitrogen in your blood, compressed by the depths of the ocean, would not have time to decompress. Instead, it can expand like soda bubbles when a bottle is first opened. The result can be a brain embolism, a cardiopulmonary embolism, and a heart attack. The laws of physics are different on Wall Street. There you have the Fed, economists, and analysts of all kinds willing to provide navigational forecasts which, unfortunately, have often led to wealth embolisms.
Forty nine of fifty four economists recently surveyed by the Wall Street Journal expect the Dow to finish above 9000 this year. Even though these economists expect annualized growth of 3.5% in this year’s third quarter, 3.8% in the fourth quarter, and 3.8% in the first half of 2004, growth is not expected to be strong enough to create many new jobs. In fact, the unemployment rate, they say, is expected to remain unchanged through the end of this year and to only decline slightly by June 2004. Why do economists feel comfortable with a growth rate of 3.5%? Since 1930, that’s been the average GNP growth rate. Therefore, the average has produced a comfort level for the future. I prefer to be guided by the facts and not by the average. Additionally, forecasts are often clothed in errors of omission. For example, I can state the Nasdaq has just risen 25% in price since mid-March. That is true. Let’s take another view. The Wilshire 5000 Total Market Index tracks more than 5700 U.S.-based companies. It ended the week at 9,462, and this represents a rise of 1.6% from the prior year’s level. This too is true but gives a different picture. Over this period of time the Wilshire does not provide the same decompression dangers as the Nasdaq poses from the recent three month spurt. We are talking about the same market but different time references.
Decompression can happen in various venues. We had the tax act of 1986. It killed many tax deduction loopholes. One impacted the Arabian horse industry. Prior to the enactment of this tax act a top Arabian might have sold for $250,000. After the passage of the new tax act that same horse sold for $6,000. I know. I made such a purchase at that time. Over the past few years the Fed has made a concerted effort to bring down interest rates and this has produced record low mortgage rates. The latter have spurred the rise in home prices. Real estate in Carmel, CA has always been pricey- especially along the beach. A 2000 square foot home with two bedrooms might have fetched about $2.75 million at that location ten years ago. With no improvements, that same house was listed not too long ago at $16 million. The price has since been reduced. Inflation in this country is about 2%, and that’s only because of health care costs, and the price of natural gas, jet fuel, and gasoline. There is no economic justification for the house in Carmel to have that price tag. Supply and demand is not different from past circumstances. There was little economic justification for the price of Arabian horses either in the early 1980s- only as a tax shelter. Mortgage rates, according to the head of the MBA, have seen their lows. As they begin to rise, and they have in the last two weeks, then prices will decline.
The sole justification for present stock prices is the higher forecast for GNP growth. At the present time we are in a recession. The entity, which has described this economic situation, has not deemed current conditions favorable enough to warrant a change in this description. If the optimistic economists fail to envision better employment conditions, it is difficult to see where business will be expanding and business spending accelerating. Consumers will accept rebates and concessions and almost free money. When the cost of money begins to rise, and it has begun, the consumer will become a more fragile commodity. Short and long term interest rates are not sustainable at these levels. The same can appropriately be said about current stock prices. They reflect profit levels which will not be met, and that is not different from the condition which has existed since the recession began.
More than 25 million people rely on the Colorado River. The Imperial Irrigation District in southern California holds the rights to more water than any single user on the river, more than the states of Arizona, Nevada, Wyoming, and New Mexico. Nevada has exhausted its legal allocation of the river, and is searching for alternatives. Tim Barnett, a researcher at Scripps Institution of Oceanography, says warming temperatures will shorten the snow-melting season in the West’s high country and will reduce runoff by 17% to one-third on the Colorado River and other systems, leaving them unable to meet demands for the foreseeable future. The Fed can print money. They can’t produce water. Economists can produce forecasts for GNP growth. They can’t produce water to maintain the current growth patterns in Nevada, Phoenix, and other parts of the West. President Bush can cut taxes but he can’t restore water to overtaxed rivers. The laws of nature outlive the experts and the politicians.
I do have a bit of good news on this Sunday. Last night no one won the Powerball jackpot. That means on Wednesday the payoff rises to $240 million. There will be about 75 million tickets sold, maybe more, for that jackpot. A winner is anticipated. It could be you. What do you think the chances are that a Fed member, an economist, a stock analyst, or a politician will correctly match all six numbers in the drawing?
When one goes diving without scuba gear, it can get a bit scary in the depths of the ocean. Should your upward return to the water’s surface be too fast, the nitrogen in your blood, compressed by the depths of the ocean, would not have time to decompress. Instead, it can expand like soda bubbles when a bottle is first opened. The result can be a brain embolism, a cardiopulmonary embolism, and a heart attack. The laws of physics are different on Wall Street. There you have the Fed, economists, and analysts of all kinds willing to provide navigational forecasts which, unfortunately, have often led to wealth embolisms.
Forty nine of fifty four economists recently surveyed by the Wall Street Journal expect the Dow to finish above 9000 this year. Even though these economists expect annualized growth of 3.5% in this year’s third quarter, 3.8% in the fourth quarter, and 3.8% in the first half of 2004, growth is not expected to be strong enough to create many new jobs. In fact, the unemployment rate, they say, is expected to remain unchanged through the end of this year and to only decline slightly by June 2004. Why do economists feel comfortable with a growth rate of 3.5%? Since 1930, that’s been the average GNP growth rate. Therefore, the average has produced a comfort level for the future. I prefer to be guided by the facts and not by the average. Additionally, forecasts are often clothed in errors of omission. For example, I can state the Nasdaq has just risen 25% in price since mid-March. That is true. Let’s take another view. The Wilshire 5000 Total Market Index tracks more than 5700 U.S.-based companies. It ended the week at 9,462, and this represents a rise of 1.6% from the prior year’s level. This too is true but gives a different picture. Over this period of time the Wilshire does not provide the same decompression dangers as the Nasdaq poses from the recent three month spurt. We are talking about the same market but different time references.
Decompression can happen in various venues. We had the tax act of 1986. It killed many tax deduction loopholes. One impacted the Arabian horse industry. Prior to the enactment of this tax act a top Arabian might have sold for $250,000. After the passage of the new tax act that same horse sold for $6,000. I know. I made such a purchase at that time. Over the past few years the Fed has made a concerted effort to bring down interest rates and this has produced record low mortgage rates. The latter have spurred the rise in home prices. Real estate in Carmel, CA has always been pricey- especially along the beach. A 2000 square foot home with two bedrooms might have fetched about $2.75 million at that location ten years ago. With no improvements, that same house was listed not too long ago at $16 million. The price has since been reduced. Inflation in this country is about 2%, and that’s only because of health care costs, and the price of natural gas, jet fuel, and gasoline. There is no economic justification for the house in Carmel to have that price tag. Supply and demand is not different from past circumstances. There was little economic justification for the price of Arabian horses either in the early 1980s- only as a tax shelter. Mortgage rates, according to the head of the MBA, have seen their lows. As they begin to rise, and they have in the last two weeks, then prices will decline.
The sole justification for present stock prices is the higher forecast for GNP growth. At the present time we are in a recession. The entity, which has described this economic situation, has not deemed current conditions favorable enough to warrant a change in this description. If the optimistic economists fail to envision better employment conditions, it is difficult to see where business will be expanding and business spending accelerating. Consumers will accept rebates and concessions and almost free money. When the cost of money begins to rise, and it has begun, the consumer will become a more fragile commodity. Short and long term interest rates are not sustainable at these levels. The same can appropriately be said about current stock prices. They reflect profit levels which will not be met, and that is not different from the condition which has existed since the recession began.
More than 25 million people rely on the Colorado River. The Imperial Irrigation District in southern California holds the rights to more water than any single user on the river, more than the states of Arizona, Nevada, Wyoming, and New Mexico. Nevada has exhausted its legal allocation of the river, and is searching for alternatives. Tim Barnett, a researcher at Scripps Institution of Oceanography, says warming temperatures will shorten the snow-melting season in the West’s high country and will reduce runoff by 17% to one-third on the Colorado River and other systems, leaving them unable to meet demands for the foreseeable future. The Fed can print money. They can’t produce water. Economists can produce forecasts for GNP growth. They can’t produce water to maintain the current growth patterns in Nevada, Phoenix, and other parts of the West. President Bush can cut taxes but he can’t restore water to overtaxed rivers. The laws of nature outlive the experts and the politicians.
I do have a bit of good news on this Sunday. Last night no one won the Powerball jackpot. That means on Wednesday the payoff rises to $240 million. There will be about 75 million tickets sold, maybe more, for that jackpot. A winner is anticipated. It could be you. What do you think the chances are that a Fed member, an economist, a stock analyst, or a politician will correctly match all six numbers in the drawing?
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