8/10/03 Vacation Time

Would you be surprised to learn that Americans work almost a month longer than the Japanese and three months more than Germans? That news is brought to you by a Gallup study. Are you surprised to learn that increasing joblessness has created more stress in the workplace which has led to more absenteeism, employee turnover, depression, and violent behavior? To make matters worse, a poll conducted by Harris Interactive showed that 51% of Americans did not think they would take a summer vacation and an additional 7% had delayed plans. More families are squeezing weekend escapes into their busy lives, and thus, downsizing vacations just as employers are downsizing the workplace. There is medical evidence that an annual vacation can cut the risk of heart attack by 30% in men and 50% in women. Job security fears and monetary considerations are preventing longer vacations. People are increasingly afraid to leave the office for even a couple of workdays. With fewer people traveling, and shorter trips the growing norm, the tourism industry is being transformed. Tourist businesses will need to become accustomed to relying on strong weekends and weak weekdays.

This coming Thursday, August 14, marks the 68th birthday for Social Security. As I have said several times, many low- and middle-income workers pay more in social security taxes than they do in income taxes. These are the folks who can afford taxation the least. If one were to have an effective tax cut, it would begin with social security taxes. Unfortunately, politicians are afraid to implement changes in a social system on the road to ruination. In my opinion, as a generalization, the most inept individuals run for office. They couldn’t find similar job security in the private sector.

The Center for the Study of Rural America is based at the Federal Reserve Bank of Kansas City. According to their study, from 1991 to 1998, rural communities gained about 155,000 factory jobs. Last year, 45% of the jobs lost in manufacturing was in rural communities. Between 1998 and the end of 2002, rural towns have lost 13.4% of their manufacturing employment or 572,000 jobs. Workers in rural areas often have far fewer employment alternatives than their city counterparts. Billy Ray Hall, president of the North Carolina Rural Economic Development Center in Raleigh, N.C., says “what happens in warp speed is the workers fall out of the bottom of the economy.” Unfortunately, most economists don’t spend time on rural main street. I do. I smell the hopelessness and despair in the air. These communities will need to re-invent themselves. That’s easier said than done, and, at best, takes time to accomplish. By next week there could be more than 572,000 stories in rural America. Bush might consider leaving Crawford, Texas and start listening. He’s on a month’s vacation. That’s a lot more than anyone in the private sector can say.

At present, WalMart’s stores provide payroll cash checking as well as money orders and transfers. About 20% of the company’s customers don’t have a bank account. WalMart hopes to be able to initiate minimal banking services including the handling of debit transactions, and thus reduce the company’s costs. This will require governmental approval. Last year they were blocked from purchasing Franklin Bank of California.

Last week Bill Gates sold 5 million shares of Microsoft. He still owns 1 billion shares. That’s with a “b”.

8/09/03 Clip Clip

About 500,000 men a year in the U.S. get a vasectomy. There’s good news! Vasclip, made by VMBC of Roseville, Minn., has been approved by the FDA. The new procedure takes about 10 minutes and does not involve cutting, suturing, or cauterizing. The procedure costs about $350, and patients can return to normal activities in about a day. The clip is the size of a rice grain. The company didn’t mention whether it’s organic.

David Kay, a former UN weapons inspector now working for the U.S., has a team of 1,400 investigators looking for Iraq’s chemical and biological weapons. Kay told Congress his team is searching new sites almost daily, interviewing scientists and captured leaders, and sifting through thousands of pages of documents. In four months, not a gram of anthrax has been found and not an ounce of mustard gas. During the past four months, however, we have witnessed our soldiers getting killed and injured and wounded. In the report of the 100 successes during the first 100 days of occupation in Iraq, Bush failed to focus on the disasters. Errors of omission seem to be commonplace in Washington, DC.

The Bureau of Labor Statistics forecasts 10 million new jobs through 2010. I suggest we deep six this governmental agency. These folks must be sniffing glue in the workplace.

Federal, state, and local government jobs account for 16% of California’s workforce. With the state’s budget crisis, cutbacks have begun, and 9600 government jobs were terminated in July. That’s a start!

California’s Santa Clara County lost 6200 jobs from June to July. The entire state lost 22,000 jobs during this period. Since the recession started, 20% of Santa Clara County’s job base has been lost. Bill Leake, 57, was laid off 2 years ago from LSI Logic. He says “I’m not going to sit here and send letters anymore when I’m not going to get any responses. The callbacks never come.” To try and make ends meet, he does substitute teaching, and pay approximates $100 per day.

The first month of the state of Georgia’s new fiscal year was July. Their state tax revenue was down 5.4% in the month. The state continues to trim spending to meet expected revenues. It’s too bad the Congress doesn’t follow in this path.

In discussing job hiring, Kevin Hassett, an economist at the American Enterprise Institute, a conservative think tank, says “the odds are that we’re almost at the point of no return for the next election… I wish them good luck thinking long-term. But short-term things seem out of the question.”

According to the Tax Policy Center, a left-leaning group, “in 2003 those making between $100,000 and $200,000 received 23.2% of the benefits of the latest Bush tax bill, while those making between $40,000 and $50,000 received only 4.8% of the benefits.”

Zahra Ward-Murphy, a currency analyst at Dresdner Kleinwort Wasserstein (try saying that fast 10 times. You run out of saliva.), said yesterday “people are focusing on a U.S. recovery and a pick-up in growth. We don’t believe all the optimism.” It took someone out of the country to agree with me. I had to search far and wide for this person. I had to hire a private investigator. It was almost as difficult as finding Iraq’s WMD. Almost but not quite. I think we could have a contest. Everyone gets one guess. The question is: on what day won’t the U.S. be able to attract about $1.5 billion in foreign investment to offset the daily current account deficit? The prize, to be announced, shall be paid in gold coin. The latter’s true worth can be established. By the way, gold has held up very well this year. After rising to $380 per ounce and then falling to $320 per ounce, it has recovered to $358 per ounce.

Jim Prevo is the chief information officer at Green Mountain Coffee Roasters in Waterbury, Vt. His company uses PeopleSoft’s ERP software for his company’s general ledger, supply-chain, and employee-benefits systems. Prevo observes “And what Oracle’s saying is, ‘We’re going to keep your brain’s function static for the rest of your life. Or you can switch to our software.’” He says switching to Oracle, or to a competitor, “is the equivalent of performing a brain transplant. It’s expensive, and it might kill us.” Prevo says “if Oracle is successful in acquiring PeopleSoft, I will recommend to my board that we bring software development in-house.”

8/08/03 “Everything Is Being Produced By Nobody”

That’s the description Greenspan provided to an economy where the GDP is growing and unemployment is declining. Sounds like what we have now. Second quarter productivity rose at a 5.7% rate, and yet, the number of people continuing to collect jobless benefits rose by 72,000 in the week ended July 26, and now totals almost 3.7 million. Companies, like Fruit of the Loom, close plants because of competition with Asian imports, and 791 workers lose their jobs. One should ask how is it possible for initial jobless claims to decline as more jobs are lost? Only the government could create statistics to reflect this incongruity. How is it that the economy expanded at a 2.4% annual rate in the latest quarter and companies cut 170,000 workers from their payrolls? How can Americans make ends meet with unit labor costs falling at a 2.1% annual rate in the second quarter and with hours worked falling at a 2.2% pace? As Ray Bingham, President and CEO of Cadence Design Systems notes, “the growth that we’re seeing in the electronics business is more growth in productivity as a result of cost-cutting than any meaningful amount of revenue growth.” As I have asked so often, what P/E do you pay for cost-cutting? There is a plus. Higher productivity lowers inflation as unit labor costs decline. Of course, what difference does it make if nobody is there to produce the goods? You can always complain about poor service via Sprint equipment. Since October 2001 this company has cut more than 18,000 jobs, and might cut some more as they consider outsourcing certain technology jobs and sending them overseas. Hopefully, those new employees will have a strong command of the English language and are able to handle your complaints.

U.S. 30-year fixed-rate mortgages rose for the seventh consecutive week and now average 6.34%. Rates on 15-year mortgages rose for an eighth straight week to an average of 5.78%, and this is the highest level since Oct. 23, 2002. To put it in real terms, the monthly payment for a $165,000 30-year fixed rate mortgage on June 11 at 5.28% was $914.20, but this week is $1,035.33. The increase of more than $121 per month amounts to more than $43,600 over the term of the loan. As mortgage rates and refinancing rates increase, there will be a lessening of borrowing demand. As such, mortgage investors will have a lesser prepayment risk with less frenetic refinancing. This will diminish their involvement in the treasury market.

According to the Tax Policy Center, payroll taxes make up 34.9% of federal revenues and are expected to increase to 36.3% by 2004. Payroll taxes currently constitute 15.3% of employee payroll and employee contributions combined. Robert Walker, president of Get America Working!, says “cutting the payroll tax by 10% would increase employment 3% in the short term.” Don’t hold your breath for this cut. Payroll taxes fund Medicare and Social Security.

The Federal Reserve reported that outstanding consumer credit declined by $400 million in June to $1.76 trillion. Economists had been expecting a $7 billion increase. I continue to believe that increasing job losses will undermine consumer confidence, and with it, consumer spending will decline. In addition, higher mortgage and refinancing rates will place a greater burden on monthly debt payments by consumers. With less consumer spending and business spending remaining mute, I anticipate an economy which will provide many unpleasant surprises for equity holders.

There is a growing concern that U.S. supplies of natural gas will be insufficient to meet upcoming winter demand. Unquestionably, the supply and demand situation has become more serious. With it, prices for natural gas have been hovering around $5 per million BTUs. Consumers will pay more for natural gas this winter, and this too shall restrict consumers’ cash flow.

NYC’s CENTRAL Park was America’s “first urban park” and 2003 marks its 150th anniversary. I grew up in NYC and this park continues to hold much wonder for me.

Should you be visiting NYC, I suggest a visit to Cooper Hewitt’s second National Design Triennial which showcases the works of 80 designers. Not to be missed is Yuske Obuchi’s Wave Garden, an extraordinary model of a power plant designed to float on the surface of the Pacific Ocean off Southern California. The plant generates clean energy by using the motion of the sea. Yuske Obuchi is a student at Princeton’s School of Architecture.

8/07/03 Rust Not Bust

According to the National Association of Realtors, typical home prices have risen more than 20% since 2000, but typical monthly payments actually fell by 6.2% to $774. This irrational development was brought to you by the Fed’s 13 rate decreases. The Fed made the markets believe that a flick of interest rates could selectively countermand supply and demand. As home prices rose, the homeowner’s equity rose and helped to offset the “poor effect” created in the bear market between March, 2000 and March, 2003. At the same time, the Fed created the illusion that they just might go in and buy long term treasuries in an effort to counter the deflation threat. The Fed couldn’t pull this off without help. They got plenty of that from the home buyer and refi buyer, the mortgage companies, and bond buyers. For some, reality will never set in. There are many who believe that higher mortgage rates will not create a bust in the housing market. Richard Berner, chief economist at Morgan Stanley, says “home prices will rust, not bust, for the next few years.” Only time will tell the story. Maybe supply and demand don’t matter in the 21st century. If you believe that, I could sell you an oil well in Iraq.

WalMart’s same store sales in July rose 4.6% and they estimate a rise of between 3 and 5% for August. Their earnings for this quarter will be 52 cents, and that’s 2 cents above prior estimates. The stock should do pretty well today and possibly make a new high for the year. As you all know, WMT is my favorite stock holding. Fortunately, I only fall in love with my family and not stocks. WMT is now selling at about 29 times next year’s earnings. That’s a bit rich for me, and, as such, I will cut back on my holdings today. I will take a new look when and if the stock declines at least 10 points from here.

For 2004 the Fed estimates that the price index will rise between 1 and 1.5% in 2004. That’s a far cry from the near 4% growth they anticipate during this time period. Growth without inflation is a great mantra. The Fed must think they walk on water. I think they walk on quicksand.

According to Loan Performance, Inc. of San Francisco, more than twice as many loans in Los Angeles are seriously delinquent than have gone into foreclosure. “0.7% of all home loans in Los Angeles county went to foreclosure as of May 2003, but 0.18% are more than 90 days delinquent and headed for foreclosure. That’s an early warning signal of problems to come. Rising rates will likely accelerate this trend.”

According to the Mortgage Bankers Association of America, the barometer of refinancing applications fell 2.4% last week to its lowest level since the week ending Dec. 6. Refinancing applications have fallen almost 60% since their peak at the end of May.

U.S. light crude oil has risen in price to its highest level since the Iraq war, and now exceeds $32 a barrel. Demand has risen as supplies have dropped. It’s amazing. Supply and demand can mean something in certain markets.

Doug Streenland, President of Northwest Airlines: “We don’t see the light at the end of the tunnel.”

According to Credit Suisse First Boston, companies in the S&P 500 saw their aggregate pension assets shrink by $173 billion from 1999 through 2002 while collective pension obligations rose by $289 billion, and left those plans underfunded by $216 billion. The Fed wasn’t able to prevent this calamity. What else can’t they prevent? Will it be rust or bust?

8/06/03 Study The Pitcher’s Pick-off Move

To avoid getting picked-off, you’ll need to go beyond the headlines. The real moves take place in the fine print. Take Cisco. Their earnings, on the surface, took a nice jump; however, the topline and the margins have begun to stumble. The company’s CEO has lost his market swagger. There is a crack in the feeling of competitive dominance. Chambers describes the networking business as “fragile” and says “CEOs will wait to spend until their own profits and revenues pick up. All of us should be quick to remember that in 2002 there were many signs of economic pickup.” I wonder if he’s also talking about money managers.

Take the ISM Index reported yesterday which rose to 65 in July, up from June’s 60.6. This accelerating growth got everyone excited. It’s tough to avoid getting picked off if you limit yourself to the headlines. The fastest growths in July were in construction, farming, finance and banking, retail, and communications. The recent spurt in interest rates will place a damper on construction and finance and banking. Retail was helped by the child tax credit. That’s a one- time event. Farming is not a major player unless we are returning to an agrarian society. Communications has been up and down for several years. In sum, in my view, the ISM Index will decline from this height. The headlines don’t tell that story, and also ignore that, the index of prices paid, a measure of purchased materials and services, fell to 50.6 from 51 in June. The demand is not sufficiently great to raise prices for the materials and services in the Index. That is a key fact for me.

Lincoln Financial is a Philadelphia-based financial services company. They just announced cutting 800 to 1,000 jobs, mostly in Hartford, Conn. and Fort Wayne, Indiana. At the same time they made the layoff announcements, Lincoln agreed to pay $140 million over 20 years to have the new Philadelphia Eagles stadium bear its name. The company said the $140 million for the naming rights comes out of Lincoln’s existing budget for advertising and other branding opportunities. I think Lincoln’s top management should be branded.

Yesterday was a pretty bleak day for trading in treasury bonds. The auction of $24 billion in 3-year notes drew bids for just 1.32 times the amount offered. Today 5-year notes are auctioned and tomorrow 10-year bonds. The market had better get accustomed to this supply. It’s going to be here for a very long time. There’s no place to hide from the supply.

The Bay Area Business Confidence Index climbed from 48 to 55. That made for great headlines. Watch the pick-off move. Don’t take too much of a lead just yet. Unfortunately, the apparent brightening economic picture contrasts with a darkening employment picture. A surprising 70% of respondents agreed either strongly or somewhat with the statement “even if the local economy improves, I do not expect an increase in my company’s workforce.” The Bay Area of San Francisco has already lost more than 341,000 jobs in the past 30 months, the equivalent of more than half the entire working population of the City and County of San Francisco, or more than a third of the entire Santa Clara County workforce. In the next six months 18% of respondents plan to decrease their workforce and 67% plan to keep it the same. It gets worse. 23% plan to decrease their IT investments in the next six months. Only 3% expect to increase the money they spend on IT. Please note that 544 CEOs and senior executives in the Bay Area, the heartland for technology, made up this survey. When you read about cautious optimism and other more positive remarks about IT spending, please recall this survey. It’s relevant and was just completed on July 29.

Challenger Gray: “If companies were anticipating a 2001 turnaround, with an increase in demand for goods and services, we would not be witnessing the extraordinary number of job cuts.” Job reduction announcements rose 43% to 85,117 in July. Through the first 7 months of 2003, there have been a total of 715,649 layoffs.

Buddy Hackett: My mother’s menu consisted of 2 choices: take it or leave it.”

In the August 2003 issue of The Journal of Finance, Robert Connolly from the Kenan-Flagler Business School at UNC at Chapel Hill and Chris Stivers from the Terry College of Business at the University of Georgia wrote a study on “Momentum and Reversals in Equity-Index Returns During Periods of Abnormal Turnover and Return Dispersion.” Their conclusions: we find substantial momentum in consecutive weekly stock returns when the latter week has unexpectedly high turnover. Conversely, we find substantial reversals in consecutive weekly stock returns when the latter week has unexpectedly low turnover. Similarly, the autocorrelation of index returns also increases with the latter-week’s dispersion across individual firm returns.” This is an interesting study and will reinforce my daily focus to studying volume in the markets. I recall back to 1974, for example, when volumes would just dry up and stocks continued to decline in price. It was during the summer of 1974 that I placed a note firmly on my desk: “You can lose your ass on low volume.” For several months I did just that.

8/05/03 Flush With Care

If Fulton County, Georgia doesn’t approve a 1% increase in the countywide sales tax to 7%, it could cost three times more to flush a toilet in Atlanta. Atlanta Mayor Shirley Franklin has proposed a $3 billion sewer system overhaul. A federal court order requires the city to fix its combined sewers-pipes that carry both storm water and sewage- by 2007. A second order directs the city to limit leaks from its sewer pipes by 2014. The County needs to face the potential alternative. Should the sales tax fail to be passed, and it failed in March, will citizens drive to neighboring counties to flush? I’m seriously thinking of acquiring all the available honey pots in the County, and making them available for 25 cents a visit. I would have a BYOTP (bring your own toilet paper) policy.

Sung Won Sohn, economist for Wells Fargo: “Consumers are the ones who spend money and they need jobs. You cannot continue on with economic growth without employment gains.”

For Boeing, loan and lease payments over 90 days in arrears soared to about $800 million by June 30, up from $50 million at the end of 2002. United Airlines, one of Boeing’s largest customers, has paid Boeing Capital only $39 million in the first six months of 2003. Boeing did not take any charges against earnings in the second quarter reflecting reduced credit ratings of its customers.

The California Chamber of Commerce says in the past 30 months the state has lost 290,000 manufacturing jobs, and increased costs for workers’ comp is a big reason. More and more businesses are leaving the state. In California the average workers’ comp rates have about doubled over the past 3 years.

Costco is on my list of the great companies. On Tuesday the company lowered its earnings outlook for the fourth quarter and full fiscal year, and cited rising employee healthcare and workers’ comp costs, lower-than-expected margins, and efforts to improve customer service and speed up checkouts as the main reasons for the lower outlook. For the full year Costco forecasts a profit of $1.48 to $1.50 per share, and preliminary thoughts are for high single digit growth for 2004. With its current high p/e, the stock will come down this morning. The downside move could prove costly to recent buyers of the stock.

Martin Hutchinson, UPI Business and Economics Editor: “Of the $56.1 billion in real GDP growth recorded in the second quarter, a 2.4% annual rate, $31.7 billion was in government. GDP in the private sector, let’s call it Gross Private Product (GPP), grew at an annual rate of only 1.6%, following growth rates of 0.7% and 0.4% in the previous two quarters. If you deflate by estimated population growth, GPP per capita was 0.9% lower than three years ago … only government has grown since then, by 13.4% in real terms over the three years, or by 9.9% per capita.”

Marcus Tullius Cicero: “An unjust peace is better than a just war.”

From Fast Magazine: “In a study of 3000 companies, researchers at the University of Pennsylvania found that spending 10% of revenue on capital improvements boosts productivity by 3.9%, but a similar investment in developing human capital increases productivity by 8.5%.”

Many large pension plan sponsors in the U.S. like IBM have gravitated over the past 10 to 15 years toward hybrid plan formulas, including cash balance plans, rather than defined contribution plans. On July 31 an Illinois District court ruled that IBM’s pension plan violates age discrimination laws. If upheld on appeal, this decision would make nearly all cash balance and many other hybrid plans illegal.

Despite the recent rise in the Nikkei over the past several months, credit quality in Japan has remained weak with 63% of all rated issues either having a negative bias or being on CreditWatch. Only 2% had positive outlooks or a positive bias.

In this age of technology we have witnessed the acceptance of the smoking patch. The diet patch has recently come to market. I have been working on the market patch. The problem has been the inability of the technologists to overcome the daily infrastructure of BS. The good news is that the team is working hard to solve the problem. The bad news is the enormous growth in the BS index. Its popularity is on the rise, and there is discussion of a futures market for the index. That could delay the patch for years to come. This is not an excuse. This is a no BS zone.

8/04/03 Buy American

Newton, Iowa is the home of Maytag Corp. The company was founded in 1893. This is a town of 15,600 people, and Maytag is the largest employer. When you think of Newton, you think of Maytag. I’m an exception. I think of fig newton. Then again, I’m an acquired taste. There are 2400 production workers who are represented by Local 997 of the United Auto Workers union. The last time Maytag had so many layoffs was in the 1980s. Since then, 80% have been called back. This time the Maytagers do not expect to be called back. Maytag makes all of its appliances in the United States. They do have two parts plants in Mexico. Lower- cost appliances from foreign countries such as Korea and domestic manufacturers such as Whirlpool that have some of their operations in countries where their cost of production is lower. Maytag, in order to combat this competition, is building a refrigerator plant in Mexico. The company is in the process of laying off 510 salaried workers and earlier this year 460 blue-collar workers were cut from the payrolls. Randy Rhoads was a salary worker laid off in April. He says “I gave 20 years to that company.” He was promoted from a factory job to a salaried position in May 2001. He is “very bitter.” Mayor David Aldridge says “every family in Newton has been affected in one way or another. Personally, I feel for the individuals. It’s never easy to have a place of employment for 20 or 30 or 40 years and be out job-hunting.” The solutions are not pleasant. The company’s second quarter profits dropped 63% and sales declined too. Pat Teed, the union local president, observes that “ things aren’t right with the country. The government isn’t helping the working people. We do not blame our company. It’s a great company.”

The Windows operating system and office business solutions account for more than 60% of Microsoft’s $32 billion in annual sales. The third leg of the stool is server software which comprised 22% of the company’s sales and is contributing $2 billion in yearly operating profit and growing at close to 17% per year. In fiscal 2004 that growth will come closer to 10%. The company will roll out many new products over the next 12 months; however, none is expected to be a cash cow over the near term. Nevertheless, in my view, MSFT still provides the best bang for the buck in the tech area.

WalMart is increasing its push into the computer arena. In clothing, they have Levi Strauss designing a Levi’s line just for WalMart. It should be a huge success. In computers the company has rolled out a specially designed and priced notebook for under $800, and this comes with monthly internet access for under $10 per month. WalMart will have their suppliers working on bringing the notebook price lower and improving quality. In my view, this effort will put pressure on Dell’s profit margins. Dell is already selling at a high p/e. My readers know I consider Dell one of the great ones. It’s been in the portfolio for a dozen years. At $33.23 it’s time for us to part a bit. Should the stock decline as it did a couple of years ago into the teens, we’ll look again. As you remember, we added to the position in the $18 range.

I would like to re-emphasize the current unemployment status. I consider this area the most crucial one in America today. Non-farm payrolls gave shed 500,000 jobs since January, and peaked in Feb. 2001. Private-sector employment has fallen by 3.25 million jobs since Feb. 2001. Since July 2000, manufacturing employment has declined by about 16% or 2.75 million jobs. There are at least 3.6 million Americans who have been unemployed for 15 weeks or longer, the highest level in 11 years. Those unemployed for 27 weeks or longer number at least 2 million Americans, the highest in 11 years. 40% of those unemployed have been out of work for an average of 20 weeks, the highest since 1984. No matter what bullish economic numbers are released this week, no vital and enduring recovery will take place on the backs of the enormous unemployed ranks. It will not take place. You can listen to politicians and economists fill you with rosy forecasts. When employment improves, we’ll revisit this discussion. This is a BS-free zone.

8/3/03 The Tax Credit

Approximately 25 million Americans are receiving the $400 per child tax credit. In 2001 86 million Americans received the tax rebate of up to $600. Not all parents receive the $400. The credit gets phased out should your adjusted gross income exceed $110,000 or with single parents above $75,000. The good news is that the money will find its way into retail sales figures in the month of August, and this shall make for more pleasant reading. Please keep in mind the improvement is temporary. WalMart is adding to this tax credit by providing tax-free day shopping and emphasizing their lay-away plans. Such promotions should prove beneficial to their near-term results.

A Rutgers University survey found that only 40% of workers who had been laid off in the past believe they have the power to reduce their chances of being laid off again in the next 3 to 5 years. 71% of unionized workers, including teachers’ associations, said there are no steps they can take to avoid potential layoffs.

The June jobless rate for Hispanics is 8.4%, the highest in 6 years, and for blacks, it was 11.8%. The unemployment rate for teenagers is 18.6%.

According to the Bureau of Labor Statistics, at least 500,000 Americans have given up hope of finding a job and have left the workforce. It might be useful to find out just how high that number truly might be.

Jon Markman does a great job writing an article for MSN and has received well-deserved praise and a recent award. In his latest weekend article he refers to a Mr. P, a hedge fund manager, who is bullish on bonds and bearish on stocks. There is a description given of the bond market: “the high levels of yield on risk-free government securities make bonds extremely attractive.” Whether bonds have a high level of yield or are attractive, the market will decide that. I do want to take issue with this reference- “risk-free government securities.” This is not meant to criticize the author. Rather, it is to clarify. Government bonds are not risk free. Recently, over the past 6 weeks, they just lost 10% of their value. Additionally, since the government is debt laden, the only way they can pay the interest and the principal on existing bonds is to have continual refundings. There is no guarantee against a default.

Parables...
>
> Management training for the day.
>
> Bill Price
> DSM Chemicals North America, Inc.
>
>
> >Parable Number 1:
> > A crow was sitting on a tree, doing nothing all day. A mouse saw the
> >crow, and asked him, "Can I also sit like you and do nothing all day
long?"
> >The crow answered: "Sure, why not." So, the mouse sat on the ground below
> >the crow, and rested. All of a sudden, a fox appeared, jumped on the
mouse
> >and ate it.
> >
> > Management Lesson: To be sitting and doing nothing, you must be
> > sitting very, very high up.
> > --------------------------
> > Parable Number 2:
> > A turkey was chatting with a bull. "I would love to be able to get to
> >the top of that tree," sighed the turkey, "but I haven't got the energy."
> > "Well, why don't you nibble on some of my droppings?" replied the bull.
> >"They're packed with nutrients." The turkey pecked at a lump of dung and
> >found
> >that it actually gave him enough strength to reach the first branch of
the
> >tree.
> > The next day, after eating some more dung, he reached the second
> > branch. Finally after a fourth night, there he was proudly perched at
> > the top of the tree. Soon thereafter he was spotted by a farmer, who
> > shot the turkey out of the tree.
> >
> > Management Lesson: Bullshit might get you to the top, but it won't
> > keep you there.
> > --------------------------
> > Parable Number 3:
> > A little bird was flying south for the winter. It was so cold the bird
> > froze and fell to the ground in a large field. While it was lying there,
> >a
> > cow came by and dropped some dung on it. As the frozen bird lay there
> > in the pile of cow dung, it began to realize how warm it was. The dung
> > was actually thawing him out! He lay there all warm and happy, and soon
> >began to
> > sing for joy. A passing cat heard the bird singing and came to
> >investigate.
> >
> > Following the sound, the cat discovered the bird under the pile of cow
> >dung, and
> > promptly dug him out and ate him!
> >
> > Management Lesson:
> > 1) Not everyone who drops shit on you is your enemy.
> > 2) Not everyone who gets you out of shit is your friend.
> > 3) And when you're in deep shit, keep your mouth SHUT!
> > --------------------------
> > Parable Number 4:
> > The boy rode on the donkey and the old man walked. As they went along,
> > they passed some people who remarked "it was a shame the old man was
> > walking and the boy was riding." The man and boy thought maybe the
critics
> >were
> >right, so they changed positions. Later, they passed some people that
> > remarked, "What a shame, he makes that little boy walk." They decided
> > they both would walk! Soon they passed some more people who thought
> > they were stupid to walk when they had a decent donkey to ride. So they
> >both rode the donkey!
> > Now they passed some people that shamed them by saying "how awful to
> > put such a load on a poor donkey." The boy and man said they
> >were probably right, and they carried the animal, but as they were
passing
> >over a bridge, they lost their grip on the animal and he fell into the
> >river
> >and drowned.
> >
> > Management Lesson: If you try to please everyone, you will eventually
> >lose your ass.
> >

8/02/03 Transmitted Irresponsibility

Each afternoon a radio talk show host opens his live broadcast with "coming to you from the greatest country on this earth." I too grew up believing this. I continue to want to believe this. There are doubts which appear from time to time. The President greatly disappoints me. Since January 2000 3.2 million jobs have been lost, and yet, Bush states "this economy is vibrant and strong." I have no axe to grind except for one small agenda. I love this country, and I would like to think that inept leadership in the Congress and at 1600 Pennsylvania Ave. will not puke it all away. A meal for a lifetime should not be transmitted irresponsibility.

The average man on the street cannot make ends meet when there are record low average weekly hours worked at a level of 33.6 hours. You can't have a great country when only 66% of the population is in the workforce, and I believe that labor dept figure is high. You can't have confidence in government numbers when revised figures come in over 100% low. June revised payrolls indicated a drop of 72,000 more than twice the number originally reported. In June I mentioned the number released was bogus. Yesterday the government said there were 44,000 less workers in July. That number will be revised as well.

How healthy can an economy be when auto companies have to provide incentives of $4000 per vehicle and sales still decline? Ford's July sales were down about 11%, GM's down 5.5%, and Chrysler's fell 7.6%. How is it that Honda's sales keep rising while the Big Three can't get out of their own way? Do you think it has to do with consumer satisfaction and trust in the product?

Wouldn't it be refreshing for a President to say the civilian labor force in the U.S. fell by 556,000 workers from June to July and that certain changes of policy need to be implemented? Is that difficult to admit? It's natural to have a state of uneasiness on Main Street because the people don'thave confidence in the way the economy is being handled. Without confidence there is little reason to be optimistic. Without optimism consumers and businesses will not invest for the long term. They may accept $4000 in incentives but that is not an investment.

Pundits cannot figure out why there is $2.2 trillion in money market funds when the 7-day yield is 0.53%. It's called lack of confidence. Until that changes for the better, the money will stay parked where it is.

Congress and the President are on a month's vacation. I suggest these folks talk to every day Americans and find out the ills of this nation. Trust the voters. They may pull the wrong lever at times, but they know what it means to live from paycheck to paycheck.

Posting For 8/1/03 Assumptions

California's new budget assumes personal income tax collections will increase 4% in fiscal 2004 and generate $33.5 billion of the budget's $70 billion in total revenues. The state made a similar assumption for fiscal 2003. Obviously, they like to make the same mistake twice. That's a trait many government employees share.

University of California Extension to close its main SF campus at the end of the year because of the budget crisis. They offer 717 adult education classes and programs.

Second quarter GDP growth rose 2.4% due to the largest defense spending since the Korean war era. Defense spending rose 44% after falling 3.3% in the first quarter. All government spending rose 7 1/2% after rising 0.4% in the first quarter. The word "save" must be a swear word at the White House.

The trade deficit stands at $553 billion, and continues to rise.

P&G's net sales were up 8% vs the year ago number and that includes a 4% positive impact from foreign exchange. At the same time the company had lower capital expenditures.

Pep Boys to close 33 stores and lay off 860 employees.

The want-ad volume is lower in June than in January.

The yield on the 10 year treasuries rose to the highest level in one year.

Imperial Chemicals announced more lay offs - this time 2400 workers.

The American Legislative Exchange Council issued a mid-year report and thus far state taxes have surged by 48%. In 2002 states raised taxes by $8.8 billion. This year that figure is $13.1 billion. In 2002 states borrowed $30.2 billion and this year that has jumped to $68 billion.

Anadarko Petroleum to cut 400 jobs and close two offices. They anticipate earning $5.17 per share in 2003, and the stock sells at about 8 times estimated earnings- pretty reasonable.

7/31/03 Keep The Faith

If I wanted to go to hear a sermon, I'd go and listen to Father Joyce. McTeer from the Dallas Fed is not a preacher. He proclaims second half growth of 3 1/2% and next year 5% "based on a lot of faith and very little on actually seeing it yet." If life for me is to be on the come, it sure as hell will be in a very different venue. Just remember, when you read about the GDP number for the second quarter, please note the productivity portion. Then subtract inflation. The remainder is the growth factor. It should approximate zero or be in the minus column.

Donald Grimes, a University of Michigan economist, said 37 states lost jobs overall since employment peaked in Feb 2001 compared with 21 states that did so in the recesson and recovery period of the early 1990s.

Mortgage rates staged the largest weekly increase since Nov 2001 with the 30 year fixed rising from 5.99% to 6.26%, according to bankrate.com and is now at the highest level since Oct 23,2002. The 15 year rose from 5.35% to 5.59%, the highest since Dec 4,2002.

Siemens to cut 2300 jobs.

Lord & Taylor will close 32 stores as "stores in the south and west were not performing." Thousands will face layoffs.

According to Europe's Economist Intelligence Unit, the U.S. fell from the best place to do business in the 1998-2002 ranking to fifth place in the period from 2003-2007. The Unit cites increased exposure to geopolitical risk, major imbalances in the U.S. economy, and weakening public finance as the reasons the U.S. fell from first place. The Unit is the business information arm of the Economist Group.

A recent survey from the National Retail Federation trade group found that 78% of consumers planned to shop for back-to-school items at discount stores, and take advantage of items like 10 for $1 notebooks at Target.

Toshiba had its biggest 2-day drop since Oct 1987 due to a quarterly loss doubling as a result of price reductions for its notebook computers and TVs.

S. Korea's consumer prices fell for the fourth straight month in July, the longest decline since 1957.

Pillowtex filed for bankruptcy and said it will close its 16 plants and sell off its assets.

When Bush reviews his four years in office, he will focus on the tax cuts he provided to the American people. He will ignore the record spending policies he spearheaded through the Congress. Having grown up with a silver spoon, a lack of respect for money has been the result. Those spending habits will produce larger deficits and the bottomline will be the tax cuts received today under Bush will be more than wiped out by liabilities assumed and paid for by the taxpayers. His irresponsible fiscal programs will go down as the worst since those brought to us by Lyndon Johnson. The bond and stock market will pay dearly for these Bush years, and the payment will be over many years.

7/30/03 Erosion In Liquidity

Sellers in the bond pits continue to storm the exit gates. In just six weeks 10 year treasuries have gone from a yield of 3.07% to 4.44%, and holders of these bonds have lost about 10% of their principal. This is an historic loss in such a short time frame. They don't ring a bell when markets change, and they can change and wreck havoc. Thirty year mortgages now yield 5.87% and one year ago the yield was 5.99%. The refi market has dropped to 60% of all mortgage apps, and that market will shrivel up and die, and take with it thousands and thousands employed in this industry. With it, the excess cash flow produced for consumers will die on the vine. The Fed cannot do a thing to combat this event. It has happened and caught them asleep while giving speeches to Congress. The bond market has witnessed what it's like for sellers to storm the gates and for liquidity to erode. The markets place the blame on mortgage-related selling of Treasury interest-rate hedges. That's part of it. A more important part is the structural damage created by rising budget deficits, rising trade deficits, excessive government spending, and ill-equipped leadership providing amateurish rhetoric to problems undermining our freedoms and our economic system. We can look back and take the blame. We elected these people to Congress and to head the Administration. In the meantime, prior to selling more treasury bonds, a termite inspection should be mandatory.

This bond debacle is not an isolated event. If you think, this can't happen to stocks, then you had better check your exit strategy. It had better be a good one. I advise you not to go on vacation. July 4 fireworks are coming a bit later than normally scheduled.

Gartner, the world's biggest high-tech forecasting firm, said 500,000 of the 10.3 million U.S. technology jobs could move overseas in 2003 and 2004 in an offshore outsourcing effort. A Gartner VP and research director said "suddenly we have a profession-computer programming- that has to wake up and consider what value it really has to offer."

Toyota had a disappointing 11% operating profit slide in the June quarter.

Black & Decker said it would see flat or declining sales thru the rest of the year. The company saved money by hifting much of its production to Mexico, the Czech Republic, and other countries.

Verizon to cut 5000 jobs, BMC Software 890, and Air Products 461.

The Treasury will be announcing its refunding today. They anticipate raising $104 billion in the July-Sept quarter and $126 billion in the Oct-Dec period. Those figures will prove low. The point is there will be heavy bond sales on a continual basis for years to come. With this supply rates will rise and when they do the deficits will rise even more. The higher the rates the less attractive 1 1/2% yields on stocks look. Prices of stocks will decline. That's the order of things in the naked city. Get used to it. This is the way it will be for quite some time. Fight the oversupply of government financing and you will be carried out.

Economists were surprised by the weak consumer confidence and sentiment numbers. They might have a better handle on the pulse of the nation if they left their computers and visited
Main Street. The joblessness in this country has created a pervasive fright. People are scared and scared for the well-being of their families. They are concerned that they are one paycheck away from the street. An economic rebound will not be built on fright. On the other hand, unravelling of the economy could be. I'm not negative. I spend a great deal of my time on Main Street. I think I have a firm grip on the fright in the air.

As for finding Saddam Hussein, I figure they'll find him right after Jimmy Hoffa is found. Don't hold your breath.

Posting for 7/29/03 "Get Out Of Town Alive" Budget

That's how California's Senate Republican leader Jim Brulte described the ok of the new budget proposal. He said it looks good on paper but doesn't work in reality. For my money, it looks lousy on paper too. The lawmakers agredd to a bond to roll over $10.7 billion in debt over the next 5 years. The bond suposedly will be paid off thru a swap of sales and property taxes. The scheme is a joke, and a bad one at that. Even under the right circumstances, there would still be an $8 billion budget deficit for 2004-2005. Under the prsent total spending plan of $100 billion, the state of California has a structural deficit. The new budget plan does not contain new taxes, butit will hike fees from drivers' licenses, state park use, fishing licenses, college tuition increases of up to 30%, triple car registration fees, etc. The proposal includes eliminating 16,000 state jobs and pay cuts for other state workers.

Twenty years ago Eastman Kodak employed 136,000. That figure is now 62,000 and continues to drop. The problem is that digital photography only generated $3.8 billion of the company's $12.8 billion in 2002 sales.

With the S&P at the 1000 mark, we also have the 10 year treasuries at a new high in yield for the year at 4.27%. Will higher yields become increasingly attractive as a comparative return to equities? At the moment there is a greater appreciation for eBay than there is for long treasuries. Maybe treasuries should be auctioned off on eBay. That might provide more interest to the so-called bargain hunters. No mater what site, the caveat remains buyer beware.

In 2002 $1 billion in business products sold on eBay. That was a 90% increase from the revenue generated in the prior year.

According to Outside Magazine, only 1% of the earth's water is fresh and available for human use. In the U.S. the per capita daily water use is 153 gallons; 88 in the UK; 23 in Asia; and 12 in Africa. Up to 20 million Americans may be drinking tap water containing perchlorate, a toxic ingredient in rocket fuel.

7/28/03 Lance Armstrong

This man is without question the greatest athlete in the U.S. and possibly the world. This last win was different. Lance had to overcome self-doubt, a new hurdle for him. Because of his success in overcoming this hurdle, he was able to outdistance the field. There will be times in our life when each of us must confront self-doubt. As investors, we see ourselves as only as good as our last trade. If that last trade is a loser, however, that doesn't make us a loser. We must overcome the loss and learn from it. This lesson is part of life's journey, and hopefully we become better individuals and better investors as we face and combat adversity. This is what separates the winners from the losers. Look inside of yourself, dig deeper, the answers are there.

Next month about 2400 IBM employees will start working shorter hours at the Essex Junction, VT plant where they have a chip manufacturing line. The reason given is because of soft demand in the semiconductor industry. Before you rush out and buy chip stocks, you might remember about this cutback. IBM imposed the same cuts at this pant two years ago because of lower demand for chips made there.

7/2703 Microsoft

I mentioned a couple of weeks ago that the Financial Times was wrong in predicting MSFT would payout a dividend of $1 billion. They won't be. John Connors, the CFO, called for patience on the dividend and said "if you've got the money, I've got the time." Shareholders are getting antsy and want a bigger share of MSFT's $49 billion cash balance. If they don't like it, they should sell the stock. Over the last 25 years no company has had more success than MSFT and created more millionaires. None. The company's sales will still show a growth of 7% this year and they are throwing off lots of free cash flow. Management should apologize to no one. If I were running the company, I'd tell any shareholder who was unhappy to take a bite out of my ass.

7/26/03 The News

For all of my readers wanting to know whether I have been ok this weekend I appreciate the concern. I am ok and will be writing three short blogs this evening. On Friday the news was that durable goods orders surged 2.1% in June from May. Ex autos and airplanes deliveries the figures were up 0.6% in June up from 0.5% in May. The market got all excited about the numbers. Maybe a rational thought would be in order. Auto sales were down in June, production will be cut back in July and August, the auto companies won't make their numbers, and forecasts are coming down. Boeing has once again reduced their plane delivery numbers for 2003 and said there will not be a pick-up until 2005- like they really can look out that far. It might be wise to think for your self and screw the headlines. You're not in the business of selling newspapers and media ads.

7/25/03 Crosscurrents

Yesterday's market was an interesting one, and possibly important. Thirty year mortgage rates are bumping up to 6% and closed at 5.94%. This rapid rise in rates will have a huge dampening on the refi market. In yesterday's blog I discussed the mortgage market and the refi portion. A goodly portion of the consumer's spending in the last 12 months has been the direct result of the cash freed up from refinancing a home. With this cash taken out of consumer hands, spending habits will be impacted. I do not believe the current market reflects this and I don't believe earnings estimates have been adjusted downward either. It's always smart to stay ahead of the curve. You don't want to get run over by a bull reversing its course.

S&P downgraded California's debt to 'BBB". This is a notch higher than I had anticipated. The bonds were given a stable outlook. We'll have to see how long it stays that way.

It is anticipated that workers' comp insurance rates paid by California employers are probably headed for a 12% rate increase starting Jan. 1, 2004.

The Chrysler division of Daimler Chrysler posted an operating loss in the second quarter because of lower vehicle sales and the cost of incentives.

Robert McTeer, Fed Reserve Bank of Dallas President, said he was optimistic that an economic recovery will gather steam next year. He admitted that his optimism rests less on hard evidence than it does on "a hunch and a hope."

The VIX index or the CBOE Nasdaq Volatility Index is hovering around the low for the year or at the 20 level. This low volatility level is quite surprising given the large rise in equities since early March.

Gold is having another run, and closed at $362.30 per ounce.

Crude oil futures closed above $30.

Ten year treasuries rose in yield to 4.16% and that's close to the recent high posted in the early part of this week.

Think tank EraNova Institute said in a report not to count on yesterday's jobs for tomorrow's income. "Even the most high-tech jobs are being downsized rapidly. They'll never resize and some will disappear," said the author of the study. The basic problem is not, they say, that high-tech and service jobs are going overseas. That's only temporary. Third -world contractors will eventually lose out to all-electronic solutions. They suggest "we need to leapfrog the technology that's displacing us."

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.”

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.