9/24/03 Dark Matter Does Matter

Each day I receive emails with remarks about my on-going discussion of the job loss recovery. Yesterday, one said it was boring and another stated no one is entitled to a job. I will receive more email on this subject. Yesterday was a poor day for unemployment. On 8/28/03 Goodyear announced that it will eliminate 500 salaried and non-bargaining unit positions at its North American Tire manufacturing locations. Now Goodyear stated they are considering closing an Alabama tire plant and laying off as many as 2400 workers at other plants in 10 states. I’m not finished. TIAA-CREF has about 3 million customers and $286 billion in assets under management. They’ve been in business for 85 years, and never had a layoff-until yesterday when they announced laying off 8% of their workforce or about 500 people. I’m not finished. According to Gary Lapidus of Goldman Sachs, he calculates that the big three auto makers could eliminate 50,000 jobs over the next four years due to the closing or divestiture of 10-13 parts and assembly plants. I touched on this subject the other day, and would not be surprised to see these job losses occur by the end of 2005.

Avi Nachmany, director of research at Strategic Insight, said in the last 5 months $110 billion has poured into stock and hybrid (stock-and-bond mixture) funds. He said “for all of 2003, stock and balanced-fund inflows could eclipse $200 billion.” The peak of $279 billion was reached in 2000.

Tobias Levkovich, chief market strategist at Smith Barney, remarked “a word of caution. Part of this willingness to put money into stocks seems to be the result of return expectations that we consider excessive.” According to the UBS Index of Investor Optimism, investors polled this month expect an average 8.5% return on their personal portfolios in the next year. Interestingly, 73% of those surveyed expressed that their overall investment portfolio was medium to high risk.

If I hold a stock for 1 year, and make a profit of $100,000, I pay a maximum tax of $15,000. If I lose $100,000 during that time frame and have no gains, I can only take a loss of $3,000 in that year for tax purposes. In my view, this is ridiculously unfair and reduces the incentive for an investor to take losses unless that investor has gains as well. This is your government at work.

A total of 57,702 soldiers died in Vietnam. Our Iraq death toll is presently 304. When does it stop?

The annual meetings of the IMF and World Bank began yesterday. IMF chief Horst Koehler said the biggest risks to a recovery are the widening global trade imbalance and rising government debts. The Snowman acknowledged concerns about the U.S.’ ballooning budget and trade deficits. He emphasized that the “U.S. can’t be the real engine of growth for the world.” He must be in fantasy land. China’s economy has been growing at a 7% or greater rate for several consecutive years. They are the main growth engine. The proof is in the pudding. Our trade deficit with China exceeds $100 billion a year.

Yesterday the Snowman pledged to the IMF and the World Bank that the massive U.S. budget deficit would be halved by the end of 2008, and that it would be cut through “ample growth” and “disciplined spending.” He said that goal was “certainly very manageable.” Koehler politely informed the global bankers and economists that the U.S. now needed a “credible framework” to reduce its massive deficit as growth stabilizes. In other words, he doesn’t buy the Snowman’s pitch.

World Bank president Jim Wolfensohn criticized wealthy countries for providing just $56 billion a year in development assistance to poor nations as compared with more than $300 billion they spend on agricultural subsidies and $600 billion spent on defense. He said “it is inconsistent to preach the benefits of free trade and then maintain the highest subsidies and barriers for precisely those goods in which poor countries have a comparative advantage.”

Astronomers claim that Dark Matter (excess gravity) makes up more than 90% of our universe’s mass. Matter isn’t solid. At the same time it isn’t weak. This Dark Matter does matter as it interacts with time and space and possibly other dimensions.

9/23/03 It’s Not Business As Usual

According to the Bureau of Labor Statistics, the number of married-couple families in which both husband and wife were employed declined last year by 368,000. It was the first drop since the initial report on these employment characteristics were recorded in 1993. According to Challenger, Gray, and Christmas, the average number of households in which neither spouse was employed grew by 235,000 in 2002. John Challenger remarked that, “as job losses mount, more families are suddenly going from two-earner status to one-earner or no-earner status, which greatly reduces a family’s overall spending power. The protracted weakening of household income will continue to have an adverse effect on consumer confidence and spending.”

Gilroy, California is known for garlic and the Indian Motorcycle Corp. As I have noted previously, China’s exports of high quality and low-priced garlic have significantly reduced the demand for garlic grown in Gilroy. The Indian Motorcycle Corp. was founded in 1901. It specialized, until yesterday, in premium heavyweight motorcycles and had over 200 dealers. It ceased production effective immediately, and laid off its workforce of nearly 400.

A recent Fed study says 40 billion checks were written in the U.S. in 2002, down from 50 billion in 1995. In 1996, John H. Harland, a large check printer, cut its workforce by 10% and scaled back its 40 check-printing plants. Yesterday, the company said it would cut another 10% or 500 employees and close another 5 plants in its printing division.

According to a mid-September Atlanta-Journal Constitution/Zogby International poll, two out of every three Georgians say that, financially, they are either worse off or no better off than they were a year ago. Four in ten said they have less discretionary income than they had a year ago, and the same 40% noticed no change. Susan Raker of Alpharetta said “we have a neighbor who has been out of work for a while. A friend’s husband has been out of work for a year. It’s now affecting the people you know. We refinanced the mortgage. We are not doing any major improvements on the house. We pay more attention to where we put our retirement fund. You think a little bit more before you go out and spend money.”

According to a recent report by the Silicon Valley Manufacturing Group, whose member companies employ 1 in 5 valley workers, economic growth in the valley will lag the rest of the nation through 2005, and employment won’t return to its boom-era level until 2012. Carl Guardino, the group’s president and CEO, said “we’re still working through the excess of investments in telecommunications and Internet companies.” Roughly 200,000 Silicon Valley workers have lost their jobs in the past three years.

Thomas Tancredo, a Republican congressman from Colorado, is sponsoring a bill seeking to repeal the H-1B Visa program. Bush says “he and Tancredo are at opposite ends of the pole,” and H-1B workers “actually boost the U.S. economy.” About 35 to 45% of the estimated 900,000 H-1B Visa holders currently in the U.S. are from India. Beginning October 1, 2003, there is a stipulated reduction of H-1B quota from its current annual level of 195,000 to 65,000.

From January through July the Bank of Japan sold a record $80.5 billion yen. Since the G 7 countries agreed over the weekend that exchange rates should be more flexible, we have witnessed the dollar plunging against the yen. This morning the rate dropped below 111 yen. The Euro rose above $1.15. A sustained fall in the dollar would increase the risk for foreign invstors to incur currency losses on their U.S. assets.

In March 2000, Robert Shiller, a Yale economist, wrote a book entitled “Irrational Exuberance.” He warned of a stock market bubble. In a report written with Karl Case of Wellesley College, he surveyed homeowners through the third quarter of 2002 and compared results with a similar study they conducted in 1988. Schiller and Case found new evidence of a housing bubble by comparing home prices and income data over 71 quarters. Shiller says his data “doesn’t prove there is a bubble.” Yet, using the past as a reference, he states that “30% declines are not out of the question.”

One-in-nine low-income Americans rely on the Medicaid health insurance program, according to a Kaiser Family Foundation study. Because of gaping holes in state budgets, the number of states set to limit prescription drugs in the Medicaid program will likely more than double to 30 in 2004 from 14 this year, the study revealed. The states are trying to curtail double-digit prescription drug costs by adopting preferred drug lists. Additionally, more states are reducing or freezing payments to doctors, hospitals, and nursing homes.

Secretary-General Kofi Annan will deliver a speech today to the U.N. 191-member General Assembly, and will question whether nations have the “right and obligation to use force preemptively” against unconventional weapon systems even while they were still being developed. He will state that “my
concern is that, if it were to be adopted, it could set precedents that resulted in the proliferation of the unilateral and lawless use of force, with or without credible justification.”

9/22/03 The First Day Of Fall

This is the time of the year in the stock market that separates the winners from the losers. It separates the men from the boys and the women from the girls. It’s the first day of Fall. The fall in prices it shall be- just like the falling leaves off the trees; however, unlike the beautiful colors, the falling prices will produce much tears and some panic.

The G 7 meeting ended with the following statement: “We emphasize that more flexibility in exchange rates is desirable for major countries or economic areas to promote smooth and widespread adjustments in the international financial system, based on market mechanisms.” Hello! You guys forgot to ask the market what it wanted. The adjustments promptly began, but certainly not smoothly. The market is bigger than any group. It’s just that arrogance replaces intelligence or possibly there wasn’t intelligence in the first place. The fireworks have begun. The yen surged to 111+. Just a couple of days ago it was at 116 to the U.S. dollar. The Nikkei plunged over 4% for fear the rising yen would reduce the export earnings for many companies, such as, Toyota, Honda, Canon, Sony and many others. Exports are critical to the revival of the Japanese economy. A strong yen places that recovery in some doubt. As such, Japanese government bonds rallied to a one- year high. The South Korean won jumped to its highest point in almost three years. Seoul shares fell, and particularly, Samsung that dropped over 6%. The Taiwan dollar, Singapore dollar, the Philippine peso, the Swiss franc, the British pound, and the Canadian dollar all advanced against the U.S. dollar. Many of these countries have export-driven economies. Exports account for at least 20% of Japan’s GDP. Taiwan’s and South Korea’s exports are critical to their economies as well.

Chinese yuan one-year non-deliverable forwards jumped to a record 2.250 points premium against the U.S. dollar. This increase prices the yuan at about 8.05 per dollar a year from now, and this would represent a gain of over 2.5%. I have been predicting an upward adjustment in the yuan’s value of 2-3% within a year’s time.

Spot gold rose almost $4 dollars to about $387 an ounce, and not far from the February high of $389 per ounce. There is continued speculation that European central banks will continue to limit their gold sales for several more years.

The European Commission earlier this month cut its 2003 growth forecast to 0.5%. With a falling U.S. dollar, it is doubtful that this lowered forecast will be reached. EU Monetary Affairs Commissioner Pedro Solbes said the EU countries will not meet his 2004 growth forecast of 2%. With reduced levels of exports, it is possible the results for 2004 will not be materially unchanged from this year. We must remember that the EU region’s $8 trillion economy fell in this year’s second quarter.

The overall message from the G 7 meeting was to lower the value of the U.S. dollar. The Snowman will pounce on the notion that a lower dollar will help our exports. If those economies importing our exports have some growth in 2004, then that might prove factual; however, that remains to be seen. In the meantime, the purchasing value of the dollar will be reduced; investments in our stocks and bonds will be less attractive to foreigners due to the dollar’s exchange risk; and funding our budget and trade deficits will prove more difficult.

GM will close a parts plant and an engine-parts plant. Delphi Corp. will close or consolidate six plants, and move to cut pay. GM wants to also sell its diesel automotive business. The GM parts plant employs 983 hourly and 128 salaried workers. The powertrain plant has 323 hourly and 55 salaried workers. Its railroad locomotive division employs 3,120 people in two locations.

On Friday afternoon Chris Galvin, Chairman and CEO of Motorola, resigned. The company was founded by his grandfather. The most likely candidate to replace Galvin is Mike Zafirovski, who is now president of the company. Some speculate that Motorola can be divided into six separate companies, and that the parts will be worth more than the whole. Time will tell whether a turnaround can be engineered at Motorola.

Bush’s approval rating dropped another notch to 51%. His handling of the Iraq war plunged 5 points in a week to 46%. Fifty-seven per cent of Americans disapprove of how Bush is handling the economy, and this is an increase of six points from the prior week.

Bush will tell the UN “the world is a better place without Saddam Hussein.” That was not the reason for the U.S. invading Iraq. After turning his back on the wishes of other countries-other than England- the U.S. elected to basically go it alone in Iraq. Now, Bush turns to the UN and says “Let’s work together on big issues.” It’s a big issue that over 300 of our soldiers have been killed in Iraq, and it’s a big issue that close to 1600 soldiers have been wounded and or injured. Bush may not like Ted Kennedy’s words, but the majority of the American people don’t approve Bush’s handling of the Iraq war. Until proven otherwise, Kennedy, in my view, is justified in describing our Iraq policy as “failed, flawed, and bankrupt.”

9/21/03 Instability On Wall Street

Wall Street investors have a much larger problem than dealing with Dick Grasso’s pay package. Taking a page from FDR’s 1942 speech, after 9/11, all Americans were told to make whatever self-denial is necessary because the fight to combat terrorism would be a long one. This self-denial didn’t include being in denial. Wall Street is in the process of sacrificing the truth. That sacrifice will bring with it a price so dear that the clean up after Isabel will look like a dream come true.

One must be fair. Wall Street gets its clue on denial from Washington’s leaders. In an NBC interview, Dick Cheney called the military campaign in Iraq “a major success.” This morning two U.S. soldiers were killed and 13 were wounded in a mortar attack west of Baghdad. The deaths brought to 302 the number of soldiers who have died in Iraq and the number wounded are approaching 1600. Cheney is in denial. Bush is in denial. The major combat continues in Iraq. It did not end on May 1.

The Nasdaq has rebounded 70% from the lows reached in October 2002, and the Dow and the S&P 500 more than 30%. Many large tech names have jumped 100% or more but these same companies have experienced no rise in sales. Their earnings have improved due to cost cutting; however, reducing expenses cannot eliminate the need for top-line growth. Oracle knows that. Cisco knows that. There are some exceptions, such as, eBay experiencing superior revenue generation. Thomson First Call suggests operating earnings for the S&P 500 will increase about 15% for the third quarter. Despite the analysts’call for higher earnings, insiders continue to sell shares at a rapid rate. There is a growing disconnect between insiders and positive investor sentiment. Meanwhile, there is growing discontent on Main Street with continued job losses, the growing death toll in Iraq, bulging budget deficits, and some political leaders “misspeaking.”

The National Weather Service is unable to predict a storm forming on Wall Street. They can predict Isabel but not the in denial storm. As Pat Dorsey, director of stock analysis with Morningstar in Chicago remarked, “I’m skeptical. Our emotions often steer us horribly wrong. What makes us human isn’t changing. We have not all become rational, arithmetic calculators.” Margaret Jones, chief executive of Whittlinger Capital Management in Minneapolis, stated “it’s too soon to know. It’s going to be very interesting to see if the lessons stick. If history is any indicator, they won’t stick.” Whether the lessons stick or do not stick will be forthcoming. What will stick are losses. As Terrance Odean, an associate professor of investor behavior at UC Berkeley stated, “there is a difference between being told the market can go down and experiencing it. It’s a more expensive lesson to experience it, but it sticks.”

For the very first time electricity from a tidal current has been fed into a power grid. A sub sea power station on the Arctic tip of Norway began getting power from the moon yesterday. It will produce enough light and heat for about 30 homes. That’s what’s needed on Wall Street- an underwater windmill to generate enough energy to keep stock prices moving higher. Offsetting that dream is the knowledge that such energy costs three times that of typical hydro-generated electricity in Norway. Maybe Wall Street analysts can create some rosy cost projections. They’ve been successful in doing so in the past.

Li Ruogu, assistant governor of the People’s Bank of China, told the Institute of International Finance in Dubai that “I just don’t see the logic of scrapping the yuan’s peg. We’ve already promised that we will gradually liberalize, but I cannot give you a clear timetable. We want to do it as quickly as possible.”

Small businesses create 3 out of every 4 new jobs and make up 50% of our GDP. The House of Representatives’ Small Business Committee has created the Small Business Index, and this index reflects the current economic business conditions confronting small business. At the end of the second quarter the index reached a 5-year low, and is down more than 33% from the peak reached in 2000. With a job loss recovery and the economic conditions for small businesses so difficult, then what are the Wall Street indices doing at the present levels? I would describe the condition as being in denial.

9/20/03 G 7 Meeting

The China Daily newspaper remarked “making China the scapegoat can perhaps help some U.S. politicians score cheap political points, but it has nothing to do with the solution of their real problems.” China found an ally in Bundesbank’s Vice President Juergen Stark who stated “we should not let the discussion about the yuan distract from the main problem of the U.S.’s twin deficits.” Meanwhile, Bank of Japan’s Toshihiko Fukui stated “China has clearly said that it will work out ways to make its currency system more flexible. It is important that there is constructive discussions to take it in the right direction.” The Snowman chimed in by declaring “The United States can’t be the only engine of growth.” Looking at almost 3 million job losses since Bush was elected, Snow doesn’t have to worry about the only growth engine being the U.S. If other countries were like the U.S, world economic conditions would be significantly worse than the present. No other country imports more, spends more, and runs up such massive budget and trade deficits. Still, the U.S. thinks they can tell the rest of the world how to run their respective economies. The U.S. has successfully alienated the rest of the world save for England.

The National Association of Manufacturers blames China for U.S. economic problems and intends to file a formal trade complaint protesting China’s “illegal currency manipulation.” In my view, this is one of the stupidest moves I have seen in years. I agree with much of the views expressed by Steve Forbes who believes U.S. deflation stems from our own trade policies and that revaluation of the yuan would hurt the world economies as well as that of China. In actuality, the strongest world economy over the past 10 years has been China’s. It has grown almost 10% a year over the past decade and its GDP now exceeds $1 trillion a year. They have the world’s sixth largest economy. The G-7 accounts for two-thirds of the world’s economy. Realistically, one should note that Japan, Taiwan, South Korea, Indonesia, and Thailand have all sold their currencies in the past 12 months in order to avoid erosion of demand for their exports.

Boeing Commercial Airplanes Group handed out 70 layoff notices Friday. Since late 2001, Boeing has laid off 35,560 workers. Friday was also the last day of work for 420 who received layoff notices 60 days ago.

British Columbia loggers and mill workers overwhelmingly voted yesterday to strike . Union leaders are scheduled to decide tomorrow whether to give legally required 72-hour strike notice. Earlier strikes occurred in 2000 and 1986. Weyerhaeuser has six plants and six timberland operations that could be affected by a strike.

According to the Oil Price Information Service in Lakewood, N.J., the wholesale price of gasoline has dropped 30 cents a gallon in recent weeks. The American Petroleum Institute said high pump prices in August caused the first year-on-year decline in demand since 1997. The Institute said refinery output of gasoline in August set a record for the month. So much for reports of shortages. As the price drops, refinery margins will decline too. Unless a disaster strikes, the party is over for the refiners.

A new study by Stanford University’s Energy Modeling Forum (EMF) concludes that natural gas supplies are likely to meet growing demand in coming decades if policy-makers are able to strike a balance between environmental protection and the need for new energy sources. The EMF’s executive director and co-author of the study stated “recent volatile natural gas prices do not foreshadow a pending, long-term crisis in future natural gas supplies. Industry will respond with more investment, and demand will respond to prices-provided that market participants are given the opportunity.”

A look at the new UAW contracts reveals a good deal of give and take on the part of the union and the big three auto companies. Rather than raises this year and next, UAW employees will receive a $3,000 bonus before taxes and other deductions in 2003. Next year there’s another proposed bonus of 3% of pay. In 2005 there would be a 2% pay raise and in 2006 a 3% pay raise. In addition, UAW workers won’t be hit with drastic hikes in their out-of-pocket health care costs. For the auto makers there are pluses. No longer will they be forced to run factories at full or near full capacity. They have more flexibility to cut their work forces and thereby control labor costs. They can move idled workers from plant to plant. There is increased leeway in cracking down on absenteeism. There are extra incentives to encourage older workers to retire. It is predicted that the auto companies will close more plants and cut jobs.

Ed Yardeni, chief investment strategist with Prudential Securities, states “we have a chronic employment problem because as a result of globalization we are all potentially competing with an enormous labor force in Asia.” I would add India to that competitive labor force.

9/19/03 Job-Destroying Recovery

Robert Hormats, Goldman Sachs International vice-chairman: “Corporations are not yet convinced of the durability of this recover. People say this is a jobless recovery. It’s not. It’s a job-destroying recovery.” Yesterday, Sun Microsystems announced plans to cut another 3% of its workforce or 1,080 jobs. At the end of fiscal 2001 it had 43,683 employees. At the end of the last quarter the number had been reduced to 36,000. The company’s revenue has fallen for nine straight quarters, and they are the market leader in the server industry.

The number of people continuing to collect state unemployment insurance rose by 39,000 to just shy of 3.7 million in the week ended Sept.6. The total was the highest since the week ended June 28. The FOMC Committee had sad in a statement that “spending is firming, although the labor market has been weakening. Business and pricing power and increases in core consumer prices remain muted.

In his $87 billion request, Bush is doing his part to spur employment. Unfortunately, it won’t help Americans. There is $60 million to register “100,000 militia combatants” in Afghanistan as well as to “demobilize and integrate an additional 13,000 militia combatants” and provide than with “training, job placement, and other integration activities.” Another $35 million would go towards anti-terrorism training programs in Afghanistan to protect Hamid Karzai. There is good news. Bush wants to increase “hardship duty pay” from $300 to $600 per month until 9/30/2004. That hardship pay is too late for the 297 U.S. military personnel killed in the Iraq war. About another 1500 have been wounded.

Airbus doesn’t see the commercial aircraft industry recovering before 2005.

U.S. Comptroller General David Walker, head of the General Accounting Office, spoke yesterday at the National Press Club. He stated “our nation has a major long-term fiscal challenge that is not going away and requires serious and sustained attention. The current and projected deficits far exceed the costs associated with Iraq, the global war against terrorism and any incremental homeland security costs. The bottom line is, there is little question that deficits do matter, especially if they are large, structural and recurring in nature.” The markets are not bothered though. The unweighted S&P 500 is about 5% from its all-time high. The Nasdaq has now reached 1900. Even the Nikkei has rallied to the 11,000 level.

According to the CDC, the U.S is expected to report a record number of West Nile infections this year. In 2002 4,156 people were infected, and 284 died.

In August the semiconductor equipment book-to-bill ratio was 0.91 which means $91 worth of new orders were received for every $100 of product billed for the month. Dan Tracy, director of industry research for SEMI, stated “overall bookings and billings figures for North American-based semiconductor capital equipment providers have remained essentially flat over the past several months.” On the other hand, the stock price for Applied Materials has not remained flat over this time period.

It’s most unfortunate that it takes a hurricane named Isabel to close federal government in Washington, DC. A cut in government spending would create a more permanent closing.

The Federal Reserve Bank of Philadelphia said its index of factory business conditions fell to 14.6 from 22.1 in August, and that drop was much sharper than what had been expected by economists.

The Conference Board’s Consumer Research Center recently completed a survey showing that only 49% of American workers are satisfied with their job. This represents the lowest level of satisfaction since the first survey was taken in 1995. It is the first time the level has been below 50%. Even a terrific company like Southwest Airlines is having trouble with workers. There have been 16 months of negotiations between management and the flight attendants union. They have now turned to a federal mediator. The attendants’ slogan is “Working for free…that’s just ‘plane’ nuts.” The attendants claim they have to clean cabins between flights without being paid, because the planes are idle. They get paid for the time the plane is in the air. The union contends flight attendants work for free more than 23 hours every month.

PeopleSoft had filed a lawsuit against Oracle in Alameda County Superior Court. Yesterday various internal Oracle emails were unsealed. Here is an excerpt from an Oracle employee: “We’ve certainly wounded PeopleSoft…even if we don’t end up closing the deal, this is going to take PeopleSoft time to recover. And, of course, our corporate image of being aggressive, brash, and marching to the tune of a different drummer has been reinforced.” In addition, there were emails pointing to Oracle’s strategy of how to influence industry analysts. From the outset I have stated Oracle’s strategy was flawed and that it would fail. I have not changed my opinion.

9/18/03 Cape Fear

Isabel moves at speeds of about 14mph. Coastal flooding is expected. Hurricane warnings have been issued from Cape Fear, NC to Chincoteague, VA. The National Weather Service advisory states “all preparations to protect life and property should be rushed to completion in the hurricane warning area.” Other than Dick Grasso’s resignation, it’s business as usual on Wall Street. There aren’t reports of 105 mph winds or high seas or flooding. Nasdaq member firms have just had a fivefold plus increase in margin debt to $26 billion at July 31 from $5 billion at 12/31/02. Yesterday the NASD said trading “on margin” is up 25% year-to-date. It remains to be seen whether the Nasdaq tightens margin requirements as it did in early 2000.

The IMF warned that record U.S. trade and budget deficits threaten global growth in the years ahead. In its semi-annual World Economic Outlook, the IMF raised its forecast for U.S. growth in 2003 to 2.6% and to 3.9% in 2004. The report stated that “it seems unlikely that the U.S. can or should provide the degree of support to the global economy over the medium term that it has in the past.” The IMF predicts Japan’s economy will grow 2% this year and 1.4% in 2004, and they reduced the growth forecast for the 12 euro nations to 0.5% in 2003 and for next year to 1.9%. The IMF said U.S. growth shall probably come at the expense of widening the trade deficit and a depreciation of the dollar.

Hans Blix: “In the Middle Ages when people were convinced those were witches they certainly found them. This is a bit risky…what in a way stands accused is the culture of spin, the culture of hyping… Advertisers will advertise a refrigerator in terms that we don’t quite believe in, but we expect governments to become more serious and have more credibility.”

The Illinois Supreme Court threw out a trial judge’s order for Altria to post a $12 billion bond, reducing the amount to $6.8 billion. In March Illinois Judge Nicholas Byron ruled Philip Morris had misled Illinois smokers about the health risks of light cigarettes, which are intended to have less tar and nicotine, and ordered the company to pay damages of $10.1 billion. Yesterday R.J. Reynolds said it would reduce its workforce by 40% and eliminate about 2,600 jobs. Both tobacco companies have been hurt by the competition from low-cost brands. The company will focus primarily on Camel and Salem, and limit their investments in Winston and Doral.

According to the Bureau of Economic Analysis, defense expenditures jumped in the April-to-June quarter of 2003 by 46% over the first quarter. If the $87 billion is approved, 2004 defense spending would increase to about $470 billion. War costs are rising above $1 billion per week. Winslow Wheeler of the Center for Defense Information stated “the economics of our defense budget are mind-blowing.” Edward McKelvey, an economist at Goldman Sachs, observed “the government is going to be in a position where it’s borrowing $400 billion and $500 billion a year. It’s first in line for borrowing. The notion that that guy can get first in line without shoving out the guy in the back of the line just doesn’t pass the smell test. You don’t have to be an economist to understand that.”

An interesting phenomenon is taking place. Growth forecasts for the U.S. are being raised for this year and next; however, the Fed is expected to maintain current interest rates at the present level for another year. The market believes that scenario as 10- year treasuries closed yesterday at their lowest yield since July 23. The recipe is for higher corporate profits through cost cutting, no growth in jobs, benign inflation, increased government spending, increased budget and trade deficits, and a rising stock market. I say ignorance is bliss.

Elizabeth Warren, a Harvard law professor, and specializes in the bankruptcy field. By the end of the decade, she says, an estimated 6 million families with children, or 1 in every 7 such families, may declare bankruptcy. This year more children are going through their parents’ bankruptcies than their parents’ divorces. Ms Warren remarked “bankers who wear $3,000 suits and starched shirts are now charging interest rates that Jimmy the Leg-Breaker didn’t charge 25 years ago. Nobody sounds the alarm. The consequence is a wealth transfer of tens of billions of dollars every year from middle-class families to a handful of big banks.” A new study by a nonpartisan public-policy group called Demos finds that, in the 1990s, the average family’s credit card debt rose by 53%. Middle class families saw a 75% in crease in that debt and very low- income families had a 184% rise.

In a special fall issue of CFO magazine, Bob Violino writes that there is new software to better track corporate spending. It is called ESM or enterprise spend management software, and it especially has appeal in these times when companies face flat or reduced revenues. The idea is to reduce costs through improved sourcing and procurement and to enhance expense management. Christa Degnan, supply-chain research director at Aberdeen Group, stated “it surprises me how much companies really don’t know about what they’re spending money on. They’ve never had granular detail on who they’re spending with, how much, and why they’re spending.” The board of the NY Stock Exchange might be a good example.

9/17/03 China

Only 6 years ago our nation’s total trade deficit was $120 billion. This year our trade deficit with China will amount to that figure. According to Xinhua, the Chinese government new agency, the trading band for the yuan will be widened from 8.3 to the dollar to a trading range of 8.09 to 8.5. That maybe modest, but every little bit does make a difference. As the trade deficit with China widens, the job layoffs in our manufacturing sector continue. There is no end in sight for these job losses.

Der Spiegel magazine reported that Chrysler is quite advanced in its efforts to sell some parts production facilities in its efforts to cut operating costs. It is anticipated that additional job cuts will be announced to.

Kerr-McGee will cut between 200 and 250 jobs or about 7 to 9% of its workforce by year-end.

The MBA reports that seasonally adjusted index tracking mortgage applications dropped 5.8% for the week ended Sept. 12 compared to the prior week.

Military personnel are required to take the anthrax shots and can be court-martialed if they refuse. Meanwhile, a growing number of our troops are getting hospitalized for a mysterious pneumonia-like illness, and many believe it is from the anthrax shots.

Hans Blix believes Iraq destroyed most of its WMD 10 years ago, and suggests that searching for these weapons would most likely only result in finding some “documents of interest.”

The Labor Department reported that real earnings fell 0.3% in August. Average hourly earnings and average weekly hours were about unchanged. The core CPI rate is at a 37 year low. Over the last 12 months, the core goods prices have fallen 2.5%, the biggest drop on records dating back to 1958. At the same time, the cost of services continues its steady price rise.

70% of those voting in Seattle elected to cream the 10 cents a cup proposed espresso tax.

9/16/03 Dieciseis de Septiembre

Today is Mexican Independence Day. It marks the onset of Mexico’s revolution in 1810, which led to freedom from Spanish rule. Mexico could have another revolution brewing. With a record weak peso, this country must once again regain its freedom. This time they must find new markets for their exports, and lessen the dependence on the U.S. purchasing about 80%+ of the goods leaving Mexico. To rely on the U.S. for their economic well being would be making a grave mistake.

The U.S. can’t even look after its own citizenry. In January 2001 the Fed began reducing short-term interest rates. From January 2001 through August 2003, according to the Labor Department’s monthly non-farm surveys, 3.3 million private-sector jobs have been cut. Hiroshi Yokotani, economist at Tokio Marine Asset Management, stated “with employment not recovering, consumption is unlikely to grow. The latest data also shows companies are not revising up their production plans despite growth of 5% in the July-September quarter.”

The NASD regulates all 5,300 U.S. brokerage firms. Yesterday they issued a warning to investors about buying on margin. Purchases of securities on margin have increased 25% this year, reaching $174 billion in July. They cited a “precipitous increase” in margin use.

The Georgia Department of Labor reported 43,264 laid-off workers filed a first-time claim for unemployment insurance benefits in August, an increase of 12.5% over August 2002. To combat these layoffs, the state has implemented a new program called “Georgia Works,” which involves on-site workplace training and a special training allowance at the same time those laid-off are drawing unemployment insurance benefits.

The Bush Administration is considering shrinking the number of military personnel who qualify for disability benefits. They want to change the definition of service-connected disability, and this could have far-reaching consequences for millions of service members and veterans. Tom Daschle said the proposals, if retroactive, could disqualify 1.5 million veterans, about two-thirds of those now in the VA disability program. Under current law, disabled veterans eligible for military retirement pay have their retirement reduced by the amount they receive in disability benefits. Future benefits to widows could also be jeopardized. Despite what you read and see in photo-ops, this Administration lacks loyalty to our fighting men and women. Their loyalty is to their power base and remaining in office.

More than 150 local governments have passed resolutions opposing the Patriot Act as an overly broad threat to constitutional rights. Tim Lynch, director of the Cato Institute, stated “we’ve already heard stories of local police chiefs creating files on people who have protested the Iraq war…the government is constantly trying to expand its jurisdictions, and it needs to be watched very, very closely.”

In talking with Tim Russert of Meet The Press, VP Cheney said success in Iraq had to be achieved “whatever the cost in casualties and finances. This is the place we want to take on the terrorists.” Maybe the American people should give serious consideration to making Cheney a casualty in the next election- pull the anti-Cheney lever. Do it for our troops and veterans. It will make you smile.

Manufacturing output fell 0.1% in August, the first decline since April. Capacity utilization remained under 75%. With the inventory to sales ratio at near record lows, the folks who run our factories continue to regard any economic upturn with great doubts. Their actions speak a lot louder than the projections by economists and our Administration.

9/15/03 Getting Off The Titanic

VP Cheney: “Yeah, I did misspeak. I said repeatedly during the show (Meet the Press) ‘weapons capability.’ We never had any evidence that (Saddam) had acquired a nuclear weapon.” That sounds like lying to me, and not misspeaking. The word “never” places a different emphasis on the known facts. Maybe Bush was misspeaking last week in asking for the $87 billion. Asked on NBC’s Meet the Press yesterday whether that $87 billion would be the final request, Cheney replied “I can’t say that. It’s all we think we’ll need for the foreseeable future, for this year.” It’s as if the attitude is we can fool the American people whenever the spirit moves us. I predict the Santini Bros. moving truck will be there in November 2004.

Rumsfeld talking about Iraq: “Tourism is going to be something important in that country as soon as the security situation is resolved.” The two big tourist sites will be the empty tomb of Saddam Hussein and the empty display of WMD.

Cheney sees 4% GDP growth or better. He expects to cut the federal deficit “roughly in half” from next year’s level in the coming five years. Cheney comes from Casper, Wyoming. Have you ever been to Casper? There is an odor permeating this city of 48,000 people. The odor is the residue from closed refineries. It’s not exactly a city known for those with a nose for business.

The world’s 7th largest economy is that of the state of California. This is our largest state in terms of population and business. It’s in serious trouble. The future is a great deal bleaker than the current $38 billion deficit. Employers worry about new mandatory health insurance that may become law. A paid family leave act goes into effect in California in 2004. “These things all cost employers money,” said Allen Zaremberg, president of the California Chamber of Commerce. “You just encourage people to move.” According to a survey by the Small Business Survival Committee, they found (1) California has one of the highest personal income tax rates in the country. Only Rhode Island has a higher income tax rate. (2) The state also is one of the highest for corporate income taxes. Only 10 states have a higher rate for corporate taxation. (3) California also ranks among the five most expensive states for workers’ compensation costs and electricity expenses. (4) In sum, California had the worst business climate among the 50 states. For the first seven months of 2003, the U.S. private workforce declined by 0.2%, but California was down 0.6%. More and more companies are moving to Nevada and Arizona. John Chen is chairman and chief executive officer of Dublin-based Sybase Inc. He remarked “the costs of being in California are too high. I can find qualified people, bright people, in many different places outside of California. We are in a number of states and countries, and California is one of the most expensive.” Bob Marshall, owner of Postal Annex in Concord, stated “in the last year there has been a rush to get out. It’s like everyone is trying to get off the Titanic. I want to stay. But I wonder what they know that we don’t.”

Theresa Ruf, with 15 years of healthcare experience, lost her medical transcription job in August. She was told transcription could be done for 2 cents per line in India compared to 12 cents per line in the U.S.

Sweden’s 7 million voters decided not to adopt the euro as its currency. Over 56% rejected the euro and decided to keep their krona.

The WTO conference in Cancun fell apart. It was as anticipated. European and American farmers receive huge subsidies, and, as such, receive significant protection against imports from developing countries. Sugar would be an excellent example of such protectionism.

“You can’t negotiate with these people, you can’t try to talk sense to these people. The only way to deal with them is to find them and bring them to justice,” Bush said. Was he talking about terrorists or about politicians lurking in pork barrels?

Governor Rod Blagojevich of Illinois said he directed the Illinois special advocate to draft a plan for buying inexpensive medications in Canada for as many as 240,000 state employees and retirees. He stated yesterday “the status quo on prescription drugs is intolerable and unacceptable. This year, the state is spending $340 million on prescriptions for its workforce, a 15% increase over last year. I am optimistic we will be able to save literally millions of dollars for the taxpayers and set a precedent other states will follow.”

HUD says mobile or manufactured homes account for one-third of all new single-family homes. There are about 7.2 million such homes with the average sales price approximating $49,000 compared with about $164,000 for a traditional single-family home. There has been a recent spike in delinquencies and foreclosures on loans for manufactured homes, and this concerns Fannie Mae. As such, Fannie Mae has begun requiring a 10% down payment for 30-year mortgages on such homes, plus a fee of one-half of 1% of the loan amount. Previously, people could put no money down and pay no fee. These new down payment guidelines went into effect on August 24.

David M. Walker is the General Accounting Office head and the U.S. Comptroller. On Friday he stated “from an overall fiscal perspective, it’s time to admit we’re in a fiscal hole, and to stop digging. We must begin to come to grips with the dawning fiscal realities that threaten our nation’s children and grandchildren’s future.” This Wednesday Walker will deliver a speech to the National Press Club. It will begin with a wake-up call and end with a call to action. In the middle he will discuss “the facts and figures to make the case that we have a serious financial and fiscal challenge. Although growth can help, we’re not going to grow our way out of this problem…For example, depending on how you want to calculate what the gap is, how much money for every man, woman, and child in America it is…it’s a big number, and it’s a number that, if you think about what the average wage is in the United States, if you think about the average worth of an American, it’s going to be way in excess of these two numbers.” Walker said he was concerned that many things being discussed in government will make the situation “worse, not better.”

If this nation is in a fiscal hole, you’d never know it on Wall Street. It’s business as usual. Investors have been piling their dollars on the cruise ship Titanic. It’s built to withstand typhoons, hurricanes, and waves of mass destruction. Life boats are not required.

9/14/03 Regaining Reality

To be a successful long-term investor one must be on the right side of reality. That includes making the trend your friend, but it means much more than that. It means having an understanding and an appreciation for a changing landscape. Wall Street has failed in the latter. Analysts can no longer evaluate with the same yardsticks. Adjustments must be made. Forecasts should not be the same. Results shall be different. The workplace has changed, and possibly, permanently. In 1972 there were about 200,000 temporary workers. Today there are 10 times that amount. With capacity utilization at 75%, companies will hire temporary workers. They are easier to fire and they don’t receive on-going benefits. While a greater number of permanent workers are cut from the payrolls, an increasing number of temporary and contract workers join the labor force. The American Staffing Association said companies employed 50,000 more temporary workers in the second quarter of this year than in the first quarter. While top-line growth lags, managers fix their gaze on cost cutting. You cut a bit here and a bit there, and you make do. You patch the equipment, and keep capital expenditures down to the absolute musts. Why? In order to compete in a world economy lower costs can hopefully equate to competitive pricing. Customer loyalty is price driven. Therefore, name recognition has a lesser value. You know what you’re getting at McDonald’s and they have a $1 menu, but suppose the stand next door is offering a hamburger with fries for the same $1. The kids may want to go to McDonald’s but your wallet says go to the other stand.

Wall Street has this insane idea that p/e multiples of 30 or thereabouts work in this economy. The IT industry isn’t a new-born baby. It’s not in its infancy. Growth rates will be modest for Microsoft. The management is telling you that. As such, p/e ratios need to reflect reality in the marketplace. The short-term trend since March 11 has been sharply higher. That doesn’t mean the long-term trend has changed. As long as the consumer drives the economy, there will not be a sustained recovery without job growth. The latter will not take place for several reasons: excess capacity; too little demand; and foreign competition eliminating pricing power. In other words, nothing has changed for three years except the market took off from March 11 to heights which cannot and will not be sustained.

How am I so sure that I’m right? I’ll let you in on a little something. I pay attention to the value of the U.S. dollar. That value reflects how the world views the economic health of this nation. The dollar is in a downtrend in world currency trading. This trend tells you the world has severe doubts about the economic recovery economists and politicians predict. This week Dresdner Kleinwort Wasserstein and Goldman Sachs both revised lower their outlook for the U.S. dollar against the yen and the euro. Dresdner ranks as the world’s 15th biggest currency trader. They predict in the next 6 months the dollar will drop from about 116 yen to 110 yen and that the euro will rise from the current $1.13 to $1.24 in a year. Goldman Sachs is the world’s fifth largest currency trader. They believe in 6 months the euro will rise to $1.24. The euro economies are weak. That should tell you how weak the U.S. economy might be in 6 months or a year. When the U.S. economy was riding high a few years ago, the euro was at 82.

Our politicians are way out of touch with reality. U.S. senators last week said they planned to introduce legislation that would impose tariffs on Chinese imports unless China floats the yuan. These senators are out to lunch. Actually, they won’t get to lunch. China will gobble them up and spit them out for breakfast.

Bush is getting dangerously close to the third rail. The new Washington Post-ABC poll indicates that 60% of Americans oppose Bush’s $87 billion request for Iraq, and 55% doubt Bush has a clear plan about what to do in Iraq. About 60% disapprove of his handling of the federal budget, health care, and the overall economy.

On October 9 you can be the first one on your block to get the new $20 bill. Andrew Jackson will continue to be on the front, and the White House on the back. It will contain the traditional green and black colors, but the new bills will have touches of peach and blue. They will be more difficult to counterfeit. Hopefully, some day they will be worth $20. In another year or so more colorful $50 and $100 bills will be coming to your neighborhood. With the new colors, the 20s, 50s, and 100s should make great wallpaper.

9/13/03 For Whom The Bell Tolls

Since the beginning of the Iraq war on March 20, there have been 188 U.S. fatalities in combat and another 106 in accidents and other non-combat incidents. In Operation Desert Storm 148 were killed in combat and accidents killed another 145. As the casualties of the Iraq war have risen, Bush’s approval rating in the latest CNN-USA Today-Gallup poll has dropped to 52%, and that is down 7 points in the last month. While speaking to troops in Georgia, Bush remarked “no free nation can be neutral in the fight between civilization and chaos.” He might have added that no democracy is capable of providing for the safety of its citizens without the truth being told. The citizenry can handle the truth. Next week former U.N weapons inspector Kay returns from Iraq. He and his team have been hunting for the WMD. As David Albright, a former U.N. weapons inspector recently stated, “he’s not finding the kinds of things the administration expected to find- large quantities of biological and chemical weapons or evidence that they were destroyed prior to the war.” They have found zilch. How does Bush react to this revelation? At Ft Stewart, Georgia yesterday he remarked “because of our military, catastrophic weapons will no longer be in the hands of a reckless dictator.” What weapons? We went to war over WMD. The president and his team want to change the justification by saying removing Hussein was reason enough to go to war. That arrogant attitude is a one way ticket to palookaville.

Contract talks between the UAW and the big three auto companies are getting down to the wire. There’s plenty to discuss. GM has 2.8 hourly retirees per active hourly worker. Their hourly and salaried retiree pension plan is underfunded by $19 billion. In 2002 GM spent $4.5 billion on health care. The UAW wants to preserve health care benefits. The companies want to crack down on absenteeism. They wish increased worker flexibility so that employees can be moved from one job to another, depending on where they are needed. The 1999 agreement provided for 3% annual wage increases. This new agreement may allow for no increase in pay. A new labor pact will require give and take. Otherwise, Toyota will continue to win market share.

Yesterday economists were, once again, surprised by the news that consumer sentiment has fallen in September. The main culprits were 93,000 job cuts in August and record gasoline prices. We can add to that record beef prices and rapidly escalating plywood prices. In some areas of the country, sheets of plywood rose 80% in price from the level in August.

Next week the Fed meets on Sept 16. As the budget deficit rises beyond $500 billion, there is a need to sell more Treasury notes. This week’s auctions included the first September sale of five-year notes since 1997 and the first September sale of 10-year notes on record. I am certain we can expect more records broken in the very near future. The Fed will do its part to keep a lid on short-term rates. The Ponzi game continues into the next inning.

9/12/03 Footprints In The Quicksand

Bill Cheney, chief economist at John Hancock: “Right now we’re consuming everything in the world.”

How is it possible for there to be serious trouble when the GDP is expected to grow at a 5% rate from July to September? There are many aspects to the answer. Let’s begin with how Americans view life on Main Street. In the most recent IBD/TIPP National Outlook Index, which fell to 49.5, the lowest point since Bush took office, the president of TIPP described it this way: “two things are important to Americans- the job situation at home, and Iraq. Iraq more than terrorism is on Americans’ minds.” The “direction of the country index” fell to 48.1, the lowest point since the start of Bush’s term. 40% of Americans say they feel more at risk from terrorism today than before 9/11.

When it comes to unemployment, Challenger, Gray, and Christmas had something unsettling to say yesterday, and it was similar to what I have stated for months. They said the real unemployment rate was not 6.1% but rather 9.1%. The difference would be combining those out of work with those who have given up looking for a job. If you consider those who only can get part-time work, then the picture looks even grimmer. Of course, the manufacturing sector has been hit the hardest. In that sector 16% of that workforce or 2.7 million jobs have been cut in a record 37 straight months.

In sum, we are witnessing a landscape where companies have little or no top-line growth; prices are stagnant; there is a lack of spending on plant and equipment; and companies are axing employees. It’s more than just not hiring. It amounts to job losses.

The economists tell us that the economy is growing vigorously. Yet, August retail sales rose a disappointing 0.6%, down from 1.3% in July. The core PPI index rose only 0.1% in August, down from 0.2% in July. Purchase of building materials fell for the first time since February. In the tech sector, Oracle had a 7% drop in new software licensing in its fiscal first quarter. In sum, consumers have spent their tax benefits and child credits. We’re back to square one, and that means a very poor job picture and more of our troops getting killed in Iraq. Bill O’Reilly describes this as WWIII. Americans get what’s happening. It’s the politicians and the economists who are in the dark. That should come as no surprise.

9/11/03 Honoring With Honor

All Americans will forever remember the horror of two years ago on this day. Hopefully, honoring those who perished will make our nation stronger. Each individual can do his part, and I humbly suggest we honor the dead with the daily strength of speaking the truth. Words can be powerful, and the knowledge from those words can bring life to the weak.

I attempt each day to provide an economic and financial back drop which might illustrate the truths in our society and in our markets. Some suggest I have a negative bent. I suggest I tell the truth. I provide the facts. If the facts prove too harsh, then hit the delete button. But, don't whine to me. I adore caring for pigs but not whiners.

Unemployment is on the upswing. Yesterday was a bad day for workers. Levi Strauss is slashing 650 jobs, International Paper 3000, Champion Enterprises 1000, and Tellabs, which has already cut 4000 employees, is slashing some more. On average payrolls have declined 56,000 a month this year. Challenger, Gray, and Christmas said last month that U.S. workers are 25% more likely to lose a job between September and December than they were in the previous 8 months. It would appear their prediction is all too true as the number of new unemployment claims in the most recent week rose to the highest level in two months.

The U.S. July trade deficit widened to $40.32 billion, and our trade deficit with China was a record $11.3 billion and we also had a record trade deficit with Western Europe. We cntinue to spread the wealth.

It's about time the Senate did something positive. They are opposing Bush on the overtime issue. Let's see if he has the power of his conviction and the nerve to veto their action.

9/10/03 Outlining Expectations

The U.S. Army Guard and Reservists face extended tours of duty in Iraq and Kuwait, and will be required to serve up to 12 months in their areas of operation. Time spent at U.S. military basese awaiting deployment doesn't count. Lt. Gen. Roger Schultz, director of the U.S. Army National Guard in Washington said yesterday "we didn't do a very good job of outlining expectations, so right in the middle of a mission- a fairly difficult mission- we are changing the rotation policy as it affects Iraqi Freedom."

The S&P 500 has rallied 28% from the March 11 low. Accompanying this increase, come major expectations for increased earnings and enhanced economic visibility. There isn't any room for disappointment. Today, National City, a Cleveland based bank, lowered its financial outlook for 2003 to reflect the adverse impact of the recent rise in long-term rates on its mortgage business. When it comes to revised downward outlooks and rising long-term rates, National City will have plenty of company.

As I predicted back in July, mortgage lenders are cutting jobs. They aren't alone. 3COM will outsource all manufacturing of its computer-networking equipment and eliminate about 1,000 jobs or one-third of its employees.

The IBD/TIPP Economic Optimism Index dropped 2.3 points to 52.5 in September. Raghavan Mayur, president of TIPP, said "we are seeing a broad-based decline in economic confidence in September." He said the average reading of the last recession was 54.3. The six-month economic outlook fell 4.3 points to 51.

A new study reveals workers in employer-sponsored health plans are paying 48% more out of their own pay for medical care than just 3 years ago.

After 21 years at Sun Microsystems and as co-founder, Bill Joy, the Java pioneer, is leaving the company. There is only one Bill Joy. This is like Babe Ruth leaving Boston for New York.

The UAW's 4-year national contract covering 37,000 hourly workers and 522,000 retirees, surviving spouses, and dependents, expires at midnight Sunday. Chrysler wants to outsource "general service operators" or plant janitors, drive down absenteeism, and reduce job classification. Chrysler should also focus on Toyota. In August, Toyota's 3 brands, Tyota, Lexus, and Scion, eclipsed the combined Chrysler, Dodge, and Jeep U.S. monthly sales for the first time.

Posting for Tuesday
9/09/03 Termites In The Woodwork

W.D. Gann, who died in 1955, is well known for his geometric angles. Many professional investors have looked down on Gann as a financial astrologer. Most of these naysayers couldn’t carry his briefcase. I have long appreciated Gann’s emphasis on patience, a healthy mind and body, and the daily thirst for knowledge. He focused on not losing money, and realizing the power of risk and reward as he waited until the risk/reward ratio was 90% in his favor prior to investing. He did not believe in debt, never drank alcohol, and didn’t drink or take drugs. Gann stated “do the opposite of the masses, and you will make money.” He said “the man who looks forward and sees the darkest side and prepares for it is the man who will succeed, and the nation that prepares for the worst will not have to face the worst.”

John Maynard Keynes: “When the facts change, I change my mind. What do you do, sir?”

The equity tension index (EqTI), says Howard Simons, “is based on the premise that a market’s volatility structure and forward curve each convey as much useful trading information as does the price itself.”

Economist William Gale, a senior fellow at the Brookings Institute, stated “the deficit is not the wolf at the door; it’s more the termites in the woodwork.”

Singapore’s Ministry of Health said on Monday that one man’s “initial tests seem to indicate this person has the SARS virus, but we are doing further tests tonight.”

International Atomic Energy Agency chief Mohamed ElBaradei said “no indication of post-1991 weaponization activities was uncovered in Iraq. In the areas of uranium acquisition, concentration and centrifuge enrichment, extensive field investigation and document analysis revealed no evidence that Iraq had resumed such activities.” His experts had withdrawn from Iraq before the war began in March. He said “the agency observed a substantial degradation in facilities, financial resources and programs throughout Iraq that might support a nuclear infrastructure. The former cadre of nuclear experts was being increasingly dispersed and many key figures were reaching retirement or had left the country.” The International Atomic Energy Agency has a 35-nation board of governors. The aforementioned facts place considerable doubt on Iraq’s nuclear terrorist capabilities. I feel confident that our CIA shared the same view and information. It must have been delayed getting to the White House. Movement over the desert sands takes time.

9/08/03 Shock-And-Awe

The President’s speech last night reflected the shock-and-awe of human sacrifices and mounting costs of the war in Iraq. The American people and the world were told over and over again that the reason for this war was the massive array of WMD. Last night no mention was made of the daily urgent hunt for the WMD, and the lack of success in finding even a small cache of such weapons. Let there be no misunderstanding. I fiercely and proudly bleed red, white, and blue. Unfortunately, that doesn’t mean I support errors of omission. The President stated “we will do whatever is necessary.” I say go to main street and not land on the U.S. Abraham Lincoln. Listen to the words of LT. Gen. Ricardo Sanchez, the commander of U.S. forces in Iraq: “If a militia or an internal conflict of some nature were to erupt, that would pose a challenge…that I do not have sufficient forces for. The coalition lacks sufficient troops to protect Iraq’s porous borders or its thousands of miles of highways.” Obviously, we aren’t doing whatever is necessary to win the “mop-up operation.” Congress had been told that up to $80 billion would be required for the Iraq reconstruction effort. Now the President asks for another $87 billion. It sounds like the CBO forecasting a budget deficit of $167 billion about 10 months ago, and now they estimate the total to be at least $465 billion. These people either don’t know what they’re doing or they provide errors of omission or both. Any way you look at it, they can’t hack it and won’t admit they mishandled the war effort as well as the economy. A new Zogby International poll puts Bush’s approval rating at 54% negative and 45% positive. After last night’s speech, I would imagine the negative factor would increase once again. Winners don’t look to justify failure.

With respect to the Homeland Security department, a White House official who handles homeland-security issues and who asked not to be identified, said “not a lot is getting done at the top of the department, and nobody’s making them focus on it.” Last week two top officials in that department stepped down amidst growing criticism.

President Bush: “The Americans who assume great risks overseas understand the great cause they are in.” As the polls indicate, the people of Great Britain don’t understand this same cause, and they are our only significant partner in Iraq. Despite growing outrage over the country’s participation in Iraq, Britain’s top government officials announced sending 1200 more troops to Iraq.

Larry Ellison: “We saw the zenith in tech jobs around 2001. We saw a point where half of all capital spending was tech. That will never happen again. My industry will never come back. Nor should it. Computer systems are still too expensive. They’re too labor intensive.”

The annual OracleWorld conference opens today in San Francisco. Grid computing will be the center piece of Oracle speak. On Friday the company will announce quarterly results.

The war in Iraq and today’s equity investing have one large commonality- they both lack an exit strategy.

9/07/03 The Road Map To Patience

This evening the president will address the nation and outline the progress made in Iraq, and he will ask for more patience to finish the job. Having not seen the speech, I would doubt much time is devoted to a discussion of the WMD, the reason provided for initiating this conflict. I doubt much time will be devoted to the 149 men and women in uniform who have died in Iraq since May 1. In fact, a mention of the wounded may not be forthcoming. On the other hand, Rumsfeld may have given us a clue as to the tenor of the talk when he said yesterday “the Iraqi people are so much better off than four or five months ago.” I wonder if the American people are better off than they were in January, 2001 when Bush was inaugurated. While Bush asks for patience, the city of Santa Cruz is moving in an opposite direction. Their city council will consider Tuesday a measure that, if passed, would give members the go-ahead to send a letter of inquiry to Congress. The Santa Cruz Mayor and Vice Mayor and one councilman have already signed a draft of a letter to members of the House Judiciary Committee asking them whether any of Bush’s conduct equated to an impeachable offense, such as, whether Bush violated international treaties and the U.S. Constitution by invading and occupying Iraq. The Mayor said “we have to know why the Bush administration lied to us about Iraq.”

On Wednesday the World Trade Organization summit is set to open in Cancun, Mexico. The United States has tried to lower expectations about the outcome of the talks. The main problems focus on agricultural subsidies in developed countries and lower tariffs for manufactured products. Adriano Campolina Soares, director of ActionAid Brazil, stated “people think you in the United States are only willing to give peanuts on agricultural concessions but are charging an amazingly enormous price for that, which are the new issues.” These new issues include government procurement, competition, trade facilitation and a new investment agreement to limit governments’ ability to place checks on trade and investment.

Silicon Valley’s Santa Clara County had 864,500 non-farm jobs in July, about the same number as it had 7 ½ years ago in the beginning of 1996. This week analysts raised their earnings estimates for Siebel Systems and Oracle. With revenue growth missing and a job-loss recovery, I think these analysts are out to lunch. These are the same folks who said tech stocks were going to the moon in 1999 and early 2000. I suggest they should be added to the unemployment rolls. Meanwhile, Jim Cunneen, president of the San Jose Silicon Valley Chamber of Commerce, stated “ we won’t have a meaningful recovery until jobs are added.”

China’s central bank said its economic policy units “unanimously think that the bank loans right now are increasing too fast.” Chinese banks lent more money in the first 7 months of 2003 than in all of last year. Standard & Poor’s estimates that borrowers have defaulted on nearly half of all bank loans in China.

9/06/03 80% Permanent

A study released this week by the Federal Reserve Bank of New York found that about 80% of the jobs lost since the 2001 recession were the result of structural changes by businesses aimed at permanently reducing their labor forces. During the 1990-91 recession, 57% of the job cuts reflected permanent structural changes. It is no wonder that more job seekers are discouraged. In the month of August the number of discouraged workers climbed to over 500,000 for the first time in this job downturn. More than 20% of those without a job have been out of work for six months or longer, and this is a 20-year high.

Richard Yamarone, Argus Research economist: “This is the productivity miracle at work- lost jobs and low inflation.”

Mark Zandi, chief economist at Economy.com: “If we don’t see some good job growth by Thanksgiving, then the spurt in economic activity that we are currently experiencing will fade."

Not since World War II has employment failed to grow for so long during a recovery. The national payroll has shrunk by almost 3 million jobs since March 2001. Most economists are surprised that the loss of jobs continues despite an extraordinary level of economic stimulus- low interest rates, tax cuts and rebates, a rise in government spending and not only military, and mortgage refinancings. In addition, the overall workweek sits at an all-time low while the manufacturing workweek is at a low for the current business cycle.

In its August monetary policy report to the Congress, the FOMC stated “but because of the considerable amount of economic slack prevailing and the economy’s ability to expand without putting upward pressure on prices, the Committee (FOMC) indicated that the small chance of an unwelcome decline in the inflation rate was likely to remain its predominant concern for the foreseeable future.” The Committee might consider how wrong they are in one area. They have continually misjudged the benefits from improved productivity. The fact is household incomes have not been lifted from increased productivity. Business capital spending has hardly improved from increased productivity. On the other hand, inflation remains tame overall. Obviously, there have been price spikes in gasoline, beef, and some other areas.

On Friday December gold rose 1.3% to close at $378.70 an ounce, its highest closing since early February. December silver rose 2.3% to close at $5.15. Palladium closed up 6.7% at $222 an aounce, a five-month high. Hard assets are in growing demand.

Bill Cheney, chief economist at John Hancock Financial Services: “Businesses across the board are figuring ways to do more with fewer people. We may be further than we thought from a truly sustainable economic recovery.”

Labor Secretary Elaine Chao expresses an empathetic viewpoint: “the manufacturing sector has been in a decline for the last 40 years. Having said that, we are very concerned . We are focusing a lot of attention on manufacturing.” That concern and attention and a buck will get you on the bus.

The lack of jobs is taking its toll on consumer confidence, and that was reflected in the latest University of Michigan survey where the drop in confidence was more than expected.

Larry Bartels, a professor of politics and public affairs at Princeton University, says real disposable income per capita (RDI) is the single best predictor of presidential elections. He said “it’s closer to everyday people’s ordinary experience. It’s a measure of what they actually have in their pockets, rather than an abstract economic indicator.” The Investors Business Daily points out that, four times since 1948, the party in the White House lost the popular vote when the RDI per capita grew less than 2%. In the June quarter which just ended, it rose just 1% from a year earlier and at an annualized 1.7% pace. Maybe it’s symbolic that the president is speaking to the nation on Sunday night from the White House and not the oval office.

White House spokeswoman Claire Buchan: “The president’s priorities are that government gets results for the people, and he is focused on protecting Americans, winning the war on terrorism, and ensuring economic security.” I think Ms Buchan needs to take a reality check. A report issued on Wednesday for the Joint Chiefs of Staff said planning for the rebuilding phase of the Iraq war was late in starting and not ready for activation when the war began March 19. Since the May 1 landing on the deck of the carrier USS Abraham Lincoln (the one announcing the end of major combat operations), 149 Americans have died in Iraq, exceeding the 138 who perished during major combat operations. Additionally, no WMD have been found. Osam bin Laden has not been captured. Saddam Hussein is still at large. Meanwhile, troop morale is at a low level and four times they have been given a date by which they would leave Iraq. Each time the date cam and went. The troops have been faced with reductions in pay but only yesterday Bush said “my attitude is, anytime we put our troops in harm’s way, they deserve the best pay, the best training and the best possible equipment.” He must think he’s still on the deck of the USS Abraham Lincoln. If Norman Schwartzkopf were running this operation, things would be a lot different for our troops.

Bush in his 2000 presidential nomination acceptance speech: “Big government is not the answer. The alternative…is to put conservative values and conservative ideas into the thick of the fight for justice and opportunity.” Since late 2000, 500,000 new defense-related jobs have been created, but this number only included 70,000 troops in uniform. That’s big government at its worst. The discretionary spending levels of the Bush years have been deplorable. Reduced spending must be considered curse words at 1600 Pennsylvania Avenue.

Despite the fact that Mexico has lost 200,000 jobs to China, the Mexican government will not support the U.S. efforts to have the yuan float freely. Jose Francisco Gil Diaz, finance minister of Mexico, stated “I am not asking any country to do anything. Maybe what the Chinese are doing now is correct, maybe.”

Phillipine’s Finance Secretary Jose Camacho: “We support the position that each of the APEC economies should be given the respect for applying policies appropriate for its own economy. We should allow the Chinese to determine the timing.”

9/05/03 Slack In Labor And Product Markets

Robert Parry is the president of the Federal Reserve Bank of San Francisco. He said he expects 4- 4.5% growth in this year’s second half but also said there is so much “slack in labor and product markets” and said risks of disinflation would “remain a concern for some time.” Another Fed member, Ben Bernanke, also spoke yesterday and stated that “soft labor markets and excess capacity create a further downward risk to inflation.” It is clear that they are on the same page, and share the same concerns. I believe the bond and stock markets have underestimated the deep-seated nature of these concerns.

There was greater slack in the labor market yesterday. Del Monte will phase out 15% of their positions in San Francisco; PeopleSoft will cut up to 1000 jobs; Dow Chemical said they still have 1700 jobs to cut; and Marathon Oil will layoff 265 workers. The good news is that Boston Scientific, the stent manufacturer, will hire 1200 new workers.

Pension Benefit Guaranty Corp. said private employer pension plans are $400 billion underfunded.

Kraft expects 3rd quarter earnings of 45-47 cents compared with 50 cents in the same quarter a year ago. Analysts had been expecting 49 cents. To reverse the downturn, the company plans promotions and price reductions and intends to cut capital spending and inventories.

A Washington, Iowa promotional calendar plant has been in this southeast Iowa community for 100 years. In January, 200 employees will be without jobs as the Norwood Promotional Products plant closes. Production will be moved to Sleepy Eye, Minn. The plant’s calendars range from art, animals, and religious subjects to making the Playboy calendars.

Productivity in the second quarter rose at a 6.8% annual rate. Possibly more significant, the U.S. supposedly is in its 20th month of economic recovery without job creation. The Federal Reserve has said there is a typical three-month gap between recovery and job creation. Maybe we haven’t been recovering for 20 months or possibly this economy isn’t typical or possibly no one can explain what truly is taking place today. It’s a bit like where have the WPM gone? Have they disappeared forever? Have jobs disappeared forever? Has Osama bin Laden disappeared forever? Who’s on first?

The unemployment rate will be released shortly. All we need to know is that the economists were wrong again. Unemployment claims rose last week to 413,000, their highest level since the week ended July 12.
In the 1994-2002 period, continuing unemployment claims averaged 2.579 million. This year they have averaged 3.575 million, and now stand at 3.663 million. Last quarter hours worked fell at a 2.3% pace and unit labor costs fell at a revised 2.8% annual rate during this period. Industrial capacity utilization remains around 75%.

The stretch of Pennsylvania Avenue in Washington DC between 15th and 17th streets NW has been closed to traffic since 1995. A promise to reopen the avenue was included in the Republican platform on which George W. Bush ran for president. Yesterday the National Capital Planning Commission approved plans for redesigning the portion of Pennsylvania Avenue in front of the White House with “security improvements” but it shall remain closed to traffic. The 2004 Bush budget includes $15 million for construction of improvements. Commission Chairman John Cogbill stated “the plan allows us to breathe new life into America’s Main Street. If they think this is Main Street America, then this country is truly in serious trouble.

The U.S. economy lost 93,000 non-farm payroll jobs in August, and it was the seventh straight month for these job losses. It was the largest decrease in payrolls since March. Economists had been predicting a job gain of 19,000. For at least two weeks I have been describing the daily job cuts across America. There was no way the August number could have been on the plus side.

9/04/05 Leveraging A Little Bit

On August 5 Cisco issued its first quarter 2004 revenue guidance. At that time the company expected revenues to be slightly up 2 to 4% from the prior year’s period, and that would equate to roughly $4.86 billion. Earnings per share before one-time items would approach 15 cents. The news was not greeted with enthusiasm, and the stock proceeded to drop about 10% over 2 days. Yesterday it hit a new high. The CEO said “August was a little bit above my expectations.” It should be noted that August is normally a slow month. He also said that investors should not get too excited because Cisco is still not seeing companies boost spending. In sum, the little bit above expectations announcement resulted in a market cap increase of $3.5 billion. That’s pretty good leverage when one realizes the August revenues might have been less than $100 million above the most recent forecasts.

Alfred Adler: “It is very obvious that we are not influenced by “facts” but by our interpretation of the facts.”

Ian Campbell, UPI Chief Economist Correspondent, said “in 2004 low growth or outright recession is likely for the U.S. economy, and the global impact of that will be negative.”

RSA cut 1000 jobs. Gateway will shut a computer assembly plant in Hampton, VA with 450 employees, and cut an undisclosed number of employees at 2 facilities in South Dakota which employ 3,450 people.

The latest Federal Reserve “beige book” said “labor markets remain slack across the nation. It said, where there were gains in wages, they were modest. At the same time, increasing health care expenses created a rise in overall labor compensation costs.

G.M.’s August U.S. car sales were down 8%. They cited weaker sales to corporate and rental car customers. Ford’s August U.S. sales of cars and trucks fell 12%. The company is lowering production in the current quarter by 1.2% and in the fourth quarter by 6.4%.

Shortly after 9/11, Amazon’s stock traded at $8, and I mentioned that I thought it was a promising risk/reward at that level. I never thought it would rise to $47 in 2 years. Yesterday it traded at that price. Sales are expected to reach $5 billion this year on earnings per share of 55 cents. Next year earnings could increase 50%; however, at the present price level for the stock, the risk/reward no longer looks promising. With those having a long term holding appetite, Exult could prove rewarding. At $8 the stock is not being given away; however, 5 years ago they had no revenue and today its about $500 million. They’ve grown from 2 employees to about 2000, and have $100 million in cash, and should earn about 17 cents this year but next year could bring an increase in earnings of 100%. The market cap is $880 million; however, in several years, their revenues could approach $2.5 billion. They are the leaders in integrated human resources management, and that’s a growing field. Their customer base is loyal and pleased with the results to date.

China is the world’s sixth largest economy, and rising yearly to higher rankings. Each year 20 million people enter their labor market.

Gold is trading around $375 per ounce and nearing the yearly highs.

9/03/03 Employment, Presenteeism, And The Consumer

Yesterday morning a financial TV station announced that Challenger, Gray, and Christmas stated layoffs for August had amounted to 79,925, and this figure was down 6% from July’s numbers. Was the viewer to cheer after hearing these layoff numbers? Was this to be taken as good news? Get real. We know the consumer is 70% of the economy. If layoffs persist on a monthly basis, consumption will be effected negatively. If that happens, an economic recovery shall not become a sustainable reality. In the last week of August, U.S. chain store sales lost momentum as they only rose 0.1% in the week ended August 30. I have said on several occasions that the economic blip upward in June, July, and August would be coming due to the tax cut and the child credit, and then the improvement would peter out. The reason was and still is the loss of jobs and the impact on the consumer. If anyone can prove my thinking incorrect, I would be pleased to hear from you. To put this bluntly and respectfully, it is not possible to manipulate consumer sentiment with growing unemployment lines. The media and Washington DC can talk a good game, and so can analysts on Wall Street, but they don’t make out the paychecks for Americans. In addition, unemployment benefits are paid for by the taxpayers and not by promises of a better future.

Presenteeism is what happens when people are too afraid to call in sick. Jeffrey Pfeffer, professor at Stanford University’s Graduate School of Business, says “there is no evidence that excessive hours are necessary for competitive success. But somehow we’ve gotten in our minds that to succeed in this world is to work yourself to death.” In Japan they have a word to describe death from over work. It’s karoshi, and the Japanese government has reported 10,000 cases a year of managers, executives, and engineers who have died from overwork.

Job cut announcements have totaled about 800,000 so far this year. The media will tell you that’s good news because that number is down 15% from the first 8 months of 2002. Meanwhile, the ISM Employment Index fell in August. This is the 35th straight month below the 50 level that separates growth from expansion. Norbert Ore, head of the ISM manufacturing survey committee, said “we have to see significant growth in manufacturing before industries will rehire.” With factories closing, I don’t see much reason to look for rehiring. Additionally, Rick Cobb, executive VP of Challenger, Gray, and Christmas, states “there has yet to be any significant indication of a rebound in capital spending that would support the view that employers will begin hiring en masse.”

Once again, the petroleum industry unjustly struck the pocketbooks of consumers over the Labor Day weekend. There was such a BS shortage that gasoline and crude futures fell more than 6% yesterday to close at their lowest levels since July. October unleaded gasoline fell 8 cents to close below 85 cents a gallon in New York. October crude was down over $2 per barrel to $29.41. It’s time consumers banned together and struck the hearts of the petroleum industry. Every American who drives should commit to reducing weekly gas usage by 1 gallon per week. That means driving 20 miles less per week. That should be achievable. Let’s see how the petroleum industry likes being on the receiving end- like the tobacco industry.

Treasury Department General Counsel David Aufhauser is resigning from his post on Sept. 30 due to the fact that the “campaign against the financing of terror…has defined a significant amount” of his job. Washington DC is a revolving door for employees. There appears to be growing discontent.

DHL announced they would be cutting 2,870 jobs or 6% of the workforce.

You have to hand it to Chrysler. They are on their toes and super promotional. They beat GM to the punch and announced “aggressive” new consumer incentives on most of its 2004 model year vehicles. Despite offering cash rebates of up to $4,500, the Big Three automakers have lost 1.5 percentage points of the U.S. market share since the beginning of 2003. In the second quarter Chrysler lost $1.1 billion due to the high cost of incentives. I guess they feel they’re on a roll, and need to keep those cars coming off the factory floor so that they can be sold at a loss. Maybe they’ll make it up in the volume. GM will announce their incentive program today. Of course, the industry will make a big media splash of record car sales in August. All they need to do now is make a profit on the sales. It’s no big deal if your name is Toyota.

9/02/03 I’m Lovin It

That’s the new worldwide McDonald’s ad campaign which begins this week. I’m not so sure the employees in Bellevue, WA are lovin it. Their store was located at a prime site, and was in existence for about 2 decades. Without any publicity, the store closed over this weekend. Located in Bellevue is Burger King, Wendy’s, and the rest of the usual suspects. Arby’s is across the street from McDonald’s. Maybe the competition got too heated from those roast beef sandwiches.

You gotta love Bush’s recipe for fixing our manufacturing base and the loss of jobs in this area. The government does not manufacture anything- except for the items produced in various prisons by inmates. Come to think of it, that’s low cost labor that should be able to compete with China. Many inmates get paid 20 cents or less per hour for working. Of course, they get free food, housing, clothing, and healthcare. Back to Bush. He named a “czar” to address the loss of manufacturing jobs. He did accomplish something. He created a job. At the same time, he was consistent with his economic policy of increased discretionary spending and generating unneeded overhead in Washington.

The Snowman is over in China jawboning the Chinese government to overhaul its currency system with its yuan fixed at 8.3 to the U.S. dollar. Whose fault is it that the U.S. has a $103 billion trade deficit with China? Are we going to blame it on the exchange rate? Maybe, if our budget deficit were reduced by cutting government spending, our dollar would have a greater purchasing value. Winners accept responsibility and losers blame others. There seem to be plenty of blaming others in Washington DC. Presently, the yuan will not be revalued. It is thought that doing so would exacerbate the problems evident at many of their local banks. China will continue to purchase our treasury notes. Looking at the situation rationally, China is taking the money from the trade surplus generated with the U.S. and investing most of that money in our government bonds. The money is remaining, for the most part, in this country.

Government statistics talk about the recovery. Wall Street buys the talk. If the recovery were for real, then why did the economy lose 44,000 jobs in August? I am tired of jobs being described as a lagging indicator. If jobs were being added, lagging indicator would not be utilized in the description. The stock market, on the other hand, is considered a leading indicator. Why? The sarcastic answer is so few money managers beat the averages and indexes over time. In other words, a bunch of also-rans are the leading indicator. They should get czar jobs in Washington DC.

9/1/03 The Truth On Labor Day

Worker productivity rises off the charts, and yet, jobs are outsourced to lower labor cost countries. Workers accept pay and benefit cuts only to see a factory shut down. At some point the landscape for workers and management/owners must find a happy medium. There is less and less loyalty within the workplace, and clearly less satisfaction during difficult economic times amidst heightened stress. It may be Labor Day, but today there is much less to celebrate. It’s one thing to have a job, and another thing to keep the job. Millions of Americans have learned that all too well. The U.S. needs to regain some of its sheen. That is not something that can be blamed on 9/11.

A study by researchers at the University of Illinois said, at the current rate, a full recovery in the technology sector is unlikely to come before 2012. The current industry’s job growth is estimated at approximately 1%, and this is down from the double-digit increases in the late 1990s.

This is an appropriate time to explore how some companies offer opportunities for growth and responsibility and maintain a winning team. A good example is a privately owned company with locations in California, Nevada, and Arizona. Most of their management personnel rise through the ranks and are promoted from hourly worker levels. Store managers, on average, have been with the company for over 13 years and make about $100,000 per year. Customer loyalty is at the highest level, and repeat business is the norm. A husband and wife team started the company in 1948, and family members have been at the helm since then. The menu has never changed. They were the first drive-thru hamburger stand in California. Their motto remains the same: “Give customers the freshest, highest quality foods you can buy and provide them with friendly service in a sparkling clean environment.” The potatoes are cut fresh on site for the french fries. The shakes have real ice cream. There are only double double burgers, cheeseburgers, and hamburgers. Those are the five items on the menu. The meat is fresh, the lettuce is fresh, and the tomatoes are ripe. Everything is cooked to order, and yet it is fast food. This is the Krispy Kreme of the hamburger business. It is the Starbucks of the hamburger business. There aren’t any franchised locations. The customers are dealing with the owners or staff trained by the owners. This is where children and grown-ups come to eat time and time again. Their sales are up 10% this year at the same time Burger King and McDonald’s and Wendy’s are struggling. Winners find a way to win even when the times get tougher. Maybe some day In-N-Out Burger will go public. That will be a real meal.

It’s the end of the summer and it’s been a long summer. There’s been too little sleep and too much on my plate. I take responsibility for this, and somehow I wish that at times I could be more than one person. It may seem that I am not everything I am cranked out to be. For that I apologize. I would never want to create disappointment. Unfortunately, sometimes the demands on my time may create difficulties for others. There are no excuses. I will try to do better.

8/31/03 Our Breathing Is Labored

Do you like getting stabbed in the back? Do you like making your children’s world more fiscally burdensome than yours? Do you like being made to look stupid? It’s pay back time. It’s time for accountability. Look in the mirror. What do you see? If you said, an apathetic American, you are correct. I’m no different. I may have a big mouth and one vote, but I have not gotten out in the political trenches to change things either. Many Americans are happy with their tax cut and child credit check. How do you think the government is paying for the budget deficits? And the CBO says the deficits will rise at least in the near future. These deficits must be funded through additional revenues, and the latter spell increased taxes ranging from a minimum of $4000 to $7000 per household depending on the size of the deficit. There is only one alternative to increased taxation to offset these deficits and that’s to make large spending cuts. I know some of you think I’m being too rough. Actually, I need to be tougher. Bush and the Congress are the WPM. This year non-defense discretionary spending will be about 4% of the GDP. That is more than unacceptable. That is indefensible and irresponsible. Elect no official without a pledge to cut spending by at least 15%. Mandatory spending will exceed 11% of GDP this year. If we can work on a cure for cancer, we certainly can find a cure for pork, welfare, waste, and abuse spending. If we do not cut government spending drastically, our breathing will no longer be labored. The fresh air will cease to exist. Freedom will be lost.

Ford is gloating that August will be their best month this year for car sales. They have little to show for their efforts except the $4000 in incentives on each vehicle. The Big Three share of the auto market has fallen from 60% from 70% over the last five years. Asian auto makers now have over a 32% share up from 25 % only five years ago. All Japanese auto plants in North America are non-union and their labor costs amount to $7,000 per vehicle as compared with the U.S. auto makers’ labor costs of $7,500 per vehicle.

The GM labor contract with the UAW expires on September 14. The company is proposing to freeze hourly wages through 2007, plus paying three bonuses worth $1,066 assuming no overtime pay. GM would double the $3-5 workers pay now for each drug prescription. Workers would continue not paying part of the monthly health insurance premium. The UAW is in a poor bargaining position. Their membership has declined from 1.5 million to 639,000 over the past 25 years. The auto companies maintain they must hold down wages, benefits, and positions to stay competitive. The fact is simple. A growing number of consumers prefer Japanese vehicles. The trend is not friendly for the U.S. auto worker. Overall, labor unions currently represent only 9% of private-sector workers.

Challenger, Gray, & Christmas state that 4.1 million jobs have been cut since January 2001. The Bureau of Labor Statistics reports that 2.6 million fewer people are employed now than in January 2001. These facts explain why Bush is being compared to Hoover on job losses. Even if analysts are correct and 12,000 new jobs outside the agricultural sector were added to U.S. payrolls in August, it still would be only a pimple on an elephant’s ass. Come November 2004, jobs will become a big factor in the election.

Walker Information, a research firm in Minneapolis, said by 2012 more people shall be leaving than entering the workforce. They note that, the hiring and training of replacements, costs up to 1.5 times the position’s annual salary.

Jonathan Golub, VP and U.S. equity strategist with JP Morgan Fleming Asset Management: “What’s leading the market are companies that have no earnings and no dividends…there is a meaningful disparity between the well established companies and the rest.”