5/12/04 The Senate

Martin Wolf: “The world is too complex and dangerous for the pious simplicities and arrogant unilateralism of George W. Bush.”

Raghavan Mayur, president of TIPP: “The share of households classified as ‘job sensitive’ is 32%. These households tend to be pessimistic about the economy.”

Abraham Lincoln: “The best thing about the future is that it comes only one day at a time.”

The average unemployment rate in urban China exceeds 11%.

According to a recent Goldman Sachs quarterly survey of global confidence, the general business outlook declined from 93.8 in February to 75.9 in March, the lowest level in almost one year. There was an unusually large drop in capital expenditure plans as well as the consideration of mergers and acquisitions.

As crude oil traded at a 13-year high of $40 per barrel and demand for crude reached a 16-year high, the U.S. Senate on Tuesday overwhelmingly passed $14 billion in tax breaks for the energy industry. Included are tax provisions for the renewable energy and energy efficient industries, including a $2,000 tax credit for buyers of gas-electric hybrid vehicles. There is an important tax credit for oil and gas production from marginal wells, which are defined as those that produce less than 15 barrels of oil per day. It is reported that more than 80% of all domestic oil production in the U.S. comes from marginal wells. There are incentives to encourage development of clean coal technology and renewable fuels. There are tax breaks for building more energy-efficient homes and buying more energy-efficient appliances. In addition, the bill would encourage construction of a $20 billion pipeline to carry natural gas from Alaska’s North Slope by guaranteeing a price support if the price falls below a certain level.

Yesterday Kerry had a chance to make some lasting political points. He blew the opportunity. The Senate by a single vote rejected an election-year effort Tuesday to extend federal unemployment benefits. It required 60 votes to pass. The vote was 59-40. Kerry was the only senator who missed the vote. He was campaigning Tuesday in Kentucky. If he is to get elected, Kerry had better get his priorities in order. The cost to extend the benefits would amount to about $6 billion. There is $13+ billion in the unemployment insurance trust fund.

Only one-fifth of HP’s PCs are built to order.

5/11/04 Scanning The Globe

The Defense Science Board and the National Defense University have finished separate reviews of the $23.5 billion Air Force plan to lease and buy 100 Boeing 767 refueling tankers. According to sources familiar with the Defense Science Board report, there is less urgency in replacing the Air Force’s 40-year-old tanker fleet, partly due to improved efficiency in maintenance operations and also they raised the possibility of buying used 767s from cargo airlines instead of purchasing new ones. The National Defense University stated the commercial lease was inappropriate since Boeing had a quasi-monopoly on the aircraft and that the military was a quasi-monopoly buyer. Boeing knows the 767 tanker project is stalled. They announced the layoff of 50 contract workers on the 767 program in Wichita. A spokesman for Boeing stated “there will be a number of additional employees on the tanker team affected by this.” It is important to note that the future of the 767 assembly line could hang in the balance because of the commercial version of the aircraft have slowed considerably. I anticipate the line will be shut down in late October. Boeing is in a heap of trouble. Commercially, they are essentially a one-product manufacturer, the 737. Even with their defense business, the company’s future revenue stream is suspect. It will be several years until a 7E7 is built and delivered. With the loss of income from the tanker deal, Boeing will need to revise its earnings estimates and its projections for future layoffs. Boeing will be a further drag on the performance of the Dow.

It’s coming up to ice cream season. Get ready to pay more for a scoop, pint, quart, or gallon. According to the International Dairy Foods Association, retail and restaurant ice cream constitutes a $20 billion business in the U.S. with the average person consuming 26 servings of ice cream a year. A pint of Ben & Jerry’s ice cream is going up 8%, the most in the company’s 26 years. Because of several cyclones in Madagascar, the price of vanilla syrup rose from $75 per gallon to over $400. Due to political unrest in the Ivory Coast, the price of cocoa rose about $1 a pound, the largest jump in 17 years. As one woman in New Hampshire remarked, “it’s ridiculous. You can go to the market and buy a half-gallon for the same price as a small cone.”

Toyota’s fourth quarter net income more than doubled, and their annual net profit exceeded $10 billion, twice the combined earnings of GM and Ford. One should note that currency exchange losses cut the profit by about 140 billion yen.

Anthony Cordesman: “Those Americans and Britons who mistreated the prisoners acted in the direct interests of al-Qaeda, Iraqi insurgents, and their enemies throughout the world. Their names will be written invisibly on the body bags of every coalition soldier and friendly Iraqi who dies from now on- and the consequences of their actions will exact a price in blood for years to come.”

Assets under the global hedge fund business now exceed $1.1 trillion, according to the Alternative Fund Services Review.

With orange juice futures having recently hit a 27-year low, you might consider switching from milk to orange juice. Florida has the largest crop in the state’s history, and that, combined with lower demand resulting from the low-carb diet craze, has pressured prices.

MCI to cut 7,500 jobs.

Alan King: “Marriage is nature’s way of keeping us from fighting with strangers.”

Delta Air has asked pilots for a 30% wage cut. The pilots have countered with a 9% reduction. The company stated that, if they don’t get the requested 30% reduction, then it might have to file for bankruptcy. In its filing, Delta stated “if we cannot achieve a competitive cost structure, regain sustained profitability and access the capital markets on acceptable terms, we will need to pursue alternative courses of action…including the possibility of seeking to restructure our costs under Chapter 11.”

Today, Cisco reports its quarterly results after the close. It might be wise to note that this quarter had 14 weeks compared with the 13 weeks in the prior year period. As such, it is not unreasonable for a Cisco shareowner to hope for close to a 10% rise in this quarter’s revenue.

The Saudi Ambassador stated that “Saudi Arabia believes that it is necessary for OPEC to increase the production ceiling by at least 1.5 million barrels per day.”

The ASEAN finance ministers held a meeting one month ago in Singapore. The President of the Asian Development Bank estimated that ASEAN countries, taken together, posted a better-than-expected GDP growth of 4.5% last year, slightly higher than the 4.1% achieved I 2002. The 10 ASEAN countries are now forecast to post an average GDP growth of 5.5% in 2004 and 5.2% in 2005. It is anticipated that Viet Nam will continue to be the fasting growing ASEAN country with an expected growth rate of 7.2%, followed by 6% in Lao PDR and Malaysia, and I the 4 to 5.5% range in the other ASEAN countries.

Federal Finance Minister Shaukat Aziz has expressed optimism that Pakistan would achieve an 8% GDP growth rate within three years.

5/10/04 Cracks

According to Trilby Lundberg, U.S. gasoline prices rose by slightly more than 10 cents per gallon in the past two weeks, the biggest jump since last August. The weighted national average for all three grades of gasoline was just over $1.96 per gallon. The markets are concerned about inflation. Think about this. The price of mini-vans has been cut once again. More importantly, beginning May 1, Ford began offering its dealers $1,500 per F-150 pickup sold this month. This vehicle is regarded as Ford’s bread and butter item, its hottest seller. Look around you on the highways. Over the past two weekends, were there less cars on the road? The Saudis have recommended increasing oil production, and the price of gas is down over a $1 per gallon on the commodity markets today. The average American worker is being squeezed. With wages and salaries failing to meet or exceed the inflation rate, cash flow is in harm’s way. With the recent sharp rise in interest rates, it is highly doubtful that the consumer shall have a continued willingness to take on more debt. Big ticket items, such as, cars will be the first to back up on the dealer shelves, so to speak. Greater incentives are on the way. It will be interesting to watch the auto companies offer zero percent financing as they swallow the higher interest costs.

In California, this year’s budget shortfall represents 16% of the $76 billion general fund budget.

Since 2000, food stamp use grew faster in Arizona than in any other state due to the state’s rapid population growth accompanied by the difficult economic conditions and a sluggish job market.

Suffering the biggest daily loss since 9/11, the TOPIX fell 5.68% and the Nikkei plunged 4.84%.

This month, the Bank of America opens it branch in Southern India. They may hire 1,500 people there instead of the originally projected 1,000.

Norsk Hydro, the world’s third largest aluminum producer, announced cutting up to 800 jobs. Management complained that productivity was too low at their plants.

The Goldman Sachs Commodity Index (GSCI) is the most widely followed commodity index. With its heavy weighting in energy, it is not surprising that the index rose 30% in 2002, 20% in 2003, and so far this year another 18.4%. Between January 1970 and March 2004, the GSCI returned an annualized 12.1%. As such, as a generalization, I do not believe commodities are the place to be today. As they decline in price, the vision of inflation will appear less ominous. This will prove a friendlier scenario for treasury securities.

Over the past three years, the strongest industry in our country has been housing. It has been the stalwart. As 30 year mortgages approach 6.25%, the dependency on housing would be ill-advised. Its recent run has seen its best days, and so has refinancing. With the tax credits fading into the sunset, the extra terrestrial economic goosing is behind us. It’s back to basics. We are no longer playing on artificial turf, as it were. That means you will need to change shoes and wear cleats.

Last week it was doughnuts and today it is pasta. The maker of Ronzoni and San Giorgio pasta will file for Chapter 11 bankruptcy. Pasta sales are down 7% from a year ago.

Since December, 250,000 employees have been added in retailing and restaurants. As consumers cutback on discretionary spending, I wonder how many of those 250,000 will lose their lower wage-paying jobs? The good news is those jobs do not require an expensive college education. As such, repaying college loans should not be an issue.

5/9/04 Happy Mother’s Day

I would like to spread some cheer. Comerica’s National Recession Watch Index, which forecasts the likelihood of a national recession occurring six to 12 months in the future, registered a 6% probability in April. That is the same reading as the one in March. The chief economist for Comerica stated “this marks the 33rd consecutive month below 12% and suggests that the U.S. economy will experience above-average real GDP growth over the next 12 months. A slow drift upward in the Recession Watch Index may have begun. A similar pattern of strength prefaced the 1994-95 expansions.” Comerica is Michigan’s oldest and largest bank. I certainly hope their economic vision proves to be on the mark.

Five meat packers control 74% of the beef we eat today. Four companies control 66% of the pork we consume. However, 50 companies control 95% of the chicken we eat. McDonald’s, with its 30,000 locations, is the largest buyer of beef and chicken and the second largest buyer of pork. The company owns 90% of the Chipotle chain, which has 300 restaurants and is expanding. As Chipotle’s roll-out goes nationwide, I believe McDonald’s will then become the nation’s largest buyer of pork.

It was just one year ago in the beginning of June that interest rates had a very swift and sharp rise. At that time, very few bond experts had predicted this increase. The situation has now shifted 180 degrees. Those same experts anticipate a continuing rise in interest rates. In my view, when the Fed raises rates in June, that will represent the high point in long-term interest rates for 2004. The Fed is not only way behind the curve. They have been benched by the daily movement in rates. The Fed has become the manipulator of last resort. They have dishonored the free enterprise system. Ayn Rand would no longer recognize Alan Greenspan.

Cheney: “Don Rumsfeld is the best secretary of defense the United States has ever had. People ought to get off his case and let him do his job.” One must forgive Cheney. Casper, Wyoming is not known for deep thinkers.

5/8/04 Ass Backwards

For well over a year, I would get emails berating me for ignoring the Household Employment Survey. In the last two months, no one has written me on this subject. I am truly upset by that. I will fill in the blanks for you. Between the third quarter of 2003 and the end of April 2004, those not in the labor force rose from 75.290 million to 76.016 million while the employed population rose by 200,000. Over the past three months, the civilian labor participation rate has remained unchanged at 65.9% while the employment-population ratio has remained about unchanged at 62.2%. Presently, the total not in the labor force is 76.5 million versus 74.6 million only one year ago. In other words, for all the whiners, the employment situation for the past year has sucked under your requested survey.

There are two sides to every coin. The “other survey” paints a different picture. Prior employment numbers for February and March were increased, and April’s numbers were another barn burner. I’m a bit old fashioned. I don’t give a crap for simple statistics. I want to know more. Consequently, this is my take, and straight up without a chaser. There are more jobs being created. Those jobs, as a generalization, stink the house out. The average hours for all employees held at 33.7 per week in April. Why? There was a large increase in temporary help, those in employment services, food services, and services to buildings and dwellings. Do you get the picture? The headlines state that there has been a pick-up in the manufacturing sector. Really? The manufacturing workweek fell to 40.6 hours from 40.9 hours in March. April overtime declined to 4.5 hours from 4.6 hours. Overall, workers’ average hourly earnings rose by 5 cents in April. Average weekly earnings rose by $1.68. After inflation, the workers in this nation are behind the eight ball. They are in a negative position for the third straight year. Of the 288,000 jobs added in April, 246,000 were service jobs. For the most part, these positions are in the lower paying per hour category with fewer weekly working hours. This is not progress. On the contrary, it leads to a lower standard of living for out nation.

While job numbers were revised upward, consumer credit for February was revised downward from the $4.2 billion initially estimated to $883 million. Yesterday, March’s consumer credit numbers came in at a rise of $5.7 billion, less than the $7 billion projected. I feel confident that the March number will be revised downward. With April retail sales less than expected and auto sales disappointing, I believe April consumer credit will also be on the low side. The consumer is reining in his/her spending habits. As the price of gas, milk, meat, and other daily staples rise, and wages and salaries stay pretty much stagnant, there is less cash flow available for discretionary spending. With interest rates rising, the crunch will become worse. The refinancing boom is over, and there will not be the added cash available from that source. In fact, according to the latest Cambridge Consumer Credit Index, only 8% of Americans plan to refinance their mortgage in the next year, down 50% from those polled in October 2002. Of those surveyed, in the past two years 35% refinanced their mortgages. In addition, there will not be a check in the mail for child credits and your refund checks have been received. The thrill is gone. Our consumer-based economy is rolling over. The headlines state the opposite. My money is where my mouth is. This economy is facing a world of hurt.

Even Warren Buffett’s Berkshire Hathaway is in for a world of hurt. The company’s first-quarter earnings dropped 10%. There’s much more to follow. As the price increases for insurance become less frequent, and, in fact, begin to turn down, profits will fall even more. Berkshire stated yesterday that “underwriters are instructed to reject inadequately priced risks.” They may need to get more accustomed to lower pricing. The gravy train has left the station. Just as Friday was most unpleasant for shareholders of Krispy Kreme, Monday will prove unsettling for Berkshire holders. A significant portion of the company’s cash flow is derived from re-insurance. As with refinancing income, this too has seen it’s best days for sometime.

International Association of Machinists International President Tom Buffenbarger, whose union lost 90,000 members since 2000, observed “the fear of job loss runs deep among the workers. For millions of middle class Americans, both in and out of work, the nation’s employment crisis is far from over.”

OPEC’s 11 members, including Iraq, pumped 330,000 barrels per day less in April than in March. According to the Platts survey, “these numbers show that OPEC never came close to implementing its 1 million barrel per day cut in April, and all our early reports for May and even into June show no further significant cuts likely.”

Those betting on higher prices for gas, milk, meat, and other daily staples will, in my view, be disappointed. More muted consumer spending will lead to larger inventories in the pipeline, as it were.

Bush: “ I put together a fantastic team of people to serve this country.” Possibly he is referring to the Texas Rangers baseball team.

5/7/04 Staying Ahead Of The Brainless

According to the BLS, non-farm unit labor costs grew 0.5% in the first quarter of 2004. They were unchanged in the fourth quarter of 2003. When the rise in consumer prices was taken into account, real hourly compensation grew by 0.4% in this year’s first quarter. It had increased 1.7% in the fourth quarter of 2003. In this year’s first quarter, unit labor costs for non-durable manufacturing rose by 2% while unit labor costs for durable manufacturing fell by 1.4%. This highlights a point made by Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI, who stated “there are cost pressures affecting firms, such as, soaring prices for insurance, energy, and raw materials, and firms are doing their best to battle these factors, so they aren’t likely to give very much on labor.” Last week, the Labor Department stated that, in this year’s first quarter, salaries rose just 0.6%. Meanwhile, the Commerce Department’s latest report showed inflation running at an annual rate of 3.2%. With an abundance of unemployed workers, and an increasing amount of unemployed workers who lose their benefits each week and therefore are not counted as unemployed, the employed are unafraid to lose their jobs should they ask for higher wages and benefits. They can easily be replaced by the unemployed or even have their jobs outsourced, such as, interrogators for our armed forces. Rising productivity has not led to higher wages. As Meckstroth observed, “the higher material cost pressures are coming at a time when Wall Street expects increased profitability. You’ve got to offset those higher costs somewhere, and labor is your variable cost.” One additional point must be recognized. The Labor Department stated that, in the 12 months that ended in March, the cost of providing workers with benefits increased by 6.9%. Private employers, on average, pay about $23 for each hour worked, but of that amount, about $6.50 goes towards benefits. In sum, despite greater productivity, businesses are loath to raise salaries due to increased spending on medical costs and health insurance.

Today there will be the report on non-farm payrolls. A survey of 75 economists projects a rise in jobs of 170,000+ for the month of April with the unemployment rate remaining the same at 5.7%. Most of the jobs will be lower-paying and non-permanent positions at service companies. Some will be at a missile-manufacturing site. Some could be at a firm that makes landing gear for aircraft. Some might be California grocery workers returning to their jobs. No mention will be made of the 320,000 in April dropped from the unemployment roles due to the loss of unemployment benefits. The bond and stock markets are prepared for a blow-out number like March’s. They will most likely ignore other statistics released today- the monthly consumer debt increase and the level of business inventories. The growth in consumer spending has topped out. When talking about the latest retail sales number, even Michael Niemira, chief economist at the International Council of Shopping Centers, warned that “the discretionary purchasing power of middle-to-lower income households was seeing some constraint.” Niemira is a bull of all of retail bulls. It must have been difficult for him to make that statement. It's not surprising that Wal-Mart'’ stock has recently declined from $60 to $54. Stay ahead of the brainless. When they raid the whorehouse, they take all the girls.

A big deal will be made that there might be a slight increase in manufacturing employment in April. Keep your eye on the ball. The average hourly earnings are up only 1.8% year-on-year. Inflation is running higher than that. In addition, inventories are piling up in certain industries, such as, in the automotive field. There will be manufacturing cut-backs. Is that the Hummer I see with discounted prices? How the mighty tax-credit vehicle has begun to fall? If you have to ask the price of gas, maybe the Hummer isn’t for you.

BASF will eliminate 550 to 680 jobs at its Geismer, Louisiana and Freeport, Texas sites.

In April, the corporate tax revenue in Georgia fell 8.5% to $71 million.

According to Cutting Edge Information, the generic pharmaceuticals market is anticipated to rise 15% in 2004. Nearly 50% of all U.S. prescriptions today are filled with generic drugs, up from 18.6% twenty years earlier.

China accounted for 12% of Japan’s exports in 2003, up one-third from the prior year.

Greenspan: “Our fiscal prospects are, in my judgment, a significant obstacle to long-term stability because the budget deficit is not readily subject to correction by market forces.”

Santa Clara County announced a $32 million “structural deficit.” Since its fiscal 2003 fiscal year, the county has had to find more than $500 million in savings in response to local conditions and cuts in federal and state funding. The county manager stated “this is unprecedented” and also proposed hundreds of layoffs at the county department level.

Krispy Kreme revised its forecast for fiscal 2005 diluted earning per share from continuing operations down 10% from previously announced guidance. The company chairman stated “for several months, there has been increasing consumer interest in low-carbohydrate diets, which has adversely impacted several flour-based food categories, including, bread, cereal, and pasta. This trend had little discernible effect on our business last year. However, recent market data suggests consumer interest in reduced carbohydrate consumption has heightened significantly following the beginning of the year and as accelerated in the last two to three months. This phenomenon has affected us most heavily in our off-premises sales channels, in particular sales of packaged donuts to grocery store customers.” The U.S. packaged donut category experienced a 0.4% decrease in volume for the 12-week period ending April18, 2004 compared to the same period a year ago, according to IRI reports. However, during the same period, Krispy Kreme experienced a 26.3% increase in system-wide volume in U.S. packaged donuts. Periodically, there are difficult moments, as it were, at some great companies. It has occurred with Starbucks and studies on caffeine, for example. Now we come to low carbohydrate diets and Krispy Kreme. I do believe the long-term viability of many grocery outlets is in doubt. That will put a damper on their off-premises business; however, long-term their growth at their own stores will, in my view, more than offset that weakness. At the outset of its public offering, I believed this company’s shares offered a wonderful long-term investment. I continue to believe that.

According to the Joint Commission on the Accreditation of Healthcare Organizations, nearly a third of Americans will experience chronic pain at some joint in their lives. Approximately 50 million Americans live with chronic pain today. Lessen the potential pain levels in your portfolio. Read beyond the headlines. The story is often buried in the small print. I haven’t had an opportunity to read the fine print. The headlines were: April non-farm payrolls up by 288,000, unemployment rate down to 5.6%, and March’s numbers revised upward. So much for the median forecasts by economists or by me.

5/6/04 Technically Speaking

Donald Rumsfeld: “My impression is that what has been charged so far is abuse, which I believe technically is different from torture.”

Edmund Burke: “The greater the power, the more dangerous the abuse.”

The Bank of England raised its short-term interest rate from 4% to 4.25% in order “to keep CPI inflation on track to meet the target in the medium term.”

Walgreens has more 24-hour pharmacies than all its competitors combined.

According to a new study by the Sacramento Regional Research Institute, new-home construction generated $59 billion in economic activity and more than 526,000 jobs in California in 2003. The housing industry (including expenditures on existing housing) contributed $218 billion to the state’s economy, supported almost 1 million jobs, and accounted for approximately 10% of all statewide activity. The California Building Industry stated, with about 600,000 people being added to the state’s population yearly, the current construction pace is barely keeping up with demand and has done nothing to erase an estimated deficit of 500,000 housing units accumulated in the 1990s. The report failed to address the affordability index in California. The facts show that there is a widening gap between the annual income for those in California and the escalating prices for new and existing homes.

Ohio Casualty’s first quarter profit results fell and were short of analyst expectations. The company, however, is on track in one area. It has so far cut 384 jobs on the way to its goal of as many as 500 job cuts by the end of 2004.

In 2000, Chiron purchased Seattle’s Pathogenesis, a company that developed an aerosol drug called Tobi for cystic fibrosis. Last year Chiron laid off 30 researchers at the Seattle site. With additional cuts announced yesterday, only 85 people remain at Pathogenesis, down 50% from its peak employment level.

According to a new Wall Street Journal/NBC poll, six in 10 of those polled responded that the economy is headed for trouble rather than better times. Only 42% say they are better off than 4 years ago, and that compares with 33% who state they are worse off and 23% reporting about the same. The view on Main Street is quite different from the windows looking out over Wall Street. On Main Street many bulls graze on farms and ranches. On Wall Street a good deal of bullshit is generated. TIPS are the tip of the iceberg. If one wants to protect against inflation, consume less. A good place to start is to walk more and drive less. There are no carbs in walking.

According to a recent study by The Robert Wood Foundation, nationally, at least 20 million working Americans do not have health insurance. In six states, at least one in five working adults is uninsured. In 38 other states, at least one working adult in every 10 does not have health insurance. With 27%, Texas has the highest percentage of uninsured residents among all employed or self-employed. It should come as no surprise that, the number of Americans without health insurance, has risen since January 2001 when Bush became president.

About 3 million individuals and families were hit by the AMT this year. The House voted 333-89 to prevent the tax from snaring 9 million more taxpayers next year and imposing about $18 billion in extra taxes. The House bill would keep the amount of income exempt from the tax to this year’s level of $40,250 for individuals and $58,000 for couples. Without passage of the House bill, the exemptions would fall back next year to $33,750 for individuals and $45,000 for couples. It still needs to be passed by the Senate and to be signed by Bush. The Democrat plan, which was rejected, was to exempt every individual earning $125,000 or less and every couple earning $250,000 or less.

5/5/04 Measure This!

The Lone Star Beef plant in San Angelo, Texas processes older dairy cows, which carry a higher risk of being infected with Mad Cow disease. It is the 18th largest slaughterhouse in the U.S. and processed about 350,000 animals over the last two years. During this time period, only three animals have been tested for the disease, which is an incurable, fatal brain disorder. The three animals that were tested were downers between the ages of 5 and 8+ years. The principal product from this plant is ground beef. How many hamburgers and tacos are consumed in Texas? How many came from this plant. Happy Cinco de Mayo to you too. Fire up that outdoor grill! Mad Cow has an incubation period stretching many years.

According to the Earth Policy Institute, the 2004 world grain harvest is expected to reach a record 1.89 billion tons. Unfortunately, consumption is projected at 1.95 billion tons. It would represent the fifth straight year of grain-harvest shortfalls. This organization’s president stated “we are looking at substantial rises in grain and food prices as early as this fall.”

Oil prices reached $39 (Roy Campanella’s old jersey number) a barrel, a 13 ½ year high. At the same time, GM announced disappointing sales results for April. Inventories are at high levels for the big three auto companies. I look for production schedules to be reduced. In my view, near-term demand has peaked-out for the auto industry. A model like the Prius will remain in demand.

With high interest rates anticipated by all economists, the refinancing frenzy will lessen and the price and sale of new homes will decline. That means less demand for mortgage bankers and home construction workers.

Boeing has put up 46 acres of contiguous land in Renton, Washington for sale. The site formerly was part of Boeing’s 737 and 757 production program, but was vacated when the company consolidated these operations. The 757 assembly line will be shut down in October. The jobs were not outsourced. They were permanently eliminated. Airbus has increasingly taken Boeing’s customers.

According to Challenger, Gray, & Christmas, planned job cuts announced by employers increased in April to 72,184, up 6.1% from March’s figures. Through April, employers have announced 335,024 job cuts, 33% lower than the four-month total in 2003. However, over the past 12 months, employers have announced 1,069,256 job cuts. Since January 2001, 4,995,149 job cuts have been announced. That is a staggering number. As I have mentioned over and over again, there were an increasing number of government and non-profit employers announcing job cuts this year. They totaled 15,926 in April. With on-going budget problems at the local and state levels, one can expect a continued rise in government worker layoffs. Many economists do not weigh in heavily enough on this area.

Dell’s financing arm is offering zero-percent 30-month leases.

Alan Greenspan: “Threats of deflation, which were a significant concern last year, by all indications are no longer an issue for us.” Maybe that’s true for a government worker; however, for the man on Main Street, the wages and salaries continue in a downward direction for the third year in a row.

According to Right Management Consultants, “about 70% of Americans expect the unemployment rate to rise further in the next 12 months. ..There is a recognition that jobs are still neither plentiful, nor are they easy to land. Until the job market completely recovers, we are unlikely to see major shifts in worker confidence levels.”

According to the Hudson Employment Index, 33% of all workers who responded to the survey stated their companies would be hiring in coming months, up from January and February’s 31%. Results were based on telephone interviews of 9,467 working Americans.

5/4/04 Ferret Out The Truth

Today, we may have some issues to confront. It will be challenging. Depending on what horoscope you read, it’s possible there could be a lunar eclipse and a full moon in your sign today. They could bring misunderstandings and troubles. Prior to bending over backward and falling prey to the cosmic atmosphere, let us illuminate some misconceptions. Wal-Mart is introducing a line of Hawaii Tropic Beverages at 1,200 of their stores. They are sugar-free and caffeine-free. They come from Las Vegas and not Hawaii. Liberate Inc. of San Mateo, California filed for Chapter 11 bankruptcy. The company stated the suppliers would be paid and the stockholders would not be harmed. It’s business as usual. Right? There was this cow at a Lone Star Beef plant in San Angelo, Texas. It was condemned on April 27 after the federal veterinarian “observed the cow stagger and fall,” according to a USDA statement. But instead of holding the cow for testing or giving it a DUI, the carcass was sent to rendering, preventing regulators from ever determining if it had mad-cow disease. The USDA stated the meat from the animal did not enter the human food chain. It’s business as usual. Right? Another three cases of SARS have been confirmed in Beijing. This brings the total to nine. China stated they have a system in place to cut the chain of transmission. Only one of the nine cases has died. In 2002, nearly 800 people died from SARS. It’s business as usual. Right? The U.S. budget deficit is expected to be much less than $520 billion. It appears that tax refunds are less than anticipated and tax receipts are higher than expected. Of course, this year’s costs for the Iraq war are not included in the budget and, as I recently mentioned, other spending items have been unaccounted. In other words, less government spending has not created the projected budget improvement. It’s business as usual. Right? Corporate governance has taken on new meaning. Outsourcing has moved beyond jobs. Boeing performed a slight of hand. Yesterday, they raised the dividend. At the same time, they agreed to demands placed on the company by the Air Force. Boeing is outsourcing its ethics to an independent ethics-compliance watchdog. It’s business as usual as a defense contractor to the Pentagon. Right? Today the Fed will prescribe a glass of warm milk at night for all those investing in U.S. treasury bonds. Of course, the increased demand for milk will create even higher record prices for the moo juice. The Fed has it under control. They will tell investors that the major risk is worrying too much and not enjoying life to the fullest. The danger is not in the rising price of milk. The danger is pulling the trigger and killing the recovery. The Fed does not want the risk of going to prison. They could be judged by the same jury that convicted Quattrone of “destroying evidence in government investigations.” The Fed does not want to put any proclamations in e-mails. They will provide a short written statement that covers up all references to a terror alert on inflation. It’s business as usual. Right?

There is trouble afoot in San Jose. Stay out of the parks. In an effort to close the third year of budget gaps, San Jose is locking rest rooms at city parks. It’s possible urinating in the bushes will be allowed. We don’t know for certain at this point. On a less serious note, scores of city employees will lose their jobs. In addition, they might impose a fee for calling 911. I hope everyone knows how to whistle loudly for help. In addition, the frequency of trash collection, graffiti abatement and watering will be reduced. I can’t wait to move to San Jose. The quality of life seems so inviting.

According to a recent RBC Dain Rauscher report, in 2008, as the first of the baby boomers begin to retire, some developed nations will be confronted with a smaller share of workers to support a growing group of retirees. The report mentions “unfortunately, many investors are unprepared. Their retirement fantasy is just that--- a fantasy. More workers may be forced to postpone retirement and work part-time in retirement. It also puts them at greater risk of outliving their savings.” The good news is a greater potential pool of part-time workers. Essentially, almost all of the job growth is in part-time work. We can keep wage levels down with more part-time workers. The Fed can afford to be patient.

5/3/04 Expectations


Disappointment frequently results from unrealistic expectations. For example, the government of Japan has been purchasing billions of U.S. dollars. Traders have come to believe that Japan is also the buyer of last resort for our treasury bonds. I know a sucker is born every day but that doesn’t mean forever. After having blown $77 billion on currency intervention in the first quarter, Japan didn’t buy one U.S. dollar in the month of April. I guess Japan realized they weren’t getting a bang for their buck.

James Grant: “Whenever I hear the dignified phrase ‘central banker’, I mentally substitute the words ‘government worker.’”

There is a rising expectation that the world is moving from disinflation to inflation. It might serve a purpose to remember that labor is a bigger component of business costs than that of materials or even equipment. Aided by rising productivity, the cost of labor dropped by 1.2% in 2003. In this year’s first quarter one can anticipate a somewhat slowing in productivity gains; however, statistics will show that unit labor costs continued to fall. As such, with non-farm payroll gains probably dropping at least 100,000 from the March number, and almost all of the gains again in the non-permanent sector, unit labor costs for April will once again be down. The folks in New York City will bemoan higher cab fares this morning. They might be better served to focus on the disappointing length of the average workweek; the factory workweek; wage and salary gains more than offset by inflation; the rising cost of benefits; and the strong possibility that the Department of Labor’s overtime guidelines will be implemented to the detriment of both workers and employers. All told, consumer debt accumulation is rising, government debt is rising, and it is only a matter of time until consumer and government spending are curtailed dramatically. Who would have thought that Japan would go one whole month without purchasing our currency?

Since Abraham Thomas, a native of Singapore, took over the running of IBM’s operations in India, that unit’s revenues have doubled to over $650 million. The number of employees increased from 4,500 to 15,000, and hundreds are joining the company each month. IBM’s sales in the domestic market in India grew by 16% in 2002-2003. Its acquisition of Daksh should prove a further boost to its growth strategies.

Eleven American service members were killed in Iraq yesterday and another 41 were wounded. Of those killed, five were Navy Seabees, and therefore it represented the worst casualties in the war for the Navy. Since April 1, 2004, 151 U.S. soldiers have been killed and at least 753 since we invaded Iraq on March 20, 2003.

The Fed meets tomorrow. On Thursday, Sysan Schmidt Bies, Michael Moskow, Alfred Broaddus, William Poole, and Alan Greenspan give speeches and addresses. The noise level this week will be deafening. I suggest you mute the volume and watch the markets. Talk is cheap. You can make or lose a ham sandwich trading the markets. You might want to assess the cost per unit traded. Over-trading might lead to manic disorder.

5/2/04 The U.S. Dollar

Yesterday, at Berkshire Hathaway’s annual meeting, the dollar made headlines. At the end of the year, the company had invested $12 billion in foreign currencies. Buffett announced “we think that over time that the dollar is likely to decline against some of the major currencies.” In the last few months, he stated, Berkshire added “more than a little bit” to those foreign currency holdings. Long term investors have made a great deal of money following Buffett’s advice. A stock doesn’t rise from $20 to $93,000 per share by being wrong very often.

I take issue with Buffett’s current thinking. As readers know, I have stated often that I would not buy the dollar with your money. I have been negative on the dollar for about two years, and believe more than ever, that several other major foreign currencies are a much better place for your money. Buffett is concerned with rising inflation and rising deficits and yet stated yesterday “our underlying premise is that this country will do very well and in particular it will do very well for business.” A combination of rising deficits, rising inflation, and rising interest rates is not productive for the business environment.

It might prove timely to focus, as Brian Riedl of the Heritage Foundation pointed out, on the fact that federal spending has risen above $20,000 per household for the first time since World War II and will rise close to another $1,400 in 2004. In addition, the federal government cannot account for $24.5 billion in expenditures made in 2003. Shouldn’t people go to prison for these transgressions? Where is the public outcry? Does anyone care that discretionary spending has increased 39% in the last three years? As Riedl remarked, “with the federal budget crowding out the family budget, it is time for lawmakers to treat tax dollars as carefully as the taxpayers who labor to earn them.” Maybe members of Saddam’s Republican Guard should be hired to watch over the federal budget process and the entitlement programs. If anyone puts their hand illegally in the till, maybe it should disappear along with the money.

Max Sawicky of the Economic Policy Institute: “Even after job growth, a lot of people are damaged. You don’t pick up where you left off. The last three years shoved millions of people into bankruptcies and foreclosures. Many have still not found work, while many have settled for jobs that pay much less than those they lost. Many households are still in tough financial straits. I would be surprised if there is not solid job growth. But it is the interim period that kills family finances.”

The eight states of the Mountain West from Arizona to Montana have the fastest-growing labor force in the nation with the five fastest-growing states. It is the only part of the country to have doubled GDP in the past decade. These eight Mountain West states embrace 856,077 square miles, an area larger than all 27 states east of the Mississippi combined. With a population of 19 million, these states have just 22 people per square mile; however, 82% of the residents live in urban areas. Two-thirds of all federally-owned land within the contiguous states lies in the Rocky Mountain west. Since the 1990 census, the population of the eight Mountain west states has grown 40% while the rest of the nation grew just under 15%.

Sequoia Capital’s Michael Moritz: “Any business Wall Street is prepared to throw hundreds of millions of dollars at is not one we should be in.”

Mark Zandi, chief economist of Economy.com: “Who’s winning the age-old war between employers and workers? Right now employers are winning hands down. And there’s no reason to suspect that will change anytime soon.”

Anna Bernasek: “Rising medical costs automatically translate into lower wages. Either firms make their employees pay a bigger share of higher health-care costs, lowering take-home pay, or firms offset the increased cost by holding wages down.”

Winston Churchill: “Never, never, never believe any war will be smooth and easy, or that anyone who embarks on the strange voyage can measure the tides and hurricanes he will encounter. The statesman who yields to war fever must realize that once the signal is given, he is no longer the master of policy but the slave of unforeseeable and uncontrollable events.”

Winston Churchill: “I like pigs. Dogs look up to us. Cats look down on us. Pigs treat us as equals.”

5/1/04 Personal Consumption Expenditures (PCE)

There are so many happenings today. It’s the Kentucky Derby with a wide-open field of 18 horses. There is the Berkshire Hathaway annual meeting in Omaha with Buffett and Munger holding court for about six hours. Today marks the one day anniversary of Bush’s “Mission Accomplished” proclamation. Then there is Maj. Gen. Jassim Mohammed Saleh, a former Iraqi Republican Guard member who headed Hussein’s infantry. He was chosen to lead the 1,100 member security force for Fallujah and he is a native of Fallujah and belongs to the Mohammed tribe. Lastly, I could discuss the Rocket going 5-0 in April for the Astros.

I think many Americans are happy to see April 2004 end. A total of 136 U.S. soldiers were killed in combat in April and over 900 were reported wounded. By comparison, from March 20 through April 30, 2003, 115 U.S. soldiers were killed in combat. Since March 20, 2003, at least 738 soldiers have been killed serving our country. Prime Minister Martin asked Bush in the Rose Garden yesterday “a year after you declared an end to major combat, are things getting worse in Iraq rather than better?” Bush stated “we’re making progress. You bet.” Meanwhile, the Bush Cheney team continue their “winning the war on terror tour” and the death toll in Iraq and Afghanistan mounts.

I think many on Wall Street are happy to see April end. For the week the Dow was down 2.3%, the S&P 500 dropped 2.9%, and the Nasdaq fell 6.3%. Friday may have been a better day for the bond market; however, April has not been kind to the yield on treasuries or corporate debt instruments.

There was some good news yesterday. Real consumer spending decelerated in the month of March, rising but 0.1%, the smallest increase in five months. On the other hand, real disposable incomes increased only 0.1% in March, the smallest rise in six months. The personal consumption expenditure price index increased 0.3% while core prices (excluding food and energy prices) rose 0.2%. In the past year the PCE rose 1.6%, and the core rate increased but 1.4% in the same period. Even though that represented the fastest year-over-year inflation since February 2003, it really does not create overbearing worry. I continue to believe that consumer spending is decelerating and the latter will become on-going headline news by this summer. One should note also that, adjusted for inflation, spending rose 0.1% in March after a 0.2% rise in February.

WinnDixie, in an effort to significantly curtail overhead, is cutting 10,000 workers. The company is undergoing a reorganization of its stores.

As I mentioned yesterday, benefit costs rose 6.9% in the first quarter compared with the same March quarter in 2003. Lehman Bros. economist Drew Matus remarked “employees are becoming more expensive despite the fact that wage growth is quite low.”

The personal savings rate was 1.9% in March, the same as the prior month.

Donald Trump’s Trump Hotels & Casino Resorts, whose auditor expressed doubts in March about its ability to survive, stated yesterday it may miss a $73.1 million interest payment due Monday. Trump stated “we’re making good progress.” He sounds a lot like Bush.

Deputy Defense Secretary Paul Wolfowitz estimated that 500 U.S. soldiers had been killed in Iraq, not even close to the actual number of 738. He makes me puke. He should be fired. Maybe Bush should hire Trump to tell Wolfowitz “you’re fired.”

David Healy, an analyst with Burnham Securities: “Tapped-out Americans probably bought more cars and trucks than were good for them during the last recession, and it’s taking some extraordinary price cuts to lure them into buying still more in 2004.”

4/30/04 Wages, Benefits, and Inflation

Our economy is consumer driven. As such, it might be wise to take a peek at the recent information on wages. After all, wages are the engine for consumption. If wages are rapidly escalating, there should be a real concern about the potential of galloping inflation.

From December 2003 to March 2004, total compensation for civilian workers increased 1.1%, seasonally adjusted, a gain from the 0.8% rise in the prior quarter. Of the March quarter advance, benefits rose 2.4% while wages and salaries gained 0.6%. It should be noted that benefits only contribute 30% to total compensation. Nevertheless, two-thirds of the increase in compensation costs was attributable to benefit costs during the quarter ending March 2004. Defined benefit retirement costs accounted for nearly half of the rise in benefit costs.

Annual compensation costs for civilian workers increased 3.8% for the year ended March 2004, compared with a 3.9% over-the-year increase for March 2003. Compensation costs in private industry rose 3.9% in the year ended March 2004, compared with a 3.8% increase in March 2003. In sum, while increases in wages and salaries continued to slow, benefit costs continued to rise sharply during the year ended March 2004. In fact, for civilian workers, wages and salaries increased 2.5% in the year ended March 2004, compared with a gain of 2.9% in March 2003. Benefit costs jumped 6.9% for the period ended March 2004, an increase from the prior year’s 6.1%.

The above-mentioned figures have some important implications. The escalating benefit costs will continue to dampen the desire to hire full-time workers. Therefore, it was not surprising to see that, in March 2004, of the 308,000 additional non-farm payrolls, 296,000 were non-permanent workers. The latter are required to pay for their benefits, including health insurance, and it is contributing to more Americans not having health insurance. They can’t afford the premiums on lower wages. As the number of non-permanent workers increase, the compensation costs for industry are in a better position to decline. This is reflected in the figures for the year ending March 2004. Lastly, if indeed our economy is dependent on the consumer for 70% of the GDP, it is highly unlikely that inflation can remain buoyant while wages and salaries are on the decline. In the quarter ended March 2004, economists had predicted that consumer spending would rise 4.2%. The actual annual rate was 3.8%. With less wages and salaries, I am convinced consumer spending will become more muted. Hence, despite the talk about the Fed raising interest rates, I believe this is a good time to take an initial position in longer-term treasuries.

This morning, Wal-Mart and eight product manufacturers begin testing electronic product codes at select Supercenters and one regional distribution center in the Dallas/Fort Worth metroplex.

The last five years in Arizona have been the driest consecutive years in at least a century. The drought could create serious water restrictions along the Colorado River.

The Conference Board’s Help-Wanted Advertising Index dipped one point in March to 39. The Index was also at 39 exactly one year ago.

The number of people continuing to collect state jobless benefits rose by 3,000 to 3.013 million in the week ended April 17. This number excludes the 80,000 people each week who have lost their unemployment benefits since December 23, 2003. Alfred Broaddus, Federal Reserve Bank of Richmond President, commented last week that “bottom line for me, the economy now looks like the recovery has more momentum that it had.” You’ll have to give Broaddus some leeway. He is a government employee.

Paul Bremer, in a speech given on Feb. 26, 2001, stated “the new administration seems to be paying no attention to the problem of terrorism. What they will do is stagger along until there’s a major incident and then suddenly say, ‘Oh, my God, shouldn’t we be organized to deal with this?’ That’s too bad. They’ve been given a window of opportunity with very little terrorism now, and they’re not taking advantage of it. Maybe the folks in the press ought to be pushing a little bit.” Maybe the voters should assume more of the responsibility. Try not to stagger in the voting booth this time.

Last month, Gateway cut 2,500 workers. Yesterday, they announced a cut of another 1,500 jobs or some 43% of its workforce.

Dow Chemical stated it would cut 3,000 jobs globally this year. In the first quarter, 350 employees were laid off. Last year, 3,500 employees were eliminated from the payroll.

The Reserve Bank of New Zealand raised interest rates for the second time this year. The 25 basis points increase took the present rate to 5.5%.

4/29/04 Interesting times

Year to date, the Dow and the Nasdaq are down slightly. Yields on U.S. treasuries set new highs for the year yesterday. June gold futures closed at 5 ½ month lows. June live-cattle futures traded above 80 cents for the first time in history. As the U.S. GDP powers forward, the U.S. dollar has suddenly taken a dramatic upturn and, against the euro, has rallied from 1.29 to about 1.18. It has even rallied against the yen from 105 to 110. It proves once again that dead cats can bounce. How bad could the world scene be? A Picasso painting is estimated to sell at auction for between $70 and $100 million. Beauty is in the eye of the person holding the checkbook.

At the end of this year, an international textile quota system will come to an end. World Bank analysts have estimated that China will be the major beneficiary. A U.S. industry study predicted that China could gain up to three-quarters of our domestic market. Their study projected the closure of more than 1,300 U.S. textile plants and related job losses of 650,000, representing more than twice March’s non-farm payroll gains. Cheidu Osakwe, director of the WTO’s textile division, stated “it’s a deal that’s already been done. It can’t be undone.” Don’t look for a dead cat bounce from the U.S. textile industry. I wonder whether pictures of the plant closings will be banned?

Sen. Zell Miller: “This government is in one hell of a mess, and frankly my dear, very few up here give a damn. The individuals are not so much at fault as the rotten and decaying foundation of what is no longer a republic. The Senate is in the sorriest time in its long, checkered and once glorious history. Make no mistake about it: it is the special interest groups and their fund-raising powers that elect U.S. senators and hold them in bondage forever. Senators have become mere cat’s paws for special interests.”

Yesterday, the Senate Government Affairs Committee revealed that defense officials and other federal bureaucrats wasted hundreds of millions of taxpayer dollars misusing federal credit cards, including dubious purchases of jewelry, ski clothes, and many other items. According to auditors from the GAO, those buyers almost never faced even administrative discipline. The GAO study stated that, since, 1994, the use of purchasing cards has risen from $1 billion to $16 billion in 2003, and that a healthy number of those dollars were wasted.

David Wilder is a retired banker from Plainview, Texas. He observed that the United States has moved from a manufacturing to a service economy. He stated “now, we’re trying to send our service out.”

Nokia is the world’s leading manufacturer of mobile phones. In an effort to rekindle sales, the company announced price reductions of about 25% in some of their more expensive handsets.

Standard & Poor’s estimates that, for 2004, S&P 500 operating earnings are expected to set a record and increase 17.8%. As-reported earnings are anticipated to rise 14.3%. They estimate the S&P 500 will close the year with a gain of 9.3%. The strongest gains are expected in the healthcare sector. The May-October period is generally not too inviting for shareowners. This might suggest that the estimated gains for the S&P 500 might not be realized until the last two months of the year. Maybe I’ll go to the beach until November.

The bio-informatics market in India is expected to exceed $2 billion by 2008 while the market for the country’s biotech R&D products and services is likely to rise to around $3 billion by 2010, according to a study by Nasscom-KPMG. I would not be surprised to see these figures come in quite low.

According to a new CBS News/New York Times poll, Bush’s approval rating is at an all-time low, and only 47% of those responding stated the U.S. did the right thing taking military action in Iraq. Just 32% stated Iraq was a threat that required immediate military action a year ago. Three-quarters of those polled stated they had already decided who would get their vote on November 2.

Ten more U.S. soldiers were killed today in Iraq. That brings the total killed in this month of April to 126. I hear a lot about coalition forces this and coalition forces that. When the bullshit talk stops, it’s our American soldiers doing the bulk of the dying.

4/28/04 The Real McCoy

We know that, over the past 13 months, the Nasdaq has had a huge move upward and the IPO has had a huge rebound in activity. Nevertheless, according to the latest MoneyTree survey from PriceWaterhouseCoopers, Thomson Venture Economics, and the National Venture Capital Association, there was 1% less financing of privately-held companies in this year’s first quarter in the San Francisco Bay Area (this includes Silicon Valley) than the financing levels in the prior year period. In other words, the survey indicates that the rebound in the Bay Area’s venture capital market has stalled. As Jim Healy, managing director with San Francisco-based Sofinnova Ventures explained, “we have reached a turning point in the venture industry. We’re focused on the fundamentals, we’re taking a value-based, disciplined approach to investing.” That certainly represents a major change from the current tech buy approach on Wall Street.

Continental Airlines just posted a $124 million first-quarter loss. Their management stated high fuel costs likely will keep it from breaking even or showing a profit in 2004. Yesterday the company stated it could lay off as many as 500 reservations agents by September.

Alan Greenspan: “The dramatic rise of oil and gas futures was an economic event that can significantly affect the long-term path of the U.S. economy.”

Quantas stated they had no interest in Boeing’s 7E7. Last week 49 union members lost their jobs at Boeing. The company has stopped providing data on monthly layoffs to the media. It just takes a bit more effort to get the numbers.

Detroit’s two largest auto suppliers, Delphi and Visteon, are close to reaching a 7-year contract with the UAW that cuts wages for all future hires, and requires them to pay for more of their health care and much of their retirement. For example, on average UAW workers at both auto supplier companies make $24 per hour. For new hires the rate would drop to $14.

Shell announced it will cut up to 30% of its IT jobs worldwide.

The Republican-dominated Virginia legislature passed a $1.3 billion tax bill, the largest state tax increase in decades, and the sales tax will be boosted from 4.5% to 5%. Tax collections are up for most states, but growing health care costs will make it tough for most states to balance their books. Thirty-three states expect to have budget gaps for fiscal 2005, according to a report released today by the National Conference of State Legislatures.

A Cornell University study published in the April issue of Occupational and Environmental Medicine is the first to add the cost of on-the-job productivity losses from common health problems to an employer’s total health-related expenses. The study indicates that workers who come in sick cost their employers an average of $255 each per year.

During the 2003-2004 fiscal year, India’s gold production rose 20.76% to 10,198.5 kg. India is the world’s largest consumer and importer of gold. It’s annual consumption of gold is around 800 tons.

The Taiwan Institute of Economic Research has revised its 2004 GDP forecast from 4.81% to 5.08%. The revision reflects a sense that Taiwan exports are picking up. A trade surplus of $11.6 billion is anticipated. The forecast specified that it was pinning its expectations in part on the belief that the U.S. Federal Reserve Board is not yet ready to raise interest rates, a move that might diminish the U.S. appetite for Taiwan goods.

German steel manufacturer ThyssenKrupp is raising its prices 11% to 100 euro per ton from July 1 to reflect rising crude oil and freight costs.

Nancy Pelosi: “The Republican leadership in the House refuses to schedule a vote on the bipartisan Crane-Rangel manufacturing bill, which would lower taxes for American manufacturers and keep good paying jobs in the United States.”

The Conference Board reported that, in April, consumers anticipating an increase in their incomes declined to 17% from 18% in the prior month.

Rich Cruz, a partner at the consulting firm Accenture, stated “clearly, U.S. companies have looked offshore because they have to reduce their operating costs in order to survive.” Accenture employs 2,000 Filipino software developers.

Wu Xiaoling, vice governor of the People’s Bank of China, stated China’s growth this year will slow to less than 8% from a six-year high of 9.1% in 2003. However, in this year’s first quarter, growth was 9.7%. Wu remarked that “raw material prices are already too high. It’s obvious our resources and energy can’t support this kind of growth.” According to Morgan Stanley, China accounted for 32% of Japan’s export growth and 36% of South Korea’s last year. China’s inflation rate rose to 3% in March, up from the prior month’s 2.1%. If China’s M2 money supply continues to expand at a rate of about 20%, they won’t need to worry about a soft landing. The landing will be heard around the globe.

The Concord Coalition: “If Congress wants to pass particular tax cuts, it should either reduce mandatory programs or raise other revenues to offset the tax-reduction measures, not simply give itself a free pass to enact tax cuts without financing them.”

More than 125 scientific papers have been published on sulforaphane, SGS, and broccoli sprouts, including 10 in 2004. In essence, new research indicates that consumption of broccoli sprouts may reduce high blood pressure, the risk of heart disease, and stroke. Two studies this year showed that sulforaphane/broccoli sprouts inhibited the growth of human prostate cells, and several studies indicated they kill the bacteria that cause stomach ulcers and can lead to stomach cancer.

Through Monday, April 26, 115 U.S. soldiers have been killed in Iraq this month. Retired Gen. William E. Odom stated “We have failed. The issue is how high a price we’re going to pay… Less, by getting out sooner, or more, by getting out later?” The General opposed the war before it happened.

Yesterday Mexico’s central bank raised the overnight lending rate from 5.5 percent to 6 percent.

4/27/04 Changing Times

Today Motorola will announce an expansion of its automotive electronics products plant in China. Its investment in China is the largest of any American company. Of the company’s $27.1 billion in sales last year, $4.7 billion came from China. The Chinese automotive market, according to the director of Motorola Automotive, is growing at an annual rate of 18.5%. Their 200,000 square foot plant in Tiajin will be completed this year, and will begin producing computers to control engines next year. According to Global Insight, car sales in China grew to 4.1 million in 2003, up from 3.5 million the previous year.

According to China’s information office of the State Council, the country’s urban unemployment rate is 4.3%, and this is if you don’t count people laid off from the state-run enterprises, and 7% if you do. The Xinhua news agency stated “the employment situation in China has been basically stable with 744.3 million Chinese employed last year, a third of them in urban areas and two-thirds in rural areas. That’s almost 97 million more than in 1990.” Officials state that unemployment is still rising but should peak this year.

Standard & Poor’s warned Monday that school districts across the country could see their credit ratings drop because of state budget problems. The number of districts facing downgrades is growing.

U.S. sales of new homes rose 8.9% to a record 1.228 million annual rate in March. The median price of new homes fell last month to $201,400 from $210,000 in February. Prices rose 8.8% in the last year.

According to the UBS Index of Investor Optimism, a joint effort of UBS and the Gallup Organization, the overall Index dropped 12 points this month, down from 85 in March. The drop can be attributed to an 8-point decrease in the Index’s personal dimension, which measures investors’ confidence in their ability to maintain income and reach short-term and long-term investment targets, all of which scored much lower this month. Average expectations for return during the next 12 months dipped to 10.4% from 12.7% in March. It should be noted that, in March 2003, the Index stood at 5, the lowest reading ever. The next month, April 2003, the Index zoomed to 66. March 2003 represented the best equity buying opportunity in quite some time. In sum, even though the present investor optimism level is dropping, the last time it was lower was the October 2003 reading of 69.

4/26/04 It’s Personal

Yesterday more than 1,000 women’s rights, civil rights, and healthcare groups summoned their supporters to the National Mall in Washington, D.C. This was a significant happening. An estimated 1,150,000 came together for by far the largest march in this nation’s history. The March for Women’s Lives was led by seven organizing groups: ACLU, Black Women’s Health Imperative, Feminist Majority, NARAL Pro-Choice America, National Latina Institute for Reproductive Health, National Organization for Women, and Planned Parenthood Federation of America. The political right will scoff and state there were other sponsors, such as, the Socialists Worker’s Party and the Communist Part USA. If that is their focus, they will have missed the point. As Madeline Albright observed, “the truth is durable.” As Anthony Romero expressed, “the government does not belong in our bedrooms. It does not belong in our doctors’ offices… Our fundamental right to privacy is under serious attack by the government.” As Gloria Feldt stated, “they’re not just after abortion rights. This is a full-throttle war on your very health—on your access to real sex education, birth control, medical privacy, and life-saving research.” It should be remembered that the reproductive rights march on this same mall in 1992 helped elect a pro-abortion president, Bill Clinton. Yesterday’s march was professionally organized. It will result, in my opinion, in millions more voting for Kerry in November. These organizers will get out the vote in the upcoming election. As Eleanor Smeal remarked, “we are building an expanded and inclusive movement that will make women’s reproductive rights—just like social security—a third rail of politics.”

At least 17 states are considering tax increases as lawmakers try to come up with budgets for fiscal 2005, which begins July 1 in all but four states. Hiking the tobacco tax is, far and away, the states’ most common revenue raising proposal, but the idea of taxing services is on the table in a handful of states.

In the May issue of Diabetes Care, a new study projects that the number of people with diabetes globally will actually double over the next three decades. The study indicated the U.S. will experience a far more rapid increase than previously expected to an estimated 30.3 million Americans by as early as 2030.

It is becoming increasing apparent that analysts require a global knowledge of markets in order to adequately assess and project quarterly sales and earnings for an increasing number of Fortune 500 companies. For example, in the first quarter of 2003, GM’s automobile sales in China rose by 45%. In this year’s first quarter, the increase jumped to 70%. Then there was the recent case of Motorola. Analysts missed the quarterly numbers by a country mile. They failed to account for the “fabulous” and “excellent” first three months in the Asia Pacific region where “China is our top market followed by Japan. India is placed after that.” Amit Sharma, Motorola vice president, stated “India has 55 million cable homes, who are using analog devices. If they move to digital, it becomes a great opportunity for us. We are already developing products and doing pilots with some customers.”

According to the Federal Reserve, large U.S. bank holdings of mortgage securities reached record levels of $500 billion at the end of March, up 28% from the year earlier period and double the amount held in March 2001.

There was good news coming out of Boeing. They received the first launch order for their 7E7. All Nippon Airways ordered 50 planes—a mix of the short-range 7E7 and the long-range variant—to be delivered beginning in 2008. All Nippon was Boeing’s largest customer in 2003, and more than one quarter of their orders have been for the 767, which the 7E7 is expected to replace. All Nippon has orders pending for nine more 767s. All told, Boeing has only 24 unfilled orders for 767s in its backlog, including the aforementioned nine and 7 from Japan Airlines, another likely candidate for the 7E7. I have previously suggested that the future for the 767 is dim, and transferring orders from the 767 to the 7E7 could have a large impact on the workforce in Everett, Washington. At this time, Boeing is largely a manufacturer of the 737 and, more importantly, dependent on government contracts. Until this order for 50 7E7s, Boeing only had year-to-date orders for 36 planes. The interim period until 2008 shall prove a testing ground for management’s ability to generate positive cash flow.

4/25/04 Inept Planning and Decision Making

Hachim al-Hassani: “We hope the U.S. soldiers will not be attacked when they enter Fallujah. If they are attacked, they will respond and this will lead to problems.” U.S. commanders have been threatening an offensive to take Fallujah unless the guerrillas hand over their heavy weaponry. Why have the commanders been waiting? Our attacking forces are low on fuel. There is gas rationing. That’s right. Those are the facts direct from the front. It was not surprising that yesterday there was a suicide boat attack on two offshore oil terminals, the sole outlet of Iraqi crude from the south.

The number of U.S. troops killed in Iraq in April has risen to at least 109. In the last two weeks another 600 have been wounded, and that brings the number wounded to almost 3,900 since the war began and the death toll to 718 since March 20.

Rumsfeld: “It doesn’t mean that you’re going to be able to live through that in a perfect way without people being killed or without people being wounded, and the tragedy of the reality we live in is that that’s happening.”

The tragedy of the reality is that the Administration continues to move forward with inept planning and decision making and risk the lives of Americans. Some may believe I simply criticize. On the contrary, I aim to point out the pitfalls, and have done so over the past one and one-half years. At the outset of the war, I provided facts that, our troops on the front lines, had inadequate supplies and were pushed beyond mental and emotional exhaustion. I have provided facts illustrating inadequate healthcare for our wounded and returning troops. I have discussed inadequate pay and benefits for our troops. I have focused on the invasion predicated on non-factual evidence. Inept planning has become terrifying. Now we are literally running out of gas. I am told that Kuwait has found the current conditions so dangerous that they have been reluctant to make deliveries. That is understandable. According to the Pentagon’s Directorate for Information Operations and Reports, the number of troops wounded this month is approaching 900. In March, 291 were wounded in action. The highest total before this month of April was 413 in October 2003.

Paul Bremer: “Iraq faces a choice. If you do not defend your beloved country, it will not be saved.” I believe, more importantly, the same can be stated for our beloved country, the United States of America. Inept planning and decision making are taking a terrifying toll.

4/24/04 Saturday Thoughts

Bill Gates: “If you invent a breakthrough in artificial intelligence so machines can learn, that is worth 10 Microsofts.” One might note that Microsoft went public in 1986. Since then, its stock has risen more than 24,000%. Buying and holding the great ones- that is a reflection of non-artificial intelligence.

Stephen Levy, director of the Center for Continuing Study of the California Economy: “Venture capital funding has increased by more than 5% in recent months. We have hit bottom, and we’re bouncing back up, but it’s nothing to write home about yet. The new jobs have to come from new companies, and that has to come from venture capital.”

Actually, Stephen, the new jobs can come through other means. Let’s look at Sunland Inc. of Portales, NM. This company has been making peanut butter since 1988. Sunland needs to expand in order to meet demand. The U.S. Department of Agriculture Rural Development program awarded a $450,000 federal loan to Roosevelt County Electric Cooperative, and the Cooperative, which is eligible to apply to the USDA for zero interest loans for economic development projects, reloaned the money at a zero interest rate to Sunland Inc. Jerry Partin, the Cooperative’s manager, stated “we re-lend that money to the industries creating the jobs and providing the economic development.”

In its first quarter survey of 3,000 job seekers, Challenger, Gray & Christmas found that 63.5% of those who found jobs got them at businesses with fewer than 500 employees.

China’s President Hu Jintao: “There’s excessive growth in fixed-asset investment and blind investment in construction. If these problems are not addressed, they will have a negative impact on the economy. We are confident that the strengthening of controls will bring China’s economic growth to a more sustainable momentum.” Jintao is sounding more like Greenspan each day.

For the week ended April 10, the following increases in initial unemployment claims took place: in California 12,000; in Pennsylvania 4,000; in New York 4,000; in Wisconsin 3,300; and in Michigan 2,600. Those are key voting states. Overall, the number of unemployed workers receiving state benefits increased by 52,000 to 3.02 million in the week ending April 10. Wall Street anticipates the Labor Department to pull a rabbit out of the April hat indicating 150,000 on-farm payroll jobs were created. It’s amazing how low-paying temporary employment with little or no benefits can get the bond market all worked up. Greenspan, in my view, only stated one fact in the last week. He remarked that 85,000 workers exhaust their benefits each week. Most workers are only eligible for up to 26 weeks of benefits. When the benefits run out, that person is dropped from the unemployment rolls. They are not counted. If 320,000 to 340,000 were dropped from the employment rolls in March, then, despite a gain of 308,000 in non-farm payrolls, there was a net loss of jobs. Similar happenings took place in January and February and will occur in the month of April. If the bond market does not wake up quickly, they will help to compound a serious problem.

Attorney Joe Tacapino: “The presumption of innocence begins with the first retainer.”

More than 100 U.S. soldiers have been killed in Iraq in April, and over 510 since our March 20, 2003 invasion.

The discount airlines are continuing to put pressure on other airlines. There is a $99 each way fare from coast to coast, and in May, one can fly to London for $260.

According to a new Harris Poll, Bush’s job ratings are down to 48% positive, 51% negative, the worst ratings of his presidency and the first time his negative rating is greater than his positive rating. Going back to Lyndon Johnson, in the month of April prior to a November election, only George H.W. Bush, Carter, and Ford had lower ratings, and none won in November. As an aside, Cheney’s ratings are 36% positive and 52% negative.

Wijian Shan, manager of Newbridge Capital: “China is now buying dear and selling cheap.”

Guo Shuqing, head of China’s State Administration of Foreign Exchange: “We don’t think that a fixed system is good. We think that a floating system is good.”

Nandan Nilekani, Infosys CEO: “We’re demolishing the myth that the future of global IT cannot be in India…Our business innovation is forcing rivals to redesign the way they do things. So this is more than an offshore play. It’s a model play.”

Micahel Santoli: “History is rather clear, though, in its verdict that stocks are at a disadvantage as monetary conditions tighten.”

4/23/04 Some Ways to Improve Profit Margins

Outsourcing continues to play an increasingly significant role in financial services call center operations, such as, the Bank of America forming a subsidiary in India and shifting 1,000 jobs there. A U.S. call center employee earns approximately $20,000 annually, whereas an Indian counterpart could earn $2,500, according to a recent study by Cutting Edge Information. The latter firm also mentioned that “a customer service job there is more prestigious than in the United States.”

The shift to Indian call centers has moved across the ocean with 850 people losing their jobs at services form Experian. That credit checking and data collection firm is shutting its division that provides call center services for third parties. They blamed the loss of some of its biggest contracts to offshore companies. One of the lost clients is Marks & Spencer, which is ending its contract early, in June. The British retail company stated it plans to cut 1,000 jobs at its head office, some of which are likely to be transferred to India.

Curt Anderson, senior director of investor relations at Microsoft: “We’re going to hold our operating expenses flat, ’04 to ’05. That’s going to give us about 2 percentage points of operating margin improvement.” The company is making more use of its videoconferencing software and has cut employee travel by 20%. The company is negotiating better deals with vendors. This is Microsoft and not Wal-Mart. One of the reasons I believe overall inflation will remain muted over time is the effort by companies, such as Microsoft, to improve margins. This will be a yearly exercise, and there are many opportunities for most companies in this area. There was another significant event yesterday at Microsoft. The company makes its headquarters in Redmond, Wa. About 12 miles down the road, is the city of Issaquah. Microsoft has purchased a large tract of land there. It would serve as a new campus. Microsoft told the city of Issaquah that construction on its new campus would not start for at least another year. John Connors, the CFO, stated “we’ll start building out Issaquah when and if we need the space.” This reminds me a great deal of Cisco and their property just south of San Jose. Watch what decision makers do and not what they say. Microsoft has $57 billion in cash. They will husband that money. PC sales and business spending have improved but it’s a bit like unemployment. The trend is better but not great. It doesn’t warrant a new campus.

One more note, and this on Boeing. The company indicated that their quarterly numbers would be better than expected. Deliveries of commercial airplanes are only modestly above plan. This is a fact. The only variable could be a benefit from a defense contract with more revenue hitting this quarter. Until there is a complete overhaul of Boeing’s management, I wouldn’t go near it as an investor.

There is an article in today’s Wall Street Journal on companies regaining pricing power. In fact, the price increases that have been announced have been modest and certainly not widespread. The major activities in improving profit margins are the effort to enhance productivity and to improve margins at the expense of vendors, such as, the effort by Microsoft and others.

Yasheng Huang, associate professor at MIT’s Sloan School of Management: “Sooner or later, China’s micro-economic fragility- which has led to low efficiency and huge non-performing bank loans- will dent its growth. Massive investment booms have fueled economic growth but the booms are not sustainable in the long term.”

4/22/04 Mass Layoffs

In the Jan- March 2004 quarter there were 4,289 mass layoff events and they created unemployment claims of 416,209. This compares with the corresponding quarter of the previous year of 4,885 events and 463,421 claims. This is further evidence of a gradual decline in unemployment; however, with the recession having ended 2 1/2 years prior, unemployment claims remain at stubbornly high levels, and this after three successive quarters of above average GDP growth created by massive fiscal stimulus (record low interest rates and rounds of tax cuts). Going forward, circumstances will change for the worse.

The flattening of the treasury yield curve negates the theory that the economic recovery will retain its strength.

The two year treasury is yielding the most since October 2002.

I would recommend going long the 30 year treasury and shorting the 10 year treasury. The three quarter point spread does not provide enough value premium for a bond three times in duration.

I recommend the continuation of avoiding the noise coming from the Fed chairman. His words are filled with air bubbles.

4/21/04 Ass Backwards

Some things never change. Wall Street hangs on Greenspan's words as if he has something new to say. His words reflect what has taken place. He is not a futurist. He is an historian. The fact that the Chinese have created huge moves and, in some cases, shortages in several commodities is old news. This is true in oil, steel, aluminum, soybeans, etc. We have discussed this time and time again. The fact that Greenspan hinted at rising rates- so what. The market has moved rates dramatically over the past month. That's how the 10 year treasuries got to yielding about 4.5%. Maybe they go to 5.5% in the next 6 months. I don't know. I do know these rates are a gift. The government does not have a balance sheet to warrant borrowing at these rates and the same can be said for most companies. These rates do truly reflect non-reality borrowing.

Take Ford Motor Credit. Their first quarter interest rates declined by almost $200 million dollars compared with the prior year. They earned $1.1 billion pre-tax in the first quarter, compared with $727 million in the previous year. Basically, the entire quarterly improvement was from lower rates, higher used vehicle prices, and improved credit loss performance. When you have $4,300 in incentives on a vehicle, loss experiences will tend to decline. More importantly, their total financing revenue declined from $4.3 billion to $3.778 billion and their depreciation on operating leases declined from $2.1 billion to $1.3 billion. This is not a cheery picture.

Yesterday was another example of analysts not coming close to quarterly results for a company. In many cases, without company guidance, analysts are worthless. Motorola was the latest example. Rather than focusing on their earning 18 cents per share on $8.5 billion in revenue, a greater plus was the licensing agreement with RIMM that ties some Motorola handsets with the RIMM blackberry. New management seems to be working at Motorola as did the new management at McDonald's. Our best wishes are extended to Jim's family.

Foreign correspondent Philip Smucker's new book is A Qaeda's Great Escape. He tells the story of how poor planning and a rush to war allowed Bin Laden to slip away, regroup, and return to the front lines of the war on terror. With a myriad of interviews, he details how Bin Laden slipped away.

4/20/04 The Most Prized Possession Is Integrity

Yesterday, Democrat Nelson of Nebraska, senior member on the Armed Services Committee, stated "it costs $100,000 to train and deploy one servicemember in Iraq. Half of the troops in Iraq are for support purposes only. Therefore, when we say we have 135,000 troops serving there, only half are combat troops...we could not possibly get another 20,000 troops over in Iraq for at least 90 days. That's why we extended the tour of duty for some personnel." He has heard from many families that the extended tour of duty to one year or more is presenting a severe economic and emotional hardship on those back home. In his opinion, our troops around the world require "better balancing." In my view, the administration has not been been truthful to our troops. Too many times, they have been told they are returning home only to be told the plans have been cancelled. If it happens once or twice, that is difficult at best. It has been a great deal more than that. Nelson admitted that was the case. It should be mentioned a Republican from Texas was present when Nelson was making these remarks. He never corrected Nelson- not once.The most endangered species are leaders of nations. Lack of integrity increases the endangerment.

4/19/04 Shopping on Main Street

Over the past week, three purchases were made at three different well-known retail establishments. On the cover of the box, the lamp was stated to operate on a three-way basis. It was one-way. The bath accessory was to stand from the floor to the ceiling. It couldn’t. It was missing a screw. The vacuum cleaner’s handle was difficult to push. It was missing two screws and became detached. All three items were returned. All were made in foreign lands. When items were made in America, I rarely had this experience. This is the price for lowering our manufacturing costs? I prefer the old times.

4/18/04 Voxel and the Orb

We live in a society marked by the shift to an aging population. In order to effectuate successful transformation, we must re-invent ourselves, so to speak. Some of the change can be found in the emerging fields of biotechnology and nanotechnology. Today we shall explore voxel images and the Orb.

Simply described, voxel images are 3-D images. They are most often found in x-rays, CAT scans, MRIs, and even computer games. Karthik Ramani, a Purdue University professor has created a 3-D search engine. It’s interface is to be licensed by Imaginestics LLC, where Ramani is chief scientist. He believes his 3-D search engine “is the beginning of the information age.” As objects, not just words, are accessible through computers, Ramani believes productivity can be further enhanced. Princeton University professor Thomas Funkhouser and his colleagues have put a 3-D search engine on the Web. By using a computer mouse, the user can sketch an object, add a description in text, and then search for similar designed models in databases. Caterpillar’s senior engineering specialist, Rick Jeffs, believes Ramani’s search engine could simplify his company’s inventory. Designers could sketch a required part, and then view what fits the bill in inventory. Jeffs stated “this would really just add to the efficiency.” The idea of Google soon going public is on the minds of many investors. Google’s search engine is in 2-D, as it were. Ramani’s work adds vision to a Google search.

David Rose is president of Ambient Devices, creator of the Orb. Author Seth Godin stated “when you think about the magic of the Orb, it’s a thermometer for the rest of your life.” Rose observes “it’s based on our brain’s natural ability to process many streams of information in parallel. Our perceptual system is great at multiprocessing hundreds of peripheral cues every second. We do it without even trying. Today’s computer interfaces completely ignore this.” The late Mark Weiser, former chief technologist at Xerox’s PARC, stated “ubiquitous computing is roughly the opposite of virtual reality. Where virtual reality puts people inside a computer-generated world, ubiquitous computing forces the computer to live out here in the world with people.” Rose believes “once people are aware how easy and delightful it is to have these information devices in their lives, it will become second nature.” The original Orb cost $300. The price is now $150, and dropping. About 20,000 have been sold to date. The Orb is described as a “calm computing device” and it can provide information “to increase my peace of mind” and it is “dedicated to information people care about.” It can provide physical form to information, and the latter is delivered through a nationwide wireless network. An example of the Orb, an object the size of an over-sized egg, is serving as an indicator of the DJIA. If the Dow is up, the Orb shines green. If it’s down, it glows red. If it’s roughly unchanged, it’s yellow. It can be programmed to tell you about job openings, whether someone is online, track e-bay auctions, and on and on and on. It has endless uses. It can provide relief from information overload and make it easy to process basic visual information.

Senator John Edwards of North Carolina: “You know it must be an amazing thing to live a life where, when you’re asked multiple times whether you’ve questioned anything you’ve done, whether you’ve made any mistakes…you can’t think of a single thing. Well I have a suggestion for the president. If he’s struggling with the question, give me a call. I’ll give him an answer.”

When we analyze Wal-Mart, we see the world’s largest retailer, America’s largest corporation and its third largest revenue-generating entity behind the Center for Medicare and Medicaid Services and the Department of Defense, and the largest private-sector employer in the U.S. They have the largest private trucking fleet in the nation. They are the number one retailer in the U.S. of clothing, toys, groceries, home furnishings, home textiles, housewares, tableware, DVDs, vacuum cleaners, TVs, video game consoles, and many more items. I think we might consider one more description. Wal-Mart’s current level of annual revenues exceeds the GDP of all but two dozen of the world’s countries. For example, their revenues exceed Switzerland’s gross domestic product. The company has recently announced the purchase of stores in Brazil. They will open about 280 stores in this fiscal year. They are on the hunt for strategic international acquisitions. In a few years, Wal-Mart can be within the size of the top dozen countries’ GDP. Bob Zaragoza is a frequent Wal-Mart shopper in Colorado. He stated “people have to look out for themselves. And prices at Wal-Mart are cheaper than most anywhere else.” Those cheap prices may not reduce the price of gasoline, but most everything else will be. Wal-Mart’s growth will place a lid on inflation. Their purchasing power will continue to import lower prices from outside our borders.

Over the past three years, Illinois Tool Works has shrunk its U.S. payroll from about 36,000 to 28,000. Their vice president of investor relations, John Brooklier, stated “why would you be hiring people right now? If you still have a ways to go before manufacturing capacity is filled, where are the jobs going to come from?”

This is a big week for the reporting of first quarter earnings. I wonder how much of the increase will be attributable to currency adjustments, such as, with IBM? How much will be attributable to cost-cutting, such as, with J&J? How much will be attributable to lower interest rates, such as, with Southwest Airlines? How many will have high profit margins due to lower tax rates? It’s a good thing to compare apples with apples.

4/17/04 The Economy

Economist Robert Brusca: “The economy is still growing. The evidence of acceleration is waning.”

Fed Vice Chairman Roger Ferguson: “Nonetheless, one cannot definitely rule out the possibility that hiring will fall short of expectations over the next several months as it had up until the most recent report. In particular, the lackluster performance we have seen in the labor market, even as real GDP has been moving up strongly, raises the question of whether an unusually large portion of job cuts implemented by firms in recent years represent permanent layoffs that will only gradually be offset by job creation elsewhere in the economy.”

Non-farm unit labor costs fell 2.4% in 2002, 1.2% in 2003, and they continued to decline in the first quarter of 2004.

Apple Computer has closed its Elk Grove, Ca. iMac assembly plant, eliminating at least 235 jobs. Assembly will be moved to an unnamed s. California supplier. Alcoa Mill Products is closing a 350,000 aluminum plant in San Antonio due to “poor market conditions.” The number of workers to be impacted was not mentioned. Yesterday, Boeing distributed 60-day layoff notices to 102 union hourly workers in the Puget Sound area. Boeing does not disclose the number of layoff notices issued to non-union employees.

The U.S. government needs to borrow $2 billion a day in order to finance its record deficit. Any material increase in interest rates would necessitate more treasury borrowings and, therefore, greater debt service. The economy needs that like a kick where it hurts.

Alan Greenspan: “We should not be surprised then to see a re-emergence of the market value placed on trust and personal reputation in business practice.”

In March, the number of unemployed people in Pennsylvania increased by 15,000 to 333,000. Since March 2003, total jobs were down 21,900.

In India, exporters have been hit hard by the appreciating value of the rupee, and they have threatened to stop exports from May 1 and sought immediate remedial measures, such as, pegging of the dollar exchange value at Rs 45. Up until now, garment and textile exporters had been preparing for accelerated exports since the quota free environment was approaching next year. Now those plans may require change. Exporters have been experiencing intense competition from China and other Asean countries, and they have begun switching their businesses to other areas.

With this past week’s strength in the U.S. dollar, the price for gold and silver took a pretty hefty drop. If you have a strong belief that our economy is going to continue in a gangbuster’s fashion, then you might want to avoid purchases of gold and silver. On the other hand, should your feet be firmly planted on the ground, it would not be a stretch to realize that something has to give in our economy- like the ability to reduce debt and curtail spending. Administration officials may tell you everything is fine and dandy, but please remember they are simply attempting to snow you. I wouldn’t buy the dollar with your money.

Some recent polls indicate that over two-third of investors are bullish. If you’re a buyer, you get a lot of bull for your buck.

There are a million stories in the naked city. One of my friends mentioned his wife’s friend’s experience. For many years she was a programming contractor and earned $40 an hour. She never experienced a lull between jobs and was accomplished in her area of expertise. Thousands and thousands of software jobs disappeared in Silicon Valley. She could not get another IT job. With rising housing and healthcare costs, she needed to find work. Finally, she turned to house cleaning and earns $12 an hour. The Labor Department counts her as employed. I think you’ll find many more individuals with wages going from $40 to $12 per hour than the reverse. There are many more job seekers than jobs. I don’t see that changing any time soon. The under-employed, the discouraged, the part-time workers- they have paid the price, and continue to pay the price, for an economy filled with too many over-priced non-risk taking executives and managers.