Melduke's Blog Page

Wednesday, July 07, 2004

7/7/04 The Fun And Games Are Over

This is earnings season and that includes earning warnings. Yesterday, Veritas announced slowing business software license sales. Nothing serious. The stock only dropped 30% or so and clipped $4 billion in market value from the company's shares. In bull markets one does not see such a violent reaction. This morning PeopleSoft warned about their quarterly results. It's been one year since Oracle started their hostile tender for the company, and PeopleSoft's shares proceeded to rise over 50%. Guess what. Those shares have returned to the pre-tender levels. The lawyers made out brilliantly but the stockholders were left empty handed. What else is new? One more item to note was yesterday's warning by San Francisco-based Embarcadero Technologies. Smart investors paid much attention to that announcement.

Yesterday and today are good days for auto customers. Yesterday Ford increased incentives by $1,000 on some models and GM lowered lease payments by $1,500 on some models. Today GM will announce some more incentives on outright-purchase plans. Slowing sales have created bulging inventories at the dealer level. The deals will get better as the introduction of the new models get closer.

The June ISM non-manufacturing or services index fell to 59.9 from 65.2 in May, the largest monthly drop since October 2001. Should you be concerned? Services account for over 80% of our economy.

Challenger, Gray, and Christmas stated that corporate hirings fell to 38,377 workers, down 31% from May's 55,307. The Wall Street Journal mentioned today that hiring would be increasing. I don't see them adding workers to their staff.

According to Cutting Edge Information, fewer than 25% of all pharma companies conduct market research in pre-clinical development.

The International Council of Shopping Centers stated "the overall year over year sales remained somewhat subdued compared with earlier in June." They anticipate that June monthly sales will have risen about 3 to 31/2% compared to June 2003 and the May 2004 rise of 5.7%.

Over the past month I have mentioned that Microsoft is paying increased attention to cutting expenses. Today the company stated that recently "expenses have grown faster than revenues." In several newspapers there was reference to an internal company memo focusing on a cost reduction effort of $1 billion.

Tuesday, July 06, 2004

7/6/04 The Threat To Sustainability

To grasp this picture you don't need an MBA. It's simple. Too much inventory can lead to lower prices, lower employment, and an economic downturn. That's what's happening in our auto industry. Ford will expand its two-week summer shutdown at five North American assembly plants. GM states they will rely on incentives to boost sales and won't cut production. We'll see about that. Increased incentives have not done the trick for May and June. It should be noted that auto companies record a sale when a vehicle is shipped to the dealer. It can stand on the delaer's lot for months, but it is still recorded as a sale. No wonder GM does not want to cut production. Keep filling the dealer pipeline. Eventually, something has to give with the overloaded pipeline of unsold vehicles. It will mean plant shutdowns and lower prices and lower profits and more unemployment.

GM and Ford can't make a right decision. It reminds me of Bush. Dodge will build all of 100 diesel-electric 2005 Ram pickups. GM will build only 2,500 gasoline-electric hybrid versions of the 2005 Chevy Silverado and GMC Sierra pickups. Meanwhile, Toyota is considering building an additional U.S. plant to meet the demand for its hybrid vehicles.

Some analysts worry about stagflation. The latter looks good next to too much inventory and lower prices and lower employment. Wall Street will focus on second quarter earnings. Those results are for the history books. They won't be repeated any time soon.

Kerry picked Edwards. The latter will show Main Street what it's like to relate to the people. The haves and the have mores might be Bush's base; however, there are too many havenots in this country. The people realize that reduced working hours and lower wages after inflation and increased unemployment are not the answer to the American success story. Bush has proven to be the WMD.

Monday, July 05, 2004

7/5/04 Pursuit Of The Truth

I did not get lazy today. The software was down and I could not post. Consequently, being late in the afternoon, I will keep this short and to the point. On Friday Tom Ridge stated he would not raise the terror alert level this weekend. Yesterday he did just that, and by his own admission, there was no specific and/or credible reason to do so. If our country wants to believe in its leaders, then we need to hold members of the administration to a standard which pursues the truth and where they do not walk in the path of lies. That's it from the cheap seats.

7/5/04 The Pursuit Of The Truth

On Friday I watched Tom Ridge state that he would not raise the terror alert level over this weekend. Yesterday he raised the terror alert level. Why? There was no specific or particular threat. He just did it. If we don't rid our country of administration members who tell lies, how can we feel good about our leadership? How can other countries respect the U.S.? The choice is up to the electorate. At the bare minimum, American citizens should be told the truth.

Sunday, July 04, 2004

7/4/04 Liberty

Mark Twain: “Irreverence is the champion of liberty and its only sure defense.”

Gunter Grass: “The job of a citizen is to keep his mouth open.”

According to Expedia.com, one in 10 Americans say vacations might be frowned upon by bosses. The World Tourism Organization statistics indicate that American workers take an average of 13 days off a year. This represents the fewest vacation days in the industrialized world. The Japanese take 25 days and the French 37 days. According to a survey by the Des Moines Register, 43% of the respondents stated they screwed up their vacation by not taking enough time. If the average workweek has been shortened, why aren’t Americans taking more vacation time? Could it also be a cash flow problem in addition to worrying about job security?

As we start the second half of the year, one might give additional consideration to new orders falling for six months in a row in the ISM survey. I am aware that the majority of our economy hinges on services; however, manufacturing does count.

This week marks the beginning of earnings releases for the second quarter. In most cases they will show smart gains. That is important. At the same time one might ask how confident the CEOs and CFOs are confident of this strength continuing in the short and long run. There are exceptions. Starbucks has been having double-digit monthly sales growth numbers for the past six to eight months. Their stock made a new all-time high on Friday. Starbucks is one of the few great companies in the U.S. Their management is top-notch. I don’t believe anyone can name without reservations another ten companies like Starbucks for the long-term. In other words, one should be cautious in an investment approach. To be over-confident and fully invested shall prove, in my view, to be an expensive mistake.

Infosys Technologies was founded in Bangalore in 1981. The company has 25,600 employees with annual revenues exceeding $1 billion. In an interview with the San Francisco Chronicle, the company’s president, CEO, and a founder Nandan Nilekani stated the following: “In 1991, the total revenue in the Indian economy from software exports was $50 million. Now it’s about $1 billion, and the whole industry is about $12 billion in revenue…India has the largest population of young people anywhere in the world. Ten million new people join the workforce every year…Globalization is really the best way to lift millions of people out of poverty because it increases trade; it increases job creation. It’s the same globalization that gives you a $40 DVD player…People believe the IT and business processing industries from India can go up to $50 billion…We graduate 350,000 engineers every year from all our colleges. At the Indian Institute of Technology 200,000 kids appear for the entrance exam and 2,000 or something get in.”

According to government housing and Census data, one in four families headed by someone 65 or older had a mortgage to pay in 2001. In 1989, only one in six still had mortgage payments to make. According to the Federal Reserve, debt levels of borrowers between 65 and 74 years of age doubled between 1992 and 2001 in comparison to 83% for the general population.

Saturday, July 03, 2004

7/3/04 Fireworks

Bush gave a speech yesterday in the East Room of the White House. He stated that “real after-tax incomes are up 11 percent since December of 2000… we want people to be able to come home and say, boy, how was work; it was great. I enjoy working.” Bush should have addressed some rather serious facts. The average workweek for production or non-supervisory workers on private nonfarm payrolls decreased by 0.2 hour in June to 33.6 hours, seasonally adjusted. How many people can make ends meet on 33.6 hours of work per week? The workweek in manufacturing fell by 0.3 hour to 40.8 hours, nearly offsetting the gain in May. Manufacturing overtime was unchanged at 4.6 hours. The index of aggregate weekly hours of production or non-supervisory workers on private nonfarm payrolls declined by 0.6 percent in June to 99.6, and the manufacturing index fell by 0.8 percent over the month to 94.6. Importantly, average hourly earnings of production or non-supervisory workers on private nonfarm payrolls increased by 2 cents in June to $15.65, seasonally adjusted; however, average weekly earnings declined by 0.5 percent over the month to $525.84 from May’s $528.29. Bush didn’t tell his audience those facts.

There is so much slack in this economy that the work week keeps getting shortened and earnings after inflation keep going down. The employment-population ratio was 62.3 percent in June and has been at or near that level since early 2003. The civilian labor force participation rate also was little changed at 66.0 percent. If the economy were on a growth plane, these ratios would be trending upward. There will always be strong spots. Employment in health care and social assistance continued to grow in June, and that should continue with a population that is aging. In the last month, professional and technical services, transportation and warehousing, courier and messenger services, trucking, and temporary help showed gains in employment. Of those, temporary help can be expected to continue with gains as companies seek to avoid paying benefits. In sum, the few bright spots get lost in the overall dismal employment picture. Working less and for less inflation-adjusted pay is a recipe for an economic shipwreck. You are witnessing the undoing of financial well-being and stability on Main Street. Those are the fireworks heard this weekend. It is little wonder that 52% of Americans recently polled disapprove of Bush’s handling of the economy. Michael Moore’s film won’t finish Bush. Bush will finish Bush.

On Wall Street, the disappointing June employment report brought forth the idea that the Fed would not need to aggressively raise interest rates. When the consumer slows spending at Wal-Mart and Target and walks past the Big Three showrooms while inventories of unsold cars swell, would you raise rates? As support for the dollar wanes, would you want to hold dollar-denominated assets? Only if you want a tax loss. The Snowman stated our economy is continuing its “strong, strong recovery.” He might have opined that some members of the administration are recovering.

Pimco’s Bill Gross: “Today’s report underscores the fragility of a levered economy that thrives on low interest rates and wilts as those rates go up.”

Since Bush took office in January 2001, the U.S. economy has lost about 1.1 million jobs. If one were to count those folks whose unemployment benefits ran out, the number would be closer to 3 million.

Maxtor is the second-largest hard drive manufacturer. The company stated tat it will eliminate as many as 500 jobs immediately. The staff reductions will save the company as much as $80 million a year. The CEO remarked “during the quarter, we took steps to control costs and expenses to partially offset the shortfall in volume and revenue. We will continue our efforts to cut costs and lower the break-even point of the company through a reduction in force, beginning this month.”

Friday, July 02, 2004

7/2/04 Incentives And Inventories

Paul Ballew, GM’s director of market and industry analysis, stated that “quite simply. June was tough.” He might have elaborated and mentioned that GM offered record incentives and yet sales for the month dropped off a cliff by 15% compared with the year earlier period. Some analysts said that June was poor due to the big incentives in May. That’s a great theory except that June’s incentives were higher than May’s. Toyota didn’t have any trouble in either month. Their market share keeps rising. Ford’s sales were down by 7.7% for June. It was their 12th consecutive monthly drop. Chrysler managed a 1% rise in the month thanks to sales of its new 300C. As we move closer to the 2005 model year introduction, one should pay attention to the level of inventories at the Big Three. Some production lines may need to be shut down. Of course, those temporary layoffs will not show up in today’s employment report.

Federal Signal announced plans to close a plant and lay off 400 workers.

Eastman Kodak will close its Charlotte, NC film-processing lab, which employs 100 people. Kodak stated it is closing the lab to cut costs. I’m sure the surge in popularity of digital cameras might be the real reason.

The number of workers collecting state unemployment benefits rose by 13,000 to 2.966 million in the week ended June 19. The uninsured employment rate rose to 2.4 percent from 2.3 percent the previous week. How do you spin having more people working with the uninsured unemployment rate rising? I’m sure the administration will figure something out. They are pros at bullshit. I’ll tell you what they will say. It’s simple. They will report that the decline in continuing claims is the result of job creation, and that workers are exhausting their benefits prior to finding work. This excludes two facts: since December 23, 2004, each week at least 80,000 workers exhaust their benefits and are no longer counted on the unemployment rolls; secondly, the rate of hiring is declining and most of the hiring is in low-paying, little or no benefit jobs.

Shell Oil misled investors about their oil reserves. Verizon overstated its subscriber base in the first quarter. What company is next on the list?

The ECB held interest rates at 2%. Germany’s retail sales fell 5.2% in May.

I feel really good this morning. In the most recent Wall Street Journal survey of 55 forecasters, the expectation is for steady expansion for the rest of this year. I guess I can take off for the beach.

In a survey of 362 companies by Treasury Strategies, the average U.S. company generated a return of 2.8% or less in 2003 on their cash and investments. Over the last three years, Microsoft generated a 7.3% average annual return. In their fiscal year which ended June 30, 2004, Microsoft’s CFO, John Connor, expects the investments to return as much as 6%. Investors want Microsoft to return some of that $57 billion to them in the form of a dividend. Considering Microsoft’s return on investments and the tax considerations, maybe that idea has little merit.

Thursday, July 01, 2004

7/1/04 The Next Six Months

Yesterday marked the first increase in interest rates by the Fed in more than four years. The cost of money maybe a bit more dear, but the Fed will remain accommodative in their monetary policy. Do not be fooled though. This is not a fairy tale economy. With so many barely making ends meet, with consumer debt at rising levels, with twin tower government deficits, and with real estate values looking more like those in Japan in the late 1980s, it is certain that the landing will not be soft for many. You may believe in Superman. I would never want to burst your bubble.

According to a new report from the U.S. Army, one in five of our soldiers returning from Iraq suffer serious mental health problems associated with post-traumatic stress disorder. The headlines cover Saddam’s trial. I care about our fighting men and women. In addition to Saddam, maybe others in this country should be on trial.

It took one year for Boeing to sell its Irving, Texas commercial electronics division, and they never disclosed the price. BAE hopes to retain all of the 600 workers at the Boeing unit; however, Boeing stated about 200 Puget Sound workers in the division will lose their current positions. Boeing hopes to find other spots for them. I’m sure they mean well when that is said. Unfortunately, well-meaning does not pay the bills.

For the last quarter and all of their 2004 fiscal year, India’s GDP grew at an 8.2% rate.

All eyes are on inflation. China and India want to keep a lid on prices. The ability to attract foreign investment hinges on their ability to keep prices from rising. It’s not a perfect world, and many commodities soared over the past 12 months as China’s demand clearly outstripped near-term supply. China does not want to kill the potential golden goose. Their foot will gently come off the pedal.

Starting today, California will become the nation’s first state where workers can receive part of their pay while they take time to be with a new baby or to care for a severely ill relative. This is called the Paid Family Leave Insurance Program, and is funded by employees through the state’s disability insurance program.

Robert LaBudde, a food industry consultant who has served on the faculties of the University of Wisconsin-Madison and MIT, stated “there is no question that we will be seeing a dozen or more-possibly 100 or more- cases of BSE-positive cattle in our national herd.” LaBudde’s clients include the meat industry.

The Treasury Department will announce the size of their TIPS offering that will be sold next week. There is a sucker born every day.

Carustar Industries will close its Charlotte, NC folding carton plant and its Georgetown, KY plastics plant. The company did not state how many employees would be impacted.

Diane Swonk, Banc One’s economist, stated “I don’t think we’ll see another rate hike until September.” That is a minority viewpoint.

In an agreement possibly taking effect late next year, once approved by Congress and Mexico, about 50,000 workers in the U.S. and Mexico would become eligible for some retirement benefits under either country’s system after the first five years of the agreement, the Social Security Administration estimated. The agreement would cost the retirement system about $105 million a year. To qualify, workers must have 10 years or 40 quarters of work history.

The Northern Kentucky Chamber announced that the decision by DHL Express to relocate much of its Northern Kentucky sorting operation to its hub in Wilmington, Ohio would mean the loss of more than 2,900 jobs and a loss of $250 million in overall business output, including wages and retail sales. Offsetting a portion of that loss will be a new FedEx distribution center planned for the area.

James Chessen, chief economist of the ABA, stated “the rise in interest rates is one-quarter of a percentage point… the actual cost to consumers would be $2.50 more per year on $1,000 of debt--- less than the cost of a latte.” It’s too bad that the debt level for consumers is significantly larger than $1,000. Economists sometimes ignore reality.

The Chicago Purchasers Index declined to 56.4 in June from May’s reading of 68. It was the biggest drop since 1974. The production index dropped to 53.9 from 71.1.

Wednesday, June 30, 2004

6/30/04 News Can Matter

The recent bad news at Wal-Mart helped send the stock trading to 6-month lows. Having announced that June sales are “well below plan,” Target’s stock traded at a 4-month low. Not to be outdone, Washington Mutual felt the impact of the poor performance at their mortgage unit, and its stock traded yesterday at a 9-month low.

Robert Lutz, GM Vice Chairman, said the “young tiger” domestic China auto makers such as Geely, Great Wall, and Chery will soon start exporting to the west. He said that China is like “a freight train driving down on us.”

The Conference Board’s Consumer Confidence Index increased sharply in June, and reached their highest levels in 2 years. Confidence, however, does not produce an increase in one’s cash flow. According to yesterday’s survey by Visa USA, spending will be tight for summer vacations. Most travelers will be taking low-cost trips to visit family this summer. Other popular destinations for the budget traveler were beach and camping trips. Four out of five respondents stated they have travel budgets to keep an eye on the household bottom line.

Private construction in California in May was down 5.2% from April, according to the Construction Industry Research Board. Public works construction was down 8.8% from April and down 12.1% from May 2003.

The Bond Market Association forecasts that the yield on 10-year treasury bonds will rise to 5% by September and to 5.5% by this time next year.

For the first time in six years, Paccar has added a night shift at their Renton, WA plant, where Kenworth trucks are built. A total of 225 workers were added.

Tuesday, June 29, 2004

6/29/04 Yesterday It Was Wal-Mart And Today GM

In an effort to spur sales, in May, GM increased incentives to $5,000. Yesterday, the company forecast surprisingly weak sales for the month of June. Sales could be down 5% and Ford’s even more. They will lose market share to Toyota as the latter records double-digit sales growth. With the early introduction of new models, results for Chrysler could to be flat to modestly higher. Will larger incentives and weak sales be business as usual for the U.S. auto industry?

According to the International Council of Shopping Centers and UBS, sales at U.S. retail chain stores fell 1.2% last week. It was the largest decline in six months. Discount stores were hit the hardest. I guess well-heeled shoppers don’t mind cooler temperatures and wetter conditions.

May’s savings rate was 2.2%, down from April’s 2.6%. Adjusted for rising prices, spending increased 0.45 in May after no change in April.

Edward N. Wolff, an economist at NYU, analyzed 18 years of household financial data collected by the Federal Reserve. From 1983 to 2001, the net worth of the median older household- the one at the midpoint of the economic ladder- declined 2.2% or $4,000, during the period to $199,900. Wolff stated that, based on economic growth and market conditions over those 18 years, their wealth “should be up around 30 or 40 percent.” Countless American workers have relinquished part of a pension by moving from one job to another over the past two decades, and many plans have been eliminated due to cost cutting measures. In 1985, about 115,000 American companies had traditional pension plans. As of last year, only about 31,000 did.

Washington Mutual stated its mortgage business might lose money in 2004. The company cut its earnings forecasts for this year and remarked that more job cuts can be anticipated.

Monday, June 28, 2004

6/28/04 Looting

Allen W. Smith, author of "The Looting of Social Security: How The Government Is Draining American's Retirement Account," states the looting continues on a daily basis, and every cent of the $1.5 trillion in Social Security surpluses generated by the 1983 Social Security tax, has been used up on non-Social Security purposes.

Most of the financial sector will be focused on the Fed meeting. As I have often stated, the Fed looks to Wal-Mart for information about the consumer. Wal-Mart reduced their same-store sales forecast for June from a 4 to 6% rise to a 2 to 4% increase. When you are talking about annual sales approaching $300 billion, a 2 percent monthly reduction amounts to a great deal of money. The company said again that results for Father's Day were disappointing. Predictions had been made that a decline in sales for the entire nation would be down from the prior year's Father's day. Wal-Mart is far and away the best indicator for the consumer on Main Street. Wall Street is not paying very close attention. They will regret their non-concern. This is not business as usual.

Japan's retail sales declined 2.5% in May.

For the first time, in 2003, the OECD stated China received more foreign direct investment than the U.S. It won't be the last time.

Machiavelli: "Ne��

Sunday, June 27, 2004

6/27/04 Some Miscellaneous Thoughts

According to government figures, 45% of employees had medical coverage through employers, down from 63% 10 years ago.

Ron Williams, president of Aetna: "It's fair to sya that a lot of jobs that are being created may not be the jobs that come with benefits."

Safra Catz, president of Oracle, stated that 76% of PeopleSoft's employees or 6,000 would lose their jobs should Oracle's takeover succeed.

Greyhound will close 260 stops between Chicago and Seattle and this will result in about 150 layoffs.

Rafael Sale, founder and president of National Wire Corp: "My cost for buying materials has gone up more than 130% in the last six months, but I can't pass it on to my customers because they won't buy from me if I raise the prices."

Saturday, June 26, 2004

6/26/04 Revisions

For the most part, government employees are a figment of their own imagination, and that includes government statistics. Yesterday was another example. It now appears that GDP growth was overstated and inflation understated in the first quarter of 2004. It took the government, all tens of thousands of them toiling away, almost three months to "adjust" the numbers. What makes you believe the new numbers are correct? If the WMD can be created, why can't growth be altered? The Commerce Department revised downward the U.S. GDP growth for the first quarter from 4.4% to 3.9%. How did this happen? The explanation was the huge trade deficit subtracted 0.71 percentage point from growth. It should be noted out that almost the entire amount was offset by the rise in inventories which added 0.65 percentage point to the growth.

The news got worse as the personal consumption expenditure price index rose at a 3.2% annualized rate in the first quarter up from the previous estimate of 3%. The core rate, ex food and energy, rose 2% and not the 1.7% previously stated. The price deflator used to adjust the figures rose at a 2.9% annual rate.

Timothy Geithner, president of the N.Y Fed: "Good times are also good times to reflect on the capacity of the system to withstand further stress." With all those low-paying jobs, there must be a lot of stress.

MCI cuts 2000 more positions.

Red Hat currently has three Linux global support centers-- in Brisbane, Surrey, and their Raleigh headquarters. They plan on opening a fourth in Pune or Bangalore in India. Red Hat India is putting in place a 250-member software engineering team in that country.

Friday, June 25, 2004

6/25/04 Clinical Trials

According to Rabo India Research, the cost of conducting all four phases of clinical trials is more than 50% lower than in the U.S. According to a McKinsey study, 85% of days lost in clinical trials in the west is due to failure to get enough patients. That is not a problem in India. Presently, the clinical trials industry amounts to $70 million a year in revenue in India, and is projected to climb to $1 billion in 2009. India has 162 medical colleges and 15,000 hospitals. In Japan, per capita spending on medicines is $412 and in India only $3!

According to the BLS, employer costs for employee compensation averaged $24.95 per hour worked in March 2004. Wages and salaries averaged $17.71 while benefits averaged $7.23. With fewer than 100 workers, total compensation was only $19.47 per hour.

Campbell Soup is cutting 300 jobs.

Non-defense ex-aircraft durable goods for May declined 3%.

U.S. housing starts fell 0.7% in May, less than expected. Permits rose to a 30-year high, and sales of new homes surged 14.8% to a record high.

Nike is one of the great companies. They earned $3.51 per share on revenues exceeding $12 billion while worldwide future orders increased 10.7%.

More than 65,000 poor and disabled Mississippi residents will lose government-funded health coverage through Medicaid on July 1. Mediacid consumes more than 20% of state budgets.

6/25/04 Clinical Trials

According to Rabo India Research, the cost of conducting all four phases of clinical trials in India is more than 50% lower than in the U.S. According to a McKinsey study, 85% of days lost in clinical trials in the west is due to a failure to get enough patients. That is not a problem in India. Conducting clinical trials is presently a $70 million a year industry in India and is projected to climb to $1 billion in 2009. India has 162 medical colleges and 15,000 hospitals. In Japan, $412 a year is spent per capita on medicines. By comparison, in India the number is $3!

According to the BLS, employer costs for employee compensation averaged $24.95 per hour worked in March 2004. Wages and salaries averaged $17.71 while benefits averaged $7.23. With fewer than 100 workers, total compensation dropped to $19.47 and, with less than 50 workers, it was $19.32 according to the BLS.

Campbell Soup is cutting 300 jobs.

Non-defense ex-aircraft durable goods orders for May declined 3%.

U.S. housing starts fell 0.7% in May, less than expected. Permits rose to a 30-year high. Sales of new homes surged 14.8% in May to a record high. For one year I have been predicting the bubble to burst, and each month the numbers make me look like a putz.

Nike is one of the great companies. They earned $3.51 per share on revenues exceeding $12 billion and then stated future orders increased 10.7%.

More than 65,000 poor and disabled Mississippi residents will lose government-funded health coverage through Medicaid on July 1. Medicaid consumes more than 20% of state budgets.

Thursday, June 24, 2004

6/24/04 Where The Action Is

After years of falling attendees and vendors, Comdex 2004 has been canceled.

Gartner reported that worldwide spending on IT services rose 6.2% in 2003 to $569 billion, and stated that "through 2004, outsourcing will continue to drive the growth in IT services, with IT management and process management growing faster than consulting services and development and integration services." Gardtner observed that the revenue of vendors based in India grew 29% or 1.4% of the total market.

In the book titled "Imperial Hubris," the author states "Bin Laden saw the invasion of Iraq as a Christmas gift he never thought he'd get."

The Travel Industry Association of America's Travel Price Index rose 5.6% in May 2004 compared to May 2003, the largest year-over-year increase since September 2000. Even though the price of air travel declined, the rise in the price of gasoline generated the sharp increase in May.

According to a report by the California Healthcare Institute and PriceWaterhouseCoopers, California's biomedical industry employs more than 230,000 people in the state, and that outranks other high-tech industries in the number of jobs in California.

U.S. May durable goods orders declined 1.6%, and that represented the second consecutive month of falling orders. Initial weekly jobless claims rose by 13,000 to 349,000. Those unemployed and drawing benefits for more than one week climbed 75,000 to 2.97 million. The uninsured jobless rate rose to 2.4% in the Jue 12 week from 2.3%. The spinmeisters are busy at work and putting a happy face on the numbers. The bond market has it right. It has rallied nicely and long-term interest rates are declining. The stage is set perfectly. The Fed will raise rates while the economy has topped out. There is joy in Mudville.

Wednesday, June 23, 2004

6/23/04 Wal-Mart

As a potential sex-discrimination lawsuit against the company moves forward, one must recognize the inequities that occur within the workplace. I have pointed out over the years that there is rarely equal pay for equal work. As a generalization, women earn 75 cents on the dollar for the same work performed by men. At the same time, no company should be required to make any specific group a manager or a member of management. If Wal-Mart simply wanted to save money on salaries, they would make all managers and members of management women. A savings of 25 cents on the dollar can turn into real money and increase the earnings per share. One might give the present management a bit more credit for fairness. The problem is thta most jobs at the company are lower-paying jobs. On the other hand, there are about 1.5 million of them and tens of thousands get created every year. The next largest employer is laying off workers and is down to a payroll of about 300,000. Wal-Mart is far from perfect but I suggest workers appreciate the efforts put forth for each and every community in which the company is situated. Wal-Mart is not the enemy. They are the major private sector force for job creation. If that is a crime, so be it.

Tuesday, June 22, 2004

6/22/04 Quality Of Jobs

According to the CIBC World Markets’ U.S. Employment Quality Index, the past three years have seen an 8 point drop in the quality of U.S. jobs. The recent trend has been towards lower-paying, less stable, self-employed and part-time jobs at the expense of higher-quality jobs in sectors such as transportation, utilities, natural resources, and manufacturing industries. In sum, the report states that “the vast majority of jobs that evaporated during the job-loss recovery were high-quality jobs.” The report indicates that the number of part-timers rose more than 5% since early 2002, while the number of self-employed Americans rose by just under 5%-- much faster than the 1.7% growth observed among regular employees. More importantly, since the economic expansion got underway in late 2001, the number of jobs in high-paying industries fell by more than 2% while the number of jobs in low-paying industries rose by 1.2%. The authors of the report conclude that “given that swap of good for bad jobs and the current employment distribution, it will take 20% more jobs than in the last extension to generate the same salary gain.” In sum, the labor market will need to close both the employment gap and the quality gap.

Through June 15, Colorado residents and companies filed nearly 13,000 bankruptcy cases, up from 11,535 a year ago. For all of 2003, Colorado bankruptcy filings reached a record high of 25,776, a 23% increase from 2002. Currently, there is one individual filing for every 70 households in Colorado. This ranks Colorado 28th in the U.S. Utah heads the list with one per 37 households.

Wal-Mart announced its June same-store sales were tracking “around” the low end of its 4 to 6% increase. Target expects its results at the low end of its 5 to 7% sales increase forecast for June.

The National Oceanic and Atmospheric Administration stated that the recent March through May period was the third warmest spring on record for the United States. Going back 1895, it was 2.9 degrees warmer than average for those three months. For Oklahoma and Kansas it was the warmest spring on record. Sixty- seven percent of the western U.S. was in moderate to extreme drought at the end of the spring. As an example, the Bureau of Reclamation projects that the water level at Lake Mead in Nevada will finish the year at its lowest point in 39 years. The National Weather Service’s Colorado Basin River Forecast Center is predicting that Lake Powell, and the Colorado River as a whole, will receive barely half its normal inflow of water this year.

Today ends the three-day annual meeting in Santa Fe of the Western Governors Association. The agenda included the drought, energy resources, and the grounding of fire fighting air tankers. In addition to the drought impacting crops, water usage in communities, wildlife and vegetation destroyed by fires, there is also the effect on tourism in states that depend on whitewater rafters, anglers, campers, and hikers.

With yesterday’s five casualties, the Defense Department reported there have been 837 U.S. service member deaths since the beginning of military operations in Iraq.

Vivendi Universal Games announced the layoff of 350 employees, nearly 30% of its workforce in North America.

Monday, June 21, 2004

6/21/04 It’s Solstice Time

It’s the first day of summer and the longest day of the year. It marks the time for dull trading days, low volume, and frequent low volatility. Gather up the beach gear and take off for the coast. Bring along all those books you’ve been eager to read. The headlines will remain pretty much the same. They’ll be Greenspan and raising interest rates while the Fed fights inflation (the 12 stooges); the price of gas at the pump; the terror card; the mess in Iraq; and the fine tuning of revenue and earnings estimates.

We got a dose of the latter this morning. J.P. Morgan Securities filled the pipeline with bullshit. They raised their calendar 2004 revenue estimates to $34.7 billion from $34.6 billion and the EPS from $1.22 to $1.23. At the same time they maintained their 2005 estimates of $37.6 billion in revenues and EPS of $1.31. I guarantee that the CEO and the CFO of Intel could not comfortably fine tune estimates like that. There are many too many variables in a business doing about $35 billion a year in business. Stuff like this can be avoided by going to the beach.

DeAnne Julius and Stephen Green of the Royal Institute of International Affairs in London: “China’s boom threatens inflationary resurgence in the short term and a costly misallocation of resources in the long term.”

Bill Fish, head of loan syndication at Dresdner Kleinwort Wasserstein: “There is a tremendous amount of liquidity in the bank market. This has led to reduced prices and longer maturities.”

Sunday, June 20, 2004

6/20/04 The Venus Transit

Two weeks ago I discussed the Venus Transit that took place on June 8 where Venus crossed the face of the Sun. Geng Guoqing, a researcher on Natural Calamities Forecasting spearheaded by the China Geophysics Society, studied the occurrences of Venus Transit and major floods in the middle and lower reaches of the Yellow River over the past 2,187 years. He comes to the conclusion that there is an interrelationship between the two phenomena. Normally, he relates, the Sun transmits one 2.2 billionth of its radiation to the face of the Earth. When Venus Transit occurs, it bites off part of the radiation that should have been transmitted to the face of the Earth, thus brining a “stir” to the facial system of the Earth. Venus Transit may cause abnormal climatic activities on the Earth. Geng supports his viewpoints by numerous figures and sketch maps.

In the early 1990s China was a net exporter of oil. Presently, China consumes about 6 million bpd and imports about half of this amount.

Asphalt and roofing materials are impacted by the rising price of oil.

China is a major cement producer. As construction in that country took off, it ceased to export cement. Ed Sullivan, chief economist for the Portland Cement Association, stated “to the extent you have a cement shortage, you potentially hinder construction growth.’

The Noble Group observes that the cost of shipping commodities often has recently exceeded the cost of the commodities themselves. Fortunately, a significant softening in worldwide commodity and freight costs has produced some relief in shipping rates.

Jason Feer of London-based energy pricing firm Argus remarked “China is beginning to have serious problems handling the soaring demand for commodities of all types.”

Saturday, June 19, 2004

6/19/04 Change Is In The Air

Microsoft has 157 staff hiring recruiters. The company announced yesterday that about 20 of them would lose their jobs. Over the past year, employment rose from 54,500 to 56,100. You don’t need 157 recruiters to hire 1,600 people. In addition, with the new campus moving to completion in India, Microsoft’s hiring focus appears to be headed outside the U.S. Top management has increasingly turned its attention to cost cutting measures. Wall Street’s recent focus is the speculation of a big share buyback announcement in July. A better alternative might be to sell the 25 puts whenever the stock trades at or near that level. In the bullish dotcom run, the company made billions selling naked puts. Why change a course that has worked so successfully?

Since Bush was elected, about 35,000 wood-furniture workers, or 28% of that sector’s workforce, have lost their jobs. John Bassett of Bassett Furniture stated “the illegal dumping by the Chinese has devastated the U.S. bedroom industry.” The U.S. will slap tariffs on Chinese furniture.

The WTO ruled that $3 billion in U.S. cotton subsidies violate trade rules.

The Houston Chronicle reports that the Justice Department’s Enron Task Force has been investigating Kenny Boy Lay, former Enron Chairman, for the past 2 ½ years. The paper stated that Federal prosecutors plan to ask a grand jury to indict Lay on charges of fraud. Lay was a heavy donor to Bush and to Bush Sr. and a friend of both. In September 2001, Lay told Enron employees that the stock is “incredibly cheap” and “talk up the stock and talk positively about Enron to your family and friends…There have been all kinds of reckless and unfounded rumors about Enron and the financial condition of Enron.”

There have also been unfounded rumors about Iraq’s WMD and ties between Saddam Hussein and Al-Qaida and 9/11. It must be the water in Texas that creates these unfounded rumors. It’s a big state with tall tales. I wonder if the American people can read the terror card.

The U.S. current account deficit widened to a record $144.9 billion in the first quarter. Can you imagine the size of the deficit had the dollar been strong? In April the trade deficit widened to a record $48.3 billion. Greenspan stated “there is an unquenchable demand to hold assets of claims against American residents largely because they are presumed to be safe and they’re presumed to have significantly higher rates of return adjusted for risk than most other areas of the world.” It should be noted that, as the Fed raises interest rates, billions more are paid out to foreigners holding our treasuries and the current account deficit widens. As the deficits increase, some investors might question the ability of the U.S. to repay the debt principal outstanding. Of course, our country is recently built on the refinancing house of cards. That Ponzi game is in the ninth inning and will not go into extra innings. Michael Metcalfe of State Street Bank observed that “the dollar needs to be funded by equity or FDI flows, but now they are both negative.”

The EU agreed to a new constitutional treaty.

Grant M. Nulle of the Ludwig von Mises Institute: “Mr. Greenspan has no one to blame for inflation but himself.”

Friday, June 18, 2004

6/18/04 Is China’s Economy Slowing Down?

Chinese officials maintain that banks are tightening credit. Is it fact or fiction? Stock traders are becoming believers. The Shanghai Composite Index is selling near 7-month lows. Many U.S. semiconductor stocks have been spooked. Sharp and Samsung have recently been on the receiving end of selling. One thing is for certain. China’s recent growth rate is unsustainable.

Ten-year Japanese bond yields are trading at their highest level in four years.

John Challenger, CEO of Challenger, Gray, & Christmas, stated that nationally about 2.2 million people in prime working age are not counted as unemployed but do want a job. He cites the latest BLS statistics. Michael Wald, regional economist for the BLS, stated that about 798,000 people age 25 to 54 are not in the workforce but say they would like a job. He remarked “one could argue that the most likely group of workers not currently in the labor force but most likely to rejoin it are those people. If they were included in the count now, the national jobless rate would be 6.6%.” The Pew Hispanic Center stated that a high proportion of new jobs required low skills and paid relatively low wages. The average time that a laid-off worker takes to find a job remains near all-time highs.

According to the third annual Principal Financial Group Global Financial Well Being Study, 49% of all U.S. respondents believe their lifestyle in retirement will be less than it is today. Only 29% of people surveyed felt that way last year. Norman Sorensen, president of Principal International, observed “we weren’t expecting this. The golden years have become the beholden years.”

According to the latest Duke University CFO Outlook Survey, “the CFOs are telling us that there are growing risks to a continued recovery. In addition to dampened capital spending growth, employment is expected to grow by only one percent next year, a notable worsening of the employment expectations expressed by CFOs just last quarter. Our analysis of this quarter’s survey suggests the economic situation is growing more fragile.” One-third of CFOs cite price inflation as a top risk. Also, rising health care costs remain a major concern for many companies.

According to yesterday’s report released by the California Association of Realtors, only 20% of households in California are able to afford a median-priced home. The minimum household income needed to purchase a median-priced home at 4453,590 in California in April was $102,550, based on a typical 30-year, fixed-rate mortgage at 5.42 percent and assuming a 20% downpayment. By comparison, the minimum household income needed to purchase a median-priced home at $176,000 in the U.S. in April 2004 was $39,790. It is not surprising that people are moving from California to other more affordable areas.

Norway is the world’s third-biggest exporter of crude oil behind Saudi Arabia and Russia. A strike by 200 Norwegian oil workers could cut that country’s output by 13% or about 400,000 bpd.

ExxonMobil’s 538,000 bpd refinery in Baytown, Texas had an unscheduled closure for at least two days. There is some speculation that the refinery could be closed for at least one week.

According to the USDA, farming and related businesses account for about 12% of the U.S. GDP and about 17% of American jobs. According to Purdue University economists, the U.S. might run an agricultural trade deficit by the end of this decade. With a current agricultural trade surplus of only $10 billion, it would not be surprising to see a deficit sooner than Purdue’s prediction. Whether it is Russia, Brazil, China, India, China, Australia or some other country, our agricultural exports face serious competition. The picnic is over.

Wal-Mart is reducing shelf space for home entertainment products. This move will have a decided impact on its suppliers.

The Pension Benefit Guaranty Corp. reported that more than 1,000 underfunded pension plans had a total shortfall of $278.6 billion in 2003. Only pension plans that had shortfalls greater than $50 million were required to file a report.

Scientists at the U.S. Geological Survey stated yesterday that the current drought in the West could be the biggest in 500 years. The Colorado River has the lowest water flow on record. It is at half the annual flow experienced during the Dust Bowl years between 1930 and 1937. In my view, if the current drought persists, there could be severe economic and sociological fallout. To make matters worse, we are headed into the dry summer season in the West. At the very least, we can expect heightened risk from forest fires.

Thursday, June 17, 2004

6/17/04 The Uninsured

According to the U.S. Census Bureau’s Current Population Survey, in September 2003 there were 43.6 million uninsured people in the U.S. in 2002, an increase of 14.6% over 2001. However, the survey reported many people who are uninsured for a portion of a year but not for the entire year. These people are not reflected in the Census Bureau number. Astoundingly, for those under the age of 65 without health insurance for all or part of 2002 and 2003, their analysis states there were approximately 81.8 million such people, or one out of three people in this age category, and that two-thirds of these people were uninsured for six months or more.

Sprint Corp. will lay off 1,100 employees in the portion of the company that sells to business customers. Sprint stated that the layoffs are due to continued market pressures and erosion of the long-distance business. Since October 2001, Sprint has laid off more than 23,600 people. The company indicated it has been hurt by price cutting from chief rival AT&T.

Jack Guynn, President of the Atlanta Fed: The Fed “is several hundred basis points behind what would be a more normal policy setting.”

Albert Broaddus Jr., President of the Richmond Fed: “We’re clear that we need for rates to move up.” A neutral Fed target rate “is something in the vicinity of 2.5 to 3.5 percent, but many things can affect what neutral is—it is difficult to answer with precision.”

Pimco’s Bill Gross: “Too much debt, geopolitical risk and several bubbles have created an unstable environment which can turn any minute.”

The 9-11 Commission found no evidence exists that al-Qaida had strong ties to Saddam Hussein.

The U.S. Department of Transportation reported that, for the first time, last month Southwest Airlines carried 6.5 million domestic passengers, and that exceeded all major airlines.

In the year ended March 2004, U.S. direct investment into Japan fell 41%.

The Financial Times has a comment and analysis on the prisoner abuse scandal in Iraq. The headline reads chain of Command: can torture in Iraq be linked to the White House?

Wednesday, June 16, 2004

6/16/06 Silicon Valley Employment Outlook Uncertain

According to the quarterly Manpower Employment Outlook Survey released yesterday, the Santa Clara County employment outlook is one of the weakest in the nation. From this July to September, 15% of the companies interviewed plan to hire more employees while 135 intend to reduce their workforce. Another 50% expect to maintain their current staff levels and 22% are not certain of their hiring plans. In this year's second quarter, 35% of the companies interviewed predicted an increase in hiring activity while 13% planned to decrease the hiring pace. Even one year ago, 18% of companies surveyed thought employment increases were likely while 13% intended to reduce staff. According to the most recent survey, job prospects appear best in construction; non-durable goods manufacturing; finance/insurance/real estate; and public administration. Reduced staff levels are anticipated in education and services, both areas showing recent hiring strength.

According to BP's chief economist, world oil reserves rose by almost 10% last year. Peter Davies stated "there is no global oil resource or reserve shortage." J P Morgan estiates that the price of oil is headed downward to $34 a barrel. Where were oil the bears when oil changed hands at $41+ a barrel?

Tuesday, June 15, 2004

6/15/04 Where It Counts

Real average weekly earnings adjusted for inflation fell 0.4% in May. Earnings were down 0.5% from year earlier levels. Cracks are beginning to show. Business sales fell by 0.1% in May, the first monthly decline since August. Total retail sales declined by 0.6%. At the same time, inventories climbed for the 8th straight month.

Over the past year inflation has jumped 3.1%. Much of that increase can be attributed to higher energy prices; however, in the latest CPI report, food prices rose 0.9%, the biggest jump in 14 years. More disturbing was the increase in dairy prices which had their largest rise in almost 60 years. I have been writing for some time about the rising prices for eggs and milk, for example.

The Fed states they are inflation fighters. Don't believe it. Their actions talk a different game. From May 1996 thru May 2004, M3 grew by 93% or at an annual rate of 8.5% and M2 grew 7.7% during this same time period. It's no wonder that our dollar continues to erode in value, and with it, our purchasing power.

In April our trade deficit with China expanded to $12 billion and with Canada to $5.7 billion.

The new census shows almost 300 million Americans with Hispanics amounting to about 40 million and Asians to about 12 million. Multi-racial persons account for another 4.3 million. It will be interesting to see the voting patterns of these groups come the November election.

Monday, June 14, 2004

6/14/04 Competition For Stocks?

As 10 year government bonds trade at a yield of 4.83%, one must begin to question whether that return begins to create formidable competition for stocks. With a pick up in yield of about 300 basis points, bonds might begin to make investors pause prior to the purchase of equities.

Wal-Mart is our nation's largest employer in the private sector. As the company approaches the roll out of another 500 stores, they anticipate adding 83,000 new employees. Their earnings should approach $2.38 per share this year.

After Ronald Reagan was shot and survived, he viewed the future as his responsibility from God to make our country a better place for all Americans. On the other hand, in my view, the present president views his actions as a reflection of a mandate from God.

Of the main crops, wheat is the cheapest to plant. At the present price range of $3.50 to $4 per bushel, farmers can make money. A bushel of grain should weigh 60 pounds; however, without a late rain prior to harvest, those bushels are weighing about 55 pounds.

The Rocket tries to make it 10-0 today.

The U.S. trade deficit widened in April to a record $48.3 billion, up from March's deficit of $46.6 billion. Importantly, our exports fell 1.5% in April. At the same time, prices of imported goods rose 1.6% in May.

Psychiatrist Dr. Justin Frank: "Bush fits the profile of a former drinker whose alcholism has been arrested but not treated."

Sunday, June 13, 2004

6/13/04 Driving The Economic Wagon

Samuel Gerdano, executive driector of the American Bankruptcy Institute: "We need consumers to spend money to drive the economic wagon. But when they do, that adds to the bankruptcy rate." According to the Fed, nationwide, one in 73 households filed for bankruptcy in 2003. For the past 25 years, that number has been rising steadily. On the other other hand, Greenspan says we have nothing to worry about, and that debt service is under control. In looking at the latest Fed numbers, debt as a percentage of renters' income is a rousing 32%, a sharp increase from 23% only 10 years ago. Maybe Greenspan should wander down Main Street and take a closer look at the debt service picture.

Daimler Chrysler aims to cut 10,000 jobs at its Mercedes Benz unit. Sales at that unit fell 9.2% thru May.

China's Premier Wen Jiabao: "we haven't fundamentally solved the salient problems-- the supply of coal, electricity, oil, and transport are still very tight. The size of total investment is still very big, the government still faces a tough job to slow economic growth." With the first quarter's 43% rise in outlays for factories, roads, and other capital projects, China ia well into the over-heating danger zone. The world will feel the enormous impact of China operating past the boiling point. Something will give. Try and take cover.

Saturday, June 12, 2004

6/12/04 Being Inefficient

Ronald Reagan on how cumbersome the bureaucracy can be with its many rules: "Don't mind them being inefficent. If they were efficient, we wouldn't have any liberty."

Jack Guynn, President of the Atlanta Fed, stated that long-term inflation expectations remain well contained; however, " a great deal depends upon how much of the recent spate of price increases turns out to be transitory. Recent developments on the price front warrant significant attention."

Over the past six years, Chevron Texaco's proven oil and gas reserves have risen more than 15% or more than 1 billion barrels while its annual output during this same period has falllen by about 14%. The company expects production to begin rising in 2006.

For the first time since 1974, talks have broken down between Maytag and its 2,225 union workers. The sticking points revolve around the company's desire to have workers pick up more health care costs and the proposal to freeze retirement benefits and not credit union members with future years of service to Maytag. There is an expectation for a long strike.

Friday, June 11, 2004

6/11/04 For All Seasons

Ronald Wilson Reagan may not have been all things to all people; however, he was a man for all seasons.

In this year's first quarter, our federal debt grew by 11.6%, household debt by 10.9%, and the debt of state and local governments by 9.6%. Hopefully, these growth rates are not sustainable.

The nation's debt accumulation has outpaced nominal GDP for the 14th time in the past 15 quarters.

This nation's mortgage debt has grown to almost $7 trillion and the household consumer debt has risen to just over $2 trillion. I guess debt can grow to the sky. It's a little like being short a stock. There is no limit on how high a stock can rise. Too bad our indebtedness is not replaced by equity ownership.

Atlanta Federal Reserve Bank President Jack Guynn: Rising interest rates at a "measured" pace is "more of a plan than a pledge." Plans are certainly subject to change.

6/11/04 For All Seasons

Ronald Wilson Reagan was not all things to all people; however, he was a man for all seasons.

In this year's first quarter, federal debt grew by 11.6%, household debt by 10.9%, and the debt of state and local governments by 9.6%. Hopefully, these rates of growth are not sustainable.

In this year's first quarter, the nation's debt accumulation outpaced nominal GDP for the 14th time in the past 15 months. I hope our citizens do not believe this is an achievement.

Mortgage debt has risen to almost $7 trillion. Household consumer debt increased to just over $2 trillion. Greenspan says we have nothing to worry about when it comes to these debt levels. I am worried about his judgment.

Atlanta Federal Reserve Bank President Jack Guynn: Raising interest rates at a "measured" pace is "more of a plan than a pledge." Plans are made to change with the wind.

Thursday, June 10, 2004

6/10/04 Behind The 8 Ball

Prices of goods imported into the U.S. rose by 1.6% in May. Export prices, on the other hand, rose o.3% in May. One doesn't need to be a genius to realize our currency won't be worth diddly should this relationship continue.

Initial unemployment claims in the most recent week rose 12,000 to 352,000, a 7 week high. Some temps must have lost their low-paying contracts.

Morgan Stanley and ABN Amro Holding predict that the Fed will lift interest rates 4 times this year to 2%. Several others share this view. In the meantime, the Bank of England lifted its benchmark lending rate by a quarter point to 4.5% citing rising house prices and other inflation concerns. It sounds like they could be describing the U.S.

Robert Arnott, manager of the $2.3 billion Pimco All Asset Fund: "18 months ago there was a lot of low-hanging fruit. Today there isn't. Almost everything is moderately to significantly expensive." Be patient, Robert. Value is waiting around the corner.

The International Energy Agency revised its oil demand forcast for 2004 by 360,000 barrels per day to the highest rate since 1980.

According to a new LA Times poll, with Nader in the race, Kerry leads Bush by 48% to 42%.

Wednesday, June 09, 2004

6/9/04 Home Equity Loans

According to Lending Tree, Inc., by the end of 2004, a projected 23.5% of homeowners will have secured a home equity loan, double the number who did so in 2003. Only 6.7% had home equity loans in 2002. With wages and salaries running behind the rate of inflation for the past three years, the home equity loans have kept the consumer in the spending game. As interest rates have risen about 100 basis points, the refinancing of homes has declined to about one-third of all mortgages. The engine fueling consumers is about to run out of gas. When it does, the fallout will not present a pretty picture.

GM expects to start its car financing business in China by September or October. Car financing is another description for sales incentives. It reminds me of the barker at the circus shouting "come right this way to the greatest show on earth."

July crude fell to the contract's lowest level since May 3, and settled at $37.15 per barrel. Soon the goniffs at the gas stations will lower their prices.

John Carlson, columnist for the Des Moines Register on Ronald Reagan: "He was like a confused poker player who kept asking if a flush beat two pair and left the table with all the cash. The other players never figured out he invented the game."

Patti Davis: "There is nothing stronger than love between two people, two souls."

Tata Consultancy Services has a new clinical drug management system that could reduce a drug's time to market and lower the trial's costs.

Sen. Diane Feinstein: "There appears to be an effort to redefine torture and narrow the prohibition against it."

Tuesday, June 08, 2004

6/8/04 Whatever It Takes

Greenspan: The FOMC "is prepared to do what is required" to fight inflation. If necessary, interest rate hikes will not be measured.

Shell Oil is cutting 600 to 800 IT jobs in the U.S. in a cost cutting move. Currently, Shell has 9,000 software developers. The company plans to send more of its work to India and Malaysia.

India is seeking to develop "value partnerships" in discovery drug research with U.S. firms. The new Indian government is committed to protect intellectual property rights.

India's forex reserves have climbed to $120 billion. Gold assets remain at $4.19 billion.

Home Depot plansd to create a business development operation in China. They will find little competition in that country.

Is Bush being to crack under the many pressures he is feeling and confronting?

Monday, June 07, 2004

6/7/04 Inflation

It is hard to measure inflation. In the end, it is a personal matter. It depends on each individual's spending habits. Some drive more miles. Some do a good deal of home improvement projects and can get impacted by rising lumber and possibly even metal prices. Shipping costs can cause some hurt to the bottom line. You may be effected by rising airline prices due to fuel adjustments. For some inflation is alive and well. The CRB Index recently hit a 23 year high. For others, it may come down to the cost of eggs and milk. The fact is though that no one escapes the hand of inflation when it is rising. You don't need the Fed to remind you. Your bank balance feels it. If inflation should gain traction, you had better hunker down. The results will not be pleasant. Fighting inflation and high interst rates took its toll some two decades ago. They were trying times for all Americans, and that included Ronadl Reagan. Let's hope those times are not revisited.

The Congress is working on a $447 billion defense budget. You can do the math. We have 285 million Americans. That size budget, is, in my view, indefensible. It is irrational and irresponsible. I guarantee they cannot reconcile the accounting for all those expenditures. Hopefully, all Amnericans will not swallow and accept this budget in the name of the war on terror. Our greatest enemy is the great divide in our country. It costs nothing to fix it but the will to do so.

Sunday, June 06, 2004

6/6/04 Thanks For The Memories

Only three times have I felt good about voting for a presidential candidate, and of those, twice were for Ronald Reagan. He was a great leader, a fantastic communicator to nations around the globe, and provided optimism and a feel good red, white, and blue spirit to Americans. Our country has not come close to electing an individual who could carry his genuine smile.

It is the 60th anniversary of D- Day. Our veterans did make the world a safer place. They made a difference that is still felt today.

Smarty Jones has great courage and grit. His owners, handlers, and jockey have displayed great class throughout the running of the triple crown events. I thought this 15.3 hands thoroughbred was a lock on the Belmont Stakes. He just came up a bit short in the end. The loss was disappointing but not Smarty Jones. He gave it everything he had.

As I was watching the events of yesterday and thinking about the ending to WWII, I could not help but turn my attention once again to the battle raging within our nation. We can’t defeat time. No warhead can do it. Praying cannot stop a clock. Americans are aging. Millions are squeezed for co-payments and deductibles. Millions are squeezed due to no health insurance. At present, this is a losing battle. According to Hewitt Associates, in 1998, employees nationwide paid out-of-pocket medical expenses of $385 per year. This year, it’s averaging $1,030. In addition, in 1998, health insurance premiums cost $630. This year employees are paying an average of $1,565. In 1998, employers covered 75% of the health expenses. This year that’s down to 68%. In essence, you have the underinsured and the uninsured. The average hourly paycheck cannot carry the burden of rising healthcare costs.

Saturday, June 05, 2004

6/5/06 Do You Feel Lucky Today?

You are in the chips. Congratulations. If you are a production or non-supervisory worker, your average hourly wages rose by 5 cents in May, and that’s after the 4 cent increase in April. That’s the good news. Unfortunately, your hours worked per week remained unchanged at 33.8 hours per week. That leaves plenty of time to place a bet on Smarty Jones. It could be worse. The number of unemployed persons remained unchanged in May at 8.2 million. That does not include the 80,000 dropped from the unemployment tally each week due to the loss of benefits. The unemployment rate has essentially remained the same since December 2003. The proportion of the population age 16 and over with jobs—remained at 62.2%. The civilian labor force participation rate was 65.9% for the fourth consecutive month. Also not counted as unemployed were another 1.5 million marginally attached to the labor force, about the same number as one year ago. There were 476,000 discouraged workers in May, also about the same number as a year earlier. The number of persons who had been jobless for 27 weeks or longer held at 1.8 million.

There are always bright spots. In May, construction employment grew by 37,000 and over the past 14 months the construction industry has added about 250,000 jobs. Essentially in the durable goods sector, 32,000 jobs were added in May, and most were in construction-related manufacturing industries, such as, fabricated metal products and wood products. Employment in temporary help was once again the real star in May, and in the last 13 months about 299,000 temp jobs have been added. Health care and social assistance added 36,000 jobs in May, and over the past year a total of 274,000 jobs. We can’t forget that old standby food services. That sector added 33,000 jobs in May, roughly the monthly increase for 2004. Lastly, the retail industry, and that includes building material and garden supply, food and beverage, and clothing stores, has added 142,000 jobs over the past year. These are the same sectors I have highlighted for the past year. Nothing has changed. I do want to include one thought. The unemployment rate for adult women is only 4.8%. It is more cost effective for businesses to hire women rather than men. For the same job, women, on average, only earn 75% or less than do the men. It is one more reason why the average hourly earnings per week has hardly increased over the past year, and when viewed in the light of rising inflation, the salaries and wages have declined.

Paul Kasriel, director of economic research at the Northern Trust Co. in Chicago: “I don’t see anything not to like in this report.” He is talking about the employment report I just discussed. It’s not enough to state that 248,000 non-farm payroll jobs were added in May. One must also focus on the quality of those jobs. They continue to be lower paying and, for the most part, without benefits or with minor benefits. Do you know a great many people who can make ends meet on $528.63 per week before taxes? That’s what’s wrong with the employment picture. Too many Americans cannot earn a living leading to some quality of life. How much income can one expect from employment in service industries? This sector added 176,000 jobs in May and 294,000 in April. The leading area within the entire sector was temporary employment. That’s truly why the weekly hours worked remain at such a low level. I am certain of one thing. The weekly wages of $528.63 will not lead to a sustained recovery. It will not lead to the re-election of Bush. It will not lead to higher interest rates. Consumer spending will no longer carry the day.

I was happy to see that, in May, there was a net decrease of 27,000 government jobs. I also noticed that on Friday it was announced that more than 400 government jobs will be eliminated by Iowa Gov. Tom Vilsack in an effort to reduce the state’s budget gap.

Boeing continues to eliminate workers. In the state of Washington they shed 250 workers in April. IBM will cut 63 jobs at their Rational Software subsidiary in Redmond, Washington. Maytag will cut 20% of its salaried workforce or about 1,100 jobs.

The rate of growth in China’s car sales in the month of May dropped by more than 50% from the prior month. It is still a healthy 15% or so, but it won’t help carry the day for GM. With incentives rising to $5,000, GM needs a blowout performance from its China operations. They delivered in the first four months of 2004; however, with the curbing of car loans by the Chinese government, it would appear that results for the remainder of 2005 will reflect a significant slowdown.

The price for Brent crude fell 1.9% this week. U.S. crude futures closed below $39 per barrel, and 8% below the record intraday high set on Tuesday.

The race is 1 ½ miles. There are only nine horses entered in the Belmont Stakes. Based on past results, maybe four horses should be racing. When you have Secretariat and Mr. Prospector running through your veins, it might be realistic to see only one horse running. Bring two pairs of binoculars. You’ll see Smarty Jones in one and the other eight horses in the other binoculars. It will be a split screen race. The question is how lucky do you feel today? Can you pick the number of lengths Smarty will win by today? Will it be 13?
That’s my guess. Smarty can retire undefeated --- like Seattle Slew and Rocky Marciano.

Karen Taylor, co-owner with her husband of Seattle Slew: “When you looked him in the eye he would look into your soul.”

Friday, June 04, 2004

6/4/03 Wholesale Gasoline Prices Plummet

Over the last two days wholesale gasoline prices fell by nearly 12 cents a gallon. It’s a start. OPEC boosted output quotas by 2 million barrels, and Mark Baxter, director of the Maguire Energy Institute at the SMU Cox School of Business, stated this increase in output could take 35 cents a gallon off the price of gasoline. Also contributing to the price decline was the 1.3 million barrels rise in U.S. gasoline reserves. U.S. oil stockpiles rose by 2.8 million barrels in the week ended May 28. Crude is trading under $39 a barrel. The price will decline further the old-fashioned way—supply will outstrip demand.

Rather noteworthy is the Rocket at 8-0 and now with 318 career wins.

U.S. employers announced plans in May to cut 73,368 jobs, a 6.9% increase over the same month a year earlier, according to Challenger, Gray, & Christmas. All the buzz is about new job creation. Low-paying, non-benefit, non-permanent jobs are hardly the American dream. Then again, it beats food stamps and the unemployment lines. The insured unemployment rate rose to 2.4% in the week ended May 22 from 2.3%. Thirty states and territories during that week reported an increase in new claims, while 23 had a decrease. This is hardly the stuff that signals strong job creation. It signals the jobless rate moving higher.

Seagate is cutting 7% of its workforce or 2,900 workers.

The story at Intel is the turnaround of flash memory for cell phones. After a big loss in 2003, it is nearing profitability and will turn into the green in 2005.

The ISM’s non-manufacturing index for new orders fell to 61.3 from 65.6 in April. It suggests a slowing services sector in the months to come.

Continental Air’s CEO Bethune: “As to the financial condition of the industry—it is perilous, and the skies are only growing darker.” That is not true for Southwest Air or a few others.

There is a rumor that George Tenet will star in a new reality TV show called “The Fall Guy.”

Thursday, June 03, 2004

6/3/04 National Hunger Awareness Day

Bill Shore, executive director of Share Our Strength: “There are two kinds of poverty in America: There are those who don’t have and those who don’t know. The majority of Americans are fortunate not to be in the category of those who don’t have. Too many have been willing to remain in the category of those who don’t know.”

Food stamps are used by more than 10 million households. There are more than 65,000 soup kitchens that feed almost 20 million Americans.

MIT’s Leonard Guarante: “ When there’s plenty of food, we reproduce and die. When there’s famine, we don’t reproduce, but we age more slowly to ensure survival.”

For the first time in 122 years, on June 8, Venus will cross the path of the Sun. By calculating how long it takes Venus to cross the Sun, one can figure the distance from the Earth to the Sun. The transit begins on June 6.

Yemen is known for khat, coffee, and Mohammed bin Laden. Osama is the 17th son of Mohammed. Maybe, with over 50 children in the family, Osama was lacking in quality time with his father.

King Fahd of Saudi Arabia after 9/11: “bin Laden children are all over America. Take measures to protect the innocents.” Three days after 9/11 a private charter plane flew these children out of the United States. The FBI supervised this effort. It’s pay back time. The Saudi oil will flow to the max.

Qantas will re-launch direct flights from Sydney to Shanghai and Bombay. Quantas executive general manager John Borghetti stated “we believe it is the future for us—India and China. Official figures show 176,000 visitors from China arrived in Australia in 2003, and the number is expected to grow to 960,000 by 2013. The number of Indians traveling overseas is expected to rise from 4.7 million last year to 50 million in 2020.

General Motors is raising the cash rebates on most of its 2003 and 2004 model year vehicles to $5,000 from the present $4,500. I’m so happy that GM is telling the world how great demand is for their vehicles.

According to AutoVIBES, nearly 50% of car buyers state gas prices are affecting their purchase decisions. The survey indicated that, after the recent gasoline price increases, a good number of shoppers “are now taking a second look at vehicles they wouldn’t normally consider.”

The Western Washington (that includes Seattle and its environs) chapter of the National Association of Purchasing Managers stated its index fell in May for the second monthly decline in a row. The index fell to 58 from April’s 60.5. March’s level was 68.3. Current production and new orders are down significantly over the past two months, and inventories are forecast to drop over the next 90 days.

The Boeing Employees’ Credit Union is laying off 70 workers in the Puget Sound region. The credit union has 360,000 members and there will be 800 staff members after the job cuts.

Wednesday, June 02, 2004

6/2/04 The Spigot Will Drown The Speculators

Make no mistake. The thugs will not win this battle. The specs will get hosed. The spigot will open wide. The Qatari minister, Abdullah bin Hamad al-Attiyah,stated it best when he remarked "everybody should produce what they want over the next few months." For the near future, at least, OPEC holds the key to the spigot. To fight their will is stupid. They have a need to bring down oil prices. These guys want the world's economic engine to keep churning away. Sky high oil prices are bad for business and bad for the buyers of their oil. Whether they produce 26 million barrels of oil a day or a slightly different number, the daily spigot will lean on the price of oil. Security will increase around the key areas of the spigot. That has begun. Forget the headlines. Pay attention to the decisions out of OPEC on Thursday. Yesterday's spike in oil will prove, in my view, the high point for a considerable period of time. If the consumers of oil and gas do their part and cutback on usage, then the price has an opportunity to truly decline by $10 per barrel.

Will Mel Karmazin go to Disney? If I were a Disney board member, I'd want to talk to him about the top job.

Tuesday, June 01, 2004

6/1/04 The Bench

Ketan Sampeth, President, Intel India: "India's emerging consumer market is a key to Intel's high growth plans. India holds the third place in Intel's revenue chart for fastest growing consumer market in the world."

Karl Malone: "You've got to have a struggle to get to where you want to go."

There comes a time when it is necessary to turn to your bench to win the game. Last night the Lakers could not rely on Shaq and Kobe to pull out a win. They turned to Kareem Rush, a second year player who has received few playing minutes. By hitting six threes from downtown, he produced the win and carried his team into the finals. The world economy has been depending on the American consumer to create winning economic results for many years. Age is beginning to have an impact on spending habits, and record gas prices and muted wage and salary gains for the past three years have contributed to the consumer approaching the spending limit wall. The bench will need to come to the rescue. U.S. business spending will not make up the slack. The most likely contributors are those in the Asean economy. However, until they get more playing time, countries like China and India cannot be expected to win the games night after night. Their economies need seasoning.

Mitsubishi Motors posted a 56% decline in new veh
OK, well, i have stuff to do before i leave at 9:30 to go pick up the snack.
BYEBYE

6/1/04 The Bench

Ketan Sampeth, President, Intel India: "India's emerging consumer market is a key to Intel's high growth plans. India holds the third place in Intel's revenue chart for fastest growing consumer market in the world."

Karl Malone: "You've got to have a struggle to get to where you want to go."

There comes a time when it is necessary to turn to your bench to win the game. Last night the Lakers could not rely on Shaq and Kobe to pull out a win. They turned to Kareem Rush, a second year player who has received few playing minutes. By hitting six threes from downtown, he produced the win and carried his team into the finals. The world economy has been depending on the American consumer to create winning economic results for many years. Age is beginning to have an impact on spending habits, and record gas prices and muted wage and salary gains for the past three years have contributed to the consumer approaching the spending limit wall. The bench will need to come to the rescue. U.S. business spending will not make up the slack. The most likely contributors are those in the Asean economy. However, until they get more playing time, countries like China and India cannot be expected to win the games night after night. Their economies need seasoning.

Mitsubishi Motors posted a 56% decline in new vehicle sales last month.

If Mel Karmazin does leave Viacom, it would be a blow to the leadership of the company.

Monday, May 31, 2004

5/31/04 The Day After

Yesterday, over 800 pairs of combat boots, each symbolizing a U.S. soldier killed in Iraq, lined Upper Senate Park in front of the Capitol Building in Washington, DC.

Prior to yesterday, there had been attacks in Yanbu and Basra. On Sunday, al-Qaeda attacked Khobar in Saudi Arabia and killed 22 civilians. Khobar hasn't any production, export, or oil refining facilities, and yet, crude oil futures jumped sharply in Asian trading. Al-Qaeda is trying to send a message to the Saudis prior to Thursday's OPEC meeting. These attacks can only prove detrimental to al-Qaeda.

Tornadoes and storms once again hit many parts of the U.S. Nebraska, Oklahoma, Indiana, Kentucky, Tennessee, Illinois, Missouri, and Kansas were all impacted yesterday. The weather is beginning to play a more hazardous role in the lives of many Americans.

McDonald's has 56 outlets in India and "will add at least 15 new restaurants in the current year." It's first store opened in New Delhi in 1996. The menu is quite different with McCurry Pan and McAloo Tikki potato patties in strong demand.

Sunday, May 30, 2004

5/30/04 An Arm, A Leg, And Your First Born

There was a TV ad showing a gas station with three gas tanks. The unleaded tank with gas at $2.40 per gallon had a picture of an arm on it. The mid-fuel tank at $2.50 per gallon had a picture of a leg. Finally, the super unleaded tank at $2.60 per gallon had a picture of one's first born.

At the moment, hybrid cars are but a tiny dot on the auto scene. Toyota originally planned to make 36,000 Prius vehicles for the 2004 year. However, demand has been so strong that last month it started manufacturing an additional 11,000 cars at its Motomachi plant in Toyota City in Japan, which makes all Prius vehicles. Forty percent of the production goes to the U.S. where there is a four to six month waiting list to buy the car. The hybrid Civic is also in strong demand. There are new hybrids on the way: the Ford Escape, the Lexus RX 400 H, the Honda Accord, and the Toyota Highlander. One can see that American car manufacturers are almost absent from the list of fall arrivals. Their non-hybrid vehicles continue to mount in inventory. The declining profitability of their SUVs will hurt their bottom line performance. In time, the growing demand for hybrids will lessen gasoline usage. It may not happen today, but it will happen. Eventually, OPEC will feel it just as Kodak has felt the impact of digital photography. OPEC's greatest enemy is Toyota, and when it comes to brains, OPEC is no match.

According to the U.S. Department of Veterans Affairs, more than 25 million veterans are alive today. Of the 16 million service members during WWII, only about 4.4 million are living. These brave Americans understood the call of duty, and protected our freedoms with the strongest of wills accompanied by dignified honor.