1/11/05 Scarce Morsels
It is the start of the earnings season. Advanced Micro stated its fourth quarter operating income would be down significantly from the third quarter due to pricing pressures for flash products which account for about 50% of sales. STMicroelectronics warned its margins would be under pressure. The weak dollar hurt Alcoa's earnings. Genetech missed its fourth quarter forecast.
In the layoff department, the news was also not rosy. WestPoint Stevens will close plants in 4 states and cut 2,465 employees from the payroll. Come Friday the 14th, Oracle should announce laying off over 10% of its workforce which totals about 54,000 employees.
On the other hand, as expected, comScore Networks stated online consumer retail spending grew by 26% to a record level of more than $117 billion in 2004, and this included almost $51 billion in travel business, also up 26% for the full year.
In almost 2 months, M3 money supply is up about $100 billion, of which more than 50% of the increase was in the week of December 27th. Is the Fed getting nervous about this economy?
In the first week of February, there will be a new revised benchmark to arrive at a monthly estimate of nonfarm payrolls. It is updated from unemployment records compiled in all 50 states and DC. After speaking at length with the BLS, I don't anticipate the revision will be statistically material. However, there will be more discussions regarding the data that goes into the revisions and the data that is omitted. The BLS does not include certain data because it has not been mandated by the OMB. We can touch on this subject in further writings, but it is fair to state that the net birth/death BLS computer model for new business formations overstates the new jobs being created. It is a subject not really understood by Wall Street or Main Street. I assure you it has not escaped Greenspan that the net birth/death adjustment model accounts for an important part of each month's supposed job creation, and can range from 50,000 to over 250,000 depending on seasonal adjustments.
I will be interested to see the final numbers on consumer spending for the fourth quarter. In the third quarter, consumer spending accounted for about 90% of real GDP. Considering the level of wage gains, the rate of inflation, consumer debt levels, and the projected cost for health care in 2005, it is safe to state we are in a massive consumer spending bubble that will lose its air this year.
The Bank Credit analyst stated that China's currency reserves grew by $112 billion in 2004 but only 25% of that amount went into U.S. dollars. Russia is also reducing its holdings in U.S. dollars, and is increasing its percentage of foreign reserves denominated in gold.
The Conference Board stated that about 57 million U.S. households now have discretionary income, up from nearly 54 million in 1997-1998, but the percentage of the American population with discretionary income declined to 51% compared with 52% six years earlier. However, 82% of all discretionary income is held by those earning $100,000 or more. Households with earnings of less than $50,000 represent about 26% of all households with discretionary income, but less than 3% of all discretionary income. Average household discretionary income in this group is only $2,075--- 90% below the national average. There are 36 million households in the 35-50 age group, and 20 million have about 40% of all discretionary income. There are 26 million households in the 50-65 age group, and they possess 30% of total discretionary income. The remaining 22 million housegolds are in the 65 and over segment and have about 13% of all discretionary income. One can easily see how the aging of our population will influence our country's overall discretionary income.
FDIC's chief economist Richard Brown warned about the dangers of home-equity lines of credit as they have exhibited unprecedented growth and now represent 80% of the home-equity market. Drawdown rates are approaching 50% and are being utilized to fuel consumer spending.
Monday, January 10, 2005
1/10/05 Creating Ideas For An Advantage
Bill Gates is contemplating writing a blog. He has written for a few days and wants to see whether he can write continually for eight or nine months. I have been doing that for years, but yesterday was an exception. I needed a day for mental renewal.
GM will cut 8,000 U.S. employees in 2005 or about 7% of its workforce. I believe the great companies hire and don't fire because their businesses continue to evolve and grow. When a company fires, maybe it's time to take a good look and see whether you should fire its stock from your portfolio.
According to the NAR, even though the absorption of commercial space is showing marked improvement, the national vacancy rate barely budged. Vacancies averaged 11.7% last year, up just a little from the 11.6% in 2003. And rental rates have been flat. It reminds me of the employment picture in the U.S. Supposedly over 2 million jobs were created in 2004, but wages couldn't hack out much improvement and trailed inflation.
Exempt workers don't qualify for overtime pay. An exempt individual must be compensated on a salary basis and must be paid at least $455 per week. For a complete summary of the regulations, go to www.dol.gov.
Over this weekend, we learned that, three out of four teams with the homefield advantage, lost to the visiting teams in the NFL playoffs. Too often, people rely on a particular advantage in making a decision. Historical odds are important but they are but one input to a decision. That's true of the January effect in the stock market. Each new situation requires original thought. Relying solely on past results, can be a pathway to today's disappointment.
FDR: "We put those payroll contributions in so as to give the contributors a leagl, moral, and political right to collect their pension and employment benefits with those taxes in there. No damn politician can ever scrap my Social Security Program."
The answers to Social Security are obvious--- cut government spending, stop looting Social Security trust funds for Federal budget purposes, and convert all outstanding special issue IOUs to U.S Treasury bonds. If our Treasury bonds are good enough for Japan and China, then they should be good enough for the American worker who contributes payroll taxes to Social Security.
Bill Gates is contemplating writing a blog. He has written for a few days and wants to see whether he can write continually for eight or nine months. I have been doing that for years, but yesterday was an exception. I needed a day for mental renewal.
GM will cut 8,000 U.S. employees in 2005 or about 7% of its workforce. I believe the great companies hire and don't fire because their businesses continue to evolve and grow. When a company fires, maybe it's time to take a good look and see whether you should fire its stock from your portfolio.
According to the NAR, even though the absorption of commercial space is showing marked improvement, the national vacancy rate barely budged. Vacancies averaged 11.7% last year, up just a little from the 11.6% in 2003. And rental rates have been flat. It reminds me of the employment picture in the U.S. Supposedly over 2 million jobs were created in 2004, but wages couldn't hack out much improvement and trailed inflation.
Exempt workers don't qualify for overtime pay. An exempt individual must be compensated on a salary basis and must be paid at least $455 per week. For a complete summary of the regulations, go to www.dol.gov.
Over this weekend, we learned that, three out of four teams with the homefield advantage, lost to the visiting teams in the NFL playoffs. Too often, people rely on a particular advantage in making a decision. Historical odds are important but they are but one input to a decision. That's true of the January effect in the stock market. Each new situation requires original thought. Relying solely on past results, can be a pathway to today's disappointment.
FDR: "We put those payroll contributions in so as to give the contributors a leagl, moral, and political right to collect their pension and employment benefits with those taxes in there. No damn politician can ever scrap my Social Security Program."
The answers to Social Security are obvious--- cut government spending, stop looting Social Security trust funds for Federal budget purposes, and convert all outstanding special issue IOUs to U.S Treasury bonds. If our Treasury bonds are good enough for Japan and China, then they should be good enough for the American worker who contributes payroll taxes to Social Security.
Saturday, January 08, 2005
1/8/05 Distortions And Complacency
Perseverance does not guarantee accuracy. I was off the mark on my analysis of December non-farm payrolls. With the exception of two items, I had focused on all the essential components, but simply underestimated certain services. With respect to government hiring, I completely missed the boat. I figured it was a non-event due to the fact that state and local governments have severe budget constraints. I learned those constraints do not prevent hiring. Thus, the cancerous government growth continued with 36,000 government jobs created in December. I also missed the 17,000 jobs added in the wholesale trade. I thought that was a non-event. Then there was the underestimation of the professional and business jobs (41,000 added including 9,000 temp positions) and education and health services (47,000 added principally in health care and social assistance). I did all right with employment in financial activities, leisure and hospitality, and was slightly off with construction and manufacturing. There was one key area that I did get right--- wages rose slower than inflation. That spells on-going head winds for our consumer-based economy.
In March 2001, there were 17 million manufacturing jobs in the U.S. In December 2004, there were 14.4 million. In all of 2004, there was a 76,000 gain in manufacturing jobs. At that rate, it will take over 34 years to make up for the 2.6 million manufacturing jobs lost in less than 4 years. The unemployment rate for production workers in December 2004 was 7% versus 6.6% in December 2003.
Many Fed members stated they were concerned about excess liquidity. Maybe they should look in the mirror. For 2004, M3 increased by 7.1% to $9.45 trillion. Richard Russell stated “the Fed is out to prove that there don’t have to be stock market corrections, and there don’t have to be economic recessions. And above all, absolutely above all, there don’t have to be periods of deflation in the U.S. economy, not while the Federal Reserve can give money away.”
Paul Kasriel, Director of Economic Research at Northern Trust Company: “This is the real Social Security issue--- the possibility of not enough real goods and services being produced to guarantee a rise in per capita real income.”
Peter Eliades, editor of the newsletter Stockmarket Cycles, observed that the opening three days of trading in 2005 marked the worst start for the markets in nearly 80 years.
Getting back to the employment report, the BLS reported 8 million unemployed persons with those marginally attached to the labor force at 1.5 million, of which 442,000 were described as discouraged. Over the past year, those holding more than one job increased by 574,000 to 7.8 million. There are 4.5 million part-time workers. A total of 206,000 temporary help jobs were added in professional and business services or about 40% of the yearly increase in this category. With respect to the household survey, the civilian labor force declined 110,000 in December. Employment dropped by 137,000. Unemployment rose by 27,000. Those not in the labor force rose 328,000 to 76.4 million. When the news is bleak, the White House does not like to refer to the household employment survey. Therefore, no mention was made of it yesterday by Bush or Snow.
In about three weeks, Boeing will release its earnings for 2004. I suggest you keep an eye on their footnotes. The company is still carrying a $23.5 billion Air Force contract on their books rather than writing off about $300 million in deferred expenses that it incurred in order to bid on this contract. The write-off would reduce Boeing’s 2004 earnings by about 15%. Haresh Sapra, associate professor of accounting at the University of Chicago Graduate School of Business stated “Boeing is using very aggressive accounting…This contract is up for grabs tight now. Right now there is no contract so they cannot show it as an asset on their balance sheet. They should be passing the tanker expenses through their income statement, affecting their bottom line directly dollar-for-dollar.”
Ford has decided to build a new manufacturing plant in Nanjing.
The Cincinnati Public Schools’ board has approved a voluntary retirement plan that is expected to help the district shed 500 jobs and save up to $100 million over three years.
U.S. consumer credit fell for the first time in a year and by the largest dollar amount on record, according to the Federal Reserve. It fell by $8.7 billion or at a 5% annual rate in November. It should be noted, however, that consumer credit rose by $9.5 billion in October, revised upward from $7.7 billion.
Carl Steidtmann, Deloitte’s chief economist: “In this volatile environment, retailers should remain cautious by maintaining a tight grip on inventories, new store openings, and hiring. As the beneficial effects of tax reductions fade, the future direction of consumer spending will primarily depend on the future direction in home prices.”
Kurt Richebacher, economist: “The big problem lies in the fact that with a usual leverage of 20-to1, even minimal rises I bond yields may endanger the capital of a yield-curve player. Another big risk looms in a widening of credit spreads. Given the unusually low level of yields, many players have shifted to higher-yielding junk bonds. One of the results has been a drastic narrowing of the yield spread. With a weakening economy, these spreads would certainly widen again.”
When will there be a spike in long-term interest rates? In my view, it will occur sooner rather than later, and its arrival will eradicate the current complacency evident in the credit markets. Such a tsunami will not kill 150,000 or more, it will simply wipe out trillions in assets. Thank goodness it’s only money.
Perseverance does not guarantee accuracy. I was off the mark on my analysis of December non-farm payrolls. With the exception of two items, I had focused on all the essential components, but simply underestimated certain services. With respect to government hiring, I completely missed the boat. I figured it was a non-event due to the fact that state and local governments have severe budget constraints. I learned those constraints do not prevent hiring. Thus, the cancerous government growth continued with 36,000 government jobs created in December. I also missed the 17,000 jobs added in the wholesale trade. I thought that was a non-event. Then there was the underestimation of the professional and business jobs (41,000 added including 9,000 temp positions) and education and health services (47,000 added principally in health care and social assistance). I did all right with employment in financial activities, leisure and hospitality, and was slightly off with construction and manufacturing. There was one key area that I did get right--- wages rose slower than inflation. That spells on-going head winds for our consumer-based economy.
In March 2001, there were 17 million manufacturing jobs in the U.S. In December 2004, there were 14.4 million. In all of 2004, there was a 76,000 gain in manufacturing jobs. At that rate, it will take over 34 years to make up for the 2.6 million manufacturing jobs lost in less than 4 years. The unemployment rate for production workers in December 2004 was 7% versus 6.6% in December 2003.
Many Fed members stated they were concerned about excess liquidity. Maybe they should look in the mirror. For 2004, M3 increased by 7.1% to $9.45 trillion. Richard Russell stated “the Fed is out to prove that there don’t have to be stock market corrections, and there don’t have to be economic recessions. And above all, absolutely above all, there don’t have to be periods of deflation in the U.S. economy, not while the Federal Reserve can give money away.”
Paul Kasriel, Director of Economic Research at Northern Trust Company: “This is the real Social Security issue--- the possibility of not enough real goods and services being produced to guarantee a rise in per capita real income.”
Peter Eliades, editor of the newsletter Stockmarket Cycles, observed that the opening three days of trading in 2005 marked the worst start for the markets in nearly 80 years.
Getting back to the employment report, the BLS reported 8 million unemployed persons with those marginally attached to the labor force at 1.5 million, of which 442,000 were described as discouraged. Over the past year, those holding more than one job increased by 574,000 to 7.8 million. There are 4.5 million part-time workers. A total of 206,000 temporary help jobs were added in professional and business services or about 40% of the yearly increase in this category. With respect to the household survey, the civilian labor force declined 110,000 in December. Employment dropped by 137,000. Unemployment rose by 27,000. Those not in the labor force rose 328,000 to 76.4 million. When the news is bleak, the White House does not like to refer to the household employment survey. Therefore, no mention was made of it yesterday by Bush or Snow.
In about three weeks, Boeing will release its earnings for 2004. I suggest you keep an eye on their footnotes. The company is still carrying a $23.5 billion Air Force contract on their books rather than writing off about $300 million in deferred expenses that it incurred in order to bid on this contract. The write-off would reduce Boeing’s 2004 earnings by about 15%. Haresh Sapra, associate professor of accounting at the University of Chicago Graduate School of Business stated “Boeing is using very aggressive accounting…This contract is up for grabs tight now. Right now there is no contract so they cannot show it as an asset on their balance sheet. They should be passing the tanker expenses through their income statement, affecting their bottom line directly dollar-for-dollar.”
Ford has decided to build a new manufacturing plant in Nanjing.
The Cincinnati Public Schools’ board has approved a voluntary retirement plan that is expected to help the district shed 500 jobs and save up to $100 million over three years.
U.S. consumer credit fell for the first time in a year and by the largest dollar amount on record, according to the Federal Reserve. It fell by $8.7 billion or at a 5% annual rate in November. It should be noted, however, that consumer credit rose by $9.5 billion in October, revised upward from $7.7 billion.
Carl Steidtmann, Deloitte’s chief economist: “In this volatile environment, retailers should remain cautious by maintaining a tight grip on inventories, new store openings, and hiring. As the beneficial effects of tax reductions fade, the future direction of consumer spending will primarily depend on the future direction in home prices.”
Kurt Richebacher, economist: “The big problem lies in the fact that with a usual leverage of 20-to1, even minimal rises I bond yields may endanger the capital of a yield-curve player. Another big risk looms in a widening of credit spreads. Given the unusually low level of yields, many players have shifted to higher-yielding junk bonds. One of the results has been a drastic narrowing of the yield spread. With a weakening economy, these spreads would certainly widen again.”
When will there be a spike in long-term interest rates? In my view, it will occur sooner rather than later, and its arrival will eradicate the current complacency evident in the credit markets. Such a tsunami will not kill 150,000 or more, it will simply wipe out trillions in assets. Thank goodness it’s only money.
Friday, January 07, 2005
1/7/05 Rising Costs, Raising Prices, Productivity, & Cost Management
Campbell Soup is the world’s largest soup manufacturer. Over the past year, the company has had to face rising costs for energy, steel, pop-top lids, microwaveable containers, and other raw materials. Campbell is raising most U.S. soup prices an average of 4.8% effective Feb. 28th. In an effort to fight inflation, the company is “pursuing a combination of productivity and pricing.” There is evidence that productivity is slowing in the U.S. That leaves price increases as the focal point for maintaining margins in 2005. Where does that leave hiring plans? Clearly, it is relegated to the back burner. Our so-called economic revival began in November 2001. It’s three years old. It’s old enough to go to school, and the blackboard shows that, between November 2001 and November 2003, the economy has added an average of 23,600 jobs a month. The labor participation rate is lower today than it was 12 months ago or 24 months ago or even 36 months ago. Do you think 2005 will be the second consecutive year that wage gains do not keep up with inflation? How much will wages have to gain to keep up with the price increases at companies like Campbell’s? With rising costs for benefits and slowing productivity, companies will try to minimize hiring. Don’t focus just on today’s hiring report. You have all year to see disappointing employment reports. The BLS is entering the “ready-to-serve” hiring slowdown period. It won’t make for happy faces.
According to the Hudson Employment Index, U.S. workers lost confidence in the job market in December. The index dropped 1.3 points to its annual low of 2004 at 103.6. Only 35%, a reduction of two points from November, anticipate that their firms will undergo staff additions. The percentage of U.S. workers who expect layoffs and those worried about losing their own jobs both increased a percentage point to 19% in December.
Tyson Foods has been facing unfavorable operating margins in their beef business. Live cattle prices have remained high and there has been a decrease in international sales. In order to lower costs, the company is suspending operations for 3 to 5 weeks at several plants and this decision will impact about 2,100 jobs. National Semiconductor announced it will cut about 6% of its workforce or roughly 550 factory jobs in the U.S., Europe, and Asia and about 100 others, including positions at its headquarters in Santa Clara, CA.
First-time claims for U.S. unemployment benefits increased by 43,000 to 364,000 last week, the highest since September. It was the biggest increase in three years. The four-week average of continuing claims increased by 13,500 to 2.77 million, a six-week high; however, U.S. continuing jobless claims rose by 61,000 to 2.84 million in the week ending December 25th, also the highest since September. It is well to remember that continuing claims do not include hundreds of thousands of workers who have exhausted their benefits, and they are counted as unemployed only if they are actively looking for work. With the average duration of unemployment about 20 weeks, it is no wonder that the number of discouraged workers remains at a high level. With close to 2 million workers unemployed for longer than six months and, without benefits, how can one expect to be encouraged? Between the unemployed, the under-employed, and the discouraged workers, the labor picture is much worse than that presented by the BLS.
The Monster Employment Index dipped in December from November’s record 117 to 113, and is slightly below the level reached in September and October and slightly above August’s 113. Monster tries to place a positive spin on their index; however, over the past nine months, the average monthly reading has been 110. In other words, for the past nine months the upward trend has been modest.
Yesterday saw a 5% jump in crude to $45.56 a barrel, heating oil rising 6.29 cents to $1.2813 a gallon, and natural gas increasing 3.7% to $6.049 per BTU. The fireworks did not end there. Rumors circulated that China’s CNOOC was considering a $13 billion bid for Unocal and that India’s ONGC was considering a $2 billion bid for Yukos assets.
Since the start of the New Year, gold has had a sharp decline. Yesterday, February gold dropped $5.70 to a 3-month low of $421.60. With gold breaking some technical support, it has placed the gold believers on the defensive. You know what they say--- no pain no gain.
UTStarcom is a global leader in IP-based end-to-end networking solutions and international service and support. They sell wireline, wireless, optical and switching solutions on a world-wide basis; however, their main market is China. Yesterday, the company stated that their latest quarterly revenues from China operations were adversely impacted by an overall slowing of the Chinese economy, maturation of the PAS market, and decreased capital spending. In addition, both China Telecom and CHINA Netcom did not implement the anticipated increase in promotional spending at year-end that UTStarcom has benefited from historically. In sum, the company expects to report fourth quarter revenues in the range of $740 million to $745 million, versus initial guidance of $875 million to $885 million. Under GAAP, the company expects to report a loss per share of 40 to 45 cents. A closer look might be in order. Their China operations negatively impacted their gross margins but cash collections were in excess of $890 million in the fourth quarter as compared to revenues of $740-745 million. Their backlog at year-end is $1.2 billion and still higher than the $1.06 billion a year earlier. They anticipate that their first quarter revenues will be at least $770 million with gross margins improving to a minimum of 23%, resulting in GAAP earnings per share of 20 to 23 cents. I have never owned this stock but have been watching their results for four years. Several years ago it sold at $90 per share and last night was just under $20. If you believe in the long-term growth picture in China, then an investment in UTStarcom might be for you. A suggestion might be a starting point around $14 or $15 a share. This is a volatile stock and not for everyone.
On January 2nd, Pat Buchanan wrote an editorial on Iraq entitled “Why are U.S. forces still in Iraq?” and stated “President Bush needs to go on national television and tell us the unvarnished truth. For some of Bush’s countrymen, there is a sense of having been had, of having been made victim to one of the great bait-and-switches in the history of warfare.” Buchanan stated that none of the claims made before the start of the war was true. He asked “what is our mission now? When did it change? With 1,350 dead and nearly 10,000 wounded, why are we still at war with these people?… Why should Americans have to die for democracy in a nation that has never known it? Democracy in the Middle East is not vital to our national security…Exactly how much more blood and money is Bush willing to plunge into a war for democracy in Iraq, and at what point must he decide--- as LBJ and Nixon did in Vietnam--- that the cost to America is so great that we must get out and risk the awful consequences of a mistaken war that we never should have launched?”
Tobin’s Q is a ratio devised by Nobel Laureate in Economics James Tobin who hypothesized that the combined market value of all the companies on the stock market should be about equal to their replacement costs. The calculation is market value of assets divided by their replacement value. Therefore, the ratio of all the combined stock market valuations to all the combined replacement costs should be around 1. Today, Tobin’s Q is over 2. The only other times this has taken place were in 2000 and 1929.
A total of 157,000 non-farm payroll jobs were added in December? I haven’t had the opportunity to thoroughly review the numbers. Where did I go wrong? There were 144,000 service jobs added or slightly more than twice the gains I had envisioned. Manufacturing picked up 3,000 jobs, and I thought there would be a decline. Construction gained 7,000, and I had projected a decline. More on the numbers tomorrow. As for wages and hours and labor participation, I was on the money.
Campbell Soup is the world’s largest soup manufacturer. Over the past year, the company has had to face rising costs for energy, steel, pop-top lids, microwaveable containers, and other raw materials. Campbell is raising most U.S. soup prices an average of 4.8% effective Feb. 28th. In an effort to fight inflation, the company is “pursuing a combination of productivity and pricing.” There is evidence that productivity is slowing in the U.S. That leaves price increases as the focal point for maintaining margins in 2005. Where does that leave hiring plans? Clearly, it is relegated to the back burner. Our so-called economic revival began in November 2001. It’s three years old. It’s old enough to go to school, and the blackboard shows that, between November 2001 and November 2003, the economy has added an average of 23,600 jobs a month. The labor participation rate is lower today than it was 12 months ago or 24 months ago or even 36 months ago. Do you think 2005 will be the second consecutive year that wage gains do not keep up with inflation? How much will wages have to gain to keep up with the price increases at companies like Campbell’s? With rising costs for benefits and slowing productivity, companies will try to minimize hiring. Don’t focus just on today’s hiring report. You have all year to see disappointing employment reports. The BLS is entering the “ready-to-serve” hiring slowdown period. It won’t make for happy faces.
According to the Hudson Employment Index, U.S. workers lost confidence in the job market in December. The index dropped 1.3 points to its annual low of 2004 at 103.6. Only 35%, a reduction of two points from November, anticipate that their firms will undergo staff additions. The percentage of U.S. workers who expect layoffs and those worried about losing their own jobs both increased a percentage point to 19% in December.
Tyson Foods has been facing unfavorable operating margins in their beef business. Live cattle prices have remained high and there has been a decrease in international sales. In order to lower costs, the company is suspending operations for 3 to 5 weeks at several plants and this decision will impact about 2,100 jobs. National Semiconductor announced it will cut about 6% of its workforce or roughly 550 factory jobs in the U.S., Europe, and Asia and about 100 others, including positions at its headquarters in Santa Clara, CA.
First-time claims for U.S. unemployment benefits increased by 43,000 to 364,000 last week, the highest since September. It was the biggest increase in three years. The four-week average of continuing claims increased by 13,500 to 2.77 million, a six-week high; however, U.S. continuing jobless claims rose by 61,000 to 2.84 million in the week ending December 25th, also the highest since September. It is well to remember that continuing claims do not include hundreds of thousands of workers who have exhausted their benefits, and they are counted as unemployed only if they are actively looking for work. With the average duration of unemployment about 20 weeks, it is no wonder that the number of discouraged workers remains at a high level. With close to 2 million workers unemployed for longer than six months and, without benefits, how can one expect to be encouraged? Between the unemployed, the under-employed, and the discouraged workers, the labor picture is much worse than that presented by the BLS.
The Monster Employment Index dipped in December from November’s record 117 to 113, and is slightly below the level reached in September and October and slightly above August’s 113. Monster tries to place a positive spin on their index; however, over the past nine months, the average monthly reading has been 110. In other words, for the past nine months the upward trend has been modest.
Yesterday saw a 5% jump in crude to $45.56 a barrel, heating oil rising 6.29 cents to $1.2813 a gallon, and natural gas increasing 3.7% to $6.049 per BTU. The fireworks did not end there. Rumors circulated that China’s CNOOC was considering a $13 billion bid for Unocal and that India’s ONGC was considering a $2 billion bid for Yukos assets.
Since the start of the New Year, gold has had a sharp decline. Yesterday, February gold dropped $5.70 to a 3-month low of $421.60. With gold breaking some technical support, it has placed the gold believers on the defensive. You know what they say--- no pain no gain.
UTStarcom is a global leader in IP-based end-to-end networking solutions and international service and support. They sell wireline, wireless, optical and switching solutions on a world-wide basis; however, their main market is China. Yesterday, the company stated that their latest quarterly revenues from China operations were adversely impacted by an overall slowing of the Chinese economy, maturation of the PAS market, and decreased capital spending. In addition, both China Telecom and CHINA Netcom did not implement the anticipated increase in promotional spending at year-end that UTStarcom has benefited from historically. In sum, the company expects to report fourth quarter revenues in the range of $740 million to $745 million, versus initial guidance of $875 million to $885 million. Under GAAP, the company expects to report a loss per share of 40 to 45 cents. A closer look might be in order. Their China operations negatively impacted their gross margins but cash collections were in excess of $890 million in the fourth quarter as compared to revenues of $740-745 million. Their backlog at year-end is $1.2 billion and still higher than the $1.06 billion a year earlier. They anticipate that their first quarter revenues will be at least $770 million with gross margins improving to a minimum of 23%, resulting in GAAP earnings per share of 20 to 23 cents. I have never owned this stock but have been watching their results for four years. Several years ago it sold at $90 per share and last night was just under $20. If you believe in the long-term growth picture in China, then an investment in UTStarcom might be for you. A suggestion might be a starting point around $14 or $15 a share. This is a volatile stock and not for everyone.
On January 2nd, Pat Buchanan wrote an editorial on Iraq entitled “Why are U.S. forces still in Iraq?” and stated “President Bush needs to go on national television and tell us the unvarnished truth. For some of Bush’s countrymen, there is a sense of having been had, of having been made victim to one of the great bait-and-switches in the history of warfare.” Buchanan stated that none of the claims made before the start of the war was true. He asked “what is our mission now? When did it change? With 1,350 dead and nearly 10,000 wounded, why are we still at war with these people?… Why should Americans have to die for democracy in a nation that has never known it? Democracy in the Middle East is not vital to our national security…Exactly how much more blood and money is Bush willing to plunge into a war for democracy in Iraq, and at what point must he decide--- as LBJ and Nixon did in Vietnam--- that the cost to America is so great that we must get out and risk the awful consequences of a mistaken war that we never should have launched?”
Tobin’s Q is a ratio devised by Nobel Laureate in Economics James Tobin who hypothesized that the combined market value of all the companies on the stock market should be about equal to their replacement costs. The calculation is market value of assets divided by their replacement value. Therefore, the ratio of all the combined stock market valuations to all the combined replacement costs should be around 1. Today, Tobin’s Q is over 2. The only other times this has taken place were in 2000 and 1929.
A total of 157,000 non-farm payroll jobs were added in December? I haven’t had the opportunity to thoroughly review the numbers. Where did I go wrong? There were 144,000 service jobs added or slightly more than twice the gains I had envisioned. Manufacturing picked up 3,000 jobs, and I thought there would be a decline. Construction gained 7,000, and I had projected a decline. More on the numbers tomorrow. As for wages and hours and labor participation, I was on the money.
Thursday, January 06, 2005
1/6/05 Forecast For December Non-Farm Payrolls
In an effort to respond to the unusually large number of inquiries regarding tomorrow’s report, I am providing my forecast. It is quite different from the 178,000 job gains projected by others. Like always, the work is solely my own, and please do not think I have any special information. I do not. I envision a very positive increase for various services--- health, education, professional, business, and recreational. I envision disappointing payroll news for manufacturing, retail, transportation, and construction. The news will not be earth-shattering for average hourly and weekly hours worked, average hourly and weekly earnings, overtime, and labor participation as a whole. On balance, I do not project non-farm payrolls to exceed a +40,000 or to decline below a –10,000.
The dollar has risen for five consecutive days. I don’t believe the aforementioned will be good news for the dollar. On the other hand, the employment report may provide bond buyers with some reason to buy the 10-year Treasury bonds. Any rally to the 4.15% level should, in my view, be seen as a wonderful opportunity to be a seller. As for stocks, bulls will jump on the employment report (if my prognosis is right) and project that the Fed will now be on hold for near-term rate increases. Actually, a better reaction might be to place oneself in the shoes of the foreign currency, bond, and stock traders. Our economy is weakening. What does that mean for the dollar, our budget deficit, and our ability to rollover debt? Will the Fed try to add more liquidity to keep the economic fires alive? Will federal discretionary spending be accelerated?
Tomorrow we’ll see whether I have egg on my face. It’s certainly possible, but I am willing to risk my own funds on my own projection. That sets me apart from most others in financial circles.
In an effort to respond to the unusually large number of inquiries regarding tomorrow’s report, I am providing my forecast. It is quite different from the 178,000 job gains projected by others. Like always, the work is solely my own, and please do not think I have any special information. I do not. I envision a very positive increase for various services--- health, education, professional, business, and recreational. I envision disappointing payroll news for manufacturing, retail, transportation, and construction. The news will not be earth-shattering for average hourly and weekly hours worked, average hourly and weekly earnings, overtime, and labor participation as a whole. On balance, I do not project non-farm payrolls to exceed a +40,000 or to decline below a –10,000.
The dollar has risen for five consecutive days. I don’t believe the aforementioned will be good news for the dollar. On the other hand, the employment report may provide bond buyers with some reason to buy the 10-year Treasury bonds. Any rally to the 4.15% level should, in my view, be seen as a wonderful opportunity to be a seller. As for stocks, bulls will jump on the employment report (if my prognosis is right) and project that the Fed will now be on hold for near-term rate increases. Actually, a better reaction might be to place oneself in the shoes of the foreign currency, bond, and stock traders. Our economy is weakening. What does that mean for the dollar, our budget deficit, and our ability to rollover debt? Will the Fed try to add more liquidity to keep the economic fires alive? Will federal discretionary spending be accelerated?
Tomorrow we’ll see whether I have egg on my face. It’s certainly possible, but I am willing to risk my own funds on my own projection. That sets me apart from most others in financial circles.
1/6/05 Nimble
Anyone who has been reading my daily reports is familiar with my efforts to provide timely updates on announced plant closings and layoffs. In addition, beginning today, I shall endeavor to provide information on announced price increases so we can keep an eye out for inflation. Some recent price increases are those by P&G, Hershey’s, Whirlpool, Starbucks, Dow Chemical, Air Products Polymer, and yesterday’s 17% price rise announced by Great Lakes Chemical.
While we are on the subject of pricing, it is well to note the holiday action plans taken at Wal-Mart. Black Friday, the day after Thanksgiving, proved to be disappointing for the company. On November 30th, new reduced pricing took effect. A week later there was a second round of price markdowns, and some were below cost. The net effect was to have a holiday season slightly above plan. Here we had a soon-to-be $300 billion sales outfit demonstrating an ability to be nimble. Investors might take note. Black Friday should have been a big day for Wal-Mart. It wasn’t. The first three trading days of January should be good days for investors due to the inflow of reinvestment funds. It is a seasonal pattern at the beginning of a New Year. If Wal-Mart can react like they did, so can the average investor. Expectations frequently exceed results.
Ron Griess of the Chart Store has done a fine job in outlining the first five days of the month and the January Effect. For his analysis, he selected the DJIA from 1886-2004. He showed the results for all “first five trading days” of each month and all 12 months for the “Monthly Effect.” The probabilities of the 12 month time period being positive when the first five trading days of a given month are positive range from 71.4% (May) to 63.6% (October). The probabilities for the 12 month time period being negative when the first five trading days of a given month are negative range from 51.2% (December) to 31.6% (March). If one were making a decision to buy on the first five trading days rule for any given month, May would be the first choice followed by January (71.1%). Ron further states that the first five trading days rule does not appear to provide good odds for making a sell decision based on negative results. However, one might consider buying against the rule in March with the odds of the 12-month results being positive at 68.4%. It should be noted, he opines, if one were making a decision to buy on the “monthly effect” rule for any given month, January would be the choice either using full 12 months results (77.9%) or ensuing 11 months results (70.1%). The monthly effect rule, he stated, does not appear to have good odds for making a sell decision based on negative results. January at 61.9% is above average, but falls off to 50% when the ensuing 11 months criteria is applied.
Challenger Gray & Christmas reported that U.S. corporations accelerated their job cuts in December, bringing the total number of announced job reductions to more than 1 million for the fourth straight year. Job cuts increased 4.3% in December to 109,045, the fourth month above 100,000. It’s the highest total since January 2004 and the first time in nearly three years that planned layoffs have exceeded 100,000 for four straight months.
If stock and house prices decline, will consumer spending be undercut? Will this winter’s first cold spell mixed with snow and ice undercut the nation’s heating oil supplies? If interest rates continue to rise, will consumer confidence be undercut?
As for truly cutting the deficit, I am tired of DC hand jobs on this subject. In fiscal 2004, there were 10,656 projects in the 13 appropriations bills, an increase of 13% over the prior year. Between 2002 and 2004, the total number of pork projects increased 28%. The federal government has an $800 billion discretionary budget. When the discretionary budget is reduced, maybe then the federal budget will be reduced. Don’t hold your breath. Better you cover your private parts.
Federated will close its under-performing Metrocenter mall store in north Phoenix. Tuesday, the store’s 130 employees were told of the planned closing.
William Shakespeare: “Nimble thought can jump both sea and land.”
Anyone who has been reading my daily reports is familiar with my efforts to provide timely updates on announced plant closings and layoffs. In addition, beginning today, I shall endeavor to provide information on announced price increases so we can keep an eye out for inflation. Some recent price increases are those by P&G, Hershey’s, Whirlpool, Starbucks, Dow Chemical, Air Products Polymer, and yesterday’s 17% price rise announced by Great Lakes Chemical.
While we are on the subject of pricing, it is well to note the holiday action plans taken at Wal-Mart. Black Friday, the day after Thanksgiving, proved to be disappointing for the company. On November 30th, new reduced pricing took effect. A week later there was a second round of price markdowns, and some were below cost. The net effect was to have a holiday season slightly above plan. Here we had a soon-to-be $300 billion sales outfit demonstrating an ability to be nimble. Investors might take note. Black Friday should have been a big day for Wal-Mart. It wasn’t. The first three trading days of January should be good days for investors due to the inflow of reinvestment funds. It is a seasonal pattern at the beginning of a New Year. If Wal-Mart can react like they did, so can the average investor. Expectations frequently exceed results.
Ron Griess of the Chart Store has done a fine job in outlining the first five days of the month and the January Effect. For his analysis, he selected the DJIA from 1886-2004. He showed the results for all “first five trading days” of each month and all 12 months for the “Monthly Effect.” The probabilities of the 12 month time period being positive when the first five trading days of a given month are positive range from 71.4% (May) to 63.6% (October). The probabilities for the 12 month time period being negative when the first five trading days of a given month are negative range from 51.2% (December) to 31.6% (March). If one were making a decision to buy on the first five trading days rule for any given month, May would be the first choice followed by January (71.1%). Ron further states that the first five trading days rule does not appear to provide good odds for making a sell decision based on negative results. However, one might consider buying against the rule in March with the odds of the 12-month results being positive at 68.4%. It should be noted, he opines, if one were making a decision to buy on the “monthly effect” rule for any given month, January would be the choice either using full 12 months results (77.9%) or ensuing 11 months results (70.1%). The monthly effect rule, he stated, does not appear to have good odds for making a sell decision based on negative results. January at 61.9% is above average, but falls off to 50% when the ensuing 11 months criteria is applied.
Challenger Gray & Christmas reported that U.S. corporations accelerated their job cuts in December, bringing the total number of announced job reductions to more than 1 million for the fourth straight year. Job cuts increased 4.3% in December to 109,045, the fourth month above 100,000. It’s the highest total since January 2004 and the first time in nearly three years that planned layoffs have exceeded 100,000 for four straight months.
If stock and house prices decline, will consumer spending be undercut? Will this winter’s first cold spell mixed with snow and ice undercut the nation’s heating oil supplies? If interest rates continue to rise, will consumer confidence be undercut?
As for truly cutting the deficit, I am tired of DC hand jobs on this subject. In fiscal 2004, there were 10,656 projects in the 13 appropriations bills, an increase of 13% over the prior year. Between 2002 and 2004, the total number of pork projects increased 28%. The federal government has an $800 billion discretionary budget. When the discretionary budget is reduced, maybe then the federal budget will be reduced. Don’t hold your breath. Better you cover your private parts.
Federated will close its under-performing Metrocenter mall store in north Phoenix. Tuesday, the store’s 130 employees were told of the planned closing.
William Shakespeare: “Nimble thought can jump both sea and land.”
Wednesday, January 05, 2005
1/5/05 Never Risk What You Can’t Afford To Lose
Percentages are not guarantees, and that’s true even if the odds are historically 75% or 80% in your favor. That was witnessed over the last seven trading days as losses erased substantial gains from the past month. Yesterday, the Dow and the S&P 500 reached their lowest levels since the second week of December and the Nasdaq fell to its lowest close since November 30. Many reasons can be provided for the market retreat. Some might believe that the recent rally in the dollar could hinder export growth and thus add to our trade deficit. Others might believe yesterday’s $1.79 rise in crude to $43.91 a barrel could signal a new bull stage that could ring the inflation alarm. Others have noted that profit taking is on the rise. Others point to the results for GM and Ford. Toyota’s sales in December rose 18% while GM’s declined by 6.8% and Ford’s by 3.6%. In fact, GM’s market-share loss in 2004 more than wiped out its gains in 2001 and 2002. The combined share for Detroit’s automakers fell to its lowest point in at least 60 years, down to 61.5%. In 1994, their share was 73%. Others point to Bush’s plan for revamping Social Security and its impact on the budget deficit. Benefits for retirees would be calculated using inflation rates reflecting increases in consumer prices rather than wage rate increases over a worker’s 35 highest-paid years adjusted for standards of living near retirement age. Workers could divert 4 percentage points of their 6.2 percentage points in payroll taxes to private accounts up to an annual contribution of roughly $1,300. The worker’s remaining 2.2 percentage points in taxes would remain going into the social security system. Other market participants were distressed by the release of the December 14th FOMC meeting minutes in which some Fed members were more worried about inflation than originally thought due to the drop in the dollar, higher energy costs, and the possibility of slower productivity growth. All of these concerns could lead to future rate hikes in order to stem the pick up in inflation, which could become a risk to stable growth.
These FOMC notes illustrated some important observations. Fed members stated that “the economy was seen as likely to expand at a moderate pace, supported by accommodative monetary policy and financial conditions.” As an offset, “business investment was expected to decline a bit early next year in light of the expiration of the partial-expensing provision at the end of 2004… and recent indications of a softening in high-tech spending in the United States and elsewhere. The possible downshift in the pace of high-tech spending also raised the possibility of an erosion of profit margins that could result from a slackening in the pace of technology-led productivity growth and the associated increase in cost pressures.” At the same time, “on net, they saw the risks to stable underlying inflation as still balanced… participants generally expected that inflation would remain low in the foreseeable future.” I might mention the recent 7.9% drop in aluminum prices and the 7.6% decline in copper prices.
I would like to focus on two items mentioned in these FOMC notes. One is the recent flattening of the yield curve. The 10-year/2-year yield differential is down to 1.10 percentage points. Some Fed members remarked that “the flattening of the slope of the yield curve might signal that expectations of longer-term growth had been marked down.” The other point is what I consider a key element of the kernel of concern, and I have expressed it over and over again. “Some participants believed that the prolonged period of policy accommodation had generated a significant degree of liquidity that might be contributing to signs of potentially excessive risk-taking in financial markets evidenced by quite narrow credit spreads, a pick up in initial public offerings, an upturn in mergers and acquisition activity, and anecdotal reports that speculative demands were becoming apparent in the markets for single-family homes ad condominiums.” In my view, this excessive risk-taking coupled with excessive consumer and federal spending, the twin tower deficits, the low savings rate, and inflation outpacing wage gains are major roadblocks to our financial stability. Additionally, I am further disturbed by the notion that some FOMC members believe rising stock and home prices should provide an underpinning for consumption.
If you are looking for a worry-free economic scenario, it would be wise not to invest in the markets. It’s not just that the “market climbs a wall of worry.” Warning systems are not perfect. Timing risks are a challenge for any investor. It’s important to limit your losses. There will be losses. It’s not personal. It’s not a matter of pride or self-respect. Losses should be viewed as learning experiences. Don’t make the mistake twice.
There are many challenges in this New Year. For many, it’s not pleasant coming to work. There are hidden risks. Yesterday, “for strategic and economic reasons” Occidental Petroleum stated it will close its Armand Hammer plant in Lower Pottsgrove, PA “effective immediately.” The closing will put as many as 220 employees out of work. Management mentioned “this operation was unable to offset the harsh reality of a nearly 60-year-old facility using old technology to compete in a mature business in an increasingly global market.” OxyChem is completely abandoning the business of producing poly-vinyl resin, which is the plant’s main product. The Opelika plant in Tuscaloosa, AL closed its doors and 250 people are out of work.
As 2003 came to a close, I envisioned that the declining dollar and the twin-tower deficits would be the central economic themes for the coming 12 months. I suggested that dollar holdings be held to an absolute minimum. As 2004 came to a close, I envisioned that rising interest rates would be the central theme for the coming 12 months. As such, I have suggested several times that all debt instruments (excluding 3-month bills and convertible bonds) be removed from all portfolios.
John Leguizamo: “Latinos for Republicans--- it’s like roaches for Raid.”
U.S. weekly mortgage applications dropped 10.6% last week. Applications for purchase loans declined 13.7% while refinancing loans dropped 5.7%.
Percentages are not guarantees, and that’s true even if the odds are historically 75% or 80% in your favor. That was witnessed over the last seven trading days as losses erased substantial gains from the past month. Yesterday, the Dow and the S&P 500 reached their lowest levels since the second week of December and the Nasdaq fell to its lowest close since November 30. Many reasons can be provided for the market retreat. Some might believe that the recent rally in the dollar could hinder export growth and thus add to our trade deficit. Others might believe yesterday’s $1.79 rise in crude to $43.91 a barrel could signal a new bull stage that could ring the inflation alarm. Others have noted that profit taking is on the rise. Others point to the results for GM and Ford. Toyota’s sales in December rose 18% while GM’s declined by 6.8% and Ford’s by 3.6%. In fact, GM’s market-share loss in 2004 more than wiped out its gains in 2001 and 2002. The combined share for Detroit’s automakers fell to its lowest point in at least 60 years, down to 61.5%. In 1994, their share was 73%. Others point to Bush’s plan for revamping Social Security and its impact on the budget deficit. Benefits for retirees would be calculated using inflation rates reflecting increases in consumer prices rather than wage rate increases over a worker’s 35 highest-paid years adjusted for standards of living near retirement age. Workers could divert 4 percentage points of their 6.2 percentage points in payroll taxes to private accounts up to an annual contribution of roughly $1,300. The worker’s remaining 2.2 percentage points in taxes would remain going into the social security system. Other market participants were distressed by the release of the December 14th FOMC meeting minutes in which some Fed members were more worried about inflation than originally thought due to the drop in the dollar, higher energy costs, and the possibility of slower productivity growth. All of these concerns could lead to future rate hikes in order to stem the pick up in inflation, which could become a risk to stable growth.
These FOMC notes illustrated some important observations. Fed members stated that “the economy was seen as likely to expand at a moderate pace, supported by accommodative monetary policy and financial conditions.” As an offset, “business investment was expected to decline a bit early next year in light of the expiration of the partial-expensing provision at the end of 2004… and recent indications of a softening in high-tech spending in the United States and elsewhere. The possible downshift in the pace of high-tech spending also raised the possibility of an erosion of profit margins that could result from a slackening in the pace of technology-led productivity growth and the associated increase in cost pressures.” At the same time, “on net, they saw the risks to stable underlying inflation as still balanced… participants generally expected that inflation would remain low in the foreseeable future.” I might mention the recent 7.9% drop in aluminum prices and the 7.6% decline in copper prices.
I would like to focus on two items mentioned in these FOMC notes. One is the recent flattening of the yield curve. The 10-year/2-year yield differential is down to 1.10 percentage points. Some Fed members remarked that “the flattening of the slope of the yield curve might signal that expectations of longer-term growth had been marked down.” The other point is what I consider a key element of the kernel of concern, and I have expressed it over and over again. “Some participants believed that the prolonged period of policy accommodation had generated a significant degree of liquidity that might be contributing to signs of potentially excessive risk-taking in financial markets evidenced by quite narrow credit spreads, a pick up in initial public offerings, an upturn in mergers and acquisition activity, and anecdotal reports that speculative demands were becoming apparent in the markets for single-family homes ad condominiums.” In my view, this excessive risk-taking coupled with excessive consumer and federal spending, the twin tower deficits, the low savings rate, and inflation outpacing wage gains are major roadblocks to our financial stability. Additionally, I am further disturbed by the notion that some FOMC members believe rising stock and home prices should provide an underpinning for consumption.
If you are looking for a worry-free economic scenario, it would be wise not to invest in the markets. It’s not just that the “market climbs a wall of worry.” Warning systems are not perfect. Timing risks are a challenge for any investor. It’s important to limit your losses. There will be losses. It’s not personal. It’s not a matter of pride or self-respect. Losses should be viewed as learning experiences. Don’t make the mistake twice.
There are many challenges in this New Year. For many, it’s not pleasant coming to work. There are hidden risks. Yesterday, “for strategic and economic reasons” Occidental Petroleum stated it will close its Armand Hammer plant in Lower Pottsgrove, PA “effective immediately.” The closing will put as many as 220 employees out of work. Management mentioned “this operation was unable to offset the harsh reality of a nearly 60-year-old facility using old technology to compete in a mature business in an increasingly global market.” OxyChem is completely abandoning the business of producing poly-vinyl resin, which is the plant’s main product. The Opelika plant in Tuscaloosa, AL closed its doors and 250 people are out of work.
As 2003 came to a close, I envisioned that the declining dollar and the twin-tower deficits would be the central economic themes for the coming 12 months. I suggested that dollar holdings be held to an absolute minimum. As 2004 came to a close, I envisioned that rising interest rates would be the central theme for the coming 12 months. As such, I have suggested several times that all debt instruments (excluding 3-month bills and convertible bonds) be removed from all portfolios.
John Leguizamo: “Latinos for Republicans--- it’s like roaches for Raid.”
U.S. weekly mortgage applications dropped 10.6% last week. Applications for purchase loans declined 13.7% while refinancing loans dropped 5.7%.
Tuesday, January 04, 2005
1/4/05 The Balancing Act
The first day of trading got off to a rocky start. The NASDAQ, the S&P 500, the Dow, the Russell, the small-cap S&P 600, gold, crude, natural gas, and heating oil all declined in price. However, there is reason to believe that hope is on the way. The second trading day of the year has been up about 75% of the time over the past 5 ½ decades.
When reading financial data, there is much from which to choose. Let’s look at the ISM Manufacturing Index for December. There was plenty to make one smile. The index rose, the order backlog gained, new orders jumped, and inventories expanded; however, and there usually is an however, the employment component fell 5 points to its lowest level since late 2003. It’s a balancing act.
September and October construction spending were revised upward. That’s the good news. However, November’s numbers fell 0.4%, but the total annualized outlays did slightly exceed $1 trillion; however, it was the first drop in 10 months and the worst since February 2003. Private construction declined 0.6%, the worst in almost four years. Residential and non-residential building also declined. Nevertheless, commercial construction did improve by 0.4% and, not surprisingly, government construction spending rose also. Thank goodness for the government.
We can depend on Wal-Mart. Sales for the past weekend exceeded plan, and the average ticket price drove comp sales for the last week. The company was so encouraged that they now expect December comp sales to increase 3%. As I have mentioned previously, the star performers were gift cards and food revenues. In the week ending December 31, card redemptions were running way ahead of the prior year. However, the after-Christmas period is one with higher markdowns, and that could impede profit margins. As gift cards become a larger percentage of holiday sales, the week after Christmas could become more important than the week after Thanksgiving. That may alter hiring plans for the holidays as well as the timing of price reductions.
As I have mentioned so often, Walgreen’s has been the most consistent grower for the past 30 years of all the companies listed on the NY Stock Exchange. It is one of the great companies. Yesterday, they announced its largest quarterly earnings in the last 16 quarters and another record quarter for both sales and earnings for their first quarter of fiscal 2005. Prescription sales in comp stores rose 11.3% in the quarter and their gross profit margins rose 101 basis points versus the year-ago quarter to 27.38 as a percent of sales. Meanwhile, Rite Aid’s December same-store sales declined 2.7%.
Economist Allen W. Smith described the Social Security trust fund. “The trust fund holds no marketable Treasury bonds, and the special issue IOUs it holds are nothing more than accounting entries showing that the government has ‘borrowed’ and spent every dollar of the $1.5 trillion surplus generated by the 1983 payroll tax increase, leaving the fund with no real assets.” Who do you think recommended that 1983 payroll tax increase? None other than Fed chairman Greenspan. What an irrational recommendation!
Diane Rowland, executive director of the Kaiser Commission on Medicaid and the Uninsured, a non-partisan health research group: “Medicaid is the health safety net, and when people start falling, there is nowhere to fall except crashing to the ground if Medicaid isn’t there.” State Medicaid spending is expected to jump almost 12% in 2005. People more than 65 years old make up just 25% of Medicaid beneficiaries, but the elderly account for 70% of the program’s costs. Much of that is nursing home care, and it consumes 17% of Medicaid dollars. Medicaid pays almost half of nursing home costs in this country. James Fossett, a senior fellow at the Nelson A. Rockefeller Institute of Government in Albany, NY, stated “Medicaid has become a 900-pound gorilla on states’ backs.”
The latest eSpending Report revealed that online shoppers in the U.S. spent $23.2 billion during the 2004 holiday season, excluding travel, and this represented a 25% increase from the prior year’s results. For the past three years I have described the growth in online shopping. It is having a profound impact on retailing. Stores have closing hours but the Internet does not. For many companies, eSpending exceeds catalogue revenues. Wal-Mart and Target benefited greatly from online sales. Without the growth in online and gift card sales, this holiday season would have been disappointing for both companies.
The CIO Magazine Tech Poll results for December report a sharp fall in IT spending projections to growth of 6.7% over the next 12 months, compared to November’s reading of 8.4%. It was the second lowest level in 2004. Importantly, CIOs report that IT budgets increased by an average of 6.6% over the last 12 months, down from 9.1% last month.
U.K.’s $1.9 trillion economy is projected to grow 2.6% this year, down from 3% in 2004. Their economy has expanded for 49 consecutive quarters; however, the recent three-month decline in house prices is taking a toll on growth. Deutsche Bank predicted a price slide of as much as 15% in 2005.
Less than 2.5% of the world’s water is fresh, and the lack of fresh drinking water is the main problem facing the survivors of the quake and the tsunami. Without fresh drinking water, the death toll could rise dramatically.
Yesterday, after struggling with empty beds and financial problems, Houston’s Bellaire Medical Center filed for Chapter 11 bankruptcy protection. The hospital is expected to close. It is licensed to operate 349 beds, and has more than 300 full-time employees and 350 staff physicians.
I would like to take a moment to discuss a currency strategy. I am becoming increasingly uncomfortable with the economic prospects for the euro countries, and particularly, Germany. As such. let me offer the following for your consideration. We have some pretty fancy profits in our long euro/short dollar position. It may be a good time to unwind that hedge. In addition, you might consider adding a long yen/short euro position.
Karl Rove: “9/11 is one of the great unifying moments, whether we like it or not, for America.”
Baghdad governor is assassinated.
Brazil experienced a record trade surplus in 2004 thanks to iron ore, sugar, and some other commodities. The surplus might narrow in 2005; however, Brazil’s financial picture seems to be headed in the right direction.
Bloomberg reported that the average estimate for 62 economists for November factory orders is an increase of 1% due to demand for commercial aircraft and capital goods. This should provide a firmer tone for this morning’s opening of trading.
The first day of trading got off to a rocky start. The NASDAQ, the S&P 500, the Dow, the Russell, the small-cap S&P 600, gold, crude, natural gas, and heating oil all declined in price. However, there is reason to believe that hope is on the way. The second trading day of the year has been up about 75% of the time over the past 5 ½ decades.
When reading financial data, there is much from which to choose. Let’s look at the ISM Manufacturing Index for December. There was plenty to make one smile. The index rose, the order backlog gained, new orders jumped, and inventories expanded; however, and there usually is an however, the employment component fell 5 points to its lowest level since late 2003. It’s a balancing act.
September and October construction spending were revised upward. That’s the good news. However, November’s numbers fell 0.4%, but the total annualized outlays did slightly exceed $1 trillion; however, it was the first drop in 10 months and the worst since February 2003. Private construction declined 0.6%, the worst in almost four years. Residential and non-residential building also declined. Nevertheless, commercial construction did improve by 0.4% and, not surprisingly, government construction spending rose also. Thank goodness for the government.
We can depend on Wal-Mart. Sales for the past weekend exceeded plan, and the average ticket price drove comp sales for the last week. The company was so encouraged that they now expect December comp sales to increase 3%. As I have mentioned previously, the star performers were gift cards and food revenues. In the week ending December 31, card redemptions were running way ahead of the prior year. However, the after-Christmas period is one with higher markdowns, and that could impede profit margins. As gift cards become a larger percentage of holiday sales, the week after Christmas could become more important than the week after Thanksgiving. That may alter hiring plans for the holidays as well as the timing of price reductions.
As I have mentioned so often, Walgreen’s has been the most consistent grower for the past 30 years of all the companies listed on the NY Stock Exchange. It is one of the great companies. Yesterday, they announced its largest quarterly earnings in the last 16 quarters and another record quarter for both sales and earnings for their first quarter of fiscal 2005. Prescription sales in comp stores rose 11.3% in the quarter and their gross profit margins rose 101 basis points versus the year-ago quarter to 27.38 as a percent of sales. Meanwhile, Rite Aid’s December same-store sales declined 2.7%.
Economist Allen W. Smith described the Social Security trust fund. “The trust fund holds no marketable Treasury bonds, and the special issue IOUs it holds are nothing more than accounting entries showing that the government has ‘borrowed’ and spent every dollar of the $1.5 trillion surplus generated by the 1983 payroll tax increase, leaving the fund with no real assets.” Who do you think recommended that 1983 payroll tax increase? None other than Fed chairman Greenspan. What an irrational recommendation!
Diane Rowland, executive director of the Kaiser Commission on Medicaid and the Uninsured, a non-partisan health research group: “Medicaid is the health safety net, and when people start falling, there is nowhere to fall except crashing to the ground if Medicaid isn’t there.” State Medicaid spending is expected to jump almost 12% in 2005. People more than 65 years old make up just 25% of Medicaid beneficiaries, but the elderly account for 70% of the program’s costs. Much of that is nursing home care, and it consumes 17% of Medicaid dollars. Medicaid pays almost half of nursing home costs in this country. James Fossett, a senior fellow at the Nelson A. Rockefeller Institute of Government in Albany, NY, stated “Medicaid has become a 900-pound gorilla on states’ backs.”
The latest eSpending Report revealed that online shoppers in the U.S. spent $23.2 billion during the 2004 holiday season, excluding travel, and this represented a 25% increase from the prior year’s results. For the past three years I have described the growth in online shopping. It is having a profound impact on retailing. Stores have closing hours but the Internet does not. For many companies, eSpending exceeds catalogue revenues. Wal-Mart and Target benefited greatly from online sales. Without the growth in online and gift card sales, this holiday season would have been disappointing for both companies.
The CIO Magazine Tech Poll results for December report a sharp fall in IT spending projections to growth of 6.7% over the next 12 months, compared to November’s reading of 8.4%. It was the second lowest level in 2004. Importantly, CIOs report that IT budgets increased by an average of 6.6% over the last 12 months, down from 9.1% last month.
U.K.’s $1.9 trillion economy is projected to grow 2.6% this year, down from 3% in 2004. Their economy has expanded for 49 consecutive quarters; however, the recent three-month decline in house prices is taking a toll on growth. Deutsche Bank predicted a price slide of as much as 15% in 2005.
Less than 2.5% of the world’s water is fresh, and the lack of fresh drinking water is the main problem facing the survivors of the quake and the tsunami. Without fresh drinking water, the death toll could rise dramatically.
Yesterday, after struggling with empty beds and financial problems, Houston’s Bellaire Medical Center filed for Chapter 11 bankruptcy protection. The hospital is expected to close. It is licensed to operate 349 beds, and has more than 300 full-time employees and 350 staff physicians.
I would like to take a moment to discuss a currency strategy. I am becoming increasingly uncomfortable with the economic prospects for the euro countries, and particularly, Germany. As such. let me offer the following for your consideration. We have some pretty fancy profits in our long euro/short dollar position. It may be a good time to unwind that hedge. In addition, you might consider adding a long yen/short euro position.
Karl Rove: “9/11 is one of the great unifying moments, whether we like it or not, for America.”
Baghdad governor is assassinated.
Brazil experienced a record trade surplus in 2004 thanks to iron ore, sugar, and some other commodities. The surplus might narrow in 2005; however, Brazil’s financial picture seems to be headed in the right direction.
Bloomberg reported that the average estimate for 62 economists for November factory orders is an increase of 1% due to demand for commercial aircraft and capital goods. This should provide a firmer tone for this morning’s opening of trading.
Monday, January 03, 2005
1/3/05 Bifurcation
From a definition standpoint, bifurcation is the act of splitting into two branches. For our example, those two branches are chaos and order. If given a choice, we’ll all take the order branch. So let’s go with the order, and that is represented by the forecasts from a Wall Street Journal survey of 56 economists. Their consensus for 2005 is GDP growth of 3.6%, an unemployment rate of 5.1%, stable and/or falling oil prices, consumer prices rising 2.5%, the federal-funds rate rising to 3% by June and 3.5% from December, and only an 11% chance of a recession. Most stock market pundits call for a strong single-digit advance in the Dow and the S&P 500. There will be some ebb and flow in pricing structures. Blockbuster omits late fees; Delta Airlines reduces ticket-change fees, removes restrictions on Saturday-night stays, and prices from first-class to last-minute tickets; and a lower-priced iMac is introduced. On the other hand, GM and Chrysler have three price increases on many 2005 models while cutting production schedules and/or planning temporary plant shutdowns in order to balance inventory levels. January trading begins with gains in stocks and the U.S. dollar accompanied by warmer weather bringing us declining heating oil prices. Life is orderly in the world of finance. Only some questions remain unanswered, such as, the consumer’s spending plans for a new auto, appliance, and/or house as well as capital expenditure expectations for small and large businesses.
On the other branch we have chaos. That could result from many possibilities. Are there satisfactory returns in continuing to own capital assets, such as, stocks, bonds, and houses? What is the potential fallout from debt acceleration on the part of the consumer? What immediate impact could result from greenhouse gases causing world temperatures to rise and the arctic ice cap to melt? Will foreign countries place their financial trust in our currency and in our ability to rollover our indebtedness? Will our twin tower deficits topple our economic stability? What are the chances of further geopolitical shocks?
Maybe we should come to this conclusion. Why should we worry? Everything will turn out just fine. Ground Hog Day is around the corner. That’s a comforting part of the world of order.
From a definition standpoint, bifurcation is the act of splitting into two branches. For our example, those two branches are chaos and order. If given a choice, we’ll all take the order branch. So let’s go with the order, and that is represented by the forecasts from a Wall Street Journal survey of 56 economists. Their consensus for 2005 is GDP growth of 3.6%, an unemployment rate of 5.1%, stable and/or falling oil prices, consumer prices rising 2.5%, the federal-funds rate rising to 3% by June and 3.5% from December, and only an 11% chance of a recession. Most stock market pundits call for a strong single-digit advance in the Dow and the S&P 500. There will be some ebb and flow in pricing structures. Blockbuster omits late fees; Delta Airlines reduces ticket-change fees, removes restrictions on Saturday-night stays, and prices from first-class to last-minute tickets; and a lower-priced iMac is introduced. On the other hand, GM and Chrysler have three price increases on many 2005 models while cutting production schedules and/or planning temporary plant shutdowns in order to balance inventory levels. January trading begins with gains in stocks and the U.S. dollar accompanied by warmer weather bringing us declining heating oil prices. Life is orderly in the world of finance. Only some questions remain unanswered, such as, the consumer’s spending plans for a new auto, appliance, and/or house as well as capital expenditure expectations for small and large businesses.
On the other branch we have chaos. That could result from many possibilities. Are there satisfactory returns in continuing to own capital assets, such as, stocks, bonds, and houses? What is the potential fallout from debt acceleration on the part of the consumer? What immediate impact could result from greenhouse gases causing world temperatures to rise and the arctic ice cap to melt? Will foreign countries place their financial trust in our currency and in our ability to rollover our indebtedness? Will our twin tower deficits topple our economic stability? What are the chances of further geopolitical shocks?
Maybe we should come to this conclusion. Why should we worry? Everything will turn out just fine. Ground Hog Day is around the corner. That’s a comforting part of the world of order.
Sunday, January 02, 2005
1/2/05 Rules Of The Road
How many readers listen to the daily weather report? How many weather forecasters predict a hurricane, a volcano eruption, an earthquake, or a tsunami? When you get into your car, presumably you watch the speed limit and look for warning signs, such as, a deer crossing. Do you think your car’s GPS system warns of a deer crossing the road? You can’t simply put your car speed on auto pilot, so to speak, and pick up a book and begin reading. You need to watch the road. You need to drive responsibly. Beginning Monday, trading will begin in this New Year. It will also be the start of the January effect. Remember that the five trading days between December 26 and December 31 saw the Dow up about 80% of the time? As we experienced, there is that other 20% of the time. Over the past 21 years, the average annual gain for the NASDAQ composite in the month of January has been 3.7%, and this index has risen 68% of the time in the month of January. Over the last 76 years, the SPX has experienced an average annual gain of 1.5% in the month of January, and it has risen 65% of the time in the month of January. Does that mean we should put our portfolios on auto pilot in the month of January? There is an adage that, as the month of January goes, so will the results for the market go for the entire year. Frequently, that has been the case. Why is January normally such a positive month for investment returns? There are billions of dollars that are invested in the beginning of the year, and secondly, it is human nature to begin the year on a positive note. Investors are optimistic in January. Come April, those same forecasts often appear too optimistic, and then the markets go into a decline for the next six months. Then, we head into November, and the rosy outlook for the coming year enters the picture. If this formula were always the case, then even mutual fund managers would find a way to beat the market averages. When it’s all said and done, only you have the responsibility for your portfolio. It’s a decision of your own choosing. To make the job even harder, you need to watch for geopolitical and geophysical disturbances, and this could even include the permafrost melting in Alaska. Think at least a season or two ahead. For example, if the earth is warming, what impact could that have on the air conditioning season in the height of the summer? What does it mean for power use? What impact could it mean for electric rates and/or blackouts? The picture gets a little complicated. It requires thinking and planning.
The Bush 5-year budget plan will be forthcoming in February. You can believe what is told to you or you could even think rationally and question the pile of manure being presented. There are two sides to the budget--- receipts and expenditures. Annual receipts are lower than when Bush came into office in January 2001. Every budget he submitted over-estimated the yearly receipts, and each budget under-estimated the yearly expenditures, and that doesn’t include expenditures for war. Keep your eye on supplemental appropriations. The latter are not included in the budget deficits. Why does this budgetary bombastic foolery matter? Even if the American public doesn’t care, it does matter to the world’s central bankers. They keep the lights on in Washington DC---- unfortunately. They fund our bulging annual Bush administration deficits. It’s not just the Fed printing too many dollars. The Fed is also acting as custodian for foreign holdings of U.S. securities, such as, agencies. These custodian holdings have risen in size by 25% in 2004, and have accumulated to over $1.3 trillion. Why do I bring up this matter? Because it matters. The custodian holdings are not included in M3. The government has a peculiar way with slight of hand. We also see it in the employment numbers with double counting, such as, one individual holding two jobs and that individual being counted as two employees.
Do not fret. There is a way to take advantage of this manure pile. Go with the flow in the Kyoto Protocol targets that take effect Feb. 16. It sets mandatory targets for industrial nations to reduce emissions by 2012. How do you profit by carbon dioxide, methane, or other greenhouse gases? You might consider the purchase of certified emission reductions. These credits are selling on the new European carbon market for about $10. That’s right. You can tell your friends that you are as happy as a pig in shit. As the earth warms, those credits might be worth more as we get closer to 2012.
Have ever heard of the dogs of the Dow? That’s another investment vehicle. Sometimes it works. Sometimes it doesn’t. GM would be such a candidate for 2005. Before you buy GM, please note that it took only 14 years for Toyota to go from selling 1 million cars in the U.S. to 2 million in 2004. In 2005, Toyota expects its U.S. sales to increase to 2.15 million units. Meanwhile, GM and Ford cut their North American production 5.6% in the second half of 2004 in order to reduce inventory levels, and they remain bloated. They have trimmed their combined output in North America for the first quarter of 2005 by more than 7%. Chrysler will temporarily idle six plants next week in Michigan, New Jersey, Missouri, Canada, and Mexico to reduce overstocked models. GM is expected to sell 8.5 million cars and trucks this year. Toyota’s President Cho stated Toyota plans to increase global sales to 9 million within eight years. Whose lunch do you think Toyota will be eating over the next eight years? Maybe the dogs of the Dow has more than one meaning.
We will be discussing more rules of the road. Hopefully, there’s something for everyone. Till next time, I’m off on my pursuit of profitable Clean Development Mechanisms (CDMs), such as, the pig manure pits near Santiago, Chile.
How many readers listen to the daily weather report? How many weather forecasters predict a hurricane, a volcano eruption, an earthquake, or a tsunami? When you get into your car, presumably you watch the speed limit and look for warning signs, such as, a deer crossing. Do you think your car’s GPS system warns of a deer crossing the road? You can’t simply put your car speed on auto pilot, so to speak, and pick up a book and begin reading. You need to watch the road. You need to drive responsibly. Beginning Monday, trading will begin in this New Year. It will also be the start of the January effect. Remember that the five trading days between December 26 and December 31 saw the Dow up about 80% of the time? As we experienced, there is that other 20% of the time. Over the past 21 years, the average annual gain for the NASDAQ composite in the month of January has been 3.7%, and this index has risen 68% of the time in the month of January. Over the last 76 years, the SPX has experienced an average annual gain of 1.5% in the month of January, and it has risen 65% of the time in the month of January. Does that mean we should put our portfolios on auto pilot in the month of January? There is an adage that, as the month of January goes, so will the results for the market go for the entire year. Frequently, that has been the case. Why is January normally such a positive month for investment returns? There are billions of dollars that are invested in the beginning of the year, and secondly, it is human nature to begin the year on a positive note. Investors are optimistic in January. Come April, those same forecasts often appear too optimistic, and then the markets go into a decline for the next six months. Then, we head into November, and the rosy outlook for the coming year enters the picture. If this formula were always the case, then even mutual fund managers would find a way to beat the market averages. When it’s all said and done, only you have the responsibility for your portfolio. It’s a decision of your own choosing. To make the job even harder, you need to watch for geopolitical and geophysical disturbances, and this could even include the permafrost melting in Alaska. Think at least a season or two ahead. For example, if the earth is warming, what impact could that have on the air conditioning season in the height of the summer? What does it mean for power use? What impact could it mean for electric rates and/or blackouts? The picture gets a little complicated. It requires thinking and planning.
The Bush 5-year budget plan will be forthcoming in February. You can believe what is told to you or you could even think rationally and question the pile of manure being presented. There are two sides to the budget--- receipts and expenditures. Annual receipts are lower than when Bush came into office in January 2001. Every budget he submitted over-estimated the yearly receipts, and each budget under-estimated the yearly expenditures, and that doesn’t include expenditures for war. Keep your eye on supplemental appropriations. The latter are not included in the budget deficits. Why does this budgetary bombastic foolery matter? Even if the American public doesn’t care, it does matter to the world’s central bankers. They keep the lights on in Washington DC---- unfortunately. They fund our bulging annual Bush administration deficits. It’s not just the Fed printing too many dollars. The Fed is also acting as custodian for foreign holdings of U.S. securities, such as, agencies. These custodian holdings have risen in size by 25% in 2004, and have accumulated to over $1.3 trillion. Why do I bring up this matter? Because it matters. The custodian holdings are not included in M3. The government has a peculiar way with slight of hand. We also see it in the employment numbers with double counting, such as, one individual holding two jobs and that individual being counted as two employees.
Do not fret. There is a way to take advantage of this manure pile. Go with the flow in the Kyoto Protocol targets that take effect Feb. 16. It sets mandatory targets for industrial nations to reduce emissions by 2012. How do you profit by carbon dioxide, methane, or other greenhouse gases? You might consider the purchase of certified emission reductions. These credits are selling on the new European carbon market for about $10. That’s right. You can tell your friends that you are as happy as a pig in shit. As the earth warms, those credits might be worth more as we get closer to 2012.
Have ever heard of the dogs of the Dow? That’s another investment vehicle. Sometimes it works. Sometimes it doesn’t. GM would be such a candidate for 2005. Before you buy GM, please note that it took only 14 years for Toyota to go from selling 1 million cars in the U.S. to 2 million in 2004. In 2005, Toyota expects its U.S. sales to increase to 2.15 million units. Meanwhile, GM and Ford cut their North American production 5.6% in the second half of 2004 in order to reduce inventory levels, and they remain bloated. They have trimmed their combined output in North America for the first quarter of 2005 by more than 7%. Chrysler will temporarily idle six plants next week in Michigan, New Jersey, Missouri, Canada, and Mexico to reduce overstocked models. GM is expected to sell 8.5 million cars and trucks this year. Toyota’s President Cho stated Toyota plans to increase global sales to 9 million within eight years. Whose lunch do you think Toyota will be eating over the next eight years? Maybe the dogs of the Dow has more than one meaning.
We will be discussing more rules of the road. Hopefully, there’s something for everyone. Till next time, I’m off on my pursuit of profitable Clean Development Mechanisms (CDMs), such as, the pig manure pits near Santiago, Chile.
Saturday, January 01, 2005
1/1/2005 Happy New Year
I wish you a very happy and healthy New Year. May you have the peace of mind and quality of life you so desire.
Whenever I drive into Berkeley, California, I notice the sign indicating a population of 120,00. This morning I read where a 6.5 aftershock hit Indonesia and that the death toll had passed 140,000. In the name of the American population that totals 292 million, the Bush administration is pledging $350 million in aid. That amount approaches the accumulated pork programs approved by the Congress over the past year.
The headlines do not tell The Wall Street story in 2004. On the surface, the Dow rose 3.15%, the Nasdaq 8.6%, and the S&P500 9%. Those increases are all dollar-denominated. By comparison, in 2004, the U.S. dollar declined 8% versus the euro as well as the Canadian dollar, 9% against the Swiss franc, 10% versus the New Zealand dollar, about 5% versus the Indian rupee, 4.7% against the yen, and 15% versus the South Korean won. In other words, if you keep your stock market gains in U.S. dollars, you are sitting pretty. If you use those dollars in any of the aforementioned countries and your gains can evaporate. Your buying power is eroded with the loss of value in our currency. Import prices rose 9 ½% in 2004.
The headlines do not tell the Wall Street story in 2004. Corporate insiders sold 51.3 billion of shares in their companies, up 20% from 2003. Purchases rose 13% to 2.11 billion shares. Interestingly, while corporate insiders were selling, corporations were repurchasing stock, raising dividends, and/or paying out special dividends. That’s a disconnect for any investor.
Byron Katie: “When you argue with reality, you lose--- but only 100% of the time.”
The Federal Reserve continued to expand credit. M3 money supply (ex money market funds) expanded at an annual rate of 10.3% in 2004. Bank loans expanded by 10.6%, commercial paper rose by 11.5%, and real estate loans by 14.4%. In fact, in 2004, we experienced over $1 trillion in total mortgage growth. Not surprisingly, the Bloomberg REIT index climbed 26% this year.
Real estate inflation drove consumption, and, despite a disappointing job market, spending was still able to exceed meager personal income gains.
Sigmund Freud: “Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces.”
The headlines don’t tell the Wall Street story in 2004. There was an incredible flight to investing in lesser quality credit risks. The above-mentioned liquidity expansion led to credit spreads collapsing. All you need to do is look at the junk bond spreads or the emerging bond spreads. However,there is another side to the story. Maybe investors are taking the view that our best credit risk, U.S. Treasury bonds, are not as credit worthy as once thought. Maybe the printing of dollars and our twin tower deficits have begun to unravel the credit worthiness and trust placed in our currency and government bonds. If that is the case, then continued speculation in our equity and debt markets could be unwound by a quake or tsunami waiting around the bend. Volatile and turbulent times could be forthcoming this year. Let’s discuss that possibility tomorrow.
I wish you a very happy and healthy New Year. May you have the peace of mind and quality of life you so desire.
Whenever I drive into Berkeley, California, I notice the sign indicating a population of 120,00. This morning I read where a 6.5 aftershock hit Indonesia and that the death toll had passed 140,000. In the name of the American population that totals 292 million, the Bush administration is pledging $350 million in aid. That amount approaches the accumulated pork programs approved by the Congress over the past year.
The headlines do not tell The Wall Street story in 2004. On the surface, the Dow rose 3.15%, the Nasdaq 8.6%, and the S&P500 9%. Those increases are all dollar-denominated. By comparison, in 2004, the U.S. dollar declined 8% versus the euro as well as the Canadian dollar, 9% against the Swiss franc, 10% versus the New Zealand dollar, about 5% versus the Indian rupee, 4.7% against the yen, and 15% versus the South Korean won. In other words, if you keep your stock market gains in U.S. dollars, you are sitting pretty. If you use those dollars in any of the aforementioned countries and your gains can evaporate. Your buying power is eroded with the loss of value in our currency. Import prices rose 9 ½% in 2004.
The headlines do not tell the Wall Street story in 2004. Corporate insiders sold 51.3 billion of shares in their companies, up 20% from 2003. Purchases rose 13% to 2.11 billion shares. Interestingly, while corporate insiders were selling, corporations were repurchasing stock, raising dividends, and/or paying out special dividends. That’s a disconnect for any investor.
Byron Katie: “When you argue with reality, you lose--- but only 100% of the time.”
The Federal Reserve continued to expand credit. M3 money supply (ex money market funds) expanded at an annual rate of 10.3% in 2004. Bank loans expanded by 10.6%, commercial paper rose by 11.5%, and real estate loans by 14.4%. In fact, in 2004, we experienced over $1 trillion in total mortgage growth. Not surprisingly, the Bloomberg REIT index climbed 26% this year.
Real estate inflation drove consumption, and, despite a disappointing job market, spending was still able to exceed meager personal income gains.
Sigmund Freud: “Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces.”
The headlines don’t tell the Wall Street story in 2004. There was an incredible flight to investing in lesser quality credit risks. The above-mentioned liquidity expansion led to credit spreads collapsing. All you need to do is look at the junk bond spreads or the emerging bond spreads. However,there is another side to the story. Maybe investors are taking the view that our best credit risk, U.S. Treasury bonds, are not as credit worthy as once thought. Maybe the printing of dollars and our twin tower deficits have begun to unravel the credit worthiness and trust placed in our currency and government bonds. If that is the case, then continued speculation in our equity and debt markets could be unwound by a quake or tsunami waiting around the bend. Volatile and turbulent times could be forthcoming this year. Let’s discuss that possibility tomorrow.
Friday, December 31, 2004
12/31/04 Not The End--- Just The Beginning
Approximately, one in five full-time workers do not have health insurance, and that number rises to one in four with part-time workers. According to Mercer Resource Consulting, the average cost for employer-sponsored health care coverage rose 7.5% in 2004.
The British Medical Journal alleged that Eli Lilly suppressed evidence that Prozac could cause behavioral disturbances. This may help to explain some of the decisions at 1600 Pennsylvania Ave. and those originating on Capitol Hill.
The death toll in south Asia continues to mount, and now exceeds 125,000 with millions lacking safe drinking water, food, shelter, and medical care.
Boeing has orders for 126 7E7s, of which 56 are under firm contract. The company projected it would have orders for 200 of these planes by today’s close of business. Boeing shares were the second best performer in the Dow in 2004 behind McDonald’s.
Gold closed 2004 at $438.40 an ounce for a yearly gain of 5.4%. Crude ended at $43.45 a barrel, up 33.7% in 2004, and the 10-year Treasury bond ended at 4.27% or about unchanged. That last fact is quite remarkable and hardly believable. Meanwhile, the U.S. two-year notes were auctioned on Wednesday at 3.12%, the first time in 31 months that securities of that maturity were sold at yields above 3%.
Economists Nouriel Roubini and Brad Setser: “The U.S. has to mortgage one year’s worth of export revenues every two years to finance its trade deficit. That is not a sustainable pace. It is hard to run a current account deficit of more than 5% of GDP off a roughly 10% of GDP export base. U.S. external debt is no longer small in relation to the United States small export sector.”
The National Association of Purchasing Management-Chicago Index was 61.2 for December, compared with 65.2 in November. The purchasers’ employment index dropped to 49.1, the lowest since July.
In September, Japan reduced its holdings of U.S. Treasuries by $1.9 billion. In October, the reduction was increased to $5.1 billion, the first back-to-back decline in about two years. Meanwhile, China has become an active buyer in recent months of U.S. mortgage-backed securities.
The Conference Board’s Help-Wanted Advertising Index dipped one point in November to 36. It was 38 one year ago. In the last three months, help-wanted advertising declined in six of the nine regions across the country. Conference Board economist Ken Goldstein stated “job growth continues to be sluggish…This is reflected in the Conference Board’s Leading Economic Index, which has declined in five of the last six months, and by dips in consumer confidence. The widely-awaited turnaround in job growth has yet to arrive.”
Verisign tracks year-over-year merchant activity in key e-commerce categories. There were some interesting findings in this Thanksgiving through December 27 period compared with the equivalent time period in 2003. Online transactions for the electronics category increased 17%, apparel transactions rose 45%, the entertainment category increased 54%, general retail rose 24%, and photo-printing-and-sharing increased a whopping 120%.
John P. Hussman, Ph.D: “With the S&P 500 just over 1200, the price/peak earnings multiple on the index has returned to 21. Aside from the 2000 bubble peak, the multiple exceeds the valuation seen at any historical market peak including 1929, 1972, and 1987. Meanwhile, junk bond yields have been compressed to the point where the bond market is pricing in negligible probability of corporate defaults in the years ahead. Corporate BBB yields are just a half percent over AAA yields, while spreads on pure junk are only about 25 over comparable Treasuries. This will end badly…With regard to the S&P 500, the average multiple of peak-earnings has been just over 14, while the historical median is closer to 11. The 2002 market low occurred at a still-high 16 times peak earnings, while the median of 11 was last seen at the market’s 1990 low. Multiples of about 7 attended the 1974 and the 1982 market troughs…Avoiding market risk at high valuations has never penalized long-term returns.”
According to the International Monetary Fund, at the end of last year, almost 64% of central bank reserves globally were denominated in U.S. dollars, and Asian central banks own more than $2.2 trillion in forex reserves out of a global total of $3.4 trillion.
As interest rates rise in 2005, what impact will that have on interest payments on existing U.S. external debt? Over the last four years, several economists have estimated that the fall in interest rates during this 2000-2004 period reduced payments on existing U.S. external debt by approximately $130 billion.
“The promise Creator gives us
Comes with every new day,
The gift of breath, the gift of life,
Opportunities in a vast array.
How do we count our blessings,
Through the choices life can bring?
Is it through joyful lessons?
Or the fears to which we cling?
Are we learning to show gratitude,
For the victories over human pain?
By honoring the feeling choices,
We grasp the will we've regained.
Can we change our focus,
With no need to defend?
Acknowledging joy and sorrow,
Without judging foe or friend?
Tomorrow promises the fullness
Of every human way to know:
How we master each challenge
Determines our balance -
reflecting how we grow.”
The Promise of Tomorrow
Jamie Sams
"Earth Medicine"
Approximately, one in five full-time workers do not have health insurance, and that number rises to one in four with part-time workers. According to Mercer Resource Consulting, the average cost for employer-sponsored health care coverage rose 7.5% in 2004.
The British Medical Journal alleged that Eli Lilly suppressed evidence that Prozac could cause behavioral disturbances. This may help to explain some of the decisions at 1600 Pennsylvania Ave. and those originating on Capitol Hill.
The death toll in south Asia continues to mount, and now exceeds 125,000 with millions lacking safe drinking water, food, shelter, and medical care.
Boeing has orders for 126 7E7s, of which 56 are under firm contract. The company projected it would have orders for 200 of these planes by today’s close of business. Boeing shares were the second best performer in the Dow in 2004 behind McDonald’s.
Gold closed 2004 at $438.40 an ounce for a yearly gain of 5.4%. Crude ended at $43.45 a barrel, up 33.7% in 2004, and the 10-year Treasury bond ended at 4.27% or about unchanged. That last fact is quite remarkable and hardly believable. Meanwhile, the U.S. two-year notes were auctioned on Wednesday at 3.12%, the first time in 31 months that securities of that maturity were sold at yields above 3%.
Economists Nouriel Roubini and Brad Setser: “The U.S. has to mortgage one year’s worth of export revenues every two years to finance its trade deficit. That is not a sustainable pace. It is hard to run a current account deficit of more than 5% of GDP off a roughly 10% of GDP export base. U.S. external debt is no longer small in relation to the United States small export sector.”
The National Association of Purchasing Management-Chicago Index was 61.2 for December, compared with 65.2 in November. The purchasers’ employment index dropped to 49.1, the lowest since July.
In September, Japan reduced its holdings of U.S. Treasuries by $1.9 billion. In October, the reduction was increased to $5.1 billion, the first back-to-back decline in about two years. Meanwhile, China has become an active buyer in recent months of U.S. mortgage-backed securities.
The Conference Board’s Help-Wanted Advertising Index dipped one point in November to 36. It was 38 one year ago. In the last three months, help-wanted advertising declined in six of the nine regions across the country. Conference Board economist Ken Goldstein stated “job growth continues to be sluggish…This is reflected in the Conference Board’s Leading Economic Index, which has declined in five of the last six months, and by dips in consumer confidence. The widely-awaited turnaround in job growth has yet to arrive.”
Verisign tracks year-over-year merchant activity in key e-commerce categories. There were some interesting findings in this Thanksgiving through December 27 period compared with the equivalent time period in 2003. Online transactions for the electronics category increased 17%, apparel transactions rose 45%, the entertainment category increased 54%, general retail rose 24%, and photo-printing-and-sharing increased a whopping 120%.
John P. Hussman, Ph.D: “With the S&P 500 just over 1200, the price/peak earnings multiple on the index has returned to 21. Aside from the 2000 bubble peak, the multiple exceeds the valuation seen at any historical market peak including 1929, 1972, and 1987. Meanwhile, junk bond yields have been compressed to the point where the bond market is pricing in negligible probability of corporate defaults in the years ahead. Corporate BBB yields are just a half percent over AAA yields, while spreads on pure junk are only about 25 over comparable Treasuries. This will end badly…With regard to the S&P 500, the average multiple of peak-earnings has been just over 14, while the historical median is closer to 11. The 2002 market low occurred at a still-high 16 times peak earnings, while the median of 11 was last seen at the market’s 1990 low. Multiples of about 7 attended the 1974 and the 1982 market troughs…Avoiding market risk at high valuations has never penalized long-term returns.”
According to the International Monetary Fund, at the end of last year, almost 64% of central bank reserves globally were denominated in U.S. dollars, and Asian central banks own more than $2.2 trillion in forex reserves out of a global total of $3.4 trillion.
As interest rates rise in 2005, what impact will that have on interest payments on existing U.S. external debt? Over the last four years, several economists have estimated that the fall in interest rates during this 2000-2004 period reduced payments on existing U.S. external debt by approximately $130 billion.
“The promise Creator gives us
Comes with every new day,
The gift of breath, the gift of life,
Opportunities in a vast array.
How do we count our blessings,
Through the choices life can bring?
Is it through joyful lessons?
Or the fears to which we cling?
Are we learning to show gratitude,
For the victories over human pain?
By honoring the feeling choices,
We grasp the will we've regained.
Can we change our focus,
With no need to defend?
Acknowledging joy and sorrow,
Without judging foe or friend?
Tomorrow promises the fullness
Of every human way to know:
How we master each challenge
Determines our balance -
reflecting how we grow.”
The Promise of Tomorrow
Jamie Sams
"Earth Medicine"
Thursday, December 30, 2004
12/30/04 Aftershocks
Chief Seattle’s 1854 letter to President Franklin Pierce: “You must teach your children that the ground beneath their feet is the ashes of your grandfathers. So that they will respect the land, tell your children that the earth is rich with the lives of our kin. Teach your children what we have taught our children, that the earth is our mother. Whatever befalls the earth befalls the sons of the earth. If men spit upon the ground, they spit upon themselves.”
Since Sunday, there have been more than 70 aftershocks recorded, such as, the 5.3 in magnitude that hit Sumatra yesterday. The death toll rises by the hour, and the latest is at least 87,000. Millions have been left homeless, and the challenge is to deliver safe drinking water, food, medicine, and temporary shelter. That will require a dedicated, organized, and global effort.
Crude is trading at $42.56 a barrel, and that remains about $10 a barrel higher than year-ago levels. Lehman Bros. cut its 2005 forecast for global oil demand by 200,000 barrels a day to 84 million barrels.
The Fed’s Trade-Weighted Major Currency Dollar Index is trading near a 9-year low and is down 28% over the last two years.
Russia’s Energy Minister stated China may get a 20% stake in the main Yukos oil asset.
Microsoft will stop marketing its Passport service.
The Wall Street Journal reported that last month China posted net steel exports rather than imports. Their steel production rose 22% in 2004 and is anticipated to rise 14% in 2005.
In his first term in office, Bush increased the Federal debt by $2.2 trillion. The debt limit was raised three times in these first four years by $2.234 trillion. The rising Federal debt level is so monumental that there is zero chance that the Fed will be able to inflate and make our debts disappear. Foreign government holders of our daily-devaluing currency resulting from daily-burgeoning twin-tower deficits will exact a price from the U.S. for inflicting such losses. I assure you that the price will create shock and awe through our economic system. In my view, such an event is drawing near. One might recall that Paul Volcker opined that, in the next five years, there was a 75% chance of some type of financial disaster hitting the U.S.
Goldman Sachs stated that their Goldman Sachs Commodity Index has risen 25% in 2004, and since 1970, yearly returns have averaged 12%, and that exceeds the annual returns for bond and equity indices during these 34 years.
According to a national survey conducted by Roper for Bankrate, 36% of Americans polled are focused on weight loss as opposed to 31% who are concerned with eliminating outstanding debt. This is the first time in the three years that Bankrate has conducted the survey that Americans have chosen weight loss over controlling debt as their New Year’s resolution. The average amount of debt needed to pay off was $11,288 and the average desired weight loss was approximately 23 pounds.
U.S. continuing jobless claims increased by 29,000 to 2.755 million in the week ending December 18th.
Chief Seattle’s 1854 letter to President Franklin Pierce: “You must teach your children that the ground beneath their feet is the ashes of your grandfathers. So that they will respect the land, tell your children that the earth is rich with the lives of our kin. Teach your children what we have taught our children, that the earth is our mother. Whatever befalls the earth befalls the sons of the earth. If men spit upon the ground, they spit upon themselves.”
Since Sunday, there have been more than 70 aftershocks recorded, such as, the 5.3 in magnitude that hit Sumatra yesterday. The death toll rises by the hour, and the latest is at least 87,000. Millions have been left homeless, and the challenge is to deliver safe drinking water, food, medicine, and temporary shelter. That will require a dedicated, organized, and global effort.
Crude is trading at $42.56 a barrel, and that remains about $10 a barrel higher than year-ago levels. Lehman Bros. cut its 2005 forecast for global oil demand by 200,000 barrels a day to 84 million barrels.
The Fed’s Trade-Weighted Major Currency Dollar Index is trading near a 9-year low and is down 28% over the last two years.
Russia’s Energy Minister stated China may get a 20% stake in the main Yukos oil asset.
Microsoft will stop marketing its Passport service.
The Wall Street Journal reported that last month China posted net steel exports rather than imports. Their steel production rose 22% in 2004 and is anticipated to rise 14% in 2005.
In his first term in office, Bush increased the Federal debt by $2.2 trillion. The debt limit was raised three times in these first four years by $2.234 trillion. The rising Federal debt level is so monumental that there is zero chance that the Fed will be able to inflate and make our debts disappear. Foreign government holders of our daily-devaluing currency resulting from daily-burgeoning twin-tower deficits will exact a price from the U.S. for inflicting such losses. I assure you that the price will create shock and awe through our economic system. In my view, such an event is drawing near. One might recall that Paul Volcker opined that, in the next five years, there was a 75% chance of some type of financial disaster hitting the U.S.
Goldman Sachs stated that their Goldman Sachs Commodity Index has risen 25% in 2004, and since 1970, yearly returns have averaged 12%, and that exceeds the annual returns for bond and equity indices during these 34 years.
According to a national survey conducted by Roper for Bankrate, 36% of Americans polled are focused on weight loss as opposed to 31% who are concerned with eliminating outstanding debt. This is the first time in the three years that Bankrate has conducted the survey that Americans have chosen weight loss over controlling debt as their New Year’s resolution. The average amount of debt needed to pay off was $11,288 and the average desired weight loss was approximately 23 pounds.
U.S. continuing jobless claims increased by 29,000 to 2.755 million in the week ending December 18th.
Wednesday, December 29, 2004
12/29/04 Expectations
As the death toll nears 70,000 in Indonesia and 11 other countries, what further tragedies do you expect from possible cholera, typhoid, and malaria?
Yesterday, the Conference Board stated their Consumer Confidence Index rebounded to 102.3 from November’s 92.9. The Index had been on the decline since August. Financial writers reported that the Expectations Index surged to 99.9 from the prior month’s 90.2. Both indexes had their highest reading since July. Nowhere did I read that the Expectations Index this month was lower than December 2003’s reading of 102.9. In December 2004, 22 percent of the 5,000 consumers surveyed stated they expect conditions to improve. A year earlier at this time 26.8 percent expected conditions to improve.
John Lubbock: “What we see depends mainly on what we look for.” I prefer to see the world through non-colored glasses. In sum, I seek out a 360-degree view of the facts.
The U.S. dollar index is inching its way towards the 80 level. The chart does not present a pretty picture for those holding dollar-denominated assets. The last time I checked millions of Americans had most, if not all, of their wealth invested in overvalued dollar-denominated real estate, equities, and bonds. The illusion of value permits a restful night’s sleep for many people with their eyes shut.
A long-time friend emailed me and asked why Newmont Mining had dropped about 10% in price this year while the price of gold bullion had risen from about $420 per ounce to the present $445. I reminded him that, in January 2001, based on my suggestion, he had purchased Newmont at $16 per share and that the stock was close to tripling in price based on last night’s close. In fact, the stock closely mirrored the rise in the CBOE Gold Index since January 2001. Meanwhile, the price of gold bullion had increased slightly less than $200 per ounce or close to 80%. It’s important to keep relationships in perspective and not to have unrealistic expectations.
Mark Twain: “The thing long expected takes the form of the unexpected when at last it comes.”
With the decline in crude prices from $55 a barrel to $42 a barrel, tanker rates have also declined.
India is the world’s largest user of gold. The country’s population owns at least 9,000 tons of gold. As its forex holdings increase, it is reasonable to expect that India’s gold ownership will also rise.
The ECB is supporting a rising euro. The strength in the euro has helped to contain inflation while still maintaining interest rates at the low 2% level.
Our nation’s largest trade imbalance occurred with China, where the 10-month trade deficit was $131.1 billion. The next largest deficits were Japan ($61.1 billion), Canada ($54.9 billion), Mexico ($37.8 billion), and Germany ($37.4 billion). By comparison, our largest trade surplus was with the Netherlands ($9.8 billion) followed by Australia ($5.7 billion), Hong Kong ($5.3 billion), Singapore ($3.9 billion), and Belgium ($3.7 billion).
Wet Seat will close 150 stores and cut 2,000 employees from the payroll.
Air travel in China is growing about 10% a year, nearly twice the world average. Yang Yuanyuan, China’s aviator regulator, stated “the demand in aviation and transportation has shown a heated situation not seen in many years. In principle, the Civil Aviation Administration of China will not approve any additional aircraft purchases in 2005.” Any airplane order in China must be approved by the Chinese government.
According to the Cambridge Credit Counseling Corp., the average U.S. household carries a $14,000 credit card debt. Consumers owe a record $750 billion in credit card debt. Chris Viale, Cambridge Credit’s president and CEO, stated “what consumers don’t realize is that they are spending fake money which nevertheless has to be repaid. Today there are close to 30 million U.S. households, or one in four consumers, spending more than they can afford.” I wonder whether these are the same consumers who expect conditions to improve over the next six months. On the other hand, economists often state that debt is a lagging indicator of what consumers actually did and does not reflect what they will do. I know one thing. They don’t have the money to repay their credit card balances, their home equity lines of credit, and/or their mortgage balances. Of course, why should they worry? The Fed is inflating away everyone’s debt obligations. Or are they?
Richard Benson: “The Fed needs inflation, wants inflation, and is getting inflation. Without inflation to inflate away a massive amount of personal, corporate, and government debt, our financial system could collapse.” Do you think anyone expects our financial system to collapse? It’s too big for that to happen. Isn’t that so?
As the death toll nears 70,000 in Indonesia and 11 other countries, what further tragedies do you expect from possible cholera, typhoid, and malaria?
Yesterday, the Conference Board stated their Consumer Confidence Index rebounded to 102.3 from November’s 92.9. The Index had been on the decline since August. Financial writers reported that the Expectations Index surged to 99.9 from the prior month’s 90.2. Both indexes had their highest reading since July. Nowhere did I read that the Expectations Index this month was lower than December 2003’s reading of 102.9. In December 2004, 22 percent of the 5,000 consumers surveyed stated they expect conditions to improve. A year earlier at this time 26.8 percent expected conditions to improve.
John Lubbock: “What we see depends mainly on what we look for.” I prefer to see the world through non-colored glasses. In sum, I seek out a 360-degree view of the facts.
The U.S. dollar index is inching its way towards the 80 level. The chart does not present a pretty picture for those holding dollar-denominated assets. The last time I checked millions of Americans had most, if not all, of their wealth invested in overvalued dollar-denominated real estate, equities, and bonds. The illusion of value permits a restful night’s sleep for many people with their eyes shut.
A long-time friend emailed me and asked why Newmont Mining had dropped about 10% in price this year while the price of gold bullion had risen from about $420 per ounce to the present $445. I reminded him that, in January 2001, based on my suggestion, he had purchased Newmont at $16 per share and that the stock was close to tripling in price based on last night’s close. In fact, the stock closely mirrored the rise in the CBOE Gold Index since January 2001. Meanwhile, the price of gold bullion had increased slightly less than $200 per ounce or close to 80%. It’s important to keep relationships in perspective and not to have unrealistic expectations.
Mark Twain: “The thing long expected takes the form of the unexpected when at last it comes.”
With the decline in crude prices from $55 a barrel to $42 a barrel, tanker rates have also declined.
India is the world’s largest user of gold. The country’s population owns at least 9,000 tons of gold. As its forex holdings increase, it is reasonable to expect that India’s gold ownership will also rise.
The ECB is supporting a rising euro. The strength in the euro has helped to contain inflation while still maintaining interest rates at the low 2% level.
Our nation’s largest trade imbalance occurred with China, where the 10-month trade deficit was $131.1 billion. The next largest deficits were Japan ($61.1 billion), Canada ($54.9 billion), Mexico ($37.8 billion), and Germany ($37.4 billion). By comparison, our largest trade surplus was with the Netherlands ($9.8 billion) followed by Australia ($5.7 billion), Hong Kong ($5.3 billion), Singapore ($3.9 billion), and Belgium ($3.7 billion).
Wet Seat will close 150 stores and cut 2,000 employees from the payroll.
Air travel in China is growing about 10% a year, nearly twice the world average. Yang Yuanyuan, China’s aviator regulator, stated “the demand in aviation and transportation has shown a heated situation not seen in many years. In principle, the Civil Aviation Administration of China will not approve any additional aircraft purchases in 2005.” Any airplane order in China must be approved by the Chinese government.
According to the Cambridge Credit Counseling Corp., the average U.S. household carries a $14,000 credit card debt. Consumers owe a record $750 billion in credit card debt. Chris Viale, Cambridge Credit’s president and CEO, stated “what consumers don’t realize is that they are spending fake money which nevertheless has to be repaid. Today there are close to 30 million U.S. households, or one in four consumers, spending more than they can afford.” I wonder whether these are the same consumers who expect conditions to improve over the next six months. On the other hand, economists often state that debt is a lagging indicator of what consumers actually did and does not reflect what they will do. I know one thing. They don’t have the money to repay their credit card balances, their home equity lines of credit, and/or their mortgage balances. Of course, why should they worry? The Fed is inflating away everyone’s debt obligations. Or are they?
Richard Benson: “The Fed needs inflation, wants inflation, and is getting inflation. Without inflation to inflate away a massive amount of personal, corporate, and government debt, our financial system could collapse.” Do you think anyone expects our financial system to collapse? It’s too big for that to happen. Isn’t that so?
Tuesday, December 28, 2004
12/28/04 Evading Reality
Ayn Rand: “We can evade reality, but we cannot evade the consequences of evading reality.”
The death toll in Indonesia has mounted to 30,000. What do you think will be the consequences of thousands of decaying corpses?
It was Italy that first announced no plans to sell 120 tons of gold. Germany soon followed and decided not to sell gold until September 2005. What country will come next? France? Switzerland? What will be the consequences of less gold coming on the market for sale?
Foreign central bank holdings of U.S. Treasuries at the Fed slightly exceed $1 trillion on an average daily basis. What happens when those central banks stop increasing their Treasury holdings? What entities will fill the void resulting from rising budget and trade deficits? Together those annual deficits exceed the level of Treasuries held by those foreign central banks.
Yesterday was a most interesting trading day. Crude declined 4.8%. The dollar traded at its fourth consecutive record daily low against the euro. The yield on 10-year Treasury bonds jumped from 4.21% to 4.29%. The Dow dropped 51 points. This isn’t the normal script for the first trading day after the Christmas holiday.
The price of West Texas intermediate crude decreased 5.10 cents for January delivery to $43.98-$44.00 per barrel. Platts, the global energy information division of McGraw-Hill, stated “it’s important to note that this decline took place as refiners are looking to buy crude oil to process in January. Although heating-related demand is obviously a big factor in the market, the fact remains that the fourth quarter is traditionally the heaviest for demand, and that’s behind us. So January demand looks to be sliding, and the market has plenty of crude to process, hence the drop in crude prices.”
Franco Modigliani won the Nobel Prize in economics in 1985 for his “life-cycle theory.” He stated that saving was not just for the rich, and that all people generally borrow when they are young, save in middle age, and then begin to spend their savings in their retirement years. It is safe to say that currently our population, which is aging, is not in a saving mode. His thoughts were important. Modigliani had this to say about inflation. He observed that “the poor are more likely to be debtors. And debtors benefit from inflation because of the reduced real burden of the debt…So I concluded that inflation is good for the poor and not for the rich.” Since we are the largest indebted nation in the history of the world, Modigliani, if he were alive, might state that inflation is a benefit to our $7.5 trillion debt level. But, there is more to the debt picture for Modigliani, and he makes a key point in his remarks that “the distribution of indebtedness matters. For every borrower who gets a boost in purchasing power, there is a lender who loses. They may be different people, but it is the net effect that matters for the macro economy.” The consequences of this net effect is a daily reality. It would be a huge mistake for the markets to evade the consequences of this reality. Even on a clear day, mass tragedies can take place.
Franco Modigliani: “A negative wealth effect tells me it can’t go on forever. And that’s when I revert to the life-cycle theory. Sadly, the large cohort of aging baby boomers is not adequately prepared for old age. The personal saving rate is too low. It has been depleted by individuals betting on asset markets. Life-cycle theory suggests that the saving rate should have gone up by now. Obviously, it hasn’t--- at least, not yet. While that puzzles me, it doesn’t dissuade me from the basic view that the balance between consumption and saving will have to adjust. It’s just a matter of time when. That leads me to conclude that the American consumer is the most dangerous portion of the picture.”
Echo boomers were born between 1982 and 1995. There are about 80 million echo boomers, and presently they spend about $170 billion a year of their own and their parents’ money.
Economist Allen W. Smith: “The IOUs in the Social Security trust fund are different. The government could default on these special issue IOUs without defaulting on its general debt.”
Gerrit Zalm, Dutch finance minister: The euro’s rise is “evolving within acceptable margins.”
Michael Niemera, chief economist at the International Council of Shopping Centers: “MasterCard and Visa numbers are usually stronger than in-store sales because they include gift card purchases and internet shopping.”
CHD Meridian Healthcare of Nashville runs more than 25 employee-only pharmacies. They have a new customer in Toyota, which provides health coverage for 40,000 employees in the U.S. Currently, about 88% of their prescriptions are filled at retail pharmacies. Toyota hopes to reduce annual prescription costs by having company-run drugstores that are managed by CHD Meridian Healthcare.
Ayn Rand: “We can evade reality, but we cannot evade the consequences of evading reality.”
The death toll in Indonesia has mounted to 30,000. What do you think will be the consequences of thousands of decaying corpses?
It was Italy that first announced no plans to sell 120 tons of gold. Germany soon followed and decided not to sell gold until September 2005. What country will come next? France? Switzerland? What will be the consequences of less gold coming on the market for sale?
Foreign central bank holdings of U.S. Treasuries at the Fed slightly exceed $1 trillion on an average daily basis. What happens when those central banks stop increasing their Treasury holdings? What entities will fill the void resulting from rising budget and trade deficits? Together those annual deficits exceed the level of Treasuries held by those foreign central banks.
Yesterday was a most interesting trading day. Crude declined 4.8%. The dollar traded at its fourth consecutive record daily low against the euro. The yield on 10-year Treasury bonds jumped from 4.21% to 4.29%. The Dow dropped 51 points. This isn’t the normal script for the first trading day after the Christmas holiday.
The price of West Texas intermediate crude decreased 5.10 cents for January delivery to $43.98-$44.00 per barrel. Platts, the global energy information division of McGraw-Hill, stated “it’s important to note that this decline took place as refiners are looking to buy crude oil to process in January. Although heating-related demand is obviously a big factor in the market, the fact remains that the fourth quarter is traditionally the heaviest for demand, and that’s behind us. So January demand looks to be sliding, and the market has plenty of crude to process, hence the drop in crude prices.”
Franco Modigliani won the Nobel Prize in economics in 1985 for his “life-cycle theory.” He stated that saving was not just for the rich, and that all people generally borrow when they are young, save in middle age, and then begin to spend their savings in their retirement years. It is safe to say that currently our population, which is aging, is not in a saving mode. His thoughts were important. Modigliani had this to say about inflation. He observed that “the poor are more likely to be debtors. And debtors benefit from inflation because of the reduced real burden of the debt…So I concluded that inflation is good for the poor and not for the rich.” Since we are the largest indebted nation in the history of the world, Modigliani, if he were alive, might state that inflation is a benefit to our $7.5 trillion debt level. But, there is more to the debt picture for Modigliani, and he makes a key point in his remarks that “the distribution of indebtedness matters. For every borrower who gets a boost in purchasing power, there is a lender who loses. They may be different people, but it is the net effect that matters for the macro economy.” The consequences of this net effect is a daily reality. It would be a huge mistake for the markets to evade the consequences of this reality. Even on a clear day, mass tragedies can take place.
Franco Modigliani: “A negative wealth effect tells me it can’t go on forever. And that’s when I revert to the life-cycle theory. Sadly, the large cohort of aging baby boomers is not adequately prepared for old age. The personal saving rate is too low. It has been depleted by individuals betting on asset markets. Life-cycle theory suggests that the saving rate should have gone up by now. Obviously, it hasn’t--- at least, not yet. While that puzzles me, it doesn’t dissuade me from the basic view that the balance between consumption and saving will have to adjust. It’s just a matter of time when. That leads me to conclude that the American consumer is the most dangerous portion of the picture.”
Echo boomers were born between 1982 and 1995. There are about 80 million echo boomers, and presently they spend about $170 billion a year of their own and their parents’ money.
Economist Allen W. Smith: “The IOUs in the Social Security trust fund are different. The government could default on these special issue IOUs without defaulting on its general debt.”
Gerrit Zalm, Dutch finance minister: The euro’s rise is “evolving within acceptable margins.”
Michael Niemera, chief economist at the International Council of Shopping Centers: “MasterCard and Visa numbers are usually stronger than in-store sales because they include gift card purchases and internet shopping.”
CHD Meridian Healthcare of Nashville runs more than 25 employee-only pharmacies. They have a new customer in Toyota, which provides health coverage for 40,000 employees in the U.S. Currently, about 88% of their prescriptions are filled at retail pharmacies. Toyota hopes to reduce annual prescription costs by having company-run drugstores that are managed by CHD Meridian Healthcare.
Monday, December 27, 2004
12/27/04 On A Clear Day
Yesterday the earthquake hit at 6:58am and the Tsunami waves arrived as much as 2 ½ hours later. The sky was blue and one could see for miles on this clear day. Hours later, about 20,000 people were declared dead. If the 8.9 quake was not enough, when the Tsunami hit, the water level rose at least 15 feet in a less than a minute. It all took place on a clear day. There was no warning. Those working in the Twin Towers had no warning either. Those buildings, however, did not collapse from a natural disaster. It too was a clear day.
Concours Group, a Texas-based consulting firm, stated in a new report that “the fastest-growing source of ‘new’ labor will be older people, including those already retired. Corporations will have little choice but to employ more older people, and that means making the terms of employment much more attractive to them.” Among the options mentioned were part-time work, job sharing, flextime, consulting arrangements, extended time off, and temporary work.
It is estimated that over $17 billion of gift cards were sold this holiday season. That estimate might prove conservative.
In Mexico, November auto sales rose 19% over the year-ago month, and results are closing in on one million vehicles sold for all of 2004.
In 2004, the state of Connecticut suffered from layoffs at Bayer Pharmaceuticals in West Haven, insurers in Hartford, and Purdue Pharma in Stamford. Over the past four years through July, the state lost 61,000 jobs or 3.6% of its jobs. Pete Gioia, economist with the Connecticut Business and Industry Association, stated “I’d say the job picture in Connecticut right now is stagnant. There is no way to sugarcoat this. We have a problem here.” John Tirinzonie, state labor economist, remarked the state, through November, added only 7,400 jobs in 2004. He described the situation as “I would say it’s weak at best. Anemic--- that’s probably the best way to describe it.”
Under a traditional pension plan, an employee’s pension benefits are typically calculated based on his or her last years of service. Usually, that’s when the employee earns the most. IBM, with 130,000 current and former employees, changed to a cash-balance pension plan in the mid-1990s whereby an employee is credited on a regular yearly basis with a percentage of a person’s annual pay, and that amount earns interest at an assigned rate. This plan would favor younger employees and work to the detriment of older workers. There is little question that a cash-balance program can be less costly to a company. IBM was sued by its current and former employees in a class-action lawsuit. A federal judge ruled last year that the changes in IBM’s pension plan were discriminatory against older employees who would receive less retirement benefits at retirement than those of younger workers. IBM plans to appeal this decision. Studies have shown that the older IBM employees had their benefits slashed by 30 to 40% after the conversion to a cash-balance pension plan. The Pension Benefit Guaranty Corp. stated, that in 2000, more than 1,200 companies provided cash-balance pension plans. With the continuing effort on the part of corporations to reduce costs, it is likely that the number is much higher today than the 1,200 reported in 2000. Should IBM lose on appeal, and that seems a strong possibility, that decision would likely lead to further lawsuits in this pension-benefits arena.
John Plender of the Financial Times: “The flight to garbage is the inelegant but accurate phrase that best captures the overheating in residential property, astonishing yield compression in the bond market and the return of commodities as an adventure playground for high rollers.”
A recent forecast for online advertising projects a gain of 30% in 2005 to $10.2 billion, and that’s on top of the 25% gain in 2004 over last year. It is anticipated that search ads will be especially strong.
Because of “disappointing” holiday sales, Sharper Image lowered its 4th quarter and 2004 earnings outlook.
Yesterday the earthquake hit at 6:58am and the Tsunami waves arrived as much as 2 ½ hours later. The sky was blue and one could see for miles on this clear day. Hours later, about 20,000 people were declared dead. If the 8.9 quake was not enough, when the Tsunami hit, the water level rose at least 15 feet in a less than a minute. It all took place on a clear day. There was no warning. Those working in the Twin Towers had no warning either. Those buildings, however, did not collapse from a natural disaster. It too was a clear day.
Concours Group, a Texas-based consulting firm, stated in a new report that “the fastest-growing source of ‘new’ labor will be older people, including those already retired. Corporations will have little choice but to employ more older people, and that means making the terms of employment much more attractive to them.” Among the options mentioned were part-time work, job sharing, flextime, consulting arrangements, extended time off, and temporary work.
It is estimated that over $17 billion of gift cards were sold this holiday season. That estimate might prove conservative.
In Mexico, November auto sales rose 19% over the year-ago month, and results are closing in on one million vehicles sold for all of 2004.
In 2004, the state of Connecticut suffered from layoffs at Bayer Pharmaceuticals in West Haven, insurers in Hartford, and Purdue Pharma in Stamford. Over the past four years through July, the state lost 61,000 jobs or 3.6% of its jobs. Pete Gioia, economist with the Connecticut Business and Industry Association, stated “I’d say the job picture in Connecticut right now is stagnant. There is no way to sugarcoat this. We have a problem here.” John Tirinzonie, state labor economist, remarked the state, through November, added only 7,400 jobs in 2004. He described the situation as “I would say it’s weak at best. Anemic--- that’s probably the best way to describe it.”
Under a traditional pension plan, an employee’s pension benefits are typically calculated based on his or her last years of service. Usually, that’s when the employee earns the most. IBM, with 130,000 current and former employees, changed to a cash-balance pension plan in the mid-1990s whereby an employee is credited on a regular yearly basis with a percentage of a person’s annual pay, and that amount earns interest at an assigned rate. This plan would favor younger employees and work to the detriment of older workers. There is little question that a cash-balance program can be less costly to a company. IBM was sued by its current and former employees in a class-action lawsuit. A federal judge ruled last year that the changes in IBM’s pension plan were discriminatory against older employees who would receive less retirement benefits at retirement than those of younger workers. IBM plans to appeal this decision. Studies have shown that the older IBM employees had their benefits slashed by 30 to 40% after the conversion to a cash-balance pension plan. The Pension Benefit Guaranty Corp. stated, that in 2000, more than 1,200 companies provided cash-balance pension plans. With the continuing effort on the part of corporations to reduce costs, it is likely that the number is much higher today than the 1,200 reported in 2000. Should IBM lose on appeal, and that seems a strong possibility, that decision would likely lead to further lawsuits in this pension-benefits arena.
John Plender of the Financial Times: “The flight to garbage is the inelegant but accurate phrase that best captures the overheating in residential property, astonishing yield compression in the bond market and the return of commodities as an adventure playground for high rollers.”
A recent forecast for online advertising projects a gain of 30% in 2005 to $10.2 billion, and that’s on top of the 25% gain in 2004 over last year. It is anticipated that search ads will be especially strong.
Because of “disappointing” holiday sales, Sharper Image lowered its 4th quarter and 2004 earnings outlook.
Sunday, December 26, 2004
12/26/04 The Horizon
According to the International Council of Shopping
Centers, the seven-day period ended December 27th
accounted for 20.6% of holiday sales in 2003, up from
19.6% in 2002. The seven-day period ended January 3rd
accounted for 14.1% in 2003, up from 12.8% in 2002.
With the rapid growth of gift cards, the period from
December 26th through January 2nd will take on
increased importance this holiday season. Jan. 1 and
Jan. 2 fall on the weekend this year.
Tom Peters: “If no one is pissed off with you then you
are dead but just haven’t figured it out yet.”
The most powerful earthquake in 40 years struck near
Sumatra this morning. It measured 8.9 on the Richter
scale and at least 5,600 people are known dead in five
countries. The earthquake was accompanied by Tsunami
waves.
Senator John McCain will shortly become chairman of
the Airland Subcommittee of the Senate Armed Services
Committee with direct oversight of the Air Force,
which happens to be Boeing’s largest customer. That
fact spells trouble for Boeing and the infamous $24.5
billion tanker program.
Peter Drucker: “The most important thing in
communication is to hear what isn’t being said.”
Yearly Medicaid expenditures amount to $190 billion
and average 22% of state budgets. Medicare costs tally
about $375 billion a year. As our population ages,
those costs can be expected to escalate. Bush wants to
shift more of the Medicaid costs onto the states and
is endeavoring to restrain Medicare spending for the
elderly and disabled. Undermining our frayed health
safety net could spell trouble for a significant
percentage of our nation’s citizens.
Warren Bennis: “Leaders keep their eyes on the
horizon, not just on the bottom line.”
One of the best ways to reduce the cost of health care
is through the deliverance of hope. It can arrive
through the spoken word and/or through actions taken.
When there is a loss of hope, the individual’s
well-being is compromised and society’s burdens take
on more hurdles. Budget constraints are necessary but
they must be accompanied by a realistic assessment of
the horizon. Such is the case at home, at work, and at
play. One must have contingency plans to deal with
emergencies. In today’s world, emergency measures are
becoming the norm. The unthinkable does happen.
Saturday, December 25, 2004
12/25/04 Merry Christmas
It is a special time for family, togetherness, thanks, and prayer. There is delicious food and wonderful gifts that bring much joy. For most Americans, the daily stress and grind will be lessened this Christmas day. For others, the winter cold in Ohio, Michigan, Minnesota, Kentucky, and even south Texas have created added pressures on homeless shelters. For others, low-paying jobs, temporary work, plant closings, and layoffs have increased the growing demand at food pantries, food banks, and soup kitchens. A growing number of working Americans live in poverty. A growing number of American families live in poverty. Hopefully, through the generosity found in our communities, most Americans will not be hungry this Christmas day. However, reports have shown that many food banks are in “crisis mode.” Challenger Gray & Christmas stated the Ohio Food Bank has seen a 17 to 20% increase in the number of working poor seeking assistance this year. Even though Congressional pork spending is at record high levels, “donations and government funding are at all-time low levels” for food banks and community assistance centers. To make matters worse, especially during harsh winters, sickness rises. There will be increased pressures for local community medical assistance as only 41% of workers who earn less than $10 an hour have employer-provided insurance. Without employer coverage, how can the working poor afford the average monthly health insurance premium of $282 for an individual and/or $756 for a family? The Institute of Medicine is a branch of the National Academy of Sciences. The Institute estimated that providing health insurance to those without coverage would save between $65 billion and $130 billion a year because it would increase life expectancies and worker productivity and reduce healthcare costs. That certainly would make for merrier Christmases for years to come for all Americans.
For the last 12 decades, the Dow has risen about 80% of the time during the last five trading days of the year. That’s a happy thought.
The China Daily reported that “china is likely to experience a ‘catastrophic’ drought next year.” This could have a major negative impact on water supplies as well as grain production.
According to the Ministry of Communication, China’s cargo turnover of all sea and river ports increased 126% year-on-year in 2004.
According to the Comptroller of the Currency, total U.S. commercial bank derivative holdings grew at a 16% rate in this year’s third quarter. Do you think these bankers have a firm understanding of their derivative positions and their potential risk?
In the twelve months ended Dec. 11, wholesale prices only rose 6.73% in India due to lower food prices and a marginal fall in energy rates. It is estimated that, by the end of March 2005, the inflation rate will moderate further to 6.5%, and this would equate to the present yield on the country’s 7.38% 2015 bonds.
State-run Indian railways raised freight rates for most commodities 7.7% last month due to higher diesel and steel prices. The railways are India’s biggest consumer of steel and diesel.
The malls across our nation are closed today. The Internet never closes. When the meal is over and the dishes are done, shoppers will get to view marked-down items. The day can end with consumers gobbling up early bird specials.
It is a special time for family, togetherness, thanks, and prayer. There is delicious food and wonderful gifts that bring much joy. For most Americans, the daily stress and grind will be lessened this Christmas day. For others, the winter cold in Ohio, Michigan, Minnesota, Kentucky, and even south Texas have created added pressures on homeless shelters. For others, low-paying jobs, temporary work, plant closings, and layoffs have increased the growing demand at food pantries, food banks, and soup kitchens. A growing number of working Americans live in poverty. A growing number of American families live in poverty. Hopefully, through the generosity found in our communities, most Americans will not be hungry this Christmas day. However, reports have shown that many food banks are in “crisis mode.” Challenger Gray & Christmas stated the Ohio Food Bank has seen a 17 to 20% increase in the number of working poor seeking assistance this year. Even though Congressional pork spending is at record high levels, “donations and government funding are at all-time low levels” for food banks and community assistance centers. To make matters worse, especially during harsh winters, sickness rises. There will be increased pressures for local community medical assistance as only 41% of workers who earn less than $10 an hour have employer-provided insurance. Without employer coverage, how can the working poor afford the average monthly health insurance premium of $282 for an individual and/or $756 for a family? The Institute of Medicine is a branch of the National Academy of Sciences. The Institute estimated that providing health insurance to those without coverage would save between $65 billion and $130 billion a year because it would increase life expectancies and worker productivity and reduce healthcare costs. That certainly would make for merrier Christmases for years to come for all Americans.
For the last 12 decades, the Dow has risen about 80% of the time during the last five trading days of the year. That’s a happy thought.
The China Daily reported that “china is likely to experience a ‘catastrophic’ drought next year.” This could have a major negative impact on water supplies as well as grain production.
According to the Ministry of Communication, China’s cargo turnover of all sea and river ports increased 126% year-on-year in 2004.
According to the Comptroller of the Currency, total U.S. commercial bank derivative holdings grew at a 16% rate in this year’s third quarter. Do you think these bankers have a firm understanding of their derivative positions and their potential risk?
In the twelve months ended Dec. 11, wholesale prices only rose 6.73% in India due to lower food prices and a marginal fall in energy rates. It is estimated that, by the end of March 2005, the inflation rate will moderate further to 6.5%, and this would equate to the present yield on the country’s 7.38% 2015 bonds.
State-run Indian railways raised freight rates for most commodities 7.7% last month due to higher diesel and steel prices. The railways are India’s biggest consumer of steel and diesel.
The malls across our nation are closed today. The Internet never closes. When the meal is over and the dishes are done, shoppers will get to view marked-down items. The day can end with consumers gobbling up early bird specials.
Friday, December 24, 2004
12/24/04 Father And Son
On October 13, 1989, Senator Fritz Hollings spoke on the Senate floor and stated “of course, the most reprehensible fraud in this great jambalaya of frauds is the systematic and total ransacking of the Social Security trust fund in order to mask the true size of the deficit…the Treasury is siphoning off every dollar of the Social Security surplus to meet current operating expenses of the Government…the hard fact is that, in the next century, the Social Security system will find itself paying out vastly more in benefits than it is taking in through payroll taxes. And the American people will wake up to the reality that those IOUs in the trust fund vault are a 21st century version of Confederate banknotes.”
On January 24, 1990, Senator Daniel Moynihan spoke on the Senate floor and remarked “Mr. President… If there is a problem of dissimulation, I would suggest that it resides with the present practice of using Social Security trust funds as general revenues. My distinguished friend, the Republican Senator from Pennsylvania, Senator Heinz, has used a very direct word for this. He says it is called embezzlement.”
On November 5, 1990, Bush Sr. signed into law Section 13301 of the Budget Enforcement Act of 1990. It made it unlawful to include Social Security funds in budget calculations. Despite the signing of this law, Bush Sr. continued to use Social Security funds for budget purposes.
Bush Jr., in his first State of the Union Address, said “To make sure the retirement savings of America’s seniors are not diverted to any other program, my budget protects all $2.6 trillion of the Social Security surplus for Social Security, and for Social Security alone.” During his first term, Bush Jr. spent the entire $509 billion in surplus Social Security revenue generated. Each and very day almost $440 million is being embezzled from the Social Security trust fund.
While everyone is enjoying eggnog and being merry, I thought the aforementioned would be a jolly reminder of what it means to get stuffed in real-time. So, while you’re opening your loot during this holiday, know you and your neighbor are being looted by someone you and millions of others invited back into that big white house for another four years.
Just because the cost of money is cheap, doesn’t mean stocks and bonds are cheap.
From November 2003 to November 2004, the M3 money supply rose at a 5.4% rate; however, between August 2004 and November 2004, the rate of growth slowed to 1.6%. Between November 2003 and November 2004, the monetary base of depository institutions, adjusted for changes in reserve requirements and seasonally adjusted, rose each and every month. However, from December 1 through December 22, 2004, the monetary base has declined below the prior month’s level. I mention this changing flow of funds pattern as a very real red flag. Changes are in the wind, and those changes can bring some unwelcome surprises in the coming year.
The euro rallied to a new high of 135.40 versus the dollar.
Almost 2 million people are employed in department stores this day before Christmas. Stars of this holiday shopping season have been gift cards, the iPod, plasma-screen TVs, Delphi XM Satellite MyFi, and cashmere sweaters.
COX-2 selective inhibitors are associated with an increased incidence of serious adverse events as compared to non-selective NSAIDS (non-steroidal anti-inflammatory drugs).
The Commerce Department reported that November new home sales declined 12% to the lowest level since July. It was the largest drop in more than a decade. November inventory of new homes for sale represented a 4.5 month supply. It was the largest inventory since 1979. The median price of a new home sold in November declined 8.2% to $206,300. It means that new home prices have dropped 0.4% since November 2003. However, residential real estate represents 29% of the value of total household assets while the household financial obligation ratio exceeds 18%, both near record levels.
The housing market in California is a different story with 2004 being a record year for home prices. The annual median price of a home rose 22% to more than $450,000. The median number of days required to sell a home has been only 29 days, the third lowest on record. Even though more than 200,000 permits were issued in 2004, the total fell short of household growth estimated at between 220,000 and 250,000 this year. The state’s Housing Affordability Index has fallen to about 19% this year.
Sales and earnings at American Greetings are below expectations due to lower revenue at the retail level and from the seasonal gift-wrap business.
Real disposable income rose 0.2% in November and the savings rate rose 0.3% in the month. At the same time, consumer spending rose 0.2% in November. Over the past year, real spending has risen 3.4% while real disposable income has increased by 2.2%. In 2004, we spent more than we earned.
Kurt Wulff: “2004 was the year in which the world production of light oil peaked… Just by replaying the old oil cycle, starting in 1976, we could have a three-to-fivefold gain in the oil price in the next five to 13 years.”
On October 13, 1989, Senator Fritz Hollings spoke on the Senate floor and stated “of course, the most reprehensible fraud in this great jambalaya of frauds is the systematic and total ransacking of the Social Security trust fund in order to mask the true size of the deficit…the Treasury is siphoning off every dollar of the Social Security surplus to meet current operating expenses of the Government…the hard fact is that, in the next century, the Social Security system will find itself paying out vastly more in benefits than it is taking in through payroll taxes. And the American people will wake up to the reality that those IOUs in the trust fund vault are a 21st century version of Confederate banknotes.”
On January 24, 1990, Senator Daniel Moynihan spoke on the Senate floor and remarked “Mr. President… If there is a problem of dissimulation, I would suggest that it resides with the present practice of using Social Security trust funds as general revenues. My distinguished friend, the Republican Senator from Pennsylvania, Senator Heinz, has used a very direct word for this. He says it is called embezzlement.”
On November 5, 1990, Bush Sr. signed into law Section 13301 of the Budget Enforcement Act of 1990. It made it unlawful to include Social Security funds in budget calculations. Despite the signing of this law, Bush Sr. continued to use Social Security funds for budget purposes.
Bush Jr., in his first State of the Union Address, said “To make sure the retirement savings of America’s seniors are not diverted to any other program, my budget protects all $2.6 trillion of the Social Security surplus for Social Security, and for Social Security alone.” During his first term, Bush Jr. spent the entire $509 billion in surplus Social Security revenue generated. Each and very day almost $440 million is being embezzled from the Social Security trust fund.
While everyone is enjoying eggnog and being merry, I thought the aforementioned would be a jolly reminder of what it means to get stuffed in real-time. So, while you’re opening your loot during this holiday, know you and your neighbor are being looted by someone you and millions of others invited back into that big white house for another four years.
Just because the cost of money is cheap, doesn’t mean stocks and bonds are cheap.
From November 2003 to November 2004, the M3 money supply rose at a 5.4% rate; however, between August 2004 and November 2004, the rate of growth slowed to 1.6%. Between November 2003 and November 2004, the monetary base of depository institutions, adjusted for changes in reserve requirements and seasonally adjusted, rose each and every month. However, from December 1 through December 22, 2004, the monetary base has declined below the prior month’s level. I mention this changing flow of funds pattern as a very real red flag. Changes are in the wind, and those changes can bring some unwelcome surprises in the coming year.
The euro rallied to a new high of 135.40 versus the dollar.
Almost 2 million people are employed in department stores this day before Christmas. Stars of this holiday shopping season have been gift cards, the iPod, plasma-screen TVs, Delphi XM Satellite MyFi, and cashmere sweaters.
COX-2 selective inhibitors are associated with an increased incidence of serious adverse events as compared to non-selective NSAIDS (non-steroidal anti-inflammatory drugs).
The Commerce Department reported that November new home sales declined 12% to the lowest level since July. It was the largest drop in more than a decade. November inventory of new homes for sale represented a 4.5 month supply. It was the largest inventory since 1979. The median price of a new home sold in November declined 8.2% to $206,300. It means that new home prices have dropped 0.4% since November 2003. However, residential real estate represents 29% of the value of total household assets while the household financial obligation ratio exceeds 18%, both near record levels.
The housing market in California is a different story with 2004 being a record year for home prices. The annual median price of a home rose 22% to more than $450,000. The median number of days required to sell a home has been only 29 days, the third lowest on record. Even though more than 200,000 permits were issued in 2004, the total fell short of household growth estimated at between 220,000 and 250,000 this year. The state’s Housing Affordability Index has fallen to about 19% this year.
Sales and earnings at American Greetings are below expectations due to lower revenue at the retail level and from the seasonal gift-wrap business.
Real disposable income rose 0.2% in November and the savings rate rose 0.3% in the month. At the same time, consumer spending rose 0.2% in November. Over the past year, real spending has risen 3.4% while real disposable income has increased by 2.2%. In 2004, we spent more than we earned.
Kurt Wulff: “2004 was the year in which the world production of light oil peaked… Just by replaying the old oil cycle, starting in 1976, we could have a three-to-fivefold gain in the oil price in the next five to 13 years.”
Thursday, December 23, 2004
12/23/04 The End Game
How do you know it’s the end game? In basketball, it’s the last 2 minutes that count. In elections, such as the Governor’s race in the state of Washington, it’s the third recount, the hand recount, that counts--- even if the difference is only 10 votes out of 10 million ballots cast. In the bond and stock markets, there is no end game. The music doesn’t stop unless you can’t meet a margin call. Sometimes the direction of the game takes on a life of its own. Since August 2004, the Dow Transports have risen over 800 points or about 28% without a correction. What does that signify? It means that price points are moving up almost daily with strong investor buying power and the willingness to pay a premium for designer labels, so to speak. At some point, promotions come into play. Then the scramble for bargains takes place. It’s like the old free-for-all days at Loehmann’s. Be careful not to get trampled. Shoppers hunting for bargains can get aggressive and vicious. The problem now is that there are few bargains and prices continue to escalate--- not just for equities but also in real estate, for example, in San Francisco. Multiple bids turn into a feeding frenzy. It’s not for the faint of heart.
Can you explain to me how the GDP rose 4% in the third quarter while corporate profits declined by 4.2%?
According to Redbook, chain store sales have fallen for three straight weeks. There is another side to the end game. Walmart.com introduced gift cards during the 2002 holiday season. The company expects its sales of online gift cards to triple this season from last year.
The end game is still alive. According to the International Council of Shopping Centers and UBS, one in five consumers plan to shop on December 26. That’s a Sunday. I thought it was a day of rest.
VeriSign stated that this year’s average online transaction increased 10% to $140.
For many, when a plant closes, it is the end game. Hopefully, that will not be the case for all the employees at the Shaw Industries wool plant in Dallas. It is closing.
Is the end game approaching for Medicare? Comptroller General Walker stated “the Medicare problem is about seven times greater than the Social Security problem. It is much bigger, it is much more immediate, and it is going to be much more difficult to effectively address.” John Palmer, one of the six trustees of Social Security and Medicare finances, stated “costs are going to soar, and that is going to put tremendous pressure on federal revenues.” According to the GAO, unfunded Medicare liabilities amount to about $28 trillion.
The Medicare Part B premium for visits to doctors’ offices will rise by 17% or $11.60 in 2005. The typical monthly COLA for Social Security is $25 in 2005.
Air Europa, Spain’s third-largest airline, is currently an all-Boeing operator with 737 and 767 aircraft. The airline ordered 10 A350 planes from Airbus. In addition, Decan Air, India’s low-cost airline, ordered 30 A320s from Airbus and Kingfisher Airline ordered 10 A320s. Meanwhile, JAL ordered 30 Boeing 7E7s. Boeing now has 112 firm orders for the 7E7. The company predicted it would have firm orders for 200 by the end of 2004. Time is getting short for that to occur.
Our economic expansion has been slowing while interest rates have remained at near record-low levels. What happens when rates rise?
Bush’s approval rating stands at 49%. Now I know why he is the Man of the Year. He is the first President in the history of the U.S. to be re-elected with an approval rating under 50% and to also have that approval rating remain under 50% a month after the election. He made history.
Blockbuster cut the price for online rentals to $14.99 per month? Is this the end game?
Excluding transportation, durable goods orders fell 0.8% in November after falling 1.3% in October.
How do you know it’s the end game? In basketball, it’s the last 2 minutes that count. In elections, such as the Governor’s race in the state of Washington, it’s the third recount, the hand recount, that counts--- even if the difference is only 10 votes out of 10 million ballots cast. In the bond and stock markets, there is no end game. The music doesn’t stop unless you can’t meet a margin call. Sometimes the direction of the game takes on a life of its own. Since August 2004, the Dow Transports have risen over 800 points or about 28% without a correction. What does that signify? It means that price points are moving up almost daily with strong investor buying power and the willingness to pay a premium for designer labels, so to speak. At some point, promotions come into play. Then the scramble for bargains takes place. It’s like the old free-for-all days at Loehmann’s. Be careful not to get trampled. Shoppers hunting for bargains can get aggressive and vicious. The problem now is that there are few bargains and prices continue to escalate--- not just for equities but also in real estate, for example, in San Francisco. Multiple bids turn into a feeding frenzy. It’s not for the faint of heart.
Can you explain to me how the GDP rose 4% in the third quarter while corporate profits declined by 4.2%?
According to Redbook, chain store sales have fallen for three straight weeks. There is another side to the end game. Walmart.com introduced gift cards during the 2002 holiday season. The company expects its sales of online gift cards to triple this season from last year.
The end game is still alive. According to the International Council of Shopping Centers and UBS, one in five consumers plan to shop on December 26. That’s a Sunday. I thought it was a day of rest.
VeriSign stated that this year’s average online transaction increased 10% to $140.
For many, when a plant closes, it is the end game. Hopefully, that will not be the case for all the employees at the Shaw Industries wool plant in Dallas. It is closing.
Is the end game approaching for Medicare? Comptroller General Walker stated “the Medicare problem is about seven times greater than the Social Security problem. It is much bigger, it is much more immediate, and it is going to be much more difficult to effectively address.” John Palmer, one of the six trustees of Social Security and Medicare finances, stated “costs are going to soar, and that is going to put tremendous pressure on federal revenues.” According to the GAO, unfunded Medicare liabilities amount to about $28 trillion.
The Medicare Part B premium for visits to doctors’ offices will rise by 17% or $11.60 in 2005. The typical monthly COLA for Social Security is $25 in 2005.
Air Europa, Spain’s third-largest airline, is currently an all-Boeing operator with 737 and 767 aircraft. The airline ordered 10 A350 planes from Airbus. In addition, Decan Air, India’s low-cost airline, ordered 30 A320s from Airbus and Kingfisher Airline ordered 10 A320s. Meanwhile, JAL ordered 30 Boeing 7E7s. Boeing now has 112 firm orders for the 7E7. The company predicted it would have firm orders for 200 by the end of 2004. Time is getting short for that to occur.
Our economic expansion has been slowing while interest rates have remained at near record-low levels. What happens when rates rise?
Bush’s approval rating stands at 49%. Now I know why he is the Man of the Year. He is the first President in the history of the U.S. to be re-elected with an approval rating under 50% and to also have that approval rating remain under 50% a month after the election. He made history.
Blockbuster cut the price for online rentals to $14.99 per month? Is this the end game?
Excluding transportation, durable goods orders fell 0.8% in November after falling 1.3% in October.
Wednesday, December 22, 2004
12/22/04 Let The Good Times Roll
When there are 29 out of 30 Dow stocks up in a day, and that was the case yesterday, you know the flow of funds is decidedly moving into equities. Over the past several weeks, many companies have announced buybacks of their own stock. Microsoft paid out that $32 billion dividend. Companies have over $1 trillion in cash on their balance sheets. Merger activity has moved to the front pages. It's no wonder there is a big seasonal rally. Yet, I remain convinced that the right course of action, at leats for me, is to sell into the strength. As previously stated, I have also eliminated all Treasury bond holdings.
With all that cash you would think companies would be increasing wages and salaries and hiring more permanent workers. As with this holiday's retail sales, permanent hiring is lackluster. Meanwhile, workers are content to work at least 16 hours a week at Safeway as a courtesy clerk and receive $8.39 an hour. Why? By working 16 hours a week, they receive full medical and dental coverage and that provides peace of mind. That's a trade off for working at $8.39 per hour and, for many, being over-qualified.
Bilateral trade between China and India surpassed the $10 billion mark for the first time. Growth in the first 10 months was an impressive 82.5%.
For many months I have written about the weakness in the UK housing market. There is talk that the Bank of England will soon lower interest rates.
When there are 29 out of 30 Dow stocks up in a day, and that was the case yesterday, you know the flow of funds is decidedly moving into equities. Over the past several weeks, many companies have announced buybacks of their own stock. Microsoft paid out that $32 billion dividend. Companies have over $1 trillion in cash on their balance sheets. Merger activity has moved to the front pages. It's no wonder there is a big seasonal rally. Yet, I remain convinced that the right course of action, at leats for me, is to sell into the strength. As previously stated, I have also eliminated all Treasury bond holdings.
With all that cash you would think companies would be increasing wages and salaries and hiring more permanent workers. As with this holiday's retail sales, permanent hiring is lackluster. Meanwhile, workers are content to work at least 16 hours a week at Safeway as a courtesy clerk and receive $8.39 an hour. Why? By working 16 hours a week, they receive full medical and dental coverage and that provides peace of mind. That's a trade off for working at $8.39 per hour and, for many, being over-qualified.
Bilateral trade between China and India surpassed the $10 billion mark for the first time. Growth in the first 10 months was an impressive 82.5%.
For many months I have written about the weakness in the UK housing market. There is talk that the Bank of England will soon lower interest rates.
Tuesday, December 21, 2004
12/21/04 Precarious Looting
Bush on Social Security: “It’s now in a precarious position. And the question is whether or not our society has got the will to adjust from a defined benefit plan to a defined contribution plan.”
Economist Allen W. Smith, Ph.D. is author of the “Looting of Social Security: How the Government is Draining America’s Retirement Account.” According to Smith, “most of the participants in the debate argue that, when benefit payments begin to exceed payroll tax revenue in 2018, Social Security can just start redeeming that hoard of government ‘bonds’ that are in the trust fund to supplement the inadequate tax revenue, and that it will last until 2042.” He says people who make this argument are wrong. Simply stated, he says, “every penny of the Social Security surplus has been ‘borrowed’ and used to fund other things… since the money was spent, and not invested in paying down the public debt by buying marketable Treasury bonds as the supporters of the 1983 Social Security legislation intended, the trust fund holds only non-marketable ‘special issue’ IOUs that are simply accounting entries that keep track of how much the government owes to Social Security. These IOUs are not real assets because they have no cash value. So, unless the government begins repaying its debt to Social Security now, when Social Security begins to run deficits in 2018, it will be necessary to raise taxes, borrow massive additional amounts from the public, or cut benefits. This is what the privatization smoke screen is intended to keep the public from seeing…The solution to the short-term Social Security imbalance would be for the government to immediately stop looting Social Security and begin repaying the $1.5 trillion that it has already looted from the fund.”
H. Stanley Judd: “The ultimate security is your understanding of reality.”
Dwight Eisenhower: “We will bankrupt ourselves in the vain search for absolute security.”
The key to resolving Social Security, as well as for most problems, is rational decision making rooted in common sense judgments and choices. Invading Iraq was one of choice. There was significant evidence in the winter of 2001 to suggest that, at the very least, doubt surrounded the existence of WMD. I expressed this view quite frequently at that time. Now, Bush is making another precarious judgment. Solving the problems of Social Security is not about society’s will. It is about the federal government’s will--- the will of the Administration and the Congress--- to sharply reduce spending and to begin the repayment of the $1.5 trillion looted from the fund. Approving federal budgets does not equate to right-doing, so to speak. It does not create a good housekeeping stamp of approval and a pat on the head. It is wrong to loot, and people who loot are convicted and sent to prison--- unless they reside at 1600 Pennsylvania Avenue. The government has made no provision to repay the $1.5 trillion that was looted. No federal budget should be approved without repayment provisions.
For the first time in six months, the Conference Board stated the U.S. index of leading economic indicators rose. It was up by 0.2%. In November, six of the ten indicators that make up the index increased. The main improvements were rising stock prices and real money supply. At the same time, the growth rate of the leading index has slowed below its long-term trend.
According to the Holiday eSpending Report, online shoppers in the U.S. spent $16.7 billion during the first six weeks of the holiday season, rising 28% from the prior year. The fastest growing categories year-over-year were music, video/DVD, jewelry, books, and toys/Video games (hardware and software). By comparison, ShopperTrak reported that retail sales on Saturday and Sunday fell 3.3% from the final pre-Christmas weekend a year ago. In the week that ended December 18, sales dropped 5.9% compared with the same week a year ago. Describing this shopping season, Michael Niemira, chief economist at the International Council of Shopping Centers, stated “it’s slow; it’s very uneven; and, at times, it’s worrisome.” Kurt Barnard of Barnard’s Retail Consulting Group stated “so far the season has been a considerable disappointment for most retailers.” One reason, Barnard opined, was “it’s just the same old, same old, same old.” He could just as easily been describing the rhetoric coming out of Washington DC. There is a big difference. Spending by the Administration and the Congress is far from lackluster or slow. It is, however, quite disappointing and extremely worrisome.
Dana Corp. is closing its Stateville, NC plant. It will result in 300 lost jobs. The facility supplies equipment to makers of industrial equipment, such as, graders, loaders, and tractors.
Bush on Social Security: “It’s now in a precarious position. And the question is whether or not our society has got the will to adjust from a defined benefit plan to a defined contribution plan.”
Economist Allen W. Smith, Ph.D. is author of the “Looting of Social Security: How the Government is Draining America’s Retirement Account.” According to Smith, “most of the participants in the debate argue that, when benefit payments begin to exceed payroll tax revenue in 2018, Social Security can just start redeeming that hoard of government ‘bonds’ that are in the trust fund to supplement the inadequate tax revenue, and that it will last until 2042.” He says people who make this argument are wrong. Simply stated, he says, “every penny of the Social Security surplus has been ‘borrowed’ and used to fund other things… since the money was spent, and not invested in paying down the public debt by buying marketable Treasury bonds as the supporters of the 1983 Social Security legislation intended, the trust fund holds only non-marketable ‘special issue’ IOUs that are simply accounting entries that keep track of how much the government owes to Social Security. These IOUs are not real assets because they have no cash value. So, unless the government begins repaying its debt to Social Security now, when Social Security begins to run deficits in 2018, it will be necessary to raise taxes, borrow massive additional amounts from the public, or cut benefits. This is what the privatization smoke screen is intended to keep the public from seeing…The solution to the short-term Social Security imbalance would be for the government to immediately stop looting Social Security and begin repaying the $1.5 trillion that it has already looted from the fund.”
H. Stanley Judd: “The ultimate security is your understanding of reality.”
Dwight Eisenhower: “We will bankrupt ourselves in the vain search for absolute security.”
The key to resolving Social Security, as well as for most problems, is rational decision making rooted in common sense judgments and choices. Invading Iraq was one of choice. There was significant evidence in the winter of 2001 to suggest that, at the very least, doubt surrounded the existence of WMD. I expressed this view quite frequently at that time. Now, Bush is making another precarious judgment. Solving the problems of Social Security is not about society’s will. It is about the federal government’s will--- the will of the Administration and the Congress--- to sharply reduce spending and to begin the repayment of the $1.5 trillion looted from the fund. Approving federal budgets does not equate to right-doing, so to speak. It does not create a good housekeeping stamp of approval and a pat on the head. It is wrong to loot, and people who loot are convicted and sent to prison--- unless they reside at 1600 Pennsylvania Avenue. The government has made no provision to repay the $1.5 trillion that was looted. No federal budget should be approved without repayment provisions.
For the first time in six months, the Conference Board stated the U.S. index of leading economic indicators rose. It was up by 0.2%. In November, six of the ten indicators that make up the index increased. The main improvements were rising stock prices and real money supply. At the same time, the growth rate of the leading index has slowed below its long-term trend.
According to the Holiday eSpending Report, online shoppers in the U.S. spent $16.7 billion during the first six weeks of the holiday season, rising 28% from the prior year. The fastest growing categories year-over-year were music, video/DVD, jewelry, books, and toys/Video games (hardware and software). By comparison, ShopperTrak reported that retail sales on Saturday and Sunday fell 3.3% from the final pre-Christmas weekend a year ago. In the week that ended December 18, sales dropped 5.9% compared with the same week a year ago. Describing this shopping season, Michael Niemira, chief economist at the International Council of Shopping Centers, stated “it’s slow; it’s very uneven; and, at times, it’s worrisome.” Kurt Barnard of Barnard’s Retail Consulting Group stated “so far the season has been a considerable disappointment for most retailers.” One reason, Barnard opined, was “it’s just the same old, same old, same old.” He could just as easily been describing the rhetoric coming out of Washington DC. There is a big difference. Spending by the Administration and the Congress is far from lackluster or slow. It is, however, quite disappointing and extremely worrisome.
Dana Corp. is closing its Stateville, NC plant. It will result in 300 lost jobs. The facility supplies equipment to makers of industrial equipment, such as, graders, loaders, and tractors.
Monday, December 20, 2004
12/20/04 Winter Has Arrived
The winter solstice maybe tomorrow, but don't tell that to Washington DC. It's 10 degrees F, and with the winds blowing 20 to 30 miles per hour, it feels like 10 below. With temperatures like that across many sections of the country, it doesn't take long to use up a lot of heating oil, natural gas, and propane. Combine that with bin Laden's call to attack Saudi oil supplies, and you have some strong bidding for crude. The 10 cent drop in the price of gas at the pump was a welcome relief, but it appears to be short-lived. Santa arrived on Wall Street and that's more than enough to line the pockets of many investors and speculators. Unfortunately, all good things come to an end--- just like warm weather.
According to WebSideStory, Microsoft has started to lose browser market share for the first time in four years. Internet Explorer's share in the U.S. has dropped from 96% in early 2003 to 92% as of Dec. 3. Firefox and Opera have over 10 million users, and Firefox was officially on the market less than 2 months ago. As I mentioned about three months ago, Firefox will make a dent in the browser market, and that dent will get bigger in time.
According to an AP poll, one-half of Americans say they worry about the money they owe---even more so with the holiday purchases, and three-fourths in the poll stated they have credit cards. More than half expect their debt will cause them problems over the next five years. They shouldn't worry. Greenspan is not worried about consumer debt levels, and he is all-knowing. He is Carnac the non-magnificent. As for Federal spending, the Snowman stated it will be reduced in 2006. He seems to have by-passed 2005. Maybe the stock market has taken 2005 for granted too. Years ending in 5 are often clear sailing. It always stays warm too.
The winter solstice maybe tomorrow, but don't tell that to Washington DC. It's 10 degrees F, and with the winds blowing 20 to 30 miles per hour, it feels like 10 below. With temperatures like that across many sections of the country, it doesn't take long to use up a lot of heating oil, natural gas, and propane. Combine that with bin Laden's call to attack Saudi oil supplies, and you have some strong bidding for crude. The 10 cent drop in the price of gas at the pump was a welcome relief, but it appears to be short-lived. Santa arrived on Wall Street and that's more than enough to line the pockets of many investors and speculators. Unfortunately, all good things come to an end--- just like warm weather.
According to WebSideStory, Microsoft has started to lose browser market share for the first time in four years. Internet Explorer's share in the U.S. has dropped from 96% in early 2003 to 92% as of Dec. 3. Firefox and Opera have over 10 million users, and Firefox was officially on the market less than 2 months ago. As I mentioned about three months ago, Firefox will make a dent in the browser market, and that dent will get bigger in time.
According to an AP poll, one-half of Americans say they worry about the money they owe---even more so with the holiday purchases, and three-fourths in the poll stated they have credit cards. More than half expect their debt will cause them problems over the next five years. They shouldn't worry. Greenspan is not worried about consumer debt levels, and he is all-knowing. He is Carnac the non-magnificent. As for Federal spending, the Snowman stated it will be reduced in 2006. He seems to have by-passed 2005. Maybe the stock market has taken 2005 for granted too. Years ending in 5 are often clear sailing. It always stays warm too.
Sunday, December 19, 2004
12/19/04 A State Of Mind
The holiday season is one of faith, compassion, giving, and joy. It is a state of mind that, unfortunately, is seasonal, and has a partial resemblance to the yearly Claus rally on Wall Street. All good things come to an end---- even the two-day economic conference in DC., which reminds us that this season is often mindless and comprised of senseless dribble.
Harry and David of Medford, Oregon had quite a surprise this holiday shopping season. They received more online orders than they did from their catalog. Could this spell trouble for the catalog business in years to come?
I hope everyone has a wonderful holiday, and one filled with peace of mind and a quality of life cherished and sought by all.
The holiday season is one of faith, compassion, giving, and joy. It is a state of mind that, unfortunately, is seasonal, and has a partial resemblance to the yearly Claus rally on Wall Street. All good things come to an end---- even the two-day economic conference in DC., which reminds us that this season is often mindless and comprised of senseless dribble.
Harry and David of Medford, Oregon had quite a surprise this holiday shopping season. They received more online orders than they did from their catalog. Could this spell trouble for the catalog business in years to come?
I hope everyone has a wonderful holiday, and one filled with peace of mind and a quality of life cherished and sought by all.
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