2/4/05 Closing Remarks
I thought it only fair that I provide the real closing remarks that the President had prepared for the State of the Union Address. They were changed because the Vice President did not give his nod of approval.
The remarks began with a bit of a swagger. They projected an increase in January 2005 employment that would offset the job losses during the first term in office. To date, the U.S. lost 122,000 jobs since the President took office. Employment is down 241,000 jobs from the high point reached in March 2001. With some helpful revisions, it’s possible that figure can be eliminated. Unfortunately, there is a cautionary note to this rosy picture. The latest jobs component of the ISM service-sector index fell to its lowest point since September 2003. We are essentially a service economy, and the service sector has been carrying the job creation load since the economic recovery began in November 2001. With slowing service sector hiring and slowing productivity growth, unit labor costs will rise in the future and they will lead to further inflationary concerns and, ultimately, to higher interest rates. It will create additional borrowing costs for our nation, and this will create greater budget deficits than previously forecast. Of course, as previously mentioned, forecasts are meant to be broken.
Much of the President’s speech was devoted to reforming Social Security. Left out of the closing remarks was a word of caution. If investments in the proposed private accounts earn less than 3 percent a year above inflation, then a worker would do worse than in the existing system. Many conservative Republicans and all Senate Democrats object to the idea of financing accounts with money earmarked for the Social Security trust fund. Privately, there is a move on by the aforementioned Republicans and Democrats to bolster the existing Social Security program with money from general revenues. In sum, it’s doubtful that the proposed President’s plan will travel well into the corners of our nation’s populace. The idea of private accounts creates fear in most people.
The President explained that we don’t have an exit strategy in Iraq. Nevertheless, 15,000 U.S. troops will leave Iraq in February. Much was made of the sacrifices made and of our 1400 + troops dying and of our 15,000 wounded U.S. soldiers so that the Iraqis could be free to vote. Nothing was said about the projected outcome of the election. The President had them in the closing remarks but the Vice President asked to have them removed. They indicated that the U.S. choice, Allawi, was getting skunked in the voting by a “Sistani tsunami.” As the head of the Constitutional Monarchy Party remarked, “Americans are in for a shock. We’ve got 150,000 troops here protecting a country that’s extremely friendly to Iran, and training their troops.” If it works out that way, this would be shock and awe. Making matters worse, Gen. Richard Myers testified that more than two-thirds of the 136,000 members of the Iraqi security forces that we have trained and equipped were unready to combat the insurgency.
The President wanted to include some additional remarks about inflation. It is well appreciated that higher costs for materials and transportation are impacting the bottom line for many corporations. Cost controls have helped to partially offset the pressure on operating margins. However, as productivity growth eases, there has been an increasing desire to raise prices and offset higher costs. Whirlpool, for example, estimates that its material costs will increase another 7 to 8% during 2005. As such, Whirlpool implemented global price increases of 5 to 10%, effective January 1. The company has to do what is best for its shareholders. At the same time, if Americans are to afford higher priced appliances, then their job income must rise to offset inflation. That has not happened over the recent period. Job creation without sufficient income growth cannot sustain a consumer-based economy.
The President had included remarks on various currencies. He included a statement that there has been much speculation about China easing its current peg against the U.S. dollar. It has been suggested that the peg has been responsible in large part for the record trade deficit with China. One should note that a change in the peg would not alter the differential in unit labor costs that favor China. In addition, more countries are moving towards a dual currency basket. Russia is the latest example.
Finally, the President wanted to say a word about our economy. We are at war. Our defense budget has been escalating during this time of war. Defense contractors have benefited. Boeing is the second largest defense contractor. In less than three weeks, Boeing will announce the sale of its Wichita facility. The company has approximately 7,000 employees working there. Boeing Wichita builds 75% of the 737 airframe and assemblies for all of Boeing’s commercial aircraft, which are then shipped to Renton and Everett for final assembly. The President expects those 7,000 employees will continue to be employed by the new buyer. Over the past 48 months, Boeing cut thousands and thousands of workers from its payroll. Over the past 48 months, Boeing has received hundreds of millions of dollars in tax benefits. When does Boeing start benefiting the communities in which they serve?
Thursday, February 03, 2005
2/3/05 This Is Hard Work
The President could not include everything he wanted to say last night. It’s hard trying to include everything in an hour or so. He wanted me to pass on some of the thoughts not included due to time constraints.
He mentioned the 2.3 million jobs created in the past year. Unfortunately, five million + jobs were not created as previously forecast in the first four years of the presidency. These things happen. Forecasts are made to be broken. We did create a significant number of outpatient health services positions, educational service providers, and thanks to low interest rates, many jobs in building, selling, financing, and landscaping homes. The U.S. is in the service business. We manufacture very little for export. The 767 is gone. We have to wait until 2008 for the 7E7. Fortunately, due to the lack of fiscal responsibility, defense and government salaries rose in 2004, according to Dice Inc., the leading job board for technology, but computer software salaries fell in 2004 to levels not seen since 2001. There was a continued decline of salaries for contractors and consultants. That’s just the way the cookie crumbles. Working as a security-cleared professional in the government and defense sectors pays well. That’s why Boeing, our number two defense contractor, had profit margins in their defense business 2 ½ times those in commercial aircraft. Boeing stockholders think the company makes its money from commercial airplanes. That’s probably what the company wants you to believe. Defense contracts feed their cash flow. We take care of our own.
There was a discussion on reducing the deficit in half by 2009. Now, please understand this is just a forecast, and forecasts are made to be broken. The budget deficit will increase to a new record in 2005. It can’t be helped. I need to have discretion in my spending. That’s why discretionary spending rose 10% from 2002 to 2004. The President did not want to scare the American people. The national debt stands at $7.6 trillion and unfunded liabilities for Medicare and Social Security total $72 trillion. If he tries to do away with waste, fraud, and abuse, there won’t be any government workers or government contractors. Think of the loss of jobs. We need to keep America’s consumers on the front lines spending, spending, and spending.
The President talked about rising home ownership. There was not enough time to discuss the fact that home prices are outpacing income gains. For example, according to Arizona State University’s Arizona Real Estate Center, the reading on its key affordability index for existing homes fell, at the end of 2004, to its lowest level in 15 years. Despite the sagging affordability index, new and used-home sales broke records in 2004 in metropolitan Phoenix. This story is repeated in San Francisco and many other areas of the county.
The President took great pride in the recent elections in Iraq. There wasn’t sufficient time to discuss the significance of a Shi’ite government in power and their building an alliance with Iran. It would mean that Iraq and Iran together would control over 50% of the oil reserves in the Middle East. This would necessitate our invading Iran. That would mean more defense spending, more jobs, and more supplemental budgets that would increase the record deficits to even higher record deficits.
The President did not have time to discuss the daily funding of our twin tower deficits. Each day we need to import at least $2 billion in foreign capital. It’s the price the foreigners have to pay for America to be the world’s growth engine. We’re top economic dog. We’re the economic super power. Let’s take Malaysia. Not many folks know where it’s located. I didn’t either until Laura told me. She knows theses things. She taught school. Malaysia’s reserves are 54% of their GDP, and that’s up 20 percentage points from just two years ago. Then you look at China and their reserves. The world is afloat in dollars. There are too many dollars. I tell Greenspan to stop printing so many, but he won’t listen. He says there’s no alternative but to monetize our debts. I wanted to bring Volcker back but he wouldn’t take the job. The problem is the dollar is still number one on the world scene but it’s beginning to share the stage with other currencies, and, in particular, the euro. They built alliances over there but we really haven’t. I’m told things could get worse if we don’t save more and spend less. The American people don’t want to hear that.
The President wanted to discuss all these recent mergers. They are killing the job numbers. Every time there is a big merger 13,000 jobs are cut or 6,000 or some number in the thousands. It’s very bad for spending morale.
The President touched on the graying of the population. Hair coloring looks like a growth business. According to CSIS, by 2040, 26% of the U.S. population will be at least 60 years old, up from 16.3% in 2000. That’s why we need to encourage illegal aliens to come across our borders. They are young. They will reduce the age of our population. Someone has to work the fields. We don’t want to end up like China. By 2040, 28% of China’s population will be at least 60.
The President wanted to say a few words to corporations. There have been numerous tax breaks afforded them over the past four years. Worker productivity has helped the bottom line but hiring has not kept pace. More and more capital investments are flowing to China and India. According to Corporate Office Perspectives, the San Francisco Bay Area has more than 83 million square feet of vacant office, flex, and R&D space. That’s a story found in many other tech cities. Something has to be done about those vacant buildings. Either fill them or the tax breaks disappear. There may be pork in Washington but there’s no free lunch.
Finally, the President wanted to say a few words about the changes taking place in the work place. The average worker has toiled for the last several years creating positive productivity results that aided corporate profits but taking it in the butt with wages falling behind inflation. We are beginning to face a different picture. Productivity in the nonfarm sector slowed to a 0.8% annual rate in the fourth quarter of 2004, the smallest gain in nearly four years. With unemployment declining, the labor market is beginning to tighten in certain areas. Employees want higher wages and benefits. Without them, it’s not possible to make ends meet and still spend. Wages will need to rise and the majority of productivity gains are behind us. Corporations will need to find new ways to increase profits, and they had better not come from increased prices. If that happens, the Fed will fight inflationary forces and increase interest rates far beyond the most recent forecasts. Remember that forecasts are meant to be broken.
The President could not include everything he wanted to say last night. It’s hard trying to include everything in an hour or so. He wanted me to pass on some of the thoughts not included due to time constraints.
He mentioned the 2.3 million jobs created in the past year. Unfortunately, five million + jobs were not created as previously forecast in the first four years of the presidency. These things happen. Forecasts are made to be broken. We did create a significant number of outpatient health services positions, educational service providers, and thanks to low interest rates, many jobs in building, selling, financing, and landscaping homes. The U.S. is in the service business. We manufacture very little for export. The 767 is gone. We have to wait until 2008 for the 7E7. Fortunately, due to the lack of fiscal responsibility, defense and government salaries rose in 2004, according to Dice Inc., the leading job board for technology, but computer software salaries fell in 2004 to levels not seen since 2001. There was a continued decline of salaries for contractors and consultants. That’s just the way the cookie crumbles. Working as a security-cleared professional in the government and defense sectors pays well. That’s why Boeing, our number two defense contractor, had profit margins in their defense business 2 ½ times those in commercial aircraft. Boeing stockholders think the company makes its money from commercial airplanes. That’s probably what the company wants you to believe. Defense contracts feed their cash flow. We take care of our own.
There was a discussion on reducing the deficit in half by 2009. Now, please understand this is just a forecast, and forecasts are made to be broken. The budget deficit will increase to a new record in 2005. It can’t be helped. I need to have discretion in my spending. That’s why discretionary spending rose 10% from 2002 to 2004. The President did not want to scare the American people. The national debt stands at $7.6 trillion and unfunded liabilities for Medicare and Social Security total $72 trillion. If he tries to do away with waste, fraud, and abuse, there won’t be any government workers or government contractors. Think of the loss of jobs. We need to keep America’s consumers on the front lines spending, spending, and spending.
The President talked about rising home ownership. There was not enough time to discuss the fact that home prices are outpacing income gains. For example, according to Arizona State University’s Arizona Real Estate Center, the reading on its key affordability index for existing homes fell, at the end of 2004, to its lowest level in 15 years. Despite the sagging affordability index, new and used-home sales broke records in 2004 in metropolitan Phoenix. This story is repeated in San Francisco and many other areas of the county.
The President took great pride in the recent elections in Iraq. There wasn’t sufficient time to discuss the significance of a Shi’ite government in power and their building an alliance with Iran. It would mean that Iraq and Iran together would control over 50% of the oil reserves in the Middle East. This would necessitate our invading Iran. That would mean more defense spending, more jobs, and more supplemental budgets that would increase the record deficits to even higher record deficits.
The President did not have time to discuss the daily funding of our twin tower deficits. Each day we need to import at least $2 billion in foreign capital. It’s the price the foreigners have to pay for America to be the world’s growth engine. We’re top economic dog. We’re the economic super power. Let’s take Malaysia. Not many folks know where it’s located. I didn’t either until Laura told me. She knows theses things. She taught school. Malaysia’s reserves are 54% of their GDP, and that’s up 20 percentage points from just two years ago. Then you look at China and their reserves. The world is afloat in dollars. There are too many dollars. I tell Greenspan to stop printing so many, but he won’t listen. He says there’s no alternative but to monetize our debts. I wanted to bring Volcker back but he wouldn’t take the job. The problem is the dollar is still number one on the world scene but it’s beginning to share the stage with other currencies, and, in particular, the euro. They built alliances over there but we really haven’t. I’m told things could get worse if we don’t save more and spend less. The American people don’t want to hear that.
The President wanted to discuss all these recent mergers. They are killing the job numbers. Every time there is a big merger 13,000 jobs are cut or 6,000 or some number in the thousands. It’s very bad for spending morale.
The President touched on the graying of the population. Hair coloring looks like a growth business. According to CSIS, by 2040, 26% of the U.S. population will be at least 60 years old, up from 16.3% in 2000. That’s why we need to encourage illegal aliens to come across our borders. They are young. They will reduce the age of our population. Someone has to work the fields. We don’t want to end up like China. By 2040, 28% of China’s population will be at least 60.
The President wanted to say a few words to corporations. There have been numerous tax breaks afforded them over the past four years. Worker productivity has helped the bottom line but hiring has not kept pace. More and more capital investments are flowing to China and India. According to Corporate Office Perspectives, the San Francisco Bay Area has more than 83 million square feet of vacant office, flex, and R&D space. That’s a story found in many other tech cities. Something has to be done about those vacant buildings. Either fill them or the tax breaks disappear. There may be pork in Washington but there’s no free lunch.
Finally, the President wanted to say a few words about the changes taking place in the work place. The average worker has toiled for the last several years creating positive productivity results that aided corporate profits but taking it in the butt with wages falling behind inflation. We are beginning to face a different picture. Productivity in the nonfarm sector slowed to a 0.8% annual rate in the fourth quarter of 2004, the smallest gain in nearly four years. With unemployment declining, the labor market is beginning to tighten in certain areas. Employees want higher wages and benefits. Without them, it’s not possible to make ends meet and still spend. Wages will need to rise and the majority of productivity gains are behind us. Corporations will need to find new ways to increase profits, and they had better not come from increased prices. If that happens, the Fed will fight inflationary forces and increase interest rates far beyond the most recent forecasts. Remember that forecasts are meant to be broken.
Wednesday, February 02, 2005
2/2/05 Giving Thanks
In a preview to tonight’s State of the Union speech, I thought it would be helpful to provide an inside look at what the President will tell the nation. The theme will be giving thanks. He will give a special thanks to Greenspan for raising short term rates, calming fears about inflation, and not saying a disparaging word about the carry trade. He will thank the Fed members for printing money at well over twice the inflation rate and, thus, enable the declining dollar to make U.S. assets look cheap to foreigners. According to Fed statistics, at the end of the third quarter of 2004, foreigners owned $4.5 trillion more in U.S. assets than the U.S. own of foreign assets. The President will give a special thanks to foreigners for exporting their savings to our shores, thus enabling our nation to live well beyond our needs. He will give special thanks to the 45 million Americans who continue to live without health insurance and make sacrifices each and every day. As a show of good faith, the President will have Medicare pay for Viagra and this should provide an economic helping hand in creating a “neocon” erection. The President will give special thanks to investors for overlooking high market valuations while providing a landscape for stocks that exhibit resiliency and hope for riches. He will give special thanks to the construction trade and those participating in the housing boom--- builders, appraisers, mortgage brokers, bankers, buyers, sellers, and all believers in our ownership society. Through intense focus on execution, the housing boom has been extended beyond anyone’s dreams, and this, despite the affordability index declining to record lows. It just goes to show that miracles can happen. They do happen. I got re-elected. That, in itself, is a miracle. I thank one and all for not seeing the light.
Tonight the President will state that, according to new Brookings Institute and CBO projections, in just 10 years, spending on the elderly will total nearly $1.8 trillion, almost 50% of the federal budget. In 2000, it was 35% and in 1990 the total was 29%. The bulk of that growth is spending on Medicare and Medicaid. Because of the enormity of this accident waiting to happen, the President has elected to use his political capital and skip over this problem and focus on Social Security which the CBO stated will not be a problem until 2020. It’s easy to appreciate the reasoning because Holtz-Eakin, a recent White house economist, stated “Medicare and Medicaid spending triples, maybe quintuples by 2050, while Social Security goes up by 50%.” The CBO chimed in and observed that “over the long term, the increasing resources needed for Medicare, Medicaid, and Social Security will exert pressure on the budget that will make current fiscal policy unsustainable.” That brings us to another area of special thanks, and it is directed towards members of Congress. The President wants to thank these members for raising the debt limit on a yearly basis and, without a whimper. That cooperation has made believers out of all Americans in the American way---- spend, spend, and spend--- like there is no tomorrow.
In closing, the President will thank the American people for remaining steadfast and supportive while wages trail inflation, while benefits are cut, and the standard of living for Main Street deteriorates. These are necessary pills to swallow in a time of war. We invaded Iraq. It was part of the plan to bring democracy to the Middle East. There may not be a chicken in every pot, but the Iraqis have had an opportunity to vote.
We have a great nation. Through everyone’s dedication and sacrifice, it will get greater. Good night and God bless America.
In a preview to tonight’s State of the Union speech, I thought it would be helpful to provide an inside look at what the President will tell the nation. The theme will be giving thanks. He will give a special thanks to Greenspan for raising short term rates, calming fears about inflation, and not saying a disparaging word about the carry trade. He will thank the Fed members for printing money at well over twice the inflation rate and, thus, enable the declining dollar to make U.S. assets look cheap to foreigners. According to Fed statistics, at the end of the third quarter of 2004, foreigners owned $4.5 trillion more in U.S. assets than the U.S. own of foreign assets. The President will give a special thanks to foreigners for exporting their savings to our shores, thus enabling our nation to live well beyond our needs. He will give special thanks to the 45 million Americans who continue to live without health insurance and make sacrifices each and every day. As a show of good faith, the President will have Medicare pay for Viagra and this should provide an economic helping hand in creating a “neocon” erection. The President will give special thanks to investors for overlooking high market valuations while providing a landscape for stocks that exhibit resiliency and hope for riches. He will give special thanks to the construction trade and those participating in the housing boom--- builders, appraisers, mortgage brokers, bankers, buyers, sellers, and all believers in our ownership society. Through intense focus on execution, the housing boom has been extended beyond anyone’s dreams, and this, despite the affordability index declining to record lows. It just goes to show that miracles can happen. They do happen. I got re-elected. That, in itself, is a miracle. I thank one and all for not seeing the light.
Tonight the President will state that, according to new Brookings Institute and CBO projections, in just 10 years, spending on the elderly will total nearly $1.8 trillion, almost 50% of the federal budget. In 2000, it was 35% and in 1990 the total was 29%. The bulk of that growth is spending on Medicare and Medicaid. Because of the enormity of this accident waiting to happen, the President has elected to use his political capital and skip over this problem and focus on Social Security which the CBO stated will not be a problem until 2020. It’s easy to appreciate the reasoning because Holtz-Eakin, a recent White house economist, stated “Medicare and Medicaid spending triples, maybe quintuples by 2050, while Social Security goes up by 50%.” The CBO chimed in and observed that “over the long term, the increasing resources needed for Medicare, Medicaid, and Social Security will exert pressure on the budget that will make current fiscal policy unsustainable.” That brings us to another area of special thanks, and it is directed towards members of Congress. The President wants to thank these members for raising the debt limit on a yearly basis and, without a whimper. That cooperation has made believers out of all Americans in the American way---- spend, spend, and spend--- like there is no tomorrow.
In closing, the President will thank the American people for remaining steadfast and supportive while wages trail inflation, while benefits are cut, and the standard of living for Main Street deteriorates. These are necessary pills to swallow in a time of war. We invaded Iraq. It was part of the plan to bring democracy to the Middle East. There may not be a chicken in every pot, but the Iraqis have had an opportunity to vote.
We have a great nation. Through everyone’s dedication and sacrifice, it will get greater. Good night and God bless America.
Monday, January 31, 2005
2/1/05 TGIF
Thank goodness it's February. Last month left everyone with at least a gripe or two. I'm reminded that the best three months of the year just ended. I guess we have our work cut out for us. Let's get started.
For years I have been discussing the aging of the population as the number one trend in our nation. The importance of that trend continues and will continue into the future. There is another area that requires attention, and that's obesity. It is becoming more and more of a problem. The 4th Annual Metabolic Diseases Drug Discovery World Summit will convene in San Diego on April 11-12. It will feature the latest industry and academic advances by leaders in the fields of diabetes and obesity. The conference will focus on new targets and the development of therapeutic prospects for controlling the set of early risk factors that can develop into metabolic diseases. Some of the research efforts that will be presented shall focus on MC 4 Receptor Agonists. A leader in this effort is Palatin Technologies (symbol PTN), and they will be a presenter at the conference.
Palatin's research has involved the administration of Melanocortin-4 Receptor, and has resulted in this small molecule decreasing food intake by 30-50%---in rodents---and reducing body weight, and importantly, without adverse effects. In November 2004, Carl Spana, Ph.D, President and CEO of Palatin, stated "we will continue to aggressively pursue the development of this molecule with the intent of filing an IND in the second half of 2005." To date, five melanocortin receptor subtypes have been identified as playing a key role in sexual dysfunction, obesity, inflammation, and cachexia (extreme wasting). The company's melanocortin compound for erectile dysfunction currently is in Phase II clinical trials. Additionally, NeutroSpec, Palatin's proprietary radiolabeled monoclonal antbody product for imaging and diagnosing infections, has been approved by the FDA and is marketed and distributed by Mallincrodt Imaging.
As an investment, Palatin is not for everyone. The total market cap is only $124 million. The company is not cash flow positive and is losing money. The stock, however, sells for a modest price of $2.30 per share. In my view, it's work in obesity has merit as does its efforts in treating male and female sexual dysfunction as well as its product for imaging patients. For those taking a long-term view, Palatin might have a place in your portfolio.
Bernard Baruch: "A speculator is a man who observes the future, and acts before it occurs."
Thank goodness it's February. Last month left everyone with at least a gripe or two. I'm reminded that the best three months of the year just ended. I guess we have our work cut out for us. Let's get started.
For years I have been discussing the aging of the population as the number one trend in our nation. The importance of that trend continues and will continue into the future. There is another area that requires attention, and that's obesity. It is becoming more and more of a problem. The 4th Annual Metabolic Diseases Drug Discovery World Summit will convene in San Diego on April 11-12. It will feature the latest industry and academic advances by leaders in the fields of diabetes and obesity. The conference will focus on new targets and the development of therapeutic prospects for controlling the set of early risk factors that can develop into metabolic diseases. Some of the research efforts that will be presented shall focus on MC 4 Receptor Agonists. A leader in this effort is Palatin Technologies (symbol PTN), and they will be a presenter at the conference.
Palatin's research has involved the administration of Melanocortin-4 Receptor, and has resulted in this small molecule decreasing food intake by 30-50%---in rodents---and reducing body weight, and importantly, without adverse effects. In November 2004, Carl Spana, Ph.D, President and CEO of Palatin, stated "we will continue to aggressively pursue the development of this molecule with the intent of filing an IND in the second half of 2005." To date, five melanocortin receptor subtypes have been identified as playing a key role in sexual dysfunction, obesity, inflammation, and cachexia (extreme wasting). The company's melanocortin compound for erectile dysfunction currently is in Phase II clinical trials. Additionally, NeutroSpec, Palatin's proprietary radiolabeled monoclonal antbody product for imaging and diagnosing infections, has been approved by the FDA and is marketed and distributed by Mallincrodt Imaging.
As an investment, Palatin is not for everyone. The total market cap is only $124 million. The company is not cash flow positive and is losing money. The stock, however, sells for a modest price of $2.30 per share. In my view, it's work in obesity has merit as does its efforts in treating male and female sexual dysfunction as well as its product for imaging patients. For those taking a long-term view, Palatin might have a place in your portfolio.
Bernard Baruch: "A speculator is a man who observes the future, and acts before it occurs."
1/31/05 The View From The CBO
Did anyone read about the CBO's view of the dollar? They chimed in by stating the "CBO expects that the exchange value of the dollar will decline during the next two years, largely because continued deficits in the nation's current account will raise net liabilities to foreigners to new highs. In CBO's view investors will be less willing to add to their holdings of dollar assets at current exchange rates and interest rates." Did you get the last part about interest rates? The CBO says don't worry because the dollar's fall will be orderly. Of course, who would expect the decline to pick up speed from exaggerated heights? Eventually, the CBO believes the dollar's decline will boost U.S. net exports and economic growth. They never mentioned the negative impact on the purchasing power of all U.S. consumers.
While the Iraqis were voting, SBC and AT&T were doing a $16 billion deal; MetLife was talking to Travelers Life about a $12 billion acquisition; Eastman Kodak was finalizing a $980 million deal with Creo; Lee Enterprises and Pulitzer Newspapers were getting together in a $1.46 billion deal; and KKR and Providence were looking to acquire Adelphia. It was a normal weekend.
Over in San Francisco, the loud talk in restaurants was not about the money being made in stocks. That was back in 1999 and 2000. The chatter revolves around real estate deals. You can't get a table at a hot restaurant unless you have at least a half a dozen deals in the works.
As the value of real estate increases, I'm told not to worry. There's plenty of equity to cover the total debt of Amercian households that now exceeds $10 trillion. That knowledge helps me to sleep so much better each night. The consumer doesn't even need to visit a bank as a homeowner can use the home as an ATM. That's real convenience.
Steven Wood, chief economist at Insight Economics: "The cost of hiring workers is rising but the wage income of workers is not keeping up with inflation."
Blaming it on poor winter weather, Wal-Mart stated that same-store sales would rise 2.5% for the month of January, lower than the mid-point of the previous 2 to 4% growth expectation.
Currency trading is averaging about $2 trillion a day.
Rather than counting on the yuan's peg to the dollar to change, maybe we should focus more on the Chinese increasing their direct investments in U.S. businesses within our boundaries. As long as U.S. consumers fail to harness their appetite for Chinese imports, the best we can hope for is to attract Chinese investment to our shores--- and not in U.S. Treasury bonds. Japan has built factories here and made other investments. The Chinese can be expected to do the same. There is more to attract the Chinese than "think pads." It's conceivable China might wish to invest in one of the 'Big Four" U.S. coal producers.
Did anyone read about the CBO's view of the dollar? They chimed in by stating the "CBO expects that the exchange value of the dollar will decline during the next two years, largely because continued deficits in the nation's current account will raise net liabilities to foreigners to new highs. In CBO's view investors will be less willing to add to their holdings of dollar assets at current exchange rates and interest rates." Did you get the last part about interest rates? The CBO says don't worry because the dollar's fall will be orderly. Of course, who would expect the decline to pick up speed from exaggerated heights? Eventually, the CBO believes the dollar's decline will boost U.S. net exports and economic growth. They never mentioned the negative impact on the purchasing power of all U.S. consumers.
While the Iraqis were voting, SBC and AT&T were doing a $16 billion deal; MetLife was talking to Travelers Life about a $12 billion acquisition; Eastman Kodak was finalizing a $980 million deal with Creo; Lee Enterprises and Pulitzer Newspapers were getting together in a $1.46 billion deal; and KKR and Providence were looking to acquire Adelphia. It was a normal weekend.
Over in San Francisco, the loud talk in restaurants was not about the money being made in stocks. That was back in 1999 and 2000. The chatter revolves around real estate deals. You can't get a table at a hot restaurant unless you have at least a half a dozen deals in the works.
As the value of real estate increases, I'm told not to worry. There's plenty of equity to cover the total debt of Amercian households that now exceeds $10 trillion. That knowledge helps me to sleep so much better each night. The consumer doesn't even need to visit a bank as a homeowner can use the home as an ATM. That's real convenience.
Steven Wood, chief economist at Insight Economics: "The cost of hiring workers is rising but the wage income of workers is not keeping up with inflation."
Blaming it on poor winter weather, Wal-Mart stated that same-store sales would rise 2.5% for the month of January, lower than the mid-point of the previous 2 to 4% growth expectation.
Currency trading is averaging about $2 trillion a day.
Rather than counting on the yuan's peg to the dollar to change, maybe we should focus more on the Chinese increasing their direct investments in U.S. businesses within our boundaries. As long as U.S. consumers fail to harness their appetite for Chinese imports, the best we can hope for is to attract Chinese investment to our shores--- and not in U.S. Treasury bonds. Japan has built factories here and made other investments. The Chinese can be expected to do the same. There is more to attract the Chinese than "think pads." It's conceivable China might wish to invest in one of the 'Big Four" U.S. coal producers.
Sunday, January 30, 2005
1/30/05 M&A
With the P&G deal with Gillette, over the past three months, M&A activity has exceeded $850 billion. This is significant volume and the most since the $933 billion in the final one-third of 2000. I place a great deal of weight on whether an acquisition is done for cash or stock. As a former Chairman of a NYSE listed company, I considered our stock as the ultimate currency. For me to part with it in an acquisition, the opportunity would need to be extraordinary. I never found one that extraordinary. There is at least one other fairly bright person who feels the same way--- Warren Buffett. Only in a rare occasion did he ever offer even a small number of Berkshire Hathaway shares in an acquisition. Just like the Fed printing money, it is so easy to print more stock certificates when buying another company. Parting with cash, makes you think a good deal harder. Maybe that's why most acquisitions disappoint.
There is an element in M&A activity that rarely is mentioned. When should talks between companies be announced? There isn't a hard and fast legal rule and there is a good deal of leeway in this area. Talks between P&G and Gillette commenced in mid-November. P&G's CFO stated "most of us lost our Thanksgiving weekend to this." Some time in December negotiations stalled over price. In the second week of January, talks resumed and they remained in a tight circle of about 15 top P&G managers. The problem of price soon was eliminated. Even so, it is difficult for an acquisition to be a win-win situation for both parties to a transaction.
In January 2003, there was a $1.3 billion outflow from mutual funds. In January 2004, there was a $28 billion inflow. With only one trading day left in the month, this January could show close to a $10 billion outflow, possibly a record for the first month of the year.
With the P&G deal with Gillette, over the past three months, M&A activity has exceeded $850 billion. This is significant volume and the most since the $933 billion in the final one-third of 2000. I place a great deal of weight on whether an acquisition is done for cash or stock. As a former Chairman of a NYSE listed company, I considered our stock as the ultimate currency. For me to part with it in an acquisition, the opportunity would need to be extraordinary. I never found one that extraordinary. There is at least one other fairly bright person who feels the same way--- Warren Buffett. Only in a rare occasion did he ever offer even a small number of Berkshire Hathaway shares in an acquisition. Just like the Fed printing money, it is so easy to print more stock certificates when buying another company. Parting with cash, makes you think a good deal harder. Maybe that's why most acquisitions disappoint.
There is an element in M&A activity that rarely is mentioned. When should talks between companies be announced? There isn't a hard and fast legal rule and there is a good deal of leeway in this area. Talks between P&G and Gillette commenced in mid-November. P&G's CFO stated "most of us lost our Thanksgiving weekend to this." Some time in December negotiations stalled over price. In the second week of January, talks resumed and they remained in a tight circle of about 15 top P&G managers. The problem of price soon was eliminated. Even so, it is difficult for an acquisition to be a win-win situation for both parties to a transaction.
In January 2003, there was a $1.3 billion outflow from mutual funds. In January 2004, there was a $28 billion inflow. With only one trading day left in the month, this January could show close to a $10 billion outflow, possibly a record for the first month of the year.
Friday, January 28, 2005
1/29/05 Making The Dream A Reality
I got a kick out of the presentation of the Gillette acquisition by P&G. They raised their annual sales growth target from 4 to 6% to 5 to 7% and stated that revenues and cost synergies would be $14 to $16 billion with 6,000 employees losing their jobs. Who are they kidding? The key to the merger is Wal-Mart. The new P&G will do close to 20% over their revenue with Wal-Mart and much of that 6-8% growth will come on the backs of Wal-Mart's double-digit growth internationally. If the deal works out financially, stockholders of P&G can thank Wal-Mart and the weak dollar.
According to the Fed, M2 money supply grew at an annual 5.3% rate over the past twelve months. Meanwhile, fourth quarter GDP growth increased by 3.1%. Printing dollars does not ensure commensurate economic growth.
Cao Yushu, deputy secretary general of China's National Development and Reform Commission:
"To balance the demand and supply of coal will be the major task for China's economic control in 2005."
Chinese economist Fan Gang: "So the real issue is how to change the regime from a U.S. dollar pegging to a more manageable reference, say euros, yen, dollars---those kind of more diversified systems." If and when that happens, what do you think the impact will be on 10-year U.S. Treasury rates?
According to the BLS, for state and local government workers, compensation costs rose 1% in December, a gain from the 0.5% advance in September. Benefit cost increases accelerated to 1.4% for civilian workers (nonfarm private industry and state and local government) in the December 2004 quarter, following a gain of 1.1% in the September quarter.
I would like to take a moment and acknowledge the work done by Castrese Tipaldi and Enrico M. Di Francia. They provided the charts of the DOW and the S&P 500 since 1959, adjusted for the increase in M2. As they point out, "we chose Fed data not seasonally adjusted, because we've never paid our bills in a seasonally adjusted way." The charts illustrate that, in actuality, the DOW and the S&P 500 today are worth less than in 1959. Such misfortune can occur in a fiat-money system.
The DOW is currently below the 2003 year-end level.
The number of people continuing on unemployment benefits rose 142,000 to 2.84 million for the week ended Jan. 15, the largest rise in six months. So much for this recovery's job creation.
Yu Yongding, Chinese central bank advisor: "The U.S. should take the lead in putting its own house in order. It's the root cause of global imbalances."
Trade Representative Robert Zoellick: "One has to get the budget deficit down, but the question is how to do it." He should speak with Cheney, who says deficits don't matter.
In the past week, M3 increased $26 billion to $9.460 trillion. For an $11 trillion economy, that's a lot of money supply flooding the system. Over the past 5 weeks, M3 has grown by $90.3 billion. No wonder Bill Gates stated "I'm short the dollar." The Fed's hyper printing press will ensure the continued decline of the dollar and this nation's declining purchasing power and standard of living.
China's oil-product imports rose 34% in 2004.
The Ministry of Finance stated "Japan's combined trade with China and Hong Kong exceeded that of the U.S. in 2004 for the first time." There is just so much foreign demand for Charmin.
Automotive supplier Johnson Controls will close its manufacturing plant in Glascow, Ky and put 297 workers on the unemployment rolls.
I got a kick out of the presentation of the Gillette acquisition by P&G. They raised their annual sales growth target from 4 to 6% to 5 to 7% and stated that revenues and cost synergies would be $14 to $16 billion with 6,000 employees losing their jobs. Who are they kidding? The key to the merger is Wal-Mart. The new P&G will do close to 20% over their revenue with Wal-Mart and much of that 6-8% growth will come on the backs of Wal-Mart's double-digit growth internationally. If the deal works out financially, stockholders of P&G can thank Wal-Mart and the weak dollar.
According to the Fed, M2 money supply grew at an annual 5.3% rate over the past twelve months. Meanwhile, fourth quarter GDP growth increased by 3.1%. Printing dollars does not ensure commensurate economic growth.
Cao Yushu, deputy secretary general of China's National Development and Reform Commission:
"To balance the demand and supply of coal will be the major task for China's economic control in 2005."
Chinese economist Fan Gang: "So the real issue is how to change the regime from a U.S. dollar pegging to a more manageable reference, say euros, yen, dollars---those kind of more diversified systems." If and when that happens, what do you think the impact will be on 10-year U.S. Treasury rates?
According to the BLS, for state and local government workers, compensation costs rose 1% in December, a gain from the 0.5% advance in September. Benefit cost increases accelerated to 1.4% for civilian workers (nonfarm private industry and state and local government) in the December 2004 quarter, following a gain of 1.1% in the September quarter.
I would like to take a moment and acknowledge the work done by Castrese Tipaldi and Enrico M. Di Francia. They provided the charts of the DOW and the S&P 500 since 1959, adjusted for the increase in M2. As they point out, "we chose Fed data not seasonally adjusted, because we've never paid our bills in a seasonally adjusted way." The charts illustrate that, in actuality, the DOW and the S&P 500 today are worth less than in 1959. Such misfortune can occur in a fiat-money system.
The DOW is currently below the 2003 year-end level.
The number of people continuing on unemployment benefits rose 142,000 to 2.84 million for the week ended Jan. 15, the largest rise in six months. So much for this recovery's job creation.
Yu Yongding, Chinese central bank advisor: "The U.S. should take the lead in putting its own house in order. It's the root cause of global imbalances."
Trade Representative Robert Zoellick: "One has to get the budget deficit down, but the question is how to do it." He should speak with Cheney, who says deficits don't matter.
In the past week, M3 increased $26 billion to $9.460 trillion. For an $11 trillion economy, that's a lot of money supply flooding the system. Over the past 5 weeks, M3 has grown by $90.3 billion. No wonder Bill Gates stated "I'm short the dollar." The Fed's hyper printing press will ensure the continued decline of the dollar and this nation's declining purchasing power and standard of living.
China's oil-product imports rose 34% in 2004.
The Ministry of Finance stated "Japan's combined trade with China and Hong Kong exceeded that of the U.S. in 2004 for the first time." There is just so much foreign demand for Charmin.
Automotive supplier Johnson Controls will close its manufacturing plant in Glascow, Ky and put 297 workers on the unemployment rolls.
1/28/05 Dreams
Buffett calls P&G's proposed acquisition of Gillette a "dream deal." He's right. In one's wildest dreams what company would pay this price for razors and batteries? Sure, it will make P&G a larger consumer products company than Unilever. For the past five years under the present management, P&G has been buying companies---Wella, Clairol, Iams, and now Gillette. That's a lot of business to integrate. I'll stand on the sidelines for some time and watch the integration. Right now, in my opinion, the cost to buy Gillette is over the top.
When Microsoft announced paying a $32 billion special dividend, I suggested cutting back on holdings at $30 and above. Some analysts may get excited by Microsoft raising guidance for 2005. I am not interested in Microsoft as a hardware or an entertainment company. Microsoft's software attracted me close to 20 years ago. I know server sales are growing at 18% and that Halo 2 is a great success and that cash flow is running $1.2 billion per month. If the stock rallies to $27 and above, I'll cut back some more.
Some were surprised by the 3.1% GDP growth in the fourth quarter. It was the slowest growth in 7 quarters. The March quarter will be slower. I suggest expectations be lowered for growth and raised for inflation.
As anticipated a month ago, Boeing announced their 60-plane 7E7 deal with several China airlines. It's 3 years away and won't help the present growing trade deficit with China. That makes 116 firm orders for the 7E7.
Celestica will cut up to 5,000 jobs of its global workforce or 10 to 15%.
Buffett calls P&G's proposed acquisition of Gillette a "dream deal." He's right. In one's wildest dreams what company would pay this price for razors and batteries? Sure, it will make P&G a larger consumer products company than Unilever. For the past five years under the present management, P&G has been buying companies---Wella, Clairol, Iams, and now Gillette. That's a lot of business to integrate. I'll stand on the sidelines for some time and watch the integration. Right now, in my opinion, the cost to buy Gillette is over the top.
When Microsoft announced paying a $32 billion special dividend, I suggested cutting back on holdings at $30 and above. Some analysts may get excited by Microsoft raising guidance for 2005. I am not interested in Microsoft as a hardware or an entertainment company. Microsoft's software attracted me close to 20 years ago. I know server sales are growing at 18% and that Halo 2 is a great success and that cash flow is running $1.2 billion per month. If the stock rallies to $27 and above, I'll cut back some more.
Some were surprised by the 3.1% GDP growth in the fourth quarter. It was the slowest growth in 7 quarters. The March quarter will be slower. I suggest expectations be lowered for growth and raised for inflation.
As anticipated a month ago, Boeing announced their 60-plane 7E7 deal with several China airlines. It's 3 years away and won't help the present growing trade deficit with China. That makes 116 firm orders for the 7E7.
Celestica will cut up to 5,000 jobs of its global workforce or 10 to 15%.
Wednesday, January 26, 2005
1/27/05 Freedom
Unless freedom is accompanied by the truth, there can be no liberty. I find it disrespectful to discuss Iraq and freedom in the same breath. Invading Iraq was never about free elections and self-government. It was solely about WMD. At least 1,417 U.S. soldiers have been killed since we invaded. Depending on the source of information, upwards of 15,000 U.S. soldiers have been wounded and/or injured. That does not include the emotional damage borne by relatives on the home front nor does it include the emotional wear and tear absorbed while in hostile territory and away from home. The price of this war can never be measured because the lies erode the fabric of our nation. Our foreign policy is on an unsustainable path.
GE received $137 billion in tax breaks in 2004 due to the American Jobs Creation Act. The company also benefited from a growing percentage of its earnings generated from overseas locations, such as, India with low-tax jurisdictions.
Despite a decline in mortgage rates, last week applications for U.S. home mortgages decreased 3.6%.
Eight U.S. representatives and senators, including five Republicans, introduced a bill allowing Americans to import cheaper drugs from Canada and other countries.
The Michigan Retailers Association is the nation’s largest state trade association of general merchandise retailers. The December Michigan Retail Index found that 37% of retailers increased sales over the same month last year, while 15% reported as-good sales and 48% recorded declines. Thirty-seven percent of retailers believe their sales will increase for January-March over the same period last year, while 39% project as-good sales and 24% predict sales will decline. The results create a seasonally adjusted outlook index of 62.0, down substantially from 80.4 in November.
The CBO projects that, based on current law, mandatory-spending growth will average an annual 5.7% rate over the next decade.
The newly auctioned 10-year Treasury notes carried a yield of 3.245 percent. The notes attracted $2.01 in bids for every $1 in securities sold. That's below the recent average of $2.21. Indirect bidders, including closely followed demand from foreign central banks, fell to just under 30 percent, below the average of 50 percent. I continue to be amazed by the schmucks buying this paper. I guess they have a desire to lose capital. Possibly, they need a tax loss.
Readers remember our being short Lucent from early 2000 through the third quarter of 2002. Since then, I have been monitoring the operations of the company and, in particular, the leadership of their CEO, Pat Russo. She is turning this ship around. Expectations for 2005 are for mid-single digit revenue growth to $9.7 billion, up from $9.05 billion in 2004, with earnings of 18 cents per share. With a foothold in the 3-G network equipment, software, and services, and leadership in CDMA equipment and a growing UMTS business, gross margins are improving while expenses are being minimized. With the stock trading around $3.27, I believe it offers an opportunity for the long-term investor. The upside might surprise, and the downside risk appears modest.
In the journal “Health Affairs,” the Urban Institute’s Health Policy Center stated Medicaid costs rose from $205.7 billion in 2000 to $275.5 billion in 2003. Mike Leavitt, Health-Secretary designate, called the program “not efficient.” He might have used that description for 101% of government programs. As I have mentioned many times, Medicaid has placed heavy financial burdens on state budgets.
With respect to the ownership society, a nonpartisan public policy organization based in New York released a report and, “found that between 1973 and 2004, homeowner’s equity fell from 68.35 to 55% and that households cashed out $333 billion worth of equity from homes between 2001 and 2003. A majority of households that refinanced between 2001 and 2003 used cash equity from their homes to cover living expenses and pay down credit card debt. In 2002, the financial obligations ratio---the percentage of monthly income to the amount needed to manage monthly debt payments--- reached 18.56%, a single year record since the data started being collected in 1980. The rise of appraisal fraud fueled inflated home prices over the last several years. Appraisal fraud was the fastest type of mortgage fraud reported by lenders in 2000.”
Unless freedom is accompanied by the truth, there can be no liberty. I find it disrespectful to discuss Iraq and freedom in the same breath. Invading Iraq was never about free elections and self-government. It was solely about WMD. At least 1,417 U.S. soldiers have been killed since we invaded. Depending on the source of information, upwards of 15,000 U.S. soldiers have been wounded and/or injured. That does not include the emotional damage borne by relatives on the home front nor does it include the emotional wear and tear absorbed while in hostile territory and away from home. The price of this war can never be measured because the lies erode the fabric of our nation. Our foreign policy is on an unsustainable path.
GE received $137 billion in tax breaks in 2004 due to the American Jobs Creation Act. The company also benefited from a growing percentage of its earnings generated from overseas locations, such as, India with low-tax jurisdictions.
Despite a decline in mortgage rates, last week applications for U.S. home mortgages decreased 3.6%.
Eight U.S. representatives and senators, including five Republicans, introduced a bill allowing Americans to import cheaper drugs from Canada and other countries.
The Michigan Retailers Association is the nation’s largest state trade association of general merchandise retailers. The December Michigan Retail Index found that 37% of retailers increased sales over the same month last year, while 15% reported as-good sales and 48% recorded declines. Thirty-seven percent of retailers believe their sales will increase for January-March over the same period last year, while 39% project as-good sales and 24% predict sales will decline. The results create a seasonally adjusted outlook index of 62.0, down substantially from 80.4 in November.
The CBO projects that, based on current law, mandatory-spending growth will average an annual 5.7% rate over the next decade.
The newly auctioned 10-year Treasury notes carried a yield of 3.245 percent. The notes attracted $2.01 in bids for every $1 in securities sold. That's below the recent average of $2.21. Indirect bidders, including closely followed demand from foreign central banks, fell to just under 30 percent, below the average of 50 percent. I continue to be amazed by the schmucks buying this paper. I guess they have a desire to lose capital. Possibly, they need a tax loss.
Readers remember our being short Lucent from early 2000 through the third quarter of 2002. Since then, I have been monitoring the operations of the company and, in particular, the leadership of their CEO, Pat Russo. She is turning this ship around. Expectations for 2005 are for mid-single digit revenue growth to $9.7 billion, up from $9.05 billion in 2004, with earnings of 18 cents per share. With a foothold in the 3-G network equipment, software, and services, and leadership in CDMA equipment and a growing UMTS business, gross margins are improving while expenses are being minimized. With the stock trading around $3.27, I believe it offers an opportunity for the long-term investor. The upside might surprise, and the downside risk appears modest.
In the journal “Health Affairs,” the Urban Institute’s Health Policy Center stated Medicaid costs rose from $205.7 billion in 2000 to $275.5 billion in 2003. Mike Leavitt, Health-Secretary designate, called the program “not efficient.” He might have used that description for 101% of government programs. As I have mentioned many times, Medicaid has placed heavy financial burdens on state budgets.
With respect to the ownership society, a nonpartisan public policy organization based in New York released a report and, “found that between 1973 and 2004, homeowner’s equity fell from 68.35 to 55% and that households cashed out $333 billion worth of equity from homes between 2001 and 2003. A majority of households that refinanced between 2001 and 2003 used cash equity from their homes to cover living expenses and pay down credit card debt. In 2002, the financial obligations ratio---the percentage of monthly income to the amount needed to manage monthly debt payments--- reached 18.56%, a single year record since the data started being collected in 1980. The rise of appraisal fraud fueled inflated home prices over the last several years. Appraisal fraud was the fastest type of mortgage fraud reported by lenders in 2000.”
1/26/05 Taking The Cure
It was fantasy day on Capitol Hill. Yesterday, the CBO revised upwards their deficit projection for fiscal 2005, the one completed in September. The Congress munched on another silver spoon supplemental. Fiscal restraint pledges from this Administration mean nothing. Fiscal projections are but mindless numbers. For example, prior to the March 2003 invasion of Iraq, the cost of the war was projected at $50 billion.
With yesterday’s $80 billion supplemental request, the costs for military operations in Iraq and Afghanistan approach $300 billion. I feel confident that these numbers have little meaning to most Americans. Let’s approach numbers in this fashion. Sixty three billion seconds ago Jesus was alive. Does that put an $80 billion supplemental in another light? The CBO stated that, from October 1, 2004 through December 31, 2004, tax receipts were 11% higher than the corresponding period in 2003 and corporate tax receipts rose 50% from the like period. Knowing that, the CBO still predicted an increase in the 2005 deficit from 2004’s record $412 billion. Simply put, government spending is a cancer. It’s a growth that has no boundaries. Any individual, money manager, or non-U.S. central bank that continues to hold 10-year or 30-year U.S. Treasury bonds is a schmuck of the first order and should be committed. Our financial house is crumbling. I question Bush’s resolve in reducing government spending. I may not be from Missouri but I’m in the show me camp.
There will be other supplemental budget requests for Iraq. Army Lt. Gen. James J. Lovelace stated about 120,000 U.S. troops will stay in Iraq at least through 2006. We’re spending about $5 billion a month in Iraq.
Members of the Fed continue to be unconcerned with the rate of inflation. In Illinois, the state’s two largest utility companies stated the average home gas bill in December was almost 20% higher than the corresponding period one year ago and, for many, 88% higher than December 2000.
Firefox has been downloaded over 20 million times, and its share of the browser market is at least 5%. Look for it to rise further as Google considers incorporating Firefox into its offerings of web services.
According to a recent study by Gary Gorton and K. Geert Rouwenhorst, historical data reveals that, overall from the early part of a recession to late in a recession, the highest returns for all asset classes are sugar and soybean oil.
Some months back, in searching for opportunities in the technology sector, I suggested Veritas and Informatica (INFA). Yesterday, in its latest report, management stated that the fourth quarter set a record for Informatica. They had the highest revenues, the most number of transactions, and the largest number of million-dollar deals in a quarter. They signed repeat business with 226 customers. They signed 65 new customers. They expanded their relationship with Siebel, IBM, Sybase, and continued to expand internationally. Forrester Research named them the leading enterprise data integration vendor and DM Review named the company number-one in data integration. Since my original mention, the stock has moved from $5.50 to $7.50. However, with cash and equivalents and short term investments approaching $3 per share, and with a focused growth strategy, adding to our position could hold merit.
In addition to Informatica, I would suggest looking at Selestica (SLTC). The stock is selling just under $3.50 and a private company in Texas has offered to purchase them at $4 a share. I believe Selestica’s balance sheet and outlook offer more value than $4 a share. In my view, the risk/reward is a favorable one.
The Conference Board’s Consumer Confidence Index offered a mixed picture for January with the survey’s cutoff date one week ago. The short-term current outlook was favorable but looking further out expectations were not as rosy. The outlook for the labor market remained virtually unchanged.
Sales of existing homes in the U.S. fell by 3.3% in December from a record November high. David Lereah, chief economist for the National Association of Realtors, stated “our sense was that November sales were the peak for the current housing cycle, but activity remains strong. There is no sign of a downturn.” Lereah stated that 2005 home sales should be the second best on record. The supply of homes available for sale at the current sales pace was 3.9 months in December.
Provident Bank will eliminate 364 positions in Cincinnati by the end of March. Tellabs will cut another 300 to 320 jobs. Solutia Inc. will close the last acrylic fiber plant in North America by mid-April. The facility is in Decatur, and 500 workers will lose their jobs. Cargill is closing its Yuba County meat processing plant. It will leave 240 without a job. SBC will cut 7,000 jobs in 2005. This represents 4.4% of the 163,000 workforce.
Yesterday, traders went home with a sigh of relief. The DOW rose over 90 points. Unfortunately, the advances did not match declines and the relationship over on the NASDAQ was not much better. This morning traders are encouraged by the forecasting ability of Oracle’s top management. Their prediction for 2005 was unchanged at 62 cents per share but, behold, expectations for 2006 were raised to a minimum of 76 cents a share. Maybe we should take a poll. Whose long-range projections are more accurate--- those of the CBO or Oracle?
It was fantasy day on Capitol Hill. Yesterday, the CBO revised upwards their deficit projection for fiscal 2005, the one completed in September. The Congress munched on another silver spoon supplemental. Fiscal restraint pledges from this Administration mean nothing. Fiscal projections are but mindless numbers. For example, prior to the March 2003 invasion of Iraq, the cost of the war was projected at $50 billion.
With yesterday’s $80 billion supplemental request, the costs for military operations in Iraq and Afghanistan approach $300 billion. I feel confident that these numbers have little meaning to most Americans. Let’s approach numbers in this fashion. Sixty three billion seconds ago Jesus was alive. Does that put an $80 billion supplemental in another light? The CBO stated that, from October 1, 2004 through December 31, 2004, tax receipts were 11% higher than the corresponding period in 2003 and corporate tax receipts rose 50% from the like period. Knowing that, the CBO still predicted an increase in the 2005 deficit from 2004’s record $412 billion. Simply put, government spending is a cancer. It’s a growth that has no boundaries. Any individual, money manager, or non-U.S. central bank that continues to hold 10-year or 30-year U.S. Treasury bonds is a schmuck of the first order and should be committed. Our financial house is crumbling. I question Bush’s resolve in reducing government spending. I may not be from Missouri but I’m in the show me camp.
There will be other supplemental budget requests for Iraq. Army Lt. Gen. James J. Lovelace stated about 120,000 U.S. troops will stay in Iraq at least through 2006. We’re spending about $5 billion a month in Iraq.
Members of the Fed continue to be unconcerned with the rate of inflation. In Illinois, the state’s two largest utility companies stated the average home gas bill in December was almost 20% higher than the corresponding period one year ago and, for many, 88% higher than December 2000.
Firefox has been downloaded over 20 million times, and its share of the browser market is at least 5%. Look for it to rise further as Google considers incorporating Firefox into its offerings of web services.
According to a recent study by Gary Gorton and K. Geert Rouwenhorst, historical data reveals that, overall from the early part of a recession to late in a recession, the highest returns for all asset classes are sugar and soybean oil.
Some months back, in searching for opportunities in the technology sector, I suggested Veritas and Informatica (INFA). Yesterday, in its latest report, management stated that the fourth quarter set a record for Informatica. They had the highest revenues, the most number of transactions, and the largest number of million-dollar deals in a quarter. They signed repeat business with 226 customers. They signed 65 new customers. They expanded their relationship with Siebel, IBM, Sybase, and continued to expand internationally. Forrester Research named them the leading enterprise data integration vendor and DM Review named the company number-one in data integration. Since my original mention, the stock has moved from $5.50 to $7.50. However, with cash and equivalents and short term investments approaching $3 per share, and with a focused growth strategy, adding to our position could hold merit.
In addition to Informatica, I would suggest looking at Selestica (SLTC). The stock is selling just under $3.50 and a private company in Texas has offered to purchase them at $4 a share. I believe Selestica’s balance sheet and outlook offer more value than $4 a share. In my view, the risk/reward is a favorable one.
The Conference Board’s Consumer Confidence Index offered a mixed picture for January with the survey’s cutoff date one week ago. The short-term current outlook was favorable but looking further out expectations were not as rosy. The outlook for the labor market remained virtually unchanged.
Sales of existing homes in the U.S. fell by 3.3% in December from a record November high. David Lereah, chief economist for the National Association of Realtors, stated “our sense was that November sales were the peak for the current housing cycle, but activity remains strong. There is no sign of a downturn.” Lereah stated that 2005 home sales should be the second best on record. The supply of homes available for sale at the current sales pace was 3.9 months in December.
Provident Bank will eliminate 364 positions in Cincinnati by the end of March. Tellabs will cut another 300 to 320 jobs. Solutia Inc. will close the last acrylic fiber plant in North America by mid-April. The facility is in Decatur, and 500 workers will lose their jobs. Cargill is closing its Yuba County meat processing plant. It will leave 240 without a job. SBC will cut 7,000 jobs in 2005. This represents 4.4% of the 163,000 workforce.
Yesterday, traders went home with a sigh of relief. The DOW rose over 90 points. Unfortunately, the advances did not match declines and the relationship over on the NASDAQ was not much better. This morning traders are encouraged by the forecasting ability of Oracle’s top management. Their prediction for 2005 was unchanged at 62 cents per share but, behold, expectations for 2006 were raised to a minimum of 76 cents a share. Maybe we should take a poll. Whose long-range projections are more accurate--- those of the CBO or Oracle?
Tuesday, January 25, 2005
1/25/05 Searching For Value
Yesterday I was provided a reminder. Sometimes the best ideas are right under one’s nose. I was thrilled that Monsanto announced the purchase of Seminis. It meant we would receive a cash payment representing four times the cost of our investment. After a brief sigh of satisfaction, I began to wonder. How do we find another Seminis? I search every day. It’s not from lack of trying. For some reason, I looked over the portfolio for the 5000th time. The answer was right there all along. It was under my nose. I just had to look. We’ve owned The Andersons (ANDE) for 5 years. I know it’s not exciting. From 2003 to 2004, earnings will only be up 50%. The company is on its way to becoming a $2 billion concern. Our investment costs us $8 a share, and now it’s $25. Mike Anderson, the president and CEO, is a good man. I like the long-term outlook for the grain business, and in particular, the harvesting of soybeans. I believe in soybeans both for protein and health reasons. The plant nutrient business is, in my view, grossly under-appreciated. We can add to our holdings at 10 times 2004 earnings and be patient. Maybe we’ll be fortunate and the stock will triple again in another five years. Worse things could happen to us.
China cannot seem to slowdown its economy. It grew at a 9.5% rate in the fourth quarter. On the other hand, Germany is going in the opposite direction. Germany’s BDB Banking Federation predicted growth will slow to 1.4% in 2005. With unemployment at a 7-year high, that may prove optimistic.
Phoenix Color is closing a book text printing plant north of Hagerstown, MD that employs 180. Paxar will close a Virginia plant and cut 170 jobs. Hilfinger is cutting 200 jobs. I noticed that Sara Lee lowered its outlook for 2005.
We will be reading every day about the problems surrounding Social Security. Rather than private accounts, raising payroll taxes, and/or changing the retirement age, it is possible that the Congress could settle on value-added taxes on imports.
What’s the shelf life of the carry trade? How long will the federal government finance long-term commitments with short-term debt? Will corporate America issue another $1 + trillion in floating rate debt in 2005? How long will GMAC feed on variable rate debt and interest rate swaps? When does the exposure to $300 trillion in derivatives become a warning sign to money center banks? When does the individual consumer and household appetite for short-term variable rate debt, ARMs, hybrid adjustable mortgages, interest only mortgages, and negative amortization loans overwhelm the capacity of the sub-par lending industry? When does the ownership society realize that day-trading homes is strictly an avenue leading to a deflating asset market? Speculators do not truly appreciate the meaning and the impact of measured interest rate increases. Soon they will learn. Lessons can be painful.
Rep. Ron Paul: “Our relative wealth as a nation is measured in dollars, and the steady erosion of the value of those dollars means we will all be poorer in the future.”
According to Yale Hirsch’s Stock Trader’s Almanac, 19 of the 20 down Januarys since 1950 were followed by full-year declines of 13% on average.
Yesterday I was provided a reminder. Sometimes the best ideas are right under one’s nose. I was thrilled that Monsanto announced the purchase of Seminis. It meant we would receive a cash payment representing four times the cost of our investment. After a brief sigh of satisfaction, I began to wonder. How do we find another Seminis? I search every day. It’s not from lack of trying. For some reason, I looked over the portfolio for the 5000th time. The answer was right there all along. It was under my nose. I just had to look. We’ve owned The Andersons (ANDE) for 5 years. I know it’s not exciting. From 2003 to 2004, earnings will only be up 50%. The company is on its way to becoming a $2 billion concern. Our investment costs us $8 a share, and now it’s $25. Mike Anderson, the president and CEO, is a good man. I like the long-term outlook for the grain business, and in particular, the harvesting of soybeans. I believe in soybeans both for protein and health reasons. The plant nutrient business is, in my view, grossly under-appreciated. We can add to our holdings at 10 times 2004 earnings and be patient. Maybe we’ll be fortunate and the stock will triple again in another five years. Worse things could happen to us.
China cannot seem to slowdown its economy. It grew at a 9.5% rate in the fourth quarter. On the other hand, Germany is going in the opposite direction. Germany’s BDB Banking Federation predicted growth will slow to 1.4% in 2005. With unemployment at a 7-year high, that may prove optimistic.
Phoenix Color is closing a book text printing plant north of Hagerstown, MD that employs 180. Paxar will close a Virginia plant and cut 170 jobs. Hilfinger is cutting 200 jobs. I noticed that Sara Lee lowered its outlook for 2005.
We will be reading every day about the problems surrounding Social Security. Rather than private accounts, raising payroll taxes, and/or changing the retirement age, it is possible that the Congress could settle on value-added taxes on imports.
What’s the shelf life of the carry trade? How long will the federal government finance long-term commitments with short-term debt? Will corporate America issue another $1 + trillion in floating rate debt in 2005? How long will GMAC feed on variable rate debt and interest rate swaps? When does the exposure to $300 trillion in derivatives become a warning sign to money center banks? When does the individual consumer and household appetite for short-term variable rate debt, ARMs, hybrid adjustable mortgages, interest only mortgages, and negative amortization loans overwhelm the capacity of the sub-par lending industry? When does the ownership society realize that day-trading homes is strictly an avenue leading to a deflating asset market? Speculators do not truly appreciate the meaning and the impact of measured interest rate increases. Soon they will learn. Lessons can be painful.
Rep. Ron Paul: “Our relative wealth as a nation is measured in dollars, and the steady erosion of the value of those dollars means we will all be poorer in the future.”
According to Yale Hirsch’s Stock Trader’s Almanac, 19 of the 20 down Januarys since 1950 were followed by full-year declines of 13% on average.
Monday, January 24, 2005
1/24/05 Shifting Sands
In today’s Financial Times, there is article focusing on central banks shifting reserves away from the U.S. This is a subject I have frequently discussed. Basically, in 2001, the share of dollars in total reserve holdings was approximately 67%, and today they have declined about four percentage points. In the meantime, the euro’s share of total reserve holdings now exceeds 20% for the first time.
Oil futures have risen 20% in the past six weeks to over $49 a barrel. This sharp rise leads me to suggest the undoing of the previously recommended yen/euro hedge. The rise in oil will be a hindrance to the Japanese economy, and therefore, it’s best we husband the profits from this trade.
It should be noted that the recent storms have brought heating oil back to over $1.40 a gallon.
With a sales decline of 9%, Infeon is warning of a further slowdown. This is one more piece of bad news for the semiconductor industry.
Over the weekend I noticed that at least one bank was offering a 12-month CD for 3%. By historical standards, that’s a pretty scant rate; however, it may begin to attract the attention of more conservative investors, especially more seasoned citizens. With rising interest rates, Wall Street will come to realize that stocks are not the only game in town. Valuations and risk do count. As the economy slows, and additional Fed hikes put a brake on increased housing prices, it will become more fashionable to save, and it might even replace the borrow and spend mentality.
Cooper Companies acquisition of Ocular Sciences has resulted in the announcement of the Duke City, NM plant being closed with its more than 200 manufacturing jobs and the shutdown of their Huntington Beach, CA facility with 95 manufacturing workers.
The business of logistics and the management of supply chains are, in my view, one of the least appreciated sectors of our economy. Wal-Mart gets it though, and no company begins to approach them in the area of logistics. It is one reason why Wal-Mart can afford to have lower prices than their competitors. The management of logistic costs represents nearly 9% of our nation’s GDP.
Jas Jain: “9/11 was no economic blow. It was more like a feather flying in light wind hitting the paper tiger.”
Here is a little word of cheer. Frequently, successful investing requires patience. Monsanto has made a wise decision. They are purchasing Seminis Seed. It’s taken four years for us to make a ham sandwich, but the wait was surely worth it.
In today’s Financial Times, there is article focusing on central banks shifting reserves away from the U.S. This is a subject I have frequently discussed. Basically, in 2001, the share of dollars in total reserve holdings was approximately 67%, and today they have declined about four percentage points. In the meantime, the euro’s share of total reserve holdings now exceeds 20% for the first time.
Oil futures have risen 20% in the past six weeks to over $49 a barrel. This sharp rise leads me to suggest the undoing of the previously recommended yen/euro hedge. The rise in oil will be a hindrance to the Japanese economy, and therefore, it’s best we husband the profits from this trade.
It should be noted that the recent storms have brought heating oil back to over $1.40 a gallon.
With a sales decline of 9%, Infeon is warning of a further slowdown. This is one more piece of bad news for the semiconductor industry.
Over the weekend I noticed that at least one bank was offering a 12-month CD for 3%. By historical standards, that’s a pretty scant rate; however, it may begin to attract the attention of more conservative investors, especially more seasoned citizens. With rising interest rates, Wall Street will come to realize that stocks are not the only game in town. Valuations and risk do count. As the economy slows, and additional Fed hikes put a brake on increased housing prices, it will become more fashionable to save, and it might even replace the borrow and spend mentality.
Cooper Companies acquisition of Ocular Sciences has resulted in the announcement of the Duke City, NM plant being closed with its more than 200 manufacturing jobs and the shutdown of their Huntington Beach, CA facility with 95 manufacturing workers.
The business of logistics and the management of supply chains are, in my view, one of the least appreciated sectors of our economy. Wal-Mart gets it though, and no company begins to approach them in the area of logistics. It is one reason why Wal-Mart can afford to have lower prices than their competitors. The management of logistic costs represents nearly 9% of our nation’s GDP.
Jas Jain: “9/11 was no economic blow. It was more like a feather flying in light wind hitting the paper tiger.”
Here is a little word of cheer. Frequently, successful investing requires patience. Monsanto has made a wise decision. They are purchasing Seminis Seed. It’s taken four years for us to make a ham sandwich, but the wait was surely worth it.
Sunday, January 23, 2005
1/23/05 We Just Want To Do It
On attempts to develop the personal computer, Steve Jobs relates “so we went to Atari and said ‘Hey, we’ve got this amazing thing, even built it with some of your parts, and what do you think about funding us? Or we’ll give it to you. We just want to do it. Pay our salary, we’ll come work for you.’ And they said , ‘No.’ So then we went to Hewlett-Packard, and they said, ‘Hey, we don’t need you. You haven’t got through college yet.’” Obviously, The Apprentice had not come to HP’s attention.
Simon Pokagon, Potawatomie: “Often in the stillness of the night, when all nature seems asleep about me, there comes a gentle rapping at the door of my heart. I open it; and a voice inquires, "Pokagon, what of your people? What will their future be?" My answer is: "Mortal man has not the power to draw aside the veil of unborn time to tell the future of his race. That gift belongs of the Divine alone. But it is given to him to closely judge the future by the present, and the past."
The Business Research Division at the University of Colorado at Boulder predicted that, in 2003, a total of 22,300 new jobs would be created in Colorado. Instead, 32,300 were lost. That misjudgment did not cause them to miss a beat. For 2004, they projected 32,300 new jobs for the state. The final tally will show 9,300. I have a heart. I won’t provide their new 2005 forecast.
The comedy hour arrives on Tuesday. The CBO gives its updated budget and economic outlook. I wonder whether they will project the number of revisions they will provide in 2005. The CBO is pathetically amusing.
I’m certain that Bush will discuss Social Security in the State of the Union Address. As a primer, read the words of the Comptroller General David Walker on Social Security. He is quoted as stating “the left hand owes the right hand, and that has legal, political, and moral significance. But it doesn’t have any economic significance whatsoever. There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down…The trust fund gives a false sense of security about where we are and how much time we have.” He was trying to relate that the federal government has stolen $1.5 trillion from the trust fund and replaced it with IOUs that have no value. That’s committing a fraud. People go to jail for such acts. When society looks the other way, then the populace loses its self-respect and its right to freedom and liberty.
Today, the city of Philadelphia will be focused on the weather and the encounter with the Falcons. Tomorrow it will be time to consider One and Two Liberty Place, the Center Square building, and the Bell Atlantic Tower. It’s not a pretty sight. Philadelphia is still losing jobs. Grubb & Ellis concluded that there soon would be 4.4 million square feet of empty office space along West Market Street.
Wal-Mart reported that, during the past week, comparative sales for food were stronger than for general merchandise.
Many technicians believe the market is oversold. They get comfort in the thought that the end of January and the first few days in February are seasonally strong. If the next 7 to 10 trading days exhibit strength, then I would suggest utilizing those up days to weed out the weak sisters, so to speak, in your portfolio.
During some point in 2005, China’s GDP will be larger than the UK’s.
If China, over the next two decades, increases its number of nuclear plants by a factor of four, then what will happen to the price of uranium? With large deposits in Saskatchewan, Canada is the world’s largest uranium producer. Cameco Corp of Saskatoon ( stock symbol CCJ on the NYSE) is the world’s largest publicly traded uranium company. I apologize for arriving so late to the party. In 2004, the stock rose about 20 points to just under $35 and trades at a 40 p/e. Should bad news come out on the potential dangers of nuclear power plants, and should the stock have a big correction, let’s revisit the situation. This is a very long-term investment.
While we are on the subject of China, it is worth noting that their GDP is $1.5 trillion with about $400 million of bad bank loans on the books. Do you think that'’ a cause for worry?
Unless there is 100% trust, never turn your back on life, and that goes for your assets.
In a recent issue of Workforce Management: “Annual pay increase designed for optimal hiring and retention are no longer needed. If your salary-increase budget for 2005 is much higher than 3 percent, you’re probably overspending.” According to the BLS, average growth in wages and salaries fell below 3 percent for the 12 months through September for U.S. employees. Pay grew at 2.4 percent. Production and service workers represent four-fifths of the nation’s workforce, and their hourly wages declined or remained flat over the year, adjusting for inflation, every month since May.
From the 1927 Grand Council of American Indians: "The white people, who are trying to make us over into their image, they want us to be what they call "assimilated," bringing the Indians into the mainstream and destroying our own way of life and our own cultural patterns. They believe we should be contented like those whose concept of happiness is materialistic and greedy, which is very different from our way.
We want freedom from the white man rather than to be integrated. We don't want any part of the establishment, we want to be free to raise our children in our religion, in our ways, to be able to hunt and fish and live in peace. We don't want power, we don't want to be congressmen, or bankers....we want to be ourselves. We want to have our heritage, because we are the owners of this land and because we belong here.
The white man says, there is freedom and justice for all. We have had "freedom and justice," and that is why we have been almost exterminated. We shall not forget this."
On attempts to develop the personal computer, Steve Jobs relates “so we went to Atari and said ‘Hey, we’ve got this amazing thing, even built it with some of your parts, and what do you think about funding us? Or we’ll give it to you. We just want to do it. Pay our salary, we’ll come work for you.’ And they said , ‘No.’ So then we went to Hewlett-Packard, and they said, ‘Hey, we don’t need you. You haven’t got through college yet.’” Obviously, The Apprentice had not come to HP’s attention.
Simon Pokagon, Potawatomie: “Often in the stillness of the night, when all nature seems asleep about me, there comes a gentle rapping at the door of my heart. I open it; and a voice inquires, "Pokagon, what of your people? What will their future be?" My answer is: "Mortal man has not the power to draw aside the veil of unborn time to tell the future of his race. That gift belongs of the Divine alone. But it is given to him to closely judge the future by the present, and the past."
The Business Research Division at the University of Colorado at Boulder predicted that, in 2003, a total of 22,300 new jobs would be created in Colorado. Instead, 32,300 were lost. That misjudgment did not cause them to miss a beat. For 2004, they projected 32,300 new jobs for the state. The final tally will show 9,300. I have a heart. I won’t provide their new 2005 forecast.
The comedy hour arrives on Tuesday. The CBO gives its updated budget and economic outlook. I wonder whether they will project the number of revisions they will provide in 2005. The CBO is pathetically amusing.
I’m certain that Bush will discuss Social Security in the State of the Union Address. As a primer, read the words of the Comptroller General David Walker on Social Security. He is quoted as stating “the left hand owes the right hand, and that has legal, political, and moral significance. But it doesn’t have any economic significance whatsoever. There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down…The trust fund gives a false sense of security about where we are and how much time we have.” He was trying to relate that the federal government has stolen $1.5 trillion from the trust fund and replaced it with IOUs that have no value. That’s committing a fraud. People go to jail for such acts. When society looks the other way, then the populace loses its self-respect and its right to freedom and liberty.
Today, the city of Philadelphia will be focused on the weather and the encounter with the Falcons. Tomorrow it will be time to consider One and Two Liberty Place, the Center Square building, and the Bell Atlantic Tower. It’s not a pretty sight. Philadelphia is still losing jobs. Grubb & Ellis concluded that there soon would be 4.4 million square feet of empty office space along West Market Street.
Wal-Mart reported that, during the past week, comparative sales for food were stronger than for general merchandise.
Many technicians believe the market is oversold. They get comfort in the thought that the end of January and the first few days in February are seasonally strong. If the next 7 to 10 trading days exhibit strength, then I would suggest utilizing those up days to weed out the weak sisters, so to speak, in your portfolio.
During some point in 2005, China’s GDP will be larger than the UK’s.
If China, over the next two decades, increases its number of nuclear plants by a factor of four, then what will happen to the price of uranium? With large deposits in Saskatchewan, Canada is the world’s largest uranium producer. Cameco Corp of Saskatoon ( stock symbol CCJ on the NYSE) is the world’s largest publicly traded uranium company. I apologize for arriving so late to the party. In 2004, the stock rose about 20 points to just under $35 and trades at a 40 p/e. Should bad news come out on the potential dangers of nuclear power plants, and should the stock have a big correction, let’s revisit the situation. This is a very long-term investment.
While we are on the subject of China, it is worth noting that their GDP is $1.5 trillion with about $400 million of bad bank loans on the books. Do you think that'’ a cause for worry?
Unless there is 100% trust, never turn your back on life, and that goes for your assets.
In a recent issue of Workforce Management: “Annual pay increase designed for optimal hiring and retention are no longer needed. If your salary-increase budget for 2005 is much higher than 3 percent, you’re probably overspending.” According to the BLS, average growth in wages and salaries fell below 3 percent for the 12 months through September for U.S. employees. Pay grew at 2.4 percent. Production and service workers represent four-fifths of the nation’s workforce, and their hourly wages declined or remained flat over the year, adjusting for inflation, every month since May.
From the 1927 Grand Council of American Indians: "The white people, who are trying to make us over into their image, they want us to be what they call "assimilated," bringing the Indians into the mainstream and destroying our own way of life and our own cultural patterns. They believe we should be contented like those whose concept of happiness is materialistic and greedy, which is very different from our way.
We want freedom from the white man rather than to be integrated. We don't want any part of the establishment, we want to be free to raise our children in our religion, in our ways, to be able to hunt and fish and live in peace. We don't want power, we don't want to be congressmen, or bankers....we want to be ourselves. We want to have our heritage, because we are the owners of this land and because we belong here.
The white man says, there is freedom and justice for all. We have had "freedom and justice," and that is why we have been almost exterminated. We shall not forget this."
Saturday, January 22, 2005
1/22/05 The Scorecard
A funny thing happened on the way to the January effect. For the first time in 23 years, the new year opened with three consecutive down weeks. Yesterday, the Dow broke below its December 2004 low to a level not seen since November 10. This decline has resulted in only 10% of the DJIA stocks trading above their 10-day moving average. The DJIA is below its 50-day moving average. The post-presidential election rally brought forth the year-end bonuses for most money managers. The investors are now left holding the bag, so to speak.
Despite M-3 falling $8.7 billion in the latest week, its annualized growth rate of 8.8% fosters the rising trend of inflationary forces. Over the past 52 weeks, real estate loans are up approximately 15%.
Why is it that the headlines hardly ever discuss a comparison between pre-tax profits and after-tax profits? Such a discussion might point to the tax benefits GE received. The tax rate on their financial services division is 3%. What should a fair-value P/E be for income gains generated by lower tax payments?
I remain puzzled by the following dichotomy. As I mentioned months ago, the Bureau of Economic Analysis, a government agency, reported that corporate profits were actually down $27.6 billion in the third quarter. Then how is it that Wall Street analysts report that profits are gaining at a double-digit rate?
Dietrich Bonhoeffer: “To understand reality is not the same as to know about outward events. It is to perceive the essential nature of things. The best-informed man is not necessarily the wisest. Indeed there is a danger that precisely in the multiplicity of his knowledge he will lose sight of what is essential. But on the other hand, knowledge of an apparently trivial detail quite often makes it possible to see into the depth of things. And so the wise man will seek to acquire the best possible knowledge about events, but always without becoming dependent upon this knowledge. To recognize the significant in the factual is wisdom.”
I know the Fed is not concerned with inflation, and that it’s under control. In fact, Richmond Fed president Lacker and Minneapolis Fed president Stern both remarked recently that inflation remains contained. The energy market has a mind of its own with crude at $48.53 per barrel and heating oil at $1.38 a gallon. I also noticed that zinc futures rose to a 7-year high.
The December semiconductor book-to-bill ratio declined below 1-to-1 for the fourth straight month. Orders declined for the third consecutive month.
There were several topics Bush did not cover in his inaugural speech. I thought I might provide this information from the Pentagon. On May 1, 2003 Bush declared an end to major combat operations. At that time, there were, on average, 17 monthly U.S. military fatalities. The average today is 82 per month. During this same period, the average number of U.S. soldiers wounded by hostile acts has risen from 142 per month to 808 per month. Since November 2003, attacks on U.S.-led coalition forces have risen from 735 a month to 2,300 per month.
Due to its preliminary survey of only about 300 households, I do not place much significance in the University of Michigan consumer sentiment index. Others believe it’s the holy grail. As such, I simply mention the index for the month of January decreased to 95.8 from 97.1 in December. I feel confident that this index presently overstates the level of consumer confidence.
China is now the world’s second biggest oil consumer. Their crude imports rose nearly 35% in 2004.
India’s Wipro Ltd. stated that its business process outsourcing services suffered in the fourth quarter from huge staff turnover. The company’s vice chairman, Vivek Paul, said on Friday the BPO business faced annualized attrition rates as high as 90%. The major problem exists at call centers. Paul stated “we are not counting on big price increases, so really it has to be volume-fed, that’s where we are pushing.”
Photoworks of Seattle has downsized from 750 employees in 2000 to 134, and yesterday they announced laying off an additional 66 people. The company is transforming itself from mail-order film processing, the market for which is declining about 30% a year, to an online provider of digital photo services. Prints of digital images will be outsourced to a company in Maryland.
If you have been reading my daily thoughts, you know I have been negative on GM for one year. In fact, I have been short during this entire time period. To be precise, I have been long Toyota and short GM. That has not changed. However, I don’t believe that GM is going out of business or that it will stop paying the interest on its debt. It’s popular to talk about the possibility of GM bonds being downgraded by S&P. Their bonds trade like GM is a pile of junk. Our 10-year U.S. treasury bonds trade like they are gold-backed. In fact, for my money, our U.S. treasury bonds are over-owned and over-rated. I would like you to consider going long the GM bonds due in 2013 and shorting the 10-year U.S. treasury bonds.
A funny thing happened on the way to the January effect. For the first time in 23 years, the new year opened with three consecutive down weeks. Yesterday, the Dow broke below its December 2004 low to a level not seen since November 10. This decline has resulted in only 10% of the DJIA stocks trading above their 10-day moving average. The DJIA is below its 50-day moving average. The post-presidential election rally brought forth the year-end bonuses for most money managers. The investors are now left holding the bag, so to speak.
Despite M-3 falling $8.7 billion in the latest week, its annualized growth rate of 8.8% fosters the rising trend of inflationary forces. Over the past 52 weeks, real estate loans are up approximately 15%.
Why is it that the headlines hardly ever discuss a comparison between pre-tax profits and after-tax profits? Such a discussion might point to the tax benefits GE received. The tax rate on their financial services division is 3%. What should a fair-value P/E be for income gains generated by lower tax payments?
I remain puzzled by the following dichotomy. As I mentioned months ago, the Bureau of Economic Analysis, a government agency, reported that corporate profits were actually down $27.6 billion in the third quarter. Then how is it that Wall Street analysts report that profits are gaining at a double-digit rate?
Dietrich Bonhoeffer: “To understand reality is not the same as to know about outward events. It is to perceive the essential nature of things. The best-informed man is not necessarily the wisest. Indeed there is a danger that precisely in the multiplicity of his knowledge he will lose sight of what is essential. But on the other hand, knowledge of an apparently trivial detail quite often makes it possible to see into the depth of things. And so the wise man will seek to acquire the best possible knowledge about events, but always without becoming dependent upon this knowledge. To recognize the significant in the factual is wisdom.”
I know the Fed is not concerned with inflation, and that it’s under control. In fact, Richmond Fed president Lacker and Minneapolis Fed president Stern both remarked recently that inflation remains contained. The energy market has a mind of its own with crude at $48.53 per barrel and heating oil at $1.38 a gallon. I also noticed that zinc futures rose to a 7-year high.
The December semiconductor book-to-bill ratio declined below 1-to-1 for the fourth straight month. Orders declined for the third consecutive month.
There were several topics Bush did not cover in his inaugural speech. I thought I might provide this information from the Pentagon. On May 1, 2003 Bush declared an end to major combat operations. At that time, there were, on average, 17 monthly U.S. military fatalities. The average today is 82 per month. During this same period, the average number of U.S. soldiers wounded by hostile acts has risen from 142 per month to 808 per month. Since November 2003, attacks on U.S.-led coalition forces have risen from 735 a month to 2,300 per month.
Due to its preliminary survey of only about 300 households, I do not place much significance in the University of Michigan consumer sentiment index. Others believe it’s the holy grail. As such, I simply mention the index for the month of January decreased to 95.8 from 97.1 in December. I feel confident that this index presently overstates the level of consumer confidence.
China is now the world’s second biggest oil consumer. Their crude imports rose nearly 35% in 2004.
India’s Wipro Ltd. stated that its business process outsourcing services suffered in the fourth quarter from huge staff turnover. The company’s vice chairman, Vivek Paul, said on Friday the BPO business faced annualized attrition rates as high as 90%. The major problem exists at call centers. Paul stated “we are not counting on big price increases, so really it has to be volume-fed, that’s where we are pushing.”
Photoworks of Seattle has downsized from 750 employees in 2000 to 134, and yesterday they announced laying off an additional 66 people. The company is transforming itself from mail-order film processing, the market for which is declining about 30% a year, to an online provider of digital photo services. Prints of digital images will be outsourced to a company in Maryland.
If you have been reading my daily thoughts, you know I have been negative on GM for one year. In fact, I have been short during this entire time period. To be precise, I have been long Toyota and short GM. That has not changed. However, I don’t believe that GM is going out of business or that it will stop paying the interest on its debt. It’s popular to talk about the possibility of GM bonds being downgraded by S&P. Their bonds trade like GM is a pile of junk. Our 10-year U.S. treasury bonds trade like they are gold-backed. In fact, for my money, our U.S. treasury bonds are over-owned and over-rated. I would like you to consider going long the GM bonds due in 2013 and shorting the 10-year U.S. treasury bonds.
Friday, January 21, 2005
1/21/05 Liberty, Freedom, And The Spending Regime Ruler
Woodrow Wilson: “Liberty has never come from the government. Liberty has always come from the subjects of government. The history of liberty is the history of resistance. The history of liberty is a history of the limitation of governmental power, not the increase of it.”
Yesterday, the Conference Board stated the growth rate of the U.S. leading index slowed below its long-term trend ( a 1.5 percent annual rate) in the second half of 2004, but not to a rate that has historically been associated with a recession. Only four of the ten indicators that make up the leading index increased in December. By comparison, three of the seven components of the lagging indicators gained in December. The lagging index was unchanged in December after decreasing 0.3% in November.
FDR: “True independent freedom cannot exist without economic security and independence. People who are hungry and out of a job are the stuff of which dictatorships are made.”
The Philly Fed reported that indicators for general activity, new orders, and shipments fell from their readings in December. The index, reflecting the broadest measuring of manufacturing conditions, fell to 13.2 in January from 25.4 in December. Importantly, the new orders index fell 11 points and the shipments index fell 10 points. More than 66% of the firms reported higher prices for purchased inputs in January, up from 56 percent in the prior month. Thirty-one percent of firms reported prices for their own manufactured goods were higher this month, while 7 percent reported lower prices. The outlook for employment growth improved modestly. The percentage of firms expecting increases in capital spending in 2005 was slightly lower than the percentage at the beginning of 2004.
Charles Austin Beard: “You need only reflect that one of the best ways to get yourself a reputation as a dangerous citizen these days is to go about repeating the very phrases which our founding fathers used in the struggle for independence.”
Michael Niemira, chief economist at the International Council of Shopping Centers, predicted that sales at stores opened at least a year will rise 3% in 2005, a decline from the 3.8% pace in 2004. He went on to state that stores would have a difficult time posting solid sales gains in the first half over the year-ago period due to higher interest rates and the absence of tax refunds and heightened mortgage refinance activity. Lew Frankfort, chairman and CEO of Coach, remarked “the competition is getting broader and innovation and relevance really sells.” Do you see a lot of innovation and relevance in the retail landscape?
William Poole, president of the St. Louis Fed: “Economic growth will be boosted to an important extent by continued strong business fixed investment. Growth of consumer spending should also remain healthy.”
U.K. December retail sales fell 1%, the largest drop in December since 1981.
According to research by The Boston Consulting Group, virtually all growth in our consumer-based economy will be in the premium, affordable luxury end or in the low-price end, as the traditional mass market hollows out. The “new luxury” phenomenon represented approximately $525 billion in sales in the U.S. in 2004, up from $450 billion in 2003, and will probably reach $1 trillion by 2010, according to their research. They explain this phenomenon by suggesting it is a result of the number of middle market consumers increasing, and trading up and trading down in order to acquire and enjoy new luxury goods that matter to them. As an example, a consumer might buy grocery staples at Wal-Mart and sports clothes at Target in order to afford an entry-level BMW or a spa vacation. Travel, expenditures on the home, cars, and dining were the leading new luxury categories in 2004.
In September, I reported that Microsoft had cut 93 electronic testers from the payroll. On Wednesday, another 62 were laid off. Cingular passed out 88 new layoff notices to former AT&T Wireless employees in the Puget Sound region. On January 3, 155 of those employees received termination notices. Avery Dennison will close a plant in Flowery Branch, GA and cut 174 jobs. Ingersoll-Rand is halting production at its Bryan, Ohio manufacturing plant and 214 employees will lose their jobs. American Pad and Paper is closing its Holyoke, Mass. Manufacturing plant, and 176 workers will lose their jobs. Jeffrey Hayden, Holyoke’s economic development director, stated “this is just another sign of the Northeast not being able to compete in terms of labor, taxes, utilities, transportation, and other costs.”
Housing construction accounts for almost 9% of our GDP. What impact will rising interest rates have on housing construction?
Alexander Fraser Tyler: “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the Public Treasury. From that moment on, the majority always votes for the candidate promising the most benefits from the Public Treasury with the result that a democracy always collapses over loose fiscal policy always followed by dictatorship. The average age of the world's greatest civilizations has been two hundred years. These nations have progressed through this sequence: From bondage to spiritual faith; from spiritual faith to great courage; from courage to abundance; from abundance to complacency; from complacency to apathy; from apathy to dependence; from dependence back again into bondage.”
Woodrow Wilson: “Liberty has never come from the government. Liberty has always come from the subjects of government. The history of liberty is the history of resistance. The history of liberty is a history of the limitation of governmental power, not the increase of it.”
Yesterday, the Conference Board stated the growth rate of the U.S. leading index slowed below its long-term trend ( a 1.5 percent annual rate) in the second half of 2004, but not to a rate that has historically been associated with a recession. Only four of the ten indicators that make up the leading index increased in December. By comparison, three of the seven components of the lagging indicators gained in December. The lagging index was unchanged in December after decreasing 0.3% in November.
FDR: “True independent freedom cannot exist without economic security and independence. People who are hungry and out of a job are the stuff of which dictatorships are made.”
The Philly Fed reported that indicators for general activity, new orders, and shipments fell from their readings in December. The index, reflecting the broadest measuring of manufacturing conditions, fell to 13.2 in January from 25.4 in December. Importantly, the new orders index fell 11 points and the shipments index fell 10 points. More than 66% of the firms reported higher prices for purchased inputs in January, up from 56 percent in the prior month. Thirty-one percent of firms reported prices for their own manufactured goods were higher this month, while 7 percent reported lower prices. The outlook for employment growth improved modestly. The percentage of firms expecting increases in capital spending in 2005 was slightly lower than the percentage at the beginning of 2004.
Charles Austin Beard: “You need only reflect that one of the best ways to get yourself a reputation as a dangerous citizen these days is to go about repeating the very phrases which our founding fathers used in the struggle for independence.”
Michael Niemira, chief economist at the International Council of Shopping Centers, predicted that sales at stores opened at least a year will rise 3% in 2005, a decline from the 3.8% pace in 2004. He went on to state that stores would have a difficult time posting solid sales gains in the first half over the year-ago period due to higher interest rates and the absence of tax refunds and heightened mortgage refinance activity. Lew Frankfort, chairman and CEO of Coach, remarked “the competition is getting broader and innovation and relevance really sells.” Do you see a lot of innovation and relevance in the retail landscape?
William Poole, president of the St. Louis Fed: “Economic growth will be boosted to an important extent by continued strong business fixed investment. Growth of consumer spending should also remain healthy.”
U.K. December retail sales fell 1%, the largest drop in December since 1981.
According to research by The Boston Consulting Group, virtually all growth in our consumer-based economy will be in the premium, affordable luxury end or in the low-price end, as the traditional mass market hollows out. The “new luxury” phenomenon represented approximately $525 billion in sales in the U.S. in 2004, up from $450 billion in 2003, and will probably reach $1 trillion by 2010, according to their research. They explain this phenomenon by suggesting it is a result of the number of middle market consumers increasing, and trading up and trading down in order to acquire and enjoy new luxury goods that matter to them. As an example, a consumer might buy grocery staples at Wal-Mart and sports clothes at Target in order to afford an entry-level BMW or a spa vacation. Travel, expenditures on the home, cars, and dining were the leading new luxury categories in 2004.
In September, I reported that Microsoft had cut 93 electronic testers from the payroll. On Wednesday, another 62 were laid off. Cingular passed out 88 new layoff notices to former AT&T Wireless employees in the Puget Sound region. On January 3, 155 of those employees received termination notices. Avery Dennison will close a plant in Flowery Branch, GA and cut 174 jobs. Ingersoll-Rand is halting production at its Bryan, Ohio manufacturing plant and 214 employees will lose their jobs. American Pad and Paper is closing its Holyoke, Mass. Manufacturing plant, and 176 workers will lose their jobs. Jeffrey Hayden, Holyoke’s economic development director, stated “this is just another sign of the Northeast not being able to compete in terms of labor, taxes, utilities, transportation, and other costs.”
Housing construction accounts for almost 9% of our GDP. What impact will rising interest rates have on housing construction?
Alexander Fraser Tyler: “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the Public Treasury. From that moment on, the majority always votes for the candidate promising the most benefits from the Public Treasury with the result that a democracy always collapses over loose fiscal policy always followed by dictatorship. The average age of the world's greatest civilizations has been two hundred years. These nations have progressed through this sequence: From bondage to spiritual faith; from spiritual faith to great courage; from courage to abundance; from abundance to complacency; from complacency to apathy; from apathy to dependence; from dependence back again into bondage.”
Thursday, January 20, 2005
1/20/05 Know What You Own
Last night was a good lesson for Ebay shareholders. Analysts were disappointed that earnings fell a penny short of their estimates and that guidance for 2005 was one penny less than projected in October. This is a ten-year old company in which earnings are still growing 40% or more. You need to know what you own and have a time horizon for your investment. The company purchased PayPal and the latter’s revenue is growing better than 50%. At the same time, margins at PayPal are lower than the rest of Ebay’s businesses. As such, the margins were slightly lower than anticipated because PayPal is growing faster than expected. It is significant that Ebay raised its 2005 revenue projection from its previous forecast. Of all the companies doing business on the Internet, Ebay has the best model and the best future. It is a company with top-notch management. If you own this stock for the next 20 or 40 years, there will be other bumps in the road. However, as Meg Whitman stated, “Ebay’s long-term promise is extraordinary.” That statement can only be made about a handful of companies. For example, I’ve owned Medtronic for 39 ¼ years. I look forward to owning Ebay for at least that long.
The BLS reported that average weekly earnings rose by 3.3% seasonally adjusted, from December 2003 to December 2004. After deflation by the CPI-W, average weekly earnings decreased by 0.2%. That statistic represents a significant flaw in our economic recovery. When wages trail inflation, an economic recovery is but a mirage.
The Labor Department reported that initial jobless claims dropped by 48,000 during the week. The Labor Department also reported that the number of people continuing to collect state jobless benefits rose to 2.694 million from 2.647, a rise of 47,000. The Labor Department giveth and taketh away.
China has ordered a halt to construction work on 26 big power stations, including two at the Three Gorges Dam, on environmental grounds. China has also reported an abrupt slowdown in its auto sales. How will that impact GM?
When in doubt, turn to T-bills. The three-month rate is 2.360%, the highest in more than three years.
In a study by Hewitt Associates of nearly 200 large companies, 27% stated they will consider amending their defined benefit plan to exclude new employees from participation, and 20% will consider providing defined contribution plans only.
For all of 2004, consumer prices rose the most in four years. Prices were 3.3% higher than in 2003. Anthony Santomero, president of the Philly fed, stated “if signs of price pressure emerge on a consistent basis we will need to consider quickening the pace (of rate hikes).”
Over the past 12 months, Germany’s exports increased by 8.2%. From May to November, the dollar fell by 8.1% in trade-weighted terms, and yet, our exports declined by 2.3% in November.
Since Ebay announced plans to increase its fees starting Feb. 18, listings on Overstock.com increased 50%. For one month, from Feb 18 to March 18, Overstock will lower listing fees by the same percentage as the increase in Ebay’s listing fees.
The Bank of Japan stated that its economic growth next fiscal year will not meet its prediction of a 1.5% rise and that consumer prices may also not rise by the 0.1% it had projected for the year beginning April 1.
Over the next five years, Wal-Mart plans to open hundreds of stores in China in a joint venture with Beijing-based CITIC Pacific Co. Ltd. Wal-Mart will hold a 65% interest in the venture. Wal-Mart’s first store in China opened in 1996, and now they have more than 40 stores.
With the exception of Vermont, all states require balanced budgets. Many states have already utilized reserve funds as well as tobacco settlement money to fill previous budget gaps. Some states are projecting very large budget deficits for fiscal 2006 starting July1. They include California, Connecticut, Illinois, Indiana, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio, Oklahoma, Oregon, Washington, and Wisconsin.
T-Mobile plans to cut up to 2,200 jobs in Europe by 2006. Deutsche Bank is planning to cut 4,000 to 6,000 jobs in its global investment banking division.
Amalgamated Sugar has sugar beet processing plants in Nampa, Paul, and Twin Falls, Idaho and one in Nyssa, Oregon. The company will sharply curtail operations in Nyssa and about 100 workers will lose their jobs. The reasons are excess domestic sugar production; the importation of sugar-containing food products; USDA marketing allotments limiting the amount of sugar companies can sell; and trade pressure from foreign producers. It should be noted that Amalgamated is probably the low-cost producer of sugar in the U.S.
Delta Airlines lost $780 million in the fourth quarter.
Boeing’s charges for ending the 717 production will be $385 million rather than the original projection of $340 million.
United Healthcare is raising their earnings estimates.
Jay Leno: “President Bush has been working on his inauguration, not the actual speech but the word inaugural.”
The weekly index compiled by the Economic Cycle Research Institute fell to 130.4 in the week to Jan. 7 from an upwardly revised 131.6 the previous week. The index’s annualized growth rate fell to a minus 0.5 percent from 0.8 percent the prior week. Anirvan Banerji, director of research of ECRI, stated “we are seeing the effect of the slowdown.”
Last night was a good lesson for Ebay shareholders. Analysts were disappointed that earnings fell a penny short of their estimates and that guidance for 2005 was one penny less than projected in October. This is a ten-year old company in which earnings are still growing 40% or more. You need to know what you own and have a time horizon for your investment. The company purchased PayPal and the latter’s revenue is growing better than 50%. At the same time, margins at PayPal are lower than the rest of Ebay’s businesses. As such, the margins were slightly lower than anticipated because PayPal is growing faster than expected. It is significant that Ebay raised its 2005 revenue projection from its previous forecast. Of all the companies doing business on the Internet, Ebay has the best model and the best future. It is a company with top-notch management. If you own this stock for the next 20 or 40 years, there will be other bumps in the road. However, as Meg Whitman stated, “Ebay’s long-term promise is extraordinary.” That statement can only be made about a handful of companies. For example, I’ve owned Medtronic for 39 ¼ years. I look forward to owning Ebay for at least that long.
The BLS reported that average weekly earnings rose by 3.3% seasonally adjusted, from December 2003 to December 2004. After deflation by the CPI-W, average weekly earnings decreased by 0.2%. That statistic represents a significant flaw in our economic recovery. When wages trail inflation, an economic recovery is but a mirage.
The Labor Department reported that initial jobless claims dropped by 48,000 during the week. The Labor Department also reported that the number of people continuing to collect state jobless benefits rose to 2.694 million from 2.647, a rise of 47,000. The Labor Department giveth and taketh away.
China has ordered a halt to construction work on 26 big power stations, including two at the Three Gorges Dam, on environmental grounds. China has also reported an abrupt slowdown in its auto sales. How will that impact GM?
When in doubt, turn to T-bills. The three-month rate is 2.360%, the highest in more than three years.
In a study by Hewitt Associates of nearly 200 large companies, 27% stated they will consider amending their defined benefit plan to exclude new employees from participation, and 20% will consider providing defined contribution plans only.
For all of 2004, consumer prices rose the most in four years. Prices were 3.3% higher than in 2003. Anthony Santomero, president of the Philly fed, stated “if signs of price pressure emerge on a consistent basis we will need to consider quickening the pace (of rate hikes).”
Over the past 12 months, Germany’s exports increased by 8.2%. From May to November, the dollar fell by 8.1% in trade-weighted terms, and yet, our exports declined by 2.3% in November.
Since Ebay announced plans to increase its fees starting Feb. 18, listings on Overstock.com increased 50%. For one month, from Feb 18 to March 18, Overstock will lower listing fees by the same percentage as the increase in Ebay’s listing fees.
The Bank of Japan stated that its economic growth next fiscal year will not meet its prediction of a 1.5% rise and that consumer prices may also not rise by the 0.1% it had projected for the year beginning April 1.
Over the next five years, Wal-Mart plans to open hundreds of stores in China in a joint venture with Beijing-based CITIC Pacific Co. Ltd. Wal-Mart will hold a 65% interest in the venture. Wal-Mart’s first store in China opened in 1996, and now they have more than 40 stores.
With the exception of Vermont, all states require balanced budgets. Many states have already utilized reserve funds as well as tobacco settlement money to fill previous budget gaps. Some states are projecting very large budget deficits for fiscal 2006 starting July1. They include California, Connecticut, Illinois, Indiana, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio, Oklahoma, Oregon, Washington, and Wisconsin.
T-Mobile plans to cut up to 2,200 jobs in Europe by 2006. Deutsche Bank is planning to cut 4,000 to 6,000 jobs in its global investment banking division.
Amalgamated Sugar has sugar beet processing plants in Nampa, Paul, and Twin Falls, Idaho and one in Nyssa, Oregon. The company will sharply curtail operations in Nyssa and about 100 workers will lose their jobs. The reasons are excess domestic sugar production; the importation of sugar-containing food products; USDA marketing allotments limiting the amount of sugar companies can sell; and trade pressure from foreign producers. It should be noted that Amalgamated is probably the low-cost producer of sugar in the U.S.
Delta Airlines lost $780 million in the fourth quarter.
Boeing’s charges for ending the 717 production will be $385 million rather than the original projection of $340 million.
United Healthcare is raising their earnings estimates.
Jay Leno: “President Bush has been working on his inauguration, not the actual speech but the word inaugural.”
The weekly index compiled by the Economic Cycle Research Institute fell to 130.4 in the week to Jan. 7 from an upwardly revised 131.6 the previous week. The index’s annualized growth rate fell to a minus 0.5 percent from 0.8 percent the prior week. Anirvan Banerji, director of research of ECRI, stated “we are seeing the effect of the slowdown.”
Wednesday, January 19, 2005
1/19/05 IBM And Ryland
Several months ago, I suggested a strategy of purchasing one share of eBay, Yahoo, and Google and shorting one share of IBM. The market capitalization of the combined three companies were equal to the market capitalization of IBM. My theory was IBM ‘s growth was limited in compared with the high growth profile of the other three. Yesterday, IBM reported earnings for the quarter and for the full year. Revenues in the fourth quarter rose 3%, adjusting for currency. Fourth-quarter income from continuing operations was $3.1 billion. What did they do with the money? They repurchased $2.9 billion worth of stock during the fourth quarter. For the whole year, the earnings from continuing operations totaled $8.4 billion, and of that amount, $7.3 billion was utilized to repurchase stock. For the full year, revenues grew 4%, adjusting for currency. The company ended the year with $10.5 billion in cash; however, debt was just below $23 billion. This is a non-innovative company. Fifty percent of their revenues are derived from services. It’s only a matter of time until the software and consulting companies in India take market share from IBM. For my money, at 19 times fully diluted earnings, IBM represents little value. On the other hand, eBay, Yahoo, and Google represent, in my mind, the best growth opportunities in the world of the Internet. Statistically, on a P/E basis, they are hardly cheap. As I have stated in the past, the strategy I have outlined may not be for everyone.
It was a pleasure to read the report from Ryland Group. They are one of the nation’s largest homebuilders and a leading mortgage-finance company. Currently, they operate in 27 markets across the country. They announced record results for its fourth quarter, including the highest fourth-quarter consolidated net earnings, revenues, new orders, closings, backlog, and earnings per share in its history. In addition, they increased earnings guidance for 2005, with earnings per share expected to exceed $7.25. The stock closed at a new all-time high of $61.50. I have consistently underestimated the resiliency of the homebuilding market. If I had to choose between making an investment in IBM or in Ryland, I would choose the latter. The P/E is modest, and leaves room for a slowdown in housing.
Sandra Pianalto, president of the Cleveland Fed, indicated in a speech yesterday that the inflation process has “clearly shifted away from disinflation” and expressed it would be “prudent” to continue to hike short-term interest rates. One might take her viewpoint with a grain of salt. In November, she remarked “recent energy price increases don’t seem to be affecting long-term inflation expectations.”
CONTECH is the only nationwide provider of corrugated metal and plastic pipe, detention/retention systems, geogrid and geotextile materials, erosion control products, concrete arch systems, and retaining wall systems and bridge structures. Effective February 1, they will raise prices as much as 10%.
Fed governor Susan Bies: “I believe that, with inflation expected to moderate, the Federal Reserve can continue to remove its policy of accommodation at a measured pace, consistent with its commitment to maintain price stability as a necessary condition for maximum sustainable growth.”
Total capital flows totaled $81 billion in November. That helped partially offset the monthly $60 billion trade deficit and the average monthly budget deficit exceeding $34 billion.
B.H. Liddell Hart: “A complacent satisfaction with present knowledge is the chief bar to the pursuit of knowledge.”
According to a national survey by Nationwide, 80% of respondents are not losing sleep over their finances, and 59% believe they have a plan and are saving enough to meet retirement goals. The savings rate has declined to 0.1%, one of the lowest rates recorded since tracking began in 1959. Less than half of workers are covered by any type of pension plan. Of those eligible, 25% don’t participate.
Following the acquisition of Robert Mondavi Corp., Constellation Brands confirmed yesterday that 210 Mondavi workers have been laid off post-merger. The cuts include administrative, sales, production, and other workers.
Eric Hoffer: “You can discover what your enemy fears most by observing the means he uses to frighten you.”
We are near decade-low volatility readings for equities. Why is there so little fear in owning equities, 10-year Treasury bonds, and/or junk bonds? Do you think there will be double-digit gains in corporate profits in 2005, a decline in the recent rise in inflation, a decline in the twin tower deficits, a lessening in demand for petroleum products, and/or the disappearance of al-Qaeda and other terrorist cells? Do you think there will be a renewed appetite to acquire dollar-denominated assets?
The CBO recently reported their “Future-Year Defense Plan” will cost substantially more than the amounts cited by the administration in budget projections.
Beginning October 1, 2004, the national debt is increasing an average of $2.12 billion per day. Each citizen’s share is approaching $25,800.
In January, the Empire State Manufacturing index fell to 20.1 from 27.1 in December, while the employment index declined to 12.7 from 15.7.
Pfizer’s Lipitor is the pharmaceutical industry’s first $10 billion product.
Eric Meurice, president and CEO, of Dutch chip equipment maker ASML: “There is clearly no visibility at the moment on where the semiconductor industry is going to go.”
During the economic recovery that began in November 2001, we have witnessed the worst employment growth since 1932 coupled with, adjusting for inflation, no income growth, and this despite multiple rounds of Fed and government stimuli. Clearly, record unsustainable low savings, record high unsustainable twin tower deficits, and record high unsustainable household and national debt levels will not provide a foundation for a self-sustaining economic recovery. Forced expenditure adjustments will lead to restrained consumer credit growth leading to a declining economic expansion and, ultimately, to currency depreciation and a curtailment of purchasing power. More flexible exchange rates will not solve the mounting current account problem. The importance of our dollar as a reserve currency will continue to decline. However, the price for economic stability can only be realized through reduced consumer and government expenditures. In the long term, this change will be most welcome. In the short term, it will produce a shock for our equity and debt markets. It is unavoidable.
If you think inflation is moderate, check out the prices for hot-rolled coil steel, wood products, copper, aluminum, cement, plastics, chemicals, corrugated boxes, refrigerators, dishwashers, and washing machines. Inflation will hurt the buyers of 10-year Treasury bonds. If you don’t believe me, check their yields in six months, and then let me know how much money you’ve lost marked-to-the-market.
The CFSB-Tremont hedge fund index rose 9.64% in 2004, down from a rise of 15.44% in 2003. Some believe that performance warrants a pat on the back. Some are willing to accept mediocrity.
Several months ago, I suggested a strategy of purchasing one share of eBay, Yahoo, and Google and shorting one share of IBM. The market capitalization of the combined three companies were equal to the market capitalization of IBM. My theory was IBM ‘s growth was limited in compared with the high growth profile of the other three. Yesterday, IBM reported earnings for the quarter and for the full year. Revenues in the fourth quarter rose 3%, adjusting for currency. Fourth-quarter income from continuing operations was $3.1 billion. What did they do with the money? They repurchased $2.9 billion worth of stock during the fourth quarter. For the whole year, the earnings from continuing operations totaled $8.4 billion, and of that amount, $7.3 billion was utilized to repurchase stock. For the full year, revenues grew 4%, adjusting for currency. The company ended the year with $10.5 billion in cash; however, debt was just below $23 billion. This is a non-innovative company. Fifty percent of their revenues are derived from services. It’s only a matter of time until the software and consulting companies in India take market share from IBM. For my money, at 19 times fully diluted earnings, IBM represents little value. On the other hand, eBay, Yahoo, and Google represent, in my mind, the best growth opportunities in the world of the Internet. Statistically, on a P/E basis, they are hardly cheap. As I have stated in the past, the strategy I have outlined may not be for everyone.
It was a pleasure to read the report from Ryland Group. They are one of the nation’s largest homebuilders and a leading mortgage-finance company. Currently, they operate in 27 markets across the country. They announced record results for its fourth quarter, including the highest fourth-quarter consolidated net earnings, revenues, new orders, closings, backlog, and earnings per share in its history. In addition, they increased earnings guidance for 2005, with earnings per share expected to exceed $7.25. The stock closed at a new all-time high of $61.50. I have consistently underestimated the resiliency of the homebuilding market. If I had to choose between making an investment in IBM or in Ryland, I would choose the latter. The P/E is modest, and leaves room for a slowdown in housing.
Sandra Pianalto, president of the Cleveland Fed, indicated in a speech yesterday that the inflation process has “clearly shifted away from disinflation” and expressed it would be “prudent” to continue to hike short-term interest rates. One might take her viewpoint with a grain of salt. In November, she remarked “recent energy price increases don’t seem to be affecting long-term inflation expectations.”
CONTECH is the only nationwide provider of corrugated metal and plastic pipe, detention/retention systems, geogrid and geotextile materials, erosion control products, concrete arch systems, and retaining wall systems and bridge structures. Effective February 1, they will raise prices as much as 10%.
Fed governor Susan Bies: “I believe that, with inflation expected to moderate, the Federal Reserve can continue to remove its policy of accommodation at a measured pace, consistent with its commitment to maintain price stability as a necessary condition for maximum sustainable growth.”
Total capital flows totaled $81 billion in November. That helped partially offset the monthly $60 billion trade deficit and the average monthly budget deficit exceeding $34 billion.
B.H. Liddell Hart: “A complacent satisfaction with present knowledge is the chief bar to the pursuit of knowledge.”
According to a national survey by Nationwide, 80% of respondents are not losing sleep over their finances, and 59% believe they have a plan and are saving enough to meet retirement goals. The savings rate has declined to 0.1%, one of the lowest rates recorded since tracking began in 1959. Less than half of workers are covered by any type of pension plan. Of those eligible, 25% don’t participate.
Following the acquisition of Robert Mondavi Corp., Constellation Brands confirmed yesterday that 210 Mondavi workers have been laid off post-merger. The cuts include administrative, sales, production, and other workers.
Eric Hoffer: “You can discover what your enemy fears most by observing the means he uses to frighten you.”
We are near decade-low volatility readings for equities. Why is there so little fear in owning equities, 10-year Treasury bonds, and/or junk bonds? Do you think there will be double-digit gains in corporate profits in 2005, a decline in the recent rise in inflation, a decline in the twin tower deficits, a lessening in demand for petroleum products, and/or the disappearance of al-Qaeda and other terrorist cells? Do you think there will be a renewed appetite to acquire dollar-denominated assets?
The CBO recently reported their “Future-Year Defense Plan” will cost substantially more than the amounts cited by the administration in budget projections.
Beginning October 1, 2004, the national debt is increasing an average of $2.12 billion per day. Each citizen’s share is approaching $25,800.
In January, the Empire State Manufacturing index fell to 20.1 from 27.1 in December, while the employment index declined to 12.7 from 15.7.
Pfizer’s Lipitor is the pharmaceutical industry’s first $10 billion product.
Eric Meurice, president and CEO, of Dutch chip equipment maker ASML: “There is clearly no visibility at the moment on where the semiconductor industry is going to go.”
During the economic recovery that began in November 2001, we have witnessed the worst employment growth since 1932 coupled with, adjusting for inflation, no income growth, and this despite multiple rounds of Fed and government stimuli. Clearly, record unsustainable low savings, record high unsustainable twin tower deficits, and record high unsustainable household and national debt levels will not provide a foundation for a self-sustaining economic recovery. Forced expenditure adjustments will lead to restrained consumer credit growth leading to a declining economic expansion and, ultimately, to currency depreciation and a curtailment of purchasing power. More flexible exchange rates will not solve the mounting current account problem. The importance of our dollar as a reserve currency will continue to decline. However, the price for economic stability can only be realized through reduced consumer and government expenditures. In the long term, this change will be most welcome. In the short term, it will produce a shock for our equity and debt markets. It is unavoidable.
If you think inflation is moderate, check out the prices for hot-rolled coil steel, wood products, copper, aluminum, cement, plastics, chemicals, corrugated boxes, refrigerators, dishwashers, and washing machines. Inflation will hurt the buyers of 10-year Treasury bonds. If you don’t believe me, check their yields in six months, and then let me know how much money you’ve lost marked-to-the-market.
The CFSB-Tremont hedge fund index rose 9.64% in 2004, down from a rise of 15.44% in 2003. Some believe that performance warrants a pat on the back. Some are willing to accept mediocrity.
Tuesday, January 18, 2005
1/18/05 What’s Changed?
We’re close to four months into the 2004-2005 government fiscal year that began on October 1. The American public was told the budget deficit would decline. It hasn’t. We were told the weak dollar would help our exports. The trade gap has widened to record levels. The Fed members have told the financial community that inflation is not a problem. The CPI inflation rate is trending towards 4%. Any small wage gains have been smoked out by inflation. Workers are behind the eight ball. All is not glum. Coach and Nordstrom’s are turning in terrific gains resulting from the top 1% of households accounting for 20% of all incomes and one-third of all net worth. Businesses are struggling to pass along their increased costs. Prices for intermediate goods, excluding food and energy, rose 8.3% in 2004 and crude goods zoomed 20% higher. As for crude oil, it’s returned to a 7-week high of $49.26 a barrel. It seems that winter does bring forth cold weather, and the latter, combined with 2004’s rising oil demand of 3.3%, makes for more costly energy products. Meanwhile, the dollar is trading near a five-year low against the yen. As long as there is on-going worry that the U.S. economy won’t have enough foreign investment to offset the current account deficit and the budget shortfall, the dollar will have difficulty sustaining a rally. Do not be caught up in the day-to-day currency fluctuations. Maintain a minimum exposure to dollar holdings.
Cullen Hightower: “Money was invented so we could know exactly how much we owe.”
The National Retail Federation reported that retail sales grew 6.7% in 2004. They project a gain of 3.5% in 2005. Their chief economist, Rosalind Wells, stated “this year, consumers will be under increased financial pressure due to higher energy costs and slow wage growth. Additionally, past stimuli provided by tax cuts and very low interest rates will no longer be there to boost consumer spending…Modest income growth will put a financial strain on consumers.”
OGTIA, the official guide to Internet architecture and a non-profit organization, has unveiled a beta version of its OgtiaKeyMaker invented by Roger Marx Dray (http://rogermarxdray.com). It promises to reorganize the sale of goods throughout the Internet. A user can enter data in one place, their own page, and the entire Internet will know what the person wants to buy or sell. This negates the need for users to enter the data several times in several web sites. Users, in a few minutes, can control the content and the access of their own data. The same system is being developed for resumes. Dray maintains OgtiaKeyMaker will reorganize the Web so search engines will become 100,000 times more efficient. He stated that the new Interactive Way will soon make today’s Google, Yahoo, and Accoona interfaces completely obsolete. Additionally, eBay is no longer the only game in town. The new search engine is being developed at http://way7.com. The beta version of OgtiaKeyMaker is available at 206.51.234.135/keymaker.
MMM’s 4th quarter worldwide sales rose 7.9% compared to the 4th quarter of 2003. In the latest quarter, currency effects increased sales by 4%.
Alexander Herzen: “There is nothing in the world more stubborn than a corpse. You can hit it, you can knock it to pieces, but you cannot convince it.”
We’re close to four months into the 2004-2005 government fiscal year that began on October 1. The American public was told the budget deficit would decline. It hasn’t. We were told the weak dollar would help our exports. The trade gap has widened to record levels. The Fed members have told the financial community that inflation is not a problem. The CPI inflation rate is trending towards 4%. Any small wage gains have been smoked out by inflation. Workers are behind the eight ball. All is not glum. Coach and Nordstrom’s are turning in terrific gains resulting from the top 1% of households accounting for 20% of all incomes and one-third of all net worth. Businesses are struggling to pass along their increased costs. Prices for intermediate goods, excluding food and energy, rose 8.3% in 2004 and crude goods zoomed 20% higher. As for crude oil, it’s returned to a 7-week high of $49.26 a barrel. It seems that winter does bring forth cold weather, and the latter, combined with 2004’s rising oil demand of 3.3%, makes for more costly energy products. Meanwhile, the dollar is trading near a five-year low against the yen. As long as there is on-going worry that the U.S. economy won’t have enough foreign investment to offset the current account deficit and the budget shortfall, the dollar will have difficulty sustaining a rally. Do not be caught up in the day-to-day currency fluctuations. Maintain a minimum exposure to dollar holdings.
Cullen Hightower: “Money was invented so we could know exactly how much we owe.”
The National Retail Federation reported that retail sales grew 6.7% in 2004. They project a gain of 3.5% in 2005. Their chief economist, Rosalind Wells, stated “this year, consumers will be under increased financial pressure due to higher energy costs and slow wage growth. Additionally, past stimuli provided by tax cuts and very low interest rates will no longer be there to boost consumer spending…Modest income growth will put a financial strain on consumers.”
OGTIA, the official guide to Internet architecture and a non-profit organization, has unveiled a beta version of its OgtiaKeyMaker invented by Roger Marx Dray (http://rogermarxdray.com). It promises to reorganize the sale of goods throughout the Internet. A user can enter data in one place, their own page, and the entire Internet will know what the person wants to buy or sell. This negates the need for users to enter the data several times in several web sites. Users, in a few minutes, can control the content and the access of their own data. The same system is being developed for resumes. Dray maintains OgtiaKeyMaker will reorganize the Web so search engines will become 100,000 times more efficient. He stated that the new Interactive Way will soon make today’s Google, Yahoo, and Accoona interfaces completely obsolete. Additionally, eBay is no longer the only game in town. The new search engine is being developed at http://way7.com. The beta version of OgtiaKeyMaker is available at 206.51.234.135/keymaker.
MMM’s 4th quarter worldwide sales rose 7.9% compared to the 4th quarter of 2003. In the latest quarter, currency effects increased sales by 4%.
Alexander Herzen: “There is nothing in the world more stubborn than a corpse. You can hit it, you can knock it to pieces, but you cannot convince it.”
Monday, January 17, 2005
1/17/05 Are You Hiding?
Bush stated he has been unable to locate bin Laden “because he’s hiding.” Was Hussein in Times Square when he was located? Bush maintains that “we had an accountability moment, and that’s called the 2004 elections.” You can understand that point of view. The corpse from the movie “Bernie’s Weekend” could have done better than Kerry. Actually, maybe the Democrats should have run a pig against Bush. Winston Churchill had it right when he observed “I like pigs. Dogs look up to us. Cats look down on us. Pigs treat us as equals.” The electorate could have related to a pig as akin to the common man in the red and blue states.
I gave some additional thought to a pig running for the highest office in the land. Maybe the analogy to the common man is not so far-fetched. As George Carlin quipped, “if a pig loses its voice, is it disgruntled.” Are you in hiding or have you lost your voice?
Pulitizer Prize-winning reporter Seymour Hersh broke the story about Abu Ghraib prisoner torture in Iraq. Hersh now reports that the U.S. has been “conducting secret reconnaissance missions inside Iran at least since last summer” in an effort to identify target information for suspected nuclear, chemical, and missile sites. A former high-level intelligence official remarked “this is a war against terrorism, and Iraq is just one campaign. The Bush administration is looking at this as a huge war zone. Next, we’re going to have the Iranian campaign.”
In the fall of 2002 I wrote about the growing possibility of the U.S. invading Iraq. I also mentioned that several key insiders in the Pentagon privately discussed Iran as the primary axis of evil target. Hersh reported that Bush has already “signed a series of top-secret findings and executive orders authorizing secret commando groups and other Special Forces units to conduct covert operations against suspected terrorist targets in as many as 10 nations in the Middle east and South Asia.”
I have had a recurring dream. The dream is that the American people will come out of hiding. A collective voice will be heard and it will not be disgruntled.
Bush stated he has been unable to locate bin Laden “because he’s hiding.” Was Hussein in Times Square when he was located? Bush maintains that “we had an accountability moment, and that’s called the 2004 elections.” You can understand that point of view. The corpse from the movie “Bernie’s Weekend” could have done better than Kerry. Actually, maybe the Democrats should have run a pig against Bush. Winston Churchill had it right when he observed “I like pigs. Dogs look up to us. Cats look down on us. Pigs treat us as equals.” The electorate could have related to a pig as akin to the common man in the red and blue states.
I gave some additional thought to a pig running for the highest office in the land. Maybe the analogy to the common man is not so far-fetched. As George Carlin quipped, “if a pig loses its voice, is it disgruntled.” Are you in hiding or have you lost your voice?
Pulitizer Prize-winning reporter Seymour Hersh broke the story about Abu Ghraib prisoner torture in Iraq. Hersh now reports that the U.S. has been “conducting secret reconnaissance missions inside Iran at least since last summer” in an effort to identify target information for suspected nuclear, chemical, and missile sites. A former high-level intelligence official remarked “this is a war against terrorism, and Iraq is just one campaign. The Bush administration is looking at this as a huge war zone. Next, we’re going to have the Iranian campaign.”
In the fall of 2002 I wrote about the growing possibility of the U.S. invading Iraq. I also mentioned that several key insiders in the Pentagon privately discussed Iran as the primary axis of evil target. Hersh reported that Bush has already “signed a series of top-secret findings and executive orders authorizing secret commando groups and other Special Forces units to conduct covert operations against suspected terrorist targets in as many as 10 nations in the Middle east and South Asia.”
I have had a recurring dream. The dream is that the American people will come out of hiding. A collective voice will be heard and it will not be disgruntled.
Sunday, January 16, 2005
1/16/05 Risky Complacency
On Friday, the headlines were the 5,000 employees dropped from Oracle’s payroll. There is another world of technology out there. It exists in India, and not in Redwood Shores, the home of Oracle. Each quarter the top four Indian IT outsourcing companies are hiring 5,000 new employees in India. Customer demand is growing at an annual rate of 30%. Nandan Nilekani, CEO of Infosys, stated “we need a deep reservoir of talent as well as an alternative low-cost center like India as we continue to grow… and only China can match up.” China has 2,000 universities, and over 10 million enrolled university students. With the exception of HCL, the major Indian IT outsourcing firms already have development centers in China. According to Rao Talasila, General Manager of iGate in China, “the biggest challenge is finding the right human talent to power our growth needs. We have often had to turn away projects because we couldn’t find the proper talent. The recruitment supply chain for IT professionals in China is still in its infancy.” Can you imagine Oracle turning down business because they couldn’t attract the right talent?
Berkeley economist Alan Auerbach estimates that, over the next 25 years, Social Security payments will grow to 6.4% of GDP from today’s 4.3%. During that time period, Medicare and Medicaid will grow from today’s 3.8% of GDP to 8.3%. He points out that Social security as a percentage of GDP will level off after 2030 but Medicare and Medicaid will continue to mushroom in size.
The general consensus for 2005 is an economy growing at 3%; short term rates rising faster than long term rates; demand for oil remaining steady with prices staying above $40 per barrel; inflation rising at 3%; the dollar modestly weaker; profit gains of 6%; stock market gains of 6 to 8%; modest capital spending; and a tapped out consumer. We can couple the aforementioned with global producers exceeding global consumption. The mix makes for a risky complacent formula. The consensus is comfortable and leaves little room for surprises leading to increased volatility. I believe a big surprise in 2005 will be a spike in volatility with few portfolios prepared for the surprise.
Timothy F. Geithner, president of the Federal Reserve Bank of New York: “It is important that the United States work to build more confidence that it will act on the fiscal front to achieve a better balance between our commitments and our resources…An improved fiscal position can help reduce the risk of adverse outcomes--- those that might come in the form of a decline in the willingness of foreigners to acquire claims on the United States on the present scale.” He went on to state that “the probability of these shocks may be low, but it is higher than it has been, and higher than we should be comfortable with.”
Meade F. Griffin, former Texas Supreme Court Justice: “Live every day so that you can look all men in their eyes and tell them to go to hell.”
On Friday, the headlines were the 5,000 employees dropped from Oracle’s payroll. There is another world of technology out there. It exists in India, and not in Redwood Shores, the home of Oracle. Each quarter the top four Indian IT outsourcing companies are hiring 5,000 new employees in India. Customer demand is growing at an annual rate of 30%. Nandan Nilekani, CEO of Infosys, stated “we need a deep reservoir of talent as well as an alternative low-cost center like India as we continue to grow… and only China can match up.” China has 2,000 universities, and over 10 million enrolled university students. With the exception of HCL, the major Indian IT outsourcing firms already have development centers in China. According to Rao Talasila, General Manager of iGate in China, “the biggest challenge is finding the right human talent to power our growth needs. We have often had to turn away projects because we couldn’t find the proper talent. The recruitment supply chain for IT professionals in China is still in its infancy.” Can you imagine Oracle turning down business because they couldn’t attract the right talent?
Berkeley economist Alan Auerbach estimates that, over the next 25 years, Social Security payments will grow to 6.4% of GDP from today’s 4.3%. During that time period, Medicare and Medicaid will grow from today’s 3.8% of GDP to 8.3%. He points out that Social security as a percentage of GDP will level off after 2030 but Medicare and Medicaid will continue to mushroom in size.
The general consensus for 2005 is an economy growing at 3%; short term rates rising faster than long term rates; demand for oil remaining steady with prices staying above $40 per barrel; inflation rising at 3%; the dollar modestly weaker; profit gains of 6%; stock market gains of 6 to 8%; modest capital spending; and a tapped out consumer. We can couple the aforementioned with global producers exceeding global consumption. The mix makes for a risky complacent formula. The consensus is comfortable and leaves little room for surprises leading to increased volatility. I believe a big surprise in 2005 will be a spike in volatility with few portfolios prepared for the surprise.
Timothy F. Geithner, president of the Federal Reserve Bank of New York: “It is important that the United States work to build more confidence that it will act on the fiscal front to achieve a better balance between our commitments and our resources…An improved fiscal position can help reduce the risk of adverse outcomes--- those that might come in the form of a decline in the willingness of foreigners to acquire claims on the United States on the present scale.” He went on to state that “the probability of these shocks may be low, but it is higher than it has been, and higher than we should be comfortable with.”
Meade F. Griffin, former Texas Supreme Court Justice: “Live every day so that you can look all men in their eyes and tell them to go to hell.”
Saturday, January 15, 2005
1/15/05 Cutting And Closing
Yesterday was the end of another five-day work-week. Unfortunately, for many, it was the end. Oracle announced it is cutting its worldwide workforce by 5,000. Boeing is closing its Long Beach, CA plant and also announced closing its historic Toronto site. About 350 employees will lose their jobs in Toronto. Weapons maker Aliant Techsystems will close its Janesville, Wisconsin plant and cut some 200 jobs. Nagle Industries will close its Clarksville, Tenn. plant and about 150 employees will lose their jobs. However, the work will be going to Mexico. NAFTA works! Enterasys Networks will reduce its workforce by about 115 positions.
Yesterday marked the fifth anniversary of the high attained by the Dow. On his website, www.technicalindicatorindex.com, Robert McHugh points out “there’s either a .382 or a .618 ratio relationship for every single top or bottom since Jan. 14, 2000 with another top or bottom since Jan. 14, 2000. Those are Fibonacci numbers and those tops or bottoms identify each phi mate. He mentions 22 consecutive pairs of tops and bottoms since Jan. 14, 2000. At the start of 2004, he forecast the major turning points in the market for the entire year. He was pretty darn accurate. For 2005, he forecasts the next major turn date as Feb. 15, a major bottom, with July 25 as a major top. After that, the major turn dates will be Sept. 16 and December 27. I look forward to tracking those dates. McHugh concluded his most recent letter with the following observation: “2004/2005 is paralleling the great crashes of 1972-73 and 1928/29. Period.”
In the third quarter, the Fed stated the largest gain among durable goods industries was in primary metals, in which output rose 3%. In November, mining, which includes oil extraction, surged 2.2% and then settled back to a 0.4% gain in December. Last month, we experienced a 2.2% surge in power utility production. By comparison, production of automotive products declined 0.8% in November and rose 0.5% in December. In the future, Toyota and Honda will become the moving forces for any net gain in the production of automotive products in the U.S.
Over the past 12 months, real estate loans have increased about 14% to $319 billion.
Fed Governor Ferguson: “Detecting a bubble appears to require judgment based on scant evidence, It entails asserting knowledge of the fundamental value of the assets in question.” It could also entail opening one’s eyes and viewing the landscape above and beyond the beige book.
For my money, the big issue for 2005, 2006, and beyond is the foreign appetite for U.S. dollar assets and dollar-denominated debt. That statement reflects little positive news on the savings rate and the government spending front.
Yesterday was the end of another five-day work-week. Unfortunately, for many, it was the end. Oracle announced it is cutting its worldwide workforce by 5,000. Boeing is closing its Long Beach, CA plant and also announced closing its historic Toronto site. About 350 employees will lose their jobs in Toronto. Weapons maker Aliant Techsystems will close its Janesville, Wisconsin plant and cut some 200 jobs. Nagle Industries will close its Clarksville, Tenn. plant and about 150 employees will lose their jobs. However, the work will be going to Mexico. NAFTA works! Enterasys Networks will reduce its workforce by about 115 positions.
Yesterday marked the fifth anniversary of the high attained by the Dow. On his website, www.technicalindicatorindex.com, Robert McHugh points out “there’s either a .382 or a .618 ratio relationship for every single top or bottom since Jan. 14, 2000 with another top or bottom since Jan. 14, 2000. Those are Fibonacci numbers and those tops or bottoms identify each phi mate. He mentions 22 consecutive pairs of tops and bottoms since Jan. 14, 2000. At the start of 2004, he forecast the major turning points in the market for the entire year. He was pretty darn accurate. For 2005, he forecasts the next major turn date as Feb. 15, a major bottom, with July 25 as a major top. After that, the major turn dates will be Sept. 16 and December 27. I look forward to tracking those dates. McHugh concluded his most recent letter with the following observation: “2004/2005 is paralleling the great crashes of 1972-73 and 1928/29. Period.”
In the third quarter, the Fed stated the largest gain among durable goods industries was in primary metals, in which output rose 3%. In November, mining, which includes oil extraction, surged 2.2% and then settled back to a 0.4% gain in December. Last month, we experienced a 2.2% surge in power utility production. By comparison, production of automotive products declined 0.8% in November and rose 0.5% in December. In the future, Toyota and Honda will become the moving forces for any net gain in the production of automotive products in the U.S.
Over the past 12 months, real estate loans have increased about 14% to $319 billion.
Fed Governor Ferguson: “Detecting a bubble appears to require judgment based on scant evidence, It entails asserting knowledge of the fundamental value of the assets in question.” It could also entail opening one’s eyes and viewing the landscape above and beyond the beige book.
For my money, the big issue for 2005, 2006, and beyond is the foreign appetite for U.S. dollar assets and dollar-denominated debt. That statement reflects little positive news on the savings rate and the government spending front.
Friday, January 14, 2005
1/14/05 Earnings Watch
Earnings growth for the S&P 500 is estimated at 15% for the fourth quarter of 2004; however, for the first quarter of 2005, that growth is anticipated to drop in half to 7.5%.
Another factor that appears to weigh on equities is the concern about the inflow of capital investment by foreigners. On Tuesday, the information for November will be available. Some place the inflow at $45 billion. Considering the latest monthly trade deficit was $60 billion, the difference would make for a $15 billion shortfall. The decline in November exports did not help our cause.
It’s not surprising that Buffett increased Berkshire Hathaway’s holdings of foreign currencies to $20 billion from the $12 billion reported in the 2003 annual report. Buffett observed that “the rest of the world owns $10 trillion of us, or $3 trillion net. If lots of people try to leave the market, we’ll have chaos because they won’t get through the door…Sooner or later markets win over the intervenors. The intervenors always run out of gas.”
Imports of non-petroleum industrial supplies and material prices increased 17.1% for the year ended in December. Prices for foods, feeds, and beverages rose 7.8% over the past 12 months. Of course, several Fed members recently remarked that inflation was not a concern.
Is anyone concerned that crude rose to a 6-week high of $48 a barrel?
Comerica’s National Recession Watch Index registered a 17-percent probability in December, and that was unchanged from November’s reading.
Germany’s economy grew 1.7% in 2004, and that was sharply less robust than the growth in the U.S.
Workers arriving at Hickory, NC- based Dunmore Furniture Industries found a note on the door that the plant was closed and would not reopen. A total of 250 employees lost their jobs.
Applied Materials cut up to 240 positions. The Seattle Times is cutting 90 to 110 jobs.
At the end of the third quarter in 2004, household financial obligations as a percentage of disposable personal income, seasonally adjusted, amounted to 15.83%. Total consumer debt has mounted to just over $2 trillion, and this does not include mortgage indebtedness. The Fed can attempt to inflate away the government debt, but households don't possess that same printing press. In addition, with the decline in real earnings for 2004, households will find it more difficult to save. The hurdles to financial stability are getting higher. Of course, I feel confident that the Fed is not worried. Why should they worry? They probably aren’t personally in deep hock.
Due to the rising cost of prescription drugs, GM will spend about $5.6 billion on health care in 2005, up from $5.2 billion in 2004 and $4.8 billion in 2003. GM is projecting that its profits for North America will decline by 50% or more in 2005, and therefore, the company expects to earn less than it will in Asia. That will be the first time since GM began breaking out Asia-Pacific profits in 1998. Then there is the problem of their European operations. They continue to be unprofitable--- to the tune of hundreds of millions. GM hopes to only lose $500 million in Europe in 2005. The one bright spot for 2005 is GMAC where profits are projected at $2.5 billion.
Reality has caught up with Boeing. The company will recognize pre-tax charges totaling approximately $615 million, or 48 cents per share, related to the U.S. Air Force 767 tanker program and expenses incurred to end production of the 717. The charges will be incorporated in the company’s fourth-quarter and full-year 2004 results. They will be released on Feb. 2nd. No decision has been made on the potential phase out of the 767 line.
Earnings growth for the S&P 500 is estimated at 15% for the fourth quarter of 2004; however, for the first quarter of 2005, that growth is anticipated to drop in half to 7.5%.
Another factor that appears to weigh on equities is the concern about the inflow of capital investment by foreigners. On Tuesday, the information for November will be available. Some place the inflow at $45 billion. Considering the latest monthly trade deficit was $60 billion, the difference would make for a $15 billion shortfall. The decline in November exports did not help our cause.
It’s not surprising that Buffett increased Berkshire Hathaway’s holdings of foreign currencies to $20 billion from the $12 billion reported in the 2003 annual report. Buffett observed that “the rest of the world owns $10 trillion of us, or $3 trillion net. If lots of people try to leave the market, we’ll have chaos because they won’t get through the door…Sooner or later markets win over the intervenors. The intervenors always run out of gas.”
Imports of non-petroleum industrial supplies and material prices increased 17.1% for the year ended in December. Prices for foods, feeds, and beverages rose 7.8% over the past 12 months. Of course, several Fed members recently remarked that inflation was not a concern.
Is anyone concerned that crude rose to a 6-week high of $48 a barrel?
Comerica’s National Recession Watch Index registered a 17-percent probability in December, and that was unchanged from November’s reading.
Germany’s economy grew 1.7% in 2004, and that was sharply less robust than the growth in the U.S.
Workers arriving at Hickory, NC- based Dunmore Furniture Industries found a note on the door that the plant was closed and would not reopen. A total of 250 employees lost their jobs.
Applied Materials cut up to 240 positions. The Seattle Times is cutting 90 to 110 jobs.
At the end of the third quarter in 2004, household financial obligations as a percentage of disposable personal income, seasonally adjusted, amounted to 15.83%. Total consumer debt has mounted to just over $2 trillion, and this does not include mortgage indebtedness. The Fed can attempt to inflate away the government debt, but households don't possess that same printing press. In addition, with the decline in real earnings for 2004, households will find it more difficult to save. The hurdles to financial stability are getting higher. Of course, I feel confident that the Fed is not worried. Why should they worry? They probably aren’t personally in deep hock.
Due to the rising cost of prescription drugs, GM will spend about $5.6 billion on health care in 2005, up from $5.2 billion in 2004 and $4.8 billion in 2003. GM is projecting that its profits for North America will decline by 50% or more in 2005, and therefore, the company expects to earn less than it will in Asia. That will be the first time since GM began breaking out Asia-Pacific profits in 1998. Then there is the problem of their European operations. They continue to be unprofitable--- to the tune of hundreds of millions. GM hopes to only lose $500 million in Europe in 2005. The one bright spot for 2005 is GMAC where profits are projected at $2.5 billion.
Reality has caught up with Boeing. The company will recognize pre-tax charges totaling approximately $615 million, or 48 cents per share, related to the U.S. Air Force 767 tanker program and expenses incurred to end production of the 717. The charges will be incorporated in the company’s fourth-quarter and full-year 2004 results. They will be released on Feb. 2nd. No decision has been made on the potential phase out of the 767 line.
Wednesday, January 12, 2005
1/13/05 America's Small Businesses
Our 6 million small businesses are responsible for the majority of our economic growth and for the hiring of new employees. According to the National Federation of Independent Business, their recent survey indicates that 30% of small firms plan to increase prices in the next three months. That's the highest percentage in six years. When companies like Sara Lee, Kraft, and P&G raise prices, that news makes the headlines. However, 30% of those six million small companies speak in a loud voice when they elect to raise prices. Such action can impact the inflation rate in a very negative fashion. One would think that the expectation for higher inflation would be greater than it is currently. With the dollar weakening again, and crude moving above $46 a barrel, complacency on the inflation front is not in order. As an aside, eBay and eBay Motors announced a higher fee schedule late in the trading day.
Fed Governor Gramlich: "We have not seen any worrying rise of inflation at this point."
That brings me to the current flattening of the yield curve. It has declined to about 103 basis points, and it looks like an opportunity to consider taking some action. A flattening yield curve usually indicates rising short term rates coupled with the expectations for moderating growth and moderating inflation. The Fed continues to raise short term rates and the outlook for economic growth is for a moderating trend. However, there are plenty of reasons to believe inflation will rise, and I have begun to provide a daily account of companies raising prices. Hence, it might be timely to consider buying 2-year Treasury bonds and shorting a like amount of 10-year Treasury bonds. In my view, there is not enough risk premium in the latter over the 2-year.
Platts survey of OPEC indicates an output reduction of 70,000 barrels per day from November's levels. Excluding Iraq, the decline was 110,000 barrels daily. Further cuts are expected this month.
U.S. Airways plans to cut 2,000 jobs.
The U.S. trade deficit grew to $60.3 billion in November, the largest ever. Imports rose 1.3% but exports declined 2.3%, the first decline since June. I guess all that talk about the cheaper U.S. dollar did not in fact help our exports. Witness our $7.3 billion shortfall with Japan, the largest in four years. We blame every other country for our trade deficits. It's so convenient. Losers don't take responsibility for their own actions. We continue to spend money we don't have. Save might be a four-letter word, but it's not a swear word.
The Snowman: "As an accounting matter, the obligations of the U.S. will come down." Translated this means all workers who have payroll taxes deducted from their paychecks will get screwed. The Republican-controlled Congress will make certain the laws are changed to protect the guilty.
Our 6 million small businesses are responsible for the majority of our economic growth and for the hiring of new employees. According to the National Federation of Independent Business, their recent survey indicates that 30% of small firms plan to increase prices in the next three months. That's the highest percentage in six years. When companies like Sara Lee, Kraft, and P&G raise prices, that news makes the headlines. However, 30% of those six million small companies speak in a loud voice when they elect to raise prices. Such action can impact the inflation rate in a very negative fashion. One would think that the expectation for higher inflation would be greater than it is currently. With the dollar weakening again, and crude moving above $46 a barrel, complacency on the inflation front is not in order. As an aside, eBay and eBay Motors announced a higher fee schedule late in the trading day.
Fed Governor Gramlich: "We have not seen any worrying rise of inflation at this point."
That brings me to the current flattening of the yield curve. It has declined to about 103 basis points, and it looks like an opportunity to consider taking some action. A flattening yield curve usually indicates rising short term rates coupled with the expectations for moderating growth and moderating inflation. The Fed continues to raise short term rates and the outlook for economic growth is for a moderating trend. However, there are plenty of reasons to believe inflation will rise, and I have begun to provide a daily account of companies raising prices. Hence, it might be timely to consider buying 2-year Treasury bonds and shorting a like amount of 10-year Treasury bonds. In my view, there is not enough risk premium in the latter over the 2-year.
Platts survey of OPEC indicates an output reduction of 70,000 barrels per day from November's levels. Excluding Iraq, the decline was 110,000 barrels daily. Further cuts are expected this month.
U.S. Airways plans to cut 2,000 jobs.
The U.S. trade deficit grew to $60.3 billion in November, the largest ever. Imports rose 1.3% but exports declined 2.3%, the first decline since June. I guess all that talk about the cheaper U.S. dollar did not in fact help our exports. Witness our $7.3 billion shortfall with Japan, the largest in four years. We blame every other country for our trade deficits. It's so convenient. Losers don't take responsibility for their own actions. We continue to spend money we don't have. Save might be a four-letter word, but it's not a swear word.
The Snowman: "As an accounting matter, the obligations of the U.S. will come down." Translated this means all workers who have payroll taxes deducted from their paychecks will get screwed. The Republican-controlled Congress will make certain the laws are changed to protect the guilty.
1/12/05 Risk
You are in charge of your own homeland economic security. The level of risk chosen could determine whether your portfolio is recalled, as it were. It is imperative that losses be minimized. Not everyone has the patience to let their profits ride. Many sell too soon. That's not against the law. Sometimes I get lucky and don't read the papers or watch TV. One of my stocks could be mentioned, and certainly I don't want to hear advice from someone who doesn't have their own money invested in the company where they are giving advice. Let's take Intel. I have owned that stock on and off for decades. I repurchased it last year at $21. I have a modest profit on the books----just enough for a small tea sandwich. Everyone knows the company has had too much inventory and that production needed to be cut. Sales for the quarter were above plan, but margins continued under pressure so that profits had a small decline. I trust management's decision making ability, and don't worry about quarter to quarter results. I am more interested in the next generation of products utilizing the benefits of nanotechnology. Patience will be required. I think it's worth the wait and that the risk is not overbearing.
Other companies, such as, Unisys and UPS did not fare as well as Intel. There was an exception in Coach. That company continues to raise their forecasts and the results are quite impressive. It's unfortunate that investors can't clone Coach.
For the first nine months of this fiscal year, India's exports grew by 23% to $53 billion and are targeted to reach $88 billion in the 2005-2006 fiscal year.
Daniel Yergin: "Over the next 10 years Indian oil companies will emerge as major players in the global oil industry. It reflects the reality of economic growth and the scope of India in the world oil markets.
Due to the growth of outsourcing, Infosys raised their forecast for sales and earnings.
The Together Rx Access Card is designed to provide prescription drug savings for about 36 million uninsured Americans. Cardholders supposedly will save an average of 25% to 40% on more than 275 brand-name prescription medicines, and even more on generic drugs.
Sears is boosting its prices on home appliances. Late last year, Whirlpool, Maytag, and Electrolux raised prices by at least 5%.
Freddie Mac's chief economist, Frank Nothaft, predicted that housing starts would decline by 1 to 2 percent in 2005 while 30-year mortgage rates are seen increasing by no more than half a percentage point. He anticipates that short-term rates will rise more than long-term rates. In addition, he stated single-family mortgage originations may drop 12% in 2005.
China's exports rose 33% in December, and widened the trade surplus to a record. Imports rose 25% from year earlier levels. China's yearly surplus with the U.S. stands at about $150 billion. Why don't we just hand over the keys to the vault holding our homeland economic security?
Alan Murray is assistant managing editor of the WSJ. He opined that the Congress "won't get serious about" the effect of a weak U.S dollar and huge federal deficits until foreign governments refuse to buy U.S. debt. He added that Social Security reform is a non-starter because "I don't know a single Senate Democrat willing to talk about options." Murray stated that the problem of reducing health care costs won't be solved because "the political climate in Washington is more nasty, more partisan and more divided than anytime in my 25 years."
Our government announced that they stopped looking for WMD in Iraq. Those are the same WMD that ceased to exist in the early 1990s. While the death count rises daily for our soldiers, while the injury count rises daily for our soldiers, a $50 million party is planned for the inauguration. As Ayn Rand observed, "we can evade reality, but we cannot evade the consequences of evading reality." The consequences will be a great deal worse than the recent tsunami. No one will provide us with assistance. Our "friends" are in meetings trying to devise a plan on how best to protect our borders. They are wasting their time. The enemy is within our borders.
You are in charge of your own homeland economic security. The level of risk chosen could determine whether your portfolio is recalled, as it were. It is imperative that losses be minimized. Not everyone has the patience to let their profits ride. Many sell too soon. That's not against the law. Sometimes I get lucky and don't read the papers or watch TV. One of my stocks could be mentioned, and certainly I don't want to hear advice from someone who doesn't have their own money invested in the company where they are giving advice. Let's take Intel. I have owned that stock on and off for decades. I repurchased it last year at $21. I have a modest profit on the books----just enough for a small tea sandwich. Everyone knows the company has had too much inventory and that production needed to be cut. Sales for the quarter were above plan, but margins continued under pressure so that profits had a small decline. I trust management's decision making ability, and don't worry about quarter to quarter results. I am more interested in the next generation of products utilizing the benefits of nanotechnology. Patience will be required. I think it's worth the wait and that the risk is not overbearing.
Other companies, such as, Unisys and UPS did not fare as well as Intel. There was an exception in Coach. That company continues to raise their forecasts and the results are quite impressive. It's unfortunate that investors can't clone Coach.
For the first nine months of this fiscal year, India's exports grew by 23% to $53 billion and are targeted to reach $88 billion in the 2005-2006 fiscal year.
Daniel Yergin: "Over the next 10 years Indian oil companies will emerge as major players in the global oil industry. It reflects the reality of economic growth and the scope of India in the world oil markets.
Due to the growth of outsourcing, Infosys raised their forecast for sales and earnings.
The Together Rx Access Card is designed to provide prescription drug savings for about 36 million uninsured Americans. Cardholders supposedly will save an average of 25% to 40% on more than 275 brand-name prescription medicines, and even more on generic drugs.
Sears is boosting its prices on home appliances. Late last year, Whirlpool, Maytag, and Electrolux raised prices by at least 5%.
Freddie Mac's chief economist, Frank Nothaft, predicted that housing starts would decline by 1 to 2 percent in 2005 while 30-year mortgage rates are seen increasing by no more than half a percentage point. He anticipates that short-term rates will rise more than long-term rates. In addition, he stated single-family mortgage originations may drop 12% in 2005.
China's exports rose 33% in December, and widened the trade surplus to a record. Imports rose 25% from year earlier levels. China's yearly surplus with the U.S. stands at about $150 billion. Why don't we just hand over the keys to the vault holding our homeland economic security?
Alan Murray is assistant managing editor of the WSJ. He opined that the Congress "won't get serious about" the effect of a weak U.S dollar and huge federal deficits until foreign governments refuse to buy U.S. debt. He added that Social Security reform is a non-starter because "I don't know a single Senate Democrat willing to talk about options." Murray stated that the problem of reducing health care costs won't be solved because "the political climate in Washington is more nasty, more partisan and more divided than anytime in my 25 years."
Our government announced that they stopped looking for WMD in Iraq. Those are the same WMD that ceased to exist in the early 1990s. While the death count rises daily for our soldiers, while the injury count rises daily for our soldiers, a $50 million party is planned for the inauguration. As Ayn Rand observed, "we can evade reality, but we cannot evade the consequences of evading reality." The consequences will be a great deal worse than the recent tsunami. No one will provide us with assistance. Our "friends" are in meetings trying to devise a plan on how best to protect our borders. They are wasting their time. The enemy is within our borders.
Tuesday, January 11, 2005
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.
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.
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