8/13/05 Confusion
Despite the price of crude reaching $67 a barrel, PetroKazakhstan shares declined on Friday. I had mentioned earlier in the week that PetroChina had an important meeting set for yesterday. That did not mean a bid for PKZ would materialize on the same day. Interestingly, Xinhua Finance cited a report by Fitch analyst Ma Shang that stated “they (PetroChina) are expected to announce a bid on Monday, the deadline set by Goldman Sachs.” Further, Ma stated only India’s ONGC Videsh and PetroChina are expected to bid on Monday, and he expects a bidding war between those two parties. It will be interesting to see whether Sinopec enters the process.
Anthony de Mello: “An Italian poet said, "We live in a flash of light; evening comes and it is night forever." It’s only a flash and we waste it. We waste it with our anxiety, our worries, our concerns, our burdens.”
This week the U.S. Treasury had a successful auction for its 10-year bonds. Over the last two trading days, government bond yields declined despite the CRB Index reaching its highest level since December 1980 and the Goldman Sachs Commodity Index surging to an all-time high. Year-to-date it has jumped 42.3%. In addition, copper prices traded at record high levels. Gold rallied to $451.40 an ounce. Equity investors ignored the dollar index declining 1.3% this week.
When discussing fair value for the S&P 500, it might be helpful to differentiate between the historical breakdown of earnings with the present. Clearly, normalized levels do not resemble today’s reliance on the financial/real estate services sector, and in particular, the relationship between the debt/income levels ascribed to the borrowers and the quality of risk in derivative exposure assumed by the lenders.
Our June trade gap rose to $58.8 billion, and we are headed for a $700 + billion annual trade deficit. Combine that with the projected $300 + billion budget deficit, and you have twin tower deficits amounting to about 9% of our GDP. Interestingly, that same 9% equates to the real unemployment rate in our country.
For the fourth consecutive month, the CPI in China in July was less than 2%. In July 2004 it was 5.3%. Because of overproduction in most manufacturing sectors since 1998 and the to-be-overcapacity from over-investment in 2003 and 2004, some Chinese economists warn that the country’s economy could see deflation in the near future. I find this view quite unusual given the fact that, during the January-July period, China’s imports of iron ore rose 31.9%, coal imports surged 55.4%, and soybean imports jumped 38.4%. Imported crude oil was up 5.5% but refined oil was down 20% year on year. On the other hand, car imports were down 29.4% and imported rolled steel dropped 24.4%.
It is quite true that, in June, the U.S. imported $21 billion in goods from China. However, during the January-July period, the EU continued to be China’s largest trading partner. The U.S. was number 2, Japan number 3, and ASEAN number 4.
Beijing reported that the Russian and Chinese prime ministers will sign a mid-term cooperation program in the fall of 2005. Next week China and the U.S. launch a new round of negotiations over the textile conflicts. Talks will resume in San Francisco.
John Williams wrote an updated report on the July nonfarm payrolls. He maintains that, if June and July 2005 numbers are recast on a largely consistent basis with last year’s seasonal factors, then the gain in July payrolls would only amount to 44,000.
An AP-AOL poll of 1,000 adults found that 64% say gas prices will cause money problems for them in the next six months, and that is up from 51% in April.
I don’t put much stock in the University of Michigan Consumer Sentiment Index, but many others do. For August, it declined to 92.7 from July’s 96.5.
On Friday, Apple Computer closed at a new all-time high. It’s market cap now exceeds $38 billion.
The Tarim Basin is northwest China’s Xinjiang Uygur Autonomous Region. The Tarim Oilfield Company expects to produce 11 million tons of oil and natural gas this year. Last year, the Tarim Basin yielded 8.86 million tons. Estimated reserves are 10.7 billion tons of crude oil and 8.39 trillion cubic meters of natural gas, while its proven geological reserves stand at 440 million tons of oil and 664 billion cubic meters of natural gas.
On this Saturday morning is a passage for a friend from My Antonia: “I tried to go to sleep, but the jolting made me bite my tongue, and I soon began to ache all over. When the straw settled down, I had a hard bed. Cautiously I slipped from under the buffalo hide, got up on my knees and peered over the side of the wagon. There seemed to be nothing to see; no fences, no creeks or trees, no hills or fields. If there was a road, I could not make it out in the faint starlight There was nothing but land: not a country at all, but the material out of which countries are made. No, there was nothing but land--slightly undulating, I knew, because often our wheels ground against the brake as we went down into a hollow and lurched up again on the other side. I had the feeling that the world was left behind, that we had got over the edge of it, and were outside man's jurisdiction. I had never before looked up at the sky when there was not a familiar mountain ridge against it. But this was the complete dome of heaven all there was of it. I did not believe that my dead father and mother were watching me from up there; they would still be looking for me at the sheep-fold down by the creek or along the white road that lead to the mountain pastures. I had left even their spirits behind me. The wagon jolted on, carrying me I knew not wither. I don't think I was homesick. If we never arrived anywhere, it did not matter. Between that earth and that sky I felt erased, blotted out. I did not say my prayers that night: here, I felt, what would be would be.”
Saturday, August 13, 2005
Friday, August 12, 2005
Looking Ahead
8/12/05 Looking Ahead
Jesse Livermore: “The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.”
For the bulls, where do we go from here? At the moment, it doesn’t appear that Dell, Cisco, Intel, Microsoft, and Oracle will power the Nasdaq much higher. Between July 7 and August 11 shares in McDonald’s moved 7 points higher to $34+. The rise can’t be based simply on salads. Has MCD become the newest real estate play? I doubt MCD is enough to power the Dow much higher. Boeing already sports a hefty P/E. Do we go higher because of more buybacks, cash and stock acquisitions, or possibly P/E expansion? What do you pay for 11% quarterly earnings growth? If the earnings for Dell and Cisco are not satisfying, what does that say about the rest of the market that is growing more slowly? You can’t have it both ways. Consumer companies have to fight $3 a gallon gas at the pump paid by our nation of SUV owners. Housing companies are battling higher mortgage rates and the rising inventory of unsold homes. Believe it or not, when house flipping becomes more difficult, rising prices do become a problem.
For the bears, where do we go from here? Goldcorp traded at a new all-time high yesterday. Gold futures rose 2% to close at $450 an ounce, its highest close since March 18 and nearing a 17-year high. Over the last few years, gold has risen $200 an ounce. Oil is trading at $66 a barrel. Yesterday, the Amex Oil Index traded above 1,000 for the first time.How much higher can it go in the near term? Heating oil is $1.89 a gallon. It is almost mid-August. The weather has not turned cold. Gasoline futures are nearing $2 a gallon. The peak-driving season is coming to a close.
The idea is to be flexible. Don’t be too set in your ways. There are too many variables that can make one look stupid. It’s costly to be wrong. Pick your spots. It’s important to realize that making money every day sounds great but the likelihood is truly slim. When in doubt, sit on your hands. It's not a shameful act.
According to the International Energy Agency, hurricanes in the U.S. Gulf of Mexico alongside unscheduled summer stoppages elsewhere are set to have a major impact this year on oil output from producers outside OPEC.
The dollar dropped to a 10-week low versus the euro.
July retail sales in China rose 12.7% from a year earlier.
Fred Cooper, head of investor relations at Toll Brothers: “Four months ago, we could sell a new home in 2 hours. Now it takes a week or two.” How long will it take come December?
Are some MBS having delinquency problems?
Ford stated it may need to cut more than the previously-mentioned number of 2,750 of its 35,000 North American white-collar workers. Since not enough employees have quit through early retirement, buyouts, and letting positions go unfilled, the company has resorted to firing employees and immediately escorting them from corporate buildings. The problem is that some of those fired have been with the company for decades.
China’s GDP is doubling every 8 years. By comparison, India’s GDP is doubling every 12 years.
How long can China’s growth rate in exports, investments, and savings exceed its GDP growth rate?
According to yesterday’s Federal Reserve data, foreign central banks purchased $12.749 billion of Treasury and agency debt in the week ended August 10. It was the biggest week of buying by central banks since the week ended May 25.
Venezuela’s Hugo Chavez: “For no one should it be a secret, neither is it a secret, that the greatest threat that the world faces today is the government of Mr. Danger, Mr. George Bush. That is the biggest threat that the planet faces today.”
Pork spending is alive and well in the Bush administration. The highway bill contains 6,300 special projects that total $24 billion in pork or 8.4% of the total bill signed by the president.
India's industrial production expanded 11.7% in June, the fastest pace in 9 years.
Jesse Livermore: "Markets are never wrong, opinions are."
Energy and Mineral Resources Minister Vladimir Shkolnik stated Kazakhstan may join the Baku-Tbilisi-Ceyhan oil pipeline project within the next two months.
When will U.S. corporations accelerate capital expenditures within our borders?
In the latest edition of Business Week, according to SMR Research Corp. of Hackettstown, N.J., this debt-research firm collected data nationally on 2 million debt-financed purchases of owner-occupied homes from 2004 and more than 600,000 through roughly May of this year. It found that 95.1% or more of the purchase price was borrowed in 38% of all transactions so far this year. That was up from 34% of sales in all of 2004. Leverage is not a one-way street.
Edgar R. Fiedler: "The herd instinct among forecasters makes sheep look like independent thinkers."
Jesse Livermore: “The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.”
For the bulls, where do we go from here? At the moment, it doesn’t appear that Dell, Cisco, Intel, Microsoft, and Oracle will power the Nasdaq much higher. Between July 7 and August 11 shares in McDonald’s moved 7 points higher to $34+. The rise can’t be based simply on salads. Has MCD become the newest real estate play? I doubt MCD is enough to power the Dow much higher. Boeing already sports a hefty P/E. Do we go higher because of more buybacks, cash and stock acquisitions, or possibly P/E expansion? What do you pay for 11% quarterly earnings growth? If the earnings for Dell and Cisco are not satisfying, what does that say about the rest of the market that is growing more slowly? You can’t have it both ways. Consumer companies have to fight $3 a gallon gas at the pump paid by our nation of SUV owners. Housing companies are battling higher mortgage rates and the rising inventory of unsold homes. Believe it or not, when house flipping becomes more difficult, rising prices do become a problem.
For the bears, where do we go from here? Goldcorp traded at a new all-time high yesterday. Gold futures rose 2% to close at $450 an ounce, its highest close since March 18 and nearing a 17-year high. Over the last few years, gold has risen $200 an ounce. Oil is trading at $66 a barrel. Yesterday, the Amex Oil Index traded above 1,000 for the first time.How much higher can it go in the near term? Heating oil is $1.89 a gallon. It is almost mid-August. The weather has not turned cold. Gasoline futures are nearing $2 a gallon. The peak-driving season is coming to a close.
The idea is to be flexible. Don’t be too set in your ways. There are too many variables that can make one look stupid. It’s costly to be wrong. Pick your spots. It’s important to realize that making money every day sounds great but the likelihood is truly slim. When in doubt, sit on your hands. It's not a shameful act.
According to the International Energy Agency, hurricanes in the U.S. Gulf of Mexico alongside unscheduled summer stoppages elsewhere are set to have a major impact this year on oil output from producers outside OPEC.
The dollar dropped to a 10-week low versus the euro.
July retail sales in China rose 12.7% from a year earlier.
Fred Cooper, head of investor relations at Toll Brothers: “Four months ago, we could sell a new home in 2 hours. Now it takes a week or two.” How long will it take come December?
Are some MBS having delinquency problems?
Ford stated it may need to cut more than the previously-mentioned number of 2,750 of its 35,000 North American white-collar workers. Since not enough employees have quit through early retirement, buyouts, and letting positions go unfilled, the company has resorted to firing employees and immediately escorting them from corporate buildings. The problem is that some of those fired have been with the company for decades.
China’s GDP is doubling every 8 years. By comparison, India’s GDP is doubling every 12 years.
How long can China’s growth rate in exports, investments, and savings exceed its GDP growth rate?
According to yesterday’s Federal Reserve data, foreign central banks purchased $12.749 billion of Treasury and agency debt in the week ended August 10. It was the biggest week of buying by central banks since the week ended May 25.
Venezuela’s Hugo Chavez: “For no one should it be a secret, neither is it a secret, that the greatest threat that the world faces today is the government of Mr. Danger, Mr. George Bush. That is the biggest threat that the planet faces today.”
Pork spending is alive and well in the Bush administration. The highway bill contains 6,300 special projects that total $24 billion in pork or 8.4% of the total bill signed by the president.
India's industrial production expanded 11.7% in June, the fastest pace in 9 years.
Jesse Livermore: "Markets are never wrong, opinions are."
Energy and Mineral Resources Minister Vladimir Shkolnik stated Kazakhstan may join the Baku-Tbilisi-Ceyhan oil pipeline project within the next two months.
When will U.S. corporations accelerate capital expenditures within our borders?
In the latest edition of Business Week, according to SMR Research Corp. of Hackettstown, N.J., this debt-research firm collected data nationally on 2 million debt-financed purchases of owner-occupied homes from 2004 and more than 600,000 through roughly May of this year. It found that 95.1% or more of the purchase price was borrowed in 38% of all transactions so far this year. That was up from 34% of sales in all of 2004. Leverage is not a one-way street.
Edgar R. Fiedler: "The herd instinct among forecasters makes sheep look like independent thinkers."
Thursday, August 11, 2005
Unstable
8/11/05 Unstable
Governor Zhou Xiaochuan, The People’s Bank of China: “In comparison with an exchange rate regime of pegging to the US dollar solely, it can better reflect the competitiveness of RMB against major currencies, better absorb the impact generated by an unstable US dollar and moderate the fluctuations of RMB exchange rates at the multilateral level, safeguard the overall stability of China's foreign economic and trade environment and consequently promote the basic equilibrium of balance of payments as well as the sustained, coordinated and healthy growth of the Chinese economy.” This statement was part of a speech delivered yesterday. I view the word “unstable” to describe our dollar as being highly significant.
Dr. Franz Pick: "The fate of the nation and the fate of the currency are one and the same... It is the greenback which is unstable, and not bullion."
An explosion and fire at British Petroleum’s Chocolate Bayou petrochemical plant shook the Alvin area Wednesday night, the second incident to strike one of the company's Gulf Coast facilities in 24 hours. Earlier Wednesday, a unit at BP's Texas City refinery sprung a leak, causing the company to shut down parts of the plant for inspection. Crude remains above $64 a barrel.
If Fed Funds reach 4.25% by 2005 year-end, what will be the yield on 10-year Treasury bonds? What will be the rate on a 15-year fixed rate mortgage?
Chad Hudson: “The 8.3% annualized appreciation for the home refinanced during the second quarter experienced the highest annualized appreciation since at least 1996. The average annualized increase has been only 4.4% over the past 9 years.”
Alan Greenspan: "Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."
Richard Russell: "Gold will be around, gold will be money when the dollar and the euro and the yuan and the ringgitt are mere memories."
The Nikkei rallied to its highest level since August 2001.
China’s July trade surplus widened to $10.4 billion from $1.97 billion a year earlier.
Lakshmi Mittal, CEO of Mittal Steel: “ Looking ahead to the third quarter, we are expecting conditions to remain difficult."
How is it possible that Fannie Mae needs to “verify some 20,000 derivative prices” before it can file a re-stated 2004 annual report? That report will not be available until the second half of 2006. How many other public companies need to verify past derivative prices?
The Treasury Department and the CBO boasted that the U.S. federal budget deficit had declined to $52.8 billion in July from $69 billion a year ago. Through the first 10 months of 2005, the federal deficit is only $302.6 billion. How many times has our federal deficit exceeded this figure for 10 months? How many billions of dollars have been excluded from this year’s deficit number? In other words, what’s the real cash flow picture? In what way does our twin tower deficit picture make our dollar appear “unstable” to the Chinese government? When you purchase U.S. Treasury debt instruments, you are blessing our growing deficit position. Maybe you should check your mental faculties.
Turkish president Ahmet Necdet Sezer called the May 25, 2005 opening of the1768 km long Baku-Tbilissi-Ceyhan (BTC) pipeline connecting the Caspian and the Mediterranean Sea the new “Silk Road of the 21st century.” It has the capability to transport over 1 million barrels of oil a day. The biggest investor in the project is British Petroleum, and the U.S. provided substantial support. The project bypassed Russia. Soon thereafter, Uzbekistan gave notice to the U.S. to move out of the Karshi-Khanabad air base (K2) serving Afghanistan. The U.S. forces will continue to use Manas air base in Kyrgyzstan to back up its efforts in Afghanistan.
Today’s investor would be wise to become familiar with the oil-rich Eurasian crescent area. It comprises the Caspian Sea basin of Russia, Turkmenistan, Kazakhstan, Azerbaijan, and Georgia. In addition, knowledge of Kosovo’s mineral resources are a must. Specifically, the Trepca mining complex produces gold, silver, lead, zinc, and cadmium. In addition, Kosovo has 17 billion tons of coal reserves and 335 million barrels of oil reserves. Serbia and Albania also have resource potential. As the maximum oil extraction potential of Saudi Arabia is attained, the world’s focus will turn to the Eurasian crescent area. In place, is a strong alliance between China and Russia and between China and Kazakhstan. I should mention that tomorrow PetroChina has an important meeting.
While a report from the CommerceDepartment this week showed the national savings rate at 0%, EARN (EarnedAssets Resource Network), a San Francisco-based non-profit, shows that over 700 of the Bay Area's poorest households are saving at rates consistently
above 5%. EARN's mission is to demonstrate how better access to financial services and more equitable asset-building policy could permanently reduce rates of poverty. EARN offers its clients 401k-like matched savings accounts, used to save for a first home, higher education or a small business. EARN's clients, called Savers, are working-poor families in the Bay Area with an average household income of $17,000 who save on average $75 per month. EARN CEO Ben Mangan explained, "Our findings show that financial institutions regularly underestimate the capacity of the working poor to save and the
demand for financial services from this market."
Asarco LLC, a copper mining company hampered by a 40-day strike, filed for bankruptcy protection Wednesday, saying its decision was at least partially driven by environmental and other claims. Asarco, a subsidiary of the Mexican company Grupo Mexico SA, said Wednesday it filed for Chapter 11 protection in U.S. Bankruptcy Court in Corpus Christi, Texas, although its operations are headquartered in Tucson.
In addition to the strike, the company is facing about 95,000 asbestos-related personal injury claims. Two non-operating subsidiaries filed for Chapter 11 protection in April in Corpus Christi under special provisions of the bankruptcy code for asbestos-related liabilities, the company said.
Governor Zhou Xiaochuan, The People’s Bank of China: “In comparison with an exchange rate regime of pegging to the US dollar solely, it can better reflect the competitiveness of RMB against major currencies, better absorb the impact generated by an unstable US dollar and moderate the fluctuations of RMB exchange rates at the multilateral level, safeguard the overall stability of China's foreign economic and trade environment and consequently promote the basic equilibrium of balance of payments as well as the sustained, coordinated and healthy growth of the Chinese economy.” This statement was part of a speech delivered yesterday. I view the word “unstable” to describe our dollar as being highly significant.
Dr. Franz Pick: "The fate of the nation and the fate of the currency are one and the same... It is the greenback which is unstable, and not bullion."
An explosion and fire at British Petroleum’s Chocolate Bayou petrochemical plant shook the Alvin area Wednesday night, the second incident to strike one of the company's Gulf Coast facilities in 24 hours. Earlier Wednesday, a unit at BP's Texas City refinery sprung a leak, causing the company to shut down parts of the plant for inspection. Crude remains above $64 a barrel.
If Fed Funds reach 4.25% by 2005 year-end, what will be the yield on 10-year Treasury bonds? What will be the rate on a 15-year fixed rate mortgage?
Chad Hudson: “The 8.3% annualized appreciation for the home refinanced during the second quarter experienced the highest annualized appreciation since at least 1996. The average annualized increase has been only 4.4% over the past 9 years.”
Alan Greenspan: "Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."
Richard Russell: "Gold will be around, gold will be money when the dollar and the euro and the yuan and the ringgitt are mere memories."
The Nikkei rallied to its highest level since August 2001.
China’s July trade surplus widened to $10.4 billion from $1.97 billion a year earlier.
Lakshmi Mittal, CEO of Mittal Steel: “ Looking ahead to the third quarter, we are expecting conditions to remain difficult."
How is it possible that Fannie Mae needs to “verify some 20,000 derivative prices” before it can file a re-stated 2004 annual report? That report will not be available until the second half of 2006. How many other public companies need to verify past derivative prices?
The Treasury Department and the CBO boasted that the U.S. federal budget deficit had declined to $52.8 billion in July from $69 billion a year ago. Through the first 10 months of 2005, the federal deficit is only $302.6 billion. How many times has our federal deficit exceeded this figure for 10 months? How many billions of dollars have been excluded from this year’s deficit number? In other words, what’s the real cash flow picture? In what way does our twin tower deficit picture make our dollar appear “unstable” to the Chinese government? When you purchase U.S. Treasury debt instruments, you are blessing our growing deficit position. Maybe you should check your mental faculties.
Turkish president Ahmet Necdet Sezer called the May 25, 2005 opening of the1768 km long Baku-Tbilissi-Ceyhan (BTC) pipeline connecting the Caspian and the Mediterranean Sea the new “Silk Road of the 21st century.” It has the capability to transport over 1 million barrels of oil a day. The biggest investor in the project is British Petroleum, and the U.S. provided substantial support. The project bypassed Russia. Soon thereafter, Uzbekistan gave notice to the U.S. to move out of the Karshi-Khanabad air base (K2) serving Afghanistan. The U.S. forces will continue to use Manas air base in Kyrgyzstan to back up its efforts in Afghanistan.
Today’s investor would be wise to become familiar with the oil-rich Eurasian crescent area. It comprises the Caspian Sea basin of Russia, Turkmenistan, Kazakhstan, Azerbaijan, and Georgia. In addition, knowledge of Kosovo’s mineral resources are a must. Specifically, the Trepca mining complex produces gold, silver, lead, zinc, and cadmium. In addition, Kosovo has 17 billion tons of coal reserves and 335 million barrels of oil reserves. Serbia and Albania also have resource potential. As the maximum oil extraction potential of Saudi Arabia is attained, the world’s focus will turn to the Eurasian crescent area. In place, is a strong alliance between China and Russia and between China and Kazakhstan. I should mention that tomorrow PetroChina has an important meeting.
While a report from the CommerceDepartment this week showed the national savings rate at 0%, EARN (EarnedAssets Resource Network), a San Francisco-based non-profit, shows that over 700 of the Bay Area's poorest households are saving at rates consistently
above 5%. EARN's mission is to demonstrate how better access to financial services and more equitable asset-building policy could permanently reduce rates of poverty. EARN offers its clients 401k-like matched savings accounts, used to save for a first home, higher education or a small business. EARN's clients, called Savers, are working-poor families in the Bay Area with an average household income of $17,000 who save on average $75 per month. EARN CEO Ben Mangan explained, "Our findings show that financial institutions regularly underestimate the capacity of the working poor to save and the
demand for financial services from this market."
Asarco LLC, a copper mining company hampered by a 40-day strike, filed for bankruptcy protection Wednesday, saying its decision was at least partially driven by environmental and other claims. Asarco, a subsidiary of the Mexican company Grupo Mexico SA, said Wednesday it filed for Chapter 11 protection in U.S. Bankruptcy Court in Corpus Christi, Texas, although its operations are headquartered in Tucson.
In addition to the strike, the company is facing about 95,000 asbestos-related personal injury claims. Two non-operating subsidiaries filed for Chapter 11 protection in April in Corpus Christi under special provisions of the bankruptcy code for asbestos-related liabilities, the company said.
Wednesday, August 10, 2005
Statistics
8/10/05 Statistics
The Bureau of Labor Statistics of the U.S. Department of Labor
reported preliminary productivity data--as measured by output per hour of
all persons--for the second quarter of 2005. The preliminary seasonally
adjusted annual rates of productivity change in the second quarter were:
1.2 percent in the business sector and
2.2 percent in the nonfarm business sector.
Productivity growth in the business sector reflected increases of 4.2
percent in output and 3.0 percent in hours. Output per hour increased
more in the nonfarm business sector because output grew more, 4.4
percent, and hours rose less, 2.1 percent, than in the business sector.
In manufacturing, the preliminary productivity changes in the second
quarter were:
4.1 percent in manufacturing,
3.8 percent in durable goods manufacturing, and
5.0 percent in nondurable goods manufacturing.
Manufacturing productivity grew 4.1 percent in the second quarter as
output increased 1.2 percent and hours declined 2.8 percent (seasonally
adjusted annual rates). Output and hours in manufacturing, which
includes about 13 percent of U.S. business-sector employment, tend to
vary more from quarter to quarter than data for the aggregate business
and nonfarm business sectors.
Unit labor costs rose 1.3% in the second quarter after a 3.6% rise in the first quarter. More importantly, real hourly compensation fell 0.6%, and that fact bodes poorly for buoyant consumer spending in coming months.
Ursula K. Le Guin: “Legends of prediction are common throughout the whole Household of Man. Gods speak, spirits speak, computers speak. Oracular ambiguity or statistical probability provides loopholes, and discrepancies are expunged by Faith.”
According to the Financial Times, the basket of currencies to which the yuan is now pegged include the U.S. dollar, the yen, the euro, and the South Korean won as the dominant currencies as well as the Singapore dollar, U.K.'s sterling, the Malaysian ringgit, the Russian rouble, the Australian dollar, the Thai baht and the Canadian dollar.
According to Bloomberg, Japan's currency is up 2.3 percent from a 14-month low on July 20 as reports show rising factory production, a seventh week of net purchases of Japanese equities by foreigners and higher government forecasts for investment and consumer spending. The Nikkei 225 Stock Average rose to a 15-month high today.
The Economic Fractalist: “The higher order multi-yearly fractals represent very
fundamental and powerful macroeconomic consumer saturation levels- too
much debt, too much forward consumption, paying relatively too high a
price for assets based on weekly wages and no real long term job
guarantee in a world replete with overcapacity.”
Before investing in the U.S. auto parts sector, one might consider a statement reported by Dow Jones. GM is slated to buy $1 billion worth of auto parts from India in 2008, up from $120 million this year. The company anticipates savings ranging from 15% to 30% with quality on a par.
The new bankruptcy law takes effect October 17. How many public companies will file for Chapter 11 over the next 9 ½ weeks?
David Lerach, chief economist at the National Association of Realtors: “The housing market is probably close to a peak right now in terms of sales activity, but there is tremendous momentum. Sales are expected to coast at historically high levels into next year, but they will trend slightly downward.” Lerach might take a closer look at the advertising commitments now being prepared by companies within the industry, such as, Countrywide. Those commitments for 2006 are being cut by 20% or more. I pay more attention to what people do rather than what is said.
It has been suggested by some oil economists that China’s demand for oil is on the downswing. If that were the case, then China’s long-term energy expansion plans would be in a cooling period. Let’s take a closer look. Calgary-based Enbridge operates the longest crude oil pipeline in the world from Alberta to Illinois. The company proposed a $2.5 billion oil pipeline across the Rockies to a deep-water port on the West Coast. This would enable oilsands crude to be exported to a variety of new Asian markets. The new pipeline would transport 400,000 barrels per day of which PetroChina would take 200,000. Extracting crude from oilsands and then transporting that crude is an expensive proposition. It gives a clue as to where companies believe the price of crude is headed over time. It gives a further clue as to the extent a country will go to in order to satisfy long-term crude needs.
According to Coordinating Minister for the Economy Aburizal Bakrie, Indonesia, Southeast Asia's sole member of OPEC, will be a net oil importer in 2005.
According to MarketWatch, with interest rates again moving higher, the volume of mortgage applications as tracked by the Mortgage Bankers Association slipped 0.9% in the week ended Aug. 5 compared to the prior week. The seasonally adjusted decrease reflected a 3.3% drop in refinancing applications, with the number of applications for mortgages to purchase homes gaining by 0.9%. Refinancings accounted for 40.9% of total applications last week, down from 41.7% a week earlier, while the proportion of adjustable-rate mortgages rose to 29.7% from 28.5%.
Herbert Asquith: “The War Office kept three sets of figures - one to mislead the public, another to mislead the Cabinet and the third to mislead itself.”
The United States relies on foreign oil to meet 60 percent of its daily demand of almost 21 million barrels. Gasoline use accounts for 2 out of every 5 barrels consumed. With China, India, and Japan competing for foreign oil, the chances are more than remote that the U.S. can depend on foreign oil reserves in the future to the extent that it does in the present. As the transportation of oil from distant lands becomes more affordable for developing nations, competition for reserves intensifies. As the value of the yuan increases, China's ability to cushion added costs of transportation becomes a reality. It’s more than a matter of price. Focus on potential supply as well as the currency accepted for payment.
The Bureau of Labor Statistics of the U.S. Department of Labor
reported preliminary productivity data--as measured by output per hour of
all persons--for the second quarter of 2005. The preliminary seasonally
adjusted annual rates of productivity change in the second quarter were:
1.2 percent in the business sector and
2.2 percent in the nonfarm business sector.
Productivity growth in the business sector reflected increases of 4.2
percent in output and 3.0 percent in hours. Output per hour increased
more in the nonfarm business sector because output grew more, 4.4
percent, and hours rose less, 2.1 percent, than in the business sector.
In manufacturing, the preliminary productivity changes in the second
quarter were:
4.1 percent in manufacturing,
3.8 percent in durable goods manufacturing, and
5.0 percent in nondurable goods manufacturing.
Manufacturing productivity grew 4.1 percent in the second quarter as
output increased 1.2 percent and hours declined 2.8 percent (seasonally
adjusted annual rates). Output and hours in manufacturing, which
includes about 13 percent of U.S. business-sector employment, tend to
vary more from quarter to quarter than data for the aggregate business
and nonfarm business sectors.
Unit labor costs rose 1.3% in the second quarter after a 3.6% rise in the first quarter. More importantly, real hourly compensation fell 0.6%, and that fact bodes poorly for buoyant consumer spending in coming months.
Ursula K. Le Guin: “Legends of prediction are common throughout the whole Household of Man. Gods speak, spirits speak, computers speak. Oracular ambiguity or statistical probability provides loopholes, and discrepancies are expunged by Faith.”
According to the Financial Times, the basket of currencies to which the yuan is now pegged include the U.S. dollar, the yen, the euro, and the South Korean won as the dominant currencies as well as the Singapore dollar, U.K.'s sterling, the Malaysian ringgit, the Russian rouble, the Australian dollar, the Thai baht and the Canadian dollar.
According to Bloomberg, Japan's currency is up 2.3 percent from a 14-month low on July 20 as reports show rising factory production, a seventh week of net purchases of Japanese equities by foreigners and higher government forecasts for investment and consumer spending. The Nikkei 225 Stock Average rose to a 15-month high today.
The Economic Fractalist: “The higher order multi-yearly fractals represent very
fundamental and powerful macroeconomic consumer saturation levels- too
much debt, too much forward consumption, paying relatively too high a
price for assets based on weekly wages and no real long term job
guarantee in a world replete with overcapacity.”
Before investing in the U.S. auto parts sector, one might consider a statement reported by Dow Jones. GM is slated to buy $1 billion worth of auto parts from India in 2008, up from $120 million this year. The company anticipates savings ranging from 15% to 30% with quality on a par.
The new bankruptcy law takes effect October 17. How many public companies will file for Chapter 11 over the next 9 ½ weeks?
David Lerach, chief economist at the National Association of Realtors: “The housing market is probably close to a peak right now in terms of sales activity, but there is tremendous momentum. Sales are expected to coast at historically high levels into next year, but they will trend slightly downward.” Lerach might take a closer look at the advertising commitments now being prepared by companies within the industry, such as, Countrywide. Those commitments for 2006 are being cut by 20% or more. I pay more attention to what people do rather than what is said.
It has been suggested by some oil economists that China’s demand for oil is on the downswing. If that were the case, then China’s long-term energy expansion plans would be in a cooling period. Let’s take a closer look. Calgary-based Enbridge operates the longest crude oil pipeline in the world from Alberta to Illinois. The company proposed a $2.5 billion oil pipeline across the Rockies to a deep-water port on the West Coast. This would enable oilsands crude to be exported to a variety of new Asian markets. The new pipeline would transport 400,000 barrels per day of which PetroChina would take 200,000. Extracting crude from oilsands and then transporting that crude is an expensive proposition. It gives a clue as to where companies believe the price of crude is headed over time. It gives a further clue as to the extent a country will go to in order to satisfy long-term crude needs.
According to Coordinating Minister for the Economy Aburizal Bakrie, Indonesia, Southeast Asia's sole member of OPEC, will be a net oil importer in 2005.
According to MarketWatch, with interest rates again moving higher, the volume of mortgage applications as tracked by the Mortgage Bankers Association slipped 0.9% in the week ended Aug. 5 compared to the prior week. The seasonally adjusted decrease reflected a 3.3% drop in refinancing applications, with the number of applications for mortgages to purchase homes gaining by 0.9%. Refinancings accounted for 40.9% of total applications last week, down from 41.7% a week earlier, while the proportion of adjustable-rate mortgages rose to 29.7% from 28.5%.
Herbert Asquith: “The War Office kept three sets of figures - one to mislead the public, another to mislead the Cabinet and the third to mislead itself.”
The United States relies on foreign oil to meet 60 percent of its daily demand of almost 21 million barrels. Gasoline use accounts for 2 out of every 5 barrels consumed. With China, India, and Japan competing for foreign oil, the chances are more than remote that the U.S. can depend on foreign oil reserves in the future to the extent that it does in the present. As the transportation of oil from distant lands becomes more affordable for developing nations, competition for reserves intensifies. As the value of the yuan increases, China's ability to cushion added costs of transportation becomes a reality. It’s more than a matter of price. Focus on potential supply as well as the currency accepted for payment.
Tuesday, August 09, 2005
Auto Manufacturers And Airlines
8/9/05 Auto Manufacturers And Airlines
There is a revised economic forecast making the rounds. It goes like this. Recent auto incentives are driving consumer spending. Auto manufacturers sold vehicles at a 20.9 million annual rate in July, and this spurt in sales will drive inventory rebuilding and the latter will create more GDP growth. More growth will generate higher interest rates. Goldman Sachs stated the FOMC will raise Fed Funds to 5% by the middle of 2006. Freddie Mac is forecasting 30-year mortgages to carry a 6.30% interest rate next year. Meanwhile, unit labor costs and inflation are both estimated to approximate 2.9%.
In my view, it would be nonsense to simply focus on auto incentives and to ignore the troubles confronting the airline industry. There are large airlines, such as, Delta and Northwest, suggesting they might need to file for bankruptcy protection. Let’s examine the Northwest situation and its impact on their employees. A government order keeping 900 Detroit area Northwest Airlines employees on the job expires at 12:01 a.m. on August 20. Northwest is Michigan’s most important airline, with 8,800 employees and nearly 1,200 flights per day in and out of Detroit Metro Airport. According to the Aircraft Fraternal Association, the state of Michigan, and Northwest Airlines, company-paid health care for striking employees lasts until the end of August. Striking employees are not eligible for unemployment in Michigan. Neither are employees who are locked out of their jobs. Workers would be eligible if Northwest permanently hires its replacement workers and terminates employment for its union mechanics. In that case, Northwest employees lose the right to their jobs but could be reinstated as vacancies are available, if there is an agreement that ends the strike. Northwest proposes to cut nearly half of its more than 4,000 mechanics, nearly all aircraft cleaners, and ask the mechanics to take a 25.7% cut on their average $70,000 annual salary. In all, the airline wants the mechanics union to give up $176 million a year.
Escalating jet fuel prices have taken a heavy toll on the airline industry. Escalating diesel fuel prices are impacting the trucking companies and the ability of truck stops to retain their profitability. The media pretty much focuses on record gas prices at the pump. There is no question that record crude prices are leading the way to higher inflation and to higher trade deficit numbers. This winter consumers will be complaining about the pump prices as well as heating oil prices and the cost of natural gas.
It’s the little guy who gets hurt the most. Sure, the value of the average individual’s home has risen sharply over the past five years; however, salary and wages have risen at a most disappointing rate during this same time period. It has been shown that most jobs in our country are generated by small businesses. The SurePayroll Small Business Scorecard tracks the health of small businesses. There has been only one down month in hiring in the past 16 months. That fact is quite misleading. As of the end of July, the SurePayroll Hiring Index showed annual growth in small-business hiring at just under 0.6% for all of 2005. In fact, the Midwest is down 2.5%, and that’s after the auto incentives.
Crude is trading around a record $64 a barrel.
The 10-year Treasury bond is yielding about 4.42%.
The Xinhua News Agency reported that 4 Chinese airline companies have agreed to buy 42 Boeing 787 jets for a total of $5.04 billion.
The dollar traded at a 2-month low versus the euro and the Swiss franc.
Whirlpool is bidding $20 a share for Maytag.
According to the AP, as of Monday, at least 1,834 members of the U.S. military have died in Iraq since March 2003.
There is increasing concern about a possible attack on Saudi Arabia as well as Iran’s nuclear program.
Women's Wear Daily cited unnamed sources in reporting that Bon-Ton Stores and Cerberus Capital Management might team up on a possible bid for Saks. The stock rose almost 10% to close at $22.10. The paper mentioned that other interested parties have also been meeting with managment.
According to the Wall Street Journal, Ford could cut 20% to 25% of its current sales and marketing staff in North America.
There is a revised economic forecast making the rounds. It goes like this. Recent auto incentives are driving consumer spending. Auto manufacturers sold vehicles at a 20.9 million annual rate in July, and this spurt in sales will drive inventory rebuilding and the latter will create more GDP growth. More growth will generate higher interest rates. Goldman Sachs stated the FOMC will raise Fed Funds to 5% by the middle of 2006. Freddie Mac is forecasting 30-year mortgages to carry a 6.30% interest rate next year. Meanwhile, unit labor costs and inflation are both estimated to approximate 2.9%.
In my view, it would be nonsense to simply focus on auto incentives and to ignore the troubles confronting the airline industry. There are large airlines, such as, Delta and Northwest, suggesting they might need to file for bankruptcy protection. Let’s examine the Northwest situation and its impact on their employees. A government order keeping 900 Detroit area Northwest Airlines employees on the job expires at 12:01 a.m. on August 20. Northwest is Michigan’s most important airline, with 8,800 employees and nearly 1,200 flights per day in and out of Detroit Metro Airport. According to the Aircraft Fraternal Association, the state of Michigan, and Northwest Airlines, company-paid health care for striking employees lasts until the end of August. Striking employees are not eligible for unemployment in Michigan. Neither are employees who are locked out of their jobs. Workers would be eligible if Northwest permanently hires its replacement workers and terminates employment for its union mechanics. In that case, Northwest employees lose the right to their jobs but could be reinstated as vacancies are available, if there is an agreement that ends the strike. Northwest proposes to cut nearly half of its more than 4,000 mechanics, nearly all aircraft cleaners, and ask the mechanics to take a 25.7% cut on their average $70,000 annual salary. In all, the airline wants the mechanics union to give up $176 million a year.
Escalating jet fuel prices have taken a heavy toll on the airline industry. Escalating diesel fuel prices are impacting the trucking companies and the ability of truck stops to retain their profitability. The media pretty much focuses on record gas prices at the pump. There is no question that record crude prices are leading the way to higher inflation and to higher trade deficit numbers. This winter consumers will be complaining about the pump prices as well as heating oil prices and the cost of natural gas.
It’s the little guy who gets hurt the most. Sure, the value of the average individual’s home has risen sharply over the past five years; however, salary and wages have risen at a most disappointing rate during this same time period. It has been shown that most jobs in our country are generated by small businesses. The SurePayroll Small Business Scorecard tracks the health of small businesses. There has been only one down month in hiring in the past 16 months. That fact is quite misleading. As of the end of July, the SurePayroll Hiring Index showed annual growth in small-business hiring at just under 0.6% for all of 2005. In fact, the Midwest is down 2.5%, and that’s after the auto incentives.
Crude is trading around a record $64 a barrel.
The 10-year Treasury bond is yielding about 4.42%.
The Xinhua News Agency reported that 4 Chinese airline companies have agreed to buy 42 Boeing 787 jets for a total of $5.04 billion.
The dollar traded at a 2-month low versus the euro and the Swiss franc.
Whirlpool is bidding $20 a share for Maytag.
According to the AP, as of Monday, at least 1,834 members of the U.S. military have died in Iraq since March 2003.
There is increasing concern about a possible attack on Saudi Arabia as well as Iran’s nuclear program.
Women's Wear Daily cited unnamed sources in reporting that Bon-Ton Stores and Cerberus Capital Management might team up on a possible bid for Saks. The stock rose almost 10% to close at $22.10. The paper mentioned that other interested parties have also been meeting with managment.
According to the Wall Street Journal, Ford could cut 20% to 25% of its current sales and marketing staff in North America.
Monday, August 08, 2005
Signposts
8/8/05 Signposts
The number of listings of single-family houses in 17 towns in Greater Boston was up 25 percent or more last week compared with one year ago. And those houses are taking longer to sell. In four towns, listings increased 50 percent or more. Needham, Framingham and Milton are among the towns with the highest increase in listings that have also been seeing longer sales times, according to the Multiple Listing Service Property Information Network Inc. of Shrewsbury. Of the towns included in MLSPIN's Greater Boston data, 24 towns that have seen the time it takes for a house to sell increase also have seen the number of listings jump.
Nearly 3,000 home and condo owners in Santa Clara County, most of whom bought in 2000 and 2001, are holding properties not worth what they paid -- all during what is likely the nation's most robust housing boom with home prices leveraged by historically low interest rates and liberal mortgage-lending practices. The overwhelming majority of Santa Clara County homes that lost value this year are those whose owners paid well more than $1 million. But that is not universally true. Homes sold to people considered middle-income buyers in the South Bay -- those with purchase prices well below $1 million -- show up in sizable numbers on the assessor's list from every city from Morgan Hill to tony Monte Sereno. It's impossible to know if buyers today, especially those outbidding others and forking over well more than list price, are setting themselves up for the same kind of correction in the future. But the data is a grim reminder that Silicon Valley home values are not immune from the forces of economic reality. Even years after purchase, many valley home values rest hundreds of thousands of dollars and even millions of dollars below what their owners paid. The findings are based on a Business Journal analysis of more than 3,200 public records from the Santa Clara County assessor's office. The records reflect all of the single-family homes and condos in the county where the assessor believes current market value is less than what a homeowner paid.
Steven Rattner: "Over the past 30 years, the share of income going to the highest-earning Americans has risen steadily to levels not seen since shortly before the Great Depression."
In midyear 2000, U.S. corporate profits were 7% of GDP. In midyear 2005, they had risen to 11%.
Over the weekend, a British newspaper suggested that Cisco was considering the purchase of Nokia. I am far from being an expert in telephony, but I don't see the rationale for such a move. Cisco's presence is in the area of IP communications, and they have more than 20,000 customers worldwide within this arena. On the other hand, Nokia is the world's largest manufacturer of mobile phones, and the 2005 market volume for such devices is estimated at 760 million.
Denmark's A.P Moeller-Maersk and UK utility Centrico Plc purchased the North Sea oil and gas interests of Kerr-McGee for $3.5 billion. The price equates to $10.70 per barrel. I raise this point because a couple of weeks ago I did an anlaysis of a projected buyout price for PetroKazakhstan. You might recall that I took discounts off a price of $10 per barrel for PKZ's reserves. Using this latest price of $10.70 per barrel, I am raising my estimated buyout value for PKZ to $58 a share.
Crude hit an intraday record of $62.90 a barrel.
In the correction department, I stated that, in the Spring of 2000, EPNY traded for $220 million per share. It
should have read $220 per share.
According to Forbes.com, Yahoo Inc. is in advanced talks to buy about 35% of Alibaba.com, China's biggest homegrown e-commerce company, for almost $1 billion. Alibaba operates Taobao.com, an online auction site, and Alibaba.com, an online trading site.
John Hussman: "The 3.5% annual growth in employee wages and salaries over the past 5 years is the lowest on record since 1947. That containment of labor compensation has been the primary force behind the recent growth of corporate profits... the ratio of corporate profits to employee wages and salaries has never been higher."
Toyota sold more than 50,000 hybrids in the United States last year and expects to sell 600,000 early in the next decade.
Since invading Iraq in March 2003, at least 1,825 members of our U.S. military have been killed.
The yield on the benchmark 10-year note may reach 4.63 percent by year-end from 4.39 percent last week, according to the median estimate of the 22 firms that trade U.S. government securities with the Fed.
Rep. Ron Paul: " The president’s press secretary called the CAFTA vote “a real victory for the American people.” The problem is the vast majority of Americans have not even heard of CAFTA, and those who have overwhelmingly oppose it. CAFTA was conceived and created by corporate interests, and to claim otherwise is preposterous. The CAFTA vote had nothing to do with the American public, or even trade policy per se. CAFTA was driven by politics and nothing more. Multinational corporations and political globalists share the same goals, namely the centralization of political power in international bodies and the diminution of national sovereignty. What we witnessed last week was not just the selling of votes, but also a sellout of American control over our own trade regulations."
About 100,000 South African gold miners launched their first industrywide strike in 18 years Sunday to demand higher wages, the country's main mining union said.
The yield on the benchmark 10-year note may reach 4.63 percent by year-end from 4.39 percent last week, according to the median estimate of the 22 firms that trade U.S. government securities with the Fed.
Sunday, August 07, 2005
Looking Back And Looking Forward
8/7/05 Looking Back And Looking Forward
Last week brought back memories. Many of you might not know a small company called E.Piphany of San Mateo, California. A few days ago, the company agreed to be purchased for about $4.20 in cash or approximately $329 million by SSA Global Technologies. In the Spring of 2000, this same stock sold for about $220 million per share. Why do I bring this up? Sometimes I suggest investing in a company for as much as a five-year period, and in the first few years, the movement of the stock can be as exciting as watching paint dry.
I lived in Jackson, Wyoming for several years. It’s not too close to anything but moose and buffalo and the Tetons and Yellowstone. If you are willing to drive some mountainous terrain, then you arrive at a thriving metropolis called Pinedale. It’s in the middle of nowhere--- except the Pinedale Anticline area. That is the heart of Wyoming’s Green River Basin and its oil and gas reserves. That brings me to the Spring of 2001. I suggested a 5-year investment in Ultra Petroleum, a company with large holdings in the Pinedale Anticline area. The stock traded on the American Stock Exchange for $3. In the Spring of 2003, it was trading at $4. My friends were growing tired of watching paint dry. I reminded them this was only 2 years in a 5-year period. Oil and gas are now in the headlines and prices have improved quite a bit over the last few years. So has the stock. It’s now $38.
Why do I bring that up? Palatin trades on the American Stock Exchange for $2+. I suggested it for a 3 to 5 year investment. It’s market cap is only $100 million but its NeutraSpec, which diagnoses equivocal appendicitis, is marketed and distributed by Mallinkrodt and has seen increasing acceptance with rising yearly revenues and cash flow. Palatin is in phase 2 clinical trials with PT-141 for the treatment of male and female sexual dysfunction. The company has a potential drug discovery platform based on protein conformation. In the background, is a drug to assist in weight loss. All of these medical advances have been with little or no side effects. I don’t know where Palatin will trade in 2008 or 2010. I felt confident in Ultra’s management and I feel the same way with Palatin’s. Maybe the next two years will be like watching paint dry. That’s okay with me. As an investor, I believe time is on my side.
Barbara Johnson: "Patience is the ability to idle your motor when you feel like stripping your gears."
On Friday, the contract for delivery of natural gas in January closed at $9.917 per million Btu.
According to Mike Burk, August is typically weak during the first year of the presidential cycle.
Julian D.W. Philips: "The use of the $ as a global reserve currency is falling and may well prove to be a heavy source of inflation inside the States in the future. For this reason the Fed will likely keep increasing interest rates."
In the last two weeks, OPEC increased oil production by 300,000 barrels a day to around 30.4 million barrels per day. During this same time period, there have been operating problems at a number of refineries.
According to the most recent AP-Ipsos poll, only 48% of Americans surveyed now say they think President Bush is honest, while 50% say he is not. Bush’s job approval rating is 42% and his approval on handling Iraq is at 38%. The poll of 1,000 adults was conducted August 1-3. Bush maintains "we are at war." If that is so, why would the commander-in-chief go on a 5-week vacation while troops are fighting in a foreign land and a growing number are killed each week?
When making investments, nuances can prove significant. In the case of CNOOC and Unocal, the heads of the Chinese government never fully endorsed the acquisition proposal and never came out in print with an endorsement. Now let’s turn to Chinese-Kazakhstan relations. Kazakhstan has remained the largest border trade partner of China’s Xinjiang Uygur Autonomous Region for a continuous 12 years. Helgus, the biggest land port in West China, is also China’s largest land port to countries of Central Asia and Europe. According to an official with the Helgus port, construction of a Sino-Kazakhstan international trade center kicked off Friday in the Helgus port, signaling a new era in bilateral trade between China and Kazakhstan. It represents a free port city with functions of investment, trade, financial service and tourism. In my view, this is further evidence of the growing likelihood that PetroChina will be the winning bidder for PetroKazakhstan. The Chinese government is very much in favor of advancing bilateral trade with Kazakhstan. The new pipeline will further that endeavor.
Last week brought back memories. Many of you might not know a small company called E.Piphany of San Mateo, California. A few days ago, the company agreed to be purchased for about $4.20 in cash or approximately $329 million by SSA Global Technologies. In the Spring of 2000, this same stock sold for about $220 million per share. Why do I bring this up? Sometimes I suggest investing in a company for as much as a five-year period, and in the first few years, the movement of the stock can be as exciting as watching paint dry.
I lived in Jackson, Wyoming for several years. It’s not too close to anything but moose and buffalo and the Tetons and Yellowstone. If you are willing to drive some mountainous terrain, then you arrive at a thriving metropolis called Pinedale. It’s in the middle of nowhere--- except the Pinedale Anticline area. That is the heart of Wyoming’s Green River Basin and its oil and gas reserves. That brings me to the Spring of 2001. I suggested a 5-year investment in Ultra Petroleum, a company with large holdings in the Pinedale Anticline area. The stock traded on the American Stock Exchange for $3. In the Spring of 2003, it was trading at $4. My friends were growing tired of watching paint dry. I reminded them this was only 2 years in a 5-year period. Oil and gas are now in the headlines and prices have improved quite a bit over the last few years. So has the stock. It’s now $38.
Why do I bring that up? Palatin trades on the American Stock Exchange for $2+. I suggested it for a 3 to 5 year investment. It’s market cap is only $100 million but its NeutraSpec, which diagnoses equivocal appendicitis, is marketed and distributed by Mallinkrodt and has seen increasing acceptance with rising yearly revenues and cash flow. Palatin is in phase 2 clinical trials with PT-141 for the treatment of male and female sexual dysfunction. The company has a potential drug discovery platform based on protein conformation. In the background, is a drug to assist in weight loss. All of these medical advances have been with little or no side effects. I don’t know where Palatin will trade in 2008 or 2010. I felt confident in Ultra’s management and I feel the same way with Palatin’s. Maybe the next two years will be like watching paint dry. That’s okay with me. As an investor, I believe time is on my side.
Barbara Johnson: "Patience is the ability to idle your motor when you feel like stripping your gears."
On Friday, the contract for delivery of natural gas in January closed at $9.917 per million Btu.
According to Mike Burk, August is typically weak during the first year of the presidential cycle.
Julian D.W. Philips: "The use of the $ as a global reserve currency is falling and may well prove to be a heavy source of inflation inside the States in the future. For this reason the Fed will likely keep increasing interest rates."
In the last two weeks, OPEC increased oil production by 300,000 barrels a day to around 30.4 million barrels per day. During this same time period, there have been operating problems at a number of refineries.
According to the most recent AP-Ipsos poll, only 48% of Americans surveyed now say they think President Bush is honest, while 50% say he is not. Bush’s job approval rating is 42% and his approval on handling Iraq is at 38%. The poll of 1,000 adults was conducted August 1-3. Bush maintains "we are at war." If that is so, why would the commander-in-chief go on a 5-week vacation while troops are fighting in a foreign land and a growing number are killed each week?
When making investments, nuances can prove significant. In the case of CNOOC and Unocal, the heads of the Chinese government never fully endorsed the acquisition proposal and never came out in print with an endorsement. Now let’s turn to Chinese-Kazakhstan relations. Kazakhstan has remained the largest border trade partner of China’s Xinjiang Uygur Autonomous Region for a continuous 12 years. Helgus, the biggest land port in West China, is also China’s largest land port to countries of Central Asia and Europe. According to an official with the Helgus port, construction of a Sino-Kazakhstan international trade center kicked off Friday in the Helgus port, signaling a new era in bilateral trade between China and Kazakhstan. It represents a free port city with functions of investment, trade, financial service and tourism. In my view, this is further evidence of the growing likelihood that PetroChina will be the winning bidder for PetroKazakhstan. The Chinese government is very much in favor of advancing bilateral trade with Kazakhstan. The new pipeline will further that endeavor.
Friday, August 05, 2005
You Tell Me
8/6/05 You Tell Me
During the last three months, the equity indices have had a respectable rally. During this timeframe, the yield on 10-year Treasury bonds has risen from 3.88% to 4.39%, a jump of 13%. Any way you cut it, an increase of 51 basis points or one-half a percentage point is not something to ignore. It's not chopped liver. Higher interest rates do not provide ham sandwiches and they are quicksand to both the housing industry and equities. Maybe Fed Funds will rise to 4.25% by year-end, as suggested by Lehman. The point is they are going higher, and looking back, you will realize the Fed broke the back of the housing mania. Rather than hiring in home construction, there will be layoffs. There will be layoffs in the mortgage lending business. Real estate brokers will leave because it will become more difficult to earn a living. Rather than focus on payrolls in July, look out six months. Look out nine months. If you look past your nose, the thinking gets clearer.
Let's look at the gains in the services sector for July: retail 50,000; professional and technical 23,000; financial 21,000; food services 30,000; healthcare 29,000; and construction 21,000. Wait just a minute. Are these gains for real? Are they simply seasonally adjusted job gains? The BLS wouldn't pull a stunt like that. Or would they?
Let's take a closer look at the gains over the past 12 to 24 months. Over the past 12 months: credit intermediation 93,000; real estate 54,000; food services 262,000; and healthcare 256,000. Over the past two years retail has gained 352,000 jobs. You tell me. If the economy slows to 2% growth or less, how many of these seasonally adjusted added jobs will be flushed down the toilet?
Morgan Stanley's Richard Berner: "Flow of funds data from the Fed show that property values for the household and non-profit sector increased by 14.4% in the first quarter of 2005 from last year. If the current price is sustained for the year, the value of these properties will have risen by $2.7 trillion this year, more than 20% of U.S. GDP." Might we consider that real estate prices did in fact peak in this year's first quarter? Looking back in a few months, I believe we will find that this is exactly what has taken place. According to data from the California Association of Realtors, the unsold inventory index stands at 2.7 months versus 1.7 months in the year-ago period.
The EquiTrend tool measured overall brand equity for more than 1,100 brands in 35 categories based on five key measures: familiarity, quality,purchase intent, brand expectations and distinctiveness. In 2005, ReynoldsWrap(R) Aluminum Foil was ranked as the No. 1 brand in overall brand equity,followed by Ziploc(R) Food Bags, Heinz(R) Ketchup, Hershey's(R) Milk ChocolateCandy Bars and Chiquita(R) Bananas.
U.S. consumer credit rose in June at an annual rate of 8.2% or $14.5 billion. This represented a sharp reversal from May's revised drop of $1.2 billion.
The oil business is changing in Venezuela. Companies will be required to create joint ventures where state-owned Petroleos de Venezuela SA. has majority ownership or else. The 2001 Hydrocarbons Law decreed by Chavez will go into effect-- finally.
Amazon.com is exploring a possible entry into the music and video download business, music industry executives said Friday.
It is interesting that tax revenues are rising in 2005. It is even more compelling that interest on the U.S. debt has risen 13% over the past year, and this is during a period of historically low interest rates. Should rates rise another 75 basis points by year-end, interest on the U.S. debt will become a significant stumbling block. It is not a coincidence that the U.S. dollar index has resumed its decline. Even though the rate on 2-year Treasury bonds reached their highest yield since July 2001, the U.S. dollar index declined 1.4% this week. This should be highlighted by investors.
Leveraged speculation can lead to unalterable and dire consequences.
Doug Noland on April 20, 2001: "For the Greenspan Fed, it has come down to one simple (John Law-style) objective: at all costs, entice the speculative "Hot Money" to remain in "The Game," while attempting to encourage enough additional financial sector leveraging to maintain general systemic liquidity. The truth of the matter is that a system of "managed liquidity" functions with all the appearances of a miracle throughout the credit-induced bubble expansions, while instilling great (albeit, false) and increasingly entrenched confidence in both the system and monetary authority (as well as silly notions of New Paradigms). The menace of illiquidity, however, is always lurking around the bend as the downside brings the harsh reality of faltering asset markets, collapsing leverage, unavoidable illiquidity, and a wrecking ball process of shattering confidence."
Late Friday, Berkshire Hathaway released its second quarter results. The release indicates a marked-to-the-market loss of $600+ million in currency transactions. There are always little pricks who attempt to take cheap shots at Buffett. My memory is pretty fair. Buffett is the only investor who has produced 20%+ annualized returns for 40 years. Over the long-term, I would not want to place my money on the dollar. When the final tally is announced, I predict Buffett's Berkshire Hathaway will generate a handsome return on its currency transactions.
With crude closing at $62.31 a barrel, we can expect to pay record prices at the pump for the remainder of August. Before you know it, we will be going into winter. Heating oil is at $1.73. We can expect to pay record prices for heating oil in the coming months. Of course, the Fed is not concerned about inflation. Then again, maybe their heads are in an undesirable place.
Yesterday, China exported Baidu.com, a search engine company, to our financial market. I thought China was exporting deflation. Baidu's IPO was priced at $27. It closed the day at $122.54. Now that's a ham sandwich!
John Hussman: "Maybe the strong advance-decline line isn't a picture of uniformity at all, but is being driven higher because investors and institutions are chasing performance in speculative stocks. Maybe the behavior of the A-D line has gotten mixed up with a small-cap “blowoff.” "
As interest rates rise, P/E ratios decline.
For its first 30 years, Microsoft has been highly successful and has grown to the world's number one software company. Considering their product lines lack innovation and basically are clones of products produced by other companies, such as, Apple (Windows), Netscape (browser), Lotus (office notes), Sony (X-box), Oracle (database), Google (search) and others, I find it amazing that Microsoft is feverishly filing patent applications. So far, 4,000 patents have been received and another 3,300 are pending. Meanwhile, its shares traded at a nine-month high on Friday.
Bill Gates: "I think blogging is super-important, and we've got to do a lot more software. The phenomena for us is we've got in beta this MSN Spaces thing, and it lets you leverage everything you do around Messenger - that's your buddy lists and those relationships - to set up blogs, and who has access, and who gets notified." I guess we should add Google's blogger software to the growing clone list.
Rep. Ron Paul: “I’m very concerned that the Patriot Act could be used to justify surveillance or intimidation of individuals solely because of their lawful political activities,” Paul stated. “The Act defines terrorism so broadly that legitimate protest or other political action could be chilled. For example, a scuffle at an otherwise peaceful pro-life demonstration might allow the federal government to label the sponsoring organization and its members as terrorists. Similarly, you could be placed under federal surveillance if you belong to a gun rights group that a future administration doesn’t like.”
During the last three months, the equity indices have had a respectable rally. During this timeframe, the yield on 10-year Treasury bonds has risen from 3.88% to 4.39%, a jump of 13%. Any way you cut it, an increase of 51 basis points or one-half a percentage point is not something to ignore. It's not chopped liver. Higher interest rates do not provide ham sandwiches and they are quicksand to both the housing industry and equities. Maybe Fed Funds will rise to 4.25% by year-end, as suggested by Lehman. The point is they are going higher, and looking back, you will realize the Fed broke the back of the housing mania. Rather than hiring in home construction, there will be layoffs. There will be layoffs in the mortgage lending business. Real estate brokers will leave because it will become more difficult to earn a living. Rather than focus on payrolls in July, look out six months. Look out nine months. If you look past your nose, the thinking gets clearer.
Let's look at the gains in the services sector for July: retail 50,000; professional and technical 23,000; financial 21,000; food services 30,000; healthcare 29,000; and construction 21,000. Wait just a minute. Are these gains for real? Are they simply seasonally adjusted job gains? The BLS wouldn't pull a stunt like that. Or would they?
Let's take a closer look at the gains over the past 12 to 24 months. Over the past 12 months: credit intermediation 93,000; real estate 54,000; food services 262,000; and healthcare 256,000. Over the past two years retail has gained 352,000 jobs. You tell me. If the economy slows to 2% growth or less, how many of these seasonally adjusted added jobs will be flushed down the toilet?
Morgan Stanley's Richard Berner: "Flow of funds data from the Fed show that property values for the household and non-profit sector increased by 14.4% in the first quarter of 2005 from last year. If the current price is sustained for the year, the value of these properties will have risen by $2.7 trillion this year, more than 20% of U.S. GDP." Might we consider that real estate prices did in fact peak in this year's first quarter? Looking back in a few months, I believe we will find that this is exactly what has taken place. According to data from the California Association of Realtors, the unsold inventory index stands at 2.7 months versus 1.7 months in the year-ago period.
The EquiTrend tool measured overall brand equity for more than 1,100 brands in 35 categories based on five key measures: familiarity, quality,purchase intent, brand expectations and distinctiveness. In 2005, ReynoldsWrap(R) Aluminum Foil was ranked as the No. 1 brand in overall brand equity,followed by Ziploc(R) Food Bags, Heinz(R) Ketchup, Hershey's(R) Milk ChocolateCandy Bars and Chiquita(R) Bananas.
U.S. consumer credit rose in June at an annual rate of 8.2% or $14.5 billion. This represented a sharp reversal from May's revised drop of $1.2 billion.
The oil business is changing in Venezuela. Companies will be required to create joint ventures where state-owned Petroleos de Venezuela SA. has majority ownership or else. The 2001 Hydrocarbons Law decreed by Chavez will go into effect-- finally.
Amazon.com is exploring a possible entry into the music and video download business, music industry executives said Friday.
It is interesting that tax revenues are rising in 2005. It is even more compelling that interest on the U.S. debt has risen 13% over the past year, and this is during a period of historically low interest rates. Should rates rise another 75 basis points by year-end, interest on the U.S. debt will become a significant stumbling block. It is not a coincidence that the U.S. dollar index has resumed its decline. Even though the rate on 2-year Treasury bonds reached their highest yield since July 2001, the U.S. dollar index declined 1.4% this week. This should be highlighted by investors.
Leveraged speculation can lead to unalterable and dire consequences.
Doug Noland on April 20, 2001: "For the Greenspan Fed, it has come down to one simple (John Law-style) objective: at all costs, entice the speculative "Hot Money" to remain in "The Game," while attempting to encourage enough additional financial sector leveraging to maintain general systemic liquidity. The truth of the matter is that a system of "managed liquidity" functions with all the appearances of a miracle throughout the credit-induced bubble expansions, while instilling great (albeit, false) and increasingly entrenched confidence in both the system and monetary authority (as well as silly notions of New Paradigms). The menace of illiquidity, however, is always lurking around the bend as the downside brings the harsh reality of faltering asset markets, collapsing leverage, unavoidable illiquidity, and a wrecking ball process of shattering confidence."
Late Friday, Berkshire Hathaway released its second quarter results. The release indicates a marked-to-the-market loss of $600+ million in currency transactions. There are always little pricks who attempt to take cheap shots at Buffett. My memory is pretty fair. Buffett is the only investor who has produced 20%+ annualized returns for 40 years. Over the long-term, I would not want to place my money on the dollar. When the final tally is announced, I predict Buffett's Berkshire Hathaway will generate a handsome return on its currency transactions.
With crude closing at $62.31 a barrel, we can expect to pay record prices at the pump for the remainder of August. Before you know it, we will be going into winter. Heating oil is at $1.73. We can expect to pay record prices for heating oil in the coming months. Of course, the Fed is not concerned about inflation. Then again, maybe their heads are in an undesirable place.
Yesterday, China exported Baidu.com, a search engine company, to our financial market. I thought China was exporting deflation. Baidu's IPO was priced at $27. It closed the day at $122.54. Now that's a ham sandwich!
John Hussman: "Maybe the strong advance-decline line isn't a picture of uniformity at all, but is being driven higher because investors and institutions are chasing performance in speculative stocks. Maybe the behavior of the A-D line has gotten mixed up with a small-cap “blowoff.” "
As interest rates rise, P/E ratios decline.
For its first 30 years, Microsoft has been highly successful and has grown to the world's number one software company. Considering their product lines lack innovation and basically are clones of products produced by other companies, such as, Apple (Windows), Netscape (browser), Lotus (office notes), Sony (X-box), Oracle (database), Google (search) and others, I find it amazing that Microsoft is feverishly filing patent applications. So far, 4,000 patents have been received and another 3,300 are pending. Meanwhile, its shares traded at a nine-month high on Friday.
Bill Gates: "I think blogging is super-important, and we've got to do a lot more software. The phenomena for us is we've got in beta this MSN Spaces thing, and it lets you leverage everything you do around Messenger - that's your buddy lists and those relationships - to set up blogs, and who has access, and who gets notified." I guess we should add Google's blogger software to the growing clone list.
Rep. Ron Paul: “I’m very concerned that the Patriot Act could be used to justify surveillance or intimidation of individuals solely because of their lawful political activities,” Paul stated. “The Act defines terrorism so broadly that legitimate protest or other political action could be chilled. For example, a scuffle at an otherwise peaceful pro-life demonstration might allow the federal government to label the sponsoring organization and its members as terrorists. Similarly, you could be placed under federal surveillance if you belong to a gun rights group that a future administration doesn’t like.”
Thursday, August 04, 2005
Ring The Register
8/5/05 Ring The Register
Puru Saxena: "America's economy is now worth US$ 11.2 trillion. Over the past 5 years only US$ 1.6 trillion was added to the economy while credit market debt rose sharply by US$ 7.6 trillion! In summary, it now takes a record amount of debt to produce one dollar of economic growth. America's debt to GDP ratio has ballooned to over 350% when compared to "just" 120% in the 1970's."
Microsoft Corp. said after Thursday's closing bell that it has named Kevin Turner as chief operating officer, effective Sept. 8. Turner previously served as president and chief executive of Sam's Club, a division of Wal-Mart Stores Inc. Turner, 40, will lead the company's sales, marketing and internal information-systems groups and report to Chief Executive Steve Ballmer. He's getting a pay package worth up to $33.4 million.
A slight downturn in economic expectations and a drop in the strength of personal finances has American consumers continuing to be unenthusiastic about the economy, among those surveyed by the August RBC CASH (Consumer Attitudes and Spending by Household)Index. The telephone survey of 1,000 individuals taken across the U.S. this week reflected increasing pessimism about the economy and investing, which first surfaced in the July RBC CASH index. The RBC CASH Index for August dropped again to a new low following a drop in July that seemed triggered by the London bomb attacks and increasing oilprices. But, there is a bright spot: consumers feel good about their jobs. Confidence in job security, traditionally one of the most robust and resilient indicators of consumer confidence, rebounded from a sharp drop in July. The RBC Jobs Index stands at 114.6, up significantly from last month's 109.6 and, looking forward to the next six months, a majority (52%) now feel it is unlikely that they, someone in their family or someone they know personally will lose a job as a result of economic conditions. "If people feel good about their jobs, they will feel good about theireconomic futures," said Vince Boberski, chief economist for RBC Dain Rauscher."I see hope in this job index and I think this confidence in jobs could begin to translate into general consumer confidence later in the year." "But, the continued weakness in the RBC CASH Index makes us more cautious about projections for the economy into 2006 and beyond," Boberski said. Outside of jobs, the RBC CASH Index survey found consumers feeling pessimistic for the second month in a row. The index for August stands at 72.6, roughly unchanged from July's 20-month low. While opinions about the current strength of local economies are unchanged from July, expectations for the next six months declined somewhat in August; the RBC Expectations Index declined marginally in August, and now stands at 32.2 (compared to 34.4 inJuly). Fifteen percent now feel their local economy will be somewhat weakersix months from now, compared to 11% in July. Overall, one-in-five (20%)believe their local economy will be weaker in the future. In addition, Americans now rate their current personal financial situationas significantly weaker than one month ago. One-in-five (21%) rate theircurrent finances as strong (compared to 24% in July). Coupled with this is a slight increase in the percentage of Americans who rate their personalfinances as weak (28% in August, compared to 26% in July). This trend in personal finances is clearly felt in the RBC Current Conditions Index, which stands at 85.8 (down from 87.0 in July) and the RBC Investment Index, which stands at 78.2 (down from 81.3 in July). The decline in personal financial strength is substantial enough to offset slight gains among those comfortable with making household purchases (major and otherwise), increased feelings of job security, and a small rise ininvesting confidence.
The UK cut their ST benchmark rate a quarter percentage point from 4.75% to 4.5%. Meanwhile, the country's broad money supply growth was a year-over-year rate of 11% during June of this year.
"So far this [oil] market resembles kids taking a dare to walk through a cemetery at night," said James Williams, an economist at WTRG Economics.
"Every sound is blown out of proportion and the crack from someone stepping on a twig can send the whole group running for the safety of a street lamp," he said. Crude is once again approaching the $62 a barrel level.
Would there be a large outcry if a state-controlled Chinese company made a proposal to buy a U.S. tobacco company?
At $8.65, September natural gas is trading at its highest price since November 2004.
Earlier in the week, I suggested a hedge ratio of going long 1.3 shares of Chevron and shorting 1 share of PetroChina. The disparity of the two market caps has narrowed to Chevron's $127 billion and PetroChina's $154 billion. I believe, in time, that ratio will move in favor of Chevron. Meanwhile, there are some who may wish to ring the register. Currently, the hedge trade is + 2 1/2 points in the Chevron long position and + 6 1/2 points on the PetroChina short sale.
According to SDI/Weather Trends Inc., this July was among the 14 hottest Julys since 1985. Meanwhile, yesterday it was 90 degrees in Bellevue, Washington.
Did you read the August 1 online edition of the journal Proceedings of the National Academy of Sciences where a carbon nanotech-laser treatment destroyed cancer cells without damaging healthy tissue? Stanford University scientists developed the treatment.
According to J.P. Morgan, this year’s global issuance of collateralised debt obligations (CDOs) was running at $123 billion by late July, sharply up from last year’s total in the same period of $78 billion.
Commander Eileen Collins looking at Earth from Discovery:"The atmosphere almost looks like an eggshell on an egg, it's so very thin. We know that we don't have much
and we need to protect what we have."
Danny McGoorty Irish Pool Player: "I have never liked working. To me a job is an invasion of privacy."
My math skills need a refresher course. I was wrong about the July payrolls report. I wasn't even close as 207,000 jobs were added to nonfarm payrolls, the Labor Department said Friday. The unemployment rate remained at 5%. Payrolls in May and June were revised higher by a cumulative 42,000. Average hourly earnings rose by 6 cents, or 0.4%, to $16.13.The average workweek was steady at 33.7 hours in July. Service-producing jobs rose by 203,000, including 50,000 in retail, the most in more than five years. Factory jobs fell 4,000. How many retail jobs do you need to hold at one time to make the mortgage payment? I'll take a closer look at this report and maybe discuss it a bit more tomorrow. In the meantime, I suggest keeping cool and avoid the economic gibberish on the TV.
Puru Saxena: "America's economy is now worth US$ 11.2 trillion. Over the past 5 years only US$ 1.6 trillion was added to the economy while credit market debt rose sharply by US$ 7.6 trillion! In summary, it now takes a record amount of debt to produce one dollar of economic growth. America's debt to GDP ratio has ballooned to over 350% when compared to "just" 120% in the 1970's."
Microsoft Corp. said after Thursday's closing bell that it has named Kevin Turner as chief operating officer, effective Sept. 8. Turner previously served as president and chief executive of Sam's Club, a division of Wal-Mart Stores Inc. Turner, 40, will lead the company's sales, marketing and internal information-systems groups and report to Chief Executive Steve Ballmer. He's getting a pay package worth up to $33.4 million.
A slight downturn in economic expectations and a drop in the strength of personal finances has American consumers continuing to be unenthusiastic about the economy, among those surveyed by the August RBC CASH (Consumer Attitudes and Spending by Household)Index. The telephone survey of 1,000 individuals taken across the U.S. this week reflected increasing pessimism about the economy and investing, which first surfaced in the July RBC CASH index. The RBC CASH Index for August dropped again to a new low following a drop in July that seemed triggered by the London bomb attacks and increasing oilprices. But, there is a bright spot: consumers feel good about their jobs. Confidence in job security, traditionally one of the most robust and resilient indicators of consumer confidence, rebounded from a sharp drop in July. The RBC Jobs Index stands at 114.6, up significantly from last month's 109.6 and, looking forward to the next six months, a majority (52%) now feel it is unlikely that they, someone in their family or someone they know personally will lose a job as a result of economic conditions. "If people feel good about their jobs, they will feel good about theireconomic futures," said Vince Boberski, chief economist for RBC Dain Rauscher."I see hope in this job index and I think this confidence in jobs could begin to translate into general consumer confidence later in the year." "But, the continued weakness in the RBC CASH Index makes us more cautious about projections for the economy into 2006 and beyond," Boberski said. Outside of jobs, the RBC CASH Index survey found consumers feeling pessimistic for the second month in a row. The index for August stands at 72.6, roughly unchanged from July's 20-month low. While opinions about the current strength of local economies are unchanged from July, expectations for the next six months declined somewhat in August; the RBC Expectations Index declined marginally in August, and now stands at 32.2 (compared to 34.4 inJuly). Fifteen percent now feel their local economy will be somewhat weakersix months from now, compared to 11% in July. Overall, one-in-five (20%)believe their local economy will be weaker in the future. In addition, Americans now rate their current personal financial situationas significantly weaker than one month ago. One-in-five (21%) rate theircurrent finances as strong (compared to 24% in July). Coupled with this is a slight increase in the percentage of Americans who rate their personalfinances as weak (28% in August, compared to 26% in July). This trend in personal finances is clearly felt in the RBC Current Conditions Index, which stands at 85.8 (down from 87.0 in July) and the RBC Investment Index, which stands at 78.2 (down from 81.3 in July). The decline in personal financial strength is substantial enough to offset slight gains among those comfortable with making household purchases (major and otherwise), increased feelings of job security, and a small rise ininvesting confidence.
The UK cut their ST benchmark rate a quarter percentage point from 4.75% to 4.5%. Meanwhile, the country's broad money supply growth was a year-over-year rate of 11% during June of this year.
"So far this [oil] market resembles kids taking a dare to walk through a cemetery at night," said James Williams, an economist at WTRG Economics.
"Every sound is blown out of proportion and the crack from someone stepping on a twig can send the whole group running for the safety of a street lamp," he said. Crude is once again approaching the $62 a barrel level.
Would there be a large outcry if a state-controlled Chinese company made a proposal to buy a U.S. tobacco company?
At $8.65, September natural gas is trading at its highest price since November 2004.
Earlier in the week, I suggested a hedge ratio of going long 1.3 shares of Chevron and shorting 1 share of PetroChina. The disparity of the two market caps has narrowed to Chevron's $127 billion and PetroChina's $154 billion. I believe, in time, that ratio will move in favor of Chevron. Meanwhile, there are some who may wish to ring the register. Currently, the hedge trade is + 2 1/2 points in the Chevron long position and + 6 1/2 points on the PetroChina short sale.
According to SDI/Weather Trends Inc., this July was among the 14 hottest Julys since 1985. Meanwhile, yesterday it was 90 degrees in Bellevue, Washington.
Did you read the August 1 online edition of the journal Proceedings of the National Academy of Sciences where a carbon nanotech-laser treatment destroyed cancer cells without damaging healthy tissue? Stanford University scientists developed the treatment.
According to J.P. Morgan, this year’s global issuance of collateralised debt obligations (CDOs) was running at $123 billion by late July, sharply up from last year’s total in the same period of $78 billion.
Commander Eileen Collins looking at Earth from Discovery:"The atmosphere almost looks like an eggshell on an egg, it's so very thin. We know that we don't have much
and we need to protect what we have."
Danny McGoorty Irish Pool Player: "I have never liked working. To me a job is an invasion of privacy."
My math skills need a refresher course. I was wrong about the July payrolls report. I wasn't even close as 207,000 jobs were added to nonfarm payrolls, the Labor Department said Friday. The unemployment rate remained at 5%. Payrolls in May and June were revised higher by a cumulative 42,000. Average hourly earnings rose by 6 cents, or 0.4%, to $16.13.The average workweek was steady at 33.7 hours in July. Service-producing jobs rose by 203,000, including 50,000 in retail, the most in more than five years. Factory jobs fell 4,000. How many retail jobs do you need to hold at one time to make the mortgage payment? I'll take a closer look at this report and maybe discuss it a bit more tomorrow. In the meantime, I suggest keeping cool and avoid the economic gibberish on the TV.
Wednesday, August 03, 2005
Trials And Tribulations
8/4/05 Trials And Tribulations
King Pharmaceuticals (KG) and Palatin Technologies, Inc. (PTN) announced yesterday that they have initiated patient enrollment in two double-blind, placebo-controlled Phase IIb clinical trials of PT-141 in patients with erectile dysfunction (ED). The main objectives of these studies are to further evaluate safety, treatment duration, patient populations and a range of doses that will be incorporated into Phase III pivotal trials. PT-141 is a melanocortin agonist that King and Palatin are jointly developing for the treatment of male and female sexual dysfunction. The first Phase IIb clinical trial will evaluate the safety and efficacy of PT-141 in 560 non-diabetic patients suffering from mild to severe ED. The second clinical trial will similarly evaluate 265 diabetic patients with ED. Both clinical trials will involve an "at home" three-month treatment period conducted at approximately 35 clinical trial sites throughout the United States. Additionally, the clinical trials will evaluate a range of PT-141 intranasal doses between 5 mg and 15 mg. "The initiation of these two double-blind, placebo-controlled Phase IIb clinical trials is a major milestone in the development of PT-141. We believe the data from this extensive Phase IIb program will allow us to confidently select doses, end points and treatment periods for use in the design of the pivotal Phase III trials," commented Dr. Carl Spana, CEO and President of Palatin Technologies. The non-diabetic Phase IIb clinical trial is scheduled to conclude in mid-2006, while the conclusion of the diabetic Phase IIb clinical is scheduled to follow in the second half of 2006.
Yesterday, the Institute for Supply Management reported that its index designed to measure the economy's service-sector activity fell to 60.5 in July. The consensus forecast was looking for something around 61.0, and the results compared with a June result of 62.2. One should keep in mind that our economy is essentially services based rather than manaufacturing based Importantly, there was a 10.5-point surge in the index's prices-paid component. It rose to 70.3, versus June's reading of 59.8.
David Taffi: "The next time you pull out a Federal Reserve Note with an incremental cost of production near zero and the electronic version cost of absolute zero, remember what side of the trade you are on. They want inflation. They need inflation. We will have inflation. "
Applications for U.S. home mortgages fell last week as interest rates on 30-year loans rose more than in any week since March, industry group figures showed on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity fell 0.3 percent in the week ending July 29, adding to the previous week's 5.8 percent loss. The four-week moving average is down 3.2 percent.
General Glut: "Maybe making new houses and home improvements out of gingerbread is a good strategy going into the future. At least we'll be able to eat them then, because we might very well have to. There won't be any income sources left to buy food."
As a percentage of personal disposable income, household debt is at an all-time high, while the savings rate has dropped to 0%. That combination spells trouble.
Despite inventory of crude oil being 8% above year-ago levels, crude sits just above $61 a barrel this morning.
Since we invaded Iraq in March 2003, at least 1,821 members of our U.S. military have been killed.
India consumed about 33 billion cubic yards of natural gas in 2002, and consumption is forecast to rise to 44 billion in 2010 and 60 billion in 2015.
Almost unnoticed, France's Total announced Tuesday the purchase of a small Canadian oilsands company Deer Creek Energy Ltd for $1.35 billion. I wonder whether Total will be a bidder for PetroKazakhstan. On a comparable basis, PKZ offers much more value than does Deeer Creek Energy.
For August, Wal-Mart is projecting a 3 to 5 percent same-store sales increase.
Ernest Hemingway: "The first panacea for a misguided nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists."
King Pharmaceuticals (KG) and Palatin Technologies, Inc. (PTN) announced yesterday that they have initiated patient enrollment in two double-blind, placebo-controlled Phase IIb clinical trials of PT-141 in patients with erectile dysfunction (ED). The main objectives of these studies are to further evaluate safety, treatment duration, patient populations and a range of doses that will be incorporated into Phase III pivotal trials. PT-141 is a melanocortin agonist that King and Palatin are jointly developing for the treatment of male and female sexual dysfunction. The first Phase IIb clinical trial will evaluate the safety and efficacy of PT-141 in 560 non-diabetic patients suffering from mild to severe ED. The second clinical trial will similarly evaluate 265 diabetic patients with ED. Both clinical trials will involve an "at home" three-month treatment period conducted at approximately 35 clinical trial sites throughout the United States. Additionally, the clinical trials will evaluate a range of PT-141 intranasal doses between 5 mg and 15 mg. "The initiation of these two double-blind, placebo-controlled Phase IIb clinical trials is a major milestone in the development of PT-141. We believe the data from this extensive Phase IIb program will allow us to confidently select doses, end points and treatment periods for use in the design of the pivotal Phase III trials," commented Dr. Carl Spana, CEO and President of Palatin Technologies. The non-diabetic Phase IIb clinical trial is scheduled to conclude in mid-2006, while the conclusion of the diabetic Phase IIb clinical is scheduled to follow in the second half of 2006.
Yesterday, the Institute for Supply Management reported that its index designed to measure the economy's service-sector activity fell to 60.5 in July. The consensus forecast was looking for something around 61.0, and the results compared with a June result of 62.2. One should keep in mind that our economy is essentially services based rather than manaufacturing based Importantly, there was a 10.5-point surge in the index's prices-paid component. It rose to 70.3, versus June's reading of 59.8.
David Taffi: "The next time you pull out a Federal Reserve Note with an incremental cost of production near zero and the electronic version cost of absolute zero, remember what side of the trade you are on. They want inflation. They need inflation. We will have inflation. "
Applications for U.S. home mortgages fell last week as interest rates on 30-year loans rose more than in any week since March, industry group figures showed on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity fell 0.3 percent in the week ending July 29, adding to the previous week's 5.8 percent loss. The four-week moving average is down 3.2 percent.
General Glut: "Maybe making new houses and home improvements out of gingerbread is a good strategy going into the future. At least we'll be able to eat them then, because we might very well have to. There won't be any income sources left to buy food."
As a percentage of personal disposable income, household debt is at an all-time high, while the savings rate has dropped to 0%. That combination spells trouble.
Despite inventory of crude oil being 8% above year-ago levels, crude sits just above $61 a barrel this morning.
Since we invaded Iraq in March 2003, at least 1,821 members of our U.S. military have been killed.
India consumed about 33 billion cubic yards of natural gas in 2002, and consumption is forecast to rise to 44 billion in 2010 and 60 billion in 2015.
Almost unnoticed, France's Total announced Tuesday the purchase of a small Canadian oilsands company Deer Creek Energy Ltd for $1.35 billion. I wonder whether Total will be a bidder for PetroKazakhstan. On a comparable basis, PKZ offers much more value than does Deeer Creek Energy.
For August, Wal-Mart is projecting a 3 to 5 percent same-store sales increase.
Ernest Hemingway: "The first panacea for a misguided nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists."
Tuesday, August 02, 2005
One Year Ago
8/3/05 One Year Ago
The July payroll numbers are released this Friday. The average estimate of economists is a gain of 180,000 jobs. Do you remember last July? The gain was 32,000, and it was the worst jobs report since December 2003. Services added a net 14,000 jobs, and this was after a gain of 14,000 in the health sector and a gain of 42,000 in the professional sector, of which most were administrative (low paying) and the remainder largely temp professional jobs. What happened was simple. The month was hit with negative bias factors mixed with negative revisions. Could this combo happen again this Friday? I wouldn't bet the ranch on 180,000 jobs and I wouldn't look for much improvement in wages and hours worked. Workers have been taking it on the chin for several years. So how is it that U.S. consumer spending grew 0.8% in June while incomes rose only 0.5% and the personal savings rate fell to 0%, the lowest since October 2001? Freddie Mac has the answer. U.S. homeowners took cash out of their equity in their homes in 74% of the mortgages refinanced in the second quarter, the highest percentage since the end of 2000. Equity cashed out rose to $59 billion in the second quarter from $43 billion in the first quarter. Freddie Mac expects homeowners to take out $162 billion in 2005 after cashing out $140 billion in 2004. Homeowners cash out equity when they take out a larger loan balance when they refinance. As home prices escalate and mortgage rates remain at historically low levels, the ability to cash out is enhanced.
David Campbell: "Discipline is remembering what you want."
In the June quarter, Delta Airlines experienced a $385 million increase in fuel expense over the prior year's quarter. This amounted to an increase of 57.5%. Interestingly, the company's market cap is $363 million. The company stated that "every 1 cent increase in the average annual cost per gallon of jet fuel results in approximately $25 million in additional mainline fuel expense per year." In sum, the price of fuel matters a great deal to stockholders in airline companies. You had better hope oil does not rise much higher than it is presently.
UTStarcom, a wireless and network supplier, is finding business conditions pretty rough in China. The company experienced a sharp second quarter decline in sales in China, incurred a loss, and stated that 3rd quarter sales would be approximately $100 million below Wall Street estimates.
With PetroChina stock gapping up to the $94-$95 level, what chance is there for ONGC to make PKZ an offer it can't refuse? Maybe with a little luck, PKZ holders will receive a healthy share exchange offer from PetroChina and then the arbitrageurs will be wanting to short PTR stock. We can make it on both sides-- with a little luck. I should also mention that Chevron should take a long look at buying PKZ. Chevron's joint venture in Kazakhstan would fit beautifully with PKZ's operations. Double digit free cash flow growth should make a healthy incentive for potential buyers.
I will ask this question once again. If housing is so strong, then why have lumber prices declined in 2005?
Will the UK lower interest rates this week?
Since we invaded Iraq in March 2003, over 1,800 members of our Armed Forces have been killed.
According to the Moscow Times, Google may open a center in St. Petersburg, Russia and hire 3,000 employees.
Crude is trading at $62 a barrel early Wednesday morning.
William James: "In the practical use of our intellect, forgetting is as important as remembering."
If corporate profits in the third and fourth quarter grow by double digits, then there is a great likelihood that the yield curve will cease being flat. That may prove a problem for the housing market.
The July payroll numbers are released this Friday. The average estimate of economists is a gain of 180,000 jobs. Do you remember last July? The gain was 32,000, and it was the worst jobs report since December 2003. Services added a net 14,000 jobs, and this was after a gain of 14,000 in the health sector and a gain of 42,000 in the professional sector, of which most were administrative (low paying) and the remainder largely temp professional jobs. What happened was simple. The month was hit with negative bias factors mixed with negative revisions. Could this combo happen again this Friday? I wouldn't bet the ranch on 180,000 jobs and I wouldn't look for much improvement in wages and hours worked. Workers have been taking it on the chin for several years. So how is it that U.S. consumer spending grew 0.8% in June while incomes rose only 0.5% and the personal savings rate fell to 0%, the lowest since October 2001? Freddie Mac has the answer. U.S. homeowners took cash out of their equity in their homes in 74% of the mortgages refinanced in the second quarter, the highest percentage since the end of 2000. Equity cashed out rose to $59 billion in the second quarter from $43 billion in the first quarter. Freddie Mac expects homeowners to take out $162 billion in 2005 after cashing out $140 billion in 2004. Homeowners cash out equity when they take out a larger loan balance when they refinance. As home prices escalate and mortgage rates remain at historically low levels, the ability to cash out is enhanced.
David Campbell: "Discipline is remembering what you want."
In the June quarter, Delta Airlines experienced a $385 million increase in fuel expense over the prior year's quarter. This amounted to an increase of 57.5%. Interestingly, the company's market cap is $363 million. The company stated that "every 1 cent increase in the average annual cost per gallon of jet fuel results in approximately $25 million in additional mainline fuel expense per year." In sum, the price of fuel matters a great deal to stockholders in airline companies. You had better hope oil does not rise much higher than it is presently.
UTStarcom, a wireless and network supplier, is finding business conditions pretty rough in China. The company experienced a sharp second quarter decline in sales in China, incurred a loss, and stated that 3rd quarter sales would be approximately $100 million below Wall Street estimates.
With PetroChina stock gapping up to the $94-$95 level, what chance is there for ONGC to make PKZ an offer it can't refuse? Maybe with a little luck, PKZ holders will receive a healthy share exchange offer from PetroChina and then the arbitrageurs will be wanting to short PTR stock. We can make it on both sides-- with a little luck. I should also mention that Chevron should take a long look at buying PKZ. Chevron's joint venture in Kazakhstan would fit beautifully with PKZ's operations. Double digit free cash flow growth should make a healthy incentive for potential buyers.
I will ask this question once again. If housing is so strong, then why have lumber prices declined in 2005?
Will the UK lower interest rates this week?
Since we invaded Iraq in March 2003, over 1,800 members of our Armed Forces have been killed.
According to the Moscow Times, Google may open a center in St. Petersburg, Russia and hire 3,000 employees.
Crude is trading at $62 a barrel early Wednesday morning.
William James: "In the practical use of our intellect, forgetting is as important as remembering."
If corporate profits in the third and fourth quarter grow by double digits, then there is a great likelihood that the yield curve will cease being flat. That may prove a problem for the housing market.
Uncommon Comparative Values
8/2/05 Uncommon Comparative Values
Every year I mention a situation which holds, in my view, uncommon comparative value. In 2005, when Harley Davidson’s market cap exceeded GM’s, I suggested buying GM and shorting Harley. Then I suggested buying GM, Ford, and Harley Davidson and shorting DaimlerChrysler. Today, we have another uncommon comparative value. Chevron’s market cap is $123 billion and PetroChina’s is $163 billion. Chevron is more attractive based on its earnings per share, book value, depth of management experience, technology, diversified asset base, dividend yield, and the strength of its balance sheet. There are only 8 days left prior to the Aug. 10 vote on the Unocal merger. That represents 8 days for arbitrageurs to short Chevron prior to the merger becoming effective. I do not believe this uncommon comparative value will last for a long time. You might consider buying 1.3 shares of Chevron and shorting 1 share of PetroChina. This strategy is not for the faint of heart. Just because we normally do quite nicely on these relationship trades doesn’t mean this will work out. However, I wouldn’t bet against it. Value normally wins out.
John P. Hussman: “Large capitalization breadth has glaringly failed to confirm the recent advance. The apparent strength in market breadth is little more than a speculative chase after small-cap momentum.”
In the first six months of 2005, China imported a net 400,000 bpd of oil products, according to Customs data, compared to 700,000 bpd in the year earlier period. For all of 2005, China’s Commerce Minister is estimating China’s demand for crude oil will rise about 6% from last year’s 6.2 million bpd; however, this year’s second half consumption will be only 1.2% above last year’s comparable period. Have you considered that, over the short-term, demand for oil products could in fact be slowing? Maybe crude at $61 a barrel is overpriced. Maybe over the long-term, demand for natural gas will grow faster than crude, and maybe natural gas is the place to have your investment dollars. If the price of crude does decline in the short-term, there is no question that the hot money in PetroChina will get burned and that investors in Chevron will weather the storm quite nicely on a comparative basis.
The June pending existing home sales index rose 3.6% from June 2004.
The July ISM Manufacturing Index rose to 56.6% from 53.8% in June. The new orders index rose to 60.6% from 57.2% in June. The production index rose to 61.2% from 55.6%. The employment index rose to 53.2% from 49.9%. The prices paid index fell to 48.5% from 50.5%. The surprising strength in this report was unwelcome news to the bond market, and the yield on the 10-year Treasury bond rose to 4.32%. Does anyone believe the yield will rise above 5% before year-end?
Fool’s gold is the Russell 2000. The p/e on this index is 30 times plus.
Next month the acquisition of Western Wireless by Alltel will become effective. About 140 Western Wireless workers will lose their jobs.
June construction fell for the fourth consecutive month, but on an annualized basis, the value of construction came in at $1.1 trillion or about 10% of GDP.
One might keep an eye on the Rydex Cash Flow ratio. It tells you how much cash was actually moved in or out of the fund.
The U.S. population is 295 million. Australia’s is 20 million. In June, the economy in Australia created 41,700 new jobs, and in the last 10 months, a total of 362,000 new jobs. Before you get excited about job creation in the U.S., you might take a peek elsewhere. It’s no wonder that, over the past three years, the strength in the Australian dollar has overwhelmed the performance (or lack of) of our dollar.
Every year I mention a situation which holds, in my view, uncommon comparative value. In 2005, when Harley Davidson’s market cap exceeded GM’s, I suggested buying GM and shorting Harley. Then I suggested buying GM, Ford, and Harley Davidson and shorting DaimlerChrysler. Today, we have another uncommon comparative value. Chevron’s market cap is $123 billion and PetroChina’s is $163 billion. Chevron is more attractive based on its earnings per share, book value, depth of management experience, technology, diversified asset base, dividend yield, and the strength of its balance sheet. There are only 8 days left prior to the Aug. 10 vote on the Unocal merger. That represents 8 days for arbitrageurs to short Chevron prior to the merger becoming effective. I do not believe this uncommon comparative value will last for a long time. You might consider buying 1.3 shares of Chevron and shorting 1 share of PetroChina. This strategy is not for the faint of heart. Just because we normally do quite nicely on these relationship trades doesn’t mean this will work out. However, I wouldn’t bet against it. Value normally wins out.
John P. Hussman: “Large capitalization breadth has glaringly failed to confirm the recent advance. The apparent strength in market breadth is little more than a speculative chase after small-cap momentum.”
In the first six months of 2005, China imported a net 400,000 bpd of oil products, according to Customs data, compared to 700,000 bpd in the year earlier period. For all of 2005, China’s Commerce Minister is estimating China’s demand for crude oil will rise about 6% from last year’s 6.2 million bpd; however, this year’s second half consumption will be only 1.2% above last year’s comparable period. Have you considered that, over the short-term, demand for oil products could in fact be slowing? Maybe crude at $61 a barrel is overpriced. Maybe over the long-term, demand for natural gas will grow faster than crude, and maybe natural gas is the place to have your investment dollars. If the price of crude does decline in the short-term, there is no question that the hot money in PetroChina will get burned and that investors in Chevron will weather the storm quite nicely on a comparative basis.
The June pending existing home sales index rose 3.6% from June 2004.
The July ISM Manufacturing Index rose to 56.6% from 53.8% in June. The new orders index rose to 60.6% from 57.2% in June. The production index rose to 61.2% from 55.6%. The employment index rose to 53.2% from 49.9%. The prices paid index fell to 48.5% from 50.5%. The surprising strength in this report was unwelcome news to the bond market, and the yield on the 10-year Treasury bond rose to 4.32%. Does anyone believe the yield will rise above 5% before year-end?
Fool’s gold is the Russell 2000. The p/e on this index is 30 times plus.
Next month the acquisition of Western Wireless by Alltel will become effective. About 140 Western Wireless workers will lose their jobs.
June construction fell for the fourth consecutive month, but on an annualized basis, the value of construction came in at $1.1 trillion or about 10% of GDP.
One might keep an eye on the Rydex Cash Flow ratio. It tells you how much cash was actually moved in or out of the fund.
The U.S. population is 295 million. Australia’s is 20 million. In June, the economy in Australia created 41,700 new jobs, and in the last 10 months, a total of 362,000 new jobs. Before you get excited about job creation in the U.S., you might take a peek elsewhere. It’s no wonder that, over the past three years, the strength in the Australian dollar has overwhelmed the performance (or lack of) of our dollar.
Sunday, July 31, 2005
Risk Arbitrage
8/1/05 Risk Arbitrage
According to the current issue of Newweek, the Pentagon has developed a detailed plan in recent months to scale down the U.S. troop presence in Iraq to about 80,000 by mid-2006 and down to 40,000 to 60,000 troops by the end of 2006, according to two Pentagon officials involved in the planning who asked not to be identified because of the sensitive nature of their work. Their account squares with a British memo leaked in mid-July, report Senior Editor Michael Hirsh and National Security Correspondent John Barry in the current issue of Newsweek. "Emerging U.S. plans assume that 14 out of 18 provinces could be handed over to Iraqi control by early 2006, allowing a reduction inoverall [U.S. and coalition forces] from 176,000 down to 66,000," says the Ministry of Defense memo.
Lloyd Douglas: "If a man harbors any sort of fear, it makes him landlord to a ghost."
According to the Financial Times, CNOOC is struggling to keep its attempt to buy Unocal alive amid mounting concerns that political opposition and the US group's backing for a $17.3bn bid by Chevron might force the Chinese company to withdraw its $18.5bn offer. The state-controlled Chinese company is likely to make a decision within the next 48 hours, with an announcement expected as early as Wednesday or one week prior to the shareholder vote on Chevron's acquisition of Unocal.
The battle for control of Unocal can serve as an excellent learning experience for those wishing to engage in risk arbitrage. The way the process begins is often the way it ends. CNOOC was the first company to express an interest in acquiring Unocal. That interest surfaced in the beginning of 2005. It is hard to imagine that CNOOC waited until June 23 to go public with a specific proposal, and even then, it had contingencies. It's not enough to talk and dangle an interest. Maybe that influenced millions of Unocal shares to be purchased, and maybe the loss on those shares will serve as a lesson. I doubt it though. Greed has a way of overpowering rationality and clear thinking. I have never seen a company with so many experienced advisors produce so much hot air. The handwriting was on the wall for months. So few bothered to look with a dispassionate eye. That's why Unocal has been trading at a premium to Chevron's bid for over 90 days. Risk arbitrage is a good deal more complicated and sophisticated than buying and selling shares of GE, for example. It's not for the faint of heart, but it can be most rewarding. Unfortunately, most get burned out after only a few years. That's life in the fast lane.
Doug Firebaugh: "Usually a person has more faith in their fear than faith in the future."
For shareholders of PetroKasakhstan, the ineptness exhibited by CNOOC may serve as a blessing. PetroChina will not make the same mistakes, and their effort to acquire PKZ should be aggressive, focused, and timely. I would be more than surprised if PetroChina did not come out a winner. It should be quite a battle with ONGC. China going head-to-head with India.
Andre Gratian: "The Decennial pattern has an unblemished history for the past 125 years, and if history repeats itself, the Dow Jones industrials and the S&P 500 will be higher on December 31st, 2005, than they were on January 1st."
Back in the latter part of 2004 and just before Microsoft paid a $3 dividend, I had recommended cutting back on holdings in the company at $30 per share and above. This weekend Barron's wrote a bullish piece on Microsoft. I would continue to reduce holdings at $28 and above, and this equates to $31 and above the pre-dividend payment.
Douglas V. Gnazzo: "The greater the debt, the greater the potential demand for dollars to pay off that debt. Which is why I said that massive debt amounts to a massive synthetic short position against the dollar."
Saudi's King Fahd died. Crude oil climbed above $61 a barrel this morning.
Atkins Nutritionals made a bankruptcy filing.
According to the current issue of Newweek, the Pentagon has developed a detailed plan in recent months to scale down the U.S. troop presence in Iraq to about 80,000 by mid-2006 and down to 40,000 to 60,000 troops by the end of 2006, according to two Pentagon officials involved in the planning who asked not to be identified because of the sensitive nature of their work. Their account squares with a British memo leaked in mid-July, report Senior Editor Michael Hirsh and National Security Correspondent John Barry in the current issue of Newsweek. "Emerging U.S. plans assume that 14 out of 18 provinces could be handed over to Iraqi control by early 2006, allowing a reduction inoverall [U.S. and coalition forces] from 176,000 down to 66,000," says the Ministry of Defense memo.
Lloyd Douglas: "If a man harbors any sort of fear, it makes him landlord to a ghost."
According to the Financial Times, CNOOC is struggling to keep its attempt to buy Unocal alive amid mounting concerns that political opposition and the US group's backing for a $17.3bn bid by Chevron might force the Chinese company to withdraw its $18.5bn offer. The state-controlled Chinese company is likely to make a decision within the next 48 hours, with an announcement expected as early as Wednesday or one week prior to the shareholder vote on Chevron's acquisition of Unocal.
The battle for control of Unocal can serve as an excellent learning experience for those wishing to engage in risk arbitrage. The way the process begins is often the way it ends. CNOOC was the first company to express an interest in acquiring Unocal. That interest surfaced in the beginning of 2005. It is hard to imagine that CNOOC waited until June 23 to go public with a specific proposal, and even then, it had contingencies. It's not enough to talk and dangle an interest. Maybe that influenced millions of Unocal shares to be purchased, and maybe the loss on those shares will serve as a lesson. I doubt it though. Greed has a way of overpowering rationality and clear thinking. I have never seen a company with so many experienced advisors produce so much hot air. The handwriting was on the wall for months. So few bothered to look with a dispassionate eye. That's why Unocal has been trading at a premium to Chevron's bid for over 90 days. Risk arbitrage is a good deal more complicated and sophisticated than buying and selling shares of GE, for example. It's not for the faint of heart, but it can be most rewarding. Unfortunately, most get burned out after only a few years. That's life in the fast lane.
Doug Firebaugh: "Usually a person has more faith in their fear than faith in the future."
For shareholders of PetroKasakhstan, the ineptness exhibited by CNOOC may serve as a blessing. PetroChina will not make the same mistakes, and their effort to acquire PKZ should be aggressive, focused, and timely. I would be more than surprised if PetroChina did not come out a winner. It should be quite a battle with ONGC. China going head-to-head with India.
Andre Gratian: "The Decennial pattern has an unblemished history for the past 125 years, and if history repeats itself, the Dow Jones industrials and the S&P 500 will be higher on December 31st, 2005, than they were on January 1st."
Back in the latter part of 2004 and just before Microsoft paid a $3 dividend, I had recommended cutting back on holdings in the company at $30 per share and above. This weekend Barron's wrote a bullish piece on Microsoft. I would continue to reduce holdings at $28 and above, and this equates to $31 and above the pre-dividend payment.
Douglas V. Gnazzo: "The greater the debt, the greater the potential demand for dollars to pay off that debt. Which is why I said that massive debt amounts to a massive synthetic short position against the dollar."
Saudi's King Fahd died. Crude oil climbed above $61 a barrel this morning.
Atkins Nutritionals made a bankruptcy filing.
Governments
7/31/05 Governments
Edward R. Murrow: “A nation of sheep will beget a government of wolves.”
In 2004, the state of Illinois was the nation’s leading soybean producer and also the number 2 corn producer as it accounted for almost 20% of the corn crop. Maybe you have been reading about the lack of rain in Illinois. The dry spell is the worst in 20 years, and it is stunting the soybean and corn crops. So what do our elected politicians in the House and the Senate do? They pass the energy bill, and within that bill is a provision that 7.5 billion gallons of ethanol must be added to the fuel supply annually. It doesn’t matter that ethanol producers presently receive tax breaks worth more than 50 cents a gallon. These elected officials never gave a thought to the supply and demand situation of corn when the weather impacts the crop. Why? Because these same elected officials are intent on getting re-elected. It doesn’t concern our citizenry that they are voting for individuals who are dead from the neck up.
Thick Nhat Hanh: “In order to rally people, governments need enemies. They want us to be afraid, to hate, so we will rally behind them. And if they do not have a real enemy, they will invent one in order to mobilize us."
Japan’s June exports rose 3.6% from a year earlier. The June unemployment rate fell to a 7-year low. June industrial production rose 1.5% from May. The Japanese economy has improved for three consecutive quarters. The most glaring problem has been the lack of consumer spending, which rose but a mere 0.1% in June versus June 2004, but in fact, declined 1.4% from May 2005. This cautious consumer spending has not been lost on the currency market as the dollar stands at 112.42 versus the yen. One might ask whether Japan is making a turn for the better and, at the same time, whether the American consumer has spent his wad, so to speak. Saying it another way, at current levels, what is the risk/reward of going long the yen versus the dollar? I much prefer a creditor nation over a debtor nation. Long term the dynamics are in your favor.
Wayne Krauthramer: “Before the New Deal of the 1930s workers received their pay in cash in a pay envelope with no deductions. The income tax had been around for 23 years and the income tax did not tax wages. People were paid in cash in a pay envelope, not by paychecks!”
Woodrow Wilson: "We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the world."
Edward R. Murrow: “A nation of sheep will beget a government of wolves.”
In 2004, the state of Illinois was the nation’s leading soybean producer and also the number 2 corn producer as it accounted for almost 20% of the corn crop. Maybe you have been reading about the lack of rain in Illinois. The dry spell is the worst in 20 years, and it is stunting the soybean and corn crops. So what do our elected politicians in the House and the Senate do? They pass the energy bill, and within that bill is a provision that 7.5 billion gallons of ethanol must be added to the fuel supply annually. It doesn’t matter that ethanol producers presently receive tax breaks worth more than 50 cents a gallon. These elected officials never gave a thought to the supply and demand situation of corn when the weather impacts the crop. Why? Because these same elected officials are intent on getting re-elected. It doesn’t concern our citizenry that they are voting for individuals who are dead from the neck up.
Thick Nhat Hanh: “In order to rally people, governments need enemies. They want us to be afraid, to hate, so we will rally behind them. And if they do not have a real enemy, they will invent one in order to mobilize us."
Japan’s June exports rose 3.6% from a year earlier. The June unemployment rate fell to a 7-year low. June industrial production rose 1.5% from May. The Japanese economy has improved for three consecutive quarters. The most glaring problem has been the lack of consumer spending, which rose but a mere 0.1% in June versus June 2004, but in fact, declined 1.4% from May 2005. This cautious consumer spending has not been lost on the currency market as the dollar stands at 112.42 versus the yen. One might ask whether Japan is making a turn for the better and, at the same time, whether the American consumer has spent his wad, so to speak. Saying it another way, at current levels, what is the risk/reward of going long the yen versus the dollar? I much prefer a creditor nation over a debtor nation. Long term the dynamics are in your favor.
Wayne Krauthramer: “Before the New Deal of the 1930s workers received their pay in cash in a pay envelope with no deductions. The income tax had been around for 23 years and the income tax did not tax wages. People were paid in cash in a pay envelope, not by paychecks!”
Woodrow Wilson: "We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the world."
Saturday, July 30, 2005
Eventually The Truth Is Revealed
7/30/05 Eventually The Truth Is Revealed
Some weeks back I wrote a piece on the U.S getting kicked off a strategic Uzbekistan base. The story did not make the papers until this morning when it was noted in the Seattle Times. The paper stated “Uzbekistan formally evicted the United States yesterday from a military base that has served as a hub for combat and humanitarian missions to Afghanistan since shortly after the Sept. 11 attacks, Pentagon and State Department officials said. In a highly unusual move, the notice of eviction from Karshi-Khanabad air base, known as K2, was delivered by a courier from the Uzbek Foreign Ministry to the U.S. Embassy in Tashkent, said a senior U.S. administration official. The message did not give a reason. Uzbekistan gave the United States 180 days to move aircraft, personnel and equipment, U.S. officials said…Scores of flights have used K2 monthly. It has been a landing base to transfer humanitarian goods that then are taken by road into northern Afghanistan, particularly to Mazar-e-Sharif — with no alternative for a region difficult to reach in the winter. K2 is also a refueling base with a runway long enough for large military aircraft. The alternative is much costlier inflight refueling. In May, however, Pentagon spokesman Bryan Whitman called access to the airfield "undeniably critical in supporting our combat operations" and humanitarian deliveries. The United States has paid $15 million to Uzbek authorities for use of the airfield since 2001, he said.”
Brad Setser: “By the end of 2008, if nothing changes, China may have about $2 trillion in reserves.”
Wal-Mart’s July comp store sales rose 4.4%. That’s an excellent performance.
China had a grain shortfall of 20 million tons in 2004, and this may rise to $25 million tons this year.
World-wide copper supplies have declined 46% in 2005.
The CRB Index has risen almost 10% this year and the Goldman Sachs Commodity Index just under 30%. Naturally, the Fed states inflation is modest.
GDP growth between 2002 and 2004 was revised downward to 2.8% from 3.1%. I don’t know about you, but a 10% revision makes U.S. government figures suspect. Why should I believe that 2nd quarter 2005 GDP growth was 3.4%? Will it be revised in a few years?
The government reported that 2nd quarter consumer spending rose 3.3% and that savings rose less than 1%. Meanwhile, the employment cost index rose only 0.7%. Thank goodness for home prices rising. Otherwise, consumers would be sucking on a hind teet.
The yield curve continues to flatten with the 2-year at 4.02% and the 10-year at 4.286%.
With crude at $60.57, will prices at the pump soon rise again?
Lyndon Johnson: "Did you ever think that making a speech on economics is a lot like pissing down your leg? It seems hot to you, but it never does to anyone else."
Some weeks back I wrote a piece on the U.S getting kicked off a strategic Uzbekistan base. The story did not make the papers until this morning when it was noted in the Seattle Times. The paper stated “Uzbekistan formally evicted the United States yesterday from a military base that has served as a hub for combat and humanitarian missions to Afghanistan since shortly after the Sept. 11 attacks, Pentagon and State Department officials said. In a highly unusual move, the notice of eviction from Karshi-Khanabad air base, known as K2, was delivered by a courier from the Uzbek Foreign Ministry to the U.S. Embassy in Tashkent, said a senior U.S. administration official. The message did not give a reason. Uzbekistan gave the United States 180 days to move aircraft, personnel and equipment, U.S. officials said…Scores of flights have used K2 monthly. It has been a landing base to transfer humanitarian goods that then are taken by road into northern Afghanistan, particularly to Mazar-e-Sharif — with no alternative for a region difficult to reach in the winter. K2 is also a refueling base with a runway long enough for large military aircraft. The alternative is much costlier inflight refueling. In May, however, Pentagon spokesman Bryan Whitman called access to the airfield "undeniably critical in supporting our combat operations" and humanitarian deliveries. The United States has paid $15 million to Uzbek authorities for use of the airfield since 2001, he said.”
Brad Setser: “By the end of 2008, if nothing changes, China may have about $2 trillion in reserves.”
Wal-Mart’s July comp store sales rose 4.4%. That’s an excellent performance.
China had a grain shortfall of 20 million tons in 2004, and this may rise to $25 million tons this year.
World-wide copper supplies have declined 46% in 2005.
The CRB Index has risen almost 10% this year and the Goldman Sachs Commodity Index just under 30%. Naturally, the Fed states inflation is modest.
GDP growth between 2002 and 2004 was revised downward to 2.8% from 3.1%. I don’t know about you, but a 10% revision makes U.S. government figures suspect. Why should I believe that 2nd quarter 2005 GDP growth was 3.4%? Will it be revised in a few years?
The government reported that 2nd quarter consumer spending rose 3.3% and that savings rose less than 1%. Meanwhile, the employment cost index rose only 0.7%. Thank goodness for home prices rising. Otherwise, consumers would be sucking on a hind teet.
The yield curve continues to flatten with the 2-year at 4.02% and the 10-year at 4.286%.
With crude at $60.57, will prices at the pump soon rise again?
Lyndon Johnson: "Did you ever think that making a speech on economics is a lot like pissing down your leg? It seems hot to you, but it never does to anyone else."
Friday, July 29, 2005
Evaluating Risk And Value
7/29/05 Evaluating Risk And Value
It might surprise you to know that Chevron is the Caspian region’s leading oil producer. With its partner, Tengizchevroil, the company operates one of the world’s largest oil fields at Tengiz, Kazakhstan. That’s right. Kazakhstan. Chevron has been operating there for decades. On the other hand, PetroKazakhstan has been there for less than a decade.
Denis Waitley: “Life is inherently risky. There is only one big risk you should avoid at all costs, and that is the risk of doing nothing.”
As I mentioned yesterday, PKZ reported its second quarter results and also held a conference call that lasted almost 2 hours. It was quite informative. The company intends to achieve its target potential average of 170,000 bopd by some time in the latter half of 2006. This is not a pie-in-the-sky goal since in the second quarter of 2004 production was 151,400 bopd. It should be noted that in this year’s second quarter production was only 105,947 bopd due to the April 26th government-mandated elimination of gas flaring from oil wells. Some production will be restored in a month or so, and the balance within 12 months. In 2003, the company entered into a oil-hedging program. In this year’s first quarter 120,000 barrels per month were hedged between $26.30 and $26.52 per barrel, and this reduced revenues by $38.2 million. In this year’s second quarter 40,000 barrels per month were hedged at $25.92 per barrel, and this reduced revenues by $39.5 million. The hedging program ends in December 2005. The unrealized loss under the remaining hedges at June 30, 2005 is $84.5 million, but that will be more than offset by the unrealized deferred net income from crude in inventory amounting to $95 million. In spite of the government mandated elimination of gas flaring and the hedging program, cash flow amounted to $350 million in the first half of 2005, an outstanding achievement. Management has exhibited an ability to operate successfully under difficult circumstances.
Based on recent drilling activities, there is reason for significant optimism in the Northern area of the Kyzylkiya field and the Kolzhan license. It should be noted that shipments destined for China increased by 63% in the second quarter in comparison to the preceding quarter as the state operated Karakoin to Atasu pipeline was re-opened, and volumes destined for China amounted to 24% of total shipments. When the new pipeline to China becomes operative in about 6 months, transportation costs will be reduced by almost $7 per barrel. The savings will be shared by China and PKZ. Should PetroChina purchase PKZ, all of the transportation savings would accrue to PetroChina. This has the potential to become a significant amount of money, and this statement does not include management’s belief that there is the potential to discover approximately 1.2 billion barrels of oil on the properties where it owns exploration rights. It should be emphasized once again that the company’s exploration costs for generating oil reserves are exceedingly low—one of the lowest on the planet. When production gets to 170,000 bopd, utilizing the new pipeline to China, and assuming oil remains above $48 a barrel (today it is trading above $60), PKZ has the potential to earn over $15 per share and generate cash flow of close to $1.3 billion. Returns to PKZ shareowners could have large upside potential, and that is with or without a sale of the company. Management is dedicated to maximizing the returns to shareowners, and they have exhibited an outstanding ability to manage the risk factors in the Caspian region. In this respect, they share a commonality with Chevron’s management.
Andre Malraux: “Often the difference between a successful person and a failure is not one has better abilities or ideas, but the courage that one has to bet on one’s ideas, to take a calculated risk- and to act.”
Recently, there have been nearly 200,000 of high-profile large U.S. layoff announcements in May and June. Yesterday, Morgan Stanley announced cutting 1,000 employees. John Challenger, CEO of Challenger, Gray & Christmas, stated “we may have reached the tipping point for this period of lackluster economic expansion. If the summer surge (of announced layoffs) proves to be the first sign of an eventual economic slowdown, this would be among the weakest expansions in recent times, particularly when compared to the boom of the 1990s. Summer is typically a time when we see a drop off in cuts, but this year…five out of the six largest cuts announced so far this year have occurred in May.” Investors seem unperturbed by the recent surge in job cut announcements. They are focusing on the 11% gain in announced second quarter earnings and the belief that similar results will be forthcoming in the second half of 2005. Earnings have propelled the S&P 500 and the Nasdaq to four-year highs. Meanwhile, the Conference Board’s Help-Wanted Advertising Index stood at 38 in June, exactly the same number as one year ago. Ken Goldstein, the Conference Board’s labor economist, stated “hiring intentions have turned more cautious as the economy is poised to lose some steam in the second half of 2005.”
Yu Liang, managing director of China Vanke Co. Ltd, China’s biggest property developer, stated “the appreciation of the yuan will have a wealth effect and help boost consumer sentiment. It could have a negative impact on manufacturing, but the pressure for interest rate rises will be less.”
At $136 per share, Whole Foods Markets has a market cap of $9 billion and the shares trade at 30 times cash flow. By comparison, Albertson’s has a market cap of $8 billion and its shares trade at 4 times cash flow.
The NAR’s Housing Affordability Index for June was 117.1, the lowest level since August 1991, and this despite lower mortgage rates being lower in 2005 than in 1991. It comes down to wages. They have not kept up with the rising price of housing.
Standard Pacific, a homebuilder, raised its earnings per share estimate for 2005 to $12 on anticipated revenues of $3.9 billion.
According to the U.S. Department of Labor, the price of cement is up about 12% nationwide in the past year. Of course, the Fed says inflation is modest.
There was another blast at BP’s Texas City refinery, and this has served to hold crude prices around the $60 per barrel level.
Chevron reported earnins for the second quarter of $1.76 on revenues of $47 billion. Based on the present low evaluation for Chevron shares, shareholders of Unocal should have plenty of upside potential.
It might surprise you to know that Chevron is the Caspian region’s leading oil producer. With its partner, Tengizchevroil, the company operates one of the world’s largest oil fields at Tengiz, Kazakhstan. That’s right. Kazakhstan. Chevron has been operating there for decades. On the other hand, PetroKazakhstan has been there for less than a decade.
Denis Waitley: “Life is inherently risky. There is only one big risk you should avoid at all costs, and that is the risk of doing nothing.”
As I mentioned yesterday, PKZ reported its second quarter results and also held a conference call that lasted almost 2 hours. It was quite informative. The company intends to achieve its target potential average of 170,000 bopd by some time in the latter half of 2006. This is not a pie-in-the-sky goal since in the second quarter of 2004 production was 151,400 bopd. It should be noted that in this year’s second quarter production was only 105,947 bopd due to the April 26th government-mandated elimination of gas flaring from oil wells. Some production will be restored in a month or so, and the balance within 12 months. In 2003, the company entered into a oil-hedging program. In this year’s first quarter 120,000 barrels per month were hedged between $26.30 and $26.52 per barrel, and this reduced revenues by $38.2 million. In this year’s second quarter 40,000 barrels per month were hedged at $25.92 per barrel, and this reduced revenues by $39.5 million. The hedging program ends in December 2005. The unrealized loss under the remaining hedges at June 30, 2005 is $84.5 million, but that will be more than offset by the unrealized deferred net income from crude in inventory amounting to $95 million. In spite of the government mandated elimination of gas flaring and the hedging program, cash flow amounted to $350 million in the first half of 2005, an outstanding achievement. Management has exhibited an ability to operate successfully under difficult circumstances.
Based on recent drilling activities, there is reason for significant optimism in the Northern area of the Kyzylkiya field and the Kolzhan license. It should be noted that shipments destined for China increased by 63% in the second quarter in comparison to the preceding quarter as the state operated Karakoin to Atasu pipeline was re-opened, and volumes destined for China amounted to 24% of total shipments. When the new pipeline to China becomes operative in about 6 months, transportation costs will be reduced by almost $7 per barrel. The savings will be shared by China and PKZ. Should PetroChina purchase PKZ, all of the transportation savings would accrue to PetroChina. This has the potential to become a significant amount of money, and this statement does not include management’s belief that there is the potential to discover approximately 1.2 billion barrels of oil on the properties where it owns exploration rights. It should be emphasized once again that the company’s exploration costs for generating oil reserves are exceedingly low—one of the lowest on the planet. When production gets to 170,000 bopd, utilizing the new pipeline to China, and assuming oil remains above $48 a barrel (today it is trading above $60), PKZ has the potential to earn over $15 per share and generate cash flow of close to $1.3 billion. Returns to PKZ shareowners could have large upside potential, and that is with or without a sale of the company. Management is dedicated to maximizing the returns to shareowners, and they have exhibited an outstanding ability to manage the risk factors in the Caspian region. In this respect, they share a commonality with Chevron’s management.
Andre Malraux: “Often the difference between a successful person and a failure is not one has better abilities or ideas, but the courage that one has to bet on one’s ideas, to take a calculated risk- and to act.”
Recently, there have been nearly 200,000 of high-profile large U.S. layoff announcements in May and June. Yesterday, Morgan Stanley announced cutting 1,000 employees. John Challenger, CEO of Challenger, Gray & Christmas, stated “we may have reached the tipping point for this period of lackluster economic expansion. If the summer surge (of announced layoffs) proves to be the first sign of an eventual economic slowdown, this would be among the weakest expansions in recent times, particularly when compared to the boom of the 1990s. Summer is typically a time when we see a drop off in cuts, but this year…five out of the six largest cuts announced so far this year have occurred in May.” Investors seem unperturbed by the recent surge in job cut announcements. They are focusing on the 11% gain in announced second quarter earnings and the belief that similar results will be forthcoming in the second half of 2005. Earnings have propelled the S&P 500 and the Nasdaq to four-year highs. Meanwhile, the Conference Board’s Help-Wanted Advertising Index stood at 38 in June, exactly the same number as one year ago. Ken Goldstein, the Conference Board’s labor economist, stated “hiring intentions have turned more cautious as the economy is poised to lose some steam in the second half of 2005.”
Yu Liang, managing director of China Vanke Co. Ltd, China’s biggest property developer, stated “the appreciation of the yuan will have a wealth effect and help boost consumer sentiment. It could have a negative impact on manufacturing, but the pressure for interest rate rises will be less.”
At $136 per share, Whole Foods Markets has a market cap of $9 billion and the shares trade at 30 times cash flow. By comparison, Albertson’s has a market cap of $8 billion and its shares trade at 4 times cash flow.
The NAR’s Housing Affordability Index for June was 117.1, the lowest level since August 1991, and this despite lower mortgage rates being lower in 2005 than in 1991. It comes down to wages. They have not kept up with the rising price of housing.
Standard Pacific, a homebuilder, raised its earnings per share estimate for 2005 to $12 on anticipated revenues of $3.9 billion.
According to the U.S. Department of Labor, the price of cement is up about 12% nationwide in the past year. Of course, the Fed says inflation is modest.
There was another blast at BP’s Texas City refinery, and this has served to hold crude prices around the $60 per barrel level.
Chevron reported earnins for the second quarter of $1.76 on revenues of $47 billion. Based on the present low evaluation for Chevron shares, shareholders of Unocal should have plenty of upside potential.
Thursday, July 28, 2005
updates
7/28/05 Updates
I was most impressed by the quarterly earnings statements issued by Apache ($1.76), ConocoPhillips ( $2.19), PetroKazakhstan ( $1.86), and Phelps Dodge ($4.52). I have placed these in alphabetical order. I have a great deal more to say about PKZ but the report was 33 pages and I want to give more time to its reading. The highlights are: the Board of Directors has set up an Independent Committee to consider the approaches by a number of parties concerning the merger or acquisition of the company; despite the April 26th cut backs initiated to comply with instructions from the Kazakh regulators to stop gas flaring immediately, which caused the reduction of 60,000 bopd, cash flow still jumped to $164.4 million in the quarter or $2.20 per share, up from $1.80 per share in the second quarter of 2004; the company had significant exploration and appraisal successes in the Kyzylkiya and Kolzhan licenses; net income rose to $1.86 per share up from 2004’s second quarter of $1.54; and construction of the enhanced Akshabulak production facilities has progressed and should be completed during this year’s third quarter giving a processing capacity of at least 64,000 bopd (gross).
The median price of a new home fell 5.5% in June and is down 0.4% in the past year.
PMI Mortgage Insurance Co., a residential mortgage insurer based in Walnut Creek, California, stated in a new report that much of the Bay Area faces a greater than 50% chance of housing price declines, and the Sacramento region is not far behind. Mark Miller, chief risk officer with PMI, stated “we are continuing to witness record-home appreciation in may markets without the necessary gains in income, home affordability, and rent inflation. This is causing the home price environment to diverge from long-term economic fundamentals, which cannot be sustained indefinitely.” California has 8 of the top 12 slots for cities most at risk for price declines.
Crude is trading around $59.41 a barrel.
The S&P 500 is at a 4-year high.
A record monsoon hit Bombay.
Computer Associates is cutting 800 jobs.
Delta Air’s CEO gave a downbeat assessment for avoiding bankruptcy.
It’s getting to be SOP time for CNOOC. The clock is running down on their opportunity to buy Unocal.
I was most impressed by the quarterly earnings statements issued by Apache ($1.76), ConocoPhillips ( $2.19), PetroKazakhstan ( $1.86), and Phelps Dodge ($4.52). I have placed these in alphabetical order. I have a great deal more to say about PKZ but the report was 33 pages and I want to give more time to its reading. The highlights are: the Board of Directors has set up an Independent Committee to consider the approaches by a number of parties concerning the merger or acquisition of the company; despite the April 26th cut backs initiated to comply with instructions from the Kazakh regulators to stop gas flaring immediately, which caused the reduction of 60,000 bopd, cash flow still jumped to $164.4 million in the quarter or $2.20 per share, up from $1.80 per share in the second quarter of 2004; the company had significant exploration and appraisal successes in the Kyzylkiya and Kolzhan licenses; net income rose to $1.86 per share up from 2004’s second quarter of $1.54; and construction of the enhanced Akshabulak production facilities has progressed and should be completed during this year’s third quarter giving a processing capacity of at least 64,000 bopd (gross).
The median price of a new home fell 5.5% in June and is down 0.4% in the past year.
PMI Mortgage Insurance Co., a residential mortgage insurer based in Walnut Creek, California, stated in a new report that much of the Bay Area faces a greater than 50% chance of housing price declines, and the Sacramento region is not far behind. Mark Miller, chief risk officer with PMI, stated “we are continuing to witness record-home appreciation in may markets without the necessary gains in income, home affordability, and rent inflation. This is causing the home price environment to diverge from long-term economic fundamentals, which cannot be sustained indefinitely.” California has 8 of the top 12 slots for cities most at risk for price declines.
Crude is trading around $59.41 a barrel.
The S&P 500 is at a 4-year high.
A record monsoon hit Bombay.
Computer Associates is cutting 800 jobs.
Delta Air’s CEO gave a downbeat assessment for avoiding bankruptcy.
It’s getting to be SOP time for CNOOC. The clock is running down on their opportunity to buy Unocal.
Tuesday, July 26, 2005
Do The Math
7/27/05 Do The Math
I received many inquiries as to why I believed PKZ presently offered more value than any other public company-- especially on a risk/reward basis. I can't expect others to do the work. After all, they are only paid to do that. It's not difficult. According to John S. Herold and Harrison Lovegrove & Co., in 2004 the price paid for oil and gas reserves rose by 40% over 2003. The median price for 1 barrel of oil equivalent was $9.78. The volume of deals in the first half of 2005 has already exceeded all of 2004, and figures will show the price has jumped to about $12 a barrel. PKZ has proven reserves of 550 million barrels. Maybe some folks think Kazakhstan is not as safe as say Wyoming. We will take a 50% haircut on the $12 and now multiply the 550 million barrels by $6 a barrel. In addition, we will take another haircut on the other 300 million possible barrels of reserves and this does not count even one barrel on the three to six wells they will be drilling by year-end. The company has found paydirt in the previous wells drilled in this region earlier this year. We will multiply the 300 million+ barrels by a 75% haircut or $3 per barrel. The total of $4.2 billion equates to $56 a share. If there is no takeover by either PetroChina or ONGC or any other company, you own shares in a company whose stock is selling at 4 times 2006 earnings or less and providing a dividend yield higher than most public companies. If that is not to your liking, you can always buy real estate in Manhattan. Just an aside, PKZ reminds me somewhat of Anadarko Petroleum in July 2003. The stock had almost no fans. I thought it represented the best value in the market on a risk/reward basis. I would buy it almost daily at $41 to $42 a share. Someone bet me it would not go to $50. It went there on the way to $90. The trip took two years and the person never paid his bet. Sore losers have a way of doing that. I wouldn't have taken his money any way. Being right is the prize.
The price of West Texas Intermediate(WTI) crude, as assessed by Platts, increased $3.045 for August delivery to$58.36-58.38 per barrel. "This is a market essentially without bearish news at this point," saidJohn Kingston, global director of oil at Platts. "Every time it looks likeChinese demand might be softening, there is evidence pointing the other way.Every time there's a significant move down, a new rush of speculative moneyseems to appear to act as a prop. Signs pointing to a slight softening of USdemand may be the one bearish factor in the market, but whether that becomes atrend is still indeterminate."
The Conference Board's ConsumerConfidence Index, which had increased in June, dipped in July. The Index nowstands at 103.2 (1985=100), down from 106.2 in June. The Present Situation Index decreased to 118.5 from 120.8. The Expectations Index declined to 93.0 from 96.4 last month.The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. The outlook for the labor market was mixed. Consumers expecting more jobs to become available in the coming months edged up to 15.8 percent from 15.4 percent, while those expecting fewer jobs also edged up to 16.8 percent from16.4 percent in June. The proportion of consumers anticipating their incomes will increase in the months ahead declined to 18.6 percent from 19.9 percent last month. Consumers' overall assessment of ongoing conditions was somewhat mixed inJuly. Those claiming business conditions are "bad" increased to 16.9 percentfrom 15.3 percent. However, those claiming conditions are "good" improved to 28.7 percent from 26.7 percent. The employment picture was also mixed. Consumers saying jobs are "hard to get" increased to 23.8 percent from 22.5 percent, but those claiming jobs are "plentiful" held steady at 22.5 percent. Consumers' outlook for the next six months was marginally less favorable than in June. Those anticipating business conditions to improve declined to17.6 percent from 19.5 percent. Consumers expecting business conditions to worsen edged up to 9.6 percent from 9.0 percent.
The pace of mass layoffs accelerated in June, exceeding levels recorded in May and June 2004, the U.S. Bureau of Labor Statistics said Tuesday. Ohio employers initiated 62 mass layoff events in June, according to the bureau, which led to 11,541 initial claims for unemployment compensation. The bureau reported 42 mass layoffs, accounting for 3,349 initial claims for unemployment, in May. Ohio employers cut 6,755 jobs in 61 mass layoffs in June 2004. The bureau defines a mass layoff as 50 or more jobs cut from a single location within 30 days. Nationwide, U.S. employers cut 120,463 jobs in 1,157 mass layoffs in June, up from 101,358 jobs in 986 mass layoffs in May. U.S. employers initiated 1,379 mass layoffs in June 2004, which led to 134,588 initial claims for unemployment.
The pace of mass layoffs accelerated in June, exceeding levels recorded in May and June 2004, the U.S. Bureau of Labor Statistics said Tuesday. Ohio employers initiated 62 mass layoff events in June, according to the bureau, which led to 11,541 initial claims for unemployment compensation. The bureau reported 42 mass layoffs, accounting for 3,349 initial claims for unemployment, in May. Ohio employers cut 6,755 jobs in 61 mass layoffs in June 2004. The bureau defines a mass layoff as 50 or more jobs cut from a single location within 30 days.
Nationwide, U.S. employers cut 120,463 jobs in 1,157 mass layoffs in June, up from 101,358 jobs in 986 mass layoffs in May. U.S. employers initiated 1,379 mass layoffs in June 2004, which led to 134,588 initial claims for unemployment.
According to the Grandfather Economic Report, a 1950 dollar is now worth 12.6 cents, an 87% decline in purchasing power.
According to LexisNexis, bankruptcy filings rose 12% in this year's second quarter above year ago levels.
International Business Machines said Tuesday that it plans to repatriate about $9 billion in foreign earnings.
Tthe Bluetooth Special Interest Group announced Tuesday the selection of Bellevue, Washington for its global headquarters based on the city's proximity to key international markets, growing wireless technology industry, and infrastructure and overall quality of life, as well as the presence of many Bl uetooth member companies in the area.
Americans now prefer wine over beer. Since I don't drink, iced coffee and Sport tea are for me.
I received many inquiries as to why I believed PKZ presently offered more value than any other public company-- especially on a risk/reward basis. I can't expect others to do the work. After all, they are only paid to do that. It's not difficult. According to John S. Herold and Harrison Lovegrove & Co., in 2004 the price paid for oil and gas reserves rose by 40% over 2003. The median price for 1 barrel of oil equivalent was $9.78. The volume of deals in the first half of 2005 has already exceeded all of 2004, and figures will show the price has jumped to about $12 a barrel. PKZ has proven reserves of 550 million barrels. Maybe some folks think Kazakhstan is not as safe as say Wyoming. We will take a 50% haircut on the $12 and now multiply the 550 million barrels by $6 a barrel. In addition, we will take another haircut on the other 300 million possible barrels of reserves and this does not count even one barrel on the three to six wells they will be drilling by year-end. The company has found paydirt in the previous wells drilled in this region earlier this year. We will multiply the 300 million+ barrels by a 75% haircut or $3 per barrel. The total of $4.2 billion equates to $56 a share. If there is no takeover by either PetroChina or ONGC or any other company, you own shares in a company whose stock is selling at 4 times 2006 earnings or less and providing a dividend yield higher than most public companies. If that is not to your liking, you can always buy real estate in Manhattan. Just an aside, PKZ reminds me somewhat of Anadarko Petroleum in July 2003. The stock had almost no fans. I thought it represented the best value in the market on a risk/reward basis. I would buy it almost daily at $41 to $42 a share. Someone bet me it would not go to $50. It went there on the way to $90. The trip took two years and the person never paid his bet. Sore losers have a way of doing that. I wouldn't have taken his money any way. Being right is the prize.
The price of West Texas Intermediate(WTI) crude, as assessed by Platts, increased $3.045 for August delivery to$58.36-58.38 per barrel. "This is a market essentially without bearish news at this point," saidJohn Kingston, global director of oil at Platts. "Every time it looks likeChinese demand might be softening, there is evidence pointing the other way.Every time there's a significant move down, a new rush of speculative moneyseems to appear to act as a prop. Signs pointing to a slight softening of USdemand may be the one bearish factor in the market, but whether that becomes atrend is still indeterminate."
The Conference Board's ConsumerConfidence Index, which had increased in June, dipped in July. The Index nowstands at 103.2 (1985=100), down from 106.2 in June. The Present Situation Index decreased to 118.5 from 120.8. The Expectations Index declined to 93.0 from 96.4 last month.The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. The outlook for the labor market was mixed. Consumers expecting more jobs to become available in the coming months edged up to 15.8 percent from 15.4 percent, while those expecting fewer jobs also edged up to 16.8 percent from16.4 percent in June. The proportion of consumers anticipating their incomes will increase in the months ahead declined to 18.6 percent from 19.9 percent last month. Consumers' overall assessment of ongoing conditions was somewhat mixed inJuly. Those claiming business conditions are "bad" increased to 16.9 percentfrom 15.3 percent. However, those claiming conditions are "good" improved to 28.7 percent from 26.7 percent. The employment picture was also mixed. Consumers saying jobs are "hard to get" increased to 23.8 percent from 22.5 percent, but those claiming jobs are "plentiful" held steady at 22.5 percent. Consumers' outlook for the next six months was marginally less favorable than in June. Those anticipating business conditions to improve declined to17.6 percent from 19.5 percent. Consumers expecting business conditions to worsen edged up to 9.6 percent from 9.0 percent.
The pace of mass layoffs accelerated in June, exceeding levels recorded in May and June 2004, the U.S. Bureau of Labor Statistics said Tuesday. Ohio employers initiated 62 mass layoff events in June, according to the bureau, which led to 11,541 initial claims for unemployment compensation. The bureau reported 42 mass layoffs, accounting for 3,349 initial claims for unemployment, in May. Ohio employers cut 6,755 jobs in 61 mass layoffs in June 2004. The bureau defines a mass layoff as 50 or more jobs cut from a single location within 30 days. Nationwide, U.S. employers cut 120,463 jobs in 1,157 mass layoffs in June, up from 101,358 jobs in 986 mass layoffs in May. U.S. employers initiated 1,379 mass layoffs in June 2004, which led to 134,588 initial claims for unemployment.
The pace of mass layoffs accelerated in June, exceeding levels recorded in May and June 2004, the U.S. Bureau of Labor Statistics said Tuesday. Ohio employers initiated 62 mass layoff events in June, according to the bureau, which led to 11,541 initial claims for unemployment compensation. The bureau reported 42 mass layoffs, accounting for 3,349 initial claims for unemployment, in May. Ohio employers cut 6,755 jobs in 61 mass layoffs in June 2004. The bureau defines a mass layoff as 50 or more jobs cut from a single location within 30 days.
Nationwide, U.S. employers cut 120,463 jobs in 1,157 mass layoffs in June, up from 101,358 jobs in 986 mass layoffs in May. U.S. employers initiated 1,379 mass layoffs in June 2004, which led to 134,588 initial claims for unemployment.
According to the Grandfather Economic Report, a 1950 dollar is now worth 12.6 cents, an 87% decline in purchasing power.
According to LexisNexis, bankruptcy filings rose 12% in this year's second quarter above year ago levels.
International Business Machines said Tuesday that it plans to repatriate about $9 billion in foreign earnings.
Tthe Bluetooth Special Interest Group announced Tuesday the selection of Bellevue, Washington for its global headquarters based on the city's proximity to key international markets, growing wireless technology industry, and infrastructure and overall quality of life, as well as the presence of many Bl uetooth member companies in the area.
Americans now prefer wine over beer. Since I don't drink, iced coffee and Sport tea are for me.
Acquisitions
7/26/05 Acquisitions
Significant acquisitions can occur and get little press coverage. Yesterday, 3M announced it had entered into a definitive agreement to acquire Mercury Online Solutions Inc., a provider of hardware and software technologies and network management services for digital signage and interactive kiosk networks. Terms of the transaction were not disclosed. Digital signage networks enable centrally controlled delivery of digital content to vast networks of display screens and interactive kiosks. The trend toward in-store digital signage networks is accelerating driven by the desire to improve shopping experiences and influence purchase decisions by providing relevant information and promotional messaging nearer to the product shelf where purchase decisions are made.
This acquisition accelerates 3M's entry into the rapidly growing digital signage network marketplace. "The addition of Mercury Online Solutions Inc.'s digital signage networks is a natural extension of 3M's existing graphics business and allows us to use our global services platform," said Robert Doughty, division vice president, 3M Commercial Graphics Division. Mercury Online is the fastest growing company in the state of Washington.
Yesterday, Hershey’s announced the purchase of nine-year-old Berkeley, California artisanal chocolate maker Scharffen Berger. Hershey’s sees the premium chocolate segment as a key growth opportunity. Scharffen Berger posted revenue of $15 million in 2004, a 75% increase, and earlier this year predicted a further 50% increase in 2005.
The U.S. is expected to delay the review of CNOOC’s bid for Unocal. Meanwhile, the vote on the Chevron acquisition of Unocal is in 16 days.
With respect to PetroKazakhstan, the company will report second quarter earnings on July 28. It will become increasingly apparent that current earnings estimates for 2005 and 2006 are too low. In fact, with the new pipeline coming on stream on Jan. 1, 2006, it is quite conceivable that earnings for 2006 could jump 40%. In addition, three new wells “established the presence of a significant new dual reservoir field, separate from the Northern part of the Kyzylklya field but close to the main Kyzylklya production facilities…The company expects to drill an additional 3 to 6 wells in the area before the end of the year.” Should these wells prove similar to the three drilled earlier this year, it is quite possible that reserve estimates could be increased to 1 billion barrels of oil. Given the current market cap of $3 billion, there may be other public companies offering more value, but I don’t know of any. I feel quite certain that PetroChina and ONGC share that viewpoint based on their announced desires to acquire PetroKazakhstan. In order for such an acquisition to be consummated, I believe it would need to come at a significant premium to the current market price.
Paul Kasriel: “I think a good argument can be made that the FOMC will be cutting the funds rate sometime in the second half of 2006. I also see a good chance that the Treasury 10-year yield will be trading below 4% on a consistent basis in the first half of 2006, if not sooner. As for real GDP growth in 2006, a "2" handle is beginning to look likely if the FOMC actually does follow through with a 4% funds rate by yearend.”
India accounts for 18% of the annual global gold demand. According to estimates, India owns approximately $200 billion worth of gold. In my view, this provides more solid value to their currency.
Yesterday, crude climbed back to the $59 per barrel level. Gold rallied close to $426 an ounce.
With existing June home prices having risen 14.7% over year ago levels, homeowners must be feeling pretty wealthy. Their wages may not be climbing much but their homes are doing just fine. Yet, the head of the NAR mentioned that a slowdown seems to have occurred in July. Homes on the market are taking longer to sell. Maybe it’s just the summer doldrums and the buyers are at the beaches. It could also be that the offering prices have reached levels characterized by poor risk/reward. On the other hand, Greenspan is not concerned. Something tells me better value will be realized in Mercury Online Solutions, Scharffen Berger, and PetroKazakhstan.
Countrywide Financial reported second quarter earnings of 92 cents a share, down from last year's $1.29, and 7 cents below analyst estimates. The company lifted its 2005 earnings outlook to $3.85 to $4.60 per share, up from $3.60 to $4.60. Current analyst estimates are $4.21 a share.
Significant acquisitions can occur and get little press coverage. Yesterday, 3M announced it had entered into a definitive agreement to acquire Mercury Online Solutions Inc., a provider of hardware and software technologies and network management services for digital signage and interactive kiosk networks. Terms of the transaction were not disclosed. Digital signage networks enable centrally controlled delivery of digital content to vast networks of display screens and interactive kiosks. The trend toward in-store digital signage networks is accelerating driven by the desire to improve shopping experiences and influence purchase decisions by providing relevant information and promotional messaging nearer to the product shelf where purchase decisions are made.
This acquisition accelerates 3M's entry into the rapidly growing digital signage network marketplace. "The addition of Mercury Online Solutions Inc.'s digital signage networks is a natural extension of 3M's existing graphics business and allows us to use our global services platform," said Robert Doughty, division vice president, 3M Commercial Graphics Division. Mercury Online is the fastest growing company in the state of Washington.
Yesterday, Hershey’s announced the purchase of nine-year-old Berkeley, California artisanal chocolate maker Scharffen Berger. Hershey’s sees the premium chocolate segment as a key growth opportunity. Scharffen Berger posted revenue of $15 million in 2004, a 75% increase, and earlier this year predicted a further 50% increase in 2005.
The U.S. is expected to delay the review of CNOOC’s bid for Unocal. Meanwhile, the vote on the Chevron acquisition of Unocal is in 16 days.
With respect to PetroKazakhstan, the company will report second quarter earnings on July 28. It will become increasingly apparent that current earnings estimates for 2005 and 2006 are too low. In fact, with the new pipeline coming on stream on Jan. 1, 2006, it is quite conceivable that earnings for 2006 could jump 40%. In addition, three new wells “established the presence of a significant new dual reservoir field, separate from the Northern part of the Kyzylklya field but close to the main Kyzylklya production facilities…The company expects to drill an additional 3 to 6 wells in the area before the end of the year.” Should these wells prove similar to the three drilled earlier this year, it is quite possible that reserve estimates could be increased to 1 billion barrels of oil. Given the current market cap of $3 billion, there may be other public companies offering more value, but I don’t know of any. I feel quite certain that PetroChina and ONGC share that viewpoint based on their announced desires to acquire PetroKazakhstan. In order for such an acquisition to be consummated, I believe it would need to come at a significant premium to the current market price.
Paul Kasriel: “I think a good argument can be made that the FOMC will be cutting the funds rate sometime in the second half of 2006. I also see a good chance that the Treasury 10-year yield will be trading below 4% on a consistent basis in the first half of 2006, if not sooner. As for real GDP growth in 2006, a "2" handle is beginning to look likely if the FOMC actually does follow through with a 4% funds rate by yearend.”
India accounts for 18% of the annual global gold demand. According to estimates, India owns approximately $200 billion worth of gold. In my view, this provides more solid value to their currency.
Yesterday, crude climbed back to the $59 per barrel level. Gold rallied close to $426 an ounce.
With existing June home prices having risen 14.7% over year ago levels, homeowners must be feeling pretty wealthy. Their wages may not be climbing much but their homes are doing just fine. Yet, the head of the NAR mentioned that a slowdown seems to have occurred in July. Homes on the market are taking longer to sell. Maybe it’s just the summer doldrums and the buyers are at the beaches. It could also be that the offering prices have reached levels characterized by poor risk/reward. On the other hand, Greenspan is not concerned. Something tells me better value will be realized in Mercury Online Solutions, Scharffen Berger, and PetroKazakhstan.
Countrywide Financial reported second quarter earnings of 92 cents a share, down from last year's $1.29, and 7 cents below analyst estimates. The company lifted its 2005 earnings outlook to $3.85 to $4.60 per share, up from $3.60 to $4.60. Current analyst estimates are $4.21 a share.
Monday, July 25, 2005
Multi-year Trends Leading To Undesired Results
7/25/05 Multi-year Trends Leading To Undesired Results
Doug Wakefield: "From June 1999 to March 2005 we have seen national savings increase from $1,619 billion to $1,819 billion. 6 To place these numbers in context, this is a 10% rise during a period where national incomes went up 34%, consumer credit went up 58%, and total mortgages went up 72%... From June 1999 until June 2005 we have seen the amount of money, as measured by M3, in our country increase from $6,237 billion to $9,727 billion. This is an increase of 55% in 6 years."
Wal-Mart will have 90 stores in China in 2006 or double the amount anticipated at this year-end.
Teva is reported close to acquiring Ivax for approximately 47.5 billion in cash and stock.
Crude remains above $58 a barrel.
China's crude oil imports rose 3.9% in the first six months of 2005, but they slowed dramatically in June.
Volvo is Europe's largest truck manufacturer. In the second quarter their truck orders declined 10%.
Pepsi will repatriate $7.5 billion in foreign earnings. That will provide another $400 million to the U.S. government in tax receipts.
John P. Hussman: "Inflation is not a monetary phenomenon but a fiscal one – it occurs always and everywhere when fiscal authorities create government liabilities in excess of economic growth."
Shanghai copper futures rose over 3% to a record 34,530 yuan a metric ton. China is the world's largets consumer of copper.
Greenspan: "Future price performance will be influenced importantly by the trend in unit labor costs." In recent years, inflation has been smoldering without the workers' wages outpacing the inflation rate, and the government numbers mute the real rate of inflation. What else is new?
I want to re-emphasize a point I recently stated. Two-year Treasury bonds are approaching a 4% yield. There is only a small yield pick up in the 10-year and that differential in no way pays you adequately for the increased risk. I strongly believe all 10-year Treasury holdings should be converted into the 2-year, and that means now. In addition, over the long-term, the risk in holding U.S. dollars has increased markedly with China converting the yuan peg to a basket of currencies. The landscape has trouble painted on the front cover. When in doubt, sell to the sleeping point.
Doug Wakefield: "From June 1999 to March 2005 we have seen national savings increase from $1,619 billion to $1,819 billion. 6 To place these numbers in context, this is a 10% rise during a period where national incomes went up 34%, consumer credit went up 58%, and total mortgages went up 72%... From June 1999 until June 2005 we have seen the amount of money, as measured by M3, in our country increase from $6,237 billion to $9,727 billion. This is an increase of 55% in 6 years."
Wal-Mart will have 90 stores in China in 2006 or double the amount anticipated at this year-end.
Teva is reported close to acquiring Ivax for approximately 47.5 billion in cash and stock.
Crude remains above $58 a barrel.
China's crude oil imports rose 3.9% in the first six months of 2005, but they slowed dramatically in June.
Volvo is Europe's largest truck manufacturer. In the second quarter their truck orders declined 10%.
Pepsi will repatriate $7.5 billion in foreign earnings. That will provide another $400 million to the U.S. government in tax receipts.
John P. Hussman: "Inflation is not a monetary phenomenon but a fiscal one – it occurs always and everywhere when fiscal authorities create government liabilities in excess of economic growth."
Shanghai copper futures rose over 3% to a record 34,530 yuan a metric ton. China is the world's largets consumer of copper.
Greenspan: "Future price performance will be influenced importantly by the trend in unit labor costs." In recent years, inflation has been smoldering without the workers' wages outpacing the inflation rate, and the government numbers mute the real rate of inflation. What else is new?
I want to re-emphasize a point I recently stated. Two-year Treasury bonds are approaching a 4% yield. There is only a small yield pick up in the 10-year and that differential in no way pays you adequately for the increased risk. I strongly believe all 10-year Treasury holdings should be converted into the 2-year, and that means now. In addition, over the long-term, the risk in holding U.S. dollars has increased markedly with China converting the yuan peg to a basket of currencies. The landscape has trouble painted on the front cover. When in doubt, sell to the sleeping point.
Sunday, July 24, 2005
Calm And Order
7/24/05 Calm And Order
What happens to the innocent during times besieged by terrorists? If you are an American journalist, you are sent to jail and your Fifth Amendment rights are eliminated. If you are an electrician of Egyptian descent on your way to work, you are the victim of shoot and kill orders. If you are an individual investor in the stock, bond, and commodity markets, you are dumbfounded by the calm and order generated by professional money managers who dominate day-to-day trading volume and overtake the remnants of volatility. But, wait, there is a different vision on the Washington State ferry system. You can walk on and off the ferry and/or drive onto or off the ferry without any check of a person or a vehicle. However, five minutes before landing in Seattle, out of nowhere will come two speeding Coast Guard gun boats each manned by four Service personnel. They will accompany the ferry into the port with one boat on each side of the ferry. Has this rush of activity helped to reduce the terrorist threat? Has calm and order been restored? Does this represent our billions spent on Homeland Security? Actually, I feel much better. I can rest easy now. Our ports are safe from harm.
John P. Hussman: “The further the market gets away from normal valuations – especially when it's overbought, the more the distribution of future expected returns tends to skew. You get a high probability of small further gains, coupled with a small but above “normal” probability of damaging losses.”
The PBGC estimates that total corporate under funding is roughly $450 billion. That does not include another $700 billion for municipal and state pension funds. Should the stock market not show a gain for 2005, what will the combined under funding total?
Mike Burk: “ In the first year of the presidential cycle the last five trading days of July have been up 70% of the time.”
There appears to be an oversupply of stainless steel and hot-rolled coil steel. Production and prices are being cut. China is rapidly building up capacity in lower-grade steel products. It is difficult to compete with China in this segment of the steel market. The current revaluation of the yuan will not be of assistance.
Nouriel Roubini: The more China will let its currency will move over time, the larger will be the appreciation of other Asian currencies.”
Since we invaded Iraq 28 months ago, at least 1,775 U.S. service personnel have been killed.
What happens to the innocent during times besieged by terrorists? If you are an American journalist, you are sent to jail and your Fifth Amendment rights are eliminated. If you are an electrician of Egyptian descent on your way to work, you are the victim of shoot and kill orders. If you are an individual investor in the stock, bond, and commodity markets, you are dumbfounded by the calm and order generated by professional money managers who dominate day-to-day trading volume and overtake the remnants of volatility. But, wait, there is a different vision on the Washington State ferry system. You can walk on and off the ferry and/or drive onto or off the ferry without any check of a person or a vehicle. However, five minutes before landing in Seattle, out of nowhere will come two speeding Coast Guard gun boats each manned by four Service personnel. They will accompany the ferry into the port with one boat on each side of the ferry. Has this rush of activity helped to reduce the terrorist threat? Has calm and order been restored? Does this represent our billions spent on Homeland Security? Actually, I feel much better. I can rest easy now. Our ports are safe from harm.
John P. Hussman: “The further the market gets away from normal valuations – especially when it's overbought, the more the distribution of future expected returns tends to skew. You get a high probability of small further gains, coupled with a small but above “normal” probability of damaging losses.”
The PBGC estimates that total corporate under funding is roughly $450 billion. That does not include another $700 billion for municipal and state pension funds. Should the stock market not show a gain for 2005, what will the combined under funding total?
Mike Burk: “ In the first year of the presidential cycle the last five trading days of July have been up 70% of the time.”
There appears to be an oversupply of stainless steel and hot-rolled coil steel. Production and prices are being cut. China is rapidly building up capacity in lower-grade steel products. It is difficult to compete with China in this segment of the steel market. The current revaluation of the yuan will not be of assistance.
Nouriel Roubini: The more China will let its currency will move over time, the larger will be the appreciation of other Asian currencies.”
Since we invaded Iraq 28 months ago, at least 1,775 U.S. service personnel have been killed.
Subscribe to:
Posts (Atom)