Consider The Possibilities

12/22/05 Consider The Possibilities

The International Energy Agency has stated that current oil production exceeds worldwide oil demand by a mere
1%. In 2006, the IEA predicts world wide oil consumption will increase by 2.1%. Do you think production will match or exceed that 2.1% rise? Inventories of distillates, including heating oil and diesel, plunged 2.8 million barrels last week, the U.S. Department of Energy reported yesterday. That decrease exceeded analyst estimates by a wide margin. In addition, Royal Dutch Shell Plc said today it will miss some oil deliveries after an explosion and fire at a Nigerian pipeline cut output by 180,000 barrels a day.

Housing affordability sank in October to its lowest level since 1991.

I have been attempting to piece together various reports on the acquisition talks for Albertsons and what took place at yesterday's board meeting. It appears that the Cerberus group, which includes SuperValu and CVS, had planned to split the company into three parts-- the supermarket business in two and then merging the drugstore business with CVS. Their proposal was to buy Albertsons for slightly more than $26 per share, with $6 a share in SuperValu stock and the remainder in cash. For some reason, at a late stage in the negotiations, the Albertsons board of directions decided not to accept this offer. Talks will contiue but not on the offer that was not accepted. I do not believe Albertsons will simply sell the drugstore business to CVS and proceed to close
unprofitable stores. Over the past three months, the board has had the time to consider many alternatives. Discussions will continue, and, in my view, a deal will be struck--- just like it was with the Saks division and Bon Ton Stores.I believe the investment bankers for Albertsons will generate a positive outcome for the shareholders. However, any deal will not come at the value of $31 a share that I had expected. It is obvious that my analysis stunk the house out.
Interestingly, CVS must have thought the acquistion of Albertsons was a done deal. .CVS today announced that it is confirming that it has been in discussions with Albertson's, Inc. regarding a purchase of Albertsons' standalone Sav-on and Osco drugstores. CVS also announced that, on Wednesday evening, it inadvertently issued an invitation by email to investment analysts and other interested parties inviting them to participate in an analyst call on Thursday morning, December 22, regarding this transaction. CVS subsequently recalled the email and advised the recipients that the email was sent in error because no agreement on any transaction between CVS and Albertsons has been reached. When was the last time you saw this happen on a multi-billion dollar
transaction? One last point is that Albertsons has not issued any press release concerning the acquisition talks since they stated back in September that the board was seeking alternatives to maximize value for shareholders. All the reports in the media are unconfirmed other than CVS's release last night.

Madison Marquette, a Washington, D.C.-based retail developer, confirmed Wednesday it had acquired the former KMart 40-acre headquarters site at Big Beaver Road and Coolidge Highway from Sears Holdings Corp.

The Senate on Wednesday passed a six-month extension of the terror-fighting USA Patriot Act as a last resort after Democrats and a small group of GOP senators blocked President Bush and Republican congressional leaders' attempt to make most of the anti-terrorism law permanent. In addition, Sen. Ted Stevens' drive to open the Arctic National Wildlife Refuge to oil drilling failed in the Senate on Wednesday when he fell several votes short of the 60 votes he needed to avoid a filibuster. The vote was 56-44. One might consider polling all members of Congress and inquire whether Bush's all-mighty power is waning.

As Doug Kass points out, according to Ned Davis Research, there have been 16 separate tightenings over the last 100 years (defined as at least two consecutive rate increases). The Dow, on average, has declined by 4.90% in the four-month period following the last tightening date and by 3.90% in the eight-month period following the last tightening date.

"We will nationalize (Bolivia's) natural resources," Morales said at a news conference Tuesday in La Paz.
"Many of these contracts signed by various governments are illegal and unconstitutional. It is not possible that our natural resources continue to be looted, exploited illegally, and as the lawyers say, these contracts are legally void and must be adjusted," Morales said. Bolivia's proven and potential reserves total 48.7 trillion cubic feet of natural gas, second only to Venezuela in South America, according to the U.S. Department of Energy's Energy Information Administration.

Rob Peebles reminds us that, according to the Investor's Business Daily, the alternative minimum tax (AMT)
will generate more revenue than the real income tax by 2008, and that, according to CNN/Money and BEA, property tax revenues have risen 34% in five years. It is well to remember the words of Chief Justice Marshall --
"the power to tax is the power to destroy." The words were spoken in 1819 and they are alive and well today.

I would like to say a few more words about Albertsons. I know what it takes to run a board meeting of a public company. I did it for many years. Albertsons has 12 members on its board. The insiders are the current CEO and the retired president of American Stores, a company now owned by Albertsons. In sum, there are 10 outside board members. These individuals are sophisticated and have been around the block. I believe they will negotiate the best possible deal for the shareholders and not be influenced by the day-to-day movements of the stock price. This morning the stock will be down, and most shareholders will have losses. I too will have a loss marked to the market. As always, I remain calm and rational and consider the various alternatives available to the company and the most likely scenario. That scenario remains to sell the whole company. If SuperValu believes a purchase will be accretive to their company, then maybe they can pay a touch more and still make it a good deal for their shareholders. I think they can. It's well to remember that equity holdings are not the same as holding your loved ones. There is no room for no emotions when deciding on whether to buy, sell, or hold.

Beyond The Headlines

12/21/05 Beyond The Headlines

From November 2004 to November 2005, prices for finished goods increased 4.4 percent.Over the same period, the finished energy goods index jumped 17.8 percent,prices for finished goods other than foods and energy advanced 1.7 percent,and the finished consumer foods index inched up 0.8 percent. For the 12months ended November 2005, prices received by manufacturers ofintermediate goods rose 8.4 percent, and the index for crude goods went up 21.0 percent.

Mike Burk: "Many of the momentum type indicators are at or near their lows for the year suggesting there is little downside potential remaining and a snap upward could occur any time soon. Seasonally the week following options and futures expiration turns positive on Wednesday."

Paul Kasriel: "Each of the past six recessions was preceded by an inversion in the spread between the Treasury 10-year yield and the fed funds rate. But there were two other instances of inversion - 1966:Q2 through 1967:1 and 1998:Q3 through 1998:Q4 - immediately after which no recession occurred. It would appear, then, that an inverted yield curve is more of a necessary condition for a recession to occur, but not a sufficient condition. That is, if the spread goes from +25 basis points and to -25 basis points, a recession is not automatically triggered. Rather, whether an inversion results in a recession would seem to depend on the magnitude of the inversion and, to a lesser extent, the duration of it."

Builders broke ground on 2.123 million homes at an annual pace, up 5.3 percent from a revised 2.017 million in October, the Commerce Department said today in Washington. Building permits, a sign of future construction, rose to 2.155 million from 2.103 million. Part of this strength may have been due to the rebuilding efforts after the hurricanes.

Kirk Kerkorian's Tracinda Corp. disclosed in an SEC filing that it sold 12 million GM shares over the past few sessions, bringing its stake in the Detroit giant down to 7.8% from 9.9%.

"Any time you hear the United States government talking about wiretap, it requires - a wiretap requires a court order," Bush said during an April 2004 town hall meeting on the Patriot Act in Buffalo, N.Y. "Nothing has changed, by the way. When we're talking about chasing down terrorists, we're talking about getting a court order before we do so." Does that sound like the same President during this week's press conference?

Calpine Corp. said Tuesday evening it has filed to restructure under Chapter 11 of the U.S. Bankruptcy Code.

Seagate and Maxtor today jointly announced they
have entered into a definitive agreement under which Seagate will acquire
Maxtor in an all stock transaction.  Under the terms of the agreement, which
has been unanimously approved by the boards of directors of both companies,
Maxtor shareholders will receive .37 shares of Seagate common stock for each
Maxtor share they own.  When the transaction is completed Seagate shareholders
will own approximately 84% and Maxtor shareholders will own approximately 16%
of the combined company. The value of the transaction is approximately
$1.9 billion.

Chevron Corp. said hurricanes in the Gulf of Mexico that shut oil wells
and the company's biggest refinery probably cut fourth-quarter profit
by more than $600 million.

I have a thing about government numbers. Here is an example of why I do.
Yesterday, China discovered a small statistical oversight. It appears that
China's economy is $285 billion larger than first thought. The statistical
difference is a mere 17%.

With only 8 trading days remaining in 2005, the S&P 500 is up about 4%.
It is the third consecutive year for gains in this index. According to
Barry Ritholtz "there were only two out of eleven occasions when the span of winning
or losing years exceeded three consecutive winners over the past five
decades. One of those two periods were during the late-1990s bubble
years (1995-1999 ); the other was from the beginning of the secular
bull market that began in 1982 (1982-1989); Even 1987, the year of the
crash was up 2.03%. Under the circumstances, that implies pretty good odds that 2006 is
less than likely to be an up year, just based uon historical averages.
Furthermore, on the seven (out of nine) occasions when the market has
had a 2 or 3-year winning streak, the median return in the following
year has been -11.36%."

In considering the recent sale of GM shares by Kerkorian, is it possible
he is simply taking a tax loss for 2005 rather than on his way to
eliminating a position? Since purchasing the shares, what new information
has surfaced to make him a seller? If selling begets selling over the next 31 days,
he could be in a position to tender for more shares at a much lower price
than $31. In fact, $25 might look appealing to many holders.

In the recent Iraqi election, Ayad Allawi, the former prime minister and
Bush's choice, received much fewer votes than even the most pessimistic
forecasts. If he were a horse, he'd still be running to the finish line.
Bush's stamp of approval is the kiss of death.

According to Forbes.com, the top investors at Marketocracy decided to invest
in Saks. With the stock continuing to languish in the $16-$17 range, all
savvy support is appreciated.

The Mortgage Bankers Association said its seasonally
adjusted index of mortgage application activity for the week
ended December 16 decreased 4.0 percent to 594.6 from the
previous week's 619.3. Volume was at its lowest since the week
ended January 7, when the index reached 587.8.

The Talmud: “Fish die when they are out of water, and people die without law and order.”

Under Funded

12/20/05 Under Funded

Standard & Poor's reported Monday that the under funded OPEB liability of the S&P
500 companies is significantly higher than that of under funded pensions.
According to Standard & Poor's data, at $292 billion, the S&P 500 under funded
OPEB balance is 95% higher than the under funding of pensions at $150 billion.
OPEB consists mostly of medical costs paid for the benefit of retired
workers. These benefits may be contractual or implied, and usually require
retiree contributions in the form of monthly premiums and direct co-payments
for services and products rendered.  Unlike pensions, which are regulated,
OPEB has no legal requirement to create a trust entity to fund the current or
future costs.  Additionally, specific tax treatments and credits, set up to
encourage pension funding, do not exist for OPEB funds.  Standard & Poor's
data shows that pensions, while under funded, have 88% of the their
obligations set aside in pension trusts, compared to only 22% for OPEB
obligations.
"The state of OPEB is extremely unsettling, as many companies have not
created trust accounts to fund their OPEB obligation," says Howard
Silverblatt, Equity Market Analyst at Standard & Poor's.  "Those that have
created trust accounts fund them to significantly lower levels than are
required under current pension funding rules."
It should be noted that Ford and General Motors account for 32% of the unfunded OPEB amount in the
S&P 500 compared to 13% of the pension under funding. Together, the two auto
giants are a combined $20 billion under funded in pensions, and $94 billion
under funded for OPEB.

RealtyTrac(TM)yesterday released its November 2005 Monthly U.S. Foreclosure Market
Report, which showed 71,606 properties nationwide entered some stage of
foreclosure in November, a 12 percent decrease from the previous month.  The
report shows a November national foreclosure rate of one foreclosure for every
1,615 U.S. households.

The Goldman Sachs & Co., Nielsen//NetRatings and Harris Interactive's Holiday eSpending Report
reveals today that online shoppers spent $18.6 billion, excluding travel,
during the first six weeks (October 29 -- December 9) of the 2005 holiday
season. This year's U.S. online spending resulted in a 16 percent increase
(+/- 3.1 percent margin of error) from the same time period in 2004, with 19
percent of consumers having indicated that they have yet to start their
holiday shopping. The eSpending Report is based on a weekly national survey of
approximately 1,000 online adult consumers, capturing consumer spending,
attitudes and motivations of more than 6,500 shoppers during the first six
weeks of the 2005 holiday season.

Attorney General Alberto Gonzales said Congress had essentially given
President Bush the authority for domestic surveillance after the Sept.
11 attacks."Our position is that the authorization to use military force which was
passed by the Congress shortly after Sept. 11 constitutes that
authority,'' Gonzales said.

Despite rising healthcare costs and
repeated calls for universal healthcare, nine in 10 healthcare leaders in the
United States say that a primarily taxpayer-funded healthcare system, as in
Canada and Britain, is not the best way to solve the nation's healthcare
problems, according to new survey findings released Monday by
PricewaterhouseCoopers.  Nonetheless, nearly all leaders surveyed (95 percent)
expect healthcare spending to rise, with more than half (51 percent) expecting
accelerated spending at much higher rates than in the past.

"Consumers are stepping aside and manufacturing and other business sectors
are stepping in," said Dr. Jim Paulsen, chief investment strategist of Wells
Capital Management during Wells Fargo's first-annual economic forecast
teleconference. "The U.S. business sector is looking very healthy, and this
will help alleviate the slight slowdown in consumer spending and housing.  I
believe we're in the early stages of what will be considered a 'manufacturing
renaissance period' in the next several years that's tied to steady trade
improvements.  We're also seeing renewed strength in the stock market, and
foreign economic growth is accelerating, which further positions the U.S.
economy for a more sustainable recovery."
According to Wells Fargo senior economist Dr. Scott Anderson, "a housing
price slowdown, in part triggered by the Federal Reserve's policy actions,
will become more pronounced as the year 2006 progresses, placing consumer
spending, credit-quality, and job creation at some risk.  The challenges are
mounting for U.S. consumers, restricting their ability to spend."  Anderson
also said that, "real earnings are being squeezed by the spike in inflation,
job growth will remain subdued and energy prices elevated, home equity
borrowing and wealth creation from the housing market will dry up."

Sentiment among U.S. homebuilders continued to deteriorate in December,
according to the monthly survey by the National Association of Home Builders.
The index fell to 57 in December from 61 in the previous month, the NAHB said
Monday. It's the lowest level since April 2003.

The 3 and 5-year U.S. Treasury bonds yield less than the 2-year and
the 10-year only yields 7 basis points more than the 2-year. Maybe some
believe the world is different now, but inverted yield curves are
meaningful to me.

Eye-catching

12/19/05 Eye-catching

Honda Motor Co. stated on Monday it plans to start mass-producing solar cells in 2007, eyeing growing demand for environmentally friendly energy sources.

Energy companies FPL Group Inc. and Constellation Energy confirmed Monday they have agreed to merge in an $11 billion deal that will create the nation's largest energy supplier. Under the terms of the transaction, each share of Constellation Energy held will be converted into 1.444 shares at the time of the merger, while each FPL Group share will be converted into one share of Constellation Energy at the time of the merger.

''This was a healthy weekend, but it wasn't something to knock your socks off,'' said Marshal Cohen, chief analyst at NPD Group Inc., a market research company based in Port Washington, N.Y. ''But stores aren't panicking because the season has more time to go. The trickiness of the season is that consumers are calling the shots on where they were going shopping.''

Light, sweet crude for January delivery rose 42 cents to $58.48 a barrel on the New York Mercantile Exchange by midday in Europe. The contract had fallen $1.93 to settle at $58.06 Friday, its lowest close since Nov. 30. It will expire Tuesday.

At 11.5 percent, German unemployment is still close to a post-World War II record of 12 percent reached in March. Meanwhile, Germany's PPI rose 5% in November due to higher energy prices.

The pump price of gasoline rose 8 cents in the past two weeks to a national average of $2.21 a gallon, analyst Trilby Lundberg said Sunday, citing her company's biweekly survey of about 7,000 filling stations nationwide.

John Hussman: "There have been 13 tightening cycles since 1950 where the Fed has raised rates at least twice. In the six month period following the last hike of the cycle, the S&P 500 has delivered annualized total returns averaging 2.47% over the following 6 months, 5.06% over the following year, and 8.55% over the following 18 months. All figures are on a monthly closing basis...If you look at periods where the price/peak earnings multiple was 16 or higher on the S&P 500, the final rate hike of a tightening cycle was actually associated with losses on an annualized total return basis, averaging -7.18% over the following 6 months, -9.94% over the following 12 months, and -5.87% over the following 18 months. Given the current multiple of 19 times peak earnings on the S&P 500, this would be the relevant set of comparisons even if the latest rate hike was the final one."

Microsoft Corporation has announced that it will stop supporting the Mac OS X version of its Internet Explorer (IE) Web browser from December 31.

Bolivia elected a new president-- Evo Morales, the Socialist candidate and a coca farmer.

Google has introduced a "mobile version" of its Gmail service, which allows mobile phone subscribers quick access to their e-mail.

I'm a slow learner. I could never figure why Wall Street paid such big year-end bonuses. Now I know. An analyst at Lehman Bros. originally figured that Albertsons would fetch $20 a share in an auction. Now, after a zillion of articles on the subject, this same analyst projects a more accurate evaluation is $26 a share. We have yet to hear from Albertsons.

Palatin Technologies,Inc. announced today that, as a result of safety concerns recently
raised in connection with the use of NeutroSpec(R) diagnostic imaging agent
kits for the preparation of Technetium (99m Tc) fanolesomab, identified during
routine pharmacovigilance, Palatin and Tyco Healthcare Mallinckrodt have
decided to voluntarily suspend the sales, marketing and distribution of
NeutroSpec and recall all existing customer inventories of this product.
Palatin and Mallinckrodt acted at the request of the U.S. Food and Drug
Administration (FDA).  NeutroSpec, the only diagnostic agent approved for
imaging equivocal appendicitis, was approved for marketing by the FDA on July
6, 2004. Since it was introduced to the marketplace in September 2004, NeutroSpec
net sales to customers, through September 30, 2005, totaled $9.8 million, of
which Palatin received royalty payments of $2.5 million and product transfer
sales of $2.5 million from its marketing partner, Tyco Healthcare
Mallinckrodt.  For the quarter ended September 30, 2005, NeutroSpec net sales
to customers totaled $3.7 million, of which Palatin received royalty payments
of $0.9 million and no product transfer sales.
The FDA also stated that they would convene an Advisory Panel early next
year to discuss the use of NeutroSpec with additional safeguards, and evidence
needed to continue use of the product for equivocal appendicitis, as well as
plans for other indications, most notably being osteomyelitis.
Palatin and Mallinckrodt are reviewing data and assessing approaches for
understanding the relationship between NeutroSpec use and the observed serious
adverse events. No final decisions concerning future activities involving
NeutroSpec have been made by Palatin or Mallinckrodt.

Just a reminder-- as a result of the judge's decision upholding Pfizer's
two Lipitor patents, the shares are up close to 3 points in early trading.
The stock is in the Dow.

The Seal Of Approval

12/18/05 The Seal Of Approval

The approximately $9 billion kosher market is growing at a rate of 15 percent a year. Meanwhile, total grocery store sales grew 4.4 percent during the first 11 months of the year over the same time last year, to $424.8 billion, according to the Food Marketing Institute. Marcia Mogelonsky, a senior research analyst with Mintel International Group, a Chicago-based consulting firm, recently completed a nationwide study in April. She found 55 percent of the people who buy kosher products believed the food was better for them — almost double the number in a similar study Mogelonsky conducted in 2003. "They trust the kosher symbol like they'd trust the Good Housekeeping seal," she said. Part of the trust, Mogelonsky said, is derived from how the animals are raised. According to Jewish law, they cannot be pumped with antibiotics, additives, hormones or fed animal byproducts. As such, vegetarians and younger customers looking for healthier food — the same demographic that has helped the organic market take off- are helping to fuel the demand for kosher products. Interestingly, Albertsons, has, over the last few years, dramatically expanded kosher aisles at hundreds of its supermarkets across the country. The company has also launched more than two dozen kosher destination stores that include everything from bakeries to delis.

John Adams: "The happiness of society is the end of government."

Over the past several months, Weyerhaeuser has announced closing the Dryden Pulp and Paper mill in Ontario, Canada; the Prince Albert Pulp and Paper mill in Saskatchewan, Canada; 3 corrugated sheet plants in Little Rock, Memphis, and Shreveport; a specialty packaging plant in Valley View, Ohio; corrugated packaging plants in Bedford Heights, Ohio, Elmira Heights, NY, Little Rock, Ark, and Matthews, NC; and other facilities in Tenn, TX, CA, OKLA, and WA. "As a result of our ongoing strategic review, we anticipate future changes," according to the company's statement Friday. That's a busy company. Why all the hectic activity?

James Madison: "I believe there are more instances of the abridgement of the freedom of the people by gradual and silent encroachments of those in power than by violent and sudden usurpations." President Bush, are you listening?

Do you think the Federal Reserve would agree with this statement by James Garfield that
"Whoever controls the volume of money in any country is absolute master of all industry and commerce."

Last year at this time almost every financial wizard thought the dollar was dead and buried for good. As January came into view, some of the skeptics, like me, had second thoughts. We had had a very nice ride for the past 18 months. It was time for a reality check. Markets don't go up or down in a straight line. Long-term, the dynamics don't favor the dollar. The same can be said for manufacturing in our country; however, could manufacturing be the dollar in 2006? All the financial wizards think manufacturing is dead and buried for good. Hundreds of plants have been closed. When everyone says black, the answer frequently is white. We saw that this week in Pfizer. Could 2006 be a better year for GM and its bonds?

Crucial Developments

12/17/05 Crucial Developments

Pfizer's Lipitor is the largest selling drug in the U.S. Last year sales amounted to an amazing $10.9 billion in the U.S. and in more than 70 countries. Pfizer's two patents on Lipitor expire in 2010 and 2011. India's Ranbaxy sued to make its own version of Lipitor, and claimed Pfizer's patents did not cover the generic version Ranbaxy wanted to make and market. Delaware District Judge Joseph J. Farnan Jr. upheld Pfizer's patents. The ruling came out after the close of trading on the NYSE yesterday. This ruling should not have come as a surprise. Ranbaxy will appeal; however, I believe the appeal will be unsuccessful. In late trading, Pfizer rallied to $25+ or almost $5 higher than the low reached only a few days ago. The investors who have written off Pfizer must feel like real schmucks, and they should.

President Bush has personally authorized a secretive eavesdropping program in the United States more than three dozen times since October 2001, a senior intelligence official said Friday night. Maybe Bush believes the U.S. Constitution is meaningless. Meanwhile, our fighting men and women should fight for the Iraqi Constitution and lose their lives as well as get wounded and maimed. It's never to late to make a change.

Time Warner will sell a 5% stake in AOL to Google.

Doug Noland: "The third quarter's 9.1% rate of non-financial debt growth and the 14% pace of household mortgage Credit expansion garner virtually no attention from the economic or analytical community. And $200 billion quarterly Current Account Deficits are now promulgated as proof of our robust economy outpacing our feeble trading partners. The well-oiled and inspirited propaganda machine functions superbly from Wall Street to Washington D.C...It is becoming increasingly incontrovertible that the Greenspan/Bernanke "post-Bubble" view and policy prescriptions have been disastrously misguided. They have instead been actively reinforcing ongoing Credit Bubble inflationary forces. And the sad irony is that they have assured just the type of major monetary system breakdown Professor Bernanke has spent his career convincing himself and others that an aggressive Fed could avoid."

Employees at Supervalu's Cub Foods and at Albertson's Jewel supermarkets in the Chicago region are represented by the same two locals of the United Food and Commercial Workers International Union.

Yu Yongding: "We're still facing the possibility of a big devaluation of the US dollar, so the capital losses will be huge. If that happens, it will be a tremendous hit to the Chinese economy."
China will reduce their holdings in U.S. Treasury bonds and other dollar-denominated assets. October's reduction was not an isolated incident.

January crude oil fell $1.33 to $58.06. January Unleaded Gasoline declined 3.2%, and January Natural Gas ended the week down 4.6%.

Wal-Mart's growth will continue in 2006 with plans to open as many as 600 new stores and clubs, including up to 230 new international stores and 370 U.S. units.

The Disappointing And The Good

12/16/05 The Disappointing And The Good

According to the WSJ, an investment group consisting of Cerberus Gruop, Kimco Realty Corp. and Supervalu Inc. are set to win the auction of Albertson's Inc. for about $9.6 billion, or $26 a share, citing anonymous sources. An announcement could come sometime after the board meets this week, the newspaper added. The company is still working out details with CVS Corp., which is in the lead to purchase the company's drug chain for up to $4 billion of the overall purchase price, the report added. If this is the final deal, it is a far cry from the $31 I had figured shareholders would receive. I know that would work out to an annualized return of 35% counting the dividend received, and for that I am thankful, but it would still be disappointing.

GMAC, with assets of about $310 billion, has earned more than GM's auto unit since 2002 and forecasts profit of more than $2.5 billion this year. GM's CEO stated there is ample interest in the purchase of 51% of GMAC. As such, one might consider making a speculative buy of the GMAC bonds. They have recently been downgraded by various credit agencies.

The Philly Fed Index in December rose to 12.6 from 11.5 in November, and that was disappointing. New orders and shipments were lower in December than the prior month. However, prices paid dropped to 49.0 from 56.8; however, prices received also declined to 30.5 from 32.5.

On the other hand, the December Empire State Index rose nicely to 28.7 from 22.8 in November. However, shipments and unfilled orders and employment were lower than in November.

The CPI in November dropped 0.6%, the biggest decline since 1949, due to energy prices plunging 8% (they recovered in December). Excluding food and energy, the CPI rose 0.2% in November. Over this year, the CPI has risen 3.5%. At the same time, production has gained 2.8%.

Importantly, capital flows into the U.S. in October amounted to $106.8 billion. However, we had better look under the hood, so to speak. Chinese holdings of U.S. Treasury bonds declined in October by $4.4 billion and foreign central banks only purchased $13 billion in U.S. Treasury bonds. In other words, private investors were responsible for $97.3 billion in capital inflows. It would be interesting to know the identity of these investors.

For the very first time, Toyota is making the Prius outside Japan. It's not in the U.S., but rather in Jilin Province in China through a joint venture with that country's number one automaker.

Adobe will cut 650 to 700 jobs that were overlapping after their rcent acquisition of Macromedia.

My thanks to Rob Kirby for making the following observation. He pointed out that the Fed will discontinue the publication of M3 monetary aggregate on March 23, 2006, and that coincidentally, on March 20, 2006, Iran is scheduled to begin trading oil for Petroeuros on the Iranian Oil Bourse. Ron asks what happens if Asian countries, such as, Japan and China, no longer require U.S. dollars to purchase oil. Might hey begin to liquidate their U.S. Treausry bond holdings? China liquidated $4.4 billion in October.

Paul L. Kasriel: " When economic growth downshifts in 2006 and so does corporate profit growth, corporate bondholders may start to feel a little exposed. With less cash being generated by corporations with which to buy back shares, even stockholders may begin to feel a bit exposed."

Abu Musab al-Zarqawi, America's most wanted man in Iraq, was arrested last year but released because his captors did not know who he was, an Iraqi government minister has claimed. Are we to believe this? Zarqawi must have had a get-out-of-jail Monopoly card.

Wal-Mart is purchasing Sonae's 140 Brazilian "hypermarkets" for $764 million. This means Wal-Mart willoperate more than 250 stores in 17 of Brazil's 26 states.

Developments

12/15/05 Developments

Amgen signed a definitive agreement to buy Abgenix for $2.2 billion or $22.50 a share. The deal gives Amgen full ownership of panitumumab, which the companies have co-developed. Panitumumab is a new class of drugs that is being developed for metastatic colorectal and other cancers and is seen as having blockbuster potential.

Pier I expects negative mid-single digit comp sales for December and won't provide guidance for the quarter.

Lennar, the homebuilder, expects to meet its 2006 goal of $9.25 per share due to a record $6.9 billion backlog.

Kazakhstan opened the pipeline to China. The 625-mile pipeline is designed to carry 140 million barrels of oil a year and opens a huge market for the Central Asian nation. Kazakhstan is aiming to more than double its production from 1.3 million barrels to 3 million barrels a day by 2015, the Oil Ministry says.

The yen staged its biggest two-day rally since March 2002.

Bush: "We are in Iraq today because our goal has always been more than the removal of a brutal dictator; it is to leave a free and democratic Iraq in its place...We need to remember that these elections are also a vital part of a broader strategy for protecting the American people against the threat of terrorism." Do you think this is why we invaded Iraq in March 2003? Bush maintains he did the right thing and would repeat his decision. Tell that to our 2,150 fighting men and women who have perished and the 20,000+ who have been wounded and injured. Tell that to their families and loved ones. How do you feel about voting for Bush's re-election?

NPD Group Inc., reported that game sales at U.S. retailers declined 18% to about $700 million in November from approximately $850 million during November of the prior year.

Merrill Lynch analysts see room for margin expansion at Saks and the catalysts to make it happen, and noted that improved merchandising and marketing initiatives combined with new planning systems "could act as a catalyst over the next few years."

Robert Toll, CEO of Toll Brothers: "We're nowhere near the sales that we did in '04-'05 on a same-store, per-community basis." The company already has cut its sales projection for next year. Its average home sells for $680,000, he said.

The U.S. trade deficit soared to a record $68.9 billion in October and could reach $800 billion this fiscal year. The October trade deficit with China was
a record $20.5 billion.

Dianne Swonk, Mesirow Financial's chief economist, stated she believes the nation's economic expansion, which started in late 2001, has at least four more years ahead of it. She said that while consumer spending will grow at slower rates, business spending will pick up to replenish tight inventories.

Marsoft: "After rising sharply during the first half of October, the dry bulk rally has sputtered over the past month or so. The Baltic Dry Index, having increased from a low of 1750 in August to a mid-October peak of 3370, fell back below 2800 during the latter half of November. This left the BDI down by more than 50% compared to its level of a year ago.
Much of the weakness seen during the past month has been centered on the Panamax and Cape sectors, where rates fell by an average of 20%. On our benchmark USG/Japan grain route, rates fell from $47 per tonne, or $26,000 per day, to $43 per tonne, or $22,000 per day. Other routes saw similar declines, with earnings for most Panamaxes falling from about $20,000 per day in mid-October to about $16,000 per day by mid-November."

The Bank Credit Analyst sees zero growth for the S&P 500 operating earnings in 2006. By comparison, the overall analyst consensus is for roughly 12% growth.

UnitedHealth Group Inc. , the largest U.S. health insurer by market capitalization, reported today that more than 2 million Medicare beneficiaries have enrolled in new programs offering prescription drug coverage.

Economists are predicting a drop in the Consumer Price Index for November, which is being released this morning by the Labor Department.

Mortgage rates retreated on hopes that consistent interest rate increases are winding down. The average 30-year fixed rate mortgage dropped from 6.39 percent to 6.34 percent, according to Bankrate.com's weekly national survey of large lenders.

Patterns

12/14/05 Patterns

A recent Maritz(R) Poll showed that the
vast majority of those traveling over the winter holidays will choose to
drive, rather than fly. While nearly one in five Americans (19 percent) plan
to travel sometime in December or early January, six out of 10 (58 percent) of
these holiday travelers will drive and one-third (35 percent) will choose to
fly the friendly skies. The remainder will travel by train, bus or some other
means.
When considered against the total number of poll respondents, the numbers
traveling by car versus plane are consistent with similar Maritz Polls taken
over the past two years:

2005 2004 2003
Your own car 11 percent 9 percent 10 percent
Airplane 7 percent 8 percent 6 percent

According to a recent Maritz(R) Poll found that almost nine in 10 (88 percent) holiday shoppers describe themselves as "generous" gift givers. The telephone survey of more than 2,000 adults also revealed that the respondents were honest in their assessment of their generosity levels. The data prove that generous gift givers will spend an average of
$367 more on gifts this holiday season than non-generous gift givers. Those
who described themselves as "somewhat" or "extremely" generous gift givers
plan to spend an average of $843 on holiday gifts this year, which is significantly higher than the $476 that those who consider themselves to be "not particularly generous" plan to spend. Generous gift givers are significantly more likely to take two months or
more to pay off their holiday debts (25 percent) than those who consider
themselves to be not particularly generous (15 percent).

Lehman Brothers investment banking revenues were a record for the quarter, increasing 34% to $817 million from $608 million in the fourth quarter of fiscal 2004. These
results were driven by record merger and acquisition advisory revenue, which
increased 54% from the prior year's period, and solid performances in equity and debt origination, which increased 48% and 15%, respectively, from the prior year's period.

Stephen Roach: “Barring the development of a new technology or the emergence of a new industry, capex (capital expenditure) cycles in high-cost developed economies will be increasingly dominated by the replacement of old capacity than by the expansion of new capacity.”

At least 2,149 of U.S. service members have died since we invaded Iraq in March 2003, according to an Associated Press count.

Factory and service sector supply managers are optimistic about the economy in 2006, according to a semiannual forecast released Tuesday by the Institute for Supply Management. Growth is expected to be strong in the first half of the year, before slowing in the second half. Major economic concerns are inflation-related.

Rather than focus on the Fed dropping the word "accomodation" from their press release, let's
keep a watchful eye on the amount of money they print and how quickly it is printed. That way you
will get a feel as to how fast the value of your dollars is being depreciated.

January natural gas climbed to a high of $15.78 per million British thermal units Tuesday to mark the highest price ever recorded on the New York Mercantile Exchange.

Founded in 1860, Shaw's Supermarkets operates 206 stores in New England (Maine, Massachusetts, New Hampshire, Vermont, Rhode Island and Connecticut) and employs over 30,000 associates. Albertsons purchased Shaw's in 2004. This operation is hardly ever mentioned in an analysis of Albertsons and rarely included in print in the potential value shareholders may receive in a takeover. This is a mistake. Shaw's was a good acquisition and that will be reflected in a final deal for Albertsons.

Oil powerhouse Saudi Arabia said it will post a record budget surplus of 57 billion dollars in 2005 on the back of surging crude prices, and forecast its biggest-ever spending plans for next year.

Meanwhile, some Arco stations are selling unleaded gas in Oregon and Washington for
$1.99 a gallon.

The Season

12/13/05 The Season

About three of every eight adult Americans (37 percent) are concerned about their ability to pay for heating their homes this winter, according to a nationwide survey released yesterday by the National Oilheat Research Alliance (NORA). And about half of Americans(51 percent) say they are concerned that higher energy costs will impact their
budget for holiday shopping this year.

More than two-thirds of U.S. shoppers are expected to buy nearly five cards(gift) on average this year, according to a survey of about 17,500 consumers by accounting firm Deloitte & Touche. In the Deloitte study, just 48 percent of respondents had redeemed all of the cards they received last year.

Paul Kasriel: “Here's the good news. In the third quarter, the market value of households' assets increased by 2.7%. Here's the bad news, the value of households' liabilities increased by 3.0%. So, the leverage of households moved up to 18.24% in the third quarter from 18.19% in the second quarter. The third quarter household leverage ratio is the highest since the record high of 18.32% set in the first quarter of 2003.”

Pfizer repatriated approximately $37 billion in foreign earnings this year(the current market cap is down to $150 billion), which it will use to reduce debt, enhance its balance sheet and invest in business opportunities. In addition, the company has purchased nearly $4 billion in common stock in 2005, and it will continue to buy back its stock in 2006. As Pfizer previously announced, it will provide a comprehensive review of its strategy, operating performance, new product pipeline and financial outlook at its analyst meeting on February 10, 2006. With the increase in the quarterly dividend to 26.3 cents, the stock now yields 5%. If I were running the company, I would repurchase at least $25 billion of the shares at the $20+ level. If this is not an uncommon value, then the world is upside down. Jeff Immelt of GE ran the latter’s medical division before becoming CEO. Pfizer would make a great acquisition for GE.

Whirlpool Corp. stated Monday that once its new refrigerator plant in Ramos Arizpe, Mexico, is operational, 730 employees at its Fort Smith, Ark., plant will be laid off. The layoffs are currently planned for October of 2006.

Yesterday, crude closed at $61.30 per barrel, natural gas rose to $14.84 per million BTUs, and heating oil jumped to $1.77 a gallon.

The November federal deficit surged to $83.1 billion from $57.9 billion a year earlier. The deficit for October and November rose to $130.2 billion versus $115.2 in the like months in 2004. Naturally, Bush continues to maintain the deficit will be cut dramatically in future years. And the Iraq war is also going well. And there is a tie between Iraq and 9/11. Have you had enough of the BS? Here’s yesterday’s sample from Bush: “We're taking the fight to those who attacked us and to those who share their murderous vision
for future attacks.”

Yu Yongding, a Chinese government economist and chief consultant to the central bank, told Market News International that China must reduce accumulating dollar-based assets, and also cut its existing holdings. I strongly suggest bulls on the dollar as well as bulls on our nation’s ability to fund growing twin tower deficits chew carefully on Yongding’s words.

ConocoPhillips will acquire Burlington in a $35.6 billion deal. Under the transaction, subject to approval by Burlington Resources shareholders, Burlington shareholders will receive $46.50 in cash and 0.7214 shares of ConocoPhillips common stock for each Burlington Resources share. This deal represents a transaction value of $92 a share, based on the Dec. 9 closing price of ConocoPhillips stock.

For those who pay very tiny commissions, a little-appreciated route to making money with tiny risk is the following example. Yesterday, one could sell a January(2006) 70 Burlington Resources put for 35 cents. That may seem unexciting to most, but not to me. With the stock at $82+, it gave the buyer of the put the right to sell the stock to me at $70 less the 35 cents in 5 weeks. If the takeover goes forward, the put should expire worthless. That places about 35 cents per share in my pocket or a little ham sandwich. You might be surprised to discover other such examples during 2006. Making money with little risk is exciting. Making money with high risk is for schmucks.

New research on pricing practices of over 4,200 hospitals across the U.S. documents that huge markups in charges to patients are continuing, even after federal changes in Medicare reimbursement policies that were supposed to help contain skyrocketing costs.
The research is contained in the third annual report on charges by the
Institute for Health and Socio-Economic Policy (IHSP), the research arm of the
California Nurses Association. For the third consecutive year, the report
documents a strong correlation between huge hospital markups on their sticker
prices over their costs, high profits and the growth of large corporate
hospital chains.
The new report shows that the nation's 100 most expensive hospitals set
their gross charges at an average of 680% (up from 673% in 2002-2003) of their
costs -- meaning the average top 100 hospitals would bill $680 for a patient's
case where the actual costs were $100, or a 680% charge to cost ratio. The
national average for all 4,184 hospitals surveyed was 244% of costs, an
increase from 232% the prior year.

According to the seasonally adjusted results of the latest Manpower Employment Outlook Survey, conducted quarterly by Manpower Inc,"U.S. businesses are not aggressively seeking to increase staff levels as they enter the new year. Instead, they are looking back over the past several quarters and are concluding that hiring is still on target with their operational needs," said Jeffrey A. Joerres, Chairman & CEO of Manpower Inc. Of the 16,000 U.S. employers surveyed, 23% anticipate an increase in
hiring activity for the first quarter of 2006, while 10 percent expect to
decrease staff levels. Sixty-one percent of employers surveyed foresee no
change in hiring plans, while 6% are unsure of their staffing needs. The
seasonally adjusted Net Employment Outlook for the first three months of the
year is 20%, identical to the fourth quarter of 2005 and nearly the same as a
year ago. Employers in six out of 10 industry sectors surveyed foresee minimal
changes in hiring activity as they move from the fourth quarter into the new
year, including Durable and Non-Durable Goods Manufacturing, Wholesale/Retail
Trade, Finance/Insurance/Real Estate, Education and Public Administration.

Shoppers plan to spend $339 on gift cards, or 33% of their total holiday budget this year, according to American Express.

Thomas H. Lee Partners, the Carlyle Group and Bain Capital announced they had agreed to buy Dunkin' Donuts, Baskin-Robbins, and Togo’s for $2.43 billion.

Marc Faber: “I feel that asset prices will tend to depreciate against the only currencies for which the supply is limited - gold, silver, and platinum…Simply put, since 2000, gold has risen at a much faster clip than the Dow Jones and I would expect this out-performance to continue for the next few years until "gold currency" holders will be able to buy one Dow Jones with just one ounce of gold.”

Headlines

12/12/05 Headlines

General Glut: “With a savings rate of 0% in 2005:III, real GDP for the third quarter would have been $11,087.2bn. It doesn't take a math genius to see that real GDP for 2005:III with a 0% savings rate would have been lower than in 2005:II -- and have generated a 0.0% real growth rate.
In short, without negative savings and all other things being equal, the US economy would be at a standstill. Now that would have been one hell of a headline.”

Just a reminder--- with the workweek holding less hours for the folks on Main Street, that would have equated to a loss of more than 300,000 jobs in November. In other words, there was a net loss of jobs in November and not a gain of 200,000+. That would have been one hell of a headline.

Winston Churchill: "Men stumble over the truth from time to time, but most pick themselves up and hurry off as if nothing happened."

As we turn the calendar into 2006, the Congress will be asked to raise the U.S. debt ceiling. As I have stated on previous occasions, I am firmly against such approval. I prefer to shut down the government until mandatory spending cuts become a fixture in the budget process. In other words, it’s either pay as we go or it doesn’t get spent. Why should those on Main Street work their butts off so the Administration and the Congress can make a mockery of all the hard work? Congressional staffs are too large, government is too large, and they are cancerous growths impacting the financial well-being of this nation. Until rational spending comes into being, close Washington down. That would be one hell of a headline. The hand-outs are bad for our nation’s heart and soul.

Maxwell Anderson: “"When a government takes over a people's economic life it becomes absolute, and when it has become absolute, it destroys the arts, the minds, the liberties and the meaning of the people it governs."

The WSJ reported that ConocoPhillips may buy Burlington Resources for $30 billion.
At $30 billion, Burlington's 2.16 billion barrels of oil and gas reserves would cost $13.88 each. That compares with $10.15 a barrel that Chevron Corp. paid for Unocal Corp. and $10.66 that China National Petroleum Corp. spent for PetroKazakhstan Inc. Norsk Hydro ASA of Norway agreed to pay $18.99 for each barrel of Spinnaker Exploration Co.'s reserves. A big attraction in Burlington is its natural gas reserves are essentially onshore.

Husky Energy Inc. advised today that the Alberta Energy & Utilities Board (EUB) has approved the commercial application for its Sunrise Oil Sands Project, located approximately 60 kilometers northeast of Fort McMurray, Alberta. It is estimated that the
Sunrise lease contains original bitumen in place of 10.6 billion barrels, and
that approximately 3.2 billion barrels of oil resources will be recoverable over the project life of approximately 40 years. Husky, which holds a 100 percent interest in the Sunrise lease, intends to develop the 200,000 barrel per day project in phases. The EUB approval
relates to Husky's bitumen extraction plans, and Husky is completing its alternatives for upstream development, upgrading, transportation and marketing of the produced bitumen.

John Hussman: “If we split year two of the Presidential Cycle into two periods – the first nine months of the year compared with the final quarter - the patterns become apparent. The average market performance during the period from January through September of each second year of the Presidential Cycle has been roughly flat since 1933. The market has been down during these periods nearly as much as it's been up.
Things have usually been more interesting in the fourth quarter, where the average gain has been 8.7 percent. This is the highest average fourth-quarter return of any of the four years of the cycle, including the last quarter of year three and year four. The fourth quarter of the second year is actually where many third-year rallies are born…The 12-month period beginning in October of the second year of the presidential term has enjoyed average total returns of more than 28 percent, on average. And since 1933, not a single third year 12-month period beginning in October has registered a loss (the worst return was a gain of 6.6 percent).”

As we move into the New Year, there are 15 trading days remaining in December. We will encounter option expiration, tax selling, a Fed rate increase, and seasonal joy that frequently breeds a holiday rally. It’s never too late to position your portfolio for the coming year. Often this year’s dogs turn into next year’s bright spots. Will Pfizer be such an example? Do not make portfolio decisions based solely on tax considerations. That you will regret. One thing is for certain. Tomorrow’s headlines will include some large acquisitions. Most often, it is cheaper to buy than to build from scratch. Yet, the majority of acquisitions are not successful. Maybe that reflects management’s ineptness. Bigger does not mean better. Most managers can’t manage small --- much less large.

This morning, gold is surging again. February futures topped $544 an ounce. For traders, it might be an opportune time to reduce positions. However, the long-term outlook remains quite positive, in my opinion. The same can be said for many commodities.

Aristotle: "A democracy is a government in the hands of men of low birth, no property, and vulgar employments."

You Can Smell The Stench

12/11/05 You Can Smell The Stench

Bush: “The valuable protections of the Patriot Act will expire at the end of this
month if Congress fails to act, but the terrorist threats will not expire on
that schedule. In the war on terror, we cannot afford to be without this
vital law for a single moment.” Has the Patriot Act helped to capture Osama
bin Laden? Our country spends billions each year on defense. With those billions
how is it that bin Laden has not been caught? You can smell the stench. It emanates from 1600 Pennsylvania Avenue.

Yesterday, U.S. casualties came in three separate attacks across Baghdad, the military announced. Two soldiers were killed by small-arms fire in the southern district of Yusufiyah. A third soldier was shot dead in Baghdad and the other died in the northern district of Adhamiya when his patrol was hit by a roadside bomb.
In addition, on Saturday, officials announced that one American soldier had been killed and 11 wounded on Friday when they were attacked by a suicide car bomber near the town of Abu Ghraib just west of Baghdad. That brought to at least 2,140 the number of U.S. military personnel who have died since we invaded Iraq in March 2003, according to an Associated Press count. And for what?

Howard Gruenspecht, the deputy administration of the Energy Information Administration, stated that, eliminating the use of additive MTBE in 2006, may require some refiners to produce more gasoline, putting added pressure on refiners and thereby creating upward pressure on prices at the pump.

I have been asked several times how I arrived at my takeover value for Albertsons.
Rather than provide my entire analysis, I outlined two points: the pharmacy operations of Savon and Osco should approach about $4 billion in value. Secondly, looking over the locations of the 2500 Albertsons stores and the 2500 Kroger stores, there is minimal overlap.

If I am not for myself,
who will be for me?
If I am not for others,
what am I?
And if not now, when?

Rabbi Hillel

Employer Costs For Employee Compensation

12/10/05 Employer Costs For Employee Compensation

Employer costs for employee compensation averaged $26.05 per hour worked in
September 2005,the U.S. Department of Labor’s Bureau of Labor Statistics
reported. Wages and salaries averaged $18.28 and accounted for 70.2 percent,
while benefits averaged $7.77 and accounted for the remaining 29.8 percent.
In September 2005, private industry employer compensation costs averaged
$24.34 per hour worked.
In September 2005, employer costs in State and local governments averaged
$36.16 per hour worked.
Among State and local government employees, average hourly compensation
costs were
higher for management, professional, and related occupations ($44.11) than for
service occupations ($28.07) and sales and office occupations ($24.74).  Wages and
salaries averaged $31.37 per hour worked for management, professional,
and related occupations and $17.25 for service occupations, and $15.49 for sales and
office workers.

Henry Giles: "If the poor man cannot always get meat, the rich man cannot
always digest it."

Before you join the bash Wal-Mart crowd, consider these facts: the company added
100,000 jobs this year, provided almost $200 million to various charitable causes,
and will save the average American family $2,300 per household. This overshadows
any good you believe you receive from your vote at your local polling place.

The Talmud: "The burden is equal to the horse's strength."

Former President Clinton told a global audience of diplomats,
environmentalists and others Friday that the Bush administration is
''flat wrong'' in claiming that reducing greenhouse-gas emissions to
fight global warming would damage the U.S. economy.

Doug Noland: "I believe a strong case can be made that we are in the midst of a
marketplace liquidity dislocation.  Perhaps market yields are today no more
discounting prospective fundamentals than technology stocks and telecom bonds were
back in 1999/early 2000.  While unsustainable, these types of liquidity dislocations
are nonetheless powerfully self-reinforcing – and just what we would expect from
history’s greatest Credit Bubble."

Canola seeds seem to be the best source of oil for biodiesel. The problem is twofold.
Currently, it sells for only 8 cents a pound with breakeven 33% higher. Secondly,
after the oil is squeezed out, 40% of the remaining canola seed is in mash, which is
frequently fed to livestock as a source of protein. This is similar to the leftover
sugar beet pulp(mixed with molasses) after processing the sugar beets to make sugar.
Canola growers maintain it will be necessary to find new and higher-value uses for
the mash. They might begin by sun-drying the mash as I did with the sugarbeet pulp.

William Barclay: "We will often find compensation if we think more of what life has
given us and less about what life has taken away."

Goings On

12/9/05 Goings On

Two-thirds of the companies participating in the fourth quarter "CFO Outlook" survey plan to increase capital spending over the next twelve months,and the average change is expected to be up 9%. Technology spending isexpected to rise at three-quarters of the surveyed companies, and almost half(48%) will increase research & development spending, while 47% expect nochange. Technology spending will rise an average 8%, and research &development, 5%.The CFO economic optimism index, which had been dropping since June 2004, jumped 4.34 points to 69.69. CFO optimism about their own company reached 77.37, the highest it's been since June 2004. The survey is conducted quarterly.

Douglas Gillespie: "As of the end of the third quarter, the United States owed the rest of the world almost $5.5 trillion more than the rest of the world owed it. This represented an increase of $1.25 trillion from a year earlier -- remarkable when you consider that as recently as the mid-1980s, the United States was a net creditor nation. This and other sobering facts are contained in the latest flow-of-funds data, released yesterday by the Federal Reserve."

California housing affordability down 4% in October.

In its 28th annual economic
forecast for 2006 presented by Comerica Bank, the Gary Anderson Center for
Economic Research (ACER) today forecast an overall economic slowdown in Orange
County. In Orange County, homeowners have to use 50 percent of their income
for housing costs, compared to 20 percent on the national average.

According to Reuters, Kroger has approached buyout firms Bain Capital, Thomas H. Lee Partners and Warburg Pincus about a joint offer for Albertsons. Another consortium consisting of Kohlberg Kravis Roberts & Co., Texas Pacific Group and Apollo Management, are also bidding, according to several sources close to the deal. The drug store units have nabbed bids from CVS Corp. and Walgreens, sources said on Thursday. A third group made up of Cerberus Capital and Kimco Realty are also bidding, and have been joined by grocer SuperValu Inc., sources said.

Responding to thegrowing demand for foods without trans fatty acids, Kellogg Company
today announced a major investment in new technologies that will make it
possible to reduce or eliminate trans fatty acids while also minimizing the
saturated fat content of its products.
As a major part of this investment, Kellogg will become one of the first
food manufacturers to use low linolenic soybean oil through an agreement with
Monsanto. Kellogg will use Monsanto's Vistive(R) low-lin soybean oil to
reduce or eliminate trans fatty acids in a number of its products.

Consumer confidence is up for the third
consecutive month, according to the December results of the RBC CASH (Consumer
Attitudes and Spending by Household) Index. Retailers are likely to react
favorably to this upward trend as more optimistic shoppers should equate to
strong sales over the holiday season.
The RBC CASH Index, which is derived from telephone interviews held with
1,000 individuals across the U.S. this week, stands at 85.5 for December. This
is compared to 66.8 for October - and substantially above the yearly average
of 78.7. Buoyed by continuing optimism in future economic conditions, the RBC
Expectations Index for December now stands at 53.9, continuing a positive
trend after expectations hit rock bottom in September, (when the RBC
Expectations Index stood at -13.5). It is also above the yearly average of
40.0.

Constellation Brands,Inc. today announced that its offer to purchase all of
the common shares of Vincor International Inc. expired at midnight
(Toronto time), on Dec. 8, 2005, consistent with the terms of the offer.

Nanotechnology, using particles as
small as 100 nanometers in size, is offering exciting new possibilities for
finding and treating breast tumors, according to speakers at the 28th Annual
San Antonio Breast Cancer Symposium being held this week. Two researchers from
Rice University in Houston, Texas, offered enticing insights into how these
minute particles can be manipulated to have different properties, and tagged
with antibodies to target them specifically at cancer cells.

According to the WSJ, Viacom's Paramout may make an offer for Dreamworks SKG.
NBC Universal has been in talks to purchase that company as well. I have sat this one
out, and until more information is forthcoming, I will continue to watch from the
sidelines. Dreamworks has not impressed me. It's been a single hit compnay.

Natural gas prices jumped 9 percent to a new high Thursday, and oil
prices also climbed above $61 a barrel as cold weather across the U.S. raised jitters
about increased demand for home-heating fuels. Oil and natural gas production in the
Gulf Coast area probably won't recover from this year's hurricanes until next summer,
Energy Secretary Sam Bodman stated today.

Americans increased their household debt at an annual rate of 11.6% in
the third quarter, the fastest growth in 18 years, the Federal Reserve
said Thursday in its quarterly flow of funds report
Total outstanding debt in the household sector rose to $11 trillion.
Total debt in the economy increased at a 9.1% annual rate, one
percentage point faster than in the second quarter, to $25.72 trillion
Non-federal borrowing grew at a 10% pace, the fastest in six years.
Total nonfederal debt outstanding grew to $21.13 trillion. Net national
savings fell by $120.5 billion at an annual rate. It was the first
quarter that net savings had been negative since the Fed began tracking
the data in 1952.
In the household sector, borrowing was paced by real estate loans.
Mortgage debt grew at a 14% pace, while credit card debt increased 5.4%
Meanwhile, household net worth increased at 10.6% annual rate to a
record $51.09 trillion on increases in the value of assets already
held. Real estate assets grew by $546 billion.
The federal government's debt increased at a 5.1% rate, up from 0.1%.
State and local government debt grew at a 12.6% rate, up from 6% in the
second quarter. Disposable personal income increased at a 2.8% annual
rate to $9.04 trillion. Household net worth was 5.65 times disposable
income, up from 5.54 times in the second quarter.

The Saks board of directors approved a 35 million share increase in its repurchase
plan. To date, during the fourth fiscal quarter, the company has repurchased 8 million shares
at an average cost approximating $17.60 oer share. The company anticipates
distributing a substantial portion of the net proceeds of its NDSG sale to Bon Ton
Stores to shareholders. The sale price is $1.185 billion and distribution could
include share repurchases, a special cash dividend, or a combination of both.
Given the company's management performance over the last several years, it would
be wise for the board to distribute the vast majority of the proceeds in the form
of a special dividend. I continue to believe that, after the start of the new year,
an offer will be forthcoming for Saks Fifth Avenue, the flagship operation. Under
the right management, this division could be a big winner. I strongly suggest the
present Saks board and management expend its finest energies to maximize the
return to the shareowners of the business in the coming year.

Today, gold reached a 25-year high of $527.60 an ounce and silver is a sliver
away from $9 an ounce.

Palatin Technologies,Inc. today announced that it will present at the JP Morgan 24th
Annual Healthcare Conference at 2:30 p.m. Pacific Time (5:30 p.m. EST) on
Thursday, January 12, 2006 at the Westin St. Francis Hotel in San Francisco,
California.

The Hennessee Hedge Fund Index is up 6% through the first 11 months of 2005.

In addition to the possibility of Home Depot, I wonder whether Wolseley or Rexel
are in the running to purchase Hughes Supply.

The Oil Service Index closed at a record high of $190.22.

A storm that wreaked havoc as it dumped as much as 10 inches of snow from Texas to Indiana barreled eastward on Friday, promising to bring more of the same. 

Something Has To Give

12/8/05 Something Has To Give

From Bush's speech on 12/7/05 : "This generation of Americans in uniform is every bit as brave and determined as the generation that went to war after the attack on our nation 64 years ago today. Like those who came before, they are defeating a dangerous enemy, bringing freedom to millions, and transforming a troubled part of the world. And like those who came before, they will always have the gratitude of the American people." My patience has had it. Enough of this BS. Iraq did not attack us. We attacked Iraq. There is absolutely no connection to a war 64 years ago. There is a big difference between freedom of speech and manipulating facts to suit one's purposes. In fact, all of our fighting men and women have not placed themselves in harm's way since the founding of our nation so that Bush could make a mockery of the "freedom".

John Williams: "Risks of the current circumstance evolving eventually into a hyperinflationary depression remain extraordinarily high."

Rob Kirby: "Natural Gas is perhaps the only strategic commodity that is truly "above being rigged" - only because no one has enough of it to do so."

The Federal Reserve reported Wednesday that Americans' borrowing fell by $7.2 billion at an annual rate in October, the biggest amount on record, with much of that decline reflecting a record drop of $5.6 billion, at an annual rate, in the category that includes auto loans. The declines were a drop of 4 percent in overall borrowing, the biggest setback in nearly 15 years, and a decline of 4.9 percent in the category that includes auto loans, the biggest drop in 13 years.

Toll Brothers provided a range of fiscal 2006 earnings a share that was weighted below consensus forecasts, and said fiscal 2007 earnings may beat or miss a previous estimate of 20% growth. "Our sales results indicate that housing demand is returning to the more normalized levels of the decade from 1994 to mid-2003, before home prices really took off in quite a few markets," said Chairman and CEO Robert I. Toll.

GM is holding talks with Kerkorian's Tracinda investment firm regarding possible board representation.

From today's Financial Times: "In 2005 the US current account deficit is expected to top $700bn. It comes after 27 years of unbroken deficits that have totalled more than $5,000bn, leading to concerns of an impending global crisis. Once the massive financing required to keep on paying for such a widening gap dries up, there will be an ugly adjustment in the world economy. The dollar will collapse, triggering a stampede away from US debt, interest rates will shoot up and a sharp global recession will ensue."

Chad Hudson: "Every time it appears that consumers will start to retrench, some form of stimulus has been injected to spur consumer spending. With the housing boom starting to get long in the tooth, the last boost to consumer spending will diminish. While it is likely consumers will come through for the holiday season, it might prove to be the last hurrah. For retailers, the expansion of retail space over the past several years will exacerbate any slowdown in spending."

In its weekly petroleum supply report, the U.S. Energy Department said American inventories of crude oil grew last week by 2.7 million barrels to 320.3 million barrels, or 11 percent above last year.
Inventories of distillate fuel, such as heating oil and diesel, rose by 2.7 million barrels to 130.6 million barrels, or about 6 percent higher than last year.
Gasoline inventories rose by 2.7 million barrels to 202.6 million barrels, or 4 percent below last year.
With oil imports at 10.6 million barrels per day and U.S. refiners running their plants last week at almost 91 percent of capacity, up more than 1 percent from the prior week, it is not surprising that the price for crude does not collapse. It is currently trading between $59 and $60 a barrel. This is December 8. Wait until Spring arrives and Americans go out for a weekend drive in the country. Those predicting a sharp drop in gasoline prices have their heads screwed on backwards.

Nobel literature laureate Harold Pinter slammed President Bush and British Prime Minister Tony Blair in his prize acceptance speech, saying the two leaders should be prosecuted for the invasion of Iraq.

Ford will eliminate up to 30,000 jobs and close at least 10 assembly plants.

The Dow Jones Industrial Average is now down for the year. The S&P 500 and the Nasdaq continue to show
small gains.

According to Challenger, Gray & Christmas, U.S. corporation job layoffs rose 22% in November to 99,279 and layoffs have increased for three months in a row. So far in 2005, there haebeen 964,232 job cuts, and that is 3.6% higher than one year ago.

According to the quarterly UCLA Anderson Forecast, a slowdown in the U.S. housing market could claim 800,000 jobs in 2006. The study also predicts a slowdown in construction activity through 2007 and moderate
job construction losses.

Barges are fuel-efficient and labor-cost efficient and thus there is a growing demand to move heavy grades of oil by barge. Kirby Corp. claims the no. 1 spot in hauling petroleum products and chemicals along inland waterways on barges with tanks.

Wages, Productivity, And Inflation

12/7/05 Wages, Productivity, And Inflation

In the past year unit labor costs have increased 1.8%, and, at the same time, productivity has increased 3.1%.

The seasonally adjusted annual rates
of productivity growth in the third quarter were:

          5.4 percent in the business sector and
          4.7 percent in the nonfarm business sector.

In manufacturing, revised productivity increases in the third quarter
were:

          3.4 percent in manufacturing,
          6.5 percent in durable goods manufacturing, and
          0.2 percent in nondurable goods manufacturing.
Unit labor costs fell 1.1 percent in the third quarter of 2005 following
a decline of 0.9 percent one quarter earlier.  The implicit price deflator
for the business sector, which reflects changes both in unit labor costs and
in unit nonlabor payments, rose 2.8 percent in the third quarter of 2005.
In the nonfarm sector, when the rise in consumer prices is taken into account,
real hourly compensation declined 1.4 percent in the third quarter of 2005 and
3.1 percent one quarter earlier. The economists at the Fed cheer news like this,
but how can one be happy when the average worker's wages trail the rate of inflation?

Paul Kasriel: "Fed Chairman Greenspan
disparages the usefulness of the yield spread as a leading indicator. I have
found Greenspan to be a pretty reliable contra-indicator throughout
his professional career." The yield spread continues to flatten. Next week the Fed
raise interest rates again. This should make for an interesting picture. Rates are
poised to invert. Should this take place, will investors want to pour more money
into equities? I prefer to stay on the sidelines and watch the show.

"The best forecast of future real activity is provided by
the level of the term spread, not the change in the spread, nor
even the source of the change in the spread," states Arturo
Estrella, economist at the Federal Reserve Bank of New York.

Home sales in San Diego are 12.7 percent lower
than last year, the sharpest drop of any major urban county in the
state. The SF Bay Area is down an average of 7.2 percent, and home sales
in some rural counties around Sacramento, such as El Dorado and Placer,
have dropped more than 20 percent. Throughout the U.S., October pending
home sales declined 3.2% to a level 3.3% lower than one year ago.

The U.S. Postal Service reported today
it concluded fiscal 2005 with a net income of $1.4 billion on record revenues
of $70 billion and record volume of 212 billion pieces of mail.

Almost Four in 10 Consumers Plan to Pay Off Their Debt, and 30 Percent of
Workers Anticipate Getting a Promotion in the Coming Year,according to the latest
Experian-Gallup Personal Credit Index(SM) survey,and 68 percent of consumers say
they are optimistic about their financial situation in the coming year,
including 30 percent who are "very" optimistic.

Applications for mortgages at major U.S. banks rebounded by a seasonally adjusted 5.2% last week
after a slump during the Thanksgiving week, the Mortgage Bankers
Association reported Wednesday. Applications are down 6.1% from the same week a year ago.

Homeowners on average will see a 25.7% increase in their heating costs
from a year ago, the Energy Department stated Tuesday. That's down a bit from a
28.1% increase forecast last month, but if realized, the gain would be
the biggest since the 2000-01 season. Average heating bills rose 12%
last season. Meanwhile, in the latest BLS report, weekly wages rose 3 cents.
There is something wrong with this picture. Worker productivity continues to
outpace wage gains and the latter trail the rate of inflation. Bend over and
touch your toes. That's the position of the average worker.

Gold hits new 22-year high at $517.60 an ounce.

Dreamland

12/06/05 Dreamland

Bush: "We've been wise with your money, as well. Each year I've been in office,we've cut the rate of growth in non-security discretionary spending. We're ontrack to reach our goal of cutting the budget deficit in half by 2009." He must be in dreamland!

"The avian flu bears the potential for societal disruption ofunprecedented proportion," said Homeland Security Secretary Michael Chertoff. "Strong partnerships and smart planning will be our best protection against this threat. At the President's direction, we are tapping every capability and expertise within the federal government and among first responders and public health officials to maximize our nation's preparedness." I hope our preparedness is a step up from our lack of expertise after Katrina. Given the report from the 9/11 Commission, I have little faith in the President's direction and/or leadership. Maybe it would better be described as lack of direction and leadership.

Henry K. To: "This author would not be surprised if we see some kind of "financial accident" in either an emerging market country or in one of the companies of the S&P 500 - such as the bankruptcy of GM or Ford, for example."

John Hussman: " Despite seasonal hopes and economic optimism, the overall constellation of market conditions currently provides no support for accepting a material exposure to market fluctuations here. That may change if, for example, internals improve enough to signal a robust preference of investors to take risk, but here and now, risk-taking seems confined to speculative sectors of the market. "

Yesterday the 10-year Treasury yield jumped to 4.57% while gold continued its climb to $508.90 an ounce. Crude reached the $60 a barrel level and that indicates to me that gas at the pump is too cheap at roughly $2.13 a gallon. The ISM Services Index for November dipped to 58.5% from 60%. This flies in the face of the large addition of service jobs for November. On the other hand, the quality of many of those additions is suspect, such as, 60,000 seasonals for UPS.

I was surprised by Boston Scientific's $36 cash and $36 stock bid for Guidant. On the surface, that looks overly aggressive to me. I thought the reduced bid by J&J was rich. Then again, what do I know about medical hardware?

Visa USA said its e-commerce credit-card sales peaked on Thursday. All sales during the week of Nov. 28 to Dec. 4 reached $25.1 billion, a 13.9% increase over year-ago spending.

Janet Yellen, Pres. SF Fed: "The federal budget deficit is not sustainable. I'm concerned that the people take it as a given they have Social Security, Medicare and support from Medicaid to pay for nursing home care.A lot of people are not well prepared for retirement. Social Security, Medicare and Medicaid now equal 8 percent of gross domestic product and will rise to 16 percent of GDP in 2030. But tax revenues as a percent of GDP don't show a similar rise to pay for those benefits. Some think the federal government is in a similar position (to that of corporate America) in that it has unfunded liabilities."

Gary Lammert, The Economic Fractalist: "Will the debt laden credit cards of the American consumer be able to once again do what American manufacturing through reasonably paid blue
collar jobs cannot, provide buying power to sustain retailer viability
and economic growth? Has the Christmas rally completed its maximal
growth sequence a few weeks early? Time will tell."

Verizon stated Monday evening management employees hired after Jan. 1, 2006, will not earn pension benefits. Under the restructured benefit plans, after June 30, 2006, Verizon management employees will no longer earn pension benefits or receive any additional service credits toward the company's subsidy of retiree medical benefits. Management employees without 15 years of service will not be eligible for a company subsidy for retiree medical benefits. Do you think this policy will enable Verizon to attract top management candidates? Would you want to work for this company?

Rumsfeld: “To be responsible.....one needs to stop defining success in Iraq as the absence of terrorist attacks.” That's another way of saying that bodybags don't count. He is a spinmeister residing in Dreamland.

Texas is the only state in the nation that reduced education spending during the 2004-05 school year, according to a report released Monday by the National Education Association. This may help to explain the lack of intelligence for some with an extended stay on Pennsylvania Avenue.

Airbus received an enormous order for 150 single-aisle jets from China on Monday. Airbus stated it has offered China a 5 percent share of work on the airframe of the A350 and is considering building an assembly line for single-aisle planes in China.

The average yield on bonds rated BBB-, the lowest investment-grade ranking, and backed by payments on adjustable rate mortgages made to the riskiest borrowers is 7.23 percent, the highest since December 2003, according to JPMorgan. The yield was 5.7 percent in October. Do you think the bond market smells trouble
coming down the road?

Before you stand up and clap for GDP and employment numbers, it might be worth pondering what impact the real estate industry and government spending (municipal, state, and federal) have had on the last 4+ years of growth. Then adjust the growth for household and government debt levels as well as non-core inflation.

Last Friday I noted that the latest BLS numbers revealed that the workweek for nonsupervisory workers fell from 33.8 to 33.7 hours. Professor Andrew Samwick points out that this reduction equates to 10.56 million hours or about 312,000 workers.

Kmart comparable sales declined 2.8% in the quarter and Sears domestic sales plunged 10.8% in the quarter. At this rate, soon their sales performance will look those from Ford and GM.

Tom Naylor: "The bigger the real-life problems, the greater the tendency for the discipline to retreat into a reassuring fantasy-land of abstract theory and technical manipulation."

Impeach!

12/5/05 Impeach!

Next week will mark the 1,000 day of the Iraq war. Ninety-four percent of the 2,121 fighting men and women who have been killed in the Iraq war perished after Bush proclaimed "mission accomplished" on the aircraft carrier. In a recent poll 80% of the Iraqi people were in favor of us leaving their country and 45% stated they would support harm coming to our troops. In the meantime, the VP of Iraq stated that training of the Iraqi army had taken a setback over the past six months. When our citizens can no longer verify the trust in its leader, it is time for the leader to go.

Looking Beyond Your Nose

12/4/05 Looking Beyond Your Nose

John Dugan, Controller of the Currency: "Many payment-option-ARM borrowers calculate that they will be able to sell their property or refinance the mortgage by year six. But if real estate prices decline – and there already is evidence of softening in some markets – these borrowers could face the bleak prospect of loan balances that exceed the value of the underlying properties. In that case, selling the property or refinancing the loan would not be a viable escape valve for avoiding huge payment shocks.
In these circumstances, do consumers really understand the potential consequences of the neg am feature inherent in a payment-option ARM? Is this an appropriate product to mass market to customers who may be looking at the less than fully amortizing minimum payment as the only way to afford a larger mortgage – at least for the five years before the onset of payment shock?"

Robert Frost: " He burned his house down for the fire insurance and spent the proceeds on a telescope. "

Is Bush aware that, since his taking office in Jan. 2001, total government purchases (Federal, state, and local) have risen by 16.15%, while Federal government purchases have increased by 29.68%? Bush has not vetoed one spending bill.

Henry David Thoreau: "The question is not what you look at, but what you see."

Since we invaded Iraq in March 2003, at least 2,120 of our fighting men and women have been killed.

The aging of our population is one of the most important trends in today's U.S. society. According to a new report from the Congressional Research Service, "Income and Poverty Among Older Americans in 2004," one senior in 10 lives in poverty. The bad news is that the poverty threshold for a single person 65 or older is $9,060 a year. For a couple, the figure is $11,418.
The Current Population Survey done by the Census Bureau reports income of individuals, not households. It states a person 65 or older is in the top 25 percent of all seniors with an income of only $26,777. They're in the top 50 percent with an income of only $15,199. That news should make everyone sit up and take notice.

Japan's NEC Electronics Corp. has developed a technology to make advanced microchips with circuitry width of 55-nanometres, or billionths of a meter, the Nihon Keizai Shimbun business daily said on Sunday.
Intel stated on Thursday it would build a 45-nanometre chip factory, which would cost more than $3.5 billion, in Israel -- its second such plant after one being built in Arizona.

How do we know that the recent large purchases of U.S. treasury bonds by the UK and the Caribbean do not mask, at least in part, the Federal Reserve making a portion of these buys?

Aristotle: "The soul never thinks without a mental picture."

Get Real

12/3/05 Get Real

On November 8, Palatin released its sales and earnings for the quarter ended 9/30. Due to less than anticipated revenue generation from NeutraSpec, some analysts and shareholders were disappointed and the shares fell back towards the $2 level where my purchase of stock occurred nine months prior. (The market cap was $100 million.) I mentioned that I never invested in Palatin because of NeutraSpec. I invested for the company's potential in male and female sexual dysfunction with PT-141 and in the field of weight control. In theNov. 8 release, Palatin stated "For the quarter ended September 30, 2005, royalty revenue on Mallinckrodt's commercial sales of NeutroSpec amounted to $916,000, compared to $578,000 in the quarter ended June 30, 2005 and $327,000 in the quarter ended September 30, 2004. In the current period, the Company recorded no product sales revenue from shipments of NeutroSpec to Mallinckrodt, compared to $416,000 for the quarter ended September 30, 2004."
In the prior quarter that ended June 30, Palatin reported 0.8 million in product sales and 0.6 million of royalty revenues related to NeutraSpec, a proprietary radiolabeled monoclonal antibody approved by the FDA for imaging and diagnosing equivocal appendicitis in patients five years and older. "A NeutroSpec® image allows a physician to more rapidly obtain diagnostic information that supports patient management decisions. In Phase 3 clinical trials, 90% of positive appendicitis cases were diagnosed within just one hour. The preparation is simple to produce and can be done by any qualified radiopharmacy." The product is distributed by TycoHealthcareMallincrodt. Yesterday afternoon at 3:28 EST the two companies released the following information:
"The companies have received reports of several patients with severe underlying cardiopulmonary co-morbidities who experienced life-threatening or fatal reactions soon after NeutroSpec was administered. No causal relationship has been established. The occurrence of these reactions is rare and has only been observed in patients receiving NeutroSpec for off-label indications."(Off-label uses are uses not approved by the Food and Drug Administration.) Within the next half-hour of trading the stock declined about 20% or almost $40 million in market value. Let's get real. For the last two quarters, product and royalty income of NeutraSpec only amounted to $2.3 million. I can't make it any clearer.

Year-to-date, M3 has expanded at a 7.4% rate and now exceeds a record $10.1 trillion. Meanwhile, real estate loans have surged to almost $2.9 trillion, or close to twice the Fed foreign holdings of Treasury, Agency debt.

You think inflation is under control? Copper is at a record high. Gold is at a 22-year high, silver at an 18-year high, aluminum at a 16-year high, zinc is at a 15-year high, and my old favorite sugar is at a 10-year high. These highs have helped the Goldman Sachs Commodities Index to rise 40% in 2005. Get real. Inflation is alive and well. The core inflation rate is for economists only. They don't pay the bills. They are too busy making speeches. Their wives pay the bills.

Barry Ritholtz: "The structural problems are quite real. Whether its Gold at $505, or the incredible minus 1.5% savings rate for Q3, or any one of a dozen other problems out there, we have a developing situation. Understanding it, preparing for what will eventually come, looking for signs that the cracks in the foundation are getting worse is the only prudent thing to do."

Changing Landscape

12/2/05 Changing Landscape

Toyota's November sales rose 5.6% to 169,665, its best-ever for the month of November.
Year-to-date comp sales are up 10.3%. Meanwhile, for the month of November, Ford's U.S.
sales declined 15%, GM's 11%, and Daimler Chrysler's 3%.

Equity options volume for November reached 136,197,319 contracts, 29.18% higher than November last year and also the second highest month on record for equity options following October. Year-to-date equity options trading volume is up 25.9% over the same period a year ago.

Gold closed at $502.50 an ounce.

In viewing the employment numbers this morning, it is a good idea to compare apples with apples. In other words, comp hiring gives a better look at the trend. For example, Coach opened about 25 new stores in 2005. Last year the company hired 3,000 holiday seasonal workers. This year Coach added 3,500 seasonal workers. We can visit the numbers at Wal-Mart, Target, Best Buy, etc. and it would provide a similar comparison. Therefore, it's important to look beyond the headline number. In addition, attention should be addressed towards the average hourly earnings, hours worked, and overtime hours, and compare those results with the current inflation rate, and not just the core rate.

People wonder where the money is coming to spur holiday spending. It results from refinancing cash-outs, home equity lines of credit, and credit card debt. The money is not coming from current savings, which is running in negative numbers.

Eric Hoffer: "The hardest arithmetic to master is that which enables us to count our blessings."

Home Depot announced the purchase of Petaluma, California's Yardbirds Home Center and its 10 Bay Area stores, ending 30 years of independent ownership for the local chain.

In November, nonfarm payrolls rose by 215,000, of which 165,000 were service jobs. Before you get too excited, total hours worked fell 0.1%, the average workweek fell by 0.1% of an hour to 33.7 hours, and average hourly earnings rose by 3 cents or 0.2% to $16.32. That means earnings continue to trail inflation. In addition, the average workweek in manufacturing declined
to 40.8 hours from 41 hours.

The Financial Times reports that three groups of bidders are this weekend expected to put the final touches on offers to take over Albertson’s. The paper stated the consortia, which mostly include private equity firms, are facing a deadline of Tuesday to enter bids for the entire company. At yesterday's closing price of $23.71, the risk/reward looks like an excellent one to me.

The Nikkei is trading at a 5-year high.

The WSJ reported that Ford Motor Co. is likely to close five plants that employ about 7,500 workers, or about 6 percent of the company's North American workforce.

Calpine Corp. stated yesterday it might consider filing for bankruptcy and there was a "substantial risk" it might not have enough money to pay its debts or keep operating.

This morning light, sweet crude for January delivery gained 35 cents to $58.82 a barrel in electronic trading. This level remains 17% below th high reached in late August.

Yesterday was the first time that shares of Hughes Supply ever closed at $39 or above.

Christine Khemis, a nationally ranked long-term care specialist and Partner
of LTC Financial Partners LLC, the nation's leading long-term care insurance
brokerage, observed as the population ages, homeowners
and real estate professionals face a challenge: meeting the special needs of
people who can't take care of themselves--things like making bathrooms
wheelchair-accessible, or creating space for hired care workers.

Walgreen's November same-store sales rose 7.8%. This company just keeps churning out
numbers-- month after month,year after year,and decade after decade.

GM estimated that it would build 1.25 million vehicles in North
America during the first quarter of 2006,up 6% from the same period
this year.

Robert Louis Stevenson: "To know what you prefer instead of humbly saying Amen to what the world tells you ought to prefer, is to have kept your soul alive."