Around The Bend

2/10/06 Around The Bend

Gary Lammert: “Equity, commodity and bond patterns suggest a unified low or crash
with a nodal point in the April-May 2006 time frame. A nodal low in
the oil commodity stocks in this time frame (May-June) would confound
most prognosticators who are focused on Kuwait's recent revelations
and the volcanic unpredictability and volatility of Iran's recent rantings and threats.”

Rigzone: “Exxon Mobil's biggest competitor in the quest for oil reserves is not BP or Royal Dutch Shell. It is the governments of China, South Korea and India.”

Oil Daily mentioned “in order for investors in the popular Goldman Sachs Commodity Index to break even this year, crude oil prices need to hit $77/bbl, according to Deutsche Bank, largely because of the contango price structure hurting roll returns.” Contago is
where distant delivery prices for futures exceed spot prices, often due to the costs of storing and insuring the underlying commodity. It is the opposite of backwardation.

Doug Wakefield: “After all, the umbrella of diversification may be enough to shelter them from the summer rain. But, this same umbrella is an ill-suited tool for a level five.”

Crude oil futures were slightly lower Friday after the International Energy Agency trimmed its 2006 oil demand forecast, to 1.78 million barrels of oil a day from 1.83 million barrels. Crude oil futures were trading down 22 cents at $62.40 a barrel.
Yesterday, natural gas prices traded down to $7.37 per million BTUs, the lowest level in one year.

I found it interesting that yesterday’s 30-year Treasury bond auction, the first in 5 years, could produce a bid-to-cover of only 2.05. In addition, I found it significant the Fed Funds rate exceeds the yield on these 30-year Treasury bonds--- that is magic—given our
Country’s twin tower deficits. Why accept a low yield while lending to a heavily indebted nation?

Financial Times: “It is harder to see why investors would flock to the bonds at these prices. They must assume a very benign inflationary environment for a long time – just think of the changes in the economy since 1976 – and they get no real premium for tying up the funds for so many years.”

Investors should sell the dollar versus the euro because the U.S. currency has reached its ``peak'' and reflects expectations the Federal Reserve will keep raising interest rates, said Goldman, Sachs & Co. ``The dollar is going to have a hard time,'' said Jens Nordvig, a currency strategist in New York with Goldman, in an interview yesterday. ``Investor expectations for the Fed will run out of steam.''

European stocks traded at a 4 ½ year high.

Don Basch: “In comparison with the chart setup preceding the decline of 1987, domestic markets appear poised on the precipice overlooking a yawning crevasse, as do international markets which are awash in speculative hot money. Bears are licking their chops, relishing an impending decline on both domestic and international indices, and why shouldn't they? Most have been proven wrong all the way up. But every dog has its day.”

DP World, Dubai's port company, will acquire Peninsula & Oriental Steam Navigation, UK’s largest port operator and a 168 year-old company, for 520 pence a share, or 3.88 billion pounds ($6.8 billion), after PSA International Pte, Singapore's largest port company, said in a statement today that paying a higher price wouldn't make ``business sense.''

Yesterday, I made an incorrect statement. I stated Oracle was cutting 1,000 jobs.
They are eliminating 2,000 jobs. Oracle expects to buy back 139 million shares in the fourth quarter to make up for the shares issued to purchase Siebel.

Microsoft will spend $1 billion on its Redmond headquarters over the next three years.

Jacob Weisberg: “A country that saves and invests so little may be able to postpone a decline in living standards but it cannot do so indefinitely.”

Former Expedia founder initiated the beta version of Zillow.com on Wednesday. After the automated home appraisal site had 2 million hits, it crashed. Thursday it was back up and operational. This business could truly change the residential real estate business in a hurry. It would be foolish to underestimate Richard Barton. He made a real success of Expedia.

Del Monte Fresh Produce’s announcement that it would stop planting pineapple in Kunia on Feb. 19 and phase out other operations over the next three years will affect about 700 International Longshore and Warehouse Union employees, as well as an undetermined number of nonunion positions. Del Monte's departure will leave Maui Pineapple Co. and Dole Food Co. Hawaii as the only two pineapple growers in the state.

VW stated up to 20,000 employees cut be cut.

Our trade deficit was $618 billion in 2004. In 2005 it probably approximated $725 billion.

Jack Abramoff: “The guy (Bush) saw me in almost a dozen settings, and joked with me about a bunch of things, including details of my kids.” I’m sure there will be a lack of memory also about Scooter Libby who testified that his superiors instructed him to leak information to reporters from an intelligence report.

Spanish Media

2/9/06 Spanish Media

Univisión reaches about 98 percent of U.S. Spanish-speaking households through its 62 TV stations, more than 90 affiliate stations and more than 2,000 cable affiliates. The Hispanic population is expected to jump 68 percent to 72.1 million, or 20 percent of U.S. residents, by 2025, according to researcher Global Insight.

Grupo Televisa, Mexico's largest media company, owns 11% of Univision. Televisa provides the popular telenovelas and Mexican soccer matches that made Univision a programming powerhouse. U.S. law forbids foreign citizens from owning more than 25% of a U.S. broadcasting company. Univision is now our country's 5th largest network.

Univision's board has voted to explore strategic alternatives, and the most likely scenario is the sale of the company.

Wal-Mart has approximately 3200 stores. Last year they opened 341 new stores. In 2006,
they have plans to open 370 new stores.

Oracle will announce cutting 1,000 employees from its payroll.

Palatin

2/8/06 Palatin

Palatin Technologies, Inc. and King Pharmaceuticals, Inc. announced that the
companies have initiated enrollment in a double-blind, placebo-controlled
Phase IIb clinical trial of PT-141 in patients with female sexual arousal
disorder (FSAD).  The primary objective is to evaluate the safety and efficacy
of PT-141 in FSAD patients in the "at-home" environment.
This Phase IIb clinical trial is designed to enroll approximately sixty
women with a confirmed diagnosis of FSAD.  The clinical trial entails a two-
month treatment period and will be conducted at approximately ten clinical
trial sites throughout the United States.
Dr. Trevor Hallam, Executive Vice President, Research and Development of
Palatin, stated, "Together with our colleagues at King, we are very excited to
commence this important, initial exploratory trial to evaluate PT-141 in FSAD
patients in the 'at-home' environment.  The data we gather from this study
should prove significant for purposes of determining the future course of
development for PT-141 in the treatment of female sexual dysfunction."
The companies expect this Phase IIb clinical trial to conclude in the second
half of 2006.

The fastest growing item in the Bush budget: interest costs. They will amount to
approximately one quarter of a trillion dollars this year. While I'm on this
subject, rates on Treasury bonds have been on the rise. The 2-year is at 4.60%, the
10-year at 4.57% (an inverted yield curve), and the 30-year settled in at 4.65%.
Yesterday's auction of the 3-year notes was disappointing with limited interest.

The government reported that consumer credit rose only 3% in 2005, the smallest
increase in 12 years. However, mortgage loans continued to rise to the sky. It is
certainly cheaper to take out equity from a home than to pay credit card interest
rates.

Seasonality has taken hold in the metals markets. Gold nosedived to $555 an ounce
and silver to $9.39. Even copper took a small hit down to $2.27. Still and all,
these are all pretty fabncy prices on an historical basis.

Crude oil prices fell more than $2 a barrel Tuesday to $63+ after the U.S.
Department of Energy lowered its global oil demand estimate, and as
traders expect the agency to report an increase in U.S. oil inventories
today. In addition, the warm weather generated a drop in natural gas to
$7.89/MLN BTUs, an 8 month low. The country's average temperature for the month
was 39.5 degrees Fahrenheit, 8.5 degrees above average for January, the National
Climatic Data Center said Tuesday. The old record for January warmth
was 37.3 degrees, set in 1953.

Google: ``We are testing the distribution of various technologies with Dell.''

The NY Times reported that Univision, the Spanish-language media company,
may put itslef up for sale, and hired UBS as an advisor.

Marc Faber: "So, if we combine the over-bought condition of the
stock market, investors' sentiment high optimism, equity mutual funds' low
cash positions, and also heavy foreign buying, we have all the ingredients
for a stock market correction in the US getting underway very shortly...
my view is that we shall, eventually, be able to buy one Dow Jones Industrial
Average with between just one and five ounces of gold."

Inflation Expectations And The Bush Budget

2/7/06 Inflation Expectations And The Bush Budget

Steve Saville: "The Fed's biggest fear is an uncontrolled rise in inflation expectations."

Now let's take a look at the market in real time. The Inflation Indexed Treasury bonds tell quite a story about inflation expectations. The 10-year TIP, as they are called, yields 1.99% but the 30-year TIP yields only 1.80%. Taking this a step further, a non-inflation indexed 30- year Treasury bond yields 4.62% or almost the identical yield as the 2-year Treasury bond with a return of 4.61%. How can that be? Copper is selling at an all-time high of $2.33 a pound and gold at $574.30 is in spitting distance of the most recent multi-year high of $480 an ounce. In sum, there's lots of inflation but yet the market has turned a deaf ear and states it will not continue far into the future.

Raghan Rajan: "Even though there are far more participants who are able to absorb risk today, the financial risks that are being created by the system are indeed greater."

The Fed has one eye on wages and the other eye on inflation. Clearly, wages have not kept with inflation for several years. As for inflation in general, the Fed is hardly watchful as it prints money in high single digits. That is not being accomodative. That is undermining the value of our currency.

Michael Maloni: "There isn't enough excess capacity systemwide now-across all ports- to handle any breakdown at any large port."

Bush's proposed budget: The biggest spending increase would go to the military, a 6.9 percent rise to $439.3 billion for 2007, a figure that does not include the costs of fighting wars in Iraq and Afghanistan. The administration said last week it will ask Congress for an additional $120 billion to cover fighting for the rest of this year and the early part of 2007.

Stephen Roach observed that "the overall Chinese savings rate rose above
45% last year."

Yesterday, Alcoa, one of the Dow stocks, rose 4.7% as JP Morgan upgraded the stock
to overweight and raised its EPS estimate to $2.15 from $1.88 due to rising
aluminum prices.

Paul Kasriel: "If history is any guide, a slowdown in household spending growth
in 2006 is likely to lead to a slowdown in capital spending growth."

Robert Eckel, M.D., President of the American Heart Association:
"On behalf of the more than 71 million Americans who suffer from some form
of heart disease, stroke, or other cardiovascular diseases, we are
disappointed that the President's budget has placed funding for programs that
help prevent, treat and cure these diseases on the back burner of his domestic
agenda.  Cardiovascular disease is the number one killer of Americans and is
projected to cost this nation $403 billion in 2006 -- an amount equivalent to
this year's projected budget deficit.  As the population ages, the prevalence
and costs of these conditions will escalate, producing a cardiovascular time
bomb with staggering implications for health care costs and quality of care.
With deaths from heart disease alone projected to increase by nearly 130
percent by 2050, it's a terrible mistake to make cardiovascular research,
prevention and treatment a mere afterthought in the proposed budget.
Funding for the National Institutes of Health is reduced below last year's
levels and spending on medical research has eroded in inflation-adjusted terms
by nearly 10 percent since 2003.  The Centers for Disease Control and
Prevention's Heart Disease and Stroke Prevention program is reduced even
though the program currently funds efforts to prevent disease in only 14
states.  The Health Resources and Services Administration's Rural and
Community Access to Emergency Devices (AED) Program has been terminated even
though communities with aggressive AED placement plans have achieved survival
rates from sudden cardiac arrest as high as 40 percent."

Bush's proposed budget,which will have to face approval by Congress,
calls for Medicare cuts totaling $36 billion over the next five years and
$105 billion over 10 years. Most of the cuts come in the form of reduced payments
to hospitals, nursing homes and other health providers.

According to Forrester Research, about 56% of U.S. internet users have sent a
photo over e-mail as an attachment.

Toyota's latest quarterly earnings rose 34%.

The number of U.S. military personnel since we invaded Iraq in March 2003 has risen
to least 2,257, according to an Associated Press count.

Bush's budget still assumes that the government will reap hundreds of
billions of extra dollars from the Alternative Minimum Tax over the next five years.
I would hope that this scenario would not be the case.

According to Automotive News, Gneral Motors cut its 50 cents quarterly dividend
in half.

For the last 7 years, small caps have outperformed big caps. One might consider
taking some money off the table in the Russell 2000 and the S&P 600.

Luxury homebuilder Toll Brothers cut its home delivery estimate for the year to
between 9,200 and 9,500 homes from 9,500 to 10,200 homes. However, for their
first quarter ended Jan. 31, revenues rose 35% and its backlog rose 22%. Some
analysts may be disappointed in this downward revision, but the recent new low of
$30+ takes this adequately into account. On the other hand, I would prefer buying
shares in other homebuilders concentrating in more reasonably priced homes.

Observations

2/06/06  Observations

Robert McHugh: "Since Jan. 2004, the 10 Day Average
NYSE new high trend-line has declined steadily,
diverging bearishly with prices." The questions are
two-fold: will the new high peaks and prices decline
in unison? If so, for how long?

Mike Burk: "The 4th thru 9th trading days of Feb.
during the 2nd year of the Presidential cycle are
strong. Tues-Thurs have historically been the
strongest 3 days of the month."

Volkmar Hable: "More than 75% of all online traders
lose money at any given time. More than 92% of all
online option traders lose money at any given time.
Those statistics refer to individual traders and
investors."

India's benchmark stock index, the 30-share Sensex,
vaulted above 10,000 to an all-time high.

Crude has climber once again above $66 per barrel.

Seasonally Adjusted

2/4/06 Seasonally Adjusted

General Glut: "Of course, we should all remember that the US economy did not produce 193,000 actual jobs in January 2006. It produced 193,000 seasonally-adjusted jobs. The kind no one actually works. In the real world, the US economy eliminated 2.625 million jobs, the seasonally unadjusted kind that actually generate paychecks."

With today's release of a new Quinnipiac University poll that finds New York City
residents broadly supporting the opening of Wal-Mart stores in their city, Courtney
Lynch,national Steering Committee member of the recently formed Working Families for
Wal-Mart, released the following statement:
"While we're pleased with the results of this poll, they're not a
surprise. Working families everywhere support Wal-Mart -- and that includes
the people of New York City and those in union households, who are working
families too. They know that an independently-certified study showed that Wal-
Mart saves working families an average of over $2,300 per year. Wal-Mart saves
customers money, saves them time and is a good neighbor to the communities it
serves. Poll after poll, including this one, confirms that."

Car searches on cars.com hit a record high
in January, with the number of unique visitors exceeding 7.4 million,
according to the most recent Consumer Search Index report. The dramatic increase
in site traffic at the beginning of this year is especially significant given
January tends to be a slower month for car sales.
"The fact that we have experienced such a large rebound in site traffic is
significant not only for sites like cars.com, but it certainly represents a
positive start to 2006 for the automotive industry as a whole," said Joe
Wiesenfelder, senior editor at cars.com.  "In fact, many manufacturers already
are reporting better-than-expected sales in January."

Before I discuss the January employment report, let me say it has been compiled after
many revisions. More importantly, it is in stark contrast with the January ISM
Services Employment Index, which declined to 51.1% from 56.9% in December. In other
words, we have an economy that is heavily reliant on the services industry. How could
a January non-manufacturing employment index drop so much and yet the non-farm
payrolls rise by 193,000? In my view, it cannot and did not. Now to the report.
Nonfarm payroll employment increased by 193,000 in January and the unemployment rate
fell to 4.7 percent. Payroll employment was up by 140,000 in December and by
354,000 in November (as revised).In January, employment growth occurred in
construction, mining, and in several service-providing industries. In particular,
Employment in construction rose by 46,000 over the month and by 345,000 over the
year. Above-average temperatures in most of the country may have contributed
to fewer seasonal layoffs than usual in January.
In the service-providing sector, employment growth continued in health care over the
month. Jobs were added in doctors' offices, hospitals, and nursing and residential
care facilities. In January, employment in food services and drinking
places grew by 31,000.  Over the year, this industry has added 214,000 jobs.
Employment in professional and business services was up
by 24,000 in January, following 2 months of unusually large gains that totaled
138,000. In January, financial activities added 21,000 jobs.
Average hourly earnings for production or nonsupervisory workers rose by
7 cents in January to $16.41. Over the year, average hourly earnings rose by 3.3%,
the most in 3 years, but the gains still trailed the rate of inflation.
Importantly, the average workweek was 33.8 hours, the same as it has been for five
straight months.

As is often the case, the headlines projected the wrong picture.The initial reaction
to the Friday jobs report was the fear that interest rates would be increased to at
least 5%. The 2-year Treasury yield rose to 4.63%, the 10-year to 4.61%, and the 30-
year to 4.72%. Where they closed on the day was a diffeent story. The 2-year at
4.58%, the 10-year at 4.53% (notice the widening inverted yield), and the 30-year
at 4.63% or just a slightly higher yield than the 6-month Treasury bills. The dip in
yields produced a rally in the housing stocks, and in fact, Meritage Homes and M/I
Homes had a decent week. Not all housing stocks are created equal. Toll Bros. made
a new 52-week low on Friday at $30.70 before rallying to $32+. Just as the selling
in GM and Pfizer was overdone, so was the barrage of selling in many home builders.
By the way, the continued strength in this sector was believed to have contributed
25,000 new jobs in January.

Many believe the ECB will raise rates one-quarter of a point on March 2 to 2.50%.

Trends

2/3/06 Trends

Market research publisher Packaged Facts stated "People still want to lose weight, but they've lost their taste for extreme diets. They want to eat sensibly with a little indulgence; hence there's a shift in market share from frozen dinners and entrees, food bars, and meal replacement liquids and powders losing ground to more enticing desserts and candies, which are being reformulated to meet the demands of the low/no sugar, low fat, low glycemic dietary preferences of today's weight-conscious consumers."

The Labor Department stated that, in the last quarter, unit labor costs rose 3.5% annualized and productivity fell 0.6%, the first such drop since 2001. For all of 2005, productivity increased 2.7%, the smallest increase since 2001. In my view, it is unrealistic to expect productivity gains to continue as long as wage gains trail the rate of inflation.

The number of people collecting state unemployment benefits fell by 64,000 to a seasonally adjusted 2.5 million in the week ended Jan. 21, the lowest since Feb. 2001, and the uninsured rate fell to 1.95 from 2%, the lowest rate since Feb. 2001.

Since we invaded Iraq in March 2003, 2247 of our fighting men and women have been killed.

M/I Homes expects their 2006 EPS to rise 10% to $7.55 to $7.75 per share, and they anticipate delivering 5,000 homes in 2005. They have the highest backlog in the their 29-year history. The news was greeted with buying and the stock jumped $7 in early trading and held a good portion of the gains as it closed at $43.79, up 44.80 on the day and only a small premium to their $41 book value. On the other hand, Pulte Homes also announced good earnings, and the company continues to target 2006 earnings growth of roughly 10% to 15%, which is in-line with current guidance for earnings of $6.00 to $6.25 per share; however, the stock declined $1.35 to $37.55. After the close, Standard Pacific, another home builder, forecast 2006 revenue approaching $5 billion with per share earnings of $6.90. Forecasts in this sector continue toi outpace analyst expectations.

The White House has told Congress to expect requests for about $120 billion more for the wars in Iraq and Afghanistan in the ongoing budget year and $18 billion more for hurricane relief, Senate GOP aides say. Since 9/11, the requests for Iraq and Afghanistan total about $440 billion. Keep those printing presses rolling. This administration spends us deeper into debt and misspeaks about the financial health of our nation

Regulators are concerned about heavy commercial real estate exposures and risky mortgage lending practices at U.S. banks, Federal Reserve Board Governor Susan Bies said on Thursday. "There are certain rapidly growing business lines in banking operations that are placing pressures on risk-management systems," Bies stated.

Starbucks raised its outlook for 2006, and the stock responded by selling at a new all-time high. The great ones come through year after year.

March natural gas futures closed at the lowest level since June, down 4.3% to finish at $8.347 per million British thermal units. March crude fell $1.88, or 2.8%, to close at a three-week low of $64.68 a barrel.

Last month was the warmest January in 112 years, according to Weather Trends International.
As such, January construction hiring should get an added boost.

For the entire year, in the San Francisco Bay Area only 8,806 defaults were filed on houses and condos -- the lowest annual figure going back to at least 1992, when DataQuick first began tracking the data. The peak came in 1996 with 24,661 filings. Only 141 Bay Area homes were foreclosed upon in the fourth quarter. That is an amazingly low number.

Jim Rogers: “Maybe the trend is your friend for a few minutes in Chicago, but for the most part it is rarely a way to get rich.”

Is This The United States?

2/2/06 Is This The United States?

Rep. Lynn Woolsey gave her only pass to the State of the Union Address to Cindy Sheehan. The latter was removed from her seat by security personnel before being arrested. She was taken in handcuffs and charged with unlawful conduct. Why? She wore a T-shirt that read "2242 dead. How many more?"
Yesterday, Capitol police asked the U.S. attorney's office to drop the charges.

Beverly Young, wife of Rep. C.W. Bill Young of Florida — chairman of the House Defense Appropriations subcommittee — was removed from the gallery because she was wearing a T-shirt that read, “Support the Troops — Defending Our Freedom.”

Supposedly, our troops are over in Iraq fighting for Iraqi freedom. Maybe we should have all of our troops located throughout the world returned to our homeland in order to fight for American freedom. It's about time we took care of our own. When Bush stops stomping on our freedoms, then, and only then, will I consider uttering a good word about his presidency. I won't hold my breath.

Bush: "We love our freedom, and we will do everything in our power to defend our freedom." What a crock! Ask Cindy Sheehan and Beverly Young!

"The U.S. Capitol is not private property that belongs to the president, or even the speaker of the House, it belongs to the people," said Jamin Raskin, a constitutional law professor at American University in Washington who has discussed legal options with Sheehan. "The great irony was that Bush was extolling the virtue of freedom and civility in America, at the same time the police were dragging Cindy Sheehan out of the chamber."

Brad Setser: "Looking toward 2006, I suspect the US will need to engage in a $1 trillion debt for goods swap -- at least if oil stays above $65 and the US economy grows a bit faster than it did in the fourth quarter."

The yield curve has inverted once again. The 2-year Treasury yields 4.58% and the 10-year is at 4.56%. The spinmeisters will tell you that this time it's different. Losers always have that for an explanation.

Richard Daughty, The Mogambo Guru: "The Federal Reserve is creating $50 billion a freaking month? The money supply is being directly increased by fifty freaking billion bucks (FFBB) a freaking MONTH (AFM)? And how much IS $50 billion a month, you ask? It's $417 for everybody in the country that does not have a government job. PER MONTH! Your insane government is indebting you by another $417 per month, every freaking month! And they have been doing this for years! And they will CONTINUE to do this, more and more, for more years! Hahahaha! We're idiots!"

The administration has refused to release internal documents on Hurricane Katrina, materials on Abramoff, and now its domestic eavesdropping program. What does the administration have to hide?

Next week, after a five year hiatus, the Treasury will be auctioning 30-year bonds. It will be part of the $48 billion in bonds to be sold. Please remember that the Treasury has exceeded the debt limit. Not one peep has come from any member of Congress.

Crude oil futures prices fell by more than $1 a barrel Wednesday after the U.S. government released data showing crude oil and gasoline supplies on the rise; however, prices are still above $66 a barrel and prices at the pump are on the rise. It's only February. Wait until the peak driving season.

Electronic Arts, the world's largest maker of video games, laid off 5 percent of its 7,000 world-wide workforce Wednesday, including 142 people in Redwood City.

Hospira announced plans to phase out its North Chicago manufacturing operations and close 2 other plants. In total, 1100 jobs will be eliminated. Yesterday, Abbott Labs stated 250 jobs were cut.

Four years ago, buying gold or gold shares was a no no. Today, the cheering for gold, silver, platinum, copper, aluminum-- you get the idea-- is getting deafening. I'm not much for noise. Plus, the seasonality for gold and the like is not friendly beginning in February. I suggest one considers taking money off the table in this sector. Selling into strength makes for a nice day.

Research In Motion said today the English High Court has decided that all patent claims against it in relation to certain Blackberry products in the UK by litigant InPro are invalid.

We have 46+ million uninsured Americans. How many of them are currently saving money? How many have an ability to save money? How many are unemployed? Do you really think someone who suggests health savings accounts is in touch with reality? Like father like son.

Fresh Del Monte Produce Inc. plans to cease its pineapple operations in Hawaii in 2008, saying the fruit can be grown for less in other parts of the world." It would be cheaper for Del Monte to buy pineapples on the open market than for the company to grow, market and distribute Hawaiian pineapple," the company said Wednesday in a statement. We now have pineapple outsourcing. How about that!

Yesterday's Top Story

2/1/06 Yesterday's Top Story

There was plenty from which to choose: Greenspan leaving the Fed; the Fed raising rates and leaving the door open for more increases; a new Fed head; Alito being confirmed; the passing of Coretta Scott King; the State of the Union Address; the Enron trial; the Oscar nominations; and Google's quarterly report. For me, the top story was Google. This company is more significant for today and tomorrow.

There are many aspects to the Google report. The company does not provide guidance, and therefore, analysts will not be spoon-fed and most likely will get almost every forecast incorrect. Google's earnings were disappointing to the Street but they exceeded internal company forecasts. The purpose here is not to suggest buying or selling Google at around $390 per share. The purpose is for you to take this opportunity to think as an owner of Google, the business. For the prior two quarters, the tax rate was 30%. In the December quarter it was 42%, and yet, income jumped to $469 million or $1.56 a share on revenue that increased 86% to $1.9 billion. That 24%+ profit margin is quite extraordinary.
The company invested heavily in IT infrastructure, new employees, sales and marketing, campus facilities, and real estate. The fact is Google employees can be proud of their accomplishments. The company is putting money back into the business and doing it in a smart way. Meanwhile, most other companies are focusing on stock buybacks, and that is not a sign of expansion. Google is the most aggressive hiring company in the Silicon Valley (where 53% of the engineers are foreign born).
Google is building for the long-term. Their business is providing information to the world, and no one does it better. Instead of checking the stock price every hours, try and relax and let the management run the business. There will be volatility; however, I am confident that Google's stock price can overcome the disappointment of many Wall Street analysts who have no idea what it is to think like an owner of a business.

A Surprise In The Wings?

1/31/05 A Surprise In The Wings?

The large-cap Russell 1000® Index outperformed the small-cap Russell 2000® Index in 2005, ending a string of six consecutive years of underperforming the small-cap index. Tthe Russell 1000 provided a 6.27% return for 2005, while the Russell 2000 reflected a 4.55% gain.

There are several questions one might ask prior to the State of the Union message. One is definitely whether the enormous slowdown in GDP growth from the 3rd to the 4th quarter of 2005 was an aberration. I don't believe the answer is to be found in the recent rise of interest rates in the Treasury bond market. I suspect the answer is in the housing market. In some geographical sections of our country builders are providing some incentives in order to hasten the sale of their houses. As with the initial incentives provided on autos, the housing incentives are garnering better than expected results. In sum, the sale of new houses, over the next few months, may surprise on the upside. These results could kick-start the buying of existing homes as well. Do I think these positive results will have a substantial duration? No I do not. However, they will provide enough of a lift to confuse the equity and debt markets.

Yesterday, gold, silver, and platinum traded at multi-year highs.

Hughes Supply stated revenues for the fiscal year 2006 are now expected to be approximately $5.4 billion, a 23% increase over the previous year's revenues of $4.4 billion. EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) is now expected to be approximately $309 million, a 25% increase over the previous year's EBITDA of $248 million. Net Income is expected to be approximately $152 million, an increase of 23% over the previous year's net income of $124 million. Earnings per diluted share are expected to be approximately $2.26, compared to $1.95 per diluted share in the previous year, an increase of 16%. Previous guidance issued on November 17, 2005, indicated fiscal year 2006 revenues of $5.3 billion, net income of $141 million - $143 million, and diluted earnings per share of $2.11 - $2.14.

U.S. consumer spending increased 0.9 percent in December outstripped the second straight monthly 0.4 percent increase in personal income.

Kraft Foods Inc., the nation's largest food manufacturer, said Monday it would eliminate 8,000 more jobs, or about 8 percent of its work force, and close up to 20 production plants as it broadens an ongoing restructuring effort.

Exxon Mobil Corp, the world's largest publicly traded oil company, on Monday reported a quarterly profit of $10.7 billion.

OPEC is likely to maintain output near a 26-year high in the second quarter, the United Arab Emirates oil minister said, joining officials from Saudi Arabia, Algeria and Qatar who expect output to remain unchanged.

The Treasury announced it will borrow a record $188 billion in the first quarter of 2006.
The government still expects to hit the statutory debt ceiling in mid-February. My math showed the debt ceiling was reached last week.

March natural gas rose 88.2 cents, or 10.4%, to close at $9.389 per million British thermal units -- its highest ending level since Jan. 10.

Guidant Corp. stated it has received Conformite Europeene Mark approval for its Xience V Everolimus-eluting coronary stent system. The company will begin marketing the drug eluting stent in the 25 countries of the European Union. Meanwhile, Boston Scientific, the company buying Guidant, has seen its stock drop precipitously. One year ago it was trading at $35. Yesterday, it declined to below $21(the last time it sold at these prices was 3 years ago) and the market cap has dropped to $17 billion or about $8 billion less than the deal signed to buy Guidant. Abbott Labs can’t be too happy. They agreed to buy a chunk of Boston Scientific’s shares at $25. Maybe the selling in Boston Scientific has been overdone.

A rising tide lifts all boats. Unfortunately, all tides are not created equal, such as, the tsunami that hit Sri Lanka and Katrina’s damage to New Orleans and other parts of the Gulf coast. Over the horizon, the potential for a wave of debt repudiation accompanied by an inflationary swell does exist.

Events

1/30/06 Events

Arcelor stated "The board has swiftly concluded that Arcelor and Mittal Steel do not share the same strategic vision, business model and values."

Fairmont Hotels & Resorts Inc. said it has agreed to be acquired by investment groups Kingdom Hotels International and Colony Capital for $3.9 billion.

According to the WSJ, GlaxoSmithKline Plc has restarted talks to buy Europe's biggest biotech company Serono SA for a lower price, after an auction for up to $15 billion failed to find buyers.

Japan's industrial production rose for a fifth month, the longest expansion since 1999.

Emily Dickinson: “The truth dazzles gradually, or else the world would be blind.”

The insurrection of a group of Justice Department lawyers in the Bush administration, described to Newsweek by current and former administration officials, is one of the most significant and intriguing untold stories of the war on terror, Newsweek reports in the
current issue. This is the link to the full story:
http://www.msnbc.msn.com/id/11079547/site/newsweek/

Dalai Lama: “Anger and hatred cannot bring harmony. The noble task of arms control and disarmament cannot be accomplished by confrontation and condemnation. Hostile attitudes only serve to heat up the situation, whereas a true sense of respect gradually cools down what otherwise could become explosive. We must recognize the frequent contradictions between short-term benefit and long-term harm.”

The most dangerous strain of bird flu has hit the Turkish part of Cyprus, the European Commission announced over the weekend.

Jim Allchin, who heads the Microsoft Windows division, gave an overview last week of Windows Vista, the new version of Microsoft's flagship software that Allchin's team is set to deliver before he retires at the end of 2006. He said it's on track to go on sale by the holidays. However, he stated, “I will also make a cautionary notice that I will not ship this product if it doesn't achieve the quality that's demanded by our customers. So although everything looks great right now, quality will be the deciding factor. I feel pretty good right now and we'll see how it goes the rest of the year.” Those now buying Microsoft shares need to hope the quality factor will be up to Allchin’s expectations. I don’t invest on hope.

Tokyo's Nikkei 225 index gained 90.55 points, or 0.6 percent, to finish at 16,551.23 -- its highest close since Sept. 4, 2000. Monday's rise was the Nikkei's fifth straight trading day of gains totaling 7.8 percent, more than recouping losses from the mid-month sell-off triggered by the investigation into startup Livedoor Co.

John Hussman: “Treasury bills – despite unusually low yields during the past several years – have outperformed the S&P 500 index, including dividends, for what is now more than seven-and-a-half years (for an annualized total return of about 2.6% during this period).”

Nigerian militants released four foreign oil workers on Monday, ending a 19-day hostage crisis, but threatened to resume attacks on oil facilities in the world's eighth largest exporter.

The decline in the housing stock sector reflects a belief that the coming decline in both home building and home prices will be severe. After looking over historical data it appears more likely that gradual is more likely than the sudden bursting of prices. We may arrive at the same price level, and it may be lower to the tune of 20% or more nationwide, but it may take three years to get there rather than nine months. Consequently, it is likely that the earnings for many home builders could surprise on the upside over the next six plus months.

For 2006, Kodak expects to record a loss from operations of $900 million to $1.1 billion.

Niccolo Machiavelli: “Benefits should be conferred gradually; and in that way they will taste better.”

Gift Cards

1/29/06 Gift Cards

Over and over again, I have stated that the rapid growth in gift cards has changed the landscape for retailers during the holiday season. Retailers record revenue from gift cards when they are redeemed, not when they are sold. The fact is that retailers have consistently underestimated the revenue generated by gift card sales. Wall Street was disappointed with the 2.2% increase in Wal-Mart’s December same-store sales. Since almost every analyst is unable to see beyond his or her nose, that is not surprising. The weakness in Wal-Mart shares presented a buying opportunity. Why? A significant percentage of gift cards are redeemed in January. Thus, on Saturday, Wal-Mart estimated that January sales rose 4.7 percent at its U.S. stores open at least a year, toward the high end of its forecast, as shoppers redeemed holiday gift cards. Now the analysts can upgrade their ratings on Wal-Mart shares. For this lack of performance, the analysts receive large holiday bonuses. Target Corp. expects its January same-store sales to show an increase in the range of 4.5 percent to 5 percent. Presently, Target’s P/E is much higher than that of Wal-Mart’s. I believe the differential will narrow.

Mike Burk: “Next week is made up of the last 2 trading days of January and the first 3 trading days of February during the 2nd year of the Presidential Cycle. This is a strong period, up about 2/3 of the time.”

February 6, 2006 is the record date for the determination of Hughes Supply shareholders entitled to vote at the meeting to consider and vote on a proposal to approve the
Agreement and Plan of Merger, dated as of January 9, 2006, between The Home
Depot, Inc. and the Company, providing for the acquisition of Hughes Supply by The
Home Depot.

"Insuring the uninsured is a fine objective," stated Regina E. Herzlinger, a professor at Harvard Business School. "Health savings accounts will increase coverage, and that's great. But they are being touted as a way to control costs, and I very much doubt that claim."

M3 is up $209.3 billion over the past ten weeks, a 10.8 percent annualized rate of growth.
Printing money is what the Fed does best. Owning dollars and dollar-denominated assets is for masochists. Shortly, there won’t be enough gauze to cover your wounds.

Rob Peebles notes “cash squeezed Americans can find 25,000 payday lending locations across the country (up 3,000 since 2002).”

Georgetown University Professor Stephen Wayne, an expert on the American presidency:
"There's been a de-emphasis of this year's State of the Union rather than an emphasis," Wayne said. "That's because he's (Bush's) got little to offer that's new, and a lot to defend."

Vauvenargues: “Generosity gives assistance rather than advice.”

False Prosperity = DEFAULT

1/28/06 False Prosperity = DEFAULT

Joey Adams: “Bankruptcy is a legal proceeding in which you put your money in your pants pocket and give your coat to your creditors.”

Growth in the U.S. economy slowed dramatically from 4.1% in the third quarter to a 1.1% annual rate in the fourth quarter, the weakest growth in three years, the Commerce Department estimated Friday. Inventory accumulation contributed 1.45% positive growth to fourth-quarter GDP. In sum, final sales declined 0.3%, the first drop since 2001. The personal savings rate was negative for the first year since 1933. Now compare these facts with what Bush will spin in his State of the Union message. A clue might be in a bumper sticker that reads—“What do diapers and politicians have in common?”

Sales of new single-family homes climbed to a 1.269 million unit annual pace in December after falling sharply the previous month. The Commerce department revised November's sales pace down to a 1.233 million pace from an originally reported 1.245 million unit rate. The number of new homes on the market at the end of December climbed 2.4 percent to 516,000, marking a new high. At the current sales pace, that represented 4.9 months' supply. The median home sales price continued to decline as well, down 2.2 percent to $221,800 in December, the Commerce Department stated. That marked the third month in a row of declining prices.

George Jones, who headed Saks Inc.'s department store group before retiring last year, is investigating a bid for the company's Parisian chain, Women's Wear Daily reports.
Jones would have to line up Wall Street backing to buy Parisian, which has $750 million in annual sales.

Chris Botti: “The trumpet is the ultimate temperamental mistress.” His new album, To Love Again: The Duets, shows his mastery of this instrument.

The Amex Gold Bugs Index (HUI) closed Friday's at 324.32, up 0.7% to mark a record close. It gained 6.8% for the week.

Pfizer’s inhalable drug to treat diabetes, Exubera, has been approved by the Food and Drug Administration, according to media reports. It will be the first inhaled diabetes treatment to be available in the United States.

March crude finished at $67.76 a barrel, up $1.50 or 2.3% Friday. It closed down 72 cents or 1.1% for the week.

Saudi Arabia, Russia, and Iran produce approximately 25% of the world’s oil.

Doug Noland: “The capacity for the unfettered global financial system to create unlimited finance is at the root of today's dangerous prevailing dynamic: a veritable breakdown in the market mechanism for creating and pricing global finance. No longer does the interaction of the supply and demand for finance determine market yields, while the surfeit of global liquidity has widely distorted asset prices, risk premiums and the allocation of Credit and finance. An unsound system has nurtured a precarious yet trumpeted backdrop, where surging demand for borrowings (by the U.S.) is easily accommodated ("relaxed constraints") at predictably low interest rates.”

BLOOMBERG NEWS yesterday reported the results of the first Bloomberg/Los Angeles Times national public opinion poll, which shows that President Bush wins the approval of only 43 percent of Americans, a seven-point drop from a year ago. The Bloomberg/Los Angeles Times poll reveals that three out of five say America is seriously off course, and by 62 to 31 percent those surveyed want to move in a different direction than the one Bush has set forth. According to the Bloomberg/Los Angeles Times poll, a slight majority (52percent) of Republicans say the country generally is moving in the right direction while Democrats, by a 75 percent to 18 percent margin, think America
is on the wrong track.

According to the WSJ, Citigroup is working with hedge fund Cerberus to put together a bid valued at some $11.5 billion for GM's GMAC finance arm.

Bush will send his 2007 budget to Congress on Feb. 6. His discretionary spending indicates that he has no comprehension of the word “budget.” That’s what happens when you are born into super wealth and never have to work for a living.

Adam Hamilton: “History will rightfully remember Alan Greenspan not as an inflation-fighting hawk, but as a socialist Keynesian advocate of endless inflation that betrayed his own principles that he expressed early in his life. In 1966 Alan Greenspan wrote “there is no way to protect savings from confiscation through inflation. ... Deficit spending is simply a scheme for the "hidden" confiscation of wealth." In light of his surprisingly poor monetary record Greenspan's legacy will be remembered as one of the confiscators of Americans' wealth that he so despised early in his life. His senseless inflation contributed to the moral decay of this nation, gutting the purchasing power of retirees' savings and ensuring that most American families would have to have two wage earners in order to keep a semblance of middle-class living.”

The Nikkei roared ahead by 3.6% to a 5-year closing high.

On several occasions I have written that the U.S. government would need to raise the current $8,184 billion debt ceiling by early February. I was wrong. On Tuesday, January 24th, the ceiling was exceeded. In sum, the Treasury Department is in technical default. Worse yet, they held an auction this past week while in default. How is it that no mention was made on CNBC or Bloomberg or the WSJ? How could Congress let this take place? You can bet Bush will not mention the default in his State of the Union Address.

Frank Borman: “Capitalism without bankruptcy is like Christianity without hell.”

During the market’s advance on Thursday and Friday, the big caps were the leaders—
P&G, Caterpillar, Microsoft, and Pfizer. History shows that big cap leadership soon brings forth weakness.

India has urged “that Iran’s right to develop peaceful uses of nuclear energy for its development consistent with its international obligations and commitments should be respected.”

Saudi Arabian King Abdullah bin Abdul Aziz al Saud stated on Friday that it was the first time he had actually "signed" an agreement with any country. "This is the first time that I am going to sign an agreement with any country," the king said just before signing the "Delhi Declaration" with Prime Minister Manmohan Singh at Hyderabad House.
According to the "Delhi Declaration," the king's visit heralded a new era in India-Saudi Arabia relations and a landmark in the development of increased understanding and cooperation between the two countries and creation of a mutually beneficial partnership.

Worse Off?

1/27/06 Worse Off?

GM expects to lower North American structural costs by $6 billion by the end of 2006. That is one big number! Should you wish to be an unsuccessful investor, just focus backwards on the loss reported for the fourth quarter. Then you can be in the same boat with the media.

In the latest week, the number of workers receiving unemployment benefits rose to 2.58 million, up by 53,000.

Orders for U.S.-made durable goods rose 1.3% in December despite a large decline in aircraft orders, the Commerce Department said Thursday. Excluding transportation equipment, orders rose 0.9 percent last month after a 0.6 percent increase. Orders for transportation equipment rose 1.9 percent after rising 16.5 percent in November. Bookings for motor vehicles increased 6.6 percent, while aircraft orders fell 8.1 percent after a 139 percent surge the previous month.

Bill Gross, managing director of bond giant Pimco, stated Thursday that the U.S. bond market's recent weakness is due in part to foreign central banks and institutions distancing themselves from a "fully priced" market for both Treasuries and the U.S. dollar, and they are "looking elsewhere" for investments. "That combination points them in other directions," Gross said in a MarketWatch interview. "It points them to gold, to assets that are oil-related, and perhaps to other foreign bond markets.” The yield on the 10-year Treasury bonds rose to 4.52% and the 2-year to 4.49%. That means higher mortgage rates are on the way.

Natural gas futures fell 7% to $7.88 -- the first time below $8 since July.

U.S. newspaper help-wanted advertising volumes were unchanged in December, the Conference Board stated Thursday. The help-wanted index remained at 39 in December; and it was 40 a year ago. "The economy is not going to build momentum any time soon," said Ken Goldstein, an economist for the Conference Board.

Christmas came early for those who were able to purchase Chipotle at the IPO price of $22. The stock opened for trading at $45.

Yesterday I wrote about Meritage Homes. In about four hours of trading the stock climbed $4.00 to $60.50 a share. Obviously, there are some serious doubters still remaining about the company’s rosy outlook for 2006. The February 2006 puts with a $55 strike price were trading at 60 cents. That gives an investor the right to sell the stock at $55 over the next 17 trading days. For that right the investor paid 60 cents a share. Therefore, the stock must sell below $54.40 (I have left out the commissions) before making money. The stock is already down from $90+ and is selling for about 5 times next year’s estimated earnings per share. Timing is everything. The stock already discounts potential disappointing news---should there be any! All homebuilders are not alike. It’s important to differentiate house price and location and, above all, management.


First Data to spin off Western Union.

Jacob Weisberg: “The president’s latest assertion that he alone can safeguard our civil liberties is not just disturbing and wrong. It is downright un-American.” It reflects a primal defense by a neo-fascist.

March silver rose 9.5 cents to close at $9.605 an ounce in New York, after trading as high as $9.67 -- levels not seen since 1987.

Privately held Atlanta –based Chick –fil-A’s sales rose 13% in 2005. It was the 38th consecutive year of sales increases. The chain opened 76 new restaurants last year, including 62 free- standing locations, two mall locations and 12 licensed operations. At the end of 2005, it had more than 1,240 restaurants in 38 states and Washington, DC.

Boston Scientific Corp. stated Thursday that the U.S. Food and Drug Administration has warned that its oversight practices for various operations within the company are "inadequate." The FDA warned of regulatory problems at three facilities and of concerns over quality control at six other operations. The letter does not prevent distribution of Boston Scientific products.

By a 59 percent to 37 percent margin, Americans disapprove of the way Bush is handling the economy, according to a Bloomberg/Los Angeles Times poll this week. About six out of 10 say the economy will stay the same in the next six months, while more say it will worsen than say it will improve. And by 47 percent to 22 percent, the public says the country is worse off economically since Bush became president.

Yesterday, the Dow Jones Transportation Index and the Russell 2000 both made new all-time highs. One might consider cutting back in the railroad sector as well as small cap shares. I continue to suggest some big cap companies as replacements, such as, Ford. Just a reminder- the Street has a short memory. They love McDonald’s at $35, but they despised the shares at $12+. How many liked Apple at $20? Only three years ago, few liked Schlumberger at $35. Today it’s a darling at $124. You get the picture.

Mittal Steel launched a $22.7 billion cash-and-stock offer for rival steelmaker Arcelor, and also agreed to sell to ThyssenKrupp the shares in Dofasco that Arcelor is buying in its pending tender offer for the Canadian steelmaker.

At $11.8 billion, the December quarter sales were less than the $11.9 billion Microsoft had forecast in October. Operating income fell 2 percent as the company spent heavily on several product launches. Microsoft now expects to ship 2.5 million video-game consoles in the product's first 90 days, down from its earlier goal of 2.75 million to 3 million units. This morning Microsoft shares are expected to trade higher. I would cut back on positions. There are better places for your money.

Ed Easterling: “We have explored two different methods using lessons of history. Both methods predict S&P 500 EPS near $64 in 2008. If overall stock market P/Es can be sustained in the low 20s—relatively high by historical standards—the stock market in 2008 will be near the same level that it is today. Flat, choppy markets are characteristic of secular bear markets. Of course, the bulls hope that maybe it’s different this time.”

The global threat that most preoccupies the world’s business leaders is the deadly H5N1 bird flu virus, according to a study released Thursday at the World Economic Forum.
Other global risks, such as terrorist attacks and the possibility of an even bigger oil price shock, were deemed just as dangerous, but less likely to happen in the coming year, said the “Global Risks 2006” report.

Karl Kraus: “How is the world ruled and how do wars start? Diplomats tell lies to journalists and then believe what they read.”

Vigilance

1/26/06 Vigilance

In December 2005, employers took 1,308 mass layoff actions, seasonally adjusted, as measured by new filings for unemployment insurance benefits during the month, the Bureau of Labor Statistics of the U.S. Department of Labor reported yesterday. Each action involved at least 50 persons from a single establishment, and the number of workers involved totaled 149,565. The number of layoff events in December rose by 103 from November, and the number of associated initial claims increased by 28,782.
On a not seasonally adjusted basis, the number of layoff events in December2005, at 2,323, was up by 709 from a year earlier, and the number of associated initial claims rose by 92,987 to 254,258. These were the highest event and initial claim totals for December since 2002.

George Orwell: “I sometimes think that the price of liberty is not so much eternal vigilance as eternal dirt.”

March silver closed at $9.51 an ounce, up 28.2 cents at its highest level in 18 years. February gold added $4.40 to end at $562.50 an ounce. March copper finished at a record $2.2035 a pound, up 2.4%, April platinum ended at a 26-year high, up 0.6% at $1,064.80 an ounce. It's a good thing inflation is under control!

A Treasury Department auction of $22 billion in new 2-year notes Wednesday afternoon produced a weak bid-to-cover - or bids rendered to bids accepted - ratio of 2.11.

U.S. residential mortgage originations will likely drop to $1.46 trillion in 2006 from $1.49 trillion in 2005, the Mortgage Bankers Association estimated Wednesday. In its economic forecast, the group also stated existing home sales will probably fall by 4.7% in 2006 and 4.4% in 2007. New home sales will likely drop 4.3% in 2006 and 4.9% in 2007, the group added.

More money exited the hedge fund industry than flowed into it for the first time in more than a decade during the fourth quarter of 2005, Hedge Fund Research stated on Wednesday. There was a net outflow of $824 million during the final three months of the year, the research firm reported.

Richard Daughty, The Mogambo Guru: "Well, obviously, the swoons and zooms of markets around the world are only the beginning. Worse, these are the kinds of wild, worsening oscillations and turbulence that characterize systems just before they become unstable and blow up, sort of like how the idiocy of the modern incarnation of central banking makes me crazier and crazier, day by day, worse and worse, until one day I suddenly go berserk and wake up a few weeks later in a straightjacket being fed Jell-O through a straw."

The National Association of Realtors said existing-home sales declined 5.7% in December on a seasonally adjusted basis. Sales have fallen three months in a row. "Speculators are pulling out," said David Lereah, chief economist for the realtor group. Inventories of unsold homes fell 4.4% to 2.80 million in December, a 5.1-month supply.

Sprott Asset Management: "Before 1997 it took fourteen years for the money supply to double. Since then it has taken only nine; and if the rate of the past month is any indication, it will double again in four years."

Indiana Governor Mitch Daniels stated a Spanish-Australian consortium had bid $3.85 billion to run the Indiana Toll Road, a 157-mile highway across northern Indiana that runs from the Illinois to Ohio, for 75 years. Now, if only we could get the head of New Zealand to run our federal government. Maybe we should make him an offer he can't refuse. We can trade Bush for him and throw in some first round draft choices.

Housing appears alive and well in Arizona. Scottsdale-based Meritage Homes earned $3.53 per share in the fourth quarter versus $1.88 a year earlier. It was the company’s 18th consecutive year of record home closing revenue and net earnings. "We are maintaining our expectations to grow revenue to $3.8 to $3.9 billion in 2006, and to produce net earnings of $11.25 to $11.50 per diluted share," said John R. Landon, co-chairman and chief executive officer of Meritage. "We begin the year with a $2.2 billion backlog, which represents about 56% of expected 2006 revenue, up from 44% last year, providing good visibility to continued growth in home closings and revenue through the first half of 2006. We expect first quarter revenue of $825 to $850 million, and net earnings of $2.35 to $2.45 per diluted share, an increase of 52% to 58% over the first quarter 2005, excluding the one-time bond refinancing charge.” Meritage Homes was named to Forbes' annual listing of "America's Best Big Companies," its third consecutive appearance on this list, and was ranked 14th on the list of 400 companies for five-year annualized total return. Yesterday, the stock traded at a new 52-week low and closed at $56.63.

The other day the underwriters for Chipotle’s IPO raised the price range from $16-$18 to $18-$20. Morgan Stanley and S.G. Cowen, the lead underwriters, true to their word, priced the deal last evening at $22 per share. This spin-off from McDonald’s will trade under the symbol CMG on the NY Stock Exchange.

Nokia’s fourth quarter earnings report was disappointing and the company stated cell phone prices may decline. They should decline, and so should the price of GM and Ford autos.

Kerkorian raised his GM ownership back up to 9.9%, and the stock is closing in on $25. Recently, it has risen 6 points. Last Friday, Ford shares sold at $7.85. Last night, they closed at $8.62. These stocks are rising from the dead pile.

Hamas garnered a majority in the Palestinian legislative elections.

In his State of the Union message, I wonder whether Bush will discuss a bailout of the U.S. government. Our balance sheet reflects short-term, long-term, and contingent liabilities amounting to $49 trillion or about $165,000 for each American citizen. Maybe we should open our borders. That way the liability for every man, woman, and child would decline! Since our daily federal deficits (budget and trade) exceed $3 billion daily, we are receiving a bailout 365 days of the year. Saying it another way, our Treasury bonds are nothing but a Ponzi scheme.

24,500 Chicagoans applied for 325 jobs at a Wal-Mart opening Friday in south suburban Evergreen Park, one block outside the city limits.

Since consumer spending accounts for roughly 70% of our economy, it seems rational that any forecast for 2006 must be predicated on the health of the consumer. Saying it differently, any forecast must accurately predict the amount of equity that will be extracted from homes in 2006. Does anyone have data to backup a forecast? Guesses don’t count in my book.

Since our March 2003 invasion of Iraq, approximately 2250 of our fighting men and women have been killed.

Thomas Jefferson: “Eternal vigilance is the price of freedom.”

Robert W Baird raised the Lucent EPS estimate for FY06 from $0.14 to $0.19.

Pearl S. Buck: “When good people in any country cease their vigilance and struggle, then evil men prevail.”

Stress Testing

1/25/06 Stress Testing

Erectile dysfunction may be a warning sign of serious heart disease, researchers from the University of Chicago report. The latest study appears in the Jan. 23 issue of the Archives of Internal Medicine. "Among patients with symptoms that require stress testing, we found a very high prevalence of erectile dysfunction," said lead researcher Dr. R. Parker Ward, director of the university's cardiology clinic. "Over 50 percent had some degree of erectile dysfunction." In my view, the potential market for Palatin’s PT 141 is larger than most believe. As previously discussed. Palatin is the only company whose product addresses both male and female sexual dysfunction.

According to TMCnet, Madison Dearborn Partners and European produce company Fyffes PLC have emerged as the most interested bidders for Fresh Del Monte Produce Inc. J.P. Morgan is running the auction for a 52% stake, with an expected enterprise value of approximately $1.8 billion. One problem for the auction has been the disappointing near-term results for the company.

Centex reaffirmed its fiscal 2006 forecast for earnings from continuing operations of $9.65 to $9.85 a share, and its fiscal 2007 earnings forecast of $10.75 to $11.25 a share. The company expects to deliver 43,000 to 44,000 homes in fiscal 2007.

Walt Disney Co. it will buy Pixar in an all-stock deal worth $6.3 billion in stock and $1.1 billion of Pixar's cash.

According to the NY Times, Guidant is expected to announce this morning that it will accept Boston Scientific's $27 billion offer. J&J will not up its bid again; however, Johnson & Johnson said it will receive a $705 million merger termination fee from Guidant.

Ryland stated fourth-quarter home closings rose 11% to 5,165, while new orders fell 4.7% to 3,066 units from 3,217 units a year ago. Ryland said it was comfortable with analysts' current consensus 2006 earnings estimate of $10.09 a share.

China's economy grew 9.9 percent in 2005, overtaking the U.K. as the world's fourth largest.

The Richmond Fed's manufacturing index fell two points in January to -4, and now stands at its lowest level since November 2004.

Benjamin Franklin: “Do not anticipate trouble or worry about what may never happen. Keep in the sunlight.”

According to Jared Bernstein of the Economic Policy Institute, growth in the median U.S. wage dropped to 2.4 percent in 2004 and 2005, from about 3 percent, on average, in 2002 and 2003. In real terms, taking inflation into account, wages have declined in the last two years across all pay scales except for the very top earners, according to Bernstein's crunching of U.S. census data.

China’s Year of the Dog begins January 29.

Crude has eased this morning to just below the $67 a barrel level.

The volume of mortgage loan applications filed in the week ended Jan. 20 increased 7.7% from the prior week, Mortgage Bankers Association data indicated. Applications for mortgages to purchase homes rose 6.7% on a week-to-week basis, while refinancing applications increased by 7.8%.

De Clementia Seneca: "It is the nature of a great mind to be calm and undisturbed."

Changing World

1/24/06 Changing World

China and Saudi Arabia are expected to sign a broad energy cooperation pact. I would anticipate India would soon follow with their agreement with the Saudis. The world is definitely changing, and the growth in liquid assets can be found in the Asean countries as well as the Middle East. The U.S. is on a debt-laden path with leaders who fail to comprehend the meaning of pay as you go. Our grandchildren will be burdened with bond obligations many global investors will not want to touch with a ten-foot pole.

Ford’s revamping plan is a good first step. Consistency, cooperation, and dedication will need to be a mainstay of daily metrics if the company is to prosper once again. I believe support is warranted.

Time Magazine mentioned seeing six photos of Bush with Abramoff at White House functions. People should not be so shocked. Bush has been a close friend with “Kenny Boy” Lay, former CEO of Enron. You know the old saying—you can tell a person by the company he keeps. One might also observe—where there’s smoke, there’s fire.

February natural gas closed at $8.574 per million British thermal units, down 70.6 cents, or 7.6%, after touching $8.31 -- its lowest level since early June.

A new report by Kline & Company indicates that while
most of the world's leading drug makers are already including China in their
research plans to an extent, the Chinese are making systemic improvements that
will encourage future growth in the number and scope of clinical drug trials
and further enhance the nation's standing as a world hotbed of research activity.

Even wealthy Americans are concerned that rising heath care costs will eat up their financial assets, according to survey findings released by The PNC Financial Services
Group, Inc. (NYSE: PNC). One in three (36 percent) of respondents said,
"health care costs will ultimately consume a major portion of my financial
assets." Nearly four in 10 wealthy Americans, including one quarter of those
over age 65, said that affording health care for their families is a top financial concern.

The Conference Board reported that the Composite Index of Leading Economic Indicators increased 0.1% in December,following a 0.9% increase in November and a 1.0% increase in October. Says Ken Goldstein, Labor Economist at The Conference Board: "The indicators may be signaling a spurt of growth ahead (perhaps in the spring)
which could be followed by a slower pace of activity later in 2006.
Improvement in the leading series, steady modest gains in the coincident
series, a recent pick-up in the lagging series, and a flat to declining trend
in the ratio of coincident to lagging series is not the mix of indicators one
would expect if 2006 is to be a year of steadily building momentum. Rather, it
is suggestive of a quite choppy pattern of growth."
The Conference Board reported that the Coincident Index, a major barometer
of current economic activity, increased 0.2% in December, following a 0.4%
increase in November, and a 0.2% increase in October. The lagging index
increased 0.1% in December, after increasing 0.5% in November, and increasing
0.7% in October.

Engelhard's board unanimously rejected BASF's offer, calling it "inadequate" and "opportunistic." BASF launched its $4.9 billion hostile takeover bid earlier this month.
Engelhard is considering the sale of the company.

Target Corp. said Monday it expects January sales at stores open at least a year to rise 4.5% to 5%.

Texas Instrument Inc. late Monday issued a first-quarter profit forecast that fell short of Wall Street expectations.

Since 1997, the average price of a house in the US has risen by 79 per cent.
"Strong price growth momentum has resulted in very high prices relative to incomes across the country," says Ian Morris, chief US economist at HSBC.
Federal Reserve figures show that debt servicing costs for homeowners are now 16.61 per cent of disposable income, up from 15.76 per cent at the end of 2004, and the highest level since records began in the 1980s. Deutsche Bank stated a drop in house price inflation to zero "would subtract about a percentage point from real consumer spending growth.”

According to the WSJ and Reuters, Disney is considering making an all stock offer for Pixar.

According to the WSJ, DaimlerChrysler plans ABOUT 5,000 white-collar job cuts.

The Reserve Bank of India increased its overnight borrowing rate to a three-year high of 5.5 percent from 5.25 percent, and predicted growth in Asia's fourth-biggest economy will accelerate to 8 percent in the year ended March 31, from 6.9 percent the year earlier. Governor Yaga Venugopal Reddy stated he wants to stop stronger-than-expected demand causing ``inflation spirals.''

OPEC producer Kuwait's oil reserves are only half those officially stated, according to internal Kuwaiti records seen by industry newsletter Petroleum Intelligence Weekly (PIW)."PIW learns from sources that Kuwait's actual oil reserves, which are officially stated at around 99 billion barrels, or close to 10 percent of the global total, are a good deal lower, according to internal Kuwaiti records."

Saudi Arabia's King Abdullah bin Abdulaziz that his country would like to meet India's future energy needs.

Patience Can Be Rewarding

1/23/06 Patience Can Be Rewarding

The dollar fell to a four-month low against the euro after European Central Bank officials suggested higher interest rates are needed to prevent a surge in oil prices from spurring faster inflation. The dollar dropped the most in three weeks against the yen after William Poole, president of the Federal Reserve Bank of St. Louis, stated he's less concerned about inflation than six months ago and suggested the Fed may soon stop raising rates.

A group comprised of Supervalu, CVS, Cerberus, and Kimco Realty agreed to acquire
Albertsons for $17.4 billion. Shareholders of Albertsons will receive $20.35 in cash and 0.182 a share of Supervalu stock for a total consideration of $26.29 a share. The transaction is expected to close in mid-2006.

Lya Sorano: “When we talk about equal pay for equal work, women in the workplace are beginning to catch up. If we keep going at this current rate, we will achieve full equality in about 475 years. I don't know about you, but I can't wait that long.”

comScore Networks today released year-to-date consumer spending figures, which showed that online non-travel spending is up 33 percent for the first three weeks in January 2006 versus corresponding days in 2005. Total online spending for the full year 2005, including travel, reached $143.2 billion, up 22 percent over 2004. Online non-travel spending in 2005 accounted for $82.3 billion, an increase of 24 percent over 2004 levels.

John McCain: "We've got to get quickly on a track to energy independence from foreign oil, and that means, among other things, going back to nuclear power. We better understand the vulnerabilities that our economy, and our very lives, have when we're dependent on Iranian mullahs and wackos in Venezuela.”

"We exposed a base camp population [military and civilian] to a water source that was not treated," stated a July 15 memo written by William Granger, the official for Halliburton's KBR subsidiary who was in charge of water quality in Iraq and Kuwait.
"The level of contamination was roughly 2x the normal contamination of untreated water from the Euphrates River." What type of recrimination will Halliburton face? Ask Cheney. You’ll get your answer. Patience has its limitations.

Barry Ritholtz makes an important observation that, “when the Dow closes below its December closing low in the first quarter, it is an excellent technical warning sign. The lowest actual closing price for the Dow Jones industrials in December was made on the very last trading day of the year -- 12/30/2005 at 10,717.50. Closing price on Friday? 10,667.39. In the past, when the December low has been violated in the past, at some point, markets have been down later that year every single time but one. The average drop is about 10.7%, but its been as small as 0.3%, and as large as 25.1%.”

I found it interesting that, on Friday, 243 stocks registered new highs on the NY Stock Exchange versus only 33 new lows. Such a divergence gives the bulls reason for optimism. My suggestion remains the same—to lighten up into strength.

Saudi Arabia was China's top supplier of oil in the first 11 months of last year, providing 17 percent of its imports, nearly 440,000 barrels per day (bpd).

Timothy Geithner, President of the NY Fed: “We live with considerable uncertainty about the sustainability of the pattern of global capital flows and the relatively low risk premia that prevail today. That uncertainty necessarily adds to the normally substantial degree of uncertainty we face in making monetary policy judgments.”

Chipotle ups IPO price range to $18-$20 from $15.50-$17.50.

Barbara Johnson: “Patience is the ability to idle your motor when you feel like stripping your gears.”

Ford reported fourth-quarter earnings of $124 million, or 8 cents a share, up from a year-ago profit of $104 million, or 6 cents a share. Excluding a number of items, the company posted earnings from continuing operations of $511 million, or 26 cents a share, down from a year-ago equivalent profit of $554 million, or 28 cents a share. Total sales and revenue, which includes the contribution of the company's financial services business, rose in the latest three months to $47.6 billion from $44.9 billion in the same period a year earlier. While continuing to lose money on auto revenue, automotive sales totaled $41.82 billion in the December quarter, up from $38.87 billion a year earlier. For those with a greater appetite for risk, have you considered the purchase of Ford bonds?

Wal-Mart reaffirmed January same-store sales guidance of 3-5%.

Questions

1/22/06 Questions

Ford has 18 assembly plants in North America. Tomorrow the company will most likely announce the closing of four or five of them. Many project that the following plants are in danger of closing:
Wixom, which employs 1,567 and makes the Ford GT, Lincoln LS and Lincoln Town Car.
St. Louis, which employs 1,445 and makes the Ford Explorer and Mercury Mountaineer SUVs.
St. Paul, Minn., which employs 1,965 and makes the Ford Ranger compact pickup.
Atlanta, which employs 2,028 and produces the Ford Taurus sedan.
Cuautitlan, Mexico, which employs 900, and makes the Ford superduty pickups and the Ikon car sold in South America.

Wall Street analysts and money managers are asking whether Friday’s pounding was a selling climax and many suggest the worst of the drubbing may be over. One of the reasons is that, on Friday, over 8 times as many stocks declined on the Nasdaq as rose and that this took place on extremely high volume. Before reaching a conclusion, please consider the advice from Dennis Gartman: “when the facts change, we must change.” In other words, did the facts change on Friday?

Let’s look at a scenario that has not been expressed. Let’s suppose the equity markets decline this week. Greenspan heads his last Fed meeting on the 31st. Do you think the Fed will not raise rates in order to give a lift to the equity markets and change psychology? Of course, that would not be the reason stated on an official basis. Rather, they would state core inflation is under control and that GDP growth in the fourth quarter slowed from the most recent periods and that the housing market is cooling. On the other hand, a Fed voting member, Richmond Federal Reserve President Jeffrey Lacker, told reporters
"I don't think that we're done yet."

Saudi Arabia’s King Abdullah is making his first-ever visit to China. During his three-day stay in China, Abdullah is scheduled to meet President Hu Jintao on Monday and on Tuesday with Wu Bangguo, the No 2 Communist Party leader and Prime Minister Wen Jiabao.

Barry Lopez: “How is one to live a moral and compassionate existence when one is fully aware of the blood, the horror inherent in life, when one finds darkness not only in one's culture but within oneself? If there is a stage at which an individual life becomes truly adult, it must be when one grasps the irony in its unfolding and accepts responsibility for a life lived in the midst of such paradox. One must live in the middle of contradiction, because if all contradiction were eliminated at once life would collapse. There are simply no answers to some of the great pressing questions. You continue to live them out, making your life a worthy expression of leaning into the light.”

Showdowns

1/21/06 Showdowns

Iran stated Friday it was moving its foreign assets to shield them from possible U.N. sanctions and flexed its oil muscles with a proposal to cut OPEC output."Yes, Iran has started withdrawing money from European banks and transferring it to other banks abroad," said a senior Iranian official, who asked not to be named. According to the International Monetary Fund, Iran’s foreign exchange reserves are $30.6bn in hard currency. Tehran has another $9bn in foreign assets (but not necessarily liquid) abroad, it says.

Total European Union trade with Iran rose to more than 20 billion euros ($24.2 billion) in 2004, according to the latest figures from EU statistics agency Eurostat, up from 13.8 billion euros in 2002.

Robin Williams: “We had gay burglars the other night. They broke in and rearranged the furniture.”

Germany was the top exporter to Iran in 2004, selling 3.57 billion euros ($4.35 billion) worth of goods and services to the country. France was second, at 2.33 billion euros ($2.78 billion).

Rodney Dangerfield: “I drink too much. The last time I gave a urine sample it had an olive in it.”

REMINDER: On March 20 Iran will price its energy in euros, not dollars. In addition, it will not use West Texas Intermediate or Brent Crude (from the North Sea) as its standard oil for pricing. It will use a Persian Gulf-produced oil instead.

"We support Iran's right to peaceful nuclear technology," Syrian President Bashar Assad told a news conference... "It is the right every state to own nuclear technology for peaceful purposes. Countries that object to that have not provided a convincing or logical reason," Assad said.

Stephen Roach: “By our reckoning, in November 2005, private compensation remained nearly $390 billion below the composite trajectory of the past four US business cycles. With America’s internal income-generating capacity continuing to lag, US consumers once again tapped the home equity till to draw support from the Asset Economy. According to Federal Reserve estimates, equity extraction by US households topped $600 billion in 2005 -- more than enough to compensate for the shortfall of earned labor income.”

What one sees is determined by one’s brain. Is there significance in the saying “seeing is believing?” For me, the significance is acknowledging the difference between thinking and knowing. What interests me is knowing.

Marion Barry: “Outside of the killings, Washington has one of the lowest crime rates in the country.”

Former Congressman Leon Panetta attacked the Bush Administration Friday for seeking information on Internet searches made through Google and other search engines and called on the technology industry to come up with its own privacy standards to stymie future government efforts to invade the privacy of Internet users.
"We will have to deal with this on a case-by-case basis, probably all the way to the U.S. Supreme Court. The time is coming when the industry will have to set standards for privacy that will ensure that people will be protected."

Russia's natural gas monopoly Gazprom has agreed to pay 25 percent more for natural gas from Uzbekistan, an official said Saturday.

Yesterday, crude jumped to $68.35 a barrel, the highest close since Sept. 2. Heating oil rose 3.9% to $1.87 a gallon, and climbed 8.9% for the week. Natural gas rebounded 4.2% to $9.28 per million BTUs and ended the week up 5.6%.

By now, everyone knows the Dow got clobbered yesterday. It is down 0.5% year-to-date; however, the Nasdaq remains 1.9% higher and the S&P 500 is up 1.1% year-to-date.

Sugar had its highest close since 1981. It ended the week at 17 cents per pound.

In the last three trading days, the shares of Google have plummeted 14% or $20 billion in market value. The Justice Department is requesting one week’s worth of Web searches and one million addresses in Google’s database. Why? It is all in the effort to fight Internet pornography. Google refused to comply with the subpoena and stated the government’s demand “overreaches.” I applaud Google’s management for taking this stand against our country’s neo-Fascist administration. It is time our citizens rose together and fought for our freedoms and our liberties. Over the last 230 years, tens of thousands of Americans have lost their lives and their limbs to fight for our freedom. We have come to a crossroads. It is time for a showdown. Rise up and show this administration that bullies cannot defeat freedom. Have some guts. Wipe out complacency once and for all. This administration is the enemy of Main Street.

Herb Caen: “The trouble with born-again Christians is that they are an even bigger pain the second time around.”

Addison Wiggin, co-author of Empire of Debt and editorial director of the Daily Reckoning: "The lesson is that the globalization of the financial markets has placed an ever more precarious amount of U.S. debt in the hands of foreign central banks and investors.
That means the fate of the American economy is moving out of America's hands. It increasingly rests in the hands of foreign investors and central bankers who may or may not have our interests in mind when they make financial decisions."

Karl Rove: "Let me be as clear as I can: President Bush believes if al-Qaida is calling somebody in America, it is in our national security interest to know who they're calling and why," the White House deputy chief of staff told the Republican National Committee winter meeting. "Some important Democrats clearly disagree." Let me be as clear as I can. With billions of dollars spent on intelligence, how is it possible that for 52+ months we have not been able to capture Osama bin Laden? Maybe we should spend less time eavesdropping and torturing and place a real effort on bin Laden, who is a member of the Saudi royal family. Could it be that Saudi friends of this administration wield unusual influence?

By the end of the first quarter of 2006, Ford will have shed nearly 7,000, or about 20 percent, of its white-collar jobs. From 1999 to 2004, Ford eliminated 39,686 employees worldwide. On Monday, the company will release its fourth quarter and full-year report as well as “The Way Forward” plan for 2006 and beyond. In a day or so, I will have more to say about Ford.

From now on, Sen. Barack Obama (D-Ill) will pay the full costs of a flight taken on someone else's private plane, rather than pay the much cheaper price of a first-class ticket.

Doug Noland: “There will be those that continue to trumpet total S&P earnings growth, but the bottom line is that individual company earnings predictability is becoming much more uncertain. When it comes to profits, I think we have likely reached an important inflection point. The nature of this aged inflationary boom now ensures atypical price divergences and generally disparate inflationary pressures throughout the economy…
There is as well unusual uncertainty associated with the reality that speculative liquidity has come to be the driving force behind myriad market Bubbles and a key source fueling myriad Bubble economies. The backdrop is one of classic boom and bust dynamics, but on an unprecedented global scale. Sustaining the U.S. Credit (and aggregate profits) Bubble comes at a high cost of great uncertainty with regard to the soundness of global markets generally - debt, equity, energy, commodities, and currencies. Don't be surprised if currency markets turn frenzied…The Global Credit Bubble has left no room for error - and certainly no room for a geopolitical crisis. It is boom or bust, volatility, and uncertainty. It's going to be quite a year.”

In the past, whenever there has been a selling stampede in the equity markets, there has been a corresponding flight to quality—a rush to buy U.S. Treasury bonds. This week this did not occur. The yield on the 10-year Treasury bond was unchanged on the week at 4.35%. I find this highly significant. In other words, this time it was different. This is a warning sign for the U.S. Treasury market as well as dollar-denominated assets. You would be well advised to sit up and take notice.

John Palfrey, a clinical law professor and executive director of the Berkman Center for Internet and Society at Harvard Law School: “I think Google’s principled decision here to stand and fight—saying ‘enough’ to a request for data that looks like an overreach and where there’s no immediate crisis to be solved by turning over this information—is laudable.”

Iranian President Mahmoud Ahmadinejad told senior leaders of a radical Palestinian group in Damascus on Friday that the Middle East conflict has become “the locus of the final war” between Muslims and the West, Iran’s official news agency, IRNA, reported.
Ahmadinejad told the leaders of Hamas “Today, victory in Palestine has become a matter of life and death for the Islamic world and for Global Arrogance (the West).”

Construction And Housing

1/20/06 Construction And Housing

The American Institute of Architects (AIA) reported that billings at U.S. architecture firms were positive every month in 2005 for the first time since 2000, pointing towards 2006 being the best year for nonresidential construction in six years. With construction
accounting for nine percent of GDP, increased nonresidential activity will
ease the effects of a projected slowdown in the residential market. The
Architecture Billings Index (ABI), a leading economic indicator of nonresidential construction activity, had a rating of 50.4 in December 2005 (any score above 50 indicates a positive score), compared to 58.4 for November 2005 and 47.8 for December 2004. "Considering the sluggish consumer spending coupled with the softening residential sector, nonresidential construction should be viewed as a key driver for the overall economy in 2006," said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. "The nonresidential upturn should continue into 2007 and can be attributed to pent up demand for new projects that weren't able to be undertaken in recent years."

U.S. December housing starts fell 8.9% to a 9-month low. Meanwhile, building permits declined 4.4%.

The Philly Fed diffusion index fell to 3.3 in January from 10.9 in December. This is the lowest reading since last June.

For all of 2005, U.S. crude oil production fell 6.6%, while imports of refined products rose 13.9% to a record 3.48 million barrels a day.

Senator Patrick Leahy: "At a time when the president is seizing unprecedented power, the Supreme Court needs to act as a check and to provide balance. I have no confidence that Judge Alito would provide that check and balance. I cannot support this nomination."

Northwest University economists Robert Gordon and Ian Dew-Becker: “For the past 40 years, only the top 10% of the income distribution enjoyed a growth rate of real wage and salary income equal to or above the average rate of economy-wide productivity growth.”

France will develop its nuclear forces to counter states that might resort to using weapons of mass destruction, President Jacques Chirac stated.

For all of 2005, Motorola had positive operating cash flow of $4.6 billion, an excellent performance. The company's outlook for the first quarter of 2006 is for sales of
between $9.3 billion and $9.5 billion. The outlook for earnings per share is
in the range of $.27 to $.29, excluding expected stock option expense of $.02
per share and excluding any potential additional recovery relating to Telsim.

By 2010, Home Depot expects that Home Depot Supply will generate 18-19 percent
of overall sales. By the end of the decade, Home Depot Supply expects to
operate more than 1,500 locations, covering all 50 states, and will be the
largest diversified wholesale distribution business in the United States. "We are poised for dramatic growth over the next five years across our business," said CEO Nardelli. "Our planned acquisition of Hughes Supply is a great example of how we are rapidly replicating in the professional market the same type of transformation that we brought to the home improvement retail market."

Bush: “And, actually, the non-discretionary -- non-security discretionary spending -- I'm from Texas -- (laughter) -- is lower in '06 than it was in '05. We've actually reduced non-security discretionary spending.” His definition of non-discretionary must be different from mine. He is from Texas and I’m from New York City.

Boeing Co. stated Thursday that 60-day layoff notices will be issued to 84 employees at its Wichita, Kansas site tomorrow as a result of Department of Defense program delays and budget issues.

The recent jump in oil prices is "unwelcome" and could create short-term troubles for the U.S. economy, Treasury Secretary John Snow stated Thursday.

Investors pulled an estimated $1 billion from U.S. stock exchange-traded funds in the week through Wednesday, compared to an inflow of $1.3 billion the prior week, TrimTabs Investment Research stated Thursday. In addition, investors channeled an estimated $3.8 billion to mutual funds in the week ending Wednesday, building on inflows of $2.4 billion in the prior week, TrimTabs reported yesterday.

Trade between China and the Association of Southeast Asian Nations (ASEAN) rose to 130.4 billion U.S. dollars last year, up 23.1 percent on a year-on-year basis.

The EU-3 on Thursday said that it isn’t looking at sanctions for Iran and sees an “important” role for India to help find a way to end the current impasse.

Novartis announced on Thursday that it will target Asia, especially China and India, as its expansion areas in future. China's pharmaceutical market expanded by 22 percent last year, while the proportion of people in India who can afford drugs is expected to rise from 35 percent to 80 percent in 2010, stated Daniel Vasella, chairman and CEO of the company.

Private equity and venture capital (VC) firms invested about $2.3 billion in Indian companies across 147 deals during 2005, the latest report by Venture Intelligence Media indicated yesterday. In 2004, VC firms invested $1.6 billion in 68 deals.

The pace of home sales in the nine-county Bay Area dropped year-over-year for the ninth month in a row in December, while prices fell 2.6 percent from November's record high of $625,000, a real estate information company reported today.
The 16% month-over-month decline in the number of sales is unusual as sales typically rise from November to December, DataQuick Information Systems said.

Median weekly earnings of the nation's 104.6 million full-time wage and salary workers were $659 in the fourth quarter of 2005, the Bureau of Labor Statistics of the U.S. Department of Labor reported Thursday. This was 1.9 percent higher than a year earlier,
compared with a gain of 3.8 percent in the Consumer Price Index for All Urban Consumers (CPI-U) over the same period.

Ford Motor Co. may cut 25,000 or more jobs over four years as part of a restructuring to stem North American losses, Bloomberg News reported Friday.

Albertson's Inc. announced today that it has received an offer for the purchase of
the entire Company. The offer was received from a consortium that had previously submitted an offer for the Company in December. After reviewing the new proposal the Albertsons Board of Directors authorized management and its representatives to enter into negotiations.

Apparel maker Russell Corp. said 1,200 jobs in the U.S. will eventually be replaced in Honduras and Mexico. In addition, Russell said it is freezing its defined benefit plan, effective April 1, and will improve its 401(k) employee savings plan.

Mexico and the United States have agreed to end to the dispute about U.S. imports of Mexican cement.

Hollinger, owner of the Chicago Sun Times, will cut about 300 jobs at the newspaper.

Japan is considering stopping all imports of U.S. beef -- just a month after lifting a ban on the meat -- after finding risk materials that could cause mad cow disease in a shipment from New York on Friday.

Crude is trading above $67 a barrel this morning, the highest point in four months.

Volatility Is Awakening

1/19/05 Volatility Is Awakening

eBay Inc. posted strong fourth quarter results after the market closed but disappointed Wall Street by failing to raise its 2006 outlook. The shares dropped 5 percent in after-hours trading.

Walt Disney: “People look at you and me to see what they are supposed to be. And, if we don't disappoint them, maybe, just maybe, they won't disappoint us.”

Apple Computer Inc. forecast current-quarter results below Wall Street expectations, and its shares fell about 3 percent in volatile after-hours trading.

Barry Ritholtz: “Since the bottom on March 5, 2003, the S&P has sustained only three corrections of more than 6% and none greater than 9%. There were five corrections that ranged in strength from 25% to 45% from 1966 to 1982. That averages out to one major correction every 38 months or so. The S&P's last major correction was a 33% drop from March to July 2002. That was 42 months ago -- implying we are overdue for another steep decline."

Within the next five years nearly 70 brand-name drugs, including 19
blockbusters such as Zocor(R), Zoloft(R), and Ambien(R), collectively
accounting for more than $45 billion in U.S. sales, are anticipated to become
available as generics.

Ford Motor Co. had the lowest capacity utilization in North America last year followed by larger rival General Motors Corp., Ron Harbour, president of Harbour Consulting, said on Wednesday.
Ford utilized only 79 percent of its total North American production capacity in 2005, while GM used 87 percent, Harbour told an automotive conference in Dearborn, Michigan.

Average weekly earnings rose by 3.1 percent, seasonally adjusted, from
December 2004 to December 2005. After deflation by the CPI-W, average weekly
earnings decreased by 0.4 percent.

Goldman Sachs cut Advanced Micro Devices to underperform from in line, citing likely cyclically peaking margins, rich valuation and excess supply concerns.

Homebuilder D.R. Horton now expects 2006 earnings between $5.25 and $5.35 a share on revenue of more than $15.5 billion. For the fiscal year, Beazer’s management anticipates that earnings will "meet or exceed" the company’s target of $10.50 a share. Both homebuilders appear to be doing just fine.

According to thedeal.com and the WSJ, a consortium of private-equity firms and Supervalu have submitted a new bid for grocery chain Albertson's. The new bid is priced "a few cents" above $26 a share and is structured differently to diminish antitrust worries, the report said.

Newmont Mining Corp. stated full-year 2005 gold sales totaled 8.6 million ounces, and costs applicable to sales were $238 per ounce. The company expects gold sales of 8 million ounces in 2006 at costs applicable to sales of $270 to $280 per ounce.

Walt Disney Co. is in serious talks about acquiring Pixar Animation Studios , the Wall Street Journal reported this morning.

According to Bloomberg, China National Petroleum Corp. and India's Oil & Natural Gas Corp., the biggest oil companies in each nation, may be among bidders for a $3 billion venture in Russia operated by BP Plc.

Talking about India, Wal-Mart may be close to finalizing plans for entering the market in that country.

For the first time since August, natural gas traded below $9. Crude closed at $65.73.

The Nikkei rebounded 2.3%.

El Paso Corp. expects oil and gas production to rise in 2006 between 8 and 11 percent and reserves to grow by 5 to 10 percent during what the company said will be "a breakout year."

Putting matters in perspective, the U.S. consumes 20 million barrels of oil per day but produces only 5 ½ million barrels per day. Nigeria, which produces 2.6 million barrels per day, is the fifth biggest oil supplier to the U.S.

For all of 2005, the CPI gained 3.5%, the most in 5 years.

Foreign official institutions’ purchases of U.S. treasury and government agency bonds dropped to $5.9 billion in November from $13 billion in October. What happens when their appetite ceases altogether? You think this cannot take place?

Yesterday, Washington Mutual told about 1,000 call-center workers in Chatsworth, Calif. that their jobs are headed to San Antonio and Costa Rica.

Moscow is experiencing its coldest temperatures in 50 years.

Ford Motor Credit Co. announced plans to periodically sell up to $18 billion in floating-rate demand notes, which are unsecured and non-subordinated obligations of Ford Credit. They will rank equally with all other unsecured senior indebtedness of Ford Credit.

Citigroup upgraded Saks, Inc. to hold from sell and raised its price target to $21 from $17. It believes there's a 50/50 probability that Saks will continue to run as an ongoing business or be taken out. I continue to hold all my shares and have stated previously that, in my opinion, $22 to $23 is a reasonable price for the company.

UnitedHealth Group reported an 18% rise in fourth-quarter net earnings to $870 million, or 65 cents a share, and raised earnings guidance for 2006. As I often stated, this is one of my favorite companies in the entire medical field.

Albert Camus: “Our civilization survives in the complacency of cowardly or malignant minds -- a sacrifice to the vanity of aging adolescents.”