Bird Flu

2/20/06 Bird Flu

Spreading bird flu will be a major topic of debate during a meeting of EU farm ministers in Brussels today. It is difficult at best to assess the current potential danger of bird flu. My instinct tells me the danger is greater than I had originally thought. It doesn’t keep me up at night; however, I am researching the problem a great deal more.

India began the slaughter of half a million chickens Sunday, as Health Ministry officials investigated the death of a poultry farm owner from the country's first suspected case of bird flu. Some 50,000 poultry are reported to have died from the infection in recent days in the western state of Maharashtra. Officials were also testing for the H5N1 strain in India's most populous state, Uttar Pradesh, after 1,400 birds died at a farm there.

McDonald's acknowledged that wheat and dairy ingredients are indeed used to flavor their french fries. The company had previously denied the claims.

Winter has finally arrived in most sectors of the nation. We'll get a look at the amount of natural gas used during this cold spell.

If intelligence is fabricated, does that mean the intelligence is faulty? Maybe the fabrication was professionally done.

Recurring Themes

2/19/06 Recurring Themes

Royal Dutch Shell suspended exports from the 380,000 barrel-a-day Forcados terminal on Saturday after militants bombed the tanker loading platform, a senior oil industry source said. Nigeria is the world's eighth largest oil exporter and normally pumps about 2.4 million barrels per day.

The median Bay Area home price crested at $225,000 in January 1990, then dipped as low as $205,000 -- almost 9 percent -- before climbing to $229,000 in the middle of May 1996, according to DataQuick. Job levels in the Bay Area have not returned to their lofty Nasdaq-era heights; however, the region is expected to add 40,000 new jobs this year and 55,000 in 2007. "Nothing leads to big declines in house prices except job destruction," said John Krainer, economist at the Federal Reserve Bank of San Francisco.
"We would have had a (housing) correction in 2001, 2002 and 2003 if interest rates hadn't been cut as they were," said Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley. Last year, about half of Bay Area home buyers took out interest-only loans, according to San Francisco's LoanPerformance.com.
According to the California Association of Realtors, only 12 percent of Bay Area households can afford the median-priced home.

According to DataQuick, the typical Bay Area home buyer committed to a monthly mortgage payment of $2,867 in December. Meanwhile, the average apartment rent in the region in the fourth quarter was just over $1,324, according to RealFacts. "There's a disconnect between the fundamental value of the asset and the value the market is producing," said Ed Leamer, director of the prestigious Anderson Forecast at UCLA. "It's just like the dot-com period."

According to Mike Burk, the last 6 trading days in February during the 2nd year of the Presidential Cycle years (NASDAQ composite (OTC) data runs from 1963 to the present and S&P 500 (SPX) data runs from 1928 to the present) has a positive bias to the period.

Each day one can find numerous articles on risk, reward, greed, hedging, investor psychology and the like. For me, it’s best to keep it simple: sell to the sleeping point.
In other words, if your positions are keeping you up at night, lighten the positions until you can sleep.

For Bentonville, Ark.-based Wal-Mart, its own Utah bank would save it about $30 million a year, according to Sen. Bennett. Wal-Mart has said only it would save "millions" annually by processing in-house some 140 million debit, credit and electronic transactions from its stores each month.
"It's about debit, credit and check processing only," said Wal-Mart Financial Services President Jane Thompson. "It's not a bank any consumer will see. It would be in an upstairs office in Utah and the money we save is money we'll use to lower prices."
Wal-Mart's ILC, however, would offer certificates of deposit to non-profits, its FDIC filing shows. The fact is Target already has an ILC. GM has an ILC. Why shouldn’t
Wal-Mart? What’s fair for the goose is fair for the gander.

The Expected And The Unexpected

2/17/06 The Expected And The Unexpected

Dell’s sales outside the United States increased 21 percent, compared to 10 percent in the U.S. market. The company said first-quarter earnings would be 39 cents to 41 cents per share excluding a cost of 3 cents per share for stock compensation. Analysts had forecast 42 cents per share. In addition, Dell said first-quarter would be $14.2 billion to $14.6 billion, slightly below analysts' prediction of $14.73 billion. Chief Executive Kevin Rollins stated "we are not seeing anything fundamentally that's slowing the market down. We just think ... with the normal seasonality changes and the size of our company, this is a good forecast for the market."

New construction of U.S. homes soared 14.5% in January to a seasonally adjusted annual rate of 2.276 million, aided by the warmest weather of any January on record. It's the highest rate for seasonally adjusted starts since March 1973. The percentage gain was the largest in nearly 12 years, the Commerce Department said Thursday. Starts of new single-family homes rose 12.8% to a record seasonally adjusted annual rate of 1.819 million in January. The gain in housing starts far exceeded the 2.02 million pace expected by economists. Building permits - which are less affected by monthly weather disruptions - rose 6.8% to a seasonally adjusted annual rate of 2.217 million.

The U.S. Treasury is suspending reinvestment of some government securities to avoid hitting the current debt limit, the department said Thursday. The government is now on track to hit the limit in mid-March. "Without this action, we would reach the debt limit today," Treasury spokeswoman Brookly McLaughlin said Thursday. Treasury frees up $65.266 billion as a result of suspending reinvestment in the government securities investment fund. This is business as usual under the Bush administration.

Peter Schiff: “At inception, the Fed was simply charged with providing for "an elastic currency," which meant expanding the money supply during periods of economic growth and contracting it during periods of recession. Its current "mandate" has simply rendered the Fed as nothing more than an engine for perpetual inflation. Unfortunately for all of us, this is one goal it never fails to achieve.”

Brazil exempted foreign investors from a capital-gains tax on local government bonds in a bid to lure more capital to the country's $465 billion debt market.

According to the WSJ, and certainly expected, Icahn will nominate only five directors at Time Warner's next annual meeting, not enough to ensure control. Will this lead to an
agreement with the company’s board of directors? I stay clear of all Icahn deals. Do you remember greenmail?

As expected, Time Warner Inc. Chief Executive Richard Parsons is looking at Univision Communications Inc. as the Spanish-language broadcaster considers a sale, according to an interview published in the Wall Street Journal today. Parsons has trouble just managing his company. The board should think twice about making another acquisition. Do you remember AOL?

I have been a long-time booster of Toyota’s stock; however, I never imagined this taking place-- Shares in Toyota Motor Corp. hit a record high on Friday, sending the auto maker's market value above $200 billion -- more than that of Wal-Mart Stores.

According to Caijing, a financial magazine, a Chinese government delegation is due to visit Iran as early as March to formally sign an agreement allowing China Petrochemical Corp., or Sinopec, to develop Yadavaran. The deal would complete a memorandum of understanding signed in 2004. In exchange for developing Yadavaran, one of Iran's largest onshore oil fields, China would agree to buy 10 million tons of liquefied natural gas a year for 25 years beginning in 2009, the report said, citing Sinopec board member Mou Shuling. The deal is thought to be potentially worth about US$100 billion (euro84 billion).

As expected, President Bush on Thursday asked Congress to approve an additional $72.4 billion in war-related spending for fiscal 2006, along with $19.8 billion for ongoing hurricane recovery efforts on the Gulf Coast. (The cost of this war is fast approaching $500 billion. At the start of the war, Mitch Daniels, then director of the Office of Management and Budget, said costs would be between $50 billion to $60 billion.) How many of those dollars won’t reach their intended destination? Have you ever heard of fraud?

Abraham Maslow: “The neurosis in which the search for safety takes its clearest form is in the compulsive-obsessive neurosis. Compulsive-obsessive to frantically order and stabilize the world so that no unmanageable, unexpected or unfamiliar dangers will ever appear.”

Investors pulled an estimated $552 million from U.S. stock mutual funds in the week through Wednesday, reversing an inflow of $1.3 billion a week earlier, TrimTabs Investment Research said Thursday. International funds added $2.9 billion in the week. Investors also withdrew $397 million from bond funds, versus additions of $487 million a week earlier, TrimTabs said.

In the latest Harris Poll, 40 percent of U.S. adults rate Bush’s job performance positively, and 58 percent rate it negatively. (Are these 40% brain dead?) In other findings, approval of the way Congress is handling its job is unchanged, with a quarter (25%) of adults giving a positive rating and 71 percent giving a negative rating. (Are these 25% brain dead?) However, adults think the state of the country has weakened slightly, with 32 percent saying things are going in the right direction, and 59 percent saying things have pretty seriously gotten off on the wrong track (compared to 33% and 54%, respectively in January). (Are these 32% brain dead?)

Geoff Burns, Pan American Silver’s President and CEO: “Pan American has not and will not hedge any of its silver production."

Bernanke predicted a soft landing for housing. I’d be a fool to believe a prediction made by a government official?

Did you take note that Bernanke substituted “domestic investment” for “savings”?

Sir Robert Baden-Powell: “A Scout is never taken by surprise; he knows exactly what to do when anything unexpected happens.”

The Way It Is

2/16/06 The Way It Is

HP said it expects net income to be between 43 cents and 45 cents a share on revenue of between $22.4 billion and $22.6 billion. That compares to analysts' expectations for earnings of 45 cents a share on revenue of $22.61 billion. HP said it cut 1,800 jobs in the quarter as part of a plan to reduce its workforce by 15,300. The market has viewed the results quite differently than I have, and the stock has risen to $33+ in pre-market trading.

Richard Daughty, The Mogambo Guru: "Of course, the slimy United States Treasury, in full "Screw you!" mode continued to, illegally, increase the total indebtedness of the USA by criminally, continuously, and consciously breaking the law by issuing (as of Valentine's Day) $21 billion more debt than they are allowed! Note the exclamation point to show special emphasis, as I never thought that I would live to see such blatant, provable, criminal lawlessness in the government of the United States."

Baker Hughes said it expects 2006 revenue to rise 19% to 21% from $7.19 billion in 2005. Income from continuing operations is expected to be in the range of $3.40 to $3.60 a share.

Steve Saville: "Central banks -- the engines of inflation -- never have to reflate because they never permit deflation to occur. To maintain the inflation is, in fact, the reason for the existence of central banking, meaning that if it ever became impossible for a central bank to maintain the inflation there would be no reason for that bank's continued existence. Fortunately for the central bankers of the world, the current monetary system provides them with unlimited scope to create money from nothing. This means they will continue to have jobs as long as the current monetary system remains in place."

Capital flows into the United States fell to $56.6 billion in December, a seven-month low, after hitting a revised $91.6 billion in November, the Treasury Department said Wednesday. In December, net capital flows fell below the trade deficit for the first time since April 2005.

Tyson is cutting 1,665 jobs at two plants in Nebraska.

March crude closed under $58/brl for first time since November. Remember supplies build during winter months. Before you know it, the nice driving weather will arrive. Then watch the supplies decline.

According to the results of a forthcoming survey conducted by Watson WyattWorldwide and the National Business Group on Health, employers expect health care benefit costs to increase a median 8 percent this year, down from the 10 percent increase they expected in 2005. The vast majority of employers surveyed - 86 percent - also said their health care benefit costs came in at or below budget in 2005. Employers expect prices to increase about 8 percent again in 2007. U.S. per capita spending on health care remains twice that of many other industrialized countries. In addition, the price increase in health benefits continues to outpace the rate of growth in wages and other business costs.

Bush: “We have slowed Medicare growth down from 8.1 percent a year to 7.7 percent a year. In other words, we found ways to reform the system so that we can slow the growth rate down to make Medicare more affordable for future generations. We're not putting the car in reverse, we're just finding the speed limit. Same thing with Medicaid -- it grows -- slow it down from 6.9 percent year to 6.6 percent a year.”

A consortium lead by Cerberus Capital Management and Citigroup's private-equity arm is the front-runner to buy a majority stake in General Motors Acceptance Corp. the financing arm of General Motors Corp. (GM), according to a report in the Wall Street Journal. Other private-equity firms may join the Cerberus consortium. I would like to say a word about GM. Sometimes it is necessary to pay more attention to what is happening in the options market than in the underlying stock. That is the case with GM. There is overriding negativity in GM reflected in the options. For example, the $17.50 strike price for the March 2006 puts is at 50 cents. In other words, someone who pays 50 cents for those puts needs to have the stock drop from the present $22 to $17 just to break even, and that does not include commissions. There are only 21 trading days remaining until those puts expire. In other words, the stock needs to go down at least one-quarter point for 21 consecutive trading days for someone to make a smidge of money. I have sold those puts at 50 to 60 cents in the last week. I will continue to do so.

Goldcorp Inc.last evening said gold sales in 2005 totaled 1.34 million ounces, compared to 427,600 ounces in 2004. Cash costs per ounce in 2005 were less than $25, compared to $115 in 2004, the Vancouver, British Columbia-based company said. This is the company whose shares I have suggested for purchase for the last three plus years.

The nationwide average price for self-serve regular gasoline is $2.274, which is nearly 5 cents lower than the middle of January, but still more than 38 cents higher than one year ago.

George Will: “Terrorism is not the only new danger of this era. Another is the administration's argument that the president alone, as commander in chief, may conduct the nation's foreign affairs.”

Washington Mutual announced Wednesday it will eliminate 2,500 jobs. The latest cuts come in WaMu's home-loan business, which will close 10 of the 26 offices nationwide that handle administrative support.

Net private sector flows into U.S. securities hit a record $934 billion last year, up from $681 billion in 2004 and $585 billion in 2004.
However, there are flashing yellow lights. Central banks only purchased a net $115 billion of U.S. securities in 2005, down more than half from the $236 billion bought the year before, and significantly, central banks' net purchases of U.S. Treasury securities slumped to $61.2 billion from $201 billion the year before, the lowest since 2002. As our trade deficit rises in 2006 from last year’s $725 billion, I believe there is a real question as to whether new foreign capital flows will be enough to offset our growing deficit, and that does not include our burgeoning budget deficit.

Due to the record warm weather, utility output plummeted 10.2% in January, the largest monthly decline on record.

Marsoft: “After falling to their lowest levels in more than two years during the third quarter of 2005, dry bulk freight rates bounced back in the fourth quarter. However, the gains were much more modest than those seen during late 2003 and late 2004, and thus did little to reverse the negative tone that swept over the market in the third quarter. As a result, period charter rates for most ship types continued to fall in the fourth quarter, and ship prices generally declined by another 5-10% relative to their third quarter levels.”

Brett Steenbarger: “New 20 and 65 day highs rose to 887 and 584; new 20 and 65 day lows dropped to 495 and 149. We continue to make new price highs; as long as we do so and expand the number of stocks making new highs, the trend remains bullish.”

Gartner Inc.sees 2006 global semiconductor revenue increasing 9.5% to $257.7 billion from $235.3 billion in 2005, and estimates revenue growth slowing to 7% in 2007, followed by a cyclical peak in 2008.

Gift Cards And EnCana

2/15/06 Gift Cards And EnCana

Having replaced apparel as the holiday gift purchase of choice, gift cards-a swiftly growing subset of the larger prepaid card market-have grown into a $35.3 billion industry, according to The U.S. Prepaid and Gift Card Market, a new report from market research publisher Packaged Facts, a division of MarketResearch.com, a leading provider of industry-specific market research reports. What's more, Packaged Facts projects that the overwhelming popularity of gift cards across generations will continue to drive card sales upwards of 5% annually to surpass the $47 billion mark by 2010. Holiday season sales of gift cards alone jumped from $17.34 billion in 2004 to approximately $18.48 billion in 2005, and sales are expected to continue to climb.

Yesterday, retail sales for January rose 2.3%. Wall Street pundits were totally surprised by the gain. Obviously, they are schmucks. I have written over and over again that the holiday retail landscape has changed due to gift cards, and 40% of the gift cards are redeemed in January. We saw that in the Wal-Mart results. Sales are not recorded until the cards are redeemed. February retail sales will tell a very different story for an additional reason- the unseasonably warm weather in January will not be a factor in February.

The aging of the worldwide population and a focus on lifestyle treatments that revitalize youthfulness and stave off skin damage are the driving forces behind a healthy prescription dermatological drug market, which should see sales jump to $11.1 billion by2010, according to a new study from market research firm Kalorama Information, a division of MarketResearch.com, the leading provider of industry-specific market research reports. With 2005 sales reaching $8.4 billion, The Worldwide Market for Prescription Dermatological Drugs predicts that sales in the anti aging, photo damage, hair treatment, psoriasis, and skin cancer segments will grow further at a rate of 5.7% over the next four years as consumer demand for newer and better derma drugs continues to increase as the aging population struggles to deal with a myriad of skin disorders and diseases.

Online job ads rebounded sharply in January to 2,162,000 new unduplicated online job ads posted for the calendar month, according to The Conference Board Help-Wanted OnLine Data Series(TM). The January total was up 529,000, an increase of one-third from the December low. January's total was slightly higher than the August 2005 monthly peak of 2,131,000. April 2005 is the earliest monthly data available in this data series. In January, there were 1.44 online job ads per 100 persons in the U.S. labor force, compared to 1.09 in December and 1.21 in November. Although the data series does not have sufficient history to allow for seasonal adjustments, Ken Goldstein, Labor Economist at The Conference Board, noted that a large portion of the declines in November and December followed by the bounce back in January reflect seasonal patterns seen in other employment data. The monthly figures reported in the Help-Wanted OnLine Data Series are the sum of the number of unduplicated new first-time online job ads for each day of the calendar month. "The fact that the January number is back up to the higher level we saw in August 2005 indicates that the demand for labor is holding steady and seems to have weathered the hurricane and energy-related effects of last Fall," says Goldstein. "The January online help-wanted ad volume is consistent with what we are seeing from the Consumer Confidence Survey. In January, consumers were more upbeat about current economic conditions, and they were especially more positive about the job market."

EnCana Corp, North America’s largest producer of natural gas, is located in Calgary. The only other time I have ever suggested the purchase of a Canadian company was PetroKazakhstan. EnCana’s key landholdings are in western Canada, the United States Rocky Mountains, Ecuador, the United Kingdom central North Sea, offshore Canada's East Coast and the Gulf of Mexico. EnCana has interests in midstream operations and assets, including natural gas storage, NGLs gathering and processing facilities, power plants and pipelines. Last November, the company announced that it is developing plans to significantly expand production from its estimated 5 billion to 10 billion barrels of recoverable oilsands resources, assets that have the potential to reach a production rate of 500,000 barrels of oil per day in the next 10 years. Last December, EnCana stated more than 20 companies expressed interest in a potential oilsands partnership and mentioned a shortlist would be finalized in the early stages of 2006. As natural gas dropped from $15 per million BTUs to the current $7+, and as crude declined from $68 per barrel to the current $59+, the price of EnCana’s stock declined by 15% in the last two weeks to $41+, or a market cap of $35 billion. It should be noted that 5 months ago the stock was just shy of $60. A year ago at this time the shares traded at $35+. The U.S. depends on natural gas for roughly 22% of its energy requirements or about equal to that of coal. Oil is higher at 41%. Looking long-term, a diversified portfolio should have participation in natural gas, and EnCana would clearly be my top choice.

2005 Highlights

Financial
- Cash flow per share diluted increased 57 percent to $8.35
- Operating earnings per share diluted up 73 percent to $3.64
- Net earnings per share diluted up 3 percent to $3.85
- Generated $2.7 billion in free cash flow
- Return on capital employed of 17 percent
- Purchased 55.2 million EnCana shares at an average share price of
$34.85 under the Normal Course Issuer Bid
- Reduced shares outstanding by 4.5 percent

Operating
- Natural gas sales of 3.23 billion cubic feet per day (Bcf/d), up 8
percent
- Oil and natural gas liquids (NGLs) sales of 227,100 barrels per day
(bbls/d), down 13 percent
- Key resource play production up 18 percent; oilsands production
exceeded 50,000 bbls/d in December 2005
- Operating costs of 68 cents per thousand cubic feet equivalent (Mcfe)
- Upstream capital investment in continuing operations of $6.2 billion
- Net divestitures of $2.1 billion in non-core upstream assets,
resulting in net upstream capital investment of $4.1 billion

Reserves
- Drill bit additions and revisions of 4.8 Tcfe of proved reserves,
including 1.9 Tcfe of bitumen
- Proved reserves increased 18 percent to 18.5 Tcfe
- Reinstated 363 million barrels of bitumen to proved reserves
- Finding and development (F&D) costs averaged $1.29 per Mcfe,
excluding bitumen reinstatement
- Production replacement of 271 percent, excluding bitumen
reinstatement
- Average three-year reserve replacement cost of $1.22 per Mcfe

Strategic events
- Sold Gulf of Mexico assets for $2.1 billion
- Sold natural gas liquids business for $625 million
- Agreements reached to sell Ecuador assets for $1.42 billion and
Brazil oil discovery for $350 million
- Announced plans to expand in-situ oilsands production to more than
500,000 barrels per day by 2015

2006 objectives
- Grow sales from continuing operations between 4 and 9 percent,
natural gas sales between 6 and 10 percent
- Complete downstream initiative in support of high-growth in-situ
oilsands production to more than 500,000 barrels per day by 2015
- Complete sales of Ecuador and Brazil assets
- Complete the sale of natural gas storage business

2006 capital forecast trimmed $800 million; gas sales forecast was reduced by
75 million cubic feet per day.
Looking to 2006, the North American oil and gas industry continues to run
at a fevered pace. The inflationary pressures of 2005 are expected to continue
this year with cost inflation once again above 15 percent. Given these
circumstances, EnCana has decided to reduce drilling in areas where costs have
increased the most, resulting in a $500 million reduction in its previously-
announced 2006 upstream capital investment forecast. In addition, EnCana's
2005 gas sales exit rate was lower than planned due to fewer wells drilled by
year-end. The combined impact on 2006 gas sales is a reduction of about 75
million cubic feet per day from EnCana's previous forecast. The changes are
reflected in EnCana's updated corporate guidance. The $500 million upstream
capital reduction includes $200 million invested in late 2005 for acceleration
of drilling coalbed methane wells and expansion of in-situ oilsands programs,
and in 2006, $100 million for exploration and $200 million for development
programs. A further $300 million of capital previously assigned to building
the second segment of the Entrega Pipeline is not expected to be required as
EnCana has entered into an agreement to sell Entrega, which is expected to
close in the first quarter of 2006. In total, the company is reducing its 2006
capital investment plans by about $800 million, or 12 percent.

EnCana's 2006 natural gas sales are expected to increase by about 8 percent
With fewer wells planned this year, EnCana's 2006 natural gas sales are
expected to increase 8 percent, at the midpoint of revised guidance - a growth
rate similar to what was achieved in 2005. EnCana's North American oil and
NGLs sales forecast is unchanged and remains about the same as 2005, with
additional volumes expected to come on stream near year-end from an expansion
of steam-assisted gravity drainage (SAGD) production at Foster Creek.

More than 90 percent of 2006 gas sales has floor price protection
To help assure strong financial performance, EnCana put in place, during
the fourth quarter of 2006, put options on about 1.6 billion cubic feet per
day of 2006 planned gas sales at an average strike price of NYMEX $8.42 per
thousand cubic feet. All in, about 93 percent of EnCana's forecast 2006 gas
sales is hedged with a combination of put options and fixed price hedges with
an average price of NYMEX $7.30 per thousand cubic feet.

Net capital investment in 2006 forecast at $2.8 billion
EnCana has a series of non-core asset divestitures well underway that are
expected to generate between $3 billion and $3.4 billion this year, with
proceeds designated to share purchases and debt reduction. With a capital
investment forecast between $5.8 billion and $6.2 billion, the company expects
its 2006 net capital investment to be about $2.8 billion.

Today, the company reported results for 2005, a 57 percent increase in 2005 cash flow per share to US$8.35 per share diluted, or $7.4 billion, compared to 2004. Total
operating earnings per share in 2005 increased 73 percent to $3.64 per share
diluted, or $3.24 billion. Net earnings per share increased 3 percent to
$3.85 per share diluted, or $3.43 billion. EnCana replaced 271 percent of its 2005 production and increased total proved reserves by 18 percent to 18.5 trillion cubic feet of gas equivalent (Tcfe) by adding 4.5 Tcfe, compared to production of 1.7 Tcfe. For the fourth quarter, earnings excluding special items were $1.46 against 62 cents. A survey of analysts by Thomson First Call produced a consensus estimate of $1.24.

For more aggressive investors, they might consider selling the March 35 puts. If the stock were put to you, the cost per share (excluding commissions) would approximate $34.60. In addition, one might combine the purchase of the stock with the sale of the aforementioned put. That is even more adventuresome.

James Altucher: “I recently posted a job listing on internet noticeboard Craigslist. The job posted simply said, “need a researcher. Knowledge of internet, investing, writing.” Of the 300+ responses I received at least two-thirds had higher degrees…and most had some experience at one of the big banks: Goldman Sachs, CSFB, Morgan Stanley, and J.P. Morgan…So what was so great about this job? The wages- $12 an hour.”

Soft Landing?

2/14/06 Soft Landing?

Last week we had a downward revision from Toll Brothers. Yesterday, after the close,
KB Homes released some disappointing news.
"There are signs that consumer demand in the United States for residential housing at current prices is softening," KB Home said in its 10K, which was filed with the Securities and Exchange Commission on Friday.
"In the first two months of the (fiscal) year (December and January), we have experienced an increase in home order cancellations and a decline in net orders for new homes when compared to the same period last year."
If this trend continues, "we may be required to moderate our revenue guidance for fiscal year 2006," KB Home said.
However, the company said it doesn't expect to change its earnings-per-share guidance for fiscal 2006 as the company has accelerated its share buyback program. In December, KB Home's board authorized the repurchase of 10 million shares. Since then, the company has repurchased 2 million shares in addition to the 2 million shares it bought back during its fiscal fourth quarter under the previous authorization program.
In December, the company said it expected to generate earnings of $11.25 a share in fiscal 2006, up 18% from fiscal 2005.
Does the stock at $65 reflect the current slowdown? Will the home order cancellations continue at the present pace or accelerate? If the pace remains the same, it will be a soft landing. One must remember that about 40% of all new jobs created in the U.S. over the last 2 years were housing-related.

The EU is threatening to reimpose US trade sanctions unless Congress eliminates the vestiges of a tax break for US exporters that was ruled illegal by the WTO.

Nouriel Roubini: “Orwellian Chutzpah and Doublespeak in the Economic Report of the President: the US Current Account Deficit Becomes the "US Capital Account Surplus.”

Waste and fraud marked the government's Hurricane Katrina assistance programs, with 10,000 mobile homes going unused and scattered cases of emergency money spent on nude dancing in Houston, tattoos, and gambling, according to an audit. Up to 900,000 of the 2.5 million applicants who got emergency cash after Hurricane Katrina based their requests on duplicate or invalid Social Security numbers, or false addresses and names, auditors said Monday. Waste and fraud are the hallmarks of this administration.

More than 57% of practicing Michigan doctors plan to retire by 2020. Don’t worry. By 2020, you might not have insurance coverage to visit a doctor.

Adam Oliensis: “The SPX has now completed trading-day # 842 since its October 2002 low. The tops in 1966 and 1994 came on trading days #847 and #839, respectively. So we are currently inside the envelope for the formation of an SPX top created by these two prior cycles. And what will determine just how relatively benign or malignant the (likely) imminent retrenchment is? In our view it will depend on the extent and duration of the inversion of the Yield Curve.”

Yesterday was a low volume trading day; however, there was a growing expansion of the new low list. One should never forget that you can lose your ass on low volume. (Remember 1974?) In the end, a foundation for continued advance must be based on broad participation. A handful of strong issues cannot support an entire market. That we saw with Google and Apple. Ever since those two issues ran into selling, the market has been pissing into the wind.

John Lubbock: “What we see depends mainly on what we look for.”

Mistaken Identity

2/13/06 Mistaken Identity

How do you know it’s time to change leadership? When there is an incident of mistaken identity and the Veep takes a 78-year old lawyer for an insurgent quail.

China's consumption of crude oil will rise between 5.4% to 7% this year, according to estimates from the National Development and Reform Commission. China is expected to import 44% of its oil needs this year, according to the commission.

Robert McHugh: “There is a either a .382 or .618 ratio relationship for every single meaningful top or bottom since January 14th, 2000 with another top or bottom since January 14th, 2000…In other words, if we say 2/24/06 is a likely turn date, it means that 2/21/06 to 3/1/06 also may calculate to a phi mate approximate .382/.618 ratio.”

According to Brad Setser, “someone is going to need to lend the US about $1 trillion this year --- and next year - even if the US economy slows modestly.” In my view, that places the U.S. on a collision course with a train wreck.

Keep a vigilant eye on the rising number of new lows. It might very well give a clue to the near-term direction of the equity market. Many of the daily swings have their genesis in computer-generated trades. However, the computer cannot mask the relationship of new highs and new lows and the overall breadth of the market. Until I see a material change, selling into strength makes the most sense.

John Hussman: “This is a market where risk is best held close to the vest.”

This week there will be a good deal of data released: industrial production, capacity utilization, producer prices, retail sales, and housing starts. Not to be forgotten is Bernanke’s testimony to Congress on Wednesday. Don’t get bogged down on the data and the verbiage. It’s historical data and the normal BS on monetary policy, price stability, and the yield curve. Volatility might increase as we move towards option expiration on Friday. It’s a good week to build a snowman as well as to provide some loving warmth on Valentine’s Day, which hopefully comes every day of the year to your loved ones.

Hurdles

2/12/06 Hurdles

According to David Lazarus, over the next 75 years, the Social Security system is forecast to be about $4 trillion in the hole. In the same time frame, Medicare's deficit is expected to reach almost $30 trillion. Spending on Medicare now represents 2.7 percent of the overall economy, according to government figures. By 2050, that total will jump to 9.3 percent of the nation's gross domestic product. Lazarus observed that “Bush's proposed cutbacks mean spending for Medicare would rise by an average 7.5 percent annually over the next decade. Without the changes, annual spending would go up 7.8 percent.”

It is obvious that all jobs do not reflect equal pay. Therefore, it is important to view the composition of job gains. In January, 46,000 new construction jobs were generated. Forget about the warm weather and the reasons for the unusual level of hiring during the winter. Those 46,000 jobs represent about 24% of the net new job gains in January. According to government statistics, construction pays 17% above the national average. As such, that 245 skewed the increase pay per hour for all workers, and that has been the case for at least the last year. Hopefully, the Fed can do the same math. After all, Bernanke has a doctorate degree.

Eddie Lampert: “In investing, you constantly make decisions under conditions of uncertainty.”

A Time For Caution

2/11/06 A Time For Caution

The U.S. Federal January budget surplus was $3 billion less than the $24 billion surplus expected by the Congressional Budget Office in its monthly budget outlook. The difference came mostly on the outlay side. Receipts rose 13.7% year-over-year to $230 billion. It's a record for receipts in the month of January. Outlays rose 7.9% year-over-year to $209 billion, also a record for the month of January.

The yield curve is getting seriously inverted. The 2-year climbed to a 4.68% yield, the 10-year increased to 4.58%, and the 30-year closed at 4.55%. Meanwhile, for the week, gold declined 3.2%, silver dropped 3.9%, oil slipped 5.4%, gasoline plunged 13%, and natural gas plummeted 15%. On Friday, you witnessed some real selling in oil, natural gas, copper, cement, and other companies focusing on materials. Yet, bond yields rose, and quite sharply. Analysts maintain that earnings will continue to expand. Yet, the quality and breath of the equity market is questionable. This is not about a market that climbs a wall of worry. It's about a lack of leadership. The biggest pharmaceutical company, Pfizer, stated they would earn only $2 a share in 2006. They disappointed in 2005 and now they will disappoint in 2006. Google and Apple have taken recent hits. Intel is selling near the low. Are Cisco and Dell going to lead the advance in the tech sector? I would rather look at the other side of the coin. Rising interest rates will impact the rates on the ARMs and the spending ability of the consumer.
The level of economic activity will be impacted. I prefer to be early. As such, at the very least, one might consider sharply cutting back positions in copper and steel stocks. Buying puts on rallying days would also be a viable alternative.

Michael Brown, former head of FEMA, told the Senate Homeland Security and Governmental Affairs Committee he had held a video conference call the afternoon of Aug. 28, the day before the hurricane struck, which he specifically recalled Bush listened in on. Brown said he warned top administration officials on the call that a disaster was looming and that the government should go on top alert and cut through red tape in its response. "I knew in my gut this was the bad one," he said. How is this different from Bush's lack of action after the plane flew into the twin towers? He went back to the children in the classroom. He is a man unfit for the position of the presidency. But, that's a five-year old story.

Christopher Galakoutis: “If we somehow discover intelligent life actually willing to purchase US dollar assets, a rather miraculous accomplishment in itself, let us hope they are a god fearing species. At the very least, they could always turn to prayer when all hell breaks loose.”

According to the most recent U.S. Census figures, Hispanics make up one-seventh of the U.S. population and accounted for half the population growth in 2004. It's estimated that Univision's three television networks account for more than three-fourths of all Hispanic viewers in the nation.

Paul Pillar, a high-level CIA veteran who oversaw Middle East intelligence assessments from 2000-2005: "If the entire body of official intelligence on Iraq had a policy implication, it was to avoid war — or, if war was going to be launched, to prepare for a messy aftermath," Mr. Pillar wrote. "What is most remarkable about prewar U.S. intelligence on Iraq is not that it got things wrong and thereby misled policymakers; it is that it played so small a role in one of the most important U.S. policy decisions in decades."

Bush: "It's hard work to cut out and cut back on programs that don't work.” It’s really back-breaking work to reduce the size of government. You can assess his hard work by looking at the twin tower deficits.

Peter Schiff: “For financially strapped homeowners living paycheck to paycheck with little or no home equity, the payment shocks associated with ARM resets will be the financial equivalent of a knock-out punch. Even if most savings-short households can somehow manage to swing the higher payments, it will require the complete abandonment of just about any other discretionary spending.
Since better than 70% of America's bubble economy is comprised of consumer spending, such austerity will result in wide-spread unemployment. If homeowners have trouble making increased mortgage payments while still collecting paychecks, imagine how much harder it will become when they lose their jobs.”

The California State Automobile Association is moving 200 of its information technology jobs located in the Bay Area to a new call center in Glendale, Arizona, one that will open early this summer and eventually be manned by up to 1,400 workers. However, AAA has delayed further plans to relocate its remaining 1,000 San Francisco workers.

According to the Detroit Free Press, General Motors Corp. and the UAW are working on an early-retirement program aimed at averting a crippling strike at automotive parts supplier Delphi Corp.

Doug Noland: “There is certainly good reason to suspect that the "yen carry trade" (borrowing in yen and/or shorting low-yielding yen-denominated securities and using the proceeds to finance holdings in inflating markets) has ballooned to massive proportions and has, in the process, become a Seminal Source of "Blow-off" Finance.”

The WSJ noted that, membership in the National Association of Realtors, rose 6% since 2000 to about 1.25 million.

With record warm weather in January, housing starts could increase 10%. Are the short sellers in the housing stocks prepared for these numbers? A near-term rally could occur in this sector.

George Washington: “Worry is the interest paid by those who borrow trouble.”

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 could 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.

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.