Life In America

3/5/06 Life In America

The Washington Post relates that, according to the Federal Reserve's Board's Survey of Consumer Finances, "it has about $3,800 in the bank. No one has a retirement account, and the neighbors who do only have about $35,000 in theirs. Mutual funds? Stocks? Bonds? Nope. The house is worth $160,000, but the family owes $95,000 on it to the bank. The breadwinners make more than $43,000 a year but can't manage to pay off a $2,200 credit card balance." That's quite a picture. What does that tell you about the present and the future in this country? We're strapped and, in actuality, that does not tell the whole story. Each American family is on the hook for its share of the U.S. $8+ trillion national debt and the $40+ trillion in benefits for Social Security, Medicare, and Medicaid.

LNG imports tripled in the '90s, rising to 226 billion cubic feet per year by 2000.
They nearly tripled again by 2004, climbing to 652 billion cubic feet, or 3 percent of the country's total natural-gas consumption.

The following is a sign of the times. I have written about the tarsands in Canada. This week something quite remarkable took place. The Houston Chronicle aptly described the happenings.

Enbridge, a Calgary-based oil delivery and storage company, opened the taps to its Spearhead Pipeline, a 650-mile stretch of steel from Chicago to Cushing, and the first western Canada crude sloshed into the company's mammoth Cushing terminal early Thursday.
"The moment was more than two years in the making for Enbridge, which is rapidly expanding its Cushing terminal with new storage tanks that will add another 3.5 million barrels of oil space to the 10.3-million-barrel capacity it already has. Enbridge completed four new 575,000-barrel storage tanks in 2005.
While oil flowing through an underground pipeline may seem mundane, the $190 million Spearhead project has special significance.
That's because Enbridge reversed the flow of the Spearhead pipeline, which is also something of a reversal of fortunes.
For years the pipe, which used to be owned by BP, carried Gulf of Mexico crude to northern markets that needed the oil. But as the Gulf slowly but surely plays out, and Canada's oil sands production picks up steam, the crude is flowing in a different direction.
It's a sign of the times. Canada, which is already the biggest exporter of oil to the U.S., outranking Mexico, Venezuela and Saudi Arabia, will likely double its oil production in the next decade, thanks to production from the oil sands." Significantly, Cevron just announced five leases in the oilsands region of Canada. Is it wiser to buy EnCana and Enbridge? Time will tell. If I were running a U.S. major, I'd be considering EnCana for sure.

The wonderful thing about the stock market is the daily challenge. There is no room for carelessness. Tim Wood points out currently "that yes, the Secondary Trend is positive. But, with deteriorating internals this Secondary advance is obviously beginning to get just a bit tired." At the same time, last week, Mike Burk points out that the Dow Jones Transports, the Russell 2000, and the S&P midcap all made all-time highs. The market is ebbing and flowing, as it always does, and requires the nimble investor to pick the low-hanging fruits. It is not a time to be smug. You will be carried out.

The more things change the more they remain the same. Greenmail may have been buried but there are rumblings from the grave. We have Icahn at Warner Communications and Peltz at Wendy's and Heinz. What do they have to add to the mix? Any board of directors who gasps from this type of investor should be removed. In the whole of Wendy's, Baja Fresh isn't even a pimple on an elephant's ass. Tim Horton's is where the action is.

As for the Fed, they help to create inflation as M3 continues to expand by an 8% growth rate. Maybe more attention could be focused on unsound asset-based lending, which clearly will not be offset in the derivatives market. Anyone who thinks the derivatives market is akin to aspirin for a headache is mistaken. Derivatives create complacency, and the latter compounds a dysfunctional economy. Just look at the typical American family trying to make ends meet.

Cash Flow

3/4/06 Cash Flow

Carl Swenlin points out that Rydex cash flow isbearish: "since November, bear plus money market fundscash flow has been flat to slightly rising,demonstrating clearly that the bears have beenrelatively patient. On the other hand, cash flow for bull plus sectorfunds has decreased dramatically. This means thatmoney has been moving out of bullish funds even thoughprices have moved higher. This is almost always a bad sign. "

Bloomberg News(R) today reported on theresults of the latest Bloomberg/Los Angeles Times national public opinionpoll, which shows that 54 percent of American's disapprove of President Bush'shandling of terrorism -- marking a significant reversal in public sentimentfrom a year ago. According to the Bloomberg/Los Angeles Times poll, support for Bush waneddue to the administration's defense of the Dubai port deal and Americanfrustration with the Iraq war. The Bloomberg/Los Angeles Times poll revealedthat 58 percent of respondents oppose allowing DP World, Dubai's state-ownedport operator, to acquire facilities at six U.S. ports. On Iraq, Bush has anapproval rating of 34 percent in the Bloomberg/Los Angeles Times poll, downseven points since last month. In addition, the Bloomberg/Los Angeles Times poll revealed that 64 percentof Americans think the country is headed in the wrong direction.

Stubborn, Stupid, Or Smart

3/3/06 Stubborn, Stupid, Smart Or A little Of All Three

It takes a certain mentality and a certain personality to buy into a falling knife, so to speak. When a stock is under tremendous selling pressure, why be a hero and stick one's neck out?
It depends on the situation. One needs to pick the spots. When the noise gets louder and louder, and I cannot hear myself think, then I start to take a serious look at a stock. There was Merck and Vioxx and the stock got creamed-- only to rally 50%. There was McDonald's and the unhealthy food. The stock has been a three bagger from the bottom. Pfizer did not have a friend in the world and has since rallied about 25%. So why choose GM at $20+? There are catalysts and it is in a lot of interests to get this puppy back on its feet. KK is out a bundle. Next week York goes on the board-- just in time to consider the Cerberus/Citi bid for 51% of GMAC. Despite what Goldman Sachs said, this sale will take place. The delay is a little negotiating. Then there is the commercial-mortgage business. That too will be sold. GM's CEO stated the company has $19 billion in liquidity outside of GMAC. The new SUVs are a hit. They carry good profit margins. Things are improving in Europe and at Saab. China's business is on the uptake and highly profitable. Sales are advancing nicely in India. Have you ever taken a look at GM's real estate portfolio? You can't buy at the bottom. Consequently, when buying against the grain, there will be a loss in the beginning. Buying at lower prices is not for everyone. Do you remember the scare with J&J's recall as well as the recall from Intel? What do all these prior examples have in common? The companies are leaders in their field.
You think the auto business is not important in the U.S? Think again. It's the domino theory and it invades many walks of life and many communities. When a worker in the industry nad/or dependent on the industry gets a paycheck, that money can turn over 7 times. You get my point? The auto industry has tenacles-- and large ones. GM, Ford, and Chrysler are not going away. They are in the process of reinventing themselves. That's a good thing.

Estimates by Autodata Corp. of Woodcliff Lake, N.J., show that Chrysler has led the industry in incentive spending the past two months. Chrysler, it said, bested former incentives champ General Motors Corp. in February by nearly $800 per vehicle on average, spending about $3,881 in incentives for each new vehicle.
The consumer Web site Edmunds.com, meanwhile, said its data shows that Chrysler has been leading in incentive spending the past six months. And the site shows Chrysler leading GM by more than $1,000 per vehicle in incentives.

Silver futures closed above $10 an ounce Thursday for the first time in more than two decades. April silver climbed 41.8 cents, or 4.3%, to close at $10.208 an ounce after a high of $10.235.

Planned layoffs by U.S. corporations dropped 15.5% in February to 87,437, the lowest level since October, according to a monthly tally compiled by Challenger Gray & Christmas. Planned job cuts were down 19% from a year ago. Year-to-date layoff announcements are down 4.9%. Layoffs had increased in each of the four final months of 2005 before falling in January and February.

Behind The Numbers

3/2/06 Behind The Numbers

When it comes to sales for GM, all revenue is not the same. Retail carries a bigger profit than a fleet sale and Tahoe revenue has higher profit margins than seen on a car. As such, the story is not simply that the company's Feb. sales were down 2.5%. Retail sales were 1% higher and light truck sales rose 5.3%. Overall, profit margins improved from one year ago. Emphasizing the changes, GM's sales of redesigned large sport-utility vehicles are doing ``very well'' this year and meeting the company's plans, Chief Executive Officer Rick Wagoner said in Geneva.
`All the new vehicles, especially the large SUVs, are doing what they are supposed to do,'' he said.

The average U.S. home increased 12.95% in value in 2005, the Office of Federal Housing Enterprise Oversight said Wednesday. The typical home's value increased 2.9% in the fourth quarter of 2005 from the third quarter. "Despite recent indications that a slowdown may be forthcoming, house price appreciation during 2005 continued to hover at near-record levels," said OFHEO Chief Economist Patrick Lawler.

The personal savings rate fell to negative 0.7%, the lowest since August. Savings have been negative for eight of the past 10 months.

Factory activity in the United States accelerated in February, the Institute for Supply Management reported Wednesday. The ISM index rose to 56.7% in February from 54.8% in January.

Richard Daughty: "In 1995 the banks' reserves were about $60 billion, insuring against $206 billion in loans and leases, and $87 billion in savings. M3 was $4.3 trillion.
Now, in 2006, notice the amazing difference! Today, required reserves are only a measly $41 billion (down almost 33%!) as a cushion against a whopping $5,540 billion in loans and leases (2,700 percent bigger than in 1995) and an astonishing $5,150 billion in savings (5,900 percent bigger)! M3 is now $10.3 trillion."

With GM closing below $20, the company's market cap now trails that of Fiat. Hard to believe!

February Results

3/1/06 February Results

GM's February incentives were 17 percent lower than in January and down 10 percent from February 2005, according to Autodata Corp.

U.S. February Chicago PMI came in at 54.9 vs. 58.5 for January.

Timothy Geithner, NY Fed President: ""We still face considerable uncertainty about how market liquidity will behave in the context of a major deterioration in credit conditions or a sharp increase in volatility in equity and credit spreads."

The Conference Board Consumer Confidence Index for February dropped to 101.7 from the prior month's 106.8.

Henry To: "Total short interest on the NYSE for the month ending February 15, 2006 declined 423 million shares - a record monthly decrease. Over the last three months, NYSE short interest decreased 8.32% - the highest rate of decrease since September 2003. Given the maturity of this cyclical bull market, this does not bode well for the stock market going forward. Should there be a general market decline, there will be much less support than what we have previously experienced."

U.S. January existing home sales declined 2.89%, the lowest rate in 2 years. Importantly, inventory of unsold existing homes rose to 5.3 months.

Even though the price of gold declined in February, the metal still finished the month
above $563 per ounce, a pretty good showing.

Crude remains above $60 a barrel. Just consider the following: if Saudi Arabia pumps one barrel of water for each two barrels of oil, and their spare capacity is essentially sour crude, do you think this is a warning sign their reserves may be in question?

The U.S. claims that 4th quarter GDP rose 1.6%. Isn't it possible that the growth was due to price inflation and therefore there was truly negative growth?

Gneral Motors Vice Chairman Bob Lutz: "I would rather have 25 percent share with low incentives, lots of retail, low daily rental than 28 or 29 percent with heavy rebates, heavy daily rental and all that business that gets you market share numbers but no profitability." In January, the company's market share in the U.S was 25.6%. It should be about the same for February-- even with the 17% monthly decline in incentives. GM's inventory is under control and the profit margins are improving. That has not been reflected in the price of the stock. As the trends continue to improve, the share price will follow in a positive direction.

Yesterday, EnCana Corp completed the $1.42 billion sale of its oil and pipeline interests in Ecuador to Andes Petroleum Company, a joint venture of Chinese oil companies. EnCana announced the deal, which covers proved reserves that totaled 143 million barrels at the end of 2004, last September.

Henry To: "The Market Vane's Bullish Consensus for copper hit 95% on February 6th, and was at 90% as recently as February 9th - suggesting that virtually all shorts have been squeezed from the commodity (it is interesting to note that copper failed to rally despite the production stoppages at Freeport's Papua mines last Wednesday)."

According to the Detroit Free Press, GM also is close to finalizing the sale of a majority of its separate commercial-mortgage business to a consortium of buyers, Simonetti, a spokeman for GM, said. The company stated in August that it would sell a 60% stake in the business.

The GM division, which last made a profit in Europe in 1999, narrowed its loss in the region last year to $375 million from $742 million. GM's CEO hopes to break-even or do better than that in Europe this year.

Tides

2/28/06 Tides

In January, there was a 5.2 month supply of new homes on the market. The total was 528,000
homes for sale. Combine that with the affordability index at a 15-year low, and you have the makings of the tide turning.

Yesterday, during regular trading hours, the S&P 500 hit a 5-year high.

Interestingly, GM's vice chairman of global product development, Bob Lutz, stated
"Saab has really turned the corner. It is close to making money as a brand." This is but one more indication of GM turning the tide positively for stockholders. By the time analysts are on board, I believe the shares will trade 50% higher than present levels. It reminds me a great deal of McDonald's at $12+ when the latter did not have a friend in the world. GM and McDonald's are two of the world's most valuable brands. Sometimes the biggest bargains are right under your nose (no pun intended).

April natural gas closed at $6.789 per million British thermal units, down 52.4 cents, or 7.2%. The contract marked its lowest closing level since mid-March 2005.

Crude closed down $2 a barrel at $60+, still a lofty level heading into March.

According to today's Financial Times, GM is putting pressure on its negotiators and investment banks to reach an outline agreement to sell a majority stake in the carmaker's finance unit before a board meeting on Monday. According to people close to the company, a deal could be worth about $11.5 billion, exceeding the present market cap for GM shares.

General Motors Corp. expects an increase in its European market share this year, the automaker's Europe chief, Carl-Peter Forster, said today. "We are certainly (looking) for share growth in Cadillac. Saab could grow or at least maintain its share. Chevrolet most probably is up for another year of strong growth. Put it all together, most probably we will grow share," Forster said. The Opel brand, its largest in Europe, is looking for more profitable sales and will be moving away from some low-margin business, he said. The auto industry in Europe, overall, could see a slightly better year in 2006, Forster said. "Slightly better means 3 percent growth or so."

In March 2001, according to the BLS, employment in the real estate and mortgage industry stood at 283,000. The peak was 504,000 in October 2005. Since then, it has slowly trended downward.

GM And China

2/27/06 GM And China

GM's combined China sales rose 35% to a record in 2005. Importantly, the company finished the year with a market share in China of 11.2%, up almost a full two percentage points over 2004. It is significant to note the growth potential in China's automotive market. In the U.S., for every 1,000 drivers, there are 700 people who own a car. By comparison, in China it is a mere 20 that own a car.

Shanghai General Motors Co.'s sales will increase about 20 percent this year, down from a 29 percent gain in 2005, Chris Gubbey, executive vice president at Shanghai GM, said in a recent interview. China's passenger car market may grow by 16 percent this year after increasing by 23 percent last year, he said.

The General Motors-China relationship dates back more than eight decades. GM has approximately 13,000 employees in China and operates seven joint ventures and two wholly owned foreign enterprises. It has participated in investment of over $2 billion in China. GM, along with its joint ventures, offers one of the broadest lineups of vehicles among foreign automakers in China. Products are sold under the Buick, Chevrolet, Wuling, Cadillac, Opel and Saab nameplates. Shanghai General Motors Co. Ltd. (Shanghai GM) is a 50-50 joint venture with Shanghai Automotive Industry Corporation Group (SAIC), a leading passenger car manufacturer in China. Shanghai GM was formed in June 1997. GMAC-SAIC Automotive Finance Co., Ltd. is China's first automotive financing company. The joint venture between General Motors Acceptance Corporation (GMAC) and Shanghai Automotive Group Finance Co. Ltd. (SAICFC) provides retail financing for vehicles manufactured by GM's joint ventures with SAIC. It also supports Shanghai GM dealers by providing financing for their vehicle inventories.

With its growing market share in China, and the double digit growth prospects for GM's automotive operations, as a stand alone public entity, I feel confident that GM China would command a P/E ratio exceeding 20 and a market cap of at least $12+ billion. The current $20 price tage for GM stock surely ignores this potential.

General Motors has shifted its worldwide electronics purchasing unit from Warren, Mich., to Shanghai to place it at the hub of China's electronics industry.

The Chevrolet HHR has joined two much more expensive Hummer models as one of the three most accessorized vehicles in the General Motors lineup. A little over 50 percent of the HHRs sold last year were purchased with one or more accessories, GM says. The greater the accessories the greater the profit margins.

John Hussman: "If we split year two of the Presidential Cycle into two periods – the first nine months of the year compared with the final quarter - the patterns become apparent. The average market performance during the period from January through September of each second year of the Presidential Cycle has been roughly flat since 1933. The market has been down during these periods nearly as much as it's been up.
Things have usually been more interesting in the fourth quarter, where the average gain has been 8.7 percent. This is the highest average fourth-quarter return of any of the four years of the cycle, including the last quarter of year three and year four. The fourth quarter of the second year is actually where many third-year rallies are born."

Developments

2/26/06 Developments

Mike Burk: "In the 1970's, Norman Fosback researched end of month, beginning of month seasonality. He found the last day of the previous month and first four days of the new month had unusually high returns. He would add the second to the last day of the ending month and the fifth day of the new month if they were not Mondays. Monday is the second to the last day of the month so it is does not qualify as part of the trade, but the rest of the week does."

Robert McHugh: "When Iran starts accepting only Euros for oil(3/20), those who have been holding Dollars, or Dollar denominated U.S. financial instruments with the intent to exchange them for oil, will upset the global currency markets by suddenly exchanging them for Euros. Foreign demand for Euros will increase and demand for Dollars will decrease. 49 percent of the U.S. debt is owned by foreign interests. As that U.S. debt is exchanged for oil, via Euros, somebody is going to have to buy excess U.S. debt instruments. That someone will have to be the Fed. They will have to print a ton of Dollars to buy these U.S. debt instruments which will no doubt be unloaded by foreign interests to acquire Euros and Oil. Those excess Dollars will then be exchanged for Euros, driving the value of Dollars down and Euros up."

Chinese carmakers like Chery and Geely captured a quarter of the Chinese market last year, up from less than 10 percent just two years earlier, said Michael Dunne, the president of Automotive Resources Asia, a consulting firm.
"Why the spurt? Small cars powered by gas-sipping engines that start at $4,000," Dunne said.
Raymond Bierzynski, the president of General Motors' Pan Asia Technical Automotive Center in Shanghai, said that gasoline costs were more important to consumers in China than elsewhere because these costs represent a higher share of the low household incomes in China. GM sells its Buick Excelle compact sedan with special, low-rolling-resistance tires in China, which it does not do in any other market and which increases gas mileage by up to 2 percent, he said

Wal-Mart's February same-store sales rose 3.2%.

GM

2/25/06 GM

Almost every analyst following GM has a sell recommendation on the shares, which closed at $20 on Friday. As is frequently the case, they are wrong in their assessment. The market capitalization of the stock has not fallen below the value that will achieved in the sale of GMAC, and that sale could be announced any day. The pending Delphi work stoppage will be settled prior to the March 31 deadline. GM is gaining market share with its new vehicles. February sales will be announced on Wednesday. I expect them to be stronger than the most optimistic forecast.The Chevy HHR, Buick Lucerne, Chevy Impala, and the new SUVs have been received extremely well.
When investing, it is vital to consider the risk/reward. In the case og GM shares, I believe they offer the best rewrad with the smallest downside risk of all the stocks in the Dow. In addition, there is always the possibility of another tender offer by Kirk Kerkorian. If I were he, that's what I would be doing on Monday morning. His upside far outweighs the downside.

Employment

2/24/06 Employment

Wal-Mart will expand coverage for workers and build more than 50 health clinics in its stores.
The company will allow more workers to become eligible for the lowest cost health plan, cut the waiting period for part-timers and allow their children to be covered. Wal-Mart will more than quadruple the number of clinics after opening nine in Arkansas, Oklahoma, Florida and Indiana in a pilot program.

The Conference Board Help-Wanted Advertising Index
dipped one point in January. The Index now stands at 37. It was 42 one year ago.
Says Ken Goldstein, labor economist at The Conference Board: "Economic
growth may be picking up in the first quarter but the labor market indicators
aren't showing much improvement through January. The economy only generated
about 195,000 new jobs in January. Online ad volume did recover from a
seasonal-related downturn but was no higher in January than in August. Print
ad volume (which is seasonally adjusted) edged down in January. Initial
unemployment claims improved in January but there is a question about how much
of a role the warm weather played. The JOLTS data (Job Opening and Labor
Turnover) remained relatively flat through December. Finally, consumer
sentiment about job prospects over the next six months dipped in January.
Thus, not only are the indicators suggesting modest gains in hiring, but
consumers also do not think more new jobs will start opening up this spring.
All of these data are consistent with readings from the Coincident Economic
Index, which reflected moderate economic growth through January."
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 only
slightly higher than the August 2005 monthly peak of 2,131,000. 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.

Initial jobless claims dropped by 20,000 last week to
278,000, the Labor Department said today in Washington.
Continuing claims, which measure how many people remain on
benefit rolls, rose to 2.495 million from 2.454 million, which
was the lowest since February 2001.

Average incomes after adjusting for inflation actually fell from 2001 to 2004, and the growth in net worth was the weakest in a decade, the Federal Reserve reported Thursday.

A senior Dubai Ports executive, Edward H. Bilkey, said the company will move forward with its $6.8 billion purchase of London-based Peninsular & Oriental Steam Navigation Co., which operates in 18 countries; however, Dubai Ports agreed to temporarily segregate the company's U.S. operations, Bilkey expressed bewilderment over the security concerns expressed in Congress.
"The reaction in the United States has occurred in no other country in the world," Bilkey said. "We need to understand the concerns of the people in the U.S. who are worried about this transaction and make sure that they are addressed to the benefit of all parties."

Wages And Inflation

2/23/06 Wages And Inflation

The 0.7 percent increase in the January consumer price index followed a 0.1 percent decline in December, the Labor Department said. Excluding food and energy, so-called core prices rose 0.2 percent after a 0.1 percent December gain.
Economists expected a 0.5 percent increase in the consumer price index, based on the median of 68 forecasts in a Bloomberg News survey. Forecasts ranged from increases of 0.2 percent to 0.6 percent. Core prices were forecast to rise 0.2 percent.
Consumer prices were up 4 percent for the 12 months ended in January compared with a 3.4 percent year-over-year gain the previous month. Core prices were 2.1 percent higher compared with a 2.2 percent year-over-year increase in December.
Weekly earnings of workers, adjusted for inflation, fell 0.2 percent in January and were down 0.4 percent in the last 12 months, the Labor Department said. Energy prices rose 5 percent in January, the most since September, after falling 2.1 percent a month earlier. Fuel costs were up 25 percent in the last 12 months. Gasoline prices rose 6.4 percent in January and natural gas costs increased 1.7 percent. Electricity costs rose 5.5 percent, the most ever.
Food prices, which account for about a fifth of the index, rose 0.5 percent in January, the most since April, after rising 0.1 percent. Last month's gain was led by higher prices for fruits and vegetables.
The cost of all goods including cars, apparel and food rose 0.9 percent last month after falling 0.3 percent in December. Goods prices are 3.8 higher than in January 2005. New car prices rose 0.6 percent last month, the most in a year, and the cost of clothing increased 0.3 percent.
Service prices rose 0.5 percent last month and are up 4.1 percent over the last year.

Average weekly earnings rose by 3.6 percent, seasonally adjusted, from
January 2005 to January 2006.  After deflation by the CPI-W, average weekly
earnings decreased by 0.4 percent. Month after month I continue to report that
wages trail inflation. How can the economy be considered healthy with this
ongoing trend?

Toll Brothers is looking for earnings per share between $4.77 and $5.26, and this
suggests only a mild slowdown in the housing market growth. The last few days some
of the homebuilders have seen their stocks rebound nicely. When everyone is
convinced there is a sharp downturn on the way, almost always the crowd is
mistaken in judgment.

Bush: "It's true that a number of Americans have lost jobs because companies
have shifted operations to India," he said in a speech previewing his
trip to India and Pakistan next week. "We must also recognize that
India's growth is creating new opportunities for our businesses and
farmers and workers."

Sprint Nextel cut 2,400 jobs.

Japan's trade deficit was the highest in 25 years.

Christopher Laird: "

The Japanese economy is strengthening enough to cause an unwinding of the massive YEN carry trade. The last time this happened, there was the LTCM collapse.

Japan has had enough economic growth these last quarters, in production growth and consumer spending, that the BOJ may well end the policy of zero interest rates in Japan.

That zero rate interest policy has lasted about ten years, and is the first source of the liquidity bubbles world wide, and is very much a part of the liquidity bubbles here in the US. Once the BOJ starts to raise interest rates in Japan, the Yen carry trade will start to unwind.
The Yen carry mechanism is to borrow Yen at virtually zero rates, and then to purchase US treasuries at about a 3% interest rate gain net. There are literally trillions USD of yen carry trade positions scattered amongst hedge funds, insurance companies, and mutual funds. The phenomena is so widespread and has gone on so long, that the BOJ and even the BIS does not have data on the known net amount of YEN carry trade floating out there in the world. The result is that the effects of an unwinding of the Yen carry trade are unknown, but are sure to be very negative."

Richard Daughty: "Of course, I could not let it pass without a snide and sneering comment that
the Treasury Department of the United States has now, illegally, put us $64
billion dollars farther in debt, in just a couple of weeks, than is authorized
by law! As aghast as that makes me, I can only imagine with horror what foreign
creditors make of this terrifying development, now that the damned Treasury
Department has proved to the world that laws mean nothing to it, nor to the
executive branch, nor to the legislative branch, who all sit there watching
and doing nothing."

What's New

2/22/06 What's New

General Motors Corp.'s U.S. retail sales fell 1% in the first 12 days of February, while vehicle sales by all automakers fell 8%, a study released Tuesday shows. GM increased its share of the U.S. retail market to 21.8% from 20.3% the year before, said the study by the Power Information Network, a unit of J.D. Power & Associates of Westlake Village, Ca.

A closely watched gauge of future economic activity rose sharply in January, suggesting the nation's economy could see robust growth in the spring. The Conference Board said its Index of Leading Economic Indicators, a measure of the economy's well-being in the near term, rose 1.1% last month, following a 0.3% increase in December.

Honda Motor Co. increased its U.S. retail sales 4% and was the only major automaker to have a sales gain during the first 12 days of Feb. Retail sales for Ford Motor Co. fell 23%, while sales by DaimlerChrysler AG's Chrysler Group fell 16%. Toyota Motor Corp.'s sales fell 1% and Nissan Motor Co.'s sales fell 7%.

Keith Myers, a fellow at London-based think tank Chatham House: "For oil-rich countries with few people, the benefits are enormous," pointing to rapidly modernizing Middle Eastern nations such as Qatar and the United Arab Emirates. "For those with less oil but a huge population, such as Nigeria, it is a very different story." Nigeria's oil wealth does not trickle down.

Record prices are being paid for oilsands leases in Alberta. Three auctions in 2006 have exceeded the total paid in all of 2005.

Wal-Mart

2/21/06 Wal-Mart

Net sales for the fiscal year ended January 31, 2006, were $312.4 billion,
an increase of 9.5 percent over fiscal 2005.  Net income for fiscal 2006
increased 9.4 percent to a record $11.2 billion, up from $10.3 billion in
fiscal 2005.  Earnings per share for fiscal 2006 were $2.68, up from $2.41 in
fiscal 2005.
  "We're pleased our trend of year-over-year increases in sales and net
income continues," said Wal-Mart Stores President and Chief Executive Officer
Lee Scott.  "We added more than $7 billion in sales in the quarter and ended
the year strong."
  Scott said he is optimistic about the year as he anticipates positive
results from the company's business strategies to improve the customer
experience.
  "Our entire management team is dedicated to growing sales by making our
stores more relevant to today's customers," Scott explained.  "We want our
merchandise to appeal to a broad range of customers who are already shopping
our stores.  We want customers to shop Wal-Mart for all their needs, from
consumables to electronics, home decor and apparel."
  Scott estimated that earnings for this year will be in the $2.88-$2.95 range.
Wall Street estimates are about 2 cents higher; however, it should be noted that,
over the past four quarters, the company exceeded estimates. In my view,
from a valuation standpoint, this is the cheapest the shares have been in years.

John Hussman: "

The key skill required for good investing, in my view, is the willingness to abandon the specific in favor of the average. That means abandoning the attempt to find one or two “special” and unique stocks, and instead applying a careful stock-selection discipline in order to create a whole portfolio with certain “average” characteristics of valuation, market action, financial strength, and so forth. It also means abandoning the attempt to forecast the market's direction over some specific period ahead, and instead aligning the investment position with the “average” return/risk profile that stocks have experienced when historical market conditions have matched prevailing ones.
So winning depends on a specific skill that might not be immediately obvious. That skill is the willingness to focus on average outcomes, and to ignore specific ones. It's a quality that's commonly called “patience,” and it's rewarding precisely because it is rare."

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.