Developments

3/28/06 Developments

Silver for May delivery rose as much as 10.5 cents, or 1 percent, to $10.89 an ounce on the Comex division of the New York Mercantile Exchange. It traded for $10.84 in London. After a six-year rally, prices are up 22 percent since Dec. 31.

According to a union bulletin, Delphi Corp. is offering factory workers a one-time payment of $50,000 to accept a 35 percent cut in pay by late 2007 under a new proposal the company sent Monday to its unions. The plan calls for wage reductions to be phased in rather than immediate drastic cuts, as two previous proposals demanded, and would rely on financial support from General Motors Corp., which spun off Delphi in 1999. Under the offer, production workers making $28 per hour would see their pay fall to $22 per hour July 3 and then drop again to $16.50 per hour in September 2007.

David Yu: "Prior to May 2004, the year-over-year change of total net foreign purchase of U.S. Treasuries had seldom fallen below zero. After that, it has been staying mostly in the negative territory. If this trend continues and the downward spiral accelerates, the dire consequence of decreasing foreign financing for America's increasing deficits would be a catastrophe for the U.S. economy."

With the national debt now exceeding $8.31 trillion, each American family share is just shy of $90,000. This exploding debt is more dangerous in the short and long term than any concern about illegal immigration.

Menzie D. Chinn: "A cautionary note regarding America's current path is provided by Britain's loss of military and political primacy in the twentieth century; that development followed a shift from creditor to debtor status. Similarly, a prolonged decline in the dollar's value and increasing indebtedness will erode America's dominance in political and security spheres."

GM said its March spending is down $1,523 to an average of $2,702 per vehicle. By comparison, DaimlerChrysler AG’s Chrysler Group is spending $4,133 per vehicle, while Ford Motor Co. is spending $3,583, according to the Power Information Network, a division of J.D. Power and Associates. The industry average for incentives is $2,257 per vehicle this month. Even though GM's market share declined by one percentage point to 24% in this year's first quarter, the fact remains the company has been able to increase its operating margins on a per-vehicle basis. The pricing strategy will pave the way for GM to break even much sooner in its U.S. operations. Meanwhile, Europe will show a profit and China and India's operations are going just great.

Mazda shares recently traded at a 7-year high. The company is on tap to have record sales and earnings for the second straight year. Investors often forget that Ford owns one-third of Mazda. Ford has few friends among analysts. They'll come on voard when the stock sells above $10.

Homebuilder Lennar reaffirmed its 2006 earnings goal of $9.25 a share on the strength of an order backlog that exceeds $7 billion. The company was able to achieve a 4% increase in new orders in the first quarter.

Consider

3/27/06 Consider

India's Minister of State for External Affairs Anand Sharma: "India's crude oil self-sufficiency declined from 63 percent in 1989-90 to 30 percent in 2000-01. The situation is only likely to get worse in the future" Domestic production, he said, is likely to rise from 26 million metric tons to 52 million metric tons in 2011-12 and to 80 million metric tons in 2024-25. "But India's demand for oil is expected to increase from 122 million tonnes to 196 million tonnes in 2011-12, and 364 million tonnes in 2024-25. By 2024-25, crude oil self-sufficiency would be a mere 15 percent." Between India's and China's long-term thirst for oil, what are the chances of the price of crude coming down significantly?

Thank goodness inflation is under control and not a concern. Retail gas prices across the country climbed an average of nearly 15 cents in the past two weeks, according to a survey released Sunday. The weighted average price for all three grades increased to $2.52 a gallon by Friday, according to Trilby Lundberg, who publishes the semimonthly Lundberg Survey of 7,000 gas stations in the country. Gas prices are 40 cents higher than they were a year ago. Since we have millions of cars in the U.S. and no one drives them, then the increase in gas prices at the pump should present no problem for those on Main Street.

Jeremy Grantham: "Growth stocks are merely badly overpriced--down from legendary levels--but value stocks, which were only a tiny bit overpriced, are now at least as badly overpriced as growth stocks. Small caps are now worse than large caps; emerging and international are now almost as bad; bonds that were brilliant are now badly overpriced. The only opportunity we see is high-quality stocks vs. junk [stocks]. My definition of quality is a high and stable return and low debt. If you have a low and volatile return and high debt, you are at the junky end."

According to the WSJ, GM is working to rectify accounting mistakes and could file its annual report with the SEC in days. Separately, the company is continuing talks over the possible sale of a stake in GMAC.

"Delphi has thrown a new proposal on the table. That's a good thing," Clyde Sims, a UAW bargaining chairman at a Delphi ball-bearing plant in Sandusky, Ohio, told Bloomberg. "It's got to be better than the last offer." In the previous offer Delphi demanded that the remaining workers accept wages of $12.50 an hour. The new offer is expected to approximate $16 an hour. According to Delphi, in 2005, it paid workers $76 an hour including benefits, double what its competitors pay and $11 an hour more than its workers received in 2004. No wonder Delphi had to file for bankruptcy protection.

Rep. Ron Paul: "Year after year our federal government spends beyond its revenues, prints new money to pay its debts, and borrows hundreds of billions abroad in the form of Treasury obligations that someday must be paid. With too many dollars and debt instruments in circulation, and no political will in Washington to cut spending, we've created a monster. Our perceived prosperity depends on keeping the great debt and credit engine pumping, but the only way to attract new lenders to fuel the engine is higher interest rates. At some point one of two things must happen: either the party in Washington ends, or the supremacy of the dollar as the world's reserve currency ends. It's a sobering thought, but a choice must be made."

GM originally classified some cash flows from mortgage loans at ResCap, GMAC's residential mortgage unit, as operating cash flows. It will restate them as cash flows from investments. GM has said the reclassification will not affect its income statement or balance sheet.

Pockets

3/26/06 Pockets

Whether it is in the equity market or even the housing market, there will be pockets of strength and pockets of weakness. For example, over the last several years the small caps have been up, up, and away while the large caps have languished. In housing, California, Arizona, Nevada, and Florida have been on a runaway train while Ohio and Michigan are stuck in the mud. Last week, the existing home sales report was above expectations while the new homes report stunk the house out. On Friday, the Russell 2000 and the S&P Mid cap made new all-time highs--just like copper and zinc. Silver roared ahead to a 23-year high and gold is knocking on the door of a multi-decade high. Meanwhile, the Nasdaq at 2300 is still 2700 points from an all-time high.

Predicting the direction of an entire market is impossible for me. I defer to others who do a better job week after week. Mike Burk is one of those. He observes the Russell 2000 has been up 83% of the time during the last 5 trading days of March in the 2nd year of the Presidential cycle while the Nasdaq has been up 60% of the time and the S&P 500 up only 37% of the time. Interestingly the average return for all three indices has been negative indicating the gains during the up years have been modest while the losses in down years have been substantial." That makes next week a tough one to call. For me, it is more rewarding to stick to individual stocks.

I find it interesting that the volatility in the equity market is modest at best, and it has been that way for some time. This reflects the belief, in my view, that the risks are not significant and that the potential gains are limited. As such, investors would have been better off just investing in the Russell 2000 index over the last three or four years. Will that continue to be the case? I do not believe so, but I have no way of backing up that statement. Simply put, the growth for small companies has outpaced the growth of larger ones and that is reflected in the dichotomy of p/e ratios. On the other hand, if the economy slows down or even turns down, then the investors might turn to the tried and true names like J&J and P&G. One must remember that higher interest rates generally mean lower profit margins and lower p/e ratios.

Wal-Mart is looking to tackle the estimated $50 billion natural-products industry.
The company will stock more than 400 organic products at its Supercenters and Neighborhood Markets beginning in a few weeks. New items will be added to all categories of food from dry goods to produce, but the number of items sold at each store will vary. George Baby, the line of organic cotton infant clothes, will follow in June. This is just the first step for Wal-Mart in this arena. Whole Foods and Wild Oats might not see Wal-Mart as a serious threat. They will find that Wal-Mart will drive prices down, and then down, and then down again. Profit margins will decline. Meanwhile, Wal-Mart will attract new customers.

Contrast

3/25/06 Contrasts

New-home sales fell 10.5% in February to an annualized 1.08 million units, well below forecasts and the lowest level since May 2003, the Commerce Department said. Median prices fell 1.6% vs. January to a 7-month low of $230,400. They dropped 2.9% vs. a year earlier, the biggest slide in three years.The gloomy report contrasts one day after a trade group said existing-home sales in February shot up a monthly 5.2%. It should be noted that, although resale prices retreated from their October peak, they still rose 10.6% vs. a year earlier.The market take has been for the housing stocks to rebound for the last two weeks. Will it be just a relief rally? For many of these companies selling at low P/Es, most of the damage has probably been inflicted; however, that doesn't mean they have much upside in the near term. Friday's new home sales info created a rally in the Treasury market. That could also be viewed as a relief rally. The fundamentals are lacking for the rally to hold- in my view.

GM's sales are up 1.5% through February this year, compared with the same period a year ago. According to the consumer Web site Edmunds.com, among domestic automakers, GM is now offering the lowest incentives, an average of $2,638 per vehicle. GM is turning over its cars and trucks faster than any other domestic automaker. A new GM car or truck is only in inventory for about 63 days before being sold, compared with 70 at Ford Motor Co. and 82 at Chrysler Group. Toyota Motor Corp.'s days-to-turn is 30 days. But GM is showing improvement from its 76 days-to-turn a vehicle last year. GM is getting consumers to pay more for its vehicles, despite cutting prices. The automaker's net price, or the actual amount it has been able to get consumers to pay for its new cars and trucks, was up $240 in February, or 0.9%, to an average of $25,643.

Aldous Huxley: "At least two thirds of our miseries spring from human stupidity, human malice and those great motivators and justifiers of malice and stupidity, idealism, dogmatism and proselytizing zeal on behalf of religious or political idols."

Microsoft announced the new version of its Office software suite would be delayed until next January for consumers to coincide with the postponed launch of its Vista operating system. Both of the company's cash cows, the new Windows and the new Office suite, will miss the holiday shopping season. Gates and Ballmer need to take a long look at their lack of performance.

Contrast residential construction with non-residential construction. The latter is anticipated to rise up 9 percent this year to $531 billion, the most since at least 2001, according to the Associated General Contractors of America. There will still be growth in jobs in the construction industry in 2006.

Once again, it might be worth looking at the disparity between $64 crude and $7.25 natural gas with the low P/E ratios for many of the terrific companies in the energy landscape. Such a contrast leads me to the on-going conclusion that it makes more sense to buy another company than to drill for oil and gas. Buying reserves by buying an entire company makes sense. We have seen the purchase of Unocal, Burlington Resources, PetroKazakhstan etc. The values are too robust to ignore. Don't be surprised to see a $100 billion oil and gas deal this year. Borrowing costs are low, energy prices are high, and it is a cinch to hedge the value of reserves in the futures market.

North Georgia is losing nearly 1,300 jobs in three plant closings-- Fruit of the Loom, Springs, and Ratun.

The head of Caterpillar on Wednesday warned that deteriorating trade relations between the US and China could plunge the global economy into recession and called on Congress to back away from protectionist measures. The U.S. has few friends left in the world. Soon we'll have fewer trading partners. You can depend on the Congress to make the wrong business decisions.

C.S. Lewis: "Of all tyrannies, a tyranny exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience."

Happenings

3/24/06 Happenings

Back in 1981 Lucent and Alacatel, a French company, talked merger. It did not come off. Last night the WSJ reported those talks had resumed. It would equate to a price of $3+ a share for Lucent holders-- not exactly a bonanza but better than a kick in the ass.

Stockholders in Google received a good boost late yesterday evening. The shares were added to the S&P 500 and they rallied 9%+.

General Motors Corp.'s finance unit received $8.8 billion in cash by selling a bigger stake in a commercial-mortgage unit than originally planned to Kohlberg Kravis Roberts & Co. and its investing partners. Kohlberg Kravis, Five Mile Capital LLC and Goldman Sachs Group Inc. agreed to buy a 78 percent stake in GMAC Commercial Holding Corp. In August, they said they would purchase 60 percent. The partners paid $1.5 billion in cash and repaid $7.3 billion in loans that General Motors Acceptance Corp. made to the mortgage unit, GMAC spokeswoman Joanne Krell said in an interview.

Resales of U.S. homes increased 5.2% in February to a seasonally adjusted annualized rate of 6.91 million, the National Association of Realtors said Thursday. Economists were expecting sales of about 6.52 million. The boost in sales in February was likely due to warmer than usual weather in January, when sales that were closed in February were initiated, the realtors said. The supply of unsold homes also rose 5.2% in February to 3.03 million, close to the all-time record of 3.04 million in 1986. The inventory represents 5.3 months supply, unchanged from January. Median prices are now up 10.6% year-over-year to $209,000.

Italian energy firm Eni halted crude exports from its Nigerian Brass River terminal, around 200,000 barrels per day, after a pipeline attack last week, a company official said on Thursday. Worries continue about crude supply from Nigeria, Africa's largest producer, where Royal Dutch Shell and other companies have already shut down 630,000 bpd, 26 percent of the country's capacity, due to attacks on oil installations.

The May crude contract rose by 3 1/2% yesterday to $63.91 a barrel and April natural gas rose 5% to a one-month high of $7.33 per million BTUs. At this rate, March inflation will not look so rosy and that has not been lost on the bond market.

Bayer AG, Germany's biggest drug company, offered 16.3 billion euros ($19.5 billion) in cash for birth-control pill maker Schering AG, topping a hostile bid by Merck KGaA.

Schering investors will get 86 euros for each of their shares, Leverkusen, Germany-based Bayer said today in a statement to the Frankfurt exchange. Berlin-based Schering, which rejected Merck's bid of 14.6 billion euros 10 days ago as too low, plans to accept the offer, according to the statement.

Next Tuesday will be a black day for hundreds of white collar workers at GM. There will be another round of layoffs announced.

Conclusions

3/23/06 Conclusions

The capacity of GM India's Halol facility is being increased to 85,000 units from the present 60,000 units. The company currently produces the Chevrolet Optra and Chevrolet Tavera in the Halol plant. GM India has set a target of selling 50,000 units in 2006 as against 30,837 cars sold in 2005. With the introduction of 3 new Chevy models in 2006, I believe the company can sell more than 50,000 units in India this year.

The Committee on Foreign Investment in the United States is reviewing state-owned Dubai International Capital's acquisition of Doncasters, which operates U.S. plants making parts for defense contractors. The takeover had been due to be completed by the end of this month. Asked whether it would be delayed, Sameer Al Ansari, chief executive of Dubai International Capital, said: "Yes." He declined to say how long the delay would be. The Doncasters deal would give the Gulf Arab company control of several U.S. plants that make aerospace turbines, turbine blades, and airfoils for aircraft engines. Dubai International agreed in December to buy Doncasters from Royal Bank of Scotland's equity finance business.

General Motors Corp. and Delphi Corp. on Wednesday announced agreements with the United Auto Workers to reduce the number of U.S. hourly employees at both through an accelerated attrition program. GM will offer most of its 113,000 U.S. hourly workers incentives to retire or quit the company, while Delphi will give 13,000 of its 23,000 UAW workers the chance to retire. In addition, up to 5,000 Delphi workers eligible for the early-retirement deal could return to work at GM, where they would retire with full benefits. "This is the fundamental restructuring that they have needed for a very long time," said David Cole, director of the Center for Automotive Research in Ann Arbor. "I would say things are looking a lot better today than they were yesterday."Because of Delphi’s bankruptcy filing, this agreement is subject to court approval, and the hearing is on April 7.

Penn State food scientists have found that mushrooms are a better natural source of the antioxidant ergothioneine than either of the two dietary sources previously believed to be best. The researchers found that white button mushrooms, the most commonly consumed kind in the U.S., have about 12 times more of the antioxidant than wheat germ and 4 times more than chicken liver, the previous top-rated ergothioneine sources based on available data. Joy Dubost, doctoral candidate in food science, who conducted the study, says, "Numerous studies have shown that consuming fruits and vegetables which are high in antioxidants may reduce the risk of developing chronic diseases. Ergothioneine, a unique metabolite produced by fungi, has been shown to have strong antioxidant properties and to provide cellular protection within the human body." Shiitake, oyster, portobellos, and crimini contain even more ergothioneine than the white button kind.

Lentils contain protein and cholosterol-lowering soluble fiber. India is the world's biggest producer and consumer of lentils.

Standard & Poor's said Wednesday it plans to unveil several home-price indexes in the second quarter for 10 cities. They'll serve as the basis of cash-settled futures and options contracts expected to launch in April.

Pennsylvania is working to make certain that manure is moved and applied in ways that are sensitive to the environment and addresses the needs of farmers. So far, the state has certified almost 600 individuals, and these additional training sessions will provide more learning opportunities for manure haulers and brokers. After this week's speeches, the state is considering making Bush an honorary manure hauler.

A recent study estimates that 9.4% of all mortgage borrowers as of September had no or negative equity in their homes. That jumped to 29% of owners who took out first mortgages last year. So borrowers with about $800 billion in mortgages owe more than their homes are worth, stated First American Real Estate Solutions. They estimate that $297 billion worth of 2004-05 adjustable-rate first mortgages could end up defaulting — resulting in $110 billion in lender losses. As Jackie Gleason would have said, "a mere bag of shells."

China’s exports to East Asia (excluding HK) last year were 25.1% of exports, to Europe, 21.9%, to the US 21.4%, and to other markets 31.5%. There is this notion that tariffs on China's exports to the U.S. will create a big threat to China's economy. In fact, lessening Chinese exports to the U.S. will only raise the rate of inflation in our country. China does not need the U.S. but the U.S. needs China to recycle its dollars into our Treasury market. Unfortunately, China has recently curtailed its purchases of our debt instruments. I envision these actions to continue.

A Surprise In The Wings

3/22/06 A Surprise In The Wings

According to Mohammed Sharaf, CEO of DP World, the US navy had been calling at Jebel Ali, DP World’s main port in Dubai, for 16 years. He stated “since Dubai has been a close friend of the US for three decades, and a staunch ally in the fight against terrorism, and since we at DP World have been serving the US Navy directly since 1990, the misunderstanding came as a real shock,” he said. There is potential additional concern with Dubai International Capital’s £700m ($1.2m, €1m) purchase of Doncasters, a privately held British aerospace manufacturer that works on sensitive US weapons programs, including the Joint Strike Fighter. There are those in Congress just waiting to pounce on this situation and make a name for the upcoming elections.

Yesterday, the base metals were on the march once again. Silver gained 20 cents to close at a 23-year high of $10.56 and copper traded up to $2.37 before closing at $2.32.

There was quite a bit of action yesterday in the bond pits. The yield curve readjusted itself with higher yields resulting-- from the 1-year at 4.73% to the 30-year at 4.74%. Rather than to focus on a mild inverted relationship between the 2 and 10-year, I prefer to state it was essentially a flat curve by the end of trading.

April crude picked up a bit to close at $60.57 and May crude ended at $62.34.

Jones Apparel is considering the possible sale of the company. They have many good brands but for some reason I just don't see much upside from the $35 level. Maybe the brands can be sold off piece by piece. I have not been able to get in touch with my female side. I'll watch from the sidelines.

In yesterday's early evening hours Microsoft announced it will not release the consumer version of its new Windows operating system called Vista until January 2007, after previously saying it hoped to release the software in time for the holiday season. The bulls on this stock will say it is not a big deal. The fact is Windows is the company's cash cow and retailers have been waiting for this new version for a couple of years. In my view, positions in this stock should be cut back sharply. With 60,000 employees and billions spent each year on research and development, there is no excuse for not performing. In addition, Gates has said that security is the major priority of Microsoft. Why the delay in Vista? The need to improve security.

According to the Detroit News, General Motors Corp. is expected to announce as early as today it will offer retirement incentives -- ranging from $35,000 to more than $100,000 -- to nearly all of its 113,000 U.S. hourly workers. In addition, GM is preparing to take back potentially thousands of former workers at bankrupt auto supplier Delphi Corp., many of whom could then retire as GM employees, the people familiar with the discussions said. On Tuesday evening, GM, Delphi and the United Auto Workers were said to be on the verge of completing the buyout agreement.

Paul Kasriel points out a record 61% of total bank credit is mortgage related. Banking institutions had better hope that the housing market remain alive and well.

Bernanke: "Although U.S. trade deficits cannot continue to widen forever, these deficits need not engender a precipitous decline in the dollar, nor should such a decline, were it to occur, necessarily disrupt financial markets, production or employment." The man is a comic and doesn't even know it.

Nearly 70% of Americans own their homes, a record high, but the rate of homeownership for working families with children is lower than in 1978, according to a study being released Wednesday by the Center for Housing Policy. Affordability does matter for the health of the housing market.

As for the health of the equity market, one can easily check for a daily temperature. Simply keep track of the daily 20 and 65 day new highs and lows. Right now the new low list is expanding and the new high list is contracting. That would indicate a patient in need of rest. The question might be how long for the patient to get back to feeling spry? Doctoring is an imperfect science. Taking the daily temp should keep you out of some trouble though.

GM built 415,143 SUVs in 2005, and I estimate the number will exceed 430,000 this year. In 2005, the average transaction on a Tahoe was $33,500 and this year it will be around $40,000. David Healy, an experienced auto analyst, stated the increased production of the 2007 models will probably add about $180 million to GM's pretax profit and about $480 million to revenue. Healy said GM's previous lineup of full-size SUVs and pickups contributed $51 billion in revenue last year, about half of North American revenue and 26 percent of total sales.

The volume of mortgage applications dropped 1.6% in the week ended March 17 compared to the prior week, according to data compiled by the Mortgage Bankers Association. Also on a seasonally adjusted basis, applications for mortgages to buy homes fell 2.3% on a week-to-week basis, while refinancing applications eased 0.6%. On an unadjusted basis, overall mortgage activity was 13.8% lower than in the comparable week a year ago.

Unrealistic

3/21/06 Unrealistic-- the software is having diffculty this morning. If investors were disappointed by Bernanke's speech last night, they have only themselves to blame for unrealisitc expectations. Ben and the Beige Book both painted an upbeat outlook for the economy, and this despite a cooling housing market. That should have come as no surprise as record base metal prices reflect that assessment. It was unrealistic to think there was simply one more rate hike coming --not with gas at the pump rising 14 cents last week to $2.55 a gallon, and that is 40 cents higher than one year ago. If you just happen to drive a car, inflation is alive and well and not tame. Not every aspect of the economy is upbeat. Target's same-store sales for March will rise between 1.5% to 2.5%. It's no wonder the stock is acting poorly. On the other hand, Oracle shares have picked up nicely of late but yesterday their database revenue fell short of some investor expectations. According to the Detroit Free Press, many of the thousands of Delphi Corp. workers who are expected to return to General Motors Corp. in a deal under negotiation with the UAW could work at the automaker for a few days or weeks and then retire with a GM pension and retirement benefits. Yesterday morning Spring arrived. It's a wonderful time to appreciate the beauty of nature. Take the time to wander about. If there is pruning to do after winter, why not start with your portfolio.

So Are Cyclones

3/20/06 So Are Cyclones

GM currently has about 105,000 blue-collar workers represented by the UAW. Delphi has more than 23,000. An agreement with the UAW, Delphi, and GM is close to being finalized.

Michaels Stores Inc., the largest arts-and-crafts retailer in the United States, is expected to announce strategic alternatives that could lead to sale of the company, the Wall Street Journal said on Monday. As of March 15, 2006, the company owned and operated 896 Michaels stores in 48 states and Canada, 165 Aaron Brothers stores, 11 Recollections stores, and four Star Wholesale operations.

John Hussman: “For investors who like Bollinger Bands, it's notable that the Dow, S&P and Russell 2000 indices are all at the very top of very extended advances in the daily, weekly, and even monthly bands.
So while the market appears reasonably firm from the standpoint of the major indices, it also appears to be strenuously overbought. The total return on the S&P 500 remains behind lowly T-bill returns for the period from July 1998 to the present (less than 3% annually). The Russell 2000 – by far the strongest index during this period – has achieved less than 8% annually in total return since then. Even a modest decline would wipe out the advantage that the S&P has enjoyed over T-bills over the past two years. New highs can be enticing, so it's useful to keep them in perspective.”

At least 2,314 U.S. military personnel have died in the Iraq war, and another 20,000 have been injured. This is progress?

Yesterday, a category 5 cyclone named Larry hit the Australian coast along Queensland with 180 mph winds.

This past week zinc prices hit an all-time. They have risen 25% this year. Of course, inflation is tame. So are cyclones.

Around two million households in Britain will struggle this year to pay domestic gas and electricity bills. By the end of 2006, the number of households facing fuel poverty -- spending over 10.0 percent of their total income on fuel -- will have doubled since 2003, according to the Fuel Poverty Advisory Group (FPAG). Domestic energy prices in Britain will have rocketed by some 35.0-percent over the same three-year period, government advisory body FPAG said last week. Of course, this could never happen in the U.S. Inflation is tame. So are cyclones.

Dell to double its staff in India to 20,000 by 2009.

Toni Simonetti, GMAC spokeswoman, said GM was still actively pursuing the sale of a majority interest in GMAC to a third party. However, confidentiality agreements now in place meant she could not comment on reports about potential bidders, Simonetti said.

Approximately one in five U.S. oil refineries is owned by foreign companies.

Bernanke will speak to the Economic Club of New York at 7 p.m. ET today. I wonder whether he will arrive by helicopter.

British consumer products maker Reckitt Benckiser, known for such major U.S. brands as Lysol, Easy-Off and Woolite, is reported in talks to bid $10.5 billion for the over-the-counter medicines arm of Pfizer, according to a report in the Sunday Times of London.

Benjamin Franklin: “There are two ways of being happy: We must either diminish our wants or augment our means - either may do - the result is the same and it is for each man to decide for himself and to do that which happens to be easier.”

Welcome to the world of petroeuros. You will hear and read that this does not matter.
Complacency makes light of risk.

Is there a special burial ground for day traders and momentum traders?

Reality World

3/19/06 Reality World

At the beginning of last week I paid $2.25 per gallon for gas at my local Arco station. By Friday, the price had risen to $2.39 a gallon. For the last two years, each week I have purchased large crimini mushrooms for $2.99 a pound. Yesterday, the price had been raised to $3.99 a pound. There are other specific examples of price increases in the past several days. Maybe you live and breathe the CPI numbers from government. I live in the real world. When it comes to investing, I suggest you flush the statistics coming out of Washington. They may be hazardous to your financial well being.

Prudential Plc, Britain's second- biggest insurer, stated it rejected a takeover approach from larger U.K. competitor Aviva Plc.

Wal-Mart is beginning to flex its muscles in China. Currently, the company has 56 stores there. They will open an additional 20 this year. Joe Hatfield, CEO of Wal-Mart Asia, stated the company’s China operations could be as big as its U.S. business in 20 years. Wal-Mart now has approximately 3,700 U.S. stores. Should you want to invest in China, one way might be to purchase shares in Wal-Mart, and hold them for the next 20 years.

A majority of Americans polled would like to see Democrats take control of Congress in this year's elections, according to the new Newsweek Poll, while 34 percent would like Congress to remain in Republican hands. Only 36 percent of Americans approve of the way the president is handling his job --the lowest score George W. Bush has received in the Newsweek Poll. Sixty-four percent of Americans are dissatisfied with the way things are going in the United States at this time, while only 30 percent are satisfied.

Bush’s radio address on 3/18/06: “The security of our country is directly linked
to the liberty of the Iraqi people, and we will settle for nothing less than
complete victory.” Meanwhile, Allawi stated Iraq is in the middle of a civil war.

George Will: “At this moment, one of the most dangerous since World War II, America's perils are exacerbated by the travails of a president indiscriminately despised by Democrats and increasingly disregarded by Republicans.”

India's Prime Minister called for fewer restrictions on foreign-exchange conversion.

In Afghanistan, according to Lt. Gen. Michael Maples, head of the Defense Intelligence Agency, "insurgents now represent a greater threat to the expansion of Afghan government authority than at any point since late 2001."

Hundreds of thousands have been protesting in all corners of France against a new law
allowing businesses to fire young workers in the first two years on a job without giving a reason, removing them from protections that restrict layoffs of regular employees. The stupidity of government officials never ceases to amaze me.

Mike Burk: “Several of the major indices including the Wil-5, SPX, OTC and R2K have had 4 or more consecutive down days quickly followed by as many as 6 consecutive up days. This kind of volatility has occurred most often near turning points…we are in the midst of the period the high for the 2nd year of the Presidential Cycle is usually observed.
I expect the major indices to be lower on Friday March 24 than they were on Friday March 17.” Meanwhile, the Dow is up 5.2% this year, its best start since 1999.

John Maudlin: “Homebuilders are still adding to inventory on the front end. But inventory on the backend is building as homes sales slow. This is somewhat interesting as the inventory of homes for sale is rising to new all-time highs!… Freddie Mac reports that cash-out refinancing rose by 70% last year, but they also forecast a drop of more than 50% for this year!…If their forecast is correct, that means there will be over $125 billion less available for consumer spending in 2006. Now that is another 1% of GDP.”

Paul Kasriel: “Households' cash outlays for goods, services and nonfinancial assets (e.g. houses, SUVs) were approximately $662 billion more than their cash inflows in 2005 - a record in dollar terms and a record 7.3% of disposable income…In 2005, capital appreciation accounted for 102% of the increase in household net worth. If the inflation in house prices is slowing and we are not entering a new super bull market in stocks, how will households keep increasing their net worth going forward? Cut back on their spending?”

From time to time, I write about uncommon values in individual stocks. In each case, I try to measure the risk against the potential reward. A good example would have been Saks, a company that was out of favor at $16+ after falling from $24. Today we come to another such situation, Symantec. It trades at $15+ and has few friends in the investment community. The company’s purchase of Veritas was completed in December 2005. It was accomplished through an exchange of shares and, at the time of the original merger announcement, was valued at $13.5 billion. Today, all of Symantec has a market cap of $16 billion. Their fiscal year ends at the end of March, and cash flow will be $1.6 to $1.7 billion. Cash will be around $3 billion. For the year that begins April, cash flow will rise to approximately $1.8 billion and EPS are estimated at $1.14 and revenue at $5.5 billion. You may recognize Symantec through its Norton anti-virus software. Vulnerability management is vital to all computer users. Symantec offers anti-virus, anti-spam, anti-phishing, compliance, behavior-based security, database and audit security, storage management, data protection, backup, save and restore software. No company comes close to offering such a complete array of security software. They are the market leader. Management is repurchasing $1 billion in stock. By the end of the March 2007 fiscal year, the number of shares outstanding will be just over 1 billion, and cash per share will approach $4. Integrating Veritas into Symantec has been a headwind, but that is now behind us. For patient investors, I can envision these shares returning to the 20’s in price. If I were running a big enterprise software company, I would be looking at Symantec as an acquisition candidate. That would be icing on the cake.

Changes In The Wind

3/18/06 Changes In The Wind

General Motors, bankrupt Delphi Corp., and leaders from the United Auto Workers held talks into Friday afternoon in hopes of reaching a deal for attrition and contract buyouts of thousands of Delphi employees, according to a report in the Wall Street Journal. ``Talks are constructive, and progress is being made,'' said Paul Krell, a UAW spokesman. I have stated frequently that I strongly believe an agreement will be reached in these talks. The $17.50 and the $20 March GM puts expired worthless yesterday. I expect the April $17.50 and $20 GM puts to follow suit.

"The $2 billion adjustment was a housekeeping move, doesn't involve any added cash outlay and will have no effect on GM's finances," said Dave Healy, analyst with Burnham Securities. "It was anticipated when GM in January said writeoffs for plant closings and layoffs were estimates.” "One reason to change the Delphi estimate is because progress is being made in discussions with Delphi and the UAW and we have a better idea now of how things are going so we updated the charge," said GM spokeswoman Toni Simonetti, who declined to say how close the two sides are.
"We aren't at the end of the road yet, but we are further down the road and better able to make a more accurate [cost] estimate," she said.
"GM wouldn't have changed its estimate unless it was closer to a settlement with Delphi and the UAW, so that's encouraging news," Healy said. In my view, the selling in GM shares on Friday was based on stupid thinking.

Top Tankers Inc. repeated on Friday that March 28 is the ex-dividend date for its special dividend of $5 a share. The dividend is payable March 27 to shareholders as of March 22. In addition, Top Tankers added that it expects to declare an additional special dividend of $2.50.

Genentech Inc. expects 40% to 50% growth in its 2006 earnings per share, excluding certain items. Its goal is now to achieve an average compound annual earnings per share growth rate of 25% by 2010, excluding items; free cash flow of $12 billion; to bring at least 15 major new products or indications onto the market; and to become the top U.S. oncology company as measured by sales. The company’s goals are aggressive but certainly doable.

Treasury bonds and equities had a broad rally this week, and this was based on the thought that inflation is tame and that the Fed will stop raising rates at 5%. Meanwhile, yesterday silver traded at a new 22-year high, copper at an all-time high, and gold and crude were up smartly for the week. The dollar slumped to a 7-week low. Prices at the pump continued to rise. Come May, refineries, instead of adding the usual additive methyl tertiary-butyl ether to gasoline, will have to use ethanol, which some industry observers worry is in short supply. Specifically, worries about ethanol supplies and distribution are probably also pushing prices up, said John C. Felmy, chief economist for the American Petroleum Institute.

My stomach tells me this quarter’s gains in equities have been an exercise in chasing fool’s gold. Complacency can teach hard lessons. The lack of appreciation for risk can teach expensive lessons. In my view, March 20th will be the beginning of a time our citizens will wish they could forget.

This should come as no surprise. U.S. Justice Department antitrust staff lawyers are opposed to Whirlpool Corp.'s proposed acquisition of rival Maytag Corp. as the deadline for a decision nears, a source close to the matter said on Friday. Lawyers in the department's antitrust division "have made it clear" to the antitrust chief, Thomas Barnett, that they believe the $1.7 billion deal would hurt competition. This is a no-brainer. Just look at the top-loading market for washers. How many companies compete with Maytag and Whirlpool?

These are the results of the just completed Harris poll on Bush and the Iraq war:
- President Bush's ratings on his handling of events in Iraq are currently
68 percent negative, 30 percent positive. This has worsened from 61
percent negative, 36 percent positive in January.
- In this new poll, 46 percent of U.S. adults believe that the situation
for U.S. troops is getting worse, up 10 percentage points from the 36
percent who felt this way in December. Only 17 percent now think things
are getting better, down from 22 percent in January.
- By a three-to-one majority (61% to 20%), U.S. adults are not confident
"that U.S. policies in Iraq will be successful." This has worsened from
the 55 to 26 percent majority who felt this way in January.
- By 48 to 37 percent, a plurality of U.S. adults believe that "taking
military action against Iraq" is the wrong thing to do. In January, a 46
to 40 percent plurality felt this way.
March 20 represents the third anniversary of our country’s invasion of Iraq.

I acknowledge that at times I can be rough around the edges. The following is one of those times. Ford Motor Co.'s president, chief operating officer and a board member, Jim Padilla, sold 150,000 Ford shares at $7.79 on Friday. He retains at least 152,742 shares. In addition, on March 10, Padilla got 888,889 Ford stock options, at $7.83 a share, and 231,166 restricted stock equivalents that will be converted into common shares on March 10, 2007. Padilla is responsible for the global automotive business, overseeing marketing, manufacturing, engineering and other operations in more than 200 markets with 327,000 employees. If Padilla needed money, then he should have borrowed against his holdings. Selling at $7.79 a share, basically a multi-year low, sends a terrible message to shareholders and the 327,000 employees. If I were running the company, I’d send him packing. Friday would have been his last day at work.

Doug Noland: “Household Debt expanded 8.6% in 2000, 8.6% in 2001, 9.7% in 2002, 11.4% in 2003, 11.1% in 2004, and 11.7% last year. After slowing to 4.8% in 2000, Total Non-Financial Debt expanded 6.1% in 2001 and growth accelerated each year to 2005’s blistering 9.5%. One would expect the financial system and economy to demonstrate robustness during such a bout of unparalleled Credit expansion. But is it sustainable? What is the endgame? And, “without the onset of deflation, how large is the risk?” Well, I’ve for some time argued that the issue is not “deflation” as much as it is the risk of debt crisis and collapse.”

According to Rigzone.com, this week’s street protests in Central Ecuador against the free trade treaty with the US and against Occidental Petroleum have broadened.

The last big year for apricots was 1994, when about 132,000 tons of the fruit were sold, said Bill Ferriera, the president of the Apricot Producers of California. By 2000, production had fallen to 81,000 tons. Last year, the crop was down to 70,100 tons. Prunes, raisin grapes, olives, and garlic are following the same trend as apricots in California.

The average Costco warehouse last fiscal year posted $122 million in sales.

In the media, much was made of the S&P 500 rising for 5 consecutive days this week and this index closing above 1300. Little was stated about fewer new highs in this index compared with January 2006 or even July 2005. Before you get too excited, calm your jets.

Brazil’s real traded to a five-year high this week. Argentina’s economy grew 9.2 percent in 2005, the fastest pace in 13 years.

Dangers

3/17/06 Dangers

James Turk: “As a consequence of constrained revenue and uncontrolled spending, the federal government has come to increasingly rely upon debt in order to obtain the dollars it spends with gay abandon. In 2000, 1.1% of the federal government's cash flow (revenue plus the annual increase in debt) came from new debt. This reliance on debt grew to 20.4% in 2005. In other words, for every $100 spent by the federal government in 2005, $20.40 came from borrowed money, compared to only $1.10 in 2000.”

According to earthfiles.com, “new satellite data shows Antarctica is now melting 36 cubic miles of ice annually. That's equal to dumping California's Lake Tahoe into the ocean every year. Greenland's southern glaciers are melting faster than anyone expected and contributing to about one-third of current sea level rise. Mt. Kilimanjaro's famous snowcap will be gone by 2015, or earlier. Antarctica, Greenland, and mountain glaciers around the world are now putting so much melt water from land into the oceans, that the computer projection for sea level rise in this century has risen from a foot to a meter - or more. One hundred million people live along the Earth's shorelines. Where will they move as the 21st century unfolds on a warming planet?”

April crude climbed $1.41 to close at $63.58 a barrel, marking its highest close since March 3. On an intraday basis, the contract's high of $63.90 was its loftiest level since Feb. 10. April natural gas climbed 12.4 cents to close at a three-week high of $7.267 per million British thermal units. Yesterday, Treasury bonds rallied smartly due to the belief that inflation in the U.S. is tame. Tell that to the person on Main Street. Real average weekly earnings were unchanged from January to February after
seasonal adjustment, according to preliminary data released today by the Bureau
of Labor Statistics of the U.S. Department of Labor. A 0.3 percent increase in
average hourly earnings was offset by a 0.3 percent decrease in average weekly
hours. Average weekly earnings rose by 3.5 percent, seasonally adjusted, from
February 2005 to February 2006. After deflation by the CPI-W, average weekly
earnings decreased by 0.1%. Thus, any wage gains are being outstripped by inflation.
Does that sound tame to you?

The Federal Reserve has no intention of preserving all of the recent gains in home price values, said Federal Reserve board governor Donald Kohn on Thursday. "If real estate prices begin to erode, homeowners should not expect to see all the gains of recent years preserved by monetary policy actions,” Kohn said in a speech prepared for delivery to a European Central Bank forum in Frankfurt, Germany.

By a 52-48 vote, the Senate raised the debt ceiling by $781 billion to approximately $9 trillion or about $30,000 for each of our citizens. The debt limit increase was the fourth of Bush's presidency, totaling $3 trillion. With the budget deficit expected to approach $400 billion both this year and next, an increase in the debt limit almost certainly will be required next year.

The U.S. Senate approved a 2007 budget plan that rejects President George W. Bush's calls to trim Medicare spending, while it boosts federal spending by at least $11 billion more than the administration's request. The Senate voted 51-49 last night to approve a budget blueprint of about $2.8 trillion that also allows oil drilling in the Arctic National Wildlife Refuge. The plan omitted procedural protections needed to enact any controversial tax-cut legislation.

Late Thursday, GM said it delayed its 10-K filing due to errors in the classification of cash flows for mortgage loan transactions at Residential Capital Corp., one of the GMAC units it wants to sell. "Unfortunately, we had an accounting issue surface at ResCap that did cause us to delay the filing," said GM's Simonetti.

Bay Area home sales tumbled in February for the 11th month in a row and prices rose at their slowest clip in two years as the region's real estate market showed further signs of easing after several years of feverish activity.

U.S. military spending in Iraq and Afghanistan will average 44 percent more in the current fiscal year than in fiscal 2005, the nonpartisan Congressional Research Service said. Spending will rise to $9.8 billion a month from the $6.8 billion a month the Pentagon said it spent last year, the research service said.

On the plus side, according to the Detroit Free Press and the Detroit News, General Motors Corp. revealed Thursday that it lost $10.6 billion last year -- $2 billion more than it announced in January -- as it anticipates higher costs for trying to save Delphi Corp., its largest supplier. The news suggests that GM may have worked out a broad agreement with the UAW on the costs of a bailout at Delphi, which would avert a crippling strike that would be a financial disaster for the world's largest automaker, financial analysts said. In its revised 2005 results, GM increased the charge for liabilities related to Delphi to $5.5 billion, on a pretax basis, from $3.6 billion after reassessing its exposure.
In January, GM had estimated its exposure in a wide pretax range between $3.6 billion and $12 billion but now puts them at between $5.5 billion and $12 billion. The automaker's charge reflects its belief that its liability will be at the low end of the range.

On the plus side, the BOJ Governor stated there are no immediate plans to raise interest rates. That gives a short-term reprieve to the carry trade.

China's investment in factories, real estate and other fixed assets soared by 26.6 percent in January and February over the same period last year, the government announced Friday, despite official efforts to rein in such spending. Total fixed-asset investment in the two-month period was 529.4 billion yuan (US$65.9 billion; euro53 billion), the National Bureau of Statistics reported.

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.”

I trust everyone will survive quintuple expiration day and the green beer on St. Patrick's.

Contradictions

3/16/06 Contradictions

Healthcare accounts for approximately 15% of our nation’s GDP. However,
according to a major new study published in today's issue of the New England Journal of Medicine, the care is described as mediocre. The study found that, though there are some disparities, the world's most affluent health system fails to provide all patients with optimal care at least 40 percent of the time. "Differences exist, but they pale in comparison to the chasm between where we are today and where we should be," said chief author Dr. Steven Asch of Rand Health and the Veterans Affairs Health Care System in Los Angeles. "No matter who you are, it's almost a flip of the coin as to whether you get the care that experts want for you."

Yesterday, DuPont raised its earnings guidance. At the same time, the company announced the closing of 4 facilities and the intention to cut 1,500 job. The stock rose in price.

While Sears Holding announced higher than expected quarterly earnings, sales at Kmart and Sears continued to languish. In fact, same-store sales were lousy. The stock rose over 10% in price.

The S&P 500 closed above 1300 for the first time in 5 years, and the 400 S&P Midcaps and the 600 S&P Smallcaps joined in the bullish parade. However, percentage-wise there were substantially less new highs posted yesterday in all three indices than there were just 60 days ago.

Last year's energy bill required that ethanol be added to gasoline beginning Jan. 1. Since then, ethanol has ranged from 50 cents to $1 per gallon more than gasoline. Thus, it has added several cents to the pump price. The mandate, currently at 4 billion gallons for 2006, nearly doubles to 7.5 billion gallons in 2012. The Environmental Protection Agency also is phasing in costly new limits on the sulfur content of gasoline and diesel fuel, and it recently proposed another rule designed to reduce benzene and other components from gasoline. All these new regulations mean higher gasoline prices.

In February, the government mailed out tax refunds to early tax filers, and many refunds were sent out. As we approach April, filers will be making added tax payments.

The Russell 2000, the NYSE Composite, and the Dow Transports all made new all-time highs yesterday. The railroads were particularly a standout. At the same time, Arkansas Electric has a problem that is a growing concern for many U.S. utilities: It can't get enough coal to run its power plants because the trains that serve as its supply line aren't running on time. Delays in coal shipments to the Arkansas generator began last May with rail disruptions in Wyoming and forced the utility to burn more natural gas, lifting its 2005 power-generation costs by 21 percent, or $100 million. Nearly a year after problems began, "coal deliveries still aren't back to normal," says Steve Sharp, head of fuel procurement for Arkansas Electric, which furnishes power to 17 utilities. That, in turn, inflated power bills by about $20 a month for residential electricity consumers across much of Arkansas. For big industrial energy users, the hit was even greater. Matt Szymanski, general manager of Green Bay Packaging Inc., which operates a paper mill in Morrilton, Ark., says he "freaked out when I saw the power bill for December," which was double that from a year ago. The railroad stocks are surging in price and yet their supply lines are not running on time.

GM has made more money from auto loans and mortgages than building cars and trucks since 2002.

The exchanges in China and Dubai are beginning to trade silver. It is noteworthy that yesterday silver traded at $10.35 an ounce, a 22-year high. One might consider adding to positions in silver on near-term pullbacks.

People ask me daily why I continue to sell into strength. In turn, I ask when was the last time the equity market had a 10% correction in price? Is it meaningful that petroeuros come into being on March 20? Is it important that the debt limit needs to be increased once again? Is it significant that, on March 23, the Fed no longer provides weekly M3 money supply numbers? On Tuesday, interest rates declined in the Treasury market while oil prices rose to $63 a barrel. Yesterday, interest rates rose as the price of crude declined to just above $62 a barrel. What’s more important higher interest rates or lower crude prices? Before you answer, remember that gasoline prices might still rise as crude stays at $60 a barrel—it’s the new regulations! Meanwhile, according to the WSJ, outlays for net interest will be about 20% higher at the end of the government’s fiscal year than they were last year. Net interest outlays for the first five months of the fiscal year were estimated at $92 billion, compared with $72 billion a year earlier.

Is it significant that monthly net capital inflows continue to trail the monthly trade deficit?

Do you care that the United Arab Emirates plan to shift 10% of its FX reserves from US dollars to euros?

Oliver Wendell Holmes: “People who honestly mean to be true really contradict themselves much more rarely than those who try to be “consistent.''

Current Account Deficit

3/15/06 Current Account Deficit

The U.S. current account deficit widened by 21.3% to a record $224.9 billion in the fourth quarter, the Commerce Department reported Tuesday. The deficit amounted to a record 7.0% of gross domestic product. The current account gap was wider than expected. Economists forecast the current account to rise to $218.0 billion in the fourth quarter. For all of 2005, the current account deficit grew to a record $804.9 billion, totaling a record 6.4% of GDP. It's the ninth annual record in the past ten years.
The questions to be asked: (1) does the current account deficit matter? (2) if it does matter, is there a tipping point as a percentage of GDP? (3) how can the U.S. reduce the current account deficit? (4) do you believe Americans even care about the current account deficit?

Bernanke: "I am quite concerned about the intermediate to long-term federal budget outlook," he said in a letter to Sen. Robert Menendez following up on the Fed chief's February 16 testimony to the Senate Banking Committee.
"In particular, the budget is expected to come under severe pressure as impending demographic changes fuel rapid increases in entitlement spending. By holding down the growth of national saving and real capital accumulation, the prospective increase in the budget deficit will place at risk future living standards of our country," Bernanke said.
"As a result, I think it would be very desirable to take concrete steps to lower the prospective path of the deficit," he said in the letter, which was dated March 9.

The global market for credit derivatives grew 39 percent to $17.3 trillion in the second half of 2005 on demand for contracts to bet on corporate credit quality or insure against defaults. Credit-default swaps, which pay compensation in the event of borrowers defaulting on their debt, expanded 105 percent in the full year, leading gains in the overall market for contracts based on underlying assets. Growth slowed from the 123 percent increase in 2004, the International Swaps and Derivatives Association said in a report today in Singapore at its annual meeting. In other words, the global market for credit derivatives is far outstripping the growth of global GDPs. One might note that
dealers in the huge market for credit derivative contracts have committed to reducing 70% of trade confirmation problems by the end of June, the Federal Reserve Bank of New York said Monday.

Premier Wen Jiabao stated the market will play a greater role in setting exchange rates.
Wen said China will expand the currency market and allow for more movement in the exchange rate. The yuan strengthened to 8.0379 against the dollar as of the close of trading in Shanghai at 3:30 p.m., from 8.0473 yesterday, according to data Bloomberg compiled.

China's automotive market maintained steady growth in 2005 to reach almost 3.8 million new vehicle registrations, a 19 percent increase compared to 2004, according to
R. L. Polk & Co. GM passenger cars captured 14.2 percent of the segment's market share,
with Volkswagen following closely at 13.3 percent of passenger car market share.

Sony announced a six-month delay of its next-generation PlayStation 3, benefitting Microsoft.

Yesterday morning Goldman Sachs reported that its quarterly earnings surged 64%, much higher than analyst forecasts. In addition, according to a report from Medley Global Advisors, the Fed is becoming more comfortable that inflationary pressures from the labor market and energy costs have stabilized. Thus, it may stop raising interest rates after its next policy meeting in late March. This report struck a positive chord with bond investors and interest rates dropped dramatically. The rally brought the yield on 10-year Treasury bonds down to 4.70% and clearly left the yield curve in a more comforting non-inverted state. In my opinion, this is simply a rally in a bear market for bonds. As the twin tower deficits continue to rise, the need for more financing will expand monthly. However, between the Goldman report and the Medlay report, the equity market had a strong rally with the S&P 500 closing at its highest level since May 2001 and the Dow at its highest level since June 2001. There was above average volume in advancing issues.

Amerada Hess Corp. said Tuesday that over the weekend it unexpectedly shut a gasoline-producing unit at a refinery in St. Croix that it co-owns with Petroleos de Venezuela. The spokesman said repairs to the unit, which refines roughly 150,000 barrels of crude per day, could take up to two weeks. Crude rallied to close just above $63 a barrel. "We are looking at retail prices that will soon be above $2.50 gallon nationally, and could perhaps eclipse the $2.60 per gallon" level, said analyst Tom Kloza at Wall, N.J.-based Oil Price Information Service. The average retail price of unleaded gasoline was $2.37 a gallon last week — the highest level since November, according to the Energy Department.

Our national debt totals $8.3 trillion, a level that is expected to force Congress this week to raise the debt ceiling for the fourth time in George W. Bush's presidency. The bigger our debt becomes, the bigger the 'risk premium' that foreigners are going to demand," in the form of higher interest rates, says Barry Eichengreen, an economist at the University of California, Berkeley.

Snow: "I am urging members of Congress in the strongest possible terms to resist coupling an increase in the debt ceiling with other issues," Snow said.
"Rather, they should vote to raise the ceiling this week. It would be unthinkable for them not to take action," he said, warning that the "full faith and credit" of the US government was too precious to be compromised. Snow has issued increasingly urgent warnings to Congress that the statutory debt limit of 8.184 trillion dollars will be hit this week, and that the government will then lose its borrowing power.

Ford Motor Co. is reducing health care benefits for its salaried work force, including an unconventional move to charge extra to cover spouses who have access to other health care insurance. At the same time, DaimlerChrysler AG's Chrysler Group is expected to detail changes to its health care coverage today for salaried workers and retirees.
On June 1, Ford will begin charging workers $110 a month for health insurance and $11 a month for dental benefits for spouses or same-sex domestic partners who want Ford coverage but are eligible for non-Ford health insurance. Last year, the cost of health care benefits for Ford was $3.5 billion. Ford has about 40,000 salaried workers in North America, including those in Canada and Mexico. It pays health benefits for some 550,000 white-collar workers, blue-collar workers, retirees, spouses and dependents.
"There's an additional cost to Ford to have additional spouses on the policy," Ford spokeswoman Marcey Evans said of the surcharge for spouses. "If the spouse can get other coverage, our employee needs to help share some of those additional costs."

Dudley Baker: “The Housing Affordability Index Affordability (HAI) continues to drop and is expected to reach a 16 year low in 2006. In March 2006 it was 136 (down from 149 in December and 155 in December 2004) meaning that the median family has 136% of the necessary income to qualify for the median priced home using a twenty percent down payment and a thirty year fixed rate mortgage. If the down payment were only 10% the HAI would be 116 and if the down payment were only 5% the HAI would only be 108.”

According to the WSJ, a group of investors led by private equity firm Kohlberg Kravis Roberts & Co. has submitted a nonbinding bid of $12.5 billion to $13 billion for General Motors Corp.'s GMAC. KKR has obtained financing from equity sources such as Wachovia Corp., Merrill Lynch, General Electric Co., and the Bank of Nova Scotia the report said. A nonbinding bid sounds similar to the highly confident letters from Drexel Burnham in the 1980s.

Jobless claims in Britain rose by the most since 1992. U.K. claims rose 14,600 to 919,7000 in March, with the unemployment rate over the last three months up 0.1 percentage points to 5%.

Employer costs for employee compensation averaged $26.46 per hour worked in
December 2005, the U.S. Department of Labor’s Bureau of Labor Statistics reported yesterday. Wages and salaries, which averaged $18.59, accounted for 70.2 percent of these costs, while benefits, which averaged $7.87, accounted for the remaining 29.8 percent.

Sandra Day O’Connor: "I am against judicial reforms driven by nakedly partisan reasoning…We must be ever vigilant against those who would strong-arm the judiciary into adopting their preferred policies. It takes a lot of degeneration before a country falls into dictatorship, but we should avoid these ends by avoiding these beginnings."

Housing

3/14/06 Housing

China's trade surplus narrowed to the lowest since July 2004 as imports grew at the fastest pace in 15 months and exports cooled. The surplus fell to $2.45 billion from $9.49 billion in January, the customs bureau said today on its Web site. That was below the median $7.5 billion forecast in a Bloomberg News survey of economists. Imports jumped 30 percent as higher oil prices boosted the value of overseas purchases.

General Motors Corp. expects the amount it spends on sales incentives to fall by an average of $1,000 or more per vehicle this month, despite the launch this week of its March Madness sale. GM told dealers on Monday that from March 16 to April 4, it will offer a cash bonus of $500 or $1,000 on vehicles that have been sitting on dealer lots for 120 days or more. In addition to current incentives, consumers will get another $500 cash back on all cars and $1,000 back on Cadillacs, pickups, minivans and SUVs that arrived in dealer showrooms before Nov. 17. "We're still continuing to bring the incentive spending down," GM spokeswoman Deborah Silverman said Monday.
GM's incentives fell by an average of $1,000 per vehicle in January and February, Silverman said. In an effort to break its feast-or-famine cycle of huge incentives, GM slashed the sticker price of most vehicles by an average of $1,300 in January.

The former head of Blockbuster Entertainment and AutoNation Inc., Steve Berrard, chairman of Services Acquisition Corp. International, is spearheading the acquisition of Jamba Juice Co. for $265 million in the hopes of expanding the 532-store chain. "With a long-established operating history and an excellent opportunity for organic growth, we believe the opportunity for Jamba Juice is tremendous," Berrard said in a statement Monday. The privately owned juicemaker, founded in San Francisco in 1990, reported $345 million in sales last year.

Above ground corn supplies in China are now at 30-year lows. China is the second-largest corn exporter in the world and the largest in Asia.

The National Association of Realtors stated the national median existing-home price should rise to $220,300 this year while the median price on a new home should increase 5.4% to $250,200. At the same time, they predicted resales of U.S. homes will likely decline 5.7% to 6.67 million in 2006 from the record 7.08 million in 2005. New-home sales should fall 7.7% to 1.18 million from a record 1.28 million in 2005. Still those sales levels would be the third highest after 2005 and 2004, the group said.
Housing starts should hit 1.98 million this year, down from 2.06 million in 2005, the group said. The 30-year fixed-rate mortgage should increase to 6.9% in the fourth quarter of the year, the Realtors said. If inventories of unsold homes continue to rise, what are the chances prices will continue to rise?

Unusual Events

3/13/06 Unusual Events

Over the weekend violent storms could be seen in many sections of the U.S. Twisters hit Missouri, Illinois, Kansas, the Miss. Valley, and the Ohio Valley. Similar events are expected to take place today.

According to the Lundberg survey, over the last two weeks gas at the pump rose 11 cents a gallon to $2.38.

A National Association of Home Builders survey of 500 builders in January found 41 percent are offering free appliances, 31 percent are paying closing fees and 15 percent are paying up-front financing.

McClathy, the owner of the Sacramento Bee, announced a merger agreement to buy Knight Ridder for $67.25
a share, comprised of $40 in cash and 0.5118 a share of McClathy stock. I would surprised whether the deal can hold at that value. McClathy stock will come under pressure.

Capital One announced an agreement to buy North Fork, a Melville, N.Y. bank for $31.18, represented by $11.25 in cash and .2216 of a share of Capital One stock.

According to the WSJ, Japan's Aozora Bank will invest $1 billion with the Cerberus/Citigroup consortium to purchase 51% of GMAC. Japan's Norinchukin Bank, one of the country's largest financial institutions, is also considering joining the Cerberus-led push for GMAC, a source close to the bank said last week.

Mike Burk: "The week does have an extremely positive bias especially during the 2nd year of the Presidential Cycle. Since 1930, during the 2nd year of the Presidential Cycle, the SPX has been up 74% of the time and the OTC, since 1966 has been up 70% of the time. Seasonally next week is one of the stronger weeks of the year."

Bob Hoye: "The yield curve is reversing to steepening and that is reliable in signaling the beginning of the credit contraction."

John Maudlin: "Our ports are run by a number of companies that are not US based companies. Five ports have Danish firms running them, for instance. Two are run by the Chinese. Basically these companies move freight. Pick it up here and put it there. They have nothing to do with port security. Port security is the province of US Customs and the Coast Guard. And they hire American union workers. The U.A.E may be the largest non-US port service for the US Navy in the world, based in Dubai. They are a solid ally and a voice of moderation and stability in an area of the world where such is needed."

Mish reminds us of some thoughts on the possible dust bowl. "It is not a coincidence that the Dust Bowl years of the 1930s were marked by years of tremendous hurricane activity," said AccuWeather.com Hur-ricane Center Chief Forecaster Joe Bastardi.
"For example, the record-shattering 2005 hurricane season was the first to eclipse 1933 in number of tropical cyclones, and that may only have been because we didn't have satellites in the 1930s to identify the major storms that failed to reach the U.S. coast." Added Bastardi, "While we cannot yet tell how long this current pattern will last, if you trust history, then the 2005 hurricane season just may portend the return of a major drought to the Great Plains."

Verizon Communications has made an informal approach to Vodafone Group Plc about buying the latter's 45 percent stake in Verizon Wireless for about $40 billion, British newspaper the Business reported on Sunday. "We have made our interest in acquiring Vodafone's stake in Verizon Wireless clear," a Verizon source told the paper. "The ball is now in Vodafone's court."

According to Economy.com, "more than $2 trillion of U.S. mortgage debt, or about a quarter of all mortgage loans outstanding, comes up for interest-rate resets in 2006 and 2007." What do you think the
impact on American families will be?

John Hussman: "In March 2000, near the stock market's bubble peak, the median price/earnings ratio on the largest 50 S&P 500 stocks was 35.6, while the median P/E on the smallest 50 S&P 500 stocks was just 10.1. Currently, the median P/E ratios on the largest and smallest 50 stocks in the S&P 500 are 17.3 and 20.3, respectively. So while the valuation multiples of the largest stocks have dropped by over 50%, the valuation multiples of the smallest stocks have more than doubled. The same is true if we examine price/book and price/revenue ratios."

Hong Kong was the fifth-largest market for U.S. beef products in 2003. At that time, they banned the importation of U.S. beef. Last December, the country partially lifted the ban. Hong Kong just announced the ban on all imports of Swift Beef because skeletal bones were found in some products. The beef industry in the U.S. never learns.

Double Standard

3/12/06 Double Standard

United Arab Emirates' central bank governor, Sultan Nasser al-Suweidi, stated today that the row kicked up by U.S. lawmakers over the ports deal betrayed a double standard. "It is against the principles of international trade ... which the U.S. was instrumental in making. They are contravening their own principles in this respect," Suweidi told reporters. "Investors are going to take this into consideration ... They will look at investment opportunities (in the United States) through new binoculars."

According to the Wall Street Journal, Iran will no longer consider a proposal to move its uranium enrichment program to Russian territory and is instead considering large-scale uranium enrichment at home.

Lapses by private port operators, shipping lines or truck drivers could allow terrorists to smuggle weapons of mass destruction into the United States, according to a government review of security at American seaports.The $75 million, three-year study by the Homeland Security Department included inspections at a New Jersey cargo terminal involved in the dispute over a Dubai company's now-abandoned bid to take over significant operations at six major U.S. ports.The previously undisclosed results from the study found that cargo containers can be opened secretly during shipment to add or remove items without alerting U.S. authorities, according to government documents marked "sensitive security information" and obtained by The Associated Press.The study found serious lapses by private companies at foreign and American ports, aboard ships, and on trucks and trains "that would enable unmanifested materials or weapons of mass destruction to be introduced into the supply chain."

Brett Steenbarger: "The odds of the market rising five minutes after a five minute rise (or declining after a five-minute decline) are worse than one in three. The reason for this is that a number of five-minute periods close unchanged. The low volatility conspires to restrain very short-term trending behavior. This makes momentum trading near impossible. Either one must extend one's holding period well beyond five minutes--in which case you're really no longer a scalper--or one be willing to fade any movement whatsoever, risking those one in three occasions when the market can run you over."

At the end of last week's trading, the yield curve was no longer inverted. Let's see whether this reversal is on-going.

Doug Noland: "I will continue to suggest that we have entered a much more volatile and uncertain market environment across virtually all asset classes, the Problematic Terminal Bubble Phase where underlying fragilities and vulnerabilities begin to emerge."

In the voters must be schmucks category, Bush stated yesterday "by helping the Iraqi people build a free and representative government, we will deny the terrorists a safe haven to plan attacks against America. The security of our country is directly linked to the liberty of the Iraqi people."

A Cleveland Clinic-led international study has found that long-term therapy with low-dose aspirin plus another
antiplatelet agent, clopidogrel (Plavix(R)), is not more effective than
aspirin alone in preventing heart attack, stroke, and cardiovascular death in
a broad patient population.
Results from the study will be presented at the 55th Annual Scientific
Session of the American College of Cardiology (ACC) in Atlanta on March 12 and
simultaneously published online in the New England Journal of Medicine.
The majority of patients in the study, those who had already experienced a
heart attack or stroke or who had symptomatic blockages in their legs
(Peripheral Arterial Disease or PAD), did benefit from the dual therapy,
demonstrating a significant 12.5% reduction in their risk of heart attack and
stroke. Unexpectedly, researchers also found that the subgroup of patients
with multiple risk factors for heart attack or stroke but who did not have
established cardiovascular disease may have experienced some harm, including
higher rates of severe bleeding.
"There are several important findings from this study," says Deepak L.
Bhatt, M.D., lead author and director of the Cardiovascular Trials Unit and
associate director of the Cleveland Clinic Cardiovascular Coordinating Center.
"Although the study found that clopidogrel plus aspirin was not effective in
patients with multiple risk factors only, it may be effective in secondary
prevention, or preventing a second heart attack or stroke in people who have
already experienced one of these events or who have PAD. This is a large
population that is in need of improved therapies."
CHARISMA (Clopidogrel for High Atherothrombotic Risk and Ischemic
Stabilization, Management, and Avoidance) was a prospective, multicenter,
randomized, double-blind, placebo controlled study of the safety and efficacy
of clopidogrel plus aspirin compared to aspirin alone in stable patients at
high risk for a cardiovascular event. Prior studies had established the
efficacy of clopidogrel plus aspirin in patients with acute coronary
syndromes, but long-term dual therapy had not been evaluated in a broad
population of stable patients.
The CHARISMA study included 15,603 patients with either diagnosed
cardiovascular disease (~80% of the study population) or multiple risk factors
for cardiovascular disease (~20% of study population). Patients were randomly
assigned to receive clopidogrel (75 mg per day) plus low-dose aspirin (75 to
162 mg per day) or placebo plus low-dose aspirin for a median of 28 months.
The primary endpoint was measured as a combination of heart attack, stroke, or
death from cardiovascular causes.

The deal for Knight Ridder probably will be announced on Monday morning.
A stated worth of $67 a share would not be surprising.

It Matters

3/11/06 It Matters

According to the Federal Reserve, as of 12/31/05, foreign investors held a total of $11.154 trillion of US financial assets, up $325 billion from revised holdings of $10.829 trillion as of 9/30. From 12/31/04, the increase was about $1.32 trillion, or 13.4%. As of 12/31/05, foreign financial liabilities totaled $5.344 trillion, creating a net foreign claim against the US of $5.810 trillion.

According to the RBC CASH Index, consumer confidence dropped in early March to 86.2 from February's 96.1.

According to the BLS, 243,000 new jobs were created in February. However, the workweek was 33.7 hours, down 0.1% from January but the earnings per hour rose by 5 cents or 0.3%. What do the numbers really mean?
There are about 135 million folks in the work place. If they work 0.1% per week less, that's 135,000 less hours at $16.47 per average hourly wage or $2,223,450. If 243,000 make $16.47 per hour, that's a bit more than $4 million. When you look at it realistically, the picture is not rosy.

Carl Jung: "People cannot stand too much reality."

DTE Energy Corp. told the leadership of the Utility Workers Union of America Local 223 that it expects to lay off 1,200 union workers over the next two years as part of an internal review of operations.

Happenings

3/10/06 Happenings

The number of homes entering some stage of foreclosure -- from notice of default to bank ownership -- increased 45% in January from the same period a year earlier, according to Irvine, Calif.-based RealtyTrac. That was one new foreclosure for every 1,117 U.S. households.
The number of foreclosures is still low on a historical basis, but it has been rising steadily over the past year, RealtyTrac reported. Job 3/10/06 Happenings

Japan's central bank scrapped itssuper-loose monetary policy on Thursday but --reflecting concerns about fallout for world marketsand the domestic economy -- said it will keepshort-term interest rates around zero for now.

Fueled by mortgage borrowing, U.S. households' debt increased 11.7% to a record $11.5 trillion in 2005,the fastest growth since 1985, the Federal Reservereported Thursday. Total financial debt in the U.S.economy grew 9.5% to a record $26.4 trillion in 2005, the biggest increase since 1986, the Fed said in itsquarterly flow of funds report. Corporate borrowing increased 7.8% to $8.4 trillion, the biggest increase since 2000. Net worth of U.S. households - assets minus liabilities - increased 8% to a record $52.1 trillion at the end of 2005. It was the slowest growthin net worth since a 4% decline in 2002.

King Pharmaceuticals, Inc. and Palatin Technologies, Inc. announced yesterday that a scientific presentation will be given at the International Society for the Study of Women's Sexual Health (ISSWSH) annual meeting on Friday, March 10, 2006 at 7 A.M. at the Marriott Lisbon Hotel in Lisbon, Portugal.
The session, titled "Advances in the Development of Pharmacologic Treatment for Female Sexual Dysfunction", will be moderated by Dr. Cindy Meston, PhD, Associate Professor of Clinical Psychology at the University of Texas - Austin. Presentations will be made by James Pfaus, PhD, Professor in the Center for Studies in Behavioral Neurobiology, Department of Psychology at Concordia University in Montreal, Canada, and Michael A. Perelman, PhD, Co-Director of the Human Sexuality Program, Payne Whitney Clinic of New York Presbyterian Hospital in New York City, and Clinical Associate Professor of Psychology at Weill Medical College of Cornell University, with a joint appointment at New York Presbyterian Hospital.
This presentation to healthcare professionals dedicated to the effective treatment of female sexual dysfunction (FSD) will cover emerging therapies for the treatment of FSD and the previously disclosed data from a clinical trial evaluating the effects of bremelanotide on pre-menopausal women diagnosed with FSD. Additionally, Michael A. Perelman will present a poster at the meeting, detailing the same information presented at the scientific session, titled "The Potential Role of Bremelanotide (PT-141) as a Pharmacologic Intervention for FSD."

Apple Computer is setting up a technical support center in Bangalore, India, according to a report Thursday in The Times of India.
The paper said Cupertino-based Apple will hire 1,500 to staff the technical center by the end of this year, and have 3,000 staff at the end of next year.

The bids for both Knight Ridder and Univision are in the process of getting finalized.

Americans imported $68.5 billion more in goods and services than they exported at the start of the year, up 5.3 percent from December, the Commerce Department in Washington said; it was the largest deficit since October, when the gap swelled to $67.8 billion.
A 3.5 percent jump in imports in January appears to reflect the sharply higher consumer spending during the month and the rising prices of oil, gasoline and other energy products.
Imports of automobiles and car parts increased 5.3 percent during the month, and the country spent 4.3 percent more on petroleum-based imports.
Exports were up 2.5 percent from December, with soybean shipments doubling and airplane sales up 44 percent. But sales of most other American goods and services changed only modestly in January.
The closely-watched U.S. trade deficit with China jumped almost 10 percent in January, to $17.9 billion. As an aside, Chinese companies operate ports at Long Beach and the LA area. I guess the Chinese are not as toxic as the folks from Dubai. Listening to Sen. Shelby explain why
the heat was on Dubai, he explained that Bush didn't explain the situation well enough to satisfy his base. I suggest Shelby get over his nose being out of joint. Someone should take him over their shoulder and burp him.

According to the Detroit Free Press, in January, GM set aside at least $3.6 billion, or $2.3 billion after taxes, to pay for retirement benefits for Delphi workers.
GM and the UAW have been in discussions on an early-retirement package that would create job openings for Delphi workers, UAW local union leaders said. About 40,000 of GM's more than 100,000 U.S. hourly workers are eligible to retire, and many are eager for a buyout package.

Changing Times

3/9/06 Changing Times

Bank of Japan Governor Toshihiko Fukui has proposed scrapping the central banks' loose monetary policy, according to Japanese media reports. The report circulated after the BoJ concluded its two-day policy board meeting in Tokyo.

According to the WSJ, Delphi and GM are nearing agreement on the broad points of a potential deal with the UAW that could encourage early retirement for thousands of workers and pave the way for Delphi to shrink its work force. This is a significant step towards the restructuring of GM and paves the way for avoiding labor strife as well as on-going cost-cutting for both GM and Delphi. The importance of this agreement cannot be stated strongly enough. It is a milestone for GM and Delphi.

According to the Financial Times, Dubai has received approaches to sell the 5 U.S. port terminals. Mohammed Sharaf, chief executive of Dubai Ports World, which bought the assets from Britain’s P&O in a deal that closed yesterday, continued to insist that the operations would not be sold. He said in an interview with the Financial Times: “We have not even thought of that yet. We have a business to run – the USA is part of it.”
Mr Sharaf acknowledged, however, that the US facilities were a small part of the deal and less profitable than other P&O container terminals.

Benjamin Franklin: "By failing to prepare, you are preparing to fail."

Workers

3/8/06 Workers

The Pew Center estimates that there are 11.5 million to 12 million illegal immigrants in the U.S. with about 500,000 arriving here each year since 2000. In addition, they figure that 1 in 20 workers in the U.S. is here illegally.

Since we invaded Iraq in March 2003, over 2,300 of our fighting men and women have been killed and over 20,000 wounded.

GM is shifting out of defined pension benefit plans to 401K plans for its 42,000 salried workers. GM will contribute 4% of annual base salary to a 401K plan. Between the savings from the reduction in health care benefits and the pension cost savings, GM will reduce its cost for salaried workers by $1 billion annually. In addition, by year-end 2006, its pension liability will be cut by $1.6 billion. Those hired after Jan. 1, 2001, or about 10% of GM's U.S. white-collar workforce, will shift to a 401(k) program from a more traditional pension plan. Salaried employees hired before Jan. 1, 2001, or about 90% of the U.S. workforce, will shift to a new pension that is based on a simpler formula. However, the number of workers in that plan will decline as years pass, and a greater percentage of the salaried workforce will be enrolled in the new 401(k) program. GM's revised plans do not affect the benefits of GM's current U.S. salaried retirees or the vested benefits of former employees working elsewhere. Pension benefits earned prior to the transition date to the new plan will be preserved.

I expect Norinchukin Bank will join Cerberus and Citigroup and invest at least $1 billion in the purchase of 51% of General Motors Acceptance Corp. As I stated previously, the addition of Norinchukin should materially improve the credit rating of GMAC and thereby lower its borrowing costs.

Yesterday, 2-year Treasury bond yields moved above 4.75%. It is not surprising to find market strategists looking for a more defensive posture in equities. Most investors are unnerved by the growing disparity between advancing and declining issues. As such, large cap stocks are in greater demand, such as, Microsoft, Cisco, and even GM.

The Yield Curve

3/7/06 The Yield Curve

Yesterday the world of money was flatter, more costly, and less inverted. The 2-year Treasury yield rose to 4.76%. At the same time, the 5-year closed the gap at 4.75%, the 10-year at 4.74%, and the 30-year at 4.72%. Another move like the one yesterday, and the inverted yield curve will be no more. On the other hand, a Treasury that requires an expansion in the debt limit
to function surely will have the $400-$500 billion deficit hit higher numbers with higher interest rates.

All the talk yesterday was on the AT&T - BellSouth deal and the announced 10,000 job cuts to take place in 2007 and 2008. No press was provided to the activities surrounding the proposed health care benefits for GM workers. A substantial change is in the works. U.S. District Judge Robert Cleland has already given preliminary approval to the deal, but he scheduled a hearing to listen to UAW retirees who oppose it. According to the Detroit Free Press, under the proposed settlement, GM hourly retirees would pay monthly contributions, annual deductibles and coinsurance costs for the first time. They would pay a maximum of $752 per family each year for health care, or $370 annually for an individual. About 74,000 of GM's hourly retirees who receive pensions of less than $8,000 a year would be exempt from the new costs. These changes will save GM billions of dollars on an on-going basis.

Henry To: "The only source of funding (with the European Central Bank tightening and being hawkish as well) left in the world today and that is holding the financial market together is the Yen - and given that the Yen carry trade is now in danger of ending, there is a good chance that liquidity will literally "fall off the cliff" within the next couple of months." Just a short comment. I believe Henry To is one of the most astute financial observers. In addition, he puts his money where his mouth is.

Yesterday's trading saw particularly heavy volume. By the end of the day, there were significantly less new high and many more new lows- not an auspicious start to the week.

Mike Shedlock: "Accu-Weather.com meteorologists have warned oceanic conditions similar to those that triggered the ruinous "Dust Bowl" drought again appear to be in place. Conditions similar to those that led to 1930s drought.The exceptionally warm Atlantic waters that played a major role in the record-breaking 2005 hurricane season, coupled with cooler-than-normal Pacific waters, are weakening and changing the course of a low-level jet stream that normally channels moisture into the Great Plains."

Pieces Falling Into Place

3/6/06 Pieces Falling Into Place

In 1984, AT&T was broken up into separate companies. One of those pieces, BellSouth, is being purchased for $67 billion or $37 per share. It will bring Cingular Wireless under one roof. The new combination will also create thousands of job cuts. When Cingular purchased AT&T wireless, 7,000 workers lost their jobs.

You won't hear it from Wall St. analysts but the pieces are falling into place at GM. Over the weekend, the company announced selling 17.4% of the 20.4% stake it has held in Suzuki for the past 25 years for $2 billion. Today is GM's board meeting. They will give preliminary approval to the Cerberus/Citigroup purchase of GMAC for $11 billion. In addition, the board will give preliminary approval to provide financial packages to 20,000 retirement-eligible workers eager to accept such an arrangement. This will make space available to Delphi workers to fill spots vacated by the retirees. It is important to note that, at the end of 2005, GM's pension fund was overfunded by $6 billion, a point rarely pointed out by the financial media or analysts.

A frequent trading strategy has been to short GM common stock and buy GMAC bonds. At their prresent prices, in my view, it makes more sense to buy both the bonds and the common. From here on out, the news on GM will turn much more positive-- as it has recently with AT&T. Important world-wide brands have a way of having many lives.

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.