An Important Day

4/7/06 An Important Day

Wal-Mart said March sales rose 1.4 percent at its U.S. stores open at least a year, slightly higher than the estimate it gave on Saturday for 1.3 percent growth. The company forecast April same-store sales growth will likely be between 4 percent and 6 percent. Easter falls in April this year, and last year it was in March, one reason for most retailers experiencing tepid same-store sales in March 2006.

The ECB and the Bank of England kept interest rates unchanged. The ECB indicated it may raise rates in the near future.

In early Thursday morning trading, the metals markets took off on a run. Gold topped $600, silver $12, copper $2.63, platinum $1096, and paladium $395. Compare the rise in metals with the trend in the dollar index, which has been treading water over the last three months. There is quite a difference.

Venezuela's state owned oil company Petroleos de Venezuelaz (PDV) will invest $80 billion to $100 billion between 2006 and 2012 to meet its goal of doubling output to 5.85 million barrels per day, the country's Vice Minister of Finance Eudomar Tovar stated.

Bankrupt auto parts maker Collins & Aikman Corp. stated it will sell its automotive fabrics business, cutting 1,200 jobs in plants in Roxboro and Farmville, N.C., and El Paso, Texas. "Certain styles of textiles heavily invested by the company have fallen out of favor with consumers, raw material prices have escalated and manufacturing has moved outside the United States," said Gerald Jones, a company executive.

When Scooter Libby was in the news every day, I provided my opinion on Libby, Joseph Wilson, and Valerie Plume. At the time, I stated that it was my belief that Libby had to have received orders from Bush and Cheney. Today we learned something from papers filed in court.
"The president and the vice president must be held accountable," U.S. Sen. Dick Durbin, D-Ill., said. "Accountable for misleading the American people, accountable for the disclosure of classified material for political purposes. It is as serious as it gets in this democracy."
U.S. Attorney General Alberto Gonzales said the president has the "inherent authority to decide who should have classified information." It should be noted that Fitzgerald was appointed by the Justice Department to find out if the leak was part of an illegal effort to discredit Plame and Wilson in retaliation for Wilson's article. If a connection is proved, then, in my view, action on impeachment should be taken for Bush and Cheney. They have not been given a get out of jail card.

Even though the most recent inventories of natural gas declined by 10 billion cubic feet, the price still declined to $7.

The Monster job employment index for March rose to 164 from the prior month's 157. Monster is still seeing a significant job turnover rate as well as continuing demand for accountants, auditors, healthcare workers, and financial services professionals.

Freddie Mac's latest 30-year mortgage rate is 6.43%.

The Citizens Against Government Waste (they issue the annual Pig Report) said the total number of pork-barrel earmarks in the 2006 budget declined 29 percent to 9,963, but their total cost increased 6 percent to $29 billion.

U.S. businessowners are adapting to higher energy prices and interest rates, but rising health care costs are dampening their plans to hire new employees and givepay raises during the next six months, according to the biannual PNC Economic Outlook survey. Of those who offer health insurance, nearly 6 outof 10 said they are likely to reduce their employees' coverage in the future. The survey of small- and mid-sized business owners and senior decision-makers across the United States also found that health care reform is theNo. 1 issue they would most like to see addressed in the 2006 mid-term elections, followed closely by the nation's reliance on foreign energy sources and tax reform. "The results show a stable outlook among business owners for their own sales and profits during the next six months, which suggests they are adapting to higher energy prices and interest rates," said Stuart Hoffman,PNC chief economist. "Many, however, are taking aggressive steps to counter continued increases in costs for employees' health care coverage, which could mean reductions in benefits for some employees."

Over the last two trading days Apple shares have risen approximately 20% from $60 to $72. The company's quarterly earnings are slowing, and they will continue to slow due to growing competition, increased market penetration, and consumer spending that is finally beginning to top out. Based on fiscal year 2006's estimated earnings, the shares are trading at about 35 times earnings or about a 40% premium to the current and projected quarterly earnings growth. In my view, those buying shares at these levels are showing mistaken judgment. It should be noted that Apple has a market cap of $61 billion, the same as that of MMM. Apple is not even in the same investment quality league as MMM.

Despite the fact that oil refineries operated at only 86% of capacity last week, the profit margin for turning three barrels of crude oil into two barrels of gasoline and one of heating oil was $14.51, based on futures prices in New York. As such, one might consider the strong possibility of a pause in the rise of gasoline prices. If refiner margins climb higher, politicians will begin accusing the industry of gauging.

Bush: "I fully understand that the intelligence was wrong, and I'm just as disappointed as everybody else is," he said yesterday. But he added: "Removing Saddam Hussein was the right thing for world peace and the security of our country." Harry Taylor: "I would hope, from time to time, that you have the humility and the grace to be ashamed of yourself...While I listen to you talk about freedom, I see you assert your right to tap my telephone, to arrest me and hold me without charges, to try to preclude me from breathing clean air and drinking clean water," real-estate broker Harry Taylor told Bush at a town-hall meeting.
"I have never felt more ashamed of nor more frightened by my leadership in Washington."
"You said, would I apologize for that?" Bush said. "The answer is absolutely not."

- Just 36 percent of the public approves of Bush's job performance, his lowest-ever rating in AP-Ipsos polling. By contrast, the president's job approval rating was 47 percent among likely voters just before Election Day 2004 and a whopping 64 percent among registered voters in October 2002.
- Only 40 percent of the public approves of Bush's performance on foreign policy and the war on terror, another low-water mark for his presidency. That's down 9 points from a year ago. Just before the 2002 election, 64 percent of registered voters backed Bush on terror and foreign policy. Just 35 percent of the public approves of Bush's handling of Iraq, his lowest in AP-Ipsos polling.

Over the years, I have discussed the Birth Death adjustment for the BLS monthly non-farm payroll report. Once again, the adjustment is a guess on the part of the BLS as to how many net new companies came into being and how many new jobs they created. The adjustment begins with today's non-farm payroll report. It is quite possible that today's report will provide at least 220,000 new jobs, and this data point could spook the Fed into even higher rates than previously thought. Once again, watch the wage growth (in relation to real inflation), hours worked, and overtime.

While on the subject of wages, corporate profits as a percentage of GDP (10%+) are running at their highest levels in approximately 40 years. Yet, despite these profits and despite high levels of productivity that go towards producing those profits, salary and wage gains have evn lagged real inflation for the past four years. When does this inequality translate into social unrest? Is the inmdividual on Main Street as non-volatile as the stock market has been in the last two years?

Developments

4/6/06 Developments

Thomas Hoening, Kansas City Fed president, said interest rates are very close to where they need to be after a series of quarter-point hikes. As a result, homebuilding stocks rallied.

The Snowman predicted that the payroll report for March would be "strong." It is anticipated that 200,000 new jobs will be created. I will be interested to see the data on the hours worked per week, the overtime hours, and whether the hourly pay gained after adjusting for inflation (and I do not mean the 2% the government spits out on a monthly basis.

Crude inventories continue to build on a weekly basis; however, as more drivers take to the roads in the Spring, gasoline inventories are dropping (but from very high levels). Demand is relatively flat as prices climb towards the $3 a gallon level.

In my view, the market greatly over reacted to the news that Apple would make Windows available on the Mac. Rick Sherlund of Goldman Sachs stated he doesn't expect any meaningful increase in Mac sales in the short term. And while Microsoft will make money selling Windows to Apple users, Sherlund said, that group is still only a small percentage of the market. In addition, Mark Stahlman, a Caris & Co. analyst in New York, also doesn't expect Apple's Boot Camp to help boost Apple's market share. Microsoft is readying the next version of Windows, called Vista, and this Apple software only works with the older Windows XP. "It's actually likely to lead to a decline in market share" because customers will pick Vista when it becomes available, Stahlman said. Apple shares rallied about 8% yesterday.

John Hull: "Yes, our tree has an interesting shape. The center branches reflect the shape of the zero curve. When extreme parts of the tree are reached the branching pattern changes to accommodate the mean reversion."

The ISM nonmanufacturing index rose to 60.5% from 60.1% in February. New orders rose to 59.5% from 56.2%. The employment index slipped to 54.6% from 58.2%. The price index fell to 60.5% from 64.8% in the previous month.

The sale of second homes accounted for 40% of the homes sold in 2005.

Bankrupt Tower Automotive Inc., a metal vehicle frames producer, has reached an agreement with retirees on pension and health care issues and remains in talks with its unions on proposed wage and benefit cuts, Chief Executive Kathleen Ligocki said on Wednesday. Talks are continuing with those unions and the company hopes to reach an agreement with them by the end of April, and if not, by the end of spring, Ligocki told reporters. These developments speak well for the Delphi/GM/UAW situation, and I referenced the Tower matter in my discussion of Delphi labor disputes. There is no question in my mind that Delphi/GM/UAW will come to an agreement without a strike. The market fails to appreciate this view.

Warren Buffett: "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."

Phelps Dodge, benefitting from record-high copper prices, said late Wednesday it will pay a special dividend of $2 per share, or about $400 million, to shareholders payable June 2.

Brookfield Homes Corp. said first-quarter net new orders totaled 227, down 56% from 517 during the same peirod last year. The decline was primarily in the San Diego/Riverside, Calif. and Washington markets. Brookfield added that in mid-summer it can make a "better assessment" of 2006's home closings.

A jury held Merck liable for the heart attack of a man who used Vioxx and awarded him $4.5 million in compensatory damages.

Office vacancies hit a 5-year low.

The S&P 500 hit a 5-year high. The FTSE 100 hit a 5-year high.

YouTube, which hosts video clips uploaded by its users, said it had received $8m in second-round funding from Sequoia Capital, a venture capital firm that was an original backer of companies such as Yahoo! and Google.

According to the Detroit Free Press, General Motors will cut its engineering staff in Michigan for a second time later this month as it continues to shift some work to emerging markets such as Brazil, where GM is hiring engineers to develop the next-generation small pickup.

The euro hit another record high against the yen and a two month peak versus the greenback on expectations the European Central Bank will tighten monetary policy in the coming months.
Noted analyst Dennis Gartman warned yesterday that the euro may be breaching resistance if it can take out the $1.22 level and sustain the gains. Late yesterday and today the euro has done just that and is up in early trade over $1.2280.

Research In Motion Ltd., maker of the BlackBerry, reports its earnings for the fiscal fourth quarter after the market's close today. Early last month, Research In Motion cut its quarterly guidance to a range of 64 cents to 66 cents per share on revenue of $550 million to $560 million, down from a previous forecast of 76 cents to 81 cents per share and $590 million to $620 million in revenue. Both estimates exclude $612 million in costs from its recently settled patent dispute with NTP Inc. On average, analysts polled by Thomson Financial are expecting the company to post earnings of 67 cents per share and $567.2 million in sales. With increasing competition from other devices, I believe the price/earnings multiple will come down. Over the past year, the shares have advanced 30% and they reflect, in my view, operations out to 2008. I can't see that far. Maybe you can. I would cut back on holdings. As you all know, I have been a big fan of the Blackberry. I was also an early big fan of a black box that became the Xerox machine. There was a time to cut back on Xerox holdings too.

In early 2003, I suggested the purchase of Schlumberger at $35. Last year their revenue growth was almost 25%. Through the remainder of the decade, thanks to growth in Russia, the company believes its topline growth will average in the mid to high teens. At an all-time high of $133 and selling at 26 times 2006 earnings, I think we should reduce our holdings by 50%.

A Possible Scenario

4/5/06 A Possible Scenario

"Right now we face some powerful negative forces that could lead to a dollar panic, a stock market crash, or abanking crisis," said Investment U ChairmanMark Skousen in a lecture recently at Columbia University. "The basis of my remark," says Skousen, "is a warning issued by none otherthan former Fed Chairman Paul Volcker. A year ago he warned that 'The U.S. isskating on increasingly thin ice... The circumstances seem to me as dangerousand intractable as any I can remember, and I can remember a lot.'" Whether that thin ice breaks, cracks or holds, says Skousen, depends onseven trends that are driving the U.S. economy. "It's a medley of economicwoes," he says, that include: -- An overreacting Fed, switching from "easy money" to "tight money." The Fed has been a major source of instability in the financial system. For example, Greenspan was chairman for 19 years, and switched policies seven times! The Fed often overshot its target on both ends - raising interest rates too high in 1989, 1994, and now, and pushing them too low in 1992 and 2003. -- Inflation and structural imbalances. The Fed's "easy money" policy caused in part the "irrational exuberance" of the tech stock market bubble in the late 1990s and the real estate bubble in this decade. When the bubble bursts, as it inevitably must, the effects aren't pretty. -- Poor consumer/investor finances. Our government policies promote overspending and undersaving on a massive scale. The saving rate has turned negative, and household debt as a percentage of disposable income is at a dangerous level, exceeding 150%. -- A vulnerable financial/banking system. We live in a global laissez-faire financial system that is highly leveraged with debt financing, derivatives and fractional reserve banking. Hedge funds are not really "hedged," but highly speculative, and another collapse along the lines of Long-Term Capital Management in 1997 could be disastrous. -- Trade deficits and out-of-balance capital flows. The trade deficit is at record levels. To make up this imbalance, foreigners must invest $2 billion a day in the U.S. -- Overburdened federal debt levels, unfunded liabilities and rising interest rates. The Senate just raised the national debt ceiling to $9 trillion, representing 70% of GDP. Interest expense is now the third-largest category of the federal budget, only exceeded by defense spending and domestic welfare expenditures. Imagine the impact as interest rates start climbing again. -- The rising cost of war/natural disasters. Last year, we faced a large jump in the deficit as a result of the rising costs of the war in Iraq and the expenses related to the Gulf hurricanes."

In the first quarter, Boeing delivered 98 commercial airplanes, of which 72 were next generation 737s.

"We believe we'll be on a path to investment-grade rating at the closing or shortly thereafter," said GMAC Chairman Eric Feldstein, who will continue as chief executive of the unit after the sale.

Prescription drug prices soften dramatically even with moderate competition, the Food and Drug Administration said Tuesday in an analysis that shows the arrival in the marketplace of just two generic versions of a brand-name medicine can nearly halve the price consumers pay.In fact, in the real world there is no reason why the prices cannot decline by 75%, and frequently they do.

Yesterday morning equities fed on a meal served by two Fed members-- Fisher and Lacker. Fisher stated the Fed can tolerate a lower level of U.S. unemployment than it previously did thanks to the global economy and productivity gains. Lacker said growth is proceeding on "a solid pace" this year, but that "inflation is low and stable." In particular, Lacker said the price index for core personal consumption expenditures, a favorite Fed indicator, showed inflation well-contained. It might be helpful to discuss employment with respect to wage gains trailing inflation, and it might prove fruitful to analyze the real level of inflation and not some government statistic that does not live in the real world. In my view, Fisher and Lacker provide no meat on the bone and listening to them is a waste of time.

Advanced Micro Devices Inc. said on Tuesday it had begun recording revenue from Fab 36 in Dresden, Germany, and was on track to double production capacity by 2008.

The United Arab Emirates and Qatar, which together hold almost $30 billion of foreign exchange reserves, said they may buy more euros on expectations the currency will appreciate. ``We are permitted to hold as much as 40 percent of our reserves in euros, and as much as 90 percent in dollars,'' Qatar's Central Bank Governor Sheikh Abdullah bin Khaled al-Attiyah said. ``We sold euros last year when the currency was high, and could buy again,'' he said.

Wal-Mart plans to build more than 50 stores in urban areas over the next two years and, sounding more governmental than corporate, said it would also create programs to support small businesses — including its competitors — in the process. It plans to create "jobs and opportunity zones" around 10 of its new urban stores.

Challenger, Gray & Christmas Inc. said Tuesday that companies announced 64,975 job cuts in March, a 26-percent drop from the 87,437 cuts announced in February and 25-percent lower than March 2005, when job cuts totaled 86,396. The March figure was the lowest since last April`s 57,861 job-cut announcements. With the March decline, the pace of 2006 job cuts is decidedly slower than a year ago. In the first quarter, employers announced 255,878 job cuts, 11-percent lower than the 287,134 cuts announced in the first three months of 2005. The first quarter was 11.3-percent lower than the fourth quarter of 2005.

Maxtor will cut 900 jobs and Calpine 775 jobs. Washington Mutual is laying off 132 workers in its technology group.

In an interview with The Detroit News on Tuesday, Wagoner said that the massive overhaul of GM operations will produce markedly improved results in 2007.
He also expressed confidence that a costly strike will be avoided at bankrupt parts maker Delphi Corp., and that many GM and Delphi hourly workers will take early retirements or buyouts as the automaker downsizes..."Wagoner ticked off the milestones so far on GM's road to recovery: health care cost cuts for salaried and hourly workers, a dozen plant closings, the planned elimination of 30,000 factory jobs and the sale of a controlling interest in GM's prized finance division.
He is particularly pleased with the agreement reached last month by the UAW that will offer buyouts ranging from $35,000 to $140,000 to every one of GM's 113,000 hourly employees and another 13,000 workers at Delphi."
"What could be better?" Wagoner said. "We have a number of people who would like to retire. We provide them a reasonable, but not excessive incentive to retire. It's not a comprehensive solution, but it's a very important piece of the puzzle."
"Buying out older workers, he said, is critical to opening GM jobs for workers who may be displaced in Delphi's reorganization plan. Beyond that, the buyouts can create space for idled workers in the controversial "jobs bank" program, which provides full pay and benefits for laid-off workers. More importantly, the attrition program was negotiated and accepted by the UAW."

An Iranian news agency report claims that Iran may be the world's third-largest gas producer in the next four years as existing gas projects, particularly the South Pars development, are implemented. Based on the current statistics, the world's annual gas consumption stands at 2,618.5 billion cubic meters, which is equivalent to 50 million barrels of oil per day, the Persian service stated.

San Jose has a nearly 55 percent chance of seeing housing prices slump during the next two years, according to a study released Tuesday.
Increased prices and higher interest rates are making it harder for buyers to afford homes in Santa Clara County, said PMI Mortgage Insurance Co., which named San Jose as one of the areas where the prices are likely to drop.
In all, 48 of the nation's 50 largest metropolitan statistical areas (MSAs) face a greater risk of declining home prices this quarter, according to the report.
A San Jose drop ranks 11th most likely among those 50. Elsewhere in the Bay Area, the downturn risk is slightly greater, with a 58 percent chance in the Oakland area and a 55 percent risk in San Francisco area.
Fourteen of the top 50 MSAs now have risk scores above 500, meaning they face a 50 percent or greater risk of home price declines in the next two years, up from 11 MSAs last quarter.

Pimco's Bill Gross: " Profit-incented/yield-starved foreign individual investors have joined hedge funds and the PIMCOs of the marketplace in what has been called the Yen carry trade, substituting 0% yields in Japan for double-digit rates in emerging market bonds and currencies, high single-digits in spread product, and in turn "settling" for a mere 400-500 basis point pickup in good old fashioned U.S. Treasuries. ....
Our [US] markets since mid-2004 that have been the main recipients of the Yen carry trade, a phenomena made possible by the widening spread of U.S. and Japanese short rates and the relative assurance by the BOJ that the Yen would not be allowed to appreciate significantly against the dollar. This one-sided bet has fostered the borrowing/exodus of money from Japan and the reinvestment of those funds in anything with a yield here in the U.S... To be blunt, the dollar must go down as it loses its carry."

With public support for the Iraq war ebbing and President George W. Bush's popularity skidding, voters across Wisconsin approved measures calling for an immediate withdrawal of US troops from Iraq.

General Motors Corp. said it doesn't endorse a request by supplier Delphi Corp. to reject employee contracts and fire 25 percent of its workforce to avoid losing $8.1 billion through 2010. The U.S. Bankruptcy Court in New York will consider Delphi's request at a hearing in May. " GM does not endorse the debtor's decision to move the court at this time for authorization to reject their collective bargaining agreements and modify their retiree welfare benefit obligations," Michael Kessler, a lawyer representing the Detroit-based automaker, said in court papers.

According to the Financial Times, China will impose a special tax each time companies sell locally produced crude formore than $40 a barrel. How would you like to be a shareholder in Sinopec, PetroChina, or CNOOC?

Yesterday, the dollar hit a 10-week low against the euro.

Mortgage application volumes increased 7.2% in the week ended March 31 compared to the prior week, data from the Mortgage Bankers Association show. Also on a seasonally adjusted basis, applications for mortgages to buy homes jumped 8.4%, while the week-to-week growth in refinancing applications was 5.3%.

Reversal Day

4/4/06 Reversal Day

Yesterday was a key day. It reflected the growing stupidity on the part of money managers and individual investors. In fact, one might say it was amateur night. The idea is not to look for reasons to be bullish or bearish. Think rationally and then the results have a better opportunity for success. The Institute for Supply Management Mfg Index for March declined to 55.2 from February's 56.7. It is basically unchanged from March 2005's 55.3. Investors greeted the news with enthusiasm. Why? The weakness meant the Fed would not raise rates much higher, and the Dow quickly climbed 120 points in the plus column. Stupid! The important point was the prices-paid component that climbed 4 points in the month of March to 66.5, and is now 18 points or 37% higher than July 2005's level. This reflects growing inflation and that spells trouble. It means the Fed is more likely to raise rates in the coming months and not stop.

What else did investors ignore? Retail gasoline prices rose by 9 cents to an average of $2,63 a gallon, the highest price since last October. Silver, gold, and copper continued to climb to multi-year highs. Crude closed at $66.74 a barrel after trading above $68. Natural gas hit 7.63 but closed at 7.24.

What else did investors ignore? China's Cheng Siwei, a vice chief of the national parliament, stated yesterday that his country should trim its holdings of U.S. debt and can stop buying dollar bonds. China is a leading financier of the U.S. current account deficit and holds the world's largest foreign exchange reserves.

William Greider: “The US financial position is rapidly deteriorating, due mainly to America's persistent and growing trade deficit. US ambitions to run the world, in other words, are heavily mortgaged. Like any debtor who borrows more year after year with no plausible way to reverse the trend, a nation sinking deeper into debt enters into an adverse power relationship with its creditors -- greater and greater dependency.”

By the end of yesterday's trading day, the gain in the Dow had been trimmed to 35 points and the Nasdaq and the Russell 2000 were both in the red. The Dow Jones Transportation Index closed at a new all-time high. I would suggest cutting back in all securities within this sector. Interestingly, new 20 and 65 day highs rose above March levels; however, this was accompanied by the rise of 20 and 65 day lows. A study of the new highs would reveal the vast majority took place during the morning rally, while the lows were taking place in the afternoon selloff- not surprisingly.

The stupidity of investors never ceases to amaze me. After GM announced the sale of 51% of GMAC, the shares sold at $22 only to close just above $20 due to the reaction that its March sales were down 14.5%. March is an unimportant month for auto sales. What did investors ignore? Robert S. "Steve" Miller, the chairman and chief executive of Delphi Corp., said Monday that the troubled auto parts supplier would be able to avoid a strike by its unionized workers.
After an address to the Detroit Economic Club, Miller was asked by a reporter whether Delphi would be able to avoid a strike, and he responded: "Absolutely." "We are determined to work this out," he said. The afternoon sell-off in shares of GM are an immense opportunity, in my view. Miller went on to state "we intend to honor our accumulated pension obligations, thereby avoiding termination of our pension plan," Miller said in his speech. "We want to restore our under-funded plan out of future profits, but we will need time. This means we must find a way to stretch out our required pension plan payments. "And it is essential that the restructured Delphi be a robust enterprise, indeed. Failure to achieve our goals could hurt our retirees and further burden our nation's pension safety net system. " In addition, I strongly believe the GMAC bonds will be upgraded in the ratings and that will lower GM's cost of borrowing.

I remember going to the first LinuxWorld Expo in San Jose in 1999. It was certainly not well attended. It was a novelty. Not any more. The LinuxWorld Conference & Expo opens in Boston today for a four-day run that includes a keynote speech by Microsoft Corp.’s Bill Hilf, director of platform technology strategy. It’s the first time ever that a Microsoft executive has delivered a formal address at the conference, although the company has offered technical presentations at past shows. Hilf plans to talk about “Interoperability: Dealing with the Diversity and Heterogeneity of Today’s IT Marketplace” Thursday morning.
For Microsoft, the interoperability focus reflects the need to evolve and respond to customers' needs, Hilf said. Hilf came to Microsoft in 2003 from IBM, where he led IBM’s Linux technical strategy for the global emerging and competitive markets group. He runs a multitude of Linux distributions in Microsoft’s Linux lab, has been involved with open-source software for more than a dozen years.

Municie, Indiana is 60 miles from Indianapolis. Sallie Mae Corp., the big private lender, announced plans to open a 700-employee debt management center. The pay: $9 an hour, less than half the average manufacturing wage in Muncie in 2004 and below the $20,000 federal poverty level for a family of four. A new manufacturing plant will open this spring, creating 410 jobs at wages of about $15 an hour. And a Wal-Mart Supercenter--the second such outlet in Muncie--is scheduled to open soon, providing about 400 jobs. Last week, Muncie's 85-year-old transmission plant, once a workplace for more than 3,000 General Motors employees, closed. There are 67,000 people in Muncie. The city is being transformed from $20-to-$25-an-hour jobs for minimum wage or $9- or $15-an-hour jobs. Fifty-one percent of the 7,700 students in the system qualify for free lunch. There are a growing number of Muncies across the country. The GDP numbers fail to show it.

Brett Steenbarger: "Low 10-day volatility leads to subnormal performance in the intermediate term."

In the 20th anniversary edition of Beyond Borders: The Global Biotechnology Report 2006, Ernst & Young reports that the revenues of publicly-traded biotechnology companies surpassed $60billion for the first time in the sector's 30-year history. "The global biotechnology industry's revenues are growing at strong rates, product approvals are bringing innovative drugs to market, and the long- elusive goal of profitability is quickly approaching," said Donn Szaro, leader, Global Biotechnology and Pharmaceutical sectors, Ernst &Young. Revenues of the world's publicly-traded biotech companies grew 18 percent in 2005, reaching an all-time high of $63.1 billion. As revenues increased, the industry's net loss decreased by a dramatic 30 percent, to $4.3 billion. The industry secured 32 new product approvals in the United States, including 17 first-time approvals.

Wade Huettel, Chief Operating Officerof Tax Relief Network states, "The tax climate doesn't look real encouraging for consumers right now. We regularly see a correlation between people who find themselves having tax problems -- also facing bankruptcy. 2005 was aU.S. record for people filing bankruptcy. Some statistics show 1 in 56 U.S. homes filing last year."

Computer Sciences Corp. is in talks to sell itself in a deal that could be worth more than $10.6 billion, and also is expected to announce 5,000 jobs cuts, The Wall Street Journal reported today, citing people familiar with the matter. Most of the job cuts will come from Europe.

French building materials company Lafarge said today that it has raised its offer to buy out the rest of its North American unit to $82 a share, from a previous price of $75 a share. The company also extended the offer for the 46.8% stake of the company until April 28.

Figures gleaned from Tampa Bay area Realtors associations show listings have jumped 250 percent, from 10,414 homes in February 2005 to 24,253 homes in February 2006. Tampa Bay area home sales were off an estimated 29 percent in February versus a year earlier.

Arcelor SA on Tuesday unveiled a series of takeover defenses, including a special payment of more than $6 billion to shareholders, to spurn the advances of larger rival Mittal Steel.

French oil company Total and Italy's ENI have refused to accept the new Venezuelan rules for producing crude, which obliges multinationals to become minority partners of state oil company PDVSA and consequently will end their operations in Venezuela.

Nigeria's Oil Minister Edmund Daukoru said Monday Royal Dutch Shell PLC (RDSA) has told him it will take around a month to bring back most of the country's shut-in oil production.

"While there is much work to be done, the GM board has great confidence in Rick Wagoner, his management team and the plan they are implementing to restore the company to profitability," said George Fisher, who serves as the presiding director of the 12-member GM board.

Euro-zone unemployment fell to 8.2% in February from 8.3% in January.

Anna Quindlen: "If God is watching us, as some believers suggest, as though we were a television show and God had a lot of free time, the deity would surely be bemused by how dumbed-down devotion has sometimes become in this so-called modern era. How might an omnipotent being with the long view of history respond to those who visit the traveling exhibit of a grilled-cheese sandwich, sold on eBay, that is said to bear the image of the Virgin Mary? It certainly argues against intelligent design, or at least intelligent design in humans."

The Way It Is

4/3/06 The Way It Is

Rick Wagoner, GM CEO: "Excuse me, what part of $15 billion in health care (cuts), 12 plants (closing), 30,000 people (cut), attrition programs, salaried health-care and retirement (cuts), salaried head-count reduction, a new sales and marketing strategy, advancing product programs-what part of that doesn't exhibit a sense of urgency in doing what matters?' What's frustrating to me is a lack of recognition of the progress." You can add to that the majority sale of GMAC. According to the WSJ, the Cerebus group will pay $8 billion in cash up front and another $6 billion in cash. The additional money will come as some assets are monetized over time through a series of complex adjustments that will transfer additional value to GM from GMAC.

Evan Esar: "An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today. "

Alcatel and Lucent are merging. In effect, Lucent is selling to Alcatel for about $3 a share, a sad ending to the owner of Bell Labs. Lucent shareholders have truly lost a bundle with this company. Over the next 24 months 10% of the combined workforce or 8,000 workers will be laid off.

Folks talk about $2.50+ a gallon for gasoline but when was the last time anyone referred to the $3.50+ cost for propane gas. Here is an energy source for heating and cooking that is controlled by the likes of Johnny two-toes, so to speak. If you study the demographics of those using propane, you will note these folks are last in the nation to be able to afford the $3.50 + a gallon. Wasn't it only a few years ago the cost was $1 a gallon?

John Hussman: "Among stocks belonging to the S&P 500, those rated “A” or “highest quality” have gained just 1.01% year-to-date. In contrast, companies rated “B -” or “lower quality” have gained 10.17% year-to-date. At the bottom of the quality barrel, those S&P 500 companies rated “C” or “D” for “lowest quality” (or in reorganization) have gained a striking 16.90% year-to-date. The pattern is the same in the Russell 2000, where the highest, lower, and lowest quality stocks in the index have posted average year-to-date gains of 7.38%, 13.03% and 20.09%, respectively."

Smart & Final Inc. announced that its Board of Directors has determined to review the Company's strategic alternatives. The Company said this decision was made in view of the recent announcement by Casino Guichard-Perrachon S.A.("Groupe Casino"), the Company's majority shareholder, that Groupe Casinointends to sell a significant portion of its non-core assets by the end of 2007. Groupe Casino did not announce however any specific plan with respect to its 56% ownership in the Company. The Company expects to engage legal and financial advisors to assist inits review of strategic alternatives. There can be no assurance as to the timing of the Company's process or that any specific transaction will result from this process. Founded in 1871 in downtown Los Angeles, Smart & Final Inc. currently operates 250 non-membership warehouse stores for food and foodservice supplies in California, Oregon, Washington, Arizona, Nevada, Idaho and northern Mexico.

Gary Lammert: "It is highly likely that the ongoing, accumulating, and overwhelmingUS debt load has directly caused the nearly perfect evolution offractal growth patterns of its composite Wilshire equity valuationsthat have evolved since October 2002. If the proportionality corollaryhypothesis is correct a devolution of the greatest historicalsignificance may occur in 1/10 or less of the time that occurred atthe end of the first half of the US Second Grand Fractal - from 1929 to 1932. The implications for the global community will be ...historical."

General Motors is rapidly expanding its manufacturing operations in Russia. To increase sales in the booming market, GM is negotiating with multiple cities to build its first factory in Russia, possibly in St. Petersburg. Also, GM will announce this week it is expanding production in Kaliningrad.

Over the past several years, I have mentioned that analysts are at a disadvantage in not having run a company. It is hard for them to appreciate the nuances in bringing on new plants and/or contracting with an outside source for additional production. Over the last four months, Intel has lowered its revenue projections- in the beginning of December and in the middle of January. The reduction in January was much larger than the one in December. It is quite possible that the main reason for these reductions is that the company has been losing market share in the mobile arena to Advanced Micro Devices. Interestingly, AMD shares have been punished along with those of Intel. In the month of March, the stock got hammered from $42+ to its present $33+. For the last six months, the mid-point of the trading range has been about $31.50. What are analysts missing? In the first quarter, AMD's new Fab 36 initiated production. In June, Chartered Semiconductor will become an additional manufacturing source of AMD 64 microprocessors. Rather than try to fine tune first quarter margins that will be hampered by the production ramp, revenue mix, and the like, it might be wise to focus on the current growth rate that is significantly higher than the current p/e of 21 times 2006 earnings. In my view, there will be an increasing demand for higher margin chips over time. These shares are volatile and they are not for the faint of heart. On the other hand, I believe they present an opportunity for the longer term investor.

The Nikkei 225 Average rallied to its highest level in almost six years.

The Semiconductor Industry Association said worldwide sales of semiconductors in February fell 2.2% from January to $19.22 billion. Sales rose 6.8% from February 2005, said the association, which noted February is historically a weak month for sales. The SIA said there is some evidence of inventory accumulation during the first quarter, but that inventories will likely be balanced by the third quarter. It added there are also indications that sales of cell phones will exceed earlier forecasts of 10% growth in 2006, mostly due to demand for lower cost phones in China and India.

Edgar R. Fiedler: "The herd instinct among forecasters makes sheep look like independent thinkers. "

Deja Vu All Over Again

4/2/06 Deja Vu All Over Again

Venezuela Oil Minister Rafael Ramirez: "We said we don't want them (ExxonMobil) to be here. If we need them, we'll call them." ExxonMobil has no plans to pull out of Venezuela. Since Hugo Chavez took office in 1999, his government has passed legislation requiring a majority government stake in all oil production projects and increased taxes and royalties on oil companies. Last Thursday, the country's Congress approved guidelines to turn 32 privately run oil fields over to sate-controlled joint ventures. This will impact Royal Dutch Shell, Total, British Pete and others. In addition, there is a proposed increase in income tax rates from 34% to 50%, royalties from 16.65 to 33.3%, and their potential drilling acreage slashed by almost two-thirds. It is quite possible that the Western world is horrified by Venezuela's actions; however, if one has a good memory, things could be a good deal worse. In 1936-1937 Mexico expropriated all foreign oil properties-- almost all U.S. oil company properties. This is how Pemex came into being. Mexico is now a key trading partner of the U.S. Going back as far as 1850, Mexico never repaid hundreds of millions of dollars of debt nor interest on that debt nor accrued dividends on preferred stock ownership. Venezuela's recent actions pale by comparison.

Maciavelli: "Whoever wishes to foresee the future must consult the past; for human events ever resemble those of preceding times. This arises from the fact that they are produced by men who ever have been, and ever shall be, animated by the same passions, and thus they necessarily have the same results."

Doug Noland details the first quarter's broad based global equities market asset inflation. He observed
"throw in gold's 12.9% gain, silver's 28.6%, copper's 9.2%, lead's 13.5%, aluminum's 8.9%, nickel's 12.6%, zinc's 13.1%, crude oil's 9.2% and the ongoing rise in global real estate prices and you've got A Notable Quarter of Global Asset Inflation. Little wonder global bond markets are in retreat."

Rob Peebles: "It wasn’t that long ago that we were issuing warnings on Asian currencies. But now, according to a news story in Asian papers this week, the Asian Developing Bank has warned that countries in the region should be prepared to deal with a U.S. dollar crisis. “Our suggestion to Asian countries is: do not take this continuous financing of the U.S. current account deficit as given. If something happens, then East Asian economies have to be prepared,' Masahiro Kawai, a Development Bank official said."

A few hurdles to overcome for the Lucent/Alcatel deal: (1) how many directors for each company
(2) Lucent's three pension plans held a collective surplus of $2.69 billion as of the end of its 2005 fiscal year in September; however, its health care plan for retirees had a shortfall of almost twice that amount, or $5.12 billion (3) Alcatel SA had planned to sell its satellite activities to defense electronics company Thales SA, but those talks have stalled over demands by European Aeronautic Defense and Space Co. that its own Astrium satellite unit be included in the operation.

"Starting in 2007, we will be idling and selling off all of Ford's North American automobile manufacturing assets, with a commensurate reduction in salaried and non-salaried employees," Mr. Ford said. "This will dramatically boost our short-term liquidity, allowing Ford to focus on new directions, new customer-focused avenues of exploration that will effectively leverage Ford's powerful brand identity." With all the GM news, the market has forgotten about the changes at Ford. At $8, the rewards far outweigh any downside, in my view.

Wal-Mart Stores Inc. estimated that March same store sales rose 1.3 percent. Sales were held back by Easter falling later this year than last year.The company's estimate was at the low end of its earlier forecast of same-store sales growth of 1 percent to 3 percent.

GM CEO Rick Wagoner: "GM expects Delphi to honor its public commitments to avoid any disruption to GM operations."

Foreign oil companies operating in Ecuador will have to pay a 60 percent tax on "extraordinary profits," according a tax proposal passed this week by the Ecuadorian Congress.

Gerda Lerner: "We can learn from history how past generations thought and acted, how they responded to the demands of their time and how they solved their problems. We can learn by analogy, not by example, for our circumstances will always be different than theirs were. The main thing history can teach us is that human actions have consequences and that certain choices, once made, cannot be undone. They foreclose the possibility of making other choices and thus they determine future events."

Mike Burk: "The secondaries were overbought last week and are more overbought this week. The typical seasonal pattern suggests the blue chips will lead the move upward next week. On average the high for the 2nd year of the Presidential Cycle occurs in late April."

If the Lucent/Alcatel merger is announced, it will be interesting to see how the control of Lucent's Bell Labs, which does work for homeland security and the defense separtment, takes place.

Robert McHugh: "Since the Fed announced it would hide the M-3 number, Gold has risen $123.11 or 26.4 percent. Since the Fed has actually stopped reporting M-3 two weeks ago, Gold has risen $39, or 7.1 percent."

The board of General Motors is meeting this weekend to decide on the sale of a controlling stake in GMAC.

Benjamin Graham: "Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed."

Use Your Head

4/1/06 Use Your Head

This is not an April Fool's joke. Frequently, I have cautioned against making investment decisions based on media accounts of events. Such an example would be the recounting of Delphi and the UAW and the possible impact on GM.
The folks at GM and the UAW recall 1998. It was the first time the court took jurisdiction over a strike at GM since 1937. For those with a lousy memory, March 10, 2006 should not be too much of a stretch. That was the day a bankruptcy judge stated the court would delay ruling in Tower Automotive's request to reject the company's labor agreements. In sum, the judge pushed any decision out to an unspecified future date. That will be the precedent used in the Delphi matter. In the meantime, GM CEO stated
"GM will continue to work with Delphi, its unions and the court to achieve a consensual agreement that makes sense and is financially viable for all of the parties." This is precisely what the court wants to hear. This is a commercial matter that will NOT be decided by a bankruptcy court.
Thirdly, this labor dispute involves a great deal more than simply Delphi, the UAW, and GM. It impacts
American Axle, Lear, and hundreds of auto suppliers and then creates an additional domino effect on many other industries.
When making an investment decision, base that thinking on the facts. Do not get scared by the headlines.
There is no room for emotion. Think clearly and rationally. The risks will be minimized and the returns from your investments have a much better opportunity to mount.

The annual cost of insuring $10 million of GMAC debt for five years using credit default swaps fell 35 basis points, or $35,000, to 395 basis points, a seven-week low, according to Deutsche Bank prices. The price of GM shares does not reflect this improvement.

I found it interesting that Morgan Stanley opined that large oil companies are takeover candidates. This is precisely in line with an observation I made a short itme ago.

I also found it interesting that the ECB recently sold 57 tons of gold.

In the new pending silver ETF, each share will equal 10 ounces of silver.

In the San Francisco Bay Area, in the month of March it rained 25 out of 31 days, a record.

General Motors Corp., which is closing plants in the United States, says it will spend $600 million to $650 million US to build a small car assembly plant in Mexico, employing 1,800 to 2,300 workers. It is to open in 2008. The plant will be built in the central Mexican state of San Luis Potosi, GM spokesman Carlos Gelista said Thursday. He said the Mexican government is providing financial incentives for the project, with construction starting in May or June. This sounds like a rational plan to me.

Putting things in perspective, ethanol amounts to about 3% of the nation's gas supply in the form of a blended component that serves as an octane enhancer, a clean-air additive and a renewable fuel resource.

With all the bad news from the media, how do you think GM stock fared in the quarter ended March 31?
Would you be surprised to know it was up 9% ? That was equal to the gain for crude futures in the quarter. However, press coverage on GM and crude differed quite remarkably.

Rob Lee: "The bear case has recently received strong support from bond price developments. The chart is a technically alarming one for bond bulls (I have deliberately chosen a long term chart with quarterly data to eliminate short term noise). Firstly, the long term trend - as shown by the two year moving average - is strongly upwards. Secondly, yields have decisively broken up through very strong resistance between 4.40% and 4.60%. Thirdly, yields have also broken through the twelve-year downtrend obtained by joining the peak levels attained in 1994 and 1999. My reading of this chart is that US ten year bond yields are likely to move up to test the next major resistance at around 5.40% to 5.60%, as represented by the peaks in 2001 and the low of 1995. I stress this is a medium term expectation rather than a short term one." As an aside, I continue to believe that bond yields will rise significantly above the current 4.85%
level. On a long term basis, a yield on 10-year Treasury bonds of 9% would not prove a surprise to me.

General Motors Corp. said on Friday a federal court had approved a deal with the United Auto Workers that will allow the struggling automaker to save $1 billion a year in healthcare costs.

The Rubber Band

3/31/06 The Rubber Band

Today ends the first quarter, and it has been a remarkable one. I thought we might try something a bit different. You take one end of the rubber band and I'll take an other. Now stretch it out tight and pull.
On your side of the rubber band: year-to-date growth in bank credit, M3, M2, and commercial paper amounting to $445 billion; 11 straight quarters of double digit corporate profits with the latest growing at 13.8% and representing 11.5% of GDP; slowing retail sales but still showing growth; slowing housing (existing home sales growing but new houses declining) with prices still ahead of last year at this time; core PCE 2.4%; a U.S. dollar index that has held most of its gains from 2005; rising stock prices for companies in the energy business; the Russell 2000 (up 13% in 2006) and the S&P Mid cap index at all time highs, and the Nasdaq at a 5-year high. I am pulling on my end of the rubber band with multi-year, multi-decade highs, and some all-time highs for gold, silver, copper, zinc, platinum, palladium, and roaring prices for many company stocks in the metals industry; crude at $67, unleaded gas at $1.99, and natural gas at $7.50; yields on Treasury bonds at 22 month highs, such as, the 10-year at 4.86%; rising medical and education costs; understated government statistics on inflation and GDP growth; and a Fed that appears ready to hike rates in May and possibly in June. In sum, there is a battle going on and yet the Vix reflects low volatility. Something has to give with the rubber band.

With the end of the quarter, there is increased likelihood of a settlement in the Delphi/UAW/GM labor negotiations. In addition, I expect a positive announcement on the 51% sale of GMAC. There have been talks for the last six months. The time has come to cement the deal. Of course, I am an optimist.

The Conference Board Help-Wanted Advertising Index rose one point in February. The Index now stands at 39. It was 41 one year ago. Says Ken Goldstein, labor economist at The Conference Board: "Business isincreasingly concerned about the impact of new hiring (in terms of wages, aswell as health and pension benefits) in relation to corporate pricing power.The good news on the inflation front is actually a negative for business. It elevates the concern about rising costs, not offset by rising prices. That keeps hiring plans on the slow burner, as reflected in print advertisingvolume as well as in the other forward indicators of labor market activity." There were 1,987,000 new online job ads posted in February, according to The Conference Board Help-Wanted OnLine Data Series. The February number represents a drop of 175,000 jobs (8.1 percent) from January, which was upsharply from December. January and February combined show that the averagenumber of new online job ads for the first two months of 2006 is in line with the monthly levels in the late summer of 2005. Adjusting the number of ads forthe size of the labor force, there were 1.33 online job ads per 100 persons inthe U.S. labor force in February and 1.44 in January 2006. This was similar toAugust 2005 (1.43) and July 2005 (1.32).

The Federal Reserve and other banking agencies proposed a new set of capital rules for big U.S. banks on Thursday. The requirements under the Basel II agreement would direct certain banks to hold higher levels of capital than others in an effort to enhance risk management. "Given the increasing complexity of the activities at our largest banks, and the related risks of those activities, I fully support efforts to develop a more appropriately risk-sensitive capital framework for those institutions," Fed Chairman Ben Bernanke said in a statement. The public comment period on the proposal is four months.

The acquisition of Hughes Supply at $46.50 per share in cash by Home Depot was completed.

By 2020, the combined forces of the United States, China and India will account for more than 50 percent of all new economic growth, with the U.S. supplying 16 percent of that, according to a report issued Thursday. Globalization of companies will increase, the report predicts, and there will be sizeable growth in global economic output despite only a 15 percent increase in the work force. The Economist Intelligence Unit (EIU surveyed 1,656 executives in over 100 countries. Other key findings of the study were:
China's economy -- measured at purchasing power parity exchange rates -- will be on par with the United States by 2020, and it will have the second largest consumer market and the largest tech sector. Asia's overall share of the global economy will rise to 43 percent from its current 35 percent.
India will contribute 30 percent -- or 142.4 million -- to the 471 million new workers entering the global work force. The United States will contribute 12. 5 million new workers, and the overwhelming majority of new jobs will be in the service industry.

Antonio Gramsci: "I'm a pessimist because of intelligence, but an optimist because of will."

The Trends

3/30/06 The Trends

Looking at interest rates moving higher, gold at $572+, crude at $66+,gasoline futures at a 6-month high, and the Nikkei breaking 17,000, you would be surprised to see the Nasdaq at 2001 levels-- but it is. The Vix indicates there has been declining volatility for several years; however, the Dow is down over 90 points on Tues. and up 60 points on Wed. and the Nasdaq is up 33 points after a decline of 11 the day before. That's volatile in my book. In addition, interest rates, although trending up for months, still jump around on an intraday basis. In sum, things are not as serene as they appear on the surface.

Claude Bernard: "Man can learn nothing unless he proceeds from the known to the unknown."

GM is looking to sell its 7.9% stake in Isuzu for $300 million+.

Google will sell about 5 million shares for approximately $2 billion.

Whirlpool Corp.'s planned $1.7 billion acquisition of Maytag Corp. is expected to close no later than April 3, the companies said after the closing bell on Wednesday, following the clearance of the merger by the Department of Justice's antitrust division. I did not believe Justice would approve this deal.

According to Ibbotson Associates, small caps have outperformed large caps by approximately 130% since 1999.

Henry To: "The NYSE 10-day differential of new highs vs. new lows has been on a declining trend ever since January 2004 - more than two years ago. Moreover, the number of new highs on the NYSE failed to break the 200 mark even in light of the most recent rally in both the NYSE Composite and the Dow Industrials. This is all the more ominous for the major market indices given that the NYSE had as many as 450 new highs in late January of this year, and as many as 600 new highs during the December 2003 to January 2004 period."

Gasoline futures rose to their highest price in almost six months after a government report showed the biggest decline in U.S. inventories since August. Supplies fell 2.4 percent to 216.2 million barrels last week, the largest drop since Aug. 12. ``This week is really the peak of the refinery outage season,'' said Andy Lipow, president of Houston consultant Lipow Oil Associates LLC. ``We have a fair amount of catalytic crackers that have been off stream for either scheduled or unscheduled maintenance.''

The Security Council urged Iran on Wednesday to suspend its uranium-enrichment activities and asked the director of the International Atomic Energy Agency to report back on Iran's compliance within 30 days.

According to the Financial Times, negotiators for Alcatel and Lucent were on Wednesday night confident they had narrowed most of their differences and could strike a deal to merge the two telecommunications equipment manufacturers within days. It is expected to value Lucent at $13.7 billion.

Albert Szent-Gyergyi: "Whatever a man does he must do first in his mind."

Consumer Optimism and Investor Optimism

3/29/06 Consumer Optimism And Investor Optimism

The Conference Board Consumer Confidence Index, which had declined in February, increased in March. The Index now stands at 107.2, up from 102.7 last month. The Present Situation Index rose to 133.3 from 130.3. The Expectations Index improved to 89.9 from 84.2 last month.The Consumer Confidence Survey is based on a representative sample of5,000 U.S. households. "This month's gain in Consumer Confidence has pushed the Index to a near four-year high (May 2002, 110.3)," stated Lynn Franco, Director of The Conference Board Consumer Research Center. "The improvement in consumers' assessment of present-day conditions is yet another sign that the economy gained steam in early 2006. Consumer expectations, while improved remain subdued and still suggest a cooling in activity in the latter half of this year."

Yesterday morning found many cross currents. While consumer confidence rose close to a 4-year high, crude gained strength and topped $66 a barrel. That strength spilled over into heating oil, gasoline, and natural gas and created inflation fears in the Treasury market where yields across the curve hovered around 4.75%. Yet, the Russell 2000 and the S&P Mid cap index both powered to all-time highs. The rally in the energy sector gave a boost to the Dow.

Whatever strength was evident in equities gave way after the FOMC meeting. It never ceases to amaze me how eternally optimistic investors and traders are. That optimism got flushed quickly as the Fed raised another one-quarter point and indicated they were not done raising rates. Treasury bond yields jumped even higher and the 30-year rose to 4.8o%, the 10-year to 4.78, and the 2-year to 4.79%. It won’t be long, in my view, until the 5% level is passed on the way up.

Most investors do not pay much notice to GMAC bonds; however, GMAC is present in around 65 percent of synthetic collateralized debt obligations (CDOs), according to Standard & Poor's, and underlies an estimated $1 trillion of default swaps. That’s not chump change.

Swiss Re's USchief economist Kurt Karl: "Though the yield curve is flat-to-inverted, economic growth remains solid and a recession is unlikely. Inaddition to an inverted yield curve, typically the economy slows rapidlybefore a recession. However, the latest economic indicators imply robustgrowth. However, high oil prices and modest wage gains will slow consumer spending this year, lowering US growth to close to 3.0%, compared to 3.5% lastyear. The unemployment rate continues to fall and manufacturing capacityutilization continues to rise, so the Fed will need to raise rates at leastone more time to 5.0%, most likely at the next FOMC meeting in May. Unlikelast year, this year will have a more coordinated global monetary policy. TheEuropean Central Bank is expected to raise its policy rate to 3.0%, the Bankof Japan will be tightening and the Chinese authorities are expected to allowthe renmimbi to appreciate. These measures, coupled with a slowdown in all-items inflation will represent a significant tightening of monetary policy, raising long term interest rates to slightly over 5.0% in the US."

The American Stock Exchange is preparing to introduce the first U.S. exchange-traded fund tracking crude-oil prices next week. One might consider reducing positions in the energy sector.
They have had a very strong run, and it would be difficult to find any analyst looking to cut back in Schlumberger, Transocean, Diamond Offshore etc. Running with the crowd can get a little stampedish.

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.