Keeping It Real

6/15/06 Keeping It Real

Real average weekly earnings fell by 0.7 percent from April to May after
seasonal adjustment, according to preliminary data released today by the Bureau
of Labor Statistics of the U.S. Department of Labor. A 0.3 percent decline in
average weekly hours and a 0.5 percent increase in the Consumer Price Index for
Urban Wage Earners and Clerical Workers (CPI-W) were partially offset by a 0.1
percent rise in average hourly earnings.

The Consumer Price Index for All Urban Consumers (CPI-U) increased
0.5 percent in May, before seasonal adjustment, the Bureau of Labor
Statistics of the U.S. Department of Labor reported today. The May level
of 202.5 (1982-84=100) was 4.2 percent higher than in May 2005.
The Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W) increased 0.5 percent in May, prior to seasonal adjustment. The
May level of 198.2 (1982-84=100) was 4.3 percent higher than in May 2005.
The Chained Consumer Price Index for All Urban Consumers (C-CPI-U)
increased 0.3 percent in May on a not seasonally adjusted basis. The May
level of 117.2 (December 1999=100) was 3.4 percent higher than in May 2005.
On a seasonally adjusted basis, the CPI-U advanced 0.4 percent in
May, following a 0.6 percent rise in April. Energy costs continued their
advance--up 2.4 percent in May. Within energy, the index for petroleum
based energy increased 4.8 percent, while the index for energy services
fell 0.6 percent. The food index increased 0.1 percent in May. The index
for all items less food and energy rose 0.3 percent in May, the same as in
each of the preceding two months; the index for shelter again accounted
for over half of the monthly advance.

Dallas Fed President Richard Fisher said Wednesday he was "uncomfortable with what I see presently" on the inflation front. "We are seeing price pressures, and we have a duty to not let those take root," Fisher told a business group in Corpus Christi, Texas. Fisher said his favorite measure of inflation that ignores sharp price movements, was running at 2.4% rate, and is "just too corrosive" to be acceptable. He said he would be "relentlessly bird-dogging inflation to prevent a debasement of your dollars."

Yesterday, the bond market took it on the chin. The unfriendly inflation figures created a rise in rates. The bond market inverted even more with the 2-year at 5.10%, the 30-year at 5.09%, and the 10-year at 5.05%. With rates about to be increased by the Fed to 5.25%, you have to ask yourself who is stupid enough to buy treasury bonds at the aforementioned rates. Maybe they are looking for a tax loss.

Natural gas moved 7% higher on Wednesday. I continue to believe natural gas is undervalued.

Microsoft Corp. on Tuesday warned of eight "critical" security flaws in its Windows operating system and Office software that could allow attackers to take control of a computer. Microsoft, whose Windows operating system runs on 90 percent of the world's computers, issued patches to fix the problems as part of its monthly security bulletin. It was the biggest such update since February 2005. The company issued a total of 12 patches that address 21 security holes and cover problems in its Windows, Internet Explorer, Word, Powerpoint and Exchange Server products, security experts said." The significance of this large number of patches lies in the fact that 19 of them are remote code executions," said Amol Sarwate, manager of the Vulnerability Research Lab at Qualys.

With equities moving up in price yesterday, the VIX finally had a down day. The range was 23.49 to 21.45, and it closed one tick from the day's low at 21.46.

Russian Deputy Prime Minister Dmitry Medvedev: “This is for the coming generations to decide whether or not a new international currency will be created,” he said, quoted by the Itar-Tass agency. “Along with the growth of the demand for rubles, our currency could be one of the reserve currencies,” Medvedev said.

Shares in VeraSun Energy Corporation, the second-largest US ethanol producer, soared by as much as 30 per cent on their first day of trading in New York after an initial public offering raised $419.8m for the company and its shareholders.

Randall Forsyth: "Not only do government statisticians remove food and energy from the key "core" inflation measure, rising utility costs lower the CPI, and vice versa. You cannot make this stuff up; it is beyond satire. Yet it is a basis of Fed policy."

On a year to year basis, rents have risen 3.3%.

Representative Ron Paul: "Anecdotal evidence and common sense dictate that government CPI statistics are habitually grossly understated - so much that it would be funny except that savers are being robbed. Meanwhile, our new Fed chairman says that the CPI overstates inflation! What is going on here? Is Bernanke, who evidently must not eat, drive or pay electric bills just incompetent? Or do you think there is an Orwellian agenda here where statistics are manipulated for political purposes?"

Fear Factor

6/14/06 Fear Factor

The VIX had a slight down opening, and then all broke loose. After touching down at 20.27, the VIX roared back to close at 23.81, the second consecutive day it closed at the high for the day. You can smell the volatility in equities and the fear factor present in the minds of fund managers. Equities took it on the chin again. The Dow average dropped 86.44, or 0.8 percent, to 10,706.14, down 8 percent from a five-year high set on May 10 and 0.1 percent for 2006. The S&P 500 lost 12.71, or 1 percent, to 1223.69, bringing its loss for the year to almost 2 percent. The Nasdaq Composite Index dropped 18.85, or 0.9 percent, to 2072.47, the lowest since October. But the real story was in commodities -- gold down $44.50; silver dropping 13% to 9.625; copper slumping 21.8 cents to $3.01 a pound; crude sliding to $68.56 a barrel; and of course there was a downer for platinum etc. You get the picture. This is not the time to panic. Rather, one should take a long look at Chevron, ConocoPhillips, Apache, Pioneer Drilling, Goldcorp, and Pan American Silver.

There are clear inflation worries, and the BLS explained it pretty darn clearly.
Costs of intermediate goods, or materials such as lumber or steel that are used to make finished
products, rose 1.1 percent last month and are up 8.9 percent in the 12 months ended in May. Prices of raw materials, or so-called crude goods, rose 2 percentand were up 8.6 percent in the last 12 months. Excluding food and energy, intermediate prices increased 1.1 percent, the biggest gain since October, after rising 0.4 percent in April. Core crude goods prices rose 6.2 percent after rising 4.7 percent. So, there is inflation in the pipeline; however, it may begin to slow as demand slows. It's necessary to look over the hill.

Indices in Japan and Australia had their biggest decline since Sept. 2001.

Intel plans to reduce prices on its pentium chips.

Gary Lammert: "The nonlinearity at the terminal portion of the current second 148
year US grand fractal cycle, reasonably can be expected as having the
potential for the greatest percentage drop in the shortest period of time.
The sudden devolution of current asset valuations likewise could potentially
have greater and more vexing- social-political ramifications and dislocations
as compared to prior historical periods of turmoil following collapses
from generational macroeconomic saturation areas of debt and
consumption. Large scale political and social turmoil are the carts
that are pulled(or overturned) by the antecedent macroeconomic horse
stumbling into the unexpected very deep and low viscosity quicksand
found atop generational asset saturation areas."

U.S. state revenues are forecast to rise 5.1 percent in fiscal 2007, supporting bigger spending demands and healthy surpluses, a new survey showed on Tuesday. Revenues for fiscal 2006 were running 3.4 percent above budget forecasts, exceeding projections in 37 states and meeting expectations in 10 states, the National Governors Association and National Association of State Budget Officers said in their 2006 Fiscal Survey of the States.

Mark Hulbert points out that, according to Norman Fosback, the Fosback Index is close to record low levels currently, which means that fund managers are close to being more bullish than they've ever been. Only twice previously, according to Fosback, did the Fosback Index get as low as where it is right now: "At the peak of the glamour stock frenzy in 1972 and at the broad top of the tech bubble six years ago."

Pressures

6/13/06 Pressures

Power generator Mirant Corp. withdrew its $8 billion unsolicited bid for NRG Energy Inc. on Monday under pressure from Mirant shareholders who said they would make more money if Mirant sold itself instead.

Broyhill, the furniture maker, to cut 700 jobs and close a factory.

Gold traded at a two-month closing low for the August contract. July silver also lost 13 cents to $11.08 an ounce and July copper gave back 4.75 cents to trade at $3.22 a pound.

Embarq Corp. said TRC Capital of Ontario is offering to buy as many as 2 million, or 1.34%, of Embarq's common shares at $39.75 each. In my view, the company's shares are worth closer to $50 a share.

Microsoft will not fix a serious flaw in Windows 98 and Windows Millennium Edition because a patch could break other applications.

Steve Moyer: "Languishing long-term interest rates relative to short-term rates are a persistent deflationary clue. Yield-curve inversion is another. Emerging market stock market crashes taking place one-by-one, worldwide, point to the same outcome. So does the sudden, precipitous 2006 drop in the Homebuilders Index ($RUF). One by one, commodities will be taking unanticipated hits. Rampant, dot.com style real estate speculation is already drying up nationwide as local markets soften one by one. Take it from this investment realtor: Real estate deflation has begun and will persist for a longer period than almost anyone can imagine."

Not surprisingly, equities got slammed on Monday. The range for the day for the VIX was 17.89 to 21.07, and it closed at the high for the day. Traders were busy getting rid of positions in the last half hour of trading, and yet, the volume for the day was not particularly robust.

John Hussman: "What?!! How can I even mention the notion of a bear market when we're so “clearly” oversold and close to a bottom? Well, the S&P 500 is only down about 5.5% from its peak of a few weeks ago, and it's precisely the “fast, furious, prone-to-failure” rallies that keep investors holding on until an enormous amount of damage is done."

Crude-oil prices closed under $71 a barrel Monday for the third time in four sessions.

Monday represented the seventh consecutive down day for the Nasdaq index. The S&P 500 index fell to its lowest level since November, and all the gains in 2006 have been wiped out.

The federal budget deficit widened to $42.8 billion in May from $35.4 billion in May 2005, the Treasury Department said Monday.

On Wednesday, Goldman Sachs and the Chicago Mercantile Exchange offer the first derivatives auction tied to the core consumer price index.

During the most recent quarter, Pioneer Drilling's average revenues per day increase by 34 percent to $17,622 and the average number of rigs in Pioneer's fleet was 55. Average daily drilling margins improved by 92% over the year ago period.

The Mogambo Guru: "For good measure (I suppose), the Fed bought up $2 billion in government debt last week, too, blatantly committing the ultimate fraud: creating money to buy government debt for itself, which is then (supposedly) turned over to the U.S. Treasury."
As an aside, I frequently provide quotes from Mogambo Guru and believe his thinking is original and his words provide an air of levity.

Palatin Technologies, Inc. announced that management will present at the Needham Fifth Annual Biotechnology and Medical Technology Conference on Thursday, June 15, 2006 at 4:00 p.m. EDT at The New York Palace Hotel, New York City.

Ford has said it spent about $3.5 billion to cover 550,000 hourly and salaried workers, retirees and dependents last year; GM spent $5.4 billion in 2005 for its 1.1 million employees, retirees and dependents.

"Although housing prices are stretched, it is hard to see the catalyst for a crisis in the market," says Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard. "The overvaluation looks pretty well balanced by longer term supports for house prices, so we may just see a few years with little action. Houses will revert to being something to live in rather than money makers." The study states over the past five years house prices have outstripped income growth more than sixfold – the median home now costs more than four times median household income in 49 out of 145 metropolitan areas in the US, a record. In 14 metropolitan areas, the median house is now worth more than six times median income. Last year saw the average house price shoot up 9.4 per cent – the biggest rise in the average house price since records started more than 40 years ago.

The Real Story

6/12/06 The Real Story

Before one invests going forward, it might prove fruitful to discern what the bond market is telling us. I have recently discussed the inverted yield curve; however, let's take a closer look. The 2-year rests at 5.02% and the 10-year at 4.99%. However, possibly more important, the 30-year yield is now down to 5.03%, and a short time ago it was over 5.20%. Is this the time to be on the sidelines? Why would the 2-year be rising in yield and the 30-year be declining? Clearly, there is an expectation for a quarter point increase by the Fed at the end of June. But why is the 30-year declining in yield? That denotes slower growth and slowing inflation. If that were the case, why has the dollar rebounded somewhat over the past two weeks? Markets don't always fit neatly into a package. There isn's a set formula provided by Einstein. What would I suggest? Use the rally in the dollar and 10 and 30-year Treasury bonds to reduce those holdings. Should the equity market rally in the short term, I would continue to cut back on questionable holdings.

Developments

12/11/06 Developments

The use of antidepressant drugs was associated with a significantly increased risk of developing type 2 diabetes in people who were already at greater risk of the disease -- and
this effect was not seen in those taking the drug metformin, according to a
report presented here today at the American Diabetes Association's 66th
Annual Scientific Sessions. Other studies yielded conflicting reports on
the role of depression in the risk for diabetes. Researchers concurred,
however, that those who have diabetes and depression need better management
for the latter, which can interfere with their ability to provide self care for their diabetes.

Delphi and the United Auto Workers union said on Friday that they had agreed on buyouts for all Delphi's UAW members of up to $140,000 per worker, depending on length of service. GM will assist Delphi with shouldering some of the costs.

The world economy is growing at a healthy pace but could be derailed by the United States' huge trade deficit or the ill effects of high energy prices, according to a statement issued Saturday by finance ministers from the G8.

Chevron Corp. announced Friday the opening of the Baku-Tbilisi- Ceyhan (BTC) pipeline with the delivery of its first cargo of Caspian crude oil to world markets. The inaugural shipment of about 600,000 barrels of crude was delivered by tanker to Savona, Italy, marking the start of export of Azerbaijan's crude oil via the BTC oil pipeline. The crude oil initially will come from the Azeri-Chirag-Gunashli (ACG) field in the Azerbaijani sector of the Caspian Sea and is expected to be joined by other volumes in the future, including production from across the Caspian region. Chevron has an 8.9 percent interest in the 1,094-mile pipeline that crosses Azerbaijan, Georgia and Turkey and holds a 10.3 percent interest in the Azerbaijan International Operating Company (AIOC) that is producing from and developing the ACG field. The $4.5 billion pipeline has a crude oil capacity of 1 million barrels per day and is expected to accommodate the majority of AIOC production. Chevron is also a participant in another regional pipeline: the Caspian Pipeline Consortium (CPC), a 935-mile crude oil export pipeline from the Tengiz Field in Kazakhstan to the Black Sea port of Novorossiysk in Russia. Chevron has a 15 percent interest in CPC, which provides a critical export route for crude oil from Kazakhstan.

Julian Phillips: "Sergei Ignatyev, chairman of the central bank, said 50% of Russia’s foreign exchange reserves are now held in the U.S.$, with 40% in the € and the remainder in the Pound Sterling, a mirror image of the Stabilization Fund. Previously it was believed that just 25-30% of the reserves were in the €, with virtually all the remainder in the U.S. $. The action could well prove to be the pathfinder for other nations intending to diversify from the U.S.$. Russia’s central bank now boasts the world’s fourth-largest reserves, after China, Japan and South Korea, with its gold and forex holdings rising by 36% so far this year to $247bn. Will Middle Eastern oil exporters follow suit now after leading us to believe they will? The most likely trio of these is the United Arab Emirates, Kuwait and Qatar. It is certainly confirming a trend shift away from the U.S.$. Asian countries may well join the queue. 39% of Russia’s imports came from the Eurozone in 2005, against just 4% from the US. The globe’s central banks together hold $4,250bn of reserves. Were these to move away from the dollar we will go to the brink of the worst foreign exchange situation the U.S.$ and for that matter any currency has ever seen since the last World War!"

Elliott Gue points out "the last time gas prices were this low relative to oil was in late 2001." Recently, I have mentioned natural gas on a few occasions. I continue to believe natural gas has excellent upside potential as we move through the hurricane season and closer to the winter months.

New Zealand's central bank warned that soaring energy costs, combined with a weakened currency, would keep inflation running well above its target for the next year despite the highest interest rates in the developed world. The Reserve Bank of New Zealand raised sharply its forecast for consumer price inflation, predicting it would peak at 3.9 per cent next year, up from 3.4 per cent in the first quarter of this year, and would not fall to within its 1 to 3 per cent target range until late 2007.

The inflation camp is getting mighty crowded. I can feel the boat getting top heavy. Maybe it would be wise to consider the possibility of deflation following inflation. How do you think Helicopter Ben and his cronies will fight deflation? Can you see the Fed as the largest buyer of treasuries? The aftermath will not be a pretty sight.

Crude And The Trade Deficit

6/10/06 Crude And The Trade Deficit

George Ure: "This $63.4 BILLION deficit has to be funded with what? Hint: Printing press. The moving average line in one of the charts offered looks like thing have improved. Fact is we had a larger balance of trade deficit in April than we did in the [revised] March figures. Worse: There were only 30 days in April, which pencils out to $2.1133 billion per day. On a 31 day month therefore, the deficit would have been $65.51 billion at the same run rate, which I will table right now as my forecast for May's number when they come out next month."

Crude has not declined a great deal from the year high. On Friday, it closed at $71.60 a barrel. Yet, energy shares have fared much worse. Let's consider the following: ExxonMobil at $58.80; Chevron at $57.53; ConocoPhillips at $60.57; Apache at $61.23; and Schlumberger at $59.22. Each one of these companies represents, in my view, quality and value for long term investors. I especially like Chevron for its cash flow and dividend yield.

Doug Noland: "Highly speculative/leveraged markets in sharp decline normally infer liquidity issues and the potential for dislocation. But these times are anything but normal. The spigot of liquidity gushing out of the U.S. Credit system remains wide open. Will global Credit systems continue relishing in excess liquidity, or will equity market and speculator vulnerability increasingly encroach upon lending and debt issuance. Can global central bankers talk domestic Credit systems into demonstrating some restraint? To be sure, we have precisely the backdrop for extraordinary uncertainty, continued market volatility, and global financial fragility. This is Macro Credit Analysis at its most challenging, fascinating, confounding, frustrating, and inevitably humbling best."

Sometimes it's wise to take a closer look at the breakdown of the year highs and lows on the NYSE. Yesterday, there were 26 new highs; however, 7 were preferred stocks. Only one of the 26 was a household name --- Wells Fargo, my favorite in the banking group. There were 40 new lows. One was Embarq. It might prove worthwhile to take a look at this company, a recent spinoff from Sprint.

Once again we had an inverted yield curve with the 2-year at 5% and the 10-year at 4.98%. More importantly, look at the 30-year at 5.03%. There is little to differentiate between the 2-year and the 30-year Treasury bonds. In the meantime, Fed fund futures are predicting an 84% probability of an increase to 5.25% later this month and a 30% probability of a further rise later this year. Treasury bond prices do not reflect these probabilities.

Bill Bonner: "Every era has its clowns, its heroes, its fools…and its winners and its losers. Often, the honorable among them are sent to the scaffold; the dishonorable go to Congress."

According to rigzone.com, a Nigerian government official said Friday that 800,000 barrels a day of oil production are shut in at the country's Niger Delta, higher than previously reported.

the local harvest will wind up with 1.5 million or 1.6 million bushels -- far short of the 3.5 million bushels his seven elevators in the area normally take in.

Folks here already knew it would be bad.

Kiowa, Kansas straddles the Oklahoma-Kansas border. It has only gotten 1.6 inches of rain, and virtually no snow, since last October. If anything, the crop -- almost all top quality No. 1 wheat -- did better than many expected. Some folks had even feared the area would harvest just a third of a normal crop this season and are grateful for even half a crop given the lack of rainfall.

Inverted

6/9/04 Inverted

For the first time since March the yield curve inverted with the 2-year at 5% and the 10-year at 4.99%. Even though interest rates for the 10-year and 30-year declined, the dollar had its best rally in some time. That was despite the ECB, Korea, Turkey, and India all raising rates. Japan's Nikkei had its biggest loss in 1 year with a drubbing of 463 points. Yet, equities in the U.S managed to end Thursday on a flat note after retreating earlier in the day by triple digits. Crude had been below $70 a barrel but closed at $70.35, and thta helped to spur a rebound in the oil sector.

The White House on Thursday updated its 2006 economic forecast, boosting expectations for real growth in gross domestic product and inflation. The report estimates that real GDP will grow by about 3.6% during calendar year 2006, up 0.2 percentage points from the December outlook. The White House said higher-than-expected inflation to date prompted an upward revision of its forecast for a rise in the 2006 consumer price index to 3% from 2.4%. The administration forecasts average monthly jobs growth of 156,000, with a 4.7% unemployment rate for the year.

Gold for August delivery finished down $18.80 at $613.80 an ounce, its lowest level since April 13.

Recent inflation data contain some "danger signs" that bear watching, said Federal Reserve board governor Donald Kohn on Thursday. "I've found the recent inflation data somewhat troubling," Kohn told the Senate Banking panel.

First-time claims fell by 35,000 from the previous week's revised figure of 337,000, the Labor Department said. The four-week average of new claims fell by 5,750 to 327,750.

``The big policy blunders have been associated with the failure of central banks to keep inflation expectations under control,'' said Mark Gertler, head of New York University's economics department, who wrote a series of papers with Bernanke when the chairman was a professor at Princeton University. ``That is where the current Fed is coming from.''

The Conference Board reported that the leading index for Japan increased 0.1 percent and the coincident index increased 0.3 percent in April.

The VIX had another wild ride yesterday. Opening at 17.92, it traded up to 20.75, a level not reached for about 3 years, and closed at 18.35. Until the VIX begins to settle at lower levels for a few weeks, I don't see much of a rally sticking for equities.

Texas Instruments Inc. late Thursday boosted its financial targets for the second quarter, with sales helped by increased demand for cell-phone chips and its bottom line boosted by a tax benefit and a legal settlement.

Albertson's LLC, the supermarket chain partly controlled by private-equity firm Cerberus Capital Management LP, plans to close 100 stores, or about 16 percent of its locations, because they are unprofitable.

Despite what many believe, I don't believe our U.S. Treasuries are a safe haven. Rather, I believe they should be avoided --- unless you wish to lose your capital.

Abraham Lincoln: "You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time."

Taking It On The Chin

6/7/06 Taking It On The Chin

It's really disappointing when a rally can't hold after several down days. The plate was set. Crude, gasoline, natural gas, the metals, etc were all lower. The dollar was a bit stronger. The yield curve was getting flatter. The VIX was somehat weaker. Yet, I wasn't buying it. Some key stocks acted lousy, such as, Intel. As a matter of fact,
its shares fell Wednesday 2.3 percent, hitting a three-year low, and closed at $17.33
a low that was last reached in April 2003. Then there is Microsoft. It closed just above $22. Both companies are loaded with cash. The U.S. Treasury could only wish for their balance sheets.

Procter & Gamble said late Wednesday that it still expects its sales to grow between 20% and 24% in its fiscal fourth quarter while earnings per share should come in between 52 cents and 54 cents.

Atlanta Federal Reserve Bank President Jack Guynn, speaking to a business group in Atlanta, said that inflation risks are now elevated, even though there are fresh signs that the U.S. economy is slowing.

U.S. consumers took on an extra $10.6 billion in debt in April, the most in 10 months, the Federal Reserve reported Wednesday. Total outstanding consumer credit in April rose by 5.9% to $2.170 trillion, the Fed said. Revolving debt like that on credit cards rose by $3 billion, the most in seven months, the Fed said. Nonrevolving debt like automobile loans, meanwhile, rose by $7.6 billion, or 6.7%. The consumer credit figure was far above expectations. When you combine rising consumer debt with rising inflation and trailing wage gains, you have a recipe for a train wreck.

For 2006, EMC continues to expect earnings of 54 cents to 57 cents a share, or 70 cents to 73 cents a share on a pro forma basis, on revenue of between $11.1 billion and $11.3 billion. Revenue is currently seen coming in at the lower end of that range, the company said.

As I mentioned, the VIX started weaker and traded down to 16.07. As the rally in equities faded, the VIX promptly turned around and touched 17.86 before closing at 17.80.

Chief financial officers are growing more pessimistic about the U.S. economy, but still plan to increase capital spending and hiring this year. Their expansion plans will be in
substantial jeopardy, however, if inflation, the Federal Funds rate or the price of oil continues to rise.
These are some of the conclusions of the June 2006 Duke University/CFO
Magazine Business Outlook survey, which asked CFOs from a broad range of
global public and private companies about their expectations for the
economy. The survey concluded June 1 and generated responses from 980 CFOs,
including 584 from the U.S., 215 from Asia and 181 from Europe. The survey
of European CFOs was conducted jointly with RSM Erasmus University in the
Netherlands. Results in this release are for the U.S. firms, unless stated
otherwise.
The study's main findings are:
-- Only 24 percent of CFOs are more optimistic about the U.S. economy, in
contrast with 42 percent last quarter;
-- 49 percent are more optimistic about their own companies, however,
suggesting the pressures facing the economy have yet to affect most firms
directly;
-- Rising wages, falling consumer demand, and increased fuel costs top
CFOs' lists of concerns;
-- CFOs say their bottom lines will suffer if core inflation rises to 3.5
percent, the Federal Funds rate goes above 5.5 percent, or if the price of
oil surpasses $75 a barrel;
-- Companies will increase capital spending 7.5 percent over the next 12
months, an increase from last quarter, when CFOs predicted a rise of 6.5
percent;
-- Earnings are expected to increase 10.4 percent over the coming 12
months;
-- Corporate cash balances will grow another 2.1 percent.
Business optimism about the U.S. economy declined sharply, with only 24
percent of U.S. CFOs more optimistic than they were last quarter; 46
percent are less optimistic. At the same time, CFOs' optimism about their
own firms remained fairly steady, with 49 percent growing more optimistic
and 28 percent becoming more pessimistic.
"CFOs are telling us that we are moving closer to the danger zone for
the U.S. economy, but that their firms can ride it out for now," said John
Graham, a finance professor at Duke's Fuqua School of Business and director
of the survey. "There are several risk factors that are near the tipping
point, and if any of them worsens, it would heighten the risk of a
corporate slowdown."
CFOs WORRIED ABOUT WAGES, INFLATION, CONSUMER DEMAND.

Newly unsealed court documents show Guidant Corp. drafted a letter warning doctors of a dangerous electrical malfunction in some of its devices designed to restore a normal heartbeat, but the letter was never sent. Boston Scientific must be overjoyed about buying Guidant. Johnson & Johnson were luckily outbid.

The United States said on Wednesday Iran must suspend nuclear enrichment throughout any negotiations with major powers, but western diplomats said the proposed deal to resolve the atomic crisis could allow Tehran to eventually resume these activities.

State Department spokesman Sean McCormack told Reuters suspension is a "firm condition" of the major powers' offer to begin negotiations aimed at persuading Iran to abandon its weapons-related activities and "that condition would have to hold throughout any potential negotiations."

Continued Weakness

6/7/06 Continued Weakness

Wachovia Securities cut its earnings estimates for the homebuilding group, and expects margins to compress amid fierce competition and inventory overhang. Overall, Wachovia now sees an earnings decline of 11% on average for calendar 2006 and 32% for calendar 2007. It anticipates new home sales will fall 12% in 2006 and 8% in 2007 amid a "sharper, more rapid downturn" in demand than previously expected. Not surprisingly, the group got slammed and made new 52-week lows. D.R. Horton Inc., the nation's largest homebuilder by units, fell $1.40, or 5.6 percent, to $23.41; KB Home fell $3.28, or 6.7 percent, to $45.82 and Pulte Homes Inc. fell $1.64, or 5.5 percent, to $28.11. Toll Brothers Inc. fell $1.03, or 3.7 percent, to $26.55 and Hovnanian Enterprises Inc. fell 96 cents, or 3.1 percent, to $29.75.

General Motors Corp. will continue to face competitive challenges and record high commodity prices as it struggles to cut costs, Chairman and Chief Executive Rick Wagoner said on Tuesday.

John Hussman: "With corporate profits pushing above 9% of GDP, the unemployment rate at just 4.6%, and S&P 500 earnings at the top of their 6% long-term growth channel, investors should not be at all surprised to see “surprising” wage inflation, accompanied by disappointing profit margins and weak earnings growth in the next few years."

Yesterday the VIX continued to have a wide trading range and trended higher. The range was 16.65 to 18.56 with a close of 17.34. As volatility increases, the chances in my mind are greater for more disappointments in equity trades.

On Mondat Cascade Natural Gas had an unusual trading day. Volume was about 200,000 -- extremely high for Cascade, and the range was very wide -- 20.30 to 21.14 with a close at 20.84. I pay particular attention to unusual trading patterns.

Saudi Oil Minister Ali Naimi, in an interview with The Wall Street Journal published Monday, said the country's output in April averaged 9.1 million b/d, its lowest level since January 2005.

Luxembourg Prime Minister Jean-Claude Juncker said that the "level of the euro today is giving us some concern". He added: "I don't think we are in dangerous waters but we enter (them) if the level increases."

Senator Russ Feingold: "There are serious issues facing this Congress -- the war in Iraq, health care, high gas prices, relief and recovery after Hurricane Katrina, the economy. These are the issues on which the American people are demanding that Congress act. But instead, we are spending much of this week debating this poorly thought out, divisive, and politically motivated constitutional amendment that everyone knows has no chance of success in the Senate."

The Devil Made Me Do It

6/6/06 The Devil Made Me Do It

Ms. Rice dismissed the threat from Iran but the market did not. Monday was preoccupied with crude at $73 a barrel and gasoline at $2.20 a gallon. From the opening bell, equities were on their heels. The VIX had a gap opening higher at 14.97, the low for the day, and quickly traded above the 15 level and held there with little volatility. That was until Helicopter Ben had some words of concern about the rising core inflation level combined with a slowing economy. It did not take long for the VIX to rally up to 17 and it closed up 2.53 points on the day. While the VIX galloped higher, the Dow got balsteed for 200 points, the Nasdaq for 50 points, and the S&P 500 for 23 points. Even my Cascade Natural Gas got carried to the cleaners. It traded at $21.15 early in the session and then got kicked to close at $21.56. Of course that gives me an opportunity to add to my position on weakness. The same may be said for Univision as it approaches the $35 level. Overall, the action was not pretty. I often wonder what investors have been thinking. Inflation is alive and well and housing is slowing and so is consumer spending.

Trizec Properties, Inc. said Monday that Brookfield Properties and Blackstone Group have agreed to buy it and Trizec Canada Inc. for $8.9 billion. Brookfield will buy the shares of Trizec Properties not owned by Trizec Canada for US $29.01 per share in cash.

The ISM nonmanufacturing service index fell to 60.1% from 63.0% in April. New orders fell to 59.6% from 64.6%, but the employment index rose to 58.0% from 56.5%. Inflation pressures continued to mount with the price index surging to 77.5% from 70.5% in the previous month. This is hardly muted inflation.

I got to thinking about the Democratic ticket for 2008. This is not my strong point, but I'll give it a whirl. My thinking is Gore/Biden for the Dems.

The dollar fell to a one year low against the euro on Monday. So much for our bogus strong dollar policy.

This is an example of how a company should be run. A backhoe digging in an alley in the 200 block of Maple Street in Yakima on Sunday afternoon hit a natural gas line, causing a leak that forced residents and businesses to evacuate for about an hour. The backhoe struck the line, which was three or four feet underground, about 2 p.m., said acting Battalion Chief Dave Willson of the Yakima Fire Department.
Firefighters were called to the scene immediately. Because of a light breeze, they evacuated residents in several apartment buildings and blocked access to businesses on South Second Street between Maple and Pine streets. Workers from Cascade Natural Gas were called out and quickly clamped the pipe, stopping the leak, Willson said. People were allowed to return to their homes and businesses about 3 p.m. No injuries were reported.

The yield on July futures on the Fed funds rate was about 5.19 percent, pricing in a 74 percent chance of a quarter-point increase in June, up from 48 percent odds before Bernanke spoke.

"Following the current period of volatility and instability we expect investors to refocus on the previous concerns of continuing high oil prices leading to higher inflation, which would ultimately lead to higher interest rates and a subsequent slowing down of the U.S. economy resulting in a weaker U.S. dollar," said Jonathan Battershill, an analyst at Citigroup in Sydney. "All of these factors would result in stronger gold prices." Citigroup is now expecting average gold prices of $700 an ounce in 2007 followed by $750 in 2008.

Can Words Cause Harm?

6/5/06 The Devil Made Me Do It Minus One

Rice dismissed Iran's threats to disrupt energy supplies: ``We shouldn't put too much emphasis on a threat of this kind,'' Rice said on the ``Fox News Sunday'' program. ``After all, Iran is also very dependent on oil revenue.'' You have to forgive Ms Rice. She doesn't understand markets. Words/threats not necessarily action can create a spike in the oil trading pits. That price increase can generate greater profits for Iran. The leader in Iran is crazy like a fox- no pun intended. He's happy to discuss the situation without conditions but also will withhold oil from countries causing potential harm to his country. In addition, as for understanding threats or potential threats, Ms. Rice might consider our chasm in intelligence when it came to Iraq. Or maybe there wasn't an intelligence problem and the Administration's agenda was to invade Iraq anyway on its march into Iran. I think I said that in 2000. You can look it up.

Bloomberg points out the difference in yields between 10- year notes and Treasury Inflation-Protection Securities, or TIPS, has widened about 30 basis points to 2.64 percentage points this year. The gap is what investors expect inflation to average over the next decade. Inflation is not muted. Only some government employees believe that. For example, the cost of imported petroleum rose 11.5 percent in April from a month earlier, the biggest increase since March 2005, and compared with a year earlier, the price was up 32.5 percent.

One old friend of President Bush says that gay marriage barely registers on the president's moral radar, despite the fact that he publicly embraces an amendment banning gay marriage and that many credit this issue with propelling him to a second term. "I think it was purely political," the friend tells Newsweek in the June 12 issue(on newsstands Monday, June 5). "I don't think he gives a s--t about it. He never talks about this stuff." How shocking !!!!!!!!!!

Amid threats of a lawsuit from Adobe, Microsoft acknowledged Friday that it would remove support for saving files in PDF from Office 2007, as well as dropping its own rival format XPS from the productivity suite and Windows Vista.

Developments

6/4/06 Developments

Late Friday Standard Pacific Corp.said April and May new home orders were 41% lower than during the same period in the prior year. An increase in the home builder's cancellation rate and softening demand drove the fall, the company said. Therefore, Standard Pacific said it expects to lower its earnings and delivery guidance for the full year. The 41% drop is huge and makes me think any thoughts I had of getting my feet wet in this group is wrong.

Doug Noland: "Considering the confluence of problematic global financial flows, acute dollar vulnerability, and U.S. financial and economic fragilities, I see ample evidence to suggest an unambiguous risk of an unfolding liquidation of dollar holdings."

Iran's Supreme Leader, Ayatollah Ali Khamenei, has warned the U.S. that it may halt oil shipments if threatened, the BBC reported on Sunday. "If you make a wrong move regarding Iran, definitely the energy flow in this region will be seriously endangered," he said on state television, the report said. As I have discussed on several occasions, the Iranian bourse has been established where oil would be excanged for petroeuros and not dollars. Combining that with Venezuela and Russia, that is more of a risk than simply withholding oil.

In my view, the consideration for a Fed pause or backdating options or a host of other page one items in the media are not the hot buttons. Keep your eye on the dollar and the VIX. They are reflect real problems for investors.

More Hiring Data

6/3/06 More Hiring Data

Corporations' planned job reductions fell by 10% in May to 53,716, the lowest level since November 2000, according to Challenger Gray & Christmas.
Planned job cuts were down 35% from the 82,283 announced in May 2005. So far in 2006, major companies have announced 369,282 job cuts, down 14% from the first five months of 2005. The total doesn't include some 4,000 to 5,000 job reductions announced by Sun Microsystems.

On Friday the bond market took a real liking to the less than anticipated nonfarm payroll numbers. I was on the high side with a forecast of 105,000 jobs being added. The 10-year Treasury bonds closed at 4.99%, below the 5% Fed Funds rate and the 30-year yield dropped to 5.09%. Meanwhile, crude cruised to a nice gain at $72.33 a barrel.

I will have more to say tomorrow.

Productivity In Manufacturing And Employment

6/2/06 Productivity In Manufacturing And Employment

In manufacturing, the BLS reported revised productivity changes in the first quarter
were:

3.8 percent in manufacturing,
3.5 percent in durable goods manufacturing, and
3.7 percent in nondurable goods manufacturing.

Manufacturing productivity growth was slower in the first quarter of
2006 than reported on May 4, reflecting downward revisions to output per hour
in both durable goods and nondurable goods industries.  Output and hours in
manufacturing, which includes about 13 percent of U.S. business-sector
employment, tend to vary more from quarter to quarter than data for the
aggregate business and nonfarm business sectors.

Schering-Plough Corp. said on Thursday that it will cut about 1,100 jobs at its
manufacturing facilities in Puerto Rico and New Jersey as it
phases out or streamlines its operations.

Yesterday morning I listened to a Meritage Homes audio conference call.
One must remember that only two weeks ago they held their annual
meeting and reinfirmed their year's earning guidance. After the annual
meeting some significant managerial changes were made and the
conference call was to discuss these changes. As an aside, the CEO
mentioned an "increase in cancellations" and "moderating sales" and
that "guidance could be adjusted in July." He also mentioned that there
were factors reducing second quarter earnings by 42 cents per share. He
mentioned increased inventory levels in Ft. Myers and other areas of
the country. He didn't know this at the time of the annual meeting?
Lsst year the company earned $9.55 per share and the stock is now $55+.
I have a problem with the CEO's credibility. Maybe this is unfair but I
have no position long or short and prefer to avoid this situation.

 The American Petroleum Institute said motor gasoline supplies fell 1.1 million barrels for the week ended May 26,
contrary to the 800,000-barrel increase reported by the Energy Department. Distillate stocks fell 364,000 barrels, the API
said, though the government data showed an increase of 1.8 million. Crude inventories were up 1.7 million barrels,
the API stated.

The Institute for Supply Management's Index fell to 54.4% in May from 57.3% in
April. The consensus forecast was for the index to fall to 55.8%. The price
index, however, rose to 77.0% from 71.5%. Separately, U.S. construction outlays
fell 0.1% in April, the Commerce Department said. Economists were expecting a
0.2% increase. 

DaimlerChrysler May sales down 8.4% and Ford's down 1.9%. GM sales declined 12.5%

Heinz plans 2,700 job cuts.

Volkswagen offered buyouts to 85,000 workers.

Yesterday saw some interesting developments. Gold had closed down $12 a
pound in May, its first monthly decline since February, and began June
with another $15 drop with the head of Gold Fields speculating the gold
metal could decline $100 a pound before resuming its climb. Silver
joined in and dropped 55 cents an ounce. The real action was in copper
where it closed down 15 cents a pound but during the session it was
limit down and trading was halted. With the metals dropping like that
you'd think the dollar would be much stronger but it could only hold a
slight gain and the same with Treasury bonds. Both sectors are truly
weak. Meanwhile, the VIX had closed on Wednesday at 16.44 and began a
slide from the opening bell. It declined down to 14.50 and closed at
14.62. With the VIX heading south, equities had another big rally day.

ContraryInvestor.com: "Historic periods of meaningful rate of change decline in the
Japanese monetary base have preceded each meaningful US recession of the last three
decades.Just eyeing them out, these large percentage drops occurred in '73/'74, '79/'80,
1990, and 2000. If indeed history has the chance of repeating itself ahead,
what should we now be expecting for the macro US economy as we look directly
at current Japanese monetary base contraction? Go ahead and take a guess."

The RealtyTrac 2006 U.S. Metropolitan Foreclosure
Market Report documented a staggering one foreclosure for every 69
Indianapolis homes. In sum, Indianapolis has the highest foreclosure rate for a
U.S. city.

The National Association of Realtors said its index for pending home
sales fell for a third straight month in April, dropping 3.7 percent
from the March level. This index tracks sales of previously owned homes
where a contract has been signed but the deal has not yet gone to
closing.

Pulte Corp., a homebuilder, warned that second-quarter and 2006 earnings would fall short of
expectations as an increase in inventory, higher cancellation rates and
higher interest rates have led to weaker-than-anticipated buyer demand
through the first two months of the quarter, and sai it now expects earnings of 85 to 95 cents a
share for the quarter ending June and earnings of $4.70 to $5 a share
for the year. Analysts surveyed by Thomson First Call had been
expecting second-quarter earnings of $1.09 a share and 2006 earnings of $5.59 a share, on average. Net new orders for the first two months of
the quarter fell 29% from year-earlier levels to 6,447 units.

May 18 was the first time that trading in the S&P 500 pit topped 1 million contracts. If the daily gyrations
in the VIX should continue, I see even larger amounts of S&P contracts trading.

Venezuela has backed a proposal to sell oil in euros instead of U.S. dollars, Energy
and Mines Minister Rafael Ramirez said on Thursday. Ramirez said "Iran has an
initiative that we support. They are going to start to do oil transactions in euros." 

I would like to close with a discussion on employment. Forget the headlines. In May, the workweek fell to 33.8 hours from 33.9 hours in April. The manufacturing workweek fell to 41.1 hours and overtime was unchanged at 4.6 hours. In sum, not only did the individual on Main Street work less hours each week but also received average hourly earnings in May that increased all of one penny to $16.62 an hour. That one penny couldn't even begin to offset the inflation found in every day life. Economists will be cheering that the nonfarm payroll rise in May was only 75,000 and that April was revised down to 126,000. The bond market cheered and the yield on the 10-year bond fell to 5.06% from 5.11%. Market mavens will now say the Fed can pause at the next meeting. All of this means crap. How will the average family make do? That's the question. You can't fill your tank with statistics. You can't pay the doctors with statistics. Would it be too much to ask for folks at a Fed meeting to place themselves in the real world? Life on Main Street is quite different than an economics class at Princeton. Folks bleed and cry on Main Street.

Balancing Act

6/1/06 Balancing Act

The National Association of Purchasing Management-Chicago business barometer rose to 61.5 from 57.2 in April. Economists had forecast the index at 56.0.
The employment component rose to 52.8 from 47.2 in April and new orders rose to 69.6 from 60.8. There was a slight decline in the prices paid index to 76.9 from 77.2.

William Gray and the Colorado State University forecasting team said the six-month season beginning on Thursday will see 17 tropical storms, of which nine will become hurricanes and five will be "major" hurricanes with sustained winds over 110 miles per hour (177 km per hour). On April 4, Gray's team issued the same forecast.

Adjusting for items and its Veritas Software acquisition, Symantec anticipates a profit of between $1 and $1.10 a share for the year, Beer told a gathering of financial analysts broadcast via the Internet. He put the company's adjusted revenue at $5.2 billion to $5.4 billion for the year. The current average estimate of analysts is for a profit of $1.10 a share on revenue of $5.4 billion, according to Thomson First Call.

The VIX had another wide swing on Wednesday. It had a gap opening on the downside of .57 to 18.09 and proceeded to decline to 16.58 before closing slightly above that number. Not surprisingly, equities rallied to finish a very disappointing month for the bulls. Crude dipped to 71.29 and natural gas rallied to 6.38. However, bonds had a dip and the 10-year yield rose to 5.11% and the 30-year to 5.21%. The 2-year climbed to 5%.

Odds of a June rate hike rose to 72% from 56% earlier. The odds of a further rate hike by the end of the year rose slightly, but remained below 20%.

Delphi Corp.'s U.S. operating losses in April ballooned to $181 million, nearly double the operating losses of $93 million in March. Delphi suffered a 25 percent drop in month-to-month sales to its largest customer, General Motors, in April -- from $1 billion in March to $761 million in April, according to a monthly operating report that Delphi filed Wednesday for April.

S&P 500 Index put in its worst May showing in 22 years. The Nasdaq Composite Index also put in its worst May performance in six years.

Sun Microsystems Inc.said it will fire 4,000 to 5,000 workers in the next six months as part of a plan to end almost five years of losses.

Henry To: "There is no doubt that the U.S. housing bubble is in the midst of popping - but unlike the technology bubble in spring of 2000, this process will more resemble a slow leak from a car-tire than a sudden crash in housing prices."

Even though May was a lousy market for equities, it might be wise to focus on the fact that the S&P 500 Index has gone over 800 trading days without a 10% correction. Each day the chances are greater for such a correction to occur -- especially with interest rates trending up, crude holding at a high level, and the VIX having broken out to the upside. It is certainly wise to be extra cautious.

Marc Faber: "For the next long period, which could last 20 or 30 years, money will be harder to come by; real rates will be headed higher, which will mean the bubble days may be over. The codgers may get another chance to say, “I told you so.”

For the third quarter, Hovnanian, a home builder, sees per-share income of $1.40 to $1.50, with analysts looking for $1.75. For the full year, Hovnanian expects per-share income of $7.20 to $7.40, while analysts are looking for $7. This is a further indication of a housing industry slowing but not collapsing. In my view, the street has taken this group down too far. There are values in the sector. Look at Hovnanian. The shares sell for $31+ and are down from $73+.

Jon Markman: "I think there is real potential for a 10% to 25% decline over the next six months -- with the harsher end of the spectrum the more likely. As much as I wish that weren't the case, it seems unavoidable. What's worse, a lot of the stocks that smaller investors are the most heavily invested in -- the small-caps and mid-caps -- could get hurt even worse. "

Brazil’s central bank lowered its benchmark lending rate on Wednesday to 15.25 percent from 15.75 percent, the eighth straight cut to help bolster the economy as inflation eases.

The Monster index rose to a record 167 in May from 163 in April. Online postings are up 25% in the past year, far outplacing the 1.5% growth in nonfarm payrolls.

Wal-Mart forecasts June comp sales up 1 to 3 percent. Given the price of gas at the pump, this range is to be suspected. On the other hand, international comp sales should continue at a strong pace.

There is increasing data to suggest that zinc is truly in short supply. Meanwhile, Teck Cominco is the largest producer of zinc in the world. This is the same company attempting to acquire Inco, the large nickel
producer.

Productivity in the U.S. nonfarm business sector rose at an annual rate of 3.7% in the first quarter, stronger than the 3.2% gain reported earlier, the Labor Department said Thursday. Unit labor costs - a key gauge of inflationary pressures stemming from wages - were revised lower to a 1.6% annualized gain from 2.5% reported earlier. Revisions in government numbers never ceases to amaze me. Can you imagine public companies consistently revising their quarterly numbers every couple of months?

Passing On the Costs

5/31/06 Passing On The Costs

Albemarle Corporation will increase the prices of its North AmericanETHANOX(R) lubricant and fuel antioxidants by approximately 30 percenteffective June 15, 2006. Prices of dilutions and blends will be increasedto reflect higher base oil and solvent acquisition costs as needed."Drivers for this price increase include the need to recoverisobutylene, base oil and energy costs," said John McChesney, GlobalBusiness Manager, Antioxidants. "The price increase also supports ourglobal growth, our introduction of new products to meet future engine oilrequirements and regulatory efforts to support existing products."

U.S. consumer confidence slipped in May after hitting almost a four-year high in April, the Conference Board said Tuesday. The consumer confidence index fell to 103.2 in May from a revised 109.8 in April. The decline was not as large as forecast. The expectations index fell to 83.7 from 92.3, its lowest level since October.

There have been $262.9 billion in takeovers announced in the energy industry so far this year, up from $159.5 billion in the same period last year, according to data compiled by Bloomberg. Referring to the management-led buyout of Kinder Morgan,
``If they thought that we were at the peak, I think they'd be selling out to somebody not in the business,'' Matthew Simmons, chairman of investment bank Simmons & Co. International, based in Houston, said in a phone interview from Rockport, Maine. Early Tuesday morning the VIX opened on a gap upward and never looked back. In short order, this index had climbed almost 4 1/2 points and closed at 18.66. Combining that with a weak dollar, crude at $72, and you knew equities were in for a rough day. The news of the day though had to be the big move in the VIX. We should not forget that the VIX closed at the low for the day on Friday at 14.26 and yesterday it closed only 6 cents from the day's high. This is a remarkable turn of events and should not be forgotten. For my money, it was the key trading day of the year and possibly many years.

Organic food only makes up 2.5 percent of U.S. food sales, but it's the fastest growing segment of the market. Sales reached nearly $14 billion last year, up from $6 billion five years earlier, according to the Organic Trade Association in Greenfield, Mass.

Yesterday Wal-Mart shares got punished because their same-store sales for May only rose a bit over 2%. It might be wise to remember that the company operates 2,285 international stores, and this segment represents 20% of their business. In addition, Wal-Mart International plans to open 220 new, relocated or expanded stores in their fiscal year ending 1/31/07. In the latest fiscal year international sales increased 11.4% over the prior year.

Goldman raised its gold price estimate to $635 from $600 in 2006 and to $700 from $650 in 2007.

Yesterday all 30 stocks in the Dow declined.

Blogger had trouble posting today --- thus the late post.

Some Big Deals

5/30/06 Big Deals

A management-led consortium bidding for Kinder Morgan is offering to pay $100 a share for the company, or an 18.5 per cent premium over the company's closing share price of $84.41 on Friday. The group consists of Kinder executives Richard Kinder, Mike and Bill Morgan and Fayez Sarofim, and also includes the buy-out units of Goldman Sachs, American International Group, and US private equity firms Carlyle Group and Riverstone Holdings. The buyers would also take on about $8bn of the company's debt, bringing the total value of the proposed deal near to $22bn - or close to the $30bn Kohlberg Kravis Roberts paid for RJR Nabisco in the largest private equity deal in the late 1980s. Kinder Morgan is one of the largest US midstream energy companies, operating natural gas and oil pipelines and terminals across North America. The company expanded into Canada last year with the acquisition of Terasen for $3.1bn. Kinder Morgan also owns the general partnership in Kinder Morgan Energy Partners.

M3 money supply growth in the eurozone accelerated to 8.8 per cent year-on-year in April, from 8.6 per cent in March. This took the three-month moving average up from 8.1 to 8.4 per cent, well above the European Central Bank’s reference rate of 4.5 per cent. Furthermore private sector lending growth rose to 11.3 per cent, its highest level for 16 years. There should be no question that the ECB will raise rates by 25 basis points next month. That will add to the pressure on the Fed to do the same.

Investor pressure on managment has caused Engelhard to accept BASF's sweetened $39 a share bid for the company. Given the current outlook for the company, shareholders should be pleased.

Trends

5/29/06 Trends

Heart diseases account for approximately50 per cent of all mortalities in the industrialised world. With one of themajor risk factors for heart disease being elevated cholesterol levels,particularly low-density lipoproteins (LDLs), there is an increasing demandfor foods and beverages containing phytosterols or nutraceuticals thatlower cholesterol levels.

Hurricane season begins Thursday, and federal officials report that 22 percent of crude oil production and 13 percent of natural gas production in the Gulf is still derailed.

Broadband adoption grew 59 percent during the 12 months ending in March among households with incomes between $30,000 and $50,000, according to a survey being released today by the Pew Internet and American Life Project.
It grew 40 percent in households making less than $30,000 a year. Among blacks, it increased 121 percent, according to the study.
Middle- and lower-income households still lag higher-income households. Among the $30,000-$50,000 households, 43 percent have broadband, compared with 68 percent of households over $75,000.
Overall, 42 percent of adult Americans, or 84 million people, have broadband, compared with 30 percent a year ago.

Worldwide, 8,661 hedge funds managed $1.1 trillion at the end of 2005, according to Chicago-based Hedge Fund Research Inc.

According to DigiTimes.com, Intel's August launch of its 64-bit dual-core Merom processors will include the high-end T7600 series and mainstream T7200 and T7400, according to sources. Of the Merom lineup, the T7600 will feature a 2.33GHz core speed and will be priced at over US$600. The 2GHz T7200 and 2.16GHz T7400 will be priced at US$294 and US$423, respectively, close to the 2GHz T2500 and 2.16GHz T2600 (codenamed Yonah).
In addition, Intel plans to introduce the Celeron M 440 and M 450, with respective core speeds of 1.86GHz and 2GHz, later this year, the sources indicated. The chip giant will also reduce prices for the existing Celeron M 420 and M 430 to as low as US$86, with the price-cut strategy improving the company's competitiveness in the entry-level segment, according to the sources.
Intel's new chip design will be delivered in the second half of 2006. It is conceivable that performance will be enhanced by 40% while power consumption is reduced by a like amount. Intel's shares are presently out of favor and trade only a fraction of a point from a 52-week low. That presents an opportunity to jump on board its successful nanotech transformation. The market cap is just above $100 billion, a small price to pay for the leader in productivity advancement in the U.S.

Bergen Evans: "Freedom of speech and freedom of action are meaningless without freedom to think. And there is no freedom of thought without doubt."

Not Surprising

5/28/06 Not Surprising

Wal-Mart estimated that May sales rose 2.3 percent at its U.S. stores open at least a year, the low end of its forecast, held back by steep gasoline and utility prices. This should not come as a surprise.

U.S. adults remain very pessimistic about the situation in Iraq, and are not confident that U.S. policies there will be successful. As a result, President Bush's job approval rating in handling the situation in Iraq hasn't changed in two months -- two-thirds (68%) give the president negative marks -- tying an all-time low. This should not come as a surprise.

The Bush Administration late Friday asked federal judges in New York and Michigan late Friday to dismiss a pair of lawsuits filed over the National Security Agency's domestic eavesdropping program, saying litigating them would jeopardize state secrets. This should not come as a surprise.

Mike Burk: "The OTC has been up 100% of the time on the 2nd trading day of June during the 2nd year of the Presidential Cycle." I found this quite surprising.

As I have stated previously, from May 11, in just a few days, the VIX skyrocketed
from 13 to just about 20. In 8 trading days the VIX has declined to 14.26. That is an unprecedented round trip in such a short time frame. It is not business as usual. To think so would ignore the risk of the recent extreme volatility. Let me repeat. Just because the market may be oversold does not mean you need to be a buyer. Do not ignore the potential danger associated with variance swaps. You can be swept away with them.

Behind The 8 Ball

5/27/06 Behind The 8 Ball

When you cut through all the government numbers for April, the disposable income for Americans declined 0.1% after taking inflation into account. That's the bottom line. Our economy is based primarily on the consumer. With growing inflation pressures, the consumer is still behind the 8 ball. Is the Fed a real inflation fighter?

Peter Schiff: "Higher inflation is actually the government's best friend and is the most politically expedient way to resolve America's economic imbalances and reduce the real burden of repaying its own debts."

The University of Michigan's index of consumer confidence fell to 79.1 this month from 87.4 in April, the biggest drop since hurricanes slammed into the Gulf Coast last year. The final May reading compares with an initial estimate of 79.0. The university's measure of current economic conditions fell by the most since record-keeping began in 1978.

Barron's: "After a long string of double-digit annual price increases, many second-home meccas across the country are witnessing plunging sales and burgeoning inventories of unsold homes."

The U.S. Food and Drug Administration gave its approval late Thursday to Merck's new shingles vaccine, which is intended only for adults 60 years of age and older who
previously have had chickenpox.

Air fares over Memorial Day weekend were expected to average 10% more than they did last year, AAA said. Hotel rates have climbed 5%. And rental car rates have shot up 19% from a year ago to $36 a day, the highest Memorial Day rate in the past six years.

A panel of three judges said in a 69-page decision that a group of bloggers did not have to divulge their sources to Cupertino's Apple Computer Inc., contending that the same laws that protect traditional journalists, the First Amendment and California's Shield Law, also apply to bloggers.

Analysts expect May sales for General Motors Corp. to lead the decline, with a drop of between 10 and 14 percent compared to the same period in 2005. Sales at Ford Motor Co. are expected to fall between 6 and 8 percent for the month, while DaimlerChrysler AG's Chrysler Group sales are expected to be down about 5 percent.

Because of $3 gas at the pump, the media focuses on the price of crude, which has risen 17% this year, By comparison, wheat futures traded at a 9-year high this week and have gained almost 50% over the past year. Very often the best place to mine for profits is where the media coverage is minimal at best.

On friday, the VIX traded between 15.04 and 14.26, and closed on the low of the day. Volatility continues to diminish while equities have taken a turn for the better. It would be a mistake to dismiss this recent run up in the VIX to the 19+ area and it would be a mistake to return to complacency. You should consider this recent strength an opportunity to lighten positions.

It was one thing to buy GM at $20 and quite another to jump on the Merrill/Prudential bandwagon at $27-29. Believe it or not, the same reasons to buy GM at $20 are no different than at $28. It just required a bit of foresight. GM may return to $29 in a period of time, but for now, there are too many hurdles to warrant this price. Being complacent about GM is a mistake.
On the other hand, everyone has written Ford off. That would be a mistake. Why? Check the cash flow.

Nouriel Roubini: "Q2 growth may already be in the 2-2.5% range that I predicted in January and is likely to further decelerate in H2."

Let's return again to a discussion of volatilty and particularly variance swaps.
Todd Steinberg opines "variance swaps isolate volatility and take away all of the other attributes that you would ordinarily have to factor in, such as interest rates, dividends and movements in the price of the underlying asset." That is a start. Let's turn to the Minyanville staff for some additional thought: "A variance swap is a contract between two parties agreeing to swap cash flows on the measured variance of an underlying asset during a set time frame. Variance is the square of standard deviation. The payout on the variance swap is linear to variance rather than volatility. This means the payout will rise at higher rate than volatility. In a period of rising volatility, this can be problematic if someone is over-leveraged based on a model that is predicting a continuation of muted volatility. The variance swap provides a trader with a "constant" exposure to volatility with a fixed gamma and time decay that is not dependent on stock prices, therefore providing a "pure" play on future volatility.Minyanville Professor John Succo noted a similar situation last October. Describing some of the selling taking place at that time, he wrote: "There is a rather large position in the Street composed of what are called "variance swaps." "Essentially, volatility funds and credit funds have bought variance swaps (long volatility) from several large brokers," Succo wrote. "The volatility funds buy them to make bets on volatility. Credit funds buy them as a correlation hedge against credit risk (as credit spreads widen, volatility tends to pick up)."

This is obviously complicated stuff. However, there is a problem with all of this. What happens when during the trading day, due to the tremendous volatility, trading is halted, and halted for the remainder of the day? Then you are left behind the 8 ball. Not only are these traders hurt, but the every day vanilla investor is impacted as well. Could this have taken place after May 10th? In sum, investing can be simple or complicated. Those that think they are so clever and endowed with self-proclaimed genius may be the first to be carried out.

Interesting Finding

5/26/06 Interesting Finding

Almost 70,000 women took part in the research, part of a major health investigation in the US called the Nurses Health Study.
Scientists monitored the women for 16 years, keeping records of their weight and sleep patterns.
Compared with the sound sleepers, women who slept no more than five hours a night were 32 per cent more likely to experience major weight gain - defined as an increase of 33 pounds or more - during the course of the study.
They were also 15 per cent more likely to become obese compared with women who slept seven hours.

Gary Lammert: "A dysequilibrium
tipping point of negative equity is now found in a good percentage of 2005 acquired US homes. And the negative equity grows every day with
the growing backlog of oversupply. One of the last major American
manufacturing holdouts, the housing industry, with better blue collar
salaries, mitigated by a proportion of labor provided by the south of the
border non Ellis Island immigrants, is in steep decline. Coupled to its
decline is the US lending industry and the over populated and bloated
real estate industry."

The volume of help-wanted advertising in major U.S. newspapers declined in April, the Conference Board said Thursday. The help wanted index fell to 35 from 37 in March. In the last three months, help-wanted advertising declined in all nine U.S. regions.

I would be surprised if 2nd quarter GDP were not at least a positive 4% grower.

For the past eight years, ethanol has cost an average of 49 cents a gallon more than gasoline, according to data compiled by Bloomberg. Last year, even with oil reaching a then record $70.85 a barrel, it cost refiners $1.61 to make a gallon of gasoline -- less than the $1.80 it cost to buy a gallon of ethanol. Today, the U.S. consumes 4.4 billion gallons of ethanol, or the equivalent of 3 percent of all the gasoline used, according to the Energy Department. The federal mandate will boost that figure to almost 5 percent by 2012. It should be noted that the cost to produce ethanol in Brazil is 50% less than it is in the U.S.

Yesterday, equities had their best day in awhile. It was no coincidence that volatility declined sharply with the VIX closing at 15.50 and having a range of only 1.15 points. The rise in equities was led by GM, Wal-Mart, the energy sector, and the Mastercard IPO. However, all was not rosy. Crude rallied back to 71.40 a barrel, gold had a strong performance, and interest rates were on the rise again with the 10-year at 5.07% and the 30-year at 5.17%. Although interest rates rose, the dollar index declined. The question one should ask is what was the real inflation rate in April and has there been a change in the first three weeks of May. I believe the numbers are not benign and that is a big reason to be cautious.

The National Association of Realtors said Thursday that sales of previously owned single-family homes and condominiums dropped by 2 percent last month to a seasonally adjusted sales pace of 6.76 million units.
The median price of homes sold in April rose to $223,000, an increase of 4.2 percent from April 2005. That represented the smallest year-over-year price gain since September 2001.

Mason Cooley: "Great men wait for the right moment to abandon caution. The rest of us abandon it when impatience becomes too much for us."

The cost of insuring against a default on Italian government bonds – through credit default swaps – rose sharply.

Now that the results of the Lay and Skilling trials are in the books, so to speak, let me remind you of some background facts. You do recall the political contributions Enron/Lay made to Bush and Cheney. You do remember the close friendship between Bush and "Kenny Boy" Lay. You do remember back to the spring of 2001. Vice President Dick Cheney cleared his calendar for an April 17 private meeting with Lay regarding what aides described as "energy policy matters" and "the energy crisis in California." At the meeting Lay handed Cheney a memo that read in part: "The administration should reject any attempt to re-regulate wholesale power markets by adopting price caps...." The administration rejected any attempt to adopt energy price caps. I wonder why Bush and Cheney were not character witnesses at the trial. That's what friends are for ---- in time of need. Have you heard the media bring up any of these points?

Natural gas utility Northwest Natural Gas Co. backed its previous earnings guidance of 2006 earnings between $2.12 and $2.27 per share. Chief Financial Officer David Anderson backed the outlook at the company's annual shareholder meeting. The estimate assumes normal weather.

Arcelor SA agreed to buy most of Russia's OAO Severstal in a 13 billion-euro ($16.6 billion) deal to create the world's biggest steelmaker and repel a hostile bid by Mittal Steel Co.

Brad Setser: "If the global economy goes south because of an oil supply shock, I would run into the Canadian dollar and the Norwegian krone. I would even rather hold the Russian ruble than the US dollar. Putin isn’t the nicest guy, but Russia is now a substantial net creditor – and with oil at $70 Russia is adding about $150b to its reserves a year. I kid not -- Russia's reserves have been rising by $5b a week recently. Its external fundamentals are solid. And I doubt the central bank will be able to resist nominal ruble appreciation forever. I would also prefer the euro and even the yen to the dollar."

Housing

5/25/06 Housing

When the consensus is that there is a bubble, it is wise to consider alternative scenarios. Over
the past two months, I have attempted to provide some of those thoughts. All housing markets are not the same --- just as all stocks are not the same. There is value somewhere and overvalue somewhere else. Both will be discovered, but not necessarily at the same moment in time.
Sales of new homes in the U.S. unexpectedly rose in April to the highest this year, even as inventories of unsold dwellings climbed to a record. Sales increased 4.9 percent to an annual rate of 1.198 million from a revised 1.142 million in March that was lower than previously reported, the Commerce Department said Wednesday in Washington. There were 565,000 homes for sale at the end of April, the most ever.

Shortly after the durable goods number was released interest rates declined sharply, but the full extent of the rally could not hold as the yield on the 10-year went down to 5% and then rose to 5.04%. Again, the Fed does not control long term interest rates.

Washington Mutual notified 850 call-center workers in Bothell, Washington that their jobs would be gone by fall. The company also gave layoff notices to 550 call-center workers in Jacksonville, Fla. WaMu is moving those functions to less-expensive locations — in Milwaukee, upstate New York and Manila, Philippines.

In April 2006, employers took 1,148 mass layoff actions, seasonally
adjusted, as measured by new filings for unemployment insurance benefits
during the month, the Bureau of Labor Statistics of the U.S. Department
of Labor reported today.  Each action involved at least 50 persons from a
single establishment, and the number of workers involved totaled 118,504,
on a seasonally adjusted basis. The number of layoff events rose by 66, and the
number of associated initial claims decreased
by 51 from March 2006.  In the manufacturing sector, 358 mass layoff events
were reported during April 2006, seasonally adjusted, resulting in 48,086
initial claims.  The number of events in manufacturing was higher than a
month earlier, while the number of initial claims decreased.

Dave Kimble:“Russia's oil exports represent 15.2% of the
world's export trade in oil, making it a much more significant player
than Iran, with 5.8% of export volumes. Russia also produces 25.8% of
the world's gas exports, while Iran is still only entering this market
as an exporter…. Venezuela has 5.4% of the export market.” Russia is planning
on selling oil for rubles (not dollars) in about 2 weeks.

XM Satellite reaffirmed that it remains on track to have positive cash flow
from operations for the fourth quarter of 2006 and on an annual basis for 2007.
"Subscriber growth for the first quarter of 2006 was consistent with
our initial guidance of nine million subscribers by the end of 2006," said
Hugh Panero, President and CEO of XM Satellite Radio. "Although XM has
regained retail market share since the first of the year, the satellite
radio category has seen an overall softness at retail during the second
quarter to date, and we have been later than anticipated with broad
availability of our new products."
The revised guidance of 8.5 million subscribers represents growth of
more than 40 percent over the course of the year. The revised subscriber
guidance leads to a reduction in subscriber revenues and a narrower EBITDA
loss for the year. XM expects to add a total of more than 2.5 million net
new subscribers this year. XM ended 2005 with 5,932,957 subscribers, and
the company added more than 568,000 net new subscribers during the first
quarter of 2006 for a total of more than 6.5 million subscribers.

Yesterday's trading saw another large swing in the VIX, between 17.13 and 19.87.
Therefore, it was not surprising to see equity indices go from positive to
negative to positive etc etc etc. and end with a tiny gain thanks to GM,
Microsoft, and Wal-Mart. Meanwhile, gold lost $36+ an ounce and silver and the other
metals had a rough time. Crude closed just below $70 a barrel. THis recent sharp
decline in the energy sector gives me a reason to revisit Diamond Ofshore and
Chevron.

Many investors are asking whether this is just a normal correction or whether
we have hit a patch of quicksand. I guess it depends on your portfolio and your
objectives. Unlike 1974, I haven't seen anyone jump out of a 24 story window.

The LA Times reports home builder Ryland Group Inc. on Wednesday slashed its 2006 earnings
forecast for a second time this year, citing a 35% decline in sales in
April and May.
The Calabasas-based company said it expected full-year earnings of
$8.50 to $9 a share, based on the sale of 16,500 to 17,000 homes at a
gross profit margin of 23.2%. Before you slit your throat, the stock has already
declined from $83 to $52. Of course it can go lower, but, in my view, most of the
damage has been done.

Patience

5/24/06 Patience

Investing requires patience. With some investments you might have been
fortunate enough to have had some terrific returns over a period of years.
Then the stock moves sideways. For example, Microsoft and Home Depot are
selling for the price where the shares traded in 1998. In the case of Medtronic,
the shares are trading today where they were in early 2000. That's a long
dry period but over a period of 20 or more years the returns have been
terrific. You must consistently analyze your holdings and assess your risk/reward
going forward.

Packaged Facts projects sales of natural/organic food and beverages
will soar past $46 billion by 2010, increasing by nearly 63%, as the
popularity and availability of natural/organic products continues to gain
momentum. The addition of Wal-Mart as a major purveyor of organics, rapid
growth in all major supermarkets' private label organic offerings, and
highly anticipated expansion of the widely successful supermarket
"lifestyle" stores assures the forthcoming exponential market growth.

The first rally often is disappointing. Yesterday was no exception. With the Dow, Nasdaq, and S&P 500 up for most of the day, participation was lacking. Yes, the metals and crude
were up but the transports and the utilities were in the red, interest rates were rising, the dollar index was weak, and then some major company shares were on the downside ----
GE, Home Depot, Intel, Advanced Micro, Best Buy, Kellogg, Wrigley, Amgen, IBM, Aetna, Dell,
Applied Materials, Texas Instruments,and Citigroup,just to mention a few. Not
surprisingly, the rally did not hold and the Dow, Nasdaq, and S&P closed on the downside.
In sum, the action lacked conviction. The buyers were holding their breath. The complacency
was gone, and it took less than two weeks for that to occur.

If you listened to Helicopter Ben before the Senate Finance Committee, you could hear a
tremor in his voice. He did not have a frog in his throat. He was nervous and unsure of how to react to the questions. He appeared out of place and clearly did not provide
confidence to the financial markets. That's what happens when you depend on a government
official. More often than not, you will be disappointed.

In after market hours trading, the weakness persisted --- especially in the big tech sector. For example, Microsoft had been up nicely for almost the entire day, but in late trading hours the stock fell to $22.70. In other words, it couldn't even hold the $23.25 level. Apple also weakened to the $62.70 area, and Broadcom dipped under $34. Medtronic's quarterly report was on the money, but the stock was not able to get above $49. St. Jude Medical and Boston Scientific had made new 52-week lows on Tuesday.

I would like to revisit the VIX, the volatility index. On May 12, the index traded below
12 and on May 16 it was only 13. For months the VIX had shown almost no life. Yesterday it had a range of about 3 points between 15.36 and 18.26 and closed at 18.26, the high for the day. As the VIX dropped in the morning, the market rallied and then vice versa in the afternoon. In the last week of trading a higher VIX has been a negative for equities.

Henry To: "

Let's now review the implications of a Lowry's 90% downside day on the NYSE (which took place last Wednesday). As I have mentioned before, a 90% downside day occurs when both the declining volume and the number of downside points equal or exceed 90% of the total volume and the total number of points, respectively. A 90% downside day sometimes signals the beginning of a panic decline, or if the market is already oversold, further evidence of a very oversold market. Generally, a significant market bottom is preceded by two or more number of 90% downside days. A single 90% downside day like today may create an oversold situation in the short-term - one which would signal a temporary bottom - but with a number of intermediate term indicators (see below charts) still in a semi-oversold or neutral condition, the chances of a bottom here is very low. In fact - as Lowry's points out - in four of the last six bull markets since 1980 - a Lowry's 90% downside day has occurred anywhere from 5 to 15 days subsequent to a bull market top. The occurrence of a 90% downside day on the NYSE has significantly increased the odds that the cyclical bull market which began in October 2002 has now topped out."

This morning the April durable goods ex transportationdeclined by 1.1%. In response, the interest rates declined and the 10-year Treasury yield dropped to 5%. This will lead to more talk that the Fed will not raise rates at the June meeting. Whether or not that takes place, it is important to focus on taking a defensive posture. The utility sector would be a prime area to mine for value.

Buying Time Has A Price Tag

5/23/06 Buying Time Has A Price Tag

It was only a short time ago I discussed the point that the Fed wanted to buy time and look at the data prior to its next meeting, and then decide what to do about rates. That was a novice attitude towards the real world. Time is expensive. The world is beggining to see how expensive. The VIX has rallied from 12+ to 19 and is now trading above its 200 day moving average. Volatility is alive and well. The Nasdaq is at a 6-month low and the Dow at a 1-month low. The dollar index still has trouble holding a rally. Hong Kong, Russia, India's Sensex have been hit hard and so have other emerging markets like those in Latin America. Meanwhile, oil has rallied back to $70 and gasoline and natural gas are holding too. Froth has been taken from the metals but they are still up nicely for the year. Money has been moving into the utilities and other defensive groups.

Over the past several years the globe has been awash in liquidity. Now you must ask is there a dark side to liquidity? Do people really know what they have purchased? Are margin calls around the corner? Is it possible that the excess liquidity has been leveraged to such an extent that there is soon to be a tipping point? Would you bet your portfolio against that notion? How about the ATM on your home?

Over time, one of the best places for to mine for potential profits has been in the spinoff arena, and recently Embarq Corp was spun off from Sprint. Yesterday their CEO spoke at a Lehman conference. At $40 per share the market cap is $6 billion and their revenues are $6.3 billion.
CEO Dan Hesse said Monday that the new local phone company's threat from cable competitors is "greatly exaggerated," despite its anticipated market-share loss. The company is projecting that it will lose 5.5 percent to 7.5 percent of its access lines this year as the availability of phone service from cable companies expands from 40 percent to 90 percent in Embarq's markets. He stated "It is our hope and intention that this year will be the highest level of line losses that we will ever see." Hesse said that less than 10 percent of Embarq's roughly $6 billion in revenue is at risk from cable competition, based on his analysis of cable availability and what services consumers choose in the company's markets. "The size of the cable threat to our business, while sizable, we believe is greatly exaggerated," Hesse said. Hesse also said Monday that the company plans to launch Embarq-branded wireless phones and services next month in a bid to expand providing bundled services to consumers. Embarq will rent Sprint Nextel's infrastructure to provide the service. Regarding mergers and acquisitions, Hesse said that Embarq plans to sit on the sidelines for now but that it could be active in the future. "When we do, we believe a strong balance sheet makes us a more attractive suitor and a more attractive target, either way," he said.
In my view, it pays to monitor Embarq. The risk, in my opinion, far outweighed by the upside
potential. It may be rewarding for those with patience.

Another word about risk. Increased volatility leads to greater risk but also to the possibility of greater reward. You must decide whether large market swings are healthy for your personality.
Remember -- it has been several years without a 10% market correction in the U.S. Volatility has been low. For many, that low volatility has been an impetus to greater conviction on the part of investors. The mentality grew to believing volatility was a thing of the past.

Microsoft Corp. told more than 1,000 contract workers doing software development and testing to take seven business days off without pay to lower costs during this quarter, the company said on Monday.

Toll Brothers said that increased material and labor costs and higher write-downs - mainly from continuing weakness in the metro Detroit market - means that it now expects to report earnings per share for 2006 in a range of $4.69 and $5.16 a share. Previously, earnings were expected in a range of $4.77 and $5.26 a share.

The OECD called on Tuesday for the Federal Reserve to tighten interest rates a bit more as it projected U.S. economic expansion was set to stay solid this year before easing slightly in 2007. "A light 'tap on the brakes' seems necessary to keep the economy in balance," the Paris-based Organization for Economic Cooperation and Development said in its half-yearly Economic Outlook report. It raised its projection for U.S. GDP growth to 3.6 percent in 2006 from the 3.5 percent it forecast in November. Core inflation was seen at 3.0 percent for the year.

Ford is doing a debt exchange. The fixed-rate debt will yield 5.7 percentage points over Treasuries, or about 10.64 percent. The floating-rate securities will pay investors 5.25 percentage points above the London interbank offered rate, or about 10.46 percent. If you believe Ford's cost cutting and new models will turn the company aound, then these bonds present an opportunity.

Common painkillers such as ibuprofen increase the risk of heart problems in older people , say researchers. They found that 14 per cent of patients admitted to hospital for heart failure for the first time were taking painkillers, compared with 10 per cent of healthy people.

The Waiting Game

5/22/06 The Waiting Game

I frequently provide timely quotes from John Hussman. He's a bright guy and puts his money where his mouth is. Here is what he had to say today. "Our fully hedged investment position in stocks doesn't require any forecasts here – the prevailing combination of valuations and market action has historically produced unsatisfactory returns on average – and this is sufficient reason to be defensive. That said, I strongly encourage investors to evaluate their exposure to market risk here. The Strategic Growth Fund is fully hedged, so I don't have concerns about general market direction on the Fund, but for other investments that are more linked to general market movements, if you could not accept or financially tolerate a market decline of 20-30% in the value of those holdings, you're probably not being realistic in terms of the risks you're taking."

Yields on 10-year U.S. notes, German bunds and Japanese government securities with the same maturity dropped at least 4 basis points in early morning trading. Prices of gold, copper, oil and zinc all fell, driving stocks of mining companies down worldwide.

Microsoft Corp. today announced the industry's first pay-as-you-go personal
computing offerings powered by Microsoft(R) FlexGo(TM) technology, enablingmore-flexible Microsoft Windows(R)-based PC purchasing options forcustomers in emerging markets. Customers can get a full featured Windows-enabled PC with low entry costs that they can access using prepaid cards or through a monthly subscription.

The Financial Times reported the US Chamber of Commerce has warned that the US could lose its leading position in global capital markets if it does not reform its regulatory environment. The call reflects mounting concerns that tough Sarbanes-Oxley rules and the increasing competitiveness of stock and derivatives exchanges in Europe and Asia, could permanently divert capital flows away from the US.

Dean Richardson, chief of surgery at the University of Pennsylvania's school of veterinary medicine at the New Bolton Center, performed the 5-hour, 10-minute surgery on Barbaro's right-hind leg. "No one's going to want to hear this," Richardson said. "He's still a coin toss, even after everything went well." Barbaro's fractures were above and below the ankle. He also dislocated the ankle joint, doctors said. The pastern bone was in "probably 20-plus pieces," Richardson said afterward. A metal plate was put in, 23 screws were inserted and the ankle joint was fused, meaning it will not be a joint anymore if the fusion is successful.
When he came out of surgery, Barbaro was lifted by sling and placed on a raft in a pool so he could calmly awake from the anesthetic.
Richardson said the horse "practically jogged back to his stall" and was wearing a cast from just below the hock to the hoof.
"Right now he's very happy," Richardson said. "He's eating, he's doing very good. But I've been doing this too long to know that day one is not the end of things."
Barbaro, who will be at the center for at least several weeks and possibly much longer, did pass another hurdle: Richardson found that the blood supply in the colt's injured leg was adequate.

UK Prime Minister Tony Blair said he expects Iraq's security forces to reach full strength by the end of the year, paving the way for Western troops to withdraw from the country.

The Unexpected

5/21/06 The Unexpected

When money managers went home on Friday night, the vast majority stated the market was oversold and positioned for a bounce. That statement has little meaning. First, a market can remain oversold for some time. There is no magic formula that states the market must return to the green. Second, a bounce could be for one hour or one day and not have legs. Third, when the vast majority say something, watch out. The market consistently accomodates the fewest number of participants at any one time. Epect the unexpected.

I have felt for months that Barbaro had the potential to be the greatest racehorse in the last 25 years. The horse trains brilliantly and races with ease. The unexpected happened yesterday. Instead of winning the Preakness in possible record time, the horse was pulled up by his jockey after a 100 yards or so. The ankle was broken in two places. Would this be an injury that ended in tragedy like Ruffian's? Hopefully, the vets at the Univ. of Pennsylvania will be able to save this horse. It's wise to appreciate what we have when we have it. Don't save the appreciation for a later time. There may not be a later time. Expect the unexpected.