The Next Six Months

6/29/06 The Next Six Months

The United States is the top buyer of Venezuelan oil. Venezuela remains among the top five suppliers to the U.S. A Venezuelan oil embargo against the United States would cause oil prices to jump by US$4 (euro3.18) to US$6 (euro4.77) a barrel and increase gasoline prices at the pump by 11 cents (euro.09) to 15 cents (euro.12) a gallon, stated the U.S. Gov't Accountability Office. Venezuela is the world's fifth-largest oil exporter.

Coming into the Fed's decision on interest rates, the 2-year is 5.27%, the 30-year 5.28%, and the 10-year is 5.25%. In sum, the market made the decision to raise rates and the Fed is simply a eunuch.

It was a tough quarter, for bonds, equities, commodities, housing, dollar-denominated assets, and wages (which continue to trail the rate of inflation.) With only two days left to the end of the quarter, where do we go from here? I prefer to stick with what I know -- where reward far outweighs risk, such as, the shares of Univision. Then there are the potential pockets of value. Should Chevron and ConocoPhillips decline 5 to 7% in price from current levels, those would be examples of value.

There are many stocks that look cheap on historical valuations; however, today's environment is not typical. Our country is carrying twin tower debt levels that exceed our ability to generate sufficient revenues with which to pay down those debts. In addition, our fiscal operations are highly dependent on foreign investors purchasing our debt instruments. Yesterday's 5-year Treasury auction reflects the potential danger when foreign buyers avoid an auction. Therefore, the auction was a bust and indirect bidding was at the lowest point in 3 years.

In May, China's demand for crude rose 13.5% over the level reached in May 2005.

Russia has the world's 3rd largest currency reserves. Before Cheney shoots his mouth off again, please let him know about Russia's newly found financial strength.

Yesterday, equities had a modest rally and the VIX once again had only a 1.15 point range with the close down a meager .45 of a point.

With respect to Univision, "the Buyer has obtained equity and debt financing commitments for the transactions contemplated by the Merger Agreement, the proceeds of which will be sufficient for Buyer to pay the aggregate merger consideration and all related fees and expenses of the transactions contemplated by the Merger Agreement. The closing of the merger is not conditioned on the receipt of the financing by Buyer."

American Technology Research analyst Shaw Wu predicted that because Apple switched suppliers, its iPod Nano player would ship in the fourth quarter rather than the third quarter. Wu also said he thinks the wide-screen video iPod, which was expected to debut in the fourth quarter, will be pushed back until the first half of 2007.

Russia's Putin announced a new foreign policy doctrine at a meeting with Russia's ambassadors yesterday. The priority countries for Russian foreign policy, in order, are the EU, China, India and the United States.

The nonpartisan Congressional Research Service said in a report that through the current fiscal year ending Sept. 30, the government will have spent $437 billion on overseas military and foreign aid funding. That includes the latest supplemental spending bill signed into law this month, which provided $69 billion for the war effort. Add in roughly $1.5 billion in fiscal 2007 Foreign Operations funds for Iraq and Afghanistan; $50 billion in Pentagon "bridge" funds for the first half of fiscal 2007, plus as-yet-undetermined supplemental funds for the remainder of the next fiscal year, and total war-related costs will easily soar over $500 billion one year from now. Aren't you overjoyed with the money we are spending to bring "freedom" to the Iraqi people. Meanwhile, Americans are footing the bill and losing their individual freedoms day by day. Did you know you voted for neo-Fascism in the last two presidential elections?

British Prime Minister Tony Blair is expected to announce he will resign as early as next May, The Telegraph reports, citing members of Parliament. The newspaper said Blair would likely leave office around the time of his 10th anniversary of prime minister. He took office May 2, 1997. That gives George W. about 10 months to make another friend. Everyone needs at least one friend.

Gary Lammert: "Large scale political and social turmoil are the carts that are pulled(or overturned) by the antecedent macroeconomic horsestumbling into the unexpected very deep and low viscosity quicksand found atop generational asset saturation areas."

Duke Energy’s board of directors has approved a plan to de-merge the company’s natural gas and electricity operations into two separate companies.

A motivational story for all times. A friend sent this to me a long time ago.

The Wooden Bowl

A frail old man went to live with his son, daughter-in-law, and four-year old grandson. The old man's hands trembled, his eyesight was blurred, and his step faltered. The family ate together at the table. But the elderly grandfather's shaky hands and failing sight made eating difficult. Peas rolled off his spoon onto the floor. When he grasped the glass, milk spilled on the tablecloth.

The son and daughter-in-law became irritated with the mess. "We must do something about father," said the son. "I've had enough of his spilled milk, noisy eating, and food on the floor." So the husband and wife set a small table in the corner. There, Grandfather ate alone while the rest of the family enjoyed dinner. Since Grandfather had broken a dish or two, his food was served in a wooden bowl! When the family glanced in Grandfather's direction, sometime he had a tear in his eye as he sat alone. Still, the only words the couple had for him were sharp admonitions when he dropped a fork or spilled food.

The four-year-old watched it all in silence.One evening before supper, the father noticed his son playing with wood scraps on the floor. He asked the child sweetly, "What are you making?"Just as sweetly, the boy responded, "Oh, I am making a little bowl for you and Mama to eat your food in when I grow up." The four-year-old smiled and went back to work.

The words so struck the parents that they were speechless. Then tears started to stream down their cheeks. Though no word was spoken, both knew what must be done.That evening the husband took Grandfather's hand and gently led him back to the family table. For the remainder of his days he ate every meal with the family. And for some reason, neither husband nor wife seemed to care any longer when a fork was dropped, milk spilled, or the tablecloth soiled.

On a positive note, I've learned that, no matter what happens, how bad it seems today, life does go on, and it will be better tomorrow. I've learned that you can tell a lot about a person by the way he/she handles three things: a rainy day, lost luggage, and tangled Christmas tree lights. I've learned that, regardless of your relationship with your parents, you'll miss them when they're gone from your life. I've learned that making a "living" is not the same thing as making a "life." I've learned that life sometimes gives you a second chance. I've learned that you shouldn't go through life with a catcher's mitt on both hands. You need to be able to throw something back. I've learned that if you pursue happiness, it will elude you. But, if you focus on your family, your friends, the needs of others, your work and doing the very best you can, happiness will find you. I've learned that whenever I decide something with an open heart, I usually make the right decision. I've learned that even when I have pains, I don't have to be one. I've learned that every day, you should reach out and touch someone. People love that human touch -- holding hands, a warm hug, or just a friendly pat on the back. I've learned that I still have a lot to learn.!

The Gift

6/28/06 The Gift

General Motors is faced with what the company called brutal year-over-year sales comparisons this summer, after turning in record results last year on the back of its wildly successful employee discount program. "June and July aren't going to be a picnic," said Mark LaNeve, GM's group vice president of sales, speaking to reporters in Detroit early Tuesday. GM said it would launch a limited-time zero-percent financing offer on many of its 2006 models. GM said that sale would run over the upcoming U.S. holiday weekend, between Thursday, June 29, and July 5.

The battle to acquire Univision has been one big amateur night. Investors are so busy reading and listening to the media, and the latter don't know their ass from first base. So little thinking is going on that it was possible to buy Univision stock at $32 per share on Monday. What a gift. Then there was another gift on Tuesday. Saban Capital Group and Madison Dearborn Partners, Providence Equity Partners, Texas Pacific Group, and Thomas H. Lee Partners joined together and had their $36.25 cash bid accepted by the Univision board. In addition, they will assume $1.4 billion in Univision debt. If that were all that is on the table, $34 a share in the market place would still be a gift. It should be noted that over 10% of the Univision outstanding shares changed hands on Tuesday. However, Televisa is still in the picture. Yes, there is a $1 a share break-up fee or $300 million. Listen to what Televisa had to say: "Televisa is disappointed about the outcome of the Univision auction. Not withstanding our repeated offers to discuss all aspects of our proposal including price, Univision and its advisors refused to enter into any discussions with us after we submitted our initial bid. Given this action by Univision's board, Televisa has a number of options it is considering." Yes, they could drop out, but I don't believe that will happen. If I were Televisa, I'd take my all-cash bid to the shareholders and let them decide. I am confident $38.50 a share in cash (and that includes the $1 a share break up fee) will get shareholder approval. In addition, I don't believe the Saban group can compete near that level, and $300 million is a nice piece of change.
I thank everyone for listening to the media and not doing independent thinking. You have made my Monday and Tuesday, and hopefully today as well. One more thought. Increasing amounts of media content is moving to the Web. The Saban group will be at a disadvantage very shortly. Televisa plans to air its television programs over the Web in the United States once a provision in its 17-year deal with Univision expires in December.

A weekly gauge of U.S. consumer attitudes improved to its highest reading since April, ABC News and the Washington Post said Tuesday. The ABC/Post consumer comfort index rose to negative 10 from negative 12 last week. The index has improved by nine points in the past five weeks, as gasoline prices have moderated, ABC noted. The index has averaged negative 9 in the past 20 years.

John Hussman: "In the context of slowing employment growth, a stall in aggregate weekly hours, an emerging widening in credit spreads, and other factors, my impression is that recession risks have increased considerably....For now, suffice it to say that recession risks are no longer dormant, but aren't yet acute. While we don't yet have enough evidence to anticipate a significant and impending economic downturn, the trends are continually turning in that direction, so it is becoming more a question of “when” than “if.”

Yesterday, the Dow had a 120 point loss and finished under 11,000. The Nasdaq closed at 2100, the S&P under 1240, and the Russell under 690. Yet, the VIX had a point and a quarter range with a close up only .78. The volatility of the VIX has been tame for the last several trading days.

Marcus Aurelius: "Each day provides its own gifts."

Big Mergers

6/27/06 Big Mergers

I am not a fan of most big mergers. Why? Most do not prove successful. We have J&J purchasing Pfizer's consumer products division for $16.6 billion, and they state it should be accretive to earnings in a couple of years. On the surface, it appears like a big price.

Phelps Dodge is buying Inco and Falconbridge for $40 billion. The lasy time I looked nickel and copper were cyclical commodities. Right now both commodities are in short supply. How long will that continue.

Then there is Mittal buying Arcelor for close to $34 billion. Again, steel is cyclical. How long will price increases continue for steel?

We're not finished. Houston Exploration Co. late Monday said it has determined that the $62-per-share unsolicited acquisition offer from Jana Partners LLC undervalues the company and is not in the best interest of its shareholders. The company also said it has engaged Lehman Brothers Inc. to assist it in exploring strategic alternatives to further enhance shareholder value. The alternatives may include the recapitalization of the company either through additional share buybacks or a special dividend; operating partnerships and/or strategic alliances; and the sale or merger of the company, among other options, Houston Exploration said.

There is more. Bain Capital may be close to buying Jones Apparel. The list goes on, and we approach the $2 trillion level in buyouts in 2006.

When reading the small print on housing, it appears that the median price of a home has been declining, and that despite new home sales remain firm. Why? Builders are providing more and more incentives due to the 5.5 months of inventory on hand. It reminds me of the auto companies in 2005.

Interest rates are still climbing, and the 30-year hit 5.28%, the 2-year 5.27%, and the 10-year 5.24%. Higher interest rates will produce a greater budget deficit for the U.S. government. Of cours, mortgage rates will head higher too.

Chuck Butler: "“I can't wait to hear what Big Ben has to say on Thursday. I'll bet a dollar to a Krispy Kreme that he'll be so full of baloney a local deli will be wondering what happened to their stash!”

Crude jumped to $71.80 and gasoline reached $2.17. It doesn't appear that we will see much lower prices at the pump.

General Motors Corp. said on Monday that 35,000 workers have accepted buyout and early retirement offers.

Richard Daughty: "The scene is now perfectly set to reveal the ugly fact that total deposits at the banks are up to $5.2 trillion, which is 47 times bigger than it was in 1995. That's a growth rate of 42% a year, compounded! And the total loans and leases is now $5.7 trillion, which is 27 times bigger than in 1995, which works out to an annual growth rate of 35% a year! Big, Big increases! Yet against that monstrous, cancerous rise in both assets and liabilities, the required reserves went down from $57 billion in 1995 to only $42 billion today in 2006! Hahahaha! Surprise! Down! Required reserves went down! Hahahaha! To keep the same 0.518 ratio of required reserves against total deposits in the banking system in 1995, the banks would need to have, right now in required reserves, $2.693 trillion! Instead, they have only $42 billion, 1.6% as much! Hahahaha! In short, more than all of the money and credit created in the banking system since 1995 has been literally created without any underlying cash deposits of any kind! None! Zero money! This is an infinite multiplication of deposits! Fractional-reserve banking at its insane, suicidal extreme!"

Although equities had a modest rise on Monday, the VIX hadabout a one point range and closed down a mere .27 on the day.

Russia's Gazprom and Iran have decided to consider the possibility of setting up a joint venture to develop oil and gas fields.

Central banks will have to move faster to raise interest rates because global inflationary pressures are rising and the economy remains vulnerable to a “bang” of market turbulence, the Bank of International Settlements warned on Monday.

David Ogilvy: “I always said that mega-mergers were for megalomaniacs."

Additional Thoughts

6/26/06 Additional Thoughts

This provided by crudethoughts.blogspot.com:
These are some of the facts from the recent release from EIA 1) Domestic production of oil is down 7.1% for the first 166 days of this year compared to the same time period last year on a bpd ( barrels per day ) basis. 2) Exports are down 55% ( Granted, it is fraction of a relatively small number) 3) Refinery gains are down 3.7% YTD compared to last year. 4) Net product supply has ( including refined products, NGL etc ) increased only 0.2% 5) Net imports have increased 3.6% 6) Total nventory including SPR and finished products is 1732.8 million bpd, enough to last us for 83-84 days at the current level of consumption. 7) Total inventory excluding SPR is up 0.8% compared to last year. Nothing to write home about. 8) Total inventory including SPR and finished products is up 0.1% compared to last year.

Britney Spears: "I did not have implants. I just had a growth spurt."

Arcelor SA backed a new takeover bid of about 25.9 billion euros ($32.4 billion) from Mittal Steel Co., ending five months of opposition to the steel industry's biggest-ever transaction.
Mittal raised its offer for a second time, by 10 percent, Arcelor Chairman Joseph Kinsch told reporters in Luxembourg Sunday after a board meeting that lasted more than eight hours. The board's backing was unanimous, he said. Mittal's previous offer was valued at 23.51 billion euros.

On July 27th Cascade Natural Gas will report its earnings for the second quarter. Analysts following the company are projecting a loss of 5 cents to 9 cents per share. Because of seasonality, the company reports a loss at this time of the year. That will not be the case this year. With new management and a dedication to holding down costs and increasing value for shareholders, I estimate Cascade will show a profit. I also estimate that the company will be sold for a sum in excess of analyst expectations.

George Eliot: "The strongest principle of growth lies in the human choice."

"Sources close to the Saban-led group did not rule out returning to talks with Univision." The demise of this auction has been greatly exaggerated. That's what happens when you trade with media reports. Doing your own thinking is the way to success in investing.

A new study not only confirms the link between childhood obesity and early onset of puberty but also demonstratethat a mother's age at her first period is linked to her children's riskfor obesity. Taken together, the results suggest a spiraling generational link between obesity and early puberty. This study, as well as two others on treatment of diabetes in children,were discussed at a media roundtable on Sunday, June 25th at 2:00 P.M.EDT during ENDO 2006, the 88th Annual Meeting of The Endocrine Society at the Boston Convention & Exhibition Center.

Since March, when Congress voted to block DP World from running dockside operations in America, the world's third-largest port operator has racked up an impressive list of deals and acquisitions, adding to its already bulging portfolio of operations in 13 countries.
In June, it landed a $210 million, 30-year concession to develop and run a container terminal in Peru's Callao port near Lima.
Also this month, DP World signed a $500 million deal to develop another container terminal at the Chinese port of Tianjin, China's fifth-largest port _ and the seventh Chinese port with DP World operations.
The company is due to finish construction this year on a new terminal at the Korean port of Pusan, the world's third-largest container port. DP World won rights to run that terminal for the next 30 years.
And work is under way on a new $500 million terminal in southern India and another DP World terminal in Vietnam. Late last year, the Dubai port operator bought terminals in Qingdao, China, and Yarmica, Turkey, and expanded operations in Romania.
There's a whole world outside of the U.S. That's where the growth is taking place and will take place in the future. Unfortunately, the Congress and the Bush Administration hold beliefs to the contrary.

Jean Vanier: "Growth begins when we begin to accept our own weakness."

Sharing Thoughts

6/25/06 Sharing Thoughts

Henry Kaufman: "The expansion in debt has been much greater than the increase in nominal gross domestic product...Today, anyone who really wants to borrow can borrow. Today, anyone who wants to borrow creates credit. And the Federal Reserve is not yet at that point where there is some pain in the system... I really feel that somewhere in the next 12 months we'll head to at least 6%."

"This year, more than $300 billion worth of hybrid ARMs will readjust for the first time. That number will jump to approximately $1 trillion in 2007, according to the MBA. Monthly payments will leap too, many beyond what homeowners can afford."... "Last year, foreclosures hit a historical low nationwide at about 50,000. But that number has more than doubled since then, according to Foreclosure.com..."ARMs are a ticking time bomb," said Brad Geisen, president and chief executive of property tracker Foreclosure.com. "Through 2006 and 2007, I'm pretty sure we'll see a high volume of foreclosures."

John Maudlin: "The next Fed meeting is August 8. They will have the first estimates of GDP for the second quarter. My guess now is the number comes in above 3%, which along with another uncomfortable inflation number in July will give them reason to raise rates yet one more time. That will take the Fed funds rate to 5.5%. Unless, and this is a big unless, the August and September inflation numbers come in sequentially higher than July's number, I think we will see the Fed finally pause in September. But the Fed will be driven by the inflation data. The yield curve will be fully and decidedly inverted in August, as opposed to flat which it will be after next week's raise it rates. The economy will be starting to slow and we should see long rates begin to drop, which will make the yield curve even more inverted by the end of the third quarter."

As I have stated previously, I believe the economy will grow faster than 3% in the near term. The following is an indicator that I value, and this information was provided by Doug Noland: EconoPlay.com (Gary Rosenberger): "A surge in packaging shipments in May, accompanied by aggressive price increases, points to an accelerating economy entering the summer - and possibly the most promising prospects for the packaging industry in decades, producers say. Few would have predicted May's year-over-year jump of 9.5% in corrugated container demand reported last week by the Fibre Box Association, which more than tripled the year-to-date average of 2.9%. The packaging industry has pushed through three aggressive price increases since October - and there's talk of two more by January. Prices now stand at about $510 to $520 a ton for linerboard and $490 to $500 a ton for corrugated medium (the main components of paper packaging), up 30% from the pre-Katrina bottom last August and fast approaching the 1995 peak of $530 a ton."

The Real Skinny

6/24/06 The Real Skinny

In any discussion of interest rates one must consider the real rate of inflation and not simply a core government number. Government economists figure the inflation rate does not exceed 2.5% and I look at the numbers and come up with 6.5%. So let's cut it down the middle and arrive at 4.5%. Historically, real interest rates are 2.5 percentage points above the real rate of inflation. Today they rest at 5.25%. In sum, real interest rates are a low .75% and historically should be at 7%, and that is precisely where I stated I believed they were headed. I made that statement about one month ago.

Dr. Reddy's Laboratories Ltd. said Friday it has launched the authorized generic versions of Merck's Proscar and Zocor tablets. Proscar is used to treat benign prostatic hyperplasia, and Zocor is a cholesterol-lowering drug. Zocor's patent protection expired yesterday.

Teva Pharmaceutical Industries Ltd. on Friday said the Food and Drug Administration has granted final approval to market its generic version of Merck & Co.'s cholesterol-lowering drug, Zocor, in 5 mg, 10 mg, 20 mg, and 40 mg tablets.

The 2-year and the 30-year Treasuries both traded at 5.26%. The market is doing the Fed's bidding, so to speak. Looking at the Fed funds futures, the odds of an August rate hike rose to 66% from 62%. The odds of a further rate hike by the end of the year increased to 23% from 16%. So much for all the pausing chit chat.

A couple of years ago my favorite stock was Anadarko Petroleum. I probably wrote about it every week. It has been extremely rewarding to shareholders. Yesterday, Anadarko Petroleum Corp's agreed to a $21.1 billion combined takeover bid for Kerr-McGee Corp. and Western Gas Resources. It was an aggressive move with the buyouts occurring at a 40% premium to the last trade in each company's shares. Anadarko stated the acquisitions would be accretive to earnings.
It certainly creates a spotlight on other compaies in the Gulf of Mexico and the Rocky Mountains. I have been suggesting further consolidation in the energy sector and big deal of $50+ billion would not surprise me.

Orders for new U.S.-made durable goods fell 0.3% in May, the second decline in a row, the Commerce Department said Friday. Orders for new aircraft plunged 17.9%. Excluding transportation goods, new orders rose 0.7%.

George Ure:
"Did the suspects themselves generate the discussion of Sears Tower, or was that "suggested" or "planted" by the undercover agent?"
"How many groups of young, sincere but suggestible and presently non-violent Muslims has the FBI/DHS presently infiltrated with 'undercover agents' and what "suggestions" do they make?"
"What is the FBI's legal threshold in such undercover operations defining when an investigation becomes entrapment? Specifically, when does an "informant" turn into an agent provocateur?"
"How long has the 'informant' been on the government payroll and was the government the major or sole source of his income?"
As I say, with a government informant - who may have (like was?) paid, and no explosives found - not to mention the remarkably coincidental timing, I'll just sit over here in the corner with my skeptical hat on and watch to see what pops and how MSM(Mainstream media) whitewashes the entrapment/ agent provocateur issue."

An oil service strike that began Wednesday in Norway - the world's 3rd-largest crude oil exporter - will have a large economic impact on companies hit by the action, with 30 operations already affected, stated the Norwegian Oil Industry Association.

Oil accounts for 30 percent of Mexico's $185 billion federal budget. Mexico is the second-largest oil supplier to the United States, accounting for nearly 8 percent of U.S. consumption. Pemex officials have been saying they need $10 billion to $20 billion a year for drilling offshore to maintain production at 3.4 million barrels a day.

Patience And Foreplay

6/23/06 Patience And Foreplay

Employer costs for employee compensation averaged $26.86 per hour worked in
March 2006, the U.S. Department of Labor’s Bureau of Labor Statistics reported
today. Wages and salaries, which averaged $18.82, accounted for 70.1 percent of these
costs, while benefits, which averaged $8.04, accounted for the remaining 29.9 percent.
Costs for legally required benefits, including Social Security, Medicare,
unemployment insurance, and workers’ compensation, averaged $2.16 per hour (8.0 percent of
total compensation). Employer costs for life, health, and disability insurance
benefits averaged $2.18 (8.1 percent); paid leave benefits (vacations, holidays, sick leave, and
other leave) averaged $1.88 (7.0 percent); and retirement and savings benefits averaged $1.15
(4.3 percent) per hour worked.

Solectron Corp. on Thursday reported a third-quarter profit of $42.4 million, or 5 cents a share, on revenue of $2.7 billion, compared to a loss of $66.7 million, or 7 cents a share, on $2.6 billion in revenue a year ago. Excluding charges and one-time items, the electronics contract manufacturer would have earned $38.9 million, or 4 cents a share. By that measure, analysts surveyed by Thomson First Call had forecast Solectron to earn 4 cents a share on $2.6 billion in revenue. Looking ahead, the company forecast revenue of $2.60 billion to $2.80 billion, or 4 cents to 6 cents a share.

Gold for August delivery closed down $5.60 at $585.4 an ounce on the New York Mercantile Exchange. Silver dipped 21 cents to $10.21 an ounce. Platinum dropped $17.8 at $1,176.1 an ounce, palladium was down 60 cents at $313.90 an ounce and copper edged down 0.55 cent to $3.1355 a pound.

Medtronic Inc. on Thursday raised its quarterly cash dividend 14.3% to 11 cents from 9.625 cents a share.

U.S. natural-gas inventories rose 79 billion cubic feet for the week ended June 16, the Energy Department reported Thursday. Crude continued to rally up to the $71 level.

U.S. leading economic indicators fell 0.6% in May, suggesting that the economy is likely to grow at a "slow to moderate' pace in the near term, the Conference Board said Thursday. Seven of 10 leading indicators were negative in May. In May, the coincident index rose 0.1%. The lagging index rose 0.2%.

The U.S. dollar index rallied back up to the 86 level. Meanwhile, the 10-year Treasury bond traded at 5.20%, the highest yield since May 2002. The 2-year and the 30-year settled at 5.23%. Between the weakness this year in the dollar, rising inflation, and rising interest rates, foreign investors are losing capital in both the equity and the debt markets.

Saint Augustine: "Patience is the companion of wisdom."

Frequently, I have mentioned that it is imperative to be patient should you desire to be a successful investor. It also requires discipline. In February, Univision placed a for sale sign on the company. I knew the bidding process would take many months. I have been waiting to make a share purchase for about 5 months. Early yesterday morning was
the time I chose. In arbitrage, ime is needed for foreplay. You can't rush things. There is a whole mating ritual. The media just reports. They rarely think. Who cares whether KKR or Blackstone drop out of a bidding group. Televisa has plenty of access to outside capital. Televisa is a strategic buyer with a significant economic impetus to win the auction. There might be more words spoken, but in the end, the company will be sold. At $32.52 a share, a ham sandwich will land on the plate. Whether it's $35.50 or $36.50, patience will, in my opinion, be rewarded. Watching the foreplay will be worth the price of admission.

Given the fact that during rading on Thursday the Dow broke 11,000 on the downside and closed down 60 points on the day, and given the poor showing for the S&P, Nasdaq, and the Russell, I was surprised that the VIX traded in a one point range and basically had little change.

If your recent portfolio performance is giving you headaches, do not fret. There may be a silver lining. Dr. Timothy Houle, professor of anesthesiology at Wake Forest University School of Medicine in North Carolina and lead author of a small pilot study exploring the link between migraines and libido, suggests there might be a reward for headache pain. In the June edition of the journal Headache, researchers found that young adults with migraines reported higher levels of sexual desire. The key is to focus on patience and foreplay!

The Boys Of Summer

6/22/06 The Boys Of Summer

This is not about baseball, but rather another game. It's called keeping the money in my fund. If your fund lost money in May and June, would you elect to reduce your interest in that fund or maybe even withdraw all of your money? Maybe the fund even lost all the gains it had in the first four months. That's when the game begins. We are approaching the end of the quarter, and that's when the results get posted. Beginning with Wednesday, there were only eight trading days left in the quarter. Next week will be about the Fed and everyone has put the qurater point increase into the market, and that includes bonds. The idea is to mark up prices between now and June 30. You consider me cynical. I'm not. Ihave been around the block for too many decades.

Gold for August delivery ended up $10.50 at $591.0 an ounce on the New York Mercantile Exchange. Other metals also turned higher. Silver added 15.0 cents at $10.420 an ounce. Platinum added $25.40 at $1,193.9 an ounce, palladium rose $10.50 at $314.50 an ounce and copper added 0.19 cent at $3.1905 a pound.

It might be wise to watch the U.S. dollar index. It is declining again and making lower highs.

Crude rallied back to $70.35 and the stocks I had mentioned the day before all rose nicely in price. Diamond Offshore was a standout. The energy sector had a large impact on the Dow and the S&P.

Ford Motor Co. said on Wednesday it was on track to meet its goal of making its North American auto business profitable by 2008 and remained committed to that target. The stock traded at a 13-year low on Tuesday. I recommended the stock at $8 and now it's $1.50 lower. Obviously, up to now, this has not been one of my finest hours. I continue to believe the shares are significantly undervalued.

Apache Corp. said Wednesday that it has closed or is in the process of closing on the previously announced acquisition of BP's remaining producing properties on the Outer Continental Shelf of the Gulf of Mexico for approximately $845 million.

According to earthfiles.com, the National Hurricane Center in Miami, Florida, reports the waves traveled 2000 miles and were at least 15 feet high when they hit beaches in Nicaragua. Other coast lines hit with 7 to 12-foot-high waves ranged from Ecuador's Galapagos Islands to Chile, Costa Rica, El Salvador, Guatamala, and up to Acapulco, Mexico.

Given the strength in the Dow, Nasdaq, S&P, and Russell, one might have thought the VIX would have declined further than 1.17 points. In fact, the range was 16.72 to 14.88 with a close at 15.52. That, combined with relatively low volume and the end of the quarter coming up, makes me question the quality of the rally.

Ashleigh Brilliant: "Life is the only game in which the object of the game is to learn the rules."

Too Much Government

6/21/06 Too Much Government

Michael Hodges: In the U.S."FY 2005 Federal Govt. Spending of $2.5 Trillion Consumed > 26% of the Economy, or $8,805 per man, woman and child, or 36% of the economy counting regulatory compliance. The Social Spending portion consumed 58% of the total, and has increased 14 Times Faster Than The Economy and - individual incomes pay 82% of all federal revenue compared to a 51% share in 1950."

Rob Kirby: "In Canada, June 19, 2006 marks tax freedom day. Tax freedom day marks the date on the calendar when citizens have paid their share of incomes, to all levels of government in taxes, and begin working for themselves."

Mark Bail: "So, why is the VIX important? For one, it provides you with a reasonable projection of the expected range within which the S&P 500 is likely to trade within the next month. To use the current environment as an example, the S&P 500 closed on June 19 at 1240.14. The June 19 closing VIX reading of 17.83 suggests that options traders and investors anticipate that between now and July 19, the S&P 500 is likely to trade roughly within 1.49% range (17.83 divided by 12) of 1240.14 -- or between 1221.71 and 1258.57. Now, that doesn’t mean the S&P 500 will actually trade within that range. Keep in mind that the VIX changes on a minute-by-minute basis, according to the ongoing changes in the implied volatility in the S&P 500’s nearest two months’ option premiums. Therefore, the VIX -- and hence the projection of the S&P 500’s trading range for the next month -- is being constantly revised. Nevertheless, that projection -- as gleaned from the latest VIX reading -- is an accurate reflection of the attitude of traders and investors about current market conditions. And that reflection of traders and investors’ attitudes is the heart of the VIX’s value. When you can correctly gauge market participants’ attitudes -- and then use that information to anticipate likely future price action -- you have acquired an additional edge in your efforts to make money in stocks."

Yesterday, the VIX traded in a narrow range from 16.39 to 17.65, and closed down 1.14 at 16.69. The overall market was mixed with the Dow up, the Nasdaq and the Russell down, and the S&P flat. However, I would like to return to crude which was flat on the day at $69 and down from its high of $75. Energy shares act much worse than crude. ExxonMobil and Chevron have a tough time holding on to even a slim rally. Conoco Phillips is only 1+ point from a 52-week low. Schlumberger is down 20 points from its recent all-time high and Diamond Offshore is 25 points from its recent all-time high. The energy sector is beginning to look a bit like the housing stocks did late last year. The news is good but it doesn't seem to help. We need to keep an eye on the group. The stocks I mentioned are the cream of the energy sector.

Yesterday, we had a reverse of Monday. Gold and the metal group rallied. The dollar weakened and interest rates had a small rise. We can expect another increase in mortgage rates by Thursday.

Mark Twain: "The government is merely a servant -- merely a temporary servant; it cannot be its prerogative to determine what is right and what is wrong, and decide who is a patriot and who isn't. Its function is to obey orders, not originate them."

ConocoPhillips said that it may spend as much as $10 billion to more than double capacity at its liquefied natural gas plant in Northern Australia to meet an estimated 40-percent surge in world demand.

Aesop: "We hang the petty thieves and appoint the great ones to public office."

Martin Taylor, a high-profile lieutenant to CEO Steve Ballmer, has left Microsoft.

Hugo Chávez, Venezuela’s president, has ordered the country’s central bank and legislature to introduce a new national currency that would knock three zeroes off the exchange value and could be renamed the “nuevo bolivar”.

A rising tide of protectionism could endanger European investment in the US, the president of the European Commission said ahead of a European Union-US summit in Vienna on Wednesday.

H.L. Mencken: "I believe that liberty is the only genuinely valuable thing that men have invented, at least in the field of government, in a thousand years. I believe that it is better to be free than to be not free, even when the former is dangerous and the latter safe. I believe that the finest qualities of man can flourish only in free air – that progress made under the shadow of the policeman's club is false progress, and of no permanent value. I believe that any man who takes the liberty of another into his keeping is bound to become a tyrant, and that any man who yields up his liberty, in however slight the measure, is bound to become a slave."

A Funny Thing

6/20/06 A Funny Thing

With the Dow dropping 72 points, the Nasdaq 20, the S&P 11, and the Russell 12, the VIX traded differently from the past month's action. It was a funny thing. The range was 15.73 to 18.10 with a close at 17.83. Even though equities took a hit, the VIX was only up .58 on the day.

Interest rates continued to rise and that despite crude closing just below $69 and gold dropping $9.30, silver 16 cents, platinum $6.80, palladium $10.95, and copper 13.90 cents. In sum, inflation fears had reason to subside but rates still rose.

Mogambo Guru: " I notice that required reserves in the banks dropped back to the insignificant $42.459 billion. What fraud! What audacity! What an embarrassment that the self-important nitwits at the nation's universities see nothing wrong with not only an out-of-control fractional-reserve banking system, but one where there are literally No Freaking Reserves At All (NFRAA)! Money is literally created out of thin air, with no backing from deposits whatsoever! This level of risk and multiplication of the money supply is insane! This is beyond insane! And yet, there it is!"

Oscar Wilde: "A thing is not necessarily true because a man dies for it."

U.S. stocks erased this year's gain for the Standard & Poor's 500 Index.

Solectron Corporation announced two of its Singapore facilities have received ISO 13485:2003 medical certification. With these two new certifications at Solectron's Chai Chee and Kallang facilities, Solectron now offers medical device OEMs seven certified contract manufacturing sites. The shares sell for 30 cents on the sales dollar and roughly 1.25 times book value.

New Orleans Mayor Ray Nagin Monday asked Louisiana Gov. Kathleen Blanco to send in the National Guard to help curb lawlessness. Which has been more successful -- our effort in Iraq or in New Orleans?

Researchers have discovered that vegetables are good for you because they reduce hardening of the arteries. Scientists at the Wake Forest University School of Medicine conducted their research on mice that were predispose to developing atherosclerosis, the formation fatty plaques on blood vessel walls which will eventually protrude into the vessel's opening and can reduce blood flow. Do you know a lot of healthy mice?

Sentiment

6/20/06 Sentiment

Sentiment among U.S. home builders fell for the sixth month in a row to an 11-year low in June, the National Association of Home Builders said Monday. The housing market index dropped four points to 42, the lowest since April 1995.

A period of stagflation -- low growth and high inflation -- is not in the cards for the United States, said Richard Fisher, president of the Dallas Federal Reserve Bank.

Mutual funds investing in U.S. stocks posted their sixth consecutive week of net selling as investors pulled $5.44 billion for the week ended June 14.

The dollar rose to an eight-week high versus the yen and gained against other major currencies early Monday.

Interest rates moved higher with the 10-year at 5.15% and the 30-year at 5.19%.

John Hussman: "In my view, the stock market remains richly valued, and investors should not rule out an S&P 500 trading in the 700-800 range in the years ahead as a reasonable (not catastrophic) probability. Investors should not be misled to believe that broad exposure to stock market risk represents sound investment here, or that a shallow decline of a few percent has suddenly made the stock market a bargain."

Game Plan

6/18/06 Game Plan

Delphi said it's reached an agreement with its second-largest union and General Motors to offer buyouts to hourly workers. Ford also expects 8,000 to 10,000 workers to take early retirement.

Bush stated his administration would not abandon Iraq. How about those on Main Street. Have they been abandoned by Bush? How about civil liberties? With the make-up on the Supreme Court, the 5-4 ruling the other day permits authorities with a search warrant not to knock but simply barge right through the door.

Mike Burk: "Whether you expect the current year to more closely resemble 1998 or 2002 depends on your longer term perspective. I think a longer term bear market began in 2000. 1998 was near the end of the last bull market and 2002 was near the beginning of the current bear market so I expect the pattern that plays out over the next several months will be closer to that of 2002 than 1998."

I recently mentioned the formation of the Asian currency. This will be just one more nail in the coffin of the U.S. dollar. You don't have to share my view. Keep your money in dollars and see where you'll be in the three to five years. You really think bread lines are just for history books?
U.S. ethanol prices reached record highs above $3.60 a gallon this week. So why do most of the ethanol stocks act so lousy?

David Petch: "The commodity boom currently underway in all areas is due do shortages. Shortages are the result of different circumstance depending upon the commodity."

A biodiesel plant will be built outside of Seattle. Cascade Natural Gas is under consideration for transporting the output from this facility. It is one thing to build an ethanol or biodiesel plant and quite another to distribute the end product to the end user. In sum, distribution is an element that is often under-appreciated and thereby undervalued. Such is the case, in my view, with Cascade Natural Gas. Private equity investors are awakening to this area.

The Brakes

6/17/06 The Brakes

China ordered banks to increase reserves to curb an investment boom in factories and real estate in the world's fastest-growing major economy.

Are you watching interest rates? Stocks for the last few days have ignored 2-year Treasury bonds at 5.16%, 10-year at 5.13%, and 30-year at 5.17%. The housing market will notice with mortgage rates trending higher next week.

The federal funds rate will likely rise to 5.75% byOctober despite slower expected U.S. economic growth, economists at Lehman Bros. said Friday, penciling in an additional rate hike from what they had expected.The reason? They expect core inflation rates to soar to 2.7% early next year, well above the FederalReserve's comfort zone. Lehman cut its forecast for gross domestic product by 0.2 percentage points to an average of 3% over the next four quarters.

Medtronic Inc. on Friday said new trial results show greater efficacy of the dual-chamber implantable cardioverter-defibrillators as compared with single-chamber ICDs in patients at risk of sudden cardiac death. The results showed that clinically significant adverse events can be reduced by one-third with dual-chamber ICDs compared with single-chamber ICDs in patients at risk of sudden cardiac death, the Minneapolis-based medical device company said. Medtronic presented the results of the DATAS, or dual chamber & atrial tachyarrhythmias adverse events study, clinical trial at Cardiostim 2006, the 15th World Congress in Cardiac Electrophysiology and Cardiac Techniques.

William Poole, president of the Federal Reserve Bank of St. Louis, said pressure from high energy prices could mean that U.S. inflation is greater than what has appeared in data and that the Fed would respond to persistent inflation with policies that keep it from rising further.

Jesse Livermore: “When the market leaders begin to lose relative strength even though the news is still very good, and buying strength and selling weakness no longer works, get out of stocks in general because the game is over."

Tim Adams, the under-secretary for international affairs at the US Treasury: “we view proposals for Asian currency co-operation with interest.” In effect, this would be an Asian currency similar to the creation of the euro.

The VIX bounced back on Friday with a range of 16.52 to 18.13, with a close of 17.25. It would be foolish to believe volatility is not alive and well.

Dorothy Thompson: "There is nothing to fear except the persistent refusal to find out the truth, the persistent refusal to analyze the causes of happenings."

Fissure

6/16/06 Fissure

Manufacturing activity in the Philadelphia region grew at a slower pace in June, the Federal Reserve Bank of Philadelphia said Thursday. The Philly Fed index fell to 13.1 in June from 14.4 in May. The new orders index improved to 17.7 from 2.7. Shipments rose to 17.7 from 11.7. The prices paid index fell to 48.7 from 55.3, while the prices received index rose to 14.0 from 10.3, indicating slightly elevated pass-through of higher costs. Meanwile, the Empire State Manufacturing index jumped to 29.0 in June from a revised 12.9 in May.

The benchmark 30-year fixed rate mortgage average rose slightly in the week ending Thursday, to 6.63% from 6.62%, according to Freddie Mac. The mortgage agency said its weekly survey showed the 15-year loan also increased, to 6.25% from 6.23%. The 1-year Treasury-indexed adjustable rate rose, to 5.66% from 5.63%, and the 5-year hybrid ARM increased to 6.23% from 6.2%.

Natural-gas futures rose sharply to $7.20 per million British thermal units.

The Senate voted 98-1 Thursday to pass a $94.5 billion emergency-spending package that provides funding for ongoing military operations in Iraq and Afghanistan, as well as money for ongoing hurricane relief efforts, bird-flu preparedness and increased border security. The package cleared the House earlier this week and now goes to President Bush, who is expected to sign it. Who will foot the bill for this? China? Japan? India? Guess again.
Meanwhile, over 2,500 of our soldiers have been killed in Iraq? For what cause?

Capital flows into the U.S. fell sharply to $46.7 billion in April, a 25 month low. These funds are insufficient to cover our deficits in the month of April. Would you place your money in dollars? That's what you do when you invest in the U.S. Should we be concerned?

The July fed funds futures contract continued to imply a 100% chance that the Fed will raise its target on overnight rates to 5.25% in June from its current target of 5%, but now prices in a 75% chance they will raise rates again after their Aug. 8 meeting.

U.S. industrial production fell 0.1% in May, the Federal Reserve reported Thursday. This is the first decline since January. Capacity utilization fell to 81.7% in May from 81.9% in the previous month. This is the first decline in capacity since January.

The number of people collecting unemployment checks climbed by 15,000 to 2.425 million in the week ending June 3. It's the highest level of continuing claims in six weeks.

Interest rates continued to climb with the 2-year and the 30-year at 5.13% and the 10-year at 5.10%.

The VIX had a gigantic drop from 21.14 to 15.90 and this helped to spur the triple digit gain in the Dow and the major move in the Nasdaq and the S&P 500. In 10 trading days the VIX has rallied from 14 to about 24 and now back down to 15.90 in just two trading days.This reflects both fear and volatility and, in my view, the potential of a fissure, a crack in the foundation of the global financial system and, with it, a sharp reduction in liquidity leading to extreme day to day volatility. Preservation of capital must be the ultimate guidepost for investors, and that also means avoiding currencies based on debt and the printing press, such as, the U.S. dollar.

Dow Jones Industrial Average posted its first back-to-back triple-digit point gain since November 2004. The Dow industrials were up 197 points. It marks the Dow's biggest one-day point gain since April 21, 2005. With a gain of about 300 points in the Dow over the last two days, why should I be concerned? For the same reason I have been advising selling into strength for the last three months. Interest rates are rising, cash flow on Main Street is being squeezed, debt levels are rising in the public and private sectors, and liquidity is in jeopardy. Derivatives are a time bomb and the fissure created by them is about to break wide open.

KB Homes now sees fiscal 2006 per-share income of $10, while analysts are looking for $10.30. The company cited declining demand for new homes.

Bill Gates will step down from his day-to-day role at Microsoft Corp. in July 2008.

Morgan Stanley Capital International's World Index, a gauge of 23 developed markets, had its biggest advance since April 2003, climbing 2.1 percent to 1277.46. Europe's Dow Jones Stoxx 600 Index added 2.4 percent to 309.62, bringing its two-day climb from a six-month low to 2.6 percent.

Rob Parenteau: "As of Q1 2006, the gap between household sector expenditure and income widened $100b to a nearly $700b deficit at an annualized rate. This deterioration in the household financial balance has been going on since 1997. Since early 2005, the rate of decay has accelerated noticeably. The US household sector financial balance is plunging. "

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.