Jobs And Wages

7/7/06 Jobs And Wages

The keys to Friday's nonfarm payroll report do not reside in the number of new jobs but rather the wages per hour, the number of hours worked each week, the number of overtime hours worked, and not the occupational shortages in such lines of work as truck driving. In addition, keep in mind that summer jobs began in the month of June. Many businesses will be more than happy to employ college and high school students on a 32-hour per week basis and not pay competitive wages or pay for health care etc.

Federal Reserve monetary policy is not a good tool to initiate necessary adjustment in the U.S. current account gap, said Fed Vice Chairman Donald Kohn on Thursday. The "enormous" current account deficit, near $800 billion or 6.5% of GDP, is unsustainable, Kohn said, although it is not likely to shrink substantially in the immediate future, Kohn said in remarks to a conference at the House of Commons in London. "Adjustment will need to proceed along several dimensions at the same time, including changes in relative prices and in domestic demand around the globe," Kohn said. He said that continuing strong demand for dollar assets will be critical for keeping the unwinding of the deficit smooth. "As long as inflation expectations remain contained, relatively faster growth of the prices of imported goods for a time would be associated with only a temporary bulge in inflation and would result in a needed change in relative prices," Kohn said. I believe in the tooth fairy too!

Mae West: "There are no withholding taxes on the wages of sin."

The Florida Supreme Court has thrown out a $145 billion punitive damage award against cigarette makers - and decertified the case as a class action -- in a huge victory for the tobacco industry.

Peoples Energy Corp. on Thursday confirmed it's in talks with WPS Resources Corp. over a possible strategic transaction. The Wall Street Journal reported that WPS is looking to buy Chicago-based Peoples Energy for $1.5 billion.

Nonmanufacturing sectors of the U.S. economy expanded at a slower pace during June, the Institute for Supply Management reported Thursday. The ISM nonmanufacturing index fell to 57.0% from 60.1% in May. This is the slowest pace since January. New orders fell to 56.6% from 59.6%. The employment index fell to 52.0% from 58.0%. The price index slipped to 73.9% from 77.5% in the previous month.

The U.S. housing market is stabilizing, the National Association of Realtors said Thursday. The NAR's pending home sales index rose 1.3% in May, the first increase since January. The index is down 10.1% in the past year.

Applications for mortgages at U.S. banks rose by 5.9% last week, the Mortgage Bankers Association said Thursday. Applications are down 33.3% in the past year.

Russia produces 9.5 million barrels of oil per day and exports about 6.7 million barrels a day, second in both categories only to Saudi Arabia. The Russian Parliament passed a law Wednesday granting exclusive rights to export natural gas to Gazprom, the state-owned energy company and the supplier of a quarter of Europe's gas.

August crude fell 5 cents to close at $75.14 a barrel Thursday. August natural gas finished at its lowest level since September 2004, down 10.1 cents at $5.664 per million British thermal units.

Brookfield Homes Corp. said late Thursday net new orders for the second quarter totaled 255 units, down 49% from the same period last year. Brookfield said the decline in new orders continues to be primarily in the San Diego/Riverside, Calif., areas and Washington D.C. markets.

Gold for August delivery closed up $6.60 at $636.30 an ounce on the New York Mercantile Exchange. Silver added 17.20 cents at $11.507 an ounce, platinum edged up $1.0 at $1,249.60 an ounce and palladium rose $3.15 at $330.85 an ounce. Copper added 22.0 cents at $3.7145 a pound.

Norway is the third biggest oil exporter in the world. On June 21, 87 members of the Norwegian Oil and Petrochemical Workers Union went on strike following failed wage negotiations with the Norwegian Oil Industry Association, or OLF. The strike is now into its third week.

ConocoPhillips stated "Worldwide refining margins for the second quarter are expected to be significantly higher than the first quarter. Light-heavy crude oil differentials remained strong and turnaround activity decreased in the second quarter. Turnaround costs are expected to be approximately $120 million before-tax. The company's average crude oil refining capacity utilization rate for the second quarter is expected to be in the low-90-percent range. This represents an increase from the first quarter, which was impacted by significant turnaround activity and unplanned downtime."

More than four decades after fighting a bitter border war, China and India have resumed trade along an ancient Himalayan route.

The average monthly value for the trade-weighted Atlanta Fed dollar index of 15 major currencies rose 1.3% in June, according to a statement on the bank's web site Thursday. The index, however, was down 2.6% compared to a year ago.

I expect the ECB to raise rates on August 3.

In the past 48 hours I have received numerous emails requesting my estimate for the June nonfarm payrolls. Please don't put any weight in my estimate of 214,300. It has little value.

Oil prices will soar to well over $100 a barrel and stay high as part of a sustained commodities bull run that has another 15 years to run, Jim Rogers told Reuters in an interview.

Marc Faber: " It is important for investors to understand that when markets begin to move sharply in the opposite direction of the prevailing trend - that is, from down to up or from up to down, as was the case just recently - the reason for the trend reversal is usually not known for quite some time.
But a well-established fact is that equity bull markets get under way amidst dismal economic and financial conditions, while bear markets begin when everything looks at its brightest, such as was recently the case (at least superficially). Moreover, the more speculation there was in a market, the more likely it is that the correction could be serious and take the proportions of a bear market (down 20-40% or more)...my concern remains the same: before the final debt crisis hits, we might see very high rates of inflation - most likely hyperinflation, with all asset and consumer prices soaring (amidst falling real incomes)."

Crude, Jobs, Bonds, And The $

7/6/06 Crude, Jobs, Bonds, And The $

August crude climbed as high as $75 a barrel in New York, the highest price the contract has seen since May 12, when it reached an intraday peak of $75.15. When will gas at the pump reach $3.50 a gallon?

General Motors will hold a special meeting of the board of directors via teleconference on Friday.

The Commerce Dept reported stronger-than-expected factory orders for May with orders rising 0.7% in the month against expectations of a 0.1% rise. That helped to push interest rates high. The 10-year Treasury rose to a 5.23% yield and the 30-year to 5.28%.

A report from the largest paycheck processor, Automatic Data Processing Inc., showed U.S. employers added 368,000 jobs in June, the most since 2001.

The Mexican election is getting even more interesting. Late Tuesday, election officials added 2.5 million votes to the public count. Lopez Obrador outpolled Calderon on these ballots by more than 145,000 votes, narrowing Calderon's lead to slightly more than 257,000 ballots, or 0.6 percentage point. Election authorities said that as many as 900,000 votes remained to be added to the official tally because polling station results had not yet arrived at regional election headquarters. An undetermined number are from the remotest rural areas of southern Mexico, which lean toward Lopez Obrador.The new figures were released after Lopez Obrador charged Monday that more than 3 million votes had been "lost" from the preliminary tallies released by the Federal Electoral Tribunal. I wonder if all the votes will be counted. Maybe the U.S. Supreme Court can act as special advisor along with ChoicePoint. In the wondering department. Will Bush go to Kenny Boy Lay's funeral? After all, they have been such good friends.

"Televisa is prepared to discuss with you (the consortium) a sale of its shares of Univision as soon as possible based on the present value of the price per share set forth in the merger agreement," Grupo Televisa said in a filing with the U.S. Securities and Exchange Commission.
Televisa said that the sale of its stake in Univision would release it from a 1996 Participation Agreement with Univision chairman and controlling shareholder Jerrold Perenchio that barred it from exploring rival business openings in the United States.
"If it is not bound by the Participation Agreement, Televisa will be able to engage in new business opportunities in the growing U.S. Hispanic marketplace related to its programming or otherwise without offering Univision participation in such opportunities," Televisa said in a separate statement.

Iran will start the initial phase of its planned Iranian oil bourse at the end of September, the news agency ISNA reported Wednesday. An unnamed oil ministry official told ISNA that his ministry had already presented the relevant documents to the economic and finance ministry and the bourse organization. The exchange is slated to replace the current dollar-based oil exchange with one based on the euro.. The International Petroleum Exchange in London and the New York Mercantile Exchange, on which oil is currently traded, both use the dollar. Iran argues that as long as 60 percent of global oil and 25 percent of natural gas needs are met by Gulf states, oil dealing in either New York or London made no sense.

The Central Intelligence Agency (CIA) has closed a unit that for a decade was charged with looking for Osama bin Laden and his senior lieutenants, The New York Times reported.
The unit, known as Alec Station, was disbanded late last year and its analysts were reassigned within the CIA Counter-terrorist Centre, intelligence officials told the newspaper. For a moment, I had this insane idea that bin Laden was responsible for 9/11. I must have been dreaming it up. It's a good thing Bush is so strong on fighting terror.

Some day there is going to be a Bush Jr. presidential library. However, it will be sealed like a tomb. All the presidential papers are sealed.

August gold rose $13.70, or 2.2%, to close at $629.70 an ounce and September silver added 49.5 cents, or 4.5%, to close at $11.415 an ounce, its highest closing level since June 7.

I wonder whether Bush will be going to Kenny Boy Lay's funeral.

China and Russia resisted an attempt by the U.S., Japan, and Britain to impose sanctions against North Korea for its missile launches Wednesday, saying only diplomacy could halt the isolated regime's nuclear and rocket development programs.

Richard Daughty: "Now combine that Classic Mogambo Sign (CMS) with the dismal fact that the Fed only bought up a miniscule $52 million in government debt last week. And then combine that with the ugly fact that foreign central banks only put a stinking, piddly $830 million into buying more U.S. government and agency debt.
Money is suddenly disappearing, and this is not good for stock prices, or housing prices."

According to Tom Blackburn of the Palm Beach Post, Cheney has invested heavily in "a fund that specializes in short-term municipal bonds, a tax-exempt money market fund and an inflation protected securities fund. The first two hold up if interest rates rise with inflation. The third is protected against inflation."Cheney has dumped another (estimated) $10 to $25 million in a European bond fund which tells us that he is counting on a steadily weakening dollar.

Despite the weakness in equities, especially the Nasdaq, the range for the VIX on Wednesday was only about one point, and the index managed a slight gain of about one point to 14.15. The lack of volatility is surprising.

John Adams: "The happiness of society is the end of government."

It's Happening

7/5/06 It's Happening

There Weekly retail sales for the week ending July 1 rose 2.9% compared to the year-ago period, its slowest gain since April 1, 2006, according to the International Council of Shopping Centers and UBS Securities. On a week-over-week basis, sales slipped 0.7%, the report said.

With the North Korean firing those test missiles, August-dated gold futures rose $12.30 to $628.30 an ounce. New Jersey's casinos ushered out the last of the gamblers Wednesday morning as a state government shutdown claimed its latest victims. It was the first state-ordered shutdown in the 28-year history of Atlantic City's legalized gambling trade. "Clearly North Korea is not as far advanced in its missile capability as some people had thought they were and they still cannot put a payload into orbit," said Jon Wolfsthal, a nuclear expert at the Centre for Strategic and International Studies. If you believe this, then you believe Roswell didn't happen either. North Korea on Wednesday afternoon fired another scud missile after the international community condemned its highly provocative move of test-firing a long-range missile said to be cable of reaching the US.

Richard Daughty: "Now combine that Classic Mogambo Sign (CMS) with the dismal fact that the Fed only bought up a miniscule $52 billion in government debt last week. And then combine that with the ugly fact that foreign central banks only put a stinking, piddly $830 million into buying more U.S. government and agency debt.Money is suddenly disappearing, and this is not good for stock prices, or housing prices."

Now why do you think North Korea and Iraq are provoking the U.S.? Do you think it would happen without the support of other countries? What do thses countries all have in common? They are acting in concert to eliminate the dollar from being the currency of choice in international trade. I believe it is only a matter of time until they are successful.

John Hussman: "Asking whether the Fed ought to raise rates by another quarter-point to avoid inflation is like asking Christopher Columbus what sort of trees he thinks are planted at the edge of the Earth. The question assumes a model of the world that's just plain wrong. The proper model that ought to be in people's heads is that, yes, the economy will probably slow down, but largely because it's living on a mountain of debt that's going to have a hard time growing because of a) stalling home values and b) a massive current account deficit that's unlikely to expand indefinitely. So sure, the economy will probably continue to slow. If that happens, we can expect to observe higher, not lower, rates of inflation unless credit defaults increase enough to lower monetary velocity and counter the otherwise detrimental upward pressure that slower economic growth generally has on inflation."

Liberty

7/4/06 Liberty

The history of international crude oil market over the past 50 years abound with evidence that the current high oil prices won't persist over the long run and will moderate, Iran's OPEC governor was quoted as saying Sunday.

Canadian oil pipelines could face capacity constraints by 2008 because of a surge in heavy crude oil from the Alberta oilsands, the National Energy Board says.

In the latest week gas prices rose on average 7 cents at the pump to $2.93 a gallon.

Aristotle: "Men regard it as their right to return evil for evil, and if they cannot, feel they have lost their liberty."

Melanie Morgan (a radio talk show host and occasional guest on cable television) about putting various journalists to death for the supposed crime of publicizing the Bush regime's misdeeds: “[T]he best solution that I can think of to deal with any newspaper editor, whether it's from the NY Times, LAT, WaPo, or the Wall Street Journal who is responsible for leaking national security classified information, is to be locked in a steel cage with the family members of slain troop members who would happily deliver the ultimate punishment of death.”

Thomas Paine: "When men yield up the privilege of thinking, the last shadow quits the horizon."

Samuel Adams: "And that the said Constitution be never construed to authorize Congress to infringe the just liberty of the press, or the rights of conscience; or to prevent the people of the United States, who are peaceable citizens, from keeping their own arms; or to raise standing armies, unless necessary for the defense of the United States, or of some one or more of them; or to prevent the people from petitioning, in a peaceable and orderly manner, the federal legislature, for a redress of grievances; or to subject the people to unreasonable searches and seizures of their persons, papers or possessions."

Independence

7/4/06 Independence

Renault SA and affiliate Nissan Motor Co. authorized their chief executive officer, Carlos Ghosn, to begin ``exploratory'' talks with General Motors Corp. on a possible alliance. However, it is up to GM to make the initial proposal.

GM's June sales dropped 26 percent from a year earlier and Ford's was 6.9 percent, the two largest U.S. automakers said today. Sales at DaimlerChrysler AG tumbled 13 percent, with a 15 percent slide at Chrysler. Toyota posted a 14 percent gain, keeping ahead of DaimlerChrysler for the No. 3 rank. Honda Motor Co. rose less than 1 percent and Nissan Motor Co. slid 19 percent.

The Institute for Supply Management's factory index fell to 53.8 in June from 54.4 the previous month. Construction spending dropped 0.4 percent in May, the Commerce Department said in Washington.

Mexico's currency had its biggest gain in six years after ruling party candidate Felipe Calderon led early presidential returns. Stocks and bonds also surged.

Mexican election authorities will conduct a recount to determine who won yesterday's presidential vote, with nearly complete returns showing former Energy Minister Felipe Calderon in front by the slimmest of margins.
Calderon had 36.37 percent of the vote, followed by former Mexico City Mayor Andres Manuel Lopez Obrador with 35.37 percent, based on 98.2 percent of ballots counted. Both candidates, separated by 385,205 votes, declared victory. A recount will start July 5, and authorities expect to name a winner the following day. The electoral court has until Aug. 31 to decide any challenges.

Some Astute Observations

7/3/06 Some Astute Observations

Renault SA, which owns 44 percent of Nissan Motor Co., will hold a board meeting tomorrow to discuss whether to expand the alliance to include General Motors Corp., the French finance minister said. In addition, the French government owns 15.7% of Renault. It is thought that Renault/Nissan might have an interest in acquiring up to 20% of GM.

Brett Steenbarger: "I've noticed over the years that, by cumulating the daily difference between Demand and Supply, we obtain a very reliable overbought/oversold indicator. Since October, 2002 (N = 946 trading days), this index has varied between +57 and -36. The value of this cumulative Demand/Supply Index have correlated quite nicely with five-day returns in the S&P 500 Index (SPY).After Thursday's sizable rally, we hit an overbought cumulative index value of +50. Since October, 2002, we've only had 20 daily readings of +50 or greater. Over the next five days, the S&P 500 Index has averaged a loss of -1.05% (!), with 3 occasions up, 17 down. That's about as sizable a downside edge as I've seen from an indicator." This is an astute and valuable observation.

ContraryInvestor.com: "For years now, we've been treated to the comment that "there is a $10-15 per barrel terrorism premium in crude prices". For years now, we've also listened the executive heads of such organizations as BP, Exxon, as well as the Saudi oil minister, tell us that oil prices were headed down in a pretty meaningful way. So far, the vote of the markets has overridden all of these comments from direct industry participants. What may be more correct, however, and certainly related to a comment above, is that there may indeed be a premium in current energy prices related to a bid from hedge, prop desk and other short term performance motivated investment money. Financial terrorism, if you will. From a long term perspective, a very important issue is that we're seeing a global realignment in geopolitical, military and energy relationships as is embodied by such examples as the SCO (Shangai Cooperation Organization). To ourselves, the thought of a terrorism premium in current crude prices pales in comparison to the implied message and potential outcome of these geopolitical realignments. That's the issue that's not simply going to go away and ultimately has direct implications for both energy prices and supply dynamics.
Speed bumps are a fact of life in any asset class bull market experience. Investors always have an ongoing choice in terms of involvement. Either buckle up or get off the road. Take your pick."

Mike Burk: "July has been a better month for the blue chips than the small caps, however, during the 2nd year of the Presidential Cycle it has not been very good for either."

Michael Hodges observes that "it takes 5.2 months working for taxes and that is 44% of a year. In 1776 Thomas Paine argued that if a king demanded 50% in taxes, we wouldn't pay it. We are nearly there." Hodges also observed "last year debt increased $3.5 Trillion, 5 times more than GDP. Household debt soared 12%."

The benchmark 30-year fixed-rate mortgage rose 10 basis points to 6.93 percent, according to a recent Bankrate.com national survey of large lenders.

At a recent reunion of retired Mexico's Pemex executives, former chief financial officer Ernesto Marcos recalled, a colleague urged that "the next president be told as soon as possible that we may soon not have enough oil for our own requirements and none for exports." The United States relies on Mexico for 8 percent of its oil.

Ayn Rand: "The [U.S.] Constitution is a limitation on the government, not on private individuals ... it does not prescribe the conduct of private individuals, only the conduct of the government ... it is not a charter for government power, but a charter of the citizen's protection against the government."

Delphi anticipates $2 billion in operating losses in 2006.

Carrefour's operates 79 stores in 32 Chinese cities compared with 60 locations in 30 cities for Wal-Mart. Last year, Carrefour's sales in China totaled $2.2 billion, compared with $1.2 billion for Wal-Mart, according to the Commerce Ministry in Beijing. This year Wal-Mart will open 18 stores and Carrefour's only 12. In a couple of years Wal-Mart's sales in China should surpass that of Carrefour's, the world's second largest retailer behind Wal-Mart.

ConocoPhillips recently inked a memorandum of understanding to establish a 400,000-barrel-a-day refinery in Saudi Arabia.

Realities

7/2/06 Realities

Bain, Blackstone and TH Lee emerge as the winners with a $6 billion-plus bid or $44 a share for Michaels Stores. The bid took me by surprise. I anticipated a value of only $40 per share.

Wal-Mart's June same-store sales rose 1.2%. Some will consider this figure disappointing; however, one should note that one year ago June same-store sales rose 4.5%.

New Jersey Governor Jon Corzine signed the first-ever order yesterday shutting down government operations as he waited for the legislature to pass a budget bill to keep the state in business. Corzine signed the order nine hours after the deadline passed for the state to have its fiscal 2007 appropriations bill in place, said spokesman Anthony Coley. The governor waited in his Trenton office until midnight and then returned before 8 a.m. to be available to sign a balanced budget plan. ``We've taken, we believe, every reasonable and responsible measure to ensure that this day would not come,'' Corzine said today in a statement. ``But here we are.''
Now all we need is for the federal government to pass a balanced budget or be shut down.

This reported by Bloomberg: “China’s exporters are increasingly using non-dollar currencies for settlement to reduce foreign-exchange risks, China International Business Daily reported. The companies are also raising export prices and using hedging tools to lower the risk of currency fluctuations…” I have wriiten frequently that this would take place. It is the tip of the iceberg.
Meanwhile, China’s reserves increased by around $20 billion in April and $30 billion in May, and that brings the total to roughly $925 billion (not including June).

Yesterday, Russia lifted all currency controls on the rouble and made it fully convertible. I wrote about this a few weeks ago.

Doug Noland: "The Federal Reserve is simply not institutionally prepared for the unfolding challenging environment, although the same could be said for policymakers and the public generally. The Fed is left floundering in the shallowest of central banking doctrine, bereft of any substance as to the key underlying forces driving the economy, the markets and, increasingly, inflationary pressures. At the same time, the Fed’s benign neglect of Credit Bubble excesses is buttressed by the view from the White House to the Halls of Congress that domestic and international growth are the only avenues for rectifying imbalances. It’s quite dangerous dogma, yet the markets are happy to play along."

For weeks I have stated that the GDP would grow at least 3% in the second quarter. I would like to refine that to a minimum of 3.4%. Countries all over the world are raising their growth projections for the second quarter. Some of that growth is the result of inflation. Some is the result of massive government spending on infrastructure. Interest rates will continue to rise. Make no mistake about it. In addition, it is only a matter of time until wages rise in the U.S. Why? Less Mexicans, for example, are coming across the border to work. It is difficult to get workers to harvest wine grapes. Those that do come are offered higher paying jobs in landscaping, painting, etc. Those on Main Street need higher wages to offset higher energy and medical expenses. Inflation has taken a foothold on Main Street budgets. Wages will need to rise and business profit margins will begin to dip.

Earnings from trading of cash instruments and derivatives at U.S. banks rose to a record $5.7 billion in the first quarter, a federal bank regulator said on Friday. Derivatives held by U.S. insured commercial banks increased to a record $110.2 trillion in the same three-month period, according to the Office of the Comptroller of the Currency. (That is not a misprint. $110 TRILLION).

Morgan Stanley is warning overseas investors the New Zealand dollar will slide to 57 US cents by the end of the year. Morgan Stanley says New Zealand is overburdened with debt, and its trade deficit ranks it with the likes of Latvia, Bulgaria, and Iceland.

The Central Bank of China (CBC), Taiwan's central bank, raised its key rate by an eighth of a percentage point Thursday. On Friday, the New Taiwan dollar surged sharply after foreign investors purchased the NT$ heavily to make more local investments and after importers/exporters sold their holdings in the U.S. dollar. The NT$ closed yesterday at NT$32.399 against the U.S. dollar, up NT$0.221 from the previous trading day.

Gasoline prices around the Chicago area hit an all-time high Friday with prices for regular gas hitting $3.124 on average in the Chicago area, according to AAA-Chicago Motor Club. research.

Expectations

7/1/06 Expectations

University of Michigan's final June reading on one-year U.S. inflation expectations was 3.3 percent, versus 4.0 percent in May. Median expectations for inflation over a five-year horizon eased to 2.9 percent from 3.2 percent in May.

A letter from Kerkorian's investment company, Tracinda Corp., said the company believes Renault and Nissan are receptive to the idea of including General Motors in their partnership and purchasing "a significant minority interest" in the Detroit automaker. The GM board called an emergency meeting to discuss this matter. As I have mentioned previously, I believe Renault/Nissan would be better served by purchasing 100% of Ford. The latter offers a better cash flow picture, and much less risk with GM now at $29+ per share.

Inflation, as measured by a price gauge tied to consumer spending, rose by 0.4 percent in May and was up 0.2 percent when energy and food prices are excluded. This measure of core inflation is up 2.1 percent when compared to May 2005, slightly above the Fed's upper bounds for core inflation of 2 percent.

As of July 1, Beijing removed foreign exchange quotas for firms investing abroad. I expect many more Chinese companies making acquisitions in the U.S.

U.S. net debt increased 14% to $2.69 trillion in 2005. It was the 20th straight year our country was a net debtor.

Over the years I have frequently quoted Martin Pring, a well-known market technician. His latest work is close to 30 pages. I thought I would include Martin's summary:"1. Secular trends in equity prices are determined by multi-decade swings in sentiment, as investors move from a generational swing in pessimism to the overconfident and "irrational exuberance" at peaks.
2. History tells us that once an extreme optimism has been reached, it takes a very long time, decades, in fact, for the pendulum to move to the other extreme.
3. Our indicators advocate that a secular peak was seen in the year 2000.
4. These types of secular market turning points have always been followed by massive bear markets like the one that developed in 1929, or multi-year trading ranges as witnessed in 1900/21 and 1986/81 periods.
5. Without exception, stock prices, when adjusted for inflation, experienced a significant loss in purchasing power following previous long-term tops.
The evidence, whether it comes for monetary aspects, financial market sequences, or intermarket analysis, is syrongly bearish."
You can read the entire article at pring.com.

Crude oil for August delivery finished on the New York Mercantile Exchange with a 41-cent gain at $73.93 a barrel, a seven-week high.

The 10-year Treasury was last trading at 5.141%, compared with 5.205% late Thursday. The yield curve was inverted with the 2-year note yielding 5.158%. Meanwhile, there was follow-through selling in the dollar and the dollar index traded below 85.

The Chicago PMI index fell to 56.5 in June, versus expectations of 59.4. Inflation pressures accelerated with the prices-paid index rising to 89.0% from 76.9% in May. Separately, U.S. consumer sentiment improved to 84.9 from 82.4 in early June and 79.1 in May, according to the University of Michigan.

Gold futures closed at their highest level since June 7, gaining 4% in the second quarter, in a broad metals rally triggered by the falling dollar. Gold for August delivery ended the session up $27.10 at $616.0 an ounce on the New York Mercantile Exchange, an increase of 4.8% for the week. Gold hasn't closed above $600 since June 12.

In Friday's trading, the VIX was basically unchanged.

Emil W. Henry Jr., Assistant Secretary for financial institutions at the U.S. Treasury:
"There are numerous levels of risk presented by the mortgage investment portfolios, but at a basic level, the risk is created as follows: GSE portfolios are comprised primarily of fixed-rate mortgages, either held as whole loans, mortgage-backed securities (MBS), or other mortgage-related assets. While mortgages in the U.S. typically allow borrowers the option to prepay at will, the aggregation of fixed-rate mortgages requires that the investor develop strategies to mitigate risks presented by these uncertain cash flows -- both prepayments and extensions. Unless the portfolios are hedged properly, in a period of significant interest rate movement, there is the risk to the GSEs that their assets and liabilities will quickly become broadly mismatched, which can lead to insolvency -- much like the dynamics of the S&L crisis."

As the dollar gets cheaper, it will less costly for foreigners to buy our companies. In sum, we will
"manufacture" companies on the cheap.

Handing a significant win to those clamoring for more domestic energy supply, the House of Representatives on Thursday voted to dismantle the nearly 25-year ban on offshore drilling in much of the US coastline.

"I think we are going to see a big increase in bankruptcies in 2007-08," Wilbur Ross, chairman and chief executive of the private equity group that bears his name, told the Financial Times. "Every time you compound leverage, you cut the margins for error."

John Stuart Mill: “There is a limit to the legitimate interference of collective opinion with individual independence: and to find that limit, and maintain it against encroachment, is as indispensable to a good condition of human affairs, as protection against politica”

Flounder

6/30/06 Flounder

It's that time of year. Get out the bait and go for the bottom fish, the flounder. St. Simons Island Bait & Tackle owner Mike Wooten, likes to use live bait, such as mud minnows or live shrimp. "You can fish for flounder, and maybe catch some trout and reds, too," Wooten said. "Live bait is the way to go, especially if you don't know what you're doing." Wall Street likes to use live bait too - especially right before the quarter ends. It's called a mark em up and salvage job. Wall Street drops the bait from a helicopter. It's called a Benny. Not Jack Benny. This one has a beard and isn't funny. Even a busted clock is right twice a day, and yesterday the bait worked like a charm. The fish were really biting. The Dow jumped over 200 points, the Nasdaq over 60, and the S&P and the Russell about 27. The Dow Jones Transportation Average jumped more than 100 points late Thursday to 4844.12. Bonds joined in and the yield on the 10-year dropped to 5.20% and the 2-year to 5.19%.


Gold futures surpassed $600 in electronic trade Thursday for the first time since June 13, as the dollar tumbled following a statement from the Federal Reserve that was less hawkish than many expected.


Crude-oil futures closed at their highest level in seven weeks Thursday to tally a 6% climb in the last seven sessions. August crude rose $1.33 to close at $73.52 a barrel, its highest close since May 12. Meanwhile, the price of gas at the tank rose 4 cents a gallon in the Bay Area.


The odds that the Federal Reserve will raise overnight interest rates after their meeting in August declined, according to pricing in the fed funds futures market, after the Fed raised its fed funds target to a widely-anticipated 5.25% from 5%, and said in its accompanying statement that economic growth was moderating. The Fed said that "any additional firming that may be needed" will depend on the economic outlook.There is now a 52% chance that the Fed will raise its fed funds target to 5.5% after its policy setting meeting on Aug. 8. Just prior to the Fed statement, August fed funds futures gave a 60% chance of a 0.25 percentage point move.

The dollar slumped against the euro and yen after the Federal Open Market Committee lifted the fed funds target rate to 5.25% from 5%.

Microsoft will now aim for a launch of Office 2007 to business customers by the end of 2006 rather than an earlier target of October. Microsoft also said it would delay the general availability of the Office upgrade to early 2007 from its previous January target.

In March, the company pushed back the consumer launch of the 2007 Microsoft Office package, which includes the Word processor, Excel spreadsheet and PowerPoint presentation software to January to coincide with the debut of its Windows Vista operating system.

EMC Corp.said late Thursday it has entered into an agreement to acquire digital-security software firm RSA Security Inc. for $2.1 billion in cash, net of RSA's cash balance, which values RSA at $28 share.

The Andersons, Inc. announced that it has filed a registration statement with the Securities and Exchange Commission relating to a proposed public offering of 2.28 million shares of its common stock, of which 2 million shares are proposed to be sold by the Company and 280,000 shares are proposed to be sold by certain selling shareholders named in the prospectus.

Aventine Renewable Energy Holdings, Inc., the latest ethanol company to go public, announced thepricing of its initial public offering of 9,058,450 shares of common stock, at a price of $43.00 per share. Maybe they should not have raised the offering price and enlarged the size of the IPO. The deal was a bust and closed at $38.37.

The floods from the Mid-Atlantic to the Northeast, from Virginia to Vermont, were some of the worst floods in the last 50 years.

Ford sees greater "headwinds" due to the gas prices impacting the sale of larger SUVs. Last year the company lost $1.6 billion in its North American operations and a similar result might be in store for 2006. However, the company showed a profit last year and was cash flow positive and I expect the same in 2006.

U.S. Treasury Secretary John Snow said on Thursday he had completed his last day on the job.

Europeans travelling to the US without a new high-tech passport could require a visa from October, the European Union's top justice official warned on Thursday.

Shareholders have filed two lawsuits against Univision Communications Inc. and its board members, claiming they breached their fiduciary duty when they agreed earlier this week to sell the Spanish-language broadcaster to a consortium of private investors. Both lawsuits were filed in Los Angeles Superior Court and seek class-action status. When was the last time you saw a $10+ billion auction sale of a public company not have at least two rounds of bidding?

The June 19 spill at a Citgo Petroleum Corp. refinery in Lake Charles forced the closure of the Calcasieu Ship Channel, a key lane for transporting petroleum in and out of the region's four refineries. About 11 miles of the channel remained closed Thursday. The entire 40 miles to the Gulf of Mexico had been closed.

The VIX took a pounding down to the 13 level, and that was last reached in mid-May or about the time the fireworks began. In sum, the VIX rallied from 12 to 24 and a round trip has just about been achieved. You think the fireworks are a thing of the past? If you believe that, then you believe Microsoft can bring out a major product on time.

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. "