8/1/06 Stressed
Factory activity in the Chicago region accelerated in July, the National Association for Supply Managment-Chicago said Monday. The Chicago purchasing managers index rose to 57.9% from 56.5% in June. The new orders index rose to 60.0% from 57.2%. The prices paid index dipped to 86.8% from 89.0%. The employment index was steady at 50.5%.
St. Louis Fed president William Poole said he hasn't made up his mind whether the Fed should raise rates at its next meeting on Aug. 8. "I am still 50-50, we still have important data yet to come," Poole told reporters after a speech.
John Hussman: "Investors are tenuously sticking to the first story line – moderating growth with no risk of recession, moderating inflation, beliefs that stocks are reasonably valued, and hopes for an end to the tightening cycle. Yet the data are actually consistent with a second story line – emerging (though not imminent) recession risks, persistent “structural” inflation, rich valuations, probable contraction of profit margins, and an incoherent Fed policy that is likely to become even more incoherent in attempting to battle weaker economic growth and persistent inflation simultaneously (not that I believe Fed actions will be effective in any event)."
Yesterday morning the VIX opened up on a gap by about one-half a point at 14.86. For the next four hours or so the VIX barely moved and traded up slightly to 15.13, and finally closed at 14.95. In essence, there was little range on the day. However, my gut tells me that volatility has a chance to spike once again.
A few weeks ago I suggested you consider purchasing natural gas at 6.50 per million cubic feet and adding as it dropped quickly to 5.75. With this heat wave natural gas has had a nice move up to 8.21 and is up 35% for July (certainly not chopped liver), and I believe we should take our profits.
It was over a year ago that I suggested selling one share of Citigroup, one share of B of A, and one share of JP Morgan and buying 3 shares of Wells Fargo. Obviously, the trade could be done in varying amounts but the idea was to keep the ratio the same. After accounting for dividends, the trade is now 13 points in our favor and I suggest we take our profits.
100 degree heat without rain day after day can stress the crops in the field. Now let's consider stress on Main Street. First we'll examine crude and gas at the pump. Let's say gas remains near $3 a gallon for a period of time, for example, in July, August, and September. Over that period there has not been inflation in gasoline because prices have remained the same. However, the pockets of the consumer continue to be stressed and stretched. Now let's combine that with the price of a house. Nationally, on average, prices remain close to the same they were one year ago and let's say that continues between July and September. Within that timeframe some parts of the country are experiencing declines but some, such as in King County, Washington are seeing prices continue to rise. On balance, on average, although nationally the prices are roughly the same, there is an impact on the mindset of the consumer. The individual homeowner begins to question the wealth effect from the home. Why? Houses are sitting on the market longer, there are more homes on the market, and the increases, when they occur, are more nickel and dime rather than in large increments. That change in the mindset creates stress and decreases the propensity to spend freely on non-essential items.
Shell Canada plans to proceed with the first expansion of its Athabasca oilsands project, even though the company says it could cost as much as $12.8 billion.
Teck Cominco Ltd. increased its takeover offer for Inco Ltd. to $82.50 a share, adding $2.7-billion of cash to the bid for the world's second-largest nickel miner.
Doug Casey: “If you invest wisely now, the emerging paper bear market will eventually prove in your favor. As foreign governments look to avail themselves of more gold for their reserves, you should do the same.”
According to earthfiles, the San Andreas Fault is so stressed, the next quake could be magnitude 8.
Alvin Toffler: “Future shock [is] the shattering stress and disorientation that we induce in individuals by subjecting them to too much change in too short a time.”
Monday, July 31, 2006
Sunday, July 30, 2006
Facts
7/31/06 Facts
Wal-Mart estimated that July sales rose 2.4 percent at its U.S. stores open at least a year, toward the high end of its forecast. Some discounting probably helped back-to-school sales. One should recall that Target lowered its monthly sales forecast on July 17, and is now expecting a 3 percent to 4 percent same-store sales gain, down from its original forecast for 4 percent to 6 percent growth.
Bill Bonner: "ARMs are in fact diabolical devices intended to speed marginal buyers on the glittering road to hell. ARMs give the weakest buyer the luxury of pretending to buy what he really can’t afford."
Mike Burk: "During the 2nd year of the Presidential Cycle the coming week has had an average negative return of over 2% as measured by the OTC and a modest negative return as measured by SPX. Measuring the week over all years since 1928 the SPX has had a very modest positive bias while the OTC since 1963 has been slightly negative and both have been up about 50% of the time. All of the largest drawdowns for the period have occurred since 1990."
John Howard has agreed to consider a West Australian plan to put aside some of the nation's offshore gas reserves for domestic use. Premier Alan Carpenter wants up to 20 per cent of the reserves to be held back to meet future domestic demand rather than being exported as liquefied natural gas to markets in Asia and North America.
He has warned that, under current contracts, natural gas supplies for West Australian households and industry could run out within 10 to 15 years.
PetroChina has announced that a first batch of crude oil has been successfully piped from Kazakhstan to its oil tank field in northwestern Xinjiang Uygur Autonomous Region via the China-Kazakhstan Pipeline. The oil reached the refinery at 5 p.m. Saturday. The arrival of the first crude oil imports signals full commercial operation for China's first cross-country crude oil pipeline.
It will be interesting to note June's personal income and its comparison with personal spending.
If manufacturing jobs increased in July, what impact might that have on overall onfarm payrolls for the month?
U.S. oil demand in May averaged 20.463 million barrels a day - the highest-ever for the month - and 1.6% above a year earlier, the Energy Information Administration said Friday.
Interest rate rises are expected this week for the Eurozone, Australia and South Africa. The question mark is for the UK.
Wal-Mart estimated that July sales rose 2.4 percent at its U.S. stores open at least a year, toward the high end of its forecast. Some discounting probably helped back-to-school sales. One should recall that Target lowered its monthly sales forecast on July 17, and is now expecting a 3 percent to 4 percent same-store sales gain, down from its original forecast for 4 percent to 6 percent growth.
Bill Bonner: "ARMs are in fact diabolical devices intended to speed marginal buyers on the glittering road to hell. ARMs give the weakest buyer the luxury of pretending to buy what he really can’t afford."
Mike Burk: "During the 2nd year of the Presidential Cycle the coming week has had an average negative return of over 2% as measured by the OTC and a modest negative return as measured by SPX. Measuring the week over all years since 1928 the SPX has had a very modest positive bias while the OTC since 1963 has been slightly negative and both have been up about 50% of the time. All of the largest drawdowns for the period have occurred since 1990."
John Howard has agreed to consider a West Australian plan to put aside some of the nation's offshore gas reserves for domestic use. Premier Alan Carpenter wants up to 20 per cent of the reserves to be held back to meet future domestic demand rather than being exported as liquefied natural gas to markets in Asia and North America.
He has warned that, under current contracts, natural gas supplies for West Australian households and industry could run out within 10 to 15 years.
PetroChina has announced that a first batch of crude oil has been successfully piped from Kazakhstan to its oil tank field in northwestern Xinjiang Uygur Autonomous Region via the China-Kazakhstan Pipeline. The oil reached the refinery at 5 p.m. Saturday. The arrival of the first crude oil imports signals full commercial operation for China's first cross-country crude oil pipeline.
It will be interesting to note June's personal income and its comparison with personal spending.
If manufacturing jobs increased in July, what impact might that have on overall onfarm payrolls for the month?
U.S. oil demand in May averaged 20.463 million barrels a day - the highest-ever for the month - and 1.6% above a year earlier, the Energy Information Administration said Friday.
Interest rate rises are expected this week for the Eurozone, Australia and South Africa. The question mark is for the UK.
Saturday, July 29, 2006
Thoughts
7/30/06 Thoughts
John Maudlin: "If the Fed pauses in August, it will only be because they think the economy is going to slow down much faster than it already is. I do not see how that can be good for the stock market. And if they raise rates yet again, they indicate that they are going to maintain the fight on inflation, until inflation and then the economy do in fact slow down. I just don't see how that is a good environment for the stock market."
I have a feeling in my gut that the current prices at the gas pump will be the highs for 2006.
There is so much press these days about myspace.com. Don't look now but Cyworld.com from South Korea is arriving in the U.S.A. in August. You shouldn't be surprised if Cyworld eats myspace's lunch.
Brett Steenbarger: "I went back to February, 1996 (N = 2618 trading days) and found 565 periods in which SPX had risen between 2%-5% in a ten-day period. When the move was smooth--seven or more of the days rising (N = 248)--the next ten days were up on average by .44% (154 up, 94 down). When the move was not smooth--six or fewer of the days rising (N = 317)--the next ten days were up on average only .08% (166 up, 151 down).
It thus appears that rises interspersed with selling have poorer near-term outcomes than rises that are smooth and consistent. The market's recent 10-day rise, by this gauge, is not necessarily a stimulus for superior returns going forward."
Saudi Arabia will receive about $200 billion in oil revenue this year.
Doug Noland: "It is worth noting that Bank Real Estate Loans expanded at a 13.7% annualized rate during the second quarter (from Fed data), with what appears a major push to commercial real estate lending. Estimates have second quarter bank loan growth as high as 11%, and it is simply difficult to envisage the economy faltering meaningfully in the face of such a rampant expansion of finance."
Volkmar Hable: "In every issue of this Investment Commentary since January I have warned to get out of stocks and prepare for a serious decline. Here we are in the middle of the second leg down, and there are still people owning stocks and hoping for a reversal. This rally into mid-July was the last chance (very likely for this year) to get out of long positions.
Remember: managing risk and avoiding losses is key for long-term success. Don't risk your capital and forget risk management for some short term gains. In a sideways market traders and investors should focus on opportunistic strategies!"
Cascade Natural Gas management is expecting earnings for fiscal year 2006 to be in the range of $1.12 to $1.16. Their outlook assumes average weather for the rest of the fiscal year and excludes fourth quarter costs related to the pending merger with MDU.
More than 60 percent of the United States now has abnormally dry or drought conditions, stretching from Georgia to Arizona and across the north through the Dakotas, Minnesota, Montana and Wisconsin, said Mark Svoboda, a climatologist for the National Drought Mitigation Center at the University of Nebraska at Lincoln.
An area stretching from south central North Dakota to central South Dakota is the most drought-stricken region in the nation, Svoboda said.
"It's the epicenter," he said. "It's just like a wasteland in north central South Dakota."
Benjamin Franklin: "He that's secure is not safe."
John Maudlin: "If the Fed pauses in August, it will only be because they think the economy is going to slow down much faster than it already is. I do not see how that can be good for the stock market. And if they raise rates yet again, they indicate that they are going to maintain the fight on inflation, until inflation and then the economy do in fact slow down. I just don't see how that is a good environment for the stock market."
I have a feeling in my gut that the current prices at the gas pump will be the highs for 2006.
There is so much press these days about myspace.com. Don't look now but Cyworld.com from South Korea is arriving in the U.S.A. in August. You shouldn't be surprised if Cyworld eats myspace's lunch.
Brett Steenbarger: "I went back to February, 1996 (N = 2618 trading days) and found 565 periods in which SPX had risen between 2%-5% in a ten-day period. When the move was smooth--seven or more of the days rising (N = 248)--the next ten days were up on average by .44% (154 up, 94 down). When the move was not smooth--six or fewer of the days rising (N = 317)--the next ten days were up on average only .08% (166 up, 151 down).
It thus appears that rises interspersed with selling have poorer near-term outcomes than rises that are smooth and consistent. The market's recent 10-day rise, by this gauge, is not necessarily a stimulus for superior returns going forward."
Saudi Arabia will receive about $200 billion in oil revenue this year.
Doug Noland: "It is worth noting that Bank Real Estate Loans expanded at a 13.7% annualized rate during the second quarter (from Fed data), with what appears a major push to commercial real estate lending. Estimates have second quarter bank loan growth as high as 11%, and it is simply difficult to envisage the economy faltering meaningfully in the face of such a rampant expansion of finance."
Volkmar Hable: "In every issue of this Investment Commentary since January I have warned to get out of stocks and prepare for a serious decline. Here we are in the middle of the second leg down, and there are still people owning stocks and hoping for a reversal. This rally into mid-July was the last chance (very likely for this year) to get out of long positions.
Remember: managing risk and avoiding losses is key for long-term success. Don't risk your capital and forget risk management for some short term gains. In a sideways market traders and investors should focus on opportunistic strategies!"
Cascade Natural Gas management is expecting earnings for fiscal year 2006 to be in the range of $1.12 to $1.16. Their outlook assumes average weather for the rest of the fiscal year and excludes fourth quarter costs related to the pending merger with MDU.
More than 60 percent of the United States now has abnormally dry or drought conditions, stretching from Georgia to Arizona and across the north through the Dakotas, Minnesota, Montana and Wisconsin, said Mark Svoboda, a climatologist for the National Drought Mitigation Center at the University of Nebraska at Lincoln.
An area stretching from south central North Dakota to central South Dakota is the most drought-stricken region in the nation, Svoboda said.
"It's the epicenter," he said. "It's just like a wasteland in north central South Dakota."
Benjamin Franklin: "He that's secure is not safe."
Friday, July 28, 2006
Clear Sailing?
7/29/06 Clear Sailing?
The first estimate of the second quarter's gross domestic product was 2.5%, and this compares with a 5.6 percent gain in the first three months of the year. I was estimating the figure would be over 3%. U.S. Treasury yields dropped immediately and, in fact, both the 2-year and the 10-year traded under 5%. That made my recent forecast for rates going up as looking pretty damn stupid. It won't be the last time I look that way. Stocks rallied into triple digit territory as the thought was the Fed will no longer raise rates again this year. That's the good news. The flip side: the dollar got creamed; the Personal Consumption Deflator rose 3.3% in this quarter as inflation reared its head and that was despite the rise in consumer spending at a modest 2.5% and fixed business investment increasing a weak 2.7%. The GDP should have been helped by the 3.3% rise in exports; however, residential fixed investment dropped by 6.8%. As an aside, what has been the strongest group in the market this week? Would you believe the homebuilders? Another part of the flip side is this: less growth means less tax receipts and larger government deficits. In addition, with slower growth and rising inflation corporate margins will come under greater pressure.
Crude declined towrds the $73 a barrel level while natural gas rallied further to the 7.25 per million BTU area.
In the second quarter, real final sales increased 2.1% annualized, down from 5.6% in the first quarter. Meanwhile, core consumer prices rose 2.9%, the fastest pace in 12 years. Core consumer prices have risen 2.3% in the past year, the fastest growth since 1995.
U.S. employment costs increased 0.9% in the second quarter after a 0.6% gain in the first quarter, the Labor Department reported Friday. This is the largest increase since the first quarter of 2005. The increase in the employment cost index was slightly above forecasts. Benefit costs rose 0.8% in the quarter, after a 0.5% rise in the first quarter. Wages and salaries rose 0.9%, up from a 0.7% gain in the first quarter. This is the fastest growth in wages since the first quarter 2003. Unfortunately, the gains still trailed the rate of inflation, and the higher wages also led to higher income taxes being paid --- a double whammy.
The Andersons Inc. said second-quarter earnings declined slightly to $10.3 million, or 66 cents a share, from $10.4 million, or 67 cents a share, a year earlier. Revenue rose to $378.1 million from last year's $365.1 million. For 2006, the company raised its earnings forecast to $1.90 to $2.10 a share from $1.70 to $1.90. The stock came under heavy selling yesterday and still appears to have a valuation significantly above its historical norm.
Merrill Lynch upgraded Embarq Corp. to buy from neutral, citing better-than-expected operating expenses. In addition, the broker told clients it believes management's outlook is conservative with regard to cash flow, and possibly long-term shareholder returns. The stock has had a nice move from $40 to $45+.
Inco Ltd. said that its offer for Falconbridge expired on July 27 because the 50.01% minimum share tender level of the offer had not been reached. Inco said that it would now concentrate on completing its transaction with Phelps Dodge to create the world's second-largest nickel producer and one of the world's largest copper producers.
For state and local governments, compensation costs increased 3.8 percent for the year ended June 2006, compared
with the over-the-year gain of 3.5 percent in March 2005. How is it that government employees have larger wage gains than those found on average in the private sector? After all, who pays the compensation for those government workers? Hello!!!! Is anyone home?
Personal saving was a negative $141.0 billion in the second quarter, compared with a negative $97.0 billion in the first quarter. Main Street is getting to mirror the operating budget of the U.S. government. It's shameful.
Dow Jones Industrial Average posting its best weekly point gain since November 2004. On the week, the benchmark index gained around 3.2%. The Nasdaq Composite Index on the week was up 3.7% and posted its best weekly point gain since January 2006. The S&P 500 Index, meanwhile, posted a weekly gain of 3.1%. Gold for August delivery settled up $2.30 at $634.80 on the New York Mercantile Exchange, a gain of 2.4% on the week. It is highly unlikely that equities and gold will head in the same direction for much longer than this past week.
ECB will likely hike interest rates 25bp on August 3, and possibly again on October 5. Will the actions of the ECB have any impact on the upcoming Fed meeting?
Jas Jain: "I predict a 5-10% drop from June to August for Santa Clara County(CA) home prices (an easy prediction from the data) and 10-20% by Feb’07. High-priced places like Los Altos should see a 20-30% decline, if not more, by Feb’07. When the Existing Home Sales are reported for August, in late September, all hell will break loose in financial markets because the current “slowdown” mantra for the US economy will be replaced by recession in the near future mantra."
Lord Byron: "Hark, hark! Deep sounds, and deeper still,
Are howling from the mountain's bosom:
There's not a breath of wind upon the hill,
Yet quivers every leaf, and drops every blossom:
Earth groans as if beneath a heavy load."
The first estimate of the second quarter's gross domestic product was 2.5%, and this compares with a 5.6 percent gain in the first three months of the year. I was estimating the figure would be over 3%. U.S. Treasury yields dropped immediately and, in fact, both the 2-year and the 10-year traded under 5%. That made my recent forecast for rates going up as looking pretty damn stupid. It won't be the last time I look that way. Stocks rallied into triple digit territory as the thought was the Fed will no longer raise rates again this year. That's the good news. The flip side: the dollar got creamed; the Personal Consumption Deflator rose 3.3% in this quarter as inflation reared its head and that was despite the rise in consumer spending at a modest 2.5% and fixed business investment increasing a weak 2.7%. The GDP should have been helped by the 3.3% rise in exports; however, residential fixed investment dropped by 6.8%. As an aside, what has been the strongest group in the market this week? Would you believe the homebuilders? Another part of the flip side is this: less growth means less tax receipts and larger government deficits. In addition, with slower growth and rising inflation corporate margins will come under greater pressure.
Crude declined towrds the $73 a barrel level while natural gas rallied further to the 7.25 per million BTU area.
In the second quarter, real final sales increased 2.1% annualized, down from 5.6% in the first quarter. Meanwhile, core consumer prices rose 2.9%, the fastest pace in 12 years. Core consumer prices have risen 2.3% in the past year, the fastest growth since 1995.
U.S. employment costs increased 0.9% in the second quarter after a 0.6% gain in the first quarter, the Labor Department reported Friday. This is the largest increase since the first quarter of 2005. The increase in the employment cost index was slightly above forecasts. Benefit costs rose 0.8% in the quarter, after a 0.5% rise in the first quarter. Wages and salaries rose 0.9%, up from a 0.7% gain in the first quarter. This is the fastest growth in wages since the first quarter 2003. Unfortunately, the gains still trailed the rate of inflation, and the higher wages also led to higher income taxes being paid --- a double whammy.
The Andersons Inc. said second-quarter earnings declined slightly to $10.3 million, or 66 cents a share, from $10.4 million, or 67 cents a share, a year earlier. Revenue rose to $378.1 million from last year's $365.1 million. For 2006, the company raised its earnings forecast to $1.90 to $2.10 a share from $1.70 to $1.90. The stock came under heavy selling yesterday and still appears to have a valuation significantly above its historical norm.
Merrill Lynch upgraded Embarq Corp. to buy from neutral, citing better-than-expected operating expenses. In addition, the broker told clients it believes management's outlook is conservative with regard to cash flow, and possibly long-term shareholder returns. The stock has had a nice move from $40 to $45+.
Inco Ltd. said that its offer for Falconbridge expired on July 27 because the 50.01% minimum share tender level of the offer had not been reached. Inco said that it would now concentrate on completing its transaction with Phelps Dodge to create the world's second-largest nickel producer and one of the world's largest copper producers.
For state and local governments, compensation costs increased 3.8 percent for the year ended June 2006, compared
with the over-the-year gain of 3.5 percent in March 2005. How is it that government employees have larger wage gains than those found on average in the private sector? After all, who pays the compensation for those government workers? Hello!!!! Is anyone home?
Personal saving was a negative $141.0 billion in the second quarter, compared with a negative $97.0 billion in the first quarter. Main Street is getting to mirror the operating budget of the U.S. government. It's shameful.
Dow Jones Industrial Average posting its best weekly point gain since November 2004. On the week, the benchmark index gained around 3.2%. The Nasdaq Composite Index on the week was up 3.7% and posted its best weekly point gain since January 2006. The S&P 500 Index, meanwhile, posted a weekly gain of 3.1%. Gold for August delivery settled up $2.30 at $634.80 on the New York Mercantile Exchange, a gain of 2.4% on the week. It is highly unlikely that equities and gold will head in the same direction for much longer than this past week.
ECB will likely hike interest rates 25bp on August 3, and possibly again on October 5. Will the actions of the ECB have any impact on the upcoming Fed meeting?
Jas Jain: "I predict a 5-10% drop from June to August for Santa Clara County(CA) home prices (an easy prediction from the data) and 10-20% by Feb’07. High-priced places like Los Altos should see a 20-30% decline, if not more, by Feb’07. When the Existing Home Sales are reported for August, in late September, all hell will break loose in financial markets because the current “slowdown” mantra for the US economy will be replaced by recession in the near future mantra."
Lord Byron: "Hark, hark! Deep sounds, and deeper still,
Are howling from the mountain's bosom:
There's not a breath of wind upon the hill,
Yet quivers every leaf, and drops every blossom:
Earth groans as if beneath a heavy load."
Thursday, July 27, 2006
Growth, Slowdown, Or Recession?
7/28/06 Growth, Slowdown, Or Recession?
Nouriel Roubini: " In brief, the Three Bears of high oil prices, rising inflation leading to higher policy rates, and a slumping housing markets will derail the Goldilocks (of high growth and low inflation) and trigger a sharp U.S. slowdown in 2006, that may turn into a recession in 2007." He rates the chances of a recession at 50%.
The Fed and the bond market are looking for a slowdown.
For the second consecutive trading session equity indices could not hold on to their gains.
September crude climbed 60 cents to close at $74.54 a barrel Thursday. August natural gas rose 15.5 cents to $7.042 per million British thermal units, closing at its highest level since June 19 after a surprise decline in last week's U.S. supplies.
Gold for August delivery closed up $10.60 at $632.50 an ounce on the New York Mercantile Exchange. Other metals prices were mixed. Silver settled up 31 cents at $11.345 an ounce, platinum rose $1 at $1,242 an ounce and palladium gained 45 cents at $320.45 an ounce. Copper closed down 65 cents at $3.4785 a pound.
The volume of help-wanted advertising in major U.S. newspapers held steady in June, the Conference Board said Thursday. The help wanted index remained at 33 in June. The index was 39 one year ago. The index has been declining steadily. In the last three months, help-wanted advertising declined in all nine regions of the country. At the same time, the rise in ad volume online continued to slow.
Sales of new homes fell 3% in June to a seasonally adjusted annual rate of 1.13 million, the Commerce Department said Thursday. Revisions to previous months' sales show a softer market than previously reported. Sales in the first six months of the year were down 11.9% to 598,000 from the 679,000 in the first six months of 2005. The inventory of unsold homes on the market rose by 0.7% to a record 566,000, representing a 6.1-month supply at the June sales pace. The median sales price was up 2.3% year-over-year at $231,300.
Demand for U.S.-made durable goods rose 3.1% in June, led by a surge in demand for transportation goods, the Commerce Department said. Excluding the 8.6% rise in transportation orders, orders for durable goods increased 1%.
We could be witnessing a turn down in housing, a slowdown in hiring, but overall GDP growth in excess of 3.25%. In addition, with inflation still on the rise, profit margins for many companies could come under pressure. In sum, it is a mixed picture and requires an investor to be light on one's feet.
Nouriel Roubini: " In brief, the Three Bears of high oil prices, rising inflation leading to higher policy rates, and a slumping housing markets will derail the Goldilocks (of high growth and low inflation) and trigger a sharp U.S. slowdown in 2006, that may turn into a recession in 2007." He rates the chances of a recession at 50%.
The Fed and the bond market are looking for a slowdown.
For the second consecutive trading session equity indices could not hold on to their gains.
September crude climbed 60 cents to close at $74.54 a barrel Thursday. August natural gas rose 15.5 cents to $7.042 per million British thermal units, closing at its highest level since June 19 after a surprise decline in last week's U.S. supplies.
Gold for August delivery closed up $10.60 at $632.50 an ounce on the New York Mercantile Exchange. Other metals prices were mixed. Silver settled up 31 cents at $11.345 an ounce, platinum rose $1 at $1,242 an ounce and palladium gained 45 cents at $320.45 an ounce. Copper closed down 65 cents at $3.4785 a pound.
The volume of help-wanted advertising in major U.S. newspapers held steady in June, the Conference Board said Thursday. The help wanted index remained at 33 in June. The index was 39 one year ago. The index has been declining steadily. In the last three months, help-wanted advertising declined in all nine regions of the country. At the same time, the rise in ad volume online continued to slow.
Sales of new homes fell 3% in June to a seasonally adjusted annual rate of 1.13 million, the Commerce Department said Thursday. Revisions to previous months' sales show a softer market than previously reported. Sales in the first six months of the year were down 11.9% to 598,000 from the 679,000 in the first six months of 2005. The inventory of unsold homes on the market rose by 0.7% to a record 566,000, representing a 6.1-month supply at the June sales pace. The median sales price was up 2.3% year-over-year at $231,300.
Demand for U.S.-made durable goods rose 3.1% in June, led by a surge in demand for transportation goods, the Commerce Department said. Excluding the 8.6% rise in transportation orders, orders for durable goods increased 1%.
We could be witnessing a turn down in housing, a slowdown in hiring, but overall GDP growth in excess of 3.25%. In addition, with inflation still on the rise, profit margins for many companies could come under pressure. In sum, it is a mixed picture and requires an investor to be light on one's feet.
Wednesday, July 26, 2006
Not To Be Overlooked
7/27/06 Not To Be Overlooked
Union Stamping & Assembly Inc. plans to shut down its 922,000-square-foot South Charleston stamping plant by the end of the year, according to reports published in the Daily Mail of Charleston.
The saga of Jones Apparel is drawing to a close. Does the company take a lesser amount in a sale, such as what happened to Albertson's, or do they sell some individual brands? Maybe less is better in this retail environment.
If GM can achieve even greater savings in their restructuring efforts, how about Ford? I think analysts will be surprised in 2007 and 2008.
Birds Eye Foods plans to close a frozen food plant in Watsonville, California by the end of the year. The facility employs 550 people. In addition, the company will try to sell 5 other plants that have 740 workers.
On Wednesday we saw disappointments with Boeing and Norfolk Southern RR and, once again, the Dow Transports took it on the chin. The favorable earnings in the oil patch enabled some stocks in the group to trade at all-time highs.
The Fed Beige Book talked about the economy slowing down somewhat. It doesn't take a genius to know that the GDP growth rate in the first quarter will not continue inasmuch as it was a catch-up period from when the violent hurricanes impacted the fourth quarter of 2005. In addition, we don't need the Fed to tell us residential real estate is slowing. Basically, the Fed told us nothing we didn't already know. What else is new? What do you expect from government employees?
Yankee Candle hired Lehman to explore alternatives and the stock rose from $22 to $26. A couple of things to note. The price of oil has had a material impact on the cost of wax for candles. Secondly, when you light those candles, what are you breathing? The only candles that are safe for your health happen to be beeswax candles. The latter make up a tiny tiny part of Yankee Candle's sales. In addition, candles are a discretionary retail item. With the consumer being squeezed, candles are not exactly at the top of a have to buy list.
Pulte Homes sees full-year earnings of $4 to $4.30 per share, while analysts are looking for $4.44. The question is whether the company can earn $3 per share in 2007.
The Chicago City Council passed a measure that requires mega-retailers with more than $1 billion in annual sales and stores of at least 90,000 square feet to pay workers at least $10 an hour in wages plus $3 in fringe benefits by mid-2010. The current minimum wage in Illinois is $6.50 an hour and the federal minimum is $5.15.
The new Massachusetts health plan, the first in the U.S. requiring all residents to have medical insurance, won the approval of the federal government, helping to ensure medical coverage for the state's poorest citizens.
U.S. Health and Human Services Secretary Michael Leavitt today signed a waiver that will allow Massachusetts to receive $385 million in federal funding to help pay for the care of the poor and enable low-income workers to purchase insurance.
The dollar fell the most in three month against the euro after a Federal Reserve report said the pace of economic growth has slowed.
Yesterday's auction of $22 billion in new 2-year Treasury notes had a bid-to-cover -or bids rendered to bids accepted - ratio was 2.03, according to Action Economics, and that level was the lowest since April, 2005. If most money managers think the Fed is about to stop raising rates, then why was the demand for the 2-year notes so mediocre? If the dollar is declining, why would a foreigner want to buy a dollar denominated Treasury bond?
Union Stamping & Assembly Inc. plans to shut down its 922,000-square-foot South Charleston stamping plant by the end of the year, according to reports published in the Daily Mail of Charleston.
The saga of Jones Apparel is drawing to a close. Does the company take a lesser amount in a sale, such as what happened to Albertson's, or do they sell some individual brands? Maybe less is better in this retail environment.
If GM can achieve even greater savings in their restructuring efforts, how about Ford? I think analysts will be surprised in 2007 and 2008.
Birds Eye Foods plans to close a frozen food plant in Watsonville, California by the end of the year. The facility employs 550 people. In addition, the company will try to sell 5 other plants that have 740 workers.
On Wednesday we saw disappointments with Boeing and Norfolk Southern RR and, once again, the Dow Transports took it on the chin. The favorable earnings in the oil patch enabled some stocks in the group to trade at all-time highs.
The Fed Beige Book talked about the economy slowing down somewhat. It doesn't take a genius to know that the GDP growth rate in the first quarter will not continue inasmuch as it was a catch-up period from when the violent hurricanes impacted the fourth quarter of 2005. In addition, we don't need the Fed to tell us residential real estate is slowing. Basically, the Fed told us nothing we didn't already know. What else is new? What do you expect from government employees?
Yankee Candle hired Lehman to explore alternatives and the stock rose from $22 to $26. A couple of things to note. The price of oil has had a material impact on the cost of wax for candles. Secondly, when you light those candles, what are you breathing? The only candles that are safe for your health happen to be beeswax candles. The latter make up a tiny tiny part of Yankee Candle's sales. In addition, candles are a discretionary retail item. With the consumer being squeezed, candles are not exactly at the top of a have to buy list.
Pulte Homes sees full-year earnings of $4 to $4.30 per share, while analysts are looking for $4.44. The question is whether the company can earn $3 per share in 2007.
The Chicago City Council passed a measure that requires mega-retailers with more than $1 billion in annual sales and stores of at least 90,000 square feet to pay workers at least $10 an hour in wages plus $3 in fringe benefits by mid-2010. The current minimum wage in Illinois is $6.50 an hour and the federal minimum is $5.15.
The new Massachusetts health plan, the first in the U.S. requiring all residents to have medical insurance, won the approval of the federal government, helping to ensure medical coverage for the state's poorest citizens.
U.S. Health and Human Services Secretary Michael Leavitt today signed a waiver that will allow Massachusetts to receive $385 million in federal funding to help pay for the care of the poor and enable low-income workers to purchase insurance.
The dollar fell the most in three month against the euro after a Federal Reserve report said the pace of economic growth has slowed.
Yesterday's auction of $22 billion in new 2-year Treasury notes had a bid-to-cover -or bids rendered to bids accepted - ratio was 2.03, according to Action Economics, and that level was the lowest since April, 2005. If most money managers think the Fed is about to stop raising rates, then why was the demand for the 2-year notes so mediocre? If the dollar is declining, why would a foreigner want to buy a dollar denominated Treasury bond?
Tuesday, July 25, 2006
Disappointments And Nice Surprises
7/26/06 Disappointments And Nice Surprises
Bush: "Violence in Baghdad still terrible." More troops to be sent as there are more dying in Iraq than in Lebanon.
Inventories of homes for sale rose to a nine-year high (almost 7 months supply) while price appreciation slowed to 0.9% versus June 2005,the weakest pace in 11 years, the National Association of Realtors reported Tuesday. Yet, the homebuilding stocks still rallied for the thirs consecutive day. The CEO of Centex had lowered the EPS guidance for 2006 to $7 per share. The question is how will 2006 be? With such a high supply of homes for sale, I think it prudent to take a 40% haircut for 2007 for Centex. That leaves us with $4.20 per share. With the stock at $48, that equates to about 11 times next year's earnings. Let's compare that with BJ Services, a large oil services company. The shares closed on Friday at $30 and on Monday at $31. Yesterday they reported a great quarter up 86% and projected a 20%+ revenue gain for 2007. At $33, the stock sells at about 11 times 2007 earnings. I would rather own BJ Services over Centex.
Mike Shedlock: "Home prices are 4-5 standard deviations above wages increases and 4-5 standard deviations above rental prices."
MMM missed even lowered guidance and the stock got clipped 4 points to $67+.
UPS had operating margin problems and they look like they will continue for the second half. The stock dropped 16% in value.
One week before the Federal Open Market Committee met, the directors of the Kansas City and San Francisco regional Fed banks said they were in favor of holding the discount rate steady and "believed that more time was needed to assess the outlook for both economic growth and inflation." That information sent the equity market into a rally mode in the last hour of trading on Tuesday. Yet, the August fed funds contract implies a 54% chance that the Fed will hike its target on fed funds by a quarter percentage point to 5.5% on Aug. 8, vs. a 43% chance late Monday.
The Conference Board said its consumer-confidence index rose to 106.5 in July from a revised 105.4 in June, while economists surveyed by MarketWatch had been expecting a drop to 103.9 on average, from the initial estimate of 105.7. The present situation index rose to 133.0 from 132.2, while the expectations index edged up to 88.8 from 87.5. Expectations of inflation one year in the future held steady in July.
Separately, the National Association of Realtors said sales of existing homes fell 1.3% to a seasonally-adjusted annualized rate of 6.62 million, vs. economist forecasts for a decline to 6.58 million.
An auction of $7 billion in Treasury Inflation Protected Securities attracted a record high 69% level of bids from indirect bidders. The indirect bid includes foreign central banks. The bid-to-cover - or bids rendered to bids accepted ratio - was a strong 2.24. The auction also produced a high yield of 2.494% and a median yield of 2.480%.
"Over the last three months home sales have held in a narrow range, easing to a level that is near our annual projection, which tells us the market is stabilizing," said David Lereah, NAR chief economist.
In an interview last week with Automotive News, Ford Chief Financial Officer Don Leclair said that selling 900,000 F-Series vehicles this year "would be a real stretch, quite honestly, given where we are today and where the market was in the second quarter." As such, Ford increased incentives by $500 to $1,000 on the F-Series. In the last couple of trading days buyers have come into Ford shares and the stock has rallied about 10% from last week's new yearly low of $6.06.
Crude saw some profit taking and backed down to $73.75 a barrel.
Hewlett-Packard Co.late Tuesday said it agreed to acquire Mercury Interactive Corp. for $52 a share through a cash tender offer.
Richard Daughty:"The JOC-ECRI Industrial Price Index jumped in July, rising to 130.17 from 128.18! That one-month gain of 1.6% in prices is a lot of inflation in one month! What is even more interesting, if you think that being eaten alive by inflation is 'interesting', is that the index is up from 108.95 a year ago at this time, which is an inflation rate of 19.5%!"
According to Bloomberg, bonds of U.S. home builders, profitable through April, have turned into the biggest losers this year in the market for debt with ratings below-investment grade.
"The era of easy oil is over in our country," Mexico's Energy Secretary Fernando Canales told a news conference. Don't cry for Mexico. Pemex was expropriated in 1936-1937 from American companies. Expropriation is another term for stealing.
If the Univision deal fails to close by April 26, the Saban consortium each day would have to increase its $36.25-a-share offer a rate of 8% a year, the SEC filing said.
Bush: "Violence in Baghdad still terrible." More troops to be sent as there are more dying in Iraq than in Lebanon.
Inventories of homes for sale rose to a nine-year high (almost 7 months supply) while price appreciation slowed to 0.9% versus June 2005,the weakest pace in 11 years, the National Association of Realtors reported Tuesday. Yet, the homebuilding stocks still rallied for the thirs consecutive day. The CEO of Centex had lowered the EPS guidance for 2006 to $7 per share. The question is how will 2006 be? With such a high supply of homes for sale, I think it prudent to take a 40% haircut for 2007 for Centex. That leaves us with $4.20 per share. With the stock at $48, that equates to about 11 times next year's earnings. Let's compare that with BJ Services, a large oil services company. The shares closed on Friday at $30 and on Monday at $31. Yesterday they reported a great quarter up 86% and projected a 20%+ revenue gain for 2007. At $33, the stock sells at about 11 times 2007 earnings. I would rather own BJ Services over Centex.
Mike Shedlock: "Home prices are 4-5 standard deviations above wages increases and 4-5 standard deviations above rental prices."
MMM missed even lowered guidance and the stock got clipped 4 points to $67+.
UPS had operating margin problems and they look like they will continue for the second half. The stock dropped 16% in value.
One week before the Federal Open Market Committee met, the directors of the Kansas City and San Francisco regional Fed banks said they were in favor of holding the discount rate steady and "believed that more time was needed to assess the outlook for both economic growth and inflation." That information sent the equity market into a rally mode in the last hour of trading on Tuesday. Yet, the August fed funds contract implies a 54% chance that the Fed will hike its target on fed funds by a quarter percentage point to 5.5% on Aug. 8, vs. a 43% chance late Monday.
The Conference Board said its consumer-confidence index rose to 106.5 in July from a revised 105.4 in June, while economists surveyed by MarketWatch had been expecting a drop to 103.9 on average, from the initial estimate of 105.7. The present situation index rose to 133.0 from 132.2, while the expectations index edged up to 88.8 from 87.5. Expectations of inflation one year in the future held steady in July.
Separately, the National Association of Realtors said sales of existing homes fell 1.3% to a seasonally-adjusted annualized rate of 6.62 million, vs. economist forecasts for a decline to 6.58 million.
An auction of $7 billion in Treasury Inflation Protected Securities attracted a record high 69% level of bids from indirect bidders. The indirect bid includes foreign central banks. The bid-to-cover - or bids rendered to bids accepted ratio - was a strong 2.24. The auction also produced a high yield of 2.494% and a median yield of 2.480%.
"Over the last three months home sales have held in a narrow range, easing to a level that is near our annual projection, which tells us the market is stabilizing," said David Lereah, NAR chief economist.
In an interview last week with Automotive News, Ford Chief Financial Officer Don Leclair said that selling 900,000 F-Series vehicles this year "would be a real stretch, quite honestly, given where we are today and where the market was in the second quarter." As such, Ford increased incentives by $500 to $1,000 on the F-Series. In the last couple of trading days buyers have come into Ford shares and the stock has rallied about 10% from last week's new yearly low of $6.06.
Crude saw some profit taking and backed down to $73.75 a barrel.
Hewlett-Packard Co.late Tuesday said it agreed to acquire Mercury Interactive Corp. for $52 a share through a cash tender offer.
Richard Daughty:"The JOC-ECRI Industrial Price Index jumped in July, rising to 130.17 from 128.18! That one-month gain of 1.6% in prices is a lot of inflation in one month! What is even more interesting, if you think that being eaten alive by inflation is 'interesting', is that the index is up from 108.95 a year ago at this time, which is an inflation rate of 19.5%!"
According to Bloomberg, bonds of U.S. home builders, profitable through April, have turned into the biggest losers this year in the market for debt with ratings below-investment grade.
"The era of easy oil is over in our country," Mexico's Energy Secretary Fernando Canales told a news conference. Don't cry for Mexico. Pemex was expropriated in 1936-1937 from American companies. Expropriation is another term for stealing.
If the Univision deal fails to close by April 26, the Saban consortium each day would have to increase its $36.25-a-share offer a rate of 8% a year, the SEC filing said.
Monday, July 24, 2006
Monday's Trading
7/25/06 Monday's Trading
Early in the trading session the Dow leaped to a triple point gain, the fourth in several weeks. By the end of day, the Dow had risen about 180 points, the Nasdaq by 40, and the S&P by 20. Some of the bounce could be attributed to the end of the pressure brought on by the July options that expired on Friday. Not surprisingly, the high for the day for the VIX was the opening trade and soon it retreated by about 2 1/2 points to the day's low of 14.95. The Treasuries were basically unchanged but crude closed above $75 and natural gas climbed to $6.60 per million BTUs. What caught my eye were the homebuilding stocks that rallied for the second successive day.
John Hussman: "The U.S. economy is likely to slow and inflation is likely remain persistent, because the U.S. has ascended a mountain of debt upon which there are currently no promising directions to climb. All of the growth in U.S. gross domestic investment since 1998 has been financed by foreign capital inflows, and while the Federal government continues to expand the stock of U.S. debt, the appetite of foreigners for new debt, in addition to their existing holdings, can hardly do anything but slow.
As the growth of foreign capital inflows declines (I'm not suggesting that foreigners will actually sell their existing Treasury debt, just reduce their absorption of new debt), gross domestic investment is likely to stagger, particularly in the area of housing, and credit expansion in the U.S. is likely to slow as well."
Back in November 2004, you had an opportunity to purchase Merck shares at $25 and then again one year later. I mentioned almost two years ago that the drop from $45 to $25 due to Vioxx was way overdone. Now the shares are back to $39. With 14,000 lawsuits still outstanding, I suggest we pass the baton to some others who are now enthusiastic at this level. Maybe the shares will move much higher. I'm satisfied with booking the profit now.
Highlights of the Centex quarter ended June 30, 2006 (compared to last year's first quarter):
* Home closings increased 1% to 8,318
* Revenues grew 13% to $3.27 billion
* Home Building operating earnings decreased 17% to $281 million
* Earnings per diluted share from continuing operations declined 11% to $1.39
* Unit backlog declined 17% on a decrease in sales (orders) of 21%
Tim Eller, Centex Corporation Chairman and CEO, said, "We have responded to the significant variations in local market conditions with a strategy that balances sales pace with margin performance, and this is reflected in our results for our first fiscal quarter of 2007. We are placing emphasis on the development of balance sheet capacity over growth in our land position. This investment capacity, along with our geographic and segment diversification, will enable us to capitalize on growth and consolidation opportunities as individual markets rebound."
According to Bloomberg, California declared an electricity emergency as it braces for another power-demand record and the possibility of the most severe energy shortfall in five years because of a persistent heat wave.
A stage 2 emergency was declared at 1 p.m. local time by the California Independent System Operator, indicating that the reserve margin, a measure of surplus power, is below 5 percent. Utilities will be allowed to restrict power to some customers who accept cuts during emergencies in exchange for lower rates.
California, with an economy twice the size of Russia's, has struggled to improve the reliability of its electricity system as a growing population spurs demand. The state said it may call the first stage 3 emergency, which would lead to rolling blackouts, since 2001, when an industry restructuring and market manipulation by traders led to widespread electricity shortages.
Shares of Tokyo Steel Manufacturing Co., Japan's largest electric-furnace steelmaker, had their biggest decline in almost nine years after the company said first-quarter profit slumped 43 percent on lower sales.
South Korea's Korea National Oil Corp. signed a deal Monday with Newmont Mining Corp. to acquire a 100% stake in BlackGold oil sands leases in Alberta, Canada, South Korea's Ministry of Commerce, Industry and Energy said Monday.
The deal is worth $270 million, the ministry said in a statement.
Newmont Mining's BlackGold leases acquired by the state-owned oil company contain oil reserves of around 250 million barrels, the ministry said.
Early in the trading session the Dow leaped to a triple point gain, the fourth in several weeks. By the end of day, the Dow had risen about 180 points, the Nasdaq by 40, and the S&P by 20. Some of the bounce could be attributed to the end of the pressure brought on by the July options that expired on Friday. Not surprisingly, the high for the day for the VIX was the opening trade and soon it retreated by about 2 1/2 points to the day's low of 14.95. The Treasuries were basically unchanged but crude closed above $75 and natural gas climbed to $6.60 per million BTUs. What caught my eye were the homebuilding stocks that rallied for the second successive day.
John Hussman: "The U.S. economy is likely to slow and inflation is likely remain persistent, because the U.S. has ascended a mountain of debt upon which there are currently no promising directions to climb. All of the growth in U.S. gross domestic investment since 1998 has been financed by foreign capital inflows, and while the Federal government continues to expand the stock of U.S. debt, the appetite of foreigners for new debt, in addition to their existing holdings, can hardly do anything but slow.
As the growth of foreign capital inflows declines (I'm not suggesting that foreigners will actually sell their existing Treasury debt, just reduce their absorption of new debt), gross domestic investment is likely to stagger, particularly in the area of housing, and credit expansion in the U.S. is likely to slow as well."
Back in November 2004, you had an opportunity to purchase Merck shares at $25 and then again one year later. I mentioned almost two years ago that the drop from $45 to $25 due to Vioxx was way overdone. Now the shares are back to $39. With 14,000 lawsuits still outstanding, I suggest we pass the baton to some others who are now enthusiastic at this level. Maybe the shares will move much higher. I'm satisfied with booking the profit now.
Highlights of the Centex quarter ended June 30, 2006 (compared to last year's first quarter):
* Home closings increased 1% to 8,318
* Revenues grew 13% to $3.27 billion
* Home Building operating earnings decreased 17% to $281 million
* Earnings per diluted share from continuing operations declined 11% to $1.39
* Unit backlog declined 17% on a decrease in sales (orders) of 21%
Tim Eller, Centex Corporation Chairman and CEO, said, "We have responded to the significant variations in local market conditions with a strategy that balances sales pace with margin performance, and this is reflected in our results for our first fiscal quarter of 2007. We are placing emphasis on the development of balance sheet capacity over growth in our land position. This investment capacity, along with our geographic and segment diversification, will enable us to capitalize on growth and consolidation opportunities as individual markets rebound."
According to Bloomberg, California declared an electricity emergency as it braces for another power-demand record and the possibility of the most severe energy shortfall in five years because of a persistent heat wave.
A stage 2 emergency was declared at 1 p.m. local time by the California Independent System Operator, indicating that the reserve margin, a measure of surplus power, is below 5 percent. Utilities will be allowed to restrict power to some customers who accept cuts during emergencies in exchange for lower rates.
California, with an economy twice the size of Russia's, has struggled to improve the reliability of its electricity system as a growing population spurs demand. The state said it may call the first stage 3 emergency, which would lead to rolling blackouts, since 2001, when an industry restructuring and market manipulation by traders led to widespread electricity shortages.
Shares of Tokyo Steel Manufacturing Co., Japan's largest electric-furnace steelmaker, had their biggest decline in almost nine years after the company said first-quarter profit slumped 43 percent on lower sales.
South Korea's Korea National Oil Corp. signed a deal Monday with Newmont Mining Corp. to acquire a 100% stake in BlackGold oil sands leases in Alberta, Canada, South Korea's Ministry of Commerce, Industry and Energy said Monday.
The deal is worth $270 million, the ministry said in a statement.
Newmont Mining's BlackGold leases acquired by the state-owned oil company contain oil reserves of around 250 million barrels, the ministry said.
It's Official
7/24/06 It's Official
AMD announced the purchase of ATI Technologies for $5.4 billion in cash and stock. Time will tell whether this was a prudent move.
HCA announced that it will be purchased for $51 in cash in the largest LBO in history. Time will tell whether this company's cash flow can carry such an enormous debt load. I wouldn't try it.
Polo Ralph Lauren raised its forecast Monday for the first quarter of fiscal 2007. The New York-based designer said stronger worldwide demand at full prices for its apparel and accessories at its retail stores and better department- and specialty-store sales were helping profit margins. The company said revenue will swell by a percentage in the mid-20s, expanding operating margins.
The European Commission on Monday cleared Alcatel's proposed $13.45 billion acquisition of Lucent Technologies Inc. The commission said it concluded that the deal would not significantly impede competition. When this deal was announced Lucent traded up to $3.30. Now it's just above $2. Mergers are not always profitable for the shareholders.
AMD announced the purchase of ATI Technologies for $5.4 billion in cash and stock. Time will tell whether this was a prudent move.
HCA announced that it will be purchased for $51 in cash in the largest LBO in history. Time will tell whether this company's cash flow can carry such an enormous debt load. I wouldn't try it.
Polo Ralph Lauren raised its forecast Monday for the first quarter of fiscal 2007. The New York-based designer said stronger worldwide demand at full prices for its apparel and accessories at its retail stores and better department- and specialty-store sales were helping profit margins. The company said revenue will swell by a percentage in the mid-20s, expanding operating margins.
The European Commission on Monday cleared Alcatel's proposed $13.45 billion acquisition of Lucent Technologies Inc. The commission said it concluded that the deal would not significantly impede competition. When this deal was announced Lucent traded up to $3.30. Now it's just above $2. Mergers are not always profitable for the shareholders.
Saturday, July 22, 2006
Demand
7/23/06 Demand
According to Metals Place, overall, world production of primary aluminium rose by almost 900,000 tons compared with January to May 2005.
"China accounted for half of the growth, using imported bauxite as feed," World Bureau of Metal Statistics said.
"Chinese bauxite imports rose to 2.6 million tons in the first five months of the year from 0.55 million tons in the comparable period of 2005," WBMS added.
Increased primary aluminium production in Russia, Canada, Bahrain, Brazil and the reemergence of Ghana contributed the remainder of the additional output of metal.
Demand rose by only 550,000 tons to 13.70 million tons, with almost all of the increases recorded in China where total demand was 22% higher.
WBMS said that Chinese demand slipped in the first three months of the year but has recovered to 650,000 tons and 692,000 tons in April and May respectively.
Output of processed aluminium products in China was 35% higher than in the previous year.
With the annual CPI averaging at least 4.3% over the past 12 months, one would best best served to concentrate on well capitalized companies with a p/e no higher than 13. In addition, one must not ignore extraordinary benefits from a low tax rate and/or the reduction in outstanding shares resulting from buybacks. In addition, a dividend yield of 35 or more will help to buffer the downside. To make the risk/reward even more in your favor, another plus might be whether the company's management is considering a possible sale in order to maximize shareholder value. Lastly, watch to see whether insiders are current buyers of the stock. If there are a good many insiders selling, forget it. There are too many other fish in the sea.
Ludwig von Mises: "Full government control of all activities of the individual is virtually the goal of both national parties."
According to Metals Place, overall, world production of primary aluminium rose by almost 900,000 tons compared with January to May 2005.
"China accounted for half of the growth, using imported bauxite as feed," World Bureau of Metal Statistics said.
"Chinese bauxite imports rose to 2.6 million tons in the first five months of the year from 0.55 million tons in the comparable period of 2005," WBMS added.
Increased primary aluminium production in Russia, Canada, Bahrain, Brazil and the reemergence of Ghana contributed the remainder of the additional output of metal.
Demand rose by only 550,000 tons to 13.70 million tons, with almost all of the increases recorded in China where total demand was 22% higher.
WBMS said that Chinese demand slipped in the first three months of the year but has recovered to 650,000 tons and 692,000 tons in April and May respectively.
Output of processed aluminium products in China was 35% higher than in the previous year.
With the annual CPI averaging at least 4.3% over the past 12 months, one would best best served to concentrate on well capitalized companies with a p/e no higher than 13. In addition, one must not ignore extraordinary benefits from a low tax rate and/or the reduction in outstanding shares resulting from buybacks. In addition, a dividend yield of 35 or more will help to buffer the downside. To make the risk/reward even more in your favor, another plus might be whether the company's management is considering a possible sale in order to maximize shareholder value. Lastly, watch to see whether insiders are current buyers of the stock. If there are a good many insiders selling, forget it. There are too many other fish in the sea.
Ludwig von Mises: "Full government control of all activities of the individual is virtually the goal of both national parties."
Friday, July 21, 2006
Land Mines
7/22/06 Land Mines
Median weekly earnings of the nation's 105.9 million full-time wage and
salary workers were $659 in the second quarter of 2006, the Bureau of Labor
Statistics of the U.S. Department of Labor reported today. This was 2.5
percent higher than a year earlier, compared with a gain of 4.0 percent in
the Consumer Price Index for All Urban Consumers (CPI-U) over the same pe-
riod. Women who usually worked full time had median earnings of $593 per
week, or 81.1 percent of the $731 median for men.(Now you know why those on Main Street have low ratings on the economy.)
Dell expects to earn between 21 cents and 23 cents a share on revenue of $14 billion, while analysts surveyed by Thomson First Call had forecast Dell to earn 32 cents a share on $14.23 billion in revenue. Basically, the problem is not a revenue one but that of margins. Do I believe the problem can be fixed? Yes I do. However, there is also a problem of providing better service and that is a more difficult problem to address.
In this reporting season there have been some nice surprises -- Google, Apple, Caterpillar, Motorola, Schlumberger, Pepsi, and Coke. On the other hand, there have been too many land mines, such as, MMM, GE, Capital One, Yahoo, Intel, Advanced Micro Devices, Broadcom, Qualcomm, and Halliburton. How can Schlumberger exceed forecasts and Halliburton disappoint? It's called management.
Looking ahead, Nucor said its current orders and backlogs are healthy across all of its product lines, and that it expects third-quarter earnings to continue to be "very strong."
You want to see inflation. Look at this and read carefully please. St. Louis-based Arch Coal said its operating margin per ton increased substantially in the quarter due to the roll-off of lower-priced sales contracts and the restructuring of its assets in Central Appalachia. The company's tons sold fell to 32 million in the quarter from 34.6 million a year ago but operating margin per ton swelled to $3.67 from $1.19 last year. The average estimate of analysts polled by Thomson First Call was for a profit of 43 cents a share in the June period. Looking ahead, Arch sees earnings of $1.87 to $2.12 a share with total sales volume of between 135 million and 140 million tons.
Weatherford's Chief Executive Officer Bernard Duroc-Danner on drilling prospects:``We view the North American market as near equilibrium certainly for the next 12 months. But it is not correct to assume Weatherford is vulnerable in North America.''
``Some temporary slowing of natural-gas drilling activity cannot be excluded, though currently there are no clear signs of this,'' Schlumberger Chief Executive Officer Andrew Gould said in a statement. In my view, this is to be expected as natural gas had declined from the spike price of $15 to its present $6 per million BTUs.
Despite being widely reported in the media that the U.S. and other countries have not found any weapons of mass destruction in Iraq, surprisingly; more U.S. adults (50%) think that Iraq had such weapons when the U.S. invaded Iraq. This is an increase from 36 percent in February 2005. Overall, attitudes toward the war in Iraq
are negative, and less than half of the U.S. population believes that the
threat of terrorism has been reduced. U.S. adults are not confident that
Iraq's government will eventually become stable, and many think the war in
Iraq is continuing to hurt respect for the U.S. around the world. Most
people do not think that U.S. troops will be out of Iraq in the next two years.
These are some of the results of The Harris Poll of 1,020 U.S. adults
(ages 18 and over) surveyed by telephone by Harris Interactive(R) between
July 5 and 11, 2006.
The Nasdaq Composite registered its third straight weekly loss and fell 19.03 points to 2,020.29, its lowest close since May, 2005. The S&P 500 dropped 8.84 points to 1,240.29 and the Dow Jones Industrial Average lost 59.72 points to end at 10,868.38.
Meanwhile, the VIX opened at 16.23, the low for the day, and closed up at 17.40, near the high for the day. Still, the volatility index is far below the most recent high of 24.
According to a report, Advanced Micro Devices Inc. may be planning a $5.6-billion takeover bid for Markham, Ontario-based ATI. AMD's board has approved a takeover offer, the Globe and Mail reported, citing an investment banker familiar with the talks. That may be one reason AMD shares got crushed on Friday to $18+. Buying ATI would give Advanced Micro the ability to package graphics chips with its latest processors and get them to customers faster. That maybe but $5.6 billion is a big price tag. Why? The entire market cap for AMD is now $8.7 billion.
Even though the quarterly results were excellent for bot Caterpillar and Schlumberger, both closed down on Friday. On the other hand, Lennar and Centex, two homebuilders, closed higher.
Nouriel Roubini suggests the Chinese yuan will appreciate by 5% by the end of 2006.
The growth in China's demand for oil to feed its galloping economy will slow to an average rate of 5% over the next decade and is not enough to trigger a crisis in global supply or a demand crunch, said energy consultancy Wood Mackenzie in a report published Friday.
According to Oil Daily, bids for a 268,000 b/d refinery in Houston, Texas exceeded $5 billion, but that was not enough for the seller. Lyondell Chemical Co., which owns almost 59% of the refinery in a joint venture with Citgo Petroleum. They took the refinery off the market on Thursday, calling the bids it received "insufficient.
NOAA: "The average temperature for the continental United States from January through June 2006 was the warmest first half of any year since records began in 1895."
Mark Twain:“Beautiful credit! The foundation of modern society. Who shall say that this is not the golden age of mutual trust, of unlimited reliance upon human promises? That is a peculiar condition of society which enables a whole nation to instantly recognize point and meaning in the familiar newspaper anecdote, which puts into the mouth of a distinguished speculator in lands and mines this remark: -- ''I wasn't worth a cent two years ago, and now I owe two millions of dollars.''”
Median weekly earnings of the nation's 105.9 million full-time wage and
salary workers were $659 in the second quarter of 2006, the Bureau of Labor
Statistics of the U.S. Department of Labor reported today. This was 2.5
percent higher than a year earlier, compared with a gain of 4.0 percent in
the Consumer Price Index for All Urban Consumers (CPI-U) over the same pe-
riod. Women who usually worked full time had median earnings of $593 per
week, or 81.1 percent of the $731 median for men.(Now you know why those on Main Street have low ratings on the economy.)
Dell expects to earn between 21 cents and 23 cents a share on revenue of $14 billion, while analysts surveyed by Thomson First Call had forecast Dell to earn 32 cents a share on $14.23 billion in revenue. Basically, the problem is not a revenue one but that of margins. Do I believe the problem can be fixed? Yes I do. However, there is also a problem of providing better service and that is a more difficult problem to address.
In this reporting season there have been some nice surprises -- Google, Apple, Caterpillar, Motorola, Schlumberger, Pepsi, and Coke. On the other hand, there have been too many land mines, such as, MMM, GE, Capital One, Yahoo, Intel, Advanced Micro Devices, Broadcom, Qualcomm, and Halliburton. How can Schlumberger exceed forecasts and Halliburton disappoint? It's called management.
Looking ahead, Nucor said its current orders and backlogs are healthy across all of its product lines, and that it expects third-quarter earnings to continue to be "very strong."
You want to see inflation. Look at this and read carefully please. St. Louis-based Arch Coal said its operating margin per ton increased substantially in the quarter due to the roll-off of lower-priced sales contracts and the restructuring of its assets in Central Appalachia. The company's tons sold fell to 32 million in the quarter from 34.6 million a year ago but operating margin per ton swelled to $3.67 from $1.19 last year. The average estimate of analysts polled by Thomson First Call was for a profit of 43 cents a share in the June period. Looking ahead, Arch sees earnings of $1.87 to $2.12 a share with total sales volume of between 135 million and 140 million tons.
Weatherford's Chief Executive Officer Bernard Duroc-Danner on drilling prospects:``We view the North American market as near equilibrium certainly for the next 12 months. But it is not correct to assume Weatherford is vulnerable in North America.''
``Some temporary slowing of natural-gas drilling activity cannot be excluded, though currently there are no clear signs of this,'' Schlumberger Chief Executive Officer Andrew Gould said in a statement. In my view, this is to be expected as natural gas had declined from the spike price of $15 to its present $6 per million BTUs.
Despite being widely reported in the media that the U.S. and other countries have not found any weapons of mass destruction in Iraq, surprisingly; more U.S. adults (50%) think that Iraq had such weapons when the U.S. invaded Iraq. This is an increase from 36 percent in February 2005. Overall, attitudes toward the war in Iraq
are negative, and less than half of the U.S. population believes that the
threat of terrorism has been reduced. U.S. adults are not confident that
Iraq's government will eventually become stable, and many think the war in
Iraq is continuing to hurt respect for the U.S. around the world. Most
people do not think that U.S. troops will be out of Iraq in the next two years.
These are some of the results of The Harris Poll of 1,020 U.S. adults
(ages 18 and over) surveyed by telephone by Harris Interactive(R) between
July 5 and 11, 2006.
The Nasdaq Composite registered its third straight weekly loss and fell 19.03 points to 2,020.29, its lowest close since May, 2005. The S&P 500 dropped 8.84 points to 1,240.29 and the Dow Jones Industrial Average lost 59.72 points to end at 10,868.38.
Meanwhile, the VIX opened at 16.23, the low for the day, and closed up at 17.40, near the high for the day. Still, the volatility index is far below the most recent high of 24.
According to a report, Advanced Micro Devices Inc. may be planning a $5.6-billion takeover bid for Markham, Ontario-based ATI. AMD's board has approved a takeover offer, the Globe and Mail reported, citing an investment banker familiar with the talks. That may be one reason AMD shares got crushed on Friday to $18+. Buying ATI would give Advanced Micro the ability to package graphics chips with its latest processors and get them to customers faster. That maybe but $5.6 billion is a big price tag. Why? The entire market cap for AMD is now $8.7 billion.
Even though the quarterly results were excellent for bot Caterpillar and Schlumberger, both closed down on Friday. On the other hand, Lennar and Centex, two homebuilders, closed higher.
Nouriel Roubini suggests the Chinese yuan will appreciate by 5% by the end of 2006.
The growth in China's demand for oil to feed its galloping economy will slow to an average rate of 5% over the next decade and is not enough to trigger a crisis in global supply or a demand crunch, said energy consultancy Wood Mackenzie in a report published Friday.
According to Oil Daily, bids for a 268,000 b/d refinery in Houston, Texas exceeded $5 billion, but that was not enough for the seller. Lyondell Chemical Co., which owns almost 59% of the refinery in a joint venture with Citgo Petroleum. They took the refinery off the market on Thursday, calling the bids it received "insufficient.
NOAA: "The average temperature for the continental United States from January through June 2006 was the warmest first half of any year since records began in 1895."
Mark Twain:“Beautiful credit! The foundation of modern society. Who shall say that this is not the golden age of mutual trust, of unlimited reliance upon human promises? That is a peculiar condition of society which enables a whole nation to instantly recognize point and meaning in the familiar newspaper anecdote, which puts into the mouth of a distinguished speculator in lands and mines this remark: -- ''I wasn't worth a cent two years ago, and now I owe two millions of dollars.''”
Thursday, July 20, 2006
Ford
7/21/06 Ford
Have you been checking your electricity bills lately? Since the Fed says inflation is not out of control, maybe you can explain to them the huge rise in your bill for electricity.
Bernanke: "Higher real wages are compatible with low inflation." Obviously here is the problem. The increase in real wages has been modest at best for the past four years. No wonder inflation is a problem.
Ford's loss from operations was 3 cents for the quarter. I did anticipate this number for a couple of reasons -- the sharp downturn in profits from the financial services division and the deteriorating operations at Jaguar, Land Rover, Aston Martin, and Volvo. Europe's pre-tax profits still rose and the pre-tax loss from North American operations was less. In the first quarter cash was $23.7 billion and now it's $23.6 billion -- no real change. Stockholder's equity at 12/31/05 was $12.9 billion and now it's $14.7 billion. Seven months ago most media reporters were announcing the coming demise of GM. Now they are onto Ford. Things are improving but they need to do much more. A combo with GM would make the turnaround easier for both companies.
The Philly Fed index fell to 6.0 in July from 13.1 in June. The new orders index fell to 10.1 from 17.7. Shipments fell to 10.2 from 17.7. Prices paid rose to 50.3 from 48.7. Prices received rose to 17.1 from 14.0. The index of future activity rose to 15.4 from 6.8.
The index of leading economic indicators increased 0.1% in June after two consecutive declines, the Conference Board reported Thursday. "The U.S. economy is cooling at mid-year," said Ken Goldstein, a labor economist at the private group. The leading indicators "suggest that the economy could cool even more in the third and fourth quarters of the year." The coincident index increased 0.2%. The lagging index increased 0.6%.
Bernanke: "The recent acceleration in core inflation is broad-based and not a "statistical illusion."
CEO of D.R. Horton: "June sales fell off the Richter scale."
Microsoft announced a tender off to buy back $20 billion worth of its stock and a further buy back program worth up to another $20 billion. Since I don't own any Microsoft, I can't tender shares to them at $24.50. I guess this is the best they can do with their cash.
Yesterday the Dow Transports dropped 205 points or 4%. Still the VIX only had a range of one and a half points and only managed a .66 of a point gain.
I guess I look silly having said interest rates were going to 5.30% in the short term. The 10-year yield dropped sharply to 5.03%. I guess I got my numbers reversed!
The thing I like about Bill Ford, CEO of Ford, is his honesty and knowing he is open to doing what's best for shareowners. He is sincere and on top of the business. I can't make that statement about too many CEOs of public companies. Patient investors will be rewarded, in my view.
Grupo Televisa sued Univision Communications Inc. for the right to distribute its programming over the Internet in the United States, according to Thursday news reports.
In the suit, filed Wednesday in Los Angeles Superior Court, Televisa is seeking a ruling on whether its current agreement to provide programming to Univision prohibits the company from broadcasting the content over the internet.
Have you been checking your electricity bills lately? Since the Fed says inflation is not out of control, maybe you can explain to them the huge rise in your bill for electricity.
Bernanke: "Higher real wages are compatible with low inflation." Obviously here is the problem. The increase in real wages has been modest at best for the past four years. No wonder inflation is a problem.
Ford's loss from operations was 3 cents for the quarter. I did anticipate this number for a couple of reasons -- the sharp downturn in profits from the financial services division and the deteriorating operations at Jaguar, Land Rover, Aston Martin, and Volvo. Europe's pre-tax profits still rose and the pre-tax loss from North American operations was less. In the first quarter cash was $23.7 billion and now it's $23.6 billion -- no real change. Stockholder's equity at 12/31/05 was $12.9 billion and now it's $14.7 billion. Seven months ago most media reporters were announcing the coming demise of GM. Now they are onto Ford. Things are improving but they need to do much more. A combo with GM would make the turnaround easier for both companies.
The Philly Fed index fell to 6.0 in July from 13.1 in June. The new orders index fell to 10.1 from 17.7. Shipments fell to 10.2 from 17.7. Prices paid rose to 50.3 from 48.7. Prices received rose to 17.1 from 14.0. The index of future activity rose to 15.4 from 6.8.
The index of leading economic indicators increased 0.1% in June after two consecutive declines, the Conference Board reported Thursday. "The U.S. economy is cooling at mid-year," said Ken Goldstein, a labor economist at the private group. The leading indicators "suggest that the economy could cool even more in the third and fourth quarters of the year." The coincident index increased 0.2%. The lagging index increased 0.6%.
Bernanke: "The recent acceleration in core inflation is broad-based and not a "statistical illusion."
CEO of D.R. Horton: "June sales fell off the Richter scale."
Microsoft announced a tender off to buy back $20 billion worth of its stock and a further buy back program worth up to another $20 billion. Since I don't own any Microsoft, I can't tender shares to them at $24.50. I guess this is the best they can do with their cash.
Yesterday the Dow Transports dropped 205 points or 4%. Still the VIX only had a range of one and a half points and only managed a .66 of a point gain.
I guess I look silly having said interest rates were going to 5.30% in the short term. The 10-year yield dropped sharply to 5.03%. I guess I got my numbers reversed!
The thing I like about Bill Ford, CEO of Ford, is his honesty and knowing he is open to doing what's best for shareowners. He is sincere and on top of the business. I can't make that statement about too many CEOs of public companies. Patient investors will be rewarded, in my view.
Grupo Televisa sued Univision Communications Inc. for the right to distribute its programming over the Internet in the United States, according to Thursday news reports.
In the suit, filed Wednesday in Los Angeles Superior Court, Televisa is seeking a ruling on whether its current agreement to provide programming to Univision prohibits the company from broadcasting the content over the internet.
Wednesday, July 19, 2006
Examining The Happenings
7/20/06 Examining The Happenings
I don't get caught up in the cheering or the doubting, whichever is applicable at the time. For me, it's just business. I look at the facts. Yesterday the Dow and The S&P rose about 2%. Why? Was it short covering, Bernanke, the spectre of option expiration on Friday, specialists trying to mark up their positions, etc? Let's look at Bernanke. He said growth was moderating. That's interesting. I have been the one who has stated that growth going forwward from the first quarter would exceed 3%. I was alone in this projection. Now Bernanke has said the same thing. In other words, growth will be higher than what economists have been forecasting. He said inflation would moderate when growth moderates. Will the Fed stop printing money at a 5% or higher rate? No way. Is China, India, etc. going to have slower growth rates? Will the demand for oil and other commodities and materials be less in China and India? You get my drift? I'm all for a bull market in stocks and bonds when it's based on facts. The sooner the Street stops listening to others and thinks for itself, the greater the chance that some degree of worth will come from Wall Street analysts and economists. Don't hold your breath.
Average weekly earnings rose by 4.5 percent, seasonally adjusted, from June 2005 to June 2006. After deflation by the CPI-W, average weekly earnings increased by 0.1 percent. Consumer prices increased at a seasonally adjusted annual rate (SAAR) of 5.1 percent in the second quarter after advancing at a 4.3 percent rate in the first three months of 2006. This brings the year-to-date annual rate to 4.7 percent and compares with an increase of 3.4 percent in all of 2005.
Bernanke: "I see inflation in a broad range of goods and services."
The market has now taken the view that the Fed will raise rates in August and then pause. All of this is now based on yesterday's testimony by the Fed chief. Volatility was generated in a matter of minutes. The dollar index fell from 87.30 to 86.30 and the 2-year treasury note yield dropped from 5.24% to 5.13% -- all in what seemed like nanoseconds. Is this the norm? Do we have global warming? The VIX opened at 17.62 and quickly sold down to 14.47. The Dow opened plus about 50 points and quickly was up 160 points. If you were out of the trading room in the bathroom, you missed gigantic moves.
Gold traded up $10 an ounce but oil continued to sell down and traded near $72 a barrel.
Builders began new housing construction at a slower rate in June, the Commerce Department said Wednesday, as the number of building permits issued also continued to decline. New construction of U.S. houses fell 5.3% in June to a seasonally adjusted annual rate of 1.85 million, the Commerce Department reported. Housing starts in May were revised slightly downward to 1.95 million from 1.96 million. Estimated housing starts were weaker than the 1.89 million pace expected by economists surveyed by MarketWatch. Building permits, a leading indicator of housing construction, fell 4.3% to a seasonally adjusted annual rate of 1.86 million in June from 1.95 million in May.
Ryland's homebuilding revenue grew 3 percent, while financial services revenue dropped 8 percent. Total expenses increased 5 percent to $1.05 billion. The average closing price of a Ryland home rose 8.5 percent to $295,000. Homebuilding pretax earnings of $157.6 million were off more than 8 percent. Ryland had 3,803 closings in the quarter, down 5.8 percent from the same period last year. New orders fell over 39 percent, to 3,023 units. The company says it expects fiscal 2006 earnings to be between $7.75 and $8.25 per share. Previously, the company said it expects a profit of $8.50 to $9 per share. For the year, analysts see a profit of $7.99 a share.
Richard Daughty: "I pick up my Mogambo High-Powered Megaphone (MHPM) and fairly scream through it "The JOC-ECRI Industrial Price Index jumped in July, rising to 130.17 from 128.18! That one-month gain of 1.6% in prices is a lot of inflation in one month! What is even more interesting, if you think that being eaten alive by inflation is 'interesting', is that the index is up from 108.95 a year ago at this time, which is an inflation rate of 19.5%!"
Intel's second quarter sales fell 10% to $8 billion. Analysts surveyed by Thomson First Call estimated Intel would post sales of $8.3 billion. The company also offered a softer-than-expected sales forecast for the quarter ending in September.
Yogi Berra: "You got to be careful if you don't know where you're going, because you might not get there."
I don't get caught up in the cheering or the doubting, whichever is applicable at the time. For me, it's just business. I look at the facts. Yesterday the Dow and The S&P rose about 2%. Why? Was it short covering, Bernanke, the spectre of option expiration on Friday, specialists trying to mark up their positions, etc? Let's look at Bernanke. He said growth was moderating. That's interesting. I have been the one who has stated that growth going forwward from the first quarter would exceed 3%. I was alone in this projection. Now Bernanke has said the same thing. In other words, growth will be higher than what economists have been forecasting. He said inflation would moderate when growth moderates. Will the Fed stop printing money at a 5% or higher rate? No way. Is China, India, etc. going to have slower growth rates? Will the demand for oil and other commodities and materials be less in China and India? You get my drift? I'm all for a bull market in stocks and bonds when it's based on facts. The sooner the Street stops listening to others and thinks for itself, the greater the chance that some degree of worth will come from Wall Street analysts and economists. Don't hold your breath.
Average weekly earnings rose by 4.5 percent, seasonally adjusted, from June 2005 to June 2006. After deflation by the CPI-W, average weekly earnings increased by 0.1 percent. Consumer prices increased at a seasonally adjusted annual rate (SAAR) of 5.1 percent in the second quarter after advancing at a 4.3 percent rate in the first three months of 2006. This brings the year-to-date annual rate to 4.7 percent and compares with an increase of 3.4 percent in all of 2005.
Bernanke: "I see inflation in a broad range of goods and services."
The market has now taken the view that the Fed will raise rates in August and then pause. All of this is now based on yesterday's testimony by the Fed chief. Volatility was generated in a matter of minutes. The dollar index fell from 87.30 to 86.30 and the 2-year treasury note yield dropped from 5.24% to 5.13% -- all in what seemed like nanoseconds. Is this the norm? Do we have global warming? The VIX opened at 17.62 and quickly sold down to 14.47. The Dow opened plus about 50 points and quickly was up 160 points. If you were out of the trading room in the bathroom, you missed gigantic moves.
Gold traded up $10 an ounce but oil continued to sell down and traded near $72 a barrel.
Builders began new housing construction at a slower rate in June, the Commerce Department said Wednesday, as the number of building permits issued also continued to decline. New construction of U.S. houses fell 5.3% in June to a seasonally adjusted annual rate of 1.85 million, the Commerce Department reported. Housing starts in May were revised slightly downward to 1.95 million from 1.96 million. Estimated housing starts were weaker than the 1.89 million pace expected by economists surveyed by MarketWatch. Building permits, a leading indicator of housing construction, fell 4.3% to a seasonally adjusted annual rate of 1.86 million in June from 1.95 million in May.
Ryland's homebuilding revenue grew 3 percent, while financial services revenue dropped 8 percent. Total expenses increased 5 percent to $1.05 billion. The average closing price of a Ryland home rose 8.5 percent to $295,000. Homebuilding pretax earnings of $157.6 million were off more than 8 percent. Ryland had 3,803 closings in the quarter, down 5.8 percent from the same period last year. New orders fell over 39 percent, to 3,023 units. The company says it expects fiscal 2006 earnings to be between $7.75 and $8.25 per share. Previously, the company said it expects a profit of $8.50 to $9 per share. For the year, analysts see a profit of $7.99 a share.
Richard Daughty: "I pick up my Mogambo High-Powered Megaphone (MHPM) and fairly scream through it "The JOC-ECRI Industrial Price Index jumped in July, rising to 130.17 from 128.18! That one-month gain of 1.6% in prices is a lot of inflation in one month! What is even more interesting, if you think that being eaten alive by inflation is 'interesting', is that the index is up from 108.95 a year ago at this time, which is an inflation rate of 19.5%!"
Intel's second quarter sales fell 10% to $8 billion. Analysts surveyed by Thomson First Call estimated Intel would post sales of $8.3 billion. The company also offered a softer-than-expected sales forecast for the quarter ending in September.
Yogi Berra: "You got to be careful if you don't know where you're going, because you might not get there."
Monday, July 17, 2006
Misery Loves Company
6/19/06 Misery Loves Comapny
On Monday evening, after the trading session had closed for some time, Target said it now sees July same-store sales rising 3% to 4%, below an earlier forecast of a 4% to 6% rise. Last July, Target's same-store sales, at stores open longer than a year, climbed 5%. It is true that 3% to 4% is still higher than Wal-Mart's most recent same-store sales estimate for July. We should not forget that Target's customer has a median income higher than that found at Wal-Mart. At the same time, $3 gas and wages that trail inflation do count for a Target customer too.Meanwhile, Target shares dropped to below $45 on Tuesday, and Wal-Mart to below $42.50.
Representative Ron Paul:"Spending is always a tax. The inflation tax, though hidden, only makes things worse. Taxing, borrowing, and inflating to satisfy wealth transfers from the middle class to the rich in an effort to pay for profligate government spending, can never make a nation wealthier. But it certainly can make it poorer."
Tom Au: "Suppose in period 1 (e.g., 2005) that cyclical companies initially represent 10% of earnings, and their stocks command an average P/E ratio of 8, while the rest of the market represents 90% of earnings and commands a P/E ratio of 16. Multiplying the respective P/E’s by the respective weights and adding, one comes up with a market cap and “blended” P/E ratio of 15.2. Now suppose in period 2 (e.g. 2006), the earnings of the cyclical stocks (e.g. Alcoa) double, so they represent 20% of period 1 earnings. At the same time, earnings for the rest of the market fall from 90% to 85% of period 1 earnings. Adding the two components, period 2 earnings are now 5% higher than period 1 earnings (85%+20%=105%). But the market cap is just the same as before (.85*16)+(.2*8)=15.2. And the blended P/E multiple has actually fallen, because the same market cap is now divided by earnings of 1.05 rather than 1.00. This example, in fact, appears to be describing the current market action, and is reminiscent of the 1970s."
There isn't a day that I don't read the market is oversold or the market got ahead of itself. In my view, ignoring buying and selling various indices, a stock is oversold when you buy it and then resell it for a profit, and similarly, a stock is ahead of itself when you sell it and it proceeds to go down in price. Stocks as a group do not move together. In any market, there will be winners and losers. It's your job to limit your risk and, at the same time,invest in a winner. There are times when the risk will be less than at other times; however, don't be a sucker. There's no sure thing in stocks, bonds, or commodities. That's not to say that I might not come across as highly confident about a particular investment, such as, Cascade Natural Gas. On the other hand, I feel confident about Ford and so far all I have going for me is a kick in the groin. However, give this a thought. If Exxon purchased Mobil and Chevron acquired Texaco, why can't GM and Ford merge?
Early Tuesday morning I noticed the report that about $70 billion flowed into the U.S. from foreigners. More telling, foreign central banks sold $14.3 billion in U.S. Treasury bonds and notes in the month of May. Am I the only one who cares? The $70 billion came from private investors. Who are the private investors?
During much of the Tuesday trading hours crude traded at $76 or above. At that time shares of Halliburton, BJ Services, Transocean, Diamond Offshore, Schlumberger, and Baker Hughes were down on the day. Not surprisingly, it didn't take long for crude to close below $74 a barrel. Those invested in the energy sector need to be wary. I suggested a few days ago that one should consider taking some profits.
I will be particularly interested in Ryland's quarterly report. It will be released early Wednesday morning. They are a homebuilder headquartered in Southern California.
We saw that the PPI reflected growing inflation. I anticipate the CPI to be even worse. Yields on Treasuries began to rise in earnest on Tuesday with the 2-year and the 30-year at about 5.18% and the 10-year at 5.13%. I expect yields to approach 5.30% very shortly.
Home builders' confidence plunged to a 15-year low in July, reflecting growing worries about rising interest rates and declining affordability, the National Association of Home Builders said Tuesday. The NAHB/Wells Fargo housing market index fell three more points to 39 in July, the lowest since December 1991. The index peaked at 72 last June and has fallen in 11 months since then. In July, all three components of the home builders' index fell. Current sales index fell to 43 from 47, the expected sales index dropped to 46 from 51, and the traffic of potential buyers index fell to 27 from 29.
Gold closed down $22 an ounce while the dollar remained firm (to my surprise).
Home sales in Philadelphia, South Jersey and Delaware fell in the first six months of 2006 compared to a year ago for the first time in about a decade, according to a report released Monday by a real estate firm.
The research division of Prudential Fox & Roach Realtors in Devon, Pa., said sales in the 12-county region fell by more than 4 percent from January to June, and the number of days it took to sell a home on average soared by 48 percent to 32 days.
Gross domestic product jumped 11.3 percent after rising 10.3 percent in the first quarter, the statistics bureau said in Beijing today. That's the biggest gain since 1994, when the economy was less than a third of its current size.
Grid operators in the New York, the mid-Atlantic, Midwest, Texas and California broke last year’s all-time power-use records on Monday afternoon as residents and businesses cranked up air conditioners. Power outages have begun to pop up in various sections of the U.S.
Victoria Marklew: "The Central Bank of Russia (CBR) made a surprise shift in the ruble's exchange rate this morning, allowing the currency to rise 0.3% against its dollar/euro basket.
The small ruble increase may not seem all important, but the central bank had said back in early June that it saw no need for the currency to rise further in the near-term. Today's shift not only signals an assumption that record high oil prices will bring renewed upward pressure on the ruble, it also implies that the bank foresees a further rise in inflation over the coming months...With petrodollars flowing into the country at a record rate, the country's gold and forex reserves are rising rapidly (reaching $253.2 billion on July 7), as is the Oil Stabilization Fund, which was set up in 2004 and now totals about $77 billion. Russia also lifted its remaining restrictions on currency movements on July 1, paving the way for full ruble convertibility. Although the country still attracts a relatively small proportion of the world's foreign direct investment - in large part thanks to a hostile attitude toward foreign investors and a marked lack of attention to the rule of law - the combination of a rising ruble, soaring energy prices, and further currency liberalization will attract more cash inflows."
Yesterday, the Nasdaq 100 traded at a new 52-week low.
In the dumb and dumber department, yesterday IBM traded at a new 52-week low and then rallied sharply in extended hours trading when the company's quarterly results met expectations. In the second quarter IBM signed $9.6 billion of services contracts down from $11.4 billion in the first quarter and down from $14.6 billion in the year ago quarter. The tax rate at 30% was lower by 2.3 percentage points than the second quarter of 2005. In addition, during this quarter IBM repurchased $2.5 billion worht of stock. That's what the company does best- repurchase shares. For the longest period of time the smart thing to do was sell IBM on strength. Why mess with success?
Then we come to Yahoo. It appears to me that the company is continuing to lose market share in the search business to Google. I don't see that getting any better. The company will delay the launch of its new advertising technolgoy until the fourth quarter of this year, rather than launching it during the third quarter as planned. As for Microsoft, and they are doing even worse against Google in search. No surprise there.
Televisa's Executive Vice President Alfonso De Angoitia told analysts in a conference call that Televisa had still not ruled out the possibility of a counter bid for Univision, but he would not speculate on the price, according to Reuters reports. Angoitia also stressed that Televisa would not join the other group that includes Saban and other U.S. private equity firms in the acquisition.
Addison Mizner: "Misery loves company, but company does not reciprocate."
On Monday evening, after the trading session had closed for some time, Target said it now sees July same-store sales rising 3% to 4%, below an earlier forecast of a 4% to 6% rise. Last July, Target's same-store sales, at stores open longer than a year, climbed 5%. It is true that 3% to 4% is still higher than Wal-Mart's most recent same-store sales estimate for July. We should not forget that Target's customer has a median income higher than that found at Wal-Mart. At the same time, $3 gas and wages that trail inflation do count for a Target customer too.Meanwhile, Target shares dropped to below $45 on Tuesday, and Wal-Mart to below $42.50.
Representative Ron Paul:"Spending is always a tax. The inflation tax, though hidden, only makes things worse. Taxing, borrowing, and inflating to satisfy wealth transfers from the middle class to the rich in an effort to pay for profligate government spending, can never make a nation wealthier. But it certainly can make it poorer."
Tom Au: "Suppose in period 1 (e.g., 2005) that cyclical companies initially represent 10% of earnings, and their stocks command an average P/E ratio of 8, while the rest of the market represents 90% of earnings and commands a P/E ratio of 16. Multiplying the respective P/E’s by the respective weights and adding, one comes up with a market cap and “blended” P/E ratio of 15.2. Now suppose in period 2 (e.g. 2006), the earnings of the cyclical stocks (e.g. Alcoa) double, so they represent 20% of period 1 earnings. At the same time, earnings for the rest of the market fall from 90% to 85% of period 1 earnings. Adding the two components, period 2 earnings are now 5% higher than period 1 earnings (85%+20%=105%). But the market cap is just the same as before (.85*16)+(.2*8)=15.2. And the blended P/E multiple has actually fallen, because the same market cap is now divided by earnings of 1.05 rather than 1.00. This example, in fact, appears to be describing the current market action, and is reminiscent of the 1970s."
There isn't a day that I don't read the market is oversold or the market got ahead of itself. In my view, ignoring buying and selling various indices, a stock is oversold when you buy it and then resell it for a profit, and similarly, a stock is ahead of itself when you sell it and it proceeds to go down in price. Stocks as a group do not move together. In any market, there will be winners and losers. It's your job to limit your risk and, at the same time,invest in a winner. There are times when the risk will be less than at other times; however, don't be a sucker. There's no sure thing in stocks, bonds, or commodities. That's not to say that I might not come across as highly confident about a particular investment, such as, Cascade Natural Gas. On the other hand, I feel confident about Ford and so far all I have going for me is a kick in the groin. However, give this a thought. If Exxon purchased Mobil and Chevron acquired Texaco, why can't GM and Ford merge?
Early Tuesday morning I noticed the report that about $70 billion flowed into the U.S. from foreigners. More telling, foreign central banks sold $14.3 billion in U.S. Treasury bonds and notes in the month of May. Am I the only one who cares? The $70 billion came from private investors. Who are the private investors?
During much of the Tuesday trading hours crude traded at $76 or above. At that time shares of Halliburton, BJ Services, Transocean, Diamond Offshore, Schlumberger, and Baker Hughes were down on the day. Not surprisingly, it didn't take long for crude to close below $74 a barrel. Those invested in the energy sector need to be wary. I suggested a few days ago that one should consider taking some profits.
I will be particularly interested in Ryland's quarterly report. It will be released early Wednesday morning. They are a homebuilder headquartered in Southern California.
We saw that the PPI reflected growing inflation. I anticipate the CPI to be even worse. Yields on Treasuries began to rise in earnest on Tuesday with the 2-year and the 30-year at about 5.18% and the 10-year at 5.13%. I expect yields to approach 5.30% very shortly.
Home builders' confidence plunged to a 15-year low in July, reflecting growing worries about rising interest rates and declining affordability, the National Association of Home Builders said Tuesday. The NAHB/Wells Fargo housing market index fell three more points to 39 in July, the lowest since December 1991. The index peaked at 72 last June and has fallen in 11 months since then. In July, all three components of the home builders' index fell. Current sales index fell to 43 from 47, the expected sales index dropped to 46 from 51, and the traffic of potential buyers index fell to 27 from 29.
Gold closed down $22 an ounce while the dollar remained firm (to my surprise).
Home sales in Philadelphia, South Jersey and Delaware fell in the first six months of 2006 compared to a year ago for the first time in about a decade, according to a report released Monday by a real estate firm.
The research division of Prudential Fox & Roach Realtors in Devon, Pa., said sales in the 12-county region fell by more than 4 percent from January to June, and the number of days it took to sell a home on average soared by 48 percent to 32 days.
Gross domestic product jumped 11.3 percent after rising 10.3 percent in the first quarter, the statistics bureau said in Beijing today. That's the biggest gain since 1994, when the economy was less than a third of its current size.
Grid operators in the New York, the mid-Atlantic, Midwest, Texas and California broke last year’s all-time power-use records on Monday afternoon as residents and businesses cranked up air conditioners. Power outages have begun to pop up in various sections of the U.S.
Victoria Marklew: "The Central Bank of Russia (CBR) made a surprise shift in the ruble's exchange rate this morning, allowing the currency to rise 0.3% against its dollar/euro basket.
The small ruble increase may not seem all important, but the central bank had said back in early June that it saw no need for the currency to rise further in the near-term. Today's shift not only signals an assumption that record high oil prices will bring renewed upward pressure on the ruble, it also implies that the bank foresees a further rise in inflation over the coming months...With petrodollars flowing into the country at a record rate, the country's gold and forex reserves are rising rapidly (reaching $253.2 billion on July 7), as is the Oil Stabilization Fund, which was set up in 2004 and now totals about $77 billion. Russia also lifted its remaining restrictions on currency movements on July 1, paving the way for full ruble convertibility. Although the country still attracts a relatively small proportion of the world's foreign direct investment - in large part thanks to a hostile attitude toward foreign investors and a marked lack of attention to the rule of law - the combination of a rising ruble, soaring energy prices, and further currency liberalization will attract more cash inflows."
Yesterday, the Nasdaq 100 traded at a new 52-week low.
In the dumb and dumber department, yesterday IBM traded at a new 52-week low and then rallied sharply in extended hours trading when the company's quarterly results met expectations. In the second quarter IBM signed $9.6 billion of services contracts down from $11.4 billion in the first quarter and down from $14.6 billion in the year ago quarter. The tax rate at 30% was lower by 2.3 percentage points than the second quarter of 2005. In addition, during this quarter IBM repurchased $2.5 billion worht of stock. That's what the company does best- repurchase shares. For the longest period of time the smart thing to do was sell IBM on strength. Why mess with success?
Then we come to Yahoo. It appears to me that the company is continuing to lose market share in the search business to Google. I don't see that getting any better. The company will delay the launch of its new advertising technolgoy until the fourth quarter of this year, rather than launching it during the third quarter as planned. As for Microsoft, and they are doing even worse against Google in search. No surprise there.
Televisa's Executive Vice President Alfonso De Angoitia told analysts in a conference call that Televisa had still not ruled out the possibility of a counter bid for Univision, but he would not speculate on the price, according to Reuters reports. Angoitia also stressed that Televisa would not join the other group that includes Saban and other U.S. private equity firms in the acquisition.
Addison Mizner: "Misery loves company, but company does not reciprocate."
Bunfire
7/18/06 Bunfire
Ford Motor Co. stated it has begun production of dedicated hydrogen-fueled V-10 engines. The company is the first automaker to begin making the engines, which will be used in its E-450 hydrogen-fueled shuttle buses. The buses are scheduled to be delivered to customers later this year, the company said.
Another sign that the economy's current GDP is stronger than anticipated --- U.S. industrial output surged 0.8% in June, boosted by strong output at factories, mines and utilities, the Federal Reserve said Monday. Capacity utilization rose to 82.4%, the highest level in six years, the Fed said. Manufacturing and utility output each rose 0.7% in June, while the output of mines rose 1.2%. For the second quarter, industrial production increased at a 6.6% annual rate, the most since the fourth quarter of 1999. With surging industrial output and rising capacity utilization, do you anticipate stronger than expected inflation numbers? You still believe rates are not headed higher? Why not buy treasury bonds with your own money.
The dollar rallied to a three-month high versus the yen and an almost three-week high versus the euro early Monday, continuing to benefit from safe-haven flows amid concerns over further Middle Eastern tensions. A sucker is born every day.
We've seen disappointing quarterly reports from MMM, GE, and Citigroup. How many more Dow stocks will disappoint over the next few weeks?
"John Hussman: "Poor internal market action should presently make us much more inclined to expect unfavorable economic and political news, and also to allow for abrupt or unexpected market weakness. With the major indices now back to a modestly oversold condition, it's certainly possible that we'll observe the typical “fast, furious, prone to failure” really to clear that oversold condition, but in any event, we haven't observed the sort of improvement in internals that would merit an increase in our willingness to accept broad market risk.
Phelps Dodge and Inco have increased their offer for the Canadian miner to ward off Xstrata's sweetened hostile bid. The shares of Phelps Dodge took it on the chin yesterday.
Nearly 40 percent of employees think their companies pay less-than-market-rate salaries, compared with 28 percent last year, according to an annual survey of workplace attitudes by staffing agency Randstad USA with Harris Interactive Inc.
Yet a growing number of employers--50 percent this year compared with 42 percent in 2005--said they believed their salaries are competitive with the market rates, the survey found.
Daily Reckoning: "Based upon delays in adding silver and COMEX warehouse movements, I am convinced that they have effectively run out of available silver in London for the ETF and must get it elsewhere."
A new study conducted by researchers in Sweden has found that those with elevated blood sugar levels run a much higher risk of developing Alzheimer's disease.
The latest study was conducted by researchers at the Karolinska Institute in Stockholm. It examined 1,100 people who were at least 75-years-old over a nine-year period.
Jefferies & Co. on Monday lowered its rating on Grey Wolf Inc., Patterson-UTI Energy Inc., Union Drilling Inc. and Pioneer Drilling Co. to "hold" from "buy," saying the dayrate outlook for the onshore drilling sector is becoming more uncertain.
Yesterday the markets were quite mixed. As a group, equities had little change but the VIX had a one point range during the trading session and managed a gain of .64 of a point. The energy sector was weaker and so were the metals. Against that
backdrop, the dollar gained ground and bonds were slightly higher in yield.
India is likely to sign a deal in September to import 2.5 million tonnes of liquefied natural gas (LNG) from Australia.
Brazil's state controlled oil company Petrobras rejected Bolivia's demands for an increase in the price of natural gas it buys from that country, a move that might push La Paz to seek international arbitration.
William Herschel: "And it is doubtless our paramount duty, in every state of society, to alleviate the pressure of the purely evil part of this distribution, as much as possible, and, by all the means we can devise, secure the lower links in the chain of society from dragging in dishonor and wretchedness."
It's summer and that means it's garage sale time. This year there is a different theme. It's not just about getting rid of unwanted junk and raising some extra cash. It's also about raising some more money to pay for gas for the family car. That's the real world on Main Street.
Ford Motor Co. stated it has begun production of dedicated hydrogen-fueled V-10 engines. The company is the first automaker to begin making the engines, which will be used in its E-450 hydrogen-fueled shuttle buses. The buses are scheduled to be delivered to customers later this year, the company said.
Another sign that the economy's current GDP is stronger than anticipated --- U.S. industrial output surged 0.8% in June, boosted by strong output at factories, mines and utilities, the Federal Reserve said Monday. Capacity utilization rose to 82.4%, the highest level in six years, the Fed said. Manufacturing and utility output each rose 0.7% in June, while the output of mines rose 1.2%. For the second quarter, industrial production increased at a 6.6% annual rate, the most since the fourth quarter of 1999. With surging industrial output and rising capacity utilization, do you anticipate stronger than expected inflation numbers? You still believe rates are not headed higher? Why not buy treasury bonds with your own money.
The dollar rallied to a three-month high versus the yen and an almost three-week high versus the euro early Monday, continuing to benefit from safe-haven flows amid concerns over further Middle Eastern tensions. A sucker is born every day.
We've seen disappointing quarterly reports from MMM, GE, and Citigroup. How many more Dow stocks will disappoint over the next few weeks?
"John Hussman: "Poor internal market action should presently make us much more inclined to expect unfavorable economic and political news, and also to allow for abrupt or unexpected market weakness. With the major indices now back to a modestly oversold condition, it's certainly possible that we'll observe the typical “fast, furious, prone to failure” really to clear that oversold condition, but in any event, we haven't observed the sort of improvement in internals that would merit an increase in our willingness to accept broad market risk.
Phelps Dodge and Inco have increased their offer for the Canadian miner to ward off Xstrata's sweetened hostile bid. The shares of Phelps Dodge took it on the chin yesterday.
Nearly 40 percent of employees think their companies pay less-than-market-rate salaries, compared with 28 percent last year, according to an annual survey of workplace attitudes by staffing agency Randstad USA with Harris Interactive Inc.
Yet a growing number of employers--50 percent this year compared with 42 percent in 2005--said they believed their salaries are competitive with the market rates, the survey found.
Daily Reckoning: "Based upon delays in adding silver and COMEX warehouse movements, I am convinced that they have effectively run out of available silver in London for the ETF and must get it elsewhere."
A new study conducted by researchers in Sweden has found that those with elevated blood sugar levels run a much higher risk of developing Alzheimer's disease.
The latest study was conducted by researchers at the Karolinska Institute in Stockholm. It examined 1,100 people who were at least 75-years-old over a nine-year period.
Jefferies & Co. on Monday lowered its rating on Grey Wolf Inc., Patterson-UTI Energy Inc., Union Drilling Inc. and Pioneer Drilling Co. to "hold" from "buy," saying the dayrate outlook for the onshore drilling sector is becoming more uncertain.
Yesterday the markets were quite mixed. As a group, equities had little change but the VIX had a one point range during the trading session and managed a gain of .64 of a point. The energy sector was weaker and so were the metals. Against that
backdrop, the dollar gained ground and bonds were slightly higher in yield.
India is likely to sign a deal in September to import 2.5 million tonnes of liquefied natural gas (LNG) from Australia.
Brazil's state controlled oil company Petrobras rejected Bolivia's demands for an increase in the price of natural gas it buys from that country, a move that might push La Paz to seek international arbitration.
William Herschel: "And it is doubtless our paramount duty, in every state of society, to alleviate the pressure of the purely evil part of this distribution, as much as possible, and, by all the means we can devise, secure the lower links in the chain of society from dragging in dishonor and wretchedness."
It's summer and that means it's garage sale time. This year there is a different theme. It's not just about getting rid of unwanted junk and raising some extra cash. It's also about raising some more money to pay for gas for the family car. That's the real world on Main Street.
Saturday, July 15, 2006
Think Outside Of Your Buns
4/17/06 Think Outside Of Your Buns
Paul Kasriel: "The household debt-service burden hit a new record high of 13.93% in Q1:2006... This ratio has been trending higher since 2000, the beginning of the housing boom. Low financing rates mitigated the debt-service burden for a while even as household borrowing exploded. But with the Fed having raised the funds rate by 425 basis points in a 25-month span - the largest 25-month funds rate increase since the Volcker era - the combination of rapid borrowing and rising financing rates is pushing up the debt-service burden at a faster rate. With employment growth slowing, which will retard growth in disposable personal income, and a massive amount of mortgage debt subject to interest rate resets this year and next, the household debt-service ratio is destined to reach even higher levels as we go forward."
Robert McHugh: "The Dow Industrials completed their third triple-digit loss in a row, and are down over 4 percent over the past three days. This is what happens with wave threes, which is why we spend so much time watching for them. This one isn't over. The first sub-wave down within it may be close to completing, but there are five waves to an impulse, and we are just finishing the first one."
Paul Kasriel: "The household debt-service burden hit a new record high of 13.93% in Q1:2006... This ratio has been trending higher since 2000, the beginning of the housing boom. Low financing rates mitigated the debt-service burden for a while even as household borrowing exploded. But with the Fed having raised the funds rate by 425 basis points in a 25-month span - the largest 25-month funds rate increase since the Volcker era - the combination of rapid borrowing and rising financing rates is pushing up the debt-service burden at a faster rate. With employment growth slowing, which will retard growth in disposable personal income, and a massive amount of mortgage debt subject to interest rate resets this year and next, the household debt-service ratio is destined to reach even higher levels as we go forward."
Robert McHugh: "The Dow Industrials completed their third triple-digit loss in a row, and are down over 4 percent over the past three days. This is what happens with wave threes, which is why we spend so much time watching for them. This one isn't over. The first sub-wave down within it may be close to completing, but there are five waves to an impulse, and we are just finishing the first one."
Mike Burk: "In the 8 trading days since the rally high that ended on the 1st trading day of July all of the major indices have all declined including:
Dow Jones Industrial Average 4.4%
S&P 500 (SPX) 3.4%
NASDAQ composite (OTC) 7.0%
S&P Mid cap 5.6%
Russell 2000 (R2K) 6.8%
Wilshire 5000 4.0%
Unfortunately there is no divergence in the indicators or anything I can see that would suggest a change of trend. Most of the indices are slightly above their mid-June lows and those levels might offer a little support, however, there is no reason to be optimistic about that support holding... Last week was, on average, the best week of the month.
Next week is, on average, the worst week of the month... There is no evidence of a bottom."
Dan Basch: "In my last essay, "Bernanke's Test Has Arrived", I predicted a severe decline had just begun and luckily nailed it. Since the essay was published, the NASDAQ index declined from 2272 to today's close at 2037, or just over 10%. This essay is to serve as a brief update: I expect this may be the beginning of what will soon become an outright market meltdown. This is partially indicated by a Bearish Diamond formation which has formed on the NASDAQ and broke down this week. "
Volkmar Hable: "In every issue of this Investment Commentary since January I have warned to get out of stocks and prepare for a serious decline. Here we are in the middle of the second leg down, and there are still people owning stocks and hoping for a reversal. This rally into mid-July was the last chance (very likely for this year) to get out of long positions. Remember: managing risk and avoiding losses is key for long-term success. Don't risk your capital and forget risk management for some short term gains. In a sideways market traders and investors should focus on opportunistic strategies!"
George MacDonald: "Attitudes are more important than facts."
Toyota Motor Corp. is considering making a bid to link with General Motors, according to a report in BusinessWeek magazine. The move would be aimed at trumping a proposed alliance between GM and Renault-Nissan.The magazine reported Saturday that Toyota "is considering its options and looking at different opportunities that they could propose to GM." It said Toyota executives have "war gamed" possible scenarios by which it could help GM with its turnaround.BusinessWeek quoted an unnamed Toyota executive who said, "Toyota has no interest in seeing an alliance like this [involving Renault, Nissan and GM] take place."(GM denied this report on Sunday). Maybe this report is accurate and maybe it is not. The point is Chrysler is hooked up with Daimler, Renault/Nissan is eyeing GM, and Ford will not be left out in the cold.
Brett Steenbarger: "Go with the odds, but make sure you can survive the odds you're wrong. Better advice than that I cannot give."
According to the Financial Times, Ford Motor will on Monday announce it is to spend £1bn ($1.8bn) over the next six years on British research and development projects designed to improve the fuel efficiency of its vehicles, as the European arm of the US carmaker realigns investment priorities.
Freud: "Thought is action in rehearsal."
$65.9 Trillion
7/16/06 $65.9 Trillion
Andrew Bosworth: "The American economy is now underwritten by $9 trillion of debt and depends upon $2 billion dollar infusions of foreign capital every day, largely from China." I do not want to belittle Bosworth's statement. It is well-known and often repeated in the press.
However, you might want to go a bit further into the problem, and it explained in the July/Aug
St. Louis Federal Reserve Bank of St. Louis review, and I have now mentioned it three days running. The review stated "the current U.S. fiscal gap is $65.9 Trillion." Prior to buying dollars and U.S. treasury bonds, it might be wise to chew on that number. It will get bigger next year.
With all of these second quarter earnings reports, it might also be wise to take note of the tax rate ( in GE's case only 11%) and the number of shares repurchased in the quarter ( in IBM's case). In sum, it pays to read the fine print and not simply the headline numbers.
Paul Volcker: "For a long time now - if we believe the statistics - the average working guy has not had an increase in income. But he's working pretty darn hard these days... But there doesn't seem to be much concern about it partly because, I guess, people find it fairly easy to get a job - at least they're employed... I think given the problems we have, given our dependence on foreign capital, given our lack of savings - one thing we better be very careful about is that we maintain confidence in our currency. And that most of all means price stability. And there are some tendencies now toward greater inflation. I wouldn't say it's out of hand, but we better not let it get out of hand."
Bush blocked Russia's entry into the World Trade Organization on Saturday and President Vladimir Putin mockingly said Moscow doesn't want the kind of violence-plagued democracy the United States has fostered in Iraq.
During the prior market meltdown when the VIX rallied from 12 to 24, I suggested you consider purchasing shares in Chevron, ConocoPhillips, and Schlumberger. Since then, each has rallied 10 points or so. With all the fighting in Israel and Lebanon and unrest in other parts of the Middle East, there is increased talk of crude moving up to $80, $90, and even over $100 a barrel. It's getting very crowded in the oil patch. I like it quiet with few occupants. As such, I suggest you take your 10 point gains and wait for a more friendly entry level. One should not forget that oil is a cyclical industry.
The growth of the M2 money supply continues to outpace our country's GDP.
Andrew Bosworth: "The American economy is now underwritten by $9 trillion of debt and depends upon $2 billion dollar infusions of foreign capital every day, largely from China." I do not want to belittle Bosworth's statement. It is well-known and often repeated in the press.
However, you might want to go a bit further into the problem, and it explained in the July/Aug
St. Louis Federal Reserve Bank of St. Louis review, and I have now mentioned it three days running. The review stated "the current U.S. fiscal gap is $65.9 Trillion." Prior to buying dollars and U.S. treasury bonds, it might be wise to chew on that number. It will get bigger next year.
With all of these second quarter earnings reports, it might also be wise to take note of the tax rate ( in GE's case only 11%) and the number of shares repurchased in the quarter ( in IBM's case). In sum, it pays to read the fine print and not simply the headline numbers.
Paul Volcker: "For a long time now - if we believe the statistics - the average working guy has not had an increase in income. But he's working pretty darn hard these days... But there doesn't seem to be much concern about it partly because, I guess, people find it fairly easy to get a job - at least they're employed... I think given the problems we have, given our dependence on foreign capital, given our lack of savings - one thing we better be very careful about is that we maintain confidence in our currency. And that most of all means price stability. And there are some tendencies now toward greater inflation. I wouldn't say it's out of hand, but we better not let it get out of hand."
Bush blocked Russia's entry into the World Trade Organization on Saturday and President Vladimir Putin mockingly said Moscow doesn't want the kind of violence-plagued democracy the United States has fostered in Iraq.
During the prior market meltdown when the VIX rallied from 12 to 24, I suggested you consider purchasing shares in Chevron, ConocoPhillips, and Schlumberger. Since then, each has rallied 10 points or so. With all the fighting in Israel and Lebanon and unrest in other parts of the Middle East, there is increased talk of crude moving up to $80, $90, and even over $100 a barrel. It's getting very crowded in the oil patch. I like it quiet with few occupants. As such, I suggest you take your 10 point gains and wait for a more friendly entry level. One should not forget that oil is a cyclical industry.
The growth of the M2 money supply continues to outpace our country's GDP.
Friday, July 14, 2006
The Facts
7/15/06 The Facts
Is inflation benign or muted as the Fed would suggest? Let's take a closer look.
Import prices rose for the third consecutive month, although the 0.1 percent advance in June was modest compared to the 2.0 percent and 1.7 percent increases in April and May, respectively. The June rise was dampened by a 1.4 percent decrease in petroleum prices, which had risen 17.8 percent over the previous two months. Despite the June downturn, petroleum prices rose 32.6 percent over the past year. In contrast, the price index for nonpetroleum import prices advanced 0.4 percent in May following increases of 0.1 percent in April and 0.7 percent in May. For the year ended in June, nonpetroleum import prices rose 2.2 percent while overall import prices increased 7.2 percent. A 1.1 percent rise in nonpetroleum industrial supplies and materials prices was the largest contributor to the June increase in prices for nonpetroleum imports. Continued price rises for most metals more than offset lower prices for natural gas and building materials. The price index for nonpetroleum industrial supplies and materials increased 11.2 percent over the past 12 months. Maybe you should read that last sentence again.
Yesterday the Bank of Japan raised interest rates for the first time in six years -- no big deal but a beginning of a gradual raising of rates.
With all the unrest and explosions involving Israel and Lebanon we are told there has been a flight to quality. In this case, money moving into U.S. Treasury bonds as the yield on the 10-year dipped to 5.06% and the 2-year to 5.10%. Of course, the real safe haven, gold, continued its upward price movement.
For a good part of the Friday trading day, the Dow had a triple digit decline. Despite that, the VIX only managed a half point gain. In sum, it is still about 6 points below the most recent high of 24. Maybe money managers believe the market is oversold. In my view, the fear factor is not anywhere near the boiling point.
Canadian independent Nexen said on Thursday that capital spending for 2006 could exceed its original C$2.9 billion ($2.6 billion) budget by 10%, mainly because of cost escalation at its Long Lake oil sands project in northern Alberta.
Russian oil giant Rosneft on Friday priced its initial public offering at $7.55 a share, valuing the company at $79.8 billion and making the issue the world's fifth-largest IPO and the largest ever for a Russian company.
Marsoft: "After a mixed performance in April and May, the dry bulk market has witnessed a broad-based strengthening in June, with freight rates rising significantly during the first three weeks of the month. Although the Baltic Dry Index fell from 2500 in mid-May to just over 2400 by the end of the month, it rebounded to more than 2800 in the latter half of June."
Is inflation benign or muted as the Fed would suggest? Let's take a closer look.
Import prices rose for the third consecutive month, although the 0.1 percent advance in June was modest compared to the 2.0 percent and 1.7 percent increases in April and May, respectively. The June rise was dampened by a 1.4 percent decrease in petroleum prices, which had risen 17.8 percent over the previous two months. Despite the June downturn, petroleum prices rose 32.6 percent over the past year. In contrast, the price index for nonpetroleum import prices advanced 0.4 percent in May following increases of 0.1 percent in April and 0.7 percent in May. For the year ended in June, nonpetroleum import prices rose 2.2 percent while overall import prices increased 7.2 percent. A 1.1 percent rise in nonpetroleum industrial supplies and materials prices was the largest contributor to the June increase in prices for nonpetroleum imports. Continued price rises for most metals more than offset lower prices for natural gas and building materials. The price index for nonpetroleum industrial supplies and materials increased 11.2 percent over the past 12 months. Maybe you should read that last sentence again.
Yesterday the Bank of Japan raised interest rates for the first time in six years -- no big deal but a beginning of a gradual raising of rates.
With all the unrest and explosions involving Israel and Lebanon we are told there has been a flight to quality. In this case, money moving into U.S. Treasury bonds as the yield on the 10-year dipped to 5.06% and the 2-year to 5.10%. Of course, the real safe haven, gold, continued its upward price movement.
For a good part of the Friday trading day, the Dow had a triple digit decline. Despite that, the VIX only managed a half point gain. In sum, it is still about 6 points below the most recent high of 24. Maybe money managers believe the market is oversold. In my view, the fear factor is not anywhere near the boiling point.
Canadian independent Nexen said on Thursday that capital spending for 2006 could exceed its original C$2.9 billion ($2.6 billion) budget by 10%, mainly because of cost escalation at its Long Lake oil sands project in northern Alberta.
Russian oil giant Rosneft on Friday priced its initial public offering at $7.55 a share, valuing the company at $79.8 billion and making the issue the world's fifth-largest IPO and the largest ever for a Russian company.
Marsoft: "After a mixed performance in April and May, the dry bulk market has witnessed a broad-based strengthening in June, with freight rates rising significantly during the first three weeks of the month. Although the Baltic Dry Index fell from 2500 in mid-May to just over 2400 by the end of the month, it rebounded to more than 2800 in the latter half of June."
Thursday, July 13, 2006
Confidence
7/14/06 Confidence
Before you buy into the notion that the U.S. Treasury bonds are a safe haven or that even imagine that God trusts in the U.S. dollar, I strongly suggest you read the St. Louis Federal Reserve Bank Review (July/August). This is the one I referenced yesterday. It's one thing to be a proud American. It's quite another thing to be a schmuck.
Peter Schiff: "Over the years, the government has managed to "solve" economic problems merely by changing the way they are measured. By re-jiggering the manner in which CPI and GDP are calculated, the government misrepresents the true health of the economy, making it easier for incumbents to be re-elected. President Bush demonstrated this to perfection in his televised speech earlier this week. Despite a building sense among the population that the economy is shaky, the President was able to effectively say, "What are you complaining about, look how good you have it? Inflation is just 2.5% and the economy is growing at 4% per year. Why back in the seventies and eighties people had to struggle with 8% - 10% inflation and 1%- 2% growth." The reality is that today's generation is experiencing similar struggles. Despite the rosy numbers, today the typical American family pays for groceries with a Visa card, utilities with a home equity loan, has a six-year loan on their SUV, has no savings, and has both parents working just to keep the family one-step ahead of its creditors. With all this supposed non-inflationary economic growth, why do Americans borrow to pay for everyday necessities which used to be easily financed from incomes, and why has a nation of savers been transformed into one of debtors? From the government's perspective, all the misrepresentations are part of a giant confidence game that it meant to keep all the marks, most of them foreign, from wising up. A fiat-based monetary system only functions as long as confidence is maintained. The minute it's lost, the whole scheme implodes. Since confidence is the only thing holding up the U.S. dollar, and by extension the entire U.S. economy, maintaining that confidence is the government's highest priority. If elected officials and central bankers have to obfuscate a bit to do it, so be it."
Yesterday was the second straight triple digit decline for the Dow. The S&P is now down for the year and the Nasdaq is at its lowest point since October. Is it because of the explosions and fighting in Israel and the neighboring land? Or $78 crude or $2.10 heating oil or $2.30 gasoline? On the other hand, we have sufficient levels of crude and gasoline. Or maybe the pending rate rise in Japan or China could be the reason for the drop in equity prices. Or it could be Ford cutting the dividend (I think it is a good move). Beginning in the third quarter, Ford's dividend will fall to five cents from 10 cents, a move that will save the company $93.5 million on a quarterly basis, or $374 million a year. Fees paid to board members will also fall by half, bringing compensation for each of the 12 directors to $100,000, saving $1.2 million a year, not including cuts to other fees paid to directors.
Or possibly it was the report from D.R Horton, the nation's largest homebuilder. D.R. Horton Inc. after Thursday's closing bell said third-quarter sales orders fell 7.3% to $3.8 billion, or 14,316 homes, from $4.1 billion, or 14,980 homes, during the same period in the prior year. Donald Horton, chairman, noted the "difficult selling conditions the homebuilding industry is experiencing." Due to the conditions, D.R. Horton said it expects per-share earnings for the third quarter of 93 cents, and lowered its per-share view for the year to $3.65 or more on 50,000 homes closed. In April, the company said it expected fiscal year per-share income of $5.25 and $5.35. The stock declined to $20+ in after hours trading.
Let me ask you this. Do you have more confidence in gold or the dollar? Do you believe the U.S. deficit will continue to grow throughout the remainder of Bush's term? Do you have confidence in Bush as a leader? Is he an effective Commander-in-Chief? Confidence counts for a lot. It can mean the difference between seeing the purchasing power of your dollar vanish or seeing the equity in your home hit a pothole. When the VIX rises by 3+ points to 17+ ( as it did yesterday), don't you realize a confidence as well as a fear factor come into play?
Venezuelan oil shipments to the U.S. fell 6 percent in the first four months of the year. State-run Petroleos de Venezuela SA has been sending more tankers of oil and fuel to India and China, markets that are up to seven times more distant than the U.S. customers that traditionally take most of the country's exports. Venezuela was the third-biggest OPEC producer last month, with output of about 2.6 million barrels. ``Two things are clear,'' said Roger Tissot, an oil analyst with PFC Energy, a consulting firm in Washington. ``Venezuela wants to reduce its dependence on the U.S., and it wants to position itself in the world's fastest growing markets, such as India and China.''
Intel announced cutting 1,000 managerial jobs, Washington Mutual 900 jobs, and Disney stated there would be a round of layoffs without noting a specific number.
Before you buy into the notion that the U.S. Treasury bonds are a safe haven or that even imagine that God trusts in the U.S. dollar, I strongly suggest you read the St. Louis Federal Reserve Bank Review (July/August). This is the one I referenced yesterday. It's one thing to be a proud American. It's quite another thing to be a schmuck.
Peter Schiff: "Over the years, the government has managed to "solve" economic problems merely by changing the way they are measured. By re-jiggering the manner in which CPI and GDP are calculated, the government misrepresents the true health of the economy, making it easier for incumbents to be re-elected. President Bush demonstrated this to perfection in his televised speech earlier this week. Despite a building sense among the population that the economy is shaky, the President was able to effectively say, "What are you complaining about, look how good you have it? Inflation is just 2.5% and the economy is growing at 4% per year. Why back in the seventies and eighties people had to struggle with 8% - 10% inflation and 1%- 2% growth." The reality is that today's generation is experiencing similar struggles. Despite the rosy numbers, today the typical American family pays for groceries with a Visa card, utilities with a home equity loan, has a six-year loan on their SUV, has no savings, and has both parents working just to keep the family one-step ahead of its creditors. With all this supposed non-inflationary economic growth, why do Americans borrow to pay for everyday necessities which used to be easily financed from incomes, and why has a nation of savers been transformed into one of debtors? From the government's perspective, all the misrepresentations are part of a giant confidence game that it meant to keep all the marks, most of them foreign, from wising up. A fiat-based monetary system only functions as long as confidence is maintained. The minute it's lost, the whole scheme implodes. Since confidence is the only thing holding up the U.S. dollar, and by extension the entire U.S. economy, maintaining that confidence is the government's highest priority. If elected officials and central bankers have to obfuscate a bit to do it, so be it."
Yesterday was the second straight triple digit decline for the Dow. The S&P is now down for the year and the Nasdaq is at its lowest point since October. Is it because of the explosions and fighting in Israel and the neighboring land? Or $78 crude or $2.10 heating oil or $2.30 gasoline? On the other hand, we have sufficient levels of crude and gasoline. Or maybe the pending rate rise in Japan or China could be the reason for the drop in equity prices. Or it could be Ford cutting the dividend (I think it is a good move). Beginning in the third quarter, Ford's dividend will fall to five cents from 10 cents, a move that will save the company $93.5 million on a quarterly basis, or $374 million a year. Fees paid to board members will also fall by half, bringing compensation for each of the 12 directors to $100,000, saving $1.2 million a year, not including cuts to other fees paid to directors.
Or possibly it was the report from D.R Horton, the nation's largest homebuilder. D.R. Horton Inc. after Thursday's closing bell said third-quarter sales orders fell 7.3% to $3.8 billion, or 14,316 homes, from $4.1 billion, or 14,980 homes, during the same period in the prior year. Donald Horton, chairman, noted the "difficult selling conditions the homebuilding industry is experiencing." Due to the conditions, D.R. Horton said it expects per-share earnings for the third quarter of 93 cents, and lowered its per-share view for the year to $3.65 or more on 50,000 homes closed. In April, the company said it expected fiscal year per-share income of $5.25 and $5.35. The stock declined to $20+ in after hours trading.
Let me ask you this. Do you have more confidence in gold or the dollar? Do you believe the U.S. deficit will continue to grow throughout the remainder of Bush's term? Do you have confidence in Bush as a leader? Is he an effective Commander-in-Chief? Confidence counts for a lot. It can mean the difference between seeing the purchasing power of your dollar vanish or seeing the equity in your home hit a pothole. When the VIX rises by 3+ points to 17+ ( as it did yesterday), don't you realize a confidence as well as a fear factor come into play?
Venezuelan oil shipments to the U.S. fell 6 percent in the first four months of the year. State-run Petroleos de Venezuela SA has been sending more tankers of oil and fuel to India and China, markets that are up to seven times more distant than the U.S. customers that traditionally take most of the country's exports. Venezuela was the third-biggest OPEC producer last month, with output of about 2.6 million barrels. ``Two things are clear,'' said Roger Tissot, an oil analyst with PFC Energy, a consulting firm in Washington. ``Venezuela wants to reduce its dependence on the U.S., and it wants to position itself in the world's fastest growing markets, such as India and China.''
Intel announced cutting 1,000 managerial jobs, Washington Mutual 900 jobs, and Disney stated there would be a round of layoffs without noting a specific number.
Tuesday, July 11, 2006
Really?
7/13/06 Really?
In the latest Federal Reserve Bank of St. Louis July/August Review, Laurance J. Kotlikoff states "there are strong reasons to believe the United States may be going broke." I hope this has sunk in for all of you. This is what I have written for the last three years.
Bill Gates: 80 Percent Chance Microsoft's Vista Operating System Will Be Ready in January. How reassuring is that?
Martin D. Weiss: "Almost all of this oil and gas passes through the Strait of Hormuz. Only a very small percentage leaves the region through alternate routes, such as the East-West oil pipeline across Saudi Arabia.
So just as soon as the West threatens Iran with sanctions, Iran can threaten the Strait of Hormuz, cut off up to one-third of the world’s energy supply, and drive prices into the stratosphere."
Mark Bail: "So, with a rising VIX reflecting an increase in fear in the market, we should expect a VIX that trends higher should generally correspond with lower stock prices, right? That’s in fact what tends to happen. If you look back at a chart of the S&P 500 and compare it with a chart of the VIX, you will see that the two tend to move opposite one another. Therefore, a rising VIX is a sign of increasing volatility -- and a declining market.
In the latest Federal Reserve Bank of St. Louis July/August Review, Laurance J. Kotlikoff states "there are strong reasons to believe the United States may be going broke." I hope this has sunk in for all of you. This is what I have written for the last three years.
Bill Gates: 80 Percent Chance Microsoft's Vista Operating System Will Be Ready in January. How reassuring is that?
Martin D. Weiss: "Almost all of this oil and gas passes through the Strait of Hormuz. Only a very small percentage leaves the region through alternate routes, such as the East-West oil pipeline across Saudi Arabia.
So just as soon as the West threatens Iran with sanctions, Iran can threaten the Strait of Hormuz, cut off up to one-third of the world’s energy supply, and drive prices into the stratosphere."
Mark Bail: "So, with a rising VIX reflecting an increase in fear in the market, we should expect a VIX that trends higher should generally correspond with lower stock prices, right? That’s in fact what tends to happen. If you look back at a chart of the S&P 500 and compare it with a chart of the VIX, you will see that the two tend to move opposite one another. Therefore, a rising VIX is a sign of increasing volatility -- and a declining market.
But the VIX can provide the astute technical analyst with other valuable information as well. Remember that emotions -- fear and greed -- are reflected in the price of the VIX. Emotions can have a powerful effect on stock prices -- and can peak at market extremes. Well, since those emotions are encapsulated in the price of the VIX, when the VIX reaches an extreme level -- relative to its recent price range – you have a signal that the market is overextended in one direction and set to make a turn.
That’s been true when the market has been in a lengthy downtrend -- and the VIX is at a significant top. For example, peaks in the VIX in 1990, 1994, 1997, 1998, 2001 and 2002 have coincided with important market lows. And major lows in the VIX have coincided with a number of significant market tops as well.
Therefore, if you think S&P 500 may have reached an extreme level, check to see if the VIX has reached a major peak or trough relative to its recent price trend. If it has, odds are good you have pinpointed a major turning point in the market.
So, next time you think you’ve spotted a major market turn, be sure to check a chart of the VIX. If you find it trading at an extreme, your forecast of a significant trend change could be right on the money. And if you’ve caught the VIX trading at a bearish extreme, you may get to buy those stocks you’ve been watching at just the right time."
Thanks to George Ure for bringing this to light: "Russia’s uranium exploration and mining assets at home and in the CIS will be combined into a single, purely state-owned enterprise, nuclear energy chief Sergei Kiriyenko said Wednesday, scotching hopes that private investors would be allowed to retain minority stakes in uranium enterprises.
The announcement follows President Vladimir Putin’s approval on June 9 of a plan to gather all civilian nuclear sector enterprises into a single, market-driven corporation along the lines of France’s Areva or Germany’s Urenco."
Biofuels such as ethanol are "not a practical long-term solution" and their widespread use, even from non-food crop sources, could have a "devastating" impact on agriculture, two researchers at the Magleve Research Center of the Polytechnic University of New York argued recently.
"Ethanol from 300 million acres of switchgrass still could not supply our present gasoline and diesel consumption, which is projected to double by 2025," the researchers, James Jordan and James Powell, wrote in an op-ed article in the Washington Post. "The agricultural effects of such a large-scale program would be devastating."
"Ethanol from 300 million acres of switchgrass still could not supply our present gasoline and diesel consumption, which is projected to double by 2025," the researchers, James Jordan and James Powell, wrote in an op-ed article in the Washington Post. "The agricultural effects of such a large-scale program would be devastating."
"Spot Henry Hub natural gas prices, which averaged $8.86/Mcf in 2005, are expected to average under $7/Mcf over the next few months. Thus, barring extreme weather for
the rest of the year, we expect a decline in the annual Henry Hub spot price to about $7.61/Mcf for 2006," the EIA said in its July energy outlook, which was released Tuesday. "However, the respite is expected to be short-lived, as concerns about potential future supply tightness and continuing pressure from high oil market prices could drive spot natural gas prices to just over $9/Mcf this coming December and January. The Henry Hub price is expected to average $8.13/Mcf in 2007," according to the statistical arm of the Department of Energy (DOE).
Yesterday's rally in equities and bonds looked like amateur night. You say really?
Here we are a day later with crude at $75 a barrel, a May trade deficit of $63.84 billion, a drawdown in crude of 6 billion barrels and gasoline of 400,000 gallons, another rally in metals, a conflict between Israel and Lebanon, and Fed Funds futures factoring in a 67% chance of a rate hike next month. No wonder the Dow is down in triple digits.The VIX managed a 1+ gain but still sits at the 14.50 level.
Dell's consumer and small business sales account for 15% of the company's total revenues. Tomorrow they will announce cutting prices in this area. The price of the stock has already been cut to $22+. Basically, the gains over the last few years in the stock have been puked away.
Citgo, the old Cities Service Company, is owned by Venezuela. Over the next year Citgo will cease distributing gasoline in 10 states and stop supplying some stations in four additional states, Citgo spokesman Fernando Garay said Wednesday. The states where Citgo will stop selling gasoline are: Iowa, Kansas, Kentucky, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma and South Dakota. A limited number of stations in Illinois, Texas, Arkansas and Iowa will also be affected. Venezuela is the world's fifth-largest oil exporter and the U.S. is its top buyer. The United States relied on Venezuela for about 11 percent of its oil supply in 2005.
For the second half of fiscal 2006, Brunswick lowered its expectations, citing significant declines in retail demand for its 2006 model year marine products that has increased inventories, forcing the company to reduce production levels.
China and Russia introduced a resolution Wednesday deploring North Korea's missile tests but
dropping language from a rival proposal that could have led to military action against Pyongyang. The draft, obtained by The Associated Press, "strongly deplores" North Korea's missile tests last week and urges Pyongyang to re-establish a moratorium on such launches.
Top senators have reached a bipartisan agreement that will allow the chamber to vote on legislation that would open parts of the eastern Gulf of Mexico to oil and gas exploration, Senate Majority Leader Bill Frist, R-Tenn., announced Wednesday.
Red To Green
7/12/06 Red To Green
Yesterday there was a turnaround in equities, and the impetus came in part from the CEO at KLA Tencor who was speaking at a semicinductor symposium at the Moscone Center in SF. He stated the company's orders for the quarter topped its 10% target. "We've exceeded the top end of the range," the company's chief executive officer Rick Wallace told analysts at a meeting in San Francisco. It was a "very good quarter" for the company, the CEO said. Driving orders was demand for machines that produce NAND flash and DRAM memory chips used in consumer electronics. That statement reversed much of the weakness in semiconductor stocks and many other techs. Still, many large caps acted poorly --- Home Depot, GE, IBM, Pfizer,Microsoft, and Cisco.
The standout group was energy with crude closing up at $74.16 a barrel. Chevron and ExxonMobil rose about $1 a share, Schlumberger over $3, and Weatherford Int'l close to $2.
With the explosions in Mumbai, gold rose $17 an ounce. The U.S.dollar index closed just above 85, but treasuries rallied again with the 10-year at 5.11%, the 30-year at 5.15%, and the 2-year at 5.16%. Yes, we are inverted again.
Bush made a big deal of the estimated budget deficit being reduced from roughly $400 billion to about $300 billion in 2006. Now how did this occur? The Homeland Investment Act, H.R. 767, and The Invest in America Act, S. 596, reduced for one year the tax rate on foreign earnings gained by American companies to 5.25 percent. Before that, U.S. firms operating overseas paid a 35 percent tax, minus any taxes they’ve paid abroad, when they bring foreign earned income back to the U.S. This one-time repatriation of foreign earnings provided an added $50 billion in revenue for the government. Then there was the damage created by the AMT (alternative minimum tax). That generated an addiitonal $25 billion. In sum, the Bush policies created greater tax burdens for those on Main Street, and this helped to widen the gap between the haves and havenots.
The revenue growth is not expected to continue, according to the OMB, which forecast a 2.4 increase in receipts next year. You can be certain that the growth in government spending will continue and the deficit will only get larger in 2007. By that time, Bush will ask for another increase in the debt limit.
Christopher Galakoutis: "So far in 2006 we have a slowing US real estate market and declining refinance activity. With the Fed funds rate now at 5.25%, and a large portion of ARMS coming due this year and next, consumers would arguably be more than hard-pressed to come up with that extra cash that 2-3% mortgage rate loans were generating the last few years. With the nation dependent on consumer spending for 70% of its economic prowess, it should be clear as day that trouble looms for the economy. With its inverted yield curve the bond market is predicting as much, as well as an eventual Fed reversal on interest rates. It also appears - for the time being - to be unconcerned about any future dollar weakness and is pricing itself accordingly. But if a lower fed funds rate is expected in the near future, it is difficult to see how the dollar keeps from falling out of the blocks altogether. In all likelihood it may very well be the degree of US economic weakness, and the realization that things are much worse than initially assumed, that will catch many - foreign central bankers included - by surprise. That may be the point where even the worst of habits, admittedly so totally and completely ingrained in money printers, finally get broken as a certain "faith" threshold is breached."
I received several emails in the last few days asking whether I have lost my mind. It seems many are concerned that I continue to add to my position in Univision -- as recently as yesterday. I appreciate everyone's concern. Not to worry. I enjoy going to the bank.
Yesterday there was a turnaround in equities, and the impetus came in part from the CEO at KLA Tencor who was speaking at a semicinductor symposium at the Moscone Center in SF. He stated the company's orders for the quarter topped its 10% target. "We've exceeded the top end of the range," the company's chief executive officer Rick Wallace told analysts at a meeting in San Francisco. It was a "very good quarter" for the company, the CEO said. Driving orders was demand for machines that produce NAND flash and DRAM memory chips used in consumer electronics. That statement reversed much of the weakness in semiconductor stocks and many other techs. Still, many large caps acted poorly --- Home Depot, GE, IBM, Pfizer,Microsoft, and Cisco.
The standout group was energy with crude closing up at $74.16 a barrel. Chevron and ExxonMobil rose about $1 a share, Schlumberger over $3, and Weatherford Int'l close to $2.
With the explosions in Mumbai, gold rose $17 an ounce. The U.S.dollar index closed just above 85, but treasuries rallied again with the 10-year at 5.11%, the 30-year at 5.15%, and the 2-year at 5.16%. Yes, we are inverted again.
Bush made a big deal of the estimated budget deficit being reduced from roughly $400 billion to about $300 billion in 2006. Now how did this occur? The Homeland Investment Act, H.R. 767, and The Invest in America Act, S. 596, reduced for one year the tax rate on foreign earnings gained by American companies to 5.25 percent. Before that, U.S. firms operating overseas paid a 35 percent tax, minus any taxes they’ve paid abroad, when they bring foreign earned income back to the U.S. This one-time repatriation of foreign earnings provided an added $50 billion in revenue for the government. Then there was the damage created by the AMT (alternative minimum tax). That generated an addiitonal $25 billion. In sum, the Bush policies created greater tax burdens for those on Main Street, and this helped to widen the gap between the haves and havenots.
The revenue growth is not expected to continue, according to the OMB, which forecast a 2.4 increase in receipts next year. You can be certain that the growth in government spending will continue and the deficit will only get larger in 2007. By that time, Bush will ask for another increase in the debt limit.
Christopher Galakoutis: "So far in 2006 we have a slowing US real estate market and declining refinance activity. With the Fed funds rate now at 5.25%, and a large portion of ARMS coming due this year and next, consumers would arguably be more than hard-pressed to come up with that extra cash that 2-3% mortgage rate loans were generating the last few years. With the nation dependent on consumer spending for 70% of its economic prowess, it should be clear as day that trouble looms for the economy. With its inverted yield curve the bond market is predicting as much, as well as an eventual Fed reversal on interest rates. It also appears - for the time being - to be unconcerned about any future dollar weakness and is pricing itself accordingly. But if a lower fed funds rate is expected in the near future, it is difficult to see how the dollar keeps from falling out of the blocks altogether. In all likelihood it may very well be the degree of US economic weakness, and the realization that things are much worse than initially assumed, that will catch many - foreign central bankers included - by surprise. That may be the point where even the worst of habits, admittedly so totally and completely ingrained in money printers, finally get broken as a certain "faith" threshold is breached."
I received several emails in the last few days asking whether I have lost my mind. It seems many are concerned that I continue to add to my position in Univision -- as recently as yesterday. I appreciate everyone's concern. Not to worry. I enjoy going to the bank.
Monday, July 10, 2006
Summer Heat
7/11/06 Summer Heat
Corn prices rose to a two-year high in Chicago on speculation that rains this week will miss the driest areas of the main growing regions in the Midwest, compounding drought damage to the biggest U.S. crop. Corn is up 28 percent this year. There is another side to the story.
A week of warm sunny weather has helped Indiana corn gain some height and improve in development. It has also allowed the winter wheat harvest to progress. Winter wheat harvest made good progress especially in central and northern areas of the state. The corn crop is reported to be very uneven in development, with some only knee high and some already tasseling. Soybean plant development also varies greatly with some fields blooming to some fields just emerging due to replanting.Irrigation systems were running in some northwest and north central areas as rain showers have been spotty.
Corn condition is rated 60 percent good to excellent compared with 34 percent last year at this time. Thirteen percent of the corn acreage has silked compared to 28 percent last year and 24 percent for the 5-year average. Soybean condition is rated 59 percent good to excellent compared with 37 percent last year at this time. Twelve percent of the soybean acreage is blooming compared to 43 percent last year and 27 percent for the 5-year average.
Harvest of winter wheat is 70 percent complete compared to 81 percentlast year and 74 percent for the 5-year average. By area, wheat harvest is 45 percent complete in the north, 75 percent in the central, and 94 percent in the south. Of course, Indiana may not be representive of the entire "heartland."
Oil surged to $75.78 a barrel on July 7 after the missile tests. Prices have risen 22 percent this year in part on concern that exports from Iran may be disrupted because of its nuclear research. U.S. inventories of crude oil, diesel and heating oil in the week ended June 30 were above the five-year average for the period, the Energy department said last week. Crude oil for August delivery fell to $73.61 a barrel on the New York Mercantile Exchange. Meanwhile, prices at the pump have risen 11 cents per gallon to $3.
Corn prices rose to a two-year high in Chicago on speculation that rains this week will miss the driest areas of the main growing regions in the Midwest, compounding drought damage to the biggest U.S. crop. Corn is up 28 percent this year. There is another side to the story.
A week of warm sunny weather has helped Indiana corn gain some height and improve in development. It has also allowed the winter wheat harvest to progress. Winter wheat harvest made good progress especially in central and northern areas of the state. The corn crop is reported to be very uneven in development, with some only knee high and some already tasseling. Soybean plant development also varies greatly with some fields blooming to some fields just emerging due to replanting.Irrigation systems were running in some northwest and north central areas as rain showers have been spotty.
Corn condition is rated 60 percent good to excellent compared with 34 percent last year at this time. Thirteen percent of the corn acreage has silked compared to 28 percent last year and 24 percent for the 5-year average. Soybean condition is rated 59 percent good to excellent compared with 37 percent last year at this time. Twelve percent of the soybean acreage is blooming compared to 43 percent last year and 27 percent for the 5-year average.
Harvest of winter wheat is 70 percent complete compared to 81 percentlast year and 74 percent for the 5-year average. By area, wheat harvest is 45 percent complete in the north, 75 percent in the central, and 94 percent in the south. Of course, Indiana may not be representive of the entire "heartland."
Oil surged to $75.78 a barrel on July 7 after the missile tests. Prices have risen 22 percent this year in part on concern that exports from Iran may be disrupted because of its nuclear research. U.S. inventories of crude oil, diesel and heating oil in the week ended June 30 were above the five-year average for the period, the Energy department said last week. Crude oil for August delivery fell to $73.61 a barrel on the New York Mercantile Exchange. Meanwhile, prices at the pump have risen 11 cents per gallon to $3.
The BBC News in Moscow stated "Russia is moving fast to develop its Arctic territories, all part of a strategy to become the world's dominant energy supplier. It has the world's biggest gas deposits and already supplies a quarter of Europe's needs. But it wants to seize more of the European market, and capture consumers in Asia and the United States too."
Univision Communications Inc. after Monday's closing bell estimated that 50 million viewers tuned in to the 2006 World Cup tournament on its three television networks - Univision, TeleFutura and Galavision. Viewers included 29 million Hispanics and 21 million non-Hispanics, with an average audience of more than 5 million above the age of 2.
Alcatel and Lucent Technologies Inc. after Monday's closing bell said they are on track to complete their $13.45 billion merger by the end of 2006. Meanwhile, Lucent's revenues and earnings for the June quarter badly trail previous projections.
Consumers took on a bigger-than-expected $4.4 billion more in debt in May, the Federal Reserve said, mostly in revolving debt like credit cards. U.S. borrowers pushed up overall outstanding consumer credit by 2.4%, or $4.4 billion, to $2.173 trillion, the Fed said Monday.
Representative Ron Paul: "The coming dollar crisis is not likely to be "fixed" by politicians who are unwilling to make hard choices, admit mistakes, and spend less money. Demographic trends will place even greater demands on Congress to maintain benefits for millions of older Americans who are dependent on the federal government. Faced with uncomfortable financial realities, Congress will seek to avoid the day of reckoning by the most expedient means available-- and the Federal Reserve undoubtedly will accommodate Washington by printing more dollars to pay the bills. The Fed is the enabler for the spending addicts in Congress, who would rather spend new fiat money than face the political consequences of raising taxes or borrowing more abroad. The irony is that many of the Fed's biggest cheerleaders are the same supposed capitalists who denounced centralized economic planning when practiced by the former Soviet Union. Large banks and Wall Street firms love the Fed's easy money policy, because they profit at the front end from the resulting loan boom and artificially high equity prices. It's the little guy who loses when the inflated dollars finally trickle down to him and erode his buying power. Someday Americans will understand that Federal Reserve bankers have no magic ability -- and certainly no legal or moral right -- to decide how much money should exist and what the cost of borrowing money should be."
It's really shameful that more Americans are not familiar with the efforts of Ron Paul. He is, in my view, the best candidate to be President of the U.S. I also made this statement in 2000 and 2004. It's not unusual for me to talk just to myself.
Alcoa Inc. on Monday posted a 62 percent boost in profit on higher aluminum prices and aerospace demand, but second-quarter sales dipped below Wall Street estimates, sending its shares down 4 percent.
China asked member governments of the United Nations Security Council to adopt a non-binding statement critical of North Korea's ballistic missile program, a proposal the U.S. and Japan rejected as too weak.
A Bird In The Hand
7/10/06 A Bird In The Hand
Late yesterday Afternoon Cascade Natural Gas announced a written agreement to sell the company for $26.50 per share in cash to MDU Resources (the former Montana Dakota Utilities, a company I have know well for the past 25 years.) There is no overlap in operations for the two companies, and the utility commissions will have no difficulty in approving the transaction, which will take place in the spring of 2007. Therefore, as a CGC shareholder, you will receive three more quarterly dividends of 24 cents per share, and bring the total received to $27.22. Of that, you will not need to pay a tax until April 2008 on one dividend of 24 cents and the $26.50. I recommend holding onto your shares until completion of the deal next year.
In the meantime, I would continue to add to holdings in Univision. There is at least a $3 profit to be made and that will be received in 2007. Therefore, a tax will not be due until 2008. I still believe Televisa will return with a higher bid.
John Hussman: " As I've noted in recent months, it's likely that China and Japan will at least stabilize in their willingness to absorb the flood of government liabilities that they've been snapping up in recent years. That means that more of these liabilities will be forced into the hands of U.S. investors. As that happens, we're likely to observe an accumulation of “cash on the sidelines” that might look like a hopeful sign for stocks. It will be helpful to remember that the accumulating pile of “sideline cash” actually represents money already spent."
In this market of increasing uncertainties, I would stick with the bird in the hand. It's nice to go to the bank and not pay a tax until 2008.
Brett Steenbarger: "Since 2004 (N = 628 trading days), we've had 142 down days at the end of down weeks. Four days later, the S&P 500 Index (SPY) has been up by an average .21% (85 up, 57 down). That is considerably stronger than the average four-day gain of .05% (259 up, 227 down) for the remainder of the sample.
Interestingly, however, during 2006 this pattern has not been profitable (N = 29). Four days after we've had a down day at the end of a down week, SPY has been down on average -.11% (16 up, 13 down).
This is but one example of how patterns that were showing up earlier in the bull market are not panning out well in the present environment. A similar shift of patterns occurred early in 2000 and was a helpful alert to a major change in trend."
"Recent checks and a lack of publicly announced deals point toward lower-than-expected bookings for IBM," Benjamin Reitzes of UBS said. "While software sales seem stable, high-end server sales seem to be impacted by product transitions near-term."
EMC Corp. lowered its outlook for the second quarter to reflect later than expected orders from customers, and a faster than anticipated customer transition to its Symmetrix DMX-3 platform.
Richard Daughty: "To show you how clueless The Federal Reserve is, the statement released with the latest change in interest rates read: "the moderation in the growth of aggregate demand should help to limit inflation pressures over time." Huh? Do these halfwit Federal Reserve twits actually think that the United States is the only engine of growth in the world? Hahaha! While there will certainly be a "moderation" in aggregate demand in the United States, there are many, many, many people in China and India alone who do not have an upscale diet, a washing machine, a television, a microwave, a computer, a car, central air and heat, a jet ski, lots of disposable income, or any of that fun, fun stuff you can buy with money and credit."
China's monthly trade surplus surged to 14.5 billion in June, surpassing the previous record of $13 billion recorded in May, according to data released Monday by the Ministry of Commerce.
KB Home said in a Securities and Exchange Commission filnig after markets closed Friday that negative trends in the U.S. housing market may continue next year. "While we expect the current negative trends in the U.S. housing market to continue for the remainder of 2006 and, possibly, into 2007, we anticipate individual markets will normalize at different rates depending on the degree of disparity in the balance of these characteristics presently. In the long run, we believe the underlying fundamentals of strong demographics and job growth continue to support favorable domestic housing demand," the home builder said.
In the latter part of this week, the Bank of Japan will finally raise interest rates. Their zero rate policy has been going on for far too long and has helped to create the yen carry trade.
Bill Buckler: "The global paper currency system is very young. It depends for its continued functioning on the BELIEF that the debt upon which it is based will, someday, be repaid. The one thing, above all others, that could shake that faith, and therefore the foundations of the modern financial system itself, is a rise (especially a sharp rise) in the U.S. Dollar price of Gold."
Late yesterday Afternoon Cascade Natural Gas announced a written agreement to sell the company for $26.50 per share in cash to MDU Resources (the former Montana Dakota Utilities, a company I have know well for the past 25 years.) There is no overlap in operations for the two companies, and the utility commissions will have no difficulty in approving the transaction, which will take place in the spring of 2007. Therefore, as a CGC shareholder, you will receive three more quarterly dividends of 24 cents per share, and bring the total received to $27.22. Of that, you will not need to pay a tax until April 2008 on one dividend of 24 cents and the $26.50. I recommend holding onto your shares until completion of the deal next year.
In the meantime, I would continue to add to holdings in Univision. There is at least a $3 profit to be made and that will be received in 2007. Therefore, a tax will not be due until 2008. I still believe Televisa will return with a higher bid.
John Hussman: " As I've noted in recent months, it's likely that China and Japan will at least stabilize in their willingness to absorb the flood of government liabilities that they've been snapping up in recent years. That means that more of these liabilities will be forced into the hands of U.S. investors. As that happens, we're likely to observe an accumulation of “cash on the sidelines” that might look like a hopeful sign for stocks. It will be helpful to remember that the accumulating pile of “sideline cash” actually represents money already spent."
In this market of increasing uncertainties, I would stick with the bird in the hand. It's nice to go to the bank and not pay a tax until 2008.
Brett Steenbarger: "Since 2004 (N = 628 trading days), we've had 142 down days at the end of down weeks. Four days later, the S&P 500 Index (SPY) has been up by an average .21% (85 up, 57 down). That is considerably stronger than the average four-day gain of .05% (259 up, 227 down) for the remainder of the sample.
Interestingly, however, during 2006 this pattern has not been profitable (N = 29). Four days after we've had a down day at the end of a down week, SPY has been down on average -.11% (16 up, 13 down).
This is but one example of how patterns that were showing up earlier in the bull market are not panning out well in the present environment. A similar shift of patterns occurred early in 2000 and was a helpful alert to a major change in trend."
"Recent checks and a lack of publicly announced deals point toward lower-than-expected bookings for IBM," Benjamin Reitzes of UBS said. "While software sales seem stable, high-end server sales seem to be impacted by product transitions near-term."
EMC Corp. lowered its outlook for the second quarter to reflect later than expected orders from customers, and a faster than anticipated customer transition to its Symmetrix DMX-3 platform.
Richard Daughty: "To show you how clueless The Federal Reserve is, the statement released with the latest change in interest rates read: "the moderation in the growth of aggregate demand should help to limit inflation pressures over time." Huh? Do these halfwit Federal Reserve twits actually think that the United States is the only engine of growth in the world? Hahaha! While there will certainly be a "moderation" in aggregate demand in the United States, there are many, many, many people in China and India alone who do not have an upscale diet, a washing machine, a television, a microwave, a computer, a car, central air and heat, a jet ski, lots of disposable income, or any of that fun, fun stuff you can buy with money and credit."
China's monthly trade surplus surged to 14.5 billion in June, surpassing the previous record of $13 billion recorded in May, according to data released Monday by the Ministry of Commerce.
KB Home said in a Securities and Exchange Commission filnig after markets closed Friday that negative trends in the U.S. housing market may continue next year. "While we expect the current negative trends in the U.S. housing market to continue for the remainder of 2006 and, possibly, into 2007, we anticipate individual markets will normalize at different rates depending on the degree of disparity in the balance of these characteristics presently. In the long run, we believe the underlying fundamentals of strong demographics and job growth continue to support favorable domestic housing demand," the home builder said.
In the latter part of this week, the Bank of Japan will finally raise interest rates. Their zero rate policy has been going on for far too long and has helped to create the yen carry trade.
Bill Buckler: "The global paper currency system is very young. It depends for its continued functioning on the BELIEF that the debt upon which it is based will, someday, be repaid. The one thing, above all others, that could shake that faith, and therefore the foundations of the modern financial system itself, is a rise (especially a sharp rise) in the U.S. Dollar price of Gold."
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