An Important Forecast

6/9/06 An Important Forecast

Nouriel Roubini: "Given the recent flow of dismal U.S. economic indicators (Q2 GDP report, July payrolls, service ISM, etc.) I am now taking the view that the odds of a U.S. recession by year end have increased from my previous 50% to 70% now."

The Bureau of Labor Statistics of the U.S. Department of Labor reported
preliminary productivity data--as measured by output per hour of all persons-
-for the second quarter of 2006. The preliminary seasonally adjusted annual
rates of productivity change in the second quarter were:

1.1 percent in the business sector and
1.1 percent in the nonfarm business sector.

These rates of growth are lower than those in the previous quarter. As
revised, productivity increased 4.5 percent in the business sector and 4.3
percent in the nonfarm business sector in the first quarter of 2006.

In manufacturing, the preliminary productivity changes in the second
quarter were:

3.0 percent in manufacturing,
3.8 percent in durable goods manufacturing, and
2.6 percent in nondurable goods manufacturing.

Manufacturing productivity grew 3.0 percent in the second quarter as output
increased 5.4 percent and hours increased 2.3 percent (seasonally adjusted
annual rates).
Unit labor costs rose 4.2% annualized - the most since the fourth quarter of 2004. First quarter unit labor costs rose 2.5% rather than the 1.6% increase originally reported. Unit labor costs were up 3.2% year-on-year, the fastest pace since the fourth quarter of 2000.
Despite rising unit labor costs, profit margins for corporations are at historically high levels.

Roger Cressey, a former counterterrorism official in the Bush Administration, now runs his own consulting business in Arlington, Virginia.
Cressey said there are about 30 million video surveillance cameras in the United States shooting about four billion hours of footage every week in an effort to recognize possible threats. (Is the greatest possible threat the Administration?)

Toll Brothers said that its quarter-end backlog was approximately $5.59 billion, down 13% from last year's $6.43 billion, while signed contracts were approximately $1.05 billion at the quarter end, down 45% from $1.92 billion last year. The company said that, based upon its current backlog, it expects to deliver between 2,500 and 2,800 homes in the fourth quarter, down from its previous guidance of 2,900 to 3,300 deliveries. For 2006, deliveries are expected at between 8,600 and 8,900 homes.

Puru Saxena: "Every human being must understand that the Federal Reserve IS inflation. The Federal Reserve was established in 1913 to create inflation and its secondary role is to manage the public's inflation FEARS."

Federal Reserve Bank of Richmond President Jeffrey Lacker, who has warned of complacency in fighting inflation, disagreed with the Fed's decision today to forgo an interest-rate increase.

Keep On Spending

8/8/06 Keep On Spending

Consumer credit outstanding grew by $10.3 billion in June to $2.186 trillion. That followed a $5.88 billion increase in May. Revolving credit like credit cards increased at a 9.8% annual rate in June. Nonrevolving credit, like auto loans, rose at a 3.2% annual rate in June after falling at a 1.4% annual rate the previous month.

Even following an increase on Aug. 3, ``it can't be denied'' that interest rates are ``still very accommodating,'' Lorenzo Bini Smaghi, an ECB executive board member, said in an Aug. 6 interview with Italian newspaper Il Sole/24 Ore. ``That's the reason that the process of realigning interest rates will continue in coming months.''

Mike Shedlock: "At some point, job losses will matter simply because they have to. People out of work will not be buying much, regardless of whether or not interest rates pause, or even decline."

The Forbes family has agreed to sell a large minority stake in its media empire to Elevation, the buy-out fund of rock star Bono, in a deal worth about $300 million.

ConocoPhillips said its Middle East unit Dubai Petroleum Co. will cede control of the fields to the government's Dubai Petroleum Establishment effective April 2, 2007.

As Northwest's flight attendants prepare to strike as early as Aug. 15, their union says it's fighting cuts the company imposed last week, including making a temporary 21% wage cut taken in November stick through 2011. The union also is fighting cuts to medical benefits and changes to work rules that reduce total compensation by as much as 40%.

Chain store sales rose 2.5% for the week ended Aug. 5, compared to the year-ago period, according to a survey from the International Council of Shopping Centers and UBS Securities LLC released on Tuesday. "It is surprising that there was not more of a lift over the last week," said Michael Niemira, ICSC's chief economist and director of research. "However, the crosscurrents between the regional state tax holidays, taking place in 10 states and the District of Columbia this past weekend, and the abnormally hot weather and high gasoline prices seemingly took a bite out of potential demand."

Teva Pharmaceutical increased its earnings outlook for the year, saying that Ivax, which it acquired in January, is already contributing to profit. It's now expecting earnings between $2.15 and $2.25 a share on revenue of $8.5 billion; it previously forecast earnings between $2 and $2.15 a share.

The number of 20-day new lows now exceeds 500.

According to the Detroit News, Gov. Jennifer Granholm and Mark Fields, president of Ford Motor Co.'s Americas group, are expected to jointly announce a new tax-incentive agreement Wednesday between the state and the struggling automaker, according to people familiar with the situation.
In exchange for what promises to be a rich package of incentives, Fields will reaffirm Ford's commitment to future investment in Michigan.
The governor will pledge credits equal to a fixed percentage of Ford's future investments in the state through the Michigan Economic Growth Authority.
These so-called MEGA tax credits are designed to promote the creation and retention of jobs in Michigan. The value of these tax credits depends on the magnitude of Ford's future expansion in the state, but sources say the benefit to the automaker could easily reach tens of millions of dollars.

If the Fed pauses today, there is a likelihood of a short-term rally. However, we will soon be in the September-October period, and I would use the rally to lighten up on your weak holdings. Better buying opportunities will present themselves down the road.

Inflation Under Control?

8/7/06 Inflation Under Control?

The Walt Disney Co. raised prices at its Florida theme parks on January 1, when the price rose to $63 from $59.75. Yesterday a price hike from $63 to $67 went into effect. I guess the company is anticipating no problems with the weather this hurricane season. With $3 a gallon gasoline, I think it's a stupid move to be raising prices. Then again, I disagreed with their moving forward in a movie project with Mel Gibson. If I owned the stock (which I do not), I'd sell it.

The cost of one transportation project near Wisconsin Dells rose 44 percent over the past six months. Transportation Secretary Frank Busalacchi attributed the increase in part to the cost of structural steel, which jumped 45.6 percent, and excavation costs, up 21.5 percent in the last 12 months.
According to the report, the cost of the U.S. Highway 12 project from Lake Delton to Sauk City rose $47.3 million to $155 million, a 44 percent increase.
Meanwhile, costs for the U.S. Highway 41 project from De Pere to Suamico more than doubled, increasing from $205 million to $416.5 million, since the project was first planned in 2002.
I assure you that Wisconsin does not have a monopoly on rising costs for transportation projects.

Ford Motor Co. may sell Land Rover together with Jaguar to drum up interest, The Sunday Times (of London) newspaper reported, citing unnamed sources.

A July telephone survey of more than 1,000 people conducted by Boston Consulting Group found that 76% of Americans believe gas prices will rise for the remainder of the year. Another 48% said it was possible for gas prices to hit $5.50 a gallon at some point. Michigan gas prices currently average $3.04 a gallon, AAA Michigan reports.

BP has indefinitely shut down the nation's biggest oilfield after finding a pipeline leak, removing about 8 percent of U.S. oil production and stoking fears that already high gas prices will shoot up further.

John Hussman: "We should not be surprised to observe stagflation, falling stocks, weak profits, flat bonds, and a dollar crisis in the months ahead."

Crude traded over $77 a barrel this morning.

Apple's Worldwide Developers Conference is held today thru Friday at SF's Moscone Center. Will Mac's new operating system, Leopard, prove more advanced than Microsoft's Vista?

Martin Feldstein: "A mild slowing of economic growth is generally not sufficient to reverse rising inflation. That generally requires a sustained period of excess capacity in product and labor markets, with GDP growth falling significantly or even turning negative."

Should an event take place to create a freefall in stocks, be prepared to watch the actions of the Fed's Plunge Protection Team. It's members are the Fed chairman, the SEC chairman, the Commodities Futures Trading Commission chairman, the Secretary of the Treasury, and members of financial institutions, such as, Goldman Sachs, Morgan Stanley, and Merrill Lynch.

I'd like to revisit an article written on 7/3/03 by Eric Jewell entitled
Osama Bin Laden and Promis(e)Software:
"Today, financial institutions and Intelligence departments use Promise software worldwide. This means that factions of the US government can quickly access any computer in these networks. The implications are astounding. This gives the ability to add, delete, or modify any file or files within any given intelligence agency using this software. A picture can be put with any name and any information and make it possible for whole terrorist organizations to travel freely with false papers just because the computers were hacked into and all the information fed into them to effectively change any identity. The possibilities within financial institutions are equally as great. Accounts can be created and funds moved from any account to any account.
The question is, why was Bin Laden recently provided with a copy of this software? The answer may possibly be found in both the intelligence and the financial arenas. Now his men which were trained by the CIA can travel freely with no fear of reprisal. George Bush Sr. was vice president when the software was developed, and is a definite insider of this faction of government that sent Promise worldwide. He is connected to the Bin Laden family through the Carlyle Group, which means that both the Bin Laden fortune and the Bush fortune are greatly increased with every military act. The problem is finances if Osama is to remain armed and create worldwide fear to carry on the Bush Agenda of turning America into a police state and leading us further into the New World Order, he needs further funding. With the "Promise" software Bin Laden need never worry again about how we will further fund him. Bank accounts can be very messy in that they can be traced, and indeed much US money has been traced to him already and then quickly buried. Now he has the ability to just create an account in any name to be collected whenever it is needed to obtain whatever is deemed necessary."

Take A Hard Look

8/6/06 Take A Hard Look

Crude oil prices may increase to $100 a barrel on winter demand and because of concern over supplies getting disrupted, Iran's Deputy Oil Minister Hadi Nejad-Hosseinian said.
"There is still a possibility of crude reaching $100 a barrel due to geopolitical problems worldwide and peaking of winter demand,"

One cannot ignore geopolitical issues and their impact on the price of crude. However, it might prove more fruitful to take a hard look at the current conditions
of Saudi Arabia's Ghawar field and Mexico's Cantarell field, certainly two of the world's largest. Production has topped out in both and declining quickly in the
Cantarell field. In all likelihood, production at Ghawar is overstated. I found it interesting that China is getting more daily crude from Africa than from the Saudis.
Since the U.S. is so dependent on foreign oil, just from where do you believe we will get our future deliveries to meet current demand? At the moment, when there are three consecutive days of intense heat, we will curtail our demand and therefore avoid overloading the grid. Will we be forced to curtail our daily demand for crude?
I see this coming around the bend.

Doug Noland: "I actually believe that major Greenspan-style unilateral rate cuts in response to economic weakness are a thing of the past. Whether it appreciates it today or not, the Bernanke Fed has lost significant autonomy to the now massive flows of global finance. Importantly, this powerful pool of global finance Bubble increasingly dictates inflationary trends, and the Fed's determination to sustain the U.S. Credit Bubble only ensures that these global flows become only more commanding and destabilizing. Inflationary pressures are building and, as we are observing with energy prices, increasingly destabilizing. And, the dollar...
The vulnerable dollar is poised to play spoiler for the inflationists and the Fed. In this regard, it is worth pondering this evening that when the Fed cut rates 50 bps to 6% on January 1, 2001, the dollar index traded at 110. A year later, after the Fed had quickly dropped rates to 1.75%, the dollar index was approaching its high of 120. Clearly, the Fed back then enjoyed great leeway to cut and inflate. Conversely, the Fed began raising rates from the low of 1% in June of 2004 with the dollar index at about 90. Now, 17 hikes later, the dollar index is near 84. It is also worth repeating that when the Fed was cutting rates aggressively in 2001 Current Account Deficits were running less than $100 billion quarterly. They are now double this amount."

The nation's governors on Saturday launched a bipartisan drive to block a move to expand the president's authority to take over National Guard troops in case of natural disaster or homeland security threats.

In Naperville,Illinois, in the past 12 months, 28 homes have sold from $1.2 million to $1.6 million. Currently, there are 89 on the market -- a 30-month supply. As an incentive to buyers, one homeowner is offering a new Hummer.

Mike Burk: "Diminishing new lows make a good case that a cycle low occurred on July 21, but many of the short term momentum indicators are at or near their highs of the past 3 months suggesting a pull back next week. I expect the major indices to be lower on Friday August 11 than they were on Friday August 4."

In Australia, the Olivier Internet Job Index rose by 2.22 per cent to a new high of 232,283 new jobs advertised online last month.
Olivier Group director Robert Olivier said the high level of employment was creating wages pressure, which in turn was helping to drive inflation.
The boiling hot employment market was a significant factor behind the Reserve Bank of Australia's (RBA) decision to lift interest rates last week, Mr Olivier added.
"It's the price of people, as workers, not just the price of petrol or bananas that looks like the driver to us," he said.
"Unemployment is at a record low, the skills shortage is biting hard and in-demand employees know they have the upper hand."

According to The Guardian, a consortium led by Qatar's state-owned investment fund and investment bank UBS is expected to join the £7bn battle to acquire Thames Water which has been put up for sale by German owner, RWE.

The Hong Kong government is currently consulting the public about a possible sales tax. It said in a statement that Hong Kong must take advantage of its current economic strength to shore up public finances for future generations.
"We must act now to broaden our tax base for the future prosperity of Hong Kong. This will ultimately affect each Hong Kong resident individually," the statement said.

Employment

8/5/04 Employment

Nonfarm payroll employment increased by 113,000 in
July, and the unemployment rate rose to 4.8 percent. Average hourly earnings
increased by 7 cents, or 0.4 percent, in July. Over the 12 months ending in July,
average hourly earnings have risen by 3.8 percent.
In the service-providing sector, employment in
professional and business services rose by 43,000 over
the month. Employment was flat over
the month in temporary help services.
Employment in leisure and hospitality increased by
42,000 in July, mainly due to continued job growth in food
services and drinking places (+29,000). Health care
employment also continued on an upward trend, with an
increase of 23,000. Job gains occurred in hospitals and
in nursing and residential care facilities.
The number of jobs in retail trade was unchanged in
July; employment in general merchandise stores declined by
8,000 over the month and has fallen by 74,000 since August
2005. Construction employment was little changed for the fifth month in a row; over
the period, job growth in nonresidential construction has been
offset by job losses in residential and heavy construction.
Manufacturing employment edged down by 15,000 in July,
largely offsetting an increase in June. Over the month,
manufacturing hours increased by 0.2 hour, while factory
overtime was down by 0.1 hour.
The number of unemployed persons edged up to 7.2 million in July. A year earlier, the number of unemployed persons was 7.5 million and the jobless rate was 5.0 percent.
Following a decline in June, the number of long-term unemployed
persons--those unemployed 27 weeks or longer--returned to its May level of 1.3 million. These long-term unemployed accounted for 18.6 percent of total unemployment, about the same as in May.
After trending down for several months, the number of unemployed persons who
were reentrants to the labor force increased to 2.4 million in July. This group
accounted for 32.7 percent of total unemployment, up from 30.0 percent in June.

The benchmark 10-year Treasury note closed 15/32 higher at 101 23/32 with a yield of 4.903%.

Even though the Fed Fund futures are predicting there is almost no chance for the Fed to raise ates next week, equities could not hold their opening rally and quickly turned into the red column. I know it doesn't mean much, but Ford continues to rally despite bad news. The stock powered through $7 on the upside and that has not taken place for quite some time. It is beginning to act like GM did at $19 and $20.

The question one must ask is where do we go from here? Do you want to buy 10-year Treasury bonds at 4.90% or the 30-year at 4.99% as the dollar weakens daily? Are stocks more attractive than bonds? Or is being hedged and/or in cash the smartest move?

Hovnanian, a homebuilder, now sees earnings in a range of $1.10 to $1.20 a share for the third quarter ended July 31, down from a range of $1.40 to $1.50 a share previously. And for the full year, Hovnanian's pegged its updated forecast at $5 to $5.75 a share, down from a prior range of $7.20 to $7.40 a share.

Christopherson Homes is laying off 18 percent of its employees over the next three to six months, company officials said Thursday.
Sonoma County's largest home builder will lay off 25 to 30 workers in a range of jobs at both its Santa Rosa headquarters and its Sacramento division.
"We hope this downturn will be short-lived but we will continue to make adjustments deemed necessary," said George Casey, the company's chief executive officer.
"We look forward to the time when the market rebounds and when Northern California begins to grow again. When this happens, we believe we will be well positioned to continue to grow Christopherson Homes as we have over the last nearly 30 years," he said.

Further Evidence

8/4/06 Further Evidence

The ECB, The Bank of England, and the Bank of Australia all raised their interest rates. Therefore, it is not surprising to see the U.S. dollar index remain under 85.

Iran's President has a solution to the Mideast conflict -- the answer is to destroy Israel.

Factory orders for June increased 1.2%. The July ISM Services Index was 54.8 versus 57 in June.Within the index, the price component rose to 74.8% from 73.9% in June, suggesting inflation pressures continue to build.

Palatin Technologies, Inc. and King Pharmaceuticals, Inc. announced results of Part 2 of a Phase IIa pilot study evaluating the effects of bremelanotide in post-menopausal women diagnosed with female sexual arousal disorder (FSAD). Results showed that on a 14-item questionnaire, 73 percent of the women reported an increased level of genital arousal while on bremelanotide compared with 23 percent of women on placebo. Also, 46 percent of women on bremelanotide reported an increased level of sexual desire while only 19 percent of women responded similarly after placebo treatment. Additionally, subjects receiving bremelanotide reported a higher incidence of engaging in sexual activity compared to placebo. The current study follows a similarly designed clinical study conducted with
pre-menopausal patients with FSAD, the results of which were recently published in the July 2006 issue of The Journal of Sexual Medicine.
"The results of this study in post-menopausal women corroborate the previous results reported in pre-menopausal women and supports the further advancement of bremelanotide for the treatment of FSAD," said Trevor Hallam, Ph.D., Executive Vice President, Research & Development of Palatin Technologies.
I continue to believe that long-term investors in Palatin will be nicely rewarded. Institutions largely ignore stocks priced under $5. In my view, they will catch on in due time.

Wm. Stacy Locke, Pioneer Drilling's President and Chief Executive Officer, stated, "Demand for our rigs has remained strong and we have continued to see increases in dayrates in each of our operating areas. Average drilling revenues per day increased $1,532 per revenue day to $19,154 in our fiscal first quarter of 2007, compared to our fourth quarter of fiscal 2006. Average drilling costs increased $801 per revenue day during the same period, of which $541 related to labor costs and $241 to supply, repair, maintenance and equipment disposal costs. As a result, average drilling margins per revenue day increased $731 per day to $9,004, or an increase of 9% over the fourth quarter of fiscal 2006. We continued to pursue term drilling contracts during the quarter. Currently, 44 of our 59 rigs, or 75%, are operating under term contracts of six months to two years in duration, of which 15 have remaining terms of six to 12 months, eight have a remaining term of 12 to 18 months and four have a remaining term in excess of 18 months.
"To date, we have completed eight rigs of our 16 rig new-build program and expect to have the eight remaining rigs begin working under contract over the next nine months or so," continued Mr. Locke. "Since April 1, 2006, the beginning of our new fiscal year, we have added four 1000-hp electric rigs: one rig to the Utah division; one rig to the South Texas division; and two rigs to the North Texas division. Each of these rigs is designed to be quick- to-move and rig up, contains modern mud-cleaning equipment and has two independently powered, high-horsepower mud pumps.
"Our investment in new-build rigs and our commitment to upgrade and modernize our existing fleet has allowed Pioneer to expand its customer base. Currently, 59% of the rigs are working for publicly traded independents or major oil and gas companies. In the June quarter, we spent approximately $8,300,000 upgrading six rigs, using over 230 potential revenue days in the upgrade process. We believe that our fleet is well positioned to be highly competitive in any market conditions we encounter."

Time Warner Inc.'s AOL online division on Thursday said about 5,000, or about 26 percent of its 19,000 employees, will not be employed by the company within six months as a result of its retructuring.

The number of workers collecting jobless benefits rose by 11,000 to 2.48 million in the week ending July 22. The four-week average of continuing jobless claims rose by 8,000 to 2.47 million, the most since March. As a reminder, once an individual ceases to collect unemployment benefits, that individual is no longer counted as unemployed.

The audited financial statement — prepared by the Treasury Department — reveals a federal government in far worse financial shape than official budget reports indicate, a USA TODAY analysis found. The government has run a deficit of $2.9 trillion since 1997, according to the audited number. The official deficit since then is just $729 billion. The difference is equal to an entire year's worth of federal spending.

Univision Communications Inc. on Thursday said its second-quarter profit nearly tripled on a 38% revenue increase at its television networks and stations. The company earned $107.4 million, or 32 cents a share, compared with a profit of $36.1 million, or 10 cents a share -- including the writedown of a loss in the fair value of an investment -- in the prior year. Earnings in the latest three months include $16.3 million in charges related to the company's move to put itself up for sale, costs related to its ongoing litigation with Grupo Televisa and stock-based compensation. Excluding those charges, Univision would have earned $116.6 million, or 34 cents a share, in the latest quarter. Revenue rose to $634 million from $508 million. (Corrects profit excluding charges in latest quarter.) Unfortunately, yesterday was not a very good day for Starbucks, Medtronic, St. Jude Medical, Boston Scientific, CBS, Sprint, Transocean Oil, Prudential Financial, MGM Mirage, and Las Vegas Sands, to name a few.

The 2-year Treasury yield is 4.98% and the 10-year is 4.94%. Again, we have an inverted yield curve.

Many economists are suggesting that the nonfarm payrolls for July will increase by 143,000 and that wage inflation will rise slightly. As such, there is an increasing consensus that the Fed will pause next week. Will that help Target's sales or the results from the Gap? Pier I says they see a worsening macro-economic environment. It could be that their merchandise stinks the house out.

General John Abizaid, the top U.S. commander in the Middle East:``The sectarian violence is probably as bad as I've seen it, in Baghdad in particular,'' Abizaid told the Senate Armed Services Committee in Washington. ``If not stopped, Iraq could slide into civil war.'' As I have said for the last 5+ years, Bush will go down as the worst president in our history.

The New Reality

8/3/06 The New Reality

Looking at the various markets, we are to believe the new reality is for declining interest rates to co-exist with a weaker dollar, a rising inflationary environment, and a consumer-based economy that will not falter even though the consumer is saddled with paychecks chipped away by rising federal, state, and local taxes and by higher energy expenses.

Dietrich Bonhoeffer: "To understand reality is not the same as to know about outward events. It is to perceive the essential nature of things. The best-informed man is not necessarily the wisest. Indeed there is a danger that precisely in the multiplicity of his knowledge he will lose sight of what is essential. But on the other hand, knowledge of an apparently trivial detail quite often makes it possible to see into the depth of things. And so the wise man will seek to acquire the best possible knowledge about events, but always without becoming dependent upon this knowledge. To recognize the significant in the factual is wisdom."

Ford Motor Co. said Wednesday it's lowered the suggested retail price sfor its F-150 pick-up truck product line by as much as $1,400. The company said the average price reductions, by cab style, are $720 for its Regular Cab models, $830 for its SuperCabs and $949 for its SuperCrews. Including destination charges, it said pricing for its F-150 XL Regular Cab 4X2 will begin at $19,120 and that the product line's pricing will range up to $39,565 for the F-150 Lariat King Ranch SuperCrew 4X4. Ford stated "Based on the recent trend in sales, we now expect our Premier Automotive Group operating segment to be unprofitable for 2006."

Saks Inc. said it's selling its Parisian specialty department store business to Belk Inc. for $285 million in cash. The company said it will distribute a large part of the price to shareholders, either through a share buyback, special dividend or combination of the two.

The ADP report looks for nonfarm payrolls to grow by about 114,000 in July vs. the 143,000 expected by economists.

Walgreen Co. on Wednesday said July sales at stores open at least one year rose 9.7%.

Returning to Ford, the company hired Kenneth Leet, a former M&A banker with Goldman Sachs and B of A, to act as an advisor to the CEO of Ford. Leet will look at the divisions of the company and recommend which should be sold. There was a mention in the WSJ of possibly looking at alliances. I doubt this. The company has had many alliances over the years. That would not be a new direction. I continue to believe that the company will be sold in whole or in parts.

Salman Rushdie: "Reality is a question of perspective; the further you get from the past, the more concrete and plausible it seems -- but as you approach the present, it inevitably seems incredible."

Crude for September delivery rose 90 cents to $75.81 a barrel. Natural-gas prices rose 22.5 cents to end at $7.799 per million British Thermal Units. Gasoline futures rose 6.15 cents to $2.338 a gallon while heating oil futures ended up 4.9 cents at $2.129 a gallon. The 10-year Treasury ignored the rise in energy prices and the yield dropped to 4.96%.

Gold for October delivery closed up $5.20 at $657.60. Silver rose 50.5 cents to $12.245 an ounce. Platinum added $2.10 to $1,260.60, palladium added $7 to $328.95 an ounce, and copper lost 0.2 cent to $3.591 a pound.

In the first quarter, Medtronic said pacemaker sales grew 3 percent to $460 million, and ICD sales fell 6 percent to $675 million from last year. Spinal revenue rose 14 percent to $598 million from a year ago. Overall, sales and earnings rose but fell short of analyst expectations. Medtronic shares fell $3.18, or 6.2 percent, to $47.75 in after-hours trading on the INET electronic exchange.

Starbucks said sales at coffee shops open at least 13 months rose 4 percent in July. Three analysts' forecasts ranged from a rise of 6 percent to 7 percent in comparable-store sales, according to research reports.
"This is the first time we've seen comp-store sales drop this low, so concerns about overall consumer spending and its effect on Starbucks will now be affecting the shares," said Don Gher, chief investment officer with Bellevue, Washington-based investment firm Coldstream Capital Management. In after-hours trading the shares declined 7% to $31.

Richard Daughty: "My Sensitive Mogambo Nose For Danger (SMNFD) catches a whiff of the overpowering stench of a looming disaster writ large, as inflation in the price of energy is, if I may lapse into official theoretical economist-speak, the "Revenge Of Stark Reality" theory, which, if you are even passingly familiar with the term "revenge", is all you need to know to be afraid and paranoid, as you should be. Ugh.
****Mogambo sez: Gold, silver and oil have been a winner for the last three years, and they will surely be a winner for the next three, too. And almost certainly more.
So keep loading up with them. One day you will be very, very glad (VVG) you did."

Relieving Stress

8/2/06 Relieving Stress

The top 10 ways to relieve Stress:
1. Mad TV Show
2. Watching the Fed print money
3. Listening to Mel Gibson explain he is not an anti-Semite
4. The Daily Show
5. Watching the Fed fight inflation
6. Watching Bush salute
7. Dave Chappelle
8. The Geico ad with Little Richard
9. The Colbert Report
10.Bush struggling to tell the truth, and losing the battle

The Commerce Department said construction spending rose 0.3% in June. The National Association of Realtors said the pending home sales index rose 0.4% in June, its second month of gains, it is down 9.6% in the past 12 months.

The ISM Manufacturing index rose to 54.7% in July from 53.8% in June. New orders fell to 56.1% in July from 57.9% in June; however, production picked up to 57.6% from 55.1% in the previous month. The employment index rose to 50.7% from 48.7%. The price index jumped to 78.5% from 76.5%. This is the highest level since October.

A U.S. Department of Commerce report showed personal consumption dropped in June by .2%.

Some high P/E stocks are taking it on the chin, such as, Whole Foods down 6 points and Expeditors down
5 points.

Challenger Gray and Christmas said there were 37,168 job cuts in July, down 50% from June. This was the lowest in six years.

Eastman Kodak's report was from hunger and the stock dropped under 20.

The dollar index has been holding at or above the 85 level. If the Friday employment report surprises on the upside, I do not believe the 85 level will hold.

The core personal consumption expenditure price index (excluding food and energy) increased 0.2% for the third straight month in June, the U.S. Commerce Department said, and has risen 2.4% in the past 12 months, matching the largest year-over-year gain since April 1995.

Personal incomes rose 0.6% in June, outpacing the 0.4% increase in consumer spending. The personal savings rate rose to negative 1.5% from negative 1.6%.

Crude for September delivery rose 51 cents to $74.91. Gasoline futures closed up 6.32 cents, or 2.9% to $2.28 a barrel. Natural-gas futures fell 63.70 cents to $7.57 per million British thermal units. Heating oil futures rose 4.28 cents to $2.08 a barrel.

Gold for Oct. delivery closed up $12 at $652.40. Platinum added $16.90 to $1,258.50. Copper rose 2.3 cents to $3.593 a pound. Silver added 27 cents to $11.74 an ounce.

Vehicle sales for GM, Ford, and Chrysler were so lousy I almost puked. Nissan should be a perfect match for GM. Their sales stunk the house out too.

ContraryInvestor.com: "Residential real estate affordability depends on two key components - cost of capital and price. As of the most recent readings (June of this year), the housing affordability composite index rests at a low not seen since mid-1989. The National Association of Realtors also breaks down affordability between fixed and ARM buyers. The ARM affordability component of the composite fell to a low not seen for 20 years. We have the very strong feeling that looking ahead, the character of residential real estate is not going to be primarily dependent on cost of capital, but perhaps more driven by price sensitivity than at any time in decades given the leverage already built up at the household level...Can this current dollar volume "inventory" situation in residential real estate resolve itself without further ruffling a few price feathers? Although the final hard versus soft landing verdict on housing, and by extension the US economy, remains to be delivered, storm clouds have clearly gathered and continue to grow just a bit darker by the day. If we were you, we'd take a few steps back from the proverbial housing cycle landing pad...just in case. We're not so sure we want to be too close to this thing when it lands."

Traders are now pricing in a 43% chance that the Fed will raise its target on overnight rates to 5.50% from 5.25% after its Aug. 8 meeting, up from a 32% chance late Monday.

Libor is the highest since the start of 2001.The premium banks now charge over the Libor rate is the widest in 13 months.

Bertrand Russell: "One of the symptoms of an approaching nervous breakdown is the belief that one's work is terribly important."

Stressed

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.”

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.

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."

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."

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.

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?

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.

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.

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.

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."

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.''”

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.

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."

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."

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.