A Turning Point?

9/22/06 A Turning Point?

Just a reminder. A few days ago I wrote that 9/22 is a reversal day for W.D. Gann. It is also interesting to note that Gary Lammert and his fractal analysis point to 9/22 as a turning point.

Henry To: "The historical correlation between the Canadian dollar and the CRB and the CRB Energy Index has been quite significant (correlation of over 50%) over the last 16 years or so. Consequently, any breakdown of the major commodity indices without the confirmation of the Canadian dollar on the downside should be viewed as suspicious. At the very least, a non-confirmation on the part of the Canadian dollar should at least lead to some kind of bounce in commodities in general. Are we about to see such a bounce - given that the Canadian dollar is still holding on? Particularly in gold or crude oil? This author would not be surprised if either gold or crude oil bounce over the next week or so - but any buying in either gold or silver should be short-term only in nature and should only be bought if sentiment and technical indicators confirm, such as extreme bearish sentiment in the Hulbert Gold Newsletter Sentiment Index (HGNSI), declining assets in the Rydex Precious Metals fund, etc." As I mentioned yesterday, several companies in the energy sector made new 52-week lows on Wednesday.

The dollar weakened to $1.2787 per euro at 3 p.m. in New York from $1.2686 late Wednesday, for its biggest loss since July 26. The U.S. currency fell to 116.35 yen from 117.46 yesterday, the largest decline since July 28.
The Fed Bank of Philadelphia said its index for September fell to -0.4 from 18.5 in August. The median forecast in a Bloomberg survey was for a drop to 14.

Alameda County, California reported a 28.2 percent drop in year-over-year sales and a 1.5 percent drop in home prices -- the first annual price decline since March 2002, DataQuick Information Systems reported Wednesday. In Contra Costa County,California where sales toppled 23.5 percent, the median price was unchanged from last year, the worst performance since November 1999, said DataQuick spokesman Andrew LePage. Solano County, California sales also dropped 34.3 percent, and sales appreciated 1.9 percent, the lowest rate since August 1999. The median price in the Bay Area rose a scant 0.2 percent.

Japan's trade surplus surged in August as automobile shipments to the U.S. rose at the fastest pace in almost a decade, spurring export growth.
The trade surplus widened 96 percent to 200.5 billion yen ($1.7 billion) from a year earlier, the Ministry of Finance said today in Tokyo. Exports rose 17.7 percent, faster than the 16.3 percent median forecast of 13 economists surveyed by Bloomberg.

October natural gas fell 15 cents to close at $4.781 per million British thermal units after a low of $4.60. An Energy Department report Thursday showed more-than-ample supplies of the commodity. The October contract hasn't traded or closed at prices this low since Feb. 2004. Meanwhile, November crude rose 85 cents to close at $61.59 a barrel.

The benchmark 10-year note ended up 22/32 at 101 25/32 with a yield of 4.648%, the highest close since Mar. 16 and down from 4.728% late Wednesday. The 2-year note ended up 6/32 at 100 09/32, yielding 4.716%, keeping the yield curve inverted. Robert Parry, the past president of the SF Fed, said Wednesday he "was surprised by the 10-year rate" and how low it is. I am certainly in that camp.

KB Home said quarterly revenue reached $2.67 billion, compared with $2.53 billion during the same period in the prior year. The company said the revenue growth was driven by a 10% increase in the average selling price, and partly offset by a 3% decrease in unit deliveries. The company's backlog at Aug. 31 totaled 23,878 units, down from 27,744 units at the same time last year. The company expects market conditions for the rest of 2006 and into next year to have an unfavorable impact on year-over-year net income comparisons.

Kurt Richebacher: "In 2005, real disposable incomes of private households in the United States increased $93.8 billion, or 1.2%, while their debts grew $1,208.6 billion, or 11.7%. Total consumer spending on goods, services and new housing accounted for 92% of real GDP growth.
The U.S. economy's recovery from the recession in 2001 has been its slowest in the whole postwar period, and in addition, it has been of a most unusual pattern. Real GDP rose by 11.7% over the four years to 2005. Within this aggregate, residential building soared by 35.6%. Consumption gained 13.4% and government spending 10%. The big laggard in domestic spending was business nonresidential investment, up only 3.6%. Net exports year for year were increasingly negative."

Wal-Mart announced that it will make nearly 300 generic drugs available for only $4 per prescription for up to a 30-day supply at commonly prescribed dosages. The program, to be launched on Friday, will be available to customers and associates of the 65 Wal-Mart, Neighborhood Market and Sam's Club pharmacies in Tampa Bay, Fla. area, and will be expanded to the entire state in January 2007.

Wonders never cease. The VIX rallied .86 and closed at 12.25.

More Surprises

9/20/06 More Surprises

I am not sure what surprises me more- the 44% approval rating for Bush or the 30-year treasuries yielding only 4.85%.

Were you surprised by the coup in Thailand where that country's military overthrew Prime Minister Thaksin Shinawatra on Tuesday and declared a provisional authority loyal to King Bhumibol Adulyadej? Army Commander Gen. Sondhi Boonyaratkalin surrounded Thaksin's offices with tanks and troops and seized control of television stations, the Associated Press reported. Sondhi will serve as acting prime minister, Army spokesman Col. Akarat Chitroj said, according to the AP. Martial law was declared, the constitution revoked, and all troops were ordered not to leave duty stations without permission. Thailand's stock exchange will be closed, as well as banks, schools and government offices on Wednesday, the AP reported.

This should not come as a surprise. A group of Iranian reporters and photographers who were to travel with President Mahmoud Ahmadinejad to New York were refused visas by US State Department officials although they had officially applied for such visas one week earlier, it was reported here Tuesday.

Iran and Venezuela here Sunday signed 29 memoranda of understanding for expansion of bilateral cooperation in various fields on the first day of an official visit by Iranian President Mahmoud Ahmadinejad to this Latin American state. Cooperation in various activities in the field of oil and gas, including exploration and construction of oil rigs and tankers, construction of ships and airplanes, expansion of their aviation industries, establishment of an engineering company for downstream industries, cooperation in maritime trade and setting up of a joint oil trading company were the subjects covered by documents signed by the two countries' officials.

Over the last 46 trading days the VIX has ranged from 19.58 to 10.99. It now sits around 11.50. I would be very surprised if in the next 46 trading days the VIX did not trade at least as high as 17. Thus, going long the 10 call and selling the 15 call makes some sense to me- especially with a time horizon going out to May 2007.

Foundation Coal made a new 52-week low at $29.49. It's down from the high of $57+.

J.P. Morgan Chase CFO Mike Cavanagh said Wednesday that the firm thinks volatility in the trading business at its investment bank is too high, and it wants to lessen it. Judging from the VIX, you wouldn't think there is much volatility coming around the bend.

This year the purchasing power of the dollar has declined by more than 7% on an annualized basis. Now compare that with the rise in the S&P 500. The pundits will tell you that the Dow is only about 500 points from an all-time high reached in 2000.
How much has the dollar fallen since 2000? How much has gold risen? How much has gas at the pump risen? You still feel all giddy? Take a cold shower and look reality in the face. This Administration has plundered the economy with its spending and raising the debt limit four times. There is no free lunch for stupidity.

At Wednesday's close I was able to find 5 uncommon values. Each company's shares made a new 52-week low today and each is down significantly from its 52-week high. In addition, each sells at a big discount to its on-going enterprise value as well as its historical relationship to its cash flow generated per share. The five companies are: ConocoPhillips, BJ Services, Helmerich and Payne (which owns 22% of Atwood Oceanics), Peabody Coal, and Foundation Coal. Not only are they uncommon values, but each has potential as a takeover target. I only consider companies uncommon values when I believe strongly that they will generate 30%+ returns over the next 12 months with limited downside risk. Those selling these stocks will look back at this period and realize the herd mentality did them in-- as it always does.

Please Take Note

9/20/06 Please Take Note

I want to thank George Ure for providing this information:
"18 September 2006: In an article provided exclusively
to the Northeast Intelligence Network and Canada Free
Press by Dr. Paul Williams and Mr. David Dastych on
Saturday, “final preparations have been made for the
next major attack on the US” identified as “American
Hiroshima,” suggesting the attack will be nuclear in
nature. Since we published that report, confidential
sources in law enforcement positions have privately
confirmed to the Northeast Intelligence Network that a
"disturbing trend" is being reported on both of our
borders – a pattern that is consistent with a
potential nuclear attack scenario against the US.
According to these sources, a "significant and
alarming number" of illegal aliens attempting entry
into the US, caught by border patrol agents, have been
found to be carrying Potassium Iodide tablets, which
are used to protect against exposure to radiation in
emergency situations.*
According to our sources, the illegal aliens who have
been caught have been described as OTMs (other-than
Mexicans), and consist primarily of Chinese and
Iranian nationals on our southern border, and Asians
and others from a variety of Middle Eastern countries
at the US-Canadian border. Law enforcement sources
providing this information to the Northeast
Intelligence Network agreed that this is “a very
recent phenomena,” but one that has increased to
“alarming levels” and is of particular concern to
government officials.
Additional and more specific information will be
contained in the upcoming issue of the HQ INTEL-ALERT
Private Intelligence Report.
*NOTE: An astute and well-educated reader accurately
points out that Potassium Iodate, also referred to as
KI, protects only one organ in the body (the thyroid)
from ONE form of radiation (I-131). And it does so
only if a person takes the tablet BEFORE (or just
after) being exposed to I-131, as the KI fills up the
thyroid gland with "good" salt instead of the
radioactive version."

Tuesday morning there was a reported coup in Thailand with the military taking control of the government.

Stephen Roach: "After three years of extraordinary outperformance, denial over the possibility of a sustained downside adjustment in commodity prices is very much in evidence -- underscoring the time-honored sociology of an asset class that has gone to excess. Meanwhile, China and US-housing-related fundamentals are going the other way -- setting up increasingly tender commodity markets for unpleasant downside surprises on the demand side of the global economy. The herding instincts of institutional investors could well magnify the price declines -- when, and if, they emerge. All this suggests there is still plenty of life left in the time-honored commodity cycle."

The Chrysler group will cut its production by around 90,000 units in the third quarter and around 135,000 in the second half of this year to try to reduce a glut of inventory, the company said today.
In a presentation made available before a conference call, the Chrysler group said deliveries to dealers would fall to around 380,000 units in the third quarter and to 705,000 in the second half. The Chrysler group expected deliveries to rise again in 2007 and subsequent years.

Housing starts plunged 6 percent last month to an annual rate of 1.665 million, the Commerce Department said today in Washington, a steeper slide than economists forecasts. Building permits dropped to an annual rate of 1.722 million from 1.763 million the prior month. Not since May to November 1986 have permits declined seven straight months.

Yahoo! Inc., the most-visited U.S. Web site, said profit and sales this quarter will be at the low end of its forecast on slower advertising demand from automakers and financial services providers. The shares slumped as much as 13 percent.
"We have seen a little bit of weakness in the last three or four weeks,'' Chief Financial Officer Susan Decker said today at a Goldman, Sachs & Co. conference in New York. ``It is having an impact on our quarter." With incentives provided by the GM, Ford, and Chrysler, the prices of autos dropped and so did the profit margins. It should not come as a surprise that advertising would be reduced. The bottomline for my money is that at $25+ the market cap still is close to 20 times the cash from operations. We can do better than that.

Chuck Butler: “The Net Foreign Security Purchases (NFSP) which need to be around $70-75 billion each month to finance the deficit, only amounted to $32.9 billion in July. That's right less than half the amount needed!”

Prices of raw materials and other producers' inputs rose a slim 0.1% in August, the Labor Department said. Excluding food and energy costs, the core PPI fell 0.4%. This is the biggest drop in core PPI since April 2003 and the first two-month decline since late 2002. If you consider the drop in auto prices, the PPI takes on a different view. Of course, the treasury market rallied strongly and the yield on the 30-year declined to 4.86%. It's hard to believe but true. The dollar took a dip but remained well above the most recent lows.

"To slow growth in exports, a better way would be to allow the yuan to gain faster, specifically around 5 percent cumulatively, annually," Zhu Baoliang, deputy director of economic forecasting at the State Information Center, said in an interview. The Center is an affiliate of the National Development and Reform Commission, China's top planning body.

Richard Daughty: "How ridiculous is the fractional-reserve ratio?" I laugh derisively and say "It can only be crudely estimated by the difference between a paltry $798 billion in cash, and the sum total of everything else! Zillions of dollars in assets, created by an equivalent debt! Hahaha! We're freaking doomed! Doomed! Hahaha! Welcome to the insane hell of fractional-reserve banking!"

Crude took a big hit to $61.70 a barrel and gold backtracked $9.60 an ounce. Meanwhile unleaded gas plummeted to $1.49 a gallon. You can expect further drops at the pump.

Cramer makes the point that the market is shifting from oil to tech and says buy Cisco. I did recommend Cisco at $16.50. I don't believe it represents value at $22.50. For my money I can think of a lot more values in the energy patch, and that's for all types of investors. Just because a stock is down from $80 or so, doesn't make Cisco a value at $22.50. That's just my view from the cheap seats.

BJ Services traded at a new 52-week low at $29.86.

Medtronic Inc. said the Food and Drug Administration's orthopedic and rehabilitation devices advisory panel has unanimously recommended approval of its Prestige cervical disc system. The panel's recommendation will be considered by the FDA in its review of the pre-market approval application for the device, Medtronic said.

Trouble Brewing?

9/18/06 Trouble Brewing?

David Bloom, global head of currency strategy at HSBC,
said: "It is the US that we are worried about as the
housing market turns down. The US needs nearly one
trillion dollars of foreign money each year just to
stand still. If people around the rest of the world
start keeping their money at home for any reason, the
dollar will face a serious decline and we think it
will kick in later this year.
"The risk has moved from the outskirts to the heart of
the system, and it's now pressing on the very aorta of
capitalism."

The 12-billion-dollar Indian realty sector is growing at the rate of 30 per cent annually, with the information technology (IT) and business process-outsourcing sectors powering the growth, the joint study by the Federation of Indian Chambers of Commerce and Industry (FICI) and global consultancy firm Ernst and Young said.
IT and business processing outsourcing industries alone will need 367 million square feet of space by 2012-2013, a statement by FICCI quoting the study said.
The study, however, cautioned that this demand was dependent on the growth of the IT sector which faced stiff competition from countries such as Poland and China.

The direction of reform is clear and our determination is firm. We will not backtrack,’ Zhou, governor of the People’s Bank of China, told reporters.
But he said currency reforms would be gradual. Policy makers would take account of China’s ability to adapt to changes in the exchange rate as well as the country’s international responsibilities.
‘We will keep the renminbi’s exchange rate relatively stable at a rational and balanced level,’ said Zhou, speaking during the annual meeting of the International Monetary Fund and World Bank.
China revalued the yuan CNYCFXS, or renminbi, by 2.1 percent against the dollar in July 2005 and scrapped a decade-old dollar peg in favour of a managed float.
Since then, to the frustration of critics who say the currency remains grossly undervalued, the yuan has gained only a further 2 percent.
Under the floating regime, the yuan may rise or fall by 0.3 percent a day from a midpoint rate set every morning by the People’s Bank. The daily band against other major currencies is plus or minus 3.0 percent.

John Hussman: "There's presently no evidence in the quality of market action that investors have adopted a robust speculative mood. Good investments are those based not on hope, but on some foundation of evidence – either of reliable “investment merit” (based on properly normalized valuations), or of measurable “speculative merit” (based on the quality of market action). Taking a significant exposure to market risk without such foundations is like moving into a house built on sand.
The NYSE registered 193 new highs on Friday. This was fewer daily new highs than we observed two weeks ago, and less than half the number registered in early May. Weekly new highs also fell far short of the April-May period. Despite the recent advance in the major indices, the Dow, S&P 500, Nasdaq and Russell 2000 all remain below their April-May highs. Since early April, when our measures of market action shifted from neutral to unfavorable, the S&P 500 has delivered a total return about equal to the return on risk-free Treasury bills (within a fraction of 1%). This simply is not a market that is “running away,” but rather one that is range-bound and now strenuously overbought."

The Administration points to Medicare and Social Security as the main ills for the growing deficit. Our U.S. total public debt is close to $8.5 trillion. Interest on this debt will approach $420 billion in the year ended Sept 30, 2006 and this will be $50+ billion more than in the prior year. Next year it will easily exceed $450 billion. You probably didn't know this. How much gold does the government own? A puny $11 billion worth. You can be fool and think our deficits will decline. What will decline will be the worth of the dollar. In time, you can use it for wallpaper.
I would think twice before you sell or short gold. And that goes for silver too.

The current account shortfall totaled $218.4 billion in the second quarter, larger than Wall Street forecasts of $214 billion, a Commerce Department report showed.
The government also raised its estimate of the first-quarter current account deficit to $213.2 billion from a previously reported $208.7 billion.
The current account is the broadest measure of U.S. trade with the rest of the world, including both trade in goods and investment flows.
Is there trouble brewing?

Keeping It Real

9/17/06 Keeping It Real

Target Corp.late Monday said it now expects sales at stores open at least a year to rise around 5% in September vs. a previous forecast for a 3% to 5% rise. Same-store sales at the discount retailer rose 5.6% in September of 2005.

Retail gasoline prices plunged 12 cents a gallon last week to average $2.55, the lowest average price since March, the Energy Department said Monday. The 12-cent drop was the biggest decline since last October. Pump prices have fallen by 53 cents, or 17%, in the past six weeks. Even in Marin County, Ca unleaded gas at an Arco station was $2.51.

Meritage Homes Corp. after Monday's closing bell said it sees third-quarter results near or slightly below the lower end of the company's prior view due to "further deterioration in market conditions," and that it will be "difficult to achieve" its outlook for the rest of the year. The Scottsdale, Ariz.-based homebuilder added that July and August preliminary net new orders were 38% lower than during the same period in the prior year, while home closings rose 17%.

Con-way Inc after Monday's closing bell lowered its view for third-quarter earnings per share from continuing operations to a range of $1.10 to $1.15 from its prior outlook of $1.21 to $1.29. The San Mateo, Calif.-based freight transportation company cited issues such as business volumes that are lower than expectation at the company's less-than-truckload operating unit.

The Treasury Department said capital flows skidded to $32.9 billion in July, the smallest inflow since May 2005. Michael Wallace, a strategist at research firm Action Economics stated "The capital inflows were not even really half of the (trade) deficit." Does this concern you?

BP announced Monday afternoon that repair of sub-sea production equipment will delay the start up of production from its Thunder Horse platform in the Gulf of Mexico until at least the middle of 2008. October crude climbed 47 cents to close at $63.80.

December gold climbed $9.80, or 1.7%, to close Monday at a three-session high of $592.80 an ounce.

The confidence of U.S. home builders fell for the eighth straight month in September, dropping to the lowest level since February 1991, the National Association of Home Builders said Monday. The NAHB/Wells Fargo housing market index dropped by three points in September to 30 from a revised 33 in August, indicating that most builders think the housing market is poor. Economists expected the index to fall to 31. A year ago, the index was at 65.

Chief executives at major U.S. corporations were more pessimistic about the economy than anytime since the third quarter of 2003. The Business Roundtable CEO economic outlook index fell to 82.4 in the third quarter from 98.6 in the second quarter. "We believe that we are beginning to see the effects of energy and interest rate pricing pressures reflected in the business outlook," said Harold McGraw, Business Roundtable chairman and the chairman and CEO of The McGraw-Hill Companies. Chief executives "see things slowing down."

Observations

9/17/06 Observations

Rudolph-Riad Younes: "On the surface, the multiples are not a problem. Fifteen to 16 times forward earnings is not something to make anyone panic, although that's at the high end of the historical average. The problem today in the equity market is the level of profit margins. Margins are almost 100% above the historical average. If you think we are going back to the historical average, then you are talking about 30 times earnings. Add to that the global imbalances around the world, and equities are not a very safe place to be."

Barrons columnist Randall Forsyth writes "a reversal in commodities' decline could be about a week away, according to Paul Macrae Montgomery, who publishes the Universal Economics newsletter out of Newport News, Va. He points out that capital and commodities markets tend to reverse their trends on Sept. 22, an observation he attributes to W.D. Gann, whom he describes as a legendary trader."

Doug Noland: "I suggest this evening that we analyze sinking energy and metals prices - along with spiking equities (homebuilders, retailers, financials, etc.) and bond prices - within the context of heightened Monetary Disorder. Market pricing mechanisms - especially those distorted by highly speculative marketplaces - are these days unusually susceptible to bouts of mis-pricing. The general backdrop remains one of extraordinarily abundant liquidity at home and abroad - liquidity supportive of bond prices within a backdrop where housing vulnerability has basically taken the Fed out of the equation. I certainly don't believe lagging energy and commodities markets are today reflective of the robust inflationary biases that permeate global economies. Contrarily, I would expect quiescent bond markets these days to be conducive to continued Credit excess and attendant heightened inflationary pressures."

John Mauldin: "Paul Robinson: What happens when you have 3-plus years without a 10% correction in either the S&P 500 or DJIA? On March 15th, 2006 the market sustained 3 full years without a substantial sell-off from a 6-month high. This long a bull run has occurred only 3 other times in the past 100-plus years of market history and led to an average decline of 18.5% between the 3 occurrences.
In summary, I think it is too early to throw in my bearish towel. A slowdown means that earnings are not going to grow as fast as currently projected. That means some disappointments may (will?) be coming our way in the next few quarters.
Disappointments are the stuff that makes for bear markets. Can we come to the end of a Fed tightening cycle with no pain? A Kinder, Gentler Mr. Market? Now that would be different."

Mike Burk: "The market is overbought going into a seasonally weak week.
I expect the major indices to be lower on Friday September 22 than they were on Friday September 15."

George Ure: "Suppose you have a Federal Budget that is hopelessly bloated. The sucker is sooo big that any person in their right mind would be immediately incensed and reviled by its size. So how do you sell it? You announce the budget is "smaller than expected" and the stoopid sheeple think "Aha! Something good for a chance..." Well, it's never the case. The budget is still bloated, there's as much - or more - pork in it than ever, but because they said it was going to be a $100-trillion dollar hole over x-years, and it's down to only $99.9-trillion - a whole $1-billion in illusory "savings" you are misled into believing things got better. Sort of like backing the guillotine up up an 1/8th of an inch while falling toward your neck - that sort of "improvement" in the situation may sound good, but you're dead shortly no matter what."

Earthfiles.com reports ocean temperatures increased remarkably in the equatorial Pacific during the last two weeks.
"The development of weak El Niño conditions helps explain why this Atlantic hurricane season has been less active than was previously expected. El Niño typically acts to suppress hurricane activity by increasing the vertical wind shear over the Caribbean Sea region. However, at this time the El Niño impacts on Atlantic hurricanes are small. "We are still in the peak months of the Atlantic hurricane season, and conditions remain generally conducive for hurricane formation," said Gerry Bell, NOAA's lead seasonal hurricane forecaster."

Energyintel.com reports "downstream constraints have been one of the main factors -- if not the main factor -- behind record crude oil and products prices over the past few years, and they will ease neither quickly nor cheaply, US-based consultant Turner, Mason & Co. says in a new study looking at crude oil and refining trends over the next 20 years." This observation is a good deal different than political risk and/or speculative positioning. The latter two play a part but not the enduring factor behind the price of oil moving higher over time.

Charles Darwin: "It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change."

Hedge funds attracted $42.1 billion in investment in the second quarter, the most since 2003, and have returned 7 percent to investors this year through August, according to Chicago-based Hedge Fund Research.

Wireless-equipment firm Symbol Technologies is set to wrap up an auction that could see the sale of the $3.2 billion firm within days, The Wall Street Journal reported on Saturday. One person said that a deal could come in at a roughly $15 a share, which would mark a premium of around 20% to Symbol's trading price Friday.

Keeping It Real

9/16/06 Keeping It Real

Real average weekly earnings fell by 0.5 percent from July to August after
seasonal adjustment, according to preliminary data released today by the Bureau
of Labor Statistics of the U.S. Department of Labor. A 0.3-percent decline in
average weekly hours and a 0.4-percent increase in the Consumer Price Index for
Urban Wage Earners and Clerical Workers were partially offset by 0.1-
percent rise in average hourly earnings.

The bad news on real estate and home prices continues on a daily basis. Maybe you haven't noticed. Centex shares bottomed in mid-July at $42.90, and that was one month after rates topped out on treasury bonds. The stock rallied in early August to 52, and now in mid-Sept. it is up close to $55.

At the beginning of July, in 11 trading days, Wal-Mart shares dropped from 48 1/2 to 42 1/2. The range for July and Aug. was 42 1/2 to 45 1/2. In the last 10 trading days the shares rallied from 44 to 48 1/2. Pretty interesting I think.

Bush: "I don't question the patriotism of those that disagree with me." Keep it real, please!

Barry Ritholtz: "In the past 16 Federal Reserve tightening cycles, there has been one true soft landing in 1994. I continue to look at that not as impossible, but as a low probability event."

October crude climbed 28 cents to $63.50 a barrel in afternoon dealings, reversing course after the contract touched $62.05, its lowest level of the year. December gold fell $3 to close at $583 an ounce, its weakest closing level since mid-June. It ended the week with a loss of more than $34 an ounce, or 5.6%. December silver fell 7.5 cents to end at a two-month low of $10.875 an ounce. The contract, which fell earlier to a nearly three-month low of $10.55, marked a loss of 11.5% for the week. December copper fell 6.3 cents Friday to close at $3.3115 a pound, down 7.2% for the week.

Superior Industries International Inc. said Friday it is closing its manufacturing facility in Johnson City, Tenn., and plans to lay off around 500 workers.

The median consumer price index rose 0.3% (or 3.4% annualized) in August, the Cleveland Federal Reserve Bank said Friday. The median CPI is an alternative method of computing underlying core inflation that does not automatically exclude food and energy prices. Over the past year, the median CPI is up 3.4%, the biggest gain since July 2002. The CPI is up 3.8% in the past 12 months, while the core CPI (which excludes food and energy) has risen 2.8%. Inflation is under control?

The University of Michigan consumer sentiment index rose to 84.4 in September from 82.0 in August. The improvement all came from expectations of the economy six months ahead. The expectations index rose to 77.1 from 68.0 in the previous month. This is the highest since January. The current conditions index fell to 95.7 in September from 103.8 in August. This is the lowest level since October.

Marsh & McLennan said Friday it would cut 750 jobs out of its work force of about 55,000 as part of a move to save $350 million by the end of 2008. Conagra will cut 400 jobs. I would imagine Ford will end up cutting about 40,000+ jobs. Will Chrysler cut some jobs too?

December natural gas rose 9 cents to close at $4.982 per million British thermal units, recovering from its low of $4.81. The contract ended the week with a loss of 12.2%.

Thomas P. Au: "The country (China) has 1.2 billion (or more) people, many of whom are peasants seeking to improve their lives by moving to the cities because of the inherent poverty of the rural areas. Keeping a “critical mass” of them happy is necessary for social and political stability. In order to effect this, it is necessary to have a large pool of low-paying (by world standards) urban opportunities, many of which amount to “make work” positions that are still more remunerative than farmwork. An artificially weak currency is an important ingredient of such a strategy...In 1931, the United States was in a recession that then-President Herbert Hoover reasonably thought would soon end. The impending recovery was derailed by the collapse of the German economy, then the second most important in the world, not only because of its sheer size, but because of its connections to other countries in Europe. China’s economy plays a similar “second most important” role today because of her ties in Asia and elsewhere, and because its swings are larger than those of other, nominally larger, economies such as those of Germany and Japan. If a collapse of the Chinese economy comes hard on the heels of a deep U.S. recession in 2007-2008, the result could be a prolonged slowdown of global growth such as we saw in the 1930s."

Chevron is in talks to join with Chinese petroleum producers on exploration and production projects one year after beating out Cnooc, a Chinese oil company, to acquire Unocal.The company is in discussions with Cnooc, PetroChina and China Petroleum & Chemical, known as Sinopec, "to explore partnership opportunities both inside and outside of China," said Steve Del Regno, managing director of Chevron's liquefied natural gas trading business in Asia. The talks could lead to joint development of oil and gas deposits, he said.

Freescale Semiconductor Inc. agreed to be bought by a private equity consortium for $17.6 billion. Under the terms of deal, the consortium will acquire all of the outstanding Class A and Class B shares of Freescale for $40 per share in cash. The consortium is led by The Blackstone Group, and includes The Carlyle Group, Permira Funds and Texas Pacific Group. Freescale said its board has approved the buyout.

Well To Remember

9/15/06 Well To Remember

With Friday option expiration day it is well to remember what Robert McHugh
has pointed out: "Here's an interesting fact: The last three autumn declines fell from tops on the Friday, Monday, and Monday respectively of September triple witching weeks in 2003 (September 19th), 2004 (September 13th), and 2005 (September 12th). 2006's triple witching occurs this Friday, September 15th, so we may be very close to the start of the expected autumn decline of 2006. Each of those tops were followed by 550 to 700 point plus declines within a month."

It is well to note the differences in view between the DOE and the IMF as it relates to crude. The DOE sees a lessening of demand for crude in 2007 while the IMF sees crude moving up to $75 a barrel. The IMF sees world-wide GDP growth at 5% next year with the growth in the U.S. slowing to 2.9%. I recently pointed out the double digit growth in many Asean countries and that growth's impact on demand for crude and gold.

Ashland Inc. declared a special cash dividend of $10.20 per share, and said it has approved a stock buyback plan of up to 7 million shares. The special dividend will be payable Oct. 25 to shareholders of record as of Oct. 10, The company added that because of the size of the dividend, the New York Stock Exchange has determined that the ex-dividend date will be Oct. 26, the day after the payable date for the dividend.

October natural gas fell 45.9 cents to $4.99 per million British thermal units Thursday afternoon, after a $4.97 low -- the weakest intraday price for the contract since late April 2004. The Energy Department reported a 108 billion cubic foot rise in last week's natural-gas supplies. That was the first triple-digit climb since June 3 of last year, according to Ben Smith of First Enercast Financial.

Federal Reserve Gov. Susan Bies: "Investment in [commercial real estate] is again growing strongly, and we expect banks to assess the vulnerabilities of their portfolios to loss in expectation of the next downturn."

The U.S. Import Price Index rose 0.8 percent in August, the Bureau of
Labor Statistics of the U.S. Department of Labor reported. The August
increase was led by a 2.3 percent advance in petroleum prices, although a 0.5
percent rise in nonpetroleum prices was also a contributing factor. Prices of imports excluding petroleum rose 0.5%. The gain was helped by the biggest increase in imported food prices since March 2005. Over the past 12 months, import prices are up 6.6%. Export prices increased 0.4 percent for the second consecutive month in August.

Stratos International said it would explore strategic alternatives in an effort to maximize shareholder value, which may include a sale of the company. The Chicago maker of RF and microwave components and products said Steel Partners II, which expressed willingness to make an offer to buy the company, was welcome to participate in the effort.

U.S. retail sales rose by 0.2% in August, boosted by a surprising gain in auto sales that offset the drag from lower gasoline prices, the Commerce Department reported Thursday. Economists had expected retail sales to fall 0.2% after rising 1.4% in July. Auto sales increased 0.4% in August, despite reports from automakers earlier that showed declining sales. Sales excluding autos rose 0.2% in August. Sales at gasoline stations dropped 1% in August as gasoline prices tumbled. Sales excluding both autos and gasoline increased 0.4% in August.

According to CFO.com, financial executives' attitude on the U.S. economy has gone downhill. In the midst of weakening housing prices and consumer demand, plus concern about fuel costs, labor costs, and interest rates, nearly 50 percent of CFOs are more pessimistic about the economy than they were three months ago. This pessimism is the highest it's been in more than five years, according to the latest results of the quarterly Duke University/CFO Business Outlook Survey.
Although one-third of the CFOs surveyed predict a U.S. recession in the next year, they are relatively upbeat about the prospects for their own companies. Nearly 46 percent are more optimistic about their companies' prospects compared to last quarter, but only 19.8 percent are more optimistic about the U.S. economy. Still, both numbers showed a decline from when the survey was last taken, at the beginning of the summer.

Ford Motor Co. and the United Auto Workers union have agreed to offer buyouts to all of the auto maker's 75,000 UAW-represented workers in the U.S., according to a media report Thursday. This action could make a material and quite positive difference to the long-term cash flow for Ford.

Gold ended about $4.60 an ounce lower and crude ended the day lower at $63.25 a barrel.

My best idea for the day was to sell the Jan 2007 puts on Freeport McMoRan with a strike price of $35 for 55 cents. The stock closed sharply lower at $52.

Breaking The Losing Streaks

9/14/06 Breaking The Losing Streaks

Crude and gold were able to break their losing streaks on Wednesday as both managed small gains. The rise in energy shares helped to boost the Dow by 45 points.

The federal government ran a $64.6 billion deficit in August, the Treasury Department reported Wednesday. The deficit was up 25.9% from the deficit of $51.3 billion reported in the same month last year. The Congressional Budget Office estimated the August deficit at $67 billion. For the fiscal year so far, the deficit is down 14.1% to $304.3 billion from $354.1 billion this time last year. Between the federal deficit and the trade deficit, the twin tower deficits are alive and well and growing to the sky. The bond market is oblivious and rates continue to drop on treasury bonds. Why buy the latter when money market funds provide the same yield?

The Energy Department said crude supplies fell 2.9 million barrels to 327.7 million for the week ended Sept. 8. Motor gasoline inventories stocks rose for a fourth week in a row, up 100,000 barrels to total 207.0 million barrels. Distillate supplies climbed 4.7 million barrels to 144.6 million.

Hanesbrands is cutting 2,000 employees and we will soon offically read about the increased employee cutbacks at Ford. Visteon will be hurt by the Ford retrenchment and will have layoffs of their own. Not to worry. Everything is just dandy in hiring land. Just ask our Secretary of Labor.

Goldman Sachs has many smart employees and yet the managers of their hedge fund lost 10% of the fund's capital in one month. How many other hedge funds had similar experiences?

Kurt Richebacher: "The U.S. economy makes up a quarter of the world total...that it should have more than half of the world's current account deficits is a spectacular success - only made possible by its great wealth and status."

"Home Depot is up on speculation that Eddie Lampert is building a position in the shares," said Tim Biggam, options strategist at Man Securities, an option brokerage firm in Chicago.
"This rumor has prompted enormous option volume on the call side as hot money players buy first and ask questions later." Why invest in HD when you can invest in
Lowe's?

Thedeal.com reports an analyst says Ericsson and Motorola would make a good fit for
Tellabs.

Xilinx is now forecasting a sequential decline in revenues of -4% to -7%. Previously it showed a flat to -5% projected drop.

Reality Is On The Horizon

9/13/06 Reality Is On The Horizon

Several times a month I provide a quote from John Hussman, a smart money manager who understands how to manage risk. Here is some of what he said on Monday. "Investors seem willing to take high risks because those risks seem the only alternative to still modest-yielding Treasury bills. They also seem willing to charge ahead on even the smallest relief in inflation data, in hopes that Fed hikes are finally behind us. Yet given current valuations, a move to 19 times record earnings on record high profit margins would take less than a 10% climb. And even if the market does scratch its way to 19 times record earnings on record profit margins, the slope on the other side of that peak will probably be very steep. Even an inevitable 10% correction, which is already long overdue, would wipe out the gain. The likelihood of durable market gains over-and-above T-bill yields is very slim.
In short, the financial markets are caught in a low-stakes but potentially sensitive position. Small, statistically insignificant surprises in inflation have the potential to send the market higher, but on an ultimately profitless round-trip. Meanwhile, disappointments have the potential to be quite damaging...Suppose that there was a high 80% chance that the market will rise 10% over the coming year, and just a small 20% chance that it will decline 15% over the coming year. Sound like good odds? Well, given those odds, the expected return would be [.80(10%) + .20(-15%) = ] 5%, which is the same as you'd get in risk-free T-bills. A risk-averse investor wouldn't take the bet."

October crude fell $1.85 to close at $63.76 a barrel, its weakest closing level since Feb. 15. The contract has lost a total of $6.50, or 9.3%, since its close of $70.36 on Aug. 31. October natural gas fell 9.6 cents to close at $5.574 per million British thermal units. Gold has been down for five straight days. The time to buy shares in these industries is when everyone is selling and they are out of favor. You might consider ConocoPhillips, Schlumberger, Apache, Encana, BJ Services, Barrick Gold, Goldcorp, Freeport McMoran, Baker Hughes, etc. I have sold puts on all these shares at strike prices sharply under the present market. That strategy is foreign for many investors.

"There is no doubt left in nearly any observer's mind that fundamentally this [home-building] industry has more bad news ahead of it, but we believe the pessimism is reaching a crescendo," wrote Susquehanna Financial Group analyst Stephen East in a research note Tuesday. My favorite homebuilder remains Centex, and a couple of weeks ago my best idea was to sell puts on Centex.

Don Tomnitz, chief executive of D.R. Horton Inc. (DHI), Tuesday said the company is preparing itself for a tougher housing market in 2007 compared to 2006, with prices finally stabilizing in 2008. "We have never seen housing prices and demand slow as quickly as they have during this downcycle," said the CEO of the nation's largest home builder when measured by 2005 deliveries. "Demand has evaporated to the extent of about 20% to 30% for the industry, and in a tighter timeframe than we've seen before." The use of incentives by builders to move homes in a slower sales environment will continue for the next three to four quarters, Tomnitz estimated.

On Tuesday, some of the old favorites made some nice moves-- McDonald's, Wal-Mart, Best Buy, Goldman Sachs, and Ford. Each was recommended at various times over the past three years, and all when they were getting crushed. Remember McDonald's at $12+?

Beazer Homes USA Inc. CFO Jim O'Leary said the company doesn't see conditions in the U.S. housing market improving in the near-term as home cancellations rise. "About 50% of the people canceling on us now have home-to-sell issues . . . and some are looking for better deals," the CFO said Tuesday at the Credit Suisse Homebuilders Symposium. "A lot of buyers are having trouble closing [on their existing homes], and they don't want the risk of owning two homes in this market," O'Leary added.

The U.S. trade deficit widened by 5.0% in July to a record $68.0 billion, the Commerce Department said Tuesday. The July deficit surpasses the previous monthly record of $66.6 billion set in October.The U.S. trade deficit with China widened to $19.6 billion in compared with $17.6 bln in the same month last year.

Centex Corp. Chief Executive Timothy Eller said Tuesday the company's customers are having difficulty selling their own homes in order to buy Centex homes, which is pushing up cancellation rates. "Resale inventories are increasing . . . as speculators who were looking to flip houses to make a buck are getting out," Eller said.

The DOW had a triple digit gain and the VIX traded down as low as 11.55. Complacency is running wild. My best idea for the day is selling the Jan 2007 puts on Phelps Dodge with a strike price of $55 for 50 cents. The stock is selling at $84+. That's a lot of money, in my view, to insure a drop of 29 points for 4 months. Phelps Dodge is still generating a good deal of cash on a daily basis.

In my view the November mid-term elections surround Iraq and the following: real wages for most Americans are marginally below where they were four years ago, in spite of strong overall growth in gross domestic product. According to the Bureau of Labour Statistics, the average hourly wage for private sector non-farm workers was $8.17 in August 2006 (at 1982 prices) compared with $8.23 in August 2002. Why vote for a party when you aren't getting a fair share of the pie? Corporate profits keep getting a larger share of GDP and so do the top 5% of wage earners. The disparity will bring a change in the House I believe.

What are the growth trends for China and India? How will they impact the price of oil, gold, steel, copper, etc? Here's a clue. India's industrial production grew in July at the fastest pace in a decade. Production at factories, utilities and mines rose 12.4 percent from a year earlier, the largest increase since June 1996, the Central Statistical Organisation said in New Delhi.
Power companies almost doubled electricity output in July to keep up with demand from factories producing cars and textiles, while government spending on roads and ports boosted sales at Steel Authority of India Ltd.
I rest my case. Reality is on the horizon. Look at the recent drops in oil and gold as an opportunity. Let others dump their holdings. This is precisely what has occurred over the past 4 years.

Concerned?

9/12/06 Concerned?

Hovnanian's CEO: "Buyer psychology has shifted . . . buyers are more content to wait on the sidelines than they were," the CEO said. "Cancellation rates have been creeping up."

M/I Homes Inc. CEO Robert Schottenstein said Monday the company's operations have changed to defense from offense the past few years, particularly with regard to land positions, due to the pullback in housing. "We've faced tough times before, but the times we're in now are somewhat unique," the CEO said. The company's housing markets haven't bottomed out yet and likely won't improve until 2008, Schottenstein said.

Bush: In March 2002 speaking of bin Laden: "I am truly not that concerned about him."Over the last 5 years our nation has spent in excess of $1.5 trillion on our defense budget. Al-Zawahiri and bin Laden have not been caught. Are you concerned? Where there's a will there's a way. Obviously Bush did not and does not have the will to bring these al-Qaeda leaders to justice. Yet he stands at ground zero in a somber fashion. He is a disgrace to this country and to those who perished and were injured in 9/11.

Ipsco is strengthening its position as a major producer of tubular steel for the oil and gas industry with a US$1.46-billion takeover of Kentucky-based NS Group Inc.

My best idea to sell Jan 2007 puts on Chevron with a strike price of $50 for 40 cents.

Yesterday And Today And Tomorrow

9/11/06 Yesterday And Today And Tomorrow

We're safer than we were 5 years ago? Al Qaeda promises more attacks. Do you believe the threats will stop? One can't live in fear; however, a fear premium will remain in the market. That is true for crude, gold, and many other commodities.
China has $1 trillion in foreign currency reserves. If you were running that country, would you buy crude, gold, copper, and steel or the U.S. doillar? I didn't mean to insult your intelligence.

Freescale Semi is considering an LBO proposal or possibly proposals.

Gold traded under $600 an ounce and crude traded close to $65. Other energy commodities are also taking it on the chin. The supply and demand situation has not changed on a long-term basis. One needs to respect the seasonal driving patterns as well as the growth prospects for Asean countries.

Life reinsurer Scottish Re said Monday that it has received a number of potential bid proposals and has provided a number of parties with due diligence information. The company said that it will review the proposals and selected parties will be invited to a second round during which additional due diligence will occur. It is possible that this process could result in an announcement of a transaction as early as mid- to-late October or early November, it added. The company also said that it has also received three written proposals for possible financing and expects to receive several additional proposals in the near future. The company said it plans to raise between $150 million and $250 million to reduce short-term liquidity pressures.

Gary Lammert: "At the current level of US interest rates and housing cost, the population of credit worthy borrowers have become inadequate to maintain positivity in US money growth. At this point in US economic history not to maintain money expansion and asset valuation worth is to be subject to a causal deflationary implosion from the existing massive debt load and servicing requirements.
On the other side of the equation is the US dollar and the inflation ridden dollar-denominated commodities and CRB. With the exception of the Australian currency, the US dollar as compared to its sister international competitor currencies is supported by differentially higher interest rates. For the Federal Reserve, logic might dictate that any lowering of the Fed Funds rate would lower the value of the dollar vice other currencies and thereby exacerbate commodity inflation.
This Federal Reserve dilemma regarding lowering interest rates to maintain the forward momentum of the US borrowing dependent economy aptly characterizes the current US economic end game elements of overwhelming debt, commodity inflation, inadequate wage growth, over consumption, and overproduction, and oversupply."

Be Careful Out There

9/10/06 Be Careful Out There

John Mauldin: "If the economy is slowing down, it is not good for the stock markets. If the economy is not slowing down, that means inflation is not slowing down either. The clear implication from every Fed speech we hear is that they will raise rates in the face of rising or problematic inflation. That will not be good for the stock market. I think we are going to get a chance to buy the market at a (probably much) lower price than it is at today. Be careful out there."

Standard Pacific said net new home orders for the first two months of the third quarter were down 58% from the same period last year, driven mainly by an increase in the company's cancellation rate and further weakening of demand in many of its larger markets. The company's gross orders for July and August were off 30% from last year. The backlog at Aug. 31 stood at 4,837 pre-sold homes valued at $1.8 billion.

Much is written on a daily basis regarding the concern investors have with risk. I believe there is discussion but little concern. The VIX trading between 13 and 14 paints a very different picture, one of complacency.

Mike Burk: "Next Friday is one of four annual "triple witching" Fridays that occur then stock options, index options and futures expire on the same day...The coming week during 2nd year of the Presidential Cycle has been up nearly 70% of the time while the averages for all years has been about 10% less. All of the average returns have been positive.

Doug Noland: "It is my view that ("inflation") expectations have changed rather dramatically. Workers in an increasing number of sectors, industries and skill levels (unlike the late-90's boom largely isolated within the tech industry!) have come to demand more pay, while businesses are able and increasingly willing (because of expectations for ongoing profit Inflation) to aptly accommodate. When it comes to "anchored inflation expectations," the Fed should pay less heed to Treasury yields and devote more attention to salary and Income trends. But, then again, I've seen no indication that the Fed appreciates the nature of, nor ramifications for, today's Income Inflation."

Bill Bonner is one of the more astute observers. He notes "in the last two years, homeowners in America took out $1.3 trillion from their house price gains, an amount greater than the GDP growth figures for those years.
While prices rose only 0.4% per year from 1890 to 2004, they soared by 6.2% from 1997 to 2005. According to Shiller, it would take a 22% drop in residential real estate prices to bring house prices back to their long-term trendlines. Other experts have predicted a 40% retreat. Falling prices in the housing sector mean that homeowners no longer have any "equity" to take out. Instead, the flow of liquidity reverses...mortgage resettings, taxes, maintenance, debt restructuring, foreclosures - all of a sudden money must be put back in! A 5% fall in house price takes $1 trillion out of the net worth of American homeowners. A 40% drop would probably set the economy back about as much as the Great Depression."

Tim Wood: "First, I have to begin with a chart of the Industrials and the Transports. At this level we still have two non-confirmations. The first non-confirmation occurred when the Transports moved below their June lows. When the Industrials refused to confirm this downside break, the first short-term non-confirmation came to be. This non-confirmation is noted in blue. As the Transports continued lower into August, the Industrials moved higher and this price movement has created a second short-term non-confirmation, as is noted in red. Therefore, we have both a short-term downside and a short-term upside non-confirmation in place today. The bottom line here is that, according to Dow theory, when the two averages are not in agreement, they are “shouting be careful.”

Facts And Thoughts

9/9/06 Facts And Thoughts

December gold closed at $617.30 an ounce, down 2.4% for the week. December silver finished at $12.295 an ounce, down 40 cents for the day and down 5.9% for the week. December copper fell 8 cents to close at $3.568 a pound Friday, but that's up 3.1% from a week ago. Crude broke below the $67 dollar level and traded down eacg day this past week. Meanwhile, gas at the pump has dropped about 30 cents a gallon over the past 5 weeks.

Lennar, the country's third largest homebuilder, joined Beazer and KB Homes by sharply lowering their profit outlook for the current quarter. The shares held up well.

Have you noticed the change in group leadership this year -- from the transports, small caps, and energy stocks to utilities, and names like Dean Foods, Ralcorp, Conagra, Walgreen's, and CVS? In other words, the by-word is to be more defensive. Yet the VIX has trouble staying above 14. Meanwhile, the economy is slowing but the dollar index hovers close to 86. This is all food for thought.

Baker Hughes Inc. announced that the U.S. rig count for the month of August rose 57 to 1,738 compared to July, and was up 303 from August 2005. Yet, in the past few weeks, Baker Hughes shares have declined from $78+ to $68+. In addition, UBS raised its raising on Schlumberger to a buy from a neutral and the stock rallied a $1.50, but then quickly turned negative. ConocoPhillips traded at $60+, but there is nervousness. A total of 2,600 Jan. 2007 puts with a $50 strike price traded at 75 cents.

HSBC has revised downward its forecast for 2007 economic growth and cautioned that the risk of an outright recession is growing as a retreat in housing threatens household balance sheets. The company argues that while corporate profits have remained sky-high, the incomes of most Americans have effectively fallen over the last 18 months.

China's trade surplus widened to a record $18.8 billion last month as exports soared the most in a year, Dow Jones Newswires reported, citing a person it didn't identify. The gap, if confirmed, is more than a quarter bigger than the previous record of $14.6 billion, set in July.

Crudethoughts.blogspot.com: "Looking at the 20 year history of oil production, oil production has either declined or stayed flat during 3 periods, represented by R1, R2 & R3.
The period marked as R1 was the first Gulf war and the recession in US and the beginning of deflation in Japan.
R2 is when the Asian currency crisis and the subsequent meltdown in the high growth economies of Asia.
R3 is the implosion of the dot com bubble in the US.
Now oil production is flat to down (X1) amidst record high prices and we are told by economists that the US economy as well as the economies of the world are soaring. Are we at peak oil ? It's worth asking isn't it?"

Zig Ziglar: "If you treat your wife like a thoroughbred, you'll never end up with a nag."

What's The Trend?

9/8/06 What's The Trend?

Retail sales growth is expected to moderate during this holiday season, consultants Retail Forward said on Thursday, hurt in part by weakness at department stores. Retail Forward's forecast is for 5.5% year-over-year growth in the fourth quarter. Not too bad- just moderating growth.

Eduardo Castro-Wright, chief executive of Wal-Mart Stores' U.S. division, told investors Thursday that second-quarter sales were helped by the important back-to-school shopping season. "We were very pleased with back-to-school performance," he said.

Crude prices closed lower Thursday to register a four-session decline of over 4%. October crude fell 18 cents to close at $67.32 a barrel. October gasoline futures rose 0.17 cent to end at $1.6417 a gallon -- just above Wednesday's nearly seven-month low. October natural gas fell 27.6 cents, or 4.6%, to close at $5.718 per million British thermal units, its weakest closing level since late September 2004.
Is this simply a long overdue correction in the energy complex? The big stocks like ExxonMobil and Chevron are holding up well.

Economists believe the slowdown in the housing market will extend into 2007, and many predict no change or a decline in home prices next year, according to a WSJ.com survey posted Thursday. Despite lowered forecasts by Beazer and KB Homes, the group held up well on Thursday. Is the forecast for a weaker housing market going into 2007 baked into the price of the group? It's a bit too early to tell. You might consider selling Jan. 2007 puts on Ryland with a $25 strike price. On the next dip a good level might be 40 cents for those puts.

Janet Yellen, Pres. of the SF Fed: "The bottom line is this. With inflation too high, policy must have a bias toward further firming." I don't believe the current Treasury market reflects this thinking and the same can be said for stocks. The VIX is beginning to gain some traction. At the same time, so is the dollar. The latter is starting to make the shorts nervous.

December gold dropped $16.90 to close at $624.90 an ounce. December silver dropped 50.5 cents to close at $12.695 an ounce after closing Wednesday at its highest level since May. The strengthening dollar is poison for gold and silver.

Over the past year, wholesale inventories are up 8.8%, while sales have gained 12.6%.

Pauline Trigere: "Fashion is what people tell you to wear. Style is what comes from your own inner thing."

The number of people collecting state unemployment benefits over the past four weeks rose to the highest level since February, the Labor Department said Thursday.

Remember Vera Sun, the hot ethanol IPO that came out at $20 and quickly rose above $30? Don't look now but the stock is selling at $18-19. I have stated frequently that these ethanol plays are an accident waiting to happen.

National Semi said it expects second-quarter revenue to fall about 2 percent to 5 percent from the first quarter, mainly because of lower revenue from foundries, or chip fabrication operations. The decline would result in second quarter revenue of $514 million to $531 million, missing analysts' average estimate of $553.3 million. Analysts expect second-quarter profit excluding items to be 34 cents.

Listen To The Smart Money

9/7/06 Listen To The Smart Money

There are several capable economic forecasters. For my money, I prefer Nouriel Roubini and frequently quote him. When you have the time, I would suggest going to rgemonitor.com. There is a good deal of valuable information. In the meantime, here is a recent comment from Roubini: "The issue is whether hard landing and beginning of recessions are associated with sharply falling stock prices. And the simple and unequivocal answer is that recession lead to bearish stock markets where the peak in the economy to the trough in the stock market (as separate from the economic peak-to-trough that lags the one of asset prices) is about 17.5% and where the peak-to-trough in the stock market (i.e. the pre-recession peak to the into-recession bottom of the stock market) is about 28%, i.e a very clear, sharp and deep bear market. So, factually hard landings and recessions do lead to falling stock prices and bear stock markets. So, the recent market buzz and chatter about hard landings and recessions being good for the stock market is utter nonsense based on actual data from decades of US business cycles and repeated recession episodes."

One can always find data to support an increase or decrease in equities. Yesterday, we saw the productivity rise of a less than stellar 1.6% on the back of rising unit labor costs at a 5% rate, the highest in 16 years. Thus, the concern with inflation and the lowering of expectations for corporate profits as we move into 2007.

Jas Jain: "To add insult to the injury, 70-90% more homes are being built RIGHT NOW due to the pipeline of the bubble period. During June 2006 more single-family homes were completed than at any other time prior to 2006! This will continue for another year or so and the supply situation will keep on getting uglier and uglier...Soon, the US will have 20,000,000 "empty housing units year round." Construction industry will be in a depression for a very long time once the current pipeline is finished (some will not be finished, though)."

Stephen J. Church: "Our research indicates that inflation is approximately 3% to 4% per year higher than the CPI."

The ISM nonmanufacturing index rose to 57% from 54.8% in July.
New orders fell to 52.1% in August from 55.6%. This is the lowest level in 40 months. The employment index fell to 51.4% in August from 54.5% in the previous month. Order backlogs fell to 49.5% in August from 56% in the previous month. This is the first time the index has been below 50% in 19 months.The price index slipped to 72.4% from 74.8% in the previous month.

According to the head of Johnson & Johnson's (JNJ) medical technology business, Michael Dormer, the company expects the division's growth to be in the "high single-digits" for 2006 through 2010. He also mentioned that division spends $1 billion a year on R&D and they also would consider an acquisition that makes sense. I would not be surprised to see the company strongly consider the purchase of Medtronic.

Crude closed at $67.50 a barrel, and it was the first close below $68 since March 27.

According to a Federal Reserve Beige Book survey of current economic conditions released on Wednesday, five of the 12 Fed districts reported a "deceleration" in growth in their regions, while the other seven reported continued moderate growth. The reports of slower growth were clustered in the Northeastern region and in Kansas City.

December silver rose 6 cents to close at $13.20 an ounce, marking the contract's highest close since May 23. I continue to believe that supply/demand issues work in favor of silver moving higher on a long-term basis.

Ethan Allen Interiors Inc. said Wednesday it would close two manufacturing facilities, affecting 465 employees. The company will close its Spruce Pine, N.C., case goods manufacturing facility and convert its Atoka, Okla., upholstery manufacturing facility into a regional distribution center.

Option ARMs provide the buyer an ultra low initial rate for a short time period, then significantly adjust the rate higher for the rest of the loan. There have been widespread warnings relating to this product. Will a large fallout occur with the upward adjustment in rates?

Late Wednesday Hovnanian Enterprises, a homebuilder, reported net income available to common stockholders was $74.4 million for the third quarter, or $1.15 per fully diluted common share, compared with $116.1 million, or $1.76 per fully diluted common share, in the same quarter last year. Total revenues increased 18% over the prior year's third quarter, to $1.6 billion. Management is reaffirming its earnings projection for the fiscal year ending October 31, 2006 of between $5.00 and $5.75 per fully diluted common share, compared to fiscal 2005 earnings of $7.16 per fully
diluted common share. Earnings for the trailing twelve months ended July 31, 2006 represent a return on beginning common equity (ROE) of 28.3%, and a 17.5%
after-tax return on beginning capital (ROC). Contract backlog as of July 31, 2006, excluding unconsolidated joint ventures, was 10,313 homes with a sales value of $3.6 billion, a 12.5% increase from the sales value of contract backlog at the end of
last year's third quarter. After the close, the stock rallied from $25+ to $26+.

The Dow Jones Industrial Average declined 62 points. The Nasdaq Composite Index was down 38 points at 2,167. It's the biggest one-day point decline for the index since July 20 when it fell 41 points. The S&P 500 Index dropped 13 points to 1,300.27.

For the next four quarters, Chico's CEO Edmondson said he expects same-store sales to be flat to up slightly. As you may recall, not too long ago my best idea for the day was selling the Feb. 2007 Chico's puts with a strike price of $12.50 for 40 cents. I continue to like that strategy-- should it become available again.

Commodities

9/6/06 Commodities

December gold climbed $14.30 to close at $646.90 an ounce Tuesday, marking its strongest closing level since Aug. 9. December silver added 7 cents to close at $13.14 an ounce and December copper tacked on 16.35 cents to close at $3.6245 a pound.

October unleaded gas prices fell 3.44 cents to $1.70 a gallon, its lowest level since March 20. October crude was down 59 cents to $68.60 a barrel, after falling to a five-month low of $68.25. The average price for regular unleaded gasoline at the retail level fell to $2.732 a gallon, down from $2.74 on Monday and down 9.9% from a month ago, according to AAA's Daily Fuel Gauge report.

U.S. major corporations announced 76% more job reductions in August, according to Challenger Gray & Christmas. Offical announcements of layoffs rose to 65,278 in August from a six-year low of 37,178 in July, the firm said. The figures are not seasonally adjusted.

Intel cut 10,500 jobs and slashed capital spending by $1 billion.

The first trading day after the long Labor Day weekend was somewhat uneventful except for the large oil find in the Gulf of Mexico by Chevron, Devon, and Statoil. Devon had a huge day and climbed over $8 a share. With the raising of prices, Caterpillar was a standout in the Dow and rose by better than 2 points. Apple continued to shine on the Nasdaq and climbed over $70 a share as it rose by over 3 points.

Ford had a good day as it climbed to $8.76. It's now up $2.70 from the year low and is even 3/4 of a point higher (more than 9%) than when I first suggested accumulating shares. Bill Ford is going to remain the executive chairman of Ford, but he is being replaced with Boeing's Alan Mulally as President & CEO of the day to day operations. Mr. Mulally will also be on the Board of Directors.

Will Volatility Return?

9/5/06 Will Volatility Return?

I believe it will. Therefore, my best idea for the day involves the volatility index for the CBOE, namely, the VIX. I suggest buying a May 2007 call on the VIX with a $10 strike price and selling a May 2007 call with a strike price of $15 with a $3 debit. Your breakeven (without commissions becomes $10+$3 or $13. The VIX now sits at $12.66. You have 9 months for the VIX to come alive. I believe that will take place within this timeframe and I consider this a conservative assessment.

Jas Jain: "Peak Debt, unlike Peak Oil, is not a theory but an observed reality of our economic system. What happens at the Peak Debt is that the Total Debt of the economy, as a percent of the GDP, or nominal debt in current dollars, or both, stop going up and start to go down. The last time that the Peak Debt occurred in the US was in early 1930s and I can confidently predict that the next Peak Debt will occur within this decade, because the forces pushing debt higher and higher are reaching a point of exhaustion. The rising Consumption Debt exerts a depressionary effect on future consumption and at some point the debt service reaches a high enough portion of the income that the current consumption must be cut down...The most immediate impact of the falling debt would be a collapse in corporate profits, hence, a sharp fall in the stock market, either crash-like, or over a period of 1-2 years. The second would be fall in inflation rate to level significantly below the level preceding the Peak Debt. Demand Destruction is what is going to kill inflation in the US, as has been the case in the past time after time, and when inflation starts to fall it doesn't stop readily and keeps falling all the way into the next economic recovery. You can count on the inflation rate going down below zero because the rate wouldn't be very high to begin with when it starts to fall."

Do you believe inflation is muted? Allstate filed for a 12.2% homeowner insurance rate increase in California. Caterpillar is raisng prices between 5% and 7%. Congress may pass a tax increase where the average American family with children would see its tax payment rise by $2,084 a year.

John Hussman: "By most measures of valuation, the stock market has been persistently overvalued during the past 6-8 years, and did not revert to avergae historical levels of valuation even at the 2002 market lows. Perhaps not surprisingly, the total return on the S&P 500 has lagged the return on risk-free Treasury bills over the past 8 years."

On The Horizon

9/4/06 On The Horizon

Ford's CEO in a memo to all employees stated "We must change to a new business model" through a bigger contribution to profits from passenger cars and crossover vehicles; continued leadership in north American pick-up trucks; healthier profits from all other business units; growth in Asia; greater integration of global operations; and "an evaluation of strategic alliances."

From the Detroit Free Press: "Anyone who assumes that General Motors Corp., Renault SA and Nissan Motor Co. are merely going through a charade of a 90-day study before nixing the notion of a three-way alliance among the American, French and Japanese automakers may well be in for a surprise."

Robert McHugh: "The probability of a decline -- often significant -- is high whenever the percent of Dow Industrials stocks above their 30 day moving average rises above 80.00 percent. We show every instance this happened over the past two years. There were 8 occasions when this occurred and 11 prior occasions if you include three that got close to 80.00 readings. All but one generated declines of several hundred points shortly thereafter. The one that did not resulted in a smaller decline, yet still a decline, and 60 days later we got a sharp decline. We sit Friday, September 1st, 2006 at 83.33, a twelfth occasion. So, if history is any lesson, we have a 91 percent chance of a sharp decline occurring over the next several weeks...It takes being a cock-eyed optimist, or having full faith in government intervention, to see a long-term Bull market rally continuing from where we stand today. That said, there is an important election coming in November, and M-3 is hidden, so mischief can reign for an hour."

Medtronic Inc's cardiac resynchronisation therapy (CRT) is equally effective for heart patients whether or not they have diabetes, researchers said on Sunday.
CRT, an implantable device, resynchronises the contractions of the heart's ventricles by sending electrical impulses that help it pump blood more efficiently.
More than 200,000 patients with heart failure around the world have been fitted with a CRT device manufactured by either market leader Medtronic or one of its competitors. The latest findings, which come from a sub-analysis of the large CARE-HF clinical study, were presented at the World Congress of Cardiology.

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

Risk Premiums

8/3/06 Risk Premiums

Before investing at this time, one might consider why risk premiums are low. Should they be priced higher? If so, what does that say about the potential for a decline in equities as we enter Sept/Oct. One would think that risk premiums would be higher at this time of the year. Of course, so many believe it will be different this time.
But do they have their own money invested or simply making suggestions to OPM?

Have you considered why so many insiders are selling shares and yet large corporate buybacks continue at a rapid pace? It's simple to repurchase shares with shareholder money. It doesn't cost the CEO a penny-- unless his name is Gates.

David Lereah is the chief economist for the NAR. Here are some of his recent comments: "I'm hoping for prices to drop...The sellers are not bringing prices down fast enough. They've been very stubborn...A drop of 5% to 10% in California and southern Florida "probably would be enough to bring sales back...The quicker we can get negative prices, the quicker we can get sales coming back." Do you think the head of the NASD made similar comments during the dotcom bubble of 1999? Be careful what you wish for, Mr. Lereah.

The Mogambo Guru: "Total Fed Credit was down another $4.2 billion last week, although credit in the banks is still expanding like crazy, which means, by definition, that debt is still expanding, which means that the money supply should be expanding, but I see that the money supply is not very robust. Confusing.
And, the national debt is still increasing at about $3 billion per day. It’s getting worse every damned day, as if someone actually believes that an always-failed-in-the-past, guns-and-butter fiscal policy is not inflationary and suicidal! Confusing!"

The Indian government Friday said it is preparing a contingency plan to prevent a total shutdown of oil production and refining operations following a threat from executives at state-run firms to go on an indefinite strike from Tuesday.

Have refining margins in the U.S. topped out for the forseeable future?

Job lay-offs are expected to increase in the next few months according to Challenger, Gray & Christmas.

Too many individuals believe honest disagreement equates to spreading propaganda, and too many believe disagreement with a positive outlook for equities equates to spreading doomsday scenarios. I believe those that pontificate their gullible rhetoric are subject to having their self-proclaimed winning portfolios cleansed with a strong probiotic. It might be timely to recall the quote "behind every successful man is a woman with a brush and shovel cleaning up the shit he's too full of himself to notice."

Mike Burk: "Since 1928 the SPX has had an average loss in September of 1.2%, and it has been up 44% of the time, it is the only month that has been up less than 50% of the time. February and May are tied for the 2nd worst month of the year, each averaging a loss of 0.2%, but both have been up over 50% of the time.
Looking at the 2nd year of the Presidential Cycle, the average return in September has been the worst at -1.3% while the index has been up 42% of the time. June runs a close second for worst return at -1.2% and it has been up only 35% of the time."

Consequences

9/2/06 Consequences

With escalating violence in Iraq, the Pentagon admits that conditions in Iraq exist for a civil war.

With respect to Iran and its on-going nuclear development efforts, Bush stated
"there must be consequences." What are the consequences for invading Iraq?
Did anyone say impeachment?

Opposition lawmakers blocked Mexico's President Fox from delivering his final State of the Nation address. Could a simialr action take place in the U.S. during the Bush
presidency?

John Mauldin: "To be a bull today, you have to think that this time it is different. You must believe that the inverted yield curve, which has yet to be wrong about a future recession, is giving us a false positive. Because if we do get a recession or even a "mere" serious slowdown, then the stock market is going to drop. It always has. Always.
To be a buyer today, you have to think that the housing market is not going to be all that big a problem, that consumers will be able to once again maintain their increase in spending.
I suggest you read the end of the fairy tale. Goldilocks, rested and comfortable in the moment, ended up fleeing for her life in the end."

Nationwide the price of regular unleaded gasoline fell to $2.79 a gallon.

Nonfarm payroll employment rose by 128,000 in August,
and the unemployment rate was essentially unchanged at 4.7
percent. The employment increase was about in line with the
average monthly gain of 117,000 for the 4-month period from
April to July. During the 12-month period ending in March,
job growth averaged 169,000 per month. Average hourly
earnings rose by 2 cents, or 0.1 percent, in August.
In the service-providing sector, education and health
services employment grew by 60,000; health care contributed
35,000 of the net increase, and social assistance added
13,000 jobs. Over the year, health care employment expanded
by 286,000. Within health care, hospitals added 14,000 jobs
over the month. Employment also increased in doctors'
offices, home health care services, and outpatient care
centers. Manufacturing employment edged down over the month,
largely due to job losses in motor vehicles, wood products,
and furniture and related products. Manufacturing hours
were down 0.1 hour to 41.3 hours, and factory overtime held
at 4.5 hours.
Average hourly earnings for private production and
nonsupervisory workers rose by 2 cents (0.1 percent) in
August, following gains of 8 cents in July and 7 cents in
June. Over the 12-month period ending in August, average
hourly earnings have risen by 3.9 percent.
Nothing has changed. Few high-paying jobs are created. The number of
new jobs is on the down slope. Wages continue to lag the rate of inflation.
For most, their standard of living is on the decline. These are not
opinions. They are facts.

A panel of experts appointed by India's central bank has recommended an easing of the country's capital controls over the next five years to make the currency fully convertible.

Despite more than four years of economic growth, the inflation-adjusted wages of all but the most highly paid Pennsylvanians declined in 2005 as it has over the last several years.
"To a degree that is stunning, the benefits of a strong economy have
been concentrated at the very top of the Pennsylvania income scale," says
Dr. Mark Price, co-author of The State of Working Pennsylvania 2006.
Inflation-adjusted hourly wages for typical Pennsylvanians - right in
the middle of the earnings distribution - fell from $14.55 to $14.21 in
2005. Even relatively high-wage earners, those who earn more than nine out
of every 10 Pennsylvanians, saw their wages decline in 2005 for third year
in a row.
The decline of wages for all but the highest earners has occurred at a
time when corporate profits, CEO pay, and productivity growth are at high
or record levels.
-- In 2005, corporate profits in the United States rose by 16%.

-- The average CEO now earns more in one day than the average U.S. worker
earns in a year.

-- A recent study found that economy-wide productivity grew faster from
early 2001 to early 2005 than in any period back to 1954.
"Recent trends look like the wage and income stagnation of 1980 to
1995," said Dr. Stephen Herzenberg, co-author of the study, "except that
the slice at the top benefiting from growth is now even thinner. The last
five years represent a sharp departure from the broadly shared prosperity
of 1995-2000."
Pennsylvania families are also getting squeezed by falling pension
coverage and rising health care costs.
-- 51% private sector Pennsylvania workers had employer-provided pensions
in 2005, down from 57% in 2000.

-- The number of Pennsylvanians without health insurance rose about
300,000 from 1999 to 2005. (There was some progress on the health
insurance front in 2005 compared to 2004. According to Census Bureau
numbers released August 29 the number of uninsured Pennsylvanians
declined by 143,000 from 2004 to 2005.)
Recent declines in wages have hit particularly hard those earning the
least according to the report. Taxable income for the 10th percentile
Pennsylvania taxpayer (with an income greater than 10% of taxpayers and
less than 90% of taxpayers) declined by an astounding 21% between 2000 and
2004.
"Not surprisingly," adds Price, "poverty has increased in Pennsylvania.
Between 2000-
-01 and 2004- -05 the share of
Pennsylvanians living in poverty increased by roughly a quarter. Today,
nearly one out of every six Pennsylvania children live in poverty."
"Well-educated Pennsylvanians are not immune to recent wage and income
trends," adds Herzenberg. "Contrary to what many have assumed, more
education is not, by itself, a guarantee of a rising income or a solution
to the problem of stagnant wages."
-- The median wages of college-educated Pennsylvania workers fell from
$22.76 per hour in 2002 to $21.72 in 2005.

In the most recent Barron's, I suggest you read the article entitled "Time to Bet Big on Options written by J. Kyle Rosen.

My best idea is to sell January 2007 puts on Goldcorp with a $20 strike price for
40 cents. Just an aside. I only make suggestions on transactions I am trying to do or have done for myself.

Warren Buffett: "A contrarian approach is just as foolish as a follow-the-crowd strategy. What’s required is thinking rather than polling. Unfortunately, Bertrand Russell's observation about life in general applies with unusual force in the financial world: ‘Most men would rather die than think. Many do.’"

Progressing Or Illusory

9/1/06 Progressing Or Illusory

Discussions between French carmaker Renault SA and General Motors are "progressing well," Renault CEO Carlos Ghosn said today. "It is progressing well but it is still too soon to reach a conclusion," Ghosn said.

Investors pulled an estimated $658 million from stock mutual-funds in the five trading days through Wednesday, following withdrawals of $1.4 billion in the previous week, data firm TrimTabs Investment Research said late Thursday. U.S. stock funds saw outflow of $998 million, vs. an inflow of $446 million a week earlier. International stock funds saw $340 million in new money, following the prior week's $978 million inflow. Bond funds, meanwhile, added $234 million vs. $611 million in new money a week earlier. Hybrid funds, which invest in stocks and bonds, added $101 million, building on $263 million in new money a week ago.

Howard L. Simons: "The equity market is subjetc to a form of money illusion; newly created money tends to flow into real plant and equipment. As a result, stocks appear to welcome rising inflation when in fact they are welcoming excess liquidity...If we map the dollar index against the ten-year TIPS breakeven rate of inflation line, we find the dollar has anticipated changes in expected inflation by the 13-week lag embedded in the standard 90-day non-deliverable currency forward...The recent tendency of the dollar to weaken on hints of looser monetary policy argues for the imbalance of risk toward higher inflation in the U.S. relative to othermajor currencies."

Core consumer prices rose at an annual rate of 3.1% in July, the Dallas Federal Reserve Bank said Thursday. Core prices rose at a 3% rate in June. The bank's trimmed-mean PCE price index is an alternative method of computing core inflation without automatically excluding food and energy costs. The trimmed-mean PCE index has risen at a 3% annual rate in the past six months, the fastest growth since June 2001. The index has risen 2.7% in the past year, the same as in June. On an unrounded basis, however, year-over-year core inflation is at the highest level in 14 years.

Henry Ward Beecher: "Laws and institutions are constantly tending to gravitate. Like clocks, they must be occasionally cleansed, and wound up, and set to true time."

General Motors Corp. is expected to update its fourth-quarter production plans Friday, and Calyon Securities analyst Joseph Amaturo is looking for the automaker to announce a reduction of at least 10%.

Marsoft: "The dry bulk market posted strong counter-seasonal gains over the past month, with freight rates rising sharply from mid-July to mid-August. The Baltic Dry Index jumped from 3,000 in mid-July to more than 3,800 by mid-August, before the rally finally began to lose momentum in the latter half of August.
Cape rates have seen the most dramatic gains over the past month, with earnings on our Tubarao/Rotterdam iron ore route climbing from $40,000 per day to $60,000 per day, before falling back in the third week of August.
Panamax rates also moved up significantly from mid-July to mid-August, with earnings for a USG/Japan grain voyage rising from $18,000 per day to $23,000 per day over this period. Panamax trip charter rates rose from $22,000 per day to $29,000 per day in the past month.
Meanwhile, rates for the smaller bulkers have seen more moderate gains over the past month, although these came on top of the strong increases registered in June and early July. From mid-July to mid-August, Supramax earnings for a transatlantic round trip moved up from $22,000 per day to $25,000 per day, while small Handy rates remained relatively flat at $16,000 per day."

CNET reported that Intel may cut up to 10 percent of its work force as early as next Tuesday.

Electronic Arts Inc. said Thursday that sales of its latest "Madden" football video game grossed more than $100 million in its first week, the biggest launch in the franchise's 17-year history.

Dollar General reported August sales of $687 million, showing a 10 percent increase from a year ago. Same-store sales increased 4.8 percent compared to a 1.2 percent increase last year.

Microsoft Corp. paid out performance bonuses totaling almost $1 billion in restricted stock to 900 of its top executives. One-third of the 37 million shares vest immediately. Chairman Bill Gates and Chief Executive Officer Steve Ballmer were excluded. Unfortunately, the stockholders have not made a penny in years. Where does performance begin and end?

Goldcorp Inc., Canada's third- largest gold producer, agreed to buy Glamis Gold Ltd. for about $8.6 billion, increasing output by more than a third and adding mines in Nevada and Honduras. Glamis holders will get 1.69 shares in Toronto-based Goldcorp for each share.

Soren Kierkegaard: "Truth always rests with the minority, and the minority is always stronger than the majority, because the minority is generally formed by those who really have an opinion, while the strength of a majority is illusory, formed by the gangs who have no opinion -- and who, therefore, in the next instant (when it is evident that the minority is the stronger) assume its opinion... while truth again reverts to a new minority."

Delusion And Illusion

8/31/06 Delusion And Illusion

George Ure: "Regular humans took $62.2 billion out of their savings to make ends meet in the quarter. But hey, that's gotta fuel some kind of market rally, in this "things work backwards world" right?
Personal outlays are exceeding personal income and by a wider margin in this report, perhaps due in part to the notion that bankers are doing a fine job of hypnotizing today's young people into the idea of "renting their lives" - and that debt/interest/making bankers fat is just now the world ought to operate. In their freakin' dreams."

Robert McHugh: "The Dow Industrials have declined sharply every Autumn for the past nine years in a row, from 1997 through 2005, reflecting an interesting market psychology, and it is setting up to do so again in 2006." But wait. Interest rates are going down. Crude is hovering only at $70 a barrel. The Dow, S&P, and the Nasdaq are chugging along at 7-week highs or more. The national debt is only increasing by $3 billion a day. The U.S. dollar index is not much below 85. Maybe this autumn will be different from the 1997 thru 2005 period. For my money, the 5% overnight funds rate looks pretty good.

Richmond Fed President Lacker: "Obviously the July inflation number was a little better than the previous month. I don't think we're out of the woods yet."

The Reuters/Jefferies CRB Index of 19 commodities dropped 0.2 percent to 327.09, after earlier reaching 324.60, the lowest since March 23. The CRB is down more than 10 percent since reaching a record high on May 11, when copper was at a record high and gold was near a 26-year high. The CRB is down 1.4 percent this year.

Ethan Allen Interiors Inc.'s chairman and chief executive Farooq Kathwari after Wednesday's closing bell said sales have further slowed in August.

Albert Einstein: "Not everything that counts can be counted, and not everything that can be counted counts."

Wal-Mart Stores,Inc. has been named as one of the "50 Best Companies for
Latinas to Work for in the United States" by LATINA Style Magazine.
Wal-Mart was chosen because of its programs and initiatives that help
Latina professional working women in the workplace.

BHP Billiton reached a preliminary agreement in Chile with union leaders at its Escondida copper mine, the biggest in the world, signaling a possible end to a 24-day strike that disrupted production.

Brazil's central bank cut its benchmark lending rate by a larger-than-expected half point on Wednesday in an apparent bid to spur the economy.
The central bank's monetary policy committee unanimously decided to reduce its Selic rate to an annual 14.25 percent from 14.75 percent.

David Chapman: "Contrary to popular opinion, October is not the worst month of the year. September is. Since 1950, September has seen 19 ups and 36 downs. No other month comes close. There were particularly nasty Septembers in 2002 and 2003, as the market lost more than 10 percent each time. (Note: statistics here are based on the Dow Jones Industrials.) The market also lost more than 10 percent in September 1974. Indeed, those three Septembers rank amongst the worst months ever since 1950. There are no Septembers amongst the best months."

My best idea is to sell puts on ConocoPhillips stock with a $50 strike price for
55 cents.

Albert Einstein: "Reality is merely an illusion, albeit a very persistent one."

Close But No Cigar

8/30/06 Close But No Cigar

The Federal Reserve’s policy makers, in what many described as a “close call,” chose to keep interest rates unchanged at their last meeting although several thought that increases “could well be needed” in the future.

Yesterday was not a good day in the market for Goldman, Lehman, or Bear Stearns.

Median U.S. household income rose an inflation-adjusted 1.1% last year after five straight annual declines, the Census Bureau said, while the gap between the most- and least-affluent Americans widened. The 1.1% gainmight get you a token on the subway. Don't spend it all in one place!

Japan's wages unexpectedly slipped for the first time in six months, as record corporate profits and increased demand for workers failed to translate into higher pay.

Crude closed under $70 a barrel but Diamond Offshore had a good gain.

China, South Korea, Turkey and Mexico could win increases in their International Monetary Fund quotas within a few days, signalling the biggest reform of the fund since Bretton Woods.

In the last few days a greater number of our armed forces have been killed in Iraq. The headlines have gone to Katrina but the war is getting bloodier in Iraq. You still believe we attacked Iraq because of failed intelligence? If you believe that, you need to have your head examined.

Paul Mladjenovic: "The mother of all economic problems is government. We could make it sound studious and blame "excessive" government but government by its very nature is excessive and problematic."

Confidence among U.S. consumers fell this month to the lowest since November, rattled by expensive gasoline and a slowing housing market, a private survey showed.
The Conference Board's index of confidence dropped to 99.6 from 107.0 in July, the New York-based business group said.

Consumer confidence in Germany, Europe's largest economy, rose to the highest since 2001 as an increase in sales tax next year encouraged shoppers to bring forward spending. A sentiment index climbed to 8.6 from a revised 8.5 in the previous month, GfK, a market research company in Nuremberg, Germany, said Tuesday.

According to a new census, more than 46 million Americans lack health insurance.

Maggie Gallagher: "When governments become large, voters cannot exercise close oversight, otherwise known as political power." In the case of our government, it is a huge cancerous growth.

The Big Gamble

8/29/06 The Big Gamble

From Bloomberg: "Speculators at the Chicago Board of Trade own 347,559 more futures contracts betting that prices of 10-year Treasury notes will rise, than they do contracts that would profit from a decline in the benchmark government note. That amounts to an almost $35 billion gamble that the gains will continue.
The record amount, reported by the Commodities Futures Trading Commission, is a sign traders are convinced two years of interest-rate increases by the Federal Reserve are slowing growth enough to curb inflation. They're joining investors such as Bill Gross of Pacific Investment Management Co., who runs the world's largest bond fund, who grew more bullish during the two-month rally that has pushed 10-year yields to five-month lows."

John Hussman: "We did see a modest widening in credit spreads over the past month, which tends to increase recession probabilities, but it is still not abrupt enough to suggest that investors are going to be clamoring for safe havens like Treasuries and currency. So for now, their effect in muting inflation pressures will probably be limited. Generally speaking, I continue to view negative economic surprises and upside inflation surprises to be the probable norm."

China Steel Corp, Taiwan's largest steelmaker, said it will increase prices of seven products for domestic customers in the fourth quarter by an average 4 percent because of rising demand.

Navistar International Corp. , the U.S. diesel engine maker, said on Monday it would lay off nearly 400 workers after Ford Motor Co., one of its key customers, announced it was cutting fourth-quarter production by 20 percent.

With a good deal of government data being released this week, the nonfarm payroll report on Friday, and the Labor Day weekend approaching, I would be extra careful about taking on any substantial new positions- and that goes for stocks, bonds, and commodities.

Developments

8/28/06 Developments

The Detroit News reported that Ford is considering selling a ``significant'' stake in Ford Credit. The possibility of such a sale ``played a role'' in a decision announced yesterday by Citigroup Inc. executive committee chairman Robert Rubin's decision to step down from Ford's board after six years, the newspaper said.

Rating agency Moody’s reported that the quarterly delinquency rate on the riskiest layer of the mortgage market increased by 9 per cent in the first quarter of 2006, the first time that the figure has gone up since 2002.
Karan Chabba, CDO analyst at Bear Stearns, said: “The housing numbers are worrisome to the extent that there could be some losses on the underlying pools [of the CDOs].”

Western Refining is purchasing Giant Industries for about $83 in cash.

Kinder Morgan has raised the ante on its going private transcation to $107.50 in cash.

The price of wholesale unleaded gas has declined to $1.85 a gallon. After Labor Day, we should see at least a 20 cent drop at the pump.

From the N.Y. Times: "The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity — the amount that an average worker produces in an hour and the basic wellspring of a nation’s living standards — has risen steadily over the same period.
As a result, wages and salaries now make up the lowest share of the nation’s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960’s. UBS, the investment bank, recently described the current period as “the golden era of profitability.”

More than half of U.S. households said gasoline prices caused them to cut back on discretionary spending during August, according to a survey released last week by the International Council of Shopping Centers.

With Ernesto's course moving away from the Gulf and towards Florida, crude took a hit down to $70.40 a barrel.
In a reaction to lower crude prices and lower natural gas prices, Diamond Offshore shares declined to the $71 level.
My best idea for the day is to sell Diamond Offshore Jan 2007 puts with a strike price of $50 for 60 cents.