11/8/02 The "Soft Spot" Hits Main Street America

McDonald's will miss their already reduced profit forecast, close restaurants, and lay off workers. The poor economy has hit the supermarket business. Safeway lowered its earnings forecast.

Most municipal bonds now have a higher yield than treasury bonds.

The yield curve is flattening. As such, the spread between 2 year and 30 year treasury bonds is narrowing. The yield on the latter is down to 4.82% and the 10 year yields 3.87%.

I have said it so many times. We have widespread overcapacity; too much consumer debt; imports pressing prices lower; and deflation looming on the horizon. Most businesses will continue to cut costs and sidestep hiring and capital investment.

SAS to cut 2700 more jobs.

11/7/02 The Fed Slices, Dices, And Panics

It is difficult to begin the day on a critical note. Providing praise, on the other hand, is quite uplifting. Yesterday the Fed lowered their funds rate to a level below the inflation rate. The latter is 1.4%. In essence, the Fed said this lowered rate would provide the balance between inflation and the "soft spot" we now have in the economy. This statement is an insult to the intelligence of the American people. Inflation is essentially non-existant. Additionally, we do not have a soft spot economically. We have a serious problem on our hands. You don't believe me?

Costco, one of our foremost retailers, today warned about less than expected results due to disappointing same store sales. Sam's Club, a unit of WalMart, announced a 1.6% decline in its October same store sales. WalMart, as a whole, produced a 3.7% sales gain, and this approximated its results for the past several months. The company said November would show a 2 to 4% sales gain, hardly the growth that made WalMart great.

Cisco's latest quarterly results showed a $500 million decline (a bit over 30%) in cash flow from operations from the prior quarter. The CEO expects sales for the current quarter to be flat to down 3 to 4%. He said customers remain cautious regarding spending and are unsure of revenue and profit projections.

Advanced Micro devices announced their need to lay off 20% of the workforce in order to bring costs in line with sharply reduced revenues.

The Bank of England and the European Central Bank both left their rates unchanged. There was a time these institutions would have followed the Fed's lead. Unfortunately, in my view, the Fed has lost its credibility in the marketplace. Only the media finds this Fed newsworthy.

The consumer is beleaguered. Does the Fed want the consumer to borrow more at slightly lower interest rates? Should they take out more car loans? Should they buy more presents on their debt laden credit cards? I don't think so. I believe a clean sweep is in store. Show the exit door to the Chair and the 12 governors and let them follow Harvey Pitt to the showers.

I apologize for this late posting. The .Net Passport server has been down.

11/6/02 Insurance Premiums

Insurance premiums are rising at their fastest clip in a decade, fueled by increased demand for hospital services and prescription drugs. Premiums are forecast to leap an average 15.4% for employers next year, even as the economy remains shaky and the job market tight.

Some employers are requiring workers to pay 10% to 30% more toward monthly premiums, raising deductibles and setting higher co-payments for office visits, hospital care and drugs. Hewitt Associates estimates that the amount employees will pay in premiums and other costs next year will rise by an average of $342, to $1,753.

Since June 415,000 jobs have been added in agriculture, and that accounts for roughly 50% of the new jobs added since June. Are marijuana farmers being counted now or possibly illegal migrant farm workers being added to payrolls?

The ISM monthly index of non-manufacturing activity(or lack of) showed new orders slowed in October to 50.9 from 52.3, and this is the lowest level since January. The non-manufacturing employment index fell to 46.2, and this is the 20th consecutive month for job losses.

11/5/02 More Job Cuts

In October there were 176,010 announced job cuts. This was the second highest monthly number in 2002. Only January had more.
Yesterday Applied Materials announced they are laying off 11% of their workforce, and Dow Jones is cutting an additional 3% of theirs. What I find interesting is that both of these companies are the leaders in their respective fields. Additionally, Jim Morgan, the CEO of Applied Materials, is one of the brightest guys in the Silicon Valley. If Morgan thought business were on the verge of improving, he wouldn't be making these cuts.

Last Friday Network Commerce filed for chapter 11. At one time the company had 650 employees and had a stock market value exceeding $500 million. Between 1998 and 2001 they reported losses exceeding $500 million. How many other stories like this are in the naked city?

Factory orders dropped 2.3% in September.

IBM will spend $700-800 million over the next year on ads to promote "on-demand computing." The spoof ads are intended to counteract technology gloom and doom. In my view, growth in cash flow and net profits might be a much better tonic.

The Dow at 8600 is up 20%(about 1400 points) above its 5 year low of about 7200 set intraday on October 10. I wonder how much new money was suckered into this bear market rally.

11/4/02 Happy Anniversary Guy

Your smiling eyes are everywhere and light up the sky.

Tomorrow there are 36 governorships, 34 Senate spots, and 435 House seats up for grabs. Hopefully, we will vote with our heads and not focus on the photo-ops. These individuals are to represent your beliefs. With all due respect, maybe they will do a better job than the current array of money managers who are stewards for your money. Everyone should be tired by now of losing money. Are we also tired of bloated government and a do-nothing Congress? The choice is yours. A single vote can make the difference.

After years of reading about the "Microsoft Case" it is finally over. Nothing happened except for the hundreds of millions of dollars wasted on pursuiing competition in our capitalistic society. John D. Rockefeller must be smiling.

Today I will need to rest. I have to prepare myself for the Fed meeting this week. The outcome has so much meaningless suspense.

11/3/02 Happy Birthday Guy

This blog is for you. I remember and will never forget. May your soul light up the earth and the stars.

I must have received at least 23 spam messages this week informing me that the Fed will lower interest rates this coming Wednesday. Does this mean that I can borrow at 1.5% or that the economy will turn on a dime? Actually I have given this matter a great deal of thought. I need to give credit where credit is due. The Fed is the second coming of Prozac- generically speaking of course. When I think of Alan Greenspan and his associates, I envision the Lone Ranger and Tonto, Spiderman, Superman, Elvis, John Wayne, and Madonna all coming to the rescue. After all, I read where our economic recovery is in peril. That's correct. Peril. Everything will be ok. I'll have some milk and cookies, go to bed, and wake up in March 2003 when all will be rosy.

The problem with the above scenario is missing the holiday season. The retailers need our dollars to buy merchandise for the Spring. I cannot have on my conscience the thought that my sleeping thru the holidays could contribute to KMart going the way of Loehman's. I would rather stay awake and swallow the peril pill. Reality is easier to digest in the short and long run.

11/2/02 Grip That Yellow Brick Road

The drive along the country road is beautiful. The colors are something to behold. Not a cloud on the horizon. I'm in hog heaven. I've just logged 4 straight weeks of stock market gains. November has just begun. How sweet it is! In the last dozen midterm election years there have been only two down Novembers- 1974 and 1994. We've just come off the low in early October and bounced a profitable 1200 Dow points. The consensus is that 4th quarter eanings will increase by 17% and in 2003 by 15%. We're off to the races. Look. I am driving with only one hand on the wheel and my head is outside the front window. The road is so magnificent. There isn't another car to be seen. I'll just drive with no hands and steer with my smile. Not to worry. My airbag has Alan Greenspan stenciled on the front. He's Superman's first cousin on his second wife's side. Alan looks out for all of us. He'll lower interest rates and I'll refinance my mortage for the 11th time in 2002. Capitalism works.

I hope you are one of the lucky ones with health insurance, workman's comp, and a 401K with some worth. I hope you have a job. May I suggest you get a holiday gift for Mr. Greenspan. How about a red, white, and blue parachute?

11/1/02 Hello November

We need some new cooks. The present economic recipe is for the pits. We have lower than anticipated 3rd quarter GDP; higher than expected jobless claims; the number of hours worked each week is down; business has cut investment spending for six straight quarters; there is overcapacity; we have a rising jobless rate; and over the next six months businesses expect to trim payrolls rather than hire. Maybe Wolfgang Puck should become the next Fed chairman.

It's not all bad though. The government continues to hire staff. They are attempting to keep people off the streets. They're reverting to the program initiated in the 1930's. It's not a concern. When the budget deficit gets larger, then more dollars can be printed. It's no wonder the dollar is at a two month low against the Euro.

10/31/02 Goblins

The last three weeks should enable this October to be the best October on record. The market has climbed a wall of worry- disastrous consumer sentiment, lousy leading economic indicators, three straight weeks of declines for mortgage applications which provide the sign for slower housing activity, and 40% of consumers planning to spend less on gifts this holiday season. Operationally, the best results have been reported by consumer staple companies- Colgate, P&G, and Unilever.

Yesterday the CEO of IBM chimed in as a forecaster. The market took his word as the gospel. Of course, he missed the extent of the decline in the computing and IT industry as well as the second half economic weakness we are experiencing. What did he say? He stated that short term circumstances are difficult but that customers are ultimately optimistic about the long term. Additionally, he proclaimed the economy has hit bottom or is flattening out. He must have based that on being ultimately optimistic despite difficult short term circumstances. He could be the second coming of Yogi Berra. Come to think of it. There is only one Yogi Berra, and I think Yogi makes more sense.

I for one will not be eating a great deal of candy this Halloween. I am on a candy strike- at least candy made by Hershey's. The stockholders were disenfranchised and never had a chance to sell to Wrigley.

10/30/02 The Consumer Has It Right

The Conference Board proclaimed yesterday that "the outlook for the holiday retail season is now fairly bleak." That statement is perfectly understandable after the latest reading on consumer confidence plummeted to 79.4 from September's 93.7. The expectation was for a number around 90.

The consumer is on the right path to spending less and attempting to save more. The consumer is laden with 14% of disposable income going towards debt service. When you add the latter to paying taxes and accounting for normal living expenses, the monthly budget has difficulty in coming out on a positive note. In itself that is a downer. When you combine it with job layoffs and job instability, you have the foundation for unstable waters. This situation is not easily overcome, and it will take time to right itself.

I have often said over the past three months that the U.S. econnomy could no longer depend on the consumer to carry two-thirds of the load. Business investment is silent. Interest rates are already at a 40 year low. Don't look to the Fed to solve the problems. The landscape is definitely murky.

10/29/02 The U.S. Economy

A CNN/USA Today/Gallup poll indicated 60% of Americans rated the economy poor in October.

Richard Curtin, director of the University of Michigan's Consumer Research Center, said "consumer spending will depend on getting even larger discounts, and profits will depend on making even larger cost cuts." This sounds like growing deflation and more job cuts.

Curtin went on to say that "accumulated loss in consumer confidence could tip the economy back into recession."

The Conference Board will release its monthly index of consumer confidence this morning.

Talking about confidence or the lack of, IBM is reintroducing a 90 day deferral on financing payments and this includes initial down payments. Financing rates are as low as 3.1%.

Cisco's Catalyst 6500 LAN Switch accounts for about 25% of the company's total sales. Cisco lowered its price on this product by 15-35%.

10/28/02 When Is The Bear Market Over For You?

This question is asked time and time again each day. The answer is easy. The bear market has ended when the stocks you purchased at $50 no longer are selling for 5 cents. When they rally to $5, it's time to break open the Pellegrino. When they go back to $10, then mass hysteria has set in and you've hit irrational exuberance. In other words, for most of you the losses will be permanent.

No one likes to lose money; however, it's well to remember that the first loss is the best loss. Limit your losses and let your winners run- but only with the great ones. You never lose money by taking a profit. The stock market does not have a place for hopes and prayers or crystals or tarot cards. Hard work, long hours of study, and independent thought will bring better results.

All of the above may sound harsh and sarcastic. It's meant well, and maybe will provide an improved path to future stock market profits.

10/27/02 World Series Time For The Consumer

Make the retailers pitch to you. There are only 26 shopping days between Thanksgiving and Xmas. DVD players are $59 or less vs $200 two years ago. PlayStation 2 and XBox are being discounted. Digital cameras are being reduced in price. 0 percent financing and free leather recliners are being offered on digital projection televisions. You are in the driver's seat. Drive a hard bargain and drive down the prces. Make deflation work for you. There are too many retailers out there with too much inventory and too few selling days.

We have seen patience on Wall Street pay off. Value will win out. It's only a matter of time. This week the numbers will indicate rising unemployment and lower consumer confidence. Wait for your pitch from the retailer. Don't swing at a ball out of the strike zone. The count is in your favor. Make them pay and not you.

10/26/02 The Consumer

When will someone tell Alan Greenspan that he is on the injured reserve list? He rants on about productivity while consumer confidence is crumbling to its lowest level in 9 years. Consumers are throwing in the towel. They've shouldered the economy long enough. It gets tiring being Atlas.

Business investment is dropping like a rock. There's a lack of confidence dropping new orders for durable goods in September at their fastest pace in a year. Demand for non-military capital goods sank by 12.6%.

If the stock market elects to ignore the consumer, a great deal of money will be washed down the drain. There is no excuse for being a sloppy investor. Additionally, over the years the majority of money managers have proven they are ill equipped to provide outstanding performances. To pay for mediocrity makes little sense.

10/25/02 $2 Trillion

For the fiscal year ended 9/30/02 the U.S. budget deficit amounted to $159 billion. The government pointed a finger to the stock market as the main factor for recording this negative number-- there was a decline in receipts from capital gains taxes. A more appropriate culprit might have been that the government spent just over $2 trillion in the latest fiscal year. That's difficult to comprehend.

With the present economy it's no wonder that a deficit is forecast for this year and next. I guess the OMB is not planning on a pick-up in capital gains receipts. That might imply they figure the stock market will not be robust. The latter opinion might force me into becoming a bull. I said might and not necessarily.

10/24/02 David Bell Has Great Baseball Genes

Gus Bell. Buddy Bell. Now David Bell. The Bell rang in the 8th inning. We have ourselves a series!

Morgan Stanley's chief economist said there is a real rising risk of deflation. You can say that again.

Did you all happen to notice? Since October 1 car sales have hit a brick wall. We should recall that the car industry represents 4% of our GDP. There is little question but that the big three auto companies will begin to spill some serious red ink. Incentives no longer will do the trick.

Eastman Kodak to have more layoffs.

10/23/02 Blaming Wall Street

New York City is facing a $1 billion budget shortfall. The main culprit appears to be lower than expected revenues from Wall Street.

Cooper Industries has 30,000 employees. They plan on closing 10 factories. Schlumberger and Dynegy announce layoffs. IBM cuts another 2800.

Bill Ford is the former governor of the Atlanta Fed. Yesterday he stated that a rising deficit+ slower economic growth = a terrible prescription for the economy.

The Anaheim Angels made winning look easy in game 3.

10/22/02 The Economic Stumble And The Market Rally

In September the index of leading economic indicators fell for the fourth consecutive month. This last took place in November 1990. The Dow has rallied for 7 out of the last 8 days. The last time it rose 16% in this consecutive period of time was in 1939 or 63 years ago. That's longer than the world series drought for the Giants.

Texas Instruments, AT&T, and Sega all had disappointing results and UAL will layoff more workers. If you buy into this rally, then you must project a profit turnaround. Do you see more than a handful of CEOs upbeat about future results? I read about the lack of visibility. I hear talk of asset allocation- more stock buying and the reduction in bond positions. How many money managers are buying stocks with their own money and not your money? How many CEOs are buying stock in their own companies? Follow the money and not just yours.

10/21/02 Menlo Park

This town is at the core of both the Silicon Valley and the venture capital industry. It is next door, so to speak, to Stanford University and many renown companies. As such, I was shocked to learn that Menlo Park's latest quarterly tax revenue receipts dropped 41% from the like period one year ago. This is not a town comprised of mainly new wealth, and this news should be a wake-up call to anyone believing the valley is going to make a quick turnaround.

Hitachi cut its operating profit forecast by about 30%. Samsung had lower than expected profits.

Bank of Japan's Governor Hayami said Japan's financial system is in its most severe status ever.

10/20/02 Alderwoods And UAL

Alderwoods is the second largest funeral services company in North America with 10,000 employees, 920 funeral homes, and 275 cemeteries. On Monday funeral directors are set to strike a dozen Alderwoods funeral homes in Chicago, and it would be the first such strike in Chicago. Don't you think there's enough trouble in Chicago? UAL is losing $7 million in cash per day. It would be too much for the hearts of Chicagoans if Alderwoods and UAL both shut their doors in the windy city. On the other hand, let's look on the bright side. U-Haul could really use the business.

The holiday season looks mediocre at best. Will Kmart make it? How many store closings will occur at other companies in the retail industry? Maybe we should run a contest to see who can come closest to the actual downsizing number.