Consumers

12/29/05 Consumers

The Conference Board Consumer Confidence Index increased to 103.6 in December
up from 98.3 in November. The Present Situation Index surged to 121.5 from 113.2.
The Expectations Index increased to 91.6 from 88.4 last month.
"Consumer confidence continues to bounce back and is now at its highest
level since Hurricane Katrina struck the Gulf Coast," says Lynn Franco,
Director of The Conference Board Consumer Research Center. "The resiliency of
the economy, recent declines in prices at the pump, and job growth have
consumers feeling more confident at year-end than they felt at the start of
2005. Even though all of the improvement over the past twelve months has been
in consumers' assessment of current conditions, and expectations remain below
earlier levels, consumers are confident that the economy will continue to
expand in 2006."
The outlook for the labor market did not change. Those expecting more jobs
to become available in the next six months was virtually unchanged at 14.3
percent versus 14.1 percent a month ago. Those expecting fewer jobs was also
virtually unchanged at 18.0 percent versus 18.1 percent in November. The
proportion of consumers anticipating their incomes to increase in the months
ahead declined to 20.6 percent from 21.3 percent last month. I find the latter
expectation quite interesting. How does one's confidence rise if the expectation
is low for for one's income to rise? A disconnect appears to be at work.

Front-month crude futures shot up $1.66, or 2.9%, to close at $59.82 on the New York Mercantile Exchange,
and had reached a two-week high of $60.45.

Blogger is having some software difficulties. I will try to 

add more thoughts tomorrow. 

Historical Predictions

12/28/05 Historical Predictions

The vast majority of pundits have predicted a rally between Xmas and the first two days of 2006. After all, the past has provided substance to that prediction. Who would have thought the Dow would decline 100+ points on the first trading day after Xmas? Has that taken place before? Who would have thought that inverting of the yield curve would send buyers fleeing? After all, the Fed says it's different this time. Brief inversions don't count, such as, in 1998. Twice in the past 40 years an inversion of the yield curve has not been followed by a recession. Will this inversion be brief and not count or will it be protracted and still not count? Will the Fed continue to print money at an unsustainable rate in an effort to stimulate economic activity? Will the Fed buy long-term bonds in order to reduce already low mortgage rates and help boost house buying?

It's winter. It is suppose to get cold. Unfortunately, for those speculating on heating oil and natural gas prices, the last week has been a most unprofitable downdraft. Yesterday, January natural gas futures fell $1.261 to settle at $11.022 per million British thermal units on the New York Mercantile Exchange. It was the lowest closing price since the Sept. 13 settlement of $10.763, which was slightly above the level on the day Hurricane Katrina struck and took out significant Gulf of Mexico output.
Front-month natural gas futures reached an all-time intraday high of $15.78 in mid-December as cold weather and predictions of snowstorms raised fears about supplies.

The equity market is nearing an oversold condition and fright is building in the natural gas trading pits. The likelihood is for both markets to have a bounce-back rally.

During WWI the stock market closed for 4 1/2 months. In 1933 banks were closed. After 9/11, the equity market was closed for several days. Are there
cracks in our economic infrastructure that could cause closure again?

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications for the week ended December 23 decreased 6.8 percent to 554.1 from the previous week's 594.6. Volume was at its lowest level since the week ended May 24, 2002, when the index hit 516.9. Maybe consumers were just too busy buying gift cards.

The Talmud: "Never expose yourself unnecessarily to danger; a miracle may not save you...and if it does, it will be deducted from your share of luck or merit."

Choices

12/27/05 Choices

Life is all about making choices, and hopefully, the right choices; however, as human beings
we do make mistakes. It's important not to just learn from the mistakes and correct them.
It's more than that. Don't let the wrong choices eat up precious time. Correct the mistakes in a
timely manner. All of the aformentioned can be said of investing.

Since it's your life, make your own choices. Don't let the choices be made for you. The same can be said for investing. It's your money and it's your responsibility to be a protector of your capital. Don't play follow the leader. The leader will not call or email you to mention when he or she is leaving the game, so to speak.

There is no law that says you need to know all the answers. However, there are places to find many of the answers. You can start by being honest with yourself. Know your limitations. Don't be a fool and grandstand. No one will buy tickets for that performance.

There will be times that you need a breather. At times, everyone needs to rekindle energies and focus. That is also true of investing. Don't press. Don't keep your foot pressed down on the peddle 100% of the time. Even cars need recharging or refueling.

Life and investing can be really complicated-- if you make it that way. Simple doesn't mean dumb.

Quotations

12/26/05 Quotations

Plato: “Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws.”

Paramhansa Yogananda: “Divisions are imaginary lines drawn by small minds.”

Aristotle: “Friendship is a single soul living in two bodies.”

Carl Jung: “Your vision will become clear only when you look into your heart... Who looks outside, dreams. Who looks inside, awakens.”

Ayn Rand: “The smallest minority on earth is the individual. Those who deny individual rights, cannot claim to be defenders of minorities.”

Booker T. Washington: “Few things help an individual more than to place responsibility upon him, and to let him know that you trust him.”

Anais Nin: “From the backstabbing co-worker to the meddling sister-in-law,
you are in charge of how you react to the people and events in your life.
You can either give negativity power over your life or you can choose happiness instead.
Take control and choose to focus on what is important in your life.
Those who cannot live fully often become destroyers of life.”

Erma Bombeck: “If a man watches three football games in a row, he should be declared legally dead.”

P.J. O’Rourke: “One of the annoying things about believing in free will and individual responsibility is the difficulty of finding somebody to blame your problems on. And when you do find somebody, it's remarkable how often his picture turns up on your driver's license.”

Mark Victor Hansen: “Now is the only time there is. Make your now wow, your minutes miracles, and your days pay. Your life will have been magnificently lived and invested, and when you die you will have made a difference.”

Napoleon Bonaparte: “Courage is like love, it must have hope for nourishment.”

Mary Manin Morrissey: “Even though you may want to move forward in your life, you may have one foot on the brakes. In order to be free, we must learn how to let go. Release the hurt. Release the fear. Refuse to entertain your old pain. The energy it takes to hang onto the past is holding you back from a new life. What is it you would let go of today?”

Albert Einstein: “The world is a dangerous place, not because of those who do evil, but because of those who look on and do nothing.”

Ronald Reagan: “Freedom is a fragile thing and is never more than one generation away from extinction. It is not ours by inheritance; it must be fought for and defended constantly by each generation, for it comes only once to a people. Those who have known freedom, and then lost it, have never known it again.”

Thomas Jefferson: “Banking establishments are more dangerous than standing armies.”

James Madison: “I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations.”

Jack Paar: “Poor people have more fun than rich people, they say; and I notice it's the rich people who keep saying it.”

John Wayne: “If you've got them by the balls their hearts and minds will follow.”

Jack Benny: “I went to a meeting for premature ejaculators. I left early.”

Mike Burk: “Since 1886 (118 years) the Dow Jones Industrial Average (DJIA) has been up 73% of the time with an average gain of 1.07% during the last 4 trading days of the year.”

Groucho Marx: “Alimony is like buying hay for a dead horse.”

Bill Frist: “Sugar growers will not face any cuts in this important budget agreement, and
Sen. Coleman will support the package.”

James Pfaus, Concordia University psychology professor: “Getting an erection is one thing. Feeling horny is another.”

George Orwell: “During times of universal deceit, telling the truth becomes a revolutionary act.”

Hitler: “Who says I am not under the special protection of God?”

Robin Lovin, a United Methodist ethicist and professor of religion and political thought at Southern Methodist University: “All sorts of warning signals ought to go off when a sense of personal chosenness and calling gets translated into a sense of calling and mission for a nation.” (Lovin was not referring to Hitler)

Ann Landers: “Resentment is letting someone you despise live rent-free in your head.”

Daniel Patrick Moynihan: “We are each entitled to our own opinion, but no one is entitled to his own facts.”

Happy Holidays

12/25/05 Happy Holidays

As many as 55 percent of shoppers have bought gift cards, said Britt Beemer, chairman of Charleston, South Carolina-based America's Research Group. "Gift cards may be the big winner of this Christmas," he said. "I was in three stores last night where the line for gift cards was twice as long as the line to check out to buy something."

Hanukkah starts at sundown today. A Hanukkah that runs into January is rare. In 1967 and 1986, the eight-day festival of lights began at sundown on Dec. 26, and in 1978 it started on Christmas Eve.

Mohandes Gandhi: “Be the change you want to see in the world.”

According to comScore.com, the three-day transit strike in New York City may have forced residents there to purchase gifts over the Internet. The New York area generated 4.4 percent of all U.S. online spending in the first two days of the strike, up from 3.4 percent previously.

Aristotle: "The beauty of the soul shines out when a man bears with composure one heavy mischance after another, not because he does not feel them, but because he is a man of high and heroic temper."

Retailers may have lost as much as $230 million in the first two days of the strike, stated Kurt Salmon Associates Inc. retail strategist Michelle Bogan. Particularly hard hit would be Tiffany’s, Bloomingdale’s, and Saks.

Yesterday, Wal-Mart stated demand for groceries outpaced sales of general merchandise last week.

"I don't think the day is the kind of day that retailers thought it would be," said Britt Beemer, head of America's Research Group, which surveys consumer spending habits. "Christmas Eve is seldom the big day because of the fact that so many consumers ... want to be home." When the results for the holidays are tallied, I think we’ll find that Friday, December 23, was a gigantic shopping day and possibly the largest of the season.

Yesterday President Bush gave his Saturday radio address. He wished the nation a happy Christmas. He forgot that Hanukkah begins at sundown on Christmas and that Kwanzaa, a seven-day African-American holiday created in 1966, begins Monday.

According to BigResearch, which conducted a poll for the National Retail Federation, consumers are expected to spend a total of $18.48 billion on gift cards this holiday season, up 6.6% from a year ago. I believe that figure will prove conservative.

According to the San Francisco Chronicle, the 11-judge court that authorizes FISA wiretaps has approved at least 18,740 applications for electronic surveillance or physical searches from five presidential administrations since 1979.
The judges modified only two search warrant orders out of the 13,102 applications that were approved over the first 22 years of the court's operation. In 20 of the first 21 annual reports on the court's activities up to 1999, the Justice Department told Congress that "no orders were entered (by the FISA court) which modified or denied the requested authority" submitted by the government.
But since 2001, the judges have modified 179 of the 5,645 requests for court-ordered surveillance by the Bush administration. A total of 173 of those court-ordered "substantive modifications" took place in 2003 and 2004, the most recent years for which public records are available. The judges also rejected or deferred at least six requests for warrants during those two years -- the first outright rejection of a wiretap request in the court's history.

Starbucks opened 354 drive-throughs in the U.S. during its latest fiscal year, increasing its nationwide total to 1,065 -- nearly 15 percent of its roughly 7,300 domestic stores. During the first year of operations, a typical company drive-through will generate sales of $1 million versus only $715,000 for a regular store. That comparison was a surprise to me.

Plato: "Be kind, for everyone you meet is fighting a harder battle."

Negative Signals

12/24/05 Negative Signals

Sales of new homes in the United States fell 11.3% in November, the biggest decline since January 1994, to a seasonally adjusted 1.245 million units from October's 1.404 million pace, originally reported as 1.42 million. Sales jumped 11.4% in October. Sales in November were up 6% from a year earlier.. Inventories of homes on the market rose 3.3% to a record 503,000, representing a 4.9-month supply at the November sales pace. This is the largest monthly supply since December 1996.The median price of a new home fell for a third straight month to $225,200. The price is still up from $224,500 a year earlier.

Led by demand for transportation equipment, orders for new U.S.-made durable goods jumped 4.4% in November. However, excluding transportation orders, durable good orders fell 0.6% in November, the third straight monthly drop. Orders for core capital goods equipment fell 2.0% in November. Shipments of durable goods fell 0.2% in November after a 1.2% gain in October.

Robert McHugh: “For the past two weeks, the Fed added $93.5 billion to the money supply, a 24% annual clip. Over the past 6 weeks it is up $192.9 billion, a 16.7% Banana
Republic hyperinflationary pace.”

In some areas, including New York City, Los Angeles, San Diego, San Francisco and Miami, housing affordability has dropped to levels not seen since the early to mid-1980s, according to mortgage giant Fannie Mae. In addition, Fannie Mae predicted Tuesday that U.S. home sales are set to decline by as much as 10% in 2006 as higher interest
rates and housing market jitters reverse a five-year run that helped fuel consumer spending and economic growth.

According to a recent survey from Deloitte & Touche, U.S. consumers plan to spend an average of $628 on improving their house this holiday season, up 84% from the $341 they said they'd spend in 2003 at this time.

For the holidays, I have given myself a dunce cap. It is a reminder of my ineptness when analyzing my thinking on Albertsons. Maybe I should say lack of thinking.

Japan's Cabinet approved plans to cut spending to the lowest in eight years to stop the expansion of their public debt.

U.S. consumers spent a record $17.48 billion buying products online from Nov. 1 through Dec. 21, according to comScore Networks. That's up 24% from the year-ago period.

As a Reagan administration lawyer, Supreme Court nominee Samuel Alito argued that federal officials can't be sued for damages for wiretapping Americans without warrants in national security cases, a document released Friday showed.

According to the NY Times, the volume of information harvested, without court warrants, is much larger than the White House has acknowledged. I hope that does not come as a surprise.

Thomas G. Donlan, Editorial Editor of Barrons: “Willful disregard of a law is potentially an impeachable offense. It is at least as impeachable as having a sexual escapade under the Oval Office desk and lying about it later. The members of the House Judiciary Committee who staged the impeachment of President Clinton ought to be as outraged at this situation. They ought to investigate it, consider it carefully and report either a bill that would change the wiretap laws to suit the president or a bill of impeachment.”

The NY Times reported that Guidant officials projected that some patients might die as a result of short circuits in a company heart device, but it did not publicize the flaw, records show.

Gary Lammert: “What is clear at this point is that America cannot produce and manufacture itself out of the debt hole and entitlement money obligation system that it now finds itself in. The Comptroller for the United States knows this. The only option is to lower interest rates and loan terms to an extent that the consumer, now unable to use bankruptcy protection, can both gradually pay off his substantial debt relative to earnings and perhaps borrow more based on asset inflation. The Japanese banking system used this ploy in 1990 and and experienced 13 years of equity deflation temporarily ending in 2003.
Like any pyramid scheme, the scam fails when there are not sufficient bottom feeders supporting the base. If the remaining entry level American service sector workers cannot support the pyramid base, or if there is a contraction in consumer spending secondary to the disconnect between ongoing wages and the cost of living including inflated real estate taxes and fuel costs, the pyramid scheme will falter and implode just as occurred many times before every 60-80 years over the last 450 years for every leading hegemony.”

The biggest U.S. companies have underfunded their health-care benefits and other obligations to retirees by about $292 billion, according to Standard & Poor’s.

It is important to remember that a busted clock is right twice a day. In other words, even schmucks are capable of having a minute or two on the right side of the ledger. It is not enough to follow the trend. Nor is it wise enough to state going against the trend will generate disappointing results. In the end, decisions need to be grounded in rationality. There are no short cuts to 2+2= 4. If it doesn’t add up correctly, don’t follow that path. What is right for you might not be right for me, and vice versa. I am not here to convince you my thinking is correct. I simply offer it for your consideration. Should you dismiss it out-of-hand, I could care less. Next week we are entering days that seasonally favor a rally in equities. If that does occur, I suggest you take advantage of this strength to cut back positions in your weak sisters, as they say. Times are tough, and will get tougher. If you are uncomfortable with a holding, then do something about it. Don’t think the market will make up for your errors. They don’t for me. When it comes to equities, some believe time is on your side. At this stage of credit expansion and the velocity of Fed money printing, I do not believe time is on your side or mine. When government officials authorize exploding debt that cannot be repaid and when the value of the dollar’s purchasing power is, over time, eradicated by inflation, then you know it is not business as usual. It’s not just the clock that is busted. The economic system has been compromised.

I wish all my good friends a happy and healthy holiday season.

SOP Time

12/23/05 SOP Time

For the month of November consumer spending and personal incomes both rose by 0.3% and the savings rate remained at a minus 0.2%.

Brad Setser: "If US households don't save, the US government cannot run a fiscal deficit without adding to the overall national savings shortage, and a worrying large current account deficit."

Last week, sales at U.S. retailers rose at the fastest pace since Thanksgiving as shoppers stepped up purchases in the second-to-last full week of the holiday season, according to the International Council of Shopping Centers and UBS Securities LLC. Part of the reason may be attributed to price cutting and added extra incentives, such as, gift wrapping.

The Conference Board reports today that the Composite Index of Leading Economic Indicators increased 0.5% in November, following a 1.0% increase in October, and a 0.7% decline in September.
Ken Goldstein, Labor Economist at the Conference Board: "The Leading
Economic Indicators have been anything but consistent -- flat to declining
from July through September, and recovering in October and November. The
recent two-month snap back in the leading indicators raises the probability of
the coincident economic index remaining on a moderate rising trend through
early spring. High and potentially rising energy prices are one consideration
in this outlook. A second consideration is the effect of spillover -- that is,
prices for derivative materials (rubber, paint, plastic and chemicals) are
starting to increase faster now. Rising costs and questions about whether they
will be matched by price hikes are also a factor in how fast the economy grows
this spring."

The Dannon Company, the U.S.fresh dairy unit of Groupe Danone, announced today plans for the U.S. introduction of Activia(R). Activia is the first and only probiotic yogurt
that is clinically proven to help naturally regulate your digestive system in
two weeks, when eaten daily as part of a healthy and balanced diet. Activia
will be available nationwide beginning in January 2006.

Placer Dome Inc. has agreed to a sweetened buyout offer by Barrick Gold Corp. for $10.4 billion. Under the deal, Placer Dome shareholders can choose to receive either $22.50 in cash or 0.8269 of one Barrick share plus 5 cents a share in cash. The revised offer includes a $259.7 million breakup fee, but Placer Dome has the right to consider other proposals until Jan. 19.

Natural gas in storage declined by 162 billion cubic feet in the week ended Dec. 16, but remained 2.3% above its five-year average, the Department of Energy said Thursday.

The difference between the 2-year and 10-year Treasury bond yields is just 0.04 percentage points. This portion of the yield curve hasn't inverted since 2000.

On September 2 Albertsons announced the exploration of strategic alternatives. The news was greeted enthusiastically. The stock rose over 2 points, traded 56.5 million shares, and ended the day at $23.05. Over the past 3 ¾ months the average daily volume has approximated 5 million shares. On Wednesday, December 21, the stock closed at $24.10. Shareholders as well as CVS expected a deal to be announced by yesterday morning. When the WSJ, the NYT, and the FT suggested a deal could be in question, nervous stockholders dumped the shares. The stock closed at $23.28 on 29.9 million shares. In sum, between 9/2 and 12/22, hundreds of millions of shares have changed hands while lots of buying groups kicking the tires. It’s time to move on from the foreplay to the real deal. It's SOP time. Towards 8PM, that time arrived. Albertsons CEO Johnson stated the board of directors decided to halt efforts to sell because "put simply, we did not receive a bid that we could accept." He said the company will continue to discuss selling off its "underperforming assets" with several parties. Despite what Johnson stated, it will not be "business as usual." The status of the company will remain uncertain, and that is not a positive for shareholders, employees, and/or the communities served by the company. Albertsons needs to compete on all cylinders in the supermarket arena. Uncertainty will make that more than a daunting task. I appreciate walking away when the bids are inadequate. However, when walking away, there needs to be an alternative safety net in place. Unless I am missing something, that is not in place. There is one final point. During the deliberations on the $26 deal, I would like to know whether the Board of Directors had been supplied with a fairness opinion relating to that $26 value. There could be many lawsuits resulting from this bidding process. Hopefully, from a financial point of view, the Board had their decision to walk away firmly backed up.

Bayle Roche: "Disappointment is the nurse of wisdom."

Senator Russ Feingold: "We could have avoided these last-minute negotiations if the House had just adopted the Senate version of the Patriot Act that passed unanimously earlier this year. As we move forward, I hope that the Republican leadership in the Senate and the administration will continue down the path they started on tonight so that we don't find ourselves in this same situation six months from now. One thing is clear - what happened in the Senate over the past few weeks shows that (long-term reauthorization of the Patriot Act in the version favored by Bush) is dead."

Adnan Shihab-Eldin, the acting secretary general of OPEC, and Sheik Ahmad Fahad al-Ahmad al-Sabah, the Kuwaiti oil minister and president of OPEC, met yesterday with Chinese officials in Beijing. Industry analysts expected the discussions to concentrate on increasing Chinese imports from OPEC countries, which supplies about 40 percent of the world's oil. China now gets more than 60 percent of its oil imports from the Middle East and North Africa, mostly from OPEC producers, and has become increasingly anxious to diversify its supplies. It is anticipated that China will import about 4.5 million barrels of oil daily. The U.S. imports over 10 million barrels per day. There is speculation that China is willing to pay a premium to OPEC for a guaranteed daily supply of oil over a period of time.

Home sales in the San Jose region slowed in November, while prices continued to rise, according to the California Association of Realtors Thursday.
Year-to-year sales drops ranged from 15.1 percent in the Santa Clara region and 23.2 percent in the Monterey region to 31.4 percent in Santa Cruz County. The October-to-November declines were 8.4 percent for Santa Clara, 9 percent in Monterey and 9.8 percent in Santa Cruz. That compares to an 11.2 percent drop in single family home sales statewide compared to last year, and a 6.8 percent drop from October.
Statewide, the median price of an existing home in November increased 16.2 percent over last year to $548,400, but sales decreased 11.2 percent compared with the same period a year ago. November's median price was 1.8 percent higher than October's.
"While year-to-date sales in November were 1.7 percent above last year's pace, we are starting to see the 'soft landing' we have been expecting," said CAR vice president and chief economist Leslie Appleton-Young.
The association also reported that its index for unsold inventory of existing, single-family detached homes in November 2005 was 3.9 months, compared with 2.8 months for the same period a year ago. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

In November 2005, employers took 1,183 mass layoff actions, seasonally
adjusted, as measured by new filings for unemployment insurance benefits
during the month, the Bureau of Labor Statistics of the U.S. Department
of Labor reported today. Each action involved at least 50 persons from
a single establishment, and the number of workers involved totaled 118,098,
on a seasonally adjusted basis. The number of layoff events in November rose by 95 from October and the number of associated initial claims increased by 11,860.
From January through November 2005, the total number of events (seasonally
adjusted), at 14,306, was lower than in January-November 2004 (14,689), while
the number of initial claims (seasonally adjusted), at 1,563,837, was higher
(1,468,844).

For those owning shares of Guidant, it might serve you well to read today's NY Times article on Medicare and how its plan could impact the growth trajectory for electronic defibrillators.

Benjamin Disraeli: "What we anticipate seldom occurs; what we least expect generally happens."

Consider The Possibilities

12/22/05 Consider The Possibilities

The International Energy Agency has stated that current oil production exceeds worldwide oil demand by a mere
1%. In 2006, the IEA predicts world wide oil consumption will increase by 2.1%. Do you think production will match or exceed that 2.1% rise? Inventories of distillates, including heating oil and diesel, plunged 2.8 million barrels last week, the U.S. Department of Energy reported yesterday. That decrease exceeded analyst estimates by a wide margin. In addition, Royal Dutch Shell Plc said today it will miss some oil deliveries after an explosion and fire at a Nigerian pipeline cut output by 180,000 barrels a day.

Housing affordability sank in October to its lowest level since 1991.

I have been attempting to piece together various reports on the acquisition talks for Albertsons and what took place at yesterday's board meeting. It appears that the Cerberus group, which includes SuperValu and CVS, had planned to split the company into three parts-- the supermarket business in two and then merging the drugstore business with CVS. Their proposal was to buy Albertsons for slightly more than $26 per share, with $6 a share in SuperValu stock and the remainder in cash. For some reason, at a late stage in the negotiations, the Albertsons board of directions decided not to accept this offer. Talks will contiue but not on the offer that was not accepted. I do not believe Albertsons will simply sell the drugstore business to CVS and proceed to close
unprofitable stores. Over the past three months, the board has had the time to consider many alternatives. Discussions will continue, and, in my view, a deal will be struck--- just like it was with the Saks division and Bon Ton Stores.I believe the investment bankers for Albertsons will generate a positive outcome for the shareholders. However, any deal will not come at the value of $31 a share that I had expected. It is obvious that my analysis stunk the house out.
Interestingly, CVS must have thought the acquistion of Albertsons was a done deal. .CVS today announced that it is confirming that it has been in discussions with Albertson's, Inc. regarding a purchase of Albertsons' standalone Sav-on and Osco drugstores. CVS also announced that, on Wednesday evening, it inadvertently issued an invitation by email to investment analysts and other interested parties inviting them to participate in an analyst call on Thursday morning, December 22, regarding this transaction. CVS subsequently recalled the email and advised the recipients that the email was sent in error because no agreement on any transaction between CVS and Albertsons has been reached. When was the last time you saw this happen on a multi-billion dollar
transaction? One last point is that Albertsons has not issued any press release concerning the acquisition talks since they stated back in September that the board was seeking alternatives to maximize value for shareholders. All the reports in the media are unconfirmed other than CVS's release last night.

Madison Marquette, a Washington, D.C.-based retail developer, confirmed Wednesday it had acquired the former KMart 40-acre headquarters site at Big Beaver Road and Coolidge Highway from Sears Holdings Corp.

The Senate on Wednesday passed a six-month extension of the terror-fighting USA Patriot Act as a last resort after Democrats and a small group of GOP senators blocked President Bush and Republican congressional leaders' attempt to make most of the anti-terrorism law permanent. In addition, Sen. Ted Stevens' drive to open the Arctic National Wildlife Refuge to oil drilling failed in the Senate on Wednesday when he fell several votes short of the 60 votes he needed to avoid a filibuster. The vote was 56-44. One might consider polling all members of Congress and inquire whether Bush's all-mighty power is waning.

As Doug Kass points out, according to Ned Davis Research, there have been 16 separate tightenings over the last 100 years (defined as at least two consecutive rate increases). The Dow, on average, has declined by 4.90% in the four-month period following the last tightening date and by 3.90% in the eight-month period following the last tightening date.

"We will nationalize (Bolivia's) natural resources," Morales said at a news conference Tuesday in La Paz.
"Many of these contracts signed by various governments are illegal and unconstitutional. It is not possible that our natural resources continue to be looted, exploited illegally, and as the lawyers say, these contracts are legally void and must be adjusted," Morales said. Bolivia's proven and potential reserves total 48.7 trillion cubic feet of natural gas, second only to Venezuela in South America, according to the U.S. Department of Energy's Energy Information Administration.

Rob Peebles reminds us that, according to the Investor's Business Daily, the alternative minimum tax (AMT)
will generate more revenue than the real income tax by 2008, and that, according to CNN/Money and BEA, property tax revenues have risen 34% in five years. It is well to remember the words of Chief Justice Marshall --
"the power to tax is the power to destroy." The words were spoken in 1819 and they are alive and well today.

I would like to say a few more words about Albertsons. I know what it takes to run a board meeting of a public company. I did it for many years. Albertsons has 12 members on its board. The insiders are the current CEO and the retired president of American Stores, a company now owned by Albertsons. In sum, there are 10 outside board members. These individuals are sophisticated and have been around the block. I believe they will negotiate the best possible deal for the shareholders and not be influenced by the day-to-day movements of the stock price. This morning the stock will be down, and most shareholders will have losses. I too will have a loss marked to the market. As always, I remain calm and rational and consider the various alternatives available to the company and the most likely scenario. That scenario remains to sell the whole company. If SuperValu believes a purchase will be accretive to their company, then maybe they can pay a touch more and still make it a good deal for their shareholders. I think they can. It's well to remember that equity holdings are not the same as holding your loved ones. There is no room for no emotions when deciding on whether to buy, sell, or hold.

Beyond The Headlines

12/21/05 Beyond The Headlines

From November 2004 to November 2005, prices for finished goods increased 4.4 percent.Over the same period, the finished energy goods index jumped 17.8 percent,prices for finished goods other than foods and energy advanced 1.7 percent,and the finished consumer foods index inched up 0.8 percent. For the 12months ended November 2005, prices received by manufacturers ofintermediate goods rose 8.4 percent, and the index for crude goods went up 21.0 percent.

Mike Burk: "Many of the momentum type indicators are at or near their lows for the year suggesting there is little downside potential remaining and a snap upward could occur any time soon. Seasonally the week following options and futures expiration turns positive on Wednesday."

Paul Kasriel: "Each of the past six recessions was preceded by an inversion in the spread between the Treasury 10-year yield and the fed funds rate. But there were two other instances of inversion - 1966:Q2 through 1967:1 and 1998:Q3 through 1998:Q4 - immediately after which no recession occurred. It would appear, then, that an inverted yield curve is more of a necessary condition for a recession to occur, but not a sufficient condition. That is, if the spread goes from +25 basis points and to -25 basis points, a recession is not automatically triggered. Rather, whether an inversion results in a recession would seem to depend on the magnitude of the inversion and, to a lesser extent, the duration of it."

Builders broke ground on 2.123 million homes at an annual pace, up 5.3 percent from a revised 2.017 million in October, the Commerce Department said today in Washington. Building permits, a sign of future construction, rose to 2.155 million from 2.103 million. Part of this strength may have been due to the rebuilding efforts after the hurricanes.

Kirk Kerkorian's Tracinda Corp. disclosed in an SEC filing that it sold 12 million GM shares over the past few sessions, bringing its stake in the Detroit giant down to 7.8% from 9.9%.

"Any time you hear the United States government talking about wiretap, it requires - a wiretap requires a court order," Bush said during an April 2004 town hall meeting on the Patriot Act in Buffalo, N.Y. "Nothing has changed, by the way. When we're talking about chasing down terrorists, we're talking about getting a court order before we do so." Does that sound like the same President during this week's press conference?

Calpine Corp. said Tuesday evening it has filed to restructure under Chapter 11 of the U.S. Bankruptcy Code.

Seagate and Maxtor today jointly announced they
have entered into a definitive agreement under which Seagate will acquire
Maxtor in an all stock transaction.  Under the terms of the agreement, which
has been unanimously approved by the boards of directors of both companies,
Maxtor shareholders will receive .37 shares of Seagate common stock for each
Maxtor share they own.  When the transaction is completed Seagate shareholders
will own approximately 84% and Maxtor shareholders will own approximately 16%
of the combined company. The value of the transaction is approximately
$1.9 billion.

Chevron Corp. said hurricanes in the Gulf of Mexico that shut oil wells
and the company's biggest refinery probably cut fourth-quarter profit
by more than $600 million.

I have a thing about government numbers. Here is an example of why I do.
Yesterday, China discovered a small statistical oversight. It appears that
China's economy is $285 billion larger than first thought. The statistical
difference is a mere 17%.

With only 8 trading days remaining in 2005, the S&P 500 is up about 4%.
It is the third consecutive year for gains in this index. According to
Barry Ritholtz "there were only two out of eleven occasions when the span of winning
or losing years exceeded three consecutive winners over the past five
decades. One of those two periods were during the late-1990s bubble
years (1995-1999 ); the other was from the beginning of the secular
bull market that began in 1982 (1982-1989); Even 1987, the year of the
crash was up 2.03%. Under the circumstances, that implies pretty good odds that 2006 is
less than likely to be an up year, just based uon historical averages.
Furthermore, on the seven (out of nine) occasions when the market has
had a 2 or 3-year winning streak, the median return in the following
year has been -11.36%."

In considering the recent sale of GM shares by Kerkorian, is it possible
he is simply taking a tax loss for 2005 rather than on his way to
eliminating a position? Since purchasing the shares, what new information
has surfaced to make him a seller? If selling begets selling over the next 31 days,
he could be in a position to tender for more shares at a much lower price
than $31. In fact, $25 might look appealing to many holders.

In the recent Iraqi election, Ayad Allawi, the former prime minister and
Bush's choice, received much fewer votes than even the most pessimistic
forecasts. If he were a horse, he'd still be running to the finish line.
Bush's stamp of approval is the kiss of death.

According to Forbes.com, the top investors at Marketocracy decided to invest
in Saks. With the stock continuing to languish in the $16-$17 range, all
savvy support is appreciated.

The Mortgage Bankers Association said its seasonally
adjusted index of mortgage application activity for the week
ended December 16 decreased 4.0 percent to 594.6 from the
previous week's 619.3. Volume was at its lowest since the week
ended January 7, when the index reached 587.8.

The Talmud: “Fish die when they are out of water, and people die without law and order.”

Under Funded

12/20/05 Under Funded

Standard & Poor's reported Monday that the under funded OPEB liability of the S&P
500 companies is significantly higher than that of under funded pensions.
According to Standard & Poor's data, at $292 billion, the S&P 500 under funded
OPEB balance is 95% higher than the under funding of pensions at $150 billion.
OPEB consists mostly of medical costs paid for the benefit of retired
workers. These benefits may be contractual or implied, and usually require
retiree contributions in the form of monthly premiums and direct co-payments
for services and products rendered.  Unlike pensions, which are regulated,
OPEB has no legal requirement to create a trust entity to fund the current or
future costs.  Additionally, specific tax treatments and credits, set up to
encourage pension funding, do not exist for OPEB funds.  Standard & Poor's
data shows that pensions, while under funded, have 88% of the their
obligations set aside in pension trusts, compared to only 22% for OPEB
obligations.
"The state of OPEB is extremely unsettling, as many companies have not
created trust accounts to fund their OPEB obligation," says Howard
Silverblatt, Equity Market Analyst at Standard & Poor's.  "Those that have
created trust accounts fund them to significantly lower levels than are
required under current pension funding rules."
It should be noted that Ford and General Motors account for 32% of the unfunded OPEB amount in the
S&P 500 compared to 13% of the pension under funding. Together, the two auto
giants are a combined $20 billion under funded in pensions, and $94 billion
under funded for OPEB.

RealtyTrac(TM)yesterday released its November 2005 Monthly U.S. Foreclosure Market
Report, which showed 71,606 properties nationwide entered some stage of
foreclosure in November, a 12 percent decrease from the previous month.  The
report shows a November national foreclosure rate of one foreclosure for every
1,615 U.S. households.

The Goldman Sachs & Co., Nielsen//NetRatings and Harris Interactive's Holiday eSpending Report
reveals today that online shoppers spent $18.6 billion, excluding travel,
during the first six weeks (October 29 -- December 9) of the 2005 holiday
season. This year's U.S. online spending resulted in a 16 percent increase
(+/- 3.1 percent margin of error) from the same time period in 2004, with 19
percent of consumers having indicated that they have yet to start their
holiday shopping. The eSpending Report is based on a weekly national survey of
approximately 1,000 online adult consumers, capturing consumer spending,
attitudes and motivations of more than 6,500 shoppers during the first six
weeks of the 2005 holiday season.

Attorney General Alberto Gonzales said Congress had essentially given
President Bush the authority for domestic surveillance after the Sept.
11 attacks."Our position is that the authorization to use military force which was
passed by the Congress shortly after Sept. 11 constitutes that
authority,'' Gonzales said.

Despite rising healthcare costs and
repeated calls for universal healthcare, nine in 10 healthcare leaders in the
United States say that a primarily taxpayer-funded healthcare system, as in
Canada and Britain, is not the best way to solve the nation's healthcare
problems, according to new survey findings released Monday by
PricewaterhouseCoopers.  Nonetheless, nearly all leaders surveyed (95 percent)
expect healthcare spending to rise, with more than half (51 percent) expecting
accelerated spending at much higher rates than in the past.

"Consumers are stepping aside and manufacturing and other business sectors
are stepping in," said Dr. Jim Paulsen, chief investment strategist of Wells
Capital Management during Wells Fargo's first-annual economic forecast
teleconference. "The U.S. business sector is looking very healthy, and this
will help alleviate the slight slowdown in consumer spending and housing.  I
believe we're in the early stages of what will be considered a 'manufacturing
renaissance period' in the next several years that's tied to steady trade
improvements.  We're also seeing renewed strength in the stock market, and
foreign economic growth is accelerating, which further positions the U.S.
economy for a more sustainable recovery."
According to Wells Fargo senior economist Dr. Scott Anderson, "a housing
price slowdown, in part triggered by the Federal Reserve's policy actions,
will become more pronounced as the year 2006 progresses, placing consumer
spending, credit-quality, and job creation at some risk.  The challenges are
mounting for U.S. consumers, restricting their ability to spend."  Anderson
also said that, "real earnings are being squeezed by the spike in inflation,
job growth will remain subdued and energy prices elevated, home equity
borrowing and wealth creation from the housing market will dry up."

Sentiment among U.S. homebuilders continued to deteriorate in December,
according to the monthly survey by the National Association of Home Builders.
The index fell to 57 in December from 61 in the previous month, the NAHB said
Monday. It's the lowest level since April 2003.

The 3 and 5-year U.S. Treasury bonds yield less than the 2-year and
the 10-year only yields 7 basis points more than the 2-year. Maybe some
believe the world is different now, but inverted yield curves are
meaningful to me.

Eye-catching

12/19/05 Eye-catching

Honda Motor Co. stated on Monday it plans to start mass-producing solar cells in 2007, eyeing growing demand for environmentally friendly energy sources.

Energy companies FPL Group Inc. and Constellation Energy confirmed Monday they have agreed to merge in an $11 billion deal that will create the nation's largest energy supplier. Under the terms of the transaction, each share of Constellation Energy held will be converted into 1.444 shares at the time of the merger, while each FPL Group share will be converted into one share of Constellation Energy at the time of the merger.

''This was a healthy weekend, but it wasn't something to knock your socks off,'' said Marshal Cohen, chief analyst at NPD Group Inc., a market research company based in Port Washington, N.Y. ''But stores aren't panicking because the season has more time to go. The trickiness of the season is that consumers are calling the shots on where they were going shopping.''

Light, sweet crude for January delivery rose 42 cents to $58.48 a barrel on the New York Mercantile Exchange by midday in Europe. The contract had fallen $1.93 to settle at $58.06 Friday, its lowest close since Nov. 30. It will expire Tuesday.

At 11.5 percent, German unemployment is still close to a post-World War II record of 12 percent reached in March. Meanwhile, Germany's PPI rose 5% in November due to higher energy prices.

The pump price of gasoline rose 8 cents in the past two weeks to a national average of $2.21 a gallon, analyst Trilby Lundberg said Sunday, citing her company's biweekly survey of about 7,000 filling stations nationwide.

John Hussman: "There have been 13 tightening cycles since 1950 where the Fed has raised rates at least twice. In the six month period following the last hike of the cycle, the S&P 500 has delivered annualized total returns averaging 2.47% over the following 6 months, 5.06% over the following year, and 8.55% over the following 18 months. All figures are on a monthly closing basis...If you look at periods where the price/peak earnings multiple was 16 or higher on the S&P 500, the final rate hike of a tightening cycle was actually associated with losses on an annualized total return basis, averaging -7.18% over the following 6 months, -9.94% over the following 12 months, and -5.87% over the following 18 months. Given the current multiple of 19 times peak earnings on the S&P 500, this would be the relevant set of comparisons even if the latest rate hike was the final one."

Microsoft Corporation has announced that it will stop supporting the Mac OS X version of its Internet Explorer (IE) Web browser from December 31.

Bolivia elected a new president-- Evo Morales, the Socialist candidate and a coca farmer.

Google has introduced a "mobile version" of its Gmail service, which allows mobile phone subscribers quick access to their e-mail.

I'm a slow learner. I could never figure why Wall Street paid such big year-end bonuses. Now I know. An analyst at Lehman Bros. originally figured that Albertsons would fetch $20 a share in an auction. Now, after a zillion of articles on the subject, this same analyst projects a more accurate evaluation is $26 a share. We have yet to hear from Albertsons.

Palatin Technologies,Inc. announced today that, as a result of safety concerns recently
raised in connection with the use of NeutroSpec(R) diagnostic imaging agent
kits for the preparation of Technetium (99m Tc) fanolesomab, identified during
routine pharmacovigilance, Palatin and Tyco Healthcare Mallinckrodt have
decided to voluntarily suspend the sales, marketing and distribution of
NeutroSpec and recall all existing customer inventories of this product.
Palatin and Mallinckrodt acted at the request of the U.S. Food and Drug
Administration (FDA).  NeutroSpec, the only diagnostic agent approved for
imaging equivocal appendicitis, was approved for marketing by the FDA on July
6, 2004. Since it was introduced to the marketplace in September 2004, NeutroSpec
net sales to customers, through September 30, 2005, totaled $9.8 million, of
which Palatin received royalty payments of $2.5 million and product transfer
sales of $2.5 million from its marketing partner, Tyco Healthcare
Mallinckrodt.  For the quarter ended September 30, 2005, NeutroSpec net sales
to customers totaled $3.7 million, of which Palatin received royalty payments
of $0.9 million and no product transfer sales.
The FDA also stated that they would convene an Advisory Panel early next
year to discuss the use of NeutroSpec with additional safeguards, and evidence
needed to continue use of the product for equivocal appendicitis, as well as
plans for other indications, most notably being osteomyelitis.
Palatin and Mallinckrodt are reviewing data and assessing approaches for
understanding the relationship between NeutroSpec use and the observed serious
adverse events. No final decisions concerning future activities involving
NeutroSpec have been made by Palatin or Mallinckrodt.

Just a reminder-- as a result of the judge's decision upholding Pfizer's
two Lipitor patents, the shares are up close to 3 points in early trading.
The stock is in the Dow.

The Seal Of Approval

12/18/05 The Seal Of Approval

The approximately $9 billion kosher market is growing at a rate of 15 percent a year. Meanwhile, total grocery store sales grew 4.4 percent during the first 11 months of the year over the same time last year, to $424.8 billion, according to the Food Marketing Institute. Marcia Mogelonsky, a senior research analyst with Mintel International Group, a Chicago-based consulting firm, recently completed a nationwide study in April. She found 55 percent of the people who buy kosher products believed the food was better for them — almost double the number in a similar study Mogelonsky conducted in 2003. "They trust the kosher symbol like they'd trust the Good Housekeeping seal," she said. Part of the trust, Mogelonsky said, is derived from how the animals are raised. According to Jewish law, they cannot be pumped with antibiotics, additives, hormones or fed animal byproducts. As such, vegetarians and younger customers looking for healthier food — the same demographic that has helped the organic market take off- are helping to fuel the demand for kosher products. Interestingly, Albertsons, has, over the last few years, dramatically expanded kosher aisles at hundreds of its supermarkets across the country. The company has also launched more than two dozen kosher destination stores that include everything from bakeries to delis.

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

Over the past several months, Weyerhaeuser has announced closing the Dryden Pulp and Paper mill in Ontario, Canada; the Prince Albert Pulp and Paper mill in Saskatchewan, Canada; 3 corrugated sheet plants in Little Rock, Memphis, and Shreveport; a specialty packaging plant in Valley View, Ohio; corrugated packaging plants in Bedford Heights, Ohio, Elmira Heights, NY, Little Rock, Ark, and Matthews, NC; and other facilities in Tenn, TX, CA, OKLA, and WA. "As a result of our ongoing strategic review, we anticipate future changes," according to the company's statement Friday. That's a busy company. Why all the hectic activity?

James Madison: "I believe there are more instances of the abridgement of the freedom of the people by gradual and silent encroachments of those in power than by violent and sudden usurpations." President Bush, are you listening?

Do you think the Federal Reserve would agree with this statement by James Garfield that
"Whoever controls the volume of money in any country is absolute master of all industry and commerce."

Last year at this time almost every financial wizard thought the dollar was dead and buried for good. As January came into view, some of the skeptics, like me, had second thoughts. We had had a very nice ride for the past 18 months. It was time for a reality check. Markets don't go up or down in a straight line. Long-term, the dynamics don't favor the dollar. The same can be said for manufacturing in our country; however, could manufacturing be the dollar in 2006? All the financial wizards think manufacturing is dead and buried for good. Hundreds of plants have been closed. When everyone says black, the answer frequently is white. We saw that this week in Pfizer. Could 2006 be a better year for GM and its bonds?

Crucial Developments

12/17/05 Crucial Developments

Pfizer's Lipitor is the largest selling drug in the U.S. Last year sales amounted to an amazing $10.9 billion in the U.S. and in more than 70 countries. Pfizer's two patents on Lipitor expire in 2010 and 2011. India's Ranbaxy sued to make its own version of Lipitor, and claimed Pfizer's patents did not cover the generic version Ranbaxy wanted to make and market. Delaware District Judge Joseph J. Farnan Jr. upheld Pfizer's patents. The ruling came out after the close of trading on the NYSE yesterday. This ruling should not have come as a surprise. Ranbaxy will appeal; however, I believe the appeal will be unsuccessful. In late trading, Pfizer rallied to $25+ or almost $5 higher than the low reached only a few days ago. The investors who have written off Pfizer must feel like real schmucks, and they should.

President Bush has personally authorized a secretive eavesdropping program in the United States more than three dozen times since October 2001, a senior intelligence official said Friday night. Maybe Bush believes the U.S. Constitution is meaningless. Meanwhile, our fighting men and women should fight for the Iraqi Constitution and lose their lives as well as get wounded and maimed. It's never to late to make a change.

Time Warner will sell a 5% stake in AOL to Google.

Doug Noland: "The third quarter's 9.1% rate of non-financial debt growth and the 14% pace of household mortgage Credit expansion garner virtually no attention from the economic or analytical community. And $200 billion quarterly Current Account Deficits are now promulgated as proof of our robust economy outpacing our feeble trading partners. The well-oiled and inspirited propaganda machine functions superbly from Wall Street to Washington D.C...It is becoming increasingly incontrovertible that the Greenspan/Bernanke "post-Bubble" view and policy prescriptions have been disastrously misguided. They have instead been actively reinforcing ongoing Credit Bubble inflationary forces. And the sad irony is that they have assured just the type of major monetary system breakdown Professor Bernanke has spent his career convincing himself and others that an aggressive Fed could avoid."

Employees at Supervalu's Cub Foods and at Albertson's Jewel supermarkets in the Chicago region are represented by the same two locals of the United Food and Commercial Workers International Union.

Yu Yongding: "We're still facing the possibility of a big devaluation of the US dollar, so the capital losses will be huge. If that happens, it will be a tremendous hit to the Chinese economy."
China will reduce their holdings in U.S. Treasury bonds and other dollar-denominated assets. October's reduction was not an isolated incident.

January crude oil fell $1.33 to $58.06. January Unleaded Gasoline declined 3.2%, and January Natural Gas ended the week down 4.6%.

Wal-Mart's growth will continue in 2006 with plans to open as many as 600 new stores and clubs, including up to 230 new international stores and 370 U.S. units.

The Disappointing And The Good

12/16/05 The Disappointing And The Good

According to the WSJ, an investment group consisting of Cerberus Gruop, Kimco Realty Corp. and Supervalu Inc. are set to win the auction of Albertson's Inc. for about $9.6 billion, or $26 a share, citing anonymous sources. An announcement could come sometime after the board meets this week, the newspaper added. The company is still working out details with CVS Corp., which is in the lead to purchase the company's drug chain for up to $4 billion of the overall purchase price, the report added. If this is the final deal, it is a far cry from the $31 I had figured shareholders would receive. I know that would work out to an annualized return of 35% counting the dividend received, and for that I am thankful, but it would still be disappointing.

GMAC, with assets of about $310 billion, has earned more than GM's auto unit since 2002 and forecasts profit of more than $2.5 billion this year. GM's CEO stated there is ample interest in the purchase of 51% of GMAC. As such, one might consider making a speculative buy of the GMAC bonds. They have recently been downgraded by various credit agencies.

The Philly Fed Index in December rose to 12.6 from 11.5 in November, and that was disappointing. New orders and shipments were lower in December than the prior month. However, prices paid dropped to 49.0 from 56.8; however, prices received also declined to 30.5 from 32.5.

On the other hand, the December Empire State Index rose nicely to 28.7 from 22.8 in November. However, shipments and unfilled orders and employment were lower than in November.

The CPI in November dropped 0.6%, the biggest decline since 1949, due to energy prices plunging 8% (they recovered in December). Excluding food and energy, the CPI rose 0.2% in November. Over this year, the CPI has risen 3.5%. At the same time, production has gained 2.8%.

Importantly, capital flows into the U.S. in October amounted to $106.8 billion. However, we had better look under the hood, so to speak. Chinese holdings of U.S. Treasury bonds declined in October by $4.4 billion and foreign central banks only purchased $13 billion in U.S. Treasury bonds. In other words, private investors were responsible for $97.3 billion in capital inflows. It would be interesting to know the identity of these investors.

For the very first time, Toyota is making the Prius outside Japan. It's not in the U.S., but rather in Jilin Province in China through a joint venture with that country's number one automaker.

Adobe will cut 650 to 700 jobs that were overlapping after their rcent acquisition of Macromedia.

My thanks to Rob Kirby for making the following observation. He pointed out that the Fed will discontinue the publication of M3 monetary aggregate on March 23, 2006, and that coincidentally, on March 20, 2006, Iran is scheduled to begin trading oil for Petroeuros on the Iranian Oil Bourse. Ron asks what happens if Asian countries, such as, Japan and China, no longer require U.S. dollars to purchase oil. Might hey begin to liquidate their U.S. Treausry bond holdings? China liquidated $4.4 billion in October.

Paul L. Kasriel: " When economic growth downshifts in 2006 and so does corporate profit growth, corporate bondholders may start to feel a little exposed. With less cash being generated by corporations with which to buy back shares, even stockholders may begin to feel a bit exposed."

Abu Musab al-Zarqawi, America's most wanted man in Iraq, was arrested last year but released because his captors did not know who he was, an Iraqi government minister has claimed. Are we to believe this? Zarqawi must have had a get-out-of-jail Monopoly card.

Wal-Mart is purchasing Sonae's 140 Brazilian "hypermarkets" for $764 million. This means Wal-Mart willoperate more than 250 stores in 17 of Brazil's 26 states.

Developments

12/15/05 Developments

Amgen signed a definitive agreement to buy Abgenix for $2.2 billion or $22.50 a share. The deal gives Amgen full ownership of panitumumab, which the companies have co-developed. Panitumumab is a new class of drugs that is being developed for metastatic colorectal and other cancers and is seen as having blockbuster potential.

Pier I expects negative mid-single digit comp sales for December and won't provide guidance for the quarter.

Lennar, the homebuilder, expects to meet its 2006 goal of $9.25 per share due to a record $6.9 billion backlog.

Kazakhstan opened the pipeline to China. The 625-mile pipeline is designed to carry 140 million barrels of oil a year and opens a huge market for the Central Asian nation. Kazakhstan is aiming to more than double its production from 1.3 million barrels to 3 million barrels a day by 2015, the Oil Ministry says.

The yen staged its biggest two-day rally since March 2002.

Bush: "We are in Iraq today because our goal has always been more than the removal of a brutal dictator; it is to leave a free and democratic Iraq in its place...We need to remember that these elections are also a vital part of a broader strategy for protecting the American people against the threat of terrorism." Do you think this is why we invaded Iraq in March 2003? Bush maintains he did the right thing and would repeat his decision. Tell that to our 2,150 fighting men and women who have perished and the 20,000+ who have been wounded and injured. Tell that to their families and loved ones. How do you feel about voting for Bush's re-election?

NPD Group Inc., reported that game sales at U.S. retailers declined 18% to about $700 million in November from approximately $850 million during November of the prior year.

Merrill Lynch analysts see room for margin expansion at Saks and the catalysts to make it happen, and noted that improved merchandising and marketing initiatives combined with new planning systems "could act as a catalyst over the next few years."

Robert Toll, CEO of Toll Brothers: "We're nowhere near the sales that we did in '04-'05 on a same-store, per-community basis." The company already has cut its sales projection for next year. Its average home sells for $680,000, he said.

The U.S. trade deficit soared to a record $68.9 billion in October and could reach $800 billion this fiscal year. The October trade deficit with China was
a record $20.5 billion.

Dianne Swonk, Mesirow Financial's chief economist, stated she believes the nation's economic expansion, which started in late 2001, has at least four more years ahead of it. She said that while consumer spending will grow at slower rates, business spending will pick up to replenish tight inventories.

Marsoft: "After rising sharply during the first half of October, the dry bulk rally has sputtered over the past month or so. The Baltic Dry Index, having increased from a low of 1750 in August to a mid-October peak of 3370, fell back below 2800 during the latter half of November. This left the BDI down by more than 50% compared to its level of a year ago.
Much of the weakness seen during the past month has been centered on the Panamax and Cape sectors, where rates fell by an average of 20%. On our benchmark USG/Japan grain route, rates fell from $47 per tonne, or $26,000 per day, to $43 per tonne, or $22,000 per day. Other routes saw similar declines, with earnings for most Panamaxes falling from about $20,000 per day in mid-October to about $16,000 per day by mid-November."

The Bank Credit Analyst sees zero growth for the S&P 500 operating earnings in 2006. By comparison, the overall analyst consensus is for roughly 12% growth.

UnitedHealth Group Inc. , the largest U.S. health insurer by market capitalization, reported today that more than 2 million Medicare beneficiaries have enrolled in new programs offering prescription drug coverage.

Economists are predicting a drop in the Consumer Price Index for November, which is being released this morning by the Labor Department.

Mortgage rates retreated on hopes that consistent interest rate increases are winding down. The average 30-year fixed rate mortgage dropped from 6.39 percent to 6.34 percent, according to Bankrate.com's weekly national survey of large lenders.

Patterns

12/14/05 Patterns

A recent Maritz(R) Poll showed that the
vast majority of those traveling over the winter holidays will choose to
drive, rather than fly. While nearly one in five Americans (19 percent) plan
to travel sometime in December or early January, six out of 10 (58 percent) of
these holiday travelers will drive and one-third (35 percent) will choose to
fly the friendly skies. The remainder will travel by train, bus or some other
means.
When considered against the total number of poll respondents, the numbers
traveling by car versus plane are consistent with similar Maritz Polls taken
over the past two years:

2005 2004 2003
Your own car 11 percent 9 percent 10 percent
Airplane 7 percent 8 percent 6 percent

According to a recent Maritz(R) Poll found that almost nine in 10 (88 percent) holiday shoppers describe themselves as "generous" gift givers. The telephone survey of more than 2,000 adults also revealed that the respondents were honest in their assessment of their generosity levels. The data prove that generous gift givers will spend an average of
$367 more on gifts this holiday season than non-generous gift givers. Those
who described themselves as "somewhat" or "extremely" generous gift givers
plan to spend an average of $843 on holiday gifts this year, which is significantly higher than the $476 that those who consider themselves to be "not particularly generous" plan to spend. Generous gift givers are significantly more likely to take two months or
more to pay off their holiday debts (25 percent) than those who consider
themselves to be not particularly generous (15 percent).

Lehman Brothers investment banking revenues were a record for the quarter, increasing 34% to $817 million from $608 million in the fourth quarter of fiscal 2004. These
results were driven by record merger and acquisition advisory revenue, which
increased 54% from the prior year's period, and solid performances in equity and debt origination, which increased 48% and 15%, respectively, from the prior year's period.

Stephen Roach: “Barring the development of a new technology or the emergence of a new industry, capex (capital expenditure) cycles in high-cost developed economies will be increasingly dominated by the replacement of old capacity than by the expansion of new capacity.”

At least 2,149 of U.S. service members have died since we invaded Iraq in March 2003, according to an Associated Press count.

Factory and service sector supply managers are optimistic about the economy in 2006, according to a semiannual forecast released Tuesday by the Institute for Supply Management. Growth is expected to be strong in the first half of the year, before slowing in the second half. Major economic concerns are inflation-related.

Rather than focus on the Fed dropping the word "accomodation" from their press release, let's
keep a watchful eye on the amount of money they print and how quickly it is printed. That way you
will get a feel as to how fast the value of your dollars is being depreciated.

January natural gas climbed to a high of $15.78 per million British thermal units Tuesday to mark the highest price ever recorded on the New York Mercantile Exchange.

Founded in 1860, Shaw's Supermarkets operates 206 stores in New England (Maine, Massachusetts, New Hampshire, Vermont, Rhode Island and Connecticut) and employs over 30,000 associates. Albertsons purchased Shaw's in 2004. This operation is hardly ever mentioned in an analysis of Albertsons and rarely included in print in the potential value shareholders may receive in a takeover. This is a mistake. Shaw's was a good acquisition and that will be reflected in a final deal for Albertsons.

Oil powerhouse Saudi Arabia said it will post a record budget surplus of 57 billion dollars in 2005 on the back of surging crude prices, and forecast its biggest-ever spending plans for next year.

Meanwhile, some Arco stations are selling unleaded gas in Oregon and Washington for
$1.99 a gallon.

The Season

12/13/05 The Season

About three of every eight adult Americans (37 percent) are concerned about their ability to pay for heating their homes this winter, according to a nationwide survey released yesterday by the National Oilheat Research Alliance (NORA). And about half of Americans(51 percent) say they are concerned that higher energy costs will impact their
budget for holiday shopping this year.

More than two-thirds of U.S. shoppers are expected to buy nearly five cards(gift) on average this year, according to a survey of about 17,500 consumers by accounting firm Deloitte & Touche. In the Deloitte study, just 48 percent of respondents had redeemed all of the cards they received last year.

Paul Kasriel: “Here's the good news. In the third quarter, the market value of households' assets increased by 2.7%. Here's the bad news, the value of households' liabilities increased by 3.0%. So, the leverage of households moved up to 18.24% in the third quarter from 18.19% in the second quarter. The third quarter household leverage ratio is the highest since the record high of 18.32% set in the first quarter of 2003.”

Pfizer repatriated approximately $37 billion in foreign earnings this year(the current market cap is down to $150 billion), which it will use to reduce debt, enhance its balance sheet and invest in business opportunities. In addition, the company has purchased nearly $4 billion in common stock in 2005, and it will continue to buy back its stock in 2006. As Pfizer previously announced, it will provide a comprehensive review of its strategy, operating performance, new product pipeline and financial outlook at its analyst meeting on February 10, 2006. With the increase in the quarterly dividend to 26.3 cents, the stock now yields 5%. If I were running the company, I would repurchase at least $25 billion of the shares at the $20+ level. If this is not an uncommon value, then the world is upside down. Jeff Immelt of GE ran the latter’s medical division before becoming CEO. Pfizer would make a great acquisition for GE.

Whirlpool Corp. stated Monday that once its new refrigerator plant in Ramos Arizpe, Mexico, is operational, 730 employees at its Fort Smith, Ark., plant will be laid off. The layoffs are currently planned for October of 2006.

Yesterday, crude closed at $61.30 per barrel, natural gas rose to $14.84 per million BTUs, and heating oil jumped to $1.77 a gallon.

The November federal deficit surged to $83.1 billion from $57.9 billion a year earlier. The deficit for October and November rose to $130.2 billion versus $115.2 in the like months in 2004. Naturally, Bush continues to maintain the deficit will be cut dramatically in future years. And the Iraq war is also going well. And there is a tie between Iraq and 9/11. Have you had enough of the BS? Here’s yesterday’s sample from Bush: “We're taking the fight to those who attacked us and to those who share their murderous vision
for future attacks.”

Yu Yongding, a Chinese government economist and chief consultant to the central bank, told Market News International that China must reduce accumulating dollar-based assets, and also cut its existing holdings. I strongly suggest bulls on the dollar as well as bulls on our nation’s ability to fund growing twin tower deficits chew carefully on Yongding’s words.

ConocoPhillips will acquire Burlington in a $35.6 billion deal. Under the transaction, subject to approval by Burlington Resources shareholders, Burlington shareholders will receive $46.50 in cash and 0.7214 shares of ConocoPhillips common stock for each Burlington Resources share. This deal represents a transaction value of $92 a share, based on the Dec. 9 closing price of ConocoPhillips stock.

For those who pay very tiny commissions, a little-appreciated route to making money with tiny risk is the following example. Yesterday, one could sell a January(2006) 70 Burlington Resources put for 35 cents. That may seem unexciting to most, but not to me. With the stock at $82+, it gave the buyer of the put the right to sell the stock to me at $70 less the 35 cents in 5 weeks. If the takeover goes forward, the put should expire worthless. That places about 35 cents per share in my pocket or a little ham sandwich. You might be surprised to discover other such examples during 2006. Making money with little risk is exciting. Making money with high risk is for schmucks.

New research on pricing practices of over 4,200 hospitals across the U.S. documents that huge markups in charges to patients are continuing, even after federal changes in Medicare reimbursement policies that were supposed to help contain skyrocketing costs.
The research is contained in the third annual report on charges by the
Institute for Health and Socio-Economic Policy (IHSP), the research arm of the
California Nurses Association. For the third consecutive year, the report
documents a strong correlation between huge hospital markups on their sticker
prices over their costs, high profits and the growth of large corporate
hospital chains.
The new report shows that the nation's 100 most expensive hospitals set
their gross charges at an average of 680% (up from 673% in 2002-2003) of their
costs -- meaning the average top 100 hospitals would bill $680 for a patient's
case where the actual costs were $100, or a 680% charge to cost ratio. The
national average for all 4,184 hospitals surveyed was 244% of costs, an
increase from 232% the prior year.

According to the seasonally adjusted results of the latest Manpower Employment Outlook Survey, conducted quarterly by Manpower Inc,"U.S. businesses are not aggressively seeking to increase staff levels as they enter the new year. Instead, they are looking back over the past several quarters and are concluding that hiring is still on target with their operational needs," said Jeffrey A. Joerres, Chairman & CEO of Manpower Inc. Of the 16,000 U.S. employers surveyed, 23% anticipate an increase in
hiring activity for the first quarter of 2006, while 10 percent expect to
decrease staff levels. Sixty-one percent of employers surveyed foresee no
change in hiring plans, while 6% are unsure of their staffing needs. The
seasonally adjusted Net Employment Outlook for the first three months of the
year is 20%, identical to the fourth quarter of 2005 and nearly the same as a
year ago. Employers in six out of 10 industry sectors surveyed foresee minimal
changes in hiring activity as they move from the fourth quarter into the new
year, including Durable and Non-Durable Goods Manufacturing, Wholesale/Retail
Trade, Finance/Insurance/Real Estate, Education and Public Administration.

Shoppers plan to spend $339 on gift cards, or 33% of their total holiday budget this year, according to American Express.

Thomas H. Lee Partners, the Carlyle Group and Bain Capital announced they had agreed to buy Dunkin' Donuts, Baskin-Robbins, and Togo’s for $2.43 billion.

Marc Faber: “I feel that asset prices will tend to depreciate against the only currencies for which the supply is limited - gold, silver, and platinum…Simply put, since 2000, gold has risen at a much faster clip than the Dow Jones and I would expect this out-performance to continue for the next few years until "gold currency" holders will be able to buy one Dow Jones with just one ounce of gold.”

Headlines

12/12/05 Headlines

General Glut: “With a savings rate of 0% in 2005:III, real GDP for the third quarter would have been $11,087.2bn. It doesn't take a math genius to see that real GDP for 2005:III with a 0% savings rate would have been lower than in 2005:II -- and have generated a 0.0% real growth rate.
In short, without negative savings and all other things being equal, the US economy would be at a standstill. Now that would have been one hell of a headline.”

Just a reminder--- with the workweek holding less hours for the folks on Main Street, that would have equated to a loss of more than 300,000 jobs in November. In other words, there was a net loss of jobs in November and not a gain of 200,000+. That would have been one hell of a headline.

Winston Churchill: "Men stumble over the truth from time to time, but most pick themselves up and hurry off as if nothing happened."

As we turn the calendar into 2006, the Congress will be asked to raise the U.S. debt ceiling. As I have stated on previous occasions, I am firmly against such approval. I prefer to shut down the government until mandatory spending cuts become a fixture in the budget process. In other words, it’s either pay as we go or it doesn’t get spent. Why should those on Main Street work their butts off so the Administration and the Congress can make a mockery of all the hard work? Congressional staffs are too large, government is too large, and they are cancerous growths impacting the financial well-being of this nation. Until rational spending comes into being, close Washington down. That would be one hell of a headline. The hand-outs are bad for our nation’s heart and soul.

Maxwell Anderson: “"When a government takes over a people's economic life it becomes absolute, and when it has become absolute, it destroys the arts, the minds, the liberties and the meaning of the people it governs."

The WSJ reported that ConocoPhillips may buy Burlington Resources for $30 billion.
At $30 billion, Burlington's 2.16 billion barrels of oil and gas reserves would cost $13.88 each. That compares with $10.15 a barrel that Chevron Corp. paid for Unocal Corp. and $10.66 that China National Petroleum Corp. spent for PetroKazakhstan Inc. Norsk Hydro ASA of Norway agreed to pay $18.99 for each barrel of Spinnaker Exploration Co.'s reserves. A big attraction in Burlington is its natural gas reserves are essentially onshore.

Husky Energy Inc. advised today that the Alberta Energy & Utilities Board (EUB) has approved the commercial application for its Sunrise Oil Sands Project, located approximately 60 kilometers northeast of Fort McMurray, Alberta. It is estimated that the
Sunrise lease contains original bitumen in place of 10.6 billion barrels, and
that approximately 3.2 billion barrels of oil resources will be recoverable over the project life of approximately 40 years. Husky, which holds a 100 percent interest in the Sunrise lease, intends to develop the 200,000 barrel per day project in phases. The EUB approval
relates to Husky's bitumen extraction plans, and Husky is completing its alternatives for upstream development, upgrading, transportation and marketing of the produced bitumen.

John Hussman: “If we split year two of the Presidential Cycle into two periods – the first nine months of the year compared with the final quarter - the patterns become apparent. The average market performance during the period from January through September of each second year of the Presidential Cycle has been roughly flat since 1933. The market has been down during these periods nearly as much as it's been up.
Things have usually been more interesting in the fourth quarter, where the average gain has been 8.7 percent. This is the highest average fourth-quarter return of any of the four years of the cycle, including the last quarter of year three and year four. The fourth quarter of the second year is actually where many third-year rallies are born…The 12-month period beginning in October of the second year of the presidential term has enjoyed average total returns of more than 28 percent, on average. And since 1933, not a single third year 12-month period beginning in October has registered a loss (the worst return was a gain of 6.6 percent).”

As we move into the New Year, there are 15 trading days remaining in December. We will encounter option expiration, tax selling, a Fed rate increase, and seasonal joy that frequently breeds a holiday rally. It’s never too late to position your portfolio for the coming year. Often this year’s dogs turn into next year’s bright spots. Will Pfizer be such an example? Do not make portfolio decisions based solely on tax considerations. That you will regret. One thing is for certain. Tomorrow’s headlines will include some large acquisitions. Most often, it is cheaper to buy than to build from scratch. Yet, the majority of acquisitions are not successful. Maybe that reflects management’s ineptness. Bigger does not mean better. Most managers can’t manage small --- much less large.

This morning, gold is surging again. February futures topped $544 an ounce. For traders, it might be an opportune time to reduce positions. However, the long-term outlook remains quite positive, in my opinion. The same can be said for many commodities.

Aristotle: "A democracy is a government in the hands of men of low birth, no property, and vulgar employments."

You Can Smell The Stench

12/11/05 You Can Smell The Stench

Bush: “The valuable protections of the Patriot Act will expire at the end of this
month if Congress fails to act, but the terrorist threats will not expire on
that schedule. In the war on terror, we cannot afford to be without this
vital law for a single moment.” Has the Patriot Act helped to capture Osama
bin Laden? Our country spends billions each year on defense. With those billions
how is it that bin Laden has not been caught? You can smell the stench. It emanates from 1600 Pennsylvania Avenue.

Yesterday, U.S. casualties came in three separate attacks across Baghdad, the military announced. Two soldiers were killed by small-arms fire in the southern district of Yusufiyah. A third soldier was shot dead in Baghdad and the other died in the northern district of Adhamiya when his patrol was hit by a roadside bomb.
In addition, on Saturday, officials announced that one American soldier had been killed and 11 wounded on Friday when they were attacked by a suicide car bomber near the town of Abu Ghraib just west of Baghdad. That brought to at least 2,140 the number of U.S. military personnel who have died since we invaded Iraq in March 2003, according to an Associated Press count. And for what?

Howard Gruenspecht, the deputy administration of the Energy Information Administration, stated that, eliminating the use of additive MTBE in 2006, may require some refiners to produce more gasoline, putting added pressure on refiners and thereby creating upward pressure on prices at the pump.

I have been asked several times how I arrived at my takeover value for Albertsons.
Rather than provide my entire analysis, I outlined two points: the pharmacy operations of Savon and Osco should approach about $4 billion in value. Secondly, looking over the locations of the 2500 Albertsons stores and the 2500 Kroger stores, there is minimal overlap.

If I am not for myself,
who will be for me?
If I am not for others,
what am I?
And if not now, when?

Rabbi Hillel

Employer Costs For Employee Compensation

12/10/05 Employer Costs For Employee Compensation

Employer costs for employee compensation averaged $26.05 per hour worked in
September 2005,the U.S. Department of Labor’s Bureau of Labor Statistics
reported. Wages and salaries averaged $18.28 and accounted for 70.2 percent,
while benefits averaged $7.77 and accounted for the remaining 29.8 percent.
In September 2005, private industry employer compensation costs averaged
$24.34 per hour worked.
In September 2005, employer costs in State and local governments averaged
$36.16 per hour worked.
Among State and local government employees, average hourly compensation
costs were
higher for management, professional, and related occupations ($44.11) than for
service occupations ($28.07) and sales and office occupations ($24.74).  Wages and
salaries averaged $31.37 per hour worked for management, professional,
and related occupations and $17.25 for service occupations, and $15.49 for sales and
office workers.

Henry Giles: "If the poor man cannot always get meat, the rich man cannot
always digest it."

Before you join the bash Wal-Mart crowd, consider these facts: the company added
100,000 jobs this year, provided almost $200 million to various charitable causes,
and will save the average American family $2,300 per household. This overshadows
any good you believe you receive from your vote at your local polling place.

The Talmud: "The burden is equal to the horse's strength."

Former President Clinton told a global audience of diplomats,
environmentalists and others Friday that the Bush administration is
''flat wrong'' in claiming that reducing greenhouse-gas emissions to
fight global warming would damage the U.S. economy.

Doug Noland: "I believe a strong case can be made that we are in the midst of a
marketplace liquidity dislocation.  Perhaps market yields are today no more
discounting prospective fundamentals than technology stocks and telecom bonds were
back in 1999/early 2000.  While unsustainable, these types of liquidity dislocations
are nonetheless powerfully self-reinforcing – and just what we would expect from
history’s greatest Credit Bubble."

Canola seeds seem to be the best source of oil for biodiesel. The problem is twofold.
Currently, it sells for only 8 cents a pound with breakeven 33% higher. Secondly,
after the oil is squeezed out, 40% of the remaining canola seed is in mash, which is
frequently fed to livestock as a source of protein. This is similar to the leftover
sugar beet pulp(mixed with molasses) after processing the sugar beets to make sugar.
Canola growers maintain it will be necessary to find new and higher-value uses for
the mash. They might begin by sun-drying the mash as I did with the sugarbeet pulp.

William Barclay: "We will often find compensation if we think more of what life has
given us and less about what life has taken away."