My Take On Things

5/6/06 My Take On Things

First, we'll get the April employment report out of the way.
Nonfarm payroll employment increased by 138,000 in April, and the unemployment rate was unchanged at 4.7 percent. Over the year, nonfarm employment has risen by about 2 million. Average hourly earnings were up by 9 cents over the month, and over the past 12 months, have risen 3.8%, the fastest pace in 5 years but still trailing what I believe is the real inflation rate of 7%. In the service-providing sector, the health care industry remained a steady source of job growth in April,as employment rose by 23,000. Job gains were spread among nursing and residential care facilities, hospitals, and doctors' offices. Employment in finance and insurance continued to expand over the month. The credit intermediation industry added 9,000 jobs, and the insurance industry grew by 10,000 jobs. Since last September, employment growth in the insurance industry has strengthened; 55,000 jobs were added over this period. Employment in professional and business services and in food services and drinking establishments continued to trend up. Retail trade employment was down over the month. Employment in general merchandise stores declined by 34,000, following a large increase in March. Overall, the number of retail jobs has changed little, on net, since the middle of last year. In the goods-producing sector, manufacturing employment increased by 19,000 over the month, with gains occurring in several durable goods industries. Motor vehicles employment was up by 12,000 over the month. Despite the gain, motor vehicles employment in April was about the same as in January of this year. Over the month, there also were job gains in computer and electronic products and in fabricatedmetals. Manufacturing hours were unchanged in April, and factory overtime edged down.

The dollar slumped to one-year lows versus the euro, pound and Swiss franc and a seven-month low against the yen Friday. The U.S. dollar index traded below the 85 level, the lowest in one year. If things are so rosy in the U.S. and the economy so strong, then why is the dollar getting creamed? Why are foreign countries running from dollar assets? We will return to this in a few paragraphs.

June gold climbed $7.80 to close at $684.30 an ounce in New York. It finished Friday at the highest futures price in almost 26 years and tallied a gain of $29.80, or 4.6%, from the week-ago close of $654.50.

Results of the latest AP/IPSOS poll:
Just 33 percent of the public approves of Bush’s job performance, the lowest of his presidency. That compares with 36 percent approval in early April. Forty-five percent of self-described conservatives now disapprove of the president.
Just one-fourth of the public approves of the job Congress is doing, a new low in AP-Ipsos polling and down 5 percentage points since last month. A whopping 65 percent of conservatives disapprove of Congress.
A majority of Americans say they want Democrats rather than Republicans to control Congress (51 percent to 34 percent). That’s the largest gap recorded by AP-Ipsos since Bush took office. Even 31 percent of conservatives want Republicans out of power.
The souring of the nation’s mood has accelerated in the past three months, with the percentage of people describing the nation on the wrong track rising 12 points to a new high of 73 percent. Six of 10 conservatives say America is headed in the wrong direction.

This should come as no surprise. Sam Bodman, the US energy secretary, said on Thursday that the administration was considering supporting an end to the tariff, for example from Brazil, which adds $0.54 per gallon to the cost of refined petrol containing foreign ethanol.
Tight domestic supplies of ethanol have contributed to the rising price of petrol in the US because of bans on the use of MTBE, an alternative fuel additive that is being phased out because of environmental concerns over groundwater contamination.

Let me return to the employment report. The average number of hours worked in a week increased from 33.8 hours to 33.9 hours. That increase translates to an additional 130,000 jobs added. As such, the employment report was quite strong and suggests that second quarter GDP will be at least 4%. It would be a significant mistake in error for the Fed to pause any time soon. Rates need to go higher to cool the economy and the inflation flames. In addition, it is imperative that the dollar be provided some underpinnings, and they are lacking now. We need funds to feed our daily deficits, and that need will soon approach $3 billion a day. A stronger dollar is required to attract foreign capital. Due to our deficits, there is a risk premium the investors want. I believe the sooner we get to 6% Fed funds the greater the opportunity to put our economy on a more stable basis. People cried we could not handle $3 gas. That has pinched the wallets of those on Main Street. It should be noted that 6% Fed rates are still relatively modest by all historical standards. It is time to clamp down on the excessive liquidity within our economic pipeline.

Americans are driving less, trimming vacations and cutting back on heating and air conditioning, according to an AP-Ipsos poll taken as gasoline prices in many areas have topped $3 a gallon.
Seven in 10 say gas prices are causing a financial pinch. And that pressure is being felt increasingly by middle-income and higher-income families.

Al Gore visited Kazakhstan in 1993. Until yesterday, no other high ranking member of the Administration had been there. Cheney was there to meet with Kazakhstan's President Nazarbayev, who stated
" theUnited States is the largest foreign investor in Kazakhstan that invested 12 billion U.S. dollars to our economy so far, and our tradevolume has reached 2 billion U.S. dollars, and 374 ventures and enterprises of the United States work in Kazakhstan currently." The attraction for the U.S. is oil.

The shop chairman at a Delphi Corp. brake plant in Dayton, Ohio, was fired Friday evening and the union local's president was escorted from the plant in a police cruiser, leaving 1,500 hourly workers to talk about a wildcat strike.

Doug Noland: "But I would venture a prediction this evening that the more significant dynamic will be the degradation of at least some of the inflated asset-market-based ("Wall Street Finance") dollar-denominated "money" into much less precious non-money. That's the nature of bursting monetary Bubbles. And the longer the Wall Street "printing press" is left to its own devices To Inflate Scores of Bubbles at Home and Abroad, the more emasculated Dr. Bernanke's printing efforts will play down the road."

The Dollar

5/5/06 The Dollar

There was much excitement when crude declined below $70 and gasoline dropped 5%. I saw the same type of excitement at the $60 level. Nothing goes up in a straight line, and nothing goes down in a straight line. Although oil and gasoline are terribly important for each American, I think it would be wise to focus more on the dollar. The dollar index is flirting with the 85 level, and that is down from 91 at the beginning of the year. In other words, in dollar terms, the value of equities has declined 6.6% for foreign investors since the beginning of the year. Thus, rises in the Dow and the S&P 500 in 2006 have produced no gains for a foreigner. In addition, there is absolutely no reason for the dollar to have a sustained rally. That occurred in 2005 while the Fed was busy raising rates, and now they are looking to pause. Meanwhile, the 10-year and the 30-year treasury bonds have their highest rates in four years, and, in my view, they are low in relation to our trade deficit, current account deficit, and budget deficit. They are low when viewing rising costs for Medicare and Medicaid and Social Security. Our country is in trouble. The Fed cannot reflate its way out of deficits and the government will not cut expenditures. The cost for Iraq and Afghanistan accumulate daily. The talking heads on TV discuss earnings above expectations. How much is due to inflation and price increases. How much is due to cutting long time employees from the payroll and replacing them with inexperienced workers? If earnings are so great, then why do so many companies underperform on the revenue side?

Palatin Technologies, Inc. and King Pharmaceuticals, Inc. announced today that the companies have completed enrollment in two Phase IIb clinical trials of bremelanotide in patients with erectile dysfunction (ED). Bremelanotide is a melanocortin agonist that Palatin and King are jointly developing for the treatment of both male and female sexual dysfunction. The primary objective of these two dose-ranging clinical trials is to identify safe and efficacious doses for evaluation in Phase III pivotal trials slated to begin in the first quarter of 2007.
Dr. Trevor Hallam, Executive Vice President, Research and Development of Palatin, stated, "Together with our colleagues at King, we are very pleased to achieve this significant milestone for these two critically important clinical trials. The data from these two studies should allow the companies to develop a robust Phase III pivotal trial program for consideration by the U.S. Food and Drug Administration."

Michael Dell: "During the last 22 years, we have had a pretty remarkable track record of growth in our business. There's no kind of perfect, linear path to success. I do believe that what you'll see is that we have a great business model. We're focused on building a great company over a long period of time."
Dell has been one of the greatest success stories in American business. Their best years are, in my view, yet to come. Management has too much pride to let success slip.

The Treasury stated that productivity rose 3.2% in the first quarter; however, unit labor costs rose 2.5%. Both numbers were higher than predicted. Ian Shepherdson, chief U.S. economist at High Frequency Economics, stated the unit labor cost increas "is much faster than hourly earnings, so it presumably reflects increases in items like stock options, which have boosted costs in the past."

Our gasoline supplies are 5% below year ago levels. Our daily usage has risen slightly.

Medtronic traded at $48.20, a new 52-week low. As you all know, I have owned shares in this company for many decades. During this time it has risen several ten-fold in price. Adding to positions on weakness has been a successful long-term strategy.

Initial jobless claims in the latest week increased by 5,000 to 322,000, the highest level since November. Most analysts predict the economy will have added approximately 200,000 net new jobs in the month of April. The usual suspects will be in construction, healthcare, retail, the financial sector and other service related positions. Will the earnings per hour be less than the inflation rate? Will the hours worked per week increase? How about the overtime hours? I figure all these questions will have results that disappoint.

Cascade Natural Gas has not traded above $21 since the first week of November 2005. It closed at $20.95, and traded at twice its normal daily volume yesterday. I feel confident that a buyout of this company will prove rewarding to shareholders. Meanwhile, on an operational basis the company is making excellent progress.

Yong Li, China’s vice-minister of finance: "I heard rumours that the US dollar might depreciate by 25 per cent.This would have a big impact on countries like China because it would not only affect the value of assets invested in the US."

Copper hit another all-time high. General Motors uses less than 1% of the total global production of new copper per year, and the global OEM automotive industry uses less than 10%. The housing industry is by far the largest end user of copper, around 40%, with electrical and electronic together adding another 35% of the total. If there is a housing slowdown, and there is every indication there is one on the way, I firmly believe the price of copper will decline sharply and I would suggest you consider eliminating all copper stocks from your portfolio.

Minor Relief

5/4/06 Minor Relief

The Energy Department said motor gasoline inventories rose 2.1 million barrels for the week ended April 28 to total 202.7 million. It was the first climb in the fuel's supply in nine weeks after losing a total of 25.3 million barrels in eight weeks. They are still 4.8% below the year-ago level, the government data showed. Crude stocks rose 1.7 million barrels to total 346.7 million barrels -- 5.3% above the year-ago level. Distillate supplies fell 1.1 million barrels to 114.5 million. They're 9.6% above the year-ago level.

Brad DeLong: "The current-account deficit is equal to the trade deficit plus the cost of servicing the net international asset position: the net rent, interest, and dividends owed to foreigners who have invested their capital in the US. As time passes, deficits accumulate. As deficits accumulate, the cost of servicing the net international asset position grows. Thus, in order to keep the current-account deficit stable, the trade deficit must shrink. And the only way for the trade deficit to shrink substantially is for net imports to fall, which requires either a relatively sharp decline in the value of the dollar, thereby raising import prices, or a depression in the US." Brad states that the chance of a soft landing for the dollar lessens every day.

The ISM nonmanufacturing index rose to 63.0% from 60.5% in March.index to slip to 59.6%. New orders rose to 64.6. The employment index rose to 56.5% from 54.6%. Inflation pressures increased. The price index soared to 70.5% from 60.5% in the previous month. These unexpected strong numbers caused the treasury bond yields to rise with the 10-year jumping to 5.16%.

During the trading day, Dow Transports rose to an all-time high.

John Hussman: "At present, it makes sense to walk away from exposure to broad stock market fluctuations, for reasons including valuation, persistent distribution, internal dispersion, hostile interest rate pressures, inflation and other trends."

The Postal Service has indicated the price of a stamp will rise from 39 cents to 42 cents. In addition, they are discussing introducing a forever stamp where the rate will not change.

New orders for U.S.-made factory goods increased 4.2% in March, led by strong demand for airplanes, machinery, electronics and petroleum, the Commerce Department reported Wednesday. It was the largest gain in factory orders in 10 months and follows a revised 0.4% gain in February.

Barry Ritholtz: "The advance decline line has not confirmed recent Dow highs; the NYSE A/D line topped out in March. Meanwhile, mutual fund cash levels are down to low levels. And, we are about to enter the seasonally weakest period of the year. We have been positioned as “uncomfortably” bullish these past few months -- our view remains first half rally, second half trouble -- and we note that these elements mean risk is rising. We strongly urge increased caution."

After rising quickly in the early hours to almost $580, gold retreated close to the $570 level. In addiiton, the energy data generated a pullback in crude to the $72+ level.

Ed Easterling: "The current state of volatility is an indicator of a potentially sharp stock market decline based upon (i) the currently low level of volatility, (ii) the tendency for upward spikes to follow extreme low volatility, (iii) the relationship of market direction to volatility trends, and (iv) the propensity for downside volatility during secular bear markets. Volatility could decline further and could remain low for some time longer; however, based upon history, it has not stayed low without subsequently spiking and, as it goes lower, the likelihood of a spike increases significantly."

12,000 GM workers have reportedly signed up for the buyout since the automaker began offering them in April. The new deadline for taking the buyout is June 23, with workers having an additional seven days to change their minds and rescind the buyout.The buyout packages range from a lump-sum payment of $35,000 to coax hourly workers with 30 years' seniority to retire to a lump sum of $140,000 for workers with more than 10 years' seniority but less than 27 years who are willing to give up rights to post-retirement health care and other benefits.

Andersons said it expects 2006 earnings of $3.40 to $3.80 a share.

I would like to close by discussing Microsoft once again. The shares sold down on 200+ million shares to a new low of $23.19, a level last seen in 2003. One can analyze this company from many standpoints. Its return on equity is absolutely outstanding and its free cash flow is outstanding. At the same time the shares are selling at 5+ times sales with a 1.5% yield and minimal earnings growth over the horizon. Yet the stock has a p/e ratio of about 18. There are some contrarians who will be sold on this story; however, one needs to focus on management ability with the company facing increasing competition. I think this is the rub.

Charles Tremper: "The first step in the risk management process is to acknowledge the reality of risk. Denial is a common tactic that substitutes deliberate ignorance for thoughtful planning."

Good To Know

5/3/06 Good To Know

Another terrific article on Palatin's PT 141. This one in the UK Observer. This is the link: http://www.guardian.co.uk/medicine/story/0,,1759113,00.html The dollar hit a 7-month low against the yen and an 11-month low versus the euro. Don't try to bottom fish. The dollar is not a flounder. It is floundering and will continue, in my view, to do so. I believe the bottom could be 20,000 leagues under the sea.

Planned corporate layoffs declined by 8.1% in April to 59,688, the lowest level in a year, according to a monthly survey of job-reduction announcements released Tuesday by Challenger Gray & Christmas,.
Total job reductions so far in 2006 have amounted to 315,566, down 8.5% in the year to date, the outplacement firm said.

March pending home sales declined 1.2%.

Bolivia moved to nationalize the nation's hydrocarbon resources. Bolivian Minister of Mines and Metallurgy emphasized that "the mining policy does not contemplate nationalization and even less incorporation of private companies such as San Cristobal." Apex Silver is developing its 100%-owned San Cristobal silver-zinc-leadproject in southwestern Bolivia. The project is expected to commence production in the third quarter 2007. Apex Silver stock got hit hard due to nationalization worries.

Chrysler's sales declined 8% and Ford's dropped 6.6%. GM's April sales were 7% lower but the company sees production of 502,000 vehicles in Europe in the second quarter, up 12,000 units from last month's outlook. For the Asia Pacific region, GM now sees production of 504,000 vehicles, up 30,000 units from the previous outlook.

Gold is climbing closer to $670. Crude has topped $74 again. The price of gas in San Francisco took another spike and is approaching $3.50 a gallon.

Steve Spurrier: "If people like you too much, it's probably because they're beating you."

This month Swaptree.com will unveil the beta version of its service, which barters direct trades between two or more entities for no fee. Revenues will come from ads.

More research is being focused on myelin, a fatty coating that protects nerve cells. People will MS lack myelin.

Microsoft broke below $24 to a new 52-week low. The complex testing that still needs to be carried out on the next version of Windows means the Vista operating system is likely to be hit by further delays before it finally goes on sale next year, Gartner, the technology research firm, said on Tuesday.

Adobe Systems Inc. said late Tuesday its results for the quarter ending June 2 will be "toward the low end" of its prior forecasts.

Reserve Bank of Australia Governor Ian Macfarlane and his board today raised the overnight cash rate target for the first time in 14 months to 5.75 percent, the highest in more than five years.

The parent company of Ameriquest Mortgage Co. and Town & Country Credit said Tuesday it will close 229 branch offices and lay off 3,800 employees nationwide as part of a plan to consolidate its retail mortgage lending operations.

Dow Jones Industrial Average rose to a six-year high and the S&P 500 Index to its best level in more than five years.

Buddha: "Do not believe in anything simply because you have heard it. Do not believe in anything simply because it is spoken and rumored by many. Do not believe in anything simply because it is found written in your religious books. Do not believe in anything merely on the authority of your teachers and elders. Do not believe in traditions because they have been handed down for many generations. But after observation and analysis, when you find that anything agrees with reason and is conducive to the good and benefit of one and all, then accept it and live up to it."

A Close Look

5/2/06 A Close LookIf you take a step back and look unemotionally at the bond, equity, commodity, and currency markets, it will become clear that equities may very well have the greatest potential for a freefall since 2000. Let's examine where we are positioned. The dollar index is at its lowest point since May 2005. The yield on 10-year Treasury bonds at 5.14% and the 30-year at 5.23% are at their highest level in 4 years. In sum, yields are rising but the dollar is falling. In the background, gold has hit a 25-year high at $660, while silver and platinum have also reached multi-year highs. Copper and zinc recently traded at all-time highs. Crude holds above $73 a barrel and gasoline has topped $3 a gallon at the pump. It is not surprising that Phelps Dodge, Goldcorp, Schlumberger, and Arch Coal are standout performers. However, the VIX remains not far from its recent low point and that reflects complacency on the past of investors. It's easy to see why. The major averages are showing above average gains for the year-to-date. That is further reflected in low premiums for out-of-the-money put options on even highly volatile stocks like Apple and Rambus. What will change this complacency? Sharp losses like theone suffered by the Microsoft surprise and some unexpected bad news. Will it be the two tier dollar I recently described as a possibility? I believe geo-political wars will be fought on economic turf rather than with guns and bombs. (That is not to minimize the seriousness of the Iraqi situation.) I have written about Robert McHugh's frequent Hindenburg Omens in the month of April. It would be foolish to ignore them. We have a consumer-based economy. The lates figures reflect, once again, that spending is rising faster than wages. Government spending is rising faster than receipts. Our exports are rising but much slower than our imports. The disparity between those on Main Street and the top 2% of income earners is widening. Real inflation (not the BS government numbers) continues to exceed wages and benefits. The cost of haealthcare, education, and energy make it all but impossible for those on Main Street to meet their current expenses without incurring additional debt. The argument is that, with high home prices, home equity comfortably covers debt obligations. However, I am referring to day-to-day cash flow and not home equity loans. Today it is not so easy to sell a dwelling. There is plenty of inventory on the market. Since Nov 1, 2005, I-Bonds, tied to inflation, have been paying 6.73%. The rate for the next 6 months is 2.41%. That is legalized theft. Since when is the inflation rate 2.41%? Teddy Roosevelt: "We can have no "50-50" allegiance in this country. Either a man is an American and nothing else, or he is not an American at all." Freddie Mac said rates on 30-year, fixed-rate mortgages averaged 6.58% this week, up from 6.53% last week. The new rate was the highest since 30-mortgages stood at 6.63% the week of June 20, 2002. Schlumberger made a new 52-week high and Ford made a new 52-week low. Hovnanian, a homebuilder, statedlvj fiscal 2006 earnings will be in the range of $7.20 a share to $7.40 a share, down from a previous target of $8.05 a share to $8.40 a share. Ara Hovnanian, chief executive Hovnanian, said the company cut estimates because of "continuing production delays in several markets that have postponed deliveries, a slower recent sales pace, higher cancellation rates, more pronounced use of concessions and incentives, and material price increases.While we experienced a 22% increase in the dollar value of net contracts in our first quarter compared to the prior year, when we release results for our 2006 second quarter on May 31st, we expect to report approximately a 20% decline in net contracts. As discussed above, one factor that has negatively influenced our recent pace of net contracts isthe sequential increase in our cancellation rates over the past two quarters," commented Mr. Hovnanian. "Typically our second quarter cancellation rates are lower than those of our first quarter, which was not the case this year. While the number of net contracts recorded in our second quarter increased compared to our first quarter net contract results, market conditions have slowed in certain markets and we did not experience as strong a second quarter sales season as we have traditionally seen. We believe the higher cancellation rates, in addition to an increase in resale listings and increased use of sales incentives in certain markets are temporary aberrations as certain markets work through the increased level of resale homes for sale. However, we remain encouraged that supported by job creation and household formation the long-term fundamentals of housing remain solid. As the housing market has continued to cool off from white-hot levels of previous years, we have renegotiated and even walked away from deposits on several parcels of land that we control through options. Approximately$5 million of write-offs of deposits and related costs is built into our revised second quarter guidance. Although we have not needed to use this tactic as much in recent years, we have employed it successfully in prior slowdowns. We are confident that our strategy to control land predominantly with options will allow us to better manage our inventories in a slowing housing market," Mr. Hovnanian continued. "Fortunately, contract backlog asof March 31, 2006, including unconsolidated joint ventures, was 13,898 homes with a sales value of $4.9 billion. Based on this, approximately 82% of our projected deliveries for fiscal 2006 have either been delivered or are in backlog," concluded Mr. Hovnanian. Teddy Roosevelt: "Every immigrant who comes here should be required within five years to learn English or leave the country." Goldman Sachs Group Inc. dropped Google from its list of favored technology stocks, replacing it with Cisco Systems Inc.

A Close Look

5/2/06 A Close Look

If you take a step back and look unemotionally at the bond, equity, commodity, and currency markets, it will become clear that equities may very well have the greatest potential for a freefall since1999- 2000. Let's examine where we are positioned. The dollar index is at its lowest point since May 2005. The yield on 10-year Treasury bonds at 5.14% and the 30-year at 5.23% are at their highest level in 4 years. In sum, yields are rising but the dollar is falling. In the background, gold has hit a 25-year high at $660, while silver and platinum have also reached multi-year highs. Copper and zinc recently traded at all-time highs. Crude holds above $73 a barrel and gasoline has topped $3 a gallon at the pump. It is not surprising that Phelps Dodge, Goldcorp, Schlumberger, and Arch Coal are standout performers. However, the VIX remains not far from its recent low point and that reflects complacency on the past of investors. It's easy to see why. The major averages are showing above average gains for the year-to-date. That is further reflected in low premiums for out-of-the-money put options on even highly volatile stocks like Apple and Rambus.

What will change this complacency? Sharp losses like theone suffered by the Microsoft surprise and some unexpected bad news. Will it be the two tier dollar I recently described as a possibility? I believe geo-political wars will be fought on economic turf rather than with guns and bombs. (That is not to minimize the seriousness of the Iraqi situation.)

I have written about Robert McHugh's frequent Hindenburg Omens in the month of April. It would be foolish to ignore them.

We have a consumer-based economy. The lates figures reflect, once again, that spending is rising faster than wages. Government spending is rising faster than receipts. Our exports are rising but much slower than our imports. The disparity between those on Main Street and the top 2% of income earners is widening. Real inflation (not the BS government numbers) continues to exceed wages and benefits. The cost of haealthcare, education, and energy make it all but impossible for those on Main Street to meet their current expenses without incurring additional debt. The argument is that, with high home prices, home equity comfortably covers debt obligations. However, I am referring to day-to-day cash flow and not home equity loans. Today it is not so easy to sell a dwelling. There is plenty of inventory on the market.

Since Nov 1, 2005, I-Bonds, tied to inflation, have been paying 6.73%. The rate for the next 6 months is 2.41%. That is legalized theft. Since when is the inflation rate 2.41%?

Teddy Roosevelt: "We can have no "50-50" allegiance in this country. Either a man is an American and nothing else, or he is not an American at all."

Freddie Mac said rates on 30-year, fixed-rate mortgages averaged 6.58% this week, up from 6.53% last week. The new rate was the highest since 30-mortgages stood at 6.63% the week of June 20, 2002.

Schlumberger made a new 52-week high and Ford made a new 52-week low.

Hovnanian, a homebuilder, statedlvj fiscal 2006 earnings will be in the range of $7.20 a share to $7.40 a share, down from a previous target of $8.05 a share to $8.40 a share. Ara Hovnanian, chief executive Hovnanian, said the company cut estimates because of "continuing production delays in several markets that have postponed deliveries, a slower recent sales pace, higher cancellation rates, more pronounced use of concessions and incentives, and material price increases.While we experienced a 22% increase in the dollar value of net contracts in our first quarter compared to the prior year, when we release results for our 2006 second quarter on May 31st, we expect to report approximately a 20% decline in net contracts. As discussed above, one factor that has negatively influenced our recent pace of net contracts isthe sequential increase in our cancellation rates over the past two quarters," commented Mr. Hovnanian. "Typically our second quarter cancellation rates are lower than those of our first quarter, which was not the case this year."

Teddy Roosevelt: "Every immigrant who comes here should be required within five years to learn English or leave the country."

Goldman Sachs Group Inc. dropped Google from its list of favored technology stocks, replacing it with Cisco Systems Inc.

Almost Secret

5/1/06 Almost Secret

According to an article in today's Financial Times, the federal government keeps two sets of books, but the Bush administration only wants you to see one of them. There is the highly publicised "President's Budget" issued by the Office of Management and Budget, and the almost-secret "Financial Report of the United States" issued by the Department of Treasury. The budget says that the 2005 US fiscal deficit was $319bn, but the Financial Report claims it is $760bn.

Gas is 65 cents a gallon in Saudi Arabia. Saudi King Abdullah issued a decree Sunday lowering domestic gasoline prices by about 25 percent.
The decrease will reach 30 percent by year's end, according to a government statement.In the U.S. gas now exceeds $3 a gallon.

On Friday, natural gas slid to $6.55. With the warm weather about to take hold, one might consider getting one's feet wet here again. The large inventory supply can vanish quickly in a heat wave. Everyone is focused on the price of crude. The sleeper may be natural gas. It has no friends in the trading pits.

A Two Tier Dollar

4/30/06 A Two Tier DollarWal-Mart's April same -store sales rose 6.8% withEaster in April this year.
Robert McHugh: "We are approaching an historical tophere."
Mike Burk: "Risk is high. The condition of theindicators is consistent with a market top."
With a record current account deficit and a spiraling budget deficit, could a two tier dollar be around the corner? A dollar could be worth $1 in purchasing power within our borders but possibly only 75 cents or less outside our country.

No Fun For Employees

4/29/06 No Fun For Employees

While much is made of the GDP rising 4.8% in the latest quarter, your attention should focus on the fact that, over the past year, employment costs have increased 2.8%, wages and salary costs have increased 2.7% in the past year, and benefit costs increased 3.4%.In sum, the average worker is sucking on a hind tit. One should also note something the BLS mentioned-- "severance pay and supplemental unemployment benefit plans,formerly included in compensation and benefits,are no longer collected."

The Chicago purchasing managers index fell to 57.2% in April from 60.4% in March. The new orders index fell to 60.8% from 62.2%. The prices paid index rose to 77.2% from 71.1%.

Gold traded up $20 to a new 25-year high. The silver ETF began trading and quickly rose in price.

According to the Financial Times, Venezuela, the world's fifth-largest oil exporter, has struck a $2bn deal to buy about 100,000 barrels a day of crude oil from Russia until the end of the year. Venezuela has been forced to turn to an outside source to avoid defaulting on contracts with "clients" and "third parties" as it faces a shortfall in production, according to a person familiar with the deal. Since Hugo Chavez became president, the country's oil production has declined 60%.

In the last several days there have been numerous brokerage downgrades on the homebuilding stocks. As a group they have been drifting down in price. One though has gone up and stayed up-- Meritage Homes. One could state that's because their latest earnings report was above estimates; however, new orders etc were nothing great. I'm wondering whether there will be consolidation in this industry.

In 2005, Iraq's exports averaged just 1.4 million barrels a day. Approximately 15 years ago, their peak production was 3.5 million barrels per day. The country requires significant investment to get their oil operations in good working order.

April became the deadliest month for U.S. forces in Iraq this year. So far in April, 70 of our fighting men and women have been killed. Since our invasion of Iraq, 2401 of our fighting forces have been killed.

Thirty plus years ago there were days that the volume on the New York Stock Exchange was only 10 million shares. Yesterday, while dropping 11% or $32 billion in value, Microsoft traded an astounding 600 million shares. Now trading at a new 52-week low, one might ask whether the shares represent a good value. I would ask a different question. Would I want to purchase the entire company at the present market price that equates to $250 billion? If I had that type of money, I'd rather buy other companies. In sum, I believe there is better value elsewhere.

Marty Chenard: "These are not normal trending market conditions ... these are times of liquidity injections, with the dollar dropping, strong economic growth, government over spending, and an uncontrolled deficit."

Our government works this way: we provide 61 cents per gallon in tax credits to ethanol producers and farmers but we hit Brazil ethanol with a tariff of 54 cents per gallon.

Over the past year as well as year to date, bank credit, real estate loans, commercial paper, and asset-backed securities issuance have all exploded at double digit plus rates. It is only fitting that Citigroup and Bank of America were standout performers in Friday's market.

Doug Wakefield: "With our banking system’s current exposure to low doc/no doc risky real estate loans, credit card, and auto loans, and with the credit default swap markets soaring, we would all do well to remember banks have not always been synonymous with safety."

The dollar traded at an 11-month low versus the euro and a 3-month low against the yen.

The cost of putting each U.S. military service member in the Iraq war zone approached a record-high $400,000 by the end of 2005 and is continuing to rise sharply, according to a government study. The figure did not include basic pay.

Every sports forecaster stated Reggie Bush would be the first pick in the NFL draft. Going against the crowd was the right move--- again. Mario Williams, a defensive end, will be the first pick. He has signed a 6-year deal for $50+ million.

Congressman Ron Paul: " One of the characteristics of commodity money-- one that originated naturally in the marketplace-- is that it must serve as a store of value. Gold and silver meet that test-- paper does not. Because of this profound difference, the incentive and wisdom of holding emergency funds in the form of gold becomes attractive when the official currency is being devalued. It’s more attractive than trying to save wealth in the form of a fiat currency, even when earning some nominal interest. The lack of earned interest on gold is not a problem once people realize the purchasing power of their currency is declining faster than the interest rates they might earn. The purchasing power of gold can rise even faster than increases in the cost of living. "

Fed Expectations

4/28/06 Fed Expectations

Think for yourself. Don't let Bernanke do your thinking. Maybe the Fed will raise in June. Maybe the Fed will pause. So what. The direction of interest rates is up. The twin tower deficits are rising to the moon, Alice. Even Bernanke recognizes that more government spending and higher deficits will lead to higher taxes andnot tax cuts. The Fed does not control long-term interest rates. Our lenders dictate the rates by expressing their pleasure or displeasure in our monetary policies. Look at the three treasury auctions this week. They were from hunger. Don't get caught up in Wall Street fixation with the Fed. It will put you on a merry-go-round to palookaville.

Fed Governor Kohn wonders why capital spending has been so "sluggish" for the last five years. Maybe he should look at the caiptal spending by U.S. companies outside of our country.

Robert McHugh noted another Hindenburg Omen on Wednesday. They are coming fast and furious in the month of April. It was the seventh since April 7. Watch out for the fallout in May.

China raised its lending rate from 5.58% to 5.85%. The last raise only had a temporary impact on slowing down their
country's growth.

Microsoft predicted earnings per share for the year of $1.36-1.41, far short of the $1.53 most analysts expected. They stated that costs were "snowballing." Despite being in the minority for the last several years, I continue to believe theses shares should be sold whenever they exceed $27. Gates and Ballmer have not shown me that they can effectively manage a company of this size.

The CHC Helicopter privatization plan was dropped. The stock declined to just below the $25 level. In sum, shareholders did not take much of a hurt. The company should continue to do well.

The dollar index continues to decline, and broke below the 87 level. Yesterday, the dollar traded at a 7 1/2 month low verus the euro and at a 3 month low versus the yen.

On Thursday, even though the Dow rose 28 points to a new 6 year closing high, Robert McHugh reported another Hindenburg Omen occurrence, the 8th one seen in the last 13 days, and the 4th this week. By the way, have you noticed the weakness in the Russell 2000?

This morning's announcement will probably show that the GDP grew about 5% in the first quarter. That doesn't mean your wages grew after allowing for inflation. Did the GDP really grow if inflation is closing in on a 7 percent plus rate? You doubt that number? Margins for oil refiners are up 100% over the last 12 months. The price of ethanol has risen over 100% in the past year. Does it surprise you that the dollar is tanking and that treasury bonds have been a lousy investment over the past year?

An Interesting Wednesday

4/27/06 An Interesting Wednesday

There were plenty of fireworks. March durable goods, ex transportation, gained 2.8%. Sales of new U.S. homes rose a much larger-than-expected 13.8 percent in March to a 1.213 million unit annual rate, the biggest one-month gain since April 1993. However, prices fell sharply and the number of unsold homes hit a record high, the department also reported.
Despite the strong March new homes sales pace, there were renewed signs the housing boom is losing momentum. The median home price slipped 2.2 percent from a year earlier to $224,200, the first year-over-year decline since December 2003, the Commerce Department said. Also, the March sales pace was down 7.2 percent from March 2005. Inventories increased as well as new homes available for sale at the end of March reached a high of 555,000.
A separate report showed U.S. mortgage applications fell for a third consecutive week, with demand for home purchase loans falling to its lowest level since November 2003 despite a drop in interest rates, an industry trade group said.
The Dow finished at a new 6-year high with GM a standout after Merrill Lynch upgraded the stock. Meanwhile, the upbeat economic data pushed 10-year Treasury yields to a new 4-year high and the 2-year Treasury is now yielding 4.99%. This week the 5-year, 2-year, and TIPS treasury auctions have been disappointing. Who can blame the buyers for staying away?

Both Pulte and Dallas-based Centex, the No. 4 U.S. home builder, said the number of orders for new homes fell 11 percent in the quarter compared with the year-earlier quarter. Beazer stated its new orders fell 19.4%.
Centex cut its forecast for the year and its stock fell sharply in after-hours trading. Pulte and Beazer basically maintained their full year earnings expectations. With interest rates moving higher, that could be optimistic.

Cascade Natural Gas reported earnings that rose 22% for the quarter and the first six months. Importantly, buried in a long press release and in the last sentence, Cascade said "the Company is considering other strategic alternatives, including a possible business combination. The Company plans to make no further announcement until its evaluation of strategic alternatives is concluded." In my view, once agin, this is a real sleeper like PetroKazakhstan.

The Consumer

4/26/06 The Consumer

Recently, I wrote about the UBS Investor Survey and that indicated a low level of confidence. Yesterday, The Conference Board Consumer
Confidence Index, which had increased in March, improved further in April.
The Index now stands at 109.6 (1985=100), up from 107.5 in March. This is
the highest level since May 2002 (110.3).
The Present Situation Index rose to 136.2 from 133.3. The Expectations
Index improved to 91.9 from 90.3 last month.
The Consumer Confidence Survey is based on a representative sample of
5,000 U.S. households. The monthly survey is conducted for The Conference
Board by TNS. TNS is the world's largest custom research company. The
cutoff date for April's preliminary results was April 18th.
"Improving present-day conditions continue to boost consumers'
spirits," says Lynn Franco, Director of The Conference Board Consumer
Research Center. "Recent improvements in the labor market have been a major
driver behind the rise in confidence in early 2006. Looking ahead,
consumers are not as pessimistic as they were last month. However,
expectations for the economy and labor market have been trending downward
since peaking in 2003. And, while prices at the pump have yet to impact
confidence, further increases could dampen consumers' mood."
With soaring gas prices I would have thought this index would have shown a decline.

I was also surprised by the housing numbers. Sales of existing homes rose unexpectedly in March by 0.3% to a seasonally adjusted annual rate of 6.92 million, the National Association of Realtors said Tuesday. After five months of declines, existing home sales have risen two months in row, prompting David Lereah, chief economist for the realtors, to say, "This is additional evidence that we're experiencing a soft landing." Economists expected sales to fall to a 6.70 million pace in March. The number of homes for sale rose 7% to a record 3.194 million, representing a 5.5-month supply at the March sales pace, the largest supply since July 1998. Median prices are up 7.4% in the past 12 months to $218,000, the smallest price gain since January 2004.

Robert McHugh: "We received a fifth Hindenburg Omen on Monday, April 24th, 2006, the fifth since April 7th, 2006."

The 10-year Treasury bonds are yielding about 5.08%, the highest in 4 years. Why go out 10 years when the 2-year provides a yield of 4.98%. I wouldn't buy either with your money.

Bill Miller, co-manager of Legg Mason Value Trust Fund: "I can't help but be skeptical of the advice to start or increase a position in commodities after the biggest bull move in 50 years." His performance over the last 10-15 years speaks for itself.

There is continued weakness in the dollar index.

WellPoint's Medical enrollment grew to 34.2 million members as of March 31, 2006.
Net income was $1.09 per share, exceeding expectations by $0.02 per share.
Full year 2006 earnings guidance raised to $4.63 per share, including net
realized investment losses of $0.01 per share.
Operating cash flow totaled $1.8 billion in the quarter.
During the first quarter, the Company repurchased 24.7 million shares of
its common stock for $1.9 billion.

The percentage of working-age Americans with moderate to middle incomes who lacked health insurance for at least part of the year rose to 41 percent in 2005, a dramatic increase from the 28 percent in 2001 without coverage, a study released on Wednesday found. More
than half of the uninsured adults said they were having problems paying their medical bills or had incurred debt to cover their expenses, according to a report by the Commonwealth Fund, a New York-based private health care policy foundation. The study of 4,350 adults also found that people without insurance were more likely to forgo recommended health screenings than those with coverage, and were less likely to have a regular doctor than their insured counterparts.

The volume of loans to fund takeovers has soared 91 per cent to $347bn in the year to date, compared with the same period last year, data from Dealogic, the information provider, show.

Babcock and Brown, an Australian utility investment company, bought Northwestern Tuesday in a $2.2 billion deal besting Montana Public Power's bid of two-billion dollars. I believe there will be a great deal more utilty acquisitions in coming months.

Diamond Offshore Drilling said first-quarter net income rose to $145.3 million, or $1.06 a share from $30.1 million, or 23 cents a share in the year-ago period. Revenue nearly doubled to $447.7 million from $258.8 million. Diamond Offshore cited record-high average dayrates and rig utilization for the company's entire fleet. The company said its order backlog is at about $5 billion, up from $1 billion last year.

Jones Apparel has a "cautious" outlook for the year, and forecast earnings for the year of $2.19 a share. Analysts polled by Thomson First Call forecast $2.23 a share.

Engelhard Corp. is offering to buy 20% of its shares at $45 each and unanimously rejected German chemicals company BASF AG $38 a share offer.

Investor Confidence

4/25/06 Investor Confidence

Investor optimism tumbled to a five-month low in early April on lowered expectations for economic growth and concerns over signs of quickening inflation, a survey showed Monday.The UBS/Gallup index of investor optimism fell 16 points from March to a reading of 63 this month, UBS Securities said. It was the third straight monthly decline. The year began with a surge in January to a 19-month high in investor optimism. Only 45 percent of investors are optimistic about economic growth, down from 50 percent in March. Confidence in the performance of the stock market also dipped below 50 percent, according to the survey. Investors also see inflation as increasingly troublesome. In March, only 37 percent of those polled were pessimistic about the impact of inflation on the investment climate; this month that number rose to 42 percent.

A jury awarded Rambus $306.5 million and found that all 10 Rambus patent claims are valid and that Hynix Semiconductor had infringed on the patents. Additional suits have been filed against Micron, Samsung, and Nanya Technology. Even though the stock rallied 15% on the news, the May $20 puts and the May $90 calls collapsed in price.

Ford stated its U.S. auto operations would not be profitable until 2008. Meanwhile, all othe rparts of the company are showing a profit and free cash flow is still $2 billion. It is interesting to note Ford Motor is planning to add 2,000 employees for its ventures in China, where sales more than doubled in the first quarter. Cheng Meiwei, chief executive of Ford Motor China, said sales there rose about 120 percent, led by a 147 percent increase in sales of Focus compact cars, Mondeos and Fiestas, to about 27,000 units. Even though the shares have recently declined to the $7 level, I believe they represent an outstanding value. GM and Ford are underappreciated and poorly understood.

For the fiscal years 2003 through 2006, Cascade Natural Gas will have spent approximately $130+ million on capital expenditures. This compares with a market cap of $225 million and a dividend yield of 4.8%. The company's potential is going unrecognized.

Sun President Jonathan Schwartz has been promoted to chief executive, replacing Scott McNealy, but McNealy will continue serving as chairman of the board and a full time employee. Schwartz joined Sun in 1996 when the company acquired Lighthouse Design, Ltd., where he served as chief executive officer. He was named Sun's president and chief operating officer in April 2004, and has been responsible for Sun's product development, sales, marketing and operations. Schwartz has held numerous positions at Sun including executive vice president, software, senior vice president, corporate strategy and planning and vice president of the ventures fund. Sun has reported a net loss in 16 out of the past 20 quarters, and in January announced plans to close more than 120 offices in coming months and eliminate jobs in legal, administration and other areas as it consolidates the companies.

A message from the Chairman of the Putz dept-that's me. I like to invest in companies I understand, where management is seasoned and have a vested interest, and where the shares are clearly not followed in the investment community. In 2001 the Andersons Inc. fit the bill perfectly. This billion dollar plus business was in grain storage and railcars and the stock was $6+. No one wanted it. The company was a nice grower and conservatively run. About 15 months ago I thought adding to it at $24+ was a good idea. Then about six months ago I began to see members of the Anderson family take some chips off the table. The company was still doing well but at $40 or so it was getting a bit pricey. In March the stock rallied further to $55 on the news the company was building a second ethanol plant, a tiny part of their business. Then Cramer, recommended it 30 points higher, and last night it closed at $103+. Now I'm not complaining. I wish all my investments were this successful, but I left an awful lot on the table and therefore I am the resident Chairman of the Putz dept.

This morning in London copper traded at a record $7000 a ton and nickel approached $20,000
a ton.

Money Power And Palatin

4/24/06 Money Power And Palatin

Douglas V. Gnazzo: "By what authority does the State transgress the Constitution, first taking the money power from the people, and then handing it over to the Federal Reserve?"

The dollar sank to a three month low against the yen in trading this morning.

Vito Corleone: "Politics and crime are the same thing."
According to the WSJ, Venezuela's Chavez is taking steps to nationalize the country's oil industry. This should not come as a surprise.

Washington Mutual said Sunday it had agreed to buy Commercial Capital Bancorp in California to strengthen its commercial and retail-banking business. The cash deal was valued at $983 million. The company will pay $16 a share for Commercial Capital's outstanding shares, representing a 13 percent premium to where shares of the Irvine, Calif., company closed Friday. WaMu is the nation's largest lender for multifamily projects, such as apartment buildings, after Fannie Mae and Freddie Mac. Commercial Capital is the No. 3 multifamily lender in California. It also has 24 branches, which will supplement WaMu's network of more than 600 branches in the state.

John Hussman: "investors should recognize that since the 1960's, when the 10-year Treasury yield, the 3-month Treasury bill yield, and the Consumer Confidence index have all been rising (say, above their levels of 6 months earlier), the S&P 500 has underperformed risk-free T-bill yields by an average of -5.13% annualized, on average. But it gets worse. If we look at periods since 1975 when the Philadelphia Gold Stock Index (XAU) was also above its level of 6 months earlier, it turns out that the S&P 500 has followed with annualized losses of -12.37% on an absolute basis (nearly a -20% shortfall versus risk-free Treasury bill yields). All four conditions are true today."

From Sunday's Observer Magazine on Palatin's PT 141: This is the link

http://observer.guardian.co.uk/magazine/story/0,,1759109,00.htm

The Same Thing

4/24/06 The Same Thing

Douglas V. Gnazzo: "By what authority does the State transgress the Constitution, first taking the money power from the people, and then handing it over to the Federal Reserve?"

The dollar sank to a three month low against the yen in trading this morning.

Vito Corleone: "Politics and crime are the same thing."

According to the WSJ, Venezuela's Chavez is taking steps to nationalize the country's oil industry. This should not come as a surprise.

Washington Mutual said Sunday it had agreed to buy Commercial Capital Bancorp in California to strengthen its commercial and retail-banking business. The cash deal was valued at $983 million. The company will pay $16 a share for Commercial Capital's outstanding shares, representing a 13 percent premium to where shares of the Irvine, Calif., company closed Friday. WaMu is the nation's largest lender for multifamily projects, such as apartment buildings, after Fannie Mae and Freddie Mac. Commercial Capital is the No. 3 multifamily lender in California. It also has 24 branches, which will supplement WaMu's network of more than 600 branches in the state.

John Hussman: "investors should recognize that since the 1960's, when the 10-year Treasury yield, the 3-month Treasury bill yield, and the Consumer Confidence index have all been rising (say, above their levels of 6 months earlier), the S&P 500 has underperformed risk-free T-bill yields by an average of -5.13% annualized, on average. But it gets worse. If we look at periods since 1975 when the Philadelphia Gold Stock Index (XAU) was also above its level of 6 months earlier, it turns out that the S&P 500 has followed with annualized losses of -12.37% on an absolute basis (nearly a -20% shortfall versus risk-free Treasury bill yields). All four conditions are true today."

The average price of gasoline is now $2.92. It's a good thing that inflation is under control.

The Situation

4/23/06 The Situation

Paul Kasriel : "The year-over-year percent change in the LEI (Conference Board Leading Economic Indicators) tends to lead the year-over-year basis point change in the fed funds rate by three quarters. Given the current downward trend in the LEI, if history is any guide, we will likely be looking at year-over-year declines in the fed funds rate next year."

OSK Research manager Chris Eng expects dry bulk charter rates to trend downward on average over the next two years although there might be spikes along the way.
“We expect clean tanker rates to average out flat,” he said in an interview.
On the outlook for the shipping industry, Eng said the general outlook was “not so favourable'' on expectation of rates for dry bulk, container and dirty tankers trending down over the next two years.

Over the years I have noted an observation made by Barry Ritholtz this weekend. It is worth repeating. In a Biryini Associates study, during the prior 9 interest-rate cycles, stocks have fallen an average of 7% between the time of the last Fed tightening and its first easing. The two exceptions were in 1989 and 1995.

Robert McHugh: "There was not one major decline (over 10 percent) that did not first have a Hindenburg Omen present to give an early warning. We were warned every time there was a crash, or multi-month plunge, of the higher-than-normal probability of one coming, through the presence of a Hindenburg Omen. Well, once again we have one on the clock, right now, April 2005. Since April 7th, when we observed the first one, there have been three official confirming Omens, so we now sit with four...Here's something interesting: Oftentimes equities will rally after a Hindenburg Omen occurs, faking folks out, then the plunge comes on the other side of the hilltop. 1987 is a perfect example of that. We are also seeing that now."

In Iraq, yesterday five American soldiers were killed. Today three more perished. Each day the toll gets greater. Only if you are delusional would you state progress is being made.

Oscar Wilde: "There is no such thing as an omen. Destiny does not send us heralds. She is too wise or too cruel for that." Maybe so, but caution is warranted.

Earth Day

4/22/06 Earth Day

The Swedish Central Bank said it had significantly reduced its holdings of dollars in its foreign exchange reserves. The Riksbank said it cut the share of dollar-denominated assets by 17% to 20% and boosted the euro's share by 13% to 50%. Will Russia be the next country to follow in Sweden's footsteps?

Doug Noland:"Rampant liquidity and speculative excesses demand that global rates rise across the board, while the stability of the dollar depends upon the Fed’s willingness to maintain significant rate differentials. Our foreign creditors will demand higher rates and much tighter monetary conditions, and the Fed’s dream of wrapping things up before it gets painful faces the reality that our creditors are increasingly tired of getting hurt."

Jim Rogers, who joined George Soros to start the Quantum hedge fund in the 1970s, said the yuan may overtake the US dollar as the most accepted currency among the world's central banks. The yuan may surge in years ahead and the US dollar will fall, Rogers said.
According to Dennis Gartman, word that foreigners bought a net $86.9-billion (U.S.) in U.S. securities in February should have pushed the greenback sky-high on Monday. The U.S.
securities report was “stunningly, shockingly, egregiously bullish and yet the dollar refused to rally,” he wrote in the Tuesday edition of his influential investment newsletter, stressing that “a market that not only will not rally on bullish news but falls materially on overtly bullish news is a market in very serious jeopardy.” Months from now,
the currency's failure to rise in the wake of Monday's report will be seen as a “tipping point of very real importance,” he said.

The headlines from the media this week have been about the Dow, the S&P 500, the Russell, and the Midcap indices. Possibly the more important issues are the dollar and rising inflation and the latter's impact on interest rates.

You want to see optimism? Rambus is trading around $38 and the May 90 calls are going for fifty cents. The last time the stock traded above $60 was in 2000. The last time it traded
above $90 was in 2000. Google has earnings to support a $400+ price. Rambus does not have earnings to support a $45 price, in my view. The market cap is a mere 20 times sales. Maybe Rambus is in the tulip planting business.

Russia's Gazprom is the world's largest natural gas producer. Gazprom CEO Alexei Miller stated in a recent speech "attempts to limit Gazprom's activities in the European market and to politicise questions of gas supplies" would "not produce good results. It should not be forgotten that we are actively seeking new markets such as North America and China."

It was just the other day this week that a big deal was made of crude crossing the $70 level. Less was said on Friday at $75 a barrel. How much longer until gas averages $3.50 a gallon? How would you like to be a trucker and fill up the tank with diesel? How about the jet fuel for the airlines? The analysts will tell you not to worry. The truckers and airlines will simply add a fuel surcharge. I'm not worried. I wouldn't own a trucking stock or an airline stock with your money.

People must be planning vacations. Travelzoo went from $16 to $45 in one week. The short sellers are taking some roundhouse blows.

In honor of earth the leading coal company shares rose sharply on Friday. Usage is rising and so are prices. Coal is cheap next to oil and natural gas.

U.S. Energy Secretary Samuel Bodman said the switch to ethanol in gasoline may cause supply disruptions for several months.
Refiners are seeking to replace the additive MTBE in gasoline by May because of changes in fuel requirements in the energy bill that Bush signed in August.
"We're going to see some problems,'' Bodman told reporters after giving a speech at a conference in Washington. ``I do believe over a period of time -- that is, a matter of months -- it will level out.''

Do you remember when Bush stated "it was the job of the U.S. president to jawbone members of OPEC to bring the price down"? And there were WMDs and mission accomplished! Jaw on that bone!

Gary Lemmert: "That American consumer, the
primary engine of recent global economic expansion, is faced with the
reality that has been directly caused by excess borrowing and money
creation - inflation of raw commodities.
The American consumer is a member of the interconnected global economy
and is indirectly and directly competing with the Asian service and
manufacturing worker. Further loss of manufacturing jobs will occur.
Unbalanced US wages relative to those foreign workers must and
inexorably will reequilibrate. US wage earners with their two cars,
extra investment house, and high debt load have been, are, and will
be, unlikely buyers of US debt instruments.
Foreign owners of US debt instruments are now choosing between
ownership of dollars or debt instruments. While both are backed by a
military and an arms legacy of an earlier American tradition,
ingenuity, and engineering value system, both are poor long term
investments in a country sans manufacturing, tradable international
services, huge unpayable entitlement programs in a reequilibrating
rebalancing global macroeconomy."

Today Bush will tour a fuel cell research facility in Sacramento.
Obstacles to a shift from the internal combustion engine to fuel cells include the lack of a hydrogen infrastructure and the cost of making hydrogen. In addition, the fuel cells themselves are still significantly more expensive to build than a traditional engine.

Another thought on alternative energy from Michael Alexander: "As the energy content of ethanol is about 84,000 BTU/gallon, these old plants sometime consumed more energy to make the ethanol than what was contained in the product. Even the state-of-the art process requires energy equal to about 40% of the energy in the product to manufacture fuel ethanol. The effect of plant efficiency has affected the conclusions of studies looking at the total energy efficiency of corn to ethanol conversion."
I prefer methane gas as a source of ethanol. You make it from manure. That is something all
politicians should understand quite readily.

From Bloomberg:“Russian Finance Minister Alexei Kudrin said his colleagues around the world are concerned the dollar’s ‘instability’ in recent years is hurting its credibility as a reserve currency. ‘If a currency is used for different reserve purposes, reliability is needed,’ Kudrin told reporters… ‘The international community can hardly be satisfied with this instability’ in the dollar ‘in the past years,’ he said…”

The Way It Is

4/21/06 The Way It Is

"Mortgage rates drifted upward this week following the release of the Consumer and ProducerPrice Indexes for March, which came in at the upper end of market expectations for inflation," said Frank Nothaft, Freddie Mac chief economist, in a statement. "As a result of higher mortgage rates, housing market activity is beginning to slow, as evidenced in the lower housing starts statistics for March."

"Only unrealistically large adjustments in fiscal expenditure and/ or revenue polices would have a noticeable effect on the U.S. current account deficit," said Treasury economists Marvin Barth and Patricia Pollard in a paper released Thursday. "The necessary fiscal adjustment would come at a high economic cost to both the U.S. economy and the world economy."

Chris Meyer: "The manipulation of the CPI explains the great disconnect between what the man in the street feels when he pays his bills and what the confident, well-dressed Fed chiefs and politicians try to tell him. The cost of living is rising a lot more than they want you to believe. At a 7% annual rate of inflation, the cost of living would double in about 10 years. Looked at differently, the purchasing power of your dollar will fall in half."

The Conference Board reported that the Composite Index of Leading Economic Indicators dipped 0.1% in March, following a 0.5% decline in February.
Says Ken Goldstein, Labor Economist at The Conference Board: "With the
price of a barrel of oil rising above $70, and with interest rates slowly
increasing, the global economy isn't likely to be picking up steam soon.
The spillover from increased energy prices is on the horizon (including
higher prices for derivatives such as rubber, paint, plastic and
chemicals). Rising business costs and uncertainty in many companies about
price hikes is a major consideration now in how fast the domestic economy
can grow, especially in the second half of the year. The latest leading
indicator readings suggest some slowing in the pace of economic activity
through this summer."
The Conference Board also reported that the Coincident Index increased
0.2% in March, following a 0.2% increase in February, and a 0.1% increase
in January. The Lagging Index increased 0.3% in March, following a 0.1%
increase in February.

Silver futures for May delivery fell $1.997, or 14 percent, to $12.525 an ounce on the Comex division of the New York Mercantile Exchange. The percentage drop was the most since February 1983. Gold for June delivery fell $12.90, or 2 percent, to $623.10 an ounce.

May crude closed at $71.95, down 22 cents. June crude lost 43 cents to finish at $73.69 and May natural gas lost 12.8 cents to end at $8.064 per million British thermal units.

I especially found two items of interest yesterday. It was the big gain in GM that carried the Dow to a closing 6-year high. That's right. GM. In addition, despite softer-than-expected monthly leading economic indicators and a below-consensus reading of the Philadelphia Federal Reserve's latest manufacturing survey, the yield on the 10-year Treasury rose a bit to 5.05%. In other words, weak data did not generate a rally in the Treasury market.

Lehman Brothers lifted its price target on Internet search giant Google Inc. to $530 from $450, citing the group's forecast-beating first-quarter results. The broker told clients it expects the company to continue to increase its search market share and actually grow the pie of overall advertising dollars while expanding into new products and other forms of media. Goldman Sachs raised its 2006 earnings estimate to $9.39 from $8.87 a share and its 2007 earnings forecast to $12.70 from $11.85 a share.

The U.S. economy is strong but price pressures and shortages of skilled labor are on the rise, according to a quarterly survey by the National Association for Business Economics released on Friday.

San Francisco's average price for a gallon of regular hit $3.03 Thursday, jumping more than 4 cents overnight. San Jose reached $3.01, according to the AAA auto club.
California, as a whole, now averages $3.02. Some parts of the state, including Santa Barbara and much of the Central Valley, passed the $3 mark days ago.
"I certainly see nothing on the horizon to say that we'll see a significant decrease in prices anytime soon, short of a quick and tidy resolution to the Iran nuclear confrontation or a global recession," AAA spokesman Sean Comey said. How high will prices climb?
Denton Cinquegrana with the Oil Price Information Service, predicts $3.25 gasoline in California by mid-May.

Chris Meyer: "Years of such deficits have created a mountain of obligations for the U.S. government. As John Williams says, “The fiscal 2005 statement shows that total federal obligations at the end of September were $51 trillion; over four times the level of GDP.” These debts are unsustainable. The bills must go unpaid. If the U.S. government were a private corporation, its bankruptcy would be beyond dispute."

The Bullet In The Chamber

4/20/06 The Bullet In The Chamber

Over the past 12 months, the medium rise for the CPI has been 2.7%. The latest
reading was 3.1%. Inflation is the bullet in the chamber. It impacts long-term
interest rates, the dollar index, our purchasing power, and the price/earnings ratio
for equities. It's not a hidden tax. It slams you in the face each day.

The Energy Department said motor gasoline inventories dropped 5.4 million barrels for the week ended April 14 to total 202.5 million. Supplies have lost a total of 23.4 million barrels in seven weeks and are 4.6% below the year-ago level, the government data showed. Crude stocks fell 800,000 barrels to total 345.2 million barrels -- 6.6% above the year-ago level. Distillate supplies fell 2.8 million barrels to 114.6 million. They're 9.7% above the year-ago level. May crude rose to $72.17 a barrel, a new record. May unleaded gas rose to $2.24 a gallon and May heating oil added 0.52 cent to $2.056 a gallon. Not to be left out, natural gas continued to climb above the $8 level to $8.19, the highest point since February.

In the early part of the week I wrote about Cascade Natural Gas. I want to expand on that
discussion. The company has not had a rate increase for 11 years. Unlike other Washington state companies, its operating costs have not been adjusted upward- as is allowed under the current law. Both situations will be remedied this year. Cascade has been able to grow its customer base by 4% to 5% a year, and, at the same time, its customers have utilized 2% less gas each year since 2000. Consequently, the company's earnings and dividend have been
stagnant for several years. Beginning in 2007, that will change for the better. Meanwhile, the company's balance sheet remains strong. In my view, this is a natural (no pun intended)
acquisition merger candidate for Northwest Natural Gas. Cascade has a monopoly in the regions it serves in Washington and Oregon. Its infrasture was essentially completed in the 1950s and 1960s. That infrastructure is worth considerably more today. In my view, the shares are considerably undervalued for both patient investors as well as on a potential
merger candidate basis. I view it as a win/win situation with limited risk.

According to Wal-Mart's CFO, they are bracing for a potential sales slowdown due to the possibility of spiking gasoline prices.

Why are Americans down on the economy? Simple. Average weekly earnings adjusted for inflation fell 0.3 percent in March and were up 0.1 percent in the last 12 months. In
effect, consumer prices rose by 3.4% over the past 12 months, and that's why wages are consistently behind the 8 ball. Overall, a 0.2 percent increase in average hourly earnings was more than offset by a 0.5 percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. Average weekly hours were unchanged.

Metals continue to spike with gold hitting $636 and silver approaching $14.50. It's like a freight train picking up speed.

The consumer price index is the government's broadest gauge of costs for goods and services. Almost 60 percent of the CPI covers prices consumers pay for services, ranging from medical visits to airline fares and movie tickets. Service prices rose 0.2 percent for a second month and are up 3.8 percent over the last year. The cost of medical care rose 0.4 percent last month after a 0.5 percent increase in February. When you have Main Street
worried about gas at the pump, taxes, wages having difficulty keeping pace with inflation,
the ever-increasing cost for medical care and education, and rising interest rates and their impact on ARMs etc, it is only a matter of time until the economy starts to sputter.
Unfortunately, that does not mean long-term interest rates will come down-- not with twin tower deficits at record proportions. The government's solution is to spend. The Fed's solution is to crank up the printing presses.

George Ure of urbansurvival.com points out the following:
"For the first six months of 2006, BLS also will calculate Old Weights CPI-U and Old Weights CPI-W based on the 2001-02 expenditure pattern used in the CPI from 2004 through 2005. These Old Weight data are contained in tables 1(OW)-4(OW). From February to March, the Old Weight CPI-U rose 0.7 percent and the Old Weight CPI-W rose 0.6 percent. Note these series are not seasonally adjusted."
So there you have it: Inflation at an annualized old weight 8.7% rate. If you believe the Fed's done raising rates, which pimped the market so well yesterday, you might volunteer to go through drug testing and counseling, 'cuz it seems to me you're "on something."

There is life for GM outside the U.S. General Motors Corp. Wednesday evening said first-quarter global sales hit more than 2.2 million vehicles, up 4.4% from the same period last year. Sales outside of North America grew 15.9%, GM said. Some notable figures include Chevrolet sales, which were down slightly in North America, rising in Asia Pacific 62%, with sales in China up 180% and up 19.3% in India.

A Relief Rally

4/19/06 A Relief Rally

Treasury prices rallied to a higher close Tuesday, pressing down on yields, after the minutes from the latest Federal Open Market Committee policy meeting showed that most members thought the current program of rate hikes was nearing an end. Despite $71 crude, the glimmer of the Fed almost at the end of rate increases sent glee into the buying veinsof traders and investors. Reality is not important- not in 2006. Do you really think the Fed will take their foot off the printing press or that the federal government will cut back on spending?

The dollar slumped to a seven-month low against the euro and an almost two-week low versus the Japanese yen Tuesday after minutes from the latest Federal Reserve monetary-policy meeting suggested the policy-making board could be at the end of its cycle of tightening interest rates. Meanwhile, gold, silver, and copper continued on with their respective rallies.

U.S. producer prices rose 0.5% in March. Outside of food and energy, however, the core producer price index increased 0.1% in March, the smallest gain since November. The PPI is up 3.5% in the past year, the lowest year-over-year gain since September 2004. Core prices are up 1.7% in the past year, the same year-over-year gain as last month.

Construction of new U.S. houses declined for the second straight month in March after hitting a 33-year high in January. Starts fell 7.8% in March to a seasonally adjusted 1.96 million annualized units, the lowest level since March 2005, the Commerce Department estimated Tuesday. Starts of new single-family homes fell by 12.0% to a 1.59 million seasonally adjusted annual rate. Building permits for new housing fell 5.5% to a 2.06 million annual rate, the largest decline since September 1999. Permits are also at their lowest level in a year. Permits for single-family homes dropped by 6.9% to a 1.54 million annual rate.

According to the WSJ, Apache Corp. will buy BP's remaining oil and natural-gas fields on the Gulf of Mexico's continental shelf for $1.3 billion. Apache will acquire 18 fields with proved reserves of about 57.8 million barrels, working out to price of $22.50 a barrel, the report said.

Jim Rogers said the boom in energy and raw material prices will drive gold to a record $1,000 an ounce.
"The shortest bull market for commodities lasted 15 years, the longest 23 years,'' Rogers, 63, said in an interview. So if history is any guide, ``they've got a long way to go.''
The Goldman Sachs index of 24 commodities has more than tripled in seven years.
"Supply and demand is terribly out of balance for nearly all commodities right now,'' Rogers said in Singapore April 17. ``This is not a bubble.''

Robert McHugh: "Believe it or not, we got a fourth Hindenburg Omen since April 7th during the mega-up day Tuesday." Investors went home giddy after yesterday's strong rally. The market will open on a strong note this morning. And yet, there is a back-to-back Hindenburg Omen. Do you let the good times roll or sell into the rally? It's like a line from a favorite Clint Eastwood Dirty Harry movie. Holding a Magnum 44 he asks "how lucky do you feel today, Punk?" There really was a bullet left in the chamber.