Diplomacy And Omens

11/3/07 Diplomacy And Omens

A top American diplomat pressed for harsher U.N. sanctions against Iran for its nuclear program on Friday, while Iran's former president said talks with the U.N. atomic watchdog were progressing and warned against threatening his country.
Meanwhile, Obama, if elected, would engage in extensive diplomacy with Iran.
It is hard to imagine that a Democrat-led Congress just passed a resolution giving Bush the authority to invade Iran. Has Iran ever invaded another country? We have though. It's called Iraq.

N.Y. Attorney General Andrew Cuomo accused Washington Mutual of pressuring appraisers to inflate home values. Do you think WaMu has a monopoly on this activity?

An investor group led by former Chief Executive Officer Maurice Greenberg Friday called on American International Group Inc.to consider alternatives for the company, including sale of some of its operations.

Cigna expects 2008 adjusted income from operations of $1.16 billion to $1.22 billion, or $4.00 to $4.20 a share.

The U.S. economy created 166,000 net jobs in October, the best job growth since May, the Labor Department reported Friday. The unemployment rate was steady at 4.7% as expected. A separate survey of 60,000 households showed a loss of 250,000 workers, the third decline in the past four months. Jobs continued to be lost in the manufacturing and construction sectors, offset by growth in public schools, health care, business services, food service, and temporary-help services. Average hourly earnings rose 3 cents to $17.58 an hour, or 0.2%. Average hourly earnings are up 3.8% in the past year.

George Ure: " Now, just how much of it was created by the CES Birth-Death Model, which statistically supposes jobs created? Try 103,000 for October. A true skeptic would say 166 thousand new jobs, backing out 103 thousand CES Birth/Death Model estimated, leaves a real gain of 63-thousand, but any port in a storm, right?"

Merrill Lynch has engaged in deals with hedge funds to delay when it had to record losses on risky mortgage-backed securities, and the Securities and Exchange Commission has started a probe looking at how Wall Street is valuing mortgage securities, The Wall Street Journal reported Friday, citing people close to the situation.

Mazda, Japan's fifth-largest automaker, said net profit for the second fiscal quarter reached 26.6 billion yen ($232.1 million), up from 20.6 billion yen in the year-ago period. Revenue rose 7% to 841.9 billion yen from 787.1 billion yen. For the full year, Mazda kept its forecast for a group net profit of 85 billion yen.

Doug Casey: " The rapidly approaching dilemma for the Federal Reserve comes down to a choice between (1) engineering a standard sort of recovery from the next recession by speeding up monetary growth and reducing interest rates and (2) keeping the dollar afloat.
Choose the “solution” behind Door Number One and trigger a monetary crisis. Open Door Number Two and our heavily indebted economy is devastated by the higher interest rates needed to support the U.S. dollar. For all the reasons discussed above, and with the next presidential election season now kicking off, the odds heavily favor inflation.
In fact, Fed Chairman Ben Bernanke virtually gave the game away in a speech in Frankfurt on November 10, 2006.
“It would be fair to say that monetary and credit aggregates have not played a central role in the formulation of U.S. monetary policy.”
In other words, the total amount of money in the system – what we “print” – plays no serious role in current U.S. policy. That’s a politic way of admitting that the U.S. government is planning to paper over all its many obligations and accelerate a trend that has been in motion since the creation of the Fed in 1913."

The Federal Reserve added $41 billion in temporary reserves to the banking system, the largest one-day cash infusion since the terrorist attacks of September 2001.

Chevron's net income for the three months ended Sept. 30 fell to $3.72 billion, or $1.75 per share, compared with $5.02 billion, or $2.29 per share, during the same period a year earlier. The CEO said "margins were squeezed as escalating costs for crude-oil feedstocks could not be fully recovered in a U.S. marketplace that was well-supplied with gasoline and other refined products."

The mood in credit derivatives markets turned ugly on Thursday, with the cost of insuring corporate debt hitting multi-week highs on both sides of the Atlantic. "It's scary out there - there's blood on the streets," a trader at a US brokerage said. "It's a real mess." Funny. The Dow and the S&P don't look scary. How can that be?

According to market research firm IMS Health, the global pharmaceutical market will grow 5 to 6% during 2008 to as much as $745 billion, after a rather anemic 6 to 7% increase in 2007. In the world's two largest markets for pharmaceuticals, the U.S. and Europe, drugs sales are only projected to grow 4 to 5% next year, their slowest pace since the early 1960s.

Peter Schiff: " Had the government assumed a higher rate of inflation, say 2.6% (identical to the rate used to deflate second quarter GDP,) the 3rd quarter gain would have been only 2.1%, well shy of the consensus forecast. My guess is that inflation is actually running at an annualized rate closer to 10%. Therefore using a more honest deflator, the U.S. economy is actually contracting, which would explain the recent anecdotal evidence provided by various economic polls, voter dissatisfaction and consumer sentiment numbers. In fact, if one simply measures U.S. GDP using gold or any other currency, it is clear that we are already in a recession."

Copper tumbled 3.2%, the most in 11 weeks, after stockpiles monitored by the London Metal Exchange rose 8.3% this week to the highest level since April. Supplies surged 28% in October, according to the LME.

According AMG Data, Including ETF activity, Equity funds report net cash inflows totaling $7.275 billion in the week ended 10/31/07 with Domestic funds reporting net inflows of $4.115 billion and Non-domestic funds reporting net inflows of $3.160 billion;
Excluding ETF activity, Equity funds report net cash outflows totaling -$565 million with Domestic funds reporting net outflows of -$942 million and Non-domestic funds reporting net inflows totaling $376 million.

The Oil Drum: "Industry insider and writer on oil Matthew Simmons bet $5,000 with a New York Times columnist that oil prices would reach $200 in 2010. Simmons calculates that $65 a barrel translates to 10 cents a cup, still 10 times cheaper than bottled water.

Brett Steenbarger: "In short, when the VIX jumps from 15 to 25, the effect is similar to doubling position size overnight. Moreover, markets will--to the eye of the trader--move twice as fast; a given market move will occur in half the time. This will make it feel as though markets are moving *differently*. Finally, when volatility doubles, the average movement against one's positions will double. If stop levels are not adjusted appropriately, it's easy to get stopped out and chopped up unless one's timing is impeccable."

The OPEC will need to pump more than the additional 500,000 barrels a day agreed in September to avoid tight crude and product inventory levels, the head of the U.S. Department of Energy's data section said Thursday.

The ABX index tracks AAA mortgage bonds. Not surprisingly, this index has made new lows this week. It would be wise to keep one's eye on this index. It will provide a clue to the health of the financial indices. Specifically, the AAA-rated ABX Index (for home loans made in the second half of last year) dropped under 80.0, down almost 3.50 from Friday's close of 83.4. The lesser-rated AA-rated ABX Index traded under 48.0 after closing at over 52.0 on Friday.

In early Friday trading, the euro made a fresh record high of $1.4525. The pound sterling was trading at $2.0819, up from $2.0789 Thursday. The dollar index, which measures the greenback against a basket of currencies, was down to 76.26. Does anyone in Congress care about the standard of living for those on Main Street?

Since Jan. 2005, Allstate Insurance has traded between the mid-60's and 50. The stock traded at $50+ on Friday. For patient investors, it might be worth a look.

Robert McHugh: "We have seen now five Hindenburg Omens since October 16th, the other four occurring October 17th, 18th, 25th, and again another Hindenburg Omen observation today, Thursday, November 1st."

Gold for December delivery rallied $14.80 to finish at $808.50 an ounce on the New York Mercantile Exchange. Earlier, the contract hit an intraday high of $810.70, a level not seen since 1980.

Crude-oil futures finished on Friday up $2.44, or 2.6%, at a record closing price of $95.93 a barrel on the New York Mercantile Exchange. Natural gas closed at $8.41.

Berkshire Hathaway's third-quarter net income came in at $4.55 billion, or $2,942 per class A share, up 64% from a year earlier when the the insurance-focused conglomerate run by Warren Buffett made $2.77 billion, or $1,797 a share. Investment and derivative gains of $1.99 billion, or $1,287 per class A share, accounted for all the gains in the period. Operating income, which excludes net realized investment gains and losses, was $2.56 billion, or $1,655 per class A share, down slightly from a year earlier when Berkshire made an operating profit of $2.6 billion, or $1,684 a share, the company said.

Citigroup Inc.is expected to hold an emergency board meeting this weekend, the Wall Street Journal reported Friday.

Jim Rogers: ``Bernanke loves printing money,'' Rogers said in an interview in New York. ``This man is a nut. The dollar is collapsing, commodities are going through the roof, which means inflation's going through the roof. These people are leading us to terrible problems down the line.'' Rogers, the 65-year-old chairman of Beeland Interests Inc., also said he's selling short shares of Citigroup Inc., the biggest U.S. bank, and Fannie Mae, the largest provider of money for U.S. home loans. Investors should buy commodities and the Chinese currency, Rogers said.

Credit Issues And Headwinds

11/2/07 Credit Issues And Headwinds

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

Citigroup was downgraded to sector underperformer from sector performer at CIBC World Markets, with the broker citing worries about its dividend payments. "We believe over near term, Citigroup will need to raise over $30 billion in capital through either asset sales, a dividend cut, a capital raise or combination thereof," the broker said. The stock traded down to a 4 year low at $38+. A management change is long long long overdue. The market cap is now below $200 billion.

Tele Atlas intends to recommend the Garmin offer unless TomTom matches it by the close of business on Nov. 8. Tele Atlas stressed it needs a binding offer from Garmin before it can switch its recommendation. So far Garmin has only declared its intention of making an offer for Tele Atlas of 24.50 euros a share in cash, which represents a 15% premium to the TomTom offer. Should TomTom match the Garmin offer, then Tele Atlas will continue to recommend the Dutch company's bid. If it fails to match the offer then Tele Atlas will terminate its agreement with the firm.

Unilever's third-quarter net profit rose 37% to 1.01 billion euros from 737 million euros as revenue for the period rose 1% to 10.24 billion euros. Underlying sales were up 4.5%. Revenue fell 0.6% in Europe and 2.3% in the Americas, but this was more than offset by strong growth in Asia and Africa, with India and China showing particularly strong growth. Commodity prices pressures have increased sharply, but have been offset through increased prices which helped raise the group's margin by 0.2 percentage points. Earnings were also boosted by increased an increased contribution from joint ventures and lower financing costs. Unilever said it remains confident it will meet its targets for 2007.

Online recruitment rose to its highest level since May, with management and military opportunities leading the rise, the Monster Employment Index showed. The index is published by Monster, the online-recruitment Website. The index reached 188, up two points from September and up 16 points from the year-earlier month. The index was last this high when it reached 189 in May 2007. The biggest jump in industries was in public administration, which rose 29 points, or 19%. That reflected more online job ads from the federal government. The biggest decline was in transportation and warehousing, down 8 points. Geographically, New England showed the highest rate of increase while the Mountain and Pacific regions showed the slowest growth.

China's manufacturing activity reached a 31-month high in October, driven by growth in domestic orders while overseas order growth remained positive. A gauge of purchasing activity rose to 55.2 in October from 55 in September, according to the purchasing managers' index compiled by CLSA Asia-Pacific Markets. October's gains mark the 23rd consecutive month of expansion in Chinese manufacturing, the report said.

A total of 446,726 homes nationwide were targeted by some sort of foreclosure activity from July to September, up 100.1 percent from 223,233 properties in the year-ago period, according to Irvine-based RealtyTrac Inc. The current figure was 33.9 percent higher than the 333,731 properties in foreclosure in the second quarter of this year. There was one foreclosure filing for every 196 households in the nation during the most recent quarter, RealtyTrac said.

Bloomberg's John Berry: "The members of the Federal Open Market Committee also effectively told investors and analysts not to expect another such reduction at the committee's next meeting on Dec. 11. That signal was clear from the FOMC's statement, which said, ``The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth.''

Henry To: "While foreign investment banks, commercial banks, hedge funds, and private equity funds are still creating liquidity (although this is slowing down as well), the Federal Reserve itself has continued to restrain liquidity from the global financial system, despite a lower discount and Fed Funds rate since July 15th. This is evident by the dismal 2.0% growth (a rate that is below that of inflation) in the St. Louis Adjusted Monetary base over the last 12 months. Another indicator of deteriorating liquidity is the blowout of credit spreads in the U.S. markets over the last few months. With the rally off the mid August lows, one would think that credit spreads have settled down since then, but that has not been the case."

China unexpectedly increased fuel prices by as much as 10 percent in an ``urgent step'' to help the nation's oil refiners cover surging costs as crude touched records above $96 a barrel. To ``guarantee domestic refined oil supply and promote energy conservation,'' gasoline, diesel and jet fuel prices will rise 500 yuan ($67) a metric ton starting today, the National Development and Reform Commission said late yesterday. China Petroleum & Chemical Corp., Asia's largest refiner, surged in Hong Kong and Shanghai trading.

According to the FT, the ongoing crisis in the US housing market is pushing a key mortgage-linked derivatives index to new lows, threatening to unleash a further bout of credit market upheaval. The price swing in the index, known as the ABX, is particularly significant, since it is starting to reduce the value of credit instruments that carried high credit ratings, and were therefore supposed to be ultra-safe.

Starbucks launches bottled Frappuccino in China today, a market with lots of potential customers but little history with ready-to-drink coffee drinks. Starbucks kicks off the new drink at stores in Hong Kong, Shanghai and Beijing and at convenience stores and other locations in Hong Kong and Shanghai.

Exxon Mobil Corp., the world's biggest oil company, posted a second straight drop in quarterly profit for the first time in five years after equipment and power failures slowed fuel output and refining margins narrowed. Third-quarter net income fell to $9.41 billion, or $1.70 a share, from $10.5 billion, or $1.77, a year earlier, the Irving, Texas-based company said today in a statement. The company was expected to earn $1.74 a share, the average of 16 analyst estimates compiled by Bloomberg.

Nouriel Roubini: "Consensus for Q4 is for a growth of 1.8% with some mainstream firms, such as JP Morgan, recently predicting 1%. Now that the inventory issue will likely subtract - as the Morgan Stanley commentary suggest - about 0.9% to previous estimates of Q4 growth, the consensus should revise its Q4 forecast to about 1% or below, straight into a "growth recession" territory. Thus, a growth rate in the 1% or below range looks like the most likely current outcome for Q4's growth rate. It is important to keep in mind that several of the bearish factors slowing down the economy emerged only late in Q3 and will thus affect growth only in Q4 and beyond: the sharp rise in oil prices, the severe liquidity and credit crunch that started only two thirds into Q3, the effects of these shocks on consumer and business confidence and planned capital expenditure, the worsening of the housing recession and the acceleration in the rate of fall in home prices. And the headwinds slowing down consumption - that is down in October relative to September based on weekly UBS/ICSC and Redbook data on same store chain store sales - are building up: lower home values, lower home equity withdrawal, credit crunch in mortgages and rising default rates in other parts of consumer debt, rising debt servicing ratios as ARMs reset, falling consumer confidence, rising oil and gasoline prices, slowdown in employment growth. At the same side supply side factors (ISM, regional Feds' ISM reports, inventories, durable goods orders) also suggest a significant slowdown ahead in Q4. So as the WSJ put it today the GDP growth is "Not Built to Last"!

Altria Group Inc.will pay $2.9 billion to buy John Middleton, Inc., a manufacturer of machine-made large cigars, from privately held Bradford Holdings. The net cost of the acquisition, after deducting approximately $700 million in present value tax benefits arising from the terms of the transaction, is $2.2 billion.

For the fourth quarter, Timberland anticipates revenue declines in the mid-single digit range reflecting soft market conditions in the U.S. and Europe and operating margin declines in the range of 200 basis points, excluding restructuring costs. For 2008, Timberland is targeting mid-single digit first half revenue declines and improved operating results. The footwear and apparel maker expects soft market trends will be offset by its "efforts to drive operational efficiencies" and its decision to close about 50 retail stores by the end of the first quarter of 2008. The company also said it would realign its U.S sales team and global product development organization to "eliminate redundancies and improve efficiencies."

Credit Suisse had a 1.1B franc writedown on leveraged loans that the bank was unable to resell after credit markets dried up in July and August, and another 1.1B franc writedown on residential and commercial mortgages and CDOs.

After adjusting for inflation, after-tax incomes rose 0.2% in September and real spending increased 0.1%. Meanwhile, inflation was steady. in September. The personal consumption expenditure index rose 0.2% on the month. The core rate of inflation - which excludes food and energy prices - also rose 0.2%, as expected. In the past year, the PCE price index has risen 2.4%, while the core PCE index was up 1.8%, the same as the previous month. Obviously, there is no validity to these inflation numbers from the government.

First-time claims for state unemployment benefits dropped to their lowest level in three weeks during the week ending Oct. 27, while the number of workers continuing to claim unemployment benefits rose to its highest level since Sept. 1, the Labor Department reported Thursday. Initial jobless claims fell to 327,000, a decrease of 6,000, the government data show. It's the lowest since Oct. 6. Continuing claims for unemployment benefits rose by 65,000 to 2.58 million. The four-week average of those claims also shot up by 13,000, to 2.53 million.

Crude-oil futures for December delivery retreated from Wednesday's record high, closing down $1.04, or 1.1%, at $93.49 a barrel Thursday on the New York Mercantile Exchange.

Natural gas supplies rose by 66 billion cubic feet to 3,509 billion cubic feet as of Oct. 26, the Energy Department reported on Thursday. Natural gas closed up 28 cents to $8.61.

Gold for December delivery finished down $1.60 at $793.70 an ounce on the New York Mercantile Exchange.

MetroPCS Communications Inc. on Thursday withdrew its $4.7 billion offer to acquire rival Leap Wireless International Inc., two months after Leap rejected its unsolicited bid.

CIBC World Markets trimmed their 2008 and 2009 profit forecasts for the Bank of America.

The outstanding level of asset-backed commercial paper fell for the 12th straight week, the Federal Reserve reported Thursday. Asset-backed paper dropped by $9 billion, or 1%, to $875 billion, and this represents a plunge of $308 billion, or 26%, since the crisis of confidence in credit began in early August.

The U.S. manufacturing sector grew at a slower pace for a fourth straight month in October, according to the Institute for Supply Management index released Thursday. The ISM index fell to 50.9% from 52% in September.The new orders index fell to 52.5% from 53.4% in September. The production index dropped to 49.6% in October from 54.6% in September. The prices paid index rose to 63% from 59%.

Chrysler plans to cut more than 10,000 jobs, and that is in addition to the 13,000 layoffs announced in February.

U.S. District Court Judge Patricia Minaldi ruled this week that the Interior Department's Minerals Management Service could not order Kerr-McGee Oil and Gas Corp. � now owned by Houston-based Anadarko Petroleum Corp. � to pay royalties on production in the deep waters of the Gulf of Mexico solely because oil and gas prices rose to specific thresholds.

GMAC Financial Services lost $1.6 billion in the third quarter as it fell victim to the turmoil sweeping through the mortgage industry, the lender said Thursday.The former financing arm of General Motors Corp. said its mortgage business, ResCap, lost $2.3 billion during the third quarter, offsetting profits elsewhere in the business. GMAC cited "unprecedented disruptions" in the mortgage industry, stung by sinking home prices and an aversion among banks and investors to buying home loans.

Democrats, ignoring a veto threat, will try to force President George W. Bush to approve an increase in domestic spending by combining it with legislation funding military construction and veterans' programs.
Lawmakers said they will merge the appropriations bills into a single $750 billion measure, making Bush accept a $10 billion increase for education, health care and job-training programs or veto legislation benefiting active and retired military personnel near Veterans Day.

`"Trade is the only thing holding up manufacturing and otherwise it's looking weak,'' said Edward McKelvey, senior economist at Goldman Sachs Group Inc. in New York. ``The spending numbers suggest softer momentum coming out of the third quarter. The economy is in transition, and the growth we saw in the third quarter is in the rear-view mirror.''

Roche will build a second R&D center in China, spending $100 million to create the first fully functional China clinical drug R&D center that is owned by a multinational pharmaceutical company.

George Friedman: "The United States simply does not have the numbers of ground troops needed to invade and occupy Iran -- particularly given the geography and topography of the country. Therefore, any U.S. attack would rely on the forces available, namely air and naval forces...the United States simply does not have the numbers of ground troops needed to invade and occupy Iran -- particularly given the geography and topography of the country. Therefore, any U.S. attack would rely on the forces available, namely air and naval forces."

John Emerich Edward Dalberg Acton: “The danger is not that a particular class is unfit to govern. Every class is unfit to govern.”

The Dow Jones Industrial Average ended down 362 points, or 2.6%, at 13,567, its worst day since October 19, which marked the anniversary of Black Monday.The S&P 500 index fell 40 points, or 2.6%, to 1,508, while the Nasdaq Composite lost 64 points, or 2.3%, to 2,794. Microsoft bucked the trend and landed 25 cents higher on the day.

The Month Ends With Fireworks

11/1/07 October Ends With Fireworks

First Consulting Group Inc., a provider of information-technology products and services for health care and life sciences, agreed to be acquired for $13 a share, or $365 million, cash by Computer Sciences Corp., the companies said.

Clorox Co. will acquire personal-care product company Burt's Bees for $925 million net of an additional $25 million payment for anticipated tax benefits, in a move to capitalize on the popularity in "natural" products. Clorox will fund the all-cash deal through a combination of cash and short-term borrowings.

Uranium spot prices averaged $96.33 a pound in the quarter, compared to $50.83 a pound a year ago.

Japan will experience zero inflation in fiscal 2007 and a 0.4% rise in fiscal 2008, in terms of the consumer price index, excluding fresh foods, the Bank of Japan said in its semi-annual statement on the economy Wednesday.

The Bank of Japan voted 8-to-1 Wednesday to keep its key interest rate unchanged at 0.5%. Board member Atsushi Mizuno voted against the motion.

Garmin Ltd. proposed to buy Tele Atlas NV for 24.5 euros ($35.31) a share, or 2.3 billion euros ($3.31 billion). Separately, Garmin reported third-quarter earnings rose 57%.

Alcatel-Lucent, the world's largest telecommunications equipment company, on Wednesday said it will cut an additional 4,000 jobs in 2009 as it posted its third straight quarterly loss.

Canada's dollar rose to the highest since 1960. Canada's dollar rose to $1.0496 at 4:48 p.m. in Toronto, from $1.0482 yesterday. It touched $1.0511, the highest since March 28, 1960. One U.S. dollar buys 95.26 Canadian cents.

Robert Orben: “Inflation is bringing us true democracy. For the first time in history, luxuries and necessities are selling at the same price."

Mike Burk:"The OTC has been up 68% of the time in November, and including a 22% loss in 2000 and a 14% loss in 1973 it has had an average gain of 1.7% for the month. Performance during the 3rd year of the Presidential Cycle has been only slightly less, up 64% of the time with an average gain of 1.6%...Over all years the SPX has been up 55% of the time in November with an average gain of 0.4%. During the 3rd year of the Presidential Cycle it has been up 53% of the time with an average loss of 0.6%. The losses were distorted by an average loss of 4.48% for the 5 cycles before 1950."

Richard Daughty: "China's General Administration of Customs reported that China alone imported 39.3% more crude oil in July than it did this time last year! Not only that, but Liquefied Natural Gas (LNG) imports soared five-fold, too! 500%!"

Private payrolls grew by 106,000 in October, following a revised 61,000 gain in September, ADP reported Wednesday.

"Our business momentum continued to build in the third quarter," Irene Rosenfeld, Kraft's chairman and chief executive, said in a statement. "Although we face a difficult input cost environment, we are making the necessary investments to strengthen our brand equity."Kraft also maintained its outlook for 2007 earnings per share of $1.60 to $1.62, or $1.80 to $1.82 excluding items.

MasterCard Inc.said third-quarter profit climbed 63 percent as customer spending increased.

Private equity firm Cerberus has terminated its acquisition offer to acquire Affiliated Computer Services Inc. This was a $6.2 Billion deal that valued Affiliated at $62 per share.

The Wall Street Journal stated "Sadad I. Al-Husseini, an oil consultant and former executive at Aramco, Saudi Arabia's national oil company, gave a particularly chilling assessment of the world's oil outlook. The major oil-producing nations, he said, are inflating their oil reserves by as much as 300 billion barrels."

U.S. employment costs increased 0.8% in the third quarter after a 0.9% gain in the second quarter, the Labor Department reported Wednesday. Benefit costs rose 0.8% in the quarter, while wages and salaries also rose 0.8%. Over the past year, employment costs have increased 3.3%, the same rate as in the second quarter. Wages and salary costs have increased 3.3% in the past year, while benefit costs increased 3.2%.

More suspect government numbers: The U.S. economy grew at a 3.9% annual pace in third quarter, the best performance in six quarters, the Commerce Department estimated. There were strong contributions from consumers, exports, capital spending, military spending, and inventory building. And for the big laugh!
The GDP price index, the broadest measure of price changes in the economy, rose just 0.8% annualized, matching a nine-year low. Consumer prices rose 1.7%, while core consumer prices, which exclude food and energy prices, rose 1.8%. With respect to government numbers, fairy tales don't come true.

George Ure pointed out that the 5.6 San Jose quake at 8PM Tuesday happened a mere 26 minutes from a 7.2 shaker off on the other side of the Pacific plate in the northern Mariana Islands.

In early Wednesday trading Google topped $700 a share.

The Treasury Department will auction $18 billion in notes and bonds next week in its quarterly refunding auctions, the government said Wednesday. The department will auction $13 billion in 10-year notes and $5 billion in 29-year, 6-month bonds to refund $51.5 billion in maturing securities and pay down approximately $33.5 billion.

Private nonresidential construction spending climbed by 1.5%, while public construction spending rose by 1.9%, the Commerce Department said. But spending on housing projects fell by 1.4%, the 19th straight decline and a reflection of the ongoing slump in the housing and mortgage markets. That spending is down 16.4% in the last year.

Business activity in the Chicago region contracted in October, according to a survey of corporate purchasing managers released on Wednesday. The Chicago purchasing-managers' index fell to 49.7% in October from 54.2% in September.

Oil refinery capacity utilization down to 86.2%. Heating oil still climbing and now at $2.48, another record high. Forecasters expect lower temperatures to move into the Midwest by mid-month, increasing demand for natural gas to run furnaces. About 79 percent of homes in the Midwest rely on gas for heating, according to the Energy Department.

Crude supplies fell by 3.9 million barrels to 312.7 million barrels in the week ending Oct. 26, the Energy Department said on Wednesday. Gasoline supplies rose by 1.3 million barrels to 195.1 million barrels in the latest week, while distillate stocks grew by 800,000 barrels to 135.3 million barrels, the Energy Department said.

Crude supplies fell by 3.3 million barrels to 311 million barrels in the week ending Oct. 26, American Petroleum Institute reported on Wednesday. Distillate stocks rose by 3.1 million barrels to 136.2 million barrels in the same period, while gasoline stocks fell by 800,000 barrels to 196.1 million barrels, API said.

Palatin Technologies, Inc.announced the initiation of dosing in a Phase 1 clinical trial of PL-3994, a long acting analog of atrial natriuretic peptide, under development for treatment of acute decompensated congestive heart failure (CHF). The trial is being conducted under an Investigational New Drug application Palatin submitted to the U.S. Food and Drug Administration. Future plans include the development of PL-3994 for long term administration in patients with chronic congestive heart failure. Dr. Trevor Hallam, Palatin's Executive Vice President for Research and Development, stated, "We are excited to begin clinical trials of PL-3994, a compound developed by Palatin scientists that has the potential to become a new tool for physicians to advance the treatment of congestive heart failure. CHF is the single most common cause of hospitalization in the U.S. for patients older than 65 years of age and an underserved medical condition." Atrial natriuretic peptide (ANP) is a naturally produced peptide hormone involved in regulation of water and sodium levels in the circulation. Palatin's PL-3994 is a peptidomimetic compound, which incorporates features of both natural ANP and small molecules. Preclinical studies have demonstrated that PL-3994 is highly potent. Its longer duration of action is believed to relate to diminished affinity for the natriuretic peptide clearance receptor and increased resistance to the enzyme neutral endopeptidase, both pathways for clearance of endogenous natriuretic peptides. In animal models, PL-3994 was able to induce diuresis (excretion of fluids) with a limited decrease in blood pressure. The compound is well absorbed by the subcutaneous route of administration.

The euro hit another new high against the dollar and the dollar index made another new low, 76.62, against a basket of currencies.

Crude-oil futures rose 4.6% to $94.53 a barrel on the New York Mercantile Exchange on Wednesday after the Federal Open Market Committee cut the fed funds rate by 0.25% to 4.5%. "The Fed cuts were pretty much as expected but more bad news for the dollar which means oil will likely rally even more," said Kevin Kerr, president of Kerrtrade.com and Editor of Dow Jones MarketWatch's Global Resources Trader.
Crude-oil futures hit a new record high in after-hours trading on Wednesday, surging as high as $95.28 a barrel on the New York Mercantile Exchange. Crude oil for December delivery was last up $4.84, or over 5%, at $95.22 a barrel on Nymex. Crude got all the headlines; however, natural gas had a big move and closed at $8.38. That's the highest price for some time.

Gold for December delivery rose $7.50 to end at $795.30 an ounce on the New York Mercantile Exchange.

Aon Corp. said late Wednesday that it will eliminate 2,700 jobs as part of a new re-organization plan.

Crocs Inc. fell $17.05, or 23 percent, to $57.70 after the official close of U.S. exchanges. Quarterly sales were somewhat less than anticipated.

Treasuries fell after the Federal Reserve lowered interest rates for a second time in two months and suggested additional reductions may prove unnecessary.

Moody's Corp. will begin cutting jobs as soon as next month as the credit-market slump saps demand for its bond-rating services.

Bill Vaughn: “Some idea of inflation comes from seeing a youngster get his first job at a salary you dreamed of as the culmination of your career."

More Earning Reports

10/31/07 More Earning Reports

BJ Services Company reported net income of $189.4 million for the fourth fiscal quarter ended September 30, 2007, or $0.64 per diluted share. The quarter's diluted earnings per share increased 12% compared to the $0.57 per diluted share reported in the previous quarter and decreased 16% compared to the $0.76 per diluted share for the fourth quarter of fiscal 2006. For the fiscal year ended September 30, 2007, consolidated revenue of $4.8 billion increased 10% from the $4.4 billion generated during fiscal 2006 and earnings per diluted share of $2.55 improved 1% from the $2.52 reported in fiscal 2006.
Oilfield Services Group fourth quarter 2007 revenue of $224.6 million increased 16% sequentially and increased 27% year over year.
For the first quarter of 2008, the company expects to report earnings of 58 cents to 60 cents per share. BJ Services reported a profit of 70 cents in the first quarter of 2007. Analysts expected earnings, on average, of $2.50 in 2008 and 63 cents in the first quarter, according to a survey by Thomson Financial. "For fiscal 2008, we project revenue and margin improvement in all segments of our business except U.S./Mexico pressure pumping operations where pricing pressure is expected to continue during the year," the company said in a statement.
In my view, the company learned its lesson in making projections during the first part of 2007 and is low balling the numbers for 2008 which began Oct. 1. In addition, despite the pricing pressure for the pumping industry in U.S./Mexico, and taking into consideration the high return on equity for the overall company,
I strongly believe BJ Services will be acquired over the coming months. The present valuation is way out of synch in comparison with Baker Hughes and others.



Division Sequential Year Over Year

Tubular Services 4 % 19 %
Process & Pipeline Services 38 % 52 %
Chemical Services 12 % 32 %
Completion Tools -9 % 23 %
Completion Fluids 8 % -12 %

Under Armour lifted its 2007 revenue estimate to $590 million to $600 million from $580 million to
$590 million. For 2008, the company said it expects net revenue and income from operations to exceed its long-term growth target of 20% to
25%.

The British pound rose to a new 26-year high against the U.S. dollar.

The Reserve Bank of India Tuesday left its short-term interest rates unchanged, as expected,
while raising banks' reserve requirements by 0.5 percentage point to 7.5%. The increase in banks' cash reserve requirement will become
effective Nov. 10. "At the current juncture and looking ahead, on the domestic front, the biggest challenge for monetary policy is the
management of capital flows and the attendant implications for liquidity and overall stability," wrote the central bank in a statement
after announcing its quarterly policy review. The RBI retained its 8.5% forecast for the country's economic growth for the year ending March
31, 2008.

Vulcan Materials, Inc., the largest producer of construction aggregates in the United States,
said net income in the third quarter edged down to $135.4 million, or $1.38 a share, from $135.7 million, or $1.39 a share, in
the year-ago quarter. Profit in the most recent quarter included a 9 cents a share loss from discontinued operations. Earnings from
continuing operations were $144 million, or $1.47 a share. Analysts polled by Thomson Financial were anticipating earnings from ongoing
operations of $1.59 a share. Sales slipped 0.4% to $844.9 million, also missing views of $952.4 million. The Birmingham, Ala. company said it
expects aggregate volumes in the fourth quarter will continue to be "hampered" by a downturn in residential construction and plans to close
its acquisition of Florida Rock Industries then.

Sweden raises rates to 4%. The central bank added it expected growth to continue - although it
will moderate - and rates to be raised to 4.25 per cent in the first
half of 2008.

Australia cut the wheat crop forecast for the third time.

UBS fears credit crunch will last into 2008.

Procter & Gamble Co.'s first-quarter profit increased
14 percent, matching analysts' estimates, on rising overseas
sales of Fusion razors and a weaker dollar.
The weaker dollar will add 3 percentage points to sales and will help revenue climb as
much as 8 percent, the company said. P&G previously had
forecast a sales gain of at most 7 percent.

The CEO of Colgate-Palmolive stated the company "will deliver
double-digit earnings per share growth for the balance of 2007 and full year 2008."

The decline in prices of existing single-family homes accelerated in August and fell at their fastest pace since 1991, according to the Standard & Poor's/Case Shiller national home price index. S&P said its composite month-over-month index of 10 major metropolitan areas declined 0.8 percent in August to 214.35, for a 5 percent year-over-year drop, S&P said in a statement on Tuesday.
"The fall in home prices is showing no real signs of a slowdown or turnaround," Robert Shiller, founder of the indexes and chief economist at MacroMarkets LLC, said in a statement.

"While it is difficult to predict a recovery in our domestic offshore drilling business, there are some early signs of a moderate increase in demand as we enter the fourth quarter," Hercules Offshore said.

Natural gas continues to improve at $8.04 per million BTUs. Patience is being rewarded and the shorts are beginning to feel some pain. Companies like BJ Services are dependent on natural gas as well as oil and should benefit with prices rising.

Crude-oil futures for December delivery closed down $3.15, or 3.4%, at $90.38 a barrel on the New York Mercantile Exchange, after setting a record high close of $93.53 on Monday.

Gold for December delivery closed down $4.80 at $787.80 an ounce on the New York Mercantile Exchange.

Merrill Lynch ousts CEO O'Neal.

Bush said he would reject any attempt by Congress to force him to accept legislation with increased domestic spending by combining it with funding for military operations and veterans health care.

According to Peter Gumbel of Fortune, he quarterly delinquency rate on credit card debt for Capital One, Washington Mutual, Citigroup, J.P. Morgan Chase, and Bank of America rose an average of 13% in the third quarter, compared with a 2% drop in the previous quarter. Is this the next shoe to drop? It may take a bit of time to reveal its true colors, but I believe the consumer's cash flow is in trouble.

Quite A Start To The Week

10/30/07 Quite A start To The Week

Gold for December delivery climbed $9 to $796 per ounce at midday during Asian business hours Monday, after earlier touching a session high of $796.80 an ounce. Crude-oil futures topped $93 a barrel for the first time on Monday.

China trade surplus to reach $250B this year. The yuan rose the most in two years after China's central bank signaled it will allow the currency to appreciate faster to help narrow a record trade surplus and slow inflation.

Mexico's state-owned oil company Pemex was shutting down about one-fifth of its daily output on Sunday due to bad weather, but said it expects to quickly resume output within days. U.S. crude oil futures jumped as much as 1 percent to a record high $92.79 a barrel on news of the outage.

Anglo-Swiss miner Xstrata Plc on Monday offered A$3.1 billion ($2.8 billion) for Australian nickel miner Jubilee Mines NL , seeking to consolidate its position as a global nickel producer. The bid was unanimously recommended by the Jubilee board.

Oracle let its $17-a-share offer for BEA expire and invited holders to confront the company, following Icahn's similar call.

John Hussman: "There is virtually a 1-to-1 correspondence between “improvements” in the U.S. trade deficit and deterioration in U.S. gross domestic investment."

BEA Systems' board said it is "not opposed to an acquisition of the company," adding that it is in the process of exploring ways to maximize shareholder value, including a sale. However, the board called Oracle's bid "unacceptable" because it "significantly undervalues BEA.

Barrick Gold Corp.has entered into an agreement with Arizona Star Resource Corp.that will see Barrick make an offer to acquire Arizona Star at C$18 a share, or a total of C$773 million. Barrick said the offer represents a 27% premium over Arizona Star's 20-day average trading price on the Toronto Stock Exchange. Barrick said its offer has been approved by the board of Arizona Star, and all directors and officers of Arizona Star have entered into written agreements to tender their shares to Barrick's offer.

According to the Washington Post, confronted by mounting U.S. and U.N. pressure, Iran has been steadily shifting its trade from West to East and, with the benefit of record high oil prices, is likely to be able to withstand the new U.S. sanctions, according to U.S., European and Iranian analysts. China, a permanent member of the Security Council that can veto any U.N. resolution, is expected to overtake Germany as Iran's biggest trading partner this year.

The euro climbed to $1.4438 in midmorning Monday trading, the highest level since it began trading in January 1999.

China's Sinopec Corp is seeking another 60,000 tonnes of diesel for November, having bought the same volume for the month, which will take its imports to an 11-month peak, as the country suffered shortages. PetroChina will raise $8.9 billion in the world's biggest share sale this year to expand refineries and increase output at oilfields.

The Treasury Department expects to borrow a total of $201 billion in net marketable debt over the first and second fiscal quarters, the department said Monday. Treasury expects to borrow $68 billion in the first fiscal quarter and $133 billion in the second quarter.

December crude oil futures rose for a fourth day and closed at a record high of $93.53 a barrel on New York Mercantile Exchange.

The New Week

10/29/07 The New Week

Merrill Lynch & Co.'s directors have reached a consensus on removing E. Stanley O'Neal as chairman and chief executive of the New York investment bank, people briefed on the discussions told the New York Times.

"We will encourage Chinese banks to go abroad to participate in international competition and overseas acquisitions to improve global competitiveness," Wang Zhaoxing, assistant chairman of the China Banking Regulatory Commission, told a financial forum in Xianghe, Hebei province.

Robert McHugh: "Now that the Dollar dropped down to 77.00, we are in a high risk situation of a devaluation of the dollar all the way down to 40.00. Remember, this mess started with the Dollar at 120.00 five years ago. 40.00? Not all at once, but over the course of several years. Perhaps all at once, should the government elect to flat-out issue an edict that a dollar is now worth 50 cents. Would they? Maybe. Why? It is a way to repudiate half of all the debt in the United States. Why would they want to do that? Perhaps if a recession became a depression, or the risk thereof. Perhaps if Housing was to absolutely dive into the tank. It would be a way to relieve mortgage holders of a huge chunk of their obligations in lieu of mass foreclosures, and bailout financial institutions holding substantial portfolios of mortgage backed securities - IF households can get their hands on enough of these hyperinflated dollars. However, the problem for the middle class, is will any of this monetary hyperinflation find its way into their checking or savings accounts? Will their incomes rise from this artificial economics policy? We don't think much of it will."

Vladimir Putin, Russia’s president, on Friday compared US plans to build a missile defence shield near Russia’s borders to the 1962 Cuban missile crisis that brought the world to the brink of nuclear war.

Brad Setser: "A hundred dollars bought about 5 barrels of oil at the end of 2001 (and around 110 euros). A hundred dollars now just buys a single barrel and change, and about 70 euros. Oil may be priced in dollars, but anyone who set aside a bunch of dollars to assure their ability to pay for their oil import bill would be sorely disappointed."

Alibaba

10/28/07 Alibaba

Alibaba.com Ltd., one of China's fastest-growing technology companies, reached its goal of raising $1.5 billion in its initial public offering Saturday, people close to the deal said. Alibaba, an e-commerce portal, sold 858.9 million shares, or a 17 percent stake, at roughly $1.75 each, a source told Dow Jones Newswires on condition of anonymity.The shares will debut on the Hong Kong stock market on Nov. 6. The IPO price translates to a multiple of 55 times its forecast 2008 earnings. Alibaba -- whose Web sites allow companies in China and overseas to trade with one another online -- is one of China's fastest growing Internet companies. It has seen its registered members soar from 6 million in 2004 to 24.6 million in 2007. Paying members increased from 77,000 in 2004 to 255,000 by June 2007. Yahoo! Inc., which holds a 39 percent stake in Alibaba's parent, Alibaba Group, had agreed to subscribe to about $100 million worth of shares.
About 1 1/2 months ago I mentioned considering Yahoo for purchase at $23 and noted Yahoo was the way to play the upcoming Alibaba IPO. Compared to Google, VMware, Apple, RIMM, and others it looks like Yahoo is a slow mover; however, the rise to $33 isn't too bad.

Bertrand Russell: “The biggest cause of trouble in the world today is that the stupid people are so sure about things and the intelligent folks are so full of doubts."

According to the WSJ, "Barry Diller and John Malone are having relationship issues. The two media moguls have made a fortune together. But lately, Mr. Diller's IAC/InterActiveCorp. hasn't been looking good. And Mr. Malone, who owns a majority voting stake, is talking as if the union is heading for the rocks."
Barry Diller has made his investors good returns. Malone would, in my view, make a mistake to interfere.

Richard Benson: "Derivatives are by design extraordinarily leveraged, so small changes in the financial markets can affect their value in a big way. A sizable wave in the financial markets can easily be magnified and turned into a tsunami of market losses. With the current level of credit derivatives all sitting off-balance sheet (and unnoticed like the SIV's recently were), unsuspecting investors could wake up to discover more alarming losses amounting to a few trillion dollars that were neither anticipated nor welcome. Finally, the financial institutions that have exposure to on-balance sheet credit risk are the Who's Who of major hedge funds, major banks, and Wall Street investment banks. Guess who the major counterparties are in the derivatives market? Why, they’re the same major players! So, while Bear Stearns has become the poster boy for all that's wrong with subprime mortgages, don't worry. Other firms like JP Morgan Chase, Morgan Stanley, Citibank, Merrill Lynch, and even Goldman Sachs, may have their pictures posted alongside Bear Stearns’ in the “Hall of Shame” when corporate credits turn down. Crumbling credit combined with deadly leverage can prove fatal to portfolios invested in financial stocks."

It's hard to believe that Total Money Market Fund Assets have risen to almost $3 trillion.

Downgrades on CDOs are just around the corner. They will cover tens of billions of this type of paper. The bounce in financials will prove, in my view, a dead cat bounce. The fallout hasn't even begun to be seen. All eyes are on the Fed. Rate decreases will not save the day. The Fed will ease but in the past week the spread on CMBSs rose a point.

Doug Noland: "It is worth noting that MBIA and Ambac combine for about $1.9 Trillion of “net debt service outstanding” – the amount of debt securities and Credit instruments they have guaranteed, at least in part, to make scheduled payments in the event of default. Throw in the Trillions of Credit insurance written by the mortgage guarantors and you’re talking real “money.” Importantly, the marketplace is beginning to question the long-term viability of the Credit insurance industry, placing many Trillions of dollars of debt securities in potential market limbo...Subprime and the SIVs are peanuts these days in comparison to the gigantic global CDO and Credit derivatives markets. CDOs may lack transparency, trade infrequently, and operate outside of market pricing (“mark-to-model”). Nonetheless, CDO exposure now permeates the entire global financial system – exposure that regrettably mushroomed in the midst of the most reckless end-of-cycle mortgage excesses imaginable. Rumors this week had major insurance companies suffering huge CDO losses. To what extent the big insurance “conglomerates” have exposure to CDOs and other Credit derivatives is unclear today, but there is no doubt that the global leveraged speculating community is knee deep in the stuff. Importantly, as goes the U.S. mortgage market, so goes the CDOs. I’m not optimistic...Returning to the vulnerable CDO market, some key dynamics are in play. With California now at the brink, uncertain but huge losses are in the pipeline for jumbo, “alt-A,” and “option-ARM” mortgages – loans that were for the most part thought sound only weeks ago. The market began to revalue the top-rated CDO tranches this week, a process that should only accelerate. “AAA” is not going to mean much. If things unfold as I expect, a full-fledged run from California mortgage exposure could be in the offing. And as the dimensions of this debacle come into clearer market view, the viability of the Credit insurers will be cast further in doubt – with ramifications for Trillions of securities and derivatives. General Credit Availability would suffer mightily."

Bloomberg's Matthew Brown reports “Iraq wants to diversify out of dollars to preserve the value of its foreign exchange reserves after the U.S. currency fell, the head of the central bank said. ‘We would like to diversify, definitely,’ Sinan al-Shabibi, governor of the Central Bank of Iraq, said in an interview in Washington. ‘This is a prudent policy.’ And you thought those in the Iraq government were buffoons.

The Goldman Sachs Commodities Index has only increased 33.4% y-t-d. Of course inflation is muted, says the Fed. I wonder whether the 11.5% growth in M3 money supply has anything to do with inflation and the collapse of the dollar.
Those long the dollar should also be long Charmin.

Mexico’s central bank raised its benchmark interest rate by a quarter percentage point to 7.50 percent.

Doug Noland: "The nightmare scenario - where the market abruptly comes to recognize that the leveraged speculating is hopelessly stuck in illiquid CDO, ABS, MBS, derivative and equities positions - doesn’t seem all that outrageous or distant this week. Unfortunately, today’s Ponzi-style acute fragility (as was demonstrated this summer in subprime, asset-backed CP, SIVs and the like) and speculative dynamics dictate that he who panics first panics best. I don’t expect the sophisticated players to hang around and wait for securities to be properly priced and the full extent of illiquidity and the unfolding Credit debacle to be recognized. And while Bubbling markets do delay the inevitable reversal of speculative flows from the leveraged speculating community, they only compound the risk of an inevitable ravaging run from illiquidity. We’ll see to what extent the Fed is willing to spur increasingly destabilizing global stock market speculation and dollar liquidation in false hope that lower rates can somehow mitigate Structured Finance Under Duress."

Peter Schiff : "So while most regard the Fed as the primary inflation fighter, in reality it is the sole inflation creator."

Footnoted.org: "Meritage Homes announced that its revenues from home closings were down 34% from third quarter 2006, with breathtaking declines of 65% in Nevada, 58% in Arizona, and 50% in California. And in a pessimistic-sounding move, the company took substantial write-offs of goodwill based on its expectation that “the downturn of the housing market will be deeper and longer than previously anticipated.” Nevertheless, Meritage threw in this cheery quote from Chairman and CEO Steven Hilton, exclamation point and all: “For those considering a home purchase as a long-term investment, and eager to enjoy the many benefits of home ownership, we hope they conclude that now is a great time to buy a home!” Thanks, Steve, but I think I’m going to pass."

Banks foreclosed on 3,242 Bay Area homes in the third quarter -- a 622% increase over last year.

The trade group Mortgage Bankers Association projects a 31 percent decline in mortgage origination volume between 2006 and 2008.

Terry Pratchett: “The trouble with having an open mind, of course, is that people will insist on coming along and trying to put things in it."

The Rejection

10/26/07 The Rejection

Cablevision's shareholders rejected the Dolan's family $10.6 billion offer to take the company private. I guess they forgot about bulls, bears, and pigs.

Terra Industries Inc.'s third-quarter earnings more than quadrupled to $54.4 million, or 51 cents a share, from $10.3 million, or 10 cents a share in the year-ago period. The Sioux City, Iowa, maker of agriculture nitrogen products said revenues in the recent quarter rose to $593.7 million from $464.8 million last year. Looking ahead, Terra projected robust nitrogen demand as farmers plant more acres of corn and wheat.

Agriculture and fertilizer company Bunge Ltd.'s third-quarter net profit more than doubled to $351 million, or $2.70 a share, from $169 million, or $1.40 a share, a year earlier. Net sales rose 82% to $12.68 billion. Analysts had forecast earnings of $1.77 a share on revenue of $9.47 billion. Bunge said its agriculture business improved across the board and its fertilizer unit continued to perform strongly. The company said it expects good market fundamentals to continue into 2008 and raised its profit guidance for 2007 by $60 million to a range of $690 million to $710 million.

Fertilizer company Potash Corp.'s third-quarter net profit rose 67% to $243.1 million, or 75 cents a share, from $145.2 million, or 46 cents a share, a year earlier. Sales for the period rose 36% to $1.3 billion. Analysts polled by Thomson Financial were expecting earnings of 82 cents a share on revenue of $1.15 billion. "We are now benefiting from rapidly growing economies in the developing world which increases the demand for crops used in food, animal feed, fiber and fuel," the group said. Potash also held to its prior guidance for 2007 earnings of $3.00 to $3.25 a share.

Black and Decker's "earnings per share declined from the prior year level, due in large part to commodity inflation," said Chief Executive Nolan Archibald in a statement.

Warren Buffett said South Korean stocks offer better value than other world markets and cautioned the U.S. dollar will continue to weaken against other currencies, according to media reports. He expects the problems in the U.S. subprime mortgage market to weigh on U.S. consumers for up to two years, but added the economy will eventually rebound.

Motorola's sales declined 17% to $8.8 billion. Motorola said it shipped 37.2 million handsets in the quarter. Sales in the mobile device segment fell 36% to $4.5 billion. Motorola estimated its market share in the quarter at 13%. The company said it sees fourth-quarter earnings from continuing operations in a range of 12 cents to 14 cents a share, excluding charges related to the restructuring.

Travelers' lifted its 2007 operating income guidance to a range of $6.52 to $6.62 a share compared to an earlier forecast of between $5.80 and $6.05 a share.

Honda expects full-year net profit of 640 billion yen, up from an earlier estimate of 625 billion yen. The car maker left its estimate of group operating income unchanged at 880 billion yen and cut its net revenue estimate to 12.3 trillion yen from 12.35 trillion yen earlier.

Pulte Homes' net new home orders for the third quarter fell sharply to 4,582 units from 7,299 units while the company's backlog as of Sept. 30 was valued at $4.09 billion, compared with a backlog of $5.81 billion at the end of September last year. Pulte expects fourth-quarter profit at break-even to 10 cents a share but declined to provide a forecast beyond the immediate quarter due to "difficult market conditions that persist."

Home builder Ryland Group Inc. continued to lose money in the third quarter as the weak housing market reduced demand for its homes and the value of its inventory.The company said that new home orders in the third quarter fell 20.9% from a year earlier and that the dollar value of the new orders declined 27%.

Bank of America is cutting roughly 3,000 jobs and launching a strategic review of its investment banking business after recent poor performance from the unit.

Aetna raised its full-year forecast for operating earnings per share to $3.48, against its previous outlook of $3.40 to $3.42. It projected 2008 operating earnings of $4 per share.

In the Bay Area - which, by the California Association of Realtors' measure is made up of Alameda, Contra Costa, Marin, San Francisco, Santa Clara, San Mateo and Solano counties - sales of existing, stand-alone homes plunged 45.6 percent between September 2006 and September 2007, while the median sales price slid 5 percent to $702,240. September's median was a whopping 17.7 percent below May's peak of $853,910.

German business confidence dropped to a 20-month low in October.

Lehman Bros. now expects the Federal Reserve to cut its overnight lending rate by a full percentage to 3.75% by the middle of 2008, including a rate cut next week.

Robert Prechter: "All the fancy credit and investment structures in place today, and the spread of investment fever to the broad population, are consistent with a time of extreme optimism. Therefore they are consistent with pre-crash conditions...When the Fed engages in a large volume of repos, it helps banks on the margin avoid immediate disaster. But in doing so, it also delays the inevitable price adjustments and gives bankers a false sense of security, thus encouraging them to create more and more unsound loans. In the end, all this manipulation merely increases both the likelihood of a crash and the size of the decline. But you have to realize that the Fed and the banks could not get away with such activities in the absence of optimism. Society in recent years has had a voracious appetite for credit, and the Fed is merely helping the banking system provide it...the probability of a major bear market is unquestionably the highest in history. Just to give you some perspective: At the 1987 high, the Dow’s dividend yield had been below that of 1929 for three months; it’s now been below it for 13 years. At the peak in 1987, there had been only 3 readings at or above 90 percent bulls among stock traders on the Daily Sentiment Index; in recent months there have been 51 such readings. Today’s price-to-book value ratio for the Dow is three times as high as it was in 1987 and 1929. And these are tops. Forget about comparing today’s values to market bottoms. So yeah, I would say there’s risk of a crash, too...With optimism at a record in both duration and extent, with an unprecedented breadth of public participation, with record leverage in the investment markets, with a grotesquely bloated debt structure, and with cracks appearing in the credit markets beginning with sub-prime mortgages, I think the storm cellar is a good place to camp for awhile. Put your money in the safest cash equivalents you can find, ideally outside the banking system, and hibernate. When stocks and property become bargains again, you can venture back into the markets. But investing at today’s valuations is not prudent."

The Cato Report courtesy of Daily Reckoning:
"Discretionary spending soared in Bush's first term by 48%, not adjusted for inflation, more than twice as much as Bill Clinton spent (21.6%) in two terms.
"Defense spending under Bush has grown an average of 5.7% a year, compared to LBJ's of 4.9% (adjusted for inflation).
"Homeland security spending also has soared, to about $31 billion last year, triple the pre-9/11 number
"Education spending is up, adjusted for inflation, 18% annually since 2001.
"The 2002 farm bill caused agri-spending to double from 1990s levels."

New orders for manufactured durable goods in September decreased $3.8 billion or 1.7 percent to $214.5 billion, the U.S. Census Bureau announced today. This was the second consecutive monthly decrease and followed a 5.3 percent August decrease. Excluding transportation, new orders increased 0.3 percent. Excluding defense, new orders increased 0.7 percent. Shipments Shipments of manufactured durable goods in September, down three of the last four months, decreased $4.4 billion or 2.0 percent to $211.6 billion. This followed a 1.9 percent August decrease.

BEA Systems Inc. would be willing to negotiate a takeover agreement with a prospective buyer - including Oracle Corp. - at a price of $21 a share.

Ensco International: "Looking ahead to the fourth quarter of 2007, we currently expect a decline in our quarterly earnings...due to the continuing softness in the U.S. Gulf of Mexico jackup market and mobilization downtime on several of our international jackups prior to commencement of new contracts," the company said.

The number of initial claims in the week ending October 20 fell 8,000 to 331,000. The four-week average of initial claims rose 7,750 to 324,750. This is the highest level since the week ended September 1. Meanwhile, the number of Americans receiving state jobless benefits rose 7,000 to 2.53 million in the week ending October 13. The four-week moving average of continuing claims fell 3,750 to 2.53 million, the lowest since June 23.

Tribune Chairman and Chief Executive Officer Dennis FitzSimons said the company still expects to close its $8.2 billion transaction to go private in the the current fourth quarter, following receipt of certain regulatory approvals.

The recently announced six-month delay in the 787 Dreamliner program could cost Boeing close to $1 billion in added expenses, a leading Wall Street analyst said Wednesday.

Another government revision: Sales of new homes rebounded in September from summer sales levels that were much weaker than previously reported, the Commerce Department reported Thursday. Sales increased 4.8% to a seasonally adjusted annual rate of 770,000 from a revised 735,000 in August. Previously, August's sales had been reported at a 795,000 pace. September's sales were slightly higher than the 758,000 pace expected by economists. The three previous months were revised sharply lower, which means the housing market was much weaker in the middle of the year than previous believed. Sales of new homes are down 23.3% in the past year.

The Oil Drum: "Peak exports simply means that oil-producing countries are using more and more oil at home – leaving less to sell abroad. Moreover, sentiment is starting to develop in many nations that they must save some oil for future generations, not just sell it to the foreign devils as quickly as possible. This clearly means that major oil importers will face a shortfall in their ability to obtain oil many months or years sooner than they had been anticipating. The fall in the amount of oil available for purchase is likely to drop much more quickly than declines in production. When world oil exports fall, if they have not started doing so already, effects are likely to sharp and painful."

The outstanding level of asset-backed commercial paper fell for the 11th straight week, the Federal Reserve reported Thursday. Asset-backed paper dropped by $4.6 billion, or 0.5%, to $884 billion.

Natural gas supplies rose by 68 billion cubic feet to 3,443 billion cubic feet in the week ending Oct. 19, the Energy Department reported.

Two million subprime-mortgage foreclosures are on the horizon by 2009 if home prices continue their downward spiral, a congressional report said Thursday. A report by the Joint Economic Committee also estimated that $71 billion in housing wealth will be destroyed and states will lose $917 million in property tax revenue.

Robert McHugh: "We essentially got a fourth Hindenburg Omen observation Wednesday, October 24th, as the lower of NYSE New Highs and New Lows was 2.15 percent of total issues traded, which rounds up to 2.20 percent. It really is splitting hairs at this point, since we already have a confirmed Hindenburg Omen on the clock, suggesting we are in a high risk period for a significant decline. Today's near hit reinforces the key issue with the Hindenburg Omen, that being we sit in a very unhealthy market right now, and it hasn't gotten any better with this week's countertrend rally."

China's copper imports and its alloys jumped 93 percent to 1.2 million metric tons in the nine months ended Sept. 30 from a year earlier, the Beijing-based customs office said today. Copper, used in pipes and wires, has gained more than fourfold since 2003 as demand surged in China, the world's fastest- growing major economy.

Dec. crude ends up $3.36 at $90.46 a barrel on Nymex, and that's an all-time high close. Natural gas rose 22 cents to end the day at $7.19.

Microsoft reported a net profit of $4.29 billion, or 45 cents per diluted share, up from $3.48 billion, or 35 cents per diluted share, a year earlier. Revenue rose 27 percent to $13.76 billion in the three months ended September 30. Analysts, on average, had forecast 39 cents per share in profit.
Microsoft raised full-year earnings estimates to a range of $1.78 to $1.81 per share from a previous range of $1.69 to $1.73. It also raised its full-year revenue estimate range by almost $2 billion, to $58.8 billion to $59.7 billion.

U.S. banks had $3 million in outstanding loans from the Federal Reserve's discount window on Wednesday, down from $10 million the previous Wednesday, the Fed reported Thursday. For the week ending on Wednesday, outstanding loans averaged $142 million per day, up from $126 million the week before.

Gold futures for December delivery rose $5.40, or 0.7 percent, to $771 an ounce on the Comex division of the New York Mercantile Exchange, and have risen 21% this year. Silver futures for December delivery rose 31.5 cents, or 2.3 percent, to $13.905 an ounce. The metal is up 7.5 percent this year.

Native American Proverb: “A Native American grandfather talking to his young grandson tells the boy he has two wolves inside of him struggling with each other. The first is the wolf of peace, love and kindness. The other wolf is fear, greed and hatred. "Which wolf will win, grandfather?" asks the young boy. "Whichever one I feed," is the reply.”

The Reversal

10/25/07 The Reversal

Down more than 200 points early on, the Dow Jones Industrial Average finished 1 point lower, at 13,675.3. The S&P 500 shed 3.71 points to 1,515.88, while the Nasdaq Composite lost 24.5 points to 2,774.76. Why the reversal? The rumor that the Fed was about to announce another rate cut and with the rumor there was short covering.

National Oilwell Varco Inc.said third-quarter net income doubled to $366 million, or $1.02 a share from $176.6 million, or 50 cents a share in the year-ago period. Revenue climbed to 45% to $2.58 billion. Backlog for capital equipment orders for the company's Rig Technology unit increased to $8 billion, from $7.2 billion in the previous quarter. New orders during the quarter were a record $1.9 billion. "The company's backlog for capital equipment continued to increase as a result of strong demand for its drilling equipment, particularly for international offshore rigs," the company said.

Allegheny Technologies said third-quarter net income rose 21% to $193.9 million, or $1.88 a share, from $160.2 million, or $1.56 a share in the year-ago period. Revenue rose to $1.34 billion from $1.29 billion. "Our third quarter 2007 results had two divergent story lines," the company said. "Strong demand trends continued in our High Performance Metals segment and for our high-value flat-rolled products. On the other hand, shipments of our standard stainless products were extraordinarily weak."

Nabors Industries Ltd.'s third-quarter net income fell to $218 million, or 76 cents a share, from $292.8 million, or $1.02 a share, a year ago. The results include the sale of the Sea Mar offshore unit, a one-time item that added 8 cents a share to the bottom line. Revenue for the three months ended Sept. 30 slipped to $1.23 billion from $1.26 billion a year ago.

Chubb increased its 2007 operating income forecast to a range of $6.05 to $6.15 a share, from a previous target of $5.70 to $6.10 a share.

Amazon.com saw earnings surge more than 300% for the third quarter, topping expectations. The company reported earnings of $80 million, or 19 cents a share, for the quarter ended Sept. 30 compared to earnings of $19 million, or 5 cents a share, for the same period last year. Revenue grew 41% to $3.26 billion from $2.31 billion last year. Analysts expected the company to report earnings per share of 18 cents on revenue of $3.14 billion, according to consensus forecasts from Thomson Financial.

Research in Motion announced a deal to sell its popular BlackBerry wireless device in China. The company said it has signed an agreement with Alcatel-Lucent to distribute the BalckBerry in China.

For the fourth quarter, Talbots currently anticipates a loss per share in the range of 5 cents to 10 cents, including 9 cents a share of one-time expenses. This range assumes total company fourth quarter same-store sales in the negative mid-single digit range, with Talbots down mid-single digits, and J. Jill flat to slightly up. Based on the current forecast, at the end of the third quarter the company will be out of compliance with its acquisition loan financial covenants.

Home builder Centex Corp.swung to a fiscal second-quarter loss of $643.8 million, or $5.26 a share, from a profit of $137 million, or $1.11 a share, in the year-ago period. Revenue fell to $2.22 billion from $2.82 billion a year ago. Analysts surveyed by Thomson Financial estimated a quarterly loss of $3.26 a share on revenue of $2.08 billion.

Amazon.com saw earnings surge more than 300% for the third quarter, topping expectations. The company reported earnings of $80 million, or 19 cents a share, for the quarter ended Sept. 30 compared to earnings of $19 million, or 5 cents a share, for the same period last year. Revenue grew 41% to $3.26 billion from $2.31 billion last year. Analysts expected the company to report earnings per share of 18 cents on revenue of $3.14 billion, according to consensus forecasts from Thomson Financial.

Research in Motion announced a deal to sell its popular BlackBerry wireless device in China. The company said it has signed an agreement with Alcatel-Lucent to distribute the BalckBerry in China.

Tribune's net income attributable to common shareholders fell 5.8 percent to $152.8 million from $162.2 million a year ago. Net income per share rose 87.7 percent to $1.22 from 65 cents last year because of a lower number of shares outstanding in the most recent quarter. Excluding a gain from a tax benefit and a charge related to job cuts, income was 38 cents a share, compared with the average analyst expectation of 26 cents a share, according to Reuters Estimates. Revenue fell 4.1 percent to $1.28 billion.

Boeing cut its 2008 revenue view because of delivery delays for its 787 Dreamliner.

According to the WSJ, subprime mortgages aren't the only challenge facing Countrywide Financial Corp., the nation's biggest home-mortgage lender. Some loans classified as prime when they were originated are now going bad at a rapid pace. These loans are known as option adjustable-rate mortgages, or option ARMs.

Jim Rogers, chairman of Beeland Interests Inc., said he is shifting all his assets out of the dollar and buying Chinese yuan because the Federal Reserve has eroded the value of the U.S. currency. ``I'm in the process of -- I hope in the next few months -- getting all of my assets out of U.S. dollars,'' said Rogers, 65, who correctly predicted the commodities rally in 1999. ``I'm that pessimistic about what's happening in the U.S.''

The U.S. housing market's steep falloff continues to take a heavy toll on USG Corp., the Chicago building-products maker which on Tuesday reported a punishing 95 percent drop in third-quarter earnings. "Conditions in the housing market have deteriorated further as the inventory of unsold homes continues to build and the availability of mortgage financing has tightened," said Chairman and Chief Executive Officer William C. Foote, adding that the residential repair and remodeling sector is softening as well. "We do not expect a quick rebound in the housing market," Foote said, noting that market conditions suggest the housing sector "will remain weak for the balance of 2007 and at least through 2008."

The Big Picture: " The well regarded Jeremy Grantham -- the "G" in GMO -- points out in his quarterly letter to shareholders that home prices are trading several standard deviations above their "fair value." Grantham notes that the 2000 tech bubble was statistically a 3-standard deviation, 100-year event. As his nearby chart shows, House prices are also at 3 standard deviations from their intrinsic values. In order to return to more appropriate levels, prices need to drop 25% -- or just stay flat for 5 years."

Amazon's profit outlook for the holiday season "was a little bit below our expectations," said Colin Sebastian, who follows the company for Lazard Capital Markets in San Francisco. "The stock, at $100, is almost priced at perfection, and any material change in expectations is going to have an impact." After rising to $100 on Tuesday, the stock reversed and plummeted to $88.

ConocoPhillips said its Q3 net income fell from a year ago, to $3,673 million ($2.23/share), from $3,876 million ($2.31/share) in 2006. Revenue fell $2 billion to $46.1 billion. Earnings exceeded analyst estimates of $2.19/share.

Brad Setser: "6% of Bear Stearns a day. That is basically what the US has to sell to China to finance its current account deficit right now.
Not 6% of Bear ($1 billion) every business day. 6% of Bear every single day of the year. Financing the deficit requires selling more like 10% of Bear ($1.5 to $2b) every business day."

Sales of existing homes and condos fell 8% in September to the lowest level in at least eight years. Sales of existing homes and condos fell to a seasonally adjusted annual rate of 5.04 million, the lowest since 1999, when the real estate group began tracking combined single-family and condo sales. Inventories of unsold homes and condos rose to a 10.5-month supply, the largest in at least eight years. For single-family homes alone, sales fell 8.6% in September to a seasonally adjusted annual rate of 4.38 million, the lowest sales pace since January 1998.

The Houston Chronicle is cutting about 5 percent of its work force through layoffs.

The Energy Department reported a 5.3 million barrel drop in crude supplies for the week ending Oct. 19. Total motor gasoline inventories decreased by 2 million barrels in the latest week, while distillate supplies fell by 1.8 million barrels. Meanwhile, the API said crude supplies dropped by 6.3 million barrels.

Dec. gold ends up $2.50 at $765.60 an ounce on Nymex.

MICROSOFT TAKES $240 MILLION STAKE IN FACEBOOK, VALUING SERVICE AT $15 BILLION. That's a big valuation on 48 million Facebook users.

Amgen affirmed its forecast of $4.13 to $4.23 in adjusted 2007 earnings.

VMware Inc. reported a third-quarter profit of $65 million, or 18 cents a share, on revenue of $358 million, and this compares with the year ago period when it earned $19.2 million, or 6 cents a share, on $189 million in sales. Excluding charges and one-time expenses, VMware would have earned $85 million, or 23 cents a share. VMware topped the estimates of analysts surveyed by Thomson Financial, who forecast a profit of 17 cents a share on $334 million in revenue.

Crude oil for December delivery surged $1.83 to end at $87.10 a barrel on the New York Mercantile Exchange. Other energy futures also posted strong gains. November reformulated gasoline surged 3.86 cents at $2.1475 a gallon and November heating oil gained 4.22 cents at $2.3420 a gallon. November natural gas rallied 21.10 cents, or 3%, at $6.972 per million British thermal units.

Will Rogers: “Rumor travels faster, but it don't stay put as long as truth.”

Can Apple And Google Carry The Load?

10/24/07 Can Apple And Google Carry The Load?

Merrill Lynch & Co.said the summer's credit crisis triggered a bigger-than-expected $7.9 billion writedown during the third quarter.

Biogen forecast 2007 earnings of $1.84 to $1.94 a share, or $2.60 to $2.70 on an adjusted basis. On average, analysts surveyed by Thomson Financial expected the company to earn $2.67 for the year. Biogen has put itself up for sale.

Tellabs Inc.'s third-quarter profit fell from a year ago amid slower demand for its telecommunications networking products in North America. Tellabs reported net income of $4 million, or 1 cent a share, down from $59 million or 13 cents a share, in the year-ago quarter. Looking ahead, Tellabs said fourth quarter revenue will be flat with the third quarter.

Lexmark International Group, Inc. said it will transfer roughly 1,650 jobs to low-cost countries by the end of 2008 in a move that should save about $40 million in 2008 and $60 million later.

Whirlpool said it sees fiscal 2007 earnings from continiung operations in the range of $8 to $8.50 a share and free cash flow of $600 million to $650 million.

Smith International said third-quarter net incomer rose 26% to $166.8 million, or 83 cents a share, with revenue up 17% to $2.25 billion. It sees fiscal year earnings at the top end of its $3.15 to $3.25 a share view.

Coach Inc. said fiscal first-quarter net income rose 23 percent, driven by higher sales of its fall bags.

The WSJ reported Last month, as the nation's housing slump continued, consumer bankruptcy filings increased almost 23% from a year earlier -- representing nearly 69,000 people -- according to the American Bankruptcy Institute, a nonprofit research group whose members include bankruptcy attorneys, judges and lenders. Overall, consumer bankruptcy filings were up 44.76% during the first nine months of this year.

Caterpillar's CEO : "Sales and revenues in North America were down 11%. From an end market standpoint, inside North America, it is a very weak picture for many of the industries that we serve. U.S. housing is down and we expect it to continue its decline. Non-residential construction is weak. Coal mining and quarrying are down in the U.S. And on-highway truck engines are down significantly from last year and we do not see much sign of a major turnaround for awhile."

American Express said the provisions it set aside for future losses in its U.S. card business jumped 44%, spurred in part by growth in its lending portfolio but also reflecting spreading credit problems.

China's economy may expand 11.5 percent and the inflation rate will be 4.3 percent this year, said Wang Xiaoguang, an economist at the National Development and Reform Commission.

Growth in UK financial services could halve as a result of the credit squeeze, holding back the economy and forcing the government to slash growth in public spending, the Ernst & Young Item club warned. It also predicts that more discerning lending practices and lower bonus payments in London could turn the housing market’s “soft landing” into a sharper correction – but judges a big housing recession to be unlikely.

Daily Reckoning: "Foreclosures in the yankee state are running three times last year's level. And losses are working their way up the socio-economic ladder. Goldman Sachs' (NYSE:GS) Trust 2006-S3 is a sophisticated investment instrument containing 8,274 mortgages. One out of every six of those mortgages is in default - only 18 months after the thing was put together. When that many people stop paying, it wipes out the entire capital value of the derivative. And since speculators usually take leveraged positions, the losses can go much further."

Neumann Homes, one of Chicago's largest homebuilders, announced on Monday that it intends to file for bankruptcy.
The company, ranked among the top 10 in Chicago, also builds in Wisconsin and Colorado. Company CEO Kenneth P. Neumann said in the statement that "significant downturn in the Detroit, Chicago and Denver housing markets resulted in this situation. ... Even after the significant help we have received from our lenders this year, the company can no longer weather this storm."

Fires in Southern California have caused about 500,000 to be evacuated from their homes and, in total, almost 1 million have
left their homes.

Oracle said Tuesday its $17 per share offer to acquire BEA Systems will expire Oct. 28 unless BEA's board executes an acquisition agreement and lets shareholders vote on the bid.

As of October, finance companies had announced 130,000 job cuts for the year to date, according to outplacement firm Challenger, Gray & Christmas. That's more than double the 50,000 cuts announced in 2006 and well ahead of the record 116,000 announced in 2001.

Chain-store sales for the week ended Oct. 20 rose 2.2% from the year-ago period, according to a survey released on Tuesday by the International Council of Shopping Centers and UBS Securities. On a week-over-week basis, sales fell 1.5%. "The latest week's dip reflected the confluence of deeper price discounts and warm weather that turned consumers off from seasonal apparel," said Michael Niemira, chief economist for ICSC. For October, ICSC expects retail sales to increase by about 2%.

The U.S. dollar index remains in the toilet at 77.57.

Lockheed Martin slightly raised its full-year earnings forecast, on the back of higher sales of its jet fighters and electronic warfare systems.

The Oil Drum: "What needs to be understood is that peak oil likely means peak food. About 17% of US energy use goes into agriculture. The food in the grocery store that you buy traveled a long way to get to you, and it was probably grown with fossil-fuel intensive fertilizers and pesticides. As of 1994, it took 400 gallons of oil and equivalents to feed each US citizen, and that number has probably gone up."

Robert McHugh: "The Weekly MACD positive territory blue histograms are not only shrinking, which serves as a necessary precursor to a "sell" signal, but generated a new "sell" signal Monday, October 22nd, as they went negative. The MACD Daily generated a "sell" signal Monday, October 15th, and worsened since then. The Dow Industrials sit in the middle of the Bollinger Bands on the weekly charts Monday, leaving open several possibilities - either a continuance lower, or a corrective rebound. In other words, at the moment the short-term pattern is somewhat vague. The McClellan Oscillator went negative as week ago for the first time since August 20th, and worsened the rest of the week, however is not at an extreme oversold level. The small change it gave last Thursday led to Friday's huge price move.
In combination, when we see prices hit the upper Bollinger Band (which we saw in all major indices last week) plus also see shrinking blue positive histograms in the index's weekly MACD, then we can expect a tradable decline to begin. We noted last week that we had both conditions."

Stephen Roach: "With both income and wealth effects under pressure, I don't see any way saving-short, overly-indebted American consumers can maintain excessive consumption growth. For a US economy that has drawn disproportionate support from a record 72% share of personal consumption, a consumer-led capitulation spells high and rising recession risk. Unfortunately, the same prognosis is likely for a still US-centric global economy."

Oil stocks are being picked to rise by a 28-to-1 margin at the U.K. financial betting web site BetsForTraders.com, the company said Tuesday. The financial site said that's an "unprecedented" ratio. As a contrarian, that gives me further impetus to cut back in the sector.

State Street's Global Investor Confidence Index fell 6.1 points to a level of 82.6, from last month's revised reading of 88.7, pressured by cautious investors in North America.

Wal-Mart plans capital expenditures for its current fiscal year of $14.7 billion to $15.4 billion, lower than its previous forecast. In June, the retailer forecast fiscal year capital spending would be $15.5 billion, down from $17 billion, saying it would open fewer supercenters than planned to try to boost sales at existing stores.

Gold for December delivery gained $3.10 to close at $763.10 an ounce on the New York Mercantile Exchange.

The Continuation

10/23/07 The Continuation

Rob Peebles: "Dear Social Security Administration:
Although I am not yet eligible for Social Security, I am writing to thank you for your latest Cost of Living Adjustment (COLA) for recipients. I would never have believed you possessed the courage to bump the oldsters’ monthly payments by a paltry 2.3% - the smallest increase since 2004. You rock! Thanks to you, the typical retiree’s monthly payment will increase by just $24. If they don’t blow that on higher ticket prices in Branson, they’ll spend it on the gas to get there.
Which reminds me: Your timing was astonishing! You made this announcement just as oil prices were approaching $90 a barrel. A bold move! And get this: that same day, heating oil hit a record $2.75 in Massachusetts. That means aging Red Sox fans will be paying 17% more to keep their New England cottages cozy this winter. You really are the best.
And speaking of cottages, what do retirees most often complain about besides poorly lit parking? I’ll tell you what – property taxes. According to the Tax Foundation, median property taxes jumped almost 8% last year. Oh sure, the lucky ones live in areas that freeze property tax rates for seniors. But should they have to move – Gotcha! They have to pay taxes on their home’s current market value. Just another reason that your 2.3% COLA is 100% chutzpah.
And then there’s the irony: There’s you, a humongous government agency running a government program designed to help retirees, announcing a 2.3% COLA. And then there’s Medicare, another humongous government agency designed to help retirees, announcing the very same month that it’s charging 3.1% more for insurance premiums. Ouch! Oh sure, that’s only a few bucks more a month out of their Velcro wallets, but the hike reminds older folks that their inflation rate is much higher than the CPI that purports to measure inflation generally. And guess what? You don’t care. Awesome!
Speaking of “awesome,” I have to congratulate you on how cleverly you play the COLA game. After all, you don’t come up with the adjustments: you get them from the Bureau of Labor Statistics. There, they have rooms full of math whizzes working hard to come up with the COLAs for you. It’s their inflation calculation. No matter how ridiculous the CPI sounds, no matter how much they jack with “hedonics” or mess around with the housing component, it’s not your problem. Even that whole “steak prices are up so we’re buying chicken” angle is not your doing -- even if the next month’s calculation throws out the chicken component and substitutes cat food. You just implement whatever the number crunchers say and move on. Brilliant!
And the way you and the BLS are keeping the inflation rate for the elderly under your hats – remarkable! Oh yes, I know about the CPI-E, but I don’t know much – as you intended! From their website, I can see that the BLS has estimated seniors’ cost of living increases over certain periods. But there doesn’t seem to be any current data. For example, I can’t find a CPI-E number comparable to the 2.3% figure you used to adjust the COLA. Coincidence? Ha ha ha ha!"

Indian proverb: "Keep five yards from a carriage, ten yards from a horse, and a hundred yards from an elephant; but the distance one should keep from a wicked man cannot be measured."

The markets from some complex derivatives remain broken and may recover only gradually, said Randall Kroszner, a governor of Federal Reserve Board on Monday. "I would suggest that....the recovery may be a relatively gradual process and these markets may not look the same when they re-emerge," Kroszner said.
And for those who believe in the tooth fairy: "The Federal Reserve will continue to monitor developments in financial markets and act as needed to support the effective functioning of these markets and to foster sustainable economic growth and price stability," Kroszner said in a speech here to the Institute of International Bankers.

The NY Times reported collateralized debt obligations — made up of bonds backed by thousands of subprime home loans — are starting to shut off cash payments to investors in lower-rated bonds as credit-rating agencies downgrade the securities they own, according to analysts and industry executives. Cutting off the cash flow, which is governed by rules and mathematical formulas that vary by security, is expected to accelerate in the months ahead.Such a cutoff would be the latest blow to financial markets as investors try to anticipate the next problem that might shake confidence.

Bear Stearns and China's CITIC Securities announced an agreement in principle in which each firm would invest $1 billion in the other.

Kohlberg Kravis Roberts and Goldman Sachs will cancel their $8 billion takeover for Harman International but invest $400 million in convertible notes that the audio systems maker will use for a stock buyback, the companies said Monday. KKR and Goldman won't be sued and won't have to pay a termination fee under the agreement struck.

The New York Board of Trade is planning to shut its futures pits in the next six months as electronic commodities trading takes over, The New York Post reported.

Halliburton Co.'s third-quarter profit rose to $727 million, or 79 cents a share, from $611 million, or 58 cents a share, in the year-ago period. Revenue climbed to $3.93 billion from $3.39 billion a year ago. Results for the latest quarter received a favorable boost of $133 million, or 15 cents a share, from the recognition of U.S. foreign tax credits, and include a $21 million charge, or 2 cents a share, in after-tax charges related to environmental matters. Analysts surveyed by Thomson Financial estimated quarterly net income of 64 cents a share on revenue of $3.87 billion. Halliburton CEO Dave Lesar said the company expects North American land drilling pricing pressure to continue in the fourth quarter amid a battle for market share. The oil services firm said it'll keep costs under control to preserve its profits. In a more hopeful sign, the company said its expects the pressure pump and drilling business in North America to grow next year, with revenue and operating income expected to increase.

Weatherford International Ltd., the Houston provider of mechanical solutions, technology and services for oil-and-gas drilling and production, reported third-quarter net income rose 25% on 16% higher revenue. Earnings reached $292.7 million, or 84 cents a share, from $234.2 million, or 66 cents, in the year-earlier period. Revenue rose to $1.97 billion from $1.7 billion.

Merck & Co. said its third-quarter profit rose sharply, helped by sales of its vaccines and cholesterol drugs, and raised its 2007 profit forecast in view of strong current trends.

Ernst & Young's ITEM Club, a London-based economic research group, said in a report that it cut its growth forecast for the UK for 2008 to 2.1% from 2.5%. "This is a very timely tightening, targeting parts of the financial sector that were growing too fast and were too dependent on cheap credit," the report said.

Electrolux stated the risk for further decline in the U.S. appliance market, continued raw material cost increases and cost pressures on European margins adds uncertainty to the outlook for 2007.

Californian homes are overvalued by as much as 40 percent and stricter lending standards will probably contribute to ``material'' price declines, according to analysts at Goldman Sachs.

A veteran Wall Street analyst, Irv Zelman, chief executive of the research firm Zelman & Associates, says it's unlikely the U.S. housing market will recover before 2009, adding there's a ``50 to 60 percent chance of a recession,'' as the housing slump curbs consumer spending.

Wolfgang Munchau: "The market in inflation-protected bonds is less liquid than the market for ordinary government bonds. Hence there is a liquidity premium, which raises their price and depresses their yields, leading to a persistent underestimate of future inflationary expectations."

John Hussman: "As of Friday, the Dow and S&P 500 closed Friday within a fraction of a percent of where they were minutes prior to the Fed's September 18th interest rate announcement. And just for the record, the Fed has still added zero liquidity to the banking system. The total amount lent by the Fed to the banking system through the discount window fell again last week to just $240 million. Total bank reserves fell in September, from $44.9 billion to $42.5 billion. The monetary base – the only monetary aggregate that the Fed directly controls, fell in September from $853.482 billion to $851.279 billion. At least $19 billion of temporary repos will come due on Thursday, so the Fed won't be “injecting liquidity” into the banking system when it predictably rolls these over."

Half of likely US voters said they would never vote for Senator Hillary Clinton for president, a new survey by Zogby International shows. The latest Zogby survey showed 50% of those polled said they would never vote for her, compared with 46% of likely voters who said the same thing in a Zogby survey in March. Among Democratic women, 17% said they would not vote for Clinton.

The Oil Drum: "The German-based Energy Watch Group will release its study in London today saying that global oil production peaked in 2006 - much earlier than most experts had expected. The report, which predicts that production will now fall by 7% a year, comes after oil prices set new records almost every day last week, on Friday hitting more than $90 (£44) a barrel."

The national average price for gasoline rose about 5 cents over the last two weeks, according to a survey released Sunday.The average price of regular gasoline on Friday was $2.80 a gallon, mid-grade was $2.92, and premium was $3.03, oil industry analyst Trilby Lundberg said.

Brett Steenbarger: "In short, there has been no bearish edge to selling into a sizable gap down when the prior day has been down sharply. Indeed, on average, the trader would have made money by buying the open and holding through the following day."

Wachovia cut by 15 cents a share its 2008 profit target for Schlumberger to $5.05 a share on a more conservative outlook for its North American business. "Schlumberger has consistently said activity-related revenue growth is tied to offshore rig count growth," Wachovia said in a note to clients. "But it cautioned about inefficiency in first year activity of newbuild rigs and more generally about susceptibility to slowdowns associated with large, more complicated projects; it also acknoweldged troubled spots including Nigera, Kazakhstan and Libya."

Goodman Global Inc. said it OK'd a deal to be bought by private equity firm Hellman & Friedman LLC for $25.60 a share in cash.

Rohm & Haas Co.said it would seek to raise prices 5% to 15% on most of its chemical products, effective Nov. 1. "The costs of key raw materials" -- such as propylene, ethylene, methanol and others -- "have remained persistently high," said Pierre Brondeau, executive vice president for specialty materials, in a statement.

Gold for December delivery closed down $8.40 at $760 an ounce on the New York Mercantile Exchange. Crude for November delivery closed down $1.04, or 1%, at $87.56 a barrel on the New York Mercantile Exchange. The November front-month contract expired at the end of Monday's session.

Twelve wildfires fed by winds, high temperatures and low humidity have burned more than 100,665 acres (40,739 hectares) from Santa Barbara to San Diego County near the Mexican border, said Daniel Berlant, a spokesman for the California Department of Forestry.

David Yu: "Essentially, for about a month, the tech-heavy Nasdaq Index was on its own zero gravity parabolic flight while the retail sector, which incidentally sells these tech companies' products, was in a deep hole back on earth...If the SPX needed to be recalibrated, the Nasdaq would probably need a major tuneup. In order for the market to get back on track, the variance between the producers and the retailers of their products will have to be corrected."

Apple's net profit was $904 million, or $1.01 per share in its fiscal fourth quarter, compared with $542 million, or 62 cents per share, a year earlier. Revenue was $6.22 billion, up 29 percent from $4.84 billion a year earlier. These results beat Wall Street's average targets of 85 cents per share earnings and $6.06 billion revenue, according to the average forecast on Reuters Estimates. Apple also forecast fiscal first-quarter revenue of $9.2 billion, ahead of the $8.7 billion Wall Street target.

Target Corp. on Monday trimmed its October forecast for sales growth at stores open at least a year to a range of 2% to 4% as the company cited "greater than normal daily volatility and continued disappointing sales results for the first two weeks" of the month. It had previously forecast same-store sales growth of 3% to 5% for October.

General Motors Corp. will lay off 1,000 workers after Thanksgiving at its Lansing, Mich.-plant, which builds the Buick Enclave, Saturn Outlook and GMC Acadia.