6/14/03 The Proxy

Today we journey to the land of the proxy. Some take me to task for the examples I use. In every case, I have given further consideration to my position, and do not believe a change is warranted. Each month various polls provide us with indications of consumer sentiment. Because consumer spending powers about 70% of our nation's GDP, the sentiment of the consumer can be viewed as a proxy for the economy. Fifty three economists polled had predicted that there would be a rise in consumer sentiment in June. They were very wrong. The University of Michigan reading dropped from 92 to 87. More importantly perhaps, the expectations index which reflects sentiment on optimism going out one to five years, dropped dramatically from 91 to 84. I have always placed great weight in how the consumer feels. Maybe those plowing into the Dow and the Nasdaq will ignore the sentiment expressed on Main Street. Often Wall Street believes they have all the answers about the future. I heard from someone early Friday morning who was certain the answers were right there in a folio of information. I don't read analyst reports. I do listen to the consumer. There's an old ad campaign: "an educated consumer makes our best customer." Never underestimate the consumer.

Our international trade reflects the level of our exports. With the dollar having dropped this year against all major currencies, one might think that our exports would look more attractive since they'd be more affordable. The April trade deficit of $42 billion was the third largest on record. April had the largest month to month decline in oil prices in 12 years. Overall imports declined about 2% in April but exports also dropped approximately 2%. The problem is weak demand. Even though our exports look more attractive price-wise, the economic conditions in most developed countries are weak, such as, in the euro nations. In addition, China continues to export competitive products, and they still make our exports look pricey. Prices of imported goods fell 0.3% in May. U.S. May producer prices also declined 0.3%. It is anticipated that May consumer prices dropped as well.

Some years back, the saying was as GM goes so does the economy. That is less true today, but the auto industry is still important to our GDP. It is an industry which impacts many other businesses. GM has $200 billion in debt. That's larger than the GDP of most countries. Moody's Investors Service cut the rating on that debt to Baa1 from A3 and from General Motors Acceptance to A3 from A2. The rating service said "the negative outlook reflects Moody's concerns that the competitive environment in the U.S. could become even more intense, that the weakness in the U.S. economy could extend well into 2004 and that GM might fall short of achieving various operating and financial objectives." Moody's said that GM faces rising pension costs with 2.5 retirees for every active employee and unfunded pension liabilty of $19 billion. GM's May incentives averaged $3,916 per car and truck up from 2002's May incentives of $2,733. GM may not be the same proxy for the economy; however, their unfunded pension liabilities combined with their health care liabilities make them a proxy for those nationwide business problems. If a stockholder looks at GM's overall liabilities, and compares them with the equity portion of the balance sheet, it might be a cause of concern. Of course, other might call me a worry wort. Then again, they have all the answers.

A month does not go by that I do not write about WalMart. By now, you know that this is my favorite company. I have said so often that WalMart is the proxy for the consumer, and, in my view, the overall economy. We know they are the largest employer with 1.4 million employees. We know their sales amount to about 3% of our GDP. I have said in the past that WalMart is the biggest customer for giants like P&G and Clorox and Campbell Soup and Disney. Back in the Fall of 2002 I wrote how WalMart's sales were slowing. It is nine months later, and the sales are still slowing. There has not been one indication of a pick-up in this entire period. Economists maybe forecasting a better second half. WalMart has not confirmed that view. I'll stick with WalMart. No one entity knows more about the consumer than WalMart. Buck WalMart and you will be a loser.

Yesterday PeopleSoft filed a lawsuit against Oracle in Alameda County Superior Court. The complaint alleges that Oracle has engaged in unfair business practices, trade libel and tortious interference with PeopleSoft's customer relationships. "By making an offer with the acknowledged intent of eliminating PeopleSoft's business, Oracle seeks to disrupt PeopleSoft's efforts to complete new sales, thus, effectively damaging PeopleSoft's business even if Oracle never buys a single share of PeopleSoft stock," said PeopleSoft's CEO. The latter reaffirmed his company's plan to move forward on its merger with J.D. Edwards. The lawsuit seeks an injunction barring Oracle from proceeding with its tender offer. I am not a lawyer; however, as a risk arbitrageur, I have spent countless hours in courts listening to various arguments. I believe, at the very least, PeopleSoft will be granted a temporary restraining order against Oracle's tender. I do believe, in the short run, PeopleSoft's business will be harmed. More importantly, I believe this tender, which will prove unsuccessful, shall damage Ellison's reputation and Oracle's business on a long range basis. He has, in my view, made the worst business decision since forcing Ray Lane out of his company. Beginning Monday, Oracle's Henley and Phillips will be in Boston trying to sell large shareholders on their tender. Ellison doesn't get it. There are only two factors that matter right now: the hearing on the TRO and the price of the tender. The price is too low, and, in my view, the shareholders won't get the opportunity to tender. The courts will see to that, and their decision will be the correct one. As I said from day one, Ellison blew it out of the shoot. He is an example of how not to execute a company takeover.

I have felt for years that the companies who provide the best place for employees to work very often represent the greatest shareholder opportunities. For a long time Coke was an admired employer. Things have changed. They have a facility in Sylmar, CA. Rick Bronson is a 12 year route driver for Coke. Based on a second hand report, Bronson was fired for drinking a Pepsi. The company maintains that, by so doing, Bronson slandered the Coke product. At this same facility, Arrowhead brand spring water is dispensed for all employees. Arrowhead competes directly with Dasani, Coke's brand of spring water. The fact is Bronson, as a Teamster, is an organizer of Coke merchandisers. Teamsters Local 848 has filed unfair labor practice charges against Coke. I think they'll win. Shareholders, on the other hand, come out losers when companies treat their employees in this fashion. If I owned Coke stock, I'd sell it.

Coke is not alone in their mishandling of employees. Take Imperial Sugar. Please! That company shut their sugar refinery and packaging and distribution operations in Sugar Land, Texas. A total of 455 employees were terminated. This was not a new operation. It had been in business for 150 years or so- this is not a misprint. The employees were members of the International Association of Machinists and Aerospace Workers Local 517. Most of the employees were with the companies for years and years. Imperial Sugar maintains the employees are not eligible for severance. Lupe De La Cruz, who followed his grandfather and father into the plant, says he and his wife are owed about $50,000 in severance pay. The company maintains that severance pay only is applicable if the job losses were caused by technological improvements. Over the past dozen years Imperial Sugar has proven to be an embarrassment for the founding family's offspring and a terrible jolt to the stockholders and employees. They took a viable, debt free, money making business and filed for Chapter 11 with over $600 million in debt. It's a sad story. I know it well. My shareholders and employees fared a good deal better. We sold out to Imperial in 1988. Had I still been running this company, employees would have been treated a good deal differently. The team produced respectable cash flow with no debt on the books.

Roger Clemens sets an example for professional athletes. He works and practices hard, and competes with continuous desire. Yesterday he won his 300th game and recorded his 4000th strikeout. He is 40 years old, and became only the 19th pitcher to win 300 games and only the third to strikeout 4000.

This country has had to confront a good many difficulties over the past couple of years. Now we have Mormon crickets marching across the West. They hatch in the spring and feed through the summer. Experts say this year's infestation in Nevada, Utah, and Idaho could be the worst in decades.

6/13/03 SEC Filings

There is a real benefit in reading filings with the SEC. That is especially true when the documents involve mergers and acquisitions. They can be a roadmap to the truth. In yesterday's regulatory filing, it was pointed out that PeopleSoft's CEO had approached Oracle's Ellison last year about buying the latter's business software application business. Ellison confirmed that saying "last year Conway would have been running the company." Maybe to many this is not an important point. To me it is highly important. When Oracle started the Oracle tender for PeopeSoft, Ellison mentioned that they had been talking and could not arrive at a satisfactory price and so they began the tender. I pointed out what the facts really were. Ellison should have done the same. The filing made yesterday places the question of trust on the table. This matter will not be lost on PeopleSoft employees, JD Edwards employees, and possibly customers thinking about purchasing software from Oracle. SAP, the leader in this field, took advantage of this battle. Yesterday SAP ran a newspaper ad:"A few words of comfort for customers of PeopleSoft and J.D. Edwards. Just when you need it most. If the ground under your feet is feeling a bit unsteady these days, it's with good reason: the proposed acquisitions of PeopleSoft and J.D. Edwards could leave you questioning the future of your IT investments." The ad is certainly fair. If Oracle is successful in its bid, Oracle would drop the PeopleSoft product line, and the future acquisition of J.D. Edwards would be doubtful. Ellison has figured that PeopleSoft shareholders will be happy to take a low cash price because the immediate outlook for the latter company is not upbeat. (Oracle's competing division reported flat quarterly sales yesterday.) In the short term SAP will probably increase its market share, and that would include Oracle and not just PeopleSoft. They are a better company and customers prefer their products. I don't believe PeopleSoft will be purchased on the cheap, and I am not convinced the company will be acquired. I am convinced that one should question Ellison's motives as well as his words. I would prefer to read Oracle's regulatory filings. In the meantime, PeopleSoft's CEO said, they are "working closely with customers who are empathetic, sympathetic, surprised, incensed, and in some cases 'outraged' by the bid." By potentially eliminating product choice for customers, Ellison has placed the well-being of Oracle before its customers. That is a losing strategy.

The continuing claims of people collecting unemployment benefits in the last week of May increased to 3.8 million, the highest in 20 years. For the month of May retail sales rose 0.1%. Gasoline prices at the pump have just begun to rise again. It will be interesting to see whether consumer buying habits are impacted. At the same time one should note that import prices fell in May for the second consecutive month.

I thought it might be interesting to take a look at the heartland. Yesterday the Commerce National Bank of Columbus, Ohio released information on the local and state labor markets. It states that "the duration of the present jobless recovery is the worst for both the overall state and for the Columbus metropolitan area since jobs have been collected. In the case of Columbus, this means the longest bout of job losses during a period of economic growth since 1964, while the losses for Ohio are the poorest since 1939." In making economic forecasts as well as prognostications for the Dow, it can be helpful to break down the analysis state by state and company by company, as the case may be. That is not a monumental task. I have done this analysis. In my view, the economic forecasts for the second half are significantly too high, and I feel the same way about estimates for the companies in the Dow. For example, in the state of Washington, the Office of Forecast Council now expects 2003 to be the third year in a row of lower employment, and salaries are anticipated to fall 0.3% this year. Back in February, an increase in employment had been expected.

The average 30 year fixed rate mortgage fell to a new record low of 5.2%. Freddie Mac forecasts record mortgage originations this year of $3.3 trillion. In a $9.6 trillion GDP, that is an astounding number.

Additional layoffs were recently announced at 3Com, Safeway, and Dan River.

6/12/03 Does The Market Know Best?

I never believed father knew best. I'm a father of seven. Mother didn't know best either. Together we did a pretty good job. What does that have to do with the market knowing best? In my view, no one indicator of the future knows best. Each indicator can have its moments of brilliance. The market is a forward looking indicator. We've had a gigantic rally in almost all market segments for well over two months. As an overall assessment, it is fair to say that the economy is providing, at best, mixed signals. With the jobless rate at a 9 year high and consumer spending depressed, it is not surprising that yesterday Fed Vice Chairman Ferguson described the near-term outlook for the economy as "still somewhat clouded." The latest Fed beige book reflected an economy which had expanded at a "subpar" rate in April and May with continued downward pressure on wages and prices. Manufacturing remains mixed and certain service areas are upticking. The lower dollar has helped exports out of San Francisco while SARS has hurt international tourism in San Francisco. The picture is mixed; however, the stock and bond markets reflect clear sailing. I wouldn't want to take a sailing cruise right now. There have been too many confirmed reports of illnesses on these boats. Who needs to take that risk? I don't feel like spending the money anyway.

In some sections of the country agricultural production is impaired by unusually wet weather. In other areas crop conditions are so dry, as in parts of Texas, that planting is delayed. Farming is a tough business.

Moody's downgraded Oracle's outlook to negative. Marc Benioff, a former Oracle executive and CEO of Salesforce.com, a company where Ellison has an interest, said a takeover of PeopleSoft "would mean Larry has decided Oracle can't innovate on its own any more and needs to buy customers...Larry is testing his student to see how well he has learned from the master." I figure the student will teach the master a lesson or two.

Growth prospects are being scaled down in euroland. The ECB said the eurozone economy will grow as little as 0.4% this year and 1.1% next year. The euro region's economy didn't grow at all in the first quarter, and the EU said the economy may not grow at all in the second and third quarters. Investment budgets are not increasing. With the strength of the euro, exports are on the decline in some countries, such as, France.

Two years ago a techie friend suggested I take a look at Form Factor in Livermore, Ca, a town down the road apiece from where PeopleSoft is located. At the time this wafer test manufacturer was making a little money and sales were pretty modest. A lot has changed over the past two years. The market for their cards, which test 32 chips at a time, has exploded. They earned $10 million on sales of $79 million in 2002. Today they are going public. It will be the first high tech deal of the year. The size of the deal was increased from 5 million to 6 million shares and the price range upped from $9-11 to $11-13. Some of the proceeds will be used to expand their Livermore facility.

Anything can happen in this world. A PeopleSoft employee won $3.8 million in the lottery. She had been carrying the April 2 winning ticket in her purse, and had not checked it until Tuesday of this week.

6/11/04 The Financial Report Of The United States Government

Once again, the government failed to get a clean audit. There are 24 reporting agencies, and the Department of Defense, the SBA, and the U.S. Agency for International Development failed to receive clean audit opinions. Some might consider this harsh, but I don't believe any government agency should be funded until they do receive a clean bill of health, as it were.

Carl English, Consumers Energy CEO, testified before the House committee on energy and commerce. He said "natural gas consumers enjoyed stable prices from the mid-1980s to 2000, with prices that actually fell when adjusted for inflation. Today, however, the balance between supply and demand has become extremely tight, creating a tightrope effect...unless significant actions are taken on the supply side, gas markets will remain tumultuous, and the 64 million homes and businesses in our country usng natural gas will suffer the consequences...current prices may represent a new, and regular, level of natural gas prices for the foreseeable future." According to Energy Secretary Spencer Abraham, natural gas storage levels are at their lowest levels in almost three decades and 42% below their five year average.

Peter Rose, Expeditors International CEO: "An economist, after all, has been defined as someone who would marry Cindy Crawford for her money."

Of the major retailers, only WalMart and Target provide weekly sales figures. I guess Sears, JC Penney, Federated, and others didn't like the numbers their companies were reporting.

The CBO now estimates the federal budget deficit will be above $400 billion. Many weeks ago I said it would be at least $460 billion. Nicholas Johnson, a state and fiscal policy analyst at the Center on Budget and Policy Priorities, said "when people look at their reduction in federal taxes their positive feelings about those cuts will be tempered by the recognition that they'll have to pay greater state taxes, greater local taxes and greater fees of various sorts." At least 31 states have raised or are considering raising taxes and fees this year in order to eliminate deficits of over $80 billion. Yet, according to the latest IBD/TIPP poll, 50% of the American public express confidence in the federal government's economic policies and, on the handling of the economy, 38% give an A or B rating to Bush. I thought it would be closer to 1%.

Timing has never been my strong point. It was 30 years ago that I became bullish on the potential for Mexico as a business partner for the U.S. Now Mexico is our second biggest trading partner with $232 billion annually flowing both ways across the border. Mexican immigrants send about $12 billion annually back to their homeland, and this amount equates to the direct foreign investment in Mexico.

Texas Instruments is the world's biggest maker of semiconductors for cellular phones. Yesterday they warned that current quarter sales and earnings would be lower than expected because of SARS which they stated has created slow-moving cell phone chip inventories in Asia.

Intel's COO Paul Ortellini said "we can access incredible talent for software engineering in India. To get these skills, we may not be able to hire and train people quickly in the United States." Intel is investing $100 million in India and expanding staff there and creating a new software development center in Bangalore.

6/10/03 Pieces To The Puzzle

The National Association of Manufacturers is releasing a study today. In it "the result suggests that economies with no economic growth in manufacturing would experience economic growth of less than 1.5 per cent a year." The study represents growth rates in 40 countries. The NAM represents 14,000 U.S. manufacturers. They are warning a further decline in this manufacturing sector might halve U.S. economic growth as well as reduce the standards of living here.

The senior economist at Lehman Bros, Joseph Abate, studied rising pension liabilities and their impact on investment and hiring. The study indicates that over the past four years pension funds of the S&P Index 500 companies have seen the value of their shares drop 25%, and this drop has raised their obligations by $289 billion. In addition, declining interest rates have worked to decrease the returns as well. As such, Abate writes, "firms no longer are able to rely on appreciating stock prices to bail them out of their pension obligations and have been forced to divert profits, reducing capital expenditures and cutting labor costs." Over the past two years I have frequently written on this subject.

The CDC reported yesterday that the West Nile Virus has resurfaced in two dozen states. No human cases have been reported this year.

Nokia blamed weaker than expected sales in handsets in the second quarter on economic weakness in Europe and the U.S., the impact of the weaker dollar, and SARS.

UBS Warburg upgraded SAP today. This firm said SAP would benefit if PSFT's product line were to be replaced by Oracle's-- assuming a successful takeover by Oracle. They cite the superiority of SAP's products over Oracle's. The latter is pretty well accepted by those in the industry. SAP's 36% market share indicates that customers would much prefer their use to that of Oracle's. This is just one more reason to question the viability of Oracle's bid. Rick Allen, the CFO for JD Edwards, said "to the extent that victory is fear, uncertainty and doubt in the marketplace, Oracle has done that. It will all be sorted out in the coming weeks."

6/9/03 Monkey Business

Just as an aside, the saying goes that things happen in threes. The server for this blog went down Saturday and Sunday mornings. Hopefully, the week will begin on a better foot. The title of the blog reflects my N.Y.C. humor, and that requires an acquired taste and some patience at times for the distasteful. Federal and state health officials are investigating the "monkeypox" virus in Wisconsin, Indiana, and Illinois. About 30 people were stricken with this small-pox like disease. It is spread by rodents and monkeys. The prairie dog is thought to be the root of this outbreak. It can be passed from animal to animal and from animal to human. In Africa it has been spread from human to human. The good news is that the mortality rate is significantly less than what is experienced with smallpox. I hope and pray that this disease does not spread like SARS. We have had enough loss of life in 2003, and secondarily, business cannot afford another jolt in the ear. The Pacific Asia Travel Association said job losses in China, Hong Kong, Singapore, and Vietnam could be as high as seven million in tourist related lines of work. This association said "the impact of SARS on our region has been greater than September 11, the Bali bombs, and the Iraq war." The Bush Administration does not want to play host to more job losses. They already are approaching 3 million. He is beginning to feel the Herbert Hoover disemployment(I figure economists say disinflation so I'll say disemployment) syndrome. I'll call it HHDS for short. God knows. No one wants to lose an election over a hanging prairie dog. It's bad enough to win an election over a hanging chad. I am optimistic. I just don't believe the 'monkeypox" will kill almost 800 people and infect more than 8400 as is the case with SARS.

I do believe we need to keep a watchful eye out for Pie. I am not talking blueberry or apple. Pie is an 18 month old bantam hen located at a farm near Cape Town, South Africa. She has been sitting on a pile of garlic for 24 hours a day, 7 days a week, for more than 2 months. She refuses to move. Nobody knows why she is sitting there. I think I have the answer. She is guarding the garlic with her life. The WPM have been disguised in the form of garlic cloves. Who would have thought? This is the ultimate switch.

Due to the SARS breakout in Asia, Motorola cut its second quarter sales and earnings estimates. This company is a master at cutting estimates. I really think they should be rewarded for this ability. How about a clean sweep of the top officers and the board room?

In a few hours UK's Chancellor Gordon Brown is expected to provide reasons why it is not the right time for Great Britain to join the euro currency zone. The pound has fallen 8% vs the euro this year, and Simon Wren-Lewis, an Exeter University professor, wrote the Chancellor that the pound would need to fall at least another 5% in order for the UK to adopt the euro. Meanwhile, Poland, in a weekend referendum, voted overwhelmingly in favor of joining the EU.

Over the next five years Warren Buffett has projected that the cost of capital created by the float at Berkshire Hathaway will be negative. Does that mean we will have deflation or disinflation or disemployment or possibly any possible combination of the three over the next five years?

According to the U.S. Food and Drug Administration, as many as 40% of all U.S. residents who travel to Mexico return with purchased pharmaceuticals that cost significantly less than their counterparts in the U.S. And I thought visitors from the states were returning with the Mexican two step.

We are fast approaching second quarter earnings season. At some point, investors will realize that companies manage their forecasts so the surprise hopefully will be on the upside. Microsoft has been doing that forever. We are bombarded by news that a company beat the street or didn't beat the street. Honest guidance would be helpful, but more importantly, I'd like to hear more about free cash flow, inventory turnover, the number of days receivables are outstanding, and the reserve for bad debts and other areas of future charge offs. Just like the news in this country is frequently managed, so are the earnings of public companies. There are many who believed that the beloved General Electric did it for years, and wrapped it in Sigma whatever. I'm not interested in "confessions". I'm not a priest. I have no expectations. Just give it to me straight up- in a shot glass. My Mother would have liked it that way.

6/8/03 The Federal Budget

I had written a very long blog this morning, but the blogger server went down and I lost the entire blog prior to posting. I will try and make up some of the subject matter lost but not this evening.
I wrote I thought a pretty good blog today on the rubber
>match with Funny Cide, Ellison, and the budget. I
>really need to quote from today's Seattle Times business section. Kent
>Smetters, an expert on Social Security and Medicare(unfortunately also a
>professor at the Wharton School which might place doubt on his data),
>Jagadeesh Gokhale, a senior economist for the Federal Reserve Bank of
>Cleveland(I have previously quoted him), and Laurence Kotlikoff, a Boston
>University economist, were asked by Paul O'Neill to write a report on the
>true, long-term obligations of the U.S. government and the information was
>to be included in the new budget presented to Bush and the Congress. It was
>purposely omitted. It stated that the new accounting shows the United Staes
>is broke- NOT MY WORDS THIS TIME. It states we are in the hole by $43
>trillion- that's over and above the government debt held by the public($3.8
>trillion). The $43 trillion is the present value of the Medicare and Social
>Security obligations and certain other government programs. The American
>Enterprise Institute will be issuing a pamphlet containing these numbers and
>it will be co-authored by Smetters.

6/7/03 Government Revisions And Genghis Kahn’s “Sociopath Company”

This is the sixth reference I have made about data revisions over the past year. Each time I complained about the government revising numbers and creating bogus data. I even went so far as to do the proper math in this blog. For all those who count, I was proven at a later date to be correct in all such instances. Such will be the case this time. The government revised the April job loss number from 48,000 to zero and devised a May job loss number of 17,000. They hid behind fully phasing in changes to how the information is gathered. They switched, they said, how they calculate adjustments for seasonal variations in employment. Then, to make the charade worse, they included Defense Department civilian employees not previously counted in the payroll numbers. The icing was stating they were now using more complete information from the unemployment insurance tax filings. The government can lubricate the numbers all they wish. I have personally checked with each of our states. I stand by the numbers I said yesterday- April had 146,399 job cuts and May had 68,623. The theory behind the revisions is to place greater emphasis on the service industries. The government said service-producing industries created 55,000 jobs in April and 12,000 in May. Meanwhile, those 55,000 jobs were negated by 53,000 jobs lost in manufacturing in April, they pointed out. In the whole payrolls report one number was correct- about 22% of the unemployed have been jobless for 27 weeks, and this is up from April’s 19%.

Today is the 1 ½ mile running of the Belmont Stakes. Even if it rains, about 125,000 spectators are expected to see the six horses entered in the race. Funny Cide makes his home at Belmont Park. This is his house. I’m rooting for the big guy. It would be great to have a triple crown champion. The world is lacking in champions, and, as for heroes, we’ll have to wait for the Hulk movie to be released.

Let’s turn our attention to Oracle’s hostile tender offer for PeopleSoft which commences on June 9. This offer does not, as some analysts have described, signal a revival in the tech industry. It is about Oracle’s self-preservation. From 1985 to 1993 Chuck Conway, PeopleSoft’s CEO, was an executive at Oracle, a firm he since, on one occasion, called a “sociopath company.” Within the past year Conway approached Oracle’s Ellison about buying his company’s applications software business, a division which hasnot lived up to Oracle’s expectations. Ellison gave a different version and said “we didn’t come to an agreement so we made the offer.” Obviously, the latter statement will be disputed in the courts, and proven to be inaccurate. So why did Oracle make the offer for PeopleSoft? Conway said “I think Larry saw a wedding and he showed up with a shotgun because he didn’t get invited. It’s a page straight out of Genghis Kahn…there is no condition that I can even remotely imagine where PeopleSoft would be sold to Oracle.” Oracle’s Executive VP, Phillips, said “ we need to bulk up and gain market share against SAP and Microsoft.” Conway says “the single intent of this atrociously bad behavior by Oracle is to distract and disrupt.” PeopleSoft’s acquisition of JD Edwards makes a good deal of sense. Conway says there are three attractions: “One was a market distribution advantage. PeopleSoft had become a leader in large enterprise apps. JD Edwards is a leader in midmarket enterprise apps. Advantage No.2 is to steal product advantages from each company and propagate them in each company’s traditional markets. The third advantage is industry as customers wind up with stronger products on more hardware and operating systems and databases and Web servers than any other software company had.” In sum, the combined company will have revenues of $2.8 billion, 13,000 employees, 11,000+ customers in 150 countries and have a 28% market share compared to SAP’s 35%. That new strength was and is a threat to Oracle, and it is a winning combination with Conway at the helm. Ellison started Oracle in 1977 and he has built it into a successful company. He is the world’s sixth richest person. However, Oracle’s top line is declining. He does not have a successor. Ellison is 58. Conway had a good idea to buy Oracle’s application software business. Tthat would have left Ellison with his crown jewel- the database business. Splitting Oracle into two and selling the parts would generate a good return to the shareowners, with Ellison owning 25% of the stock, above the closing price of $13. IBM and Microsoft are eating into Oracle’s database business and Oracle is not about to compete successfully with SAP. He might think again. Rather than be foolish with his present ill-founded tender, go to the bank. You don’t need the headaches. Cash out while on top.

About 77% of all human cases of the West Nile Virus in the U.S. occurred in either August or September of 2002. On Wednesday North Carolina’s State Health Director issued a public health warning about the virus which was found in two counties. The virus has an incubation period of 5 to 15 days.

In the Detroit Free Press there is a story about Chrysler’s new overtime policy. For those working more than 40 hours a week, to get overtime you must work at least an extra 4 hours, and in some cases, 10 hours of overtime, before extra pay kicks in for more than the 10,000 salaried workers.

6/6/03 WalMart 101

WalMart's May same store sales were up 2.1%. Costco's domestic experience was almost up the same at +2%. A spokesperson for WalMart said "consumers were having liquity issues between pay periods." When the Fed wants to know what is going on with the consumer, they call WalMart. Now they have the answer. Michael Potter, Big Lots chairman, said it a bit differently: "the softness of the value of the average basket continues to suggest customers remain cautious and are spending closer to need in this challenging economic environment." The latter statement sounds like something Greenspan could have said. I might add one more statement to the mix-- it's difficult to envision stronger consumer demand when there are liquidity problems combined with a weak labor market which undermine the potential for confidence. Growth has not begun. With a seasonally adjusted 442,000 initial weekly jobless claims, the four week average again moved higher to 430,500 and remained above 400,000 for the 16th consecutive week. The May unemployment rate is the highest in about 9 years. April factory orders fell by 2.9%, and it was the biggest drop since 9/11.

On Tuesday La-Z-Boy, our nation's largest home furniture maker, announced cutting 405 jobs. Cable and Wireless plans to pull out of the U.S.. They employ 2,774 in the U.S. It's possible they might be able to sell these operations, but layoffs can still be expected.

When I go to stores and visit companies, I talk with employees as well as customers and often the suppliers. I have come away with the following: most people have little or no cushion of money; those with money are spending less and more carefully; consumer and business confidence are shaky; the outlook is clouded; and most importantly, I sense a growing uneasiness and skittishness. I know the Dow is just over 9000 and that the Nasdaq has topped 1600. I know 10 year treasuries are at 3.24%. I also know the state of Illinois was able to sell a $10 billion tavaxble pension bond issue maturing in 30 years. Finally I know what I know best- there is an interesting risk arb deal- it's Tinker to Evers to Chance or JD Edwards to Peoplesoft to Oracle. JD Edwards has a signed merger agreement with Peoplesoft. It's a friendly deal between two competitors. Oracle could use Peoplesoft, and especially could use a good manager. Ray Lane left some time ago. Peoplesoft has a good manager. It will be interesting to see how Larry Ellison can misplay his hand. He already has said he won't actively sell Peoplesoft products to new customers. What a way to begin an unfriendly discussion!

Jobless claims are not a Fed issue. The private sector creates jobs. For the most part, I see jobs being cut and not being created. Tthis is the sign of a contracting environment. WalMart is hiring. They continue to expand. Starbucks is hiring. Krispy Kreme is hiring. GM is not hiring. American Airlines is not hiring. Even though 146,399 job cuts were announced in April, there was only a drop of 48,000 in payrolls in the U.S. in that month. As I'm writing, the actual number of the payroll decline in May has not been released. Job cuts of 68,623 were announced in May. Now Greenspan may call this a resilient economy but I do not. We are well on our way to having 3 million jobs lost since Bush was elected.

I'm not picking on the U.S. Service industries account for 50% of Europe's economy. They shrank for a 4th month in May. In the euro region manufacturing contracted for a 3rd month in May.

I must admit an inability to comprehend a negative bond yield. In Japan a 10 year government bond is yielding about .50%. With the on-going capital deficiency ratios in the big Japanese banks, investors seem willing to accept almost a zero return for safety. I guess it's a bit like a government safety deposit box for which you pay a small fee. The Japanese must not have faith in the old mattress.

For the past several years pundits keep predicting a better second half in the economy. We see in May polls that consumer confidence has risen. That does not necessarily translate into spending. On Tuesday Greenspan said the U.S. labor market was "exceptionally weak." The June Investor's Business Daily poll indicates 1 in 5 Americans say its likely someone at home will lose a job in the coming year. Two thirds say Bush is partly to blame. Three quarters say finding a job is hard in their area. The government wants you to rush out and spend your tax credit dollars. I suggest waiting. Auto inventories are enormous, and increased incentives are on the way. High inventories can be seen at chain stores, and even WalMart's Williams remarked that "we have some work to do to bring inventories down to more appropriate levels. We feel we have some exposure to markdowns." Going from autos to retail to Wall St., we might ask ourselves- if joblessness is a problem, if finding a job is a problem, if inventories are high in key industries, then shouldn't we question the intelligence data surrounding profit projections for this year's second half and for 2004? These projections have been too high for 3 years. If they are too high, then equities as a whole are too high. A bull market should begin with reliable information. For that matter, so should a war.

6/5/03 Key Insider Selling Can Create A Valuable Road Map

Within the last couple of weeks I mentioned Steve Ballmer's insider selling on three separate occasions. I felt it was significant. Last night I read Ballmer's email to all Microsoft employees. I strongly suggest investors in technology stocks read the passages I am presenting. Steve Bllmer, CEO of Microsoft: "Over the long term, I'm optimistic about our growth opportunities. But we face significant challenges in the near-and mid-term. The overall state of the economy is an issue. As I talk with business customers, there is less passion and enthusiasm for technology, and greater focus on doing more for less...the reality is there is no 'center of gravity', or central body, investing in the health and growth of non-commercial software or innovating in critical areas like engineering, manageability, compatability and security... Longhorn is our bet on galvanizing the next breakthrough-even bigger, perhaps, then the first generation Windows release." It should be noted that Longhorn is about two years from release. About Linux Ballmer said: "In this environment of lean IT budgets and concerns about Microsoft's attention to customers. non-commercial software such as Linux and OpenOffice is seen as interesting 'good enough' or 'free' alternatives...IBM's endorsement of Linux has added credibility and an illusion of support and services for its high-end corporate computers." I have said this many times. Microsoft is the leading software company in the world, and, in my view, the most successful technology company in the world. No public company throws off more free cash flow than Microsoft. Maybe you have laughed at Ballmer's insider selling as the Nasdaq has continued to rise for the past two weeks. Maybe you'll laugh off the remarks in the email he sent to all Microsoft employees. If you do and you read Ballmer's words months from today, the market will have wiped the smile from your face in the interim. Ballmer has plenty of Microsoft stock left. He just cashed in over $1 billion worth. He went to the bank. Ignore his selling and his email, and, in my opinion, you won't join him at the bank.

Last night Carole Baum wrote a piece in Bloomberg entitled "Evidence Builds That Bond Market Is Bubbling." She quotes Jim Bianco and what he told his clients in his conference call with them yesterday: "The bond market is over-bought, over-valued, over-levergaed, and is breaking old relationships with other markets. " However, as David Ging pointed out, rich markets "can stay rich for a long period of time." Bill Fleckenstein, who I quoted just the other day, says "the bond market is an absolute bubble, leading to a misallocation of capital into housing. It's helped people to leverage up and live beyond their means." I think there are a great many money managers who are long bonds and who also realize a bubble is here. At the same time, they figure why sell now. The trend is with us, we're making money, and the market can stay rich for a long time. The bond buyer is at one disadvantage. With Microsoft, you can see Ballmer selling stock and selling more stock. When the Fed sells bonds, they raise money for the Treasury. They have no choice. The government runs big deficits. Bond buyers have ignored the deficits and focused solely on the declining rates. It's not a matter of calling the glass half empty or half full. It's looking at the glass clearly. I suggest you read Greenspan's words that were uttered in Berlin this week: "The marked moves of the stock market in recent weeks, and especially in the credit markets, are suggesting a fairly marked turnaround." Maybe we should look at the extent of the rise in the stock and credit markets after Greenspan just happened to announce his concern with 'deflation'. Who engineered the rises? Who was fool enough to listen to someone so clever as to move from 'deflation' to 'corrosive deflation' in just a matter of weeks? I discussed this yesterday in my blog.

Hsi-Tang: "Although gold dust is precious, when it gets in our eyes, it obstructs your vision."

6/4/03 Exfoliate And Lubricate

I have said this many times. There are too many
companies making too many of the same and/or similar
thing. How many auto companies are needed? Chrysler
answered that question last night. They are
forecasting a $1.17 billion operating loss in the
second quarter. The company blamed the loss on the
price war in the U.S. and selling incentives. Just as
important, the company said "the result is primarily
attributable to a revaluation of dealer stocks and
residual values." Basically, after you exfoliate the
jargon, they're telling you management can't get out
of its own way. It comes as no surprise that S&P cut
its rating outlook on the company to "negative". Is
Chrysler the next KMart? I only know Toyota is in the
same business. Last year they captured 10% of the
global auto market and reported $11.3 billion in
operating income in the fiscal year ended 3/31/03, the
most ever by a car company. Toyota U.S. has been in
this country for 46 years. May was their best-ever
month. You can talk about p/e ratios and all other
measures for supposedly rational valuation; however,
for me, the top priority is management, management,
management. Toyota is the perfect example. Ford and GM
announced they would cut third quarter auto production
as a result of disappointing May sales. This means
there will be "temporary" layoffs on the horizon.

The most successful business in San Francisco is Visa
USA. Over the past 12 months they recorded in excess
of $1 trillion in transactions. Stating it simply, an
average of $32,000 went through their Visa systems
every second during the 12 month period ending
3/31/03. That exceeds 10% of this country's GDP. For
every $100 consumers spent over the past 12 months,
$12 was expended on a Visa card. That $1 trillion
volume figure is greater than the combined volume of
Master Card, American Express, and Discover. Yesterday
central bankers exhaled in Berlin. We're going to
exfoliate the proclamations and come away with some
reprehensible goings-on. Free speech is a great right
in our country. It's not ok to malign free speech. Let
there be no misunderstandings. This is not about
agreeing or disagreeing with the words and thoughts
spoken. This is not about the Fed easing. I said a
month or so ago it doesn't matter exactly which
meeting the Fed decided to ease. Greenspan proclaimed
yesterday that “acceleration has not yet begun.” Any
man on the street can look at the current data and see
that. Greenspan has told us that the data suggests May
stabilized but "it's too early yet to get any real fix
on the American economy in the period immediately
ahead." That's obvious. The man on the street could
tell you that. Greenspan went over the line though. He
lubricated the treasury and equity markets. That's the
nicest way I can put it. As Greenspan said, something
is happening. What's happening are his purposeful
words. No longer is he concerned about "deflation in
the sense of falling prices per se, but the issue of
what I would call corrosive deflation. That is
deflation that essentially feeds on itself, creates
falling asset prices, which in turn brings down levels
of economic activity through the wealth effect,
contracting profit margins and a type of weakness
which we all...conclude is far more of a concern than
inflation." I think he might mean VA Linux falling
from $350+ to $1. It was ok for the bubble to burst on
the Nasdaq. The Fed was still fighting inflation
during that period. He wants me to believe that a 13th
rate cut will be insurance against deflation? He says
"We are learning as we are going. But one thing is
certain, we are going to learn as much about it as
possible." Are you for real here? In the space of a
month or so we have gone from a concern with price
deflation, and that concern is "a low probability" to
a concern with "corrosive deflation." I have said for
months on end that the Fed is out of ammo. I was
wrong. I was terribly wrong. I didn't realize they
could lubricate. And it's Ivory soap time because 99
44/100% of the people are buying the act. They are
buying a sage Fed chairman saying "we are far more
unclear on the issue of deflation and as a consequence
in one sense we need a much wider firebreak, in
logging and foresting terms, because we know so little
about it, so we lean over backwards to make certain we
contain deflationary forces." It sounds to me like we
need a proctologist. Greenspan has done his selling.
He pushed two year notes to an all-time low yield and
below the Fed funds rate. The economists will tell you
it's all because Greenspan uttered the "D" word. They
can blame themselves for buying the act. They'll be
lubricated all the way to another "D" word. That one
they won't hear from Greenspan.

When the stock market stopped rising three years ago,
the Fed turned their attention to housing and the
mortgage market. Yesterday the National Association of
Realtors predicted a third consecutive year of
record-breaking sales. According to the Mortgage
Bankers Association of America applications for home
loans rose over 13% last week as 30 year mortgage
rates fell to 5.13%. It was, according to
Bankrate.com, the lowest rate since 1958. Greenspan
talks about the resiliency of the American economy. I
think he should give himself more of the credit. No
one can lubricate the system better. I hope I'm wrong.
I think the price for the lubrication will be severe.

6/3/03 FedEx

Over the years FedEx has been one of my favorite companies. It is, in my view, a great company along with WalMart and some others I have mentioned over time. Yesterday FedEx announced that they would be laying off 14,000 workers. This is a company that employs 116,000 people. My first reaction was of complete surprise. The economy has hit a "soft patch" but they have grown revenue 10% and earnings per share by 17% for the first three quarters of their 2003 fiscal year. The problem is situated at FedEx Express where "domestic growth rates have declined in recent periods." In order to improve the profitability of its FedEx Express unit, the company will offer voluntary early retirement and severance programs, and the company stated that the net cost will be $130 million to $160 million in 2004. FedEx expects to experience "significant increases in pension and health care costs in 2004." During 2003 FedEx has contributed in excess of $1 billion "to fully fund the accumulated benefit obligations of the company's qualified U.S. pension plans." Because of sluggish U.S. economic growth, FedEx had reduced its 2003 capital expenditure plans to $1.6 billion. The company has remained cash flow positive. However, due to the higher pension and health care expenses, the company expects to miss its fourth quarter estimates as well as its projections for all of 2004. At the same time, management stated that "during fiscal 2004, the company expects the U.S. economy to remain sluggish in its first fiscal quarter. Year-over-year economic improvement is expected to be evident in the second half of fiscal 2004, although sequential improvement may come earlier." For the second consecutive year, FedEx ranked 8th on Fortune magazine's "America's Most Admired Companies" annual survey. I have gone into the aforementioned detail for the same reason I discussed WalMart, my favorite company, in the early fall of last year. When the great companies begin to experience slower growth, when the industry leaders point to specific on-going problems, such as rising pension expenses and health care costs, I ask myself what's the story with other companies in the industry as well as companies which depend on them for their well-being. We have seen what's taken place in the past nine months within the retail industry. WalMart has nudged ahead but very slowly for them. The same will be true for FedEx in the near future. There is one important similarity between WalMart and FedEx. In recent years, their greatest growth has been internationally. U.S. FedEX Express and Sam's Club have both suffered by comparison. I again ask the question- when the great ones are experiencing a slowdown, isn't that a reason for concern? Is this concern reflected in the Dow at almost 9000 and the Nasdaq at about 1600? It's your money. For my money, the concern has created risks for which I am not being adequately compensated. I trust in the management at FedEx. They stay ahead of the curve. I certainly can't say the same for too many other companies.

On Friday Steve Ballmer, Microsoft's CEO, sold 4.1 million shares. He still owns 410 million shares. Is anyone concerned that he has sold about $1.6 billion in Microsoft stock in the past two weeks? It's interesting. At the beginning of June last year the Nasdaq dropped below 1600. Then, yesterday the Nasdaq for the first time in a year, stuck its head through 1600. In all, over the past 12 months the Nasdaq is unchanged. Not much has happened with Microsoft stock either in that time.

The Financial Times reports that the semiconductor industry group has lowered sales forecasts on chip growth for 2003 and 2004 due to SARS. I noticed yesterday where Intel cut prices for some mobile products, including some Centrino packages. Price cuts ranged up to 34%. I was surprised. Centrino was recently introduced with much publicity. Maybe Intel overestimated their industry pricing power.

Colin Powell recently stated "There were weapons of mass destruction in Iraq. It wasn't a figment of anyone's imagination." Powell did not touch on a subject which has created much debate in the British press- the September 24 published British intelligence finding which claimed that Iraq had WPM that could be deployed within 45 minutes of an order being given.

Edward Laird, head of Air Cargo Management Group, said freight forwarders in Hong Kong are having trouble moving cargo as a result of Cathay Pacific and Dragonair and others having canceled flights. International freight and express shipments were down 1.7% in April, and this was the first time such a decline had taken place for U.S. carriers in a year.

Paul McCulley, managing director of Pimco, said in November 2002 "the time has come for America to stick a lower dollar into the deflationary ears of the European and Japanese monetary authorities, until they scream reflationary Keynesian aggregate demand uncle." This past week we have begun to hear such screams.

I received a wonderful present from my family yesterday. It's a tee shirt which says in bold lettering: "I stand up to incredible intellectual scrutiny." I got a great laugh and it will make me smile when wearing it. Others will scream. That's what makes horse racing. The Belmont Stakes is fast approaching.

6/2/03 Driving Through Potholes Impacts Wheel Alignments

Everywhere you look there are tolls or some use tax. You pay them and know it's the current cost of driving through life. Over the years I have said that the risk taker should be compensated for assuming risk. When the risk rises, the compensation should be larger and vice versa. Assessing the risk and the proper compensation are matters for each individual's consideration. It's not my personal interest whether my thoughts influence your thinking. I only hope you think rationally and are successful.

I found it interesting that Bill Fleckenstein, a very bright guy, happened yesterday in his Contrarian Chronicles to outline items I have been analyzing as well. He states "a precarious economy, rotten fundamentals, a debt-ridden government that says 'sell our currency' are a recipe for disaster...I think fixed-income is a bubble that is destined to end in an ugly mess...but it's a given that we face financial and economic turmoil." Hopefully, Bill's thoughts will not prove too disturbing. They, too, are meant to serve investors well.

Before I touch once again on the tax cuts, I would like to revisit what took place yesterday in Texas where a $117 billion budget was officially passed. Some might consider it progress. Some might consider it disaster. Maybe it's somewhere in-between. They "saved" $800 million by delaying payment for public schools by 5 days. They "saved" $524 million by assuming lower caseload projections for Medicaid! They drained the "rainy day fund" for the Medicaid shortfall etc. They "shifted burdens for indigent health care to county district hospitals," said Republican Sen. Whitworth of San Antonio. Hundreds of thousands of children were removed from the Children's Health Insurance Program. Teachers lost health benefits and must pay more for their retirement. I don't believe the aforementioned budget process is a recipe for success. It is going on in most of our states. According to the National Conference of State Legislatures, states face revenue shortfalls totalling $21.5 billion for the fiscal year ending this month, and this amount is 23% more than what was projected in November. "This year's budget crisis will feel like 'The Perfect Storm',"said Governor Bob Taft of Ohio, a Republican. Gov. Dirk Kempthorne of Idaho, a Republican, calls it "the worst budget crisis among the states since World War II."

I have mentioned the state budget process and the state budget crisis for an important reason. In my view, a discussion of the recent tax cuts cannot be effective without bringing up the impact the budget crisis among the states is having on its state citizens. Let me say I do not feel there is a belief or opinion which can be proven today with respect to the recent tax cuts and their impact on stock market performance. It will be proven in hindsight only. Historically, budget cuts do have a positive impact on the stock market; however, today does not resemble history. We are setting new records, and those records have disaster written on them. I am talking about the size of the federal budget deficit, the size of the federal trade account deficit, the size of the federal debt, the size of the state budget shortfalls, the size of the cost of Medicare and Medicaid, the number of Americans without health insurance, the ever-increasing cost of health insurance-- put them together and you do have a recipe for disaster. The latter, in my view, far outweighs the benefits from the tax cuts.

May eurozone manufacturing Purchasing Manufacturers Index dipped to 46.8 from 47.8 in April. This was a surprise, The consensus was that the PMI would rise to 48.2. Overall, European manufacturing has fallen for three straight months and orders have fallen to their lowest level in 18 months.

As I have said so often with glee, I am not an economist. At the same time, I do keep my eyes open. Over this past weekend there was the biggest social event of the year in San Francisco- the Black and White Ball. Two years ago 10,000 tickets were sold for the Ball. The tickets are not inexpensive. This weekend 5000 tickets were purchased. In the environs of Seattle there are two areas where the extremely wealthy live. The top area is the Medina section of Bellevue. That's where Bill Gates has his home. The other is an island not far from where Bill Gates lives. The island is located in a beautiful setting with magnificent coves and much privacy. Ttwo years ago there was hardly a home for sale. Now there are for sale signs on almost every block. These are signs in both newer as well as very established neighborhoods. Whether its San Francisco or the aformentioned island on the outskirts of the Seattle skyline, the economic downturn continues to impact the wealthy. In my view, the wealthy will need more than a reduction in the taxes on the dividends received to provide a path to recovery. Whether its the $2.65 budget shortfall in Washington state or the staggering multi billion dollar budget shortfall in California, the fallout from the growing state budget crises will dwarf the positive impacts from the tax cuts coming out of Washington DC. Given the recent run-ups in the stock market and the bond market, I believe investors might reassess the current and future risks.

6/1/03 Systemic Mold

We have a growing mold problem in this country. As such. homeowner insurance rates have been increasing, and, in some states, dramatically. Texas has the biggest problem with mold claims, and the average premium has risen 45% over the past two years.

"As I tell my students, this is a great time to be studying governmental accounting, because the bigger the fiscal problems, the more they resort to gimmicks," said Michael Granof, a University of Texas public finance professor. "These gimmicks are basically off-the-balance sheet debt. It's what Enron did."

Over the past two years California, Colorado, Illinois, Kentucky, New Jersey, North Carolina, and Wisconsin have had their credit rating lowered. S&P has issued credit outlooks for 11 other states, and it is highly likely one or more of those 11 will join the credit downgrade list.

According to Jared Bernstein, a researcher for the Economic Policy Institute in Washington, the average length of unemployment is now 19.6 weeks, the longest since 1983; 21% of jobless workers have been unemployed for more than 6 months. Manpower's Chairman Jeffey Joerries said "the survey results are clearly showing a dominating sense of uncertainty, as hiring intentions have dropped for the first time in over a year."

William Clay Ford Jr., Ford's chairman, told the Detroit Regional Chamber on Friday "healthcare is just out of control. It's a system that's broke. It really scares me enormously...If we had three up years in the stock market, the pension issue would be ameliorated. The health issue is more intractable. I don't see a good solution." Mr. Ford should put his fears to rest. The Congress will be reconvening and shall tackle the healthcare problem.

According to a study by A.T. Kearney, over the next five years, financial services companies nationwide are planning to relocate more than 500,000 jobs overseas, reducing annual operating costs by more than $30 billion.

Frank Navarette, Arizona's homeland security director, said his state is considering not following the federal alert moves in the future. He said "I believe that, based on our own intelligence, I'm of the mind-set that we don't have to follow suit. It creates incredible problems- overtime, financial, functional."

According to new forecasts by House Budget Committee Democrats, the federal budget deficit will be nearly $500 billion next year and could help to drive up the federal debt by $3.6 trillion through 2011. In my view, that's not too enlightening. Citigroup has already forecast a federal budget deficit of $500 billion for 2003, and Goldman Sachs doesn't believe the tax cuts will improve GDP growth. It is worth remembering that, in 2001, the Administration predicted a $5.6 trillion surplus between 2002 and 2011.

In January 2003 we experienced eight 100+ point loss days in the Dow; 5 in March; 3 in April; and 1 in May. Traditionally, the ensuing summer months produce more challenging results. Maybe this year will be different. Given the recent insider selling, I see no reason to expect a change for the positive.

In the June 9 issue of Newsweek, the Princeton Survey Research Associates poll indicates Bush's approval rating is 61%, down from the prior month's 65%, and 46% view the President's handling of the economy in a favorable light.

"We've discovered a weapons system -- biological labs that Iraq denied she had and labs that were prohibited under the U.N. resolutions," Bush told reporters after talks with Russian President Vladimir Putin.

"My opinion is that we must work together to improve the lives of the Iraqi citizens, that we must cooperate closely to make sure that the Iraqi infrastructure is in place so that Iraqi citizens can live decently," Bush said

5/31/03 The Money Trail And Possibly "Cherry-Picking" The Flow Of Information

As yesterday's trading day ended, May marked the fourth straight monthly gain for the Nasdaq. The last time this took place was in late 1999, and what a great time that was to be a seller. Steve Ballmer, Microsoft's CEO, was not a seller in 1999. As I wrote the other day, up until about one week ago, he had not sold one share of Microsoft since 1991. I noted he had just sold 49.4 million shares, and then, this past Wednesday he sold another 2 million shares and then another 4 million on Thursday. Bill Gates has sold Microsoft on a regular basis for a period of years. The other day Jeff Bezos of Amazon sold a large amount of shares in the company he founded. I noted Michael Dell was a recent seller too. May had a positive money inflow into U.S. stock funds. You might consider asking yourself a basic question. Microsoft, Dell, and Amazon are three of the leading companies on the Nasdaq. Over and over again, I have mentioned that Microsoft and Dell are two of my favorite companies, and have been for years. I have also said many times I am in love with my family but not with my portfolio positions. Now for the question. If you see Ballmer, Dell, and Bezos lightening up, should you be a buyer or a seller- not just of the companies they run- but the market as a whole? What's more important- the market making new highs or the selling by some of our most successful technology entrepreneurs? Data can be devoid of information, it can be manipulated, and it can be massaged. I look at it this way. There are words, there are numbers, and there are people intertwined. I prefer to pay attention when smart people talk with their personal flow of money. You may think otherwise. It's your money. It's your choice.

Rick Carlisle was just fired as head coach of the Pistons. In his first season with the Pistons, 2001-2002, he was named NBA Coach of the Year. This season the Pistons went 50-32, and this was the best record in the East. His team went to the conference finals where they lost 4 straight to the Nets, a better team. The Pistons may hire Larry Brown who recently left the 76ers. Carlisle had been paid $2 million for the season. He is considered one of the best coaches in the league, and his two year record supports that view. He had every reason to believe he would receive a new contract, and probably a raise as well. Life is unpredictable. The market is unpredictable. You can never be sure enough in today's world. If you believe that last statement, then it might be wise to get paid for the risks in today's world. The problem is insurance can be expensive. There is one advantage should you so choose. The sellers of options generally make money 80% of the time. You might consider hedging your portfolio. It all depends on your point of view, and your ability to sleep at night. There is an old saying- sell to the sleeping point.

I was particularly interested in Fed Board Governor Ben Bernanke's speech today to the Japan Society of Monetary Economics. He said "there is no immediate threat of deflation in the U.S. economy and that the concern is that inflation may become uncomfortably low." He expects second half growth of between 3% and 3.5% and rising to 4% in 2004. He recommended that the Bank of Japan should focus on reflation. "Specifically, the Bank of Japan should consider increasing still further its purchases of government debt, preferably in explicit conjunction with a program of tax cuts or other fiscal stimulus. Consumers and businesses should be willing to spend rather than save the bulk of their tax cut. They have extra cash on hand, but-- because the BOJ purchased government debt in the amount of the tax cut-- no current debt service burden has been created to imply future taxes." This sounds a great deal like what is taking place in the U.S. I hope Bernanke doesn't believe, however, that consumers and businesses have extra cash lying around. In addition, as he well knows, Japan runs large trade account surpluses and that makes it feasible to reflate.

Because of SARS, Hong Kong's economy actually shrank 0.3% in the first quarter, and the government reduced its growth estimate for the year to 1.5% from 3%. The government expects SARS to reduce the 2003 GDP by 1.8%.

An annular eclipse is one where the sun is but a bright ring behind the moon. In early hours, the North Atlantic region witnessed its biggest such solar event in almost 50 years.

Quietly, over the past month or so, the Nikkei has climbed without fanfare from 7600 to 8400. Many companies are still having major problems. For example, Mitsui Mining reported a yearly loss of $445 million, and the loss created a negative net worth. It will be interesting to see how the performance of the Nikkei compares with that of the Nasdaq over the next 12 to 18 months.

This is our government attempting to be at work. In March Energy Secretary Abraham commissoned the National Petroleum Council to do a study on natural gas supplies, consumption, and prices and to make recommendations. The study will be completed in December. In the private sector I would hope a more realistic timetable would be 48 hours.

Albert Einstein: "Whoever is careless with the truth in small matters cannot be trusted with the important matters." Are we learning to think in different terms? Cross currents can be created by various flows of information and data. We know it is possible to manipulate data. Forks in the road are generated, and they lead on one side to mistrust and to the other side to wise leadership. The path you take is your choice, and yours alone. However, as Sandra Carey said, "never mistake knowledge for wisdom. One helps you make a living; the other helps you make a life." Let's focus for a moment on the question of intelligence. A senior intelligence official spoke on the condition of anonymity and said that only Colin Powell's February 5 speech at the UN Security Council was reviewed by intelligence agencies in detail and backed by detailed intelligence. In my opinion, that speech mostly provided an historical picture and did not feature current views of WMD. I am convinced to this day that Powell believed in the speech he gave. The cross current is generated by the opinions put forth by the Veteran Intelligence Professionals for Sanity, a group mostly comprised of CIA intelligence analysts. This group wrote Bush on May 1 about "a policy and intelligence fiasco of monumental proportions." In essence, they maintain intelligence data was skewed and that the Administration played up "fraudulent" intelligence, and before declaring war, there was a "moral obligation to use the best information available, not just information that fits your preconceived ideas." A former head of worldwide human intelligence gathering for the Defense Intelligence Agency said the administration "cherry-picked the intelligence stream." Upon a good deal of reflection, I think the kindest thing one can say is that a good deal of information provided was flawed. A good example would be yesterday's statement by Lt. Gen. James Conway, who is the top Marine Corps officer in Iraq. He said U.S. intelligence was "simply wrong" to make our military commanders indicate to our troops that they should be fearful of being attacked with chemical weapons in Iraq. We are now sending a 1300 person team of intelligence officers, scientists, and document specialists to aid in the search for WPM. Yesterday, Bush was interviewed and said "But for those who say we haven't found the banned manufacturing devices or banned weapons, they're wrong. We found them." He was referring to two trailers where the CIA had concluded no pathogens had been found.

Coco Chanel: "It's amazing how many cares disappear when you decide not be something, but to be someone."

Today Bush visited Auschwitz, and in a speech to Polish television he mentioned that his visit to the "Death Wall" is "to remind people that we must confront evil when we find it." Speaking for myself, I don't need the reminder. I remember it every day, and every day I am unfortunately reminded of new evils. I am not skilled in the art of selective forgetfulness.

Yesterday morning I was flipping the TV channel and saw an old familiar face. He was providing his current views, and he has been a successful money manager for some years. He mentioned about hs partner's description of tension in the boardroom, and that this tension was good for stocks. Specifically, he said boards are under pressure to make acquisitions, to do stock buybacks, and/or to declare dividends. I thought for a moment. This is good for stocks? At least 75% of acqusitions are unsuccessful. That number has been proven. In fact, it might be closer to 80%. Buybacks are not necessarily the best use of cash flow. Speaking from experience as chairman of an executive committee and chairman of a finance committee, we purchased stock on three separate occasions when the market was depressed and below the then last sale price. However, our best use of cash flow day in and day out was investing in our plants, and the annualized ROI was never below 50%. We never paid out a dividend just for that reason. The stockholders didn't do too badly. From the third week of December, 1981 thru the spring of 1988 the stock rose from $19 to the buyout price of $109.

Having money and the uses for the money is on everyone's mind. In April wages and salaries fell 0.2%. It was not surprising, therefore, to see the personal consumption expenditures index to also fall 0.2%. There's a lot of data out there. We have the lowest interest rates in four decades. Unemployment levels are way too high. Business spending is a misnomer. Everyone knows the numbers. The point is what do you feel the picture is telling your guts? Not what I say or Joe Blow says or even Bush says. What do you think? Please avoid bureaurocratic leanings. You might wind up like Deputy Defense Secretary Paul Wolfowitz and his explanation for going to war with Iraq: 'the truth is that for reasons that have a lot to do with the U.S. government bureaucracy, we settled on the one issue that everyone could agree on which was weapons of mass destruction as the core reason."

5/30/03 The Bad, The Bad, And The Ugly

Our Speaker of the House is Dennis Hastert. Many wondered why Boeing moved its long-time headquarters from Washington state to Illinois. Boeing said they got a better deal. I guess they did. How did Boeing just win a $16 billion Pentagon contract to lease modified jetliners for use as refueling tankers? Hastert proudly told the world "We did that kind of on our own. But I think the important thing is that we were able to have the muscle to get it done, and that means not just 100 planes but probably, long-term, it'll be 500 tankers." Some question why the $16 billion lease cost is more than an outright purchase would be. I'm sure everyone knows that Hastert, who represents Illinois, is third in line to run this country should a calamity befall our President and Vice-President. I'm certain that there are those snickering and are saying that's how business is done. Maybe it's done this way because no one does anything about it. In my view, things need to change.

The Boeing matter reminds me of IPOs. All the news relates to feeding the hot deals to the heads of companies who direct their business to the IPO managers who control the distribution of the stock. I think it goes much further than that. How about all the fund managers who direct millions of dollars in commission business to these same firms managing the hot IPO deals? I realize they should be treated differently. They are the best customers. They already are paying a lower commission than the average person doing business with that same firm. The large fund manager does something else though. That fund manager getting the hot issue, such as, VA Linux, will agree to take a lemon every once in a while. My comments come from experience. I have been offered these hot IPOs and turned each down. I also don't knowingly take on lemons. I can make money working hard and being my own man. Yesterday I mentioned Krispy Kreme. I really like this company. I like the product too much. I was offered the stock at the IPO price. When the stock opened for trading, I paid 60% higher than the IPO price. I still own those original shares. As for lower commission rates, I was always happy with the deal I struck in 1980. I still do business with that firm as I do with WalMart where they are pleased to give me a 10% discount. I am a valued repeat customer and spend a good deal of money there. What I buy is my choice though.

Yesterday, another U.S. soldier was killed in Iraq. Lt. Gen. David McKiernan told a Thursday news conference "The war has not ended, that's a point I need you to understand." Don't tell us, McKiernan. Tell it to the families whose near and dear were killed after combat was declared over on May 1. I am not one with military experience and don't understand how the troops in Iraq can still be receiving combat pay when the combat is declared over. In my view, the aftermath of the combat, that of chaos, could have been prevented with much different planning. I would like to believe that Ross Perot or Barry Goldwater would have handled this situation with much greater adroitness.

The Investment Company Institute reported April stock fund inflows amounted to $16.1 billion, and that this was the first inflow since November.

The World Semiconductor Trade Statistics group said April global semiconductor sales growth was flat compared with March, and was much weaker than expected.

Last week initial jobless claims amounted to 424,000, and for 15 straight weeks claims have remained above 400,000. Japan can relate to difficult times. Tokyo CPI prices have declined for 44 straight months. That's deflation!

In the first quarter in the U.S., earnings after taxes, adjusted for the value of inventories and capital consumption, fell 0.8%. We should see what results show in the second quarter.

S&P cut J.C.Penney's debt to a "junk" rating.

When Congress reconvenes and focuses on Medicare, I will be interested to see how Medicare's unfunded liability is handled.

You just have to love some of these airlines. U.S. Air is offering a $7 breakfast and a $10 dinner. Next to that, the $19 hot dog at the Old Homestead is looking a lot better.

In discussing the euro currency market, David Schoenthal, senior managing director of Bear Stearns, said "the market is focused on the deficits here, tainting the appeal of the dollar." The stock market does not appear to focus on the deficits nor does the Administration or the Congress.

Toronto now changed how it counts SARS cases. I need to take a course in counting. I didn't realize there were different ways to count SARS. No wonder the number of cases shot up to 70 and thousands were placed into quarantine. A big 4 accounting firm must have done the audit. Depending on the length of sickness, the hospital may be permitted to change to a double declining patient depreciation schedule.

ECB's chief economist, Otmar Issing, doesn't believe there is deflation in Germany. The fact is business hit a soft patch there, and they are the largest economy in the eurozone.

San Jose Congresswoman Zoe Lofgren serves on the House Select Committee on Homeland Security and is the top Democrat on the Cyber Security Committee (I didn't know we had one). She complains that air cargo, nearly a quarter of which is transported on passenger planes, is uninspected, and so is most of the cargo on ships. I wonder if that includes cruise ships. The latter may only have room to store SARS and other viruses.

According to the Conference Board, the volume of help-wanted ads in major U.S. newspapers fell in April to the lowest level in more than 41 years.

Joe Mysak is a Bloomberg News columnist. He wrote an interesting article on the Muni bond market and potential negative yields. He quotes John Hanley, the national sales manager at George A. Baum, who says "Investors are making a bet that bonds will make it past the call date. If that happens, incremental yields may pick up significantly. The approach requires some research but can generate decent returns. To this point it's been a safe bet as negative arbitrage has slowed municipal refundings." It got me to thinking. I'm familiar with arbitrage. I need to research whether similar negative arbitrage exists in the stock market.

5/29/03 Different Perspectives And The $19 "Dog" And Giant Holes

Having been born, raised, and lived most of my life in New York, I have always felt a kinship to the real-deal hot dog made by Sabrett and sold at carts manned by street vendors. The Old Homestead Restaurant in New York City is considerably older than I am, therefore ancient, and now offers a different perspective on the "dog"-- a $19 Kobe beef hot dog.

CBS Evening News offers a different perspective on the opening night of the Iraqi war. They just reported there was no bunker bombed. They quote Col. Tim Madere who said "When we came out here, the primary thing they were looking for was an underground facility, or bodies, forensics, and basically, what they saw was giant holes created. No underground facilities. No bodies." There were no traces of DNA indicating whether Hussein or his sons had been killed or wounded.

Goldman Sachs offers a different perspective on the possible economic impact of the tax cut on 2003 GDP results. They maintain it will not have any impact at all and are sticking with their projected 2.2% GDP growth for 2003.

Some financial publications offer a different perspective on the economic upturn which is supposedly just around the corner. Some suggest that growth will in fact pick up but that unemployment will continue at the same level. In other words a jobless recovery, as it were, is foreseen in a different perspective.

Senator Graham is a candidate for the Democratic nomination. He is not well-known by many but, of all the candidates, he has been privy over the past 10 years to the most classified information. He offers a different perspective on the Iraqi war. Basically, he maintains that Saudi Arabia aided and financed al-Qaeda's 9/11 calamity, and that the whereabouts and existence of WPM were not truly known at the time our bombing began. It's possible, therefore, that the U.S. could get control of the Iraqi oil and make use of that source in order to minimize the importance of Saudi Arabia's oil and that of the mideast oil cartel.

Microsoft will be dropping prices by $80 to $110 on its Office XP suite of business software. This represents a reduction of about 15%. Later this year, the company will be inroducing Microsoft Office System 2003.

According to market research firm GfK Asia Pte. Ltd., a survey of 134 electronics retailers in Hong Kong and Singapore projects slow business to continue until at least July, and the reason is the impact from SARS. Yesterday Taiwan reported 14 new SARS cases and 5 more deaths. In Toronto a high school was shut down, and 2000 from the school and a total of 6400 were placed into quarantine. Russia announced its first confirmed case of SARS yesterday.

Unlike the recent headlines on home prices, Economist magazine provides a different perspective. They say U.S. and U.K. home prices will drop "dramatically" in the next few years, and that some nations will experience a recession.

The Christian Science Monitor reports that more and more states, such as, Alabama, New York, California, and Nevada, are moving to raise taxes by record amounts. Nicholas Jenny, a tax analyst at the Rockefeller Institute of Government in Albany, states that in most states "we're going to see big tax increases this year. It almost seems inevitable." David Lanoue, a political scientist at the University of Alabama at Tuscaloosa, offers an interesting perspective when he says "many governors are in the first year of their term, which gives them three years to recover. And three years is a lifetime in politics."

The May 29 Far Eastern Economic Review makes some very interesting points about China and its currency. Much is discussed about the renminbi's debut as both a regional reserve currency, a growing international currency, as well as a currency which is fully convertible. The IMF estimates that 40% of total trade within non-Japan Asia is intra-regional and trading with China accounted for 40% of the increase in 2002. It is suggested by John Wadsworth, an advisory director of Morgan Stanley, that "it is highly likely that there will be four major currencies in the world within 10-15 years." Taking it one step further, might be the future potential of the renminbi to float against the dollar, the euro, and the yen. With China's $300 billion of foreign reserves, its future growth prospects, and the evolution of the renminbi, the country should have a major global economic impact for years to come. Jonathan Woetzel, a Shanghai-based director of MCkinsey & Co., says of China "What makes it distinctive is its growth. By 2010, it is expected to almost double in size to rival Germany. With continued growth it will surpass Japan by 2020."

The average forecast from auto analysts peg the industry's May sales below the results of April, where orders for cars and auto parts were off by 3%. May figures will be released June 3. Because of continued high inventory levels, production cutbacks are expected for the third quarter.

In Japan industrial production fell in April.

Air Canada is laying off nearly 2000 flight attendants.

Our nation continues to have a sweet tooth- me included. Krispy Kreme's same store sales increased 11.2% in the latest quarter. An estimated 7.5 million Krispy Kreme doughnuts are made every day and more than 2.7 billion are produced each year. I am a big fan of this business. Owning an itty bitty bitty piece makes each doughnut taste even better.

Just a short closing remark. I appreciate hearing from readers. I appreciate the constructive comments as well as the ones with praise and laugh off any that reach me with unkind tones. Many have requested that I should endeavor to place my blog before a larger audience . For new readers I will reiterate. I like writing the blog the way it's now done. I no longer give interviews and no longer provide comments to reporters. The last filmed interview was several years ago when CNBC named me their "Player of the Week." My family bore the brunt of that publicity. It will not take place again. I don't make the same mistake twice. I hope all my new and old readers appreciate my point of view.

5/28/03 The Balanced Bar

The Yankees had lost their last eight games in the house that Ruth built. Yesterday, they responded with a win and "stopped the bleeding."

Another piece of good news. In describing the WMD, Rumsfeld said "It is also possible that they decided that they would destroy them prior to a conflict." If that were the case, we were really lucky because the casualties would have been much greater. Further clarification came from Maj. Gen. David Petraeus, commander of the Army's 101st Airborne Division. He said "I just don't know whether it was all destroyed years ago-- I mean, there's no question that there were chemical weapons years ago-- whether they were destroyed right before the war, or whether they're still hidden." The fact is on May 1 the combat was declared over. We can be thankful to all our troops- those remaining, those wounded, and those laid to rest. We can also be thankful because our recent huge rally originated with the ending of the conflict. It has generated increased consumer confidence and created greater equity wealth for most stockholders. Consumers are feeling better about the future six months from now.

Record low 30-year fixed mortgage rates have continued to stoke new home sales. According to the California Association of Realtors, the median price of an exisiting home in California increased 14.8% compared to the same period a year ago, and stood at $363,930. Just in the past month the median price increased 3.2% over the prior month. If employment picks up, prices might jump even further.

As I was reading the latest mortgage rates, I got to thinking. Interest is deductible. The national debt is like having a second mortgage. Each family's share of the national debt is $70,531. I think it's only fair for the interest on that amount to be deductible for every American.

The Conference Board said that 17.8% of consumers anticipate that more jobs will become available, and this was up from 16.4%. A slightly smaller percentage anticipate their income to increase.

The Rocky Mountain News reported that home foreclosures in the Denver area rose by 38% in the first quarter compared with the period a year ago. Foreclosures are expected to rise 20% in 2003. The good news is that the number of forclosures is far below the record set in 1988.

Honda cut production in Japan in April by 26% from the prior year period. Ricoh, Japan's number two office equipment maker, closed its Beijing factory in May because of SARS. Clarion, the Japanese car audio equipment manufacturer, cut 5% of its workforce yesterday. As in the U.S., medical costs are rising in Japan.

The Pew Center on the States released its first ever comprehensive national survey of state legislators. There were 770 state legislators included in the study. Over the next two years the survey paints continued belt tightening, on-going budget shortfalls, continued cuts in social services are likely, and lawmakers in states with population above 6 million paint the darkest picture of economic conditions and budget shortfalls. The entire survey can be viewed at http://www.stateline.org.

Boeing will deliver about 280 aircraft in 2003 and roughly the same next year. Their CEO said "one thing remains unknown and is the impact of SARS and how long this will affect a number of businesses." This statement reveals to me that the lower dollar will not have much positive impact on Boeing's export sales. As we know, Boeing is this country's number one exporter.

Michael Dell recently sold 10 million shares of Dell common stock at an average price of $29.70. He still owns 278 million shares. As the market has risen in price, some important CEOs have sold shares. Last week it was Steve Ballmer of Microsoft. Talking about Microsoft, since 2001, the company has written down $7 billion in its investments. Yesterday, after purchasing shares in Telewest Communications three years ago for $2.6 billion, Microsoft sold this stock for $5 million in cash. Even the brightest technology people were caught in the dotcom and telecom bubble. As the saying goes, when they raid the whorehouse, they take all the girls.

According to the U.S. Commodity Futures Trading Commission, as of May 20 hedge funds and other speculators (not my description) held a net 65,741 gold futures contracts, the most since the 7 year high reached on February 4.

The new Illinois proposed budget calls for a $112 million cut to public universities. As such, an average tuition increase of 11.5% will be instituted in the fall at Illinois' public universities. How many will be able to afford this increase?

Pt. Reyes National Seashore is a 71,000 acre national park. It is my most favorite recreational area in and around San Francisco. On Sunday they had their first bear sighting in more than 100 years. I hope this isn't an omen. The market is just now working up a head of steam.

Finally, I would like to end today's blog focusing on a very important subject. After the euro was introduced, there was a period of a few years where it was quite weak and it dropped from roughly 1.18 to about the low 80s. The eurozone countries had been running surpluses, and therefore, did not require a daily capital inflow. Japan's yen also was very weak for a time, and they too have large surpluses and do not have the need to attract outside capital on a daily basis. As we know, over the past several years the Fed has reduced interest rates a dozen times, and, as a result, treasuries have had a big rise in price while yields declined. However, that's only half the story. Over the past year the dollar has fallen 22% vs the euro. If treasuries had risen 22% during this period, then there would not have been a loss of capital on the part of the eurozone investors. In other words, the fall in the dollar decreases the willingness of foreign investors to commit their capital into the U.S. The Administration and many economists and many market analysts have simply focused on rising exports with the dollar's decline. This is a very small part of the overall picture. Speaking just for me, investing is a matter of assessing risk/reward. I have placed my shoes in those of foreign investors. I cannot see a reason to assume the risks residing in our economic system. The Nasdaq market, for example, sits at an 11 month high. Had one purchased during the third week in October, and held on until now, the rise would have wiped out the currency loss from the declining dollar by a wide margin. How many bought at that time and are still holding on? The point is this. The U.S. needs to attract $2 billion a day into this country to fund our capital shortfalls. Interest rates aren't going to decline below zero and the economic climate won't make the equity markets go to the moon. Ballmer and Dell aren't stupid. I know they still own billions worth of their respective company's shares. I know they want to diversify their holdings. I also know they must believe they are selling at a good time. Ballmer hadn't sold a share of Microsoft for about a dozen years until a week ago. On the other hand, consumer confidence is rising and the outlook on the part of consumers is rosier. The refinancing boom continues and additional cash flow is released to the consumer. Housing prices continue to rise, and consumers feel wealthier. The stock market has risen beautifully since the Iraqi combat ended. There are plenty of reasons to cheer. There will be opportunities in every market. It's a matter of weighing the risks and the rewards and how you see the world. If I were in Mexico, I'd be looking at a 2.5%+ economic expansion in 2003. Their formal economy will generate 250,000 jobs this year! That is fantastic. There's another side to the story. That nation's workforce is growing by more than 1 million people a year. That's the balanced bar. I myself go for the Pria bar. It gives me energy and the risks are minimal. I prefer it that way.

5/27/03 We Remember And We Contemplate

I often have said that every day should be Mother's Day and Father's Day. I feel the same way about Memorial Day. The Wall at Arlington National Cemetery has 58,235 names. More names will be added as two U.S. soldiers were killed and nine others injured yesterday in and around Fallujah, Iraq. I was reminded by a reader that "all of the top members of the Administration have repeadedly said that, although major combat is over, there are still significant risks to the troops and lives may be lost." I apologize for not having included that statement in yesterday's remarks. I am certain it will be a comfort to the families of the 27 soldiers killed in Iraq since May 1. I only hope and pray more troops will not lose their lives in the combat-free period than did during combat.

A study by Matthew Shapiro and Joel Slemrod, economists at the University of Michigan, found that only about 25% of those surveyed said they spent the rebate they got under Bush's 2001 tax cut. Since that tax cut, 2.7 million Americans have found themselves without a job. As such, I believe it is reasonable to expect less than 25% will spend their tax rebate this time around.

Micron Technology, with approximately 10,000 employees in Boise, is Idaho's largest private employer. In February 10% of the workforce was laid off. With additional quarterly losses anticipated, more layoffs can be expected at Micron.

The state of California has $11 billion worth of debt, and that number continues to rise. Carole Migden, chair of the state Board of Equalization, is a former assemblywoman and a veteran of seven budgets. She says "the state is busted, and we don't have a lot of options." She might also have been talking about the United States and the Fed. This country has debt of $6.4 trillion and that too is about to increase. The Fed has few options. They slip in a concern about deflation but I believe that concern is truly only a dot on their radar screen. Their cup runneth over with concerns. They print money and print money and can't get the economy going. They have a dozen rate cuts and the jobless rate rolls just increase. The largest tax cut in this country's history was nice- just like a warm glass of milk. It didn't really get to our economic woes. The lower interest rates have not gotten businesses to invest. Why should they? Factory utilization is at about a 75% rate. As I have said for three years, we have oversupply and underdemand. We'll remember these days. They won't be with fondness.

According to CNW Marketing Research, an estimated 525,000 auto loans with a total balance of $10 billion will be refinanced in 2003. In 2001 there were 297,000 loans with a balance of $4.5 billion. In years to come, we will remember these refinancing days. It was great while it lasted. As with other good things, they come to an end.

Across the nation this weekend hundreds of thousands of travelers abandoned their plans to travel on the roads. In some areas it might have been due to the weather. Others said it was the result of people just not having money to spend or being unwilling to spend the money they had.

The ECB said the euro zone had an inflow of $12.7 billion euros in March up from February's inflow of $11.4 billion.

Hong Kong has found a new way to fight SARS- an anti-spitting and anti-littering campaign. In Toronto more than 1400 people were asked to go into quarantine.

The euro hit a new high of over 1.19 vs the dollar, and it's now up 13% for the year vs the greenback. That's better than the New Zealand dollar which is up 11.5% this year vs the greenback. While I'm on the subject of New Zealand, which is my country of choice for investment, let me leave you with this question. The Fed funds rate is 1.25% and in New Zealand it's 5.5%. In the U.S.we have record budget deficits. In New Zealand they have 10 straight years of budget surpluses. Why buy a 10 year Treasury at about 3.30% when I can buy a 10 year New Zealand bond providing a yield of 5.45%? The Fed can't answer the question either or maybe they can and don't want the public to know their opinions on this matter. Just as money is pouring into euros, so is money pouring into the New Zealand dollar and their bonds. It's provides a better yield and with less risk. If an educated consumer makes the best customer, then an educated investor should make for the best performance, and the latter will be remembered with fond memories.