7/05/03 The New Order Is The Fireworks Display
Niccolo Machiavelli: "There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things."
Yesterday Americans watched their local fireworks display from their favorite vantage point. The President was weighing sending troops to Liberia. Unfortunately, our nation was focused in the wrong direction. The real pyrotechnics are taking place on the Indonesian island of Bali. You won't find shooting rockets and sparklers. It's the annual gathering of officials from the EU, China, Japan, and eight other Asian countries. The discussion centers on the macro-economic policy between these nations. The headlines will consist of the concerted fight against poverty and removing obstacles to trade. The real item is the yuan. That's the fireworks. That's the new order of things. Japanese Finance Minister Masajuro Shiokawa said "I have no plans to bring up the issue of revaluation directly." Naturally. It will be discussed indirectly over a ceremonial tea gathering. The fact is there are several Asian countries concerned with the impact of the falling dollar on their local currencies. If I were in their shoes, I'd be concerned as well. Kim Jin-Pyo, South Korea's minister of finance and economy, said "the European countries seem to be of the view that since the U.S. has a huge trade deficit and many countries in East Asia and in particular China has a large share of that, there should be or there could be a cautious correction of that imbalance." One European delegate mentioned the need for an appreciation of the yuan during the Bali meeting. Several economists have noted that a rise in currencies in Asia would cut the U.S. current account deficit, and that a stronger yuan would have a greater impact on the U.S. deficit than the euro's rise against the dollar. Since 1994, China's central bank has kept the yuan fixed at 8.28 to the U.S. dollar. The yuan is allowed to fluctuate only a fraction of 1%. China's state newspaper, the 21st Century Business Herald, reported on June 30 that China's central bank has had to buy huge amounts of dollars every day to stabilize the yuan. The chances of that continuing for much longer, in my view, are slim. It is more likely that the Chinese government will increase the trading range from 1% to at least 3%, and test the waters, so to speak.
The U.S. government believes the current yuan peg rate against the dollar provided China with an unfair export advantage. China has accumulated about $350 billion in foreign reserves. My belief is China's success has been built on low manufacturing costs thru low labor and material costs and not the yuan peg rate to the dollar. The fireworks from China are in the beginning stages. The display won't be pretty. It will be the real deal- the real shock and awe.
A big deal has been made of the recent change in the tax treatment of dividends. At the time of its announcement, I mentioned I thought the impact would be a minor plus. In June, 96 companies boosted their dividends up from 87 in June 2002. Approximately 95% of companies declaring dividends in June made no change in their payouts, and thus continued the same payout rate as in the prior quarter. The last time I looked dividends were paid out of earnings and not out of changes in tax policy.
WalMart now employs more than 300,000 people outside the United States, and that's more than any company in the private sector employs in the United States. The company plans to open about 130 new stores overseas this year. The U.S. economy accounts for 37% of the world's GDP. "That leaves 63% for our growth strategy," John Menzer, head of WalMart's international operations, said at the company's recent annual meeting.
Jerry Springer was, at one time, the mayor of Cincinnati. He is contemplating a run for the U.S. Senate in Ohio. He would be challenging Republican George Voinovich. Should he run, the unemployment rolls would increase. He currently employs 60 people on his show.
Friday, July 04, 2003
7/04/03 Polishing The Headstone At The Cemetery
There are many constants in my life. One is being asked why I care so deeply about others and the welfare of this nation. Most would state a single individual cannot have an impact, and believing otherwise is a futile effort. I don't share that view and never have and I never will. I feel the toll of those who have died to preserve my liberties. I don't watch fireworks. I look at the headstones in cemeteries and watch the loving and grieving faces of those left behind. They polish the headstone and hopefully there is some resulting comfort.
Today is Independence Day. I ask myself how can there be independence when there are at least 10 million Americans out of work and looking for work. That excludes the three million Americans who have given up trying to find a job. There are two million Americans who have been unemployed for 27 weeks or more. The average jobless duration is now 20 weeks. That is a 20 year high. The economy has lost almost one million jobs in the last 90 days. About 3.8 million Americans are collecting unemployment benefits, and that is a 20 year high. Those with jobs have an average work week of 33.7 hours and in the factory at 40.2 hours. It's tough to make ends meet with those limited hours. Overtime hours are down to 4 hours per week. An index of help-wanted advertising in major newspapers last month was at its lowest level in 41 years, and the most recent Manpower survey indicates hiring plans for the third quarter are at the lowest level in 12 years. It's tough to be independent under these conditions. How independent can one be when health insurance cannot be afforded? There are almost 45 million Americans who are in this situation. On this fourth of July I am reminded by the words of Teddy Roosevelt: "A man who is good enough to shed his blood for his country is good enough to be given a square deal afterward. More than that no man is entitled to, and less than that no man shall have." I know our veterans are not being provided a square deal when it comes to healthcare.
To achieve a competitive advantage in this information age it is necessary to have the skill in utilizing the information and then its application in sifting thru baloney to get to the prime cuts and the tidbits of knowledge capital found in the marrow bones. I am happy to report a success story in this endeavor. Adam Monk has achieved such success as head of the Chicago Sun-Times Monkey Business stock selection. Adam is a 31 year old cebus monkey from Brazil, and he recorded a gain of 19% in the five stocks he selected for the Chicago Sun Times early in 2003. The paper reports that Adam is working on a new line of monkey mutual funds. He made his stock picks by stabbing a pen at the Chicago Sun Times stock tables. Hopefully, this accomplishment will provide a meal for a lifetime for one of my email cohorts. There are many avenues available for the successful investor. Richard Chu, an SG Cown technology analyst states " tech investing is like jumping out of a window and hoping that someone will catch you." Hope springs eternal.
It is appropriate that I mention the new exhibit In Philadelphia. There is not a new replica of the Liberty Bell. It is a permanent exhibit on the money and banking system at the Philadelphia Federal Reserve and it is called "Money in Motion." What caught my eye was not Greenspan at the ribbon-cutting ceremony but rather the 25 foot tower of shredded money which depicts the $100 million destroyed in an average week at the Philadelphia Federal Reserve. I feel certain that the loss in the value of the dollar over the past year comfortably exceeds that weekly $100 million destruction. Maybe they should construct a waterfall depicting the demise in the value of the dollar. It's tough for a country to run massive budget and trade deficits and retain its independence. I think Thomas Jefferson would second that thought.
The other day I mentioned placing some money in China's yuan. Yesterday Goldman Sachs' Fred Hu said China's currency is undervalued by as much as 15% and thought the Chinese government might allow the yuan to appreciate before the end of the year. Whether it's in 2003 or 2004 this upward revaluation will take place. China is on its way to becoming the superpower of the 21st century. We had a big part in that. We run a $100 billion plus trade account deficit with China. We are handing them the reigns of power, and with that, our independence.
This week it was reported by Cushman & Wakefield that office vacancies in San Francisco's business distict climbed to 21% and that office rents dropped to an average of $27.72 per sq ft compared with $32.64 a year ago. That marked the 10th consecutive quarter that prices have fallen in San Francisco. Citywide there are 17 million sq ft of office space sitting empty. It reminds me of all the unused jets sitting in the Mojave.
There was an interesting study done by Runzheimer International and the Association of Corporate Travel Executives. It indicated that 40% of North American organizations have smaller travel budgets this year and that another 34% have travel budgets flat with a year ago. Importantly, 59% are making increased use of teleconferencing, Web conferencing, and video conferencing. The senior editor said she thought teleconferencing would come to be regarded as a permanent tool for doing business. I agree. The loss of business travel and its premium ticket prices could prove the long term demise of many airlines.
Siebel Sysyems cautioned that customers continue to delay making buying decisions. As a result, Siebel will have additional layoffs. Baxter International announced cutting 2500 jobs the other day. In addition to these cutbacks, I have noticed a slowdown in another area. There are less buyers to be found for 10 year U.S. treasuries, which slipped in price for the third consecutive week, the longest slide since November. Interestingly, Japan had a similar experience. The yield on 10 year Japanese treasuries have risen to their highest level since September 1999, and have more than doubled in yield since June 11.
There are many constants in my life. One is being asked why I care so deeply about others and the welfare of this nation. Most would state a single individual cannot have an impact, and believing otherwise is a futile effort. I don't share that view and never have and I never will. I feel the toll of those who have died to preserve my liberties. I don't watch fireworks. I look at the headstones in cemeteries and watch the loving and grieving faces of those left behind. They polish the headstone and hopefully there is some resulting comfort.
Today is Independence Day. I ask myself how can there be independence when there are at least 10 million Americans out of work and looking for work. That excludes the three million Americans who have given up trying to find a job. There are two million Americans who have been unemployed for 27 weeks or more. The average jobless duration is now 20 weeks. That is a 20 year high. The economy has lost almost one million jobs in the last 90 days. About 3.8 million Americans are collecting unemployment benefits, and that is a 20 year high. Those with jobs have an average work week of 33.7 hours and in the factory at 40.2 hours. It's tough to make ends meet with those limited hours. Overtime hours are down to 4 hours per week. An index of help-wanted advertising in major newspapers last month was at its lowest level in 41 years, and the most recent Manpower survey indicates hiring plans for the third quarter are at the lowest level in 12 years. It's tough to be independent under these conditions. How independent can one be when health insurance cannot be afforded? There are almost 45 million Americans who are in this situation. On this fourth of July I am reminded by the words of Teddy Roosevelt: "A man who is good enough to shed his blood for his country is good enough to be given a square deal afterward. More than that no man is entitled to, and less than that no man shall have." I know our veterans are not being provided a square deal when it comes to healthcare.
To achieve a competitive advantage in this information age it is necessary to have the skill in utilizing the information and then its application in sifting thru baloney to get to the prime cuts and the tidbits of knowledge capital found in the marrow bones. I am happy to report a success story in this endeavor. Adam Monk has achieved such success as head of the Chicago Sun-Times Monkey Business stock selection. Adam is a 31 year old cebus monkey from Brazil, and he recorded a gain of 19% in the five stocks he selected for the Chicago Sun Times early in 2003. The paper reports that Adam is working on a new line of monkey mutual funds. He made his stock picks by stabbing a pen at the Chicago Sun Times stock tables. Hopefully, this accomplishment will provide a meal for a lifetime for one of my email cohorts. There are many avenues available for the successful investor. Richard Chu, an SG Cown technology analyst states " tech investing is like jumping out of a window and hoping that someone will catch you." Hope springs eternal.
It is appropriate that I mention the new exhibit In Philadelphia. There is not a new replica of the Liberty Bell. It is a permanent exhibit on the money and banking system at the Philadelphia Federal Reserve and it is called "Money in Motion." What caught my eye was not Greenspan at the ribbon-cutting ceremony but rather the 25 foot tower of shredded money which depicts the $100 million destroyed in an average week at the Philadelphia Federal Reserve. I feel certain that the loss in the value of the dollar over the past year comfortably exceeds that weekly $100 million destruction. Maybe they should construct a waterfall depicting the demise in the value of the dollar. It's tough for a country to run massive budget and trade deficits and retain its independence. I think Thomas Jefferson would second that thought.
The other day I mentioned placing some money in China's yuan. Yesterday Goldman Sachs' Fred Hu said China's currency is undervalued by as much as 15% and thought the Chinese government might allow the yuan to appreciate before the end of the year. Whether it's in 2003 or 2004 this upward revaluation will take place. China is on its way to becoming the superpower of the 21st century. We had a big part in that. We run a $100 billion plus trade account deficit with China. We are handing them the reigns of power, and with that, our independence.
This week it was reported by Cushman & Wakefield that office vacancies in San Francisco's business distict climbed to 21% and that office rents dropped to an average of $27.72 per sq ft compared with $32.64 a year ago. That marked the 10th consecutive quarter that prices have fallen in San Francisco. Citywide there are 17 million sq ft of office space sitting empty. It reminds me of all the unused jets sitting in the Mojave.
There was an interesting study done by Runzheimer International and the Association of Corporate Travel Executives. It indicated that 40% of North American organizations have smaller travel budgets this year and that another 34% have travel budgets flat with a year ago. Importantly, 59% are making increased use of teleconferencing, Web conferencing, and video conferencing. The senior editor said she thought teleconferencing would come to be regarded as a permanent tool for doing business. I agree. The loss of business travel and its premium ticket prices could prove the long term demise of many airlines.
Siebel Sysyems cautioned that customers continue to delay making buying decisions. As a result, Siebel will have additional layoffs. Baxter International announced cutting 2500 jobs the other day. In addition to these cutbacks, I have noticed a slowdown in another area. There are less buyers to be found for 10 year U.S. treasuries, which slipped in price for the third consecutive week, the longest slide since November. Interestingly, Japan had a similar experience. The yield on 10 year Japanese treasuries have risen to their highest level since September 1999, and have more than doubled in yield since June 11.
Thursday, July 03, 2003
7/04/03 A Recap And A Peek Forward
To my original blog readers I apologize in advance, and appreciate your patience. Over the past three or four months there have been a great many new readers of this blog. Several times each day I have received requests to recap the suggestions provided over the past three years. So here goes. In May/June 2000 I turned completely negative and suggested that all securities be fully hedged or sold. I suggested the purchase of gold and Newmont Mining. About ten days after 9/11, I suggested going long to take advantage of what I believed would be a short-term rally. About one month later I recommended that those positions be sold or hedged. I did not return to a bullish stance until mid-October 2002 and recommended positions then taken to be sold or hedged prior to the new year. Other than the suggestion to buy McDonald's at 12 1/2, being negative on the takeover of Hershey's, being optimistic on the takeover of Dreyer's after a big drop from an FTC scare, and the recent selling of the J.D. Edwards $10 strike price puts, I have missed the big move in the upside since mid-March. Over the past two years I have also suggested taking positions in Pfizer, Merck, JP Morgan, Citigroup, Starbucks, Dell, Microsoft, Krispy Kreme, WalMart, Colgate, and Home Depot. All the suggestions were made at price levels significantly lower than the present. This year we eliminated our gold position at $370 per ounce and repurchased a few months later at $323 per ounce. Over the past 1 1/2 years I have been negative on the U.S. dollar and optimistic on the New Zealand ollar. That continues. About 7 weeks ago I turned highly negative on long term treasury bonds. That continues. Some weeks back I turned positive on the Nikkei about 20% below its current level. Yesterday the Nikkei had its highest volume since 1989. At one point the average almost touched 9900 before closing just above 9600. I think this is a good point to take some profits. I have been on the mark about the economy for the past 2 1/2 years and did predict the recession then and I believe we are still in a recession.
In 1998 and 1999 I turned very bullish on housing stocks and believed that the vast majority of one's portfolio should be weighted in this sector. Stocks were selling at 4 and 5 times forward looking earnings. I sold them for big gains. This year those stocks made new all time highs. The industry sold almost one million single family homes last year and a new record is expected for 2003. Mortgage rates went considerably lower than I had expected. Who would have thought there would be 1.7 million housing starts in 2002 and then again in 2003? The home improvement trend is alive and well, and that's why I had suggested adding to the Home Depot core position around $23. I am concerned for the housing sector though. Yesterday the president of the Mortgage Bankers Association said that mortgage rates had seen their lows. Troubling is the view expressed by Joe Carson, chief economist at Alliance Capita. He stated " the ratio of the market value of real estate to disposable income is at an all time high. Mortgage debt is now growing at two times the rate of growth in personal income and more than two times the rise in the value of real estate- faster than at any other period in U.S. history. This is the first cycle in history in which an increase in personal income is needed to pay for assets that have been purchased and not for assets to be purchased in the future."
Currently, I suggest hedging or selling all equity positions with the exception of the J.D. Edwards puts. I suggest continuing to hold New Zealand dollars and to nibble on China's yuan. Stay long gold. Avoid treasury bonds. Do not place your funds in U.S. money market funds where the average taxable yield has fallen to a record low 0.58 per cent. Any new thoughts will be provided, as always, in the next blog. Pundits say that we are at a turning point in the economy. The question is whether it's for the better.
John Graham, a professor at Duke's Fuqua School of Business, directs a quarterly nationwide survey of CFOs. The latest survey indicates that 20% of the CFOs say the depreciated U.S. dollar is increasing sales, but only 3 per cent say it will lead to increased capital spending or additional hiring. Among firms with foreign sales that make up at least one-fourth of their total sales, 51% say the depreciated dollar will lead to increased sales; however, even among these companies, only one in ten says the depreciated dollar wlll increase capital spending or hiring. In sum, if capital spending is on hold, if hiring is on hold, if higher mortgage rates are in the making, and if consumer cash flow fails to rise, then the current economic forecasts are mere folly and, with them, the current stock market upsurge built on a foundation of sawdust.
To my original blog readers I apologize in advance, and appreciate your patience. Over the past three or four months there have been a great many new readers of this blog. Several times each day I have received requests to recap the suggestions provided over the past three years. So here goes. In May/June 2000 I turned completely negative and suggested that all securities be fully hedged or sold. I suggested the purchase of gold and Newmont Mining. About ten days after 9/11, I suggested going long to take advantage of what I believed would be a short-term rally. About one month later I recommended that those positions be sold or hedged. I did not return to a bullish stance until mid-October 2002 and recommended positions then taken to be sold or hedged prior to the new year. Other than the suggestion to buy McDonald's at 12 1/2, being negative on the takeover of Hershey's, being optimistic on the takeover of Dreyer's after a big drop from an FTC scare, and the recent selling of the J.D. Edwards $10 strike price puts, I have missed the big move in the upside since mid-March. Over the past two years I have also suggested taking positions in Pfizer, Merck, JP Morgan, Citigroup, Starbucks, Dell, Microsoft, Krispy Kreme, WalMart, Colgate, and Home Depot. All the suggestions were made at price levels significantly lower than the present. This year we eliminated our gold position at $370 per ounce and repurchased a few months later at $323 per ounce. Over the past 1 1/2 years I have been negative on the U.S. dollar and optimistic on the New Zealand ollar. That continues. About 7 weeks ago I turned highly negative on long term treasury bonds. That continues. Some weeks back I turned positive on the Nikkei about 20% below its current level. Yesterday the Nikkei had its highest volume since 1989. At one point the average almost touched 9900 before closing just above 9600. I think this is a good point to take some profits. I have been on the mark about the economy for the past 2 1/2 years and did predict the recession then and I believe we are still in a recession.
In 1998 and 1999 I turned very bullish on housing stocks and believed that the vast majority of one's portfolio should be weighted in this sector. Stocks were selling at 4 and 5 times forward looking earnings. I sold them for big gains. This year those stocks made new all time highs. The industry sold almost one million single family homes last year and a new record is expected for 2003. Mortgage rates went considerably lower than I had expected. Who would have thought there would be 1.7 million housing starts in 2002 and then again in 2003? The home improvement trend is alive and well, and that's why I had suggested adding to the Home Depot core position around $23. I am concerned for the housing sector though. Yesterday the president of the Mortgage Bankers Association said that mortgage rates had seen their lows. Troubling is the view expressed by Joe Carson, chief economist at Alliance Capita. He stated " the ratio of the market value of real estate to disposable income is at an all time high. Mortgage debt is now growing at two times the rate of growth in personal income and more than two times the rise in the value of real estate- faster than at any other period in U.S. history. This is the first cycle in history in which an increase in personal income is needed to pay for assets that have been purchased and not for assets to be purchased in the future."
Currently, I suggest hedging or selling all equity positions with the exception of the J.D. Edwards puts. I suggest continuing to hold New Zealand dollars and to nibble on China's yuan. Stay long gold. Avoid treasury bonds. Do not place your funds in U.S. money market funds where the average taxable yield has fallen to a record low 0.58 per cent. Any new thoughts will be provided, as always, in the next blog. Pundits say that we are at a turning point in the economy. The question is whether it's for the better.
John Graham, a professor at Duke's Fuqua School of Business, directs a quarterly nationwide survey of CFOs. The latest survey indicates that 20% of the CFOs say the depreciated U.S. dollar is increasing sales, but only 3 per cent say it will lead to increased capital spending or additional hiring. Among firms with foreign sales that make up at least one-fourth of their total sales, 51% say the depreciated dollar will lead to increased sales; however, even among these companies, only one in ten says the depreciated dollar wlll increase capital spending or hiring. In sum, if capital spending is on hold, if hiring is on hold, if higher mortgage rates are in the making, and if consumer cash flow fails to rise, then the current economic forecasts are mere folly and, with them, the current stock market upsurge built on a foundation of sawdust.
Wednesday, July 02, 2003
7/2/03 Scrounging For Scraps
Depending on your point of view. most pieces of information will provide some meat on the bone for a bull or a bear, as the case may be. Yesterday was no exception. The ISM June national factory gauge did rise to 49.8 from 49.4 in May; however, a number below 50 indicates a contraction in activity. The big three auto companies had an overall rise in June sales inentives. For GM the incentives were $4000 per vehicle, for Ford $3700, and for Chrysler $3500. U.S. auto sales did rise, however, 1 1/2% at GM, 6% at Chrysler, and Ford's were unchanged. However, the rise in sales were deemed disappointing given the level of incentives. By comparison, Nissan's June sales rose 22% and their incentives remained at $1500 per vehicle. It reminds me of a statement by Thomas Edison: "Results! Why, man, I have gotten a lot of results. I know several thousand things that won't work." U.S. construction spending fell an unexpected 1.7% in May. However, state and local governments cut spending by 1.5%. Therefore, the results weren't really too bad.
We should take a closer look at the ISM report. New orders were up slightly. The new backlog of orders picked up for exports. That's good. The new backlog of orders for supplier deliveries fell, and that's not a good sign. One real negative did stand out. There was a very steep decline in inventories. It might indicate a concern about the projected pick-up in the economy or it might indicate a concern about the possibility of falling prices. Either alternative doesn't bring a smile to my face. We can look at the aforementioned in a few ways. Jim Miller said "the road to success is always under construction." Maybe the pace of construction slowed in June. On the other hand, maybe Winnie had it right. Winston Churchill declared "most men occasionally stumble over the truth, but most of them pick themselves up and hurry off as if nothing happened yesterday." Maybe that's what happened with investors in yesterday's market. Alternatively, maybe we should shrug off the news. As Albert Einstein said, "we should take care not to make intellect our god; it has, of course, powerful muscles, but no personality." Actually, I think this market has plenty of personality. It's stubborn and often with muscles between the ears.
Personally, I wish I could stop thinking so much. It would make this market run much easier to grasp. I can't do that though. I appreciate the words of Confucius: "He who learns but does not think, is lost! He who thinks but does not learn is in great danger." I'm not looking for danger. I appreciated the limited danger in the Nikkei several weeks ago. The 20% rise has been a nice scrap.
Later this week the information on June payrolls will be released. The payrolls are expected to be flat and the unemployment rate to rise to 6.2%. In June I know U.S. employers cut 60,000 jobs. That was the fewest in 31 months, but the job cuts do continue. A year ago that number was 95,000. So there is some good news but not good enough. GNP growth is forecast to be 3.2% in the third quarter and 3.5% in the fourth quarter. From October 1, 2002 thru June 30, 2003 that growth number was about 1.4%. Going forward GNP is not going to miraculously increase by well over 100% in three months. It is not happening. You may take issue with that statement. That's ok. I walk the road Robert Frost described: "Two roads diverged in the woods, and I-- I took the one less traveled by. And that has made all the difference." You must take your own road. It's your money. Just remember the facts. Yesterday American Airlines furloughed 3100 flight attendants and Storage Networks cut 35% of its staff. That's the reality of the workplace.
The American Association of Individual Investors survey indicates 71% are bullish and 8% are bearish. 59% of investment advisors are bullish and 18% are bearish. The biggest bears of all are the insiders who continue with their selling at about four shares sold for each share purchased.
Investors might take note of Microsoft's decision to cut about 800 support staff workers in Texas and North Carolina and to add workers at the company's new campus in India. Many other tech companies have made similar moves. Microsoft employs 50,000 workers. They are looking to save money on services and having them fulfilled in India. Today Merrill Lynch raised their earnings estimate for Microsoft by five cents a share due to cost-cutting measures but not because of revenue growth.
General George Patton said " success is how high you bounce when you hit bottom." Looking in the rear view mirror, I know we hit a bottom in 1974, in 1982, and in 1987. Did we hit bottom in October 2002? Is the latest 15% S&P 500 Index run the final bounce for some time or the start of a bigger bounce? In the market success is limiting your risk and maximizing your reward. Success does not come to pigs- only to bulls or bears or sometimes both. Enjoy the scraps. Avoid getting stuffed. It's bad for the digestive system. That reminds me of something Elayne Boosler said: "When women are depressed they either eat or go shopping. Men invade another country." As Henny Youngman might say, then don't get depressed. It doesn't pay.
Before closing for the morning, I have a few final thoughts. The Maryland Pharmacy Discount Program for seniors just went into effect, and is for participants with annual incomes of up to $15,715 for an individual or $21,210 for a couple. Prescriptions are available at 65% of the state Medicaid program or a savings of about 50% off the retail price. The state is putting up $8 million which is matched by the federal government, and this will pay for the 35% of the cost that is not absorbed by the patient. We should monitor this program. It sounds promising.
Tobacco farmers are planting the smallest crop since 1874, the year Ulysses S. Grant was president. American manufacturers are buying less U.S. tobacco because, as an economist for the Agriculture Department says, they can get cheaper leaf from Zimbabwe, Brazil, and other countries. It's not just China that exports lower prices.
The U.S. has 361 ports with 5000 coastal facilities and some 10,000 ships. About 95% of international cargo to the U.S. arrives by ship. Many believe the maritime industry is our most vulnerable portion of homeland security.
California has the lowest credit rating among U.S. states. They did not pass a budget for the fiscal year which began yesterday. As such, the state was forced to freeze payments ranging from those to nursing homes to community colleges. More than $500 million in aid to schools was cut off. During Davis' first four years in office, state spending rose 33% while tax receipts rose 22%. The problem is pretty simple. The solution is not pleasant. What do you do with 37 million outstretched palms?
Depending on your point of view. most pieces of information will provide some meat on the bone for a bull or a bear, as the case may be. Yesterday was no exception. The ISM June national factory gauge did rise to 49.8 from 49.4 in May; however, a number below 50 indicates a contraction in activity. The big three auto companies had an overall rise in June sales inentives. For GM the incentives were $4000 per vehicle, for Ford $3700, and for Chrysler $3500. U.S. auto sales did rise, however, 1 1/2% at GM, 6% at Chrysler, and Ford's were unchanged. However, the rise in sales were deemed disappointing given the level of incentives. By comparison, Nissan's June sales rose 22% and their incentives remained at $1500 per vehicle. It reminds me of a statement by Thomas Edison: "Results! Why, man, I have gotten a lot of results. I know several thousand things that won't work." U.S. construction spending fell an unexpected 1.7% in May. However, state and local governments cut spending by 1.5%. Therefore, the results weren't really too bad.
We should take a closer look at the ISM report. New orders were up slightly. The new backlog of orders picked up for exports. That's good. The new backlog of orders for supplier deliveries fell, and that's not a good sign. One real negative did stand out. There was a very steep decline in inventories. It might indicate a concern about the projected pick-up in the economy or it might indicate a concern about the possibility of falling prices. Either alternative doesn't bring a smile to my face. We can look at the aforementioned in a few ways. Jim Miller said "the road to success is always under construction." Maybe the pace of construction slowed in June. On the other hand, maybe Winnie had it right. Winston Churchill declared "most men occasionally stumble over the truth, but most of them pick themselves up and hurry off as if nothing happened yesterday." Maybe that's what happened with investors in yesterday's market. Alternatively, maybe we should shrug off the news. As Albert Einstein said, "we should take care not to make intellect our god; it has, of course, powerful muscles, but no personality." Actually, I think this market has plenty of personality. It's stubborn and often with muscles between the ears.
Personally, I wish I could stop thinking so much. It would make this market run much easier to grasp. I can't do that though. I appreciate the words of Confucius: "He who learns but does not think, is lost! He who thinks but does not learn is in great danger." I'm not looking for danger. I appreciated the limited danger in the Nikkei several weeks ago. The 20% rise has been a nice scrap.
Later this week the information on June payrolls will be released. The payrolls are expected to be flat and the unemployment rate to rise to 6.2%. In June I know U.S. employers cut 60,000 jobs. That was the fewest in 31 months, but the job cuts do continue. A year ago that number was 95,000. So there is some good news but not good enough. GNP growth is forecast to be 3.2% in the third quarter and 3.5% in the fourth quarter. From October 1, 2002 thru June 30, 2003 that growth number was about 1.4%. Going forward GNP is not going to miraculously increase by well over 100% in three months. It is not happening. You may take issue with that statement. That's ok. I walk the road Robert Frost described: "Two roads diverged in the woods, and I-- I took the one less traveled by. And that has made all the difference." You must take your own road. It's your money. Just remember the facts. Yesterday American Airlines furloughed 3100 flight attendants and Storage Networks cut 35% of its staff. That's the reality of the workplace.
The American Association of Individual Investors survey indicates 71% are bullish and 8% are bearish. 59% of investment advisors are bullish and 18% are bearish. The biggest bears of all are the insiders who continue with their selling at about four shares sold for each share purchased.
Investors might take note of Microsoft's decision to cut about 800 support staff workers in Texas and North Carolina and to add workers at the company's new campus in India. Many other tech companies have made similar moves. Microsoft employs 50,000 workers. They are looking to save money on services and having them fulfilled in India. Today Merrill Lynch raised their earnings estimate for Microsoft by five cents a share due to cost-cutting measures but not because of revenue growth.
General George Patton said " success is how high you bounce when you hit bottom." Looking in the rear view mirror, I know we hit a bottom in 1974, in 1982, and in 1987. Did we hit bottom in October 2002? Is the latest 15% S&P 500 Index run the final bounce for some time or the start of a bigger bounce? In the market success is limiting your risk and maximizing your reward. Success does not come to pigs- only to bulls or bears or sometimes both. Enjoy the scraps. Avoid getting stuffed. It's bad for the digestive system. That reminds me of something Elayne Boosler said: "When women are depressed they either eat or go shopping. Men invade another country." As Henny Youngman might say, then don't get depressed. It doesn't pay.
Before closing for the morning, I have a few final thoughts. The Maryland Pharmacy Discount Program for seniors just went into effect, and is for participants with annual incomes of up to $15,715 for an individual or $21,210 for a couple. Prescriptions are available at 65% of the state Medicaid program or a savings of about 50% off the retail price. The state is putting up $8 million which is matched by the federal government, and this will pay for the 35% of the cost that is not absorbed by the patient. We should monitor this program. It sounds promising.
Tobacco farmers are planting the smallest crop since 1874, the year Ulysses S. Grant was president. American manufacturers are buying less U.S. tobacco because, as an economist for the Agriculture Department says, they can get cheaper leaf from Zimbabwe, Brazil, and other countries. It's not just China that exports lower prices.
The U.S. has 361 ports with 5000 coastal facilities and some 10,000 ships. About 95% of international cargo to the U.S. arrives by ship. Many believe the maritime industry is our most vulnerable portion of homeland security.
California has the lowest credit rating among U.S. states. They did not pass a budget for the fiscal year which began yesterday. As such, the state was forced to freeze payments ranging from those to nursing homes to community colleges. More than $500 million in aid to schools was cut off. During Davis' first four years in office, state spending rose 33% while tax receipts rose 22%. The problem is pretty simple. The solution is not pleasant. What do you do with 37 million outstretched palms?
Tuesday, July 01, 2003
7/1/03 It Feels Great To Get On Base
Since Doubleday invented the game of baseball, there have been few great pure home run hitters: the Bambino, Hank Aaron, Jimmy Foxx, Barry Bonds, and some other select names. The point is the number is truly a dot on the list of names who have played this game over the past 100 years or so. For the rest, the object has been to get on base. The same is true in the field of investing. There have been very few consistent investors who keep hitting the ball out of the park, as it were. For the rest, it is accumulating nickles and dimes and on rare occasions quarters. The average annual gain for investors over the past 100 years has been about 9%. In the second quarter that just ended yesterday the S&P 500 Index had a gain of about 15%. It was the best showing in almost five years. The stock market's job is to anticipate the future and react accordingly. As such, the thought is by the end of 2003 business will be better, and stock prices thus moved higher. Now, maybe there will be a home run hitter out there. I'm not one of them. The historical percentages would suggest your taking some money off the table and save it for another day. We could have another barnburner in the second half. It would be smarter to be conservative. Wait for your pitch. Don't swing at a fork ball. The extent of the drop can really fool you.
The first of July generally brings stock market gains. It is a lot easier to sell into strength. Today the ISM will be forecast and many suspect it grew for the first time since February. That might touch everyone's fancy. Don't be fooled. Manufacturing and factory growth are going nowhere fast. As Ed Yardeni points out, "imports account for almost one quarter of goods transactions in the U.S. up from 14% in the late 1980s." Because of the growth in imports our trade account deficit for 2003 will be about $550 billion and China accounts for over $100 billion of that figure. China also helps to set the prices from goods manufactured in our factories, and this has resulted in little or no pricing power in the U.S. Fitch points out that over the 2000-2002 period exports from China to the U.S. grew at an average annual rate of 12%. When you combine the latter with an outsourced service industry to India and other countries, you have a recipe for increased unemployment with higher productivity from the remaining workforce. Companies, states, counties, and other municipalities will continue to cut the number of workers and will hire on a highly selective and infrequent basis. Yesterday Waste Management announced more job cuts and let 300 workers go in Houston.
There has been much good news in the housing industry. Mortgage rates have dropped to record lows, the pace of refinancing is at record highs, and prices are strong. There are pockets of weakness. The San Francisco data shows a price decline as of mid-May of 3.8%. In Santa Clara county the resale median price is down 2.2% for the first four months of 2003. The president of Foreclosures.com said "when price appreciation plateaus, people who have been using their homes as ATM machines can't do that any more. As job loss persists and markets flatten out, we'll see more defaults later this year. People will simply be unable to afford the homes they own."
No one knows when prices will plateau in the stock market. It's just a guess. I say why guess. It's much better to place historical data on your side. As Bernard Baruch said you can't get hurt taking a profit. Rather than watching for clues from the news, which really is old news, think for yourself. Be confident enough to pull the trigger. If you decide you've made a mistake in selling, there is always the opportunity to buy once again. This time, however, you would be playing with some of the house's money. That gives ou a leg up. It feels great to get on base.
Since Doubleday invented the game of baseball, there have been few great pure home run hitters: the Bambino, Hank Aaron, Jimmy Foxx, Barry Bonds, and some other select names. The point is the number is truly a dot on the list of names who have played this game over the past 100 years or so. For the rest, the object has been to get on base. The same is true in the field of investing. There have been very few consistent investors who keep hitting the ball out of the park, as it were. For the rest, it is accumulating nickles and dimes and on rare occasions quarters. The average annual gain for investors over the past 100 years has been about 9%. In the second quarter that just ended yesterday the S&P 500 Index had a gain of about 15%. It was the best showing in almost five years. The stock market's job is to anticipate the future and react accordingly. As such, the thought is by the end of 2003 business will be better, and stock prices thus moved higher. Now, maybe there will be a home run hitter out there. I'm not one of them. The historical percentages would suggest your taking some money off the table and save it for another day. We could have another barnburner in the second half. It would be smarter to be conservative. Wait for your pitch. Don't swing at a fork ball. The extent of the drop can really fool you.
The first of July generally brings stock market gains. It is a lot easier to sell into strength. Today the ISM will be forecast and many suspect it grew for the first time since February. That might touch everyone's fancy. Don't be fooled. Manufacturing and factory growth are going nowhere fast. As Ed Yardeni points out, "imports account for almost one quarter of goods transactions in the U.S. up from 14% in the late 1980s." Because of the growth in imports our trade account deficit for 2003 will be about $550 billion and China accounts for over $100 billion of that figure. China also helps to set the prices from goods manufactured in our factories, and this has resulted in little or no pricing power in the U.S. Fitch points out that over the 2000-2002 period exports from China to the U.S. grew at an average annual rate of 12%. When you combine the latter with an outsourced service industry to India and other countries, you have a recipe for increased unemployment with higher productivity from the remaining workforce. Companies, states, counties, and other municipalities will continue to cut the number of workers and will hire on a highly selective and infrequent basis. Yesterday Waste Management announced more job cuts and let 300 workers go in Houston.
There has been much good news in the housing industry. Mortgage rates have dropped to record lows, the pace of refinancing is at record highs, and prices are strong. There are pockets of weakness. The San Francisco data shows a price decline as of mid-May of 3.8%. In Santa Clara county the resale median price is down 2.2% for the first four months of 2003. The president of Foreclosures.com said "when price appreciation plateaus, people who have been using their homes as ATM machines can't do that any more. As job loss persists and markets flatten out, we'll see more defaults later this year. People will simply be unable to afford the homes they own."
No one knows when prices will plateau in the stock market. It's just a guess. I say why guess. It's much better to place historical data on your side. As Bernard Baruch said you can't get hurt taking a profit. Rather than watching for clues from the news, which really is old news, think for yourself. Be confident enough to pull the trigger. If you decide you've made a mistake in selling, there is always the opportunity to buy once again. This time, however, you would be playing with some of the house's money. That gives ou a leg up. It feels great to get on base.
Monday, June 30, 2003
6/30/03 It's A War Out There
Starting July 1 the EU will start to collect a VAT on various products or auctions run online by U.S. companies and other non-EU countries. Amazon will charge the VAT on sales of downloadable software and e-books as well as the commissions collected for online auctions. eBay plans to assume the VAT on behalf of consumers in France and Italy. In Germany and the U.S. the company will increase fees to reflect the tax. eBay expects the costs to be "substantial."
Jeremy Grantham points out that timber has provided a higher return than the S&P Index, including dividends, for nearly 100 years. That I did not know. It will be interesting to see how the relative returns might be between water and the S&P Index over the next 25 years or so.
I received an email from a few folks saying how happy they are with their larger paychecks as a result of the tax cuts but, at the same time, complained how other increased local and state taxes and fees are eating into their new-found wealth, as it were. New state budgets take effect tomorrow. Let's look at Georgia. They raised taxes on a pack of cigarettes by 25 cents. They cut hundreds of millions of dollars from state programs. Health insurance costs will increase for hundreds of thousands of state employees and retirees and teachers; hundreds of state jobs will be eliminated or left unfilled; some school programs like driver's ed will be eliminated; many areas of the state will have higher property tax bills being mailed out and the latter for services being cut by the state; doctors will get less from the state for treating poor people; and fees for corporate filings with the state are going up by two-thirds. In sum, state and local taxes are rising, fees are rising, services are being cut, and the quality of life is on the decline. That's a stiff price to pay for government waste, mismanagement, and poor planning. That goes for all levels of government. There have been other Bush tax cuts. The latest will not promote economic growth. Businesses will not increase spending. Consumers will have less to spend after they pay for the added expenses at the state and local levels. Companies will not be hiring more people. In fact. more state and municipal workers will be axed from the payrolls. Wall Street will get it. The Nasdaq won't be at 1600 and the Dow won't be at 9000. Short term rates won't be at 1%. Wall Street is mid-way into a 12 round fight. They lost the first two rounds and have won the last four. Lennox Lewis was behind on three score cards and won by a TKO on cuts. The next six months won't involve a TKO. The fight won't be stopped on cuts. When the selling begets selling, the buyers will wait for the sellers to be clamped into the corner of the ring. It won't be pretty. Fools have rushed in and invested more money in the Fed's reflation game. This isn't a game. It's the real deal. The Fed's motives are blatant and irresponsible. Unfortunately, greed often listens to losers and losses follow. Better to think for yourself.
Starting July 1 the EU will start to collect a VAT on various products or auctions run online by U.S. companies and other non-EU countries. Amazon will charge the VAT on sales of downloadable software and e-books as well as the commissions collected for online auctions. eBay plans to assume the VAT on behalf of consumers in France and Italy. In Germany and the U.S. the company will increase fees to reflect the tax. eBay expects the costs to be "substantial."
Jeremy Grantham points out that timber has provided a higher return than the S&P Index, including dividends, for nearly 100 years. That I did not know. It will be interesting to see how the relative returns might be between water and the S&P Index over the next 25 years or so.
I received an email from a few folks saying how happy they are with their larger paychecks as a result of the tax cuts but, at the same time, complained how other increased local and state taxes and fees are eating into their new-found wealth, as it were. New state budgets take effect tomorrow. Let's look at Georgia. They raised taxes on a pack of cigarettes by 25 cents. They cut hundreds of millions of dollars from state programs. Health insurance costs will increase for hundreds of thousands of state employees and retirees and teachers; hundreds of state jobs will be eliminated or left unfilled; some school programs like driver's ed will be eliminated; many areas of the state will have higher property tax bills being mailed out and the latter for services being cut by the state; doctors will get less from the state for treating poor people; and fees for corporate filings with the state are going up by two-thirds. In sum, state and local taxes are rising, fees are rising, services are being cut, and the quality of life is on the decline. That's a stiff price to pay for government waste, mismanagement, and poor planning. That goes for all levels of government. There have been other Bush tax cuts. The latest will not promote economic growth. Businesses will not increase spending. Consumers will have less to spend after they pay for the added expenses at the state and local levels. Companies will not be hiring more people. In fact. more state and municipal workers will be axed from the payrolls. Wall Street will get it. The Nasdaq won't be at 1600 and the Dow won't be at 9000. Short term rates won't be at 1%. Wall Street is mid-way into a 12 round fight. They lost the first two rounds and have won the last four. Lennox Lewis was behind on three score cards and won by a TKO on cuts. The next six months won't involve a TKO. The fight won't be stopped on cuts. When the selling begets selling, the buyers will wait for the sellers to be clamped into the corner of the ring. It won't be pretty. Fools have rushed in and invested more money in the Fed's reflation game. This isn't a game. It's the real deal. The Fed's motives are blatant and irresponsible. Unfortunately, greed often listens to losers and losses follow. Better to think for yourself.
Sunday, June 29, 2003
6/29/03 Jean Banchet
Thirty years ago Jean and Doris Banchet opened their restaurant, Le Francais, in Wheeling, Illinois. Some considered it the best restaurant in the country- not unlike today's praise for The French Laundry in Yountville, CA. Jean Banchet retired a couple of years ago, and the new owner just couldn't make it in today's economy. Whether it's over time or since yesterday, things evolve and change. To be a successful investor one must change with the times in order to effectively counter the risks. Make no mistake. Risk is in the balance.
Once again, central bankers from around the globe had another get together this weekend. The group is in agreement that there will be a slow and sluggish recovery in the world economy. I was particularly interested in a comment made by Bank of Canada Governor David Dodge. He said "the mood is guarded optimism but with guarded kind of underlined." What surprised me was his frankness. Can you see Greenspan walking out of a Fed meeting and avoiding non understandable gibberish? I didn't read where Greenspan disagreed with the group's economic assessment. Do you believe that the current levels in the Dow, S&P, and Nasdaq reflect a vision of a slow and sluggish recovery? I don't. The forecasts are for growth of 3.5% in this second half. That's hardly slow and sluggish. When the markets reflect the latter, the price levels will be much lower and not similar to the close on Friday.
I was reading an interview with Bill Miller of T. Rowe Price. He has outperformed the S&P for well over a decade. His portfolio is now down to 2% in technology stocks. For someone who once had 15 times that percentage this is quite a change. He believes technology is not the place to invest. I give him credit for changing with the times. I should mention he thinks we're in a bull market.
As I have said so often in the last six weeks or so, I believe the government bond market is a ponzi game with rates at these levels. There is no question in my mind that the best way to make money is to be negative on the bond market. I was quite pleased to see 10 year treasuries have their biggest two week decline since October. I'll even smile more when the long bond yields at least 7%. I'm patient. The market will get it right. The risks shall be balanced and produce yields quite different from today. When that happens, much will have taken place in this country. You don't have to purchase a ticket on the Cyclone to get a roller coaster ride. You might be able to watch crickets migrate to Wall Street. It won't be a Stephen King movie.
I have a plan. Rather than the Fed monetize more federal debt, I suggest we change the role of President Bush. He is a fantastic fund raiser. On Friday he had lunch and dinner in Burlingame and Los Angeles and raised $5 million. My idea is to for him to have fundraisers across the country- breakfast, lunch, and dinner- for 48 weeks of the year, and that accounts for a month's vacation. I feel certain he can raise at least $5 billion over that time, and that can go to reduce the national debt. It doesn't get better than that. It's a great return on his annualized salary. We can call it the ROI Tour.
Tomorrow the Justice Department will ask for a second request for more information from Oracle on its PeopleSoft bid. This hostile tender has been hurtful to PeopleSoft's potential business. LA County is putting on hold its talks with PeopleSoft for a $100 million software project. The County's CIO said "things were progressing nicely, then out of the blue Mr. Ellison decides to take a shot at PeopleSoft. We made a decision given the uncertainty to suspend negotiations." There are many other potential customers like LA County who have arrived at the same conclusion. Business is tough enough in the software industry. Privately, I have not heard from one top technology executive who is rooting for Ellison to succeed.
Fitch Ratings estimates the current global credit derivatives market at $2 trillion, and that market they predict, will rise to $4.8 trillion by next year. J.P Morgan, Citigroup, UBS Warburg, Bank of America, and Deutsche Bank are the major players. Greenspan says of credit default swaps "banks appear to have effectively used such instruments to shift a significant portion of the risk from their corporate loan portfolio to other organizations...concentration of market making has the potential to create concentration of credit risks." In my view, the derivatives market has been abused by greed. The banks seek out more and more fee-based income. Risks have not been spread. Risks have been concentrated. I have little faith in bankers to assess risk- much less concentrate it. Regulation is not the answer. Just some rational commonsense would be helpful. Unfortuately, I wouldn't hold my breath. The derivatives market will produce, in my view, a great many suicides. It's not too late to change with the times.
Thirty years ago Jean and Doris Banchet opened their restaurant, Le Francais, in Wheeling, Illinois. Some considered it the best restaurant in the country- not unlike today's praise for The French Laundry in Yountville, CA. Jean Banchet retired a couple of years ago, and the new owner just couldn't make it in today's economy. Whether it's over time or since yesterday, things evolve and change. To be a successful investor one must change with the times in order to effectively counter the risks. Make no mistake. Risk is in the balance.
Once again, central bankers from around the globe had another get together this weekend. The group is in agreement that there will be a slow and sluggish recovery in the world economy. I was particularly interested in a comment made by Bank of Canada Governor David Dodge. He said "the mood is guarded optimism but with guarded kind of underlined." What surprised me was his frankness. Can you see Greenspan walking out of a Fed meeting and avoiding non understandable gibberish? I didn't read where Greenspan disagreed with the group's economic assessment. Do you believe that the current levels in the Dow, S&P, and Nasdaq reflect a vision of a slow and sluggish recovery? I don't. The forecasts are for growth of 3.5% in this second half. That's hardly slow and sluggish. When the markets reflect the latter, the price levels will be much lower and not similar to the close on Friday.
I was reading an interview with Bill Miller of T. Rowe Price. He has outperformed the S&P for well over a decade. His portfolio is now down to 2% in technology stocks. For someone who once had 15 times that percentage this is quite a change. He believes technology is not the place to invest. I give him credit for changing with the times. I should mention he thinks we're in a bull market.
As I have said so often in the last six weeks or so, I believe the government bond market is a ponzi game with rates at these levels. There is no question in my mind that the best way to make money is to be negative on the bond market. I was quite pleased to see 10 year treasuries have their biggest two week decline since October. I'll even smile more when the long bond yields at least 7%. I'm patient. The market will get it right. The risks shall be balanced and produce yields quite different from today. When that happens, much will have taken place in this country. You don't have to purchase a ticket on the Cyclone to get a roller coaster ride. You might be able to watch crickets migrate to Wall Street. It won't be a Stephen King movie.
I have a plan. Rather than the Fed monetize more federal debt, I suggest we change the role of President Bush. He is a fantastic fund raiser. On Friday he had lunch and dinner in Burlingame and Los Angeles and raised $5 million. My idea is to for him to have fundraisers across the country- breakfast, lunch, and dinner- for 48 weeks of the year, and that accounts for a month's vacation. I feel certain he can raise at least $5 billion over that time, and that can go to reduce the national debt. It doesn't get better than that. It's a great return on his annualized salary. We can call it the ROI Tour.
Tomorrow the Justice Department will ask for a second request for more information from Oracle on its PeopleSoft bid. This hostile tender has been hurtful to PeopleSoft's potential business. LA County is putting on hold its talks with PeopleSoft for a $100 million software project. The County's CIO said "things were progressing nicely, then out of the blue Mr. Ellison decides to take a shot at PeopleSoft. We made a decision given the uncertainty to suspend negotiations." There are many other potential customers like LA County who have arrived at the same conclusion. Business is tough enough in the software industry. Privately, I have not heard from one top technology executive who is rooting for Ellison to succeed.
Fitch Ratings estimates the current global credit derivatives market at $2 trillion, and that market they predict, will rise to $4.8 trillion by next year. J.P Morgan, Citigroup, UBS Warburg, Bank of America, and Deutsche Bank are the major players. Greenspan says of credit default swaps "banks appear to have effectively used such instruments to shift a significant portion of the risk from their corporate loan portfolio to other organizations...concentration of market making has the potential to create concentration of credit risks." In my view, the derivatives market has been abused by greed. The banks seek out more and more fee-based income. Risks have not been spread. Risks have been concentrated. I have little faith in bankers to assess risk- much less concentrate it. Regulation is not the answer. Just some rational commonsense would be helpful. Unfortuately, I wouldn't hold my breath. The derivatives market will produce, in my view, a great many suicides. It's not too late to change with the times.
Saturday, June 28, 2003
6/27/03 This Picture Needs Cropping
Yesterday was my day for listening to the radio. I was fidding on the dial and heard a familiar voice. Here was a successful money manager. He had made good money for investors for probably 15 straight years and left his profession for "show business." He said he was buying Dow Chemical fr the yield- about 5%. He said he knew they weren't doing well but could cover the dividend and that one "should forget about the fundamentals... the market is in a sweet spot...I turned bullish with the Dow at 7700 and it's going to 9500." Who am I to argue with a guy who has been right and bullish? He made money up until 2000. I don't know his record after that. This is not the point. I don't care how smart one is. You never forget the fundamentals. Never. When A-Rod gets into the batter's box, do you think he goes over in his mind the pitcher's tendencies, what pitches to look for in this situation, where to hit the ball, where the defense is playing him etc? He doesn't walk to the plate and ignore what he's studied and what is required of specific preparation in a given situation. This commentator said that paying dividends is a sign of the strength of the company. It's only recently that Mcrosoft started payng a dividend. They have almost $50 billion in cash. Some of the companies with the largest cash reserves don't pay dividends. Take Berkshire Hathaway. In fact, the companies which have proven to be the best investments for me over time don't pay a dividend. They reinvest the money in their growth. This guy may be a smart money manager but he doesn't talk smart. I promise you this. If he forgets fundamentals, his market results will turn to red. Be careful what you read. Be careful of what people say. That goes for everyone. I am not excluded.
My next radio program concerned politics. The topic was the war in Iraq, a subject where my opinion has been voiced so many times. He wondered whether the public would care come the next election if at least one of our soldiers died every day for the next year or so in Iraq. Never once did he mention the loss for the families or the soldiers being wounded. They were just a numbers game in a political exercise. He said that a general had admitted that the Administration had underestimated the difficulties to be confronted after May 1. You didn't need the general to tell you that. Then came the bomb. The talk show host said that the killing of our troops in Iraq would not stop until Saddam Hussein was captured. He might have mentioned the terror alerts and Osama bin Laden. He actually believes this crap and gets paid for delivering his message from the mount. If this is an example of talk radio, then maybe this medium has hit its peak.
I read the Nike release early yesterday. I keep hammering on the point to watch the leaders. If they slow down, watch out for the rest of that industry. Nike is clearly the leader in its field, and a great marketing company. They said they were reducing their growth forecasts for the next six months. The stock got hit badly, but it could have been worse. Nike is providing a signal that the consumer is not out there hitting home runs. They're trying to get on base with a walk, and then possibly steal second or even seconds, as the situation may be. If economists are depending on an upsurge in consumer spending in the second half, Nike is telling you it's not going to happen. If the consumer keeps his bat on his shoulder and rarely swings at a pitch, business owners keep a tight rein on their wallets, and managers don't have the burning desire to hire, then what do you have? What we have had for nine months or more. You may want to crop this picture. That's your right. I prefer to crop the picture painted by the financial commentator and the political talk show host. I know what they said flies in the face of rationality and good common sense. Hell, in this heat wave, maybe we should just jump in the waves and forget all the picture taking. But we cannot do that. Kodak needs some help. Otherwise they will be kicked out of the Dow and then what kind of picture remains? Just Pfizer.
Yesterday was my day for listening to the radio. I was fidding on the dial and heard a familiar voice. Here was a successful money manager. He had made good money for investors for probably 15 straight years and left his profession for "show business." He said he was buying Dow Chemical fr the yield- about 5%. He said he knew they weren't doing well but could cover the dividend and that one "should forget about the fundamentals... the market is in a sweet spot...I turned bullish with the Dow at 7700 and it's going to 9500." Who am I to argue with a guy who has been right and bullish? He made money up until 2000. I don't know his record after that. This is not the point. I don't care how smart one is. You never forget the fundamentals. Never. When A-Rod gets into the batter's box, do you think he goes over in his mind the pitcher's tendencies, what pitches to look for in this situation, where to hit the ball, where the defense is playing him etc? He doesn't walk to the plate and ignore what he's studied and what is required of specific preparation in a given situation. This commentator said that paying dividends is a sign of the strength of the company. It's only recently that Mcrosoft started payng a dividend. They have almost $50 billion in cash. Some of the companies with the largest cash reserves don't pay dividends. Take Berkshire Hathaway. In fact, the companies which have proven to be the best investments for me over time don't pay a dividend. They reinvest the money in their growth. This guy may be a smart money manager but he doesn't talk smart. I promise you this. If he forgets fundamentals, his market results will turn to red. Be careful what you read. Be careful of what people say. That goes for everyone. I am not excluded.
My next radio program concerned politics. The topic was the war in Iraq, a subject where my opinion has been voiced so many times. He wondered whether the public would care come the next election if at least one of our soldiers died every day for the next year or so in Iraq. Never once did he mention the loss for the families or the soldiers being wounded. They were just a numbers game in a political exercise. He said that a general had admitted that the Administration had underestimated the difficulties to be confronted after May 1. You didn't need the general to tell you that. Then came the bomb. The talk show host said that the killing of our troops in Iraq would not stop until Saddam Hussein was captured. He might have mentioned the terror alerts and Osama bin Laden. He actually believes this crap and gets paid for delivering his message from the mount. If this is an example of talk radio, then maybe this medium has hit its peak.
I read the Nike release early yesterday. I keep hammering on the point to watch the leaders. If they slow down, watch out for the rest of that industry. Nike is clearly the leader in its field, and a great marketing company. They said they were reducing their growth forecasts for the next six months. The stock got hit badly, but it could have been worse. Nike is providing a signal that the consumer is not out there hitting home runs. They're trying to get on base with a walk, and then possibly steal second or even seconds, as the situation may be. If economists are depending on an upsurge in consumer spending in the second half, Nike is telling you it's not going to happen. If the consumer keeps his bat on his shoulder and rarely swings at a pitch, business owners keep a tight rein on their wallets, and managers don't have the burning desire to hire, then what do you have? What we have had for nine months or more. You may want to crop this picture. That's your right. I prefer to crop the picture painted by the financial commentator and the political talk show host. I know what they said flies in the face of rationality and good common sense. Hell, in this heat wave, maybe we should just jump in the waves and forget all the picture taking. But we cannot do that. Kodak needs some help. Otherwise they will be kicked out of the Dow and then what kind of picture remains? Just Pfizer.
Thursday, June 26, 2003
For Friday 6/27/03 The Best Of The Best
Recently, my son had the good fortune to have dinner with Dr. Leroy E. Hood, president and director of the Institute for Systems Biology in Seattle. Last year Dr. Hood received the 2002 Kyoto Prize for Advanced Technology. This prize is modeled after Sweden's Nobel Prize. Dr. Hood was honored for his original contribution in the mapping of the human genome and for his successful pioneer work in the automated instrumentation for DNA sequencing. Dr. Hood has been a founder of 9 successful companies. The best known is Amgen. His focus going forward is his concentration in the field of preventative medicine. This area holds much interest for me as well, and I too will meet with Dr. Hood to discuss this work. I consider Dr. Hood the world's leader in furthering the healthful well-being of mankind.
While on the subject of healthcare, I would like to emphasize my strong belief that Pfizer should be included in the Dow Jones Industrial Average. The reason is not because I have an interest in the company or believe it is an appropriate core holding for the long term. It's not because it is close to having the largest market capitalization of any public company. The main reason is that Pfizer is the leading ethical pharmaceutical company in the world. Healthcare makes up over 16% of the U.S. GDP and this percentage continues to grow. Next year Pfizer's sales will approach $55 billion. Pfizer has some heavy duty drugs in the pipeline- for malaria; small pox; epilepsy; neuropathic pain; anti-anxiety medication; a drug to raise the levels of HDL; and a drug to assist smokers in their efforts to stop the addiction. The company is spending over $7 billion on R&D this year. Pfizer should be listed in the Dow.
A month ago the Commerce Department had estimated that the first quarter U.S. GDP had risen at a 1.9% pace. In fact, that number was revised downward to 1.4%, and that matched the low growth rate of the fourth quarter in 2002. This is a 26% revision, and, in my view, unacceptable. It doesn't take almost three months to get a number correct. Time and time again I have written about government numbers. Only a fool would believe them. I continue to question whether they are released honestly in the first place or simply a tool to manipulate forecasts for future quarters. If the revisions were rare it would be one thing. They are the norm. The government also revised upward the unemployment numbers for the prior week. In essence, why should anyone believe the latest number of 404,000 idled workers.? They are certain to be revised- it happens weekly. Other than WalMart, Home Depot, Krispy Kreme, Starbucks, and companies like them, the only company I have seen hiring is Wells Fargo. I have seen plenty of job cuts. Second quarter GDP numbers will not be much different than those produced in the last two quarters. Companies continue to keep workers and inventories at lean levels, and spending plans are muted. In my view, the growth estimates for the second half of this year are significantly overstated. At some point investors will make that connection.
Recently, my son had the good fortune to have dinner with Dr. Leroy E. Hood, president and director of the Institute for Systems Biology in Seattle. Last year Dr. Hood received the 2002 Kyoto Prize for Advanced Technology. This prize is modeled after Sweden's Nobel Prize. Dr. Hood was honored for his original contribution in the mapping of the human genome and for his successful pioneer work in the automated instrumentation for DNA sequencing. Dr. Hood has been a founder of 9 successful companies. The best known is Amgen. His focus going forward is his concentration in the field of preventative medicine. This area holds much interest for me as well, and I too will meet with Dr. Hood to discuss this work. I consider Dr. Hood the world's leader in furthering the healthful well-being of mankind.
While on the subject of healthcare, I would like to emphasize my strong belief that Pfizer should be included in the Dow Jones Industrial Average. The reason is not because I have an interest in the company or believe it is an appropriate core holding for the long term. It's not because it is close to having the largest market capitalization of any public company. The main reason is that Pfizer is the leading ethical pharmaceutical company in the world. Healthcare makes up over 16% of the U.S. GDP and this percentage continues to grow. Next year Pfizer's sales will approach $55 billion. Pfizer has some heavy duty drugs in the pipeline- for malaria; small pox; epilepsy; neuropathic pain; anti-anxiety medication; a drug to raise the levels of HDL; and a drug to assist smokers in their efforts to stop the addiction. The company is spending over $7 billion on R&D this year. Pfizer should be listed in the Dow.
A month ago the Commerce Department had estimated that the first quarter U.S. GDP had risen at a 1.9% pace. In fact, that number was revised downward to 1.4%, and that matched the low growth rate of the fourth quarter in 2002. This is a 26% revision, and, in my view, unacceptable. It doesn't take almost three months to get a number correct. Time and time again I have written about government numbers. Only a fool would believe them. I continue to question whether they are released honestly in the first place or simply a tool to manipulate forecasts for future quarters. If the revisions were rare it would be one thing. They are the norm. The government also revised upward the unemployment numbers for the prior week. In essence, why should anyone believe the latest number of 404,000 idled workers.? They are certain to be revised- it happens weekly. Other than WalMart, Home Depot, Krispy Kreme, Starbucks, and companies like them, the only company I have seen hiring is Wells Fargo. I have seen plenty of job cuts. Second quarter GDP numbers will not be much different than those produced in the last two quarters. Companies continue to keep workers and inventories at lean levels, and spending plans are muted. In my view, the growth estimates for the second half of this year are significantly overstated. At some point investors will make that connection.
6/26/03 Waiting For Hope to Arrive
It's important that each one of us has hope. I wake up with hope and go to bed with it. However, hope does not run wild. It is tempered by reality. That's a fine line for everyone to find and realize. Emotion and psychology and hope play an important role in the stock market- not just today but every day. Lately, hope has played a role which has overshadowed reality. Others may disagree. It doesn't matter who is right or wrong. Over time we will find what the fine line of reality and hope produced. Opinions, such as mine, don't mean much in the scheme of things. We have enjoyed a magnificent stock market rally for the past three months. We have been blessed by new-found riches. The stock market had not produced much in the way of smiling since 2000.
Let's examine the past three months and revisit the hope shared in March. The Iraq war was a successful campaign. Everyone is agreed there were, at one time, WMD. We probably won't find them, but it was a successful campaign. However, it is disrespectful to announce the war is over on May1 and for our soldiers to be killed daily as the battle continues. A loving leader doesn't paint a false picture of hope. The latter has not arrived in Iraq. It won't as long as our soldiers are killed.
Over the past three months we have witnessed the scuttles between the Senate and the House over the Bush tax package. It finally arrived in a diluted format, but it arrived. It's never too late to get reduced taxation. However, hope is not realized when discretionary spending continues at the 4% level at the same time the economy is expanding at half that rate. Such a ratio makes for disappointment and not a hopeful outcome. The state and local governments are hurting across this land. Make no mistake about it. There will be increased taxes and fees to make up for the deficits. They won't bring hope. They won't end soon. The deficits will be with us for some time to come- many moons. The bottom line is that consumers won't have much more cash in their pockets- they will be nickeled and dimed to daily dismay. Just ask WalMart. The consumer is not spending much more money. It's a teeny bit more. We did not have a teeny bit stock market rally.
There are only two elements of our economy that continue strong- housing and the refinancing market, and both have been manufactured by the Fed's lower interest rates. Unless we join Japan and pay people to borrow, it is clear that interest rates can only drop 1% to get to zero. The bottom is in sight. We hoped for lower interest rates and got them. However, those lower rates did not produce increased business spending and did not produce job hiring. In fact, business leaders appear quite content to part with their company ownership shares as insider selling continues to rise monthly. That is a very bad sign. It should also be pointed out, as John Talbott has, the national growth rate for existing home sales prices in the six months ended March 31, 2003 is zero per cent. That is something to consider.
I am also concerned by the battle on overtime pay. Some time back I wrote about the auto company who has made it more difficult to realize overtime pay. An analysis is being released today by the Economic Policy Institute. They discuss the Labor Department's revisions to the overtime rules proposed in March. I pay attention to what happens to people on Main Street. Wall Street has a way of ignoring these folks. Under this plan, the Institute states that 8 million workers would lose overtime pay. How can this happen? The Bush Administration has permitted the Labor Department to reclassify the definitions of job classifications in many of 257 white-collar occupations. The new definitions of professional, administrative, and executive employees remove specific duties and education requirements, and thus employers are provided wide latitude to reclassify workers. Union contract workers will not be affected. This is but one more event which screws the average American. It should be noted that this is a proposal. The comment period ends on Monday. You can bet much of this proposed plan will be put into effect. There must be trust in the workplace for the workplace to be effective. I see this trust fading into the sunset. Main Street will impact Wall Street. It always does.
Over the past three months not much has changed in the workplace. Employment continues to drop. The news on the factory floor is gloomy. Numbers for durable goods can't get out of their own way. Shipments of business equipment produce yawns. They are a non-event. Orders for transportation equipment continue on their monthly decline. Economists continue to hope that business spending will be a factor in the anticicpated second half recovery. Month after month hope does not arrive. It's not that it's late arriving. The arrival is nowhere in sight.
On a national scale the trade deficit growth continues unabated. The monthly budget deficits continue their cancerous growth. The Fed continues to wallow in their meaningless chit chat. The dollar has bounced around and has settled at the 1.15-1.16 level for a bit. However, we have new offerings from banks. A St. Louis bank now is offering the person on Main Street an opportunity to buy China's currency, the renminbi. In addition, Everbank has started to offer renminbi accounts to its depositors. The renminbi has a fixed peg to the dollar. It won't be long before this peg is revised upward in value to favor the renminbi. The U.S. currency is in a state of decline around the globe. This decline is in the early stages. It doesn't help to be running a $100 billion annual trade deficit with China.
As I have mentioned so often, in Europe much trouble persists. Fiat will cut 12,300 workers between now and 2006. French manufacturers have seen their confidence level drop to the lowest level since 2001. There are economic problems throughout Europe and Japan. The dollar may have declined in value, but our exports are still hurting.
Over the past three months we have seen an increase in the optimism index- both for the consumer and the small business owner. That's great to see. Unfortunately, without more economic meat on the bone, that hope does not count for much. The expectation is for the economy to improve over time. That is a nebulous thought. It is an expectation expressed yesterday by the Fed. Would you want to stake the on-going success of your investments on an economy which "has yet to exhibit sustainable growth?" Maybe it will. Maybe it won't. I only know hope does not always deliver the goods.
It's important that each one of us has hope. I wake up with hope and go to bed with it. However, hope does not run wild. It is tempered by reality. That's a fine line for everyone to find and realize. Emotion and psychology and hope play an important role in the stock market- not just today but every day. Lately, hope has played a role which has overshadowed reality. Others may disagree. It doesn't matter who is right or wrong. Over time we will find what the fine line of reality and hope produced. Opinions, such as mine, don't mean much in the scheme of things. We have enjoyed a magnificent stock market rally for the past three months. We have been blessed by new-found riches. The stock market had not produced much in the way of smiling since 2000.
Let's examine the past three months and revisit the hope shared in March. The Iraq war was a successful campaign. Everyone is agreed there were, at one time, WMD. We probably won't find them, but it was a successful campaign. However, it is disrespectful to announce the war is over on May1 and for our soldiers to be killed daily as the battle continues. A loving leader doesn't paint a false picture of hope. The latter has not arrived in Iraq. It won't as long as our soldiers are killed.
Over the past three months we have witnessed the scuttles between the Senate and the House over the Bush tax package. It finally arrived in a diluted format, but it arrived. It's never too late to get reduced taxation. However, hope is not realized when discretionary spending continues at the 4% level at the same time the economy is expanding at half that rate. Such a ratio makes for disappointment and not a hopeful outcome. The state and local governments are hurting across this land. Make no mistake about it. There will be increased taxes and fees to make up for the deficits. They won't bring hope. They won't end soon. The deficits will be with us for some time to come- many moons. The bottom line is that consumers won't have much more cash in their pockets- they will be nickeled and dimed to daily dismay. Just ask WalMart. The consumer is not spending much more money. It's a teeny bit more. We did not have a teeny bit stock market rally.
There are only two elements of our economy that continue strong- housing and the refinancing market, and both have been manufactured by the Fed's lower interest rates. Unless we join Japan and pay people to borrow, it is clear that interest rates can only drop 1% to get to zero. The bottom is in sight. We hoped for lower interest rates and got them. However, those lower rates did not produce increased business spending and did not produce job hiring. In fact, business leaders appear quite content to part with their company ownership shares as insider selling continues to rise monthly. That is a very bad sign. It should also be pointed out, as John Talbott has, the national growth rate for existing home sales prices in the six months ended March 31, 2003 is zero per cent. That is something to consider.
I am also concerned by the battle on overtime pay. Some time back I wrote about the auto company who has made it more difficult to realize overtime pay. An analysis is being released today by the Economic Policy Institute. They discuss the Labor Department's revisions to the overtime rules proposed in March. I pay attention to what happens to people on Main Street. Wall Street has a way of ignoring these folks. Under this plan, the Institute states that 8 million workers would lose overtime pay. How can this happen? The Bush Administration has permitted the Labor Department to reclassify the definitions of job classifications in many of 257 white-collar occupations. The new definitions of professional, administrative, and executive employees remove specific duties and education requirements, and thus employers are provided wide latitude to reclassify workers. Union contract workers will not be affected. This is but one more event which screws the average American. It should be noted that this is a proposal. The comment period ends on Monday. You can bet much of this proposed plan will be put into effect. There must be trust in the workplace for the workplace to be effective. I see this trust fading into the sunset. Main Street will impact Wall Street. It always does.
Over the past three months not much has changed in the workplace. Employment continues to drop. The news on the factory floor is gloomy. Numbers for durable goods can't get out of their own way. Shipments of business equipment produce yawns. They are a non-event. Orders for transportation equipment continue on their monthly decline. Economists continue to hope that business spending will be a factor in the anticicpated second half recovery. Month after month hope does not arrive. It's not that it's late arriving. The arrival is nowhere in sight.
On a national scale the trade deficit growth continues unabated. The monthly budget deficits continue their cancerous growth. The Fed continues to wallow in their meaningless chit chat. The dollar has bounced around and has settled at the 1.15-1.16 level for a bit. However, we have new offerings from banks. A St. Louis bank now is offering the person on Main Street an opportunity to buy China's currency, the renminbi. In addition, Everbank has started to offer renminbi accounts to its depositors. The renminbi has a fixed peg to the dollar. It won't be long before this peg is revised upward in value to favor the renminbi. The U.S. currency is in a state of decline around the globe. This decline is in the early stages. It doesn't help to be running a $100 billion annual trade deficit with China.
As I have mentioned so often, in Europe much trouble persists. Fiat will cut 12,300 workers between now and 2006. French manufacturers have seen their confidence level drop to the lowest level since 2001. There are economic problems throughout Europe and Japan. The dollar may have declined in value, but our exports are still hurting.
Over the past three months we have seen an increase in the optimism index- both for the consumer and the small business owner. That's great to see. Unfortunately, without more economic meat on the bone, that hope does not count for much. The expectation is for the economy to improve over time. That is a nebulous thought. It is an expectation expressed yesterday by the Fed. Would you want to stake the on-going success of your investments on an economy which "has yet to exhibit sustainable growth?" Maybe it will. Maybe it won't. I only know hope does not always deliver the goods.
Wednesday, June 25, 2003
6/25/03 Chachmah (Wisdom), Binah (Comprehension), And Da'at (Knowledge)
We sure could use more wisdom, comprehension, and knowledge in today's world. Unfortunately, they appear in short supply. They seem to have been replaced by the three stooges- consumer optimism about the future, the surging money supply, and higher stock prices. Yesterday the headlines read: Consumers' outlook in June rises for third month; consumer confidence better than expected; and The Conference Board's Consumer Confidence Index turns flat in June but expectations are up. The headlines did not say that the present index fell to 65 from 67. The headlines omitted that less consumers rated the current conditions as good and that less consumers felt jobs were plentiful. Plenty of economists state that the economy will acelerate to 3.5% in the second half of the year; however, if there were more wisdom, comprehension, and knowledge on the part of those economists they would know that only 3% of households expect to buy a home in the next 6 months- the lowest figure since September 2000. They would know that only 6% plan to purchase an auto in the next 6 months, the lowest level since October 1996. They would have absorbed a survey by Grant Thornton which revealed that only 41% of middle-market executives (middle-market companies have annual revenues between $100 million and $2.5 billion) expect to increase hiring in the next six months, down from 50% in November 2002. If you want to trade with the headlines, be a stooge. Now we come to rising stock prices. According to a survey sponsored by Ariel Mutual Funds and Charles Schwab and Co. Inc., 33% of whites said they don't trust the stock market. That's up from 23% in 2000, and 49% of blacks don't trust the stock market, and that's up from 34% in 2000. Not surprisingly, a smaller percentage of whites and blacks are invested in the stock market today than they were in 1998. Stock prices may be enjoying a bear market rally, but the latter will not be sustained due to the erosion of trust on the part of investors. Fifty two per cent of blacks are bearish and 40% of whites are bearish. The survey has shown that more and more investors have turned to real estate and away from the stock market. The trend is not bullish for stock prices. A little wisdom, comprehension, and knowledge will bear fruit in this arena. Lastly, we come to the surging money supply. Dollars can be found everywhere- even in the toilet. That's where the value of the dollar has been headed over the past 12 months. Economists proclaim that the increased liquidity will produce a rejuvenation in our job market and in business investment. The money supply surges and just yesterday I read of job losses at Northern Trust, Viacom, KLM, AMP, and Ericsson. Tomorrow I'll probably read about more at Boeing. You get the picture? Do you see business investment spending rising? I see plants closing. I don't see expansion. It doesn't take much.- just a bit of wisdom, comprehension, and knowledge. It's there for the taking. It's free. It's not even taxed- at least not yet.
Do you think I should move to Japan? I need to give this consideration. Japan's overnight call rate is now below zero. That is so wonderful. That means as a borrower the lenders would pay me interest. Does it get better than this? I need to learn the language immediately. The first word I'll learn is schmuck. You need to be a schmuck to move there.
I need to acknowledge an interesting development. Yesterday, Ericsson announced it signed an agreement to outsource the development, implementation, and maintenance of IT applications supporting its business to IBM. As such, there will be a day of mourning in India, the king of outsourcing countries.
A great deal of credit must be given to the present regime in Mexico. Since 1998, 28 day Treasury yields have dropped from 48% to 4.72%. Over the past two years, Mexican pension funds have increased 85% to 356 billion pesos. Because of low rates and demand from pension funds, companies are beginning to offer peso-denominated bonds. Volkswagen de Mexico plans to sell about 1 billion pesos and Kimberly-Clark de Mexico sold 2 billion of 10 year bonds. This development is very positive for Mexico's present and future.
Italy, on the other hand, continues to languish. Italian June consumer confidence fell to its lowest level in more than 6 1/2 years. Bernardo Bocc, president of Confturismo, an organization which represents about 30,000 Italian hotels and tour operators, said "we are certainly in a recessionary climate. It's worrying and I don't see an improvement this year."
AMD, the world's number 2 maker of personal-computer processor chips behind Intel, cut its second quarter sales forecast by 14%. Intel had said its sales will rise about 7 1/2% this quarter. It appears that AMD has been hurt in the Asian market and has more exposure there than does Intel.
Jo Ann Bass is the granddaughter of the founder of Joe's Stone Crab in Miami and its current owner. Her restaurant was hit with a discrimination suit which was filed by two women. Both were interested in applying to the restaurant for a job in 1990 but did not because some acqaintances had told them Joe's did not hire women. That is not true, and never has been true. I know. I've been going to that restaurant for 30 years. A lower court had ruled that the restaurant had discriminated against two women between 1986 and 1991. These two women had applied years later for jobs and were rejected. The U.S. Supreme Court rejected the restaurant's appeal of the lower-court ruling. The legal battle cost Jo Ann Bass between 1 and 2 million dollars, and the legal award is $103,662 and with interest about $150,000. Currently, about 20% of the server staff are women. Bass said "we just have to accept it and accept the fact that life isn't fair. I don't think there's any place else to go, except God." She went on to say that "I learned there's a lot of truth to the adage that you can't fight City Hall and you can't fight the government. Their pockets are too deep, and they have all the time in the world." Unfortunately, the pockets are lined with taxpayer money and they have nothing but time because the taxpayers provide the time. What City Hall and the government don't have are wisdom, comprehension, and knowledge. That we know.
We sure could use more wisdom, comprehension, and knowledge in today's world. Unfortunately, they appear in short supply. They seem to have been replaced by the three stooges- consumer optimism about the future, the surging money supply, and higher stock prices. Yesterday the headlines read: Consumers' outlook in June rises for third month; consumer confidence better than expected; and The Conference Board's Consumer Confidence Index turns flat in June but expectations are up. The headlines did not say that the present index fell to 65 from 67. The headlines omitted that less consumers rated the current conditions as good and that less consumers felt jobs were plentiful. Plenty of economists state that the economy will acelerate to 3.5% in the second half of the year; however, if there were more wisdom, comprehension, and knowledge on the part of those economists they would know that only 3% of households expect to buy a home in the next 6 months- the lowest figure since September 2000. They would know that only 6% plan to purchase an auto in the next 6 months, the lowest level since October 1996. They would have absorbed a survey by Grant Thornton which revealed that only 41% of middle-market executives (middle-market companies have annual revenues between $100 million and $2.5 billion) expect to increase hiring in the next six months, down from 50% in November 2002. If you want to trade with the headlines, be a stooge. Now we come to rising stock prices. According to a survey sponsored by Ariel Mutual Funds and Charles Schwab and Co. Inc., 33% of whites said they don't trust the stock market. That's up from 23% in 2000, and 49% of blacks don't trust the stock market, and that's up from 34% in 2000. Not surprisingly, a smaller percentage of whites and blacks are invested in the stock market today than they were in 1998. Stock prices may be enjoying a bear market rally, but the latter will not be sustained due to the erosion of trust on the part of investors. Fifty two per cent of blacks are bearish and 40% of whites are bearish. The survey has shown that more and more investors have turned to real estate and away from the stock market. The trend is not bullish for stock prices. A little wisdom, comprehension, and knowledge will bear fruit in this arena. Lastly, we come to the surging money supply. Dollars can be found everywhere- even in the toilet. That's where the value of the dollar has been headed over the past 12 months. Economists proclaim that the increased liquidity will produce a rejuvenation in our job market and in business investment. The money supply surges and just yesterday I read of job losses at Northern Trust, Viacom, KLM, AMP, and Ericsson. Tomorrow I'll probably read about more at Boeing. You get the picture? Do you see business investment spending rising? I see plants closing. I don't see expansion. It doesn't take much.- just a bit of wisdom, comprehension, and knowledge. It's there for the taking. It's free. It's not even taxed- at least not yet.
Do you think I should move to Japan? I need to give this consideration. Japan's overnight call rate is now below zero. That is so wonderful. That means as a borrower the lenders would pay me interest. Does it get better than this? I need to learn the language immediately. The first word I'll learn is schmuck. You need to be a schmuck to move there.
I need to acknowledge an interesting development. Yesterday, Ericsson announced it signed an agreement to outsource the development, implementation, and maintenance of IT applications supporting its business to IBM. As such, there will be a day of mourning in India, the king of outsourcing countries.
A great deal of credit must be given to the present regime in Mexico. Since 1998, 28 day Treasury yields have dropped from 48% to 4.72%. Over the past two years, Mexican pension funds have increased 85% to 356 billion pesos. Because of low rates and demand from pension funds, companies are beginning to offer peso-denominated bonds. Volkswagen de Mexico plans to sell about 1 billion pesos and Kimberly-Clark de Mexico sold 2 billion of 10 year bonds. This development is very positive for Mexico's present and future.
Italy, on the other hand, continues to languish. Italian June consumer confidence fell to its lowest level in more than 6 1/2 years. Bernardo Bocc, president of Confturismo, an organization which represents about 30,000 Italian hotels and tour operators, said "we are certainly in a recessionary climate. It's worrying and I don't see an improvement this year."
AMD, the world's number 2 maker of personal-computer processor chips behind Intel, cut its second quarter sales forecast by 14%. Intel had said its sales will rise about 7 1/2% this quarter. It appears that AMD has been hurt in the Asian market and has more exposure there than does Intel.
Jo Ann Bass is the granddaughter of the founder of Joe's Stone Crab in Miami and its current owner. Her restaurant was hit with a discrimination suit which was filed by two women. Both were interested in applying to the restaurant for a job in 1990 but did not because some acqaintances had told them Joe's did not hire women. That is not true, and never has been true. I know. I've been going to that restaurant for 30 years. A lower court had ruled that the restaurant had discriminated against two women between 1986 and 1991. These two women had applied years later for jobs and were rejected. The U.S. Supreme Court rejected the restaurant's appeal of the lower-court ruling. The legal battle cost Jo Ann Bass between 1 and 2 million dollars, and the legal award is $103,662 and with interest about $150,000. Currently, about 20% of the server staff are women. Bass said "we just have to accept it and accept the fact that life isn't fair. I don't think there's any place else to go, except God." She went on to say that "I learned there's a lot of truth to the adage that you can't fight City Hall and you can't fight the government. Their pockets are too deep, and they have all the time in the world." Unfortunately, the pockets are lined with taxpayer money and they have nothing but time because the taxpayers provide the time. What City Hall and the government don't have are wisdom, comprehension, and knowledge. That we know.
Tuesday, June 24, 2003
6/24/03 Irrational Transparency
Before I get to all the news that's fit to print, there's a bit of housekeeping that needs to be accomplished. Several readers had their nose out of joints that I had abandoned the U.S. dollar in favor of the New Zealand dollar. Had the readers been carefully assessing my postings, they would have realized that this was not a new revelation. I am a very compassionate person. As such I shall provide a primer for stress management:
1. Picture yourself near a stream. 2. Birds are softly chirping in the cool mountain air. 3. No one but you knows your secret place. 4. You are in total seclusion from the hectic place called "the world." 5. The soothing sound of a gentle waterfall fills the air with a cascade of serenity. 6. The water is crystal clear. 7. You can easily make out the face of the f---er you're holding underwater.
George W. Bush: "Terrorists declared war on the United States of America, and war is what they got."
Thomas Paine: "The sublime and the ridiculous are often so nearly related, that it is difficult to class them separately. One step above the sublime makes the ridiculous, and one step above the ridiculous makes the sublime again."
Thomas Paine: "War involves in its progress such a train of unforeseen and unsupposed circumstances that no wisdom can calculate the end. It has but one thing certain, and that is to increase taxes."
Robert Elliott: "Two rules for stress management- rule one- don't sweat the small stuff. Rule 2- it's all small stuff."
The Fed has provided a roadmap whereby rates will be lowered for the 13th time. They say it is cheap insurance against the threat of deflation. Interestingly, in all the prior cuts, the Fed has been unsuccessful in its attempt to influence business spending. It has influenced the housing market with lower interest rates producing historically low mortgage rates and with them a boiling refinancing market which has thrown off some needed cash flow for the home owner. Unfortunately, weak European and Japanese economic conditions have resulted in weak demand for U.S. exports and this has served to exacerbate our trade deficit. The Fed knows this week's rate decrease will only serve as a diversion. The real story is to target the quantity of bank reserves and thereby increase the money supply and inflation. All depository institutions in the U.S. are subject to reserve requirements on customer deposits. It may be a surprise to many that no reserves are required against time deposits or savings accounts. None. Your money in the latter two are completely unprotected save for the insurance provided by the government. Since the government is busted, that insurance is worthless. It may come as a surprise that no reserves are required on the first $6 million of checkable deposits a bank holds. None. Between $6 million and $42.1 million deposits are subject to a 3% reserve. Above $42.1 million they are subject to a 10% reserve. These breakpoints are adjusted annually in accordance with money supply growth, and the money supply is growing like rabbits multiply (a gross exaggeration but amusing nevertheless). But one thing is very important. Despite what you might think, reserves bear no likeness to the size of the money supply. That's what I call irrational transparency. For example, over the past eight years or so the M2 money aggregate increased by two thirds while the banking system reserves decreased by one third. How could the Fed let this happen? The Fed let banks violate Federal Reserve banking requirements by implementing overnight sweep accounts. It's ok for the customer to do that but not a bank. The sweep accounts place the banks in violation of their reserve ratios. The Fed knows this and they have looked the other way. The Fed has violated a trust, the trust provided by depositors, and banking institutions also in violation are, in my opinion, not worthy of our deposits. How can anyone have trust in the dollar if you can't trust the Fed or our banks? It's your money. It's your decision. I've made mine.
In May the UBS Index on investor optimism rallied from 42 to 77. Sixty five per cent of those surveyed in June believe now is a good time to invest, and that is up from fifty eight per cent in May. Hope springs eternal.
Mexico, Latin America's largest economy, sells about 90% of its exports to the U.S. and they account for one quarter of its $600 million GDP. Mexico's May manufacturing exports slid about 6% as U.S. demand weakened due to our slow economy and to our increased imports from China.
Yesterday it was like old times in the Silicon Valley. Venture capitalists put a significant amount of money to work. Mobile software maker Visto of Redwood Shores extended its recent financing round with an additional $20 million; Wi-fi products maker Vivato of San Francisco raised $44.5 million; and Cradle Technologies of Mountain View, a fabless semi company, rang the register for $21.5 million.
With the aging of the population there will be a growing need for long-term care. Should a growing number of families be wiped out financially paying for that care? Should the government (really the taxpayers) pay for that care? Should long-term care premiums be made available to all Americans? We know that 44 million Americans are uninsured for health care at this time. It is unaffordable for too many. Who should pay for those premiums? As a nation we need to answer these questions. Don't leave it up to government officials. You will regret the outcome.
Before I get to all the news that's fit to print, there's a bit of housekeeping that needs to be accomplished. Several readers had their nose out of joints that I had abandoned the U.S. dollar in favor of the New Zealand dollar. Had the readers been carefully assessing my postings, they would have realized that this was not a new revelation. I am a very compassionate person. As such I shall provide a primer for stress management:
1. Picture yourself near a stream. 2. Birds are softly chirping in the cool mountain air. 3. No one but you knows your secret place. 4. You are in total seclusion from the hectic place called "the world." 5. The soothing sound of a gentle waterfall fills the air with a cascade of serenity. 6. The water is crystal clear. 7. You can easily make out the face of the f---er you're holding underwater.
George W. Bush: "Terrorists declared war on the United States of America, and war is what they got."
Thomas Paine: "The sublime and the ridiculous are often so nearly related, that it is difficult to class them separately. One step above the sublime makes the ridiculous, and one step above the ridiculous makes the sublime again."
Thomas Paine: "War involves in its progress such a train of unforeseen and unsupposed circumstances that no wisdom can calculate the end. It has but one thing certain, and that is to increase taxes."
Robert Elliott: "Two rules for stress management- rule one- don't sweat the small stuff. Rule 2- it's all small stuff."
The Fed has provided a roadmap whereby rates will be lowered for the 13th time. They say it is cheap insurance against the threat of deflation. Interestingly, in all the prior cuts, the Fed has been unsuccessful in its attempt to influence business spending. It has influenced the housing market with lower interest rates producing historically low mortgage rates and with them a boiling refinancing market which has thrown off some needed cash flow for the home owner. Unfortunately, weak European and Japanese economic conditions have resulted in weak demand for U.S. exports and this has served to exacerbate our trade deficit. The Fed knows this week's rate decrease will only serve as a diversion. The real story is to target the quantity of bank reserves and thereby increase the money supply and inflation. All depository institutions in the U.S. are subject to reserve requirements on customer deposits. It may be a surprise to many that no reserves are required against time deposits or savings accounts. None. Your money in the latter two are completely unprotected save for the insurance provided by the government. Since the government is busted, that insurance is worthless. It may come as a surprise that no reserves are required on the first $6 million of checkable deposits a bank holds. None. Between $6 million and $42.1 million deposits are subject to a 3% reserve. Above $42.1 million they are subject to a 10% reserve. These breakpoints are adjusted annually in accordance with money supply growth, and the money supply is growing like rabbits multiply (a gross exaggeration but amusing nevertheless). But one thing is very important. Despite what you might think, reserves bear no likeness to the size of the money supply. That's what I call irrational transparency. For example, over the past eight years or so the M2 money aggregate increased by two thirds while the banking system reserves decreased by one third. How could the Fed let this happen? The Fed let banks violate Federal Reserve banking requirements by implementing overnight sweep accounts. It's ok for the customer to do that but not a bank. The sweep accounts place the banks in violation of their reserve ratios. The Fed knows this and they have looked the other way. The Fed has violated a trust, the trust provided by depositors, and banking institutions also in violation are, in my opinion, not worthy of our deposits. How can anyone have trust in the dollar if you can't trust the Fed or our banks? It's your money. It's your decision. I've made mine.
In May the UBS Index on investor optimism rallied from 42 to 77. Sixty five per cent of those surveyed in June believe now is a good time to invest, and that is up from fifty eight per cent in May. Hope springs eternal.
Mexico, Latin America's largest economy, sells about 90% of its exports to the U.S. and they account for one quarter of its $600 million GDP. Mexico's May manufacturing exports slid about 6% as U.S. demand weakened due to our slow economy and to our increased imports from China.
Yesterday it was like old times in the Silicon Valley. Venture capitalists put a significant amount of money to work. Mobile software maker Visto of Redwood Shores extended its recent financing round with an additional $20 million; Wi-fi products maker Vivato of San Francisco raised $44.5 million; and Cradle Technologies of Mountain View, a fabless semi company, rang the register for $21.5 million.
With the aging of the population there will be a growing need for long-term care. Should a growing number of families be wiped out financially paying for that care? Should the government (really the taxpayers) pay for that care? Should long-term care premiums be made available to all Americans? We know that 44 million Americans are uninsured for health care at this time. It is unaffordable for too many. Who should pay for those premiums? As a nation we need to answer these questions. Don't leave it up to government officials. You will regret the outcome.
Monday, June 23, 2003
6/23/03 The Crossroads
The question is not how far Greenspan will lower rates. The question is not where the S&P and the Nasdaq will be at year end. The question is not whether the new Harry Potter book will sell more than its first printing of 8.5 million copies. There are answers to all those questions. Some are more difficult to answer with conviction. There are other questions, such as, where are the WMD? I am not in any way belittling any other important questions of our time. We're talking investing. I am certain that John Templeton or Jim Rogers or George Soros considers the question I am about to present on a constant basis. I'm new to this. It's been only a short time for me. For that, I may come up short. I apologize in advance.
Some time back I felt uncomfortable placing money in treasury bills. The government's fiscal landscape is foreign and unacceptable to me. I chose the New Zealand dollar. I have been most comfortable with my choice. That decision led to my asking this question: should I be looking elsewhere for investments? Should I leave the U.S. stock and bond markets to others until matters are more to my liking? I wrestled with this question. It seems unAmerican. Then I realized that emotion does not play a part in my investment decisions. Companies are not my family. They are a vehicle for making money. I decided to limit any new investments to specific risk arbitrage opportunities. I would look outside the U.S. for any other new investments. I am comfortable with that decision, and I recommend such an alternative to everyone. There is much value elsewhere, and, in countries devoid of our financial hysteria.
There was a program on the History channel, and my family was nice enough to tape it for me. It was an interview with Frank Langone. He's not a household name. He should be. He is a financial man, and, with Bernie Marcus, co-founded Home Depot, a company where I have had an investment for years and years. Frank has always talked smart. He doesn't have a Ph.D or come from a fancy background. Frank said "if you don't have a customer, you don't have a business." Too bad all the money lost in dotcom start-ups didn't figure that out ahead of time. Home Depot, Frank said, kept it simple, and still does. The formula for success: low prices, high service, and wide assortment. This year Home Depot will hire over 100,000 new employees. As I have said over and over again, stay over time with the growing great companies. Home Depot stumbled a bit. McDonald's stumbled a bit. They are on the road to being better than ever. Great managements recognize mistakes, and in the case of Home Depot, they got so big so fast that their systems, processes, and IT were way behind their size. In addition, there was a learning curve for Nardelli. Bernie Marcus and Frank Langone made certain Nardelli wuld not fail. They gave him the tools and the support. They had a sincere interest in so doing. Home Depot is a member of their family. It's one of their children. It's not just any investment.
It pains me to read that personal bankruptcy filings in NYC are up 25% over the past two years. NYC went through so much in the 1970s, and now it's deja vu all over again.
The question is not how far Greenspan will lower rates. The question is not where the S&P and the Nasdaq will be at year end. The question is not whether the new Harry Potter book will sell more than its first printing of 8.5 million copies. There are answers to all those questions. Some are more difficult to answer with conviction. There are other questions, such as, where are the WMD? I am not in any way belittling any other important questions of our time. We're talking investing. I am certain that John Templeton or Jim Rogers or George Soros considers the question I am about to present on a constant basis. I'm new to this. It's been only a short time for me. For that, I may come up short. I apologize in advance.
Some time back I felt uncomfortable placing money in treasury bills. The government's fiscal landscape is foreign and unacceptable to me. I chose the New Zealand dollar. I have been most comfortable with my choice. That decision led to my asking this question: should I be looking elsewhere for investments? Should I leave the U.S. stock and bond markets to others until matters are more to my liking? I wrestled with this question. It seems unAmerican. Then I realized that emotion does not play a part in my investment decisions. Companies are not my family. They are a vehicle for making money. I decided to limit any new investments to specific risk arbitrage opportunities. I would look outside the U.S. for any other new investments. I am comfortable with that decision, and I recommend such an alternative to everyone. There is much value elsewhere, and, in countries devoid of our financial hysteria.
There was a program on the History channel, and my family was nice enough to tape it for me. It was an interview with Frank Langone. He's not a household name. He should be. He is a financial man, and, with Bernie Marcus, co-founded Home Depot, a company where I have had an investment for years and years. Frank has always talked smart. He doesn't have a Ph.D or come from a fancy background. Frank said "if you don't have a customer, you don't have a business." Too bad all the money lost in dotcom start-ups didn't figure that out ahead of time. Home Depot, Frank said, kept it simple, and still does. The formula for success: low prices, high service, and wide assortment. This year Home Depot will hire over 100,000 new employees. As I have said over and over again, stay over time with the growing great companies. Home Depot stumbled a bit. McDonald's stumbled a bit. They are on the road to being better than ever. Great managements recognize mistakes, and in the case of Home Depot, they got so big so fast that their systems, processes, and IT were way behind their size. In addition, there was a learning curve for Nardelli. Bernie Marcus and Frank Langone made certain Nardelli wuld not fail. They gave him the tools and the support. They had a sincere interest in so doing. Home Depot is a member of their family. It's one of their children. It's not just any investment.
It pains me to read that personal bankruptcy filings in NYC are up 25% over the past two years. NYC went through so much in the 1970s, and now it's deja vu all over again.
Sunday, June 22, 2003
6/22/03 A Pitcher's Pitch
Alex Rodriguez (aka A-Rod) is currently recognized as the greatest all-around short-stop of all time. He is a future Hall-of-Famer. Growing up in Miami, he wasn't always the star he is presently. As a sophomore, he was benched for one game, and didn't win the starting job unil well into the season. He hit .270 and was placed seventh in the batting order. As a sophomore, his coach said A-Rod often swung at a "pitcher's pitch." Over the next summer Rodriguez practiced hard and learned the art of patience. As a junior, he hit .477 with six homers, stole 42 bases, scored 51 runs, and made the All-Dade first team. The rest is history. Investors can learn a great deal from A-Rod. He still works hard at honing his skills, and is still patient at the plate as he waits for "his pitch." I know from experience that the market will serve up "your pitch." When it does arrive, pull the trigger. Have the confidence to believe in yourself. Ignore what others say. It's your money. It's "your pitch." Don't wait for the pitch thrown from the pundits. They didn't earn your investing nest egg.
Silicon Valley's employment plunge is not unique. Silicon Valley has lost one of every six jobs, and employment is at the 1996 level. Since the December 2000 peak, 191,000 jobs have been lost. In Detroit employment is somewhat lower than the levels in 1996, and jobs peaked there in 1978. In Los Angeles County an employment record was set in 1990. In April 2003 there were 166,000 fewer jobs than the record of 1990.
Talking about employment, a study by Challenger, Gray, and Christmas shows that job searches for managers and executives in the first quarter of 2003 hit 128 days, a record high, and is double the 64 days for the average such job search in the second quarter of 2001, which was a record low. In addition, in the first quarter of 1977, discharged executives and managers received an all-time high severance of about six months. In the first quarter of this year that number has dropped to 2.3 months.
Health insurance premiums increased about 13% in 2002 and are anticipated to rise 15% this year. Roberta Grossman of Merrill Lynch points out an interesting fact. In 1960 consumers were paying almost 50% of national health care costs out-of-pocket. That fiure is about 15% today, and, for the next few years, is expected to remain at that level.
Even though about $16 billion in drugs went off-patent in 2002, and only 10 new drugs came to the market in 2002, prescription drug costs continue to increase. That rise is anticipated to be 11% in 2004 and 12% in 2005. One further note. The patent-expiration period will accelerate in the coming years. The waiting period for an FDA drug approval has not been reduced. That agency only approved 17 new drugs in 2002. The drug prescription market will only grow 1% this year. You can expect pharmaceutica companies to increase their focus on reducing costs. That will mean more job cuts and less spent on r&d as the latter is tied to revenue growth. The coming years will be challenging for the consumer, corporate health plans, Medicare, Medicaid, and for many of the drug companies.
The Fed is paying more attention to the field of behavioral economics. One of the pioneers in this field, Daniel Kahneman, last year won the Nobel Prize in economics. Recently, the Boston Federal Reserve held its annual conference. The topic for discussion was "How Humans Behave-Implications for Economics and Policy." Next year's topic could be on "how Federal Reserve members behave- implications for market manipulation." Any way, this aforementioned conference included looking at MRI scans of the brain. Like these folks really understand the workings of the brain. I guess because many economists are Ph.Ds they consider themselves real doctors. Inflated egos have the potential to be quite destructive. Maybe the conference participants should take a primer and read Adam Smith's "The Theory of Moral Sentiments." Since its an ancient work, there may be dust on the cover.
I don't play favorites. As such, I am not a subscriber to Barron's, Fortune, Business Week, the Wall Street Journal, Investor's Business Daily, the N.Y. Times, etc. It's amazing I am able to exist. One of my oldest friends has been one of the original participants in Barron's twice-yearly roundtable discussion. He emailed me, and said I needed to read the mid-year roundtable. I knew that would make me $3.50 poorer but I decided to be a big spender. Felix Zulauf talked about the big Fed manipulation. He talked about buying the Nikkei and shorting Japan's bonds. He still likes gold. Mario Gabelli talked about the aging of the population. Barton Biggs has a short postion in U.S. treasury bonds. Meryl Witner does not see many inexpensive stocks. Scott Black sees a weak economy. Marc Faber talks about the imbalance between U.S. consumption and Asian production. He feels that anyone buying the S&P now might not make money for the next five years. Others talked of the bubble in bonds. These are subjects I have covered in my blog for some time- with the exception of shorting Japanese bonds.
Alex Rodriguez (aka A-Rod) is currently recognized as the greatest all-around short-stop of all time. He is a future Hall-of-Famer. Growing up in Miami, he wasn't always the star he is presently. As a sophomore, he was benched for one game, and didn't win the starting job unil well into the season. He hit .270 and was placed seventh in the batting order. As a sophomore, his coach said A-Rod often swung at a "pitcher's pitch." Over the next summer Rodriguez practiced hard and learned the art of patience. As a junior, he hit .477 with six homers, stole 42 bases, scored 51 runs, and made the All-Dade first team. The rest is history. Investors can learn a great deal from A-Rod. He still works hard at honing his skills, and is still patient at the plate as he waits for "his pitch." I know from experience that the market will serve up "your pitch." When it does arrive, pull the trigger. Have the confidence to believe in yourself. Ignore what others say. It's your money. It's "your pitch." Don't wait for the pitch thrown from the pundits. They didn't earn your investing nest egg.
Silicon Valley's employment plunge is not unique. Silicon Valley has lost one of every six jobs, and employment is at the 1996 level. Since the December 2000 peak, 191,000 jobs have been lost. In Detroit employment is somewhat lower than the levels in 1996, and jobs peaked there in 1978. In Los Angeles County an employment record was set in 1990. In April 2003 there were 166,000 fewer jobs than the record of 1990.
Talking about employment, a study by Challenger, Gray, and Christmas shows that job searches for managers and executives in the first quarter of 2003 hit 128 days, a record high, and is double the 64 days for the average such job search in the second quarter of 2001, which was a record low. In addition, in the first quarter of 1977, discharged executives and managers received an all-time high severance of about six months. In the first quarter of this year that number has dropped to 2.3 months.
Health insurance premiums increased about 13% in 2002 and are anticipated to rise 15% this year. Roberta Grossman of Merrill Lynch points out an interesting fact. In 1960 consumers were paying almost 50% of national health care costs out-of-pocket. That fiure is about 15% today, and, for the next few years, is expected to remain at that level.
Even though about $16 billion in drugs went off-patent in 2002, and only 10 new drugs came to the market in 2002, prescription drug costs continue to increase. That rise is anticipated to be 11% in 2004 and 12% in 2005. One further note. The patent-expiration period will accelerate in the coming years. The waiting period for an FDA drug approval has not been reduced. That agency only approved 17 new drugs in 2002. The drug prescription market will only grow 1% this year. You can expect pharmaceutica companies to increase their focus on reducing costs. That will mean more job cuts and less spent on r&d as the latter is tied to revenue growth. The coming years will be challenging for the consumer, corporate health plans, Medicare, Medicaid, and for many of the drug companies.
The Fed is paying more attention to the field of behavioral economics. One of the pioneers in this field, Daniel Kahneman, last year won the Nobel Prize in economics. Recently, the Boston Federal Reserve held its annual conference. The topic for discussion was "How Humans Behave-Implications for Economics and Policy." Next year's topic could be on "how Federal Reserve members behave- implications for market manipulation." Any way, this aforementioned conference included looking at MRI scans of the brain. Like these folks really understand the workings of the brain. I guess because many economists are Ph.Ds they consider themselves real doctors. Inflated egos have the potential to be quite destructive. Maybe the conference participants should take a primer and read Adam Smith's "The Theory of Moral Sentiments." Since its an ancient work, there may be dust on the cover.
I don't play favorites. As such, I am not a subscriber to Barron's, Fortune, Business Week, the Wall Street Journal, Investor's Business Daily, the N.Y. Times, etc. It's amazing I am able to exist. One of my oldest friends has been one of the original participants in Barron's twice-yearly roundtable discussion. He emailed me, and said I needed to read the mid-year roundtable. I knew that would make me $3.50 poorer but I decided to be a big spender. Felix Zulauf talked about the big Fed manipulation. He talked about buying the Nikkei and shorting Japan's bonds. He still likes gold. Mario Gabelli talked about the aging of the population. Barton Biggs has a short postion in U.S. treasury bonds. Meryl Witner does not see many inexpensive stocks. Scott Black sees a weak economy. Marc Faber talks about the imbalance between U.S. consumption and Asian production. He feels that anyone buying the S&P now might not make money for the next five years. Others talked of the bubble in bonds. These are subjects I have covered in my blog for some time- with the exception of shorting Japanese bonds.
Saturday, June 21, 2003
6/21/03 1974 Revisited
I was a young man. I’m still a young man. It was November, 1974 and the cupboard was getting very bare. We were down to rice, oatmeal, and powdered milk. On a day of splurging I was able to spring for a big bag of Idaho potatoes. I was so damn sure. My friends thought I was nuts. My family hung tough. Then one day I came home a bit on the shaky side. I saw a man pass my office window at 120 Broadway in NYC’s Wall Street arena. He passed on his way to the pavement below. My office was on the 20th floor. I thought of Jesse Livermore committing suicide 40 plus years before. Bear markets can do that. We were in the midst of a beauty of a bear market in early November of 1974. It was the worst since the depression. I was so sure of myself. I didn’t know any better. I was buying great companies yielding 6 to 10 per cent, at 4 and 5 price earnings ratios, and many stocks selling for less than the cash per share. These were not dotcom companies. These were the real deal. They made money. I just kept buying and buying and buying. I knew the food would not last forever. I was sure I was right. I got lucky. God must have watched out for me. The Dow bottomed in early December at 574. I never looked back until about five weeks ago. As Yogi would say, it was déjà vu all over again.
I had been taking a look at the economy for days, for weeks, for months. Just like in 1974. The bond market, I thought, was selling at crazy low yields. Who in his right mind would loan money to the U.S. government at these low interest rates when the country was busted? No one in their right mind. I was sure of that. This time around I had a bit more than just the rice, oatmeal, and powdered milk. The yields kept getting lower. The market said I was wrong. Just like 1974. I kept asking myself should I buck the trend? Will I get carried out? This time around I hedged a bit. I couldn’t get carried out. Every time I hedged I got angry at myself. I did it any way even though I believed in myself. I was only competing within myself. I have nothing to prove to anyone else. Never did. God looked out for me again. The bond market has tanked over the last two weeks. From December, 1974 the market did not look back for some time. Will it be the same this time for the bond market? I wrote not long ago that it didn’t matter whether Greenspan lowered rates at the last Fed meeting or in June. It doesn’t matter whether the rates are lowered by a quarter or a half a point. In fact, as I have said for a year, the Fed is a non-event. They are a figment of their own imagination. Whatever they do they cannot reverse what has been done. They cannot reverse the budget and trade deficits, they can’t create jobs, they can’t make business owners invest in their businesses, they can’t make people save, they can’t stop increased government spending. They can stop making speeches. Their words are a crock. They aren’t worried about price deflation. They’re worried about asset deflation. They should worry about people on fixed incomes earning squat on money market funds, savings accounts, and treasury bills. The population is aging a lot faster than people buying homes with low interest mortgages. When interest rates are lowered this week, what impact will that have on money market funds? When long term interest rates rise, what will happen to the well-being of mortgage backed securities. The Fed has gotten themselves into a catch 22, and there’s no way out. The Snowman said this week “conditions for this recovery are looking better and better.” He also said unemployment would continue to rise for a bit longer. On Friday Bush said the latest tax cut is “going to put wind at our back as this economy recovers from what has been a very tough period of time.” He also said the economy is not growing fast enough to make much improvement in the unemployment situation.
We have a situation where the Fed is pouring money into the system. The government is spending money like never before. Deficits are rising to incredible levels. The CBO says we will have deficits thru at least 2010. Governments do not create economic growth. They produce nothing. They only spend. They consume tax receipts. They are the weapon of mass destruction. There is only one way for the government to help- shrink federal services, employees, and benefits. The solution is to outsource the government to China and India. The citizens must take away the federal checkbook and create a governor on federal spending. When the free lunches end, when the pork programs are extinguished, then the path to sanity will be restored. Until that time, I continue to believe there will be a very long and painful bear market in government bonds. I’m a young man. I’ll live thru this period. Others will jump to their death. It’s will be déjà vu all over again. But don’t worry. Everything will be just fine. Goldman Sachs told their clients “what’s important here is the shift in the Fed’s regime-to focus on keeping short-term rates low for a sustained period in order to prevent deflation.” What the hell has been going on with a dozen rate cuts and the thirteenth on its way? The focus has not changed one bit. The Fed has followed the bond market down step by step by step. They have followed and not led. The guy who ran Greenspan Townsend does not lead markets.
The Mortgage Bankers Association said on Friday that U.S. mortgages in foreclosure climbed to a record high in the first quarter of this year, and that home loans in the process of foreclosure climbed to 1.2% of all mortgages, a record high.
Don Imus: “When you’re talking to someone, you better know which side of the chicken wire you’re on.”
General Motors is planning to sell $13 billion of bonds and will use most of the proceeds to reduce deficits in its world-wide pension plans which amounted to $25.4 billion at the end of 2002. Because of rising pension costs, Moody’s and Fitch Ratings just cut their ratings on GM’s long term debt.
Boeing previously announced a 35,000 ceiling for job cuts in their commercial airplanes division. Now the company says more layoff plans may be announced next month. The June quarter for Boeing will not be pretty. Fittingly, Boeing’s CEO, Phil Condit, was named the new head of the Business Council. That says a lot for that organization.
The landscape in the PeopleSoft/J.D.Edwards/Oracle fracas changed a bit on Friday. That was anticipated. The PeopleSoft board rejected the sweetened Oracle bid saying it “undervalues the company and is not in the best interest of PeopleSoft shareholders.” However , the PeopleSoft board “determined that future circumstances might make it advisable or necessary for the company to engage in discussions or negotiations with third parties regarding extraordinary transactions.” Needless to say, should a judge stop the Oracle tender, such circumstances would not be necessary. It is difficult to envision what company could serve as a white knight. I ruled out IBM, Microsoft, and SAP. I took a long look at Intuit. They could do it, but would they want to. I have no idea. PeopleSoft is quite aware that, if Oracle’s bid is successful, 5000 of the 8000 PeopleSoft employees will be fired. Oracle also changed their tune on Friday. They now state they “will continue to develop and improve PeopleSoft’s products for at least the next ten years-even longer, if customers require further support.We will have more than 4000 engineers supporting PeopleSoft customers all over the world, and they can stay on PeopleSoft applications or migrate to Oracle applications at their discretion. It’s entirely their choice." Let me make this clear. PeopleSoft doesn’t want to find a white knight or sell out. They said that to protect themselves legally with shareholders. Oracle wants to have PeopleSoft customers convert to Oracle E-Business Suite applications. They are not looking to enhance PeopleSoft’s existing product offerings. They said they would not shut down PeopleSoft products in order to look better in court before the judge hearing the motion for the TRO. As I have said so often, don’t believe what you read. Think for yourself.
I was a young man. I’m still a young man. It was November, 1974 and the cupboard was getting very bare. We were down to rice, oatmeal, and powdered milk. On a day of splurging I was able to spring for a big bag of Idaho potatoes. I was so damn sure. My friends thought I was nuts. My family hung tough. Then one day I came home a bit on the shaky side. I saw a man pass my office window at 120 Broadway in NYC’s Wall Street arena. He passed on his way to the pavement below. My office was on the 20th floor. I thought of Jesse Livermore committing suicide 40 plus years before. Bear markets can do that. We were in the midst of a beauty of a bear market in early November of 1974. It was the worst since the depression. I was so sure of myself. I didn’t know any better. I was buying great companies yielding 6 to 10 per cent, at 4 and 5 price earnings ratios, and many stocks selling for less than the cash per share. These were not dotcom companies. These were the real deal. They made money. I just kept buying and buying and buying. I knew the food would not last forever. I was sure I was right. I got lucky. God must have watched out for me. The Dow bottomed in early December at 574. I never looked back until about five weeks ago. As Yogi would say, it was déjà vu all over again.
I had been taking a look at the economy for days, for weeks, for months. Just like in 1974. The bond market, I thought, was selling at crazy low yields. Who in his right mind would loan money to the U.S. government at these low interest rates when the country was busted? No one in their right mind. I was sure of that. This time around I had a bit more than just the rice, oatmeal, and powdered milk. The yields kept getting lower. The market said I was wrong. Just like 1974. I kept asking myself should I buck the trend? Will I get carried out? This time around I hedged a bit. I couldn’t get carried out. Every time I hedged I got angry at myself. I did it any way even though I believed in myself. I was only competing within myself. I have nothing to prove to anyone else. Never did. God looked out for me again. The bond market has tanked over the last two weeks. From December, 1974 the market did not look back for some time. Will it be the same this time for the bond market? I wrote not long ago that it didn’t matter whether Greenspan lowered rates at the last Fed meeting or in June. It doesn’t matter whether the rates are lowered by a quarter or a half a point. In fact, as I have said for a year, the Fed is a non-event. They are a figment of their own imagination. Whatever they do they cannot reverse what has been done. They cannot reverse the budget and trade deficits, they can’t create jobs, they can’t make business owners invest in their businesses, they can’t make people save, they can’t stop increased government spending. They can stop making speeches. Their words are a crock. They aren’t worried about price deflation. They’re worried about asset deflation. They should worry about people on fixed incomes earning squat on money market funds, savings accounts, and treasury bills. The population is aging a lot faster than people buying homes with low interest mortgages. When interest rates are lowered this week, what impact will that have on money market funds? When long term interest rates rise, what will happen to the well-being of mortgage backed securities. The Fed has gotten themselves into a catch 22, and there’s no way out. The Snowman said this week “conditions for this recovery are looking better and better.” He also said unemployment would continue to rise for a bit longer. On Friday Bush said the latest tax cut is “going to put wind at our back as this economy recovers from what has been a very tough period of time.” He also said the economy is not growing fast enough to make much improvement in the unemployment situation.
We have a situation where the Fed is pouring money into the system. The government is spending money like never before. Deficits are rising to incredible levels. The CBO says we will have deficits thru at least 2010. Governments do not create economic growth. They produce nothing. They only spend. They consume tax receipts. They are the weapon of mass destruction. There is only one way for the government to help- shrink federal services, employees, and benefits. The solution is to outsource the government to China and India. The citizens must take away the federal checkbook and create a governor on federal spending. When the free lunches end, when the pork programs are extinguished, then the path to sanity will be restored. Until that time, I continue to believe there will be a very long and painful bear market in government bonds. I’m a young man. I’ll live thru this period. Others will jump to their death. It’s will be déjà vu all over again. But don’t worry. Everything will be just fine. Goldman Sachs told their clients “what’s important here is the shift in the Fed’s regime-to focus on keeping short-term rates low for a sustained period in order to prevent deflation.” What the hell has been going on with a dozen rate cuts and the thirteenth on its way? The focus has not changed one bit. The Fed has followed the bond market down step by step by step. They have followed and not led. The guy who ran Greenspan Townsend does not lead markets.
The Mortgage Bankers Association said on Friday that U.S. mortgages in foreclosure climbed to a record high in the first quarter of this year, and that home loans in the process of foreclosure climbed to 1.2% of all mortgages, a record high.
Don Imus: “When you’re talking to someone, you better know which side of the chicken wire you’re on.”
General Motors is planning to sell $13 billion of bonds and will use most of the proceeds to reduce deficits in its world-wide pension plans which amounted to $25.4 billion at the end of 2002. Because of rising pension costs, Moody’s and Fitch Ratings just cut their ratings on GM’s long term debt.
Boeing previously announced a 35,000 ceiling for job cuts in their commercial airplanes division. Now the company says more layoff plans may be announced next month. The June quarter for Boeing will not be pretty. Fittingly, Boeing’s CEO, Phil Condit, was named the new head of the Business Council. That says a lot for that organization.
The landscape in the PeopleSoft/J.D.Edwards/Oracle fracas changed a bit on Friday. That was anticipated. The PeopleSoft board rejected the sweetened Oracle bid saying it “undervalues the company and is not in the best interest of PeopleSoft shareholders.” However , the PeopleSoft board “determined that future circumstances might make it advisable or necessary for the company to engage in discussions or negotiations with third parties regarding extraordinary transactions.” Needless to say, should a judge stop the Oracle tender, such circumstances would not be necessary. It is difficult to envision what company could serve as a white knight. I ruled out IBM, Microsoft, and SAP. I took a long look at Intuit. They could do it, but would they want to. I have no idea. PeopleSoft is quite aware that, if Oracle’s bid is successful, 5000 of the 8000 PeopleSoft employees will be fired. Oracle also changed their tune on Friday. They now state they “will continue to develop and improve PeopleSoft’s products for at least the next ten years-even longer, if customers require further support.We will have more than 4000 engineers supporting PeopleSoft customers all over the world, and they can stay on PeopleSoft applications or migrate to Oracle applications at their discretion. It’s entirely their choice." Let me make this clear. PeopleSoft doesn’t want to find a white knight or sell out. They said that to protect themselves legally with shareholders. Oracle wants to have PeopleSoft customers convert to Oracle E-Business Suite applications. They are not looking to enhance PeopleSoft’s existing product offerings. They said they would not shut down PeopleSoft products in order to look better in court before the judge hearing the motion for the TRO. As I have said so often, don’t believe what you read. Think for yourself.
Friday, June 20, 2003
6/20/03 "The Weather Is Too Hot"
Often I am critical of government agencies. When praise should be forthcoming, I provide it. In NYC we make jokes about the 120-year-old Brooklyn Bridge. They've been retold for years. So will the foiled plot to destroy the bridge. Iyman Faris pleaded guilty on May 1 to charges he was involved in a plot to cut the bridge's suspension cables with "gas cutters" and obtaining "torque tools" to derail trains in the Washington area. The plea document clearly indicates that he was an operative for Osama bin Laden's al Qaeda organization. Faris discontinued plans for the attack on the bridge because security was too tight and the suspension cables did not appear vulnerable. He sent a coded message stating "the weather is too hot."
Houston's unemployment rate increased from 6.3% to 6.7% in May, and was the largest one month jump in a decade. The Texas Workforce Commission said the area produced 15,000 fewer jobs, the 16th consecutive month of year-over-year losses. Bill Gilmer, senior economist with the Federal Reserve Bank in Houston is surprised that Houston's unemployment continues to mount as the U.S. drilling rig count improves, the ISM index improves, the dollar declines in value, consumer confidence is up, the stock market is up, and interest rates decline. However, employers are not hiring. What do employers think they know?
What do insiders know? Argus Research provided an 8 week ratio of selling to buying by corporate insiders. The ratio is approaching 4 shares sold for each share purchased. Wall Street climbs a wall of worry. The insiders aren't worried. They're cashing in. They've got the green. A bird in the hand.
In a few minutes GE will be starting its webcast with analysts. Yesterday the company released its May orders. Remember Mrs. Robinson and plastics? Plastics is not hacking it for GE. Actually, its hacking away at profits. The division is hurt by lower prices and higher material costs. A company the size of GE cannot pass along the cost increases. Maybe investors should think about that. Orders for plastics fell about 20% last month. First quarter profits from plastics were down 56%. In May orders for appliances declined 5%. That means Sears can't be knocking the cover off of the ball. GE's earnings for 2003 will slightly exceed $1.55 per share. At yesterday's close the p/e was a bit over 19, but the stock does yield 2.5%. From when GE was mentioned back in October, the stock has done ok. It's up about 36%. That's a ham sandwich. All joking aside, GE has a market cap of close to $300 billion. I consider this company one of the proxies for business in America. They're doing ok but nothing to write home about. The outlook for 2004 for them is ok but nothing to write home about.
More than 130 million customers worldwide visit a WalMart store each week. Excluding autos, WalMart accounts for 9 cents out of every retail dollar spent in the U.S. They are the proxy for the consumer. I follow this company closer than any other public company. Why? It's the most important American company. They employ 1.4 million people. They are Main Street. WalMart's same store sales are ok. They're nothing to write home about.
The Justice Department will review the takeover issues surrounding the fracas at PSFT/JDEC/ORCL. More than 20% of PeopleSoft's 5000 customers are government agencies or universities.
Since June 10, the 10 year Treasury note yield has increased from 3.11% to 3.34%. 15 year mortgage yields have risen to 4.62%.
U.S. jobless claims have exceeded 400,000 for 18 straight weeks. The number of workers still collecting unemployment checks rose to a new 20 year high. The figures do not include some 850,000 workers receiving federal checks available to those who exhaust state benefits. One might note that the U.S. economy shrank by 325,000 non-agricltural jobs in April 2003 over April 2002, and the latter month didn't exactly knock the cover off the ball either.
I know that some of my readers have a thing for counting. Here's the count. Prior to May 1, the date the Iraq war was declared over, 138 Americans died in combat in Iraq. Since May 1, there have been 51 fatalities or 1 every day. Other than the families of those fallen soldiers, how many other Americans care? If anyone does care, I don't hear much noise.
Yesterday Krispy Kreme opened its first store outside North America. It's located in a suburb of Sydney, Australia. Over the next 5 years the company plans to open 30 additional stores throughout Australia and New Zealand. That might be a good reason for me to move there. I need to personally investigate my Krispy Kreme investment. It makes me smile when I read that the company makes almost 2.8 billion doughnuts a year.
Earlier in the month I had mentioned that GE was cutting 414 employees in Macon and Atlanta. Those cuts were directly related to the loss of business from Home Depot. You read correctly. Yesterday GE said they would be cutting an additional 62 employees in its Atlanta office. Georgia got another piece of bad news yesterday. Herman Miller, the furniture manufacturing company, will move its Canton, Georgia operations to its home-base in Michigan and cut about 500 jobs. Wilbur Ross is right on when he said "manufacturing has a peculiar problem, which is our trade deficit. Imports account for about 14% of the economy and contribute to the loss of manufacturing jobs." Our first quarter trade deficit was a record $136 billion. On an annualized basis, that's just shy of 6% of our GDP. The worst part is that deficit is a cancerous growth. It just keeps getting bigger.
On Wednesday the American Electronics Association reported that U.S. exports of high-tech goods fell by 26% from $223 billion in 2002 to $166 billion in 2002. During that same period U.S. electronic imports were down 19%. During this 2000-2002 period the Association said there was a 10% drop in U.S. tech employment. China became the United States' top supplier of high-tech goods, surpassing Japan and Mexico. During this time span imports from China increased by 32% or $8.4 billion.
I was especially interested in something Chang Mook Sohn, the state of Washington's chief economist said. Sohn is a very astute guy. He is increasingly concerned about the prospect of deflation in the state. Sohn said the sate of Washington is heavily reliant on sales taxes for revenues. The more prices fall, the less the state collects in sales taxes. That's a point I had not adequately considered. Sohn believes there is a one in four chance that deflation will take hold nationwide.
Often I am critical of government agencies. When praise should be forthcoming, I provide it. In NYC we make jokes about the 120-year-old Brooklyn Bridge. They've been retold for years. So will the foiled plot to destroy the bridge. Iyman Faris pleaded guilty on May 1 to charges he was involved in a plot to cut the bridge's suspension cables with "gas cutters" and obtaining "torque tools" to derail trains in the Washington area. The plea document clearly indicates that he was an operative for Osama bin Laden's al Qaeda organization. Faris discontinued plans for the attack on the bridge because security was too tight and the suspension cables did not appear vulnerable. He sent a coded message stating "the weather is too hot."
Houston's unemployment rate increased from 6.3% to 6.7% in May, and was the largest one month jump in a decade. The Texas Workforce Commission said the area produced 15,000 fewer jobs, the 16th consecutive month of year-over-year losses. Bill Gilmer, senior economist with the Federal Reserve Bank in Houston is surprised that Houston's unemployment continues to mount as the U.S. drilling rig count improves, the ISM index improves, the dollar declines in value, consumer confidence is up, the stock market is up, and interest rates decline. However, employers are not hiring. What do employers think they know?
What do insiders know? Argus Research provided an 8 week ratio of selling to buying by corporate insiders. The ratio is approaching 4 shares sold for each share purchased. Wall Street climbs a wall of worry. The insiders aren't worried. They're cashing in. They've got the green. A bird in the hand.
In a few minutes GE will be starting its webcast with analysts. Yesterday the company released its May orders. Remember Mrs. Robinson and plastics? Plastics is not hacking it for GE. Actually, its hacking away at profits. The division is hurt by lower prices and higher material costs. A company the size of GE cannot pass along the cost increases. Maybe investors should think about that. Orders for plastics fell about 20% last month. First quarter profits from plastics were down 56%. In May orders for appliances declined 5%. That means Sears can't be knocking the cover off of the ball. GE's earnings for 2003 will slightly exceed $1.55 per share. At yesterday's close the p/e was a bit over 19, but the stock does yield 2.5%. From when GE was mentioned back in October, the stock has done ok. It's up about 36%. That's a ham sandwich. All joking aside, GE has a market cap of close to $300 billion. I consider this company one of the proxies for business in America. They're doing ok but nothing to write home about. The outlook for 2004 for them is ok but nothing to write home about.
More than 130 million customers worldwide visit a WalMart store each week. Excluding autos, WalMart accounts for 9 cents out of every retail dollar spent in the U.S. They are the proxy for the consumer. I follow this company closer than any other public company. Why? It's the most important American company. They employ 1.4 million people. They are Main Street. WalMart's same store sales are ok. They're nothing to write home about.
The Justice Department will review the takeover issues surrounding the fracas at PSFT/JDEC/ORCL. More than 20% of PeopleSoft's 5000 customers are government agencies or universities.
Since June 10, the 10 year Treasury note yield has increased from 3.11% to 3.34%. 15 year mortgage yields have risen to 4.62%.
U.S. jobless claims have exceeded 400,000 for 18 straight weeks. The number of workers still collecting unemployment checks rose to a new 20 year high. The figures do not include some 850,000 workers receiving federal checks available to those who exhaust state benefits. One might note that the U.S. economy shrank by 325,000 non-agricltural jobs in April 2003 over April 2002, and the latter month didn't exactly knock the cover off the ball either.
I know that some of my readers have a thing for counting. Here's the count. Prior to May 1, the date the Iraq war was declared over, 138 Americans died in combat in Iraq. Since May 1, there have been 51 fatalities or 1 every day. Other than the families of those fallen soldiers, how many other Americans care? If anyone does care, I don't hear much noise.
Yesterday Krispy Kreme opened its first store outside North America. It's located in a suburb of Sydney, Australia. Over the next 5 years the company plans to open 30 additional stores throughout Australia and New Zealand. That might be a good reason for me to move there. I need to personally investigate my Krispy Kreme investment. It makes me smile when I read that the company makes almost 2.8 billion doughnuts a year.
Earlier in the month I had mentioned that GE was cutting 414 employees in Macon and Atlanta. Those cuts were directly related to the loss of business from Home Depot. You read correctly. Yesterday GE said they would be cutting an additional 62 employees in its Atlanta office. Georgia got another piece of bad news yesterday. Herman Miller, the furniture manufacturing company, will move its Canton, Georgia operations to its home-base in Michigan and cut about 500 jobs. Wilbur Ross is right on when he said "manufacturing has a peculiar problem, which is our trade deficit. Imports account for about 14% of the economy and contribute to the loss of manufacturing jobs." Our first quarter trade deficit was a record $136 billion. On an annualized basis, that's just shy of 6% of our GDP. The worst part is that deficit is a cancerous growth. It just keeps getting bigger.
On Wednesday the American Electronics Association reported that U.S. exports of high-tech goods fell by 26% from $223 billion in 2002 to $166 billion in 2002. During that same period U.S. electronic imports were down 19%. During this 2000-2002 period the Association said there was a 10% drop in U.S. tech employment. China became the United States' top supplier of high-tech goods, surpassing Japan and Mexico. During this time span imports from China increased by 32% or $8.4 billion.
I was especially interested in something Chang Mook Sohn, the state of Washington's chief economist said. Sohn is a very astute guy. He is increasingly concerned about the prospect of deflation in the state. Sohn said the sate of Washington is heavily reliant on sales taxes for revenues. The more prices fall, the less the state collects in sales taxes. That's a point I had not adequately considered. Sohn believes there is a one in four chance that deflation will take hold nationwide.
Thursday, June 19, 2003
6/19/03 Migration Is For The Birds
Completing a tender offer is more than just about the money offered to shareholders. It always was, and always will be. Larry Ellison is a smart guy. From the outset he should have appreciated this fact. He didn't. He should have also realized the potential impact from an investor suit against Oracle. Late Friday A Delaware judge refused to dismiss a shareholder suit against Oracle. Chancery Court Vice Chancellor Leo Shrine found that Oracle's special litigation committee looking into insider trading was "fraught" with conflicts. Specifically, he wrote, "material considerations other than the best interests of Oracle could have influenced the committee's inquiry and judgments." Ellison has been questioning PeopleSoft's responsiveness to shareholder rights. I think he would be best served to watch his own back. The Chancellor criticized Oracle for having two Stanford professors prepare the 1,110 page report. Shrine wrote "by any measure this was a social atmosphere painted in too much vivid Stanford Cardinal red for the committee members to have reasonably ignored." At the time of the report Ellison was considering a $170 million gift to the Stanford scholarship program and donating his $100 million home to Stanford after his death. It should be noted that this special committee was formed in 2002 to investigate the stock sales of board members, and that included Ellison's $700 million sale of Oracle stock shortly before Oracle warned of a third quarter earnings shortfall. Now let's migrate to migration. At the time of the original $16 tender, Ellison said Oracle would support the PeopleSoft products, discontinue further development of PeopleSoft's products, stop actively selling PeopleSoft products, and encourage PeopleSoft customers to switch to Oracle products. Basically, that meant Oracle would be phasing out PeopleSoft's products. I knew that would be a nail in the coffin of the tender offer. Yesterday, after raising the tender price to $19.50, Ellison said Oracle would provide a way to have PeopleSoft's customers gradually migrate to Oracle's products. Ellison says he understands CRM. I don't believe that. He wants to dictate the marketplace to the customer. Understandably, the state of Conn. sued to block the tender and other states will follow suit(no pun intended). Let's take a look at another customer's view of migration. Santa Clara University has invested five years installing PeopleSoft's software and training people to use it. The university's CIO, Ronald Danielsen, is concerned. Shortly, his students will have a web-based PeopleSoft application which will effectuate ordering transcripts, paying tuition bills, and other university matters. He says "if Oracle were to succeed in the takeover and phase out PeopleSoft software, we would have to go through another implementation of another administrative software suite. That makes me really uncomfortable." ChartOne is a medical chart technology company located in San Jose. They use PeopleSoft's products. Their CFO George Abatjoglou said "I think it's a terrible deal the way Larry Ellison is laying it out there. When you buy a technology company, you buy it for its customers and technology. If Larry Ellison is going to throw away the technology, then you're down to the customers. And I don't think he'll be able to keep them." Ellison should have thought of that prior to his making a tender offer. He may captain his own plane and his own racing boat, but he doesn't captain customers. Winning managers listen to their customers. He might try listening for a change. He'll get that opportunity in court, and won't like the message. Chancellor Shrine was just the beginning. Lastly, I read the filing that PeopleSoft made with the SEC. It states that the revised merger agreement with J.D. Edwards will boost its operating earnings by 50% next year. Specifically, PeopleSoft expects its non-GAAP earnings to be between 84 and 92 cents per share. As such, the stock is presently selling at a completed merger p/e of about 20 times 2004 anticipated results. That should provide some needed downside protection should the Oracle tender be blocked or fail.
A good deal of economic data will be released today. We'll probably see an increase in the leading economic indicators as stock prices have moved higher and the money supply has increased. The Philly Fed factory index will show improvement as did N.Y.'s the other day. The May budget deficit will be another whopper. Finally, weekly unemployment claims should continue to signal a weak job market. Talking about unemployment, EDS is cutting 2700 jobs; Thomson SA is cutting 1,200 jobs in the U.S.; British American Tobacco will cut more than 1000 jobs in Britain and Canada; and Spanish telecom Telefonica will cut 4500 jobs or 10% of its workforce, and plans to cut another 4500 jobs in 2004 and 2005.
According to International Strategy and Investment(ISI), only twice since 1953 has the S&P gained more than 20% in the first three months after reaching a low. Both times, it returned less than 7% in the next three months and even less during the next 18 months. Since March 11 the S&P 500 has gained 26%. ISI is forecasting a 4% rise in the S&P 500 from its present level to year end.
Nielsen Media Research anticipates that China's present $10 billion advertising market is set for double digit growth annually in the next 10 years and should exceed Japan's market by 2010, and this would make China the second largest advertising arena. Hosting the 2008 Olympics should aid the boom.
Airbus won an order from Korean Air to buy five A380s worth $1.4 billion, and brought orders for the company's super jumbojet to 129.
Yesterday Larry Doby, a baseball Hall of Famer, passed away. Soon after Jackie Robinson joined the Dodgers, Larry became the first black baseball player in the American League. He was a gifted and fine individual.
Tom Campbell, a former Congressman and now Dean of the Haas School of Business at the University of California-Berkeley, said the Silicon Valley will not lead the nation out of a recession, and remarked "we are in some ways the victim of our own success." He was referring to the flexibility and productivity developed by the IT industry having created a situation where companies seeing a growth in revenues are not necessarily hiring more people. He said the current jobless recovery "is unlike any recovery we've experienced before." Campbell went on to say that "consumption as the driving force of the economy is over."
According to numbers by the Tax Foundation and Citizens For Tax Justice, Bush's tax cuts in 2001 and 2003 have removed about 4 million taxpayers from the income tax rolls, and about 40 million families will have no income tax liability in 2003. That's great. There's just one small problem. The Congress will increase discretionary spending by 4% in the current fiscal year. I guess the Fed will just keep printing money and the Congress will just keep increasing the debt limit and everyone will be happy forever in la la land. If America wants to lose its freedoms, this is the way to go. Please hold the gloom and doom theory. That's total crap. But there is hope. It brings a smile to my face. Within 5 years, 30% of the government's 1.6 million full-time employees will be eligible to retire and another 20% could seek early retirement. If we can hold out another 5 years, we can lop off 800,000 government workers! It gets better. Sixty five per cent of the Senior Executive Service will be eligible for retirement in 2004. Don't you just love this? There really is hope. Now I know why the S&P 500 rallied so sharply. The Street recognized future government payroll savings. It was never about the tax cuts. It was never about the benefits for those receiving dividends. It was pending government downsizing. Some believe the market will continue to climb a wall of worry. In this case it will be the worry of a government brain drain. Don't lose any sleep. Please.
Completing a tender offer is more than just about the money offered to shareholders. It always was, and always will be. Larry Ellison is a smart guy. From the outset he should have appreciated this fact. He didn't. He should have also realized the potential impact from an investor suit against Oracle. Late Friday A Delaware judge refused to dismiss a shareholder suit against Oracle. Chancery Court Vice Chancellor Leo Shrine found that Oracle's special litigation committee looking into insider trading was "fraught" with conflicts. Specifically, he wrote, "material considerations other than the best interests of Oracle could have influenced the committee's inquiry and judgments." Ellison has been questioning PeopleSoft's responsiveness to shareholder rights. I think he would be best served to watch his own back. The Chancellor criticized Oracle for having two Stanford professors prepare the 1,110 page report. Shrine wrote "by any measure this was a social atmosphere painted in too much vivid Stanford Cardinal red for the committee members to have reasonably ignored." At the time of the report Ellison was considering a $170 million gift to the Stanford scholarship program and donating his $100 million home to Stanford after his death. It should be noted that this special committee was formed in 2002 to investigate the stock sales of board members, and that included Ellison's $700 million sale of Oracle stock shortly before Oracle warned of a third quarter earnings shortfall. Now let's migrate to migration. At the time of the original $16 tender, Ellison said Oracle would support the PeopleSoft products, discontinue further development of PeopleSoft's products, stop actively selling PeopleSoft products, and encourage PeopleSoft customers to switch to Oracle products. Basically, that meant Oracle would be phasing out PeopleSoft's products. I knew that would be a nail in the coffin of the tender offer. Yesterday, after raising the tender price to $19.50, Ellison said Oracle would provide a way to have PeopleSoft's customers gradually migrate to Oracle's products. Ellison says he understands CRM. I don't believe that. He wants to dictate the marketplace to the customer. Understandably, the state of Conn. sued to block the tender and other states will follow suit(no pun intended). Let's take a look at another customer's view of migration. Santa Clara University has invested five years installing PeopleSoft's software and training people to use it. The university's CIO, Ronald Danielsen, is concerned. Shortly, his students will have a web-based PeopleSoft application which will effectuate ordering transcripts, paying tuition bills, and other university matters. He says "if Oracle were to succeed in the takeover and phase out PeopleSoft software, we would have to go through another implementation of another administrative software suite. That makes me really uncomfortable." ChartOne is a medical chart technology company located in San Jose. They use PeopleSoft's products. Their CFO George Abatjoglou said "I think it's a terrible deal the way Larry Ellison is laying it out there. When you buy a technology company, you buy it for its customers and technology. If Larry Ellison is going to throw away the technology, then you're down to the customers. And I don't think he'll be able to keep them." Ellison should have thought of that prior to his making a tender offer. He may captain his own plane and his own racing boat, but he doesn't captain customers. Winning managers listen to their customers. He might try listening for a change. He'll get that opportunity in court, and won't like the message. Chancellor Shrine was just the beginning. Lastly, I read the filing that PeopleSoft made with the SEC. It states that the revised merger agreement with J.D. Edwards will boost its operating earnings by 50% next year. Specifically, PeopleSoft expects its non-GAAP earnings to be between 84 and 92 cents per share. As such, the stock is presently selling at a completed merger p/e of about 20 times 2004 anticipated results. That should provide some needed downside protection should the Oracle tender be blocked or fail.
A good deal of economic data will be released today. We'll probably see an increase in the leading economic indicators as stock prices have moved higher and the money supply has increased. The Philly Fed factory index will show improvement as did N.Y.'s the other day. The May budget deficit will be another whopper. Finally, weekly unemployment claims should continue to signal a weak job market. Talking about unemployment, EDS is cutting 2700 jobs; Thomson SA is cutting 1,200 jobs in the U.S.; British American Tobacco will cut more than 1000 jobs in Britain and Canada; and Spanish telecom Telefonica will cut 4500 jobs or 10% of its workforce, and plans to cut another 4500 jobs in 2004 and 2005.
According to International Strategy and Investment(ISI), only twice since 1953 has the S&P gained more than 20% in the first three months after reaching a low. Both times, it returned less than 7% in the next three months and even less during the next 18 months. Since March 11 the S&P 500 has gained 26%. ISI is forecasting a 4% rise in the S&P 500 from its present level to year end.
Nielsen Media Research anticipates that China's present $10 billion advertising market is set for double digit growth annually in the next 10 years and should exceed Japan's market by 2010, and this would make China the second largest advertising arena. Hosting the 2008 Olympics should aid the boom.
Airbus won an order from Korean Air to buy five A380s worth $1.4 billion, and brought orders for the company's super jumbojet to 129.
Yesterday Larry Doby, a baseball Hall of Famer, passed away. Soon after Jackie Robinson joined the Dodgers, Larry became the first black baseball player in the American League. He was a gifted and fine individual.
Tom Campbell, a former Congressman and now Dean of the Haas School of Business at the University of California-Berkeley, said the Silicon Valley will not lead the nation out of a recession, and remarked "we are in some ways the victim of our own success." He was referring to the flexibility and productivity developed by the IT industry having created a situation where companies seeing a growth in revenues are not necessarily hiring more people. He said the current jobless recovery "is unlike any recovery we've experienced before." Campbell went on to say that "consumption as the driving force of the economy is over."
According to numbers by the Tax Foundation and Citizens For Tax Justice, Bush's tax cuts in 2001 and 2003 have removed about 4 million taxpayers from the income tax rolls, and about 40 million families will have no income tax liability in 2003. That's great. There's just one small problem. The Congress will increase discretionary spending by 4% in the current fiscal year. I guess the Fed will just keep printing money and the Congress will just keep increasing the debt limit and everyone will be happy forever in la la land. If America wants to lose its freedoms, this is the way to go. Please hold the gloom and doom theory. That's total crap. But there is hope. It brings a smile to my face. Within 5 years, 30% of the government's 1.6 million full-time employees will be eligible to retire and another 20% could seek early retirement. If we can hold out another 5 years, we can lop off 800,000 government workers! It gets better. Sixty five per cent of the Senior Executive Service will be eligible for retirement in 2004. Don't you just love this? There really is hope. Now I know why the S&P 500 rallied so sharply. The Street recognized future government payroll savings. It was never about the tax cuts. It was never about the benefits for those receiving dividends. It was pending government downsizing. Some believe the market will continue to climb a wall of worry. In this case it will be the worry of a government brain drain. Don't lose any sleep. Please.
Wednesday, June 18, 2003
6/18/03 Pfizer
It was many months ago that I recommended Pfizer and Merck for your consideration. Pfizer was 25 and Merck was at 40. In the interim, the latter has outperformed Pfizer by a large margin. These are two companies which can produce highly profitable results over the long term. At its present price, Pfizer's current p/e is somewhat above its current growth rate. The CFO has projected 2004 earnings per share of $2.13. The company's 20 new products in the pipeline could create an opportunity for much stronger future growth. This is a company which should benefit its shareholders. The healthcare field continues to be my favorite area of investment for the long term. Currently, this industry comprises over 15% of our GDP. With the aging of our population, Pfizer should be a major beneficiary of this trend. I have never been a fan of investment diversification. I don't believe there are a host of great companies around the globe. I have found that the greatest long term investment success is to stay with the great ones. When the opportunity presents itself, add to those holdings. Over the years, this simple formula has proven to be a welcome tonic. There are many avenues for making money in the stock market. There are many more avenues for losing money. Make it easy on yourself. Don't knock yourself out betting on the next Secretariat, so to speak. The results might add you to the list of the depressed in this country. The list is long enough.
UBS is cutting 3% of their global investment banking workforce, or 500 employees. The reduction will be evenly spread in Asia, Europe, and the Americas. This company has 16,000 folks in their investment banking department. I feel confident that there is plenty of room for more cuts- let's say at least a few thousand for starters.
Quite frequently I make reference to the parking lot in the Mojave. I'm talking airline jets. We need to bring our cameras. The parking lot is growing. There are now 2,186 planes parked. By the time I finish this blog, there could be more. Only a masochist would invest in the airline industry on a long term basis. I've been negative on this industry for a very long time. Some wise guy will tell me how much these stocks have risen over the past three months. How have they performed over the past three years? Would you rather own Boeing or Pfizer? If you say Boeing, I'll send the paramedics right over.
Almost every week I discuss the importance of ROI. In the July issue of Business 2.0, they have a worthwile article on this subject and opine that "it's not enough that companies are in the black. They ought to return more of their cost of capital." More investors should pay attention to this subject matter. In their table of companies they cite HP, Amazon, AMD, Motorola, Dell, Microsoft, and Merck. Only three companies on that list produce results where the return on capital exceeds the cost of capital. To be expected, they are the great ones- Microsoft, Dell, and Merck. In this same Business 2.0 issue, there is an article on Leroy Hood, MD, Ph.D, director of the Institute for Systems Biology, and the inventor of the automated DNA sequencer. The article is entitled "Beyond the Genome." I recommend that, all investors interested in the healthcare field, make this must reading.
According to a report from Harvard University's Joint Center for Housing Studies, if layoffs continue to increase, some neighborhoods could be facing declines in house prices as the result of a glut of homes put up for sale. I have thought this for well over a year, and have been right on rising unemployment and wrong on house prices. Maybe Harvard's timing will be better than mine. The report does say, however, that the fundamentals for housing are still strong as the number of immigrant and minority households grow and provide a big source for housing demand. The report closes by focusing on affordability of housing as a problem, a subject I have mentioned frequently. Up to now, the latter has had no impact whatsoever on the upward movement of house prices. Lower mortgage rates have proven a tremendous salvo.
The May book-to-bill ratio for semiconductor equipment fell for the third consecutive month, and stood at 0.89. Excess capacity and weak demand make for tough competition.
The Australian dollar rose to its highest level in almost four years. The interest rate gap is pretty darn wide, and about to get wider. Our overnight Fed rates stand at 1.25% vs Australia's 4.75%. You have to love the differential and park your U.S. dollars in Australian dollars.
Instead of whining about the amended PSFT/JDEC merger agreement, Oracle's Ellison would do well to focus on a money making area. The real future for Oracle's database prowess is in the field of bioinformatics. Ellison should concentrate on that. He won't find SAP in that arena- only IBM and a handful of other upstarts.
Moody's cut the ratings on the long term debt of R.J. Reynolds to junk status, and warned that the credit status of the $1.8 billion worth of debt could be cut even more. Moody's said "the downgrade reflects RJR's uncompetitive operating cost structure; Moody's expectation of significant volume drops in the U.S. tobacco market; increased competition from small manufacturers; and the difficult litigation environment that RJR Tobacco faces over the medium term." As I have previously noted, several states have sold bonds secured by their anticipated tobacco litigation revenue stream. They had better hope RJR and others can continue to fund their bonds. I wouldn't want to be a holder of those bonds.
The Snowman said "unemployment is unaceptably high at 6.1% (in May) but it could well rise to 6.2 or 6.3 per cent before the higher growth rates begin to bring it down." He said "the current account deficit is something to be monitored for sure but nothing to be alarmed about." He really deserves to be a guest host on Saturday Night Live. When other finance ministers raise our current account deficit as a worry, he says "I suggest to them how much less do you want to sell to us." The man is a regular riot.
According to a U.S. Institute of Medicine study, the medical expenses for the 41 million uninsured Americans cost the taxpayers as much as $130 billion a year. The study suggests that, if the uninsured had equal access, the cost of their care would probably be reduced by 50% to $65 billion.
New home sales continue at a pace which exceeds 1 million units on an annual basis. Over the past nine months, eight of those months have exceeded the million unit rate.
Even though U.S. industrial production rose a smidgen in May, the factory utilization rate continues at a two decade low. Some say the worst is over for our factories. Tell that to China. Tell that to India and their growing outsourcing industry. However, there are CEOs ready to fight. Said Carly Fiorina of HP, "we are not going to let our compeitive position erode because of others ability to price beneath us." You tell them, Carly. While you're at it, explain to your stockholders why the total cost of HP capital is 11.9% and the return on capital is 2.9%. Talk is cheap and the cost of HP capital appears way too dear.
It was many months ago that I recommended Pfizer and Merck for your consideration. Pfizer was 25 and Merck was at 40. In the interim, the latter has outperformed Pfizer by a large margin. These are two companies which can produce highly profitable results over the long term. At its present price, Pfizer's current p/e is somewhat above its current growth rate. The CFO has projected 2004 earnings per share of $2.13. The company's 20 new products in the pipeline could create an opportunity for much stronger future growth. This is a company which should benefit its shareholders. The healthcare field continues to be my favorite area of investment for the long term. Currently, this industry comprises over 15% of our GDP. With the aging of our population, Pfizer should be a major beneficiary of this trend. I have never been a fan of investment diversification. I don't believe there are a host of great companies around the globe. I have found that the greatest long term investment success is to stay with the great ones. When the opportunity presents itself, add to those holdings. Over the years, this simple formula has proven to be a welcome tonic. There are many avenues for making money in the stock market. There are many more avenues for losing money. Make it easy on yourself. Don't knock yourself out betting on the next Secretariat, so to speak. The results might add you to the list of the depressed in this country. The list is long enough.
UBS is cutting 3% of their global investment banking workforce, or 500 employees. The reduction will be evenly spread in Asia, Europe, and the Americas. This company has 16,000 folks in their investment banking department. I feel confident that there is plenty of room for more cuts- let's say at least a few thousand for starters.
Quite frequently I make reference to the parking lot in the Mojave. I'm talking airline jets. We need to bring our cameras. The parking lot is growing. There are now 2,186 planes parked. By the time I finish this blog, there could be more. Only a masochist would invest in the airline industry on a long term basis. I've been negative on this industry for a very long time. Some wise guy will tell me how much these stocks have risen over the past three months. How have they performed over the past three years? Would you rather own Boeing or Pfizer? If you say Boeing, I'll send the paramedics right over.
Almost every week I discuss the importance of ROI. In the July issue of Business 2.0, they have a worthwile article on this subject and opine that "it's not enough that companies are in the black. They ought to return more of their cost of capital." More investors should pay attention to this subject matter. In their table of companies they cite HP, Amazon, AMD, Motorola, Dell, Microsoft, and Merck. Only three companies on that list produce results where the return on capital exceeds the cost of capital. To be expected, they are the great ones- Microsoft, Dell, and Merck. In this same Business 2.0 issue, there is an article on Leroy Hood, MD, Ph.D, director of the Institute for Systems Biology, and the inventor of the automated DNA sequencer. The article is entitled "Beyond the Genome." I recommend that, all investors interested in the healthcare field, make this must reading.
According to a report from Harvard University's Joint Center for Housing Studies, if layoffs continue to increase, some neighborhoods could be facing declines in house prices as the result of a glut of homes put up for sale. I have thought this for well over a year, and have been right on rising unemployment and wrong on house prices. Maybe Harvard's timing will be better than mine. The report does say, however, that the fundamentals for housing are still strong as the number of immigrant and minority households grow and provide a big source for housing demand. The report closes by focusing on affordability of housing as a problem, a subject I have mentioned frequently. Up to now, the latter has had no impact whatsoever on the upward movement of house prices. Lower mortgage rates have proven a tremendous salvo.
The May book-to-bill ratio for semiconductor equipment fell for the third consecutive month, and stood at 0.89. Excess capacity and weak demand make for tough competition.
The Australian dollar rose to its highest level in almost four years. The interest rate gap is pretty darn wide, and about to get wider. Our overnight Fed rates stand at 1.25% vs Australia's 4.75%. You have to love the differential and park your U.S. dollars in Australian dollars.
Instead of whining about the amended PSFT/JDEC merger agreement, Oracle's Ellison would do well to focus on a money making area. The real future for Oracle's database prowess is in the field of bioinformatics. Ellison should concentrate on that. He won't find SAP in that arena- only IBM and a handful of other upstarts.
Moody's cut the ratings on the long term debt of R.J. Reynolds to junk status, and warned that the credit status of the $1.8 billion worth of debt could be cut even more. Moody's said "the downgrade reflects RJR's uncompetitive operating cost structure; Moody's expectation of significant volume drops in the U.S. tobacco market; increased competition from small manufacturers; and the difficult litigation environment that RJR Tobacco faces over the medium term." As I have previously noted, several states have sold bonds secured by their anticipated tobacco litigation revenue stream. They had better hope RJR and others can continue to fund their bonds. I wouldn't want to be a holder of those bonds.
The Snowman said "unemployment is unaceptably high at 6.1% (in May) but it could well rise to 6.2 or 6.3 per cent before the higher growth rates begin to bring it down." He said "the current account deficit is something to be monitored for sure but nothing to be alarmed about." He really deserves to be a guest host on Saturday Night Live. When other finance ministers raise our current account deficit as a worry, he says "I suggest to them how much less do you want to sell to us." The man is a regular riot.
According to a U.S. Institute of Medicine study, the medical expenses for the 41 million uninsured Americans cost the taxpayers as much as $130 billion a year. The study suggests that, if the uninsured had equal access, the cost of their care would probably be reduced by 50% to $65 billion.
New home sales continue at a pace which exceeds 1 million units on an annual basis. Over the past nine months, eight of those months have exceeded the million unit rate.
Even though U.S. industrial production rose a smidgen in May, the factory utilization rate continues at a two decade low. Some say the worst is over for our factories. Tell that to China. Tell that to India and their growing outsourcing industry. However, there are CEOs ready to fight. Said Carly Fiorina of HP, "we are not going to let our compeitive position erode because of others ability to price beneath us." You tell them, Carly. While you're at it, explain to your stockholders why the total cost of HP capital is 11.9% and the return on capital is 2.9%. Talk is cheap and the cost of HP capital appears way too dear.
Tuesday, June 17, 2003
6/17/03 Credibility Of Intelligence
Yesterday the latest information on the N.Y. State manufacturing index was off the charts. It was much stronger than expected. That's great news. In my view, it's exaggerated great news. The real news was at the Paris Air Show. That's the real deal. Why? Because Boeing is our largest exporter. That's the one company which will have the greatest impact on our ability to improve on this nation's trade account deficit, which lately has been running an uncool $40 billion or so a month. Yesterday Airbus received an order for 41 planes worth $12.5 billion from Emirates Air. Boeing, on the other hand, received only 4 new plane orders from the same airline- all leased planes. The Emirates order from Airbus includes 21 doubledecker A380s, a plane that seats 500 to 650 passengers. By comparison, Boeing's 747 seats 420. Boeing has maintained that there wasn't a market for a superjumbo jet. This week will bring more bad news for Boeing from the Paris Air Show. Qatar Airways will place an order for 30 Airbus A330s and A340s. Boeing was counting on that Qatar order. So was our trade account deficit. Boeing thought they had the inside track because the U.S. had recently made Qatar its new Middle East air operations center. Boeing will be introducing a new jetliner in 2008. On Sunday the company named the plane the Dreamliner. Between now and 2008 I wonder how pleasant the dreams will be for Boeing. Of course, there's always the freight business.
The skies are unfriendly for others and not just for Boeing. Summer is the peak airline travel time to Europe. I know the airline stocks have been rallying like crazy. What a run! I like to look at the real time data and not what's on a wish list. Yesterday Virgin Airways announced a package that is available between July 1 and August 31, the prime travel period. Between JFK in NY and London you get round-trip airfare, 6 nights of hotel accomodations, daily Continental breakfast, hotel taxes and service charges all included in a package for $499. That price makes for strong competition, and eases the pain from a weak dollar.It increases the pain for the U.S airlines with routes to Europe.
Manpower, the staffing firm, released information from their recent poll of 16,000 companies. It found that 65% of U.S. firms plan to keep their workforce the same in the third quarter. Only 20% plan to add new workers while 9% plan to eiminate positions. Adjusting for seasonal factors, however, only 6% of employers plan to add workers. That's the weakest forecast for hiring in 12 years. Jeff Joerres, Manpower's CEO, said "we are continuing to see companies struggling with predicting future demand for their products and services and being very careful about hiring people. It's a difficult time for job seekers, and so much of that is related to the cautious hiring by companies. Since the war has been concluded, we haven't seen any indications that would give us the sense that the war was a big muffler. Companies are playing a bit of a wait and see game. They want to wait and see if demand picks up before they commit to hiring." In sum, lack of business confidence has undercut the willingness to hire. It has also undercut the willingness to increase business investment. Both are needed for a recovery. The retail index made a new high for the year. WalMart has not changed its expectations for same store sales growth. Wall Street seems to have all the answers for intelligence. I'll put my money on WalMart. They know more about the consumer than any other entity in this country.
According to a new poll conducted by ComPsych Corporation, American workers are sacrificing vacation and family time due to the dire job situation. They found that 56% of employees are postponing vacation time until the work situation improves, and 44% of employees are taking limited vacation time this year. That should certainly have an impact on travel-related industries. They won't be able to blame it only on SARS. Dr. Richard Chaifetz, chairman and CEO of ComPsych, said "enormous workloads, as well as the feeling of job insecurity, are prompting employees to stay close to the office." The poll was conducted from May 30 to June 6.
Ford hopes to break even on its auto operations this year. I'm certain the employees join them in that hope. Ford's pension obligations exceed assets by about $16 billion worldwide.
Yesterday the latest information on the N.Y. State manufacturing index was off the charts. It was much stronger than expected. That's great news. In my view, it's exaggerated great news. The real news was at the Paris Air Show. That's the real deal. Why? Because Boeing is our largest exporter. That's the one company which will have the greatest impact on our ability to improve on this nation's trade account deficit, which lately has been running an uncool $40 billion or so a month. Yesterday Airbus received an order for 41 planes worth $12.5 billion from Emirates Air. Boeing, on the other hand, received only 4 new plane orders from the same airline- all leased planes. The Emirates order from Airbus includes 21 doubledecker A380s, a plane that seats 500 to 650 passengers. By comparison, Boeing's 747 seats 420. Boeing has maintained that there wasn't a market for a superjumbo jet. This week will bring more bad news for Boeing from the Paris Air Show. Qatar Airways will place an order for 30 Airbus A330s and A340s. Boeing was counting on that Qatar order. So was our trade account deficit. Boeing thought they had the inside track because the U.S. had recently made Qatar its new Middle East air operations center. Boeing will be introducing a new jetliner in 2008. On Sunday the company named the plane the Dreamliner. Between now and 2008 I wonder how pleasant the dreams will be for Boeing. Of course, there's always the freight business.
The skies are unfriendly for others and not just for Boeing. Summer is the peak airline travel time to Europe. I know the airline stocks have been rallying like crazy. What a run! I like to look at the real time data and not what's on a wish list. Yesterday Virgin Airways announced a package that is available between July 1 and August 31, the prime travel period. Between JFK in NY and London you get round-trip airfare, 6 nights of hotel accomodations, daily Continental breakfast, hotel taxes and service charges all included in a package for $499. That price makes for strong competition, and eases the pain from a weak dollar.It increases the pain for the U.S airlines with routes to Europe.
Manpower, the staffing firm, released information from their recent poll of 16,000 companies. It found that 65% of U.S. firms plan to keep their workforce the same in the third quarter. Only 20% plan to add new workers while 9% plan to eiminate positions. Adjusting for seasonal factors, however, only 6% of employers plan to add workers. That's the weakest forecast for hiring in 12 years. Jeff Joerres, Manpower's CEO, said "we are continuing to see companies struggling with predicting future demand for their products and services and being very careful about hiring people. It's a difficult time for job seekers, and so much of that is related to the cautious hiring by companies. Since the war has been concluded, we haven't seen any indications that would give us the sense that the war was a big muffler. Companies are playing a bit of a wait and see game. They want to wait and see if demand picks up before they commit to hiring." In sum, lack of business confidence has undercut the willingness to hire. It has also undercut the willingness to increase business investment. Both are needed for a recovery. The retail index made a new high for the year. WalMart has not changed its expectations for same store sales growth. Wall Street seems to have all the answers for intelligence. I'll put my money on WalMart. They know more about the consumer than any other entity in this country.
According to a new poll conducted by ComPsych Corporation, American workers are sacrificing vacation and family time due to the dire job situation. They found that 56% of employees are postponing vacation time until the work situation improves, and 44% of employees are taking limited vacation time this year. That should certainly have an impact on travel-related industries. They won't be able to blame it only on SARS. Dr. Richard Chaifetz, chairman and CEO of ComPsych, said "enormous workloads, as well as the feeling of job insecurity, are prompting employees to stay close to the office." The poll was conducted from May 30 to June 6.
Ford hopes to break even on its auto operations this year. I'm certain the employees join them in that hope. Ford's pension obligations exceed assets by about $16 billion worldwide.
Subscribe to:
Posts (Atom)