8/23/03 Misleading Information Is Not Reassuring
Frequently, I receive angry emails criticizing my negative remarks about information released by the government. Let’s set the record straight. I am not negative. I state, without hesitation, that most often the information is purposely released incorrectly, and will be corrected at a later date when it will not make the headlines. Yesterday a finding was issued by the Environmental Protection Agency’s Office of the Inspector General. “When the EPA made a September 18 announcement (after the 9/11 attack) that the air was
‘safe’ to breathe, it did not have sufficient data and analyses to make such a blanket statement. Furthermore, the White House Council on Environmental Quality influenced…the information that EPA communicated to the public through its early press releases when it convinced EPA to add reassuring statements and delete cautionary ones.” A discovery of asbestos at higher than safe levels in dust samples from lower Manhattan was changed to state that “samples confirm previous reports that ambient air quality meets OSHA standards and consequently is not a cause for public concern. Yesterday Bush’s senior environmental advisor stated the actions were justified by national security. James Connaughton, chairman of the White House Council on Environmental Quality (I didn’t know such a Council existed until now), stated “We were trying to quickly get out the best information we could so that people didn’t overreact and also so people didn’t under-react.” Connaughton is a perfect example of why this country needs a massive layoff of government workers.
There is another problem brewing in Washington, DC. Starting when students return to classes on Sept. 2, public schools will offer alternatives to regular hamburgers. Initially, the offering will include veggie burgers. Then they hope to expand into fruit-based burgers like prune, cherry, and blueberry burgers. This is an effort to combat the obesity problem in schools. Between the rap music and prune burgers our school children will keep all UFOs at bay.
I have been thinking of the announcement Intel made yesterday. They basically said their chip shipments for notebook computers and for servers outweighed the softness for chips used in communication businesses, and the company increased their quarterly guidance for shipments and gross margins. At the same time, their CFO said it’s unclear whether the strength in the first part of the 3rd quarter will be sustainable. Knowing the latter, then why did the company make this announcement on August 22? It makes no sense. Intel had scheduled a mid-quarter update for September 4, and intends to keep to that schedule. With Labor Day coming up, there are only seven business days between August 22 and September 4. If the CFO is not sure about sustainability, then they should have taken the additional time until the 4th. Although not as large as Intel, I’ve run a large public company. It’s wise to be conservative.
U.S. drivers are utilizing 9.4 million barrels of gasoline a day in their cars. We have 149 refineries with a capacity to produce 8.8 million barrels a day. Imports make up the difference. Conservation might be in order. Refiners took heavy losses during 2002; however, at present, according to oil analyst Jacques Rousseau, refineries are enjoying margins of about $14 per barrel, compared to a more normal $5.
The Domino Sugar plant will shut down in Brooklyn, NY and 190 workers will be laid off. It marks the 15th sugar refinery closed in the United States in the past 23 years.
Cash-strapped companies are seeking alternatives to fulfill under-funded pension obligations. Northwest Airlines received approval to use stock from its privately held regional affiliate, Pinnacle Airlines Corp. The airline owes $223 million to its plans for 2002. Navistar International recently used company stock to supplement pension contributions. U.S. Steel is seeking approval to use 170,000 acres of timberland to cover pension shortfalls.
India has a population of 1.1 billion people. Yet, in 2002, U.S. exports to India only totaled $4.1 billion with imports from India amounting to $11.8 billion. By comparison, the U.S. exported more than $22 billion worth of goods to China in 2002. China has a population of 1.3 billion people.
Yesterday Bush made his first trip to the state of Washington since his election. It was a perfect example of how to alienate people on main street. The primary stop was a $2,000 plate luncheon attended by 850 people at Craig McCaw’s home in the Hunts Point section on Lake Washington in Bellevue. This is the richest enclave in the state with only 450 people living in this lakeside suburb of East Seattle. Prior to the lunch he toured a dam and made comments on the salmon run and the environment and met six local businessmen at Boeing field. The most important employer in the state, Microsoft, was not on the agenda nor was Dr. Leroy Hood, the leading human genome scientist in this country. You cannot isolate yourself from the common voter and expect to understand the problems in every day lives. Nor can you expect to win Washington in November 2004.
Friday, August 22, 2003
8/22/03 Unemployment Without Benefits
While market indices continue to move higher and the unemployment headlines read brighter, a growing cancer is hitting the job market. Employees are being encouraged to take time off without pay. That means the employee is still an employee but cannot receive unemployment benefits. Why would an employee be willing to swallow such a pill? That employee can’t find another paying job. Cost cutting has become such an overwhelming problem that counties are getting into the act as well. The Chicago County Board of Commissioners last week agreed to encourage employees to take days off in the remaining months of the year without pay. The suggestion was for every employee to take five days off without pay. If volunteers did not come forward, then the commissioners would make the request a mandatory one. A staffing professional describes the situation in the Silicon Valley: “very few companies nowadays can afford to maintain the staffing levels of a year ago. Choosing to avoid the bad press and morale deflation that can accompany layoffs, the current trend is about making ripples, not waves. So, valley companies are getting wily, crafty, even creative-and employees, more or less, are putting up with it even if some of the moves are illegal. Still, it beats a pink slip.” Miles Locker, the attorney for the California state Labor Commissioner, says “ a forfeiture of accrued vacation is 100% illegal. You cannot take away vacation time that’s already accrued. It absolutely violates the California Labor Code. What we’re hearing is just widespread violations.” According to the 1997 decision made in Digiacinto v. Ameriko-Omserv Corp., an employer can change an employee’s vacation plan at any time, but they can’t take away vacation time an employee has already earned.
Nobel Prize winning economist Robert Solow: “When real GDP falls below potential, it is…because producers and sellers cannot find enough willing buyers at the prices they are charging.” A good example would be the recent price cutting in the PC market. The IBD/TIPP home computer purchase index fell nearly 17% to 18.6 in August. Last year, the index dropped only 3% between July and August. Roger Kay, an analyst with International Data Corp., said “since Dell sells directly, it would be the first to notice slumping demand.” This week they cut prices on desktop PCs and notebooks. It should be noted that the home computer purchase index has been an early indicator of sales. In the survey only 21% in August said they were “very likely” or “somewhat likely” to buy a new PC in the next six months and this is down from 26% in July.
The highest prices for gasoline at the pump appear to be just around the corner. Yesterday the futures price in New York rose by close to 10 cents, the biggest move since 1991. The wholesale price in California is already at a record. With almost 30 million motorists on the road for Labor Day weekend, there will be more than chump change being expended at the gas pumps. As gas prices absorb consumer dollars, less money will be available for retailers. That's life in the fast lane.
The Russell 2000 index, which tracks smaller capitalization stocks, recorded its tenth consecutive daily gain. For the year it’s up 29%. The S&P 500 index is up 14%. Small has been the place to be.
Two more U.S. soldiers were killed in Iraq, bringing the number of American combat deaths to 179, 32 more than were killed during the first Gulf War. The daily toll mounts with no end in sight. Winning is not achieved fighting an enemy hidden in shadows and rarely visible around corners or in alleys.
Boeing officially notified another 1,440 employees of October layoffs.
Microsoft has issued 33 security advisory bulletins this year. With an R&D budget exceeding $6 billion, you would think some progress would be accomplished in the security arena.
How can the economic war on recession be won with the current state of joblessness? Since Bush took his oath of office, there has been a loss of 3.25 million non-farm private jobs lost. That’s why old-timers are reminded of Herbert Hoover and the depression years.
I reread a statement Greenspan made some months back. He said 10 million mortgages were refinanced in 2002. He estimated the net dollar value of these refinancings at $1.75 trillion. With 6.4 million homes sold in 2002, he said another $350 billion in home equity was realized through capital gains from these sales. In total, he estimated that households realized $700 billion in built up equity from housing in 2002. We know that, since the end of May, refinancing of mortgages has dropped by 70%. If we review Greenspan’s above- mentioned account, quickly we realize the vast change in consumer liquidity over the past 60 days. There is no way that the tax cut and the child credit could have come close to offsetting this liquidity reduction. The net effect should be felt in lessened consumer spending in coming months. Maybe the PC survey was an early indicator.
While lowering its earnings forecast for 2004, Schering-Plough also announced reducing the quarterly dividend to 5.5 cents from 17 cents, eliminating bonuses, and through voluntary retirement, cutting staff by roughly 1,000 or more.
While market indices continue to move higher and the unemployment headlines read brighter, a growing cancer is hitting the job market. Employees are being encouraged to take time off without pay. That means the employee is still an employee but cannot receive unemployment benefits. Why would an employee be willing to swallow such a pill? That employee can’t find another paying job. Cost cutting has become such an overwhelming problem that counties are getting into the act as well. The Chicago County Board of Commissioners last week agreed to encourage employees to take days off in the remaining months of the year without pay. The suggestion was for every employee to take five days off without pay. If volunteers did not come forward, then the commissioners would make the request a mandatory one. A staffing professional describes the situation in the Silicon Valley: “very few companies nowadays can afford to maintain the staffing levels of a year ago. Choosing to avoid the bad press and morale deflation that can accompany layoffs, the current trend is about making ripples, not waves. So, valley companies are getting wily, crafty, even creative-and employees, more or less, are putting up with it even if some of the moves are illegal. Still, it beats a pink slip.” Miles Locker, the attorney for the California state Labor Commissioner, says “ a forfeiture of accrued vacation is 100% illegal. You cannot take away vacation time that’s already accrued. It absolutely violates the California Labor Code. What we’re hearing is just widespread violations.” According to the 1997 decision made in Digiacinto v. Ameriko-Omserv Corp., an employer can change an employee’s vacation plan at any time, but they can’t take away vacation time an employee has already earned.
Nobel Prize winning economist Robert Solow: “When real GDP falls below potential, it is…because producers and sellers cannot find enough willing buyers at the prices they are charging.” A good example would be the recent price cutting in the PC market. The IBD/TIPP home computer purchase index fell nearly 17% to 18.6 in August. Last year, the index dropped only 3% between July and August. Roger Kay, an analyst with International Data Corp., said “since Dell sells directly, it would be the first to notice slumping demand.” This week they cut prices on desktop PCs and notebooks. It should be noted that the home computer purchase index has been an early indicator of sales. In the survey only 21% in August said they were “very likely” or “somewhat likely” to buy a new PC in the next six months and this is down from 26% in July.
The highest prices for gasoline at the pump appear to be just around the corner. Yesterday the futures price in New York rose by close to 10 cents, the biggest move since 1991. The wholesale price in California is already at a record. With almost 30 million motorists on the road for Labor Day weekend, there will be more than chump change being expended at the gas pumps. As gas prices absorb consumer dollars, less money will be available for retailers. That's life in the fast lane.
The Russell 2000 index, which tracks smaller capitalization stocks, recorded its tenth consecutive daily gain. For the year it’s up 29%. The S&P 500 index is up 14%. Small has been the place to be.
Two more U.S. soldiers were killed in Iraq, bringing the number of American combat deaths to 179, 32 more than were killed during the first Gulf War. The daily toll mounts with no end in sight. Winning is not achieved fighting an enemy hidden in shadows and rarely visible around corners or in alleys.
Boeing officially notified another 1,440 employees of October layoffs.
Microsoft has issued 33 security advisory bulletins this year. With an R&D budget exceeding $6 billion, you would think some progress would be accomplished in the security arena.
How can the economic war on recession be won with the current state of joblessness? Since Bush took his oath of office, there has been a loss of 3.25 million non-farm private jobs lost. That’s why old-timers are reminded of Herbert Hoover and the depression years.
I reread a statement Greenspan made some months back. He said 10 million mortgages were refinanced in 2002. He estimated the net dollar value of these refinancings at $1.75 trillion. With 6.4 million homes sold in 2002, he said another $350 billion in home equity was realized through capital gains from these sales. In total, he estimated that households realized $700 billion in built up equity from housing in 2002. We know that, since the end of May, refinancing of mortgages has dropped by 70%. If we review Greenspan’s above- mentioned account, quickly we realize the vast change in consumer liquidity over the past 60 days. There is no way that the tax cut and the child credit could have come close to offsetting this liquidity reduction. The net effect should be felt in lessened consumer spending in coming months. Maybe the PC survey was an early indicator.
While lowering its earnings forecast for 2004, Schering-Plough also announced reducing the quarterly dividend to 5.5 cents from 17 cents, eliminating bonuses, and through voluntary retirement, cutting staff by roughly 1,000 or more.
Thursday, August 21, 2003
8/21/03 Focus On The Truth
J. Dennis Delafield, manager of the Delafield Fund: “The first principle of winning is not to lose. I never worry about what we don’t make. I worry about what we might lose.”
Mark Husson. Merrill Lynch retail analyst: “Wal-Mart’s impact has been like the Black Death. The plague comes to your village, and everyone gets sick, but not everyone dies.” In 1994, Wal-Mart had 2% of the Dallas market for grocery sales, and today the share has risen to 16%. Trent Crowe, one of the company’s district managers, said “I’ve been all over, and this is as competitive market as there is. No one’s giving us anything.” Can you imagine what Kroger, Albertson, Safeway, Tom Thumb are mumbling?
You don’t need an economist to read the tea leaves. The answers are right under your nose. Just look. Focus on jobs, business capital spending, revenues, and inventory levels. Don’t drain your brain with the rest of the gibberish. It’s basic. Are businesses hiring? On balance the net result is no. Are businesses spending on capital projects? A survey of chief executives by the Business Roundtable last month indicated that 74% expected capital spending to remain at the present dismal levels over the next six months. In April the survey the same question resulted in an answer of 55%. As Cynthia Latta, an economist at Global Insight said, “we are seeing a lot of empty manufacturing facilities as companies close them down because they simply can’t compete with cheap imported goods. We don’t see any early end to that trend.” Is there topline growth or revenue pick up? If there were, inventory levels would be higher. The Institute of Supply Managers’ inventory index stands at a lowly 45.9. Economists are looking at an inventory build up to enhance GDP growth. They will have a long wait for that to happen. Technology advances enhance inventory management, and thus, there is a limited requirement to keep growing inventories on hand. No company is more advanced in this area than Wal-Mart. They wrote the book and keep writing new chapters. This company stays lean and runs all out. As Mark Husson said, they are like the Black Death. As a stockholder, you couldn’t ask for more. As a competitor, they are worse than your worst nightmare. The West Nile virus looks inviting next to Wal-Mart. The bottom line on the truth is simple. Forget the headlines. Look at how companies are being run. Corporate America for the most part is in survival mode. It’s not just Eastman Kodak or Hewlett Packard. It’s everywhere along main street.
Presco Steel Inc. in Gainsville is shutting down after 28 years in business. They are a steel making and steel erecting company, and will cut 87 jobs when the plant closes in October. They are the leading fabricator of regional malls. Assistant plant manager Doug Wimpy said “we’ve got too much overhead here, so they’re closing us down. But, we’re the best, most modern of the plants, so they’re taking all of our modern equipment and sending it to our sister companies. Most of the equipment is going to a sister company of ours down in Stone Mountain.” There are thousands of such stories in the naked city.
According to a report from the Federation for American Immigration Reform using U.S. Census Bureau data, Georgia taxpayers spend $231 million a year to educate illegal alien children. According to the report, U.S. taxpayers spend $7.4 billion a year to educate illegal alien children- enough money to put a computer on the desk of every junior high school student in America.
According to a study in the New England Journal of Medicine, administrative expenses consume almost $300 billion of health-care spending in the U.S., or 31% of the total. Costs for staff dedicated to billing and coordination between doctors and insurers add up to more than $1,000 per person each year.
North American-based manufacturers of semiconductor equipment posted $763 million in orders in July and a book-to-bill ratio of 0.97, according to the trade association SEMI. This means that $97 worth of new orders was received for every $100 of product billed for the month. The bookings were 35% below the orders posted for July 2002.
Through July, there have been four straight months of money inflows into stocks. In July, $21 billion flowed into stocks but this represented the first month since 2001 for a withdrawal of funds from the bond market. A total of $8.8 billion was withdrawn.
This morning the euro traded below $1.10, and it was the lowest level since April 29. With weakness in Germany and France, the euro region economy is on the brink of a recession. As such, money is being withdrawn from the euro and switched into the U.S dollar. Our economy is viewed as one with improving growth prospects. The dollar’s 200 day moving average is at $1.095. This a spot where the euro could get some buying support.
Over the past three months the Nikkei has risen 30%. Most everyone’s attention has been on the Nasdaq, the Dow, and the S&P 500. When the Nikkei surge reaches the headlines, then all will notice and pile in. That’s what happened with the euro at the $1.18 level. When the sheep pile aboard, even the ark runs the risk of capsizing.
J. Dennis Delafield, manager of the Delafield Fund: “The first principle of winning is not to lose. I never worry about what we don’t make. I worry about what we might lose.”
Mark Husson. Merrill Lynch retail analyst: “Wal-Mart’s impact has been like the Black Death. The plague comes to your village, and everyone gets sick, but not everyone dies.” In 1994, Wal-Mart had 2% of the Dallas market for grocery sales, and today the share has risen to 16%. Trent Crowe, one of the company’s district managers, said “I’ve been all over, and this is as competitive market as there is. No one’s giving us anything.” Can you imagine what Kroger, Albertson, Safeway, Tom Thumb are mumbling?
You don’t need an economist to read the tea leaves. The answers are right under your nose. Just look. Focus on jobs, business capital spending, revenues, and inventory levels. Don’t drain your brain with the rest of the gibberish. It’s basic. Are businesses hiring? On balance the net result is no. Are businesses spending on capital projects? A survey of chief executives by the Business Roundtable last month indicated that 74% expected capital spending to remain at the present dismal levels over the next six months. In April the survey the same question resulted in an answer of 55%. As Cynthia Latta, an economist at Global Insight said, “we are seeing a lot of empty manufacturing facilities as companies close them down because they simply can’t compete with cheap imported goods. We don’t see any early end to that trend.” Is there topline growth or revenue pick up? If there were, inventory levels would be higher. The Institute of Supply Managers’ inventory index stands at a lowly 45.9. Economists are looking at an inventory build up to enhance GDP growth. They will have a long wait for that to happen. Technology advances enhance inventory management, and thus, there is a limited requirement to keep growing inventories on hand. No company is more advanced in this area than Wal-Mart. They wrote the book and keep writing new chapters. This company stays lean and runs all out. As Mark Husson said, they are like the Black Death. As a stockholder, you couldn’t ask for more. As a competitor, they are worse than your worst nightmare. The West Nile virus looks inviting next to Wal-Mart. The bottom line on the truth is simple. Forget the headlines. Look at how companies are being run. Corporate America for the most part is in survival mode. It’s not just Eastman Kodak or Hewlett Packard. It’s everywhere along main street.
Presco Steel Inc. in Gainsville is shutting down after 28 years in business. They are a steel making and steel erecting company, and will cut 87 jobs when the plant closes in October. They are the leading fabricator of regional malls. Assistant plant manager Doug Wimpy said “we’ve got too much overhead here, so they’re closing us down. But, we’re the best, most modern of the plants, so they’re taking all of our modern equipment and sending it to our sister companies. Most of the equipment is going to a sister company of ours down in Stone Mountain.” There are thousands of such stories in the naked city.
According to a report from the Federation for American Immigration Reform using U.S. Census Bureau data, Georgia taxpayers spend $231 million a year to educate illegal alien children. According to the report, U.S. taxpayers spend $7.4 billion a year to educate illegal alien children- enough money to put a computer on the desk of every junior high school student in America.
According to a study in the New England Journal of Medicine, administrative expenses consume almost $300 billion of health-care spending in the U.S., or 31% of the total. Costs for staff dedicated to billing and coordination between doctors and insurers add up to more than $1,000 per person each year.
North American-based manufacturers of semiconductor equipment posted $763 million in orders in July and a book-to-bill ratio of 0.97, according to the trade association SEMI. This means that $97 worth of new orders was received for every $100 of product billed for the month. The bookings were 35% below the orders posted for July 2002.
Through July, there have been four straight months of money inflows into stocks. In July, $21 billion flowed into stocks but this represented the first month since 2001 for a withdrawal of funds from the bond market. A total of $8.8 billion was withdrawn.
This morning the euro traded below $1.10, and it was the lowest level since April 29. With weakness in Germany and France, the euro region economy is on the brink of a recession. As such, money is being withdrawn from the euro and switched into the U.S dollar. Our economy is viewed as one with improving growth prospects. The dollar’s 200 day moving average is at $1.095. This a spot where the euro could get some buying support.
Over the past three months the Nikkei has risen 30%. Most everyone’s attention has been on the Nasdaq, the Dow, and the S&P 500. When the Nikkei surge reaches the headlines, then all will notice and pile in. That’s what happened with the euro at the $1.18 level. When the sheep pile aboard, even the ark runs the risk of capsizing.
Wednesday, August 20, 2003
8/20/03 Stocks And Dividends
There are several examples where companies are paying out dividends but the company is not earning that dividend. It is important, once again, for the investor to focus on cash flow (net income + depreciation) as well as free cash flow- the cash flow remaining after capital expenditures and other necessary items, for example, R&D, are expended. A relevant case study might be RJR, the cigarette company which manufactures Camel, Winston, Salem, Doral, Vantage, and others. Aside from the on-going litigation awards and expenses, RJR’s profits and sales are down sharply from year ago levels because of increased competition from discount cigarette brands. RJR is not the only company facing these hurdles, but the company is lowering its forecasts for the remainder of the year and is expected to announce layoffs in September. At present they employ about 8,000. The stock is down about 50% from its $60 high. The question one might ask is where would the stock trade if the dividend were lowered significantly from the present $3.80 to possibly $1.80 per share? If the company were to earn only $2.40 per share, a dividend of $1.80 would still be a healthy chunk of income. It’s fair to say that many analysts expect the dividend to be cut, but is the stock fully discounting the cut? That’s hard to say. Hypothetically, if the dividend were reduced to $1.80 and the stock dropped to $25, then the yield would still approximate 7% and that’s a good deal higher than is afforded in most other stocks. The average stock yield is about 1.5%. It’s good to keep an eye on companies like RJR. Often they represent opportunities after the dividend is cut. A necessary reduction can be a sign reflecting reality on the part of the board of directors, and too often, directors fight reality.
Yesterday Carly Fiorina reflected on the disappointing results provided by Hewlett Packard. In addition, the revenue numbers issued by Intuit were also disappointing. The stock of Intuit sells at a fancy P/E, and therefore, the marketplace will not be too forgiving.
I read where the price of gasoline had risen almost 30 cents a gallon in ten days in the Seattle area. That’s an eye-opener.
Chuck Phillips of Oracle: “We were already getting PeopleSoft customers switching over, and that’s one of the reasons PeopleSoft sought out J.D. Edwards-they were getting squeezed.” They certainly weren’t getting squeezed by Oracle. The latter sought out PeopleSoft and wanted to merge Oracle’s application business with PeopleSoft. You have to forgive Phillips. He’s knew at his job.
Mortgage applications peaked the last week in May. For the week ended August 15, refinancing applications are down 70% from the peak and overall mortgage applications down 60% from that high water mark.
The economy of California and that of France are roughly the same size. For the second quarter, France’s GDP shrank 0.3%. Economists had been predicting no change in the rate. French exports declined 0.6% in the quarter.
Residential construction accounts for 5% of the value of goods and services produced in the U.S., and low mortgage rates have helped fuel housing starts to their highest level in 17 years. As mortgage rates rise and mortgage applications decline, it is only natural that housing starts will begin to decline. How much they decline we will have to wait and see. Clearly, housing starts have helped to provide an underpinning to the U.S. economy.
Microsoft said its latest versions of its Office programs will be made available on Oct. 21, and this is later than expected. Microsoft took an extra three months to test Office with users.
Boeing issued 60-day layoff warning notices to 255 workers. The cuts are separate from Boeings plans to cut up to 10,000 jobs this year- mostly from the commercial aircraft division.
There are several examples where companies are paying out dividends but the company is not earning that dividend. It is important, once again, for the investor to focus on cash flow (net income + depreciation) as well as free cash flow- the cash flow remaining after capital expenditures and other necessary items, for example, R&D, are expended. A relevant case study might be RJR, the cigarette company which manufactures Camel, Winston, Salem, Doral, Vantage, and others. Aside from the on-going litigation awards and expenses, RJR’s profits and sales are down sharply from year ago levels because of increased competition from discount cigarette brands. RJR is not the only company facing these hurdles, but the company is lowering its forecasts for the remainder of the year and is expected to announce layoffs in September. At present they employ about 8,000. The stock is down about 50% from its $60 high. The question one might ask is where would the stock trade if the dividend were lowered significantly from the present $3.80 to possibly $1.80 per share? If the company were to earn only $2.40 per share, a dividend of $1.80 would still be a healthy chunk of income. It’s fair to say that many analysts expect the dividend to be cut, but is the stock fully discounting the cut? That’s hard to say. Hypothetically, if the dividend were reduced to $1.80 and the stock dropped to $25, then the yield would still approximate 7% and that’s a good deal higher than is afforded in most other stocks. The average stock yield is about 1.5%. It’s good to keep an eye on companies like RJR. Often they represent opportunities after the dividend is cut. A necessary reduction can be a sign reflecting reality on the part of the board of directors, and too often, directors fight reality.
Yesterday Carly Fiorina reflected on the disappointing results provided by Hewlett Packard. In addition, the revenue numbers issued by Intuit were also disappointing. The stock of Intuit sells at a fancy P/E, and therefore, the marketplace will not be too forgiving.
I read where the price of gasoline had risen almost 30 cents a gallon in ten days in the Seattle area. That’s an eye-opener.
Chuck Phillips of Oracle: “We were already getting PeopleSoft customers switching over, and that’s one of the reasons PeopleSoft sought out J.D. Edwards-they were getting squeezed.” They certainly weren’t getting squeezed by Oracle. The latter sought out PeopleSoft and wanted to merge Oracle’s application business with PeopleSoft. You have to forgive Phillips. He’s knew at his job.
Mortgage applications peaked the last week in May. For the week ended August 15, refinancing applications are down 70% from the peak and overall mortgage applications down 60% from that high water mark.
The economy of California and that of France are roughly the same size. For the second quarter, France’s GDP shrank 0.3%. Economists had been predicting no change in the rate. French exports declined 0.6% in the quarter.
Residential construction accounts for 5% of the value of goods and services produced in the U.S., and low mortgage rates have helped fuel housing starts to their highest level in 17 years. As mortgage rates rise and mortgage applications decline, it is only natural that housing starts will begin to decline. How much they decline we will have to wait and see. Clearly, housing starts have helped to provide an underpinning to the U.S. economy.
Microsoft said its latest versions of its Office programs will be made available on Oct. 21, and this is later than expected. Microsoft took an extra three months to test Office with users.
Boeing issued 60-day layoff warning notices to 255 workers. The cuts are separate from Boeings plans to cut up to 10,000 jobs this year- mostly from the commercial aircraft division.
Tuesday, August 19, 2003
8/19/03 Pop Up Ads
There’s a columnist for Forbes Magazine who is a money manager. He uses pop up ads to attract new investors to his firm. I’ve always held the belief that one’s investment record negates the need for ads. After reading his latest article, I can see why he utilizes pop up ads. Rather than placing a title of “today’s bearish analysts can’t be trusted,” maybe he should consider the thought that everyone is entitled to an opinion and maybe others run rings around his performance record. Another columnist relies on a 68% increase in Deere’s earnings as a reason to be bullish. I outlined what the facts are for Deere. The management is lowering its forecasts going forward, and the strength in the construction business was tied to lower mortgage and interest rates. July and August will, in all probability, be the last strong months for new home starts and construction in general. In fact, I look for layoffs to take place within the mortgage industry and the construction business.
A columnist for another financial organization wrote “as with the end of the 1990s bull market, anyone who says he called the bond bust of 2003 deserves skeptical scrutiny. I must be deserving of double skeptical scrutiny. As hard as I try, I am unable to bat a perfect 1000. I’m far from that. I picked up the Nikkei at the bottom at 7600 but preferred it to the Nasdaq. It was a great pick but the rise in the Nasdaq offset my gains. I’ve made wonderful calls in HD, MCD, AMZN, and many others- all near their lows- but eliminated the positions way too early. No one is clairvoyant. That’s what’s wonderful about the markets. They keep you humble. You are bound to make mistakes, and the prices are a daily reminder of those mistakes. The scorecard is loud and clear. No one needs pop up ads.
Cupertino’s Advanced Forecasting cautions that the worldwide semiconductor industry has not changed its fundamentals and it sees the possibility of a repeat of the boom-and-bust cycle. It should be noted that “Advanced Forecasting predicted in early 1999 that the growth rate of the underlying demand for Ics would slow significantly in the summer of 2000…. Instead of slowing down, the momentum continued, leading to inflated targets, overbookings, overcapacity, and inventories, causing the longest and deepest recession in semiconductor industry,” said Advanced’s Rosa Luis. Maybe the industry is learning. On Monday IBM said it cut 600 jobs in its chip-making division, which lost money in the second quarter due to weak technology demand and a slow start at its new plant. IBM also said it would require about 3000 executive and support employees to take one unpaid week of leave during the current quarter. IBM spokesman Scott Sykes said “these moves are designed to make us more competitive and improve our profitability.” If the economy were strong, I doubt whether these actions would have been taken. The market seems to ignore the on-going layoffs. I guess they only count to those families impacted. Maybe the columnist for Bloomberg is correct when he says “The U.S. economy’s naysayers just don’t know history.” I guess I deserve skeptical scrutiny. Pal, I know history and I’m not reading tea leaves!
There’s a columnist for Forbes Magazine who is a money manager. He uses pop up ads to attract new investors to his firm. I’ve always held the belief that one’s investment record negates the need for ads. After reading his latest article, I can see why he utilizes pop up ads. Rather than placing a title of “today’s bearish analysts can’t be trusted,” maybe he should consider the thought that everyone is entitled to an opinion and maybe others run rings around his performance record. Another columnist relies on a 68% increase in Deere’s earnings as a reason to be bullish. I outlined what the facts are for Deere. The management is lowering its forecasts going forward, and the strength in the construction business was tied to lower mortgage and interest rates. July and August will, in all probability, be the last strong months for new home starts and construction in general. In fact, I look for layoffs to take place within the mortgage industry and the construction business.
A columnist for another financial organization wrote “as with the end of the 1990s bull market, anyone who says he called the bond bust of 2003 deserves skeptical scrutiny. I must be deserving of double skeptical scrutiny. As hard as I try, I am unable to bat a perfect 1000. I’m far from that. I picked up the Nikkei at the bottom at 7600 but preferred it to the Nasdaq. It was a great pick but the rise in the Nasdaq offset my gains. I’ve made wonderful calls in HD, MCD, AMZN, and many others- all near their lows- but eliminated the positions way too early. No one is clairvoyant. That’s what’s wonderful about the markets. They keep you humble. You are bound to make mistakes, and the prices are a daily reminder of those mistakes. The scorecard is loud and clear. No one needs pop up ads.
Cupertino’s Advanced Forecasting cautions that the worldwide semiconductor industry has not changed its fundamentals and it sees the possibility of a repeat of the boom-and-bust cycle. It should be noted that “Advanced Forecasting predicted in early 1999 that the growth rate of the underlying demand for Ics would slow significantly in the summer of 2000…. Instead of slowing down, the momentum continued, leading to inflated targets, overbookings, overcapacity, and inventories, causing the longest and deepest recession in semiconductor industry,” said Advanced’s Rosa Luis. Maybe the industry is learning. On Monday IBM said it cut 600 jobs in its chip-making division, which lost money in the second quarter due to weak technology demand and a slow start at its new plant. IBM also said it would require about 3000 executive and support employees to take one unpaid week of leave during the current quarter. IBM spokesman Scott Sykes said “these moves are designed to make us more competitive and improve our profitability.” If the economy were strong, I doubt whether these actions would have been taken. The market seems to ignore the on-going layoffs. I guess they only count to those families impacted. Maybe the columnist for Bloomberg is correct when he says “The U.S. economy’s naysayers just don’t know history.” I guess I deserve skeptical scrutiny. Pal, I know history and I’m not reading tea leaves!
Monday, August 18, 2003
8/18/03 Kansas City Royals
The Royals are a team with a payroll of $41 miilion. By comparison, the Yankees payroll is $180 million. For the first time since 1993, the Royals won a home series with the Yankees. It is Tony Pena's first year as a big-league manager. With Pena, with 43 games left, the Royals have already won more games and sold more tickets than all of last year. As DH Mike Sweeney says, "Tony Pena is the manager of the year and we're playing Tony Pena baseball. He tells us 'Go out and have fun, boys. Don't get nervous, don't feel pressure, just have fun.'" Quoting Confucius, Pena says "if you love what you're doing, you don't have to work for the rest of your life." I couldn't agree more. That's exactly how I feel. There is another key to the success the Royals are enjoying. They continue their winning ways because their .306 average with runners in scoring position is the best in the majors. In other words, when it counts they deliver. One can carry that thought over to investing. You don't need to swing for the fences. If you do, there will be far too many strikeouts produced which translate into losses. You need to get on base, and then bring that runner home by hitting your pitch. For example, it is much more difficult to time a turnaround situation than to find a good buying opportunity in WalMart or Microsoft. They are the leaders in their field and have demonstrated winning ways for 25 years. You too can have fun and bring the runner in scoring position across home plate. Have a plan when you go up to the investing plate. Prepare and have fun. Winning creates passion and passion creates winning.
The Federal Bureau of Labor Statistics show 4.7 million people who want to work full time have settled for part-time jobs, nearly a 50% increase from three years ago. More than 1 in 5 jobless workers or 2 million people have been out of work longer than half a year.
A growing number of immigrants are moving back to their home countries of Pakistan, India, China, Singapore, and VietNam- countries with job and economic opportunities. China is expanding at 8% a year and India last year grew at 4.3%.
Beginning with the last quarter of 2001 and for the next three quarters thereafter, the GDP expanded by 3.3%. However, during the 3rd quarter of 2002, the average nonfarm employment was 1.5 million less jobs than the previous year's comparable quarter. The rear view mirror and its experience, therefore, doesn't present a pretty employment picture for this period leading up to the next presidential election.
The Royals are a team with a payroll of $41 miilion. By comparison, the Yankees payroll is $180 million. For the first time since 1993, the Royals won a home series with the Yankees. It is Tony Pena's first year as a big-league manager. With Pena, with 43 games left, the Royals have already won more games and sold more tickets than all of last year. As DH Mike Sweeney says, "Tony Pena is the manager of the year and we're playing Tony Pena baseball. He tells us 'Go out and have fun, boys. Don't get nervous, don't feel pressure, just have fun.'" Quoting Confucius, Pena says "if you love what you're doing, you don't have to work for the rest of your life." I couldn't agree more. That's exactly how I feel. There is another key to the success the Royals are enjoying. They continue their winning ways because their .306 average with runners in scoring position is the best in the majors. In other words, when it counts they deliver. One can carry that thought over to investing. You don't need to swing for the fences. If you do, there will be far too many strikeouts produced which translate into losses. You need to get on base, and then bring that runner home by hitting your pitch. For example, it is much more difficult to time a turnaround situation than to find a good buying opportunity in WalMart or Microsoft. They are the leaders in their field and have demonstrated winning ways for 25 years. You too can have fun and bring the runner in scoring position across home plate. Have a plan when you go up to the investing plate. Prepare and have fun. Winning creates passion and passion creates winning.
The Federal Bureau of Labor Statistics show 4.7 million people who want to work full time have settled for part-time jobs, nearly a 50% increase from three years ago. More than 1 in 5 jobless workers or 2 million people have been out of work longer than half a year.
A growing number of immigrants are moving back to their home countries of Pakistan, India, China, Singapore, and VietNam- countries with job and economic opportunities. China is expanding at 8% a year and India last year grew at 4.3%.
Beginning with the last quarter of 2001 and for the next three quarters thereafter, the GDP expanded by 3.3%. However, during the 3rd quarter of 2002, the average nonfarm employment was 1.5 million less jobs than the previous year's comparable quarter. The rear view mirror and its experience, therefore, doesn't present a pretty employment picture for this period leading up to the next presidential election.
Saturday, August 16, 2003
Posting For 8/17/03: The Miscellaneous Report
According to the SoyFoods Association of North America, the soy-food industry has grown 13% to $3.65 billion in sales in 2002. Soymilk sales have grown six times from $100 million in 1995 to about $600 million in 2002. Soy milk is lactose-free, lowers cholestrol, strengthens bones, but it has high levels of polyunsaturated fat and carbohydrates, and does not contain calcium and potassium. Nevertheless, production of soymilk surpassed 100 million gallons last year, and, I believe, will continue to gain in popularity.
Philip Morris' attorney, John Mulderig, said "the bottom line is a party shouldn't be forced into bankriuptcy and deprived of the right to appeal." This statement was made in response to friday's ruling the company had to post a $12 billion bond to secure the judgment while the decision is appealed. The present state law requires losers of lawsuits to post the amount of the judgment as well as enough to cover court costs and interest.
June air travel was only down 4% from 2002 but 15.5% below June 2000. Several airlines posted second quater profits only because of federal aid which no longer is available. Fall fare sales have arrived early this year. United and Delta threw in a free night at a hotel. The airlines are starting to catch the auto rebate bug.
Iowa, according to the census, is gaining more people from California than any other state. Immigration experts said this fact is tied to the availability of $10 an hour jobs in meatpacking plants, and these jobs have attracted large Hispanic populations to Iowa,and they have become the largest minority segment in the state.
One of the reasons the U.S. government gave for the strong GDP second quarter was agriculture. Yet, Deere during this quarter, had "planned lower production volumes in the agricultural equipment division." Turning to Deere, the stock is at its highest level in many years. Once again, investors looked at the headline. Looking further, "excluding the impact of changes in currency-exchange rates, overseas sales were down 3% for the quarter." In addition, another benefit to net income was a lower tax rate. Going forward, excluding the impact of currency and price, net equipment sales are "forecast to be slightly lower for the fourth quarter." The physical volume of agricultural equipment sales is expected to be down slightly as "production in the U.S. and Canada will be down 7% in the fourth quarter, as inventories are reduced in line with our asset management objectives." The stock is at $55 and has a Scouter rating of 9. The stock broke below $40 in April. At 24 times earnings, sales of $16 billion, a market cap of $13 billion, this, I believe, is a wonderful time to consider selling into strength. Deere is a cyclical company, and, as interest rates rise, their construction business will not be able to carry the day.
According to the SoyFoods Association of North America, the soy-food industry has grown 13% to $3.65 billion in sales in 2002. Soymilk sales have grown six times from $100 million in 1995 to about $600 million in 2002. Soy milk is lactose-free, lowers cholestrol, strengthens bones, but it has high levels of polyunsaturated fat and carbohydrates, and does not contain calcium and potassium. Nevertheless, production of soymilk surpassed 100 million gallons last year, and, I believe, will continue to gain in popularity.
Philip Morris' attorney, John Mulderig, said "the bottom line is a party shouldn't be forced into bankriuptcy and deprived of the right to appeal." This statement was made in response to friday's ruling the company had to post a $12 billion bond to secure the judgment while the decision is appealed. The present state law requires losers of lawsuits to post the amount of the judgment as well as enough to cover court costs and interest.
June air travel was only down 4% from 2002 but 15.5% below June 2000. Several airlines posted second quater profits only because of federal aid which no longer is available. Fall fare sales have arrived early this year. United and Delta threw in a free night at a hotel. The airlines are starting to catch the auto rebate bug.
Iowa, according to the census, is gaining more people from California than any other state. Immigration experts said this fact is tied to the availability of $10 an hour jobs in meatpacking plants, and these jobs have attracted large Hispanic populations to Iowa,and they have become the largest minority segment in the state.
One of the reasons the U.S. government gave for the strong GDP second quarter was agriculture. Yet, Deere during this quarter, had "planned lower production volumes in the agricultural equipment division." Turning to Deere, the stock is at its highest level in many years. Once again, investors looked at the headline. Looking further, "excluding the impact of changes in currency-exchange rates, overseas sales were down 3% for the quarter." In addition, another benefit to net income was a lower tax rate. Going forward, excluding the impact of currency and price, net equipment sales are "forecast to be slightly lower for the fourth quarter." The physical volume of agricultural equipment sales is expected to be down slightly as "production in the U.S. and Canada will be down 7% in the fourth quarter, as inventories are reduced in line with our asset management objectives." The stock is at $55 and has a Scouter rating of 9. The stock broke below $40 in April. At 24 times earnings, sales of $16 billion, a market cap of $13 billion, this, I believe, is a wonderful time to consider selling into strength. Deere is a cyclical company, and, as interest rates rise, their construction business will not be able to carry the day.
8/16/03 Wall Street Knows Best?
This year the Nasdaq is up 27%, the S&P 500 is up 13%, and the Dow is up 12%. This past week there was a rotation into cyclical stocks which rose over 3% during the past five trading days. International Paper, Caterpillar, and Alcoa all moved higher with International Paper the standout. Wall Street appears to have their own take on cyclical companies. The Street ignores what's happening with plant closings. Due to poor market conditions and efforts to cut costs, Weyerhaeuser announced on Friday they will shut down two plants in Oregon and lay off 200 workers. The company is down to having just 5000 employees in Oregon, which is a major lumber state, and the last time I checked, lumber goes into the making of paper. Wall Street has always jumped on cyclical stocks as an economy gets stronger. But, there is another side to the story. Cyclical stocks are the last group to move higher in a rising stock market. I call them the last gasp stocks. Eventually, I find, they will take your breath away.
There was a mixed picture as industrial production rose 0.5% in July mostly because utility output increased 3.9% due to warmer weather. On the other hand, the output of nondurable goods fell 0.4%. Looking at the numbers rationally, the facts are that in July 2003 manufacturing production is down 1.4% and business equipment 1.1% from year ago levels. If you think the economy is stronger, I suggest you need a reality check. As long as companies are shutting down plants and reducing employment, this economy is on a one way ticket to palookaville.
This year the Nasdaq is up 27%, the S&P 500 is up 13%, and the Dow is up 12%. This past week there was a rotation into cyclical stocks which rose over 3% during the past five trading days. International Paper, Caterpillar, and Alcoa all moved higher with International Paper the standout. Wall Street appears to have their own take on cyclical companies. The Street ignores what's happening with plant closings. Due to poor market conditions and efforts to cut costs, Weyerhaeuser announced on Friday they will shut down two plants in Oregon and lay off 200 workers. The company is down to having just 5000 employees in Oregon, which is a major lumber state, and the last time I checked, lumber goes into the making of paper. Wall Street has always jumped on cyclical stocks as an economy gets stronger. But, there is another side to the story. Cyclical stocks are the last group to move higher in a rising stock market. I call them the last gasp stocks. Eventually, I find, they will take your breath away.
There was a mixed picture as industrial production rose 0.5% in July mostly because utility output increased 3.9% due to warmer weather. On the other hand, the output of nondurable goods fell 0.4%. Looking at the numbers rationally, the facts are that in July 2003 manufacturing production is down 1.4% and business equipment 1.1% from year ago levels. If you think the economy is stronger, I suggest you need a reality check. As long as companies are shutting down plants and reducing employment, this economy is on a one way ticket to palookaville.
Friday, August 15, 2003
8/15/03 How’s This Picture?
We spend billions in an attempt to rebuild Iraq. Our troops risk their lives so that the Iraqi people will have a better life. About one American soldier is killed daily, and more are wounded. As a thanks for a job well done, the Pentagon wants to cut the pay of our 148,000 troops in Iraq. Unless action is taken very quickly, our fighting forces will lose a pay increase approved last April of $75 in “imminent danger pay” and $150 a month in “family separation allowances.” The Defense Department is in favor of the cuts, and says its budget beginning October 1 cannot provide for the higher payments. It will be up to Congress to maintain the increases as a part of its annual defense appropriations legislation. Is there something wrong with this picture?
California has provided the necessary votes for the recall measure to come to a vote. In doing my analysis, one point became clear. The measure is to recall Gray Davis. Should Davis resign prior to the recall and the LT Governor take over, then the latter would become governor and there would not be a recall.
California has a $38 billion budget deficit and yet the highest mean priced homes are in the Bay Area of San Francisco at $560,200 and in the June quarter price increases of 24% took place on and around Riverside and San Bernardino in Southern California and 21% for Los Angeles. At the same time, unemployment remains at a very high level in the SiliconValley. Is there anything wrong with this picture?
The Dow and the Nasdaq have had spectacular gains over the past 5 months. At the same time Charles Schwab continues to lay off people and close offices. They plan to fire another 250 workers and close 20 more branches. At the end of 2000 the company employed 26,300 and that I down to 16,000. Up to the latest announcement, Schwab had closed 31 branches. A Schwab spokesperson said “we are very cautious about the environment, so we are continuing to be vigilant on the expense front.”
The index of mortgage applications fell 16% and the refinancing index 20% in the latest week to the lowest levels in about one year. Joseph Abate, a senior economist at Lehman Bros, said “higher mortgage rates will not leave the economy unscathed. They will work through several channels to reduce significantly the stimulus they have provided to the economy since the recession began.
We spend billions in an attempt to rebuild Iraq. Our troops risk their lives so that the Iraqi people will have a better life. About one American soldier is killed daily, and more are wounded. As a thanks for a job well done, the Pentagon wants to cut the pay of our 148,000 troops in Iraq. Unless action is taken very quickly, our fighting forces will lose a pay increase approved last April of $75 in “imminent danger pay” and $150 a month in “family separation allowances.” The Defense Department is in favor of the cuts, and says its budget beginning October 1 cannot provide for the higher payments. It will be up to Congress to maintain the increases as a part of its annual defense appropriations legislation. Is there something wrong with this picture?
California has provided the necessary votes for the recall measure to come to a vote. In doing my analysis, one point became clear. The measure is to recall Gray Davis. Should Davis resign prior to the recall and the LT Governor take over, then the latter would become governor and there would not be a recall.
California has a $38 billion budget deficit and yet the highest mean priced homes are in the Bay Area of San Francisco at $560,200 and in the June quarter price increases of 24% took place on and around Riverside and San Bernardino in Southern California and 21% for Los Angeles. At the same time, unemployment remains at a very high level in the SiliconValley. Is there anything wrong with this picture?
The Dow and the Nasdaq have had spectacular gains over the past 5 months. At the same time Charles Schwab continues to lay off people and close offices. They plan to fire another 250 workers and close 20 more branches. At the end of 2000 the company employed 26,300 and that I down to 16,000. Up to the latest announcement, Schwab had closed 31 branches. A Schwab spokesperson said “we are very cautious about the environment, so we are continuing to be vigilant on the expense front.”
The index of mortgage applications fell 16% and the refinancing index 20% in the latest week to the lowest levels in about one year. Joseph Abate, a senior economist at Lehman Bros, said “higher mortgage rates will not leave the economy unscathed. They will work through several channels to reduce significantly the stimulus they have provided to the economy since the recession began.
Thursday, August 14, 2003
8/14/03 England, Germany, France, Italy, and Spain
What do those countries all have in common? Their ten year government bonds yield less than our 10 year government bonds which now provide a return of 4.64 per cent. Does that concern anyone? Of course not. Those economies are doing poorly and ours is recovering in strong fashion. Right? Wrong. The media makes a big deal because our trade deficit dropped $2 billion to about $40 billion in the month. Get real. Some civilian aircraft got delivered. Boeing has laid off over 35,000 workers in the commercial aircraft division. They are phasing out the 767 due to no new orders. Their airliner business is punk. Meanwhile the real story continues. Imports from China hit their highest level in 8 months.
Then the media reported unemployment dropped. It didn't. It rose. Then producer prices were announced as rising 0.1 per cent for the month and this declined from 0.5 per cent in June. It should be noted that in July food prices fell for the first time in 10 months. Everyone laughs that the Fed is concerned with deflation. Consumer prices tomorrow will show almost no increase as well.
So what's going on? The Fed is scared. That's right. They are printing and printing money, and that should generate inflation. It hasn't. The government is spending and spending money like nobody's business, and yet, the private sector can't generate topline growth, and the person on main street has little confidence in the way the economy is being managed.
Imports from China continue to rise. Next month the Snowman will go to China and tell the Chinese officials to raise the value of their currency in relationship to the dollar. We may as well dicate to them. We do with every other country. It's too bad we can't run our own show. The other countries will get the last laugh when we slide into something more serious than a recession. They don't have long to wait.
What do those countries all have in common? Their ten year government bonds yield less than our 10 year government bonds which now provide a return of 4.64 per cent. Does that concern anyone? Of course not. Those economies are doing poorly and ours is recovering in strong fashion. Right? Wrong. The media makes a big deal because our trade deficit dropped $2 billion to about $40 billion in the month. Get real. Some civilian aircraft got delivered. Boeing has laid off over 35,000 workers in the commercial aircraft division. They are phasing out the 767 due to no new orders. Their airliner business is punk. Meanwhile the real story continues. Imports from China hit their highest level in 8 months.
Then the media reported unemployment dropped. It didn't. It rose. Then producer prices were announced as rising 0.1 per cent for the month and this declined from 0.5 per cent in June. It should be noted that in July food prices fell for the first time in 10 months. Everyone laughs that the Fed is concerned with deflation. Consumer prices tomorrow will show almost no increase as well.
So what's going on? The Fed is scared. That's right. They are printing and printing money, and that should generate inflation. It hasn't. The government is spending and spending money like nobody's business, and yet, the private sector can't generate topline growth, and the person on main street has little confidence in the way the economy is being managed.
Imports from China continue to rise. Next month the Snowman will go to China and tell the Chinese officials to raise the value of their currency in relationship to the dollar. We may as well dicate to them. We do with every other country. It's too bad we can't run our own show. The other countries will get the last laugh when we slide into something more serious than a recession. They don't have long to wait.
Wednesday, August 13, 2003
8/13/03 Your Neighborhood
The Fed worries about prices not rising as certain segments of the economy show some improvement; however, prices in your neighborhood might be going up. That's the way the world works. There are many exceptions to generalizations, but it's still your hurt and your cash flow is diminishing. This is one more reason why the study of individual behavior and experience is worthwhile, and why it's important to listen to the stories of the people and not simply the politicians.
Everyone on Wall Street has their take on the economy and stock and bond prices. There are literally a million stories in the naked city. To be a successful investor you must sift through the fiction and get to the facts. For me, as a generalization, demand does not meet supply. Of course, that may not be the case with workers' comp or various types of insurance. I am talking a generalization, and therefore, businesses, as a whole, do not have pricing power that sticks. You can fly between the west coast and Ft. Lauderdale for $211. There are other markets where the competition and the pricing is less attractive. It's supply and demand. As long as companies continue to focus on cost cutting, employment levels will continue to decline. Reliant Energy, for example, just announced laying off 650 workers. The unemployment beat goes on. The unit labor cost will continue to decline. There are hundreds who line up for 2 job openings. The hours worked will continue to decline. Increased productivity creates less hours worked. You bust your cohones to hopefully stay in the same cash flow space. That doesn't do much for consumer optimism or confidence. You can read about how certain economic segments are doing a bit better. As a generalization, nothing much has changed- except for stock prices. It's up to the markets to walk the talk. Bring on the topline growth. Bring on higher prices and higher margins. If you can't do it, then the Fed has a right to worry. You have a right to worry. The market had better worry. It's time to put up or shut up. Give me your best shot. I'm ready to be surprised.
The Fed worries about prices not rising as certain segments of the economy show some improvement; however, prices in your neighborhood might be going up. That's the way the world works. There are many exceptions to generalizations, but it's still your hurt and your cash flow is diminishing. This is one more reason why the study of individual behavior and experience is worthwhile, and why it's important to listen to the stories of the people and not simply the politicians.
Everyone on Wall Street has their take on the economy and stock and bond prices. There are literally a million stories in the naked city. To be a successful investor you must sift through the fiction and get to the facts. For me, as a generalization, demand does not meet supply. Of course, that may not be the case with workers' comp or various types of insurance. I am talking a generalization, and therefore, businesses, as a whole, do not have pricing power that sticks. You can fly between the west coast and Ft. Lauderdale for $211. There are other markets where the competition and the pricing is less attractive. It's supply and demand. As long as companies continue to focus on cost cutting, employment levels will continue to decline. Reliant Energy, for example, just announced laying off 650 workers. The unemployment beat goes on. The unit labor cost will continue to decline. There are hundreds who line up for 2 job openings. The hours worked will continue to decline. Increased productivity creates less hours worked. You bust your cohones to hopefully stay in the same cash flow space. That doesn't do much for consumer optimism or confidence. You can read about how certain economic segments are doing a bit better. As a generalization, nothing much has changed- except for stock prices. It's up to the markets to walk the talk. Bring on the topline growth. Bring on higher prices and higher margins. If you can't do it, then the Fed has a right to worry. You have a right to worry. The market had better worry. It's time to put up or shut up. Give me your best shot. I'm ready to be surprised.
Tuesday, August 12, 2003
8/12/03 Optimism Is Wearing Off
Today is the Open Market Meeting for the Fed. I considered giving my thoughts about what they might say, and then I realized their statements are irrelevant. The market determines the level of interest rates. As for policy, the Fed is excellent at increasing the velocity of currency in circulation. That back-office function could be outsourced to India at a significant savings.
The Congressional Budget Office projected the Pentagon’s antiterrorism effort in Iraq and Afghanistan may reach $59 billion next year. Taxpayers for Common Sense (paying taxes makes no sense) suggests that postwar costs over the next decade may be as high as $465 billion. The American Academy of Arts and Sciences (they represent the movie industry) project the costs at $615 billion. I think the latter figure includes props and renting elephants for certain scenes.
Alliant Energy of Iowa is paying 30-40% more for natural gas this summer than it did last year. The company intends to offer a “worry proof” bill which lets consumers lock in a price for natural gas before a heating season starts. Another energy company in Iowa, MidAmerican Energy, will, starting in October, compute its budget-billing charges based on energy consumption over a two-year period, and this might smooth out the spikes in energy consumption resulting from a mild winter. Natural gas is Iowa’s main heating fuel.
Arizona has no gasoline refineries and all of its supply must be imported from other states. There is a “west line” coming from California refineries and an “east line” extending from El Paso to Phoenix. There was a temporary shutdown of the east pipeline that supplies 30% of the Valley’s gasoline. It caused shortages at many stations and, since Friday, prices have risen as much as 40 cents per gallon.
In the new IBP/TIPP poll, the Economic Optimism Index fell 1.4 points to 54.8 in August. Importantly, the Federal Policies component fell 3.6 points to 49.1. That’s the lowest reading since the poll began in February 2001. The poll indicates that the summertime tax rebates for families with children may have helped to keep optimism high, but now “the boost we got from May’s tax cut is wearing off.” Jobs continue to be a big concern. 27% of those surveyed say a family member has lost a job in the past 12 months. One-fifth say they fear a family member will lose a job in the next 12 months. 73% say it’s hard to find a job in their area. 35% say it is very hard to find a job.
A new report from Multimedia Research Group, Inc. and Fuji-Keizai USA provides a comprehensive market analysis for the biochip industry. This includes a forecast for DNA chips, DNA chip equipment, DNA chip making and processing services, and DNA chip software and services. They project the total biochip market size to grow from $1.1 billion in 2002 to $2.7 billion in 2007 with a compound annual growth rate of 19.5%. Biochips are being used to accelerate the research processes and help increase productivity to shorten the current 10-15 year drug development cycle.
Today is the Open Market Meeting for the Fed. I considered giving my thoughts about what they might say, and then I realized their statements are irrelevant. The market determines the level of interest rates. As for policy, the Fed is excellent at increasing the velocity of currency in circulation. That back-office function could be outsourced to India at a significant savings.
The Congressional Budget Office projected the Pentagon’s antiterrorism effort in Iraq and Afghanistan may reach $59 billion next year. Taxpayers for Common Sense (paying taxes makes no sense) suggests that postwar costs over the next decade may be as high as $465 billion. The American Academy of Arts and Sciences (they represent the movie industry) project the costs at $615 billion. I think the latter figure includes props and renting elephants for certain scenes.
Alliant Energy of Iowa is paying 30-40% more for natural gas this summer than it did last year. The company intends to offer a “worry proof” bill which lets consumers lock in a price for natural gas before a heating season starts. Another energy company in Iowa, MidAmerican Energy, will, starting in October, compute its budget-billing charges based on energy consumption over a two-year period, and this might smooth out the spikes in energy consumption resulting from a mild winter. Natural gas is Iowa’s main heating fuel.
Arizona has no gasoline refineries and all of its supply must be imported from other states. There is a “west line” coming from California refineries and an “east line” extending from El Paso to Phoenix. There was a temporary shutdown of the east pipeline that supplies 30% of the Valley’s gasoline. It caused shortages at many stations and, since Friday, prices have risen as much as 40 cents per gallon.
In the new IBP/TIPP poll, the Economic Optimism Index fell 1.4 points to 54.8 in August. Importantly, the Federal Policies component fell 3.6 points to 49.1. That’s the lowest reading since the poll began in February 2001. The poll indicates that the summertime tax rebates for families with children may have helped to keep optimism high, but now “the boost we got from May’s tax cut is wearing off.” Jobs continue to be a big concern. 27% of those surveyed say a family member has lost a job in the past 12 months. One-fifth say they fear a family member will lose a job in the next 12 months. 73% say it’s hard to find a job in their area. 35% say it is very hard to find a job.
A new report from Multimedia Research Group, Inc. and Fuji-Keizai USA provides a comprehensive market analysis for the biochip industry. This includes a forecast for DNA chips, DNA chip equipment, DNA chip making and processing services, and DNA chip software and services. They project the total biochip market size to grow from $1.1 billion in 2002 to $2.7 billion in 2007 with a compound annual growth rate of 19.5%. Biochips are being used to accelerate the research processes and help increase productivity to shorten the current 10-15 year drug development cycle.
Monday, August 11, 2003
8/12/03 A Special Blog: How The West Was Won
The California recall will go down as one of the great moments in American history. It’s not about Grey Davis. This story is about the power of the people, and they’re speaking up for their rights. This is a prime example for why so many Americans have died in wars over the past 227 years. People like Diane Feinstein and others have spoken out against the recall and mentioned the fiscal cost to California. As voters go to the polls in October, their votes will extinguish the words of the naysayers. As for the politicians who are afraid of the independence of the American people, vote them out of office. A politician serves at the request of the voters, and power is not in the hands of the politician but with the voter. The Constitution made certain of that.
It’s about time the voters turn their attention to Washington, DC. Since Bush became President, non-defense discretionary spending has jumped close to 30%. It is irrational and irresponsible to increase government spending in this fashion when receipts are dwindling due to a recessionary economy. If Bush won’t control spending, then the voters must. Ross Perot would never have compiled a spending record like Bush has. This President cannot buy your vote. Davis couldn’t, and Bush can’t. The California voters have shown they have the smarts to cut their losses short. Now it’s time for the voters across this great land to do the same. Elect a fiscally responsible individual, and one who can effectuate meaningful nation building. The world is getting smaller, and the job market is getting more competitive. Americans are the most talented workers on the face of the earth. They need the opportunities to show their worth.
Rising mortgage interest bills shall mean larger tax deductions for taxpayers, and this shall increase the nation’s budget deficit even more.
The Indian rupee has been depreciating over the last 40 years. Not this year. On a year-over-year basis it has appreciated about 5% against the U.S. dollar, 7% against the yen, and 4% against the pound. Against the euro it has declined 5%. The rupee is a mirror of India’s vibrant economy and bulging forex reserves.
India’s population is growing by 20 million every year. India faces a crisis with respect to the inadequate availability of water – especially in rural India where groundwater levels have plunged dramatically.
The California recall will go down as one of the great moments in American history. It’s not about Grey Davis. This story is about the power of the people, and they’re speaking up for their rights. This is a prime example for why so many Americans have died in wars over the past 227 years. People like Diane Feinstein and others have spoken out against the recall and mentioned the fiscal cost to California. As voters go to the polls in October, their votes will extinguish the words of the naysayers. As for the politicians who are afraid of the independence of the American people, vote them out of office. A politician serves at the request of the voters, and power is not in the hands of the politician but with the voter. The Constitution made certain of that.
It’s about time the voters turn their attention to Washington, DC. Since Bush became President, non-defense discretionary spending has jumped close to 30%. It is irrational and irresponsible to increase government spending in this fashion when receipts are dwindling due to a recessionary economy. If Bush won’t control spending, then the voters must. Ross Perot would never have compiled a spending record like Bush has. This President cannot buy your vote. Davis couldn’t, and Bush can’t. The California voters have shown they have the smarts to cut their losses short. Now it’s time for the voters across this great land to do the same. Elect a fiscally responsible individual, and one who can effectuate meaningful nation building. The world is getting smaller, and the job market is getting more competitive. Americans are the most talented workers on the face of the earth. They need the opportunities to show their worth.
Rising mortgage interest bills shall mean larger tax deductions for taxpayers, and this shall increase the nation’s budget deficit even more.
The Indian rupee has been depreciating over the last 40 years. Not this year. On a year-over-year basis it has appreciated about 5% against the U.S. dollar, 7% against the yen, and 4% against the pound. Against the euro it has declined 5%. The rupee is a mirror of India’s vibrant economy and bulging forex reserves.
India’s population is growing by 20 million every year. India faces a crisis with respect to the inadequate availability of water – especially in rural India where groundwater levels have plunged dramatically.
8/11/03 Another Employment Hurdle
Gartner, Inc. says one out of ten technology jobs in the U.S. will move overseas by the end of 2004. That fails to address another subject. The State Department issued 28,098 L-1 visas from Oct 2002 to March 2003, and this represented a 7% increase from the same period a year earlier. Each L-1 visa lets a worker enter the U.S. multiple times for up to 7 years, and facilitates a company transferring workers from overseas offices to the U.S. Importantly, it also permits companies to continue paying workers their home country wages.
In June, unemployment in the euro zone countries amounted to 8.9%. There are 12.5 million people out of work. “If nothing is changed the OECD predicts the unemployment rate will average 8.25 per cent over the period 2003 to 2008,” said Laurence Boone, euro area economist at the Paris-based Organization for Economic Co-operation and Development. In Germany there are over 4 million unemployed workers, and that’s Europe’s largest economy. In the euro zone, taxes and contributions amount to over 40% of gross wages. A.T. Kearney’s study indicates that European banks will move 10,000 back office jobs abroad to low-cost countries by 2008.
Lakshman Achuthan of New York-based Economic Cycle Research Institute says “China’s the manufacturer and India’s the back office, that seems to be the way it’s shaping up. Industrial jobs are being lost to low cost producers in Asia. And those jobs are unlikely to return when the recovery begins.”
The Bank of Japan sold a record $76 billion yen from January through July.
According to the United States Department of Agriculture, nearly 13 million American children are at risk for hunger today. A recent survey conducted by the Alliance to End Hunger found that more than 43% of respondents said there were hungry people in their own communities who do not have enough to eat, and one quarter of the respondents were personally worried that they or someone in their family could go hungry and not have enough to eat in the future. More than 65% of voters say hunger is ‘an important election issue.’
Foot Locker is Nike’s largest customer. Due to a dispute on shoe prices and selection, Foot Locker is cutting back on Nike orders, and this will impact Nike’s results for the rest of the year. Nike has also said demand for golf products may remain weak due to the slow U.S. economy. In fiscal 2003 Nike earned $2.44 per share on revenues of about $10 billion. Analysts anticipate earnings of $3.16 per share for fiscal 2004. Those estimates, in my view, need to be reduced to $2.75 or lower. At $52.81and a market cap of $14 billion, the stock appears, at best, fully priced. Additionally, with the trend towards Americans weighing more, Nike is behind the times with their shoe styles. Few models are designed for wide feet. New Balance, on the other hand, provides a much larger array of widths.
Gartner, Inc. says one out of ten technology jobs in the U.S. will move overseas by the end of 2004. That fails to address another subject. The State Department issued 28,098 L-1 visas from Oct 2002 to March 2003, and this represented a 7% increase from the same period a year earlier. Each L-1 visa lets a worker enter the U.S. multiple times for up to 7 years, and facilitates a company transferring workers from overseas offices to the U.S. Importantly, it also permits companies to continue paying workers their home country wages.
In June, unemployment in the euro zone countries amounted to 8.9%. There are 12.5 million people out of work. “If nothing is changed the OECD predicts the unemployment rate will average 8.25 per cent over the period 2003 to 2008,” said Laurence Boone, euro area economist at the Paris-based Organization for Economic Co-operation and Development. In Germany there are over 4 million unemployed workers, and that’s Europe’s largest economy. In the euro zone, taxes and contributions amount to over 40% of gross wages. A.T. Kearney’s study indicates that European banks will move 10,000 back office jobs abroad to low-cost countries by 2008.
Lakshman Achuthan of New York-based Economic Cycle Research Institute says “China’s the manufacturer and India’s the back office, that seems to be the way it’s shaping up. Industrial jobs are being lost to low cost producers in Asia. And those jobs are unlikely to return when the recovery begins.”
The Bank of Japan sold a record $76 billion yen from January through July.
According to the United States Department of Agriculture, nearly 13 million American children are at risk for hunger today. A recent survey conducted by the Alliance to End Hunger found that more than 43% of respondents said there were hungry people in their own communities who do not have enough to eat, and one quarter of the respondents were personally worried that they or someone in their family could go hungry and not have enough to eat in the future. More than 65% of voters say hunger is ‘an important election issue.’
Foot Locker is Nike’s largest customer. Due to a dispute on shoe prices and selection, Foot Locker is cutting back on Nike orders, and this will impact Nike’s results for the rest of the year. Nike has also said demand for golf products may remain weak due to the slow U.S. economy. In fiscal 2003 Nike earned $2.44 per share on revenues of about $10 billion. Analysts anticipate earnings of $3.16 per share for fiscal 2004. Those estimates, in my view, need to be reduced to $2.75 or lower. At $52.81and a market cap of $14 billion, the stock appears, at best, fully priced. Additionally, with the trend towards Americans weighing more, Nike is behind the times with their shoe styles. Few models are designed for wide feet. New Balance, on the other hand, provides a much larger array of widths.
Sunday, August 10, 2003
8/10/03 Vacation Time
Would you be surprised to learn that Americans work almost a month longer than the Japanese and three months more than Germans? That news is brought to you by a Gallup study. Are you surprised to learn that increasing joblessness has created more stress in the workplace which has led to more absenteeism, employee turnover, depression, and violent behavior? To make matters worse, a poll conducted by Harris Interactive showed that 51% of Americans did not think they would take a summer vacation and an additional 7% had delayed plans. More families are squeezing weekend escapes into their busy lives, and thus, downsizing vacations just as employers are downsizing the workplace. There is medical evidence that an annual vacation can cut the risk of heart attack by 30% in men and 50% in women. Job security fears and monetary considerations are preventing longer vacations. People are increasingly afraid to leave the office for even a couple of workdays. With fewer people traveling, and shorter trips the growing norm, the tourism industry is being transformed. Tourist businesses will need to become accustomed to relying on strong weekends and weak weekdays.
This coming Thursday, August 14, marks the 68th birthday for Social Security. As I have said several times, many low- and middle-income workers pay more in social security taxes than they do in income taxes. These are the folks who can afford taxation the least. If one were to have an effective tax cut, it would begin with social security taxes. Unfortunately, politicians are afraid to implement changes in a social system on the road to ruination. In my opinion, as a generalization, the most inept individuals run for office. They couldn’t find similar job security in the private sector.
The Center for the Study of Rural America is based at the Federal Reserve Bank of Kansas City. According to their study, from 1991 to 1998, rural communities gained about 155,000 factory jobs. Last year, 45% of the jobs lost in manufacturing was in rural communities. Between 1998 and the end of 2002, rural towns have lost 13.4% of their manufacturing employment or 572,000 jobs. Workers in rural areas often have far fewer employment alternatives than their city counterparts. Billy Ray Hall, president of the North Carolina Rural Economic Development Center in Raleigh, N.C., says “what happens in warp speed is the workers fall out of the bottom of the economy.” Unfortunately, most economists don’t spend time on rural main street. I do. I smell the hopelessness and despair in the air. These communities will need to re-invent themselves. That’s easier said than done, and, at best, takes time to accomplish. By next week there could be more than 572,000 stories in rural America. Bush might consider leaving Crawford, Texas and start listening. He’s on a month’s vacation. That’s a lot more than anyone in the private sector can say.
At present, WalMart’s stores provide payroll cash checking as well as money orders and transfers. About 20% of the company’s customers don’t have a bank account. WalMart hopes to be able to initiate minimal banking services including the handling of debit transactions, and thus reduce the company’s costs. This will require governmental approval. Last year they were blocked from purchasing Franklin Bank of California.
Last week Bill Gates sold 5 million shares of Microsoft. He still owns 1 billion shares. That’s with a “b”.
Would you be surprised to learn that Americans work almost a month longer than the Japanese and three months more than Germans? That news is brought to you by a Gallup study. Are you surprised to learn that increasing joblessness has created more stress in the workplace which has led to more absenteeism, employee turnover, depression, and violent behavior? To make matters worse, a poll conducted by Harris Interactive showed that 51% of Americans did not think they would take a summer vacation and an additional 7% had delayed plans. More families are squeezing weekend escapes into their busy lives, and thus, downsizing vacations just as employers are downsizing the workplace. There is medical evidence that an annual vacation can cut the risk of heart attack by 30% in men and 50% in women. Job security fears and monetary considerations are preventing longer vacations. People are increasingly afraid to leave the office for even a couple of workdays. With fewer people traveling, and shorter trips the growing norm, the tourism industry is being transformed. Tourist businesses will need to become accustomed to relying on strong weekends and weak weekdays.
This coming Thursday, August 14, marks the 68th birthday for Social Security. As I have said several times, many low- and middle-income workers pay more in social security taxes than they do in income taxes. These are the folks who can afford taxation the least. If one were to have an effective tax cut, it would begin with social security taxes. Unfortunately, politicians are afraid to implement changes in a social system on the road to ruination. In my opinion, as a generalization, the most inept individuals run for office. They couldn’t find similar job security in the private sector.
The Center for the Study of Rural America is based at the Federal Reserve Bank of Kansas City. According to their study, from 1991 to 1998, rural communities gained about 155,000 factory jobs. Last year, 45% of the jobs lost in manufacturing was in rural communities. Between 1998 and the end of 2002, rural towns have lost 13.4% of their manufacturing employment or 572,000 jobs. Workers in rural areas often have far fewer employment alternatives than their city counterparts. Billy Ray Hall, president of the North Carolina Rural Economic Development Center in Raleigh, N.C., says “what happens in warp speed is the workers fall out of the bottom of the economy.” Unfortunately, most economists don’t spend time on rural main street. I do. I smell the hopelessness and despair in the air. These communities will need to re-invent themselves. That’s easier said than done, and, at best, takes time to accomplish. By next week there could be more than 572,000 stories in rural America. Bush might consider leaving Crawford, Texas and start listening. He’s on a month’s vacation. That’s a lot more than anyone in the private sector can say.
At present, WalMart’s stores provide payroll cash checking as well as money orders and transfers. About 20% of the company’s customers don’t have a bank account. WalMart hopes to be able to initiate minimal banking services including the handling of debit transactions, and thus reduce the company’s costs. This will require governmental approval. Last year they were blocked from purchasing Franklin Bank of California.
Last week Bill Gates sold 5 million shares of Microsoft. He still owns 1 billion shares. That’s with a “b”.
Saturday, August 09, 2003
8/09/03 Clip Clip
About 500,000 men a year in the U.S. get a vasectomy. There’s good news! Vasclip, made by VMBC of Roseville, Minn., has been approved by the FDA. The new procedure takes about 10 minutes and does not involve cutting, suturing, or cauterizing. The procedure costs about $350, and patients can return to normal activities in about a day. The clip is the size of a rice grain. The company didn’t mention whether it’s organic.
David Kay, a former UN weapons inspector now working for the U.S., has a team of 1,400 investigators looking for Iraq’s chemical and biological weapons. Kay told Congress his team is searching new sites almost daily, interviewing scientists and captured leaders, and sifting through thousands of pages of documents. In four months, not a gram of anthrax has been found and not an ounce of mustard gas. During the past four months, however, we have witnessed our soldiers getting killed and injured and wounded. In the report of the 100 successes during the first 100 days of occupation in Iraq, Bush failed to focus on the disasters. Errors of omission seem to be commonplace in Washington, DC.
The Bureau of Labor Statistics forecasts 10 million new jobs through 2010. I suggest we deep six this governmental agency. These folks must be sniffing glue in the workplace.
Federal, state, and local government jobs account for 16% of California’s workforce. With the state’s budget crisis, cutbacks have begun, and 9600 government jobs were terminated in July. That’s a start!
California’s Santa Clara County lost 6200 jobs from June to July. The entire state lost 22,000 jobs during this period. Since the recession started, 20% of Santa Clara County’s job base has been lost. Bill Leake, 57, was laid off 2 years ago from LSI Logic. He says “I’m not going to sit here and send letters anymore when I’m not going to get any responses. The callbacks never come.” To try and make ends meet, he does substitute teaching, and pay approximates $100 per day.
The first month of the state of Georgia’s new fiscal year was July. Their state tax revenue was down 5.4% in the month. The state continues to trim spending to meet expected revenues. It’s too bad the Congress doesn’t follow in this path.
In discussing job hiring, Kevin Hassett, an economist at the American Enterprise Institute, a conservative think tank, says “the odds are that we’re almost at the point of no return for the next election… I wish them good luck thinking long-term. But short-term things seem out of the question.”
According to the Tax Policy Center, a left-leaning group, “in 2003 those making between $100,000 and $200,000 received 23.2% of the benefits of the latest Bush tax bill, while those making between $40,000 and $50,000 received only 4.8% of the benefits.”
Zahra Ward-Murphy, a currency analyst at Dresdner Kleinwort Wasserstein (try saying that fast 10 times. You run out of saliva.), said yesterday “people are focusing on a U.S. recovery and a pick-up in growth. We don’t believe all the optimism.” It took someone out of the country to agree with me. I had to search far and wide for this person. I had to hire a private investigator. It was almost as difficult as finding Iraq’s WMD. Almost but not quite. I think we could have a contest. Everyone gets one guess. The question is: on what day won’t the U.S. be able to attract about $1.5 billion in foreign investment to offset the daily current account deficit? The prize, to be announced, shall be paid in gold coin. The latter’s true worth can be established. By the way, gold has held up very well this year. After rising to $380 per ounce and then falling to $320 per ounce, it has recovered to $358 per ounce.
Jim Prevo is the chief information officer at Green Mountain Coffee Roasters in Waterbury, Vt. His company uses PeopleSoft’s ERP software for his company’s general ledger, supply-chain, and employee-benefits systems. Prevo observes “And what Oracle’s saying is, ‘We’re going to keep your brain’s function static for the rest of your life. Or you can switch to our software.’” He says switching to Oracle, or to a competitor, “is the equivalent of performing a brain transplant. It’s expensive, and it might kill us.” Prevo says “if Oracle is successful in acquiring PeopleSoft, I will recommend to my board that we bring software development in-house.”
About 500,000 men a year in the U.S. get a vasectomy. There’s good news! Vasclip, made by VMBC of Roseville, Minn., has been approved by the FDA. The new procedure takes about 10 minutes and does not involve cutting, suturing, or cauterizing. The procedure costs about $350, and patients can return to normal activities in about a day. The clip is the size of a rice grain. The company didn’t mention whether it’s organic.
David Kay, a former UN weapons inspector now working for the U.S., has a team of 1,400 investigators looking for Iraq’s chemical and biological weapons. Kay told Congress his team is searching new sites almost daily, interviewing scientists and captured leaders, and sifting through thousands of pages of documents. In four months, not a gram of anthrax has been found and not an ounce of mustard gas. During the past four months, however, we have witnessed our soldiers getting killed and injured and wounded. In the report of the 100 successes during the first 100 days of occupation in Iraq, Bush failed to focus on the disasters. Errors of omission seem to be commonplace in Washington, DC.
The Bureau of Labor Statistics forecasts 10 million new jobs through 2010. I suggest we deep six this governmental agency. These folks must be sniffing glue in the workplace.
Federal, state, and local government jobs account for 16% of California’s workforce. With the state’s budget crisis, cutbacks have begun, and 9600 government jobs were terminated in July. That’s a start!
California’s Santa Clara County lost 6200 jobs from June to July. The entire state lost 22,000 jobs during this period. Since the recession started, 20% of Santa Clara County’s job base has been lost. Bill Leake, 57, was laid off 2 years ago from LSI Logic. He says “I’m not going to sit here and send letters anymore when I’m not going to get any responses. The callbacks never come.” To try and make ends meet, he does substitute teaching, and pay approximates $100 per day.
The first month of the state of Georgia’s new fiscal year was July. Their state tax revenue was down 5.4% in the month. The state continues to trim spending to meet expected revenues. It’s too bad the Congress doesn’t follow in this path.
In discussing job hiring, Kevin Hassett, an economist at the American Enterprise Institute, a conservative think tank, says “the odds are that we’re almost at the point of no return for the next election… I wish them good luck thinking long-term. But short-term things seem out of the question.”
According to the Tax Policy Center, a left-leaning group, “in 2003 those making between $100,000 and $200,000 received 23.2% of the benefits of the latest Bush tax bill, while those making between $40,000 and $50,000 received only 4.8% of the benefits.”
Zahra Ward-Murphy, a currency analyst at Dresdner Kleinwort Wasserstein (try saying that fast 10 times. You run out of saliva.), said yesterday “people are focusing on a U.S. recovery and a pick-up in growth. We don’t believe all the optimism.” It took someone out of the country to agree with me. I had to search far and wide for this person. I had to hire a private investigator. It was almost as difficult as finding Iraq’s WMD. Almost but not quite. I think we could have a contest. Everyone gets one guess. The question is: on what day won’t the U.S. be able to attract about $1.5 billion in foreign investment to offset the daily current account deficit? The prize, to be announced, shall be paid in gold coin. The latter’s true worth can be established. By the way, gold has held up very well this year. After rising to $380 per ounce and then falling to $320 per ounce, it has recovered to $358 per ounce.
Jim Prevo is the chief information officer at Green Mountain Coffee Roasters in Waterbury, Vt. His company uses PeopleSoft’s ERP software for his company’s general ledger, supply-chain, and employee-benefits systems. Prevo observes “And what Oracle’s saying is, ‘We’re going to keep your brain’s function static for the rest of your life. Or you can switch to our software.’” He says switching to Oracle, or to a competitor, “is the equivalent of performing a brain transplant. It’s expensive, and it might kill us.” Prevo says “if Oracle is successful in acquiring PeopleSoft, I will recommend to my board that we bring software development in-house.”
Friday, August 08, 2003
8/08/03 “Everything Is Being Produced By Nobody”
That’s the description Greenspan provided to an economy where the GDP is growing and unemployment is declining. Sounds like what we have now. Second quarter productivity rose at a 5.7% rate, and yet, the number of people continuing to collect jobless benefits rose by 72,000 in the week ended July 26, and now totals almost 3.7 million. Companies, like Fruit of the Loom, close plants because of competition with Asian imports, and 791 workers lose their jobs. One should ask how is it possible for initial jobless claims to decline as more jobs are lost? Only the government could create statistics to reflect this incongruity. How is it that the economy expanded at a 2.4% annual rate in the latest quarter and companies cut 170,000 workers from their payrolls? How can Americans make ends meet with unit labor costs falling at a 2.1% annual rate in the second quarter and with hours worked falling at a 2.2% pace? As Ray Bingham, President and CEO of Cadence Design Systems notes, “the growth that we’re seeing in the electronics business is more growth in productivity as a result of cost-cutting than any meaningful amount of revenue growth.” As I have asked so often, what P/E do you pay for cost-cutting? There is a plus. Higher productivity lowers inflation as unit labor costs decline. Of course, what difference does it make if nobody is there to produce the goods? You can always complain about poor service via Sprint equipment. Since October 2001 this company has cut more than 18,000 jobs, and might cut some more as they consider outsourcing certain technology jobs and sending them overseas. Hopefully, those new employees will have a strong command of the English language and are able to handle your complaints.
U.S. 30-year fixed-rate mortgages rose for the seventh consecutive week and now average 6.34%. Rates on 15-year mortgages rose for an eighth straight week to an average of 5.78%, and this is the highest level since Oct. 23, 2002. To put it in real terms, the monthly payment for a $165,000 30-year fixed rate mortgage on June 11 at 5.28% was $914.20, but this week is $1,035.33. The increase of more than $121 per month amounts to more than $43,600 over the term of the loan. As mortgage rates and refinancing rates increase, there will be a lessening of borrowing demand. As such, mortgage investors will have a lesser prepayment risk with less frenetic refinancing. This will diminish their involvement in the treasury market.
According to the Tax Policy Center, payroll taxes make up 34.9% of federal revenues and are expected to increase to 36.3% by 2004. Payroll taxes currently constitute 15.3% of employee payroll and employee contributions combined. Robert Walker, president of Get America Working!, says “cutting the payroll tax by 10% would increase employment 3% in the short term.” Don’t hold your breath for this cut. Payroll taxes fund Medicare and Social Security.
The Federal Reserve reported that outstanding consumer credit declined by $400 million in June to $1.76 trillion. Economists had been expecting a $7 billion increase. I continue to believe that increasing job losses will undermine consumer confidence, and with it, consumer spending will decline. In addition, higher mortgage and refinancing rates will place a greater burden on monthly debt payments by consumers. With less consumer spending and business spending remaining mute, I anticipate an economy which will provide many unpleasant surprises for equity holders.
There is a growing concern that U.S. supplies of natural gas will be insufficient to meet upcoming winter demand. Unquestionably, the supply and demand situation has become more serious. With it, prices for natural gas have been hovering around $5 per million BTUs. Consumers will pay more for natural gas this winter, and this too shall restrict consumers’ cash flow.
NYC’s CENTRAL Park was America’s “first urban park” and 2003 marks its 150th anniversary. I grew up in NYC and this park continues to hold much wonder for me.
Should you be visiting NYC, I suggest a visit to Cooper Hewitt’s second National Design Triennial which showcases the works of 80 designers. Not to be missed is Yuske Obuchi’s Wave Garden, an extraordinary model of a power plant designed to float on the surface of the Pacific Ocean off Southern California. The plant generates clean energy by using the motion of the sea. Yuske Obuchi is a student at Princeton’s School of Architecture.
That’s the description Greenspan provided to an economy where the GDP is growing and unemployment is declining. Sounds like what we have now. Second quarter productivity rose at a 5.7% rate, and yet, the number of people continuing to collect jobless benefits rose by 72,000 in the week ended July 26, and now totals almost 3.7 million. Companies, like Fruit of the Loom, close plants because of competition with Asian imports, and 791 workers lose their jobs. One should ask how is it possible for initial jobless claims to decline as more jobs are lost? Only the government could create statistics to reflect this incongruity. How is it that the economy expanded at a 2.4% annual rate in the latest quarter and companies cut 170,000 workers from their payrolls? How can Americans make ends meet with unit labor costs falling at a 2.1% annual rate in the second quarter and with hours worked falling at a 2.2% pace? As Ray Bingham, President and CEO of Cadence Design Systems notes, “the growth that we’re seeing in the electronics business is more growth in productivity as a result of cost-cutting than any meaningful amount of revenue growth.” As I have asked so often, what P/E do you pay for cost-cutting? There is a plus. Higher productivity lowers inflation as unit labor costs decline. Of course, what difference does it make if nobody is there to produce the goods? You can always complain about poor service via Sprint equipment. Since October 2001 this company has cut more than 18,000 jobs, and might cut some more as they consider outsourcing certain technology jobs and sending them overseas. Hopefully, those new employees will have a strong command of the English language and are able to handle your complaints.
U.S. 30-year fixed-rate mortgages rose for the seventh consecutive week and now average 6.34%. Rates on 15-year mortgages rose for an eighth straight week to an average of 5.78%, and this is the highest level since Oct. 23, 2002. To put it in real terms, the monthly payment for a $165,000 30-year fixed rate mortgage on June 11 at 5.28% was $914.20, but this week is $1,035.33. The increase of more than $121 per month amounts to more than $43,600 over the term of the loan. As mortgage rates and refinancing rates increase, there will be a lessening of borrowing demand. As such, mortgage investors will have a lesser prepayment risk with less frenetic refinancing. This will diminish their involvement in the treasury market.
According to the Tax Policy Center, payroll taxes make up 34.9% of federal revenues and are expected to increase to 36.3% by 2004. Payroll taxes currently constitute 15.3% of employee payroll and employee contributions combined. Robert Walker, president of Get America Working!, says “cutting the payroll tax by 10% would increase employment 3% in the short term.” Don’t hold your breath for this cut. Payroll taxes fund Medicare and Social Security.
The Federal Reserve reported that outstanding consumer credit declined by $400 million in June to $1.76 trillion. Economists had been expecting a $7 billion increase. I continue to believe that increasing job losses will undermine consumer confidence, and with it, consumer spending will decline. In addition, higher mortgage and refinancing rates will place a greater burden on monthly debt payments by consumers. With less consumer spending and business spending remaining mute, I anticipate an economy which will provide many unpleasant surprises for equity holders.
There is a growing concern that U.S. supplies of natural gas will be insufficient to meet upcoming winter demand. Unquestionably, the supply and demand situation has become more serious. With it, prices for natural gas have been hovering around $5 per million BTUs. Consumers will pay more for natural gas this winter, and this too shall restrict consumers’ cash flow.
NYC’s CENTRAL Park was America’s “first urban park” and 2003 marks its 150th anniversary. I grew up in NYC and this park continues to hold much wonder for me.
Should you be visiting NYC, I suggest a visit to Cooper Hewitt’s second National Design Triennial which showcases the works of 80 designers. Not to be missed is Yuske Obuchi’s Wave Garden, an extraordinary model of a power plant designed to float on the surface of the Pacific Ocean off Southern California. The plant generates clean energy by using the motion of the sea. Yuske Obuchi is a student at Princeton’s School of Architecture.
Thursday, August 07, 2003
8/07/03 Rust Not Bust
According to the National Association of Realtors, typical home prices have risen more than 20% since 2000, but typical monthly payments actually fell by 6.2% to $774. This irrational development was brought to you by the Fed’s 13 rate decreases. The Fed made the markets believe that a flick of interest rates could selectively countermand supply and demand. As home prices rose, the homeowner’s equity rose and helped to offset the “poor effect” created in the bear market between March, 2000 and March, 2003. At the same time, the Fed created the illusion that they just might go in and buy long term treasuries in an effort to counter the deflation threat. The Fed couldn’t pull this off without help. They got plenty of that from the home buyer and refi buyer, the mortgage companies, and bond buyers. For some, reality will never set in. There are many who believe that higher mortgage rates will not create a bust in the housing market. Richard Berner, chief economist at Morgan Stanley, says “home prices will rust, not bust, for the next few years.” Only time will tell the story. Maybe supply and demand don’t matter in the 21st century. If you believe that, I could sell you an oil well in Iraq.
WalMart’s same store sales in July rose 4.6% and they estimate a rise of between 3 and 5% for August. Their earnings for this quarter will be 52 cents, and that’s 2 cents above prior estimates. The stock should do pretty well today and possibly make a new high for the year. As you all know, WMT is my favorite stock holding. Fortunately, I only fall in love with my family and not stocks. WMT is now selling at about 29 times next year’s earnings. That’s a bit rich for me, and, as such, I will cut back on my holdings today. I will take a new look when and if the stock declines at least 10 points from here.
For 2004 the Fed estimates that the price index will rise between 1 and 1.5% in 2004. That’s a far cry from the near 4% growth they anticipate during this time period. Growth without inflation is a great mantra. The Fed must think they walk on water. I think they walk on quicksand.
According to Loan Performance, Inc. of San Francisco, more than twice as many loans in Los Angeles are seriously delinquent than have gone into foreclosure. “0.7% of all home loans in Los Angeles county went to foreclosure as of May 2003, but 0.18% are more than 90 days delinquent and headed for foreclosure. That’s an early warning signal of problems to come. Rising rates will likely accelerate this trend.”
According to the Mortgage Bankers Association of America, the barometer of refinancing applications fell 2.4% last week to its lowest level since the week ending Dec. 6. Refinancing applications have fallen almost 60% since their peak at the end of May.
U.S. light crude oil has risen in price to its highest level since the Iraq war, and now exceeds $32 a barrel. Demand has risen as supplies have dropped. It’s amazing. Supply and demand can mean something in certain markets.
Doug Streenland, President of Northwest Airlines: “We don’t see the light at the end of the tunnel.”
According to Credit Suisse First Boston, companies in the S&P 500 saw their aggregate pension assets shrink by $173 billion from 1999 through 2002 while collective pension obligations rose by $289 billion, and left those plans underfunded by $216 billion. The Fed wasn’t able to prevent this calamity. What else can’t they prevent? Will it be rust or bust?
According to the National Association of Realtors, typical home prices have risen more than 20% since 2000, but typical monthly payments actually fell by 6.2% to $774. This irrational development was brought to you by the Fed’s 13 rate decreases. The Fed made the markets believe that a flick of interest rates could selectively countermand supply and demand. As home prices rose, the homeowner’s equity rose and helped to offset the “poor effect” created in the bear market between March, 2000 and March, 2003. At the same time, the Fed created the illusion that they just might go in and buy long term treasuries in an effort to counter the deflation threat. The Fed couldn’t pull this off without help. They got plenty of that from the home buyer and refi buyer, the mortgage companies, and bond buyers. For some, reality will never set in. There are many who believe that higher mortgage rates will not create a bust in the housing market. Richard Berner, chief economist at Morgan Stanley, says “home prices will rust, not bust, for the next few years.” Only time will tell the story. Maybe supply and demand don’t matter in the 21st century. If you believe that, I could sell you an oil well in Iraq.
WalMart’s same store sales in July rose 4.6% and they estimate a rise of between 3 and 5% for August. Their earnings for this quarter will be 52 cents, and that’s 2 cents above prior estimates. The stock should do pretty well today and possibly make a new high for the year. As you all know, WMT is my favorite stock holding. Fortunately, I only fall in love with my family and not stocks. WMT is now selling at about 29 times next year’s earnings. That’s a bit rich for me, and, as such, I will cut back on my holdings today. I will take a new look when and if the stock declines at least 10 points from here.
For 2004 the Fed estimates that the price index will rise between 1 and 1.5% in 2004. That’s a far cry from the near 4% growth they anticipate during this time period. Growth without inflation is a great mantra. The Fed must think they walk on water. I think they walk on quicksand.
According to Loan Performance, Inc. of San Francisco, more than twice as many loans in Los Angeles are seriously delinquent than have gone into foreclosure. “0.7% of all home loans in Los Angeles county went to foreclosure as of May 2003, but 0.18% are more than 90 days delinquent and headed for foreclosure. That’s an early warning signal of problems to come. Rising rates will likely accelerate this trend.”
According to the Mortgage Bankers Association of America, the barometer of refinancing applications fell 2.4% last week to its lowest level since the week ending Dec. 6. Refinancing applications have fallen almost 60% since their peak at the end of May.
U.S. light crude oil has risen in price to its highest level since the Iraq war, and now exceeds $32 a barrel. Demand has risen as supplies have dropped. It’s amazing. Supply and demand can mean something in certain markets.
Doug Streenland, President of Northwest Airlines: “We don’t see the light at the end of the tunnel.”
According to Credit Suisse First Boston, companies in the S&P 500 saw their aggregate pension assets shrink by $173 billion from 1999 through 2002 while collective pension obligations rose by $289 billion, and left those plans underfunded by $216 billion. The Fed wasn’t able to prevent this calamity. What else can’t they prevent? Will it be rust or bust?
Wednesday, August 06, 2003
8/06/03 Study The Pitcher’s Pick-off Move
To avoid getting picked-off, you’ll need to go beyond the headlines. The real moves take place in the fine print. Take Cisco. Their earnings, on the surface, took a nice jump; however, the topline and the margins have begun to stumble. The company’s CEO has lost his market swagger. There is a crack in the feeling of competitive dominance. Chambers describes the networking business as “fragile” and says “CEOs will wait to spend until their own profits and revenues pick up. All of us should be quick to remember that in 2002 there were many signs of economic pickup.” I wonder if he’s also talking about money managers.
Take the ISM Index reported yesterday which rose to 65 in July, up from June’s 60.6. This accelerating growth got everyone excited. It’s tough to avoid getting picked off if you limit yourself to the headlines. The fastest growths in July were in construction, farming, finance and banking, retail, and communications. The recent spurt in interest rates will place a damper on construction and finance and banking. Retail was helped by the child tax credit. That’s a one- time event. Farming is not a major player unless we are returning to an agrarian society. Communications has been up and down for several years. In sum, in my view, the ISM Index will decline from this height. The headlines don’t tell that story, and also ignore that, the index of prices paid, a measure of purchased materials and services, fell to 50.6 from 51 in June. The demand is not sufficiently great to raise prices for the materials and services in the Index. That is a key fact for me.
Lincoln Financial is a Philadelphia-based financial services company. They just announced cutting 800 to 1,000 jobs, mostly in Hartford, Conn. and Fort Wayne, Indiana. At the same time they made the layoff announcements, Lincoln agreed to pay $140 million over 20 years to have the new Philadelphia Eagles stadium bear its name. The company said the $140 million for the naming rights comes out of Lincoln’s existing budget for advertising and other branding opportunities. I think Lincoln’s top management should be branded.
Yesterday was a pretty bleak day for trading in treasury bonds. The auction of $24 billion in 3-year notes drew bids for just 1.32 times the amount offered. Today 5-year notes are auctioned and tomorrow 10-year bonds. The market had better get accustomed to this supply. It’s going to be here for a very long time. There’s no place to hide from the supply.
The Bay Area Business Confidence Index climbed from 48 to 55. That made for great headlines. Watch the pick-off move. Don’t take too much of a lead just yet. Unfortunately, the apparent brightening economic picture contrasts with a darkening employment picture. A surprising 70% of respondents agreed either strongly or somewhat with the statement “even if the local economy improves, I do not expect an increase in my company’s workforce.” The Bay Area of San Francisco has already lost more than 341,000 jobs in the past 30 months, the equivalent of more than half the entire working population of the City and County of San Francisco, or more than a third of the entire Santa Clara County workforce. In the next six months 18% of respondents plan to decrease their workforce and 67% plan to keep it the same. It gets worse. 23% plan to decrease their IT investments in the next six months. Only 3% expect to increase the money they spend on IT. Please note that 544 CEOs and senior executives in the Bay Area, the heartland for technology, made up this survey. When you read about cautious optimism and other more positive remarks about IT spending, please recall this survey. It’s relevant and was just completed on July 29.
Challenger Gray: “If companies were anticipating a 2001 turnaround, with an increase in demand for goods and services, we would not be witnessing the extraordinary number of job cuts.” Job reduction announcements rose 43% to 85,117 in July. Through the first 7 months of 2003, there have been a total of 715,649 layoffs.
Buddy Hackett: My mother’s menu consisted of 2 choices: take it or leave it.”
In the August 2003 issue of The Journal of Finance, Robert Connolly from the Kenan-Flagler Business School at UNC at Chapel Hill and Chris Stivers from the Terry College of Business at the University of Georgia wrote a study on “Momentum and Reversals in Equity-Index Returns During Periods of Abnormal Turnover and Return Dispersion.” Their conclusions: we find substantial momentum in consecutive weekly stock returns when the latter week has unexpectedly high turnover. Conversely, we find substantial reversals in consecutive weekly stock returns when the latter week has unexpectedly low turnover. Similarly, the autocorrelation of index returns also increases with the latter-week’s dispersion across individual firm returns.” This is an interesting study and will reinforce my daily focus to studying volume in the markets. I recall back to 1974, for example, when volumes would just dry up and stocks continued to decline in price. It was during the summer of 1974 that I placed a note firmly on my desk: “You can lose your ass on low volume.” For several months I did just that.
To avoid getting picked-off, you’ll need to go beyond the headlines. The real moves take place in the fine print. Take Cisco. Their earnings, on the surface, took a nice jump; however, the topline and the margins have begun to stumble. The company’s CEO has lost his market swagger. There is a crack in the feeling of competitive dominance. Chambers describes the networking business as “fragile” and says “CEOs will wait to spend until their own profits and revenues pick up. All of us should be quick to remember that in 2002 there were many signs of economic pickup.” I wonder if he’s also talking about money managers.
Take the ISM Index reported yesterday which rose to 65 in July, up from June’s 60.6. This accelerating growth got everyone excited. It’s tough to avoid getting picked off if you limit yourself to the headlines. The fastest growths in July were in construction, farming, finance and banking, retail, and communications. The recent spurt in interest rates will place a damper on construction and finance and banking. Retail was helped by the child tax credit. That’s a one- time event. Farming is not a major player unless we are returning to an agrarian society. Communications has been up and down for several years. In sum, in my view, the ISM Index will decline from this height. The headlines don’t tell that story, and also ignore that, the index of prices paid, a measure of purchased materials and services, fell to 50.6 from 51 in June. The demand is not sufficiently great to raise prices for the materials and services in the Index. That is a key fact for me.
Lincoln Financial is a Philadelphia-based financial services company. They just announced cutting 800 to 1,000 jobs, mostly in Hartford, Conn. and Fort Wayne, Indiana. At the same time they made the layoff announcements, Lincoln agreed to pay $140 million over 20 years to have the new Philadelphia Eagles stadium bear its name. The company said the $140 million for the naming rights comes out of Lincoln’s existing budget for advertising and other branding opportunities. I think Lincoln’s top management should be branded.
Yesterday was a pretty bleak day for trading in treasury bonds. The auction of $24 billion in 3-year notes drew bids for just 1.32 times the amount offered. Today 5-year notes are auctioned and tomorrow 10-year bonds. The market had better get accustomed to this supply. It’s going to be here for a very long time. There’s no place to hide from the supply.
The Bay Area Business Confidence Index climbed from 48 to 55. That made for great headlines. Watch the pick-off move. Don’t take too much of a lead just yet. Unfortunately, the apparent brightening economic picture contrasts with a darkening employment picture. A surprising 70% of respondents agreed either strongly or somewhat with the statement “even if the local economy improves, I do not expect an increase in my company’s workforce.” The Bay Area of San Francisco has already lost more than 341,000 jobs in the past 30 months, the equivalent of more than half the entire working population of the City and County of San Francisco, or more than a third of the entire Santa Clara County workforce. In the next six months 18% of respondents plan to decrease their workforce and 67% plan to keep it the same. It gets worse. 23% plan to decrease their IT investments in the next six months. Only 3% expect to increase the money they spend on IT. Please note that 544 CEOs and senior executives in the Bay Area, the heartland for technology, made up this survey. When you read about cautious optimism and other more positive remarks about IT spending, please recall this survey. It’s relevant and was just completed on July 29.
Challenger Gray: “If companies were anticipating a 2001 turnaround, with an increase in demand for goods and services, we would not be witnessing the extraordinary number of job cuts.” Job reduction announcements rose 43% to 85,117 in July. Through the first 7 months of 2003, there have been a total of 715,649 layoffs.
Buddy Hackett: My mother’s menu consisted of 2 choices: take it or leave it.”
In the August 2003 issue of The Journal of Finance, Robert Connolly from the Kenan-Flagler Business School at UNC at Chapel Hill and Chris Stivers from the Terry College of Business at the University of Georgia wrote a study on “Momentum and Reversals in Equity-Index Returns During Periods of Abnormal Turnover and Return Dispersion.” Their conclusions: we find substantial momentum in consecutive weekly stock returns when the latter week has unexpectedly high turnover. Conversely, we find substantial reversals in consecutive weekly stock returns when the latter week has unexpectedly low turnover. Similarly, the autocorrelation of index returns also increases with the latter-week’s dispersion across individual firm returns.” This is an interesting study and will reinforce my daily focus to studying volume in the markets. I recall back to 1974, for example, when volumes would just dry up and stocks continued to decline in price. It was during the summer of 1974 that I placed a note firmly on my desk: “You can lose your ass on low volume.” For several months I did just that.
Tuesday, August 05, 2003
8/05/03 Flush With Care
If Fulton County, Georgia doesn’t approve a 1% increase in the countywide sales tax to 7%, it could cost three times more to flush a toilet in Atlanta. Atlanta Mayor Shirley Franklin has proposed a $3 billion sewer system overhaul. A federal court order requires the city to fix its combined sewers-pipes that carry both storm water and sewage- by 2007. A second order directs the city to limit leaks from its sewer pipes by 2014. The County needs to face the potential alternative. Should the sales tax fail to be passed, and it failed in March, will citizens drive to neighboring counties to flush? I’m seriously thinking of acquiring all the available honey pots in the County, and making them available for 25 cents a visit. I would have a BYOTP (bring your own toilet paper) policy.
Sung Won Sohn, economist for Wells Fargo: “Consumers are the ones who spend money and they need jobs. You cannot continue on with economic growth without employment gains.”
For Boeing, loan and lease payments over 90 days in arrears soared to about $800 million by June 30, up from $50 million at the end of 2002. United Airlines, one of Boeing’s largest customers, has paid Boeing Capital only $39 million in the first six months of 2003. Boeing did not take any charges against earnings in the second quarter reflecting reduced credit ratings of its customers.
The California Chamber of Commerce says in the past 30 months the state has lost 290,000 manufacturing jobs, and increased costs for workers’ comp is a big reason. More and more businesses are leaving the state. In California the average workers’ comp rates have about doubled over the past 3 years.
Costco is on my list of the great companies. On Tuesday the company lowered its earnings outlook for the fourth quarter and full fiscal year, and cited rising employee healthcare and workers’ comp costs, lower-than-expected margins, and efforts to improve customer service and speed up checkouts as the main reasons for the lower outlook. For the full year Costco forecasts a profit of $1.48 to $1.50 per share, and preliminary thoughts are for high single digit growth for 2004. With its current high p/e, the stock will come down this morning. The downside move could prove costly to recent buyers of the stock.
Martin Hutchinson, UPI Business and Economics Editor: “Of the $56.1 billion in real GDP growth recorded in the second quarter, a 2.4% annual rate, $31.7 billion was in government. GDP in the private sector, let’s call it Gross Private Product (GPP), grew at an annual rate of only 1.6%, following growth rates of 0.7% and 0.4% in the previous two quarters. If you deflate by estimated population growth, GPP per capita was 0.9% lower than three years ago … only government has grown since then, by 13.4% in real terms over the three years, or by 9.9% per capita.”
Marcus Tullius Cicero: “An unjust peace is better than a just war.”
From Fast Magazine: “In a study of 3000 companies, researchers at the University of Pennsylvania found that spending 10% of revenue on capital improvements boosts productivity by 3.9%, but a similar investment in developing human capital increases productivity by 8.5%.”
Many large pension plan sponsors in the U.S. like IBM have gravitated over the past 10 to 15 years toward hybrid plan formulas, including cash balance plans, rather than defined contribution plans. On July 31 an Illinois District court ruled that IBM’s pension plan violates age discrimination laws. If upheld on appeal, this decision would make nearly all cash balance and many other hybrid plans illegal.
Despite the recent rise in the Nikkei over the past several months, credit quality in Japan has remained weak with 63% of all rated issues either having a negative bias or being on CreditWatch. Only 2% had positive outlooks or a positive bias.
In this age of technology we have witnessed the acceptance of the smoking patch. The diet patch has recently come to market. I have been working on the market patch. The problem has been the inability of the technologists to overcome the daily infrastructure of BS. The good news is that the team is working hard to solve the problem. The bad news is the enormous growth in the BS index. Its popularity is on the rise, and there is discussion of a futures market for the index. That could delay the patch for years to come. This is not an excuse. This is a no BS zone.
If Fulton County, Georgia doesn’t approve a 1% increase in the countywide sales tax to 7%, it could cost three times more to flush a toilet in Atlanta. Atlanta Mayor Shirley Franklin has proposed a $3 billion sewer system overhaul. A federal court order requires the city to fix its combined sewers-pipes that carry both storm water and sewage- by 2007. A second order directs the city to limit leaks from its sewer pipes by 2014. The County needs to face the potential alternative. Should the sales tax fail to be passed, and it failed in March, will citizens drive to neighboring counties to flush? I’m seriously thinking of acquiring all the available honey pots in the County, and making them available for 25 cents a visit. I would have a BYOTP (bring your own toilet paper) policy.
Sung Won Sohn, economist for Wells Fargo: “Consumers are the ones who spend money and they need jobs. You cannot continue on with economic growth without employment gains.”
For Boeing, loan and lease payments over 90 days in arrears soared to about $800 million by June 30, up from $50 million at the end of 2002. United Airlines, one of Boeing’s largest customers, has paid Boeing Capital only $39 million in the first six months of 2003. Boeing did not take any charges against earnings in the second quarter reflecting reduced credit ratings of its customers.
The California Chamber of Commerce says in the past 30 months the state has lost 290,000 manufacturing jobs, and increased costs for workers’ comp is a big reason. More and more businesses are leaving the state. In California the average workers’ comp rates have about doubled over the past 3 years.
Costco is on my list of the great companies. On Tuesday the company lowered its earnings outlook for the fourth quarter and full fiscal year, and cited rising employee healthcare and workers’ comp costs, lower-than-expected margins, and efforts to improve customer service and speed up checkouts as the main reasons for the lower outlook. For the full year Costco forecasts a profit of $1.48 to $1.50 per share, and preliminary thoughts are for high single digit growth for 2004. With its current high p/e, the stock will come down this morning. The downside move could prove costly to recent buyers of the stock.
Martin Hutchinson, UPI Business and Economics Editor: “Of the $56.1 billion in real GDP growth recorded in the second quarter, a 2.4% annual rate, $31.7 billion was in government. GDP in the private sector, let’s call it Gross Private Product (GPP), grew at an annual rate of only 1.6%, following growth rates of 0.7% and 0.4% in the previous two quarters. If you deflate by estimated population growth, GPP per capita was 0.9% lower than three years ago … only government has grown since then, by 13.4% in real terms over the three years, or by 9.9% per capita.”
Marcus Tullius Cicero: “An unjust peace is better than a just war.”
From Fast Magazine: “In a study of 3000 companies, researchers at the University of Pennsylvania found that spending 10% of revenue on capital improvements boosts productivity by 3.9%, but a similar investment in developing human capital increases productivity by 8.5%.”
Many large pension plan sponsors in the U.S. like IBM have gravitated over the past 10 to 15 years toward hybrid plan formulas, including cash balance plans, rather than defined contribution plans. On July 31 an Illinois District court ruled that IBM’s pension plan violates age discrimination laws. If upheld on appeal, this decision would make nearly all cash balance and many other hybrid plans illegal.
Despite the recent rise in the Nikkei over the past several months, credit quality in Japan has remained weak with 63% of all rated issues either having a negative bias or being on CreditWatch. Only 2% had positive outlooks or a positive bias.
In this age of technology we have witnessed the acceptance of the smoking patch. The diet patch has recently come to market. I have been working on the market patch. The problem has been the inability of the technologists to overcome the daily infrastructure of BS. The good news is that the team is working hard to solve the problem. The bad news is the enormous growth in the BS index. Its popularity is on the rise, and there is discussion of a futures market for the index. That could delay the patch for years to come. This is not an excuse. This is a no BS zone.
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