7/31/04 This Is For Vic

The Commerce Dept released numbers for the second quarter. If you get your news from the media, economists, and the Fed, then it was news that second quarter GDP growth was only 3% and that consumer spending rose at a paltry 1%. The bond market had sniffed out the lower growth, the stock market has been sputtering, and WalMart and Target told you the paycheck-to-paycheck consumer on Main Street was choking on the fumes from high gas prices. The second quarter is history. We're already one-third through the third quarter. Visit a GM or Ford dealer. Look at their inventory levels. It doesn't paint a pretty picture. Look at gas prices. They've come down in the past month but will rise in August as crude rose to $43 a barrel.
With high crude prices, retail sales for August will suck. Don't you think high crude prices reduce the chances of a big SUV being sold even with a large buyer's incentive? There will be plant shutdowns announced any day. The climate is changing. It's not about outsourcing. It's about less hiring, more layoffs, less benefits, and pay that trails the rate of inflation. You can listen to all the buzz on the campaign junkets. Talk is cheap. Permanent hiring is expensive. Training is time consuming. With revenues in this country growing modestly at best, there are few reasons to take on more staff. Most of the improving profits have been the result of cost cutting. The fun and games are in the late innings. The days are getting shorter. I suggest you turn on the lights a bit earlier. It makes it easier to see through the dusk of the economy.
Halliburton announced in November that the company would stop providing health insurance for its retirees who are eligible for Medicare. The change goes into effect Jan.1. Three retirees wrote Halliburton and complained. Halliburton sued them. No retiree left behind!
Now, I wrote this was Vic. I'm your friend. Today is a good day for testing data. When doing so, please leave a bit of time for a visit to Main Street.

7/30/04  Fortunately Help Is On The Way

"The decision by Union Pacific to limit the number of rock and aggregate carloads in Texas will have a severe impact on the economic viability of the entire state, especially Houston, " stated Marianne Gooch, director of communications for Cemex Inc.

The Conference Board's Help-Wanted Advertising Index dipped one point in June to 38. The Index was 38 one year ago. For the past four months the Index has been virtually flat.

Total compensation costs for civilian workers increased 0.9% during the June quarter, seasonally adjusted. In the March quarter there was a 1.1% gain. In the latest period wage and salary costs increased 0.6% and benefit costs rose 1.8%. Wages and salries for both civilian and private workers advanced 0.6% during the June quarter, identical to the March 2004 quarter.

In the latest week auto plant shutdowns contributed to the unemployment rolls rising. There will be plenty more shutdowns in the near future.

Schwab will close more offices and cut 186 workers.

AT&T's debt was downgraded to junk level by Moody's.

State Farm will cut up to 900 jobs.

Washington Mutual announced the closing of an additional fifty three branches and this will create 850 layoffs.

7/29/04 Going Concerns
Excluding transportation, June’s durable orders fell 0.6%. U.S. auto production has kept pace with the year earlier period; however, despite increasing incentives, the inventory of unsold vehicles continues to mount. As for the delivery of commercial aircraft, Boeing anticipates 285 plane deliveries for 2004 or four planes more than the number delivered in 2003. Much of Boeing’s improved earnings for the second quarter can be attributed to a 23 cents per share Federal tax refund, lower than expected pension and retiree medical expenses, and cost savings from monthly employee firings.
Gina Martin, economist at Wachovia, stated "it’s somewhat disappointing; clearly the soft patch continued in June.."
Yukos pumps more oil than five of the OPEC countries. With their production halted by the court, it was not surprising that crude reached $43 a barrel, a 21-year high.
According to the Defense Department, 908 U.S. service members have died since the beginning of military operations in March 2003. Our troops have been stationed there for 16 months.
According to Cutting Edge Information, a business intelligence firm, pharmaceutical companies spend over 25% of their clinical budget outsourcing to CROs. They stated "outsourcing is a great way for lots of pharmas to get the number of trial participants they need in a shorter amount of time…Outsourcing overseas can quickly cut cost and time."
State Farm to cut 900 jobs. About 1,200 jobs will be lost as part of the consolidation of Wella with Proctor & Gamble. About 200 cuts will be in Germany, and the remainder in the U.S., Mexico, South Korea, Indonesia, and other nations. About 300 P&G workers will be affected as well.
Beth Shulman, a D.C.-based labor consultant who wrote "The Betrayal of Work: How Low-Wage Jobs Fail 30 Million Americans and Their Families," stated that one-quarter of workers make less than $8.70 per hour and that "wage inequality translates into a vicious cycle where people get stuck. It’s not just that people aren’t making enough money. That’s bad enough. But the normal means of righting itself is not in place. The political and education system are working to the detriment of moving these people up." Maybe that’s why John Edwards emphasized that "hope is on the way."
Michael Peroutka, Constitution Party presidential nominee, stated "George Bush has given us the most un-Constitutional, most powerful, biggest, far-reaching, fiscally irresponsible, intrusive, debt-ridden Federal government in the history of the universe! If there was, in the ‘Guiness Book of World Records,’ such a category, Mr. Bush, Big Government wise, would be Flip-Flopper Number One.’

7/28/04 Pivotal Issues
Yesterday the Conference Board stated that U.S. consumer confidence rose in July to a two-year high. They also mentioned that the percentage of consumers that see business conditions in the current month as "good" was little changed, falling to 25.6 from 25.8 in June. It’s difficult to reconcile those two statements and with the UBS Index which dropped seven points in July.
Maybe it would be helpful to take a closer look at some numbers. Avery Shenfeld, an economist with CIBC World Markets, stated that, in this year’s first quarter, wages and salaries had the smallest share of total national income than at any time since WW II. After adjusting for inflation, average hourly wages in May of $15.64 were at the same level as in November 2001, the month when the last recession ended. In June, real average weekly earnings were down 1.3% from June 2003. It’s not surprising that only 25% of those polled believe business conditions are "good." When analysts look back, this will be one of the primary reasons why Bush will have lost re-election. For 80% of Americans who rely primarily on wages and salaries, they are not better off than four years ago.
According to a survey done for staffing services provider Hudson, 52% of African-Americans and 57% of Hispanics state their pay is not equal to what others in similar positions are paid; 38% of male workers and 36% of female workers state their pay does not equal others in similar positions; and 34% of white workers stated similar complaints. According to BLS statistics, white workers earn a median income of $636 a week, while African-Americans earn about $100 less and Hispanics about $200 less. According to the Hudson survey, only 36% of workers overall said better performance leads to higher pay, while about 60% stated that longevity in a job leads to better pay.
In another survey by Robert Half Management Resources, top complaints were long hours and unfair pay. In the second quarter, 6% of workers stated they quit their jobs voluntarily, up from 5.3% in the first quarter and 3.8% a year ago. Surveys show the primary reasons for leaving were to seek an alternative to long workdays and unfair pay.
Jeff Anderson, senior vice president at Hudson, remarked "we have found that workers’ perceptions are directly linked to reality." In my opinion, Bush will find in November that voters’ perceptions are directly linked to reality.
In a recent Bloomberg survey, it is thought that non-farm payrolls increased by 233,000 jobs in July. Whatever the number, how many jobs are not temporary? How many jobs pay a wage, adjusted for inflation, that exceed the level reached in November 2001? How many unemployed workers lost their benefits in July and were not counted as unemployed? Could that number exceed 233,000? The estimate is 320,000. Are we gaining or losing jobs each month? The numbers tell the story. The numbers will help determine the election.
Every once in a generation, the real deal graces us. Barack Obama is the real deal.

7/27/04 Decline In Optimism
According to the UBS Index of Investor Optimism, a joint effort of UBS and the Gallup Organization, the overall index decreased by 7 points in July to 88, down from June’s level of 95. The decline can be attributed to a 4-point decrease in the Index’s personal dimension, which measures investors’ confidence in their ability to reach investment targets and maintain income. It is also driven by a 3-point decrease in the Index’s economic dimension, which measures investors’ sentiment on economic growth, unemployment, stock market performance, and inflation.
Alcoa will lay off 400 workers at an idle aluminum smelter in Wenatchee, Washington this fall after its union rejected a contract proposal. The company stated that health care costs were the sticking point in the contract negotiations.
With a 65% decline in revenue, Cray will lay off 100 workers.
According to the Department of Energy, the nationwide average price for on-highway diesel fuel is about $1.75 a gallon, just shy of the $1.77 record set in March 2003, and it is more than 21% higher than at this time last year. According to a trucking association, the tonnage of freight hauled by trucks nationally hit a record in this April. The tonnage was off a bit in May. Year-to-date truck tonnage is up 6.4% and growth in demand for diesel is up 4.8% this year. By comparison, there has been a 2.5% demand growth for gasoline.
Existing home sales rose 2.1% in June, another new record.
A coalition of health experts called Partnership for Essential Nutrition make the claim that low-carb, high protein diets lead to kidney stress, liver disorders, gout, higher risk o heart disease, stroke, diabetes, assorted types of cancer, and even worse, severe constipation, nausea, headaches, and even bad breath.
DuPont's second quarter revenue rose only 2%.

7/26/04 Inventories And GDP Growth

This week there will be a report on the latest inventory statistics. Contributing to the 3.7% GDP growth rate in the second quarter has been the growth in inventories. That information can be misleading. As the Detroit Free Press recently stated, inventories of 3.5 million vehicles are so bloated at Ford and GM that, even if the companies shut their plants between now and the presidential election, some of the better selling models would still have vehicles remaining after the votes are tallied.
Social Security trustees state that OASDI (old age security and disability income programs) has unfunded liabilities of $3.7 trillion, and that actual cash to make payments may be in trouble as early as 2010. With an aging population, that news is not very comforting.
ETL represents the software market for data extract, transform, and load. Oracle and Microsoft are adding ETL capabilities in their database offerings. PowerCenter 7.0 is the latest ETL version offered by Informatica. PC7 has many capabilities not offered by others in this space. Its strengths in data warehousing and business intelligence make it a compelling alternative in the growing ETL arena. It also can be quite appealing to those looking to make an acquisition in the world of open architecture.

7/25/04  Supremacy

"Microsoft's CFO John Connor: "We'll take a little bit of a dip this year. If we execute well, we might improve on that; 06', we should be able to accelerate a little bit from 05'." Barron's suggests that Microsoft "has impressive growth prospects." Maybe they do. I have no reason to doubt Connors' statement about the near-term challenges to growth. A slowdown is in the cards. He should know better than Barron's. From his perch, his knowledge reins supreme. On a side note, Microsoft had projected 2004 job growth at 4,000 to 5,000. Actual job growth was 2,000. The company has a strong focus on cost cutting. For fiscal 2005, the forecast is for hiring 6,000 to 7,000 people. Don't bet on it.
As long as hourly wages, adjusted for inflation, remain stagnant or decline, Bush will have trouble at the polls. Main Street contains more votes than Bush's high income base. Without the extension of tax cuts, real disposable income will prove disappointing to voters. That disappointment will also be felt at the retail level. One can hear the grinding noise from the slowing economic gears. The sparks are flying. In this heat the sparks can cause a big conflagration.
It would be a big mistake to miss the Bourne Supremacy. Matt Damon is the real deal. He just keeps getting better.

 

 

7/24/04  The Gauges Are There

For the holders of U.S. equities, yesterday was discouraging. The Dow, the S&P 500, and the Nasdaq fell below their 200-day moving averages, an important support level for many money managers. Another sign for me is the strength in the bond market. Ten year treasury bonds closed at 4.43%, or very close to their recent low yield of 4.36%. In other words, despite the repeated warnings by Greenspan of future measured rate hikes, the bond market is quite sanguine that. at the very least, growth is slowing in our economy. Looking back, investors will blame Kerry for this malaise. The seeds were planted long before Kerry.
Besides stocks, gold had a bad week and dropped over $15 to $392.50. The long term dynamics for gold seem more promising than equities. There is increasing demand by India for gold jewelry, and the twin deficits in the U.S. are not diminishing. The deficits help to account for the diminishing value of the dollar.
After lying to protect his boss and after accepting a payoff, Douglas Faneuil was fined $2,000. Under sentencing guidelines, he faced up to six months in prison. He was an assistant to Peter Bacanovic, Martha Stewart's stockbroker. There are a million stories in our "justice system."
As long as it remains in bankruptcy, United Airlines stated that it would cease making payments to employee pension funds. Half of United's slated cost cuts of $5 billion in 2005 will be taken from workers' wages and benefits. I wonder if the company's top management will have their salaries and perks cut in the same relationship as the union workers.

 

 

7/23/04   What Is The Color Of The Flashing Signal?

The Conference Board's index of leading economic indicators fell 0.2% in June, the first decline since March 2003. May's rise was adjusted downward slightly.

S&P recommended investors reduce their exposure to U.S. equities to only 45% of their portfolios and to increase the cash portion to 30%.

Washington Mutual will close mortgage operations in as many as 10 states . The company is cutting 2,500 jobs.

From January through June 2004, the total number of events (mass layoffs), at 8,114, and of initial claims, at 795,612 were lower than in January through June 2003 (9,860 and 959,589 respectively.) Given the large number of non-farm payrolls created in the first six months of 2004, one might have thought the difference in mass layoffs with 2003 would have been larger. Maybe the rise in payrolls will be adjusted downward again.

Sears stated "we experienced weak demand in June." They provided a disappointing forecast for the third quarter.

I have been meaning to provide a look into conditions in the Napa Valley. The annual wine auction, which raises money for charity, collected less revenue for the third consecutive year. Old-time merchants report that store traffic is down slightly; however, the average purchase is down about 10%. In restaurants there is a trend for diners to order somewhat lower priced wines than in 2003. In sum, even the wealthier individuals are parting reluctantly with their money.

 

7/22/04  What's Going On?

When the doors are closed, no outsider knows what goes on between a husband and a wife. When the doors are shut to an investor's psyche, no one truly knows why that individual is buying or selling. (Margin calls are an exception.)
There are so many factors behind decision making. Yesterday can be viewed as particularly disappointing. The Dow had quickly risen right out of the shoot. Before you could adjust your chair, it was up 85 points. The Nasdaq never caught the same frenzy. When the day was offer, the indices were badly in the red. I'm not in the mind of investors. I can only provide many possible scenarios, and some or all could have played a part.
This is not a latte market. You cannot expect Starbucks to carry the entire market on its shoulders. Same-store sales in the quarter rose 11% and profits increased by 43%. Projections were raised for the second time. The stock has been hitting new all-time highs. Earning 95 cents per share and selling at $46 per share, where would you like the stock to go? The price of a latte may rise next year, but at this rich P/E, this great one needs a rest. The same can be said for eBay, which did tank yesterday. These have been your most relaible high growth stocks for some time.
We know that the earnings growth for companies is slowing. The question is how much, and will that growth turn to flat numbers or even decline. Office Depot said sales had been below expectations for the last few weeks and they "approach the second half with a mixture of caution and optimism." Right now the market is focusing more on the caution and less on the optimism.
Demand for gasoline is slowing and inventories rose 2.5 million barrels last week, up 600,000 barrels from a year ago and the highest since mid-January. While the world is looking at gasoline, heating oil futures are trading at $1.0827 and natural gas at $5.931 per thousand cubic feet. If the winter is exceptionally cold, heating bills will be exceptionally high. You can cut back on driving, but you can reduce your thermostats just so much.
Getting back to yesterday, there were suggestions that the S&P could not hold the 1104 level and that inspired selling pressure. Another factor could be the deadlock on tax cut extensions. For me, there is dwindling demand for goods and services, and that includes equities. Right now supply exceeds demand and there is a lack of equilibrium. The pricing power is, at least temporarily, in decline for equities. This is not a new phenomenon. Unfortunately, it is new for those who make their living buying on weakness. That modus operandi is not working.
Eckerd is cutting 1,200 jobs and Mitsubishi 1,400 workers and reducing capacity by 22%. Santomero may think this economy is having its "usual fits and starts." He's a government worker and on salary. His money is not at risk in this economy. He is not a risk taker. He feeds off tax dollars. He gets paid even with record government deficits. In the business world, he might have lost his job. He creates no revenue. He is expendable. He is strictly a cost item. Businesses are still focusing on cutting costs. Why? Generating revenue continues to be a daunting task. Profit margins have made headway over the past year but the workers on Main Street are not seeing the fruits of their labors. The economy is feeling the impact of the paycheck to paycheck worker's cash flow dilemma.

 

 

7/21/04  You Gotta Believe! Right?

Greenspan: "I think the effect of increasing concentration of incomes is not desirable in a democratic society."

The BLS: "Median weekly earnings of the nation's 101.3 million full-time wage and salary workers were $639 in the second quarter of 2004 or 3.7% higher than a year ago while the CPI gained 2.8% over the same period. " Information was taken from the Current Population Survey of 60,000 households covering all our 50 states and DC. Income excluded the self-employment sector.

Greenspan: "Business caution remains a feature of the economic landscape. Temporary hires relative to total employment continue to rise, and investment spending is still below cash flows inside U.S. companies."

The BLS: "Compared with May, June's unemployment rates were higher in 20 states , lower in 18 states and DC, and unchanged in 12 states."

Philly Fed's Santomero described our economy as having the "usual fits and starts" with "ample positive momentum" and with "inflation well contained." He has all the right answers.

GMAC posted record quarterly earnings driven by financing and insurance. GMAC earned $860 million. GM's sales in China rose 58%. GM Asia earned $236 million in the quarter. Unfortunately, the remaining auto operations only produced $529 million and GM's market share in North America dropped even though the company offered record incentives. Inventories rose. Prospects for the third quarter will be less than analysts had been expecting.

Next to the Federal Reserve, Microsoft is the greatest consistent generator of cash in our nation. The company has been on close to a 30 year run. To top it off, they will distribute a special dividend of $3 per share or $32 billion. This represents 2 year's cash flow. In addition, over a four year period, they intend to repurchase $30 billion in stock. In case you think this is an income stock, Microsoft announced they will file for more than 3,000 patents this year. The company spends about $7 billion a year on research. You can see that you are getting a lot of patent for your buck. I never thought of Microsoft as a think tank. Hopefully they won't turn into another Xerox PARC. It's most unfortunate that a special dividend and a stock buyback were the best ideas promoted by management. A sequel to Windows would have been nice. Maybe one of those 3,000 patents will turn into gold. You gotta believe. Right?

7/20/04  Storm Clouds
 
Ford's financial services sector recorded a June quarter pre-tax profit of $1.6 billion, up from $800 million a year ago. On a pre-tax basis, Ford's worldwide automotive sector reported a loss of $57 million. Vehicle sales dropped 5.2% and their market share fell to 19.7% from 20.9%. Management was pleased with the results. Third quarter forecasts were provided, and they are below analyst projections.
 
OPEC forecasts demand for crude will rise by 340,000 bpd in 2005 to an average 27.36 million bpd after an increase of 590,000 bpd in 2004. Petrologistics estimated OPEC production ex Iraq at 27.81 million bpd in July.
 
Peoples Energy offers buyouts to 1,200 workers.
 
AT&T Wireless to launch its 3G service in 4 markets. It will offer a high-speed data network.
 
June housing starts dropped 8.5%. Building permits also fell sharply. These declines spell trouble for the economic growth numbers and will assist in bond rates dropping further.
 
August crude futures are bumping close to $42 pb once again.
 
According to CardWeb.com, the average credit card debt in the U.S. is $8,400.
 
We account for 21% of the world's GDP but only 5% of the population. I have a feeling that ratio is about to change.

7/19/04 Automaker Woes

Rising gasoline prices and rising sales incentives on new vehicles are driving down the wholesale price of large used SUVs. The decline could signal trouble for profitable sales of new full-sized SUVs.

There has been abrupt slowdown in sales of passenger cars in China. Automakers have begun cutting production plans. GM's major profit sector will still make money, but not as much.

A 1992 agreement permits Boeing to have a level of indirect subsidies through R&D programs of the FAA, NASA, and the Defense Department. That alone will not offset the onslaught of Airbus. The latter's CEO suggested his company's A380 would kill the aging 747 and leave Boeing competing in just two parts of the commercial jet market. Judging from recent orders, the Airbus executive seems to have the facts to support that viewpoint.

7/18/04 Shelf Life

Another business spending incentive's shelf life is winding down. Bonus depreciation ends on December 31. If you place an asset in service in 2004, your business, regardless of size, can deduct 50% of the asset's cost this year. In addition, should the asset have a five-year life for depreciation purposes, then one can deduct one-fifth of the remaining depreciation. In sum, that would mean a 60% deduction for tax purposes in 2004, and would represent a big boost to cash flow. When forecasters predict strong business spending in the future, they often fail to acknowledge the importance of this bonus depreciation, which was created in 2002, and what it has recently meant. Unless extended, business spending will be impacted. Many are counting on business spending to compensate for the slowdown in consumer spending. It has not been lost on the stock market that such thinking is unrealistic.

In a recent interview with Kevin Rollins, Dell's CEO, he was asked about HP's price-cutting tactics for the last 18 months and whether Dell had anticipated the emergence of a competitor with this kind of a model. Rollins replied "well, they don't have a new model. I mean losing money is never a model." Dell continues to chip away at HP's main meal, the printer business. Dell will pressure the margins in HP's ink business. As Rollins observed, "that ink costs more than a Dom Perignon or a Chanel No. 5. It's the most expensive liquid on the planet."

The National Auctioneers Association documented that live auctions account for $203.2 billion a year in sales, and that more than 50% of Americans have attended live auctions.

7/17/04 A Funny Thing Happened

Without angst and worry the public might shy away from the media. It's quite possible there would be less reading of newspapers and magazines, less watching of TV news and financial stations, and decreased listening to talk radio. In addition, politicians would have smaller audiences. At the same time, with less angst it's possible there could be decreased discretionary federal spending. Now don't get me wrong. There are plenty of worries. Ford recalled 900,000 cars. Mine is too old to be recalled. Boston Scientific recalled 96,000 stent systems. I never had use for one, thanks God. There is worry with GM. According to Global Insight, North American vehicle production is running 4.5% behind last year's pace, and yet, inventories of unsold vehicles are rising despite ever increasing incentives. If you want to pace the halls at night, here is a fright. Funding the deficit has become more problematic. U.S. asset inflows declined in May to $56.4 billion from net inflows of $76 billion in April. Should that downward trend continue, you might be faced with a combination of less federal spending and increased taxes. The shortfall must be made up somehow. It may as well be your pocketbook. In spite of these worries, the University of Michigan told us that, in July, sentiment was slightly more positive than in June. In essence, even though your paychecks after inflation continue to dwindle, you are jumping for joy. A shrink might be in order.

A funny thing happened on the way to angstville. Those rising interest rates you've been worried about are not rising. Ten year treasuries are yielding 4.36% or essentially the same rate they were on April 13. All that Fed speak about increasing rates on a measured basis was just there to mislead the markets and sell newspapers. It was part of the war on terror-- to create more terror. Don't worry. The markets forgot more about forecasting than Greenspan and company ever knew. If you listen to a consultant, you are a schmuck of the first order.

My remedy is to burn your newspapers and magazines. Turn off the TV and radio. Start thinking for yourself. You might discover your brain, the one that hasn't been used in quite some time. If it's atrophied, don't worry. A funny thing happened. Dormant doesn't equate with dead.

7/16/04 Why Bush Will Lose The Election

It's quite straightforward. The Labor Department provided the reason. The average weekly earnings of U.S. workers decreased 0.8% in June. The average American is going economically backwards.

The core CPI, excluding food and energy costs, rose only 0.1% in June, the lowest rate of increase since last December. Overall, this is good news for the bond market. It would be good news for stocks except for one thing-- top line growth is muted. Look at IBM. Their second quarter revenues rose only 4%, adjusted for currency, and this is only marginally better than the rate of inflation. Their gross margins declined from the year ago period. You'd never know this reading from the optimistic headlines. I don't trade with headlines. Dell raised their profit outlook for this quarter. They didn't raise revenue forecasts. The raise is due to a lower tax rate. I can't get excited over a lower tax rate.

UAL is deferring a $72.4 million pension fund payment. At the end of 2003, their pension plans were underfunded by $6.2 billion. That's not a misprint.

Breuners Furniture is going out of business and closing their 47 furniture stores. They operate in the Bay Area and Sacramento.

Michigan's factories shed another 10,000 jobs in June.

AMR will furlough 123 pilots.

San Jose University's recent study of California's consumer optimism indicates a drop of 2 points from the end of March and down 6 points from the end of December 2003.

Fed Governor Susan Schmidt Bies: "You cannot keep short term interest rates below the rate of inflation- it's too accomodative. We've got to get to what we call a neutral level." Don't look now in real time, Ms. Bies, but the rate of inflation is dropping, and quickly. That's what happens when demand hits a brick wall.

Elise Gould of the Economic Policy Institute stated "the idea of a preferred provider isn't necessarily based on quality of care. It's based on who's making the best deals."

When Krispy Kreme opened their first outlet in Northern California just before their IPO, the lines stretched and stretched and the police assisted with the traffic. The excitement has switched to chicken. Thousands were there in Corona, Queens for the opening of Pollo Campero, a Guatemalan chain founded 33 years ago. It operates in 6 countries and this was the first N.Y outlet. The next one will open in Brooklyn. They have locations in California and Washington. This is the real deal.

Sy Hersh relates that young Iraqi men were sodomized by U.S. troops at Abu Ghuraib. It's on film.

7/15/04 Profit Margins And Market Share

As the forecast for Intel's gross profit margins declined from 62% to 60%, the stock plunged to an 11 month low of $23.25. Intel had company. Nokia, the leader in the mobile device market, provided a disappointing revenue and profit report and outlook. In an effort to reverse the decline in market share from 32% to 31%, Nokia cut prices and yet sales still declined 5% even as the market for mobile phones increased. The stock plunged 17% to the lowest price in about 6 years. Intel and Nokia are the leaders in their respective industries. The fact that industry leaders are trading at new lows is not good news, in my opinion, for the overall market. It provides increased reason for caution.

June import prices had the first decline in 9 months. Excluding petroleum, import prices were unchanged, the first time in 8 months. Export prices declined 0.6% in June as the price of agricultural goods dropped 4.3%. It was the first drop in 11 months and the largest drop since October 2001.

There was nothing surprising in the weekly U.S. initial jobless claims. They rose by 40,000 to 349,000, and have been at that number for three of the past 4 weeks. However, the number of Americans receiving state benefits rose by 12,000 to 2.97 million, a six week high.

U.S. wholesale prices fell 0.3% in June. The decline was the result of drops in energy and food prices. With the price of oil recently jumping to $41 per barrel, the bond market has ignored the core PPI rising only 0.2%. There is more to inflation or deflation than the price of petroleum and natural gas.

Total inventories have risen 4% since May 2003 due in large part to the increase in wholesale inventories rather than retail inventories. With the slowdown in various sectors of the economy, one should not be surprised if the growth in wholesale inventories is cut sharply in coming months.

7/14/04 Gas Tank To Gas Tank Forecasting

Last week the price of gas rose 2 cents on average per gallon nationally. That was after a few weeks of declines. Yesterday the price of gas rose once again and heating oil futures soared. I know it's summer, but supplies for the winter are viewed with suspicion. U.S. retail sales declined 1.1% in June, a big drop. Then we came to the July 4th weekend and Target stated they did better than expected. That gave hope to their July results improving over the disappointing June sales. My feelings are that the once again rising gasoline prices will put a damper on retail sales from mid-July through the end of the month. Therefore, July retail sales will not be anything too terrific. Importantly, as retail sales continue to be muted, new orders for manufactured goods will fall for the third straight month.

Capacity is outstripping supply and airline prices are dropping. American Air, Delta, and United are all under the gun. It's not a pretty picture.

Fixed investment comprises about 45% of China's economy.

Of the 44 million uninsured adults in the U.S., 41% are young, and since 1987, the number of uninsured young adults has grown at twice the rate of older adults, even though the demographics would suggest that group is shrinking in size.

After Intel reported their quarterly results, the stock got hammered by 5%. In my view, on further declines a long-term holder should consider adding to or initiating a position. Intel's move to nanometer process technology is around the corner, and significant positive results should be forthcoming.

7/13/04 Plant Closings And The Trade Deficit

With all the talk about the strength in the economy it is surprising that the number of plant closings is, in fact, picking up from the lull in April and May. The industries are quite varied. Here are afew examples of recent announcements. Collins and Aikman will close its plant in Manchester, Michigan ands eliminate 500 jobs. Temple-Inland will close its Mishawaka, Indiana plant and cut 119 workers. Gerber Scientific will close its Muskogee, Oklahoma facility and cut 130 workers. Vaughn-Bassett Furniture is closing its Sumter, South Carolina facility and laying off 350 workers.

This morning there was an announcement that the trade deficit had narrowed for the first time in six months, and that the 4.5% decline was the largest since October 2002. The May deficit was $46 billion. There were two main reasons for the decline. Our exports rose above expectations with the delivery of 14 planes by Boeing up from the prior month's 8. Importantly, imports of consumer goods dropped 3%. The yields on treasuries increased as the market interpreted the numbers to reveal greater than anticipated economic strength. For Boeing, plane deliveries for the first six months have been only a few above the year before. It's just that April's deliveries were below average. However, the focus should have been oncom/w/hiphopper/serenity.jpg" width=225 height=295>