7/30/05 Eventually The Truth Is Revealed
Some weeks back I wrote a piece on the U.S getting kicked off a strategic Uzbekistan base. The story did not make the papers until this morning when it was noted in the Seattle Times. The paper stated “Uzbekistan formally evicted the United States yesterday from a military base that has served as a hub for combat and humanitarian missions to Afghanistan since shortly after the Sept. 11 attacks, Pentagon and State Department officials said. In a highly unusual move, the notice of eviction from Karshi-Khanabad air base, known as K2, was delivered by a courier from the Uzbek Foreign Ministry to the U.S. Embassy in Tashkent, said a senior U.S. administration official. The message did not give a reason. Uzbekistan gave the United States 180 days to move aircraft, personnel and equipment, U.S. officials said…Scores of flights have used K2 monthly. It has been a landing base to transfer humanitarian goods that then are taken by road into northern Afghanistan, particularly to Mazar-e-Sharif — with no alternative for a region difficult to reach in the winter. K2 is also a refueling base with a runway long enough for large military aircraft. The alternative is much costlier inflight refueling. In May, however, Pentagon spokesman Bryan Whitman called access to the airfield "undeniably critical in supporting our combat operations" and humanitarian deliveries. The United States has paid $15 million to Uzbek authorities for use of the airfield since 2001, he said.”
Brad Setser: “By the end of 2008, if nothing changes, China may have about $2 trillion in reserves.”
Wal-Mart’s July comp store sales rose 4.4%. That’s an excellent performance.
China had a grain shortfall of 20 million tons in 2004, and this may rise to $25 million tons this year.
World-wide copper supplies have declined 46% in 2005.
The CRB Index has risen almost 10% this year and the Goldman Sachs Commodity Index just under 30%. Naturally, the Fed states inflation is modest.
GDP growth between 2002 and 2004 was revised downward to 2.8% from 3.1%. I don’t know about you, but a 10% revision makes U.S. government figures suspect. Why should I believe that 2nd quarter 2005 GDP growth was 3.4%? Will it be revised in a few years?
The government reported that 2nd quarter consumer spending rose 3.3% and that savings rose less than 1%. Meanwhile, the employment cost index rose only 0.7%. Thank goodness for home prices rising. Otherwise, consumers would be sucking on a hind teet.
The yield curve continues to flatten with the 2-year at 4.02% and the 10-year at 4.286%.
With crude at $60.57, will prices at the pump soon rise again?
Lyndon Johnson: "Did you ever think that making a speech on economics is a lot like pissing down your leg? It seems hot to you, but it never does to anyone else."
Saturday, July 30, 2005
Friday, July 29, 2005
Evaluating Risk And Value
7/29/05 Evaluating Risk And Value
It might surprise you to know that Chevron is the Caspian region’s leading oil producer. With its partner, Tengizchevroil, the company operates one of the world’s largest oil fields at Tengiz, Kazakhstan. That’s right. Kazakhstan. Chevron has been operating there for decades. On the other hand, PetroKazakhstan has been there for less than a decade.
Denis Waitley: “Life is inherently risky. There is only one big risk you should avoid at all costs, and that is the risk of doing nothing.”
As I mentioned yesterday, PKZ reported its second quarter results and also held a conference call that lasted almost 2 hours. It was quite informative. The company intends to achieve its target potential average of 170,000 bopd by some time in the latter half of 2006. This is not a pie-in-the-sky goal since in the second quarter of 2004 production was 151,400 bopd. It should be noted that in this year’s second quarter production was only 105,947 bopd due to the April 26th government-mandated elimination of gas flaring from oil wells. Some production will be restored in a month or so, and the balance within 12 months. In 2003, the company entered into a oil-hedging program. In this year’s first quarter 120,000 barrels per month were hedged between $26.30 and $26.52 per barrel, and this reduced revenues by $38.2 million. In this year’s second quarter 40,000 barrels per month were hedged at $25.92 per barrel, and this reduced revenues by $39.5 million. The hedging program ends in December 2005. The unrealized loss under the remaining hedges at June 30, 2005 is $84.5 million, but that will be more than offset by the unrealized deferred net income from crude in inventory amounting to $95 million. In spite of the government mandated elimination of gas flaring and the hedging program, cash flow amounted to $350 million in the first half of 2005, an outstanding achievement. Management has exhibited an ability to operate successfully under difficult circumstances.
Based on recent drilling activities, there is reason for significant optimism in the Northern area of the Kyzylkiya field and the Kolzhan license. It should be noted that shipments destined for China increased by 63% in the second quarter in comparison to the preceding quarter as the state operated Karakoin to Atasu pipeline was re-opened, and volumes destined for China amounted to 24% of total shipments. When the new pipeline to China becomes operative in about 6 months, transportation costs will be reduced by almost $7 per barrel. The savings will be shared by China and PKZ. Should PetroChina purchase PKZ, all of the transportation savings would accrue to PetroChina. This has the potential to become a significant amount of money, and this statement does not include management’s belief that there is the potential to discover approximately 1.2 billion barrels of oil on the properties where it owns exploration rights. It should be emphasized once again that the company’s exploration costs for generating oil reserves are exceedingly low—one of the lowest on the planet. When production gets to 170,000 bopd, utilizing the new pipeline to China, and assuming oil remains above $48 a barrel (today it is trading above $60), PKZ has the potential to earn over $15 per share and generate cash flow of close to $1.3 billion. Returns to PKZ shareowners could have large upside potential, and that is with or without a sale of the company. Management is dedicated to maximizing the returns to shareowners, and they have exhibited an outstanding ability to manage the risk factors in the Caspian region. In this respect, they share a commonality with Chevron’s management.
Andre Malraux: “Often the difference between a successful person and a failure is not one has better abilities or ideas, but the courage that one has to bet on one’s ideas, to take a calculated risk- and to act.”
Recently, there have been nearly 200,000 of high-profile large U.S. layoff announcements in May and June. Yesterday, Morgan Stanley announced cutting 1,000 employees. John Challenger, CEO of Challenger, Gray & Christmas, stated “we may have reached the tipping point for this period of lackluster economic expansion. If the summer surge (of announced layoffs) proves to be the first sign of an eventual economic slowdown, this would be among the weakest expansions in recent times, particularly when compared to the boom of the 1990s. Summer is typically a time when we see a drop off in cuts, but this year…five out of the six largest cuts announced so far this year have occurred in May.” Investors seem unperturbed by the recent surge in job cut announcements. They are focusing on the 11% gain in announced second quarter earnings and the belief that similar results will be forthcoming in the second half of 2005. Earnings have propelled the S&P 500 and the Nasdaq to four-year highs. Meanwhile, the Conference Board’s Help-Wanted Advertising Index stood at 38 in June, exactly the same number as one year ago. Ken Goldstein, the Conference Board’s labor economist, stated “hiring intentions have turned more cautious as the economy is poised to lose some steam in the second half of 2005.”
Yu Liang, managing director of China Vanke Co. Ltd, China’s biggest property developer, stated “the appreciation of the yuan will have a wealth effect and help boost consumer sentiment. It could have a negative impact on manufacturing, but the pressure for interest rate rises will be less.”
At $136 per share, Whole Foods Markets has a market cap of $9 billion and the shares trade at 30 times cash flow. By comparison, Albertson’s has a market cap of $8 billion and its shares trade at 4 times cash flow.
The NAR’s Housing Affordability Index for June was 117.1, the lowest level since August 1991, and this despite lower mortgage rates being lower in 2005 than in 1991. It comes down to wages. They have not kept up with the rising price of housing.
Standard Pacific, a homebuilder, raised its earnings per share estimate for 2005 to $12 on anticipated revenues of $3.9 billion.
According to the U.S. Department of Labor, the price of cement is up about 12% nationwide in the past year. Of course, the Fed says inflation is modest.
There was another blast at BP’s Texas City refinery, and this has served to hold crude prices around the $60 per barrel level.
Chevron reported earnins for the second quarter of $1.76 on revenues of $47 billion. Based on the present low evaluation for Chevron shares, shareholders of Unocal should have plenty of upside potential.
It might surprise you to know that Chevron is the Caspian region’s leading oil producer. With its partner, Tengizchevroil, the company operates one of the world’s largest oil fields at Tengiz, Kazakhstan. That’s right. Kazakhstan. Chevron has been operating there for decades. On the other hand, PetroKazakhstan has been there for less than a decade.
Denis Waitley: “Life is inherently risky. There is only one big risk you should avoid at all costs, and that is the risk of doing nothing.”
As I mentioned yesterday, PKZ reported its second quarter results and also held a conference call that lasted almost 2 hours. It was quite informative. The company intends to achieve its target potential average of 170,000 bopd by some time in the latter half of 2006. This is not a pie-in-the-sky goal since in the second quarter of 2004 production was 151,400 bopd. It should be noted that in this year’s second quarter production was only 105,947 bopd due to the April 26th government-mandated elimination of gas flaring from oil wells. Some production will be restored in a month or so, and the balance within 12 months. In 2003, the company entered into a oil-hedging program. In this year’s first quarter 120,000 barrels per month were hedged between $26.30 and $26.52 per barrel, and this reduced revenues by $38.2 million. In this year’s second quarter 40,000 barrels per month were hedged at $25.92 per barrel, and this reduced revenues by $39.5 million. The hedging program ends in December 2005. The unrealized loss under the remaining hedges at June 30, 2005 is $84.5 million, but that will be more than offset by the unrealized deferred net income from crude in inventory amounting to $95 million. In spite of the government mandated elimination of gas flaring and the hedging program, cash flow amounted to $350 million in the first half of 2005, an outstanding achievement. Management has exhibited an ability to operate successfully under difficult circumstances.
Based on recent drilling activities, there is reason for significant optimism in the Northern area of the Kyzylkiya field and the Kolzhan license. It should be noted that shipments destined for China increased by 63% in the second quarter in comparison to the preceding quarter as the state operated Karakoin to Atasu pipeline was re-opened, and volumes destined for China amounted to 24% of total shipments. When the new pipeline to China becomes operative in about 6 months, transportation costs will be reduced by almost $7 per barrel. The savings will be shared by China and PKZ. Should PetroChina purchase PKZ, all of the transportation savings would accrue to PetroChina. This has the potential to become a significant amount of money, and this statement does not include management’s belief that there is the potential to discover approximately 1.2 billion barrels of oil on the properties where it owns exploration rights. It should be emphasized once again that the company’s exploration costs for generating oil reserves are exceedingly low—one of the lowest on the planet. When production gets to 170,000 bopd, utilizing the new pipeline to China, and assuming oil remains above $48 a barrel (today it is trading above $60), PKZ has the potential to earn over $15 per share and generate cash flow of close to $1.3 billion. Returns to PKZ shareowners could have large upside potential, and that is with or without a sale of the company. Management is dedicated to maximizing the returns to shareowners, and they have exhibited an outstanding ability to manage the risk factors in the Caspian region. In this respect, they share a commonality with Chevron’s management.
Andre Malraux: “Often the difference between a successful person and a failure is not one has better abilities or ideas, but the courage that one has to bet on one’s ideas, to take a calculated risk- and to act.”
Recently, there have been nearly 200,000 of high-profile large U.S. layoff announcements in May and June. Yesterday, Morgan Stanley announced cutting 1,000 employees. John Challenger, CEO of Challenger, Gray & Christmas, stated “we may have reached the tipping point for this period of lackluster economic expansion. If the summer surge (of announced layoffs) proves to be the first sign of an eventual economic slowdown, this would be among the weakest expansions in recent times, particularly when compared to the boom of the 1990s. Summer is typically a time when we see a drop off in cuts, but this year…five out of the six largest cuts announced so far this year have occurred in May.” Investors seem unperturbed by the recent surge in job cut announcements. They are focusing on the 11% gain in announced second quarter earnings and the belief that similar results will be forthcoming in the second half of 2005. Earnings have propelled the S&P 500 and the Nasdaq to four-year highs. Meanwhile, the Conference Board’s Help-Wanted Advertising Index stood at 38 in June, exactly the same number as one year ago. Ken Goldstein, the Conference Board’s labor economist, stated “hiring intentions have turned more cautious as the economy is poised to lose some steam in the second half of 2005.”
Yu Liang, managing director of China Vanke Co. Ltd, China’s biggest property developer, stated “the appreciation of the yuan will have a wealth effect and help boost consumer sentiment. It could have a negative impact on manufacturing, but the pressure for interest rate rises will be less.”
At $136 per share, Whole Foods Markets has a market cap of $9 billion and the shares trade at 30 times cash flow. By comparison, Albertson’s has a market cap of $8 billion and its shares trade at 4 times cash flow.
The NAR’s Housing Affordability Index for June was 117.1, the lowest level since August 1991, and this despite lower mortgage rates being lower in 2005 than in 1991. It comes down to wages. They have not kept up with the rising price of housing.
Standard Pacific, a homebuilder, raised its earnings per share estimate for 2005 to $12 on anticipated revenues of $3.9 billion.
According to the U.S. Department of Labor, the price of cement is up about 12% nationwide in the past year. Of course, the Fed says inflation is modest.
There was another blast at BP’s Texas City refinery, and this has served to hold crude prices around the $60 per barrel level.
Chevron reported earnins for the second quarter of $1.76 on revenues of $47 billion. Based on the present low evaluation for Chevron shares, shareholders of Unocal should have plenty of upside potential.
Thursday, July 28, 2005
updates
7/28/05 Updates
I was most impressed by the quarterly earnings statements issued by Apache ($1.76), ConocoPhillips ( $2.19), PetroKazakhstan ( $1.86), and Phelps Dodge ($4.52). I have placed these in alphabetical order. I have a great deal more to say about PKZ but the report was 33 pages and I want to give more time to its reading. The highlights are: the Board of Directors has set up an Independent Committee to consider the approaches by a number of parties concerning the merger or acquisition of the company; despite the April 26th cut backs initiated to comply with instructions from the Kazakh regulators to stop gas flaring immediately, which caused the reduction of 60,000 bopd, cash flow still jumped to $164.4 million in the quarter or $2.20 per share, up from $1.80 per share in the second quarter of 2004; the company had significant exploration and appraisal successes in the Kyzylkiya and Kolzhan licenses; net income rose to $1.86 per share up from 2004’s second quarter of $1.54; and construction of the enhanced Akshabulak production facilities has progressed and should be completed during this year’s third quarter giving a processing capacity of at least 64,000 bopd (gross).
The median price of a new home fell 5.5% in June and is down 0.4% in the past year.
PMI Mortgage Insurance Co., a residential mortgage insurer based in Walnut Creek, California, stated in a new report that much of the Bay Area faces a greater than 50% chance of housing price declines, and the Sacramento region is not far behind. Mark Miller, chief risk officer with PMI, stated “we are continuing to witness record-home appreciation in may markets without the necessary gains in income, home affordability, and rent inflation. This is causing the home price environment to diverge from long-term economic fundamentals, which cannot be sustained indefinitely.” California has 8 of the top 12 slots for cities most at risk for price declines.
Crude is trading around $59.41 a barrel.
The S&P 500 is at a 4-year high.
A record monsoon hit Bombay.
Computer Associates is cutting 800 jobs.
Delta Air’s CEO gave a downbeat assessment for avoiding bankruptcy.
It’s getting to be SOP time for CNOOC. The clock is running down on their opportunity to buy Unocal.
I was most impressed by the quarterly earnings statements issued by Apache ($1.76), ConocoPhillips ( $2.19), PetroKazakhstan ( $1.86), and Phelps Dodge ($4.52). I have placed these in alphabetical order. I have a great deal more to say about PKZ but the report was 33 pages and I want to give more time to its reading. The highlights are: the Board of Directors has set up an Independent Committee to consider the approaches by a number of parties concerning the merger or acquisition of the company; despite the April 26th cut backs initiated to comply with instructions from the Kazakh regulators to stop gas flaring immediately, which caused the reduction of 60,000 bopd, cash flow still jumped to $164.4 million in the quarter or $2.20 per share, up from $1.80 per share in the second quarter of 2004; the company had significant exploration and appraisal successes in the Kyzylkiya and Kolzhan licenses; net income rose to $1.86 per share up from 2004’s second quarter of $1.54; and construction of the enhanced Akshabulak production facilities has progressed and should be completed during this year’s third quarter giving a processing capacity of at least 64,000 bopd (gross).
The median price of a new home fell 5.5% in June and is down 0.4% in the past year.
PMI Mortgage Insurance Co., a residential mortgage insurer based in Walnut Creek, California, stated in a new report that much of the Bay Area faces a greater than 50% chance of housing price declines, and the Sacramento region is not far behind. Mark Miller, chief risk officer with PMI, stated “we are continuing to witness record-home appreciation in may markets without the necessary gains in income, home affordability, and rent inflation. This is causing the home price environment to diverge from long-term economic fundamentals, which cannot be sustained indefinitely.” California has 8 of the top 12 slots for cities most at risk for price declines.
Crude is trading around $59.41 a barrel.
The S&P 500 is at a 4-year high.
A record monsoon hit Bombay.
Computer Associates is cutting 800 jobs.
Delta Air’s CEO gave a downbeat assessment for avoiding bankruptcy.
It’s getting to be SOP time for CNOOC. The clock is running down on their opportunity to buy Unocal.
Tuesday, July 26, 2005
Do The Math
7/27/05 Do The Math
I received many inquiries as to why I believed PKZ presently offered more value than any other public company-- especially on a risk/reward basis. I can't expect others to do the work. After all, they are only paid to do that. It's not difficult. According to John S. Herold and Harrison Lovegrove & Co., in 2004 the price paid for oil and gas reserves rose by 40% over 2003. The median price for 1 barrel of oil equivalent was $9.78. The volume of deals in the first half of 2005 has already exceeded all of 2004, and figures will show the price has jumped to about $12 a barrel. PKZ has proven reserves of 550 million barrels. Maybe some folks think Kazakhstan is not as safe as say Wyoming. We will take a 50% haircut on the $12 and now multiply the 550 million barrels by $6 a barrel. In addition, we will take another haircut on the other 300 million possible barrels of reserves and this does not count even one barrel on the three to six wells they will be drilling by year-end. The company has found paydirt in the previous wells drilled in this region earlier this year. We will multiply the 300 million+ barrels by a 75% haircut or $3 per barrel. The total of $4.2 billion equates to $56 a share. If there is no takeover by either PetroChina or ONGC or any other company, you own shares in a company whose stock is selling at 4 times 2006 earnings or less and providing a dividend yield higher than most public companies. If that is not to your liking, you can always buy real estate in Manhattan. Just an aside, PKZ reminds me somewhat of Anadarko Petroleum in July 2003. The stock had almost no fans. I thought it represented the best value in the market on a risk/reward basis. I would buy it almost daily at $41 to $42 a share. Someone bet me it would not go to $50. It went there on the way to $90. The trip took two years and the person never paid his bet. Sore losers have a way of doing that. I wouldn't have taken his money any way. Being right is the prize.
The price of West Texas Intermediate(WTI) crude, as assessed by Platts, increased $3.045 for August delivery to$58.36-58.38 per barrel. "This is a market essentially without bearish news at this point," saidJohn Kingston, global director of oil at Platts. "Every time it looks likeChinese demand might be softening, there is evidence pointing the other way.Every time there's a significant move down, a new rush of speculative moneyseems to appear to act as a prop. Signs pointing to a slight softening of USdemand may be the one bearish factor in the market, but whether that becomes atrend is still indeterminate."
The Conference Board's ConsumerConfidence Index, which had increased in June, dipped in July. The Index nowstands at 103.2 (1985=100), down from 106.2 in June. The Present Situation Index decreased to 118.5 from 120.8. The Expectations Index declined to 93.0 from 96.4 last month.The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. The outlook for the labor market was mixed. Consumers expecting more jobs to become available in the coming months edged up to 15.8 percent from 15.4 percent, while those expecting fewer jobs also edged up to 16.8 percent from16.4 percent in June. The proportion of consumers anticipating their incomes will increase in the months ahead declined to 18.6 percent from 19.9 percent last month. Consumers' overall assessment of ongoing conditions was somewhat mixed inJuly. Those claiming business conditions are "bad" increased to 16.9 percentfrom 15.3 percent. However, those claiming conditions are "good" improved to 28.7 percent from 26.7 percent. The employment picture was also mixed. Consumers saying jobs are "hard to get" increased to 23.8 percent from 22.5 percent, but those claiming jobs are "plentiful" held steady at 22.5 percent. Consumers' outlook for the next six months was marginally less favorable than in June. Those anticipating business conditions to improve declined to17.6 percent from 19.5 percent. Consumers expecting business conditions to worsen edged up to 9.6 percent from 9.0 percent.
The pace of mass layoffs accelerated in June, exceeding levels recorded in May and June 2004, the U.S. Bureau of Labor Statistics said Tuesday. Ohio employers initiated 62 mass layoff events in June, according to the bureau, which led to 11,541 initial claims for unemployment compensation. The bureau reported 42 mass layoffs, accounting for 3,349 initial claims for unemployment, in May. Ohio employers cut 6,755 jobs in 61 mass layoffs in June 2004. The bureau defines a mass layoff as 50 or more jobs cut from a single location within 30 days. Nationwide, U.S. employers cut 120,463 jobs in 1,157 mass layoffs in June, up from 101,358 jobs in 986 mass layoffs in May. U.S. employers initiated 1,379 mass layoffs in June 2004, which led to 134,588 initial claims for unemployment.
The pace of mass layoffs accelerated in June, exceeding levels recorded in May and June 2004, the U.S. Bureau of Labor Statistics said Tuesday. Ohio employers initiated 62 mass layoff events in June, according to the bureau, which led to 11,541 initial claims for unemployment compensation. The bureau reported 42 mass layoffs, accounting for 3,349 initial claims for unemployment, in May. Ohio employers cut 6,755 jobs in 61 mass layoffs in June 2004. The bureau defines a mass layoff as 50 or more jobs cut from a single location within 30 days.
Nationwide, U.S. employers cut 120,463 jobs in 1,157 mass layoffs in June, up from 101,358 jobs in 986 mass layoffs in May. U.S. employers initiated 1,379 mass layoffs in June 2004, which led to 134,588 initial claims for unemployment.
According to the Grandfather Economic Report, a 1950 dollar is now worth 12.6 cents, an 87% decline in purchasing power.
According to LexisNexis, bankruptcy filings rose 12% in this year's second quarter above year ago levels.
International Business Machines said Tuesday that it plans to repatriate about $9 billion in foreign earnings.
Tthe Bluetooth Special Interest Group announced Tuesday the selection of Bellevue, Washington for its global headquarters based on the city's proximity to key international markets, growing wireless technology industry, and infrastructure and overall quality of life, as well as the presence of many Bl uetooth member companies in the area.
Americans now prefer wine over beer. Since I don't drink, iced coffee and Sport tea are for me.
I received many inquiries as to why I believed PKZ presently offered more value than any other public company-- especially on a risk/reward basis. I can't expect others to do the work. After all, they are only paid to do that. It's not difficult. According to John S. Herold and Harrison Lovegrove & Co., in 2004 the price paid for oil and gas reserves rose by 40% over 2003. The median price for 1 barrel of oil equivalent was $9.78. The volume of deals in the first half of 2005 has already exceeded all of 2004, and figures will show the price has jumped to about $12 a barrel. PKZ has proven reserves of 550 million barrels. Maybe some folks think Kazakhstan is not as safe as say Wyoming. We will take a 50% haircut on the $12 and now multiply the 550 million barrels by $6 a barrel. In addition, we will take another haircut on the other 300 million possible barrels of reserves and this does not count even one barrel on the three to six wells they will be drilling by year-end. The company has found paydirt in the previous wells drilled in this region earlier this year. We will multiply the 300 million+ barrels by a 75% haircut or $3 per barrel. The total of $4.2 billion equates to $56 a share. If there is no takeover by either PetroChina or ONGC or any other company, you own shares in a company whose stock is selling at 4 times 2006 earnings or less and providing a dividend yield higher than most public companies. If that is not to your liking, you can always buy real estate in Manhattan. Just an aside, PKZ reminds me somewhat of Anadarko Petroleum in July 2003. The stock had almost no fans. I thought it represented the best value in the market on a risk/reward basis. I would buy it almost daily at $41 to $42 a share. Someone bet me it would not go to $50. It went there on the way to $90. The trip took two years and the person never paid his bet. Sore losers have a way of doing that. I wouldn't have taken his money any way. Being right is the prize.
The price of West Texas Intermediate(WTI) crude, as assessed by Platts, increased $3.045 for August delivery to$58.36-58.38 per barrel. "This is a market essentially without bearish news at this point," saidJohn Kingston, global director of oil at Platts. "Every time it looks likeChinese demand might be softening, there is evidence pointing the other way.Every time there's a significant move down, a new rush of speculative moneyseems to appear to act as a prop. Signs pointing to a slight softening of USdemand may be the one bearish factor in the market, but whether that becomes atrend is still indeterminate."
The Conference Board's ConsumerConfidence Index, which had increased in June, dipped in July. The Index nowstands at 103.2 (1985=100), down from 106.2 in June. The Present Situation Index decreased to 118.5 from 120.8. The Expectations Index declined to 93.0 from 96.4 last month.The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. The outlook for the labor market was mixed. Consumers expecting more jobs to become available in the coming months edged up to 15.8 percent from 15.4 percent, while those expecting fewer jobs also edged up to 16.8 percent from16.4 percent in June. The proportion of consumers anticipating their incomes will increase in the months ahead declined to 18.6 percent from 19.9 percent last month. Consumers' overall assessment of ongoing conditions was somewhat mixed inJuly. Those claiming business conditions are "bad" increased to 16.9 percentfrom 15.3 percent. However, those claiming conditions are "good" improved to 28.7 percent from 26.7 percent. The employment picture was also mixed. Consumers saying jobs are "hard to get" increased to 23.8 percent from 22.5 percent, but those claiming jobs are "plentiful" held steady at 22.5 percent. Consumers' outlook for the next six months was marginally less favorable than in June. Those anticipating business conditions to improve declined to17.6 percent from 19.5 percent. Consumers expecting business conditions to worsen edged up to 9.6 percent from 9.0 percent.
The pace of mass layoffs accelerated in June, exceeding levels recorded in May and June 2004, the U.S. Bureau of Labor Statistics said Tuesday. Ohio employers initiated 62 mass layoff events in June, according to the bureau, which led to 11,541 initial claims for unemployment compensation. The bureau reported 42 mass layoffs, accounting for 3,349 initial claims for unemployment, in May. Ohio employers cut 6,755 jobs in 61 mass layoffs in June 2004. The bureau defines a mass layoff as 50 or more jobs cut from a single location within 30 days. Nationwide, U.S. employers cut 120,463 jobs in 1,157 mass layoffs in June, up from 101,358 jobs in 986 mass layoffs in May. U.S. employers initiated 1,379 mass layoffs in June 2004, which led to 134,588 initial claims for unemployment.
The pace of mass layoffs accelerated in June, exceeding levels recorded in May and June 2004, the U.S. Bureau of Labor Statistics said Tuesday. Ohio employers initiated 62 mass layoff events in June, according to the bureau, which led to 11,541 initial claims for unemployment compensation. The bureau reported 42 mass layoffs, accounting for 3,349 initial claims for unemployment, in May. Ohio employers cut 6,755 jobs in 61 mass layoffs in June 2004. The bureau defines a mass layoff as 50 or more jobs cut from a single location within 30 days.
Nationwide, U.S. employers cut 120,463 jobs in 1,157 mass layoffs in June, up from 101,358 jobs in 986 mass layoffs in May. U.S. employers initiated 1,379 mass layoffs in June 2004, which led to 134,588 initial claims for unemployment.
According to the Grandfather Economic Report, a 1950 dollar is now worth 12.6 cents, an 87% decline in purchasing power.
According to LexisNexis, bankruptcy filings rose 12% in this year's second quarter above year ago levels.
International Business Machines said Tuesday that it plans to repatriate about $9 billion in foreign earnings.
Tthe Bluetooth Special Interest Group announced Tuesday the selection of Bellevue, Washington for its global headquarters based on the city's proximity to key international markets, growing wireless technology industry, and infrastructure and overall quality of life, as well as the presence of many Bl uetooth member companies in the area.
Americans now prefer wine over beer. Since I don't drink, iced coffee and Sport tea are for me.
Acquisitions
7/26/05 Acquisitions
Significant acquisitions can occur and get little press coverage. Yesterday, 3M announced it had entered into a definitive agreement to acquire Mercury Online Solutions Inc., a provider of hardware and software technologies and network management services for digital signage and interactive kiosk networks. Terms of the transaction were not disclosed. Digital signage networks enable centrally controlled delivery of digital content to vast networks of display screens and interactive kiosks. The trend toward in-store digital signage networks is accelerating driven by the desire to improve shopping experiences and influence purchase decisions by providing relevant information and promotional messaging nearer to the product shelf where purchase decisions are made.
This acquisition accelerates 3M's entry into the rapidly growing digital signage network marketplace. "The addition of Mercury Online Solutions Inc.'s digital signage networks is a natural extension of 3M's existing graphics business and allows us to use our global services platform," said Robert Doughty, division vice president, 3M Commercial Graphics Division. Mercury Online is the fastest growing company in the state of Washington.
Yesterday, Hershey’s announced the purchase of nine-year-old Berkeley, California artisanal chocolate maker Scharffen Berger. Hershey’s sees the premium chocolate segment as a key growth opportunity. Scharffen Berger posted revenue of $15 million in 2004, a 75% increase, and earlier this year predicted a further 50% increase in 2005.
The U.S. is expected to delay the review of CNOOC’s bid for Unocal. Meanwhile, the vote on the Chevron acquisition of Unocal is in 16 days.
With respect to PetroKazakhstan, the company will report second quarter earnings on July 28. It will become increasingly apparent that current earnings estimates for 2005 and 2006 are too low. In fact, with the new pipeline coming on stream on Jan. 1, 2006, it is quite conceivable that earnings for 2006 could jump 40%. In addition, three new wells “established the presence of a significant new dual reservoir field, separate from the Northern part of the Kyzylklya field but close to the main Kyzylklya production facilities…The company expects to drill an additional 3 to 6 wells in the area before the end of the year.” Should these wells prove similar to the three drilled earlier this year, it is quite possible that reserve estimates could be increased to 1 billion barrels of oil. Given the current market cap of $3 billion, there may be other public companies offering more value, but I don’t know of any. I feel quite certain that PetroChina and ONGC share that viewpoint based on their announced desires to acquire PetroKazakhstan. In order for such an acquisition to be consummated, I believe it would need to come at a significant premium to the current market price.
Paul Kasriel: “I think a good argument can be made that the FOMC will be cutting the funds rate sometime in the second half of 2006. I also see a good chance that the Treasury 10-year yield will be trading below 4% on a consistent basis in the first half of 2006, if not sooner. As for real GDP growth in 2006, a "2" handle is beginning to look likely if the FOMC actually does follow through with a 4% funds rate by yearend.”
India accounts for 18% of the annual global gold demand. According to estimates, India owns approximately $200 billion worth of gold. In my view, this provides more solid value to their currency.
Yesterday, crude climbed back to the $59 per barrel level. Gold rallied close to $426 an ounce.
With existing June home prices having risen 14.7% over year ago levels, homeowners must be feeling pretty wealthy. Their wages may not be climbing much but their homes are doing just fine. Yet, the head of the NAR mentioned that a slowdown seems to have occurred in July. Homes on the market are taking longer to sell. Maybe it’s just the summer doldrums and the buyers are at the beaches. It could also be that the offering prices have reached levels characterized by poor risk/reward. On the other hand, Greenspan is not concerned. Something tells me better value will be realized in Mercury Online Solutions, Scharffen Berger, and PetroKazakhstan.
Countrywide Financial reported second quarter earnings of 92 cents a share, down from last year's $1.29, and 7 cents below analyst estimates. The company lifted its 2005 earnings outlook to $3.85 to $4.60 per share, up from $3.60 to $4.60. Current analyst estimates are $4.21 a share.
Significant acquisitions can occur and get little press coverage. Yesterday, 3M announced it had entered into a definitive agreement to acquire Mercury Online Solutions Inc., a provider of hardware and software technologies and network management services for digital signage and interactive kiosk networks. Terms of the transaction were not disclosed. Digital signage networks enable centrally controlled delivery of digital content to vast networks of display screens and interactive kiosks. The trend toward in-store digital signage networks is accelerating driven by the desire to improve shopping experiences and influence purchase decisions by providing relevant information and promotional messaging nearer to the product shelf where purchase decisions are made.
This acquisition accelerates 3M's entry into the rapidly growing digital signage network marketplace. "The addition of Mercury Online Solutions Inc.'s digital signage networks is a natural extension of 3M's existing graphics business and allows us to use our global services platform," said Robert Doughty, division vice president, 3M Commercial Graphics Division. Mercury Online is the fastest growing company in the state of Washington.
Yesterday, Hershey’s announced the purchase of nine-year-old Berkeley, California artisanal chocolate maker Scharffen Berger. Hershey’s sees the premium chocolate segment as a key growth opportunity. Scharffen Berger posted revenue of $15 million in 2004, a 75% increase, and earlier this year predicted a further 50% increase in 2005.
The U.S. is expected to delay the review of CNOOC’s bid for Unocal. Meanwhile, the vote on the Chevron acquisition of Unocal is in 16 days.
With respect to PetroKazakhstan, the company will report second quarter earnings on July 28. It will become increasingly apparent that current earnings estimates for 2005 and 2006 are too low. In fact, with the new pipeline coming on stream on Jan. 1, 2006, it is quite conceivable that earnings for 2006 could jump 40%. In addition, three new wells “established the presence of a significant new dual reservoir field, separate from the Northern part of the Kyzylklya field but close to the main Kyzylklya production facilities…The company expects to drill an additional 3 to 6 wells in the area before the end of the year.” Should these wells prove similar to the three drilled earlier this year, it is quite possible that reserve estimates could be increased to 1 billion barrels of oil. Given the current market cap of $3 billion, there may be other public companies offering more value, but I don’t know of any. I feel quite certain that PetroChina and ONGC share that viewpoint based on their announced desires to acquire PetroKazakhstan. In order for such an acquisition to be consummated, I believe it would need to come at a significant premium to the current market price.
Paul Kasriel: “I think a good argument can be made that the FOMC will be cutting the funds rate sometime in the second half of 2006. I also see a good chance that the Treasury 10-year yield will be trading below 4% on a consistent basis in the first half of 2006, if not sooner. As for real GDP growth in 2006, a "2" handle is beginning to look likely if the FOMC actually does follow through with a 4% funds rate by yearend.”
India accounts for 18% of the annual global gold demand. According to estimates, India owns approximately $200 billion worth of gold. In my view, this provides more solid value to their currency.
Yesterday, crude climbed back to the $59 per barrel level. Gold rallied close to $426 an ounce.
With existing June home prices having risen 14.7% over year ago levels, homeowners must be feeling pretty wealthy. Their wages may not be climbing much but their homes are doing just fine. Yet, the head of the NAR mentioned that a slowdown seems to have occurred in July. Homes on the market are taking longer to sell. Maybe it’s just the summer doldrums and the buyers are at the beaches. It could also be that the offering prices have reached levels characterized by poor risk/reward. On the other hand, Greenspan is not concerned. Something tells me better value will be realized in Mercury Online Solutions, Scharffen Berger, and PetroKazakhstan.
Countrywide Financial reported second quarter earnings of 92 cents a share, down from last year's $1.29, and 7 cents below analyst estimates. The company lifted its 2005 earnings outlook to $3.85 to $4.60 per share, up from $3.60 to $4.60. Current analyst estimates are $4.21 a share.
Monday, July 25, 2005
Multi-year Trends Leading To Undesired Results
7/25/05 Multi-year Trends Leading To Undesired Results
Doug Wakefield: "From June 1999 to March 2005 we have seen national savings increase from $1,619 billion to $1,819 billion. 6 To place these numbers in context, this is a 10% rise during a period where national incomes went up 34%, consumer credit went up 58%, and total mortgages went up 72%... From June 1999 until June 2005 we have seen the amount of money, as measured by M3, in our country increase from $6,237 billion to $9,727 billion. This is an increase of 55% in 6 years."
Wal-Mart will have 90 stores in China in 2006 or double the amount anticipated at this year-end.
Teva is reported close to acquiring Ivax for approximately 47.5 billion in cash and stock.
Crude remains above $58 a barrel.
China's crude oil imports rose 3.9% in the first six months of 2005, but they slowed dramatically in June.
Volvo is Europe's largest truck manufacturer. In the second quarter their truck orders declined 10%.
Pepsi will repatriate $7.5 billion in foreign earnings. That will provide another $400 million to the U.S. government in tax receipts.
John P. Hussman: "Inflation is not a monetary phenomenon but a fiscal one – it occurs always and everywhere when fiscal authorities create government liabilities in excess of economic growth."
Shanghai copper futures rose over 3% to a record 34,530 yuan a metric ton. China is the world's largets consumer of copper.
Greenspan: "Future price performance will be influenced importantly by the trend in unit labor costs." In recent years, inflation has been smoldering without the workers' wages outpacing the inflation rate, and the government numbers mute the real rate of inflation. What else is new?
I want to re-emphasize a point I recently stated. Two-year Treasury bonds are approaching a 4% yield. There is only a small yield pick up in the 10-year and that differential in no way pays you adequately for the increased risk. I strongly believe all 10-year Treasury holdings should be converted into the 2-year, and that means now. In addition, over the long-term, the risk in holding U.S. dollars has increased markedly with China converting the yuan peg to a basket of currencies. The landscape has trouble painted on the front cover. When in doubt, sell to the sleeping point.
Doug Wakefield: "From June 1999 to March 2005 we have seen national savings increase from $1,619 billion to $1,819 billion. 6 To place these numbers in context, this is a 10% rise during a period where national incomes went up 34%, consumer credit went up 58%, and total mortgages went up 72%... From June 1999 until June 2005 we have seen the amount of money, as measured by M3, in our country increase from $6,237 billion to $9,727 billion. This is an increase of 55% in 6 years."
Wal-Mart will have 90 stores in China in 2006 or double the amount anticipated at this year-end.
Teva is reported close to acquiring Ivax for approximately 47.5 billion in cash and stock.
Crude remains above $58 a barrel.
China's crude oil imports rose 3.9% in the first six months of 2005, but they slowed dramatically in June.
Volvo is Europe's largest truck manufacturer. In the second quarter their truck orders declined 10%.
Pepsi will repatriate $7.5 billion in foreign earnings. That will provide another $400 million to the U.S. government in tax receipts.
John P. Hussman: "Inflation is not a monetary phenomenon but a fiscal one – it occurs always and everywhere when fiscal authorities create government liabilities in excess of economic growth."
Shanghai copper futures rose over 3% to a record 34,530 yuan a metric ton. China is the world's largets consumer of copper.
Greenspan: "Future price performance will be influenced importantly by the trend in unit labor costs." In recent years, inflation has been smoldering without the workers' wages outpacing the inflation rate, and the government numbers mute the real rate of inflation. What else is new?
I want to re-emphasize a point I recently stated. Two-year Treasury bonds are approaching a 4% yield. There is only a small yield pick up in the 10-year and that differential in no way pays you adequately for the increased risk. I strongly believe all 10-year Treasury holdings should be converted into the 2-year, and that means now. In addition, over the long-term, the risk in holding U.S. dollars has increased markedly with China converting the yuan peg to a basket of currencies. The landscape has trouble painted on the front cover. When in doubt, sell to the sleeping point.
Sunday, July 24, 2005
Calm And Order
7/24/05 Calm And Order
What happens to the innocent during times besieged by terrorists? If you are an American journalist, you are sent to jail and your Fifth Amendment rights are eliminated. If you are an electrician of Egyptian descent on your way to work, you are the victim of shoot and kill orders. If you are an individual investor in the stock, bond, and commodity markets, you are dumbfounded by the calm and order generated by professional money managers who dominate day-to-day trading volume and overtake the remnants of volatility. But, wait, there is a different vision on the Washington State ferry system. You can walk on and off the ferry and/or drive onto or off the ferry without any check of a person or a vehicle. However, five minutes before landing in Seattle, out of nowhere will come two speeding Coast Guard gun boats each manned by four Service personnel. They will accompany the ferry into the port with one boat on each side of the ferry. Has this rush of activity helped to reduce the terrorist threat? Has calm and order been restored? Does this represent our billions spent on Homeland Security? Actually, I feel much better. I can rest easy now. Our ports are safe from harm.
John P. Hussman: “The further the market gets away from normal valuations – especially when it's overbought, the more the distribution of future expected returns tends to skew. You get a high probability of small further gains, coupled with a small but above “normal” probability of damaging losses.”
The PBGC estimates that total corporate under funding is roughly $450 billion. That does not include another $700 billion for municipal and state pension funds. Should the stock market not show a gain for 2005, what will the combined under funding total?
Mike Burk: “ In the first year of the presidential cycle the last five trading days of July have been up 70% of the time.”
There appears to be an oversupply of stainless steel and hot-rolled coil steel. Production and prices are being cut. China is rapidly building up capacity in lower-grade steel products. It is difficult to compete with China in this segment of the steel market. The current revaluation of the yuan will not be of assistance.
Nouriel Roubini: The more China will let its currency will move over time, the larger will be the appreciation of other Asian currencies.”
Since we invaded Iraq 28 months ago, at least 1,775 U.S. service personnel have been killed.
What happens to the innocent during times besieged by terrorists? If you are an American journalist, you are sent to jail and your Fifth Amendment rights are eliminated. If you are an electrician of Egyptian descent on your way to work, you are the victim of shoot and kill orders. If you are an individual investor in the stock, bond, and commodity markets, you are dumbfounded by the calm and order generated by professional money managers who dominate day-to-day trading volume and overtake the remnants of volatility. But, wait, there is a different vision on the Washington State ferry system. You can walk on and off the ferry and/or drive onto or off the ferry without any check of a person or a vehicle. However, five minutes before landing in Seattle, out of nowhere will come two speeding Coast Guard gun boats each manned by four Service personnel. They will accompany the ferry into the port with one boat on each side of the ferry. Has this rush of activity helped to reduce the terrorist threat? Has calm and order been restored? Does this represent our billions spent on Homeland Security? Actually, I feel much better. I can rest easy now. Our ports are safe from harm.
John P. Hussman: “The further the market gets away from normal valuations – especially when it's overbought, the more the distribution of future expected returns tends to skew. You get a high probability of small further gains, coupled with a small but above “normal” probability of damaging losses.”
The PBGC estimates that total corporate under funding is roughly $450 billion. That does not include another $700 billion for municipal and state pension funds. Should the stock market not show a gain for 2005, what will the combined under funding total?
Mike Burk: “ In the first year of the presidential cycle the last five trading days of July have been up 70% of the time.”
There appears to be an oversupply of stainless steel and hot-rolled coil steel. Production and prices are being cut. China is rapidly building up capacity in lower-grade steel products. It is difficult to compete with China in this segment of the steel market. The current revaluation of the yuan will not be of assistance.
Nouriel Roubini: The more China will let its currency will move over time, the larger will be the appreciation of other Asian currencies.”
Since we invaded Iraq 28 months ago, at least 1,775 U.S. service personnel have been killed.
Saturday, July 23, 2005
Restructuring And Re-balancing
7/23/05 Restructuring And Re-balancing
The job cuts and the plant closing continue in the U.S. Kimberly Clark will sell or close about 20 plants and cut 6,000 from the payroll. National Spinning will close a plant and cut 100 jobs. Ball Corp. will eliminate 90 jobs. Oscar Suris of Ford stated “we have operating challenges that include our cost structure and excessive production capacity, and we have plans to address that. With Ford’s U.S. sales down nearly 4% in the first six months of 2005 and a loss from North American operations amounting to $907 million in this year’s first half, one can expect thousands more of its 35,000 salaried workers to be cut from the payroll. Interestingly, our auto industry has two things in common with China’s manufacturing sector--- excess capacity and lack of pricing power.
Yu Yongding in discussing the yuan: “The principle is stability as well as flexibility. We don’t want to encourage speculative capital inflows.” The yuan may have been revalued but much for China will remain the same--- surplus capacity, declining manufacturing prices, rising trade and current account surpluses, large capital inflows, and rising forex reserves. Re-balancing and restructuring takes time—possibly decades rather than months or years.
Zhang Yisheng, director of Chai Da Garment: “It’s impossible to ask international buyers to accept a higher price. The competition is too fierce.”
Whirlpool raised its bid for Maytag to $18.
China’s Nanjing Automotive will buy Rover.
UK’s economic growth is the slowest in a dozen years.
For the fourth straight week, bond prices declined. At 3.90%, the yield on 2-year Treasury bonds is the highest in 4 years. The return is beginning to look like a viable alternative to expectations for common stocks.
John Challenger: “We don’t know till afterward, but I do think we may be seeing a tipping point in the economic cycle that these big layoffs are flagging.”
Have you considered the possibility of rising employment cuts combined with higher interest rates?
"Our focus is to make sure they're doing a good job in underwriting, make sure that the borrower does have the repayment capacity to absorb potential (rate) increases, not just to underwrite borrowers at the teaser rate," said Barbara Grunkemeyer, deputy comptroller for credit risk at the OCC. If the availability of interest-only loans and other “teaser” ARM loans should diminish greatly, what will that do to housing prices? What will it do to construction jobs?
For Wal-Mart’s July reporting period, comparative sales for the U.S. are estimated to be within its guidance of 3 to 5 percent. For the week, general merchandise sales were stronger than food. Average ticket drove the comp sales and the West was the strongest region.
The job cuts and the plant closing continue in the U.S. Kimberly Clark will sell or close about 20 plants and cut 6,000 from the payroll. National Spinning will close a plant and cut 100 jobs. Ball Corp. will eliminate 90 jobs. Oscar Suris of Ford stated “we have operating challenges that include our cost structure and excessive production capacity, and we have plans to address that. With Ford’s U.S. sales down nearly 4% in the first six months of 2005 and a loss from North American operations amounting to $907 million in this year’s first half, one can expect thousands more of its 35,000 salaried workers to be cut from the payroll. Interestingly, our auto industry has two things in common with China’s manufacturing sector--- excess capacity and lack of pricing power.
Yu Yongding in discussing the yuan: “The principle is stability as well as flexibility. We don’t want to encourage speculative capital inflows.” The yuan may have been revalued but much for China will remain the same--- surplus capacity, declining manufacturing prices, rising trade and current account surpluses, large capital inflows, and rising forex reserves. Re-balancing and restructuring takes time—possibly decades rather than months or years.
Zhang Yisheng, director of Chai Da Garment: “It’s impossible to ask international buyers to accept a higher price. The competition is too fierce.”
Whirlpool raised its bid for Maytag to $18.
China’s Nanjing Automotive will buy Rover.
UK’s economic growth is the slowest in a dozen years.
For the fourth straight week, bond prices declined. At 3.90%, the yield on 2-year Treasury bonds is the highest in 4 years. The return is beginning to look like a viable alternative to expectations for common stocks.
John Challenger: “We don’t know till afterward, but I do think we may be seeing a tipping point in the economic cycle that these big layoffs are flagging.”
Have you considered the possibility of rising employment cuts combined with higher interest rates?
"Our focus is to make sure they're doing a good job in underwriting, make sure that the borrower does have the repayment capacity to absorb potential (rate) increases, not just to underwrite borrowers at the teaser rate," said Barbara Grunkemeyer, deputy comptroller for credit risk at the OCC. If the availability of interest-only loans and other “teaser” ARM loans should diminish greatly, what will that do to housing prices? What will it do to construction jobs?
For Wal-Mart’s July reporting period, comparative sales for the U.S. are estimated to be within its guidance of 3 to 5 percent. For the week, general merchandise sales were stronger than food. Average ticket drove the comp sales and the West was the strongest region.
Thursday, July 21, 2005
After Shocks
7/22/05 After Shocks
When it comes to our U.S. dollar, the message has forever been "In God We Trust." For better or for worse, the rest of the word has shared that belief ----until today. With China's revaluation, the message has been transformed to "In a basket of currencies we trust." That changes the ground rules for investment in stocks, bonds, commodities, and currencies. Our dollars and our Treasury bonds no longer are the center of the investment universe. They play a large part, and nothing more. There is a visible shifting of power. The yuan will continue to gain in value, and, at least in the short term, increasing amount of money will flock into China. As was the case today, over time, interest rates will rise and the value of the dollar will resume its decline. There will be some regional strength left in certain housing markets, but the thrill will be gone, so to speak. The froth will vanish, and lo and behold, prices could even decline. Imagine that!
After the announcement of the yuan revaluation, the Indian rupee soared to its highest price against the U.S. dollar in 6 years with the rupee standing at 43.17 to the dollar. I have stated repeatedly over the past year that the rupee was my currency of choice. For the prior two years it had been the New Zealand dollar. A stronger yuan will assist India's exports, which account for about $10% of its economy. In the latest fiscal year, India's exports grew close to 25%.
Some folks believe the small revaluation of the yuan will help our exports. According to the Strategic Research Institute, in an effort to reduce costs, shorten time-to -market, and possible receive simultaneous approval in multiple markets, the pharmaceutical and biotech industry is increasingly looking to China to conduct clinical trials. The same advantages have already been found to exist in India.
With the yuan revaluation, shares of PetroChina jumped to $83, a new all-time high. The shares are trading at twice the P/E of PetroKazakhstan and make it possible for PetroChina to outbid others and still make an acquisition of PKZ that will be accretive to earnings at the outset.
Of the nearly 43,000 workers in Honeywell's aerospace division, more than 11,000 are at several sites in the Phoenix area. Within this division, about 2,000 jobs will be cut.
According to the Department of Labor, the median weekly earnings of the nation's 103.3 million full-time wage and salary workers were $643 in the second quarter of 2005. This was 0.6 percent higher than a year earlier, compared with a gain of 3% in the CPI.
Rep. Joe Barton will allow a vote on whether to add a provision to the energy bill aimed at blocking CNOOC's proposal to buy Unocal.
The revised Conference Board's U.S. Leading Economic Indicators Index has increased at a 1.2 percent annual rate over the last six months, but this is down from a peak of about 10 percent at the end of 2003.
Citing the positive trends in the economy, bond data, and corporate activity, Standard & Poor's Ratings Services painted a rosy picture of current conditions in the U.S., but cautioned that existing risks could lead to a turnaround. "Things are about as good as they get," stated David Wyss, chief economist, at Standard & Poor's Midyear Economic and Credit Update and Outlook. "This trend is going to continue for the next several quarters." He highlighted growth at 3.7%, inflation at 2% excluding energy, and unemployment at 5%. Corporate cash balances have set record highs, posting double-digit increases for the past 12 consecutive quarters. But skyrocketing energy prices and the trade deficit are casting a bit of a shadow over this upbeat assessment. With its tightening stance, which includes nine rate increases and three more expected by the end of 2005, the Federal Reserve is trying to achieve a neutral federal funds rate without slowing down the economy. However, Treasury bond yields are now lower than when the Fed began ratcheting up short-term rates in June 2004. The federal funds rate has risen to 3.25% from 1%, while rates on 10-year issues have actually dropped, to 4.2% from 4.8% during this period. Mr. Wyss predicted that bond yields should start to rise, though not as much as short-term rates. Although this will produce a flatter yield curve, he said this is no cause for worry: "Periods when the yield curve has been flat but positively sloped have shown about the same economic growth and actually better performance than periods in which the yield curve has been steep." Mr. Wyss did express concern about pensions, because 80% of those at corporations in the S&P 500 Index of stocks currently have a net underfunding of 11%. While this marks an improvement over the 13% underfunding in 2003, he questioned how the shortfall would improve, and pointed out that pension fund managers' projections of 8.25% average returns over the next few years seem overly optimistic.
When it comes to our U.S. dollar, the message has forever been "In God We Trust." For better or for worse, the rest of the word has shared that belief ----until today. With China's revaluation, the message has been transformed to "In a basket of currencies we trust." That changes the ground rules for investment in stocks, bonds, commodities, and currencies. Our dollars and our Treasury bonds no longer are the center of the investment universe. They play a large part, and nothing more. There is a visible shifting of power. The yuan will continue to gain in value, and, at least in the short term, increasing amount of money will flock into China. As was the case today, over time, interest rates will rise and the value of the dollar will resume its decline. There will be some regional strength left in certain housing markets, but the thrill will be gone, so to speak. The froth will vanish, and lo and behold, prices could even decline. Imagine that!
After the announcement of the yuan revaluation, the Indian rupee soared to its highest price against the U.S. dollar in 6 years with the rupee standing at 43.17 to the dollar. I have stated repeatedly over the past year that the rupee was my currency of choice. For the prior two years it had been the New Zealand dollar. A stronger yuan will assist India's exports, which account for about $10% of its economy. In the latest fiscal year, India's exports grew close to 25%.
Some folks believe the small revaluation of the yuan will help our exports. According to the Strategic Research Institute, in an effort to reduce costs, shorten time-to -market, and possible receive simultaneous approval in multiple markets, the pharmaceutical and biotech industry is increasingly looking to China to conduct clinical trials. The same advantages have already been found to exist in India.
With the yuan revaluation, shares of PetroChina jumped to $83, a new all-time high. The shares are trading at twice the P/E of PetroKazakhstan and make it possible for PetroChina to outbid others and still make an acquisition of PKZ that will be accretive to earnings at the outset.
Of the nearly 43,000 workers in Honeywell's aerospace division, more than 11,000 are at several sites in the Phoenix area. Within this division, about 2,000 jobs will be cut.
According to the Department of Labor, the median weekly earnings of the nation's 103.3 million full-time wage and salary workers were $643 in the second quarter of 2005. This was 0.6 percent higher than a year earlier, compared with a gain of 3% in the CPI.
Rep. Joe Barton will allow a vote on whether to add a provision to the energy bill aimed at blocking CNOOC's proposal to buy Unocal.
The revised Conference Board's U.S. Leading Economic Indicators Index has increased at a 1.2 percent annual rate over the last six months, but this is down from a peak of about 10 percent at the end of 2003.
Citing the positive trends in the economy, bond data, and corporate activity, Standard & Poor's Ratings Services painted a rosy picture of current conditions in the U.S., but cautioned that existing risks could lead to a turnaround. "Things are about as good as they get," stated David Wyss, chief economist, at Standard & Poor's Midyear Economic and Credit Update and Outlook. "This trend is going to continue for the next several quarters." He highlighted growth at 3.7%, inflation at 2% excluding energy, and unemployment at 5%. Corporate cash balances have set record highs, posting double-digit increases for the past 12 consecutive quarters. But skyrocketing energy prices and the trade deficit are casting a bit of a shadow over this upbeat assessment. With its tightening stance, which includes nine rate increases and three more expected by the end of 2005, the Federal Reserve is trying to achieve a neutral federal funds rate without slowing down the economy. However, Treasury bond yields are now lower than when the Fed began ratcheting up short-term rates in June 2004. The federal funds rate has risen to 3.25% from 1%, while rates on 10-year issues have actually dropped, to 4.2% from 4.8% during this period. Mr. Wyss predicted that bond yields should start to rise, though not as much as short-term rates. Although this will produce a flatter yield curve, he said this is no cause for worry: "Periods when the yield curve has been flat but positively sloped have shown about the same economic growth and actually better performance than periods in which the yield curve has been steep." Mr. Wyss did express concern about pensions, because 80% of those at corporations in the S&P 500 Index of stocks currently have a net underfunding of 11%. While this marks an improvement over the 13% underfunding in 2003, he questioned how the shortfall would improve, and pointed out that pension fund managers' projections of 8.25% average returns over the next few years seem overly optimistic.
It's Only The Beginning
7/21/05 It’s Only The Beginning
The People's Bank of China said the current yuan-dollar peg of 8.3 is being dropped in favor of a peg vs. a basket of currencies. The new peg vs. the dollar will be 8.11, and this represents a 3% change. The currencies included in the basket will most likely be the yen, euro, Singapore dollar, and other Asian currencies. The change means China will need to purchase less dollars and less dollar-denominated Treasuries to maintain the peg. It is only the beginning. There will more 3-4% changes in the future. Our dollar will become less important for foreign investors and less important in international trade. I continue to believe that, in the future, stocks, bonds, and commodities will be traded on the world markets against a basket of currencies rather than the dollar as it is presently. The reaction today was a decline in the value of the dollar and Treasury bonds. The yen surged in value, and gold, the euro, and the Singapore dollar gained in value. Over the long term, the market will look back and realize that today was the beginning of the air going out of the bubble on our low Treasury yields. Higher yields on Treasuries will lead to higher yields on mortgages, and that will reduce the housing sizzle.
Yesterday, the Nasdaq and the S&P 400 hit 4-year highs.
Bay Area apartment rents cost about 15% less than 4 years ago.
Greenspan: “History cautions that long periods of relative stability often engender unrealistic expectations of its permanence and, at times, may lead to financial excess and economic stress.”
PNC Financial is cutting 3,000 jobs.
Crude closed under $57 a barrel. U.S. crude stocks declined 900,000 barrels in the week ended July 15, while imports rose 871,000 barrels per day. Gasoline supplies fell by 1.3 million barrels and distillate stocks rose by 2.3 million barrels.
D.R. Horton, a large homebuilder, stated it has a record $7 billion sales order backlog at 6/30/05.
Greenspan: “The apparent froth in housing markets appears to have interacted with evolving practices in mortgage markets. The increase in the prevalence of interest-only loans and the introduction of non-exotic forms of adjustable-rate mortgages are developments of particular concern.”
Last week first-time jobless claims fell by 34,000, and the number of people receiving unemployment checks fell 41,000 to 2.577 million in the week ending July 9.
The People's Bank of China said the current yuan-dollar peg of 8.3 is being dropped in favor of a peg vs. a basket of currencies. The new peg vs. the dollar will be 8.11, and this represents a 3% change. The currencies included in the basket will most likely be the yen, euro, Singapore dollar, and other Asian currencies. The change means China will need to purchase less dollars and less dollar-denominated Treasuries to maintain the peg. It is only the beginning. There will more 3-4% changes in the future. Our dollar will become less important for foreign investors and less important in international trade. I continue to believe that, in the future, stocks, bonds, and commodities will be traded on the world markets against a basket of currencies rather than the dollar as it is presently. The reaction today was a decline in the value of the dollar and Treasury bonds. The yen surged in value, and gold, the euro, and the Singapore dollar gained in value. Over the long term, the market will look back and realize that today was the beginning of the air going out of the bubble on our low Treasury yields. Higher yields on Treasuries will lead to higher yields on mortgages, and that will reduce the housing sizzle.
Yesterday, the Nasdaq and the S&P 400 hit 4-year highs.
Bay Area apartment rents cost about 15% less than 4 years ago.
Greenspan: “History cautions that long periods of relative stability often engender unrealistic expectations of its permanence and, at times, may lead to financial excess and economic stress.”
PNC Financial is cutting 3,000 jobs.
Crude closed under $57 a barrel. U.S. crude stocks declined 900,000 barrels in the week ended July 15, while imports rose 871,000 barrels per day. Gasoline supplies fell by 1.3 million barrels and distillate stocks rose by 2.3 million barrels.
D.R. Horton, a large homebuilder, stated it has a record $7 billion sales order backlog at 6/30/05.
Greenspan: “The apparent froth in housing markets appears to have interacted with evolving practices in mortgage markets. The increase in the prevalence of interest-only loans and the introduction of non-exotic forms of adjustable-rate mortgages are developments of particular concern.”
Last week first-time jobless claims fell by 34,000, and the number of people receiving unemployment checks fell 41,000 to 2.577 million in the week ending July 9.
Wednesday, July 20, 2005
Sealed With A Kiss
7/20/05 Sealed With A Kiss
Chevron provided a timely kiss by raising its offer for Unocal to 40% in $69 per share in cash and 60% in 1.03 Chevron shares. On an after-tax basis, this is superior to CNOOC’s cash proposal plus Unocal shareholders can vote and close on the Chevron deal in 3 weeks. It’s a no-brainer. This might have been a bitter pill for the Chinese government, but they got great news in Kazakhstan. The new pipeline to China will be completed in December and oil will flow in January 2006. This is important for China, PetroChina, and PetroKazakhstan. The main issue for PetroKazakhstan is the cost of transporting oil and not the cost of finding the oil. With the pipeline, the combined cost of exploration and transportation should not exceed $5 a barrel. This makes PetroKasakhstan hugely profitable, and PetroChina should be the likely buyer for the company. China needs the oil for this pipeline and the fit with PetroKazakhstan is right on the money. I am raising my buyout price, and believe the value far exceeds the present $3 billion market cap. It should also be noted that the possible oil reserves for the company have been raised to 300 million barrels, and that makes the proven, probable, and possible a total of 850 million barrels.
Eastman Kodak will cut an additional 7,500 to 10,000 jobs. Tyson is closing plants and cutting 450 employees. VF, maker of Wrangler and Lee jeans, is closing its last garment manufacturing plant in El Paso and it is also the company’s last sewing facility in the U.S. It will leave 395 employees without jobs. VF was once El Paso’s largest private employer.
The median home price in the Bay Area exceeds $600,000.
Results of a survey released Tuesday by Mercer Human Resource Consulting show the size of the average raise this year is little changed from 2004, when pay hikes averaged 3.5 percent. A separate survey issued last month by the Conference Board was in line with Mercer's, finding that salaries are expected to rise an average 3.5 percent.
Amgen raised its earnings forecast for 2005 to $3.10 to $3.20 per share from $2.80 to $2.90 per share. The great ones find a way to exceed expectations.
Today, Wal-Mart is opening a new 292,000 square foot experimental supercenter in McKinney, Texas. It will be open 24 hours a day, seven days a week, and employ about 450 people. This store “will experiment with materials, technology, and processes, which include: reducing the amounts of energy and natural resources required to operate and maintain the stores; reducing the amount of raw materials needed to construct the facility; and substituting, when appropriate the amount of renewable materials used to construct and maintain the facility.”
The June semiconductor book-to-bill rate was 0.93. The 3-month average of orders for the month was a 33% drop posted a year earlier, but 5.5% above May 2005 levels.
HP contributed $1.2 billion to its pension and post-retirement plans in 2003, $613 million in 2004, and expect to spend $910 million in 2005. Any U.S. worker hired after Jan. 1, 2006 will only receive a 401K plan. It will be more generous than the present plan.
In the past year, the wholesale price of diesel has increased 54 cents to $1.75 a gallon. The current average national diesel price of $2.39, according to the U.S. Department of Energy, doesn’t cover the added costs truck stops pay for taxes and transporting the fuel.
Beginning this week, 4,689 businesses in Beijing will take mandatory weeklong breaks on rotation to save daily kilowatt usage. Worker salaries will not be reduced or cut. They will six days instead of five day weeks from September in order to make up for lost production, according to the Xinhua News Agency.
Chevron provided a timely kiss by raising its offer for Unocal to 40% in $69 per share in cash and 60% in 1.03 Chevron shares. On an after-tax basis, this is superior to CNOOC’s cash proposal plus Unocal shareholders can vote and close on the Chevron deal in 3 weeks. It’s a no-brainer. This might have been a bitter pill for the Chinese government, but they got great news in Kazakhstan. The new pipeline to China will be completed in December and oil will flow in January 2006. This is important for China, PetroChina, and PetroKazakhstan. The main issue for PetroKazakhstan is the cost of transporting oil and not the cost of finding the oil. With the pipeline, the combined cost of exploration and transportation should not exceed $5 a barrel. This makes PetroKasakhstan hugely profitable, and PetroChina should be the likely buyer for the company. China needs the oil for this pipeline and the fit with PetroKazakhstan is right on the money. I am raising my buyout price, and believe the value far exceeds the present $3 billion market cap. It should also be noted that the possible oil reserves for the company have been raised to 300 million barrels, and that makes the proven, probable, and possible a total of 850 million barrels.
Eastman Kodak will cut an additional 7,500 to 10,000 jobs. Tyson is closing plants and cutting 450 employees. VF, maker of Wrangler and Lee jeans, is closing its last garment manufacturing plant in El Paso and it is also the company’s last sewing facility in the U.S. It will leave 395 employees without jobs. VF was once El Paso’s largest private employer.
The median home price in the Bay Area exceeds $600,000.
Results of a survey released Tuesday by Mercer Human Resource Consulting show the size of the average raise this year is little changed from 2004, when pay hikes averaged 3.5 percent. A separate survey issued last month by the Conference Board was in line with Mercer's, finding that salaries are expected to rise an average 3.5 percent.
Amgen raised its earnings forecast for 2005 to $3.10 to $3.20 per share from $2.80 to $2.90 per share. The great ones find a way to exceed expectations.
Today, Wal-Mart is opening a new 292,000 square foot experimental supercenter in McKinney, Texas. It will be open 24 hours a day, seven days a week, and employ about 450 people. This store “will experiment with materials, technology, and processes, which include: reducing the amounts of energy and natural resources required to operate and maintain the stores; reducing the amount of raw materials needed to construct the facility; and substituting, when appropriate the amount of renewable materials used to construct and maintain the facility.”
The June semiconductor book-to-bill rate was 0.93. The 3-month average of orders for the month was a 33% drop posted a year earlier, but 5.5% above May 2005 levels.
HP contributed $1.2 billion to its pension and post-retirement plans in 2003, $613 million in 2004, and expect to spend $910 million in 2005. Any U.S. worker hired after Jan. 1, 2006 will only receive a 401K plan. It will be more generous than the present plan.
In the past year, the wholesale price of diesel has increased 54 cents to $1.75 a gallon. The current average national diesel price of $2.39, according to the U.S. Department of Energy, doesn’t cover the added costs truck stops pay for taxes and transporting the fuel.
Beginning this week, 4,689 businesses in Beijing will take mandatory weeklong breaks on rotation to save daily kilowatt usage. Worker salaries will not be reduced or cut. They will six days instead of five day weeks from September in order to make up for lost production, according to the Xinhua News Agency.
Tuesday, July 19, 2005
The Fog Will Clear
7/19/05 The Fog Will Clear
In June, UK house prices declined for the 11th consecutive month. Could that happen in the U.S.? The NAR-Wells Fargo housing market index dipped to 70 in July from a six-year high of 72 in June. The index of current single family home sales fell to 75 in July from 77 in June. Prospective sales fell to 77 from 80. Buyers’ traffic was unchanged at 55. New construction remains at about a 2 million annual unit pace, and, with 70% of Americans now homeowners, that is a heady figure to maintain.
Greenspan talks about slowing economic growth and more Fed rate hikes. I don’t hear him discussing Fed tightening of the money supply. Telling the whole story would be refreshing. Real M2 money supply growth contracted in the quarter ended June 2005.
Bill Gates: “"So even [though] India and China are going to grow quite a bit, it's a big problem for us that we can't get these great students."
IBM stock jumped about 5% yesterday after trading on the NYSE had ended. The company’s earnings in the quarter exceeded expectations. The media did not report that IBM ended the 2nd quarter with $8.7 billion in cash, and that IBM had repurchased shares totaling $1.6 billion. Outstanding debt stands at $23.7 billion with a debt-to-equity ratio of 6.7 to 1. Basically, net income for the six months was $3.23 billion, and that amount was used to repurchase IBM shares. This is a recurring theme and may help to explain why IBM’s stock has been a poor investment for some time. Where’s the organic growth?
Foreign capital inflows to the U.S. increased to $60 billion in May. Foreign central banks purchased $13.2 billion in long-term U.S. assets in May. However, Central banks purchased $6.8 billion in U.S. Treasuries in May, down sharply from April’s $13.9 billion.
There are a couple of points I would like to reiterate about CNOOC and Unocal. CNOOC will not raise its bid without Unocal’s endorsement. Will all the political upheaval surrounding the CNOOC proposal, it is difficult for the Unocal board to be certain that CNOOC will be in a position to close on the purchase. Japan is also voicing concerns behind the scenes because most of Unocal’s Indonesian gas field production is delivered to Japan and other Asian destinations. Should CNOOC buy Unocal, would Japan still get that gas production? Don’t bet on it.
HP will cut 14,500 jobs or about 10% of its workforce.
According to Project Construction Office in Iraq, the U.S. has not spent 60% of its pledged $21 billion for reconstruction.
In June, UK house prices declined for the 11th consecutive month. Could that happen in the U.S.? The NAR-Wells Fargo housing market index dipped to 70 in July from a six-year high of 72 in June. The index of current single family home sales fell to 75 in July from 77 in June. Prospective sales fell to 77 from 80. Buyers’ traffic was unchanged at 55. New construction remains at about a 2 million annual unit pace, and, with 70% of Americans now homeowners, that is a heady figure to maintain.
Greenspan talks about slowing economic growth and more Fed rate hikes. I don’t hear him discussing Fed tightening of the money supply. Telling the whole story would be refreshing. Real M2 money supply growth contracted in the quarter ended June 2005.
Bill Gates: “"So even [though] India and China are going to grow quite a bit, it's a big problem for us that we can't get these great students."
IBM stock jumped about 5% yesterday after trading on the NYSE had ended. The company’s earnings in the quarter exceeded expectations. The media did not report that IBM ended the 2nd quarter with $8.7 billion in cash, and that IBM had repurchased shares totaling $1.6 billion. Outstanding debt stands at $23.7 billion with a debt-to-equity ratio of 6.7 to 1. Basically, net income for the six months was $3.23 billion, and that amount was used to repurchase IBM shares. This is a recurring theme and may help to explain why IBM’s stock has been a poor investment for some time. Where’s the organic growth?
Foreign capital inflows to the U.S. increased to $60 billion in May. Foreign central banks purchased $13.2 billion in long-term U.S. assets in May. However, Central banks purchased $6.8 billion in U.S. Treasuries in May, down sharply from April’s $13.9 billion.
There are a couple of points I would like to reiterate about CNOOC and Unocal. CNOOC will not raise its bid without Unocal’s endorsement. Will all the political upheaval surrounding the CNOOC proposal, it is difficult for the Unocal board to be certain that CNOOC will be in a position to close on the purchase. Japan is also voicing concerns behind the scenes because most of Unocal’s Indonesian gas field production is delivered to Japan and other Asian destinations. Should CNOOC buy Unocal, would Japan still get that gas production? Don’t bet on it.
HP will cut 14,500 jobs or about 10% of its workforce.
According to Project Construction Office in Iraq, the U.S. has not spent 60% of its pledged $21 billion for reconstruction.
Monday, July 18, 2005
Zazzle
7/18/05 Zazzle
Emily, a category 4 hurricane with winds of 135 mph, slammed into the Yucatan Peninsula, which is best known for Cozumel. To those in the oil business, it is known for the Cantarell oil field that supplies about 3% of the global supply of 84 million barrels of oil daily. Shell abandoned three offshore facilities, suspending output of around 1,000 barrels daily and halting 20 million cubic feet of gas production. Mexico's state oil company, Petroleos Mexicanos, has evacuated its Bay of Campeche staff on offshore rigs and closed its taps. Petroleos Mexicanos exports 80 percent of its 3.4 million barrels in daily production to the United States, the world's largest consumer of energy. Emily appears headed for the Gulf Coast between Cabo Rojo, Mexico and Baffin Bay, Texas.
MMM revised its 2005 adjusted earnings estimate to $4.20 to $4.25 from $4.15 to $4.25 per share.
Citigroup's earnings fell short of 2nd quarter estimates and revenues declined 3.2%.
Bank of America's earnings exceeded estimates.
A preliminary $17 per share bid in cash and stock by Whirlpool for Maytag topped the offer by
Haier and others. Whirpool will decide by August 9th whether it will be a binding bid. There are potential anti-trust concerns.
Zazzle of Palo Alto, the Internet's leading customized products marketplace, received $16 million in funding from Kleiner Perkins and Sherpalo Venures, the same VC combo that funded Google in the beginning. At Zazzle, individuals, groups, and businesses can celebrate and share their interests by creating, buying, and selling high quality, uniquely customized products including apparel, posters, cards, and stamps. For example, for the first time, Walt Disney has made 130 of its legendary characters (3,500 images) available to the public for the purpose of creating personalized gifts and apparel.
Emily, a category 4 hurricane with winds of 135 mph, slammed into the Yucatan Peninsula, which is best known for Cozumel. To those in the oil business, it is known for the Cantarell oil field that supplies about 3% of the global supply of 84 million barrels of oil daily. Shell abandoned three offshore facilities, suspending output of around 1,000 barrels daily and halting 20 million cubic feet of gas production. Mexico's state oil company, Petroleos Mexicanos, has evacuated its Bay of Campeche staff on offshore rigs and closed its taps. Petroleos Mexicanos exports 80 percent of its 3.4 million barrels in daily production to the United States, the world's largest consumer of energy. Emily appears headed for the Gulf Coast between Cabo Rojo, Mexico and Baffin Bay, Texas.
MMM revised its 2005 adjusted earnings estimate to $4.20 to $4.25 from $4.15 to $4.25 per share.
Citigroup's earnings fell short of 2nd quarter estimates and revenues declined 3.2%.
Bank of America's earnings exceeded estimates.
A preliminary $17 per share bid in cash and stock by Whirlpool for Maytag topped the offer by
Haier and others. Whirpool will decide by August 9th whether it will be a binding bid. There are potential anti-trust concerns.
Zazzle of Palo Alto, the Internet's leading customized products marketplace, received $16 million in funding from Kleiner Perkins and Sherpalo Venures, the same VC combo that funded Google in the beginning. At Zazzle, individuals, groups, and businesses can celebrate and share their interests by creating, buying, and selling high quality, uniquely customized products including apparel, posters, cards, and stamps. For example, for the first time, Walt Disney has made 130 of its legendary characters (3,500 images) available to the public for the purpose of creating personalized gifts and apparel.
Sunday, July 17, 2005
Are You Peeing On An Electric Fence?
7/17/05 Are You Peeing On An Electric Fence?
Never underestimate the potential carnage that can be produced by a hurricane. Emily’s winds are currently at 155 mph and it is tracking to hit Mexico’s Yucatan peninsula on its way to the Gulf of Mexico and possibly the southern tip of Texas, and that could mean Houston where there recently has been severe flooding.
I am always amazed when the future is projected based on past history involving the word “always.” A typical example is stating that, for consecutive decades stretching from 1885 to 1995, the 5th year of the decade has always seen higher prices for the Dow Jones Industrials. Predicated on that performance, we should see higher prices by year-end 2005. Could something happen to interrupt that streak? When was the last time Florida experienced 4 major hurricanes in 5 weeks as it did in 2004?
The unprecedented can take place. Robert Shiller diagnosed, in advance, the dotcom bubble in stocks. He recently concluded that, after adjusting for inflation, home prices increased annually between 1890 and 1994 by 0.4%, and after periods when home prices outpaced inflation, they slowed down—possibly declining or stagnating.
How often has the Fed reduced the Fed funds rate to 1%? Would not that be considered an artificially manufactured low rate to stimulate housing, construction, and stock and bond prices, and hopefully lead to a higher rate of consumer spending? Nevertheless, the artificial can generate real results. Last week all-time highs were seen for mid cap and small cap indices. The NAR has upped their housing estimates to new all-time highs. The Russell 2000 and the 3000, the S&P 500, and the Wilshire 5000 hit multi-year highs. Up through last Thursday, the Philadelphia Semiconductor Index had risen for 9 straight days. All the while, inflation was muted. Right? Gas at the tank was at an all-time high. Corn prices were at their highest level in over a year. The Fed stated that home values increased 55% since 2000 to $18 trillion or more than 1 ½ times the size of our GDP. That is unprecedented! The Administration pointed to the strength in our June industrial production. It rose 0.9% thanks to a 5.3% increase in the output of utilities (it was hot and required more air conditioning) and the rise in auto production created by the employee discount program. Without utilities and autos, the June industrial production was up a meager 0.1%. What would the inflation rate be counting energy and food prices? Not muted.
Will Rogers: “There are three kinds of men:
1. the one that learns by reading.
2. the few who learn by observation.
3. the rest of them have to pee on the electric fence for themselves.”
Never underestimate the potential carnage that can be produced by a hurricane. Emily’s winds are currently at 155 mph and it is tracking to hit Mexico’s Yucatan peninsula on its way to the Gulf of Mexico and possibly the southern tip of Texas, and that could mean Houston where there recently has been severe flooding.
I am always amazed when the future is projected based on past history involving the word “always.” A typical example is stating that, for consecutive decades stretching from 1885 to 1995, the 5th year of the decade has always seen higher prices for the Dow Jones Industrials. Predicated on that performance, we should see higher prices by year-end 2005. Could something happen to interrupt that streak? When was the last time Florida experienced 4 major hurricanes in 5 weeks as it did in 2004?
The unprecedented can take place. Robert Shiller diagnosed, in advance, the dotcom bubble in stocks. He recently concluded that, after adjusting for inflation, home prices increased annually between 1890 and 1994 by 0.4%, and after periods when home prices outpaced inflation, they slowed down—possibly declining or stagnating.
How often has the Fed reduced the Fed funds rate to 1%? Would not that be considered an artificially manufactured low rate to stimulate housing, construction, and stock and bond prices, and hopefully lead to a higher rate of consumer spending? Nevertheless, the artificial can generate real results. Last week all-time highs were seen for mid cap and small cap indices. The NAR has upped their housing estimates to new all-time highs. The Russell 2000 and the 3000, the S&P 500, and the Wilshire 5000 hit multi-year highs. Up through last Thursday, the Philadelphia Semiconductor Index had risen for 9 straight days. All the while, inflation was muted. Right? Gas at the tank was at an all-time high. Corn prices were at their highest level in over a year. The Fed stated that home values increased 55% since 2000 to $18 trillion or more than 1 ½ times the size of our GDP. That is unprecedented! The Administration pointed to the strength in our June industrial production. It rose 0.9% thanks to a 5.3% increase in the output of utilities (it was hot and required more air conditioning) and the rise in auto production created by the employee discount program. Without utilities and autos, the June industrial production was up a meager 0.1%. What would the inflation rate be counting energy and food prices? Not muted.
Will Rogers: “There are three kinds of men:
1. the one that learns by reading.
2. the few who learn by observation.
3. the rest of them have to pee on the electric fence for themselves.”
Saturday, July 16, 2005
Bulletin-- wrong stock symbol-IMPORTANT
7/16/05 Wrong Stock Symbol--- IMPORTANT
PTZ should have been PKZ !!!!!
PTZ should have been PKZ !!!!!
Tie A Red Ribbon
7/16/05 Tie A Red Ribbon
Shopping at Wal-Mart is evolving. A good example is their Roanoke, Virginia location where Wednesday is now singles night. Singles tie a red ribbon to their shopping carts and mingle and mix in the aisles. It has been a great success. Another example is walmart.com. where, according to ComScore Networks, in May this website became the third most popular online retail site, up from fourth place. Wal-Mart stated its online sales growth is running at 2 to 3 times the industry average. In June, traffic to the website rose by 37% to 22.6 million visitors. It should get better in July as walmart.com is charging $16.66 for the new Harry Potter book compared to $17.99 at Amazon, Barnes & Nobles, and Borders. Meanwhile, for the July reporting period, comparative sales for the U.S. are estimated to be within our guidance of 3 to 5 percent. For the week ended July 15, food comparative sales were stronger than general merchandise. Average ticket drove the comp sales and the West was the strongest region.
Discussions at the Unocal boardroom must be getting interesting. On Friday, Senator Byron Dorgan, D-ND, introduced a bill in the Senate to prevent a CNOOC purchase of Unocal. Meanwhile, CNOOC is attempting to garner support at Unocal CNOOC by offering to set aside $2.5 billion in an escrow account in the United States that would be paid to Unocal shareholders if the Chinese firm walked away from the deal. But CNOOC will not owe any money if the U.S. government blocks the deal, as long as it meets all conditions set in its contract to address U.S. security concerns. CNOOC is also offering to put an additional $500 million in escrow, which will be used to pay Chevron as a break-up fee if Unocal accepts the Chinese bid. The problems are simple to contemplate. The upfront good-faith money is not enough to offset the political unrest over this deal and the monetary differential between the Chevron approved deal and the CNOOC proposal is not sufficient to overcome the time risks to possible completion. I firmly believe a small kiss from Chevron will put an end to the discussions.
JP Morgan reports that year-to-date home equity loans amount to $244 billion, 28% higher than year earlier levels.
June import prices for the U.S. rose 7% above year ago levels.
By year end 2005, China’s foreign exchange reserves could exceed $800 billion or at least 30% above 2004 levels.
China consumes close to 7 million barrels of oil a day. With 1.3 billion people, that consumption can only grow in time. With a growing hoard of foreign exchange reserves, it is only to be expected that the country will actively search out potential sources of crude reserves. By purchasing these reserves with dollars, they are able to find an avenue other than buying our Treasury bonds. PetroChina is an active bidder for PetroKazakhstan. They will go head to head in the bidding with India’s Oil and Natural Gas Corp (ONGC). A senior oil minister from India stated yesterday “the Kazakh government is happy with India’s proposal and has assured us of full support. We are in the process of preparing an attractive bid for PetroKazakhstan which the Canadians cannot refuse.” At $38+, PKZ is selling at a low 5-6 p/e. The current price is setting a $5 a barrel value on its reserves. The stock is $8 below its high for the year. ONGC will have strong bidding competition from PetroChina. In my view, there is significant upside with low risk. Goldman Sachs will see to it that PKZ is sold to the highest bidder. PKZ currently produces 150,000 barrels of oil a day and has a refinery. The production and the reserves are attractive to both bidders. I much prefer investing in PKZ than speculating on whether the S&P 500, the Dow, and the Nasdaq will be rising or falling.
Shopping at Wal-Mart is evolving. A good example is their Roanoke, Virginia location where Wednesday is now singles night. Singles tie a red ribbon to their shopping carts and mingle and mix in the aisles. It has been a great success. Another example is walmart.com. where, according to ComScore Networks, in May this website became the third most popular online retail site, up from fourth place. Wal-Mart stated its online sales growth is running at 2 to 3 times the industry average. In June, traffic to the website rose by 37% to 22.6 million visitors. It should get better in July as walmart.com is charging $16.66 for the new Harry Potter book compared to $17.99 at Amazon, Barnes & Nobles, and Borders. Meanwhile, for the July reporting period, comparative sales for the U.S. are estimated to be within our guidance of 3 to 5 percent. For the week ended July 15, food comparative sales were stronger than general merchandise. Average ticket drove the comp sales and the West was the strongest region.
Discussions at the Unocal boardroom must be getting interesting. On Friday, Senator Byron Dorgan, D-ND, introduced a bill in the Senate to prevent a CNOOC purchase of Unocal. Meanwhile, CNOOC is attempting to garner support at Unocal CNOOC by offering to set aside $2.5 billion in an escrow account in the United States that would be paid to Unocal shareholders if the Chinese firm walked away from the deal. But CNOOC will not owe any money if the U.S. government blocks the deal, as long as it meets all conditions set in its contract to address U.S. security concerns. CNOOC is also offering to put an additional $500 million in escrow, which will be used to pay Chevron as a break-up fee if Unocal accepts the Chinese bid. The problems are simple to contemplate. The upfront good-faith money is not enough to offset the political unrest over this deal and the monetary differential between the Chevron approved deal and the CNOOC proposal is not sufficient to overcome the time risks to possible completion. I firmly believe a small kiss from Chevron will put an end to the discussions.
JP Morgan reports that year-to-date home equity loans amount to $244 billion, 28% higher than year earlier levels.
June import prices for the U.S. rose 7% above year ago levels.
By year end 2005, China’s foreign exchange reserves could exceed $800 billion or at least 30% above 2004 levels.
China consumes close to 7 million barrels of oil a day. With 1.3 billion people, that consumption can only grow in time. With a growing hoard of foreign exchange reserves, it is only to be expected that the country will actively search out potential sources of crude reserves. By purchasing these reserves with dollars, they are able to find an avenue other than buying our Treasury bonds. PetroChina is an active bidder for PetroKazakhstan. They will go head to head in the bidding with India’s Oil and Natural Gas Corp (ONGC). A senior oil minister from India stated yesterday “the Kazakh government is happy with India’s proposal and has assured us of full support. We are in the process of preparing an attractive bid for PetroKazakhstan which the Canadians cannot refuse.” At $38+, PKZ is selling at a low 5-6 p/e. The current price is setting a $5 a barrel value on its reserves. The stock is $8 below its high for the year. ONGC will have strong bidding competition from PetroChina. In my view, there is significant upside with low risk. Goldman Sachs will see to it that PKZ is sold to the highest bidder. PKZ currently produces 150,000 barrels of oil a day and has a refinery. The production and the reserves are attractive to both bidders. I much prefer investing in PKZ than speculating on whether the S&P 500, the Dow, and the Nasdaq will be rising or falling.
Friday, July 15, 2005
The Sleeper
7/15/05 The Sleeper
Consumer worries over rising gas prices, the London terrorist attack and a drop in job security combined to produce a sharp drop in consumer confidence among Americans surveyed by the July RBC CASH (Consumer Attitudes and Spending by Household) Index. The surveyof 1,000 individuals taken across the U.S. this week showed increasing pessimism about the economy, jobs and investing. The RBC CASH Index for July dropped to its lowest level since October2003, exhibiting increasing pessimism by respondents about the current and future state of local economies, job security, and investment. The RBC CASH Index stands at 73.9, down from 84.0 one month ago. This decrease drops consumer confidence to the lowest point in 2005, and represents the lowest level since October 2003, when the index stood at 74.4. The RBC Current Conditions Index dropped significantly this month to 87.0, from 100.8 last month. Similarly, the RBC Investment Index was down sharply this month to81.3,a decrease from 93.0 last month. Both the RBC Current Conditions Index and the RBC Investment Index stand roughly where they were one year ago. The Conference Board’s CEO survey revealed that chief executives are less confident about the state of the economy now than they were in the first quarter of this year. This could negatively impact corporate spending on capital projects as well as hiring. CEOs’ short-term outlook as well as expectations for their own industry deteriorated in the second quarter. Their measure of confidence declined to the lowest level since the first quarter of 2003. Their view of current economic conditions vs. 6 months ago dropped to the lowest level since the second quarter of 2003. Their expectations for the economy looking out six months were lower than any point in the past three and one half years, and that is also true for the expectations for their own industry looking out six months. As for the current condition in their own industry vs. six months ago, expectations dropped to the level of the first quarter in 2002. With the S&P 500 at a 4 year high and the Nasdaq at a 2005 high, one can come to the conclusion that the market has recently climbed a big wall of worry. Sometimes buying breeds buying, and that includes nervous short-covering. I prefer, in most cases, to sell into strength. Taking profits never hurt one’s bank account. Unfortunately, these same profits inflate the tax revenues for the government, and enable our lawmakers and the Administration to chow on the pork programs. Supertanker shipping rates are soaring once again with transporting oil from the Middle East reaching its highest level in 2005 in July. Freight rates to the U.S. Gulf coast have risen by 66 percent over the past three weeks. Those increases help to buoy the cost of oil. Yesterday, there was a decline of 4% to $57.80 a barrel. Yesterday, gold had another bad day as it declined to $420.20 an ounce. I still am waiting to buy at $412 and below. Rep. Richard Pombo, R-CA, is chairman of the House Resources Committee, which has the authority to approve or reject proposed acquisitions by entities controlled by foreign entities. He wants to add language to the energy bill requiring an immediate review of CNOOC’s proposal to buy Unocal. In the week ended July 8, U.S. natural gas supplies rose by 94 billion cubic feet. The CEO of Countrywide Financial made an interesting comment. He stated “high funding volume during the quarter created significant economic value, not all of which will be reflected in second quarter earnings as a substantial portion of this production was retained in portfolio...Had these $9 billion in loans been sold during the quarter, management estimates that an incremental pre-tax gain of approximately $150 million would have been recognized.” PetroKazakhstan Inc. is Calgary-based with assets in Central Asia. They have been exploring in Kazakhstan for the last 8 years, and have proven and probable oil reserves of 550 million barrels in the South Turgai Basin of south-central Kazakhstan. Their cost to get the oil out of the ground is similar to the costs in the Middle East, or about $3+ a barrel. They hired Goldman Sachs to solicit bids for the company. Some of the bidders suggested are from China, India, and Italy. The $700 million pipeline funded by China from this region to China will be operational in 2006. PetroKazakhstan, stock symbol PKZ on the N.Y. Stock Exchange, are trading at about 5 to 6 times estimated earnings. With all the attention on Unocal, this company could well be the oil takeover sleeper. As a reminder, Kazakhstan comprises over 1 million square miles with a population of 15.4 million people. Its literacy rate is 99 percent! Located on the Caspian Sea, the country borders Russia, China, and four former Russian republic countries. It is geographically located close to Afghanistan, Iran, Iraq, Syria, Turkey, and Saudi Arabia. Hence, it is centrally located in this part of the world.
Consumer worries over rising gas prices, the London terrorist attack and a drop in job security combined to produce a sharp drop in consumer confidence among Americans surveyed by the July RBC CASH (Consumer Attitudes and Spending by Household) Index. The surveyof 1,000 individuals taken across the U.S. this week showed increasing pessimism about the economy, jobs and investing. The RBC CASH Index for July dropped to its lowest level since October2003, exhibiting increasing pessimism by respondents about the current and future state of local economies, job security, and investment. The RBC CASH Index stands at 73.9, down from 84.0 one month ago. This decrease drops consumer confidence to the lowest point in 2005, and represents the lowest level since October 2003, when the index stood at 74.4. The RBC Current Conditions Index dropped significantly this month to 87.0, from 100.8 last month. Similarly, the RBC Investment Index was down sharply this month to81.3,a decrease from 93.0 last month. Both the RBC Current Conditions Index and the RBC Investment Index stand roughly where they were one year ago. The Conference Board’s CEO survey revealed that chief executives are less confident about the state of the economy now than they were in the first quarter of this year. This could negatively impact corporate spending on capital projects as well as hiring. CEOs’ short-term outlook as well as expectations for their own industry deteriorated in the second quarter. Their measure of confidence declined to the lowest level since the first quarter of 2003. Their view of current economic conditions vs. 6 months ago dropped to the lowest level since the second quarter of 2003. Their expectations for the economy looking out six months were lower than any point in the past three and one half years, and that is also true for the expectations for their own industry looking out six months. As for the current condition in their own industry vs. six months ago, expectations dropped to the level of the first quarter in 2002. With the S&P 500 at a 4 year high and the Nasdaq at a 2005 high, one can come to the conclusion that the market has recently climbed a big wall of worry. Sometimes buying breeds buying, and that includes nervous short-covering. I prefer, in most cases, to sell into strength. Taking profits never hurt one’s bank account. Unfortunately, these same profits inflate the tax revenues for the government, and enable our lawmakers and the Administration to chow on the pork programs. Supertanker shipping rates are soaring once again with transporting oil from the Middle East reaching its highest level in 2005 in July. Freight rates to the U.S. Gulf coast have risen by 66 percent over the past three weeks. Those increases help to buoy the cost of oil. Yesterday, there was a decline of 4% to $57.80 a barrel. Yesterday, gold had another bad day as it declined to $420.20 an ounce. I still am waiting to buy at $412 and below. Rep. Richard Pombo, R-CA, is chairman of the House Resources Committee, which has the authority to approve or reject proposed acquisitions by entities controlled by foreign entities. He wants to add language to the energy bill requiring an immediate review of CNOOC’s proposal to buy Unocal. In the week ended July 8, U.S. natural gas supplies rose by 94 billion cubic feet. The CEO of Countrywide Financial made an interesting comment. He stated “high funding volume during the quarter created significant economic value, not all of which will be reflected in second quarter earnings as a substantial portion of this production was retained in portfolio...Had these $9 billion in loans been sold during the quarter, management estimates that an incremental pre-tax gain of approximately $150 million would have been recognized.” PetroKazakhstan Inc. is Calgary-based with assets in Central Asia. They have been exploring in Kazakhstan for the last 8 years, and have proven and probable oil reserves of 550 million barrels in the South Turgai Basin of south-central Kazakhstan. Their cost to get the oil out of the ground is similar to the costs in the Middle East, or about $3+ a barrel. They hired Goldman Sachs to solicit bids for the company. Some of the bidders suggested are from China, India, and Italy. The $700 million pipeline funded by China from this region to China will be operational in 2006. PetroKazakhstan, stock symbol PKZ on the N.Y. Stock Exchange, are trading at about 5 to 6 times estimated earnings. With all the attention on Unocal, this company could well be the oil takeover sleeper. As a reminder, Kazakhstan comprises over 1 million square miles with a population of 15.4 million people. Its literacy rate is 99 percent! Located on the Caspian Sea, the country borders Russia, China, and four former Russian republic countries. It is geographically located close to Afghanistan, Iran, Iraq, Syria, Turkey, and Saudi Arabia. Hence, it is centrally located in this part of the world.
Thursday, July 14, 2005
When The Fog Clears
7/14/05 When The Fog Clears
In Carmel and San Francisco, two of the most beautiful places on the planet, most often there is heavy fog in the summer months. By the Golden Gate Bridge, when the fog makes visibility near impossible, the fog horns will blare. Sometimes the fog will remain until late morning, and then return in early evening. Sometimes it will be a clear day, but that is more of a rarity. This morning the heavy fog is present. One cannot see clearly across the street.
ECB board member Jose Manuel Gonzalez-Paramo: “Global imbalances have widened and disruptive unwinding remains a possibility.”
China’s money supply grew 15.7% in June, up from 14.6% in May. It was the biggest gain since June 2004. Meanwhile, China’s foreign exchange reserves presently stand at $711 billion, and growing.
It serves no purpose to delude Americans by stating core CPI(ex food and energy) is up 2% in the past 12 months—not while the CPI includes rent prices and excludes the prices of homes. We will get a better picture of the CRB with the new weightings. The energy sector will comprise 39% and the metals 20%. Maybe it is time we revamped the way we factor the CPI.
First-time filings for state unemployment rose by 16,000 to a six-week high of 336,000 in the week ending July 9, the Labor Department said Thursday. Meanwhile, the number of former workers collecting unemployment checks rose by 45,000 in the week ending July 2 to 2.62 million, a four-week high.
Are you paying attention to the rising yield on Treasury bonds?
The American Petroleum Institute sated distillate inventories for the week ended July 8 climbed by 5.8 million barrels, gasoline inventories rose by 684,000 barrels, and crude supplies declined by 1.4 million barrels. Meanwhile, crude has dipped below the $60 a barrel mark.
A Wall Street Journal/NBC of 1,090 adults showed that 73% objected to CNOOC’s efforts to buy Unocal. Meanwhile, CNOOC’s board stands by to tweak their offer. Price, in my opinion, will not determine the outcome.
The NAR now sees existing-home sales rising to 6.89 million this year and new-home sales to increase 3.2% to 1.24 million in 2005.
Bush’s overall approval rating stands at 46%. They must be Larry Kudlow clones.
According to the Energy Ministry, recoverable hydrocarbon reserves in the Kazakh sector of the Caspian amount to about 8 billion tones.
Yesterday, nearly 11,000 members of Boeing’s machinists union gathered at Safeco Field in Seattle for the official kickoff of bargaining for the union’s next three-year contract. The 67% turnout was the highest percentage in the union’s history. Of those present, 98.5% approved the strike authorization.
An analysis of California hospital costs and revenues released yesterday by Blue Shield of California indicates that low reimbursement rates paid by Medicare and Medi-Cal may result in cost-shifting onto private insurers amounting to 9.5% of premiums. This translates to an average of $950 per policy for employer-sponsored family coverage.
According to Deloitte Research’s Leading Index of Consumer Spending, the rising tax burden and continued slowdown in home price growth will put pressure on consumer spending during the upcoming back-to-school retail sales season. Federal tax revenues rose 32.3% over the past 12 months, straining consumer purchasing power. Real home prices fell sharply in May but are still up slightly from a year ago.
San Francisco is reporting that the fog horns are blaring away.
In Carmel and San Francisco, two of the most beautiful places on the planet, most often there is heavy fog in the summer months. By the Golden Gate Bridge, when the fog makes visibility near impossible, the fog horns will blare. Sometimes the fog will remain until late morning, and then return in early evening. Sometimes it will be a clear day, but that is more of a rarity. This morning the heavy fog is present. One cannot see clearly across the street.
ECB board member Jose Manuel Gonzalez-Paramo: “Global imbalances have widened and disruptive unwinding remains a possibility.”
China’s money supply grew 15.7% in June, up from 14.6% in May. It was the biggest gain since June 2004. Meanwhile, China’s foreign exchange reserves presently stand at $711 billion, and growing.
It serves no purpose to delude Americans by stating core CPI(ex food and energy) is up 2% in the past 12 months—not while the CPI includes rent prices and excludes the prices of homes. We will get a better picture of the CRB with the new weightings. The energy sector will comprise 39% and the metals 20%. Maybe it is time we revamped the way we factor the CPI.
First-time filings for state unemployment rose by 16,000 to a six-week high of 336,000 in the week ending July 9, the Labor Department said Thursday. Meanwhile, the number of former workers collecting unemployment checks rose by 45,000 in the week ending July 2 to 2.62 million, a four-week high.
Are you paying attention to the rising yield on Treasury bonds?
The American Petroleum Institute sated distillate inventories for the week ended July 8 climbed by 5.8 million barrels, gasoline inventories rose by 684,000 barrels, and crude supplies declined by 1.4 million barrels. Meanwhile, crude has dipped below the $60 a barrel mark.
A Wall Street Journal/NBC of 1,090 adults showed that 73% objected to CNOOC’s efforts to buy Unocal. Meanwhile, CNOOC’s board stands by to tweak their offer. Price, in my opinion, will not determine the outcome.
The NAR now sees existing-home sales rising to 6.89 million this year and new-home sales to increase 3.2% to 1.24 million in 2005.
Bush’s overall approval rating stands at 46%. They must be Larry Kudlow clones.
According to the Energy Ministry, recoverable hydrocarbon reserves in the Kazakh sector of the Caspian amount to about 8 billion tones.
Yesterday, nearly 11,000 members of Boeing’s machinists union gathered at Safeco Field in Seattle for the official kickoff of bargaining for the union’s next three-year contract. The 67% turnout was the highest percentage in the union’s history. Of those present, 98.5% approved the strike authorization.
An analysis of California hospital costs and revenues released yesterday by Blue Shield of California indicates that low reimbursement rates paid by Medicare and Medi-Cal may result in cost-shifting onto private insurers amounting to 9.5% of premiums. This translates to an average of $950 per policy for employer-sponsored family coverage.
According to Deloitte Research’s Leading Index of Consumer Spending, the rising tax burden and continued slowdown in home price growth will put pressure on consumer spending during the upcoming back-to-school retail sales season. Federal tax revenues rose 32.3% over the past 12 months, straining consumer purchasing power. Real home prices fell sharply in May but are still up slightly from a year ago.
San Francisco is reporting that the fog horns are blaring away.
Wednesday, July 13, 2005
Waging War Over Oil
7/13/05 Waging War Over Oil
Crude is back over $61 a barrel this morning, and this despite the International Energy Agency cutting its 2005 global demand forecast by 200,000 barrels a day, to 1.58 million barrels a day, due to a weaker outlook for China and the U.S. They said demand should rise 2.1% in 2006. It’s hard to buy a projection of a weaker outlook for China with their growth for 2005 expected at 9% and the Fed comfortable with a growth rate of over 3% for the U.S. for the balance of this year.
May’s trade deficit was $55.3 billion or annualized a mere $663.6 billion. Exports rose to a new record and imports declined a bit. The monthly trade deficit with China was $15.8 billion or almost enough to fund a purchase of CNOOC.
Import prices in June rose 1%. The deflation exported to our shores from China was not enough to overcome inflation from imported energy supplies.
The House energy panel will hold a hearing on CNOOC’s proposed bid for Unocal on July 19. Chairman Barton, R-Texas, stated “it’s my judgment that U.S. strategic interests are not served by the Chinese Communist party.” The Financial Times is reporting that CNOOC’s board is expected to approve changes to its offer. That’s called negotiating with yourself.
Tong Lixia, an energy expert affiliated with China’s Commerce Ministry opined “the turning point in China’s energy strategy was the Iraq war.”
A total of 5 million barrels, or 0.9% of yearly oil output in the Gulf, and 17.7 billion cubic feet , or 0.6% of yearly natural gas output, have been shut in due to Hurricane Dennis between July 8 and July 12, according to the latest report from the U.S. Minerals Management Service.
Demand for ARMs fell to its lowest level in over a year. Possibly it was due to the July 4 holiday shortened week.
The yield on the 10-year Treasury bond has risen to 4.17% this morning.
Steve Saville stated that, in comparing 30-year Treasury bonds with the price of gold, “in real terms, bonds have lost about one-third of their value over the past 4-and-a-bit years.” I don’t believe you have heard Pimco provide that observation.
The Labor Department stated that the number of job openings in May declined 3.1% from April, while hirings rose 3.7% from April’s numbers.
According to a new survey conducted by Investors’s Business Daily and TechnoMetrica Market Intelligence, their economic optimism index slipped 1.9% to 48.6 in July from 50.5 in June. A reading below 50 indicates pessimism.
The Iran-Libya Sanctions Act (ILSA) empowers President Bush to order punitive measures against any international company that invests more than $20 million a year in Iran’s energy sector. The ILSA disallows any move that would aid Iran’s economic expansion. The sanctions provision apply only to investments in Iran and not to any purchase of oil or gas. Behind the scenes the situation is beginning to boil over. Recently, public information sources, such as, a Bulgarian newspaper, point to China and Russia supplying Iran with arms (these are not mortgages) and in return Iran builds a pipeline providing energy supplies to China and Russia. It is public knowledge that there is a Turkestan air base located at Kharsi-Khanabad that served as a base for our efforts in Afghanistan. General Franks mentioned frequently that there was no long-term arrangement made for that base. There have been reports that our troops have been requested to leave that base. The last few days there have been reports that we will have a large troop withdrawal in Iraq. Interestingly, those same reports have not mentioned that our troops are getting ready to mobilize into Iran. Many believed back in 2002 that an invasion of Iraq would only be a prelude to forced entry into Iran and then Syria.
The fight over Unocal has significance. Unocal has gas fields and a pipeline in Burma. There is an important Unocal project on the drawing boards--- transporting energy supplies from Turkmenistan, Uzbekistan, Kyrgyzstan, and Kazakhstan, and acquiring access to most of the oil from the former Soviet republics in Central Asia. These oil supplies are vitally important to both China and the U.S. There is a corporate fight over Unocal, but the fight goes well beyond the boardroom and a shareholder vote. You can buy oil on the commodity exchange but you cannot buy long-term reserve there. It is these reserves that are the battleground, and it will not be just a war of words. Iraq provided proof of that. The weapon of mass destruction is the quest to acquire energy reserves. This quest will not be squelched by sanctions or by words.
Crude is back over $61 a barrel this morning, and this despite the International Energy Agency cutting its 2005 global demand forecast by 200,000 barrels a day, to 1.58 million barrels a day, due to a weaker outlook for China and the U.S. They said demand should rise 2.1% in 2006. It’s hard to buy a projection of a weaker outlook for China with their growth for 2005 expected at 9% and the Fed comfortable with a growth rate of over 3% for the U.S. for the balance of this year.
May’s trade deficit was $55.3 billion or annualized a mere $663.6 billion. Exports rose to a new record and imports declined a bit. The monthly trade deficit with China was $15.8 billion or almost enough to fund a purchase of CNOOC.
Import prices in June rose 1%. The deflation exported to our shores from China was not enough to overcome inflation from imported energy supplies.
The House energy panel will hold a hearing on CNOOC’s proposed bid for Unocal on July 19. Chairman Barton, R-Texas, stated “it’s my judgment that U.S. strategic interests are not served by the Chinese Communist party.” The Financial Times is reporting that CNOOC’s board is expected to approve changes to its offer. That’s called negotiating with yourself.
Tong Lixia, an energy expert affiliated with China’s Commerce Ministry opined “the turning point in China’s energy strategy was the Iraq war.”
A total of 5 million barrels, or 0.9% of yearly oil output in the Gulf, and 17.7 billion cubic feet , or 0.6% of yearly natural gas output, have been shut in due to Hurricane Dennis between July 8 and July 12, according to the latest report from the U.S. Minerals Management Service.
Demand for ARMs fell to its lowest level in over a year. Possibly it was due to the July 4 holiday shortened week.
The yield on the 10-year Treasury bond has risen to 4.17% this morning.
Steve Saville stated that, in comparing 30-year Treasury bonds with the price of gold, “in real terms, bonds have lost about one-third of their value over the past 4-and-a-bit years.” I don’t believe you have heard Pimco provide that observation.
The Labor Department stated that the number of job openings in May declined 3.1% from April, while hirings rose 3.7% from April’s numbers.
According to a new survey conducted by Investors’s Business Daily and TechnoMetrica Market Intelligence, their economic optimism index slipped 1.9% to 48.6 in July from 50.5 in June. A reading below 50 indicates pessimism.
The Iran-Libya Sanctions Act (ILSA) empowers President Bush to order punitive measures against any international company that invests more than $20 million a year in Iran’s energy sector. The ILSA disallows any move that would aid Iran’s economic expansion. The sanctions provision apply only to investments in Iran and not to any purchase of oil or gas. Behind the scenes the situation is beginning to boil over. Recently, public information sources, such as, a Bulgarian newspaper, point to China and Russia supplying Iran with arms (these are not mortgages) and in return Iran builds a pipeline providing energy supplies to China and Russia. It is public knowledge that there is a Turkestan air base located at Kharsi-Khanabad that served as a base for our efforts in Afghanistan. General Franks mentioned frequently that there was no long-term arrangement made for that base. There have been reports that our troops have been requested to leave that base. The last few days there have been reports that we will have a large troop withdrawal in Iraq. Interestingly, those same reports have not mentioned that our troops are getting ready to mobilize into Iran. Many believed back in 2002 that an invasion of Iraq would only be a prelude to forced entry into Iran and then Syria.
The fight over Unocal has significance. Unocal has gas fields and a pipeline in Burma. There is an important Unocal project on the drawing boards--- transporting energy supplies from Turkmenistan, Uzbekistan, Kyrgyzstan, and Kazakhstan, and acquiring access to most of the oil from the former Soviet republics in Central Asia. These oil supplies are vitally important to both China and the U.S. There is a corporate fight over Unocal, but the fight goes well beyond the boardroom and a shareholder vote. You can buy oil on the commodity exchange but you cannot buy long-term reserve there. It is these reserves that are the battleground, and it will not be just a war of words. Iraq provided proof of that. The weapon of mass destruction is the quest to acquire energy reserves. This quest will not be squelched by sanctions or by words.
Monday, July 11, 2005
Genentech Is On A Roll
7/12/05 Genentech Is On A Roll
The company now expects 2005 earnings of at least 35% over 2004 levels.
"I am tremendously pleased that our efforts to discover and developpotential therapies may change clinical practice and improve the lives ofpatients. We are actively working with the FDA to prioritize the ninepotential filings relating to our significant Phase III trial results, while we continue to develop more than 30 projects in the pipeline primarily in ouroncology and immunology focus areas," said Susan D. Hellmann, M.D., M.P.H.,president of Product Development. "We currently anticipate filing Herceptin for adjuvant breast cancer in the first quarter of 2006 and expect to provide updates on filing timelines for Avastin data upon the completion ofpreliminary discussions with the FDA." Genentech is preparing for potential U.S. Food and Drug Administration(FDA) filings for Avastin for second-line metastatic colorectal cancer; Avastin for first-line non-squamous non-small cell lung cancer; Avastin formetastatic breast cancer; Herceptin for adjuvant breast cancer; Herceptin incombination with Taxotere for first-line metastatic breast cancer; Lucentis inwet age-related macular degeneration; Rituxan for front-line aggressivenon-Hodgkins lymphoma (NHL); Rituxan for front-line indolent/maintenance (1)NHL; and Rituxan for rheumatoid arthritis in inadequate anti-TNF responders. Genentech announced that in the second quarter of 2005 it began enrollingpatients in several Phase III studies, including Rituxan in systemic lupuserythematosus, Avastin in prostate cancer, and combination Avastin and Tarcevain second-line non-small cell lung cancer. It also began enrollment in a PhaseI study of a small molecule hedgehog antagonist in basal cell carcinoma incollaboration with Curis.
An Austin-based consulting firm whose vice chairman, Mark McKinnon, has close ties with President Bush has been tapped by the China National Offshore Oil Co. to wage a public relations campaign in its bid to buy Unocal Corp. Meanwhile, Unocal's board of directors meet on Thursday. I continue to believe it is most probable that Chevron will provide a kiss of 4% before they close on the purchase of Unocal. The sky is not the limit here. As I previously noted, environmental clean-up problems, which are expensive, have been outlined by Unocal. I should also mention that, according to the Financial Times, China will more than double the amount of money foreign investors can put into its stock market to a total of $10 billion. How will Mark McKinnon reconcile that $10 billion ceiling with a possible purchase of $18 billion in Unocal shares? What's good for the goose should be good for the gander.
The CRB Index is revised today. Greater weighting will be given to energy prices.
Pimco's Paul McCulley: "It is not yet time to cyclically go way short duration. That time will be when the bond market starts romancing not just an end to Fed tightening, but the beginning of a Fed easing process."
Now that Dennis has passed through, we can keep our eye on Emily.
According to a Platts survey, OPEC produced 30.1 million barrels per day in June, representing an increase of 80,000 barrels per day over May. Saudi Arabia produced an average of 9.5 million barrels per day, a decrease of 5,000 barrels per day from May. The country with the biggest increase in June was Nigeria with a rise of 50,000 barrels per day.
Coldwell Banker's Luxury Index surveys 300 households with incomes of $100,000 or more and ones that have purchased a million-dollar home within the last 24 months. Some of the findings: 31% expect a tax refund this year, and 51% will put much or all of that refund back into their homes. A total of 31% plan to expand or remodel their homes in the next 12 months. During the past 12 months, 36% have refinanced or taken out home equity loans, and 42% will use the money for home improvement or other real estate purposes.
While we're on the subject of real estate, let's take a look at Centex, a company founded in 1950. You may not know this company. They reported sales for their 2005 fiscal year of $13 billion, up 24%, and earnings of $7.64, a rise of 27% from the previous year. This homebuilder's stock still sells at only 10 times actual earnings. They have more than 17,500 employees in more than 1,500 offices and construction job sites. The company went public in 1969, and has never reported a quarterly or annual loss or a major write-off. Had you purchased stock in 1969, you would have needed immense patience. Until mid-1997, the stock never sold above $10 a share.
Yesterday the stock sold above $76 to a new all-time high. This is a first-class outfit. It's nice to see good guys get their just rewards.
Warren Buffett: "Trust is like the air we breathe. When it's present, nobody really notices. When it's absent, everybody notices."
Sara Lee cut 775 jobs.
Last night, Bobby Abreu of the Phillies really put on some record-breaking show in the Home Run Derby. It was quite a thrill for fans all over the world. Bobby is from Venezuela.
The company now expects 2005 earnings of at least 35% over 2004 levels.
"I am tremendously pleased that our efforts to discover and developpotential therapies may change clinical practice and improve the lives ofpatients. We are actively working with the FDA to prioritize the ninepotential filings relating to our significant Phase III trial results, while we continue to develop more than 30 projects in the pipeline primarily in ouroncology and immunology focus areas," said Susan D. Hellmann, M.D., M.P.H.,president of Product Development. "We currently anticipate filing Herceptin for adjuvant breast cancer in the first quarter of 2006 and expect to provide updates on filing timelines for Avastin data upon the completion ofpreliminary discussions with the FDA." Genentech is preparing for potential U.S. Food and Drug Administration(FDA) filings for Avastin for second-line metastatic colorectal cancer; Avastin for first-line non-squamous non-small cell lung cancer; Avastin formetastatic breast cancer; Herceptin for adjuvant breast cancer; Herceptin incombination with Taxotere for first-line metastatic breast cancer; Lucentis inwet age-related macular degeneration; Rituxan for front-line aggressivenon-Hodgkins lymphoma (NHL); Rituxan for front-line indolent/maintenance (1)NHL; and Rituxan for rheumatoid arthritis in inadequate anti-TNF responders. Genentech announced that in the second quarter of 2005 it began enrollingpatients in several Phase III studies, including Rituxan in systemic lupuserythematosus, Avastin in prostate cancer, and combination Avastin and Tarcevain second-line non-small cell lung cancer. It also began enrollment in a PhaseI study of a small molecule hedgehog antagonist in basal cell carcinoma incollaboration with Curis.
An Austin-based consulting firm whose vice chairman, Mark McKinnon, has close ties with President Bush has been tapped by the China National Offshore Oil Co. to wage a public relations campaign in its bid to buy Unocal Corp. Meanwhile, Unocal's board of directors meet on Thursday. I continue to believe it is most probable that Chevron will provide a kiss of 4% before they close on the purchase of Unocal. The sky is not the limit here. As I previously noted, environmental clean-up problems, which are expensive, have been outlined by Unocal. I should also mention that, according to the Financial Times, China will more than double the amount of money foreign investors can put into its stock market to a total of $10 billion. How will Mark McKinnon reconcile that $10 billion ceiling with a possible purchase of $18 billion in Unocal shares? What's good for the goose should be good for the gander.
The CRB Index is revised today. Greater weighting will be given to energy prices.
Pimco's Paul McCulley: "It is not yet time to cyclically go way short duration. That time will be when the bond market starts romancing not just an end to Fed tightening, but the beginning of a Fed easing process."
Now that Dennis has passed through, we can keep our eye on Emily.
According to a Platts survey, OPEC produced 30.1 million barrels per day in June, representing an increase of 80,000 barrels per day over May. Saudi Arabia produced an average of 9.5 million barrels per day, a decrease of 5,000 barrels per day from May. The country with the biggest increase in June was Nigeria with a rise of 50,000 barrels per day.
Coldwell Banker's Luxury Index surveys 300 households with incomes of $100,000 or more and ones that have purchased a million-dollar home within the last 24 months. Some of the findings: 31% expect a tax refund this year, and 51% will put much or all of that refund back into their homes. A total of 31% plan to expand or remodel their homes in the next 12 months. During the past 12 months, 36% have refinanced or taken out home equity loans, and 42% will use the money for home improvement or other real estate purposes.
While we're on the subject of real estate, let's take a look at Centex, a company founded in 1950. You may not know this company. They reported sales for their 2005 fiscal year of $13 billion, up 24%, and earnings of $7.64, a rise of 27% from the previous year. This homebuilder's stock still sells at only 10 times actual earnings. They have more than 17,500 employees in more than 1,500 offices and construction job sites. The company went public in 1969, and has never reported a quarterly or annual loss or a major write-off. Had you purchased stock in 1969, you would have needed immense patience. Until mid-1997, the stock never sold above $10 a share.
Yesterday the stock sold above $76 to a new all-time high. This is a first-class outfit. It's nice to see good guys get their just rewards.
Warren Buffett: "Trust is like the air we breathe. When it's present, nobody really notices. When it's absent, everybody notices."
Sara Lee cut 775 jobs.
Last night, Bobby Abreu of the Phillies really put on some record-breaking show in the Home Run Derby. It was quite a thrill for fans all over the world. Bobby is from Venezuela.
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