The Housing And Rig industries

4/16/06 The Housing And Rig Industries

Interest-only and negative-amortization ARMs -- where the principal does not getpaid down and may even grow over the early part of the loan -- now make up nearlyone-third of all ARM originations, up from just 11% two years ago,according to data from LoanPerformance.

Rigzone.com:"About $12 billion was spent on new offshore drilling rigs during the
first four years of the 1980's, that at a time when the price of oil averaged a
little over $30 a barrel.Looking forward at the next 4 years, 2006 thru 2009,
there are only about 1/3 as many rigs to be delivered as during the last rig boom.
Of those, 61 jackups are under construction for an average cost of $135 million. 21
semisubs are being built for an average cost of $410 million. And 6 drillships are
being built for about $535 milliom each.

Mike Burk:"During the week prior the 3rd Friday in April during the 2nd year of the
Presidential Cycle...average returns for both the OTC (since 1966) and SPX (since
1930) have been negative over the week while the returns for all years combinedhave been positive."

China's economic growth accelerated to an estimated 10.2 percent in the first quarter, President Hu Jintao said, exceeding economists' expectations as manufacturing investment and exports surged.

According to today's NY Times, the tax break that expired at the end of 2005 limited
the alternative minimum tax to 3.6 million taxpayers,
of which 2.1 million were families with children.

This year 18.9 million taxpayers are facing the
alternative levy, with 11.8 million representing
families with children. Without Congressional action,
those affected will pay $26.6 billion more in federal
income taxes for this year.
Just one-tenth of 1 percent of the increased
alternative tax is being paid this year by those
making $1 million or more, the Tax Policy Center
estimates, even though this is the only group affected
by the original version of the levy.

Japan's economy is logging its second-longest expansion since the end of World War II, the country's economy minister said Sunday in the latest in a stream of optimistic forecasts.

The upward trend should continue until the summer of 2007, making the current growth streak the longest in postwar history, said Economy Minister Kaoru Yosano.

Pollution And Water Shortages

4/15/06 Pollution And Water Shortages

Today is tax day. As federal, state, and municipal governments continue to spend more, taxes continue to rise. It is a spreading disease.

Doug Noland: "Year-to-date Individual Income Tax Receipts are 8.5% above comparable 2005, and Corporate Tax Receipts are 30.5% ahead. Total Spending is running 8.7% above comparable 2005, with Defense spending up 8.9%, Medicare 15.5%, Social Security 5.7%, and Interest Expense 25.2%."

Talking heads in the media focus on growth-- capacity utilization in our plants or 8.5% GDP growth in China etc. Of course, this growth multiplies the number of millionaires and billionaires in the world. More importantly, it generates more pollution and water shortages. Look at China.
There is a focus in the press on China's growing foreign exchange reserves. How about the fact that pollution is so severe the Ministry of Water Resources estimates 40 percent of water in the country's 1,300 or so major rivers is fit only for industrial or agricultural use. How about the fact that the supply of water per capita is sharply below that of the rest of the industrialized world. It's not just China. Phoenix has the fifth largest population in the United States. It rises out of the sands. So does Las Vegas. Do you think the supply of water is a problem for those cities? With all the driving in Phoenix, have you witnessed the rise in pollution? That's what took place in Denver.

Would you rather invest in oil or water? On a long term basis, that answer is a no brainer.
Would you rather invest in ethanol or pollution control devices? Ethanol represents 3% of the gallons of gas we will put in our cars in the U.S. over the next 12 months. Compare that with the world-wide market for controlling pollution.

The Kansas Agricultural Statistics Service this week rated stock water supplies across the state as 36 percent short to very short.

Fifty nine percent of fish taken from Maryland waters show concentrations of toxic mercury at levels unsafe for infants and children.

In this year's first quarter, China's crude oil imports rose 25.3%, and, during the same period, car sales rose 67% year-on-year to 855,300. Oil demand in China is running about 7 million barrels per day.

Over the last year, India spent $44 billion on oil, up from $30 billion in the prior year.

Good Friday

4/14/06 Good Friday

As is the custom, all the markets are closed today. That means only five more trading days until option expiration for the month of April.

Fed Governor Donald Kohn: "At this juncture, given the apparent strength in demand and the narrowing margin on unused resources, I am focused on making sure that inflation and inflation expectations remain well anchored. I do not know how much policy firming will be needed to accomplish this objective." That should put to rest the talk that the Fed will stop raising rates after its next meeting. When Lehman Bros. forecast that rates could rise to 5.5%, few agreed with that view. I think that today there would be more in that corner. Marc Faber: "So, whereas it took over 500 ounces of gold to buy a typical house in the US last summer, now, it only takes around 380 ounces of gold. In other words, home prices have declined over the last 9 months by 25% against the price of gold!" The yield curve is clearly becoming more traditional. Long-term rates are spiking with the short-end rising at a slower rate. The 30-year has climbed to 5.11% with the 10-year at 5.04%. In addition, 30-year mortgages have risen to 6.49% and the 15-year is up to 6.14%. Charles Darwin: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” With ethanol replacing MTBE in gas in May, logistics could be tested. Ethanol will not be moving through a pipeline but rather it must be transported via truck, rail, and/or barge. This could create some shortages of gasoline in a few markets. It might be wise to keep the tank near full for awhile. Ford will close plants in Norfolk, Va., and St. Paul, Minn., in 2008. The two plants employ about 4,300 hourly and salaried workers. Marc Faber: "My advice remains to be extremely defensive. Most asset markets including stocks and commodities are extremely overbought, and there is far too much speculation in all investment markets. Therefore, severe downside volatility, also in precious metals, should not be surprising in the period directly ahead." William W. Watt: “Do not put your faith in what statistics say until you have carefully considered what they do not say.” China's foreign exchange reserves rose $21.4 billion during March to a new record high of 875.1 billion, consolidating the country's position as the largest holder of foreign reserves in the world. China relaxed its capital controls on Friday to make it much easier for individuals and companies to buy foreign currencies and invest abroad. As a percentage of your gross income, how much in taxes do you pay? We are talking about Federal, state, local, and that includes all sales taxes, user taxes like tolls, property taxes, etc etc etc. I think you'll find your taxes are rising and have been every year since we landed on the Mayflower. Much is written about the recycling of petrodollars in our Treasury bonds to fund our twin tower deficits. I wonder whether one can assume that will continue at the same rate. Look at our relations with Venezuela and some other Latin American countries. If you were Dubai, would you buy our bonds? In addition, countries like Russia, China, and India have significant infrastructure needs. Japan needs to stimulate internal consumption. The demand for our bonds has reached its peak. Our market mavens have missed the point. The important point is not when the Fed stops raising rates. The question is when do other nations reduce their pruchases of our bonds. I believe that is happening right now.

Happy Passover

4/13/06 Happy Passover

Palatin Technologies announced that it has entered into definitive purchase agreements with certain institutional investors for the sale of 11 million
units, each consisting of one share of its common stock and a warrant to
purchase 0.30 shares of its common stock, at a purchase price of $2.44 per
unit. The warrants have a five-year term and an exercise price of $2.88 per share. The warrants become exercisable six months after purchase of the unit. The transactions will provide gross proceeds of approximately $27 million to Palatin, before deducting costs associated with the offering."This investment significantly enhances our financial resources and provides additional operational flexibility as we advance the clinical
development of our lead product candidate, bremelanotide," said Carl Spana, President and Chief Executive Officer of Palatin.
The lead investor in the offering was Vivo Ventures, with
significant participation from Palo Alto Investors, ProMed Management,
Efficacy Biotech, Greenway Capital, RA Capital Associates and Great Point
Partners.

Ted Butler: "The COMEX silver short position stands out from any other commodity. The gross COMEX short position (open interest), for futures alone, is now over 700 million ounces. This is greater than total world annual mine production and greater than any world inventory amount than I have seen published. In no other commodity can this statement be made."

Today,the 10-year Treasury note's yield rose 3 basis points, or 0.03 percentage point, to 5 percent at 6:24 a.m. in New York, according to Cantor Fitzgerald LP. I still believe investing in long-term Treasury bonds is a fool's game.

GM has said it wants 10 percent market share by 2010 in India, where total sales are expected to double to 2 million cars. GM's unit sales there grew by 17 percent last year.
GM's South Korean unit, GM Daewoo Automotive and Technology Co., aims to increase sales by about a third this year as consumer spending drives an economic recovery.
In China where the company has a 17% market share, GM executives have forecast their sales will beat overall market growth of 10-15 percent this year.

AMD had a bigger-than-expected first-quarter profit of $184.5 million.

According to a new study, proposed changes to the way US companies account for pension obligations could knock an average of 8 per cent off the net worth of 100 of America's biggest companies.

The Treasury Department reported Wednesday that federal spending totaled $250 billion last month, up 13.7 percent from March 2005. As the deficit rises, more dollars are printed, and the dollar depreciates and inflation rises. As the debt rises, the cost to borrow rises, and this cost impacts everyone- from local governments to corporations to those living on Main Street. Given the size of the twin tower deficits, what schmuck would loan our government money at 5% for 10 years?

An antibiotic previously used for treating infections such as sinusitis could help people who suffer serious asthma attacks, scientists believe.
Telithromycin can speed up recovery in patients suffering attacks by three days, researchers found. The drug reduced asthmatic symptoms such as heavy wheezing and a tight chest in patients. It also helped lungs to function more efficiently.

When an individual stock takes a sharp beating, frequently a conservative and profitable strategy is to sell a put. I have previously mentioned the GM $17.50 puts. Over the last month, there were other opportunities in the AMD $27.50 put and the Apple $50 put.

Passover, an eight-day observance that began Wednesday at sundown, celebrates the Jews' deliverance from Egyptian slavery 3,000 years ago and their remaking as a nation under the protection of God.

The Controversy

4/12/06 The Controversy

Special Prosecutor Patrick Fitzgerald: There was "a strong desire by many, including multiple people in the White House," to undermine Joseph Wilson..."a plan to discredit, punish, or seek revenge against Mr. Wilson...It is hard to conceive of what evidence there could be that would disprove the exiatence of White House efforts to punish Wilson." In 1400 pages of handwritten notes, there is every reason to believe we will get the true picture of what was happening in the White House in the summer of 2003, and in all probability, some of the events leading up to our invasion of Iraq in 2003. After these revelations, the American electorate may can a taste of what it truly feels like to be duped. It is more than unfortunate that 2350+ of our Finest have died and more than 20,000 have been wounded. That is a price that should not be tolerated.

As a backdrop to the Wilson/Plame incident, in early June 2003, Vice President Dick Cheney met with President Bush and told him that CIA officer Valerie Plame Wilson was the wife of Iraq war critic Joseph Wilson and that she was responsible for sending him on a fact-finding mission to Niger to check out reports about Iraq's attempt to purchase uranium from the African country. Other White House officials who also attended the meeting with Cheney and President Bush included former White House Chief of Staff Andrew Card, then-National Security Adviser Condoleezza Rice, her former deputy Stephen Hadley, and Deputy White House Chief of Staff Karl Rove.

Valero Energy Corp., Exxon Mobil Corp. and Shell Oil Co. stated they will stop putting MTBE into gasoline beginning May 5. Valero estimates that will shrink the nation's gasoline supply by 145,000 barrels a day.

Retail sales rose 3.9% for the week ended April 8 from the year-ago period, according to a survey by the International Council of Shopping Centers Inc. and UBS Securities LLC. This is the strongest showing since the week of March 4 when sales rose by 4.3% on a year-over-year basis, the survey said. On a week-over-week basis, sales rose 1.8%.

Mohammed Sharaf, DP World's CEO: "The US Navy has trusted us to protect their interests for more than 16 years and have spent the last month going on record repeatedly to say how happy they are with our services."

M/I Homes,Inc. anounced record backlog, new contracts, and homes delivered
for the first quarter. The Company reported the highest first quarter backlog in the Company's
history, with units increasing 4% to 3,112 and sales value increasing 18%
to $1.1 billion. In addition, average sales price in backlog reached an
all-time record of $346,000 -- a 13% increase over March 2005. New
contracts and homes delivered during 2006's first quarter increased 5% and
7%, respectively to 1,137 and 832 compared to 2005 new contracts of 1,078
and homes delivered of 775. M/I Homes had 155 active communities at March
31, 2006 compared to 130 at March 31, 2005.
Robert H. Schottenstein, Chief Executive Officer and President,
commented, "We are pleased to report a 5% increase in new contracts for the
first quarter. Our Florida and North Carolina operations had a strong
quarter for new contracts -- more than offsetting the reduced activity in
our Washington, D.C. market and the continued difficult market conditions
in the Midwest. We are on target to increase our active communities to 175
by year-end with all of our net new communities planned for Florida, North
Carolina and Washington, D.C. Given our record backlog, we are poised to
make 2006 another record year for M/I Homes."

President Bush's approval ratings among Californians have hit a new low, with his numbers among the lowest any president has received in the state in three decades, according to a new poll.
Only 32 percent of registered voters approve of the job Bush is doing, while 62 percent disapprove, according to the statewide Field Poll released Tuesday.

Greenspan warned of a glut of liquidity and the falling of equity prices.

The NAR forecast for 2006: existing home sales to decline 6%, new home sales to drop 10.9%, and housing starts to stumble 3.2%.

Current Status

4/11/06 Current Status

Paul Ballew, GM's top sales analyst, stated he expects industry revenue to grow at a rate of about 5% in 2006 and that April sales are "off to a decent start." He said that the vehicle selling rate so far this month is "slightly better" than it was in March.

Federal Reserve governors said on Monday it was still unclear how much further interest rates need to rise to achieve appropriate levels of balance between growth and inflation. What else is new?

Early estimates indicate hedge fundmanagers again outperformed major indices in March and through Q1 2006. TheHFN Hedge Fund Aggregate Average, an equal weighted average of all singlemanager hedge funds in the HedgeFund.net database, was +2.04% in March and+5.73% through Q1 2006.

For the first time in over a quarter century, gold closed above $600 an ounce. Nickel, meanwhile, closed at a 17-year high. I know Fed members can read.

Crude above $69 this morning.

Nouriel Roubini: "The stagflationary effects of oil at $70 - and possibly higher if the tensions with Iran rise further - in terms of lower real incomes and higher production costs would be more significant than with oil at $45 in 2004 or even $56 average as in 2005...the last thing that a shopped-out consumer with negative savings and increasing debt and debt service ratios needs now is higher oil and energy prices at the time when the housing bubble is fizzling out and the purchasing power support provided by mortgage equity withdrawals is also fizzling out...one does not need to predict a collapse of consumption to forecast a sharp U.S. growth slowdown: with consumption representing 70% of GDP, even a slowdown of consumption from a 4% growth to a moderate 2% growth would be enough to slow down U.S. economic growth from its potential and actual 3.5% growth rate to a rate closer to 2% by the end of 2006 and into 2007...a sustained oil shock would have some inflationary consequences that would force central banks in the U.S., Europe and Japan to tighten monetary policy more than they currently plan to and more than financial markets are currently pricing...from now on it will be harder for firms to squeeze further profit margins: more likely some pass-through from costs to prices would occur; finally, the pass-through from headline to core inflation would be greater if oil prices rise above $70 and stay there for a while in a persistent manner. Here we do not need to assume a sharp and unrealistic increase in headline and core inflation. It is, for example, enough for core inflation to increase from around 2% to 2.5%, a modest 50bps increase, for the Fed to be forced to tighten by an extra 50 to 100bps more than currently expected by the markets at unchanged core inflation; ditto for the ECB and the BoJ."

Comcast Corp. on Monday said it will offer its broadband, digital video and voice services through about 500 Wal-Mart Stores Inc.

Jens Nordvig, currency strategist at Goldman Sachs, sees signs that China, South Korea, Taiwan and Singapore are intervening less in the markets to weaken their currencies, reducing the flow of funds that need to be recycled into dollar assets. Similarly the issue of central bank reserve diversification from the dollar to the euro has returned after a long hibernation.

David Hu: "The sudden surge of unchanged volume (173% of the mean) on Friday seemed like a deer caught in the headlight. Many investors were stunned by the abrupt sell-off and didn't know how to react to it. They're waiting for further confirmation to make their moves. And unless there's follow-through sell-off this week to confirm the change of market direction, investors are likely to stay in the market. The market is likely to bounce back, but it's only going to get more exhausted from all the driving around."

Earthfiles.com: "Now comes sobering new data from the National Park Service, NOAA and Caribbean scientists that the warm Gulf of Mexico and Caribbean waters of 2005 caused the biggest coral reef die-off on record. “Unprecedented,” says Mark Eakin, Ph.D. in Biological Oceanography and Coordinator for NOAA’s Coral Reef Watch based in Silver Spring, Maryland." Mark Eakin noted "it was the warmest September we have seen in the last 100 years of records."

D.R. Horton, Inc., the largest homebuilder in the United States, reported the highest quarterly net sales orders in Company history. Net sales orders for the second quarter ended March 31, 2006 increased 10% to 15,771 homes ($4.4 billion), compared to 14,401 homes ($4.1 billion) for the same quarter of fiscal year 2005. Net sales orders for the first six months of fiscal year 2006 increased 12% to 27,234 homes ($7.5 billion), compared to 24,302 homes ($6.8 billion) for the same period of fiscal year 2005.

Mitsubishi Motors North America has eliminated 25 jobs -- about 5 percent -- at company headquarters in Cypress, Calif., and one of its five regional offices.
The staffers cut from the headquarters are in sales, marketing and finance.
The North Central region, based in Chicago, has been shut down. That leaves the regions in Philadelphia, Orlando, Los Angeles and Dallas.

GM cut another 100 white collar jobs.

Robert McHugh: "We received a second confirming Hindenburg Omen Monday, April 10, 2006. This means the clock is ticking on the 73.8 percent probability that equities are about to fall over 5 percent from current levels over the next four months, on the 52 percent probability that equities will drop more than 8 percent over the enxt four months, on the 39 percent probability that equities will drop 10 to 14.9 percent over the next four months, and on the 26.1 percent probability that the stock market will crash- either fast or slow motion- over the next four months. Only one out of 11.5 times does the signal fail to generate at least a 2 percent decline from current levels. Most declines are well underway within a month of the signal. This is only the 24th confirmed Hindenburg Omen in the past 21 years."

Little Room For Error Or Complacency

4/10/06 Little Room For Error Or Complacency

John Hussman: "Rich global valuations, predominantly thin risk premiums, and uniformly rising global interest rates haven't rewarded investors historically, on average. As of last week, the Market Climate for stocks was characterized by unusually unfavorable valuations and unfavorable market action (a deterioration from the prior week, primarily on the basis of interest-sensitive securities such as bonds and utilities, as well as measures of breadth and distribution)."

Gas at the pump has risen by 17 cents over the last two weeks. The national average now stands at $2.67 a gallon, and in some locations, the $3 level has been reached. It is utterly ridiculous to buy into the Fed notion that inflation is muted-- other than in wages and salaries where it counts most on Main Street. The squeeze is on for most families, and that is precisely why Bush receives low marks on the economy. Those making $200,000 or more on Wall Street simply don't get it.

It is over 1120 days that the Dow has not experenced a decline of 10% or more, and that is about 15% longer than the longest period without such a retracement since 1896. In sum, there is little room for error or complacency. Remember-- no one rings a warning bell!

Consider crude near $68 in early April. Combine that with surging gold, silver, copper, and zinc. Mix in rising interest rates, increased levels of insider selling, rising twin tower deficits, and a cooling industry. Will consumers be able to withdraw another $600+ billion from their homes in 2006 as they did in 2005? Remember that our economy is based on the strength of consumer spending. Prudence is the watchword. No one can predict the next Katrina; however, it does not have to be a Katrina to shake investor confidence. Maybe it will come from a more subtle arena, such as, derivatives. Globally the derivatives market is estimated by the Bank for International Settlements (BIS) to be $270 trillion for OTC derivatives and another $58 trillion in exchange traded derivatives. We're talking trillions and trillions and trillions!!!!

Schlumberger trades on a 2 for 1 slit basis this morning. That equates to approximately $65 a share.

Aesop: “Don't let your special character and values, the secret that you know and no one else does, the truth - don't let that get swallowed up by the great chewing complacency.”

Not Surprisingly

4/9/06 Not Surprisingly

It was only a matter of time. You see the Fed is mad eup of a bunch of economists. They frequently live in the world of data points, and thus not in real time. Not surprisingly, in the state of Washington, an increasing number of commercial construction projects are being put on hold due to the rising cost of building materials, such as, cement, steel, copper, and the like. Why? Financing has been provided based on cost estimates to complete a project, and due to inflation, the costs are now sharply above original estimates.

Mike Burk: "The week prior to the 2nd Friday in April has been stronger during the 2nd year of the Presidential cycle than the average of all years combined. The past 20 years or so have been weaker than the earlier periods."

According to the energy ministry, in India, 40 percent of natural gas is used as a feedstock fuel to make fertilizers. Another 25 percent is used for other heavy manufacturing, and the remaining 35 percent is fed into power plants that generate electricity.

Chuck Palahniuk: “Our real discoveries come from chaos, from going to the place that looks wrong and stupid and foolish.”

In 2005, India replaced the U.S. out of its second-place ranking on the list of countries most favored for foreign direct investment. China holds the first-place spot.

Steve Church: "Consumers currently maintain transactional balances equal to only about 3 weeks of expenditures(6% versus 8.33% based on a monthly amount equal to 1/12^th of annual expenditures). Even before we entered the 2001 recession, consumers started at an amount equal to one month worth of balances. Historically, consumers maintained closer to 2 months worth of liquidity. The consumer liquidity question is even more perilous than it appears. Not only have U.S. households allowed their liquidity levels to drop, but our consumer cash flow model shows that they now have negative everyday cash flow on a monthly basis!...With cash flow now mostly dependent on real estate-based debt creation, this analysis is consistent with a faltering consumer ultimately creating U.S. deflation. Of course, we expect the Federal Reserve to resist that deflation."

With respect to the f2005 fourth quarter earnings reports, of the Standard & Poor's 500 companies, 204 reported earnings that were higher than expected by 5 percent or more, while 60 companies reported earnings that were below expectations by 5 percent or more, according to Zacks Investment Research.

Mark Chen, assistant professor of finance at the Robert H. Smith School of Business at the University of Maryland: "If I were to invest," he said, "I would probably not rely on analysts' recommendations; or, if I did, I would take them with a grain of salt. Which is not to say there is no information there; it just has to be taken with caution." Starting next week, companies will be releasing their first quarter 2006 earnings. The excuses have already started. There was bad weather and Easter arrived in April and not in March as it did the year before. People forget that companies like Apple are really in consumer retail rather than manufacturing. Do they get their earnings from the Mac or the iPod? Does Apple manufacture the iPod or market it?

Gary Lammert: "Money is moving out of long terms bonds, driving long term interest rates higher. Could it be that foreigners prefer electronic cash over US long term debt instruments?"

Barnett Shale is a 5,000 square mile reservoir covering 15 North Texas counties. Barnett Shale produces about 1.2 billion cubic feet of natural gas a day, enough to power about 10,500 homes a year. Forecasts say that will eventually reach 1.7 billion cubic feet, or 2 percent of the annual domestic production. It has gone from 25 drilling rigs in 2001 to more than 130 by the end of 2005. In production, the gas field only trails the San Juan Basin gas area, Prudhoe Bay, and Wyoming's Pinedale. Devon Energy leases or owns more than 500,000 acres and accounts for about 45% of the area's production. The company acquired this interest through their acquisition of Mitchell Energy.

James Madison: “Liberty and order will never be perfectly safe, until a trespass on the constitutional provisions for either, shall be felt with the same keenness that resents an invasion of the dearest rights.”

Psychology

4/8/06 Psychology

All eyes were on the non-farm payroll report. Of course, when that occurs, you know there is a better place to look. What came out of the BLS was almost identical to my expectations--211,000 new jobs(I was expecting 220,000); wages up 0.2% in March and still trailing inflation; an average workweek with 33.8 hours-unchanged on the month; total hours worked in the economy rose 0.2%; an unemployment rate declining to 4.7%; and a labor participation rate of 66.1%. As anticipated, the servce sector, which includes professional and business, health care, retail, leisure and hospitality, accounted for 202,000 of the employment gains.

Paul Tudor Jones: "Don't focus on making money; focus on protecting what you have."

The first reaction was to think the market would be off to the races. Eyes should have been on the yield curve and Fed fund futures The 10-year Treasury quickly rose to 4.97%, the highest yield in 4 years, and the 30-year broke above 5% to 5.05%. Importantly, August Fed fund futures are now pricing in a 60% chance that fed funds will reach 5.25% by mid-August, vs. a 52% chance on Thursday. In sum, the trend in interest rates continues to move higher. As rates move higher, the rate of earnings growth for companies must come down and the P/E ratios decline in lock step. In addition, higher rates, as I have said on many occasions, become increasing competition for equities.

According to David Rosenberg at Merrill Lynch, approximately $2.5 trillion of household debt, or 21% of outstanding household debt, will be repriced upward in 2006.

Clifford Odets: "Life shouldn't be printed on dollar bills."

As I mentioned a few days ago, the Dow Jones Transportation Index hit an all-time high. I strongly urge you not to be left at the train station or the airport. At the very least, I would sell 75% of all rail and airline holdings. That includes the equipment manufacturers. Lower GDP growth and a strapped consumer make for an unpleasant combination for these industries.

Douglas Adams: "This planet has - or rather had - a problem, which was this: most of the people living on it were unhappy for pretty much of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movements of small green pieces of paper, which is odd because on the whole it wasn't the small green pieces of paper that were unhappy."

Energy Secretary Bodman said with U.S. refineries running at 86 percent capacity following the battering they received from hurricanes Katrina and Rita last year high crude oil prices and an annual U.S. shift to summer gasoline, the switch by refineries to ethanol as a fuel additive from MTBE could result in shortages in some areas this summer.

With the Chevy Tahoe, Impala and HHR; Buick Lucerne; Cadillac Escalade; and GMC Yukon all having a great month, consumers in March continued to respond enthusiastically to General Motors' new models. Retail sales of GM launch vehicles were up 30 percent compared to February and accounted for one-third of GM's total deliveries for the month. Success of GM's launch vehicles is a critical component of GM's North America turnaround strategy.

Oliver Goldsmith: "The mind is ever ingenious in making its own distress."

Starbucks traded at an all-time high. Intel traded at a 52-week low. Natural gas changed hands at a one-month low. The VIX finally showed some life on Friday. The S&P 500 closed below 1300. The idea is not to lose your capital. Cut your losses short.

Massachusetts Institute of Technology's Kerry Emanuel: "I'm worried about what the data is telling us," Emanuel said. "It's a pessimistic message, but barring a major (El Niño event), and barring a big volcanic eruption, there just isn't an objective basis for expecting a downturn in Atlantic hurricane activity."

American Airlines stated on Friday that it had matched a $50 increase in first-class and full-coach fares by rival Delta Air Lines Inc. in most of its markets. I am so glad that inflation is muted!

The first exchange-traded fund tracking crude-oil prices is expected to begin trading Monday on the American Stock Exchange, according to news reports.

Delphi Corp. won court approval on Friday for its attrition agreement with former parent General Motors Corp. and the United Auto Workers Union. The deal frees Delphi to offer GM-funded retirement incentives to about 13,000 UAW members, and allows 5,000 workers a chance to return to factory jobs at GM.

So why today's title of psychology? It refers to the volume of purchasing power and the volume of pricing power in relation to cost containment. What does that mean? As long as the volume of purchasing power outstrips the supply of pricing power, prices have a better chance of rising. When the opposite occurs, more attention is focused on increased risk factors (such as 5%+ Treasury bonds), which dampen confidence, and volatility comes out of hibernation. As frequently is the case, volume and volatility are kissing cousins.

High energy prices are “exacerbating” global economic imbalances, increasing the risks of a crisis, the International Monetary Fund will warn next week.

The IMF will say in its World Economic Outlook report that “global current account imbalances are likely to remain at elevated levels for longer than would otherwise have been the case, heightening the risk of sudden disorderly adjustment”. A draft of the second chapter of the report was obtained by Expansion, the Financial Times’ Spanish partner paper.

High energy prices do not matter? Consider this. FedEx Freight, the less-than-truckload unit of FedEx Corp., said Friday it would increase its general rate 5.95 percent on April 24. Rates for FedEx Express and FedEx Ground are not affected. The rate hike will apply to interstate and intrastate traffic and select shipments between the United States and Mexico and Canada. I wonder whether the Fed considers a price hike of 5.95% inflationary?

An Important Day

4/7/06 An Important Day

Wal-Mart said March sales rose 1.4 percent at its U.S. stores open at least a year, slightly higher than the estimate it gave on Saturday for 1.3 percent growth. The company forecast April same-store sales growth will likely be between 4 percent and 6 percent. Easter falls in April this year, and last year it was in March, one reason for most retailers experiencing tepid same-store sales in March 2006.

The ECB and the Bank of England kept interest rates unchanged. The ECB indicated it may raise rates in the near future.

In early Thursday morning trading, the metals markets took off on a run. Gold topped $600, silver $12, copper $2.63, platinum $1096, and paladium $395. Compare the rise in metals with the trend in the dollar index, which has been treading water over the last three months. There is quite a difference.

Venezuela's state owned oil company Petroleos de Venezuelaz (PDV) will invest $80 billion to $100 billion between 2006 and 2012 to meet its goal of doubling output to 5.85 million barrels per day, the country's Vice Minister of Finance Eudomar Tovar stated.

Bankrupt auto parts maker Collins & Aikman Corp. stated it will sell its automotive fabrics business, cutting 1,200 jobs in plants in Roxboro and Farmville, N.C., and El Paso, Texas. "Certain styles of textiles heavily invested by the company have fallen out of favor with consumers, raw material prices have escalated and manufacturing has moved outside the United States," said Gerald Jones, a company executive.

When Scooter Libby was in the news every day, I provided my opinion on Libby, Joseph Wilson, and Valerie Plume. At the time, I stated that it was my belief that Libby had to have received orders from Bush and Cheney. Today we learned something from papers filed in court.
"The president and the vice president must be held accountable," U.S. Sen. Dick Durbin, D-Ill., said. "Accountable for misleading the American people, accountable for the disclosure of classified material for political purposes. It is as serious as it gets in this democracy."
U.S. Attorney General Alberto Gonzales said the president has the "inherent authority to decide who should have classified information." It should be noted that Fitzgerald was appointed by the Justice Department to find out if the leak was part of an illegal effort to discredit Plame and Wilson in retaliation for Wilson's article. If a connection is proved, then, in my view, action on impeachment should be taken for Bush and Cheney. They have not been given a get out of jail card.

Even though the most recent inventories of natural gas declined by 10 billion cubic feet, the price still declined to $7.

The Monster job employment index for March rose to 164 from the prior month's 157. Monster is still seeing a significant job turnover rate as well as continuing demand for accountants, auditors, healthcare workers, and financial services professionals.

Freddie Mac's latest 30-year mortgage rate is 6.43%.

The Citizens Against Government Waste (they issue the annual Pig Report) said the total number of pork-barrel earmarks in the 2006 budget declined 29 percent to 9,963, but their total cost increased 6 percent to $29 billion.

U.S. businessowners are adapting to higher energy prices and interest rates, but rising health care costs are dampening their plans to hire new employees and givepay raises during the next six months, according to the biannual PNC Economic Outlook survey. Of those who offer health insurance, nearly 6 outof 10 said they are likely to reduce their employees' coverage in the future. The survey of small- and mid-sized business owners and senior decision-makers across the United States also found that health care reform is theNo. 1 issue they would most like to see addressed in the 2006 mid-term elections, followed closely by the nation's reliance on foreign energy sources and tax reform. "The results show a stable outlook among business owners for their own sales and profits during the next six months, which suggests they are adapting to higher energy prices and interest rates," said Stuart Hoffman,PNC chief economist. "Many, however, are taking aggressive steps to counter continued increases in costs for employees' health care coverage, which could mean reductions in benefits for some employees."

Over the last two trading days Apple shares have risen approximately 20% from $60 to $72. The company's quarterly earnings are slowing, and they will continue to slow due to growing competition, increased market penetration, and consumer spending that is finally beginning to top out. Based on fiscal year 2006's estimated earnings, the shares are trading at about 35 times earnings or about a 40% premium to the current and projected quarterly earnings growth. In my view, those buying shares at these levels are showing mistaken judgment. It should be noted that Apple has a market cap of $61 billion, the same as that of MMM. Apple is not even in the same investment quality league as MMM.

Despite the fact that oil refineries operated at only 86% of capacity last week, the profit margin for turning three barrels of crude oil into two barrels of gasoline and one of heating oil was $14.51, based on futures prices in New York. As such, one might consider the strong possibility of a pause in the rise of gasoline prices. If refiner margins climb higher, politicians will begin accusing the industry of gauging.

Bush: "I fully understand that the intelligence was wrong, and I'm just as disappointed as everybody else is," he said yesterday. But he added: "Removing Saddam Hussein was the right thing for world peace and the security of our country." Harry Taylor: "I would hope, from time to time, that you have the humility and the grace to be ashamed of yourself...While I listen to you talk about freedom, I see you assert your right to tap my telephone, to arrest me and hold me without charges, to try to preclude me from breathing clean air and drinking clean water," real-estate broker Harry Taylor told Bush at a town-hall meeting.
"I have never felt more ashamed of nor more frightened by my leadership in Washington."
"You said, would I apologize for that?" Bush said. "The answer is absolutely not."

- Just 36 percent of the public approves of Bush's job performance, his lowest-ever rating in AP-Ipsos polling. By contrast, the president's job approval rating was 47 percent among likely voters just before Election Day 2004 and a whopping 64 percent among registered voters in October 2002.
- Only 40 percent of the public approves of Bush's performance on foreign policy and the war on terror, another low-water mark for his presidency. That's down 9 points from a year ago. Just before the 2002 election, 64 percent of registered voters backed Bush on terror and foreign policy. Just 35 percent of the public approves of Bush's handling of Iraq, his lowest in AP-Ipsos polling.

Over the years, I have discussed the Birth Death adjustment for the BLS monthly non-farm payroll report. Once again, the adjustment is a guess on the part of the BLS as to how many net new companies came into being and how many new jobs they created. The adjustment begins with today's non-farm payroll report. It is quite possible that today's report will provide at least 220,000 new jobs, and this data point could spook the Fed into even higher rates than previously thought. Once again, watch the wage growth (in relation to real inflation), hours worked, and overtime.

While on the subject of wages, corporate profits as a percentage of GDP (10%+) are running at their highest levels in approximately 40 years. Yet, despite these profits and despite high levels of productivity that go towards producing those profits, salary and wage gains have evn lagged real inflation for the past four years. When does this inequality translate into social unrest? Is the inmdividual on Main Street as non-volatile as the stock market has been in the last two years?

Developments

4/6/06 Developments

Thomas Hoening, Kansas City Fed president, said interest rates are very close to where they need to be after a series of quarter-point hikes. As a result, homebuilding stocks rallied.

The Snowman predicted that the payroll report for March would be "strong." It is anticipated that 200,000 new jobs will be created. I will be interested to see the data on the hours worked per week, the overtime hours, and whether the hourly pay gained after adjusting for inflation (and I do not mean the 2% the government spits out on a monthly basis.

Crude inventories continue to build on a weekly basis; however, as more drivers take to the roads in the Spring, gasoline inventories are dropping (but from very high levels). Demand is relatively flat as prices climb towards the $3 a gallon level.

In my view, the market greatly over reacted to the news that Apple would make Windows available on the Mac. Rick Sherlund of Goldman Sachs stated he doesn't expect any meaningful increase in Mac sales in the short term. And while Microsoft will make money selling Windows to Apple users, Sherlund said, that group is still only a small percentage of the market. In addition, Mark Stahlman, a Caris & Co. analyst in New York, also doesn't expect Apple's Boot Camp to help boost Apple's market share. Microsoft is readying the next version of Windows, called Vista, and this Apple software only works with the older Windows XP. "It's actually likely to lead to a decline in market share" because customers will pick Vista when it becomes available, Stahlman said. Apple shares rallied about 8% yesterday.

John Hull: "Yes, our tree has an interesting shape. The center branches reflect the shape of the zero curve. When extreme parts of the tree are reached the branching pattern changes to accommodate the mean reversion."

The ISM nonmanufacturing index rose to 60.5% from 60.1% in February. New orders rose to 59.5% from 56.2%. The employment index slipped to 54.6% from 58.2%. The price index fell to 60.5% from 64.8% in the previous month.

The sale of second homes accounted for 40% of the homes sold in 2005.

Bankrupt Tower Automotive Inc., a metal vehicle frames producer, has reached an agreement with retirees on pension and health care issues and remains in talks with its unions on proposed wage and benefit cuts, Chief Executive Kathleen Ligocki said on Wednesday. Talks are continuing with those unions and the company hopes to reach an agreement with them by the end of April, and if not, by the end of spring, Ligocki told reporters. These developments speak well for the Delphi/GM/UAW situation, and I referenced the Tower matter in my discussion of Delphi labor disputes. There is no question in my mind that Delphi/GM/UAW will come to an agreement without a strike. The market fails to appreciate this view.

Warren Buffett: "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."

Phelps Dodge, benefitting from record-high copper prices, said late Wednesday it will pay a special dividend of $2 per share, or about $400 million, to shareholders payable June 2.

Brookfield Homes Corp. said first-quarter net new orders totaled 227, down 56% from 517 during the same peirod last year. The decline was primarily in the San Diego/Riverside, Calif. and Washington markets. Brookfield added that in mid-summer it can make a "better assessment" of 2006's home closings.

A jury held Merck liable for the heart attack of a man who used Vioxx and awarded him $4.5 million in compensatory damages.

Office vacancies hit a 5-year low.

The S&P 500 hit a 5-year high. The FTSE 100 hit a 5-year high.

YouTube, which hosts video clips uploaded by its users, said it had received $8m in second-round funding from Sequoia Capital, a venture capital firm that was an original backer of companies such as Yahoo! and Google.

According to the Detroit Free Press, General Motors will cut its engineering staff in Michigan for a second time later this month as it continues to shift some work to emerging markets such as Brazil, where GM is hiring engineers to develop the next-generation small pickup.

The euro hit another record high against the yen and a two month peak versus the greenback on expectations the European Central Bank will tighten monetary policy in the coming months.
Noted analyst Dennis Gartman warned yesterday that the euro may be breaching resistance if it can take out the $1.22 level and sustain the gains. Late yesterday and today the euro has done just that and is up in early trade over $1.2280.

Research In Motion Ltd., maker of the BlackBerry, reports its earnings for the fiscal fourth quarter after the market's close today. Early last month, Research In Motion cut its quarterly guidance to a range of 64 cents to 66 cents per share on revenue of $550 million to $560 million, down from a previous forecast of 76 cents to 81 cents per share and $590 million to $620 million in revenue. Both estimates exclude $612 million in costs from its recently settled patent dispute with NTP Inc. On average, analysts polled by Thomson Financial are expecting the company to post earnings of 67 cents per share and $567.2 million in sales. With increasing competition from other devices, I believe the price/earnings multiple will come down. Over the past year, the shares have advanced 30% and they reflect, in my view, operations out to 2008. I can't see that far. Maybe you can. I would cut back on holdings. As you all know, I have been a big fan of the Blackberry. I was also an early big fan of a black box that became the Xerox machine. There was a time to cut back on Xerox holdings too.

In early 2003, I suggested the purchase of Schlumberger at $35. Last year their revenue growth was almost 25%. Through the remainder of the decade, thanks to growth in Russia, the company believes its topline growth will average in the mid to high teens. At an all-time high of $133 and selling at 26 times 2006 earnings, I think we should reduce our holdings by 50%.

A Possible Scenario

4/5/06 A Possible Scenario

"Right now we face some powerful negative forces that could lead to a dollar panic, a stock market crash, or abanking crisis," said Investment U ChairmanMark Skousen in a lecture recently at Columbia University. "The basis of my remark," says Skousen, "is a warning issued by none otherthan former Fed Chairman Paul Volcker. A year ago he warned that 'The U.S. isskating on increasingly thin ice... The circumstances seem to me as dangerousand intractable as any I can remember, and I can remember a lot.'" Whether that thin ice breaks, cracks or holds, says Skousen, depends onseven trends that are driving the U.S. economy. "It's a medley of economicwoes," he says, that include: -- An overreacting Fed, switching from "easy money" to "tight money." The Fed has been a major source of instability in the financial system. For example, Greenspan was chairman for 19 years, and switched policies seven times! The Fed often overshot its target on both ends - raising interest rates too high in 1989, 1994, and now, and pushing them too low in 1992 and 2003. -- Inflation and structural imbalances. The Fed's "easy money" policy caused in part the "irrational exuberance" of the tech stock market bubble in the late 1990s and the real estate bubble in this decade. When the bubble bursts, as it inevitably must, the effects aren't pretty. -- Poor consumer/investor finances. Our government policies promote overspending and undersaving on a massive scale. The saving rate has turned negative, and household debt as a percentage of disposable income is at a dangerous level, exceeding 150%. -- A vulnerable financial/banking system. We live in a global laissez-faire financial system that is highly leveraged with debt financing, derivatives and fractional reserve banking. Hedge funds are not really "hedged," but highly speculative, and another collapse along the lines of Long-Term Capital Management in 1997 could be disastrous. -- Trade deficits and out-of-balance capital flows. The trade deficit is at record levels. To make up this imbalance, foreigners must invest $2 billion a day in the U.S. -- Overburdened federal debt levels, unfunded liabilities and rising interest rates. The Senate just raised the national debt ceiling to $9 trillion, representing 70% of GDP. Interest expense is now the third-largest category of the federal budget, only exceeded by defense spending and domestic welfare expenditures. Imagine the impact as interest rates start climbing again. -- The rising cost of war/natural disasters. Last year, we faced a large jump in the deficit as a result of the rising costs of the war in Iraq and the expenses related to the Gulf hurricanes."

In the first quarter, Boeing delivered 98 commercial airplanes, of which 72 were next generation 737s.

"We believe we'll be on a path to investment-grade rating at the closing or shortly thereafter," said GMAC Chairman Eric Feldstein, who will continue as chief executive of the unit after the sale.

Prescription drug prices soften dramatically even with moderate competition, the Food and Drug Administration said Tuesday in an analysis that shows the arrival in the marketplace of just two generic versions of a brand-name medicine can nearly halve the price consumers pay.In fact, in the real world there is no reason why the prices cannot decline by 75%, and frequently they do.

Yesterday morning equities fed on a meal served by two Fed members-- Fisher and Lacker. Fisher stated the Fed can tolerate a lower level of U.S. unemployment than it previously did thanks to the global economy and productivity gains. Lacker said growth is proceeding on "a solid pace" this year, but that "inflation is low and stable." In particular, Lacker said the price index for core personal consumption expenditures, a favorite Fed indicator, showed inflation well-contained. It might be helpful to discuss employment with respect to wage gains trailing inflation, and it might prove fruitful to analyze the real level of inflation and not some government statistic that does not live in the real world. In my view, Fisher and Lacker provide no meat on the bone and listening to them is a waste of time.

Advanced Micro Devices Inc. said on Tuesday it had begun recording revenue from Fab 36 in Dresden, Germany, and was on track to double production capacity by 2008.

The United Arab Emirates and Qatar, which together hold almost $30 billion of foreign exchange reserves, said they may buy more euros on expectations the currency will appreciate. ``We are permitted to hold as much as 40 percent of our reserves in euros, and as much as 90 percent in dollars,'' Qatar's Central Bank Governor Sheikh Abdullah bin Khaled al-Attiyah said. ``We sold euros last year when the currency was high, and could buy again,'' he said.

Wal-Mart plans to build more than 50 stores in urban areas over the next two years and, sounding more governmental than corporate, said it would also create programs to support small businesses — including its competitors — in the process. It plans to create "jobs and opportunity zones" around 10 of its new urban stores.

Challenger, Gray & Christmas Inc. said Tuesday that companies announced 64,975 job cuts in March, a 26-percent drop from the 87,437 cuts announced in February and 25-percent lower than March 2005, when job cuts totaled 86,396. The March figure was the lowest since last April`s 57,861 job-cut announcements. With the March decline, the pace of 2006 job cuts is decidedly slower than a year ago. In the first quarter, employers announced 255,878 job cuts, 11-percent lower than the 287,134 cuts announced in the first three months of 2005. The first quarter was 11.3-percent lower than the fourth quarter of 2005.

Maxtor will cut 900 jobs and Calpine 775 jobs. Washington Mutual is laying off 132 workers in its technology group.

In an interview with The Detroit News on Tuesday, Wagoner said that the massive overhaul of GM operations will produce markedly improved results in 2007.
He also expressed confidence that a costly strike will be avoided at bankrupt parts maker Delphi Corp., and that many GM and Delphi hourly workers will take early retirements or buyouts as the automaker downsizes..."Wagoner ticked off the milestones so far on GM's road to recovery: health care cost cuts for salaried and hourly workers, a dozen plant closings, the planned elimination of 30,000 factory jobs and the sale of a controlling interest in GM's prized finance division.
He is particularly pleased with the agreement reached last month by the UAW that will offer buyouts ranging from $35,000 to $140,000 to every one of GM's 113,000 hourly employees and another 13,000 workers at Delphi."
"What could be better?" Wagoner said. "We have a number of people who would like to retire. We provide them a reasonable, but not excessive incentive to retire. It's not a comprehensive solution, but it's a very important piece of the puzzle."
"Buying out older workers, he said, is critical to opening GM jobs for workers who may be displaced in Delphi's reorganization plan. Beyond that, the buyouts can create space for idled workers in the controversial "jobs bank" program, which provides full pay and benefits for laid-off workers. More importantly, the attrition program was negotiated and accepted by the UAW."

An Iranian news agency report claims that Iran may be the world's third-largest gas producer in the next four years as existing gas projects, particularly the South Pars development, are implemented. Based on the current statistics, the world's annual gas consumption stands at 2,618.5 billion cubic meters, which is equivalent to 50 million barrels of oil per day, the Persian service stated.

San Jose has a nearly 55 percent chance of seeing housing prices slump during the next two years, according to a study released Tuesday.
Increased prices and higher interest rates are making it harder for buyers to afford homes in Santa Clara County, said PMI Mortgage Insurance Co., which named San Jose as one of the areas where the prices are likely to drop.
In all, 48 of the nation's 50 largest metropolitan statistical areas (MSAs) face a greater risk of declining home prices this quarter, according to the report.
A San Jose drop ranks 11th most likely among those 50. Elsewhere in the Bay Area, the downturn risk is slightly greater, with a 58 percent chance in the Oakland area and a 55 percent risk in San Francisco area.
Fourteen of the top 50 MSAs now have risk scores above 500, meaning they face a 50 percent or greater risk of home price declines in the next two years, up from 11 MSAs last quarter.

Pimco's Bill Gross: " Profit-incented/yield-starved foreign individual investors have joined hedge funds and the PIMCOs of the marketplace in what has been called the Yen carry trade, substituting 0% yields in Japan for double-digit rates in emerging market bonds and currencies, high single-digits in spread product, and in turn "settling" for a mere 400-500 basis point pickup in good old fashioned U.S. Treasuries. ....
Our [US] markets since mid-2004 that have been the main recipients of the Yen carry trade, a phenomena made possible by the widening spread of U.S. and Japanese short rates and the relative assurance by the BOJ that the Yen would not be allowed to appreciate significantly against the dollar. This one-sided bet has fostered the borrowing/exodus of money from Japan and the reinvestment of those funds in anything with a yield here in the U.S... To be blunt, the dollar must go down as it loses its carry."

With public support for the Iraq war ebbing and President George W. Bush's popularity skidding, voters across Wisconsin approved measures calling for an immediate withdrawal of US troops from Iraq.

General Motors Corp. said it doesn't endorse a request by supplier Delphi Corp. to reject employee contracts and fire 25 percent of its workforce to avoid losing $8.1 billion through 2010. The U.S. Bankruptcy Court in New York will consider Delphi's request at a hearing in May. " GM does not endorse the debtor's decision to move the court at this time for authorization to reject their collective bargaining agreements and modify their retiree welfare benefit obligations," Michael Kessler, a lawyer representing the Detroit-based automaker, said in court papers.

According to the Financial Times, China will impose a special tax each time companies sell locally produced crude formore than $40 a barrel. How would you like to be a shareholder in Sinopec, PetroChina, or CNOOC?

Yesterday, the dollar hit a 10-week low against the euro.

Mortgage application volumes increased 7.2% in the week ended March 31 compared to the prior week, data from the Mortgage Bankers Association show. Also on a seasonally adjusted basis, applications for mortgages to buy homes jumped 8.4%, while the week-to-week growth in refinancing applications was 5.3%.

Reversal Day

4/4/06 Reversal Day

Yesterday was a key day. It reflected the growing stupidity on the part of money managers and individual investors. In fact, one might say it was amateur night. The idea is not to look for reasons to be bullish or bearish. Think rationally and then the results have a better opportunity for success. The Institute for Supply Management Mfg Index for March declined to 55.2 from February's 56.7. It is basically unchanged from March 2005's 55.3. Investors greeted the news with enthusiasm. Why? The weakness meant the Fed would not raise rates much higher, and the Dow quickly climbed 120 points in the plus column. Stupid! The important point was the prices-paid component that climbed 4 points in the month of March to 66.5, and is now 18 points or 37% higher than July 2005's level. This reflects growing inflation and that spells trouble. It means the Fed is more likely to raise rates in the coming months and not stop.

What else did investors ignore? Retail gasoline prices rose by 9 cents to an average of $2,63 a gallon, the highest price since last October. Silver, gold, and copper continued to climb to multi-year highs. Crude closed at $66.74 a barrel after trading above $68. Natural gas hit 7.63 but closed at 7.24.

What else did investors ignore? China's Cheng Siwei, a vice chief of the national parliament, stated yesterday that his country should trim its holdings of U.S. debt and can stop buying dollar bonds. China is a leading financier of the U.S. current account deficit and holds the world's largest foreign exchange reserves.

William Greider: “The US financial position is rapidly deteriorating, due mainly to America's persistent and growing trade deficit. US ambitions to run the world, in other words, are heavily mortgaged. Like any debtor who borrows more year after year with no plausible way to reverse the trend, a nation sinking deeper into debt enters into an adverse power relationship with its creditors -- greater and greater dependency.”

By the end of yesterday's trading day, the gain in the Dow had been trimmed to 35 points and the Nasdaq and the Russell 2000 were both in the red. The Dow Jones Transportation Index closed at a new all-time high. I would suggest cutting back in all securities within this sector. Interestingly, new 20 and 65 day highs rose above March levels; however, this was accompanied by the rise of 20 and 65 day lows. A study of the new highs would reveal the vast majority took place during the morning rally, while the lows were taking place in the afternoon selloff- not surprisingly.

The stupidity of investors never ceases to amaze me. After GM announced the sale of 51% of GMAC, the shares sold at $22 only to close just above $20 due to the reaction that its March sales were down 14.5%. March is an unimportant month for auto sales. What did investors ignore? Robert S. "Steve" Miller, the chairman and chief executive of Delphi Corp., said Monday that the troubled auto parts supplier would be able to avoid a strike by its unionized workers.
After an address to the Detroit Economic Club, Miller was asked by a reporter whether Delphi would be able to avoid a strike, and he responded: "Absolutely." "We are determined to work this out," he said. The afternoon sell-off in shares of GM are an immense opportunity, in my view. Miller went on to state "we intend to honor our accumulated pension obligations, thereby avoiding termination of our pension plan," Miller said in his speech. "We want to restore our under-funded plan out of future profits, but we will need time. This means we must find a way to stretch out our required pension plan payments. "And it is essential that the restructured Delphi be a robust enterprise, indeed. Failure to achieve our goals could hurt our retirees and further burden our nation's pension safety net system. " In addition, I strongly believe the GMAC bonds will be upgraded in the ratings and that will lower GM's cost of borrowing.

I remember going to the first LinuxWorld Expo in San Jose in 1999. It was certainly not well attended. It was a novelty. Not any more. The LinuxWorld Conference & Expo opens in Boston today for a four-day run that includes a keynote speech by Microsoft Corp.’s Bill Hilf, director of platform technology strategy. It’s the first time ever that a Microsoft executive has delivered a formal address at the conference, although the company has offered technical presentations at past shows. Hilf plans to talk about “Interoperability: Dealing with the Diversity and Heterogeneity of Today’s IT Marketplace” Thursday morning.
For Microsoft, the interoperability focus reflects the need to evolve and respond to customers' needs, Hilf said. Hilf came to Microsoft in 2003 from IBM, where he led IBM’s Linux technical strategy for the global emerging and competitive markets group. He runs a multitude of Linux distributions in Microsoft’s Linux lab, has been involved with open-source software for more than a dozen years.

Municie, Indiana is 60 miles from Indianapolis. Sallie Mae Corp., the big private lender, announced plans to open a 700-employee debt management center. The pay: $9 an hour, less than half the average manufacturing wage in Muncie in 2004 and below the $20,000 federal poverty level for a family of four. A new manufacturing plant will open this spring, creating 410 jobs at wages of about $15 an hour. And a Wal-Mart Supercenter--the second such outlet in Muncie--is scheduled to open soon, providing about 400 jobs. Last week, Muncie's 85-year-old transmission plant, once a workplace for more than 3,000 General Motors employees, closed. There are 67,000 people in Muncie. The city is being transformed from $20-to-$25-an-hour jobs for minimum wage or $9- or $15-an-hour jobs. Fifty-one percent of the 7,700 students in the system qualify for free lunch. There are a growing number of Muncies across the country. The GDP numbers fail to show it.

Brett Steenbarger: "Low 10-day volatility leads to subnormal performance in the intermediate term."

In the 20th anniversary edition of Beyond Borders: The Global Biotechnology Report 2006, Ernst & Young reports that the revenues of publicly-traded biotechnology companies surpassed $60billion for the first time in the sector's 30-year history. "The global biotechnology industry's revenues are growing at strong rates, product approvals are bringing innovative drugs to market, and the long- elusive goal of profitability is quickly approaching," said Donn Szaro, leader, Global Biotechnology and Pharmaceutical sectors, Ernst &Young. Revenues of the world's publicly-traded biotech companies grew 18 percent in 2005, reaching an all-time high of $63.1 billion. As revenues increased, the industry's net loss decreased by a dramatic 30 percent, to $4.3 billion. The industry secured 32 new product approvals in the United States, including 17 first-time approvals.

Wade Huettel, Chief Operating Officerof Tax Relief Network states, "The tax climate doesn't look real encouraging for consumers right now. We regularly see a correlation between people who find themselves having tax problems -- also facing bankruptcy. 2005 was aU.S. record for people filing bankruptcy. Some statistics show 1 in 56 U.S. homes filing last year."

Computer Sciences Corp. is in talks to sell itself in a deal that could be worth more than $10.6 billion, and also is expected to announce 5,000 jobs cuts, The Wall Street Journal reported today, citing people familiar with the matter. Most of the job cuts will come from Europe.

French building materials company Lafarge said today that it has raised its offer to buy out the rest of its North American unit to $82 a share, from a previous price of $75 a share. The company also extended the offer for the 46.8% stake of the company until April 28.

Figures gleaned from Tampa Bay area Realtors associations show listings have jumped 250 percent, from 10,414 homes in February 2005 to 24,253 homes in February 2006. Tampa Bay area home sales were off an estimated 29 percent in February versus a year earlier.

Arcelor SA on Tuesday unveiled a series of takeover defenses, including a special payment of more than $6 billion to shareholders, to spurn the advances of larger rival Mittal Steel.

French oil company Total and Italy's ENI have refused to accept the new Venezuelan rules for producing crude, which obliges multinationals to become minority partners of state oil company PDVSA and consequently will end their operations in Venezuela.

Nigeria's Oil Minister Edmund Daukoru said Monday Royal Dutch Shell PLC (RDSA) has told him it will take around a month to bring back most of the country's shut-in oil production.

"While there is much work to be done, the GM board has great confidence in Rick Wagoner, his management team and the plan they are implementing to restore the company to profitability," said George Fisher, who serves as the presiding director of the 12-member GM board.

Euro-zone unemployment fell to 8.2% in February from 8.3% in January.

Anna Quindlen: "If God is watching us, as some believers suggest, as though we were a television show and God had a lot of free time, the deity would surely be bemused by how dumbed-down devotion has sometimes become in this so-called modern era. How might an omnipotent being with the long view of history respond to those who visit the traveling exhibit of a grilled-cheese sandwich, sold on eBay, that is said to bear the image of the Virgin Mary? It certainly argues against intelligent design, or at least intelligent design in humans."

The Way It Is

4/3/06 The Way It Is

Rick Wagoner, GM CEO: "Excuse me, what part of $15 billion in health care (cuts), 12 plants (closing), 30,000 people (cut), attrition programs, salaried health-care and retirement (cuts), salaried head-count reduction, a new sales and marketing strategy, advancing product programs-what part of that doesn't exhibit a sense of urgency in doing what matters?' What's frustrating to me is a lack of recognition of the progress." You can add to that the majority sale of GMAC. According to the WSJ, the Cerebus group will pay $8 billion in cash up front and another $6 billion in cash. The additional money will come as some assets are monetized over time through a series of complex adjustments that will transfer additional value to GM from GMAC.

Evan Esar: "An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today. "

Alcatel and Lucent are merging. In effect, Lucent is selling to Alcatel for about $3 a share, a sad ending to the owner of Bell Labs. Lucent shareholders have truly lost a bundle with this company. Over the next 24 months 10% of the combined workforce or 8,000 workers will be laid off.

Folks talk about $2.50+ a gallon for gasoline but when was the last time anyone referred to the $3.50+ cost for propane gas. Here is an energy source for heating and cooking that is controlled by the likes of Johnny two-toes, so to speak. If you study the demographics of those using propane, you will note these folks are last in the nation to be able to afford the $3.50 + a gallon. Wasn't it only a few years ago the cost was $1 a gallon?

John Hussman: "Among stocks belonging to the S&P 500, those rated “A” or “highest quality” have gained just 1.01% year-to-date. In contrast, companies rated “B -” or “lower quality” have gained 10.17% year-to-date. At the bottom of the quality barrel, those S&P 500 companies rated “C” or “D” for “lowest quality” (or in reorganization) have gained a striking 16.90% year-to-date. The pattern is the same in the Russell 2000, where the highest, lower, and lowest quality stocks in the index have posted average year-to-date gains of 7.38%, 13.03% and 20.09%, respectively."

Smart & Final Inc. announced that its Board of Directors has determined to review the Company's strategic alternatives. The Company said this decision was made in view of the recent announcement by Casino Guichard-Perrachon S.A.("Groupe Casino"), the Company's majority shareholder, that Groupe Casinointends to sell a significant portion of its non-core assets by the end of 2007. Groupe Casino did not announce however any specific plan with respect to its 56% ownership in the Company. The Company expects to engage legal and financial advisors to assist inits review of strategic alternatives. There can be no assurance as to the timing of the Company's process or that any specific transaction will result from this process. Founded in 1871 in downtown Los Angeles, Smart & Final Inc. currently operates 250 non-membership warehouse stores for food and foodservice supplies in California, Oregon, Washington, Arizona, Nevada, Idaho and northern Mexico.

Gary Lammert: "It is highly likely that the ongoing, accumulating, and overwhelmingUS debt load has directly caused the nearly perfect evolution offractal growth patterns of its composite Wilshire equity valuationsthat have evolved since October 2002. If the proportionality corollaryhypothesis is correct a devolution of the greatest historicalsignificance may occur in 1/10 or less of the time that occurred atthe end of the first half of the US Second Grand Fractal - from 1929 to 1932. The implications for the global community will be ...historical."

General Motors is rapidly expanding its manufacturing operations in Russia. To increase sales in the booming market, GM is negotiating with multiple cities to build its first factory in Russia, possibly in St. Petersburg. Also, GM will announce this week it is expanding production in Kaliningrad.

Over the past several years, I have mentioned that analysts are at a disadvantage in not having run a company. It is hard for them to appreciate the nuances in bringing on new plants and/or contracting with an outside source for additional production. Over the last four months, Intel has lowered its revenue projections- in the beginning of December and in the middle of January. The reduction in January was much larger than the one in December. It is quite possible that the main reason for these reductions is that the company has been losing market share in the mobile arena to Advanced Micro Devices. Interestingly, AMD shares have been punished along with those of Intel. In the month of March, the stock got hammered from $42+ to its present $33+. For the last six months, the mid-point of the trading range has been about $31.50. What are analysts missing? In the first quarter, AMD's new Fab 36 initiated production. In June, Chartered Semiconductor will become an additional manufacturing source of AMD 64 microprocessors. Rather than try to fine tune first quarter margins that will be hampered by the production ramp, revenue mix, and the like, it might be wise to focus on the current growth rate that is significantly higher than the current p/e of 21 times 2006 earnings. In my view, there will be an increasing demand for higher margin chips over time. These shares are volatile and they are not for the faint of heart. On the other hand, I believe they present an opportunity for the longer term investor.

The Nikkei 225 Average rallied to its highest level in almost six years.

The Semiconductor Industry Association said worldwide sales of semiconductors in February fell 2.2% from January to $19.22 billion. Sales rose 6.8% from February 2005, said the association, which noted February is historically a weak month for sales. The SIA said there is some evidence of inventory accumulation during the first quarter, but that inventories will likely be balanced by the third quarter. It added there are also indications that sales of cell phones will exceed earlier forecasts of 10% growth in 2006, mostly due to demand for lower cost phones in China and India.

Edgar R. Fiedler: "The herd instinct among forecasters makes sheep look like independent thinkers. "

Deja Vu All Over Again

4/2/06 Deja Vu All Over Again

Venezuela Oil Minister Rafael Ramirez: "We said we don't want them (ExxonMobil) to be here. If we need them, we'll call them." ExxonMobil has no plans to pull out of Venezuela. Since Hugo Chavez took office in 1999, his government has passed legislation requiring a majority government stake in all oil production projects and increased taxes and royalties on oil companies. Last Thursday, the country's Congress approved guidelines to turn 32 privately run oil fields over to sate-controlled joint ventures. This will impact Royal Dutch Shell, Total, British Pete and others. In addition, there is a proposed increase in income tax rates from 34% to 50%, royalties from 16.65 to 33.3%, and their potential drilling acreage slashed by almost two-thirds. It is quite possible that the Western world is horrified by Venezuela's actions; however, if one has a good memory, things could be a good deal worse. In 1936-1937 Mexico expropriated all foreign oil properties-- almost all U.S. oil company properties. This is how Pemex came into being. Mexico is now a key trading partner of the U.S. Going back as far as 1850, Mexico never repaid hundreds of millions of dollars of debt nor interest on that debt nor accrued dividends on preferred stock ownership. Venezuela's recent actions pale by comparison.

Maciavelli: "Whoever wishes to foresee the future must consult the past; for human events ever resemble those of preceding times. This arises from the fact that they are produced by men who ever have been, and ever shall be, animated by the same passions, and thus they necessarily have the same results."

Doug Noland details the first quarter's broad based global equities market asset inflation. He observed
"throw in gold's 12.9% gain, silver's 28.6%, copper's 9.2%, lead's 13.5%, aluminum's 8.9%, nickel's 12.6%, zinc's 13.1%, crude oil's 9.2% and the ongoing rise in global real estate prices and you've got A Notable Quarter of Global Asset Inflation. Little wonder global bond markets are in retreat."

Rob Peebles: "It wasn’t that long ago that we were issuing warnings on Asian currencies. But now, according to a news story in Asian papers this week, the Asian Developing Bank has warned that countries in the region should be prepared to deal with a U.S. dollar crisis. “Our suggestion to Asian countries is: do not take this continuous financing of the U.S. current account deficit as given. If something happens, then East Asian economies have to be prepared,' Masahiro Kawai, a Development Bank official said."

A few hurdles to overcome for the Lucent/Alcatel deal: (1) how many directors for each company
(2) Lucent's three pension plans held a collective surplus of $2.69 billion as of the end of its 2005 fiscal year in September; however, its health care plan for retirees had a shortfall of almost twice that amount, or $5.12 billion (3) Alcatel SA had planned to sell its satellite activities to defense electronics company Thales SA, but those talks have stalled over demands by European Aeronautic Defense and Space Co. that its own Astrium satellite unit be included in the operation.

"Starting in 2007, we will be idling and selling off all of Ford's North American automobile manufacturing assets, with a commensurate reduction in salaried and non-salaried employees," Mr. Ford said. "This will dramatically boost our short-term liquidity, allowing Ford to focus on new directions, new customer-focused avenues of exploration that will effectively leverage Ford's powerful brand identity." With all the GM news, the market has forgotten about the changes at Ford. At $8, the rewards far outweigh any downside, in my view.

Wal-Mart Stores Inc. estimated that March same store sales rose 1.3 percent. Sales were held back by Easter falling later this year than last year.The company's estimate was at the low end of its earlier forecast of same-store sales growth of 1 percent to 3 percent.

GM CEO Rick Wagoner: "GM expects Delphi to honor its public commitments to avoid any disruption to GM operations."

Foreign oil companies operating in Ecuador will have to pay a 60 percent tax on "extraordinary profits," according a tax proposal passed this week by the Ecuadorian Congress.

Gerda Lerner: "We can learn from history how past generations thought and acted, how they responded to the demands of their time and how they solved their problems. We can learn by analogy, not by example, for our circumstances will always be different than theirs were. The main thing history can teach us is that human actions have consequences and that certain choices, once made, cannot be undone. They foreclose the possibility of making other choices and thus they determine future events."

Mike Burk: "The secondaries were overbought last week and are more overbought this week. The typical seasonal pattern suggests the blue chips will lead the move upward next week. On average the high for the 2nd year of the Presidential Cycle occurs in late April."

If the Lucent/Alcatel merger is announced, it will be interesting to see how the control of Lucent's Bell Labs, which does work for homeland security and the defense separtment, takes place.

Robert McHugh: "Since the Fed announced it would hide the M-3 number, Gold has risen $123.11 or 26.4 percent. Since the Fed has actually stopped reporting M-3 two weeks ago, Gold has risen $39, or 7.1 percent."

The board of General Motors is meeting this weekend to decide on the sale of a controlling stake in GMAC.

Benjamin Graham: "Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed."

Use Your Head

4/1/06 Use Your Head

This is not an April Fool's joke. Frequently, I have cautioned against making investment decisions based on media accounts of events. Such an example would be the recounting of Delphi and the UAW and the possible impact on GM.
The folks at GM and the UAW recall 1998. It was the first time the court took jurisdiction over a strike at GM since 1937. For those with a lousy memory, March 10, 2006 should not be too much of a stretch. That was the day a bankruptcy judge stated the court would delay ruling in Tower Automotive's request to reject the company's labor agreements. In sum, the judge pushed any decision out to an unspecified future date. That will be the precedent used in the Delphi matter. In the meantime, GM CEO stated
"GM will continue to work with Delphi, its unions and the court to achieve a consensual agreement that makes sense and is financially viable for all of the parties." This is precisely what the court wants to hear. This is a commercial matter that will NOT be decided by a bankruptcy court.
Thirdly, this labor dispute involves a great deal more than simply Delphi, the UAW, and GM. It impacts
American Axle, Lear, and hundreds of auto suppliers and then creates an additional domino effect on many other industries.
When making an investment decision, base that thinking on the facts. Do not get scared by the headlines.
There is no room for emotion. Think clearly and rationally. The risks will be minimized and the returns from your investments have a much better opportunity to mount.

The annual cost of insuring $10 million of GMAC debt for five years using credit default swaps fell 35 basis points, or $35,000, to 395 basis points, a seven-week low, according to Deutsche Bank prices. The price of GM shares does not reflect this improvement.

I found it interesting that Morgan Stanley opined that large oil companies are takeover candidates. This is precisely in line with an observation I made a short itme ago.

I also found it interesting that the ECB recently sold 57 tons of gold.

In the new pending silver ETF, each share will equal 10 ounces of silver.

In the San Francisco Bay Area, in the month of March it rained 25 out of 31 days, a record.

General Motors Corp., which is closing plants in the United States, says it will spend $600 million to $650 million US to build a small car assembly plant in Mexico, employing 1,800 to 2,300 workers. It is to open in 2008. The plant will be built in the central Mexican state of San Luis Potosi, GM spokesman Carlos Gelista said Thursday. He said the Mexican government is providing financial incentives for the project, with construction starting in May or June. This sounds like a rational plan to me.

Putting things in perspective, ethanol amounts to about 3% of the nation's gas supply in the form of a blended component that serves as an octane enhancer, a clean-air additive and a renewable fuel resource.

With all the bad news from the media, how do you think GM stock fared in the quarter ended March 31?
Would you be surprised to know it was up 9% ? That was equal to the gain for crude futures in the quarter. However, press coverage on GM and crude differed quite remarkably.

Rob Lee: "The bear case has recently received strong support from bond price developments. The chart is a technically alarming one for bond bulls (I have deliberately chosen a long term chart with quarterly data to eliminate short term noise). Firstly, the long term trend - as shown by the two year moving average - is strongly upwards. Secondly, yields have decisively broken up through very strong resistance between 4.40% and 4.60%. Thirdly, yields have also broken through the twelve-year downtrend obtained by joining the peak levels attained in 1994 and 1999. My reading of this chart is that US ten year bond yields are likely to move up to test the next major resistance at around 5.40% to 5.60%, as represented by the peaks in 2001 and the low of 1995. I stress this is a medium term expectation rather than a short term one." As an aside, I continue to believe that bond yields will rise significantly above the current 4.85%
level. On a long term basis, a yield on 10-year Treasury bonds of 9% would not prove a surprise to me.

General Motors Corp. said on Friday a federal court had approved a deal with the United Auto Workers that will allow the struggling automaker to save $1 billion a year in healthcare costs.

The Rubber Band

3/31/06 The Rubber Band

Today ends the first quarter, and it has been a remarkable one. I thought we might try something a bit different. You take one end of the rubber band and I'll take an other. Now stretch it out tight and pull.
On your side of the rubber band: year-to-date growth in bank credit, M3, M2, and commercial paper amounting to $445 billion; 11 straight quarters of double digit corporate profits with the latest growing at 13.8% and representing 11.5% of GDP; slowing retail sales but still showing growth; slowing housing (existing home sales growing but new houses declining) with prices still ahead of last year at this time; core PCE 2.4%; a U.S. dollar index that has held most of its gains from 2005; rising stock prices for companies in the energy business; the Russell 2000 (up 13% in 2006) and the S&P Mid cap index at all time highs, and the Nasdaq at a 5-year high. I am pulling on my end of the rubber band with multi-year, multi-decade highs, and some all-time highs for gold, silver, copper, zinc, platinum, palladium, and roaring prices for many company stocks in the metals industry; crude at $67, unleaded gas at $1.99, and natural gas at $7.50; yields on Treasury bonds at 22 month highs, such as, the 10-year at 4.86%; rising medical and education costs; understated government statistics on inflation and GDP growth; and a Fed that appears ready to hike rates in May and possibly in June. In sum, there is a battle going on and yet the Vix reflects low volatility. Something has to give with the rubber band.

With the end of the quarter, there is increased likelihood of a settlement in the Delphi/UAW/GM labor negotiations. In addition, I expect a positive announcement on the 51% sale of GMAC. There have been talks for the last six months. The time has come to cement the deal. Of course, I am an optimist.

The Conference Board Help-Wanted Advertising Index rose one point in February. The Index now stands at 39. It was 41 one year ago. Says Ken Goldstein, labor economist at The Conference Board: "Business isincreasingly concerned about the impact of new hiring (in terms of wages, aswell as health and pension benefits) in relation to corporate pricing power.The good news on the inflation front is actually a negative for business. It elevates the concern about rising costs, not offset by rising prices. That keeps hiring plans on the slow burner, as reflected in print advertisingvolume as well as in the other forward indicators of labor market activity." There were 1,987,000 new online job ads posted in February, according to The Conference Board Help-Wanted OnLine Data Series. The February number represents a drop of 175,000 jobs (8.1 percent) from January, which was upsharply from December. January and February combined show that the averagenumber of new online job ads for the first two months of 2006 is in line with the monthly levels in the late summer of 2005. Adjusting the number of ads forthe size of the labor force, there were 1.33 online job ads per 100 persons inthe U.S. labor force in February and 1.44 in January 2006. This was similar toAugust 2005 (1.43) and July 2005 (1.32).

The Federal Reserve and other banking agencies proposed a new set of capital rules for big U.S. banks on Thursday. The requirements under the Basel II agreement would direct certain banks to hold higher levels of capital than others in an effort to enhance risk management. "Given the increasing complexity of the activities at our largest banks, and the related risks of those activities, I fully support efforts to develop a more appropriately risk-sensitive capital framework for those institutions," Fed Chairman Ben Bernanke said in a statement. The public comment period on the proposal is four months.

The acquisition of Hughes Supply at $46.50 per share in cash by Home Depot was completed.

By 2020, the combined forces of the United States, China and India will account for more than 50 percent of all new economic growth, with the U.S. supplying 16 percent of that, according to a report issued Thursday. Globalization of companies will increase, the report predicts, and there will be sizeable growth in global economic output despite only a 15 percent increase in the work force. The Economist Intelligence Unit (EIU surveyed 1,656 executives in over 100 countries. Other key findings of the study were:
China's economy -- measured at purchasing power parity exchange rates -- will be on par with the United States by 2020, and it will have the second largest consumer market and the largest tech sector. Asia's overall share of the global economy will rise to 43 percent from its current 35 percent.
India will contribute 30 percent -- or 142.4 million -- to the 471 million new workers entering the global work force. The United States will contribute 12. 5 million new workers, and the overwhelming majority of new jobs will be in the service industry.

Antonio Gramsci: "I'm a pessimist because of intelligence, but an optimist because of will."

The Trends

3/30/06 The Trends

Looking at interest rates moving higher, gold at $572+, crude at $66+,gasoline futures at a 6-month high, and the Nikkei breaking 17,000, you would be surprised to see the Nasdaq at 2001 levels-- but it is. The Vix indicates there has been declining volatility for several years; however, the Dow is down over 90 points on Tues. and up 60 points on Wed. and the Nasdaq is up 33 points after a decline of 11 the day before. That's volatile in my book. In addition, interest rates, although trending up for months, still jump around on an intraday basis. In sum, things are not as serene as they appear on the surface.

Claude Bernard: "Man can learn nothing unless he proceeds from the known to the unknown."

GM is looking to sell its 7.9% stake in Isuzu for $300 million+.

Google will sell about 5 million shares for approximately $2 billion.

Whirlpool Corp.'s planned $1.7 billion acquisition of Maytag Corp. is expected to close no later than April 3, the companies said after the closing bell on Wednesday, following the clearance of the merger by the Department of Justice's antitrust division. I did not believe Justice would approve this deal.

According to Ibbotson Associates, small caps have outperformed large caps by approximately 130% since 1999.

Henry To: "The NYSE 10-day differential of new highs vs. new lows has been on a declining trend ever since January 2004 - more than two years ago. Moreover, the number of new highs on the NYSE failed to break the 200 mark even in light of the most recent rally in both the NYSE Composite and the Dow Industrials. This is all the more ominous for the major market indices given that the NYSE had as many as 450 new highs in late January of this year, and as many as 600 new highs during the December 2003 to January 2004 period."

Gasoline futures rose to their highest price in almost six months after a government report showed the biggest decline in U.S. inventories since August. Supplies fell 2.4 percent to 216.2 million barrels last week, the largest drop since Aug. 12. ``This week is really the peak of the refinery outage season,'' said Andy Lipow, president of Houston consultant Lipow Oil Associates LLC. ``We have a fair amount of catalytic crackers that have been off stream for either scheduled or unscheduled maintenance.''

The Security Council urged Iran on Wednesday to suspend its uranium-enrichment activities and asked the director of the International Atomic Energy Agency to report back on Iran's compliance within 30 days.

According to the Financial Times, negotiators for Alcatel and Lucent were on Wednesday night confident they had narrowed most of their differences and could strike a deal to merge the two telecommunications equipment manufacturers within days. It is expected to value Lucent at $13.7 billion.

Albert Szent-Gyergyi: "Whatever a man does he must do first in his mind."