Think Outside Of Your Buns

4/17/06 Think Outside Of Your Buns

Paul Kasriel: "The household debt-service burden hit a new record high of 13.93% in Q1:2006... This ratio has been trending higher since 2000, the beginning of the housing boom. Low financing rates mitigated the debt-service burden for a while even as household borrowing exploded. But with the Fed having raised the funds rate by 425 basis points in a 25-month span - the largest 25-month funds rate increase since the Volcker era - the combination of rapid borrowing and rising financing rates is pushing up the debt-service burden at a faster rate. With employment growth slowing, which will retard growth in disposable personal income, and a massive amount of mortgage debt subject to interest rate resets this year and next, the household debt-service ratio is destined to reach even higher levels as we go forward."

Robert McHugh: "The Dow Industrials completed their third triple-digit loss in a row, and are down over 4 percent over the past three days. This is what happens with wave threes, which is why we spend so much time watching for them. This one isn't over. The first sub-wave down within it may be close to completing, but there are five waves to an impulse, and we are just finishing the first one."

Mike Burk: "In the 8 trading days since the rally high that ended on the 1st trading day of July all of the major indices have all declined including:

Dow Jones Industrial Average 4.4%
S&P 500 (SPX) 3.4%
NASDAQ composite (OTC) 7.0%
S&P Mid cap 5.6%
Russell 2000 (R2K) 6.8%
Wilshire 5000 4.0%

Unfortunately there is no divergence in the indicators or anything I can see that would suggest a change of trend. Most of the indices are slightly above their mid-June lows and those levels might offer a little support, however, there is no reason to be optimistic about that support holding... Last week was, on average, the best week of the month.
Next week is, on average, the worst week of the month... There is no evidence of a bottom."

Dan Basch: "In my last essay, "Bernanke's Test Has Arrived", I predicted a severe decline had just begun and luckily nailed it. Since the essay was published, the NASDAQ index declined from 2272 to today's close at 2037, or just over 10%. This essay is to serve as a brief update: I expect this may be the beginning of what will soon become an outright market meltdown. This is partially indicated by a Bearish Diamond formation which has formed on the NASDAQ and broke down this week. "

Volkmar Hable: "In every issue of this Investment Commentary since January I have warned to get out of stocks and prepare for a serious decline. Here we are in the middle of the second leg down, and there are still people owning stocks and hoping for a reversal. This rally into mid-July was the last chance (very likely for this year) to get out of long positions. Remember: managing risk and avoiding losses is key for long-term success. Don't risk your capital and forget risk management for some short term gains. In a sideways market traders and investors should focus on opportunistic strategies!"

George MacDonald: "Attitudes are more important than facts."

Toyota Motor Corp. is considering making a bid to link with General Motors, according to a report in BusinessWeek magazine. The move would be aimed at trumping a proposed alliance between GM and Renault-Nissan.The magazine reported Saturday that Toyota "is considering its options and looking at different opportunities that they could propose to GM." It said Toyota executives have "war gamed" possible scenarios by which it could help GM with its turnaround.BusinessWeek quoted an unnamed Toyota executive who said, "Toyota has no interest in seeing an alliance like this [involving Renault, Nissan and GM] take place."(GM denied this report on Sunday). Maybe this report is accurate and maybe it is not. The point is Chrysler is hooked up with Daimler, Renault/Nissan is eyeing GM, and Ford will not be left out in the cold.

Brett Steenbarger: "Go with the odds, but make sure you can survive the odds you're wrong. Better advice than that I cannot give."

According to the Financial Times, Ford Motor will on Monday announce it is to spend £1bn ($1.8bn) over the next six years on British research and development projects designed to improve the fuel efficiency of its vehicles, as the European arm of the US carmaker realigns investment priorities.

Freud: "Thought is action in rehearsal."

$65.9 Trillion

7/16/06 $65.9 Trillion

Andrew Bosworth: "The American economy is now underwritten by $9 trillion of debt and depends upon $2 billion dollar infusions of foreign capital every day, largely from China." I do not want to belittle Bosworth's statement. It is well-known and often repeated in the press.
However, you might want to go a bit further into the problem, and it explained in the July/Aug
St. Louis Federal Reserve Bank of St. Louis review, and I have now mentioned it three days running. The review stated "the current U.S. fiscal gap is $65.9 Trillion." Prior to buying dollars and U.S. treasury bonds, it might be wise to chew on that number. It will get bigger next year.

With all of these second quarter earnings reports, it might also be wise to take note of the tax rate ( in GE's case only 11%) and the number of shares repurchased in the quarter ( in IBM's case). In sum, it pays to read the fine print and not simply the headline numbers.

Paul Volcker: "For a long time now - if we believe the statistics - the average working guy has not had an increase in income. But he's working pretty darn hard these days... But there doesn't seem to be much concern about it partly because, I guess, people find it fairly easy to get a job - at least they're employed... I think given the problems we have, given our dependence on foreign capital, given our lack of savings - one thing we better be very careful about is that we maintain confidence in our currency. And that most of all means price stability. And there are some tendencies now toward greater inflation. I wouldn't say it's out of hand, but we better not let it get out of hand."

Bush blocked Russia's entry into the World Trade Organization on Saturday and President Vladimir Putin mockingly said Moscow doesn't want the kind of violence-plagued democracy the United States has fostered in Iraq.

During the prior market meltdown when the VIX rallied from 12 to 24, I suggested you consider purchasing shares in Chevron, ConocoPhillips, and Schlumberger. Since then, each has rallied 10 points or so. With all the fighting in Israel and Lebanon and unrest in other parts of the Middle East, there is increased talk of crude moving up to $80, $90, and even over $100 a barrel. It's getting very crowded in the oil patch. I like it quiet with few occupants. As such, I suggest you take your 10 point gains and wait for a more friendly entry level. One should not forget that oil is a cyclical industry.

The growth of the M2 money supply continues to outpace our country's GDP.

The Facts

7/15/06 The Facts

Is inflation benign or muted as the Fed would suggest? Let's take a closer look.
Import prices rose for the third consecutive month, although the 0.1 percent advance in June was modest compared to the 2.0 percent and 1.7 percent increases in April and May, respectively. The June rise was dampened by a 1.4 percent decrease in petroleum prices, which had risen 17.8 percent over the previous two months. Despite the June downturn, petroleum prices rose 32.6 percent over the past year. In contrast, the price index for nonpetroleum import prices advanced 0.4 percent in May following increases of 0.1 percent in April and 0.7 percent in May. For the year ended in June, nonpetroleum import prices rose 2.2 percent while overall import prices increased 7.2 percent. A 1.1 percent rise in nonpetroleum industrial supplies and materials prices was the largest contributor to the June increase in prices for nonpetroleum imports. Continued price rises for most metals more than offset lower prices for natural gas and building materials. The price index for nonpetroleum industrial supplies and materials increased 11.2 percent over the past 12 months. Maybe you should read that last sentence again.

Yesterday the Bank of Japan raised interest rates for the first time in six years -- no big deal but a beginning of a gradual raising of rates.

With all the unrest and explosions involving Israel and Lebanon we are told there has been a flight to quality. In this case, money moving into U.S. Treasury bonds as the yield on the 10-year dipped to 5.06% and the 2-year to 5.10%. Of course, the real safe haven, gold, continued its upward price movement.

For a good part of the Friday trading day, the Dow had a triple digit decline. Despite that, the VIX only managed a half point gain. In sum, it is still about 6 points below the most recent high of 24. Maybe money managers believe the market is oversold. In my view, the fear factor is not anywhere near the boiling point.

Canadian independent Nexen said on Thursday that capital spending for 2006 could exceed its original C$2.9 billion ($2.6 billion) budget by 10%, mainly because of cost escalation at its Long Lake oil sands project in northern Alberta.

Russian oil giant Rosneft on Friday priced its initial public offering at $7.55 a share, valuing the company at $79.8 billion and making the issue the world's fifth-largest IPO and the largest ever for a Russian company.

Marsoft: "After a mixed performance in April and May, the dry bulk market has witnessed a broad-based strengthening in June, with freight rates rising significantly during the first three weeks of the month. Although the Baltic Dry Index fell from 2500 in mid-May to just over 2400 by the end of the month, it rebounded to more than 2800 in the latter half of June."

Confidence

7/14/06 Confidence

Before you buy into the notion that the U.S. Treasury bonds are a safe haven or that even imagine that God trusts in the U.S. dollar, I strongly suggest you read the St. Louis Federal Reserve Bank Review (July/August). This is the one I referenced yesterday. It's one thing to be a proud American. It's quite another thing to be a schmuck.

Peter Schiff: "Over the years, the government has managed to "solve" economic problems merely by changing the way they are measured. By re-jiggering the manner in which CPI and GDP are calculated, the government misrepresents the true health of the economy, making it easier for incumbents to be re-elected. President Bush demonstrated this to perfection in his televised speech earlier this week. Despite a building sense among the population that the economy is shaky, the President was able to effectively say, "What are you complaining about, look how good you have it? Inflation is just 2.5% and the economy is growing at 4% per year. Why back in the seventies and eighties people had to struggle with 8% - 10% inflation and 1%- 2% growth." The reality is that today's generation is experiencing similar struggles. Despite the rosy numbers, today the typical American family pays for groceries with a Visa card, utilities with a home equity loan, has a six-year loan on their SUV, has no savings, and has both parents working just to keep the family one-step ahead of its creditors. With all this supposed non-inflationary economic growth, why do Americans borrow to pay for everyday necessities which used to be easily financed from incomes, and why has a nation of savers been transformed into one of debtors? From the government's perspective, all the misrepresentations are part of a giant confidence game that it meant to keep all the marks, most of them foreign, from wising up. A fiat-based monetary system only functions as long as confidence is maintained. The minute it's lost, the whole scheme implodes. Since confidence is the only thing holding up the U.S. dollar, and by extension the entire U.S. economy, maintaining that confidence is the government's highest priority. If elected officials and central bankers have to obfuscate a bit to do it, so be it."

Yesterday was the second straight triple digit decline for the Dow. The S&P is now down for the year and the Nasdaq is at its lowest point since October. Is it because of the explosions and fighting in Israel and the neighboring land? Or $78 crude or $2.10 heating oil or $2.30 gasoline? On the other hand, we have sufficient levels of crude and gasoline. Or maybe the pending rate rise in Japan or China could be the reason for the drop in equity prices. Or it could be Ford cutting the dividend (I think it is a good move). Beginning in the third quarter, Ford's dividend will fall to five cents from 10 cents, a move that will save the company $93.5 million on a quarterly basis, or $374 million a year. Fees paid to board members will also fall by half, bringing compensation for each of the 12 directors to $100,000, saving $1.2 million a year, not including cuts to other fees paid to directors.
Or possibly it was the report from D.R Horton, the nation's largest homebuilder. D.R. Horton Inc. after Thursday's closing bell said third-quarter sales orders fell 7.3% to $3.8 billion, or 14,316 homes, from $4.1 billion, or 14,980 homes, during the same period in the prior year. Donald Horton, chairman, noted the "difficult selling conditions the homebuilding industry is experiencing." Due to the conditions, D.R. Horton said it expects per-share earnings for the third quarter of 93 cents, and lowered its per-share view for the year to $3.65 or more on 50,000 homes closed. In April, the company said it expected fiscal year per-share income of $5.25 and $5.35. The stock declined to $20+ in after hours trading.

Let me ask you this. Do you have more confidence in gold or the dollar? Do you believe the U.S. deficit will continue to grow throughout the remainder of Bush's term? Do you have confidence in Bush as a leader? Is he an effective Commander-in-Chief? Confidence counts for a lot. It can mean the difference between seeing the purchasing power of your dollar vanish or seeing the equity in your home hit a pothole. When the VIX rises by 3+ points to 17+ ( as it did yesterday), don't you realize a confidence as well as a fear factor come into play?

Venezuelan oil shipments to the U.S. fell 6 percent in the first four months of the year. State-run Petroleos de Venezuela SA has been sending more tankers of oil and fuel to India and China, markets that are up to seven times more distant than the U.S. customers that traditionally take most of the country's exports. Venezuela was the third-biggest OPEC producer last month, with output of about 2.6 million barrels. ``Two things are clear,'' said Roger Tissot, an oil analyst with PFC Energy, a consulting firm in Washington. ``Venezuela wants to reduce its dependence on the U.S., and it wants to position itself in the world's fastest growing markets, such as India and China.''

Intel announced cutting 1,000 managerial jobs, Washington Mutual 900 jobs, and Disney stated there would be a round of layoffs without noting a specific number.

Really?

7/13/06 Really?

In the latest Federal Reserve Bank of St. Louis July/August Review, Laurance J. Kotlikoff states "there are strong reasons to believe the United States may be going broke." I hope this has sunk in for all of you. This is what I have written for the last three years.

Bill Gates: 80 Percent Chance Microsoft's Vista Operating System Will Be Ready in January. How reassuring is that?

Martin D. Weiss: "Almost all of this oil and gas passes through the Strait of Hormuz. Only a very small percentage leaves the region through alternate routes, such as the East-West oil pipeline across Saudi Arabia.
So just as soon as the West threatens Iran with sanctions, Iran can threaten the Strait of Hormuz, cut off up to one-third of the world’s energy supply, and drive prices into the stratosphere."


Mark Bail: "So, with a rising VIX reflecting an increase in fear in the market, we should expect a VIX that trends higher should generally correspond with lower stock prices, right? That’s in fact what tends to happen. If you look back at a chart of the S&P 500 and compare it with a chart of the VIX, you will see that the two tend to move opposite one another. Therefore, a rising VIX is a sign of increasing volatility -- and a declining market.

But the VIX can provide the astute technical analyst with other valuable information as well. Remember that emotions -- fear and greed -- are reflected in the price of the VIX. Emotions can have a powerful effect on stock prices -- and can peak at market extremes. Well, since those emotions are encapsulated in the price of the VIX, when the VIX reaches an extreme level -- relative to its recent price range – you have a signal that the market is overextended in one direction and set to make a turn.

That’s been true when the market has been in a lengthy downtrend -- and the VIX is at a significant top. For example, peaks in the VIX in 1990, 1994, 1997, 1998, 2001 and 2002 have coincided with important market lows. And major lows in the VIX have coincided with a number of significant market tops as well.

Therefore, if you think S&P 500 may have reached an extreme level, check to see if the VIX has reached a major peak or trough relative to its recent price trend. If it has, odds are good you have pinpointed a major turning point in the market.

So, next time you think you’ve spotted a major market turn, be sure to check a chart of the VIX. If you find it trading at an extreme, your forecast of a significant trend change could be right on the money. And if you’ve caught the VIX trading at a bearish extreme, you may get to buy those stocks you’ve been watching at just the right time."

Thanks to George Ure for bringing this to light: "Russia’s uranium exploration and mining assets at home and in the CIS will be combined into a single, purely state-owned enterprise, nuclear energy chief Sergei Kiriyenko said Wednesday, scotching hopes that private investors would be allowed to retain minority stakes in uranium enterprises.

The announcement follows President Vladimir Putin’s approval on June 9 of a plan to gather all civilian nuclear sector enterprises into a single, market-driven corporation along the lines of France’s Areva or Germany’s Urenco."

Biofuels such as ethanol are "not a practical long-term solution" and their widespread use, even from non-food crop sources, could have a "devastating" impact on agriculture, two researchers at the Magleve Research Center of the Polytechnic University of New York argued recently.
"Ethanol from 300 million acres of switchgrass still could not supply our present gasoline and diesel consumption, which is projected to double by 2025," the researchers, James Jordan and James Powell, wrote in an op-ed article in the Washington Post. "The agricultural effects of such a large-scale program would be devastating."

"Spot Henry Hub natural gas prices, which averaged $8.86/Mcf in 2005, are expected to average under $7/Mcf over the next few months. Thus, barring extreme weather for

the rest of the year, we expect a decline in the annual Henry Hub spot price to about $7.61/Mcf for 2006," the EIA said in its July energy outlook, which was released Tuesday.

"However, the respite is expected to be short-lived, as concerns about potential future supply tightness and continuing pressure from high oil market prices could drive spot natural gas prices to just over $9/Mcf this coming December and January. The Henry Hub price is expected to average $8.13/Mcf in 2007," according to the statistical arm of the Department of Energy (DOE).

Yesterday's rally in equities and bonds looked like amateur night. You say really?

Here we are a day later with crude at $75 a barrel, a May trade deficit of $63.84 billion, a drawdown in crude of 6 billion barrels and gasoline of 400,000 gallons, another rally in metals, a conflict between Israel and Lebanon, and Fed Funds futures factoring in a 67% chance of a rate hike next month. No wonder the Dow is down in triple digits.The VIX managed a 1+ gain but still sits at the 14.50 level.

Dell's consumer and small business sales account for 15% of the company's total revenues. Tomorrow they will announce cutting prices in this area. The price of the stock has already been cut to $22+. Basically, the gains over the last few years in the stock have been puked away.

Citgo, the old Cities Service Company, is owned by Venezuela. Over the next year Citgo will cease distributing gasoline in 10 states and stop supplying some stations in four additional states, Citgo spokesman Fernando Garay said Wednesday. The states where Citgo will stop selling gasoline are: Iowa, Kansas, Kentucky, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma and South Dakota. A limited number of stations in Illinois, Texas, Arkansas and Iowa will also be affected. Venezuela is the world's fifth-largest oil exporter and the U.S. is its top buyer. The United States relied on Venezuela for about 11 percent of its oil supply in 2005.

For the second half of fiscal 2006, Brunswick lowered its expectations, citing significant declines in retail demand for its 2006 model year marine products that has increased inventories, forcing the company to reduce production levels.

China and Russia introduced a resolution Wednesday deploring North Korea's missile tests but

dropping language from a rival proposal that could have led to military action against Pyongyang. The draft, obtained by The Associated Press, "strongly deplores" North Korea's missile tests last week and urges Pyongyang to re-establish a moratorium on such launches.

Top senators have reached a bipartisan agreement that will allow the chamber to vote on legislation that would open parts of the eastern Gulf of Mexico to oil and gas exploration, Senate Majority Leader Bill Frist, R-Tenn., announced Wednesday.

Red To Green

7/12/06 Red To Green

Yesterday there was a turnaround in equities, and the impetus came in part from the CEO at KLA Tencor who was speaking at a semicinductor symposium at the Moscone Center in SF. He stated the company's orders for the quarter topped its 10% target. "We've exceeded the top end of the range," the company's chief executive officer Rick Wallace told analysts at a meeting in San Francisco. It was a "very good quarter" for the company, the CEO said. Driving orders was demand for machines that produce NAND flash and DRAM memory chips used in consumer electronics. That statement reversed much of the weakness in semiconductor stocks and many other techs. Still, many large caps acted poorly --- Home Depot, GE, IBM, Pfizer,Microsoft, and Cisco.

The standout group was energy with crude closing up at $74.16 a barrel. Chevron and ExxonMobil rose about $1 a share, Schlumberger over $3, and Weatherford Int'l close to $2.

With the explosions in Mumbai, gold rose $17 an ounce. The U.S.dollar index closed just above 85, but treasuries rallied again with the 10-year at 5.11%, the 30-year at 5.15%, and the 2-year at 5.16%. Yes, we are inverted again.

Bush made a big deal of the estimated budget deficit being reduced from roughly $400 billion to about $300 billion in 2006. Now how did this occur? The Homeland Investment Act, H.R. 767, and The Invest in America Act, S. 596, reduced for one year the tax rate on foreign earnings gained by American companies to 5.25 percent. Before that, U.S. firms operating overseas paid a 35 percent tax, minus any taxes they’ve paid abroad, when they bring foreign earned income back to the U.S. This one-time repatriation of foreign earnings provided an added $50 billion in revenue for the government. Then there was the damage created by the AMT (alternative minimum tax). That generated an addiitonal $25 billion. In sum, the Bush policies created greater tax burdens for those on Main Street, and this helped to widen the gap between the haves and havenots.

The revenue growth is not expected to continue, according to the OMB, which forecast a 2.4 increase in receipts next year. You can be certain that the growth in government spending will continue and the deficit will only get larger in 2007. By that time, Bush will ask for another increase in the debt limit.

Christopher Galakoutis: "So far in 2006 we have a slowing US real estate market and declining refinance activity. With the Fed funds rate now at 5.25%, and a large portion of ARMS coming due this year and next, consumers would arguably be more than hard-pressed to come up with that extra cash that 2-3% mortgage rate loans were generating the last few years. With the nation dependent on consumer spending for 70% of its economic prowess, it should be clear as day that trouble looms for the economy. With its inverted yield curve the bond market is predicting as much, as well as an eventual Fed reversal on interest rates. It also appears - for the time being - to be unconcerned about any future dollar weakness and is pricing itself accordingly. But if a lower fed funds rate is expected in the near future, it is difficult to see how the dollar keeps from falling out of the blocks altogether. In all likelihood it may very well be the degree of US economic weakness, and the realization that things are much worse than initially assumed, that will catch many - foreign central bankers included - by surprise. That may be the point where even the worst of habits, admittedly so totally and completely ingrained in money printers, finally get broken as a certain "faith" threshold is breached."

I received several emails in the last few days asking whether I have lost my mind. It seems many are concerned that I continue to add to my position in Univision -- as recently as yesterday. I appreciate everyone's concern. Not to worry. I enjoy going to the bank.

Summer Heat

7/11/06 Summer Heat

Corn prices rose to a two-year high in Chicago on speculation that rains this week will miss the driest areas of the main growing regions in the Midwest, compounding drought damage to the biggest U.S. crop. Corn is up 28 percent this year. There is another side to the story.
A week of warm sunny weather has helped Indiana corn gain some height and improve in development. It has also allowed the winter wheat harvest to progress. Winter wheat harvest made good progress especially in central and northern areas of the state. The corn crop is reported to be very uneven in development, with some only knee high and some already tasseling. Soybean plant development also varies greatly with some fields blooming to some fields just emerging due to replanting.Irrigation systems were running in some northwest and north central areas as rain showers have been spotty.
Corn condition is rated 60 percent good to excellent compared with 34 percent last year at this time. Thirteen percent of the corn acreage has silked compared to 28 percent last year and 24 percent for the 5-year average. Soybean condition is rated 59 percent good to excellent compared with 37 percent last year at this time. Twelve percent of the soybean acreage is blooming compared to 43 percent last year and 27 percent for the 5-year average.
Harvest of winter wheat is 70 percent complete compared to 81 percentlast year and 74 percent for the 5-year average. By area, wheat harvest is 45 percent complete in the north, 75 percent in the central, and 94 percent in the south. Of course, Indiana may not be representive of the entire "heartland."

Oil surged to $75.78 a barrel on July 7 after the missile tests. Prices have risen 22 percent this year in part on concern that exports from Iran may be disrupted because of its nuclear research. U.S. inventories of crude oil, diesel and heating oil in the week ended June 30 were above the five-year average for the period, the Energy department said last week. Crude oil for August delivery fell to $73.61 a barrel on the New York Mercantile Exchange. Meanwhile, prices at the pump have risen 11 cents per gallon to $3.

The BBC News in Moscow stated "Russia is moving fast to develop its Arctic territories, all part of a strategy to become the world's dominant energy supplier. It has the world's biggest gas deposits and already supplies a quarter of Europe's needs. But it wants to seize more of the European market, and capture consumers in Asia and the United States too."

Univision Communications Inc. after Monday's closing bell estimated that 50 million viewers tuned in to the 2006 World Cup tournament on its three television networks - Univision, TeleFutura and Galavision. Viewers included 29 million Hispanics and 21 million non-Hispanics, with an average audience of more than 5 million above the age of 2.

Alcatel and Lucent Technologies Inc. after Monday's closing bell said they are on track to complete their $13.45 billion merger by the end of 2006. Meanwhile, Lucent's revenues and earnings for the June quarter badly trail previous projections.

Consumers took on a bigger-than-expected $4.4 billion more in debt in May, the Federal Reserve said, mostly in revolving debt like credit cards. U.S. borrowers pushed up overall outstanding consumer credit by 2.4%, or $4.4 billion, to $2.173 trillion, the Fed said Monday.

Representative Ron Paul: "The coming dollar crisis is not likely to be "fixed" by politicians who are unwilling to make hard choices, admit mistakes, and spend less money. Demographic trends will place even greater demands on Congress to maintain benefits for millions of older Americans who are dependent on the federal government. Faced with uncomfortable financial realities, Congress will seek to avoid the day of reckoning by the most expedient means available-- and the Federal Reserve undoubtedly will accommodate Washington by printing more dollars to pay the bills. The Fed is the enabler for the spending addicts in Congress, who would rather spend new fiat money than face the political consequences of raising taxes or borrowing more abroad. The irony is that many of the Fed's biggest cheerleaders are the same supposed capitalists who denounced centralized economic planning when practiced by the former Soviet Union. Large banks and Wall Street firms love the Fed's easy money policy, because they profit at the front end from the resulting loan boom and artificially high equity prices. It's the little guy who loses when the inflated dollars finally trickle down to him and erode his buying power. Someday Americans will understand that Federal Reserve bankers have no magic ability -- and certainly no legal or moral right -- to decide how much money should exist and what the cost of borrowing money should be."

It's really shameful that more Americans are not familiar with the efforts of Ron Paul. He is, in my view, the best candidate to be President of the U.S. I also made this statement in 2000 and 2004. It's not unusual for me to talk just to myself.

Alcoa Inc. on Monday posted a 62 percent boost in profit on higher aluminum prices and aerospace demand, but second-quarter sales dipped below Wall Street estimates, sending its shares down 4 percent.

China asked member governments of the United Nations Security Council to adopt a non-binding statement critical of North Korea's ballistic missile program, a proposal the U.S. and Japan rejected as too weak.

A Bird In The Hand

7/10/06 A Bird In The Hand

Late yesterday Afternoon Cascade Natural Gas announced a written agreement to sell the company for $26.50 per share in cash to MDU Resources (the former Montana Dakota Utilities, a company I have know well for the past 25 years.) There is no overlap in operations for the two companies, and the utility commissions will have no difficulty in approving the transaction, which will take place in the spring of 2007. Therefore, as a CGC shareholder, you will receive three more quarterly dividends of 24 cents per share, and bring the total received to $27.22. Of that, you will not need to pay a tax until April 2008 on one dividend of 24 cents and the $26.50. I recommend holding onto your shares until completion of the deal next year.

In the meantime, I would continue to add to holdings in Univision. There is at least a $3 profit to be made and that will be received in 2007. Therefore, a tax will not be due until 2008. I still believe Televisa will return with a higher bid.

John Hussman: " As I've noted in recent months, it's likely that China and Japan will at least stabilize in their willingness to absorb the flood of government liabilities that they've been snapping up in recent years. That means that more of these liabilities will be forced into the hands of U.S. investors. As that happens, we're likely to observe an accumulation of “cash on the sidelines” that might look like a hopeful sign for stocks. It will be helpful to remember that the accumulating pile of “sideline cash” actually represents money already spent."

In this market of increasing uncertainties, I would stick with the bird in the hand. It's nice to go to the bank and not pay a tax until 2008.

Brett Steenbarger: "Since 2004 (N = 628 trading days), we've had 142 down days at the end of down weeks. Four days later, the S&P 500 Index (SPY) has been up by an average .21% (85 up, 57 down). That is considerably stronger than the average four-day gain of .05% (259 up, 227 down) for the remainder of the sample.
Interestingly, however, during 2006 this pattern has not been profitable (N = 29). Four days after we've had a down day at the end of a down week, SPY has been down on average -.11% (16 up, 13 down).
This is but one example of how patterns that were showing up earlier in the bull market are not panning out well in the present environment. A similar shift of patterns occurred early in 2000 and was a helpful alert to a major change in trend."

"Recent checks and a lack of publicly announced deals point toward lower-than-expected bookings for IBM," Benjamin Reitzes of UBS said. "While software sales seem stable, high-end server sales seem to be impacted by product transitions near-term."

EMC Corp. lowered its outlook for the second quarter to reflect later than expected orders from customers, and a faster than anticipated customer transition to its Symmetrix DMX-3 platform.

Richard Daughty: "To show you how clueless The Federal Reserve is, the statement released with the latest change in interest rates read: "the moderation in the growth of aggregate demand should help to limit inflation pressures over time." Huh? Do these halfwit Federal Reserve twits actually think that the United States is the only engine of growth in the world? Hahaha! While there will certainly be a "moderation" in aggregate demand in the United States, there are many, many, many people in China and India alone who do not have an upscale diet, a washing machine, a television, a microwave, a computer, a car, central air and heat, a jet ski, lots of disposable income, or any of that fun, fun stuff you can buy with money and credit."

China's monthly trade surplus surged to 14.5 billion in June, surpassing the previous record of $13 billion recorded in May, according to data released Monday by the Ministry of Commerce.

KB Home said in a Securities and Exchange Commission filnig after markets closed Friday that negative trends in the U.S. housing market may continue next year. "While we expect the current negative trends in the U.S. housing market to continue for the remainder of 2006 and, possibly, into 2007, we anticipate individual markets will normalize at different rates depending on the degree of disparity in the balance of these characteristics presently. In the long run, we believe the underlying fundamentals of strong demographics and job growth continue to support favorable domestic housing demand," the home builder said.

In the latter part of this week, the Bank of Japan will finally raise interest rates. Their zero rate policy has been going on for far too long and has helped to create the yen carry trade.

Bill Buckler: "The global paper currency system is very young. It depends for its continued functioning on the BELIEF that the debt upon which it is based will, someday, be repaid. The one thing, above all others, that could shake that faith, and therefore the foundations of the modern financial system itself, is a rise (especially a sharp rise) in the U.S. Dollar price of Gold."

Either Way

7/9/06 Either Way

John Mauldin: "Either the economy slows down, which is not good for the stock market, or the Fed is going to keep raising rates, which is not good for the stock market. Either way, we are going to get to buy back into this market at a much lower place than 11,000 on the Dow."

The number of job cuts announced by U.S. corporations rose to 67,176 in June from 53,716 in May, according to a Challenger, Gray & Christmas survey released Thursday.This marked the first monthly job-cut increase in six months, the company said. The report noted "job cuts are still at a much slower pace than a year ago."

Doug Noland: "That bond markets seem so willing to dismiss the possibility on an intransigent global inflationary boom has me rather fascinated. I would suggest, however, that any decline in market yields at this point plays right into the hands of ongoing Credit Inflation and Problematic Excess (not to mention $80 crude!). And whether it is willing to accept the responsibility or not, it appears it will be the bond market that must at some point wrest power away from the brutish inflationary boom. This is not the '90's; there's no slack left in global resource markets; $800 billion Current Account Deficits are a disaster in the making; dollar prospects are a serious global issue; and this synchronized global boom has "trouble" written all over it. And that's about as concise as I get."

China, the world's fourth-largest economy, is not a G8 member. Neither is India, the world's largest democracy and one of its fastest-growing economies. Nor is South Korea, Brazil, Mexico or Spain, each with a larger economy than G-8 member Russia's. In fact, Spain recently inched past member Canada as the world's No. 8 economy, according to a World Bank tabulation.

Bill Gross, chief investment officer at Pacific Investment Management Co. and manager of the world's biggest bond fund, said the bear market in bonds is over.
``The bond bear market is beginning to go into hibernation, which is the same thing as saying the bear market's over,'' said Gross in a television interview from the firm's headquarters in Newport Beach, California. ``It ended two days ago on Wednesday. While we're not about to reap huge capital gains, bonds will do better from here in terms of price.'' Bill Gross has been wrong about the direction of interest rates for the past year.

Exploring New Ground

7/8/06 Exploring New Ground

"We will enter into discussions with the managements of Renault and Nissan with an open mind -- eager to hear their ideas of how an alliance between our companies might work to our mutual benefit," said Rick Wagoner, GM's chairman and chief executive.

Crude traded at a new record high on Friday. After touching $75.66, crude dipped to close at $74.05.

In June the 3.9% year over year wage increase was the highest in 5 years. Although job creation only amounted to 121,000 new jobs, it should be noted that the average workweek rose to 33.9 hours from 33.8 hours in May; however, overtime hours were unchanged. With 144.4 million people employed in the workforce, that 0.1 additional hour in the workweek equates to 144,400 more jobs.

Susan B. Anthony: "Cautious, careful people, always casting about to preserve their reputation and social standing, never can bring about a reform. Those who are really in earnest must be willing to be anything or nothing in the world's estimation, and publicly and privately, in season and out, avow their sympathy with despised and persecuted ideas and their advocates, and bear the consequences."

Mark Warshawsky, the Treasury assistant secretary for economic policy stated U.S. job growth should average in the range of 125,000 to 150,000 per month for the remainder of the year, Warshawsky said. The rise in wages is not a "per se source of concern for inflation," he said. Of course, he is not concerned because he does not have to meet a payroll.

The August fed funds futures contract implies about a 60% chance that the Fed will raise its fed funds target to 5.50% from 5.25%.

This has been the third longest period on record without a 10% correction in the equity market.

Advanced Micro Devices expects to report second-quarter sales of $1.22 billion, down 9% from its first-quarter results.

U.S. natural-gas inventories rose 73 billion cubic feet for the week ended June 30, according to the Energy Department. August natural gas was last down 5.4 cents at $5.60 per million British thermal units, after trading near a two-year low of $5.56.

3M Co. warned of an earnings shortfall and the stock got clipped for 6 points.

The dollar fell the most in a week against the yen after Japan's government said its economy is heating up while the June jobs report suggested U.S. growth is cooling. The U.S. currency dropped to a four-week low against the yen and euro. Meanwhile, the U.S. dollar index weakened to 84.50, while the yield on the 10-year Treasury fell to 5.13% and the 2-year to 5.17%. The 30-year fell to 5.17%.

Dominion Homes Inc. reported sales of 356 homes worth $66.2 million during the second quarter vs. 655 homes worth $123.1 million in the same period a year earlier.

Joaquin Setanti: "Be wary of the man who urges an action in which he himself incurs no risk."

It's getting more difficult to figure the VIX. Even though equities had a lousy day on Friday, the VIX had almost no volatility and managed only a less than one point gain.

Marc Faber: "In short, whereas I do expect central banks to embark anew on massive "money printing" in future, and to flood the system with even greater liquidity injection than they have done since 2001, for the next three to six months or so, global liquidity may not rise sufficiently to keep the global economy on its growth trajectory and asset prices from declining."

Jobs And Wages

7/7/06 Jobs And Wages

The keys to Friday's nonfarm payroll report do not reside in the number of new jobs but rather the wages per hour, the number of hours worked each week, the number of overtime hours worked, and not the occupational shortages in such lines of work as truck driving. In addition, keep in mind that summer jobs began in the month of June. Many businesses will be more than happy to employ college and high school students on a 32-hour per week basis and not pay competitive wages or pay for health care etc.

Federal Reserve monetary policy is not a good tool to initiate necessary adjustment in the U.S. current account gap, said Fed Vice Chairman Donald Kohn on Thursday. The "enormous" current account deficit, near $800 billion or 6.5% of GDP, is unsustainable, Kohn said, although it is not likely to shrink substantially in the immediate future, Kohn said in remarks to a conference at the House of Commons in London. "Adjustment will need to proceed along several dimensions at the same time, including changes in relative prices and in domestic demand around the globe," Kohn said. He said that continuing strong demand for dollar assets will be critical for keeping the unwinding of the deficit smooth. "As long as inflation expectations remain contained, relatively faster growth of the prices of imported goods for a time would be associated with only a temporary bulge in inflation and would result in a needed change in relative prices," Kohn said. I believe in the tooth fairy too!

Mae West: "There are no withholding taxes on the wages of sin."

The Florida Supreme Court has thrown out a $145 billion punitive damage award against cigarette makers - and decertified the case as a class action -- in a huge victory for the tobacco industry.

Peoples Energy Corp. on Thursday confirmed it's in talks with WPS Resources Corp. over a possible strategic transaction. The Wall Street Journal reported that WPS is looking to buy Chicago-based Peoples Energy for $1.5 billion.

Nonmanufacturing sectors of the U.S. economy expanded at a slower pace during June, the Institute for Supply Management reported Thursday. The ISM nonmanufacturing index fell to 57.0% from 60.1% in May. This is the slowest pace since January. New orders fell to 56.6% from 59.6%. The employment index fell to 52.0% from 58.0%. The price index slipped to 73.9% from 77.5% in the previous month.

The U.S. housing market is stabilizing, the National Association of Realtors said Thursday. The NAR's pending home sales index rose 1.3% in May, the first increase since January. The index is down 10.1% in the past year.

Applications for mortgages at U.S. banks rose by 5.9% last week, the Mortgage Bankers Association said Thursday. Applications are down 33.3% in the past year.

Russia produces 9.5 million barrels of oil per day and exports about 6.7 million barrels a day, second in both categories only to Saudi Arabia. The Russian Parliament passed a law Wednesday granting exclusive rights to export natural gas to Gazprom, the state-owned energy company and the supplier of a quarter of Europe's gas.

August crude fell 5 cents to close at $75.14 a barrel Thursday. August natural gas finished at its lowest level since September 2004, down 10.1 cents at $5.664 per million British thermal units.

Brookfield Homes Corp. said late Thursday net new orders for the second quarter totaled 255 units, down 49% from the same period last year. Brookfield said the decline in new orders continues to be primarily in the San Diego/Riverside, Calif., areas and Washington D.C. markets.

Gold for August delivery closed up $6.60 at $636.30 an ounce on the New York Mercantile Exchange. Silver added 17.20 cents at $11.507 an ounce, platinum edged up $1.0 at $1,249.60 an ounce and palladium rose $3.15 at $330.85 an ounce. Copper added 22.0 cents at $3.7145 a pound.

Norway is the third biggest oil exporter in the world. On June 21, 87 members of the Norwegian Oil and Petrochemical Workers Union went on strike following failed wage negotiations with the Norwegian Oil Industry Association, or OLF. The strike is now into its third week.

ConocoPhillips stated "Worldwide refining margins for the second quarter are expected to be significantly higher than the first quarter. Light-heavy crude oil differentials remained strong and turnaround activity decreased in the second quarter. Turnaround costs are expected to be approximately $120 million before-tax. The company's average crude oil refining capacity utilization rate for the second quarter is expected to be in the low-90-percent range. This represents an increase from the first quarter, which was impacted by significant turnaround activity and unplanned downtime."

More than four decades after fighting a bitter border war, China and India have resumed trade along an ancient Himalayan route.

The average monthly value for the trade-weighted Atlanta Fed dollar index of 15 major currencies rose 1.3% in June, according to a statement on the bank's web site Thursday. The index, however, was down 2.6% compared to a year ago.

I expect the ECB to raise rates on August 3.

In the past 48 hours I have received numerous emails requesting my estimate for the June nonfarm payrolls. Please don't put any weight in my estimate of 214,300. It has little value.

Oil prices will soar to well over $100 a barrel and stay high as part of a sustained commodities bull run that has another 15 years to run, Jim Rogers told Reuters in an interview.

Marc Faber: " It is important for investors to understand that when markets begin to move sharply in the opposite direction of the prevailing trend - that is, from down to up or from up to down, as was the case just recently - the reason for the trend reversal is usually not known for quite some time.
But a well-established fact is that equity bull markets get under way amidst dismal economic and financial conditions, while bear markets begin when everything looks at its brightest, such as was recently the case (at least superficially). Moreover, the more speculation there was in a market, the more likely it is that the correction could be serious and take the proportions of a bear market (down 20-40% or more)...my concern remains the same: before the final debt crisis hits, we might see very high rates of inflation - most likely hyperinflation, with all asset and consumer prices soaring (amidst falling real incomes)."

Crude, Jobs, Bonds, And The $

7/6/06 Crude, Jobs, Bonds, And The $

August crude climbed as high as $75 a barrel in New York, the highest price the contract has seen since May 12, when it reached an intraday peak of $75.15. When will gas at the pump reach $3.50 a gallon?

General Motors will hold a special meeting of the board of directors via teleconference on Friday.

The Commerce Dept reported stronger-than-expected factory orders for May with orders rising 0.7% in the month against expectations of a 0.1% rise. That helped to push interest rates high. The 10-year Treasury rose to a 5.23% yield and the 30-year to 5.28%.

A report from the largest paycheck processor, Automatic Data Processing Inc., showed U.S. employers added 368,000 jobs in June, the most since 2001.

The Mexican election is getting even more interesting. Late Tuesday, election officials added 2.5 million votes to the public count. Lopez Obrador outpolled Calderon on these ballots by more than 145,000 votes, narrowing Calderon's lead to slightly more than 257,000 ballots, or 0.6 percentage point. Election authorities said that as many as 900,000 votes remained to be added to the official tally because polling station results had not yet arrived at regional election headquarters. An undetermined number are from the remotest rural areas of southern Mexico, which lean toward Lopez Obrador.The new figures were released after Lopez Obrador charged Monday that more than 3 million votes had been "lost" from the preliminary tallies released by the Federal Electoral Tribunal. I wonder if all the votes will be counted. Maybe the U.S. Supreme Court can act as special advisor along with ChoicePoint. In the wondering department. Will Bush go to Kenny Boy Lay's funeral? After all, they have been such good friends.

"Televisa is prepared to discuss with you (the consortium) a sale of its shares of Univision as soon as possible based on the present value of the price per share set forth in the merger agreement," Grupo Televisa said in a filing with the U.S. Securities and Exchange Commission.
Televisa said that the sale of its stake in Univision would release it from a 1996 Participation Agreement with Univision chairman and controlling shareholder Jerrold Perenchio that barred it from exploring rival business openings in the United States.
"If it is not bound by the Participation Agreement, Televisa will be able to engage in new business opportunities in the growing U.S. Hispanic marketplace related to its programming or otherwise without offering Univision participation in such opportunities," Televisa said in a separate statement.

Iran will start the initial phase of its planned Iranian oil bourse at the end of September, the news agency ISNA reported Wednesday. An unnamed oil ministry official told ISNA that his ministry had already presented the relevant documents to the economic and finance ministry and the bourse organization. The exchange is slated to replace the current dollar-based oil exchange with one based on the euro.. The International Petroleum Exchange in London and the New York Mercantile Exchange, on which oil is currently traded, both use the dollar. Iran argues that as long as 60 percent of global oil and 25 percent of natural gas needs are met by Gulf states, oil dealing in either New York or London made no sense.

The Central Intelligence Agency (CIA) has closed a unit that for a decade was charged with looking for Osama bin Laden and his senior lieutenants, The New York Times reported.
The unit, known as Alec Station, was disbanded late last year and its analysts were reassigned within the CIA Counter-terrorist Centre, intelligence officials told the newspaper. For a moment, I had this insane idea that bin Laden was responsible for 9/11. I must have been dreaming it up. It's a good thing Bush is so strong on fighting terror.

Some day there is going to be a Bush Jr. presidential library. However, it will be sealed like a tomb. All the presidential papers are sealed.

August gold rose $13.70, or 2.2%, to close at $629.70 an ounce and September silver added 49.5 cents, or 4.5%, to close at $11.415 an ounce, its highest closing level since June 7.

I wonder whether Bush will be going to Kenny Boy Lay's funeral.

China and Russia resisted an attempt by the U.S., Japan, and Britain to impose sanctions against North Korea for its missile launches Wednesday, saying only diplomacy could halt the isolated regime's nuclear and rocket development programs.

Richard Daughty: "Now combine that Classic Mogambo Sign (CMS) with the dismal fact that the Fed only bought up a miniscule $52 million in government debt last week. And then combine that with the ugly fact that foreign central banks only put a stinking, piddly $830 million into buying more U.S. government and agency debt.
Money is suddenly disappearing, and this is not good for stock prices, or housing prices."

According to Tom Blackburn of the Palm Beach Post, Cheney has invested heavily in "a fund that specializes in short-term municipal bonds, a tax-exempt money market fund and an inflation protected securities fund. The first two hold up if interest rates rise with inflation. The third is protected against inflation."Cheney has dumped another (estimated) $10 to $25 million in a European bond fund which tells us that he is counting on a steadily weakening dollar.

Despite the weakness in equities, especially the Nasdaq, the range for the VIX on Wednesday was only about one point, and the index managed a slight gain of about one point to 14.15. The lack of volatility is surprising.

John Adams: "The happiness of society is the end of government."

It's Happening

7/5/06 It's Happening

There Weekly retail sales for the week ending July 1 rose 2.9% compared to the year-ago period, its slowest gain since April 1, 2006, according to the International Council of Shopping Centers and UBS Securities. On a week-over-week basis, sales slipped 0.7%, the report said.

With the North Korean firing those test missiles, August-dated gold futures rose $12.30 to $628.30 an ounce. New Jersey's casinos ushered out the last of the gamblers Wednesday morning as a state government shutdown claimed its latest victims. It was the first state-ordered shutdown in the 28-year history of Atlantic City's legalized gambling trade. "Clearly North Korea is not as far advanced in its missile capability as some people had thought they were and they still cannot put a payload into orbit," said Jon Wolfsthal, a nuclear expert at the Centre for Strategic and International Studies. If you believe this, then you believe Roswell didn't happen either. North Korea on Wednesday afternoon fired another scud missile after the international community condemned its highly provocative move of test-firing a long-range missile said to be cable of reaching the US.

Richard Daughty: "Now combine that Classic Mogambo Sign (CMS) with the dismal fact that the Fed only bought up a miniscule $52 billion in government debt last week. And then combine that with the ugly fact that foreign central banks only put a stinking, piddly $830 million into buying more U.S. government and agency debt.Money is suddenly disappearing, and this is not good for stock prices, or housing prices."

Now why do you think North Korea and Iraq are provoking the U.S.? Do you think it would happen without the support of other countries? What do thses countries all have in common? They are acting in concert to eliminate the dollar from being the currency of choice in international trade. I believe it is only a matter of time until they are successful.

John Hussman: "Asking whether the Fed ought to raise rates by another quarter-point to avoid inflation is like asking Christopher Columbus what sort of trees he thinks are planted at the edge of the Earth. The question assumes a model of the world that's just plain wrong. The proper model that ought to be in people's heads is that, yes, the economy will probably slow down, but largely because it's living on a mountain of debt that's going to have a hard time growing because of a) stalling home values and b) a massive current account deficit that's unlikely to expand indefinitely. So sure, the economy will probably continue to slow. If that happens, we can expect to observe higher, not lower, rates of inflation unless credit defaults increase enough to lower monetary velocity and counter the otherwise detrimental upward pressure that slower economic growth generally has on inflation."

Liberty

7/4/06 Liberty

The history of international crude oil market over the past 50 years abound with evidence that the current high oil prices won't persist over the long run and will moderate, Iran's OPEC governor was quoted as saying Sunday.

Canadian oil pipelines could face capacity constraints by 2008 because of a surge in heavy crude oil from the Alberta oilsands, the National Energy Board says.

In the latest week gas prices rose on average 7 cents at the pump to $2.93 a gallon.

Aristotle: "Men regard it as their right to return evil for evil, and if they cannot, feel they have lost their liberty."

Melanie Morgan (a radio talk show host and occasional guest on cable television) about putting various journalists to death for the supposed crime of publicizing the Bush regime's misdeeds: “[T]he best solution that I can think of to deal with any newspaper editor, whether it's from the NY Times, LAT, WaPo, or the Wall Street Journal who is responsible for leaking national security classified information, is to be locked in a steel cage with the family members of slain troop members who would happily deliver the ultimate punishment of death.”

Thomas Paine: "When men yield up the privilege of thinking, the last shadow quits the horizon."

Samuel Adams: "And that the said Constitution be never construed to authorize Congress to infringe the just liberty of the press, or the rights of conscience; or to prevent the people of the United States, who are peaceable citizens, from keeping their own arms; or to raise standing armies, unless necessary for the defense of the United States, or of some one or more of them; or to prevent the people from petitioning, in a peaceable and orderly manner, the federal legislature, for a redress of grievances; or to subject the people to unreasonable searches and seizures of their persons, papers or possessions."

Independence

7/4/06 Independence

Renault SA and affiliate Nissan Motor Co. authorized their chief executive officer, Carlos Ghosn, to begin ``exploratory'' talks with General Motors Corp. on a possible alliance. However, it is up to GM to make the initial proposal.

GM's June sales dropped 26 percent from a year earlier and Ford's was 6.9 percent, the two largest U.S. automakers said today. Sales at DaimlerChrysler AG tumbled 13 percent, with a 15 percent slide at Chrysler. Toyota posted a 14 percent gain, keeping ahead of DaimlerChrysler for the No. 3 rank. Honda Motor Co. rose less than 1 percent and Nissan Motor Co. slid 19 percent.

The Institute for Supply Management's factory index fell to 53.8 in June from 54.4 the previous month. Construction spending dropped 0.4 percent in May, the Commerce Department said in Washington.

Mexico's currency had its biggest gain in six years after ruling party candidate Felipe Calderon led early presidential returns. Stocks and bonds also surged.

Mexican election authorities will conduct a recount to determine who won yesterday's presidential vote, with nearly complete returns showing former Energy Minister Felipe Calderon in front by the slimmest of margins.
Calderon had 36.37 percent of the vote, followed by former Mexico City Mayor Andres Manuel Lopez Obrador with 35.37 percent, based on 98.2 percent of ballots counted. Both candidates, separated by 385,205 votes, declared victory. A recount will start July 5, and authorities expect to name a winner the following day. The electoral court has until Aug. 31 to decide any challenges.

Some Astute Observations

7/3/06 Some Astute Observations

Renault SA, which owns 44 percent of Nissan Motor Co., will hold a board meeting tomorrow to discuss whether to expand the alliance to include General Motors Corp., the French finance minister said. In addition, the French government owns 15.7% of Renault. It is thought that Renault/Nissan might have an interest in acquiring up to 20% of GM.

Brett Steenbarger: "I've noticed over the years that, by cumulating the daily difference between Demand and Supply, we obtain a very reliable overbought/oversold indicator. Since October, 2002 (N = 946 trading days), this index has varied between +57 and -36. The value of this cumulative Demand/Supply Index have correlated quite nicely with five-day returns in the S&P 500 Index (SPY).After Thursday's sizable rally, we hit an overbought cumulative index value of +50. Since October, 2002, we've only had 20 daily readings of +50 or greater. Over the next five days, the S&P 500 Index has averaged a loss of -1.05% (!), with 3 occasions up, 17 down. That's about as sizable a downside edge as I've seen from an indicator." This is an astute and valuable observation.

ContraryInvestor.com: "For years now, we've been treated to the comment that "there is a $10-15 per barrel terrorism premium in crude prices". For years now, we've also listened the executive heads of such organizations as BP, Exxon, as well as the Saudi oil minister, tell us that oil prices were headed down in a pretty meaningful way. So far, the vote of the markets has overridden all of these comments from direct industry participants. What may be more correct, however, and certainly related to a comment above, is that there may indeed be a premium in current energy prices related to a bid from hedge, prop desk and other short term performance motivated investment money. Financial terrorism, if you will. From a long term perspective, a very important issue is that we're seeing a global realignment in geopolitical, military and energy relationships as is embodied by such examples as the SCO (Shangai Cooperation Organization). To ourselves, the thought of a terrorism premium in current crude prices pales in comparison to the implied message and potential outcome of these geopolitical realignments. That's the issue that's not simply going to go away and ultimately has direct implications for both energy prices and supply dynamics.
Speed bumps are a fact of life in any asset class bull market experience. Investors always have an ongoing choice in terms of involvement. Either buckle up or get off the road. Take your pick."

Mike Burk: "July has been a better month for the blue chips than the small caps, however, during the 2nd year of the Presidential Cycle it has not been very good for either."

Michael Hodges observes that "it takes 5.2 months working for taxes and that is 44% of a year. In 1776 Thomas Paine argued that if a king demanded 50% in taxes, we wouldn't pay it. We are nearly there." Hodges also observed "last year debt increased $3.5 Trillion, 5 times more than GDP. Household debt soared 12%."

The benchmark 30-year fixed-rate mortgage rose 10 basis points to 6.93 percent, according to a recent Bankrate.com national survey of large lenders.

At a recent reunion of retired Mexico's Pemex executives, former chief financial officer Ernesto Marcos recalled, a colleague urged that "the next president be told as soon as possible that we may soon not have enough oil for our own requirements and none for exports." The United States relies on Mexico for 8 percent of its oil.

Ayn Rand: "The [U.S.] Constitution is a limitation on the government, not on private individuals ... it does not prescribe the conduct of private individuals, only the conduct of the government ... it is not a charter for government power, but a charter of the citizen's protection against the government."

Delphi anticipates $2 billion in operating losses in 2006.

Carrefour's operates 79 stores in 32 Chinese cities compared with 60 locations in 30 cities for Wal-Mart. Last year, Carrefour's sales in China totaled $2.2 billion, compared with $1.2 billion for Wal-Mart, according to the Commerce Ministry in Beijing. This year Wal-Mart will open 18 stores and Carrefour's only 12. In a couple of years Wal-Mart's sales in China should surpass that of Carrefour's, the world's second largest retailer behind Wal-Mart.

ConocoPhillips recently inked a memorandum of understanding to establish a 400,000-barrel-a-day refinery in Saudi Arabia.

Realities

7/2/06 Realities

Bain, Blackstone and TH Lee emerge as the winners with a $6 billion-plus bid or $44 a share for Michaels Stores. The bid took me by surprise. I anticipated a value of only $40 per share.

Wal-Mart's June same-store sales rose 1.2%. Some will consider this figure disappointing; however, one should note that one year ago June same-store sales rose 4.5%.

New Jersey Governor Jon Corzine signed the first-ever order yesterday shutting down government operations as he waited for the legislature to pass a budget bill to keep the state in business. Corzine signed the order nine hours after the deadline passed for the state to have its fiscal 2007 appropriations bill in place, said spokesman Anthony Coley. The governor waited in his Trenton office until midnight and then returned before 8 a.m. to be available to sign a balanced budget plan. ``We've taken, we believe, every reasonable and responsible measure to ensure that this day would not come,'' Corzine said today in a statement. ``But here we are.''
Now all we need is for the federal government to pass a balanced budget or be shut down.

This reported by Bloomberg: “China’s exporters are increasingly using non-dollar currencies for settlement to reduce foreign-exchange risks, China International Business Daily reported. The companies are also raising export prices and using hedging tools to lower the risk of currency fluctuations…” I have wriiten frequently that this would take place. It is the tip of the iceberg.
Meanwhile, China’s reserves increased by around $20 billion in April and $30 billion in May, and that brings the total to roughly $925 billion (not including June).

Yesterday, Russia lifted all currency controls on the rouble and made it fully convertible. I wrote about this a few weeks ago.

Doug Noland: "The Federal Reserve is simply not institutionally prepared for the unfolding challenging environment, although the same could be said for policymakers and the public generally. The Fed is left floundering in the shallowest of central banking doctrine, bereft of any substance as to the key underlying forces driving the economy, the markets and, increasingly, inflationary pressures. At the same time, the Fed’s benign neglect of Credit Bubble excesses is buttressed by the view from the White House to the Halls of Congress that domestic and international growth are the only avenues for rectifying imbalances. It’s quite dangerous dogma, yet the markets are happy to play along."

For weeks I have stated that the GDP would grow at least 3% in the second quarter. I would like to refine that to a minimum of 3.4%. Countries all over the world are raising their growth projections for the second quarter. Some of that growth is the result of inflation. Some is the result of massive government spending on infrastructure. Interest rates will continue to rise. Make no mistake about it. In addition, it is only a matter of time until wages rise in the U.S. Why? Less Mexicans, for example, are coming across the border to work. It is difficult to get workers to harvest wine grapes. Those that do come are offered higher paying jobs in landscaping, painting, etc. Those on Main Street need higher wages to offset higher energy and medical expenses. Inflation has taken a foothold on Main Street budgets. Wages will need to rise and business profit margins will begin to dip.

Earnings from trading of cash instruments and derivatives at U.S. banks rose to a record $5.7 billion in the first quarter, a federal bank regulator said on Friday. Derivatives held by U.S. insured commercial banks increased to a record $110.2 trillion in the same three-month period, according to the Office of the Comptroller of the Currency. (That is not a misprint. $110 TRILLION).

Morgan Stanley is warning overseas investors the New Zealand dollar will slide to 57 US cents by the end of the year. Morgan Stanley says New Zealand is overburdened with debt, and its trade deficit ranks it with the likes of Latvia, Bulgaria, and Iceland.

The Central Bank of China (CBC), Taiwan's central bank, raised its key rate by an eighth of a percentage point Thursday. On Friday, the New Taiwan dollar surged sharply after foreign investors purchased the NT$ heavily to make more local investments and after importers/exporters sold their holdings in the U.S. dollar. The NT$ closed yesterday at NT$32.399 against the U.S. dollar, up NT$0.221 from the previous trading day.

Gasoline prices around the Chicago area hit an all-time high Friday with prices for regular gas hitting $3.124 on average in the Chicago area, according to AAA-Chicago Motor Club. research.

Expectations

7/1/06 Expectations

University of Michigan's final June reading on one-year U.S. inflation expectations was 3.3 percent, versus 4.0 percent in May. Median expectations for inflation over a five-year horizon eased to 2.9 percent from 3.2 percent in May.

A letter from Kerkorian's investment company, Tracinda Corp., said the company believes Renault and Nissan are receptive to the idea of including General Motors in their partnership and purchasing "a significant minority interest" in the Detroit automaker. The GM board called an emergency meeting to discuss this matter. As I have mentioned previously, I believe Renault/Nissan would be better served by purchasing 100% of Ford. The latter offers a better cash flow picture, and much less risk with GM now at $29+ per share.

Inflation, as measured by a price gauge tied to consumer spending, rose by 0.4 percent in May and was up 0.2 percent when energy and food prices are excluded. This measure of core inflation is up 2.1 percent when compared to May 2005, slightly above the Fed's upper bounds for core inflation of 2 percent.

As of July 1, Beijing removed foreign exchange quotas for firms investing abroad. I expect many more Chinese companies making acquisitions in the U.S.

U.S. net debt increased 14% to $2.69 trillion in 2005. It was the 20th straight year our country was a net debtor.

Over the years I have frequently quoted Martin Pring, a well-known market technician. His latest work is close to 30 pages. I thought I would include Martin's summary:"1. Secular trends in equity prices are determined by multi-decade swings in sentiment, as investors move from a generational swing in pessimism to the overconfident and "irrational exuberance" at peaks.
2. History tells us that once an extreme optimism has been reached, it takes a very long time, decades, in fact, for the pendulum to move to the other extreme.
3. Our indicators advocate that a secular peak was seen in the year 2000.
4. These types of secular market turning points have always been followed by massive bear markets like the one that developed in 1929, or multi-year trading ranges as witnessed in 1900/21 and 1986/81 periods.
5. Without exception, stock prices, when adjusted for inflation, experienced a significant loss in purchasing power following previous long-term tops.
The evidence, whether it comes for monetary aspects, financial market sequences, or intermarket analysis, is syrongly bearish."
You can read the entire article at pring.com.

Crude oil for August delivery finished on the New York Mercantile Exchange with a 41-cent gain at $73.93 a barrel, a seven-week high.

The 10-year Treasury was last trading at 5.141%, compared with 5.205% late Thursday. The yield curve was inverted with the 2-year note yielding 5.158%. Meanwhile, there was follow-through selling in the dollar and the dollar index traded below 85.

The Chicago PMI index fell to 56.5 in June, versus expectations of 59.4. Inflation pressures accelerated with the prices-paid index rising to 89.0% from 76.9% in May. Separately, U.S. consumer sentiment improved to 84.9 from 82.4 in early June and 79.1 in May, according to the University of Michigan.

Gold futures closed at their highest level since June 7, gaining 4% in the second quarter, in a broad metals rally triggered by the falling dollar. Gold for August delivery ended the session up $27.10 at $616.0 an ounce on the New York Mercantile Exchange, an increase of 4.8% for the week. Gold hasn't closed above $600 since June 12.

In Friday's trading, the VIX was basically unchanged.

Emil W. Henry Jr., Assistant Secretary for financial institutions at the U.S. Treasury:
"There are numerous levels of risk presented by the mortgage investment portfolios, but at a basic level, the risk is created as follows: GSE portfolios are comprised primarily of fixed-rate mortgages, either held as whole loans, mortgage-backed securities (MBS), or other mortgage-related assets. While mortgages in the U.S. typically allow borrowers the option to prepay at will, the aggregation of fixed-rate mortgages requires that the investor develop strategies to mitigate risks presented by these uncertain cash flows -- both prepayments and extensions. Unless the portfolios are hedged properly, in a period of significant interest rate movement, there is the risk to the GSEs that their assets and liabilities will quickly become broadly mismatched, which can lead to insolvency -- much like the dynamics of the S&L crisis."

As the dollar gets cheaper, it will less costly for foreigners to buy our companies. In sum, we will
"manufacture" companies on the cheap.

Handing a significant win to those clamoring for more domestic energy supply, the House of Representatives on Thursday voted to dismantle the nearly 25-year ban on offshore drilling in much of the US coastline.

"I think we are going to see a big increase in bankruptcies in 2007-08," Wilbur Ross, chairman and chief executive of the private equity group that bears his name, told the Financial Times. "Every time you compound leverage, you cut the margins for error."

John Stuart Mill: “There is a limit to the legitimate interference of collective opinion with individual independence: and to find that limit, and maintain it against encroachment, is as indispensable to a good condition of human affairs, as protection against politica”

Flounder

6/30/06 Flounder

It's that time of year. Get out the bait and go for the bottom fish, the flounder. St. Simons Island Bait & Tackle owner Mike Wooten, likes to use live bait, such as mud minnows or live shrimp. "You can fish for flounder, and maybe catch some trout and reds, too," Wooten said. "Live bait is the way to go, especially if you don't know what you're doing." Wall Street likes to use live bait too - especially right before the quarter ends. It's called a mark em up and salvage job. Wall Street drops the bait from a helicopter. It's called a Benny. Not Jack Benny. This one has a beard and isn't funny. Even a busted clock is right twice a day, and yesterday the bait worked like a charm. The fish were really biting. The Dow jumped over 200 points, the Nasdaq over 60, and the S&P and the Russell about 27. The Dow Jones Transportation Average jumped more than 100 points late Thursday to 4844.12. Bonds joined in and the yield on the 10-year dropped to 5.20% and the 2-year to 5.19%.


Gold futures surpassed $600 in electronic trade Thursday for the first time since June 13, as the dollar tumbled following a statement from the Federal Reserve that was less hawkish than many expected.


Crude-oil futures closed at their highest level in seven weeks Thursday to tally a 6% climb in the last seven sessions. August crude rose $1.33 to close at $73.52 a barrel, its highest close since May 12. Meanwhile, the price of gas at the tank rose 4 cents a gallon in the Bay Area.


The odds that the Federal Reserve will raise overnight interest rates after their meeting in August declined, according to pricing in the fed funds futures market, after the Fed raised its fed funds target to a widely-anticipated 5.25% from 5%, and said in its accompanying statement that economic growth was moderating. The Fed said that "any additional firming that may be needed" will depend on the economic outlook.There is now a 52% chance that the Fed will raise its fed funds target to 5.5% after its policy setting meeting on Aug. 8. Just prior to the Fed statement, August fed funds futures gave a 60% chance of a 0.25 percentage point move.

The dollar slumped against the euro and yen after the Federal Open Market Committee lifted the fed funds target rate to 5.25% from 5%.

Microsoft will now aim for a launch of Office 2007 to business customers by the end of 2006 rather than an earlier target of October. Microsoft also said it would delay the general availability of the Office upgrade to early 2007 from its previous January target.

In March, the company pushed back the consumer launch of the 2007 Microsoft Office package, which includes the Word processor, Excel spreadsheet and PowerPoint presentation software to January to coincide with the debut of its Windows Vista operating system.

EMC Corp.said late Thursday it has entered into an agreement to acquire digital-security software firm RSA Security Inc. for $2.1 billion in cash, net of RSA's cash balance, which values RSA at $28 share.

The Andersons, Inc. announced that it has filed a registration statement with the Securities and Exchange Commission relating to a proposed public offering of 2.28 million shares of its common stock, of which 2 million shares are proposed to be sold by the Company and 280,000 shares are proposed to be sold by certain selling shareholders named in the prospectus.

Aventine Renewable Energy Holdings, Inc., the latest ethanol company to go public, announced thepricing of its initial public offering of 9,058,450 shares of common stock, at a price of $43.00 per share. Maybe they should not have raised the offering price and enlarged the size of the IPO. The deal was a bust and closed at $38.37.

The floods from the Mid-Atlantic to the Northeast, from Virginia to Vermont, were some of the worst floods in the last 50 years.

Ford sees greater "headwinds" due to the gas prices impacting the sale of larger SUVs. Last year the company lost $1.6 billion in its North American operations and a similar result might be in store for 2006. However, the company showed a profit last year and was cash flow positive and I expect the same in 2006.

U.S. Treasury Secretary John Snow said on Thursday he had completed his last day on the job.

Europeans travelling to the US without a new high-tech passport could require a visa from October, the European Union's top justice official warned on Thursday.

Shareholders have filed two lawsuits against Univision Communications Inc. and its board members, claiming they breached their fiduciary duty when they agreed earlier this week to sell the Spanish-language broadcaster to a consortium of private investors. Both lawsuits were filed in Los Angeles Superior Court and seek class-action status. When was the last time you saw a $10+ billion auction sale of a public company not have at least two rounds of bidding?

The June 19 spill at a Citgo Petroleum Corp. refinery in Lake Charles forced the closure of the Calcasieu Ship Channel, a key lane for transporting petroleum in and out of the region's four refineries. About 11 miles of the channel remained closed Thursday. The entire 40 miles to the Gulf of Mexico had been closed.

The VIX took a pounding down to the 13 level, and that was last reached in mid-May or about the time the fireworks began. In sum, the VIX rallied from 12 to 24 and a round trip has just about been achieved. You think the fireworks are a thing of the past? If you believe that, then you believe Microsoft can bring out a major product on time.

The Next Six Months

6/29/06 The Next Six Months

The United States is the top buyer of Venezuelan oil. Venezuela remains among the top five suppliers to the U.S. A Venezuelan oil embargo against the United States would cause oil prices to jump by US$4 (euro3.18) to US$6 (euro4.77) a barrel and increase gasoline prices at the pump by 11 cents (euro.09) to 15 cents (euro.12) a gallon, stated the U.S. Gov't Accountability Office. Venezuela is the world's fifth-largest oil exporter.

Coming into the Fed's decision on interest rates, the 2-year is 5.27%, the 30-year 5.28%, and the 10-year is 5.25%. In sum, the market made the decision to raise rates and the Fed is simply a eunuch.

It was a tough quarter, for bonds, equities, commodities, housing, dollar-denominated assets, and wages (which continue to trail the rate of inflation.) With only two days left to the end of the quarter, where do we go from here? I prefer to stick with what I know -- where reward far outweighs risk, such as, the shares of Univision. Then there are the potential pockets of value. Should Chevron and ConocoPhillips decline 5 to 7% in price from current levels, those would be examples of value.

There are many stocks that look cheap on historical valuations; however, today's environment is not typical. Our country is carrying twin tower debt levels that exceed our ability to generate sufficient revenues with which to pay down those debts. In addition, our fiscal operations are highly dependent on foreign investors purchasing our debt instruments. Yesterday's 5-year Treasury auction reflects the potential danger when foreign buyers avoid an auction. Therefore, the auction was a bust and indirect bidding was at the lowest point in 3 years.

In May, China's demand for crude rose 13.5% over the level reached in May 2005.

Russia has the world's 3rd largest currency reserves. Before Cheney shoots his mouth off again, please let him know about Russia's newly found financial strength.

Yesterday, equities had a modest rally and the VIX once again had only a 1.15 point range with the close down a meager .45 of a point.

With respect to Univision, "the Buyer has obtained equity and debt financing commitments for the transactions contemplated by the Merger Agreement, the proceeds of which will be sufficient for Buyer to pay the aggregate merger consideration and all related fees and expenses of the transactions contemplated by the Merger Agreement. The closing of the merger is not conditioned on the receipt of the financing by Buyer."

American Technology Research analyst Shaw Wu predicted that because Apple switched suppliers, its iPod Nano player would ship in the fourth quarter rather than the third quarter. Wu also said he thinks the wide-screen video iPod, which was expected to debut in the fourth quarter, will be pushed back until the first half of 2007.

Russia's Putin announced a new foreign policy doctrine at a meeting with Russia's ambassadors yesterday. The priority countries for Russian foreign policy, in order, are the EU, China, India and the United States.

The nonpartisan Congressional Research Service said in a report that through the current fiscal year ending Sept. 30, the government will have spent $437 billion on overseas military and foreign aid funding. That includes the latest supplemental spending bill signed into law this month, which provided $69 billion for the war effort. Add in roughly $1.5 billion in fiscal 2007 Foreign Operations funds for Iraq and Afghanistan; $50 billion in Pentagon "bridge" funds for the first half of fiscal 2007, plus as-yet-undetermined supplemental funds for the remainder of the next fiscal year, and total war-related costs will easily soar over $500 billion one year from now. Aren't you overjoyed with the money we are spending to bring "freedom" to the Iraqi people. Meanwhile, Americans are footing the bill and losing their individual freedoms day by day. Did you know you voted for neo-Fascism in the last two presidential elections?

British Prime Minister Tony Blair is expected to announce he will resign as early as next May, The Telegraph reports, citing members of Parliament. The newspaper said Blair would likely leave office around the time of his 10th anniversary of prime minister. He took office May 2, 1997. That gives George W. about 10 months to make another friend. Everyone needs at least one friend.

Gary Lammert: "Large scale political and social turmoil are the carts that are pulled(or overturned) by the antecedent macroeconomic horsestumbling into the unexpected very deep and low viscosity quicksand found atop generational asset saturation areas."

Duke Energy’s board of directors has approved a plan to de-merge the company’s natural gas and electricity operations into two separate companies.

A motivational story for all times. A friend sent this to me a long time ago.

The Wooden Bowl

A frail old man went to live with his son, daughter-in-law, and four-year old grandson. The old man's hands trembled, his eyesight was blurred, and his step faltered. The family ate together at the table. But the elderly grandfather's shaky hands and failing sight made eating difficult. Peas rolled off his spoon onto the floor. When he grasped the glass, milk spilled on the tablecloth.

The son and daughter-in-law became irritated with the mess. "We must do something about father," said the son. "I've had enough of his spilled milk, noisy eating, and food on the floor." So the husband and wife set a small table in the corner. There, Grandfather ate alone while the rest of the family enjoyed dinner. Since Grandfather had broken a dish or two, his food was served in a wooden bowl! When the family glanced in Grandfather's direction, sometime he had a tear in his eye as he sat alone. Still, the only words the couple had for him were sharp admonitions when he dropped a fork or spilled food.

The four-year-old watched it all in silence.One evening before supper, the father noticed his son playing with wood scraps on the floor. He asked the child sweetly, "What are you making?"Just as sweetly, the boy responded, "Oh, I am making a little bowl for you and Mama to eat your food in when I grow up." The four-year-old smiled and went back to work.

The words so struck the parents that they were speechless. Then tears started to stream down their cheeks. Though no word was spoken, both knew what must be done.That evening the husband took Grandfather's hand and gently led him back to the family table. For the remainder of his days he ate every meal with the family. And for some reason, neither husband nor wife seemed to care any longer when a fork was dropped, milk spilled, or the tablecloth soiled.

On a positive note, I've learned that, no matter what happens, how bad it seems today, life does go on, and it will be better tomorrow. I've learned that you can tell a lot about a person by the way he/she handles three things: a rainy day, lost luggage, and tangled Christmas tree lights. I've learned that, regardless of your relationship with your parents, you'll miss them when they're gone from your life. I've learned that making a "living" is not the same thing as making a "life." I've learned that life sometimes gives you a second chance. I've learned that you shouldn't go through life with a catcher's mitt on both hands. You need to be able to throw something back. I've learned that if you pursue happiness, it will elude you. But, if you focus on your family, your friends, the needs of others, your work and doing the very best you can, happiness will find you. I've learned that whenever I decide something with an open heart, I usually make the right decision. I've learned that even when I have pains, I don't have to be one. I've learned that every day, you should reach out and touch someone. People love that human touch -- holding hands, a warm hug, or just a friendly pat on the back. I've learned that I still have a lot to learn.!