Touchy Feely

12/17/06 Touchy Feely

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (3.0% annualized rate) in November. Over the last 12 months, the median CPI rose 3.7%. Can you feel the pain from inflation? Look at a chart of the dollar over the last 12 months, 24 months, and so forth. That spells out your purchasing power. It spells PUKE.

"The inflation statistics have a Christmas-y feel to them, because they reflect heavydiscounting," said Chicago economist Robert Dederick. "There clearly is a lot of price-cutting taking place, especially in cars, apparel and electronics."

George Ure reported sources with a U.S. Delegation in Beijing have told The Hal Turner Show the Chinese government has informed visiting Bush Administration officials they intend to dump One TRILLION U.S. Dollars from China's Currency Reserves and convert those funds into Euros, gold and silver!
China was allegedly asked to withhold the announcement until Bullion Markets closed for the weekend to prevent an instant spike in gold and silver prices. This delay will give the world the weekend to consider appropriate actions rather than have a knee-jerk reaction which could see the U.S. Dollar totally collapse in value Monday.
According to this Senior source, China told the U.S. delegation they no longer have faith in U.S. Currency for several reasons:

1) The Federal Reserve Bank ceased publishing "M3" data in March, making it nearly impossible for anyone to know how much cash is being printed. China said this act made it impossible to tell how much a Dollar is worth.

2) The U.S. Dollar has lost upwards of thirty percent (30%) of its value against other foreign currencies in the recent past, meaning China has lost almost $300 Billion simply by holding U.S. Dollars in its reserves.

3) The U.S. has no plans whatsoever to reduce deficit spending or ability pay down any of its existing debt without printing money to pay it off.

For these reasons China has decided to implement an aggressive sell-off of U.S. Dollars before the rest of the world does so. China reportedly told the US delegation; "we are the largest holder of U.S. Currency and if the rest of the world unloads theirs before we unload ours, we will lose our shirts."

Douglas A. McIntyre: "Someone forgot to tell the programmers at Microsoft that the new Vista operating system had to work with current version of SQL server database management software. The database management interface is critical if Micorosft wants to take business from Oracle. The global database business is estimated at $14 billion. Microsoft has painted itself in a corner."

"India will overtake China next year as the world's fastest-growing major economy on rising consumer and government spending, Credit Suisse's chief Asia economist Dong Tao said. Credit Suisse raised its 2007 growth forecast for India's $775 billion economy, Asia's fourth biggest, to 10 percent from 8.5 percent... China's $2.2 trillion economy is expected to grow 9.9 percent next year from 10.4 percent in 2006..."

According to a Bloomberg report, "China's crude imports may rise 10.2 percent this year because of rising domestic demand, China Securities Journal reported, quoting a government official. The nation may import 140 million metric tons of crude this year, equivalent to 48 percent of total demand..."

John Mauldin points out that the Liscio Report observed "the weakening consumption trend is now established, and the majority of our tax contacts expressed real concern about slowing in sales tax collections. It now appears clear that consumers are not spending the billions of dollars they have saved on gas in recent months, and comments on the effects of the dual slowdowns in housing and manufacturing centered on how much more is to come." Liscio was referring to his checks on sales tax collections for the month of November.

Mike Burk: "Several short term indicators bottomed last week just in time for the year end rally that should begin next week. I expec the major indices to be higher on Friday December 22 than they were on Friday December 15."

From the BLS: "Real average weekly earnings rose by 0.2 percent from October to November after seasonal adjustment, according to preliminary data released by the Bureau of Labor Statistics of the U.S. Department of Labor. This increase
stemmed from a 0.2 percent increase in average hourly earnings combined with a
0.1 percent decrease in the Consumer Price Index for Urban Wage Earners and
Clerical Workers (CPI-W). Average weekly hours were unchanged...
Average weekly earnings rose by 4.4 percent, seasonally adjusted, from
November 2005 to November 2006. After deflation by the CPI-W, average weekly
earnings increased by 2.6 percent. Before adjustment for seasonal change and
inflation, average weekly earnings were $572.91 in November 2006, compared with
$550.94 a year earlier." Now think about the real inflation for health care and food and tuition etc, and you tell me how far your wage gains went AFTER TAXES.

Reality

12/16/06 Reality

Excluding food and energy, the CPI-U advanced at a 2.6 percent SAAR in the first 11 months of 2006 after increasing 2.2 percent in 2005. Some analysts suggested that investors reinterpreted the CPI data as a lagging indicator and noted that there are other signs showing that inflation in fact may be increasing.

On Friday morning, 700,000 of Puget Sound's customers in and around Seattle were without power. The Seahawks had a meltdown in the second half of Thursday's game with the 49ers.

In October, foreign investors bought a net $62.2 billion in securities, the Treasury said. It's up from $57.8 billion in September. In October, Chinese investors held $344.9 billion in Treasurys, up from $342.3 billion in September.

Illinois Tool Works Inc. on Friday warned it was cutting its forecast profit range for the fourth quarter, citing expected weakness in the North American market.
ITW, which also said it had already suffered two months of lower-than-expected base revenue growth, now expects to earn 72 cents to 74 cents a share in the fourth quarter, compared with a previous range of 77 cents to 81 cents.

From Seeking Alpha: "Gambling company Penn National made a mostly cash bid for its much larger competitor Harrah's Entertainment, challenging the current bid for Harrah's placed by private equity partners Texas Pacific and Apollo Management. The private equity group earlier in the week submitted an all-cash bid of $87 a share, and sources indicate Penn is offering $88.50. Harrah's currently trades at $79.10 a share, with a market cap of $14.7 billion vs. Penn's market cap of just $3.3 billion. The Penn offer, backed by Lehman Brothers and Wachovia, would create a joint entity with substantial debt. Harrah's is also considering a leveraged recapitalization, taking on more debt while paying shareholders a dividend or buying back stock. Penn stock has climbed 18.4% year to date, while Harrah's stock still trades well below the takeover prices due to the long period expected for casino licensing clearance."

Crude for January delivery rose 92 cents to $63.43 a barrel. January natural gas fell 14.6 cents to $7.409 per million British thermal units.

February gold fell $11.80 to close at $619.10 an ounce. March silver sank 97 cents to end at $12.98 an ounce after a four-week low of $12.96. March copper closed at six-month low of $3.0165 a pound, down 4.1 cents for the day and down 3.1% for the week.

Bloomberg reported Japanese five-year government notes fell the most in a month after stocks advanced and a Bank of Japan survey showed confidence among manufacturers rose to the highest in two years.
Five-year notes pared their gains for the week after the Tankan showed companies plan to boost spending at the fastest pace in 15 years. The report may restore confidence the world's second- largest economy will recover from slower-than-expected growth in the third quarter, supporting the central bank's case for raising interest rates in coming months.
``The Tankan survey will make it easier for the BOJ to justify raising rates in January,'' said Hiroaki Takai, who helps oversee the equivalent of about $6.8 billion in assets at Sumitomo Mitsui Asset Management Co. in Tokyo. ``Given that, yields look too low and investors probably won't be keen on buying bonds.'' It will be important to watch the yen carry trade if rates in Japan rise in January.

Option Expiration Day

12/15/06 Option Expiration Day

The Energy Department said natural-gas inventories fell 168 billion cubic feet for the week ended Dec. 8. Total stocks now stand at 3.238 trillion cubic feet, up 245 billion cubic feet from the year-ago level, and 225 billion cubic feet above the five-year average, the government data said.

OPEC's announced intention is to cut another 500,000 [barrels per day] of production, effective February 1st.

The Labor Department said initial jobless claims dropped by 20,000 to 304,000 in the week ending Dec. 9, lower than the 320,000 economists were expecting. Separately, the Department said the prices of goods imported into the U.S. rose 0.2% in November. Imported natural gas prices climbed 30.3% in November, hitting a two-year high, according to the Labor Department. Imported petroleum prices, meanwhile, dropped 1.6%. Excluding petroleum import prices, import prices rose by 0.7%. Import prices excluding all fuels rose by 0.1%.

Tobacco group Gallaher on Thursday confirmed it's received a preliminary offer approach. The group said it's in talks with the third party about the possibility of a recommended cash offer of 1,140 pence a share in cash.

North American production will continue its slide in 2007, despite falling to a longtime low in 2006. Ward's AutoForecasts projects total output in 2007 at 15.65 million units, 1.1% down from 2006's estimated 15.83 million, itself a 3.0% decline
from 2005.

Jim Rogers:"The slowest bull market in commodities lasted 15 years and the longest
23 years which means that investing in commodities will be profitable."
until at least 2013 and up to 2021...Investing in commodity-producing companies can turn out to be an even riskier bet than sticking with buying the things outright. Supply and demand will move the price of copper, for instance, while the share prices of copper miners can depend on less predictable factors such as the overall condition of the stock market, the company`s balance sheet, its executive team, labour problems, environmental issues, and so on."

Marketplace's Dan Grech: "Entertainment mogul David Geffen has offered $2 billion cash for the Los Angeles Times, but Tribune is holding out for a buyer who wants everything on the menu."

The Mortgage Bankers Association, in its quarterly snapshot of the mortgage market released Wednesday, reported that the percentage of mortgage payments that were 30 or more days past due for all loans tracked jumped to 4.67 percent in the July-to-September quarter.
That marked a sharp rise from the second quarter's delinquency rate of 4.39 percent and was the worst showing since the final quarter of last year, when delinquent payments climbed to a 2 1/2-year high in the aftermath of the devastating Gulf Coast hurricanes.

This could be important. YRC Worldwide Inc.'s cut its fourth-quarter per-share earnings outlook to 95 cents to $1.05 from its prior view of $1.40 to $1.50. The company also lowered its 2006 earnings outlook to $5 to $5.10 a share from $5.45 to $5.55 a share. This is the merger of Yellow Freight and Roadway Express.

Manufacturing activity in the New York area slipped in December, the New York Federal Reserve Bank said Thursday. The bank's Empire State Manufacturing index fell to 23.1 in December from 26.7 in November. New orders rose to 25.1 in December from 22.4 in November. Shipments were little changed. The prices paid index fell to its lowest level of the year. The unfilled orders index also fell sharply. The inventories index dropped into negative territory.

January crude rose $1.14, or 1.9%, to close at $62.51 a barrel. January natural gas fell 11.8 cents to close at $7.555 per million British thermal units.

February gold fell $1.50 to end at $630.90 an ounce in New York. March silver was up 3.5 cents to end at $13.95 an ounce and March copper at $3.0575 a pound, closing up 2.45 cents.

In The Works

12/14/06 In The Works

Seeking Alpha: "The Chandler Family, 20% owners and long-time critics of the Tribune Company, have begun talking with several private equity firms about forming a consortium to become majority shareholders in Tribune, the New York Times reported this morning.trb The family, one of Southern California's most powerful has clashed with Tribune's management for years and six months ago, got the company to agree to put itself on the auction block. However bids have been slow in coming, and for much less than the company anticipated, in large part due to the heavy tax payments that will accompany any transfer of the company. As insiders, the Chandlers can avoid many of the taxation issues while spinning off segments of the diversified media company, which owns two of the nation's largest papers - the L.A. Times and Chicago Tribune - two dozen TV stations and the Chicago Cubs. Neither the Chandlers nor the Tribune were available for comment."

"Zacks.com just released its latest additions and deletions to its proprietary All Star Analyst portfolio. Members on this exclusive list include BJ Services Company...This exclusive portfolio represents all stocks with a Strong Buy rating from at least four analysts with a 5-Star All Star ranking. These are the brokerage analysts whose stock recommendations proved to be the most profitable for investors. Since July 2002, this portfolio has generated an annualized return of 7.53%. Here is a synopsis of why these stocks are in the All Star Analysts Portfolio: BJ Services Company BJS announced that fiscal fourth quarter earnings per share surged year over year to 76 cents, while consolidated revenue of $1.22 billion jumped 36% from $892.3 million. EPS also bettered the consensus by 2.7%. The rebound in Canadian activity, as well as improvements in Africa, Latin America and the Middle East, led to the solid quarterly results. For the fiscal year, the oilfield services company reported earnings per share of $2.52, compared to $1.38 in the previous year, with consolidated revenue rising 35% to $4.4 billion from $3.2 billion in fiscal 2005. For fiscal 2007, BJ Services expects earnings per share between $3.15 and $3.25 with revenue growth expectations in excess of 20%."

Raymond James strategist Jeff Saut: "Almost 2% of the NYSE's entire market capitalization has been taken private... since the beginning of this year."

The volume of applications for mortgages from major U.S. banks climbed to the highest level in more than a year last week, the Mortgage Bankers Association reported Wednesday.
Applications, encompassing both those for loans to purchase homes and for refinancings of existing mortgages, increased 11.4% last week to the highest level since October 2005. Total applications are up 22.2% compared with the same week a year ago. Application volumes had been down by double-digit percentages for most of the year. Yet, Richard M. Kovacevich, chairman and chief executive of Wells Fargo, tells Barrons the mortgage market has turned "pretty ugly."

Showing surprising strength, seasonally adjusted U.S. retail sales increased by 1% in November, the first gain since July, the Commerce Department reported Wednesday. Excluding the 0.9% gain in motor vehicle sales, retail sales rose 1.1%, the largest gain since January. I continue to believe the stars this holiday shopping season will be gift cards and online sales. This is the same statement I have made for the last three years.

Randall Forsyth of Barrons: "Bridgewater Associates contends wiggles in the yen are having an impact on speculative positions, which are "now massive." The yen-carry trade -- which effectively means shorting the Japanese currency -- has pushed the yen to a record low against the euro, with the common currency fetching nearly 155 yen vs less than 140 yen at the beginning of 2006. Bridgewater sees the current market environment as precarious, and reminiscent of 1998, when the collapse of Long Term Capital Markets threatened the global financial system. They can't say what the catalyst of a break might be -- an increase in the Chinese yuan could be one, for instance. That could lead to an appreciation of all Asian currencies, including the yen, which have been suppressed by the region's central banks who don't want their economies to lose export competitiveness.The yen's rise could again ripple through the emerging markets, some of which already are looking shaky. India's SENSEX has been under pressure in recent days, which could spread to other emerging markets, write Bank of America's Raja Visweswaran and John Schofield. Emerging equity and debt markets are highly correlated, while emerging-market debt also is correlated with high-yield corporates. "We would assume a further widening of the current downward move in select [emerging market] indices would most likely result in a broader market correction across many other risk asset categories."

World energy demand is likely to climb an average 1.6 percent per year to reach about 325 million barrels of oil equivalent a day by 2030, Exxon Mobil predicts. That means global energy demand will be up about 60 percent from 2000 levels, Jaime Spellings, the Irving-based oil giant's general manager for corporate planning, told analysts.

The American Petroleum Institute reported a drop of 8.3 million barrels in crude supplies for the week ended Dec. 8. The Energy Department had reported a fall of 4.3 million. Motor gasoline supplies were down 1.1 million barrels, the API said, vs. the government's reported fall of 100,000. Distillate supplies were down 2.7 million barrels, the API said, compared with the 500,000-barrel fall reported by the government.

Inventories at U.S. businesses rose in October to their highest level in relation to sales in more than two and a half years, the Commerce Department reported Wednesday. Sales at U.S. businesses fell 0.2% in October after a record 2.3% drop in September. Meanwhile, inventories rose 0.4% in October, as expected by economists, after a revised 0.3% gain in September. The inventory-to-sales ratio rose to 1.31 from 1.30. It's the highest since February 2004.

January crude rose 35 cents to end at $61.37 a barrel. January natural gas gained 24.3 cents to end at $7.673 per million British thermal units.

February gold climbed 70 cents to close at $632.40 an ounce Wednesday. March silver fell 6.5 cents to end at $13.915 an ounce and March copper lost 6.15 cents to close at $3.033 a pound, its lowest closing level since late June.

Henry To: "U.S. households now have the most leveraged balance sheets in history. Moreover, in a credit-based and financially-leveraged society such as the United States, one needs to tread very carefully if you are a central banker, and thus the last thing that the Fed wants is a declining net worth of American households... Bottom line: The United States (and even more so, the United Kingdom since it does not have a great agricultural, technology, or entertainment industry such as what we have in the U.S.) today is more dependent on asset appreciation and the financial sector than ever - and both the Federal Reserve and the central banks of the world will continue to do what they can to uphold this trend going forward."

No Surprises

12/13/06 No Surprises

The Energy Information Administration said Tuesday that it still expects world oil demand to grow by 1.5 million barrels a day in 2007. The EIA, the official energy statistics arm of the U.S. government, said it expects U.S. petroleum consumption to rise by 300,000 barrels a day in 2007 after a flat 2006. The agency is expecting surplus world crude oil production capacity to increase only slighty. "However, OPEC's production cuts mean that, for the first time in months, surplus production capacity is no longer restricted to just Saudi Arabia," it said.

The Fed remains on hold.

Fiscal fourth-quarter net income for Goldman Sachs surged to $3.15 billion, or $6.59 a share, for the three months ended November 24, from $1.63 billion, or $3.35, in the year-ago period. Goldman's net revenue rose 47 percent to $9.41 billion.

Texas Pacific Group and Silver Lake Partners will buy Sabre Holdings Corp. , owner of the Travelocity hotel and flight-booking Web site, for $4.45 billion as they look to profit from a boom in travel services.

The Commerce Department said the October trade gap in Washington narrowed 8.4 percent to $58.9 billion, less than forecast by economists.

The use of ethanol has caused a surge in the price of corn to an 11 year high.

Gary Gordon of Annaly Mortgage: "We Americans have tested the limits of affordability over the past five years," he says. "Since the end of 2001, disposable personal income is up about 25% and mortgage rates are little changed. That argues for 25% higher home prices. Instead, home prices rose by an average of 50% and in many markets by 100% or more."

Crude closed at $61.02 a barrel.

The White House says President Bush has largely decided on a new approach to the Iraq war that he will announce next month, but he gave no public hint of his plan Tuesday.

Australia's Qantas Airways Ltd. rejected on Wednesday a conditional A$10.9 billion ($8.6 billion) buyout offer from a group led by Macquarie Bank Ltd. and private equity firm Texas Pacific Group.

The WSJ reported that UAL and Continental are holding merger talks.

General Electric Co. on Tuesday affirmed its earnings estimate for the end of 2006 and forecast profit growth of 10% to 13% in 2007
"We will deliver a high-visibility, low-risk 2007," stated Jeff Immelt, General Electric CEO.

Pressure Points

12/12/06 Pressure Points

"The exchange rate issue is A) a sovereign issue and this is our principle. B) We will take internal and external balances into account when making decisions on the yuan," People’s Bank of China assistant governor Yi Gang told reporters on the sidelines of a financial forum. China has let the yuan rise by about 3,45% since it revalued the currency by 2,1% in July last year.

Greenspan: "I expect that the dollar will continue to drift downwards until there will be a change in the U.S. balance of payments," Greenspan told a business conference here via video-link from the United States.
"There has been some evidence that OPEC nations are beginning to switch their reserves out of dollars and into euro and yen," Greenspan said.
"It is imprudent to hold everything in one currency," he said, adding that at some point the dollar will be moving lower.
"That will be the experience of the next few years," Greenspan said.

The inventory-to-sales ratio rose to 1.20 in October from 1.18 in September. The last time the ratio was bigger was in November 2003. The inventory-sales ratio stood at a record low 1.15 in May, June and July. The typical wholesaler has about 37 days of sales on hand, up from 35 days in July. As an aside, the gift card business amounted to $19 billion in 2005, and this year it is anticipated to rise to $30 billion. A good deal of these cards will be redeemed in January and not in December. Retailers cannot count the cards as sales until the merchandise is redeemed.

DuPont Co., the third-largest U.S. chemical maker, will eliminate 1,500 agriculture jobs and cut output of herbicides and pesticides in a plan to increase spending on genetically modified seeds.

Brazilian steelmaker CSN offered on Monday to buy Anglo-Dutch rival Corus Group Plc for 4.9 billion pounds ($9.6 billion) in cash, trumping a bid made only hours earlier by India's Tata Steel.

State-owned Dubai Ports World said on Monday it had agreed to sell its U.S. port operations to an American International Group unit after relinquishing control of them to allay concerns about U.S. national security. It is a 100% cash deal.

Multiple firms including Silver Lake Partners and Texas Pacific Group have bid for Saber Holdings , owner of the Travelocity Web site, according to a source familiar with the situation. The deal could approach $4.3 billion.

Next year will likely bring a second annual decline in existing home sales, the National Association of Realtors predicted on Monday. Sales of existing homes are expected to decline 8.6 percent to 6.47 million for 2006 and contract another 1 percent to 6.40 million units next year. I believe that forecast for 2007 is too optimistic.

Europe's biggest medical device maker, Smith & Nephew Plc , is close to bidding about $11 billion for U.S. rival Biomet Inc. , sources familiar with the situation said on Sunday. One of the sources told Reuters bids were due by Tuesday and other companies were also likely to submit offers for Biomet. A
winning bid of at least $45 a share would not surprise me.

Goldman Sachs reports their quarterly earnings tomorrow. They should surprise on the upside and that may be so for guidance going into 2007. Lehman and Bear Stearns report on Thursday. Morgan Stanley will report on December 19.

On Wednesday bids are due on Harrah's, and a final level of $86 could be in the cards.

Hedge fund S.A.C. Capital disclosed that it owned 5.1% of Phelps Dodge Corp. as of Dec. 7. But the fund said that it plans to vote its shares against Phelps Dodge's pending takeover by Freeport-McMoRan Copper & Gold. In a securities filing, S.A.C. said the deal "would not provide full and fair value to the issuer's shareholders."

DaimlerChrysler AG could lay off up to 16 percent of the workers in its North American truck operations next year due to an expected downturn in demand, the head of the automaker's truck operations said on Monday.

John Hussman: "Over the past three years, profit margins have widened to record levels, which has detached P/E ratios from other fundamental measures – such as price/revenue, price/dividend, and price/book ratios. The S&P 500 is currently about double its historical norms on those metrics. That isn't a forecast that stocks have to eliminate that valuation gap, but it certainly does suggest that stocks are priced to deliver unsatisfactory long-term returns from these prices.It bears repeating that if profit margins were at normal levels – even on the basis of profit margins that prevailed during the 1990's (indeed, anytime prior to the past 3 years) – the price/earnings ratio of the S&P 500 would currently be nearly 25. Unless investors want to speculate on the notion of a “permanently high plateau” in profit margins, the stock market is strenuously overvalued at present. Neither current earnings nor “forward” earnings should be considered – in themselves – as anything close to robust or reliable metrics of value here."

Texas Instruments Inc. cut its fourth-quarter financial targets late Monday, and forecast sales in the range of $3.35 billion to $3.50 billion and earnings per share from operations between 37 cents to 40 cents. Its previous outlook called for sales in the range of $3.46 billion to $3.75 billion and earnings per share between 40 cents to 46 cents.

January natural gas fell 13.4 cents to close at $7.427 per million British thermal units. January crude fell 81 cents to close at a two-week low of $61.22 a barrel.

Barclays Global Investors filed a new 13G on BJ Services and now is the holder of 10.15% of the outstanding shares.

Marsoft: "After a spectacular third quarter performance, the dry bulk market has been a bit more tame over the past couple of months. A brief October rally fizzled in the second half of the month, and a similar pattern was seen in November, with rates moving up at the start of the month before losing some momentum. But in general, the market remains very firm, with most freight rates at their highest levels since the first half of 2005. Over the past month, most rates have moved up, with the Baltic Cape TC index rising from $60,000 per day in mid-October to $63,000 per day by mid-November. Likewise, the Baltic Panamax TC Index rose from $30,000 per day to $33,000 per day over this period. However, the smaller ships saw a mild decline in spot rates over the past month.

Gottschalks Inc.said its board has retained UBS Investment Bank to assist its special strategic committee in exploring "various alternatives."

Benjamin Graham: "Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market."

Events

12/11/06 Events

Home affordability and the housing industry received a big boost today from Congress, which approved a measure that would for the first time allow lower- and moderate-income home buyers to deduct the full cost of mortgage insurance from their federal taxes in 2007. The provision was included in the omnibus tax bill approved by Congress early Sunday morning.

Mike Burk: "Next Friday is the third Friday of December, one of 4 Triple Witching Fridays during the year when options and futures contracts expire. The tables below show how the OTC and SPX have performed during the week prior to the 3rd Friday in December during the 2nd year of the Presidential Cycle...The OTC has been up about 50% of the time with a very slight positive bias. The SPX has been up about 60% of the time with a stronger bias...Seasonally next week is neutral and at some point the market will take break from its consistent upward move. Many of the breadth indicators have been deteriorating since mid October so next week would be a convenient time for a little adjustment. There has been no build up of new lows so any decline is likely to be brief.I expect the major indices to be lower on Friday December 15 than they were on Friday December 8."

Ludwig von Mises: "Not everything that exists today is reasonable; but this does not mean that everything that does not exist is sensible."

Iraq Study Group member Leon Panetta tells Newsweek that the ISG agreed, in a private discussion not included in its report, that about 60,000 to 70,000 U.S. troops would have to stay on in Iraq after 2008 in order to support a "transition team" program which could put the elite of the Army's professional corps in harm's way for
years. That includes advisers and the quick-reaction forces needed to
protect them, as well as logistical support and Special Operations troops,
report a team of Newsweek correspondents in the December 18 issue.

The Northern Trust December Economic Outlook: "We continue to expect sub-2% annualized real GDP growth in the final quarter of this year and have revised down our first-quarter 2007 forecast to 1.8% from 2.0% -- not much more than a rounding error. In addition to the fifth consecutive quarterly decline in real residential investment expenditures, we expect a considerable deceleration in the growth of real business expenditures for capital equipment and software in the fourth quarter, based on the weak October shipments data for nondefense capital goods excluding aircraft. ...Based on the excesses of the past real estate boom, the considerable supply overhang and the typical peak-to-trough behavior of residential investment expenditures, we continue to expect that the trough of the housing recession is not near at hand."

From Footnoted.org: "Earlier this week, Ingersoll Rand (IR) filed this 8-K, which said that it was replacing old change-in-control agreements with its senior executives that expired on Dec. 1 with new ones "that decreased the value of the benefits" that the execs would receive following a change of control. That certainly sounded like something worthy of a rare footnoted.org gold star. But a bit more digging into earlier filings appears to indicate that while two executives would see a slight reduction in what they would otherwise receive — from three times salary and bonus to 2.5 times — the new agreements seemingly expand the number of top executives covered.
That’s because according to the proxy filed back in late April, only the five top execs appear to have change agreements. At least they’re the only ones mentioned specifically. That group includes Chairman and CEO Herbert Henkel, CFO Timothy McLevish, General Counsel Patricia Nachtigal, and Senior Vice Presidents Mike Lambach and Chris Vasiloff. But the new agreements include all senior vice presidents. A quick skim of IR’s top management page shows that there’s five additional senior vice presidents who presumably weren’t covered by CIC agreements before."
You may recall that I suggested the purchase of Ingersoll Rand some months back and, on one occasion, my best idea was to sell the 30 and 35 puts, both expired worthless.
IR has once again appeared on a list of possible attractive buyouts by private equity groups. At 40+ the stock certainly does not reflect long-term value, in my view.

November and December inflation rates were exceedingly low. To believe the comparison with those months could be favorable is an irrational thought, in my view.

Ticker Sense: "We're currently a couple of months into year five of the current bull market, and there have only been 3 other S&P 500 bull markets since 1962 that have even lasted five years."

Oil producing countries have reduced their exposure to the dollar to the lowest level in two years and shifted oil income into euros, yen and sterling, according to new data from the Bank for International Settlements.

Assailants hurled a bomb and fired at two vehicles carrying employees of an affiliate of Houston-based Halliburton co. near Algiers on Sunday, killing one Algerian driver, witnesses said. The full extent of the casualties in the attack was not immediately clear.

Surprises

12/10/06 Surprises

The Financial Times reported "Goldman Sachs’ $10bn flagship hedge fund, Global Alpha, is down nearly 12 per cent for the year, people familiar with the hedge fund’s performance said.The fund, which gained 40 per cent last year, is now on track for its worst annual performance. However, the highly volatile fund has been down more than 12 per cent at times in the past, though it has never finished a year down that much." Can you imagine how the fund would have done had the managers not been privy to so much information!

Doug Noland: " Broker/Dealer Assets have now ballooned $750 billion, or 45%, in just the past two years." That is not astounding. It is totally out of control. At that
rate of growth, the Broker/Dealers will even be able to fund Social Security and Medicare!

Average hourly earnings for private production and
nonsupervisory workers increased 3 cents in November to $16.94, a gain of 0.2 percent. Over the year, average hourly earnings rose by 4.1 percent.

Michael Kahn: "Risk for buying here is getting to be significant. Without considering all the other factors that make a stock market, such as trends in interest rates, inflation and the dollar, there seems to be a lot more downside potential than upside at this point in time."

From the Houston Chronicle: "Prices typically fall in the winter months as Americans do less driving and demand is light. But this week alone, Houston drivers saw an 8-cent hike in the price of regular unleaded gas to $2.15 a gallon, while the statewide average shot up 7 cents to $2.19 a gallon, according to the AAA Texas Weekend Gas Watch, a report released Friday that tracked statewide prices for the week ending Thursday.The national average rose just slightly less, coming in at 5.1 cents over the previous week to $2.29 a gallon, according to Energy Department data. Pump prices are inching up in response to rising crude prices and higher-than-usual demand from U.S. drivers taking advantage of lower fuel costs in recent months, said Jason Toews, co-founder of gas buddy.com, a Web site based in Brooklyn Park, Minn., that helps consumers find low-cost gas stations in their areas. But he predicts gasoline prices will remain "relatively stable, perhaps slightly increasing" through early spring. That's when refiners draw down supplies and switch to cleaner-burning summer gas blends, a process that can boost fuel prices by 50 cents a gallon, he said. Gasoline is prone to premature price increases or "false starts" in December and January before hitting a higher sustained level during the spring and summer months, said Tom Kloza, chief oil analyst at the Oil Price Information Service in New Jersey." The current spike, he said, has more to do with rising wholesale costs involved in producing gasoline than any year-end retail strategy or supply constraints.

Doug Casey: "78 million is the number of baby boomers who are in or approaching retirement. That’s the biggest demographic bulge in U.S history, fully 26% of the population. And many of those 78 million are in a jam. As they approach retirement, they are still carrying historic levels of debt and, on average, have woefully inadequate net worth -- and much of that based on shaky housing prices. In fact, 25% of the retiring boomers – nearly 20,000,000 in all -- are facing retirement with a net worth of less than $50,000. You don’t need to be an accountant to see that, with today’s degraded currency and longer life expectancies, they won’t get very far on so little. This is a real tragedy in the making. After all, what could be sadder than millions of people striving for a lifetime to reach the American dream and then discovering that the “golden years” are just a fantasy, their wealth having been sucked away by decades of inflation and taxes so that politicians and bureaucrats could squander it to grease the skids for their own political success. In 1930, the total share of the U.S. economy directly controlled by or dependent on government was about 11%, leaving the balance of 89% firmly in the hands of private enterprise. Today, by the late Milton Friedman’s calculations, the government’s share of the U.S. economy – including the time and resources required to comply with all the regulations – has ballooned to over 50%, reducing the wealth-creating machinery of free enterprise to an auxiliary engine for government...In fact, according to the Fed, a majority of retired Americans already rely on Social Security for 80% or more of their income."

Doug Noland: “Fed Funds & Repos” expanded at a 26.9% rate during the quarter and “Funding Corps” grew 25% annualized. Broker/Dealer Assets ballooned at a blistering 28% pace during the quarter, expanding balance sheets much more rapidly than the Banks ($168.3bn vs. $39.5bn). Why the need for such aggressive expansion in the face of a slowing economy?"

John Mauldin: "Hugh (Hugh Moore of Guerite Advisors in South Carolina) tells us that "In the previous seven cycles since 1959, housing starts (seasonally adjusted) have fallen, on average, 50.7% from peak-to-trough. Each time housing starts have fallen more than 25% from their most recent peak, a recession has followed (except during the 'credit crunch' of 1966-67 that ended in an economic contraction, but not an 'official' recession)."1967 saw one quarter of contracting GDP, but the official NBER recessions require 2 quarters. The stock market did not like even one quarter of GDP contraction, dropping almost 20%."

In the current Barrons, you might have noticed an article on page 26 on newspaper stocks. Of the majors mentioned, only Tribune Company was projected to have higher earnings in 2007. Selling at 15 times estimated earnings and an enterprise value/cash flow of 8.9 and a dividend yield of 2.2%, I strongly suggest there is limited risk and an upside that could surprise. An entire buyout or significant asset sales are a catalyst that should not be overlooked.

Last week there were only 14 new lows on the NYSE. I guess the number could go to zero but less than zero is out of the question. Is this a sign of a top? It's a warning sign to keep in your mind. Keep your eye on the closing TICK. Last week that number was negative on Thursday and Friday for the Nasdaq.

Ford Motor Co. will extend buy-out offers to most of its while-collar workforce next week, according to a report in the Detroit Free Press Saturday.

I found it interesting that BJ Services closed at $33.03 on Friday, and yet, on Friday, 500 January 2007 calls with s strike price of $40 traded at 15 cents. That's a strong leap of faith or someone knows something that I do not.

Expectations

12/9/06 Expectations

In early Friday trading, January crude oil futures were last up 92 cent at $63.41 a barrel on expectations that the Organization of Petroleum Exporting Countries would cut production at the oil cartels meeting on Dec. 14. A report in The Wall Street Journal on Friday suggested that OPEC won't call for an output reduction.The economy added 132,000 jobs in November, above Wall Street expectations of a 112,000 rise. The Labor Department also revised its October and Septbember employment estimates, adding 42,000 payrolls to its original count over the two months period. The unemployment rate ticked higher to 4.5% in November from 4.4% in October. The increase in the unemployment rate was expected. Average hourly earnings increased 3 cents, or 0.2% to $16.94. Economists had been expecting a 0.3% gain.
Heelys (HLYS) priced 6.425 million shares at $21 a share -- well above its $16-$18 range -- for its stock market debut on Friday. Speculation is alive and well with the opening bid of $35!

Bank of America is "very interested" in buying U.K. bank Barclays, according to a Merrill Lynch research report.

The Financial Times reported that Chinese company Wanxiang Group, China's top auto parts supplier, is in talks about buying some of Ford's component businesses.

The University of Michigan said its preliminary reading on consumer sentiment in December was 90.2, down from November's reading of 92.1. The index had been expected to dip slightly to 92.0, according to a median forecast of Wall Street economists polled by Reuters.

Nouriel Roubini: "the coming housing bust may lead to a more severe financial and banking crisis than the S&L crisis of the 1980s. The recent increased financial problems of H&R Block and other sub-prime lending institutions may thus be the proverbial canary in the mine – or tip of the iceberg - and signal the more severe financial distress that many housing lenders will face when the current housing slump turns into a broader and uglier housing bust that will be associated with a broader economic recession. You can then have millions of households with falling wealth, reduced real incomes and lost jobs being unable to service their mortgages and defaulting on them; mortgage delinquencies and foreclosures sharply rising; the beginning of a credit crunch as lending standards are suddenly and sharply tightened with the increased probability of defaults; and finally mortgage lending institutions - with increased losses and saddled with foreclosed properties whose value is falling and that are worth much less than the initial mortgages – that increasingly experience financial distress and risk going bust."

The Financial Times reported "Ownit Mortgage Solutions, in which Merrill Lynch has a 15 per cent stake, closed its doors. Its failure is the latest in a series of ominous developments in the market for subprime mortgages – higher interest loans made to borrowers who are seen as risky because of payment problems or large debt burdens. There has been a sharp rise in the number of borrowers behind on their payments."

“OPEC needs to restrict output further because a plunging dollar has cut the value of oil,” said OPEC president Edmund Daukoru.

Bloomberg reported tankers will load 158,065 barrels a day of Brent in January, down from 267,742 in December, according to the loading program of Royal Dutch Shell Plc.

The busiest shopping season
of the year is well underway and retailers have dollar signs dancing in
their heads, but Americans' economic enthusiasm has cooled. According to
the most recent results of the RBC CASH (Consumer Attitudes and Spending by
Household) Index, which measured the attitudes of 1,000 Americans earlier
this week, consumer confidence dropped more than five points this month.
Although Americans' assessments of job security rose slightly, overall
consumer sentiment dropped, as consumers expressed concern about current
and future economic conditions, as well as investing. As a result, the RBC
CASH Index for December released today by RBC Financial Group, stands at
86.9, compared to 92.4 in November.

Devon Energy expects to produce approximately 57 million oil-equivalent
barrels (Boe) in the fourth quarter of 2006. This represents a seven
percent increase over Devon's fourth-quarter 2005 production of 53.3
million Boe. On a sequential quarter basis, estimated fourth-quarter
production would be three percent greater than third-quarter 2006
production of 55.4 million Boe.
For the full year 2006, Devon expects to produce approximately 216
million Boe. This includes approximately two million Boe (500,000 Boe in
the fourth quarter of 2006) of production from Devon's Egyptian assets. At
year-end Egypt will be reported as a discontinued operation and these
volumes will be excluded from reported production for all periods
presented. Devon announced its plans to sell all of its interests in Egypt
on November 14, 2006.

Nigerian gunman attacked an export terminal belonging to the Italian company ENI S.p.A taking hostages and killing at least one person.

Justice Litle: "The smart money is buying with abandon because it knows the paper bits floating around today will be worth less than the paper bits floating around tomorrow.
How long can this go on? No one really knows. It's sort of like a game of musical chairs. As long as a veneer of psychological stability is maintained - i.e., as long as cash doesn't become trash too quickly - we could continue to see an upward trend in nominal values, even as real values stall out, or even decline.
Sooner or later, gold is going to break its 1980 highs in nominal terms. (This could easily happen in 2007.) After that, it will break its 1980 highs in inflation-adjusted terms -- which will prove a much more noteworthy feat."

February gold closed at $631 an ounce Friday, down $6 for the session. March silver fell 14 cents to close at $13.895 an ounce. March copper closed at $3.112 a pound, up 1 cent Friday.

The 10 OPEC members bound by the cartel's output agreements produced an average 27.07 million barrels per day (b/d) in November, down 660,000 b/d from October, but still well above the group's new 26.3 million b/d output target, a Platts survey
showed December 8.
Based on Platts' figure for OPEC's November production, the group
exceeded its 26.3 million b/d target by 770,000 b/d.
"Despite the fact that OPEC's cuts are nowhere near what was targeted,
the market still remains solidly above $60," said John Kingston, Platts
global director of oil. "But the group does face a supply/demand equation
that is significantly out of whack, to its possible detriment, as the first
quarter progresses and goes into the second quarter," he explained.
For this reason, it appears that there is significant support among
OPEC ministers to cut crude production again at talks in the Nigerian
capital Abuja when the organization meets December 14.
"Statistics and the marketplace continue to signal hefty inventory
levels for the immediate future and that's bound to concern OPEC a great
deal," Kingston said.

Expedia.com said Friday it plans to repurchase 9.8% of its common stock at a per share price of between $18.50 and $22. The tender offer is expected to begin on Monday.

Fueled by a more optimistic outlook on the strength of the economy and number of jobs
available, U.S. workers' confidence hit new highs in November, according to
a recent survey of 3,654 adults. The Spherion(R) Employee Confidence Index,
a monthly gauge of overall worker confidence, climbed 0.9 points to 60.1 in
November, the third consecutive monthly increase. The survey, conducted by
Harris Interactive(R) on behalf of Spherion Corporation (NYSE: SFN), shows
that 66 percent of workers believe the economy is strengthening or
stabilized, compared to 63 percent in October and 29 percent believe more
jobs are available, versus 27 percent in October.

In October, Eli Lilly and Company announced that it had signed a definitive merger agreement to acquire ICOS Corporation in a cash transaction. Under the terms of the agreement, Lilly will acquire all of the outstanding shares of ICOS common stock at a price of $32 per share, for a total of approximately $2.1 billion. In approximately 2 weeks, ICOS shareholders will vote on the transaction; however, the proxy material fails to mention that last week ICOS initiated an early-stage clinical trial in Europe of an experimental drug for psoriasis. At the very least, in my view, new proxy material should be mailed with this information.

Zillow will allow homeowners and real estate agents to advertise for-sale properties on its website at no cost.

The yield on the 10-year Treasury rose from 4.50% to 4.56%.

January crude fell 46 cents to close at $62.03 a barrel Friday. January natural gas fell 11 cents to close at $7.561 per million British thermal units.

Happenings

12/8/06 Happenings

From the BJ Services 2006 report: "Based on our forecasted increase in rig activity and improved pricing, we expect continued improvement in our results of operations in fiscal 2007. We expect revenue improvement from all of our business segments." The stock, at $32+, is selling at 10 times projected earnings for 2007.

Tribune Co. said that sales edged higher last month despite a continued slowdown in publishing revenue as the media company's broadcasting and entertainment group delivered a 6.9 percent revenue increase to $106.9 million.

European Central Bank President Jean-Claude Trichet said in a prepared statement that the central bank will "very closely" monitor risks to price stability after making a rate hike to 3.5%. He also revised up 2007 and 2008 economic growth forecasts due to lower energy prices.

Chevron Corp.will buy back up to $5 billion worth of its common stock over a period of up to three years. The new program follows a $5 billion program initiated in April 2004 and another $5 billion program launched in December 2005, which has been completed. The company set its 2007 capital and exploratory spending program at $19.6 billion. That represents a 20% increase from an expected $16 billion in 2006.

The Monster Employment Index rose three points to 175 in November from October, its highest reading since the online recruiter launched the benchmark in October 2003. The November reading, which is up from 149 in November 2005, reflects employers increasing holiday-season and year-end hiring, Monster said.

The Bank of England on Thursday left its key interest rate unchanged after two increases in the last four months have taken the cost of borrowing to a five-year high. The bank held its rate at 5% -- in line with market expectations.


Fears that a slowing U.S. economywill drag the global economy downward are unlikely to materialize,according to PIERS Trade Horizons. Based on second-quarter container trade statistics, the latestavailable, as well as its analysis of key economic indicators andunderlying economic fundamentals, PIERS Trade Horizons expects global realGDP growth will average some 3.25% over the second half of this year,resulting in full-year growth of at least 3.5% for 2006 as a whole, up aquarter-percentage-point from last year. Further out, PIERS forecasts anexpansion in real GDP of 3.3% in 2007. "In other words, growth will moderate but remain solid," says MichaelAndrews, PIERS chief global economist. "This despite a U.S. slowdown." One reason the U.S. slowdown seems to be having limited impact onglobal growth is that it has so far been largely confined to theresidential sector, with few spillover effects to the rest of the economyor to most foreign countries. "We can see the impact of the slowdown in the housing sector on growthin imports of furniture, for example," notes Andrews. Thus, the annualgrowth rate for furniture imports from Northeast Asia, the top source forAmerica's top import, nearly halved to 9.6% in the first half of this year,from the same period a year earlier, after expanding a robust 16.6% in2005. The rate of growth in furniture imports from Southeast Asia fell from8.4% in 2005 to negative 5.3% in the first half of 2006. "However, the slowdown in sales to the U.S. by these countries is beingoffset by growth in business with other countries within their regions -and, in several cases, by growing domestic consumption," explains Andrews. "Generally speaking, exports from the rest of the world to the U.S.relative to total exports for most nations have been declining for sometime, making the U.S. relatively less important as a driver of growth forother nations than has been the case in the past."There is much speculation as to the nonfarm payroll number for November.Inasmuch as the number will be revised at least twice, my interest is passingat best. Rather, I have my eye on the Bank of Japan meeting on Dec. 19.Most believe there will not be a change in rates. I think there is at least a 30% chance of a modest rate increase.
OPEC meets on Dec. 14. MAN Energy analyst Edward Meir stated"We think OPEC's inclination would still be to go for another cut, notso much on concern that prices are low, but more because of the factthat the November cut seems to have fallen short."
Outstanding consumer credit fell by $1.2 billion or an annual rate of 0.6% in October.
January natural gas fell 5.6 cents to close at $7.671 per million British thermal units. January crude was up 30 cents to close at $62.49 a barrel.
ConocoPhillips said it plans to divest about 830 retail outlets, and the company approved 2007 cash capital expenditures of about $11.8 billion.
February gold rose $1.10 to close at $637 an ounce. March silver added 24 cents to $14.035 an ounce, and March copper continued lower to close at $3.102 a pound, down 5.8 cents.
An initial public offering from wheeled sneaker maker Heely's Inc. (HLYS) is expected to price above its $16-$18 range for its stock market debut on Friday, an analyst said Thursday.

Reality

12/7/06 Reality

Meritage Homes Corp.CEO Steven Hilton said Wednesday he expects the housing market to remain "tough for at least the next couple of quarters." He said expansion plans "are on hold now," but that the company next year could buy land or pursue acquisitions. If Meritage's stock goes down and it doesn't see opportunities for M&A or land purchases, it will buy back shares, the CEO added.

Addison Wiggin: "The fall of the dollar is like a car accident...you can cover your eyes, but you can’t help but watch it with a sense of amazement. Throughout history, all printed money eventually ends up the same way: practically worthless."

Andrew Parnes, CFO at Standard Pacific Corp., said the spring selling season will be a better gauge than the winter months of whether the slumping housing market has bottomed out. "It's going to take more than a few months of improved or stable [home] order activity to say things have gotten better," the CFO said


A Citigroup analyst said he expects home-order trends to turn around by the first quarter of 2007, therefore "the time to buy the stocks is now" even if profit estimates continue to decline.
"The rally thus far has already occurred sooner than many expected, and we believe the group is about to accelerate its ascent," Kim wrote.
He raised his target prices on several home builders he rates buy: including Beazer Homes and Centex. Maybe the analyst is correct; however, I pointed out in mid-July that the homebuilding group had stopped going down and, in fact, rallied on four consecutive days while the rest of the market was trying to get back on its feet. I remarked the best idea I had was selling puts on Centex. Yes, it was conservative, but the $30 and $35 puts expired worthless- as did the ones on Beazer. I would be selling at least half of my positions in homebuilder stocks- that is, had I been a buyer in mid-July. At the very least, I'd be selling in the money calls.


Richard Daughty: "The bad news, which is what I fixate upon because that is the pitifully miserable way I am, is that slower wage growth means that "consumers don't have as much money as everyone thought they did ... $100 billion less on an annual basis." A hundred billion bucks less income than they figured! Whew! Viewed in another light, "The new data show that, instead of growing at a 7.4% annual rate in the second quarter, employee compensation actually grew just 1.4%." Apparently, those are nominal gains, and are not adjusted for inflation. A sneer of contempt crossed the handsome face of The Mogambo (played by, if you recall, Brad Pitt), and they instantly knew that they had made a mistake! Quickly they added "The new data shows that real disposable incomes fell in the second quarter by 1.5%, rather than rising by 1.7%."

The American Petroleum Institute reported a drop of 4.1 million barrels in crude supplies for the week ended Dec. 1. The Energy Department had reported a fall of 1.1 million. Motor gasoline supplies were up 674,000 barrels, the API said, contrary to the government's reported fall of 1.1 million. Distillate supplies were down 1.5 million barrels, the API said, vs. the 400,000-barrel fall reported by the government.

Ara Hovnanian, CEO of home builder Hovnanian Enterprises Inc., said the company is not overly optimistic on the housing market's recovery and is not managing as if "everything will be hunky-dory in 2007." He stated buyers don't want to purchase a home "that may be cheaper a month later."

Liz Ann Sonders: "December has historically been the weakest month for the dollar against the euro since the European currency began trading at the beginning of 1999. On average, the dollar has lost 2.7% in Decembers since then, with the biggest decline (-7.4%) coming in December 2000. Given that this year-end weakness (caused by holidays and closing-of-books) is well-documented, many traders like to short the dollar in anticipation thereof."

Ford Motor Co. said its $4.5 billion of unsecured senior convertible notes due 2036 will pay interest semiannually at a rate of 4.25% per annum. The principal amount has been increased from $3 billion.

January crude fell 24 cents to close at $62.19 a barrel after trading as high as $63 earlier. January natural gas gained 4.2 cents to close at $7.727 per million British thermal units after a four-session decline.

February gold dropped $12 to close at $635.90 an ounce. March silver closed at a one-week low of $13.795 an ounce, down 23 cents. March copper fell to $3.16 a pound, closing down 8.7 cents, or 2.7%.

The European Central Bank is expected to increase its benchmark interest rate Thursday.

Gannett Co. Inc. said that advertising at USAToday.com would rise by 18 percent to 20 percent this year.

Weyerhaeuser Company announced that challenging market conditions
necessitate further actions, which could include closures, curtailments and
restricted operating postures at softwood lumber, engineered lumber and
structural panels operations across North America. Downtime and restricted operating postures have already been undertaken at about 70 percent of Weyerhaeuser residential wood products facilities.These curtailments have led to significant fourth quarter production
decreases across all product lines."Demand for wood products is very weak," said Steven R. Rogel, chairman, president and chief executive officer. "We continue to analyze
our operating postures and portfolio and expect additional capacity adjustments in the near term."
While many analysts are talking about the worst is over in the housing industry, I suggest they heed the words of the Weyerhaeuser CEO.

Revisions Revisions Revisions

12/6/06 Revisions Revisions Revisions

The Labor Department said unit labor costs were revised much lower in both the second and third quarters. Instead of rising at a 5.3% pace in the past year, unit labor costs in the nonfarm business sector were revised to a 2.9% annual pace. Productivity in the nonfarm business sector rose at a 0.2% annual pace in the third quarter, revised from no gain previously reported. Unit labor costs, meanwhile, were revised to a 2.3% annualized from 3.6% previously. The markets key on these government numbers. Why I don't know. They become moving targets.

Here is a sample of the revisions and the nonsense surrounding them:
"Measures for the nonfinancial corporate sector also were revised to reflect updated information on output and employee compensation during the second quarter of 2006. Productivity was revised down along with output, as hours grew at the same rate reported Nov 2. Hourly compensation was revised down from a 6.5-percent gain to 0.7-percent decline in the second quarter. Because hourly compensation was revised down more than productivity, the increase in unit labor costs also was revised down, from 6.4 percent to 3.7 percent."

The dollar fell to a fresh four-month low vs. the yen. Meanwhile, the U.S. dollar index is approaching 82 on the downside.

Chain store sales for the week ended Dec. 2 rose 3.1% from the year-ago period, according to a survey by the International Council of Shopping Centers, Inc. and UBS Securities released Tuesday. On a week-over-week basis, sales slipped 2.6%. "Through this past Sunday, consumers shopped less and completed less of their total expected holiday spending than even last year," said Michael Niemira, ICSC's chief economist.

Toll Brothers, the luxury home builder, said next year fiscal year's profit may fall 62% but also said it may be seeing a floor in some markets where deposits and traffic, although erratic from week to week, seem to be dancing on the bottom or slightly above.

Reckson Associates Realty Corp. affirmed its backing of a takeover proposal from S.L. Green and said a takeover proposal from American Real Estate Partners LP, controlled by the investor Carl Icahn, "does not meet the standard" set out in the SL Green merger agreement "to permit discussions or negotiations with AREP."

Bridgestone Corp. , will buy Bandag Corp. , a maker of tire retreading materials and equipment, for $1.05 billion in cash or $50.75 per share.

Tim Iacono: "To most Americans, what the dollar can be exchanged for overseas matters little - only about ten percent of the U.S. population has passports and most of those people never leave the country. As for import prices, recent studies have shown that only a very small amount of exchange rate movements are passed through via manufactured products. Oil however is another matter. A steep decline in the dollar means that oil prices for Americans will go up, all else being equal - this reality may become more significant after next week's OPEC meeting where the subject of prices is sure to come up."

New orders at U.S. factories fell 4.7 percent in October, the biggest fall in more than six years and marking the third drop in four months, while inventories rose again. However, excluding transportation, factory orders fell just 0.8 percent.

The Institute for Supply Management's services index rose to 58.9 in November from 57.1 in October. Employment, prices paid and new orders also rose, according to a report on Tuesday.

Palatin Technologies, Inc presented results from two Phase 2B trials evaluating bremelanotide for the treatment of male erectile dysfunction (ED) at the 9th European Society for Sexual Medicine (ESSM) Congress at the Hofburg Convention Center, Vienna on December 5, 2006. This presentation received "The European Society for Sexual Medicine 2006 Award for Best Presentation on Male Sexual Dysfunction (Clinical)."

February gold fell $3 to close at $647.90 an ounce in New York. March silver fell 22 cents, or 1.5%, to end at $14.025 an ounce. March copper closed at $3.247 a pound, up 7.1 cents.

Shares of McDonald's traded above the $43 mark for the first time in seven years. It was a long road back from the 12 1/8 hit only a few years ago.

Shares of Walt Disney reached a high of $34.08 in intraday trading, the highest price seen since May 23, 2001.

Announced layoffs totaled 76,773 in November, up from 69,177 in October but down from 99,279 a year earlier, according to Challenger, Gray & Christmas Inc.

The Conference Board reported that the leading index for Japan increased 0.5 percent and the coincident index increased 0.6 percent in October.

Mayo Clinic announced last
week that it has developed a new medical device that will help patients
control their breathing (respiratory motion) when undergoing computed
tomographic (CT) fluoroscopy-guided biopsies. The Interactive Breath-hold
Control will be the first medical device of its kind in the world. The
device will allow physicians to more rapidly and accurately diagnose
patients reducing the need for a more invasive surgical biopsy.

I'd like to take a moment to discuss the holiday season, which is abnormally stressful for many individuals. Learning to manage stress levels is one of the most important functions to master. I cannot say enough of the negative impact from high stress levels, which can produce high levels of cortisol in the body.
Cortisol is an important hormone in the body, secreted by the adrenal glands and involved in the following functions and more:

Proper glucose metabolism
Regulation of blood pressure
Insulin release for blood sugar maintanence
Immune function
Inflammatory response
Higher and more prolonged levels of cortisol in the bloodstream (like those associated with chronic stress) have been shown to have negative effects, such as:


Impaired cognitive performance
Suppressed thyroid function
Blood sugar imbalances such as hyperglycemia
Decreased bone density
Decrease in muscle tissue
Higher blood pressure
Lowered immunity and inflammatory responses in the body, as well as other health consequences
Increased abdominal fat, which is associated with a greater amount of health problems than fat deposited in other areas of the body. Some of the health problems associated with increased stomach fat are heart attacks, strokes, the development of , higher levels of “bad” cholesterol (LDL) and lower levels of “good” cholesterol (HDL), which can lead to other health problems!

The Horizon

12/5/06 The Horizon

From Abnormal Returns: "Closely monitoring the holdings of fund managers, hedge or mutual, is not unlike tailgating. That is following the car in front of you too closely, as opposed to the pre-game meal served prior to a football game. Tailgating behind a great driver could get you to your destination a little faster. However, tailgating is also a large contributor to auto accidents. Tailgating deprives the trailing driver with vital information on the road ahead. Relying on the driver in front of you is at best an iffy proposition."

On the Tribune Company, the January 2008 $35 calls have an open interest of 1096. I found it interesting that 241 of these calls traded at $1.00 on Monday.

Mining Weekly: "Chinese gold consumption is expected to rise 17% this year, news service Bloomberg quoted China Gold Association chair Cheng Fumin as saying. China is the world's third biggest consumer of the precious metal and is expected to use 350 metric tons this year, up from 300 tons in 2005, owing to an increase in demand for bullion as an investment, Fumin said.
This was despite a fall-off in demand for gold jewelry, caused by high prices.
China is the world's fourth-biggest gold producer and plans to attract foreign investment to the sector.
Fumin indicated that China's gold production may rise more than 10% next year, Bloomberg reported."

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in October, fell to 107.2 from 109.1 in September.The October level was 13.2 percent below the year-earlier level.

Rep. Ron Paul: "Politicians often manage to fool voters and the media, but they rarely fool the financial markets over time. When investors lack faith in the U.S. dollar, they really lack faith in the economic policies of the U.S. government."

Phil Davis: "There is a 10% fantasy built into everything you own because you are under the illusion that the dollars you have in your pocket and the dollars you see in your bank statements are worth 100 pennies -- but they are not! And I'm not just talking about the fact that a dollar buys 50% less copper than it did last year -- just try leaving the country with that funny money of yours and see what you can buy in any of the 50 economies around the world that are outperforming us!"

In line with recent upbeat data from the euro zone, the Sentix index on Monday showed that investor sentiment improved in early December, with the current situation judged to be at its best since the survey began in February 2003.

Yesterday crude declined by 99 cents a barrel; however, ExxonMobil rose 57 cents in price. Meanwhile, January natural gas dropped 61.6 cents, or 7.3%, to finish the day at $7.806 per million British thermal units.

Events

12/4/06 Events

President Evo Morales signed into law Sunday contracts giving the government control over foreign energy companies' operations, completing a process begun May 1 with the nationalization of Bolivia's petroleum industry.

Pfizer Inc. said Saturday it has cut off all clinical trials and development for a cholesterol drug that was supposed to be the star of its pipeline because of an unexpected number of deaths and cardiovascular problems in patients who used it.

Robert McHugh: "Now the punch line: This is the exact pattern we see currently in the Dow Industrials from 2002 through 2006. The entire rally from October 2002 has in effect been one very large Broadening Top, Megaphone pattern, identical to the patterns that led to the 1929, 1957, 1986, 1987 and 2000 stock market clobberings. And we sit very close to point e. The upper boundary of the 2002-2006 pattern suggests a top around 12,300 +/- if it completes this month, as high as 12,500 if it finishes in early 2007. Point e came after prices crawled along the upper boundary for a short while in 1929, so we could see the 2002 to 2006 pattern do likewise, meaning point e could top as late as early 2007."

BCA Research: "The yen is very pro-cyclical and almost always weakens during periods of slowing global growth. Currently, the world economy is still in a softening phase that could last well into 2007. Bottom line: the conditions are not in place to bet against the yen or yen carry trades."

Tiger Woods and Tatweer, a member of Dubai Holding, a leading UAE holding Company, announced
plans for 'Al Ruwaya,' the first-ever course designed by Woods in "The Tiger Woods - Dubai."

Tracinda Corp., which is controlled by Kirk Kerkorian, Monday filed a tender offer with the Securities and Exchange Commission for the purchase of 15 million shares of MGM Mirage for $55 each. Tracinda said it presently owns about 158.4 million MGM Mirage common shares, or 55.8% of the company's outstanding stock.

FedEx Corp. said it will raise its FedEx Ground and FedEx Home Delivery rates by an average of 4.9%, effective Jan. 1.

To see Shamu at Orlando SeaWorld will now cost $54 for a child's ticket and $70 for an adult.

Marshall & Ilsley Corp. agreed to acquire United Heritage Bankshares of Florida Inc. for about $217 million in stock. The deal calls for Marshall to swap 0.8740 of a share of its common stock for each United Heritage common share.

Poultry producers Pilgrim's Pride Corp. and Gold Kist Inc. entered into a merger agreement under which the former will acquire the latter for $21 a share in cash.

Station Casinos Inc. said it's received an acquisition proposal that values its common shares at $82 each from Fertitta Colony Partners LLC, an entity that includes members of its senior management team.

Bank of New York Co. and Mellon Financial Corp. agreed to merge, forming the world's No. 1 securities-servicing and asset-management firm. Under terms, Bank of New York's holders will get 0.9434 share of the new company for each of their shares. Mellon holders will receive one share of the new company for each of their shares.

Chipmaker LSI Logic Corp. has agreed to buy Agere Systems Inc. in an all-stock deal worth around $4 billion. LSI said Agere shareholders will receive 2.16 LSI shares for each Agere share they hold.

John Hussman: "If profit margins were at their usual norms, the current P/E ratio for the S&P 500 would be about 23 times earnings...For the Large 500 data series, capital expenditures as a percent of revenue has fallen from 7.5 percent in 2000 to 5.6 percent today...In the few times margins have reached a level of 7.5 percent or above, subsequent 3-year earnings growth has been flat or steeply negative...Investors consistently overpay for stocks during periods of high margins. The median P/E during the 20 percent of the highest margin periods is 25. During the 40 percent of periods with the lowest margins, the median P/E has been less than 13...Earnings will grow at about 5.9 percent a year if we assume profit margins remain near their current record levels. Assuming a decline in margins toward the long-term average of 6.5 percent, earnings will grow at one-third of a percent a year. If profit margins dropped to 5.5 percent, the level they reached in 1975 and 1983, earnings would decline 3 percent a year. Remember, this assumes a continuation of healthy top-line sales growth. Those are the headwinds that result from high profit margins."

Be Patient. Taking an overall view, in my opinion, better buying opportunities will present themselves.

More Thoughts

12/3/06 More Thoughts

Brett Steenbarger: "Corporate bond volatility bottomed out in May of this year and has been on the rise since then; that is not true of SPX volatility. One hypothesis I'm entertaining is that increasing volatility in interest rates and the dollar will be leading increasing equity volatility."

Yesterday, I provided the wrong link to an article on Palatin. Please excuse. Let's try it again. http://abcnews.go.com/Nightline/Sex/stor...

From George Ure: "Bart's" work over at Nowand Futures.com which offers a recreation of the Fed's gone-since-March-06 M-3, the broadest measure of the money supply, By his figuring the annual rate of change of M3 is running just about 10%, underscoring out long held belief that since 9/11 which coincided with the first leg down of the Second Depression, but misdirected public attention from that fact, the central banksters have been flooding the markets with liquidity on the theory that deflation can be exactly and precisely counteracted by driving offsetting inflation into the system. "

Alarmed about the baht's 14.2 percent gain against the dollar this year, the Bank of Thailand intervened in the currency market Friday and earlier in the week to try to curb the surge, said Nitaya Pibulratanagit, the assistant governor.
"The baht has risen beyond its fundamentals," said Suchada Kirakul, the central bank's senior director for the domestic economy, blaming at least some of the appreciation on speculative inflows from offshore investors.

The South Korean won is near its strongest levels since 1997. The Philippine peso and Indonesian rupiah have strengthened. China's yuan is steadily inching higher, hitting fresh highs nearly every week.
These gains mean that American consumers could pay higher prices on at least some Asian exports just as the holiday shopping season gets into full swing.

Over the past 20 weeks, total money funds and commercial paper have both expanded at a 21% rate. It's as if they are both growth stocks in the nifty fifty category.

In case you believe volatility is dead, take a look at Meritage Homes. From Jan. to mid-July the stock dropped from 71 to 34. From mid-July thru Friday, the stock has risen from 34 to 48. Not for the faint hearted.

Doug Noland: "Considering the liquidity and speculative backdrop, I’d be willing to bet that sinking market yields foster some extraordinary (inflationary) consequences. And it is my view that heightened compensation pressures are today a major Inflationary Bias, nurtured through years of Credit and liquidity excess. Barring financial crisis or some development that restrains Credit expansion or incites de-leveraging, the combination of ballooning corporate liquidity and the worsening skilled labor shortage would appear poised to manifest in continued Income Inflation. All bets are off, however, when the marketplace turns against the Corporate (“Credit arbitrage”) Trade. For now, I’m going to force myself to see it before I believe it. Wall Street and the global leveraged speculating community have become incredibly powerful. I don’t expect they’ll be willing to let go of this pot of gold without a hell of a fight."

Deepcaster: "Regarding "Juiced Numbers," John Williams has created an excellent Newsletter "Shadow Government Statistics" at www.shadowstats.com which is a welcome antidote to Federal Reserve and government data manipulation. In late November, 2006, Shadowstats issued its report of the "real" numbers as opposed to the government ones. Williams found that annual money supply growth, calculated as if M3 had been continued (the Federal Reserve discontinued the calculation and release of M3 figures earlier this year), indicates that the annual money supply growth as of 3/4 of the way through 2006 was approaching 10%. A 10% increase in the money supply signals massive monetary inflation! Coupled with the massive credit inflation of recent years, we are truly in a massively inflating economy.
Of course, the Fed-led Cartel's manipulation of a variety of markets has temporarily masked this hyperinflationary reality and has, coupled with the juiced CPI numbers, created an illusion of deflation. Late in this year of 2006, the United States government's CPI number was just under 2% but shadowstats.com (which calculates it the old fashioned way) indicated a 9% CPI rate of inflation.
As well, shadowstats.com real numbers show the U.S. GDP contracting by nearly 2% a year rather than the government number of plus 2% per year .
Conclusion: while the Fed-led Cartel has created the illusion of deflation, in fact what we have is stagflation. A declining GDP and massive increases in credit and money supply and OTC derivatives are facts. It is only the "juiced numbers" and manipulated markets which disguise this stagflationary reality, albeit only temporarily.
In Deepcaster's view this explosion of derivatives cannot continue because, inter alia, the amount of derivatives necessary to maintain the Cartel's control of the markets continues to increase. This is similar to the situation in which the volume of drugs which a drug addict has to use has to continually increase to achieve the same "high." And at some point the desired effect cannot be obtained at all."

Bill Bonner: "Mightn’t we some other day - if we live long enough -- pick up a copy of the Random House Dictionary of Financial Terms, published in 2030, and read the following entry: ‘U.S. Dollar...currency used by America, from 1780 to 2025, when hyperinflation rendered it valueless. It was replaced by the gold-backed American Yuan.’"

The VIX closed the week at 11.66, and one year earlier it was 11.01.

On Friday, the closing TICK on the NYSE was quite strong at +1451.

Interesting Points

12/2/06 Interesting Points

An article well worth reading on Palatin: http://abcnews.go.com/Nightline/story?id...

In addition, we will have this information presented on Palatin:
At the meeting of the European Society of Sexual Medicine Palatin will be represented in two (2) Podium Discussions as follows: 1.REVIEW OF POTENTIAL ROLE OF BREMELANOTIDE
(PT-141) IN THE TREATMENT OF FEMALE SEXUAL DYSFUNCTION.
Speaker- Michael A. Perlman of Cornell University Medical School.
2.RANDOMIZED,DOUBLE BLIND,PLACEBO-CONTROLLED AT HOME STUDY OF INTRANASAL BREMELANOTIDE (PT-141) IN MEN WITH ERECTILE DYSFUNCTION WITH AND WITHOUT DIABETES MELLITUS.
Speaker- W.Hellstrom-Professor of Urology-Tulane Medical School -Chief of Andrology(Male infertility and sexual dysfunction).

GM said its first-quarter 2007 production plans are off 9% from a year ago, mainly because of the automaker's move away from rental fleet sales.

February gold closed at $650.60 an ounce Friday. March silver added 7.5 cents to close at $14.19 an ounce. March copper closed at $3.172 a pound.

Ford said it plans to build 620,000 vehicles in the fourth quarter, down 15,000 units from prior forecasts. In the first quarter 2007, Ford plans to produce 750,000 cars and trucks, which the automaker said is consistent with the high end of its prior targets. Ford earlier said first half 2007 production would be down 8% to 12% from a year ago.

Robert Nardelli, chief executive of Home Depot Inc., downplayed speculation Friday that his company was the target of a $100 billion takeover, according to the Atlanta Journal Constitution. Home Depot Inc.said late Friday in a regulatory filing that it has had no discussion about a potential leveraged buyout or recapitalization.

Financial markets expect the Federal Reserve to begin aggressively cutting interest rates in the first half of 2007, according to the federal funds futures market at the Chicago Board of Trade. Following a report that the factory sector contracted in November, the futures market was pricing in 28% odds of a cut to 5% in January and an 80% chance of a cut in March.
The ISM index fell to 49.5% in November from 51.2% in October. This is the first time the index has been below the 50 threshold since April 2003. New orders fell to 48.7% in November from 52.1% in October. Production fell to 48.5% from 51.9%.

Spending on U.S. construction projects dropped by 1.0% in October, as outlays on private residential construction matched a low hit in July 2006, the Commerce Department said Friday. Private residential construction spending fell by 1.9% in October, the latest evidence the U.S. housing market has pulled back sharply. Private construction spending dropped by a sharp 1.5% in October. Spending on private nonresidential construction projects fell by 0.7%. Meanwhile, the homebuilding stocks continue to rally as interest rates on treasuries decline.

Claire's Stores Inc. said Friday it is exploring strategic alternatives, including a possible sale of the company. The company said it hired Goldman Sachs as its financial adviser.

January crude closed at $63.43 a barrel Friday, up 30 cents for the day and up $4.19, or 7.1%, for the week. It recovered from an earlier session low of $62.30.

The commander of coalition forces in northern Iraq said Friday that four Iraqi army divisions in his area will be put under Baghdad's control by next March, just the kind of transfer that a U.S. study commission reportedly is ready to embrace.

Yesterday, Barrons Online ran the following story:
"Private Equity Stalks Oil-field Services." In my view, the best risk
reward can be found with BJ Services. I have written about this company on numerous occasions, and yes, it is up from $29 to Friday's close of $33.87; however, for the year that ends 9/30/07, the company is expected to earn about $3.25 a share or roughly a third higher than earnings in 2006. BJ Services should sell at a much higher multiple than 10+. A fifteen p/e would still be only half of the earnings growth. If there were a buyout, a price of $48 would not be rich, in my view. Take a look at the January 2008 calls. They went out at $3 bid on Friday.

The Home Stretch

12/1/06 The Home Stretch

PIRA Energy said that OPEC crude exports had fallen by 1.28 million bpd in the four weeks to November 19 and were 1.7 million bpd below their recent peak in mid-October.

U.S. initial weekly jobless claims highest in more than year
The number of U.S. workers applying for jobless benefits climbed by the highest amount in more than a year last week, to 357,000, the Labor Department said Thursday. First-time claims for state unemployment benefits rose by 34,000 to 357,000 for the week ending Nov. 25. The rise in claims is up from a revised 323,000 the prior week, the Labor Department said. The number of workers continuing to collect unemployment benefits jumped by 45,000 during the week ending Nov. 18, to 2.48 million. The four-week average of continuing claims also rose, by 18,750 to 2.45 million.

Real consumer spending in the United States rose 0.4% in October, the Commerce Department reported Thursday. Core inflation rose slightly faster than expected at 0.2%, keeping the year-over-year gain in the core personal consumption expenditure price index at 2.4%. Nominal incomes rose 0.4%, the weakest growth since June, and a tenth lower than expected. However, with prices falling 0.2%, real (inflation-adjusted) after-tax incomes rose 0.6%, the second-best growth in more than a year. Nominal spending increased 0.2 in October.

In early Thursday trading, crude topped $63 a barrel and gold traded at $653 an ounce. Meanwhile, the dollar remained in the toilet-- where it belongs as long as these MO MO's
remain in the Administration.

Business activity in the Chicago region slowed to its lowest level in more than three years in November, according to Chicago purchasing managers index released Thursday. The Chicago purchasing managers index fell to 49.9% in November from 53.5% in October. This is the lowest level since April 2003. The employment index dropped to 49.4% from 57.0%. The prices paid index fell to 60.2% from 62.5% in October. The new orders index fell to 52.0% from 54.1%. Inventories fell to 57.7% from 67.2% in the previous month. The deliveries-diffusion index fell to 43.0% from 54.1%. This is the lowest since March 2001.

The Energy Department said natural-gas inventories fell 32 billion cubic feet for the week ended Nov. 24. Total stocks now stand at 3.417 trillion cubic feet, up 185 billion cubic feet from the year-ago level, and 230 billion cubic feet above the five-year average, the government data said. Meanwhile, prices hit a 2-month high at $9.05 per million cubic feet.

Crude ended the day at $63.13 a barrel, natural gas at $8.84 per million cubic feet, Deceember gold at $646.90 per ounce, December silver at $13.92 an ounce, and December copper at $3.17 a pound. Meanwhile, the U.S. dollar index stumbled down to 82.80.

The poor economic data was the reason for the 10-year government bonds to end the day at a yield of 4.46%, while the 2-year yield declined to 4.62%. The lower interest rates assisted the homebuilding index to continue its climb, and that despite the poor housing numbers.

Many analysts thought that the disappointing November Wal-Mart same-store sales were simply a company specific problem. Obviously, that was not the case. Gap's November same-store sales were down 8%, Abercrombie and Fitch 3%, Dillard's 3%, Ann
Taylor 4.3%, Cato 6%, Sharper Image 27%, Pacific Sunwear 3.8%, Finish Line 3.3%, Gottschalks 0.9%, Pier I 1.3%, and Fred's 2%.
To put the icing on the cake, Wal-Mart projected that December same-store sales would be in a range of flat to up 1%. You can bet this will not be company specific.

Valero is shutting down a coker unit in Pennsylvania for “needed repairs”. The outage will cut gasoline production by 300-450,000 bls and distillate by 250-400,000 bls.

Tradingthecharts.com: "One precursor of a possible more important market peak could be the DJ Utilities Index, which appears to be nearing an important peak from an Elliott point of view. The Utilities are in their final advance after spending eight months within a contracting triangle. Seems as if the 4th wave of (5) is also in a triangle pacing itself for a year end rally. 2 measured moves are just over head where this market could finally peak after a four year advance."

Increased competition from Canada and a dip in new home construction in the U.S. has lumber mill officials in north-central Idaho concerned about possible shutdowns, though so far that step has been avoided. "Prices are not good at all, and we'll have to watch that," said Calvin Hogg, chief financial officer at Three Rivers Timber, which employs about 190 people in Kamiah. "Nobody is very happy where things are." According to the Census Bureau, housing starts dropped from a record high of 2.2 million in February 2005 to 1.48 million last month, reducing the demand for lumber.

Kerkorian sold 14 million shares of GM at $28.75, and that reduces
his ownership to 4.8%. He will be most fortunate to come out of this situation with a small loss. The first loss is the best loss.

With government bonds yielding less than 4.50%, what is the margin of safety in the forecasts for corporate profits in 2007?
If the housing sector is weak, if the auto sector is weak, if manufacturing is weak, if the dollar is weak, then what's strong?-- Prospects for oil service companies, gold and silver companies, and possibly the merger and acquisition business. As the dollar weakens, U.S. companies become cheaper for foreigners to purchase.

India announced that their economic growth had unexpectedly accelerated to 9.2% in the 3rd QTR.

Donald Rumsfeld: "Be precise. A lack of precision is dangerous when the margin of error is small."

Imagine this. “Packard had the highest margin of profit per car in automotive history the year it went out of business."

More Government Numbers

11/30/06 More Government Numbers

I do my best to ignore government numbers. For the most part, in my view, a capable person would not be found working in the government sector. As such,
relying on data coming out of this arena is foolish. That includes the Fed and their Beige Book, which stated most areas of the United States reported moderate economic growth through the first weeks of November and labor markets were tight in many regions, especially for high-skilled occupations, the Fed said. At the same time, wage growth remained moderate and most districts reported that prices had moderated for construction materials and energy products. Fed districts reported strong demand for workers in industries, such as, sales, engineering and health care, as well as oil field workers, welders, and truck drivers. Most Fed districts reported that overall housing market activity continued to slow and said they had experienced declining sales of single family homes and rising inventories, the Beige Book said. There were also scattered reports of house price reductions, the Fed said. Several Fed districts said they expect weak housing market conditions to persist for several months. Manufacturing activity was generally positive in most districts, however, with reports of weakness concentrated among producers linked to the housing and automotive industries, the Fed said. Most Fed districts reported increased consumer spending, with the retail sales outlook for the busy winter holiday season "cautiously optimistic," the Beige Book reported.

U.S. GDP expanded at a 2.2 percent annual rate during the third quarter, higher than the 1.6 percent gain first estimated and above Wall Street expectations for a 1.8 percent gain. However, more of the third quarter's output went into inventories than previously believed, while consumer spending was a touch softer. At the same time, After-tax corporate profits during the quarter were far stronger than expected, rising 4.6 percent after a slim 0.3 percent increase in the prior quarter. Economists had been expecting another weak quarterly gain, of 0.4 percent.

Ford said a total of 38,000 employees -- almost half of the automaker's U.S. factory workforce -- had accepted buyout offers to leave the company. The number includes about 30,000 workers who the most recent round of buyout offers that concluded this week and about 8,000 employees who accepted Ford's earlier plant-by-plant buyout offers.The buyouts exceed Ford's goal of cutting 30,000 blue-collar jobs in North America by 2008 and exceeds rival General Motors Corp.'s similar efforts earlier this year, which resulted in 34,400 workers accepting buyout offers.

Pfizer announced cutting 20% of its salesforce or 2200 workers.

Calgary-based TransAlta Corp. will immediately stop mining at its Centralia, Washington, coal mine and switch to coal from the Powder River Basin in Wyoming to fuel the related power plant.The closure will eliminate about 600 mine-related jobs, but the company said the mine was becoming uneconomical to operate and producing electricity from the Centralia coal-fired power plant too costly."In order to produce competitively priced electricity from our Centralia coal-fired plant we have to meet the fuel requirements for our plant from a more predictable an economic source," the company said in a press release.

January crude climbed $1.47 to close at $62.46 a barrel, marking the contract's highest closing level since Nov. 9. The Energy Department reported on Wednesday its first decline in crude supply in five weeks. January natural gas closed up 31.2 cents, or 3.7%, at $8.871 per million British thermal units. It logged its strongest close since Sept. 13 on cold U.S. weather forecasts.

December gold fell $1.80 to close at $635.50 an ounce Wednesday. December silver fell by 5.4 cents to close at $13.566 an ounce and December copper lost 1 cent to end the day at $3.128 a pound.

Total assets in U.S. mutual funds broke the $10 trillion plateau in October.

Online shoppers bought $608 million worth of items Monday, the highest-ever single day total in e-commerce history and slightly topping expectations for what's known as "Cyber Monday", comScore Networks Inc. reports. The tally for this year's Cyber Monday was a 26% increase from last year's Cyber Monday, and above the $600 million comScore had predicted.


Sales of new-homes fell 3.2% in October to a seasonally adjusted annual rate of 1.004 million, the Commerce Department estimated Wednesday. New-home sales are now down 25.4% in the past year. The sales pace in July, August and September was revised lower by a total of 64,000. Median sales prices were up 2% in the past 12 months to $248,500, reversing a trend toward falling prices year-over-year. The number of new homes on the market dropped 0.7% to 558,000, the third straight decline. The inventory represents a 7-month supply at the current sales pace, up from 6.7 months in September.

Dollar General will close 400 stores.

It was not very long ago that I suggested accumulating natural gas at the $5.50 level. I did not expect it to jump close to $9 in such a short time. Locking in profits makes some sense. Some input from ZMANN makes some sense:
"Even with a repeat of the coldest Dec - Mar period on record, trough storage comes out at 1,235 Bcf which is above average. In the event of an average winter from here on out, we arrive at trough storage that is just short of last year’s record."

Fan Gang, a member of People's Bank of China's policy committee: "The US dollar is no longer a stable anchor in the global financial system, nor is it likely to become one, therefore it is time to look for alternatives."

The British pound is trading at a 14-year high versus the dollar.

The Philadelphia Oil Service Sector Index climbed 3 percent, with all 15 of component stocks marking gains. BJ Services climbed 5.5% to $33.76.

An additional view on Tribune:
http://www.secinvestor.com/2006/11/29/Tr.

Talisman Energy Inc. agreed to sell its indirect 1.25% interest in Syncrude to Canadian Oil Sands Trust's operating unit for $475 million. Talisman said the price tag comprises $237.5 million in cash, and 8.19 million Canadian Oil units. Talisman said it has also sold its 2% gross overriding royalty on Suncor Energy Inc.'s undeveloped Lease 23 to Suncor for $107.5 million. Talisman said the sales are part of its process "to realize value from the company's non-core oil sands assets."

Value And Patience

11/29/06 Value And Patience

Sales of existing U.S. homes rose 0.5% to a seasonally adjusted annual rate of 6.24 million in October, the first increase since February, the National Association of Realtors reported Tuesday. September's sales were revised higher to 6.21 million from 6.18 million initially reported. Sales are down 11.5% in the past year. Median sales prices fell a record 3.5% year-over-year, the third decline in a row. Inventories of unsold homes increased 1.9% to 3.854 million, representing a 7.4-month supply at the October sales rate. It's the largest months' supply since April 1993.

U.S. consumer confidence weakened in November, the Conference Board said Tuesday. The consumer confidence index fell to 102.9 in November from a revised 105.1 in October. The present situation index fell to 123.6 from 125.1, while the expectations index slipped to 89.2 from 91.9.

Led by falling order for new airplanes, demand for U.S.-made durable goods fell 8.3% in October, erasing September's 8.7% gain, the Commerce Department said. Excluding transportation goods, orders fell 1.7%. It was the biggest drop in orders for durable goods since July 2000. New orders for civilian aircraft plunged 44.5% last month. Orders for core capital goods fell 5.1% in October, the first decline in six months. Based on this weak durable goods report, the 10-year Treasury yield dipped below 4.50% for the first time since Feb.10. The weak data and the falling yields contributed to the dollar declining further against the euro. Meanwhile, December natural-gas futures climbed 32 cents, or 4%, to close at $8.318 per million British thermal units Tuesday, its highest closing level since late October. January natural gas became the lead-month contract and it closed at $8.559, up 20.2 cents, or 2.4%. January crude added 67 cents to close at $60.99 a barrel, its strongest closing level in more than two weeks.

The Federal Reserve may need to raise its overnight interest rate target above 5.25% to keep inflation under control, said Charles Plosser, president of the Philadelphia Federal Reserve Bank, in a speech on Tuesday in Rochester, N.Y. Plosser said it's possible inflation could return to acceptable levels without further hikes, but stressed that the Fed must act to back up its words or it will lose credibility.

Bernanke said the economy is still on track to expand at a moderate pace over the next year without slowing too much.He said the inflation is already "better behaved of late" and should continue to slow gradually.

I would like to spend some more time on the Tribune Company, the owner of 11 daily newspapers--including the LA Times, Baltimore Sun, and the Chicago Tribune-- 25 TV stations, the Cubs, a cable network, a radio station, the Williamsburg Magazine, the Chicago Magazine, and many classified and entertainment sites. The current market values the shares at about $7.5 billion. In addition, there is outstanding debt of $5.3 billion. Lots of rumors have circulated that the bids for the whole company have been low and, at the same time, there have been many bids for parts of the company- the LA Times, the Cubs, the Chicago Tribune, the Baltimore Sun, and the South Florida Sun-Sentinel. In my opinion, there is terrific value in this company, and therefore, I strongly suggest the reader consider taking a position. My best idea is to buy the January 2009 (not a misprint) $20 call at roughly $12.30. This let's you leverage your purchase and yet pay only a tiny premium.
After the close of trading on Tuesday, Tribune Company said it's extending its deadline for deciding whether to sell the company until the first quarter of 2007.Tribune Chairman Dennis FitzSimons says response to a possible sale has been strong and the company extended its timetable to thoroughly consider the proposals.
Chicago-based Tribune had said it would decide whether to sell all or parts of the company by the end of the year.
"We are committed to a complete review process that will yield maximum value for all Tribune shareholders," William A. Osborn, chairman of an independent committee set up to review offers, said in a statement. "We anticipate a final recommendation to the full board during the first quarter of 2007."
Tribune Chairman Dennis FitzSimons said response to the company's proposed sale has been "strong" and the timeline was being extended so the company could thoroughly consider all the proposals.
"This process has generated strong interest from a number of parties," he said in a statement.
Separately, the company said that the FCC has approved the sales of WCWN-TV in Albany and WLVI-TV in Boston. Both transactions are expected to close in December and are part of a performance improvement plan announced earlier this year. To date, the company has sold or agreed to sell approximately $450 million of non-core assets.
In sum, with a little patience, I believe the company's substantial value will accrue to
the shareholders. This is company with first class assets, and they should bring a good return over the present $32 market price.

ServiceMaster Co.,the lawn care and pest control company, said on Tuesday it was considering putting itself up for sale, sending shares up nearly 7 percent.
The company's solid cash flow has attracted the interest of private equity firms in recent weeks, according to industry sources.

Martin Weiss: "A barrel of crude oil -- and virtually every other major source of energy -- is measured in U.S. dollars. So if the value of each dollar declines, the number of dollars per barrel must go up accordingly. For example ...
Approximately one year ago the U.S. Dollar Index was at 92, while crude oil was in the high $50s.
Today, the U.S. Dollar Index is at 83.66, down 9% in value, but crude oil is trading near the same levels as one year ago.
Even assuming no increased oil demand ...
Even assuming no new threats to oil supplies ...
That means the price of crude oil needs to quickly adjust upward by about 9% just to compensate for the dollar's decline. And, as I just explained, that dollar decline has barely begun."

Fourth quarter U.S. GDP growth estimates were reduced to zero from one percent by
Deutsche Bank economists.