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Friday September 10, 2004
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Producer Prices - Bad News
The release by the Labor Department of the Producer Price Index today is not very good news because of what I refer to as the "spread" of data from crude goods to finished goods. Although the spinmeisters are likely to proclaim to anyone foolish enough to listen that "there is no inflation pressure," the ugly opposite is probably true. There is a lingering deflation problem.
Specifically, the report at http://www.bls.gov/news.release/ppi.nr0.htm shows that overall, the price of crude goods is up 22.4% from year ago levels.
Next we look at intermediate goods, which were up 8.1% from year ago levels.
Now, all of a sudden you can see why the year over year (YoY) increase in finished goods is such a bummer. What it means is that prices paid for crude and intermediate goods that are used to make finished goods have continued to increase while the pricing power for finished goods has only kept pace with inflation - if that. It squeezed profits generally and that leads to layoffs.
It's again proof to us that if the Fed raises rates again, it will almost certainly cause a recession in 2005 because there has been no economic recovery, contrary to what the politicos would have you believe (see next story).
The obvious message in the producer price index is that incipient deflation is right here, right now, waiting for the Fed's next misstep - which I'd suggest another rate hike would be. And once the nature of persistent deflation becomes obvious, a whole house of economic cards begins to rattle because the housing bubble would be in trouble.
As we saw in the Federal Researve's Consumer Credit report at http://www.federalreserve.gov/releases/G19/Current/default.htm this week, revolving consumer credit is expanding at a 9% annual rate. When Joe Sixpack figures out that he won't be able to re-fi the house again in this lifetime, he'll haul in on spending and that's when next year's recession could turn into next year's Depression. Aided, needless to say, by a collapsing US dollar and a meteoric rise in precious metals prices.
What Greenspan Isn't Saying
Federal Reserve Chairman Alan Greenspan was taking pains to point out to Congress in his testimony this week that he believes the economy is picking up steam again after some admitted softness in June. Yet the Fed Chairman might, in our view, become victim of statistics failing to keep up with economic realities.
I refer specifically to a little read, yet often revealing report published monthly by the Labor Department that tabulates mass layoffs around the country. Here's the latest updated chart I've constructed from the data to save the Federal Reserve's Research Department the work:
Source: http://www.bls.gov/schedule/archives/mmls_nr.htm
As anyone can see, the mass layoffs in July were up significantly and we have to wonder what the August report will look like.
The mass layoff picture clouding up again is not a uniquely American problem, either. We note for example that in Germany, Volkswagen is saying that up to 30-thousand jobs are at risk if workers don't accept wage freezes and benefit reductions: http://www.reuters.com/newsArticle.jhtml?type=businessNews&storyID=6190273
Of course the local picture where big layoffs are happening in the U.S. are brushed over by a press more interested in 30-year old military histories of candidates than the right now "I gotta eat" aspect of economics. But go check out the International Association of Machinists page at http://www.goiam.org/territories.asp?c=3955 on the move of Maytag operations to Reynose, Mexico.
At the same time the Fed doesn't seem to be looking at mass layoff numbers, yesterday's spin on jobless claims alleged that initial claims dropped to the lowest level in nearly two years. This despite the thousands still out of work in Florida who are without power. Incredible, and it boggles the mind how such numbers could be supported. At the same time, import prices hit an 18-month high and inventories grew: It's no surprise the Fed has added permanent reserves to prop up the market - they only have to keep it going a few more weeks till election time.
When you read the fine print at http://www.bls.gov/news.release/ximpim.nr0.htm you discover that from August 2003 to August of this year, overall import prices are up a dramatic 7.2% and oil is up a budget busting 40.4%. Export prices were up only 3.9% in comparison. Again, that's pretty dramatic and direct evidence of inflation but look at the calendar here for answers to all questions.
Just in at 9:45 EDT: EDS to axe 15,000 - 20,000 more jobs: http://biz.yahoo.com/ap/040910/eds_outlook_1.html
As Goes GM, So Goes the Market?
We recall from our history studies that it was in August of 1929 that the automakers reported plummeting sales - as consumers pulled their horns in - a move which some credit with helping create the first Big Crash. So it's with that historical perspective that we eye automaker reports with due caution, especially the comments of GM boss Rick Wagoner. Now he's talking about more and deeper cost cutting if consumer spending doesn't pick up: LINK The pressure on auto sales is interesting because of the wide range of product now available. Most paradoxical perhaps is the demand at both ends of the spectrum. For high performance for www.gto.com product while at the other, the waiting list for the Toyota Prius www.prius.com keeps getting longer. You talk about bifurcated end user preference. Outside marketing circles we'll point to it as a split personality of consumers. Prescription for a perfect car? 0-60 in 5 seconds and 50 MPG. That's doable, alright, but not in a form factor much bigger than a MG Midget.
Has 60 Minutes Been "Had?"
CBS 60-minutes aired an interesting piece on George Bush's military service, but it turns out the documents cited may have been forged on a modern word processor. ABC coverage at http://abcnews.go.com/sections/Politics/Vote2004/bush_documents_040909-1.html is pretty even as is MSNBC coverage at http://www.msnbc.msn.com/id/5955784/ Latest we've heard is that CBS is sticking by its reporting.
Jamaica Next for Ivan
After ruining 90% of the buildings in Grenada, Hurricane Ivan now packing winds of 145 MPH is heading to Jamaica: http://news.bbc.co.uk/1/hi/world/americas/3643142.stm Unclear at this hour is whether the hurricane will turn easterly and hit Florida, or turn west into the Gulf of Mexico. If it does, there could be concerns for the Gulf Coast petrochemical business, so watch the price of refinery oil products if we get a turn west...
Sudan Vs. Powell
Secretary of State Colin Powell charged this week that the situation in the Sudan amounts to genocide. But hold up there, Powell says Sudan: http://news.bbc.co.uk/1/hi/world/africa/3643218.stm We've described this as a huge range war - a description that still seems accurate enough.
In the Drug Industry's Pocket
Here's an amazing revelation from a reader who was watching C-Span on Thursday. I'll left you draw your own conclusions about who are the good guys and who are the baddies:
"Watching C-SPAN today, I saw Dr. Ron Paul try to introduce an amendment to the bill prohibiting mandatory mental health testing in public schools as proposed by the Bush Administration.
To a man, the Congressmen from both Democratic and Republican persuasions dished his amendment as "denying mental health services to the general populace", downplaying his warning that pre-screening is a dangerous precedent to forced mental health treatment.
Since when is favoring voluntary personal care over government sponsored screening and enforced treatment unresponsive to the needs of the general populace for mental health needs?
Sure seems ominous to me." - a Reader
Ominous? You bet! Next time you are tempted to ask your doctor to prescribe you a new medication you saw on TV for an ailment you might not even have, ask yourself "Are these drug companies interested in making me well or in making themselves rich?" Then look at the PAC reports on who's dishing up money to which lawmakers.
Love at First Sight is Real
The "Journal of Social and Personal Relationships" says love at first sight is a real phenomena: http://news.bbc.co.uk/1/hi/health/3643822.stm The article doesn't seem to study the back end of "love at first sight" relationships. Like do they last more than a weekend or two?
Third Anniversary Jitters
The #2 in al Qaida, Ayman al-Zawahri said yesterday that the US is facing "defeat on two fronts" - naming Afghanistan and Iraq. With our colleague's web bot work for subscribers to www.halfpasthuman.com on August 31st suggesting an attack on a high profile person (as an assassination attempt) or an attack on an under guarded facility coming late today or early on the 11th, our concern is that al-Zawahri's message may have been a "go signal" to al Qaida operatives. We hope the web bots are wrong in the forecast, specifically the part that forecasts:
"An entity arises which must reluctantly be named FoundationCrumbles. This entity represents what does appear to be a attempt at an [attack]. The lexical construct of the entity suggests an (attack) on a person, or in more singular language and so could be interpreted as an assassination attempt rather than a more general form of attack as we are doing here. The use of [strike](down) could apply to an attack of both a personal or an institutional kind.
Further, the clustering of lexical clues suggest that the most likely time for the attack is the night of September 10th. We have a clustering of our distance values for this entity arriving at that date within the modelspace. So the suggestion is the night of the 10th or the morning of the 11th. And of course, in so far as the western mind is concerned, using a solar calendar, this would be the anniversary of the 9/11 attacks of 2001.
The FoundationCrumbles entity does not suggest the likely target. We do, however, get a hint that the [attacker] will be a [stranger/traveler] with suggestions of a 'professional' or 'trained' manner who will be [relying/counting] on the target being (momentarily) [alone/left]. This would suggest to the paranoid amongst us, the potential for an inside job...? How else would the [attacker] know that the intended victim would be alone? even temporarily? Or of course, one could interpret this to be that the intended institutional victim would be 'left alone' in the general sense of 'unguarded' because of some other distraction. So in that sense one could proffer an alternative view that the data set is suggesting an attack on the financial structure which will be 'distracted' by other events.
Also, as regards a possible 'target' descriptor, the lexical structures suggest a 'soft middle' between two, dark, rigid structures. There are also some indicators of financial industry association with this event/attack.
We do get the hint that the stranger is relying on some circumstance beyond their own skill, that is the 'being alone' thus exposing the victim. There is also the hint that (unsteady/disrupted) [heartbeats] are part of the whole effort to 'strike' by the [stranger/traveler]. It appears that the use of disguise and [false][letters of introduction/good offices] to get within the sphere of the target. So of course one could interpret this to mean that the intended [strike] at the [heartbeat] of the financial system might be done [electronically] as in (disrupted) [heartbeat] and this is really a metaphor for an attack on the internet where 'false letters of introduction' will end up equaling a bogus 'IP' address or something similar.
There are hints within the lexical structure that an 'attack' will arise against a 'financial' structure rather than an individual. The financial impacts of the event will be clear and immediate.
There are other clues, such as references to growling old men, nature seen departing, jet airplane, flame dying down/retreating, and a weak geographical pointer of North. Other mentions include sunset and sea-shore with a sunset view. Two last attributes are concert/recital and singing.
Unfortunately, we don't have a specific country - so this attack may not involve the US at all. Something like an attack on a significant world leader, one his way home from an opera or perhaps a "sunset recital". This would be followed by a deviation from a planned route, and momentarily being left alone to use the restroom, where the attack would take place.
As you can see, our hope is that the web bots will be wrong on this. But we'll be listening for breaking news tonight, the third anniversary of the horrific attack on the WTC.
Thursday
Math Breakthrough to Threaten Web?
Here's something spied by the Department of Homeland Security in their Open Source Infrastructure report that I haven't seen elsewhere:
"Math mystery is prime threat to online security.
Scientists at a conference in the United Kingdom have warned of serious repercussions for
e−commerce and cryptography from the possible resolution of a 150−year old mathematical
theory. In a paper published in June, Louis de Branges claimed to have proved the
Riemann hypothesis, which seeks to explain the apparently random pattern of prime
numbers. Such numbers are the key to Internet cryptography, which is used to secure
Web transactions. Proof of the hypothesis would mean that all cryptic codes could be
breakable, so no Internet transaction would be safe. Speaking at the British Association
science festival in Exeter on Tuesday, September 7, Professor Marcus du Sautoy of Oxford
University, said "the whole of e−commerce depends on prime numbers. If the Riemann
hypothesis is true...the proof should give us more understanding of how the primes work. If it
does, it will bring the whole of e−commerce to its knees, overnight. So there are very big
implications."
Global Terror Takes on Oz
Indonesia's capitol, Jakarta, is the scene of a massive explosion that killed eight people at the Australian embassy: http://news.bbc.co.uk/1/hi/world/asia-pacific/3639922.stm. The cause was a car bomb - and the suspected perpetrator is the militant group Jemaah Islamiah. The Russian embassy was also damaged in the attack: http://www.mosnews.com/news/2004/09/09/jakarta.shtml
In Russia, police in St. Petersburg have found explosives, detonators and a gun at a theater closed for repairs: http://news.bbc.co.uk/1/hi/world/europe/3641182.stm It causes us to wonder what was the next blast planned in Russia?
Another One for Florida
What's the old saying, "If it wasn't for bad luck, they wouldn't have any at all?" Looks like hurricane Ivan will be heading just about up the middle of South Florida come Monday morning if the latest storm tracks are correct: http://www.nhc.noaa.gov/ftp/graphics/AT09/refresh/AL0904W5+GIF/061453W5.gif. The people in Central Florida will be hit on Tuesday, some for the third time this year. Very odd, isn't it? At least 15 are dead from Ivan so far.
Halfway around the world, there are more reports of death from Typhoon Songda: 31 or more dead now: http://www.japantimes.co.jp/cgi-bin/getarticle.pl5?nn20040909a1.htm And in China, concerns about the last typhoon. I'm not sure anyone has done the global math yet, but isn't this a record year? Those factions in the U.S. Defense establishment that were suggesting climate change will be our biggest problem - bigger even that the War on Terror, won't have much preaching to do to skeptics in the Southeast now.
Taking on Kitty
The Bush administration, not pleased with the pending release of Kitty Kelly's latest book "Family" has gone on the offensive early: Link This year's election is getting to be quite the boon for publishers - first we had "Unfit for Command" and now Kelly's book coming...
Literacy Reading
There's a report that about half the workers in Los Angeles can't read http://www.dailynews.com/Stories/0,1413,200~20954~2388909,00.html You can blame loose (should I have non-existent?) immigration to California from Mexico as the major factor.
Wednesday
Hurricanes Bad? Who Says So?
This is not going to be a popular thing to say, and it sure runs contrary to what you see on the corporatized media, but I've already decided that wearing an "economic nut job" label's OK, although the people's economist would be preferable: While the loss of life and property from the two recent hurricanes is a terrible thing, the American spirit and determination - and ability to spot opportunity - really comes through when you look at how stocks of companies in hurricane stricken areas have performed. Let me explain.
In the days before Charley and Frances, there wasn't much expectation that the Florida and the Southeast economy would get - or need - a major shot in the arm. They were doing OK and Jeb's in charge, right?
But after August 6th or so, when the track of Hurricane Charley began to threaten the West Coast of Florida, the markets began to adjust valuations. By the time Charley made it to Florida August 12/13th, there was no question but that there would be major increases in certain sectors of business. With Frances gone north and with Hurricane Ivan threatening the region today, I thought it would be instructive to see how some of those images we saw on television translated into stock price moves.
For example, one can't help but notice that Lowes went from a low of $45.90 of August 6th to a high of $52.89 during yesterday's session as homeowners in Florida have been buying tons of home repair items, and plywood is again flying off the shelves. Lowes is up 15% in a month.
Home Depot might benefit from Ivan, too. Home Depot climbed from an Aug. 6th low of $32.39 to $$37.88 at yesterday's high - Just shy of a 17% one month return, bettering Lowes. Those hours long checkout lines meant something, didn't they?
On August 6th, wood products giant Georgeia Pacific traded as low as $31.81. The intraday high Tuesday of this week was $35.23. While that's a gain of only 10.7% for one month you could have made similar investments in another lumber/building materials company - Weyerhaeuser - and ridden it from $60.16 on August 6th to $64.65 yesterday, a gain of a bit more than 7%, and still beaten returns from a bank or money market account.
The two other big "tree" companies, Kimberly Clark and International Paper are much more focused in paper and paper products so the stimulus was muted at Kimberly while International Paper was about a flat line. From it's low of $41.16 August 6th to its high yesterday of $41.19, you wouldn't have made enough gain in IP gains to buy a cup of coffee. http://finance.yahoo.com/q/hp?s=IP
On the other hand, moving several million people around hasn't hurt the major oil companies. Chevron-Texaco from August 6th went from $93.61 to a high of $100.25 yesterday - another one of those 7% gains.
The storms haven't helped the grocery stores, however. Stocking up is bad because people will usually eat what they stock and the number of store visits can be expected to drop a bit. Example Winn-Dixie dropped from a low of $6.10 to a high yesterday of $4.49 - a decline of more than 26%. Wal-Mart, a much bigger and more diversified company - both geographically and from a product mix standpoint - saw a low of $51.14 on August 6th while its high yesterday was $53.96 - so if there was an adverse storm impact for Wal-Mart, it's "buried in their bigness" and they won't notice.
I also had to look at how mobile/modular home companies fared since so many mobile and modular homes were destroyed by the storms and presumably there will be huge numbers of replacements required.
Coachmen Industries went from $14.63 Aug. 6th to a high of $16.43 yesterday, up 12.3%.
Champion went from $8.72 on August 6th to a high of $10.03 yesterday. That's a 15% gain.
Fleetwood went from a low of $11.70 on 8/6 to a high yesterday of $13.59. Score that up 16.1%. I'm not the only one to notice: http://biz.yahoo.com/rb/040907/manufacturing_fleetwood_earns_3.html The headline is "Hurricanes Brightens Fleetwood's Earnings.
Bucking the trend was the market cap giant in the group, Thor Industries which went from a low of $26.91 to a high yesterday of 26.76 - a loss less than 1%. But Thor is not a good barometer of the mobile/modular world because so much of their business is on the RV side - it's too much dilution for my blood. Champion, Coachmen, and Fleetwood look the purer plays. (This is not advice, just commentary. Read our disclaimer : www.urbansurvival.com/disclaim.htm )
Florida Power & Light was just sits there unchanged. Florida East Coast Industries (which operates rail lines in the state) has gone from an August 6th low of $36.06 to a high yesterday of $39.85 - a nice 10% heft. Looks like more rail traffic to us, too.
One of the companies that we just know will do a land office business is BrandsMart USA which has multiple locations in Florida. Smaller, well run, and private, we'll never know how well, but we sure wish they were public. When we were Florida, we did a lot of shopping there and found good prices. Elaine's frugality and my "nothing's too good for us" spending is not why BrandsMart claims $125 million revenue per location, but we did contribute.
To put BrandsMart in perspective, Wal-Mart on January 31 of this year had 1,478 discount stores, 1,471 super centers, 538 Sam's Clubs and 64 Neighborhood Markets. Not counting their overseas operations, that's 3,551 Wal-Mart locations. Revenue was $274.13 billion and if I pencil that right, Wal-Mart does $77.2 million per location. Now you can see why I get frustrated as a spotter of value that BrandsMart $125 million per location isn't public...
Now comes the clincher: If hurricanes are so damaging - and there's all this hand wringing - what about the big insurance companies, like AIG: Their low on August 6 was $67.94 while their intraday high was $72.61 yesterday. That's up 6.9% - and even with Ivan threatening.
While there has been tremendous damage to the Florida citrus crops, the growers will be able to charge a lot more for their fruits: http://www.nypost.com/business/28096.htm
My nearly inescapable conclusion? Although there has been tremendous loss of life, property, and disruption of life in Florida, the markets have sized up events and concluded that in economic terms, hurricanes ain't all bad.
Still, I wouldn't want to be in Key West on Monday when Ivan shows up:
http://www.nhc.noaa.gov/ftp/graphics/AT09/refresh/AL0904W5+GIF/080318W5.gif .
Cheney Plays the Terror Card
Vice President Dick Cheney has taken the presidential campaign to a new - and lower - level by charging that if John Kerry won, it would precipitate a terrorist attack on the United States. http://apnews.myway.com/article/20040907/D84V15AG0.html Predictably, the Kerry campaign calls it "scare tactics." But to us, it's almost like a "tell" in poker. Like, "How would you know, Dick?" Say, does this sound like the insincerity the bots have been talking about?
Ron Paul Alert: Reject the National ID Card!
A warning from Congressman Ron Paul worth passing on:
Washington politicians are once again seriously considering imposing a national identification card - and it may well become law before the end of the 108th Congress. The much-hailed 9/11 Commission report released in July recommends a federal identification card and, worse, a "larger network of screening points" inside the United States. Does this mean we are to have "screening points" inside our country where American citizens will be required to "show their papers" to government officials? It certainly sounds that way!
As I have written recently, the 9/11 Commission is nothing more than ex-government officials and lobbyists advising current government officials that we need more government for America to be safe. Yet it was that same government that failed so miserably on September 11, 2001.
Congress has embraced the 9/11 Commission report uncritically since its release in July. Now Congress is rushing to write each 9/11 Commission recommendation into law before the November election. In the same way Congress rushed to pass the PATRIOT Act after the September 11 attacks to be seen "doing something," it looks like Congress is about to make the same mistake again of rushing to pass liberty-destroying legislation without stopping to consider the consequences. Because it is so controversial, we may see legislation mandating a national identification card with biometric identifiers hidden in bills implementing 9/11 Commission recommendations. We have seen this technique used in the past on controversial measures.
A national identification card, in whatever form it may take, will allow the federal government to inappropriately monitor the movements and transactions of every American. History shows that governments inevitably use the power to monitor the actions of people in harmful ways. Claims that the government will protect the privacy of Americans when implementing a national identification card ring hollow. We would do well to remember what happened with the Social Security number. It was introduced with solemn restrictions on how it could be used, but it has become a de facto national identifier.
Those who are willing to allow the government to establish a Soviet-style internal passport system because they think it will make us safer are terribly mistaken. Subjecting every citizen to surveillance and "screening points" will actually make us less safe, not in the least because it will divert resources away from tracking and apprehending terrorists and deploy them against innocent Americans!
The federal government has no constitutional authority to require law-abiding Americans to present any form of identification before they engage in private transactions. Instead of forcing all Americans to prove to law enforcement that they are not terrorists, we should be focusing our resources on measures that really will make us safer. For starters, we should take a look at our dangerously porous and unguarded borders. We have seen already this summer how easy it is for individuals possibly seeking to do us harm to sneak across the border into our country. In July, Pakistani citizen Farida Goolam Mahomed Ahmed, who is on the federal watch list, reportedly crossed illegally into Texas from Mexico. She was later arrested when she tried to board a plane in New York, but she should have never been able to cross our border in the first place!
We must take effective measures to protect ourselves from a terrorist attack. That does not mean rushing to embrace legislation that in the long run will do little to stop terrorism, but will do a great deal to undermine the very way of life we should be protecting. Just as we must not allow terrorists to threaten our lives, we must not allow government to threaten our liberties. We should reject the notion of a national identification card.
Trends:
Playboy is starting a dating service? http://www.nypost.com/business/28088.htm I wonder if they will call the girls webmates, interbunnies or something else?
Thoughtful...
Bill Bonner's Daily Reckoning has a quote in it that I just love: "But the Marxists are right about one thing - labor may not be all you need, but all wealth has sweat stains on it." Yup, and I've done a lot of staining..
Right On Reader
Here's something to think about from a reader who took the time to think and write:
Of course, you are right about the "School Incident was Russia's "Twin Towers." You've asked the one question that needs asking more than any other, a question that haunts me as I read the international news, "Are the powers-that-be looking at some other event that's not apparent yet...?" I wonder why more aren't asking that question; I hope we get the answer before the lights go out.As you know there is a world wide trend to move to massive control in all areas. From what I'm reading the powers-that-be are not concerned in the slightest about "exceptional support from people globally." The moves are all similar internationally, no matter what type of government. The war on terror just doesn't seem to fit the bill for such a universally similar set of movements. Something else, far bigger and scarier, is in the offing.The big question is what is coming?For my own version of an answer, who likes an unanswered question, the closest I can come to a rational explanation is a massive climate upheaval. The key for me was the development of genetically modified seeds, a day's research on the Net! From what I could understand many of the new seeds are being developed to withstand the cold. I find that odd, considering all the hype about global warming. Obviously Woods Hole is doing some major thinking in this area, seeBut what do I know? I'm just another unemployed MA whose has taught for years, counseled, and downsized. (Have even done workshops on Downsizing.) Oops, I didn't factor in gasoline and heating oil and everything else going through the roof...so at 57 I'm job hunting, again. Unfortunately, where I downsized to geographically has very few avenues of employment!I've tried to keep this email short, I could go on for pages! Better that you should do the writing and ask the question, "Are the powers-that-be looking at some other event that's not apparent yet...?"I enjoy your site immensely.
I wish I could say with precision what the unseen hand is - .but when I see stories like the announcement today that Russia is planning pre-emptive strikes against global terrorist bases, http://www.mosnews.com/news/2004/09/08/preemtive.shtml I say to myself: "Gee, the Russians are acting more and more like neocons every day.
The question on the table is what's the unseen hand? Watching the Russians is likely to be instructive because while we don't, as a country, seem to have the ability to look at ourselves in a critical light lest we commit sacrilege and say something bad about the Republicans, criticizing the Russians after watching them carefully is almost second nature. Perhaps something will be revealed moving forward?
Specifically, we'll be interested to see if the Russians make good on their threats. Then we'll see whether they are worried about drastic global climate shift. If they are, we would expect them to attack terrorists who conveniently are adjacent to oil facilities. They might instead attack states on their southern flank - in which case one might guess they are expecting a "Day After Tomorrow"-like cold snap. Or is it something else?
Iraq Elections in Jeopardy
You've read elsewhere how the administration has passed off the problems of Iraq as "catastrophic success." But if "success" is to be measured by how well we bring "freedom and democracy" to a land where that kind of thinking would be like forcing Buddhism on Wall Street, then the planned elections in January 2005 are a fixed line in the sand. So it's with extreme concern that we read that the UN is hinting that unrest in the country may thwart the planned elections: http://english.aljazeera.net/NR/exeres/8A4330BC-0FC3-4DB5-8C0A-C7CCC86F074E.htm
Tuesday
Global Airline Implosion Picks Up Steam
There it was Monday - a big headline out of Europe that not only are American carriers like U.S. Airways, United and even Delta having a tough time making ends meet, but now Alitalia is axing 5,000 workers to make ends meet. http://biz.yahoo.com/ap/040906/italy_alitalia_6.html. It might be something to think about as you go through your portfolio. Let me share a perspective piece from our Inside Report for August 22nd:
Airline Led Collapse?
Let's start with simple cargo. Virtually unreported anywhere (but here, of course) is the word from FedEx that they will be increasing their fuel surcharge to 8.5% effective September 6 to October 3rd http://fedex.com/cgi-bin/fuelsurcharge.cgi?cc=us&language=english this year. If US Gulf Coast jet fuel prices get above $1.26, the FedEx surcharge will go to 10%. The source data is at LINK if you want to watch prices. It's presently $1.14 but that's just four cents from a 9% fuel surcharge at FedEx.
Bet me a beer that fuel surcharges aren't counted into any official inflation tally - they are so the Fed tells us transitory. But don't they hurt just the same?
Think about what happens to air travel if oil goes to $80 a barrel - high, but certainly within the realm of possibilities.
We know that fuel represents 50-60% (or so) of an airline's operating budget. We'll use 50% to be conservative. (Note: depends on fleet age/ fleet fuel consumption per ASM)
Next, let's look at a ticket from Tyler Texas to Reading, PA (for no particular reason, except that I had occasion to look that up last week). It's presently $650 round trip. 50% of that - or $325 - is fuel cost. Now if fuel prices double as they would with $80 oil, that would mean $975 for a ticket - a 50% increase.
How far airline travel would decrease is anyone's guess, so I've give you mine.. I'm guessing it would fall around 20%.
Let's see what would happen to a company like Host Marriott. They have an operating margin of 10.04% on a trailing 12 month basis and their revenue growth is down (-6.3%) for the trailing 12 months according to Yahoo: http://finance.yahoo.com/q/ks?s=HMT. Could they continue operating with a 20% revenue hit from hotels (and food in airliners and airports)? Yes, but they would trim employees and costs like crazy to do it. Four Seasons is another well managed hotel group. But how do they look? Operating Margin is 17.9% on a trailing 12-month basis, but a 20% drop in revenue would cause huge problems there too.
And that's how it starts. The cascading goes everywhere from jet rides and gas pumps. The car rental companies (Ford owns Hertz and Avis is owned by Cendant) for example. These companies will be hard pressed by challengers that are taking advantage of improving internet reliability to offer such high end deals as a Lotus Elise for $449 a day next time you're in Seattle ( http://reservations.carrentalexpress.com/CRX_ag_veh_desc.php?lid=454&vid=6440&rs=ERG ) on the high end to www.rentawreck.com for the more budget minded which offers a 2004 Kia Rio for $22.48 a day.
The interesting thing about the possibility of $80 oil is that the companies who win in terms of maintaining profits and organic growth, will likely be those that have invested heavily in fuel efficiency and environmentally friendly products. The losers would be those that invested in the "old way of doing things."
Can the U.S. survive $80 oil? Sure. But will jobs be tighter still, and the world more dangerous than it is today?
Almost certainly.
Where's Oil Going?
The continuing debate is not so much over whether Peak Oil is real, but when it will really start to bite the economy. By one account, high prices will persist into 2005: http://www.dailystar.com.lb/article.asp?edition_id=10&categ_id=3&article_id=8111 but others claim there's no shortage - just traders bidding up prices. Time will tell.
School Incident was Russia's "Twin Towers"
And today, Vladimir Putin is saying that talks with forces involved in the child murders are no more likely than U.S. - bin Laden talks: http://www.mosnews.com/news/2004/09/07/putincomplains.shtml with more coverage at http://www.mosnews.com/
The underlying question I asked in a fictional story on Inside Report this week was "Doesn't it strike you as curious that the Russians now have their own version of a Twin Towers attack? It's almost like there's something else going on - under the surface - designed to drive the US and Russia to impose strict control on its citizens. A similar attack against England would also fit the pattern, but the questions are a) when and b) what's the underlying agenda - if there is one other than a showdown with militant Islam. Is there another level to the global war on terror? Are the powers-that-be looking at some other event that's not apparent yet for which they will need exceptional support from people globally?
The concern that there's an agenda beyond the WOT surfaces when I read stories predicting similar types of attacks to come against the UK and Germany: http://www.mosnews.com/news/2004/09/07/blair.shtml Again, I must ask, is there a hidden force behind the terrorists that running a larger agenda?
Eye Popping Gold Calcs
I had a little time on Monday to look at the most recent Treasury Department report on U.S. gold holdings, which you can find at: http://www.fms.treas.gov/gold/. A couple of things pop out when you look at the numbers:
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The Treasury says there are 261,562,868.485 Troy fine ounces of gold.
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They value this at $11,043,759,730.42.
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This means the U.S. implied valuation of its gold stock is about $42 an ounce ($42.22 if you want to be precise about it).
I thought for fun, sport and amusement, it would be interesting to see what gold would be priced at if the price of gold was equal to the financial obligations of the United States?
To get there, I took the accrued Federal Debt: http://www.publicdebt.treas.gov/opd/opdpenny.htm available from the Treasury Department $7,365,716,545,609.45 and to which I added the Federal Reserves currency in circulation (M-1). $1,326,000,000,000. for a total debt +currency of $8,691,716,545,609.45.
Ask yourself: What would be the value the U.S. government would have to place on its gold stocks if they were to be balanced off against the wildly printed currency thanks to past and present inflations plus the runaway national debt? The answer...
$33,229.93 per ounce.
Going the other way: of the $8.6 trillion of currency in circulation plus piled on debt, using the whole stock of U.S. government owned gold valued at $401 per ounce, we find the government's gold would fetch a mere $104,886,710,262.485. Sure, $104 billion is a tidy sum, but if the government's gold was valued that way, we would still have a debt plus unbacked currency of $8.586 trillion. All these calculations are based on M-1 currency - and the problem gets far worse as you include the digitally created dollars of M-3 and beyond.
With the web bots forecasting gold to rise dramatically in the near future, we can't help by look at our modest gold collection (both coins) and wonder what they will some day be worth.
What should an ounce of gold be worth? There are lots of answers, but here are some I found on the net:
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One ounce should buy a "good man's suit" along with a pair of good shoes and a belt. Assuming this was not a cheapie mall store a good man's suit could be in the $1,000 range today.
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In 1954 an ounce of gold would buy you 12 barrels of oil. If oil stays in the range of $45 that would argue for $540 gold.
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Just correcting inflation from gold's previous high of $850 in 1980 would price it at $2,054.70 an ounce in 2003. You could probably round that up to $2,116 because of the latest year worth of inflation.
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Several decades back, an ounce of gold would buy "the Dow". However, the fact that the Dow is at 10,000+ today doesn't mean gold should be there - it may just be an indication of how wildly over-priced the stock market is.
On the other side, it wasn't that long ago that a $20- bill would buy a $20 gold piece. Today, it takes more than 20 of those same $20 bills to buy one! Another site notes "In 1960 a journeyman carpenter was paid about $6. per hour, for which he could obtain 60 silver dimes at any bank. In 1983 this same carpenter received about $12. Federal Reserve Notes per hour, yet it could only be redeemed for 15 (silver) dimes. His (our) labor is actually being devalued. " http://www.livefree.com/freedomtech/part2.html
Our fear is not so much that gold will go up - it's that when it does go up it will indicate the collapse of something extremely important to the world - confidence in the U.S. dollar. And when that happens, the web bot's description of the economy at coagulating will be upon us.
Return to the Market
The stock market is set to reopen this morning after its Labor Day break. Although the futures are pointing to a higher open this morning http://biz.yahoo.com/ap/040907/wall_street_2.html, we know from past observations that the market seems to enjoy upward momentum going into a holiday and sometimes it will carry over a day or two. While we don't offer trading advice, it would surprise us to see the market at today's peaks by the end of the week.
Clinton's Health
After his emergency bypass surgery, it looks like Bill Clinton is in good condition: http://apnews.myway.com/article/20040906/D84UDN100.html The high risk area will last for a week or two, but you know he's got to have top notch doctors looking after him.
Hurricanes: Ivan Next
Although this morning's track looks like Ivan might go up the West Coast of Florida, it's hard telling. Check the latest map prediction at http://www.nhc.noaa.gov/ftp/graphics/AT09/refresh/AL0904W5+GIF/071008W5.gif and judge for yourself.
More Iraq Troubles
After word that more than 1,000 were injured in August fighting in Iraq, comes word today of more bloody fighting. http://news.bbc.co.uk/1/hi/world/middle_east/3633742.stm 34 dead in Sadr City fighting. One source http://www.debka.com/ reports 40 Iraqis and 11 Americans in the past 24-hours.
Rural Declines
When Elaine and I were coming back from my last California consulting gig - which will resume shortly it seems - I wrote to you about how we saw lots of small towns - places of 5,000 people and less that had just dried up and disappeared like so much tumbleweed out in the West Texas and New Mexico area. This phenomena has now captured the attention of others: http://ap.tbo.com/ap/breaking/MGBFUX1NTYD.html This article is right on track from what we've witnessed first hand.
Monday
September Surprise: Take 2
Oooops!
Well, the administrations big celebration over capture of one of Saddam Hussein's top deputies was short lived. Turns out they captures a fellow who has the misfortune of looking like one of Saddam's cronies: http://news.xinhuanet.com/english/2004-09/06/content_1951070.htm But is this the first effort? Nope.
September Surprise: Take 1
Osama Cornered?
Once again, they administration's "sources" are hyping the notion that Osama bin Laden is about to be captured, something we've been saying would be attempted right before the election to put the incumbent over the top with voters. http://www.suntimes.com/output/terror/cst-nws-bin06.html But as we discussed earlier, the web bots hint that an Osama in drag will evade capture. Link
Global Elections
It's a great idea - www.betavote.com has set up a facility so that people worldwide can vote on who should be the next President of these United States. While it's interesting, you can see certain countries where the ballot box has been stuffed - something that registering with an email address - and sending out a secure link for one time voting might have reduced. But it brings us back to the ongoing concerns about ballot box stuffing - done electronically.
Not THOSE Dual Quakes
Although the web bots over at www.halfpasthuman.com have been calling for something like the dual quakes that hit Japan on Sunday, this was likely not the event we forecast last week. We're looking for something bigger and it should be in California this month. If you look at the story: http://news.myway.com/top/article/id/44353|top|09-05-2004::12:08|reuters.html about the dual quakes in Japan then compare it with last week's forecast of a major two part quake in September at http://urbansurvival.com/lastweek.htm#quakeforecast you'll see that the Japan quake is just too far from the California quake outlook.
We're starting to think of the technology as "pre-news."
How'd we do? Last Week's Forecast Reviewed:
Last Monday, we forecast that by this week we would be looking back at the RNC this way - the events forecast are in black while the events and fits are in blue bold font:
The "takeaways" that the bots suggest we'll have next week might include a widespread recognition that the RNC meeting will be highlighted with a revelation (or revealing act) "Indeed, a failure at multiple levels. As the data set indicates, (all/any)[movement] results in (bound/constrained/frustrated)[desires/goals/efforts]. This is apparently all due to a single instance of the widespread perception of [insincerity]. or [sincerity] that is (inconsistent)." In the media the focus was on President Bush saying to Matt Lauer on Monday (after our post) that the war on terror was not winnable - and then the White House spent considerable time the rest of the week doing the "what the President was really saying was..."
We'll also be on the lookout for some talk of disease at a high level "Rather what we have is a lexical structure with words such as [evil], [vile], [foul] and [stagnant] also contains some references to disease. In fact, enough such references to disease appear that the lexical aspect takes its name from that subset. However, this is apparently all about a single [prominent/powerful/public] person being (struck down) by [disease] within the framework of the convention itself. This [disease] subset is cross linked back to (no movement)[facilitates/improves] which suggests that the disease is not something that is treatable." This was a shockingly close forecast: Bill Clinton saw a doctor on Thursday and was sent home because his symptoms were not immediately treatable. He then went to the hospital on Friday and will have bypass surgery this week. The remarkable thing about this forecast was that almost all the pictures that were shown of Clinton were of his appearance at the Democratic National Convention - thus our "within the framework of the convention itself" call was arguably quite good.
We'll also expect that there will be someone involved with the protests, who will arise out of the protester's efforts, perhaps who will be subject to obviously excessive force by authorities - perhaps standing up to authority after being injured ala Tiananmen Square - who will be thrust into the public consciousness: "Rather, there will arise an individual *most hints at this stage suggest a female, youngish - say 20's* who will become the 'poster child' of the (solidarity/cohesive) American resistance movement. The data would suggest some nasty moments for this individual, but in spite of suggestions of a (frail frame/waif-like appearance/vatta-body type), the flesh shall endure and the spirit will triumph in a totally (unexpected/unbidden/not sought) (rise) to [prominence/pinnacle]." Here is where the young female AIDS activist being dragged out of the RNC hall - and by some reports being kicked in the process - seems like the best fit. The body type is right and there's been some suggestion that she may file a large lawsuit for the way she was handled.
So what's ahead this week? Nothing big (if the California quake and three more storms hitting the US - although it looks like one will be hitting a grape growing area - California? - until we get to Friday night through Saturday night. Sept 10th & 11th - the Anniversary of 9/11. That's when we get in range of the assassination attempt or attack of an institutional type we mentioned last week.
About the only other thing on the horizon is part of the run that says authorities will get close to capture of Osama bin Laden, but that it looks like OBL and a number of associates will escape. Specifically,
"For instance within our Terrorists entity we find a lexical arm
suggesting that the [old/wizened/white haired] [man/leader] will be
(forced) by (circumstances of risk) to (take) to (hiding) (under) the
[veil]. Now, with recent blathering on the blathering-scope (TeeVee)
about the impending capture of O.bin Ladin, it could be that what
we are seeing referenced here are details about the escape in
which the 'veils' or 'identity' of a women are used to (confuse)
[thoughts] or to (apply) [confusion] to the [thoughts].
Apparently an attempt at 'restraint/constraint/capture' will be
unsuccessful due to 'leaks' from 'sympathizers'. These leaks will
lead to an 'escape' of 'nine' persons. They will be (driven) to
[ground] for [3 days] and will have [no food/sustenance/support]
during this period. Further, there are indications that while
[concealed/hidden] in a [hole/cave] with an attribute of [metal]
which may be suggesting a culvert sort of thing, one or more of
those fleeing will 'drown' in the rain for (fear) of (raising/lifting) the
[head]. "
So if you're in the mountains of Afghanistan or Pakistan and see 9 "women" walking in a rather unfeminine way taking cover in a culvert for three days while troops are in the area...that'd be what's up. Full details of the run (Analysis #5) is available to www.halfpasthuman.com subscribers.
Again, we are very sorry that our forecast about the use of children as part of the terror war came to pass. Damn shame.
If you don't understand web bots, you can either read my various explanations by wandering around the UrbanSurvival compound, or if you're academically inclined, a bit more technical explanation from Cliff the virtuoso of c/perl/prolog (he's the guy behind the curtain) at http://www.halfpasthuman.com/HPHRONGELOS_0521.htm
This week on Inside Report, we interview a fellow who knew bin laden - some interesting remarks. And we revisit our fictitious Directorate 153 to see how all the confusing pieces of the global puzzle could fit together. There is actually a framework or two that makes sense, but the implications for our future are pretty frightening. (Subscription info)
Eye Opening Chart
So here I was with a few minutes last week, the people's economist wondering what would happen if I took the weekly volume figures on the NYSE and backed out program trading?
So that's what I did - and then to smooth it out a bit, I rolled in a 13-week moving average. Here's the picture of investment by what I would call civilians:
Looks to me like the day trading business is toast - and come to think of it, as an designated "pattern day trader" myself (I've since gone to gold and cash having realized where we are...) I realized that I personally fit this chart to a tee. The hole in the chart is the week that 9/11 happened and I just put volume at zero because it's not a representative week. You could paper that out if you want, buit it doesn't change the curve enough to make a difference.
What does it mean? Some simple projections: Continued softness or more layoffs in the retail brokerage trade. Increasing competition (eight million free trades if you move your account...) for the remaining 3 civilian traders who are still day trading.
Other than that, we see by the continuing growth of program trading that it's more and more a market of big fish and specialists selling each other the same stock back and forth.
When you think about it this way, there's no reason that we could not have the U.S. financial markets play out a version of the S&L scandal of the 1980's. Just as real estate properties were bid up back then, we could have equities bid up to artificial levels here - and then when it gets "unstuck" or the bubble is pricked, it will be the small investors left holding the bag. But don't take my word for it. Got run out average daily volumes and then hope over to www.nyse.com and go to program trading statistics. Multiple the volume times (1 minus the percent of program trading) which will give you the "civilian trading" number. Your chart will look like mine, but you might feel better about running it yourself.
Florida Cleans Up
Not a pretty sight: http://news.bbc.co.uk/1/hi/world/americas/3625252.stm We wish our friends and former colleagues a speedy recovery from the mess. Keep an eye on Ivan!
Oil Crisis Lurking
While there are some people who are fishing in the river de nile about the pending oil crisis, the fact remains that there are only three ways this will play out. Either a) the oil exports and refining capacity will grow to meet increased demand from a global recovery or b) oil will be priced up and industrial demand will decline as prices rise, or c) everything freezes at present levels.
Some comment: Oil production and refining is already running flat out, so no help there, and c) freezing everything can't happen. That leaves us with oil prices going up - a scenario you can read more about here: http://www.azcentral.com/arizonarepublic/business/articles/0905oilfuture05.html but it's not recommended reading if you work for an airline or any other non-essential user of excess petroleum. Ouch.
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