Financial Sense   Home  l  Market Monitor  l  Market WrapUp  l  Storm Watch  l  About Us  l  Contact Us

TALES FROM THE CRACK-UP BOOM

For many months much has been written about the surge in price inflation in the real world. Evidence in the daily life and times of ordinary citizens, and those who run a business, testifies to not just mildly increasing prices, but a virile outbreak. Across the spectrum, from production to raw material to energy to intermediate products to food, costs are rising almost out of control. These items are not so much rising in price, as the USDollar is declining in value. The last two months has removed some froth, but in certain areas speculative investment continues to exacerbate the effect.

Austrians warn of a crack-up boom, wherein the real economy suffers from encroachment by the financial sector, and monetary debasement urges on investment in hard assets, commodities, and energy supplies. The flight from paper currency and securities has encouraged investment in things essential for industrial production, building construction, energy output, and food preparation.

The trend is evident in the bull market shown in the Commodities Research Bureau chart. Corporate profit margins and household budgets are each under great strain. Cost inflation threatens businesses and families. Some label the movement underway as the Great Train Wreck. A major driving force overshadows the situation. It is historic advances made by China and their growth story.

Writers whip up essays on the subject, but little actual evidence is offered. The bear camp dismisses USGovt statistics about a tame consumer price index, which belies the reality of our collective experiences. It seems only Wall Street displays any conviction that the baseline price inflation is under the 3 to 4% level. Of course, their vested interest is blatantly clear. They must sell bonds which price in an erosion of capital due to price inflation. They must sell stocks whose valuations (earnings yield) are integrally linked to appropriate interest rates. The USDollar is undergoing an historical massive devaluation, which the masses are misinterpreting as a stock and housing bull market. Meanwhile, all costs are rising, after a decade of dependence from foreign suppliers was encouraged and exploited. The dependence points to materials, energy supplies, capital, and labor, all critical to an economy. The advantage of the 1990’s is now a giant millstone around the neck of the US Economy.

Back on Main Street, those who must get through the day with their families and homes, those who must operate an ongoing concern business, we see clearly through the false façade of farcical fortifications in financial markets. We buy eggs and milk for our dinner table, and can see their cost rising at 5 to 10 times what the goofy CPI indicates. We buy copper and nickel for plumbing and stainless steel products, and can see their cost rising at 5 to 10 times what the goofy CPI indicates. We buy scrap paper, scrap metal, scrap cardboard, and can see their cost rising at 5 to 10 times what the goofy CPI indicates. We buy lumber and sheetrock and reinforcement rods, and can see their cost rising at far more than 5 to 10 times what the goofy CPI indicates. We heat our homes with natural gas, and fill our vehicle fuel tanks with gasoline, and can see their cost rising at 5 to 10 times what the goofy CPI indicates. We fill our truck tanks with diesel and power our worksite generators, and can see their cost rising at 5 to 10 times what the goofy CPI indicates. One must qualify as an utter moron to accept the CPI at any number under 7%. My personal claim is simple. The CPI is three times what is publicly reported, no less.

Our banking leaders and directors either wear blinders or have embarked on a deliberate course of deception. They deny a reality that hits them squarely in the face every time they leave their ivory tower enclaves and visit a real business located outside the financial sector, or head for home, or head for an event in society’s maze, or head to a community outing. The gulf between the officially reported state of inflation and the actual world, where inflation erodes on a daily basis, has widened steadily to an alarming degree. Govt credibility is on a major slide. In April, Fed Governor McTeer, who in the last few years had been a rare source of reason and perceptiveness, if not rebellion against Chairman Greenspan, came out with a funny but tragic quote. He said to a CNN/fn reporter “We have seen the whites of one eye of inflation, and we are waiting for two.” Any competent student of economics knows one must head off inflationary pressures, not await them with smug arrogance. They work through a system with fierce unrelenting force. Fed Governor Parry prefers a neutral interest rate of between 3.5 and 5.5%, but claims “we are not there yet.” When we are there, it will be too late to prevent at least a few quarters of powerful price pressure. Fed Governor Broaddus claims continued patience should be exercised until more evidence of inflation is seen. These men are charlatan clowns, led by a combination Wizard of Oz and Pied Piper. They are living testimony to doomed human attempts to override free markets based upon equilibrium and indisputable wisdom. Chairman Greenspan pulls the control levers, speaks with a voice louder than life, deceives the public like a Minister of Propaganda, even as he leads both investors and economic participants over a cliff. He may have already embarked on his next initiative, to accelerate the money supply growth and monetize the purchase of US Treasury bonds. The Fed will sanction an attempt to cap interest rates (and support the financial sector), but expose the nation to even more USDollar depreciation, which will unleash more aggravated production cost inflation (and hurt the real economy more).

The Federal Reserve is caught between a rock and a hard place, to be sure. If rates are kept artificially low, the torrent of easy money will eventually lead to worsening consumer price inflation. Pervasive price inflation inevitably causes interest rates to rise. Rising short-term rates threaten the rampant financial speculation. Rising long-term interest rates, however, threaten to stall the US Economy, to reverse the real estate bull market, to undercut the Treasury bond market, and to bring about a collapse of debt. All historical references cite restrictive Fed policy in the 1930 crisis, and restrictive Japanese policy in their 1990 crisis. The implication is clear, that low interest rates, incredibly accommodative rates, will continue until the bond markets scream “NO MORE” and spark a riot in the bond pits. The first shock might come from Asians, unwilling to continue their “international vendor finance” credit supply on a magnitude never witnessed by humankind. The Austrians warn of severe consequences in the end game of fiat money, identified by accelerated monetary expansion and currency competition. History is clear. No intentional inflation initiative has ever succeeded without horrible economic and financial market damage. Given the enormous debt levels, a 30 to 40% increase across the US Economy in the last three years, the Fed Reflation Initiative only guarantees the ultimate damage will be more magnificent than it would have been in 2001, when the actual recession began. The real economy could suffer far more damage in the coming months, as the floor is removed on the USDollar, and the crack-up boom continues in its fearsome pathogenesis. One is left to conclude that the Fed and bank system is on a monstrous treadmill. If it stops, the financial system and economy collapses. However, while it races in place, turns the wheels, it inflates evermore bubbles which cannot rest in stable fashion. Eventually they will burst, all in unison. The crack-up boom is in progress.

"Once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities will not cease to rise, everybody becomes eager to buy as much as possible and restrict his cash holdings to minimum size…  If the credit expansion is not stopped in time, the boom turns to crack-up boom: the flight into real values begins, and the whole monetary system founders.”
-- Ludwig von Mises (1949)

What follows is a scattered flow of evidence from the real world where we live, not the world of make believe where brokerage houses and govt agencies spew incredibly groundless reports to targeted audiences. Accounts and anecdotes come from the last two months in no particular order of time or category. Some data is precise; others are sketchy without losing the true gist and spirit of the story. Some stories involve businesses forced to shut down as profitability vanishes. Some stories point to supply chain disruption. Some stories point to basic price increase from rising supply costs. And then we have sneaky stories, where price hikes are passed with a measure of obscurity. Other stories point to massive sea changes, whose determinant of change originates in China, the great common denominator.

ANECDOTES AND TALES

An Orange County construction firm engaged in a high-rise building construction in California is committed to a contract price. Work extends over 18 to 24 months. The price of cement has risen markedly. The price of reinforcement rod is up 300% in just the last 6 to 8 months. It creates a skeletal framework for the concrete pour process. Costs must later be endured for finish carpentry materials, forced higher by rising lumber prices. Executives at the firm reported to CNN that they face financial loss, are obligated to complete the project, but afterwards will lay off one third of their workers. Cost overruns were not written into the contract. This story plays out all across the country, where large construction contracts are bid and won, with agreed upon contracts determined by cost estimation. However, since of long duration, the projects are especially vulnerable to cost overruns from material price increases. The problem in large construction has become acute in Florida, where many large projects are stalled, not necessarily from cost standpoint, but from cement supply interruptions. It seems that Mexican cement finds its way in large shipments to China, rather than to Florida. Shippers enjoy a fatter fee for the longer voyage to Asia, and choose to bypass the nearby US customers. Both Chinese highway and Olympic construction is attributed to the rise.

Other specifics have been revealed in news articles today. The Washington Post reports that Forrester Construction lost $500 thousand on a project at Andrews AirForce Base due to cost overruns. In a DC area office building underway, Rand Construction cites material costs have taken the final estimated cost from $12 million to $400 thousand higher. Profit loss will not be one-for-one on added costs, due to shared deals with subcontractors and site owners. Boston Properties is tripling the size of a building in the southwest, but sees little prospect of making money on the deal due to rising costs. Builders are competing not only among themselves for steel, cement, and lumber, but also with Chinese builders. A logistic problem has emerged. Dry bulk shippers prefer to ship other raw materials instead of cement, which is more difficult to unload. The cement story has gone critical.

On Long Island, a man runs a medium sized wholesale baking business in New York. He sees prices rising like they did in the 1970 decade. A case of eggs has gone from $20 to $41, higher than the all-time high he witnessed at $28. Butter has gone from $56 per case to $94. Heavy cream has gone from $2.10 to $3.30 per quart. All soy products rose almost 20% in a single week recently. Cocoa went crazy about 18 months ago. He concluded that a fairy tale ending to this chapter of the inflation book would not happen. The story is similar for a small firm in Holley, also in New York, which sells cheese cakes. The owner is nervous about being able to pass along a 15% price hike to $23 per cake.

A California man runs a small roofing business. His liability insurance costs have gone from $5000 to $20 thousand. He pays $1 for every $1 in wages toward workmen compensation, which has killed new opportunities. He carries no W/C insurance anymore, and therefore is ineligible to bid on any projects bigger than one home. Given plywood and other roofing material costs have risen over 100% in the last year, he has closed his business. The California story of workmen compensation is a growing disaster. Anyone who believes the recent completed state bond sales by the governator have fixed their budget problems should stick around another one or two years. The Fed has encouraged a favorable bond market generally, which may not last much longer outside the Treasurys,

A friend of mine manages a franchised chicken restaurant in California, who wishes to remain anonymous. He reports that chicken makes up only 15% of the restaurant cost basis. Building materials such as cement, and equipment such as fryers rank at the top, both of which are rising fast. In reaction to pressures, a small but symbolic change has taken place. Plastic eating utensils typically cost $30 per thousand count in a box, i.e. 3 tenths of a penny per fork or spoon or knife. They have outsourced to Chinese suppliers, who offer the same $30 price but for three thousand more tightly packed and stacked utensils. Their labor component enables manual packing space efficiency, to cut the unit cost to one tenth of a penny.

Paper products edge higher in price. Proctor & Gamble in July will boost prices by 6% for Charmin and Bounty items. Kimberly Clark will do the same, with napkins added to the list. Ditto for Georgia Pacific. Paper pulp prices are up 20% in the last 18 months.

The energy complex is interwoven, and under great pressure. Gasoline prices make headline news, but truck fleets face urgent budget stress. Diesel fuels the trucks which make shipments to destinations possible. Inter-relationships among oil, natural gas, coal, gasoline, and diesel are becoming accentuated. Wholesale diesel prices have only begun to be passed down to final trucker demand. The Los Angeles interstate highway obstruction incident in May brought public attention to the plight of truckers. Tire prices are up about 5%, in the face of rising rubber prices and energy from the mfg process. Utilities switched this past winter from natural gas to diesel in electrical generation. Spring farmer planting season added to the diesel demand over short supplies. In April, regional wholesale distillate prices rose 21%, but were up 50% in California alone. Electricity usage nationwide was up almost 5% in just a recent three month period. On the other hand, spot coal prices are up 20 to 25% since Sept 2003 for low sulfur bituminous Appalachian coal. Supply is inhibited by a multitude of factors, including depleted reserves, fires, accidents, safety issues, regulations, bankruptcies, and railroad capacity. The effects are felt by electrical generators and steel producers. Far from public attention, on the periphery of the energy story, but tightly bound to petroleum prices, are synthetic staple fibers. Wellman, a major polyester product maker, cited increased petroleum prices, as well as higher recycled feedstock prices. In February they pushed an 8 to 10% price hike, followed by an announced 10 to 12% additional hike in April.

Nowhere are fuel costs more acute than with the airline industry, already under pressure. United must make cutbacks in the face of $700 million in added fuel expenses. Continental and American also face more than $700M in extra fuel costs in 2004. US Airways seeks labor cost savings, as does Delta on pilot agreements. Without concessions, each airline admits the threat of bankruptcy. For US Airways, it would be its second in rapid succession.

Copper is critical for electronic, housing, and car industries. It is called the world’s best economic index. London Metal Exchange copper inventories are down over 50%, year over year. US demand rose 14.4% in January alone. Mine production worldwide is down 4.1% in the face of higher demand. Two large copper mines are in the planning stages, but require extensive lead time. BHP’s Escondida will begin production in the second half of 2006, at a cost of nearly $1 billion. Placer Dome’s Cerro Casale will begin production in 2007. Until then, the only new supply will come from modest expansion and updates. Taseko’s Gibraltar mine currently seeks funding of roughly $500 million, in order to bring the mothballed Canadian giant mine back into production. Chile national Codelco, the world’s largest copper producer, suffered reduced output at their smelters after worker strikes over bonuses, overtime, and productivity calculations. The trend is clear with copper. Supplies are dwindling as demand is rising. The threat of outright depletion and delivery defaults rises by the month.

Interest rates and household income are not the only stressor for housing. The price of lumber has doubled in the past year. Plywood, including OSB (oriented strand board, also known as particle board) has more than doubled in price in the last year. A common item, OSB sheet is listed at over $20 now, whereas in February of 2003 it cost only $10. Aluminum studs are prevalent but lack the quality of lumber in house framing. The downturn has yet to come in housing construction. Home Depot stores report little slowdown in sales. Like gasoline, plywood and lumber are necessities without substitute, whose cost is a single component in the larger cost structure of a given product. Lumber for a typical 2000 sqft home is now estimated to cost $11 thousand, versus $6100 last year. Another price culprit is Douglas fir, up to $414 per thousand board feet, from $301 last year. A Fulton Homes executive has never seen the cost of materials rise so dramatically. Drywall has risen, but not as much as plywood. He reports that lumber accounts for 16 to 20% of typical home construction costs. Lumber costs have risen in part from a shortage of railroad cars, which has forced shipment by trucks from mills. To put further strain on the supply line, in 1987 the United States had 702 lumber mills, compared to 200 today. We rely upon Canada for 38% of supply to the US, which sets up a currency risk. The US$ has fallen 12% versus the Canadian Dollar in 12 months. Trade dispute and tariffs amplify the risk with our northern neighbors, who often talk funny. Lastly, metal sheeting and plastic pipes add to more cost increases, for ventilation and plumbing. Despite the cost trends, housing remains resilient, although new home sales were down 11.8% in April. House prices can be pushed higher to accommodate increased costs, easily overshadowed by inflation’s effects from low mortgage rates and easy financing. Some sacrifice amenities in the kitchen and bathrooms in trade-off. Certain home builders issue the same complaint as large construction managers. They are seeing cost hikes during the course of construction cut into profits, since a fixed price is held firm from the initial locked contract price. Like tide going out to sea, the costs from lumber and other important items are expected to be noticed only when rates rise and the housing market cools.

On the opposite end of the spectrum, major furniture makers from Stanley Furniture, Furniture Brands Intl, and La-Z-Boy are among those who have raised prices by about 5%. Other chains report discontinued markdowns. Component supplier Leggett & Platt announced higher steel prices. They cite rising costs, growing demand, spiced by new products in a hot selling climate. Oak is up 30% on the upper end of offerings. A strong housing market has more than offset recent downward price pressures from foreign imports.

Is nothing sacred? Ice cream prices are on the rise, as producers face rising costs for cream, cocoa, and vanilla. Ice cream price is up 14% per ounce, strangely felt by container size reduction. A similar effect was visible by me in the Dannon yogurt container size, prompting me to switch to Breyers. Milk is up 50% in the last year, linked closely to cattle and dairy cow feed costs, and herd slaughter. Butterfat has doubled in one year. Cocoa has tripled in two years. Due to cyclones in the Indian Ocean island nation of Madagascar, vanilla has gone from $56 per gallon four years ago, to $800 now. Some call this size reduction a “back door” price increase, which the packaging industry dubs “cheaper cups.” They must cut costs from lower quality ingredients, raise prices, or reduce package size. The trend is toward reduced size. The practice might soon become widespread across the food industry, as frozen vegetables and canned fruits are subject. With a gallon of milk or a dozen eggs, don’t expect such games. Just watch prices go up in a visible fashion. (Yogurt is one of my secrets for youthful skin, along with exercise and no smoking. I would pay $5 for a milk gallon, and $5 for a dozen eggs, but have not purchased butter since before the Clinton Administration. Bring on the olive oil.)

The cattle and dairy story is just plain frightening. In what has been reported as the largest cattle slaughter in modern memory, May figures attest to massive trend changes in the cattle and dairy industry. As feed costs rise, many dairy farmers are removing stock from their farms and culling their herds. Whether from strong demand due to the Atkins Diet, or renewed export sales, or returned demand after the Mad Cow scare, cattle prices remain strong. Reduced dairy herds have translated to reduced milk, cheese, and butter output. Experts warn that dairy output will remain in very short supply in the future, as a result of herd reductions taken lower by rising feed costs and energy costs.

Not all stories center on profit loss. Farmer pain is countered by chemical company gain. Rising energy costs, in particular natural gas, have hit the chemical industry, but are passed along to end product prices. Both Dow Chemical and DuPont report sharply increased profits after robust sales in farm fertilizers and insecticides, as well as car plastics, including air bags. DuPont realized an 8% jump in prices. Dow went so far as to cut 3000 jobs in the face of higher energy costs and recycled feedback costs, following 3500 job cuts last year. So higher production costs have been dealt with by workforce reductions, and higher energy and material costs have been successfully passed on to customers, more than offsetting those costs. Leverage has benefited the industry from strong demand from builders, chipmakers, and car makers.

Global shipping is under pressure. Hyundai Heavy Industries in South Korea boasts the world’s largest shipyard, where nine dry docks are occupied with partially built ships over its 1000-acre home site. They have orders to build 180 ships, and are selective. Demand outstrips supply all across shipyards in northeast Asia. Volume of Korean ship orders has more than doubled in one year, to the highest levels since 1973. On some routes, freight rates have quadrupled in the past year. They are unprepared for the new giant kid on the block, China. Suppliers and customers operating “just in time” logistics have high anxiety. BHP Billiton, an Australian mining firm, claims lack of ships represents a serious threat to its operation. Barclays Capital assesses that damage comes from a decade of neglect in old & dirty industry, which now is stressed beyond expectations. Population growth, the emergence of China and India, these factors stress the system. Seaborne trade accounts for 90% of world trade, up by half since 1990. A barometer of prices for the dry bulk freight market, the Baltic Dry Index has tripled in the last year. Dry bulk includes iron ore, coal, grain, and is dominated by steel processing supply lines. China produces one quarter of all global steel output. Howe & Robinson analyst estimates the number of vessel containers handled by mainland Chinese ports rose 35% last year. Longer voyages to China add further pressure on container rates. South Korean finance minister expects consumer spending to be ultimately affected by higher imported raw material costs, which will be passed along in higher prices of finished products.

THE CHINA SYNDROME

Any serious investor, observer or analyst, of the world economy owes it to oneself to read a brief survey of the emerging Asian powerhouse. Hosting 25% of the world’s people, China’s 1.3 billion people inhabit 30 cities with population over 5 million. Shanghai claims 20 million, and Beijing claims 15 million. In the aftermath of a “one-child” policy shunning baby girls, which has spawned a huge adoption trade, sex ratios are out of whack. Widespread belief centers on an additional 300 million unreported damsels, a number equal to the entire US tally. Demographic shifts are massive, regarding age and movement from countryside to urban areas. John Ing provides a useful survey in a condensed form, in “Gold: The China Syndrome.” The nation is expanding its infrastructure to accommodate an expanding and more prosperous population who wants a better diet, advanced communications, bigger homes, better utilities, and the freedom afforded by a private car.

China is the #1 consumer in the world for copper, platinum, steel, zinc, and iron. They produce more steel than Japan and the United States combined. Its appetite for everything from oil to copper to soybeans is causing a spike in price. The emerging giant has worked its way from one thousand kilometers of expressway roads in 1989 to 30 thousand km of roads in 1999, and has a stated goal of 82 thousand km in the coming years. In the year 2003, the fixed investment (plant & equipment) share of its GDP was 43%. To address its chronic electricity shortage, plans call for 42 gigawatts of generating capacity to be installed this year alone, equivalent to the entire United Kingdom capacity. Of the top 25 websites in the world, one third come from Asia, of which China is a major player. Chinese IPO offerings are listed to raise $20 billion this year, which would surpass the US market.

Chinese aluminum smelters reduced production when electrical power fees were hiked for the second time this year. Electrical shortages have prompted Chinese govt price action to curtail usage. Aluminum producers have been targeted, since they consume 4.1% of national generated power, and are believed to possess considerable excess capacity. Producers object to short notice, and lack of advanced time for planning. Pollution, capacity, and legality are critical issues in govt decisions. At least the USA gives adequate notice of tyranny.

China has become the fourth largest gold producer. They eagerly seeks mechanized mining techniques. Citizens of China are now permitted to own gold, and the new Shanghai Gold Exchange is an avenue for its producers to sell gold. Soon, active trading of gold futures contracts will arrive, certain to stimulate investment. For over two years, grapevines report that the Peoples Bank of China has been avidly purchasing gold on the open market, but done so by hidden parties in Hong Kong. The PBOC might be accumulating gold in preparation for a future gold backing for their yuan currency. The risk is two-fold for the US Economy and financial markets. First is the competition for minerals & resources with China, which has driven up price. Behind only to Japan, China holds $400 billion in foreign exchange reserves, about half in the form of US Treasurys. They hold 600 tons of gold bullion, or less than 2% of its reserves in gold. Compare this ratio to European counterparts, who hold 13% of reserves in gold. Second is the risk of Chinese withdrawn credit support. Should they decide to redeem a significant portion of their USTBond reserves, the United States would clearly feel a threat to our way of life, even our national security. Chinese bankers must put reserves to work for new fixed investment, for consumer debt expansion, or for the much discussed pan-Asian credit market. Expect relations with China to undergo great stress, followed by deterioration. Expect trade war, expect protection (quotas and tariffs) of American food supplies and other critical building supplies, expect competition for MidEast oil, expect leverage attempts over Taiwan, expect concessions to sustain supply of $1.5 billion in foreign capital on a daily basis, expect a horn onto the geopolitical stage where the USA has dominated for five decades. Unfortunately, the USA has little leverage, since we import so much of our raw materials and energy supplies from foreign sources, as does China. We compete with China.

For two years, many writers (including me) have warned of revolutionary change coming from Chinese winds. It is here NOW, in a very big way. US firms are widely affected by the Chinese competition, for the purchase of commodity supplies, for the sale of finished products, and for the deployment of labor. We may be knee deep in a war on terrorism, but as far as commerce goes, we are at quiet war with China. Before this decade is over, expect friction to get out of control versus the USA and China. Their crude oil imports rose 50% last year alone. Another five years of even 20% oil import growth will strain the oil supplies, strain the gasoline price for American consumers, and lead to heightened tension. A Fed policy to debase the USDollar further (for the purpose of capping interest rates) will only serve to aggravate further our competition with China. Some believe the labor cost gap will narrow, but the gap is a huge chasm of difference. US labor costs 20 times what is paid in China. Some believe our exporters will benefit from a lower US$, but our mfg base is nonexistent in numerous sectors. Such rosy economic viewpoints are typically offered by Wall Street brokerage and bankers who live in LA-LA land, people who traded their economic textbooks for corporate promotional manuals long ago.

Since we have committed ourselves, encouraged by leaders, toward recovery through consumption, the trade gap has worsened, not improved. The March trade gap was a staggering $46.0 billion, up 9.1% over the previous record. The April trade gap announced today is a shocking $48.3B. We cannot spend our way to recovery at the retail level. Doing so encourages business investment in Asia, where our purchased products are made. Recovery comes from savings and foundational growth, not mindless spending. This huge gap testifies to the failure of the Federal Reserve policy, and the certain failure of the next initiative to monetize debt through accelerated US$ debasement. See a previous April FSO essay for details on the Failure of the Fed Reflation Initiative. More of the same cost inflation will cause further crack-up boom events. What we witness is the financial sector cancer spreading, even as the real economy crumbles. The pattern will certainly continue until the cancer-ridden bond organs fail. They are central to the financial sector, and cannot withstand higher interest rates, nor their own extravagant growth of the last three years.

NEWS TIDBITS

US trade gap rose in April to $48.3 billion, as March was revised to $46.6B from $46.0B. Exports from US firms were down, possibly from the rising USDollar. Retail spending was up 1.2% in May, whereas ex-auto it was up 0.7%. Futures pits mark a 50% chance of a 50 bpt Fed hike at the end of June, with a 25 bpt hike locked in. MGM Mirage upped its offer for Mandalay to $7.9 billion, including assumption of $2.5B in their debt. QLT made an offer to acquire Atrix for 1 share plus $14.6 in cash. Atrix works in blindness treatment, such as for macular degeneration. Altria works to remove their brand names in movies, in compliance with California enforcement of a 1997 law to maintain a low profile. In the past three weeks, gasoline prices have dropped on average by 6.5 cents per gallon. May Producer Price Index is again delayed, arousing suspicion as it did last month. The Enron scandal has heated up, as evidence surfaced on collusion to exploit California prices using ricochet tactics through Oregon routes. Saudi Arabia has cut foreign taxes on profits by one third, to a 30% rate. From 2000 to 2002, $20 billion has been invested, with US participants being Boeing, General Dynamics, United Technologies, and General Electric.

Former president Reagan was laid to rest on Friday evening at his memorial library. The event was attended by numerous dignitaries and celebrities. His honesty and charisma are missed.

A Baghdad bomb assassinated an Iraqi deputy foreign minister, their most senior career diplomat. This is the third murder of such ministers in one month. A separate Baghdad bombing killed 16 people, including two US workers from a GE power subsidiary. GE officials announced their commitment to rebuild power systems. The Iraqi ruling council has been formed in a move toward democracy, which excludes Kurds from representation. Huh? Terrorist bombing in Saudi Arabia kills one American, and kidnapped a second. The spring offensive in Afghanistan has stepped up as November elections are in focus. Millions are being registered to vote. Interim leader Karzai urges no postponement of elections. Five workers from Doctors Without Borders were murdered near the Pakistani border. Closer to home, a Somali man living in Ohio was charged by Attorney General Ashcroft for conspiring with a known Al Qaeda member to bomb a Columbus shopping mall. He has been held since November.

The Detroit Pistons took a commanding 3-1 lead with defense and teamwork in the NBA finals over the LA Fakers, who perform as individuals. Legendary Larry Bird dug up a big can of worms in the ESPN back yard, over the issue of the white American basketball player disappearance and current black domination. Coach commentary points to the required extreme athletic ability requirements, white motivation, and electronic game distraction among young kids, as well as perceived poor opportunity for white basketball scholarships. The NBA boasts one white allstar player, one white member among  top 50 scorers, and no white Olympic players. Europeans provide the majority of white players, in yet another outsourcing. Rafael Palmiero hit home run #537 to pass Mickey Mantle as 11-th in the baseball alltime rankings. Junior Griffey hit homer #499. Harry Potter led with $35.1M in box office receipts, followed by Riddick $24.6M, Shrek II $24.0M. Stepford Wives opened poorly with $22.2M, as did Garfield with $21.7M.

TODAY’S MARKET

Today the Dow Jones Industrials wrapped up at 10,335 (-75), S&P at 1125 (-11), Nasdaq at 1970 (-30). TENS yield 4.87% (+7.9 bpt). Currencies closed with Euro at 120.68 (-0.36), JYen at 90.15 (-1.33) in blatant intervention following horrible trade gap numbers, Can$ at 72.79 (-0.73). Metals finished with gold at 383.6 (-2.7), silver at 565.5 (-0.5), copper at 115.65 (-2.0). Energy ended with crude oil at 37.59 (-0.87), natural gas at 624.4 (+6.9), unleaded gasoline at 115.25 (-3.96). Prices are at major futures contracts.

Jim Willie CB

Home  l  Broadcast  l  Market Monitor  l  Storm Watch  l  Sitemap  l  About Us  l  Contact Us