February 2006 Archives

On Bill Fleckenstein's website FleckensteinCapital.com, a subscription site, a reader highlighted an article titled Shadowing Reality: Economist Keeps Tabs On Government’s “Creative” Statistical Reports (PDF).

As the title suggests, Walter J. (John) Williams discusses changes in various government statistical publications. According to Williams, when the changes are stripped away, the underlying economic picture looks rather bleak. So rather than me writing more, I encourage you, if you are interested, to read the article. I should warn you, though, that this article is rather bearish. However, I think it is always good to read both sides of an argument.

As referenced in Adam Warner's daily options report, Herb Greenberg wrote an article About my subpoena where he discusses his subpoena from the SEC concerning Overstock.com Inc (OSTK).

I found this article interesting because the SEC is actively involved investigating Overstock's CEO Patrick Byrne's allegations.

From a separate article published in the Wall Street Journal SEC Probes Overstock's Claim Of Stock-Market Manipulation (subscription required) the SEC appears to have decided not to seek production of any documents at this time.

The subpoena, dated Feb. 7, seeks emails, phone records and other materials provided by employees of Gradient or Rocker to Carol S. Remond, a columnist for Dow Jones Newswires, or Herb Greenberg, a columnist for MarketWatch, an online financial publication owned by Dow Jones. Both Ms. Remond and Mr. Greenberg have written about Overstock.com. In a column published yesterday, Mr. Greenberg said he doesn't plan to be "bullied into changing the way I do anything."

"We were served with the subpoenas and we have served objections in response. It's our understanding that the SEC has decided not to seek production of any documents from Dow Jones at this time," said Amy Wolfcale, a spokeswoman for Dow Jones. "The SEC may come back in the future."

Both articles are worth reading.

On Street Insight (an expensive subscription site, part of TheStreet.com), Bill O'Connor provided an excellent discussion and link to Don Coxes's commentary on future oil prices. While I will not repeat O'Connor's commentary, I will provide the link.

Don Coxe is Global Portfolio Strategist of BMO Financial Group, and Chairman and Chief Strategist for Harris Investment Management in Chicago. He provides an excellent commentary on future oil prices. You can listen to his comments by clicking on the link Don Coxe's commentary. You will be asked to indicate your preferred media player and then your state or province. After answering those two questions, you will be able to listen to his commentary. He also has notes, but unfortunately the file is incorrectly named without the pdf ending. So if you click on Don Coxe's notes, save the file to your computer, and then rename the file with a pdf ending, you will be able to view the contents.

I highly recommend you listen to the audiocast and read the notes to better understand future oil prices.

Christopher Conkey wrote an article in the Wall Street Journal Typical U.S. Family's Net Worth Edged Up Only 1.5% in '01-'04 (subscription required).

WASHINGTON -- After growing rapidly during the boom of the 1990s, the net worth of the typical American family rose only 1.5% after inflation between 2001 and 2004, the Federal Reserve said in an update of a survey it does once every three years.

The Fed said the net worth of the median American family -- the one smack in the statistical middle -- was $93,100 in 2004. Net worth, the difference between a family's assets and liabilities, rose a robust 10.3% between 1998 and 2001 and 17.4% in the three-year interval before that.

A booming housing market boosted the typical American family's wealth between 2001 and 2004, but stagnant stock prices and rising debt offset many of those gains.

The report, the most comprehensive survey of household wealth, also found a widening of the gap between households at the top and the bottom of the economic ladder. "While the typical American household basically ran in place, less affluent households actually lost ground," said Stephen Brobeck, executive director of the Consumer Federation of America.

The Federal Reserve provides the report Recent Changes in U.S. Family Finances: Evidence from the 2001 and 2004 Survey (PDF) on its web site.

The snippets of information provided by the Wall Street Journal should cause investors to pause and reflect. During the past few years, many consumers used their homes as an ATM. Household debt escalated while home values increased. But now as interest rates rise, housing is cooling. If housing prices decline, then many families will be facing some difficult choices.

In addition to higher interest rates, we also have higher energy prices. Moreover, inflation is likely higher than 2% or so as reported by government statistics.

I am curious to see if this report and its conclusion have any effects on the market on Friday. In my view, the market has been rather directionless over the last several sessions. I do not see a catalyst for moving the markets in one direction or the other. But I think this report might fuel the bears' concerns about the strength of the consumer and her ability to keep propelling the economy forward. The bulls will point to the fact the net worth has continued to increase despite some severe shocks to the economy, and now that the economy has normalized, we can expect the prior rate of household net worth to continue. I tend to side more with the bears in this argument, but I would not be surprised to see the market side with the bulls.

Andy Webb-Vidal in Caracas wrote a Financial Times article War of words between Chavez and US heats up (subscription required) about the continuing escalation of rhetoric between Venezuela and the United States.

“I will sting those who rattle me, so don’t mess with me, Condoleezza,’’ he said, blowing Ms Rice a kiss during his Sunday television programme.

...

“Relations with the US are deteriorating and they are going to get worse,’’ says Adolfo Salguiero, an international relations analyst in Caracas. “At some point this year we could well face a grave diplomatic crisis as Chavez attempts to rally nationalist sentiment ahead of the election.’’

Mr Chavez, who has been in power for seven years, recently reiterated his prediction of an inevitable showdown with the US. He may be right. US officials have in recent weeks determined that the Venezuelan president is not only their top political irritant in the region, but that he is also undermining US interests.

At some point, this situation will come to a head. Venezuela is important to the U.S. because of the amount of crude imported to the country. The U.S. is important to Venezuela because it owns refineries in the U.S. that are specifically designed to process Venezuelan heavy crude. Should Venezuela want to sell its crude elsewhere, it will have to ship its crude further, increasing its costs, and find refineries or build refineries that are capable of processing the crude. The U.S. would, in turn, have to find crude from other sources. It would like import heavy crudes from the Middle East.

I have highlighted the Venezuelan situation before. While I do not believe that there is an imminent threat, I do believe that the situation is becoming worse. I am not sure what a worst case scenario would look like. Because both parties appear to need each other, perhaps a worst case scenario would not be that traumatic. That said, Venezuela is not motivated to keep world oil prices at lower levels. It is one of the more hawkish members of OPEC. In summary, I think the Venezuelan situation is worthwhile monitoring.