The King Report

verfasst von CRASH_GURU, 04.03.2004, 15:48

-->The King Report

M. Ramsey King Securities, Inc.

Wednesday March 3, 2004 - Issue 2872
"Independent View of the News"


PPI Held Hostage, Day 13. Soaring metals, oil and commodities have
apparently convinced the BoC and the BoJ that it's in their common interest
to boost the $ to mitigate inflation pressure.

Normally the Bank of Japan keeps the $ unwarrantedly high to facilitate
exports. When inflationary pressure gets uncomfortable, they let the $ fall
to mitigate inflationary pressure. However, the recent colossal price
increases in commodities greatly exceed the $ decline. China went on a
global commodity buying binge in Q4 that manifested itself in January
industrial production surging 19%. It's our guess that the parabolic rises
in commodity prices in January and February are largely the work of
speculators and trading companies. This action has produced dangerous
shortages. Because the declining $ is the basis of current global
speculation, the central banks understand that to arrest the commodity
speculation, the one-way $ trade/perception must be broken. They moved
yesterday to do just that. The inflation genie is finally acknowledged,
albeit furtively.

Tuesday's action had little or nothing to due with job growth or the
employment report, though that's the fin media spin. The Bank of China
aggressively bought $$ and sold yen, triggering a massive 'barrier' options
at 110 yen. Goldman aggressively bought the euro, while Easy Al spoke to
the NY Economists' Club.Is Al in the 'loop'. Probably not, because he is
what he is and it's an election year. Al says Japan is likely to stop
selling yen. Last night Chief Cabinet Sec Fukuda refuted Al.Last night Fed
Gov. Weimar Bernanke said"Inflation appears to be quite low" and is"under
control." Deceiving yourself or us, Ben? Take China and lay the points;
this is a gross mismatch of leadership. The JOC-ECRI says the smoothed
annualized growth rate of US industrial prices is up 44.2% y/y. The
smoothed average of 18 industrial materials is designed to minimize
fluctuations. Care to comment, Ben?

The big dollar rally forced commodity prices lower. Gold, which has been
conspicuously under-performing other metals, closed below the key $395
level. Mining stocks, with the exception of PD have greatly diverged from
the recent metal price surge, implying an imminent decline in metals.

Greenspan told the NY Economic Club that Fed Funds are at 1% for"very good
reasons" [perilous US economy and financial condition] and low rates are a
"special situation" that cannot last forever. (And there's very good
reasons why Easy Al almost daily appears to cheerlead the markets.) Al then
equivocated and tried to change tune. Al admitted that he has always taken
30-year mortgages and that his advocacy for ARMs was"imprecise". He said
the reason he didn't prick the tech bubble was because it would've taken
"multiples of 300bps hikes" and"Unless you break the economy you cannot
break the bubble." (Again, Alfred E. Greenspan confuses cause & effect.)
So Al has changed his story from irrational exuberance on 12/6/96 with DJIA
6350 and Nasdaq 1325 to there's no way to recognize a bubble. And now it's'
I couldn't bust the bubble without scuttling the economy'. The obvious
question to Al is 'why did you allow the bubble to occur?'



Wells Capital chief strategist James Paulsen says he sees a lot of evidence
of inflation and doesn't know why others ignore it. Mr. Paulsen sees
inflation at every level of production (core, raw, intermediate, etc.) and
in all surveys. James thinks bonds will soon view inflation, not jobs, as
the number one issue.We think that the inflation that Al & Ben profess not
to see moved the BoC & BoJ to action yesterday.



Booming commodities, oil and precious metal stocks are late-cycle plays.
Either central banks arrest the play (20th Century) or we'll have a 19th
Century-like flame out and depression. More on page 2



The bubblebabe asked a guest yesterday if an economic rebound was near. We'
ve hearing this from the media and economists who also aver that the economy
is booming. The views are mutually exclusive.



The Feb Challenger Gray survey shows reduced layoff expectations. This was
stridently hyped by the fin media. They ignored the fact that the survey
also states companies remain cautious about hiring.



Ford says it will cut production by 15k vehicles in Q1 and by another 5%
(68k) in Q2 because of slower than expected sales. What about all those PMI
surveys that show such bullishness?



Our friend Matt notes a recent report on plant shutdowns by Joe Carson of
Alliance Capital Management provides further insight as to why PMI and ISM
surveys are inaccurate and bullish biased."According to Joseph Carson,
director of economic research at Alliance, 21,513 U.S. factories were shut
down in 2002 and 2003, up sharply from 13,824 shutdowns during the previous
four-year period." Mr. Carson notes these shutdowns are not fully reflected
in the ISM index because when a plant closes the institute replaces it with
another participant. Ergo the most negative data are omitted. Furthermore,
as plants close their production flows to surviving facilities, which show
increased orders/production. This fraudulently produces an increase in the
ISM when it should be falling. The duplicity just doesn't stop, does it?



As we expected, Turnaround Tuesday arrived after the usual Monday/start of
the month rally. How many one-day large DJIA rallies on Monday, to start
the month or for expiration will it take until The Street and fin media
recognizes the trend that has persisted for years? Commentators explained
Monday's stock and commodity rally and $ decline on data that showed
improved employment. Yesterday the markets reversed but commentators
explained the action on improved employment. You can't make this up.



Mamma.com traded over ten times its float yesterday and rose 186%. The
internet search engine reported.09 earning from continuing operations, but
losses from discontinued operations reduced the gain to only.01. This was
better than the previous.01 loss. Speculators, abetted by promiscuous
monetary policy and governed by the precepts of momentum trading, rule the
markets. Computer programs alert operators to unusual price or volume
movements. They then pour in without regard to fundamentals. It will take
a long time and much adversity to remedy this condition. But possibly the
trek started yesterday.



Global semiconductor sales rose 27% in January. China sales increased 34%,
Japan 32%, Europe 19.5% and the Americas gained 18.3%. With a late cycle
global boom in full blossom, the US has little or no employment and income
growth and is the runt of world growth. Almost 2.5 years after the trough
US pundits and commentators talk about rebound while China soars and markets
exhibit end-game behavior.

Today - Wednesdays that follow eventful Mondays and Tuesdays tend to be
respites. And with a looming employment report that has taken on critical
importance, a respite with minor probes seems the likely pattern.
Currencies and commodities are the salient global endeavor. Though more
publicized, stocks are just a minor sideshow in the immense but increasingly
dangerous game.



As expected, the Fman dominated Super Tuesday primaries and has ostensibly
wrapped up the Dem nomination. Reports say Edwards will drop out today.
Bush gets to run against a real NE liberal, a senator that sports the most
liberal voting record in the Senate.

AP reports,"The United States is giving China $15 million to help fight the
spread of AIDS in some of China's poorest areas under a five-year joint
program, the two countries announced Tuesday." How can there be any hope
for the US when it pledges to give China $15m to fight AIDS, while China
sucks out $130B from the US in trade last year? Again, take China, lay the
points and bet the over. You can't make this stuff up!
http://www.iht.com/articles/132161.html



The King Report

M. Ramsey King Securities, Inc.




Tuesday March 2, 2004 - Issue 2871
"Independent View of the News"


PPI Held Hostage, Day 12. Jan PPI should be horrid, but Feb PPI should be
worse.

The February ISM was softer than expected and prices paid soared to 81.5
from 75.5. Production fell 7.2 points to 63.9; new orders fell 4.7 points
to 66.4. Employment rose to 56.3 from 52.9, the highest reading since 2/87.
Yet the media and Wall St. shills heralded this report, stating it showed
economic strength. These are purchasing and supply managers' opinions. Are
they versed on hiring needs?

In our never-ending effort to educate and debunk lies, here are some
important passages from the ISM report:"The Manufacturing ISM Report On
Business® is based on data compiled from monthly replies to questions asked
of purchasing and supply executives in over 400 industrial companies." The
following detail is never discussed:"The diffusion index includes the
percent of positive responses plus one-half of those responding the same
(considered positive)." Even bubblevision noted the discrepancy between ISM
survey strength, particularly employment, and reality. We just learned why.
The diffusion index has a bogus upward bias because it counts neutral or
unchanged responses as being 0.5 positive. And there's more - those hokey
seasonal adjustments."All seasonal adjustment factors are supplied by the
U.S. Department of Commerce.The PMI is a composite index based on the
seasonally adjusted diffusion indices for five of the indicators with
varying weights: New Orders - 30%; Production - 25%; Employment - 20%;
Supplier Deliveries - 15%; and Inventories - 10%."
http://www.ism.ws/ISMReport/ROB032004.htm PS - The main concerns are rising
energy and steel prices.

Grant Noble:"Thanks to my friend Ron Gries (thechartstore.com), I was able
to look at a graph of the ISM employment index and here are some of the
dates were it went over 55: January 2000, September 1987, December 1983,
December 1980, and December 1972. Not exactly great times to buy stocks."

Construction spending fell 0.3%; a +0.3% was expected.Personal income grew
only 0.2%; +0.5% was expected. Consumption rose 0.4%; +0.3% was expected.
Yeah, that's the fodder of a big rally.

Home prices increased 8% in 2003 according to the MBA. BLS has a 2.4%
increase, and housing prices constitute over 40% of CPI. Core CPI rose 0.7%
in '03, the smallest increase since record-keeping began in 1960. Anyone
that believes this number or that inflation is subdued, and numerous
economists profess they do, is either a fraud, ignorant of CPI accounting
chicanery or devoid of common sense.

For the past few years, we've have regular triple-digit DJIA rallies on
Monday. Yet the dolts in the financial media always try to attribute some
fundamental rationale to the moves. Yesterday was no different. Though
economic data was weaker than expected, media commentators and Wall St
shills attributed yesterday's start-of-the-month and Monday rally to
economic optimism.

Monday's feature attraction was the continued commodity surge on Chinese
buying. Commodities are in short supply. At current drawdown rates, copper
supplies will be exhausted in two months and nickel will be gone in two
weeks. Oil inventories are at a 28-year low. Silver made a 16-year high.
Platinum hit $906, the highest level since 3/80, when the US had its highest
inflation since the Civil War. The Chinese corner on global commodities is
about to unleash very unpleasant consequences. Bottle necks in production
could appear. A critical consideration is industrial company raw material
contracts. When they expire, the cost jolt will be immense. There's also
the real possibility that suppliers will be unable to deliver commodities or
honor contracts. The term 'force majeure' could litter financial stories.
Hedgers and leveraged arbs might be 'bought in' on their short physical
commodity positions. More on page 2

Industrial companies could soon experience a profit squeeze due to rising
commodity prices and the possibility that they are unable to garner
necessary supplies. This is the type of economic action that the Fed is
supposed to prevent. However, the perilously weak US economic and financial
fundamentals have rendered the Fed to inflation-fostering agents. The die
is cast. The Fed will not intervene. This means the likely eventuality is
a flame out boom on unsustainable price increases and then a bust.

In the 1980 inflationary binge, government debt was $1 trillion. When
Volcker administered the necessary medicine in 1980, the result was a severe
recession that almost felled the US financial system when Mexico threatened
to default on its debt (summer of 1982). We're now $7T and soaring.
Current aggregate US debt is a large multiple of 1980 levels. And that's
why Easy Al will not allow debt contraction, and consumer debt is in its
50th consecutive month of expansion.

We keep hearing much nonsense about consumers and the US economy being able
to tolerate much hirer interest rates. The major factor or impetus in the
US economy is not manufacturing, consumer spending, business spending or
technology. The prime impetus in the US economy is finance. About $1.5
trillion/day of forex is traded in the US. Debt trading is about $1
trillion as is Eurodollar futures and options. Eurodollars are estimated to
trade about the same as forex. Swaps and derivative numbers are difficult
to discern, but reasonable estimates are about $1 trillion/day. Let's say
stocks, money markets, commodities, CP, and everything else total about $0.5
trillion. That's about $6.5 trillion/day of paper or about 3 times annual
US GDP in one week. The US economy is essential a carry trade.There are
about 6000 hedge funds in the US with an estimated $600B in capital. They
exist to speculate. If there were significant opportunities in the US's
real economy, the capital would flow there.

This is what we wrote in our 2/14/04 letter:"Chinese bureaucrat Wang Jian
writes, 'Money transactions related to material goods production counted for
80% of total (global) transactions until 1970. However, only five years
after the collapse of the Bretton Woods, the ration turned upside down -
only 20% of money transactions were related to material goods production and
circulation.The ratio dropped to 0.7% in 1997.'"
http://www.dailyreckoning.com/home....body_headline.cfm&qs=id=3704

Easy Al's recent assertions about cutting entitlements and Social Security
in an election year have raised suspicions of an ulterior motive. Is Al
trying to torpedo another Bush or is he being earnest? Some suspect that
Easy Al is looking for an out before 'it' hits the fan. Bush said he would
reappoint Al in June. A few more episodes of politically unsavory discourse
by Al, and Bush might ease the easy one aside. Then Al would have his
gracious out. Rubin exited nicely in July 1999.

Last night, Easy Al reiterated that chain-weighted CPI would've saved the US
about $200B over the past 10 years. It's bad enough that Easy Al, Congress
and Administrations already screw people out of COLAs due to egregiously
fictitious inflation adjustments via bogus CPI, but now Al is advocating
even more fraud and craftiness. This is worse than Orwell's"1984".

The Chicago Tribune reports 52.1% of Illinois tax revenue comes from
business taxes, which is 10 points higher than the national average and 25%
higher than nearby states. Guess what happens next.

Illinois Gov Blagojevich is an outspoken critic of outsourcing and companies
that dodge US and state tax by moving offshore. Nevertheless, he granted an
$11m contract to Bermuda-based Accenture, who is represented by the lobbying
firm of David Wilhelm, a prominent ex-Blago staffer and former DNC CEO.

Today should be a Turnaround Tuesday to the downside. That's how this game
has been transpiring for years. If that occurs, it further proves the
invalidity of fundamental explanations for Monday's rally. After today, we'
d expect cautious trading ahead of Friday's employment report. The report
is likely to generate a major market reaction, especially if the report is
beyond expectations.


The King Report

M. Ramsey King Securities, Inc.

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