Gulkowitz

Slide1: 

ABRAHAM GULKOWITZ abe@gulkowitz.com 917-402-9039 Blank Text Box Between the Lines… One can only shake one’s head in amazement. Overall markets have become sanguine again concerning risk, even after the recent market turbulence that included frightening stock market slides echoed around the globe and serious and ongoing concerns surrounding the American housing market. Investors even shrug off new concerns about corporate earnings to push US markets higher. And Asia markets, that had been so central to the turmoil just two months ago, are marching on to new highs. It is important, however, to put all this into perspective. First, the inflation issue is becoming a more complex equation. It is no longer just a concern emanating from energy costs. Food costs are now running in tandem with oil, a new connection that has emerged with the push to ethanol. And productivity in the corporate sector is sliding, and no quick fix is on the horizon. Second, outside of the fractured housing sector in the U.S., growth in credit remains abundant. Just look at the money and loan growth stats across the globe. A voracious appetite for lending from structured credit vehicles such as CLOs is one of the key elements behind a seemingly endless demand for credit risk. But there is an important lesson to be learned from the mortgage market ugliness. An intermediary may become too eager for product, or to get deals done. Perhaps there is not enough differentiation between good deals and bad. To date there has been only modest spillover effects from the subprime mortgage breakdown. The magnitude of the job growth associated directly and indirectly with the amazing U.S. housing machine continues to be underestimated. Do not dismiss the potential for a more significant fallout both in the job market and then over into the broader corporate credit market. Federal Reserve Chairman Ben Bernanke appeared to chide investors who may have looked past concerns about inflation … the Fed continues to see the risks with respect to inflation as weighted to the upside, with its greatest concern that inflation will fail to moderate US Business investment is actually sliding, as evidenced by the pattern over the past 6 months. And the second revision of US GDP revised plant and equipment spending lower – from a 3.2% quarterly annualized contraction to one of 4.8%. This additional evidence of sluggish business investment and recent developments in the subprime market suggest that the downside risks to growth have increased. M&A volume tops $1 trillion Global mergers and acquisitions topped $1 trillion (€750bn) in the first three months of this year, the busiest and most lucrative first quarter on record. Tighter Lending Standards Good For Housing Long Term, But Will Dampen Sales Near Term Tighter lending criteria and fallout from the subprime loan debacle will lead to a healthier housing market with greater assurance that owners can handle mortgage adjustments, but higher loan standards will slow the housing recovery, according to the latest forecast by the National Association of Realtors “Signs of a Bubble.” are from comments made by GE’s chief financial officer Keith Sherin to the Financial Times over the weekend about problems in the subprime market and their spread to the Alt-A market. In addition, he issued a broader warning on the health of the credit markets. Beware the trends of increased leverage in the loan market, the lack of covenants, and the rising use of deferred payment structures all signal potential future problems for the credit market.

In This Issue: 

Headlines and data appearing in The Punch Line came from widely available publications including national and international newspapers, trade journals, economic and industrial bulletins and news websites. Media Clips Lots of pressure points (pg 16) Tech and the Business Cycle (pg 17) Real Estate and Construction (pg 18) Breakout in Europe Growth prospects for 2007 remain strong but currency questions on the rise; reform outlook murky; political bickerings abound (pg 19) Japan Watch Japan is in recovery and it is impressive – especially on the corporate front; but it may be supported by a very particular currency alignment and continued rapid growth in China and the US. Beware… (pg 20) Will Life Ever be the Same? (pg 21) Between the Lines… One can only shake one’s head in amazement. Overall markets have become sanguine again concerning risk, even after the recent market turbulence that included frightening stock market slides echoed around the globe and serious and ongoing concerns surrounding the American housing market. Investors even shrug off new concerns about corporate earnings to push US markets higher. And Asia markets, that had been so central to the turmoil just two months ago, are marching on to new highs. It is important, however, to put all this into perspective. First, the inflation issue is becoming a more complex equation. It is no longer just a concern emanating from energy costs. Food costs are now running in tandem with oil, a new connection that has emerged with the push to ethanol. And productivity in the corporate sector is sliding, and no quick fix is on the horizon. Second, outside of the fractured housing sector in the U.S., growth in credit remains abundant. Just look at the money and loan growth stats across the globe. A voracious appetite for lending from structured credit vehicles such as CLOs is one of the key elements behind a seemingly endless demand for credit risk. But there is an important lesson to be learned from the mortgage market ugliness. An intermediary may become too eager for product, or to get deals done. Perhaps there is not enough differentiation between good deals and bad. To date there has been only modest spillover effects from the subprime mortgage breakdown. The magnitude of the job growth associated directly and indirectly with the amazing U.S. housing machine continues to be underestimated. Do not dismiss the potential for a more significant fallout both in the job market and then over into the broader corporate credit market. (pg 1) In This Issue (pg 2) Time to Recalibrate?… (pg 3) Engines of Growth We have regularly raised the issue of excess global liquidity; it needs to be added to the list of growth engines that have fed the global expansion and financial markets. It became an element in the outlook as seen in recent headlines surrounding the flurry of massive buyout deals, as well as the boom in housing and the likely contours of its slide. China, commodity prices, the amazing U.S. consumer engine, and unprecedented business transformations have been elevated to critical elements of the growth outlook, but are difficult to forecast and even tougher to modulate. (pg 4) Data Detective (pg 5) Weary Households? Lots of questions for a free spending sector… (pg 6) US Regional Housing Amazing shift in some local markets… (pg 7) Credit Concerns (pg 8) The DNA of Business – Unraveling (pg 9) US Job Picture… (pg 10) More US Job Data… (pg 11) Logistics… (pg 12) The New Geography of Business (pg 13) Crude Analysis… (pg 14) Pumping Iron (pg 15) Contact information: Abe Gulkowitz phone: 917-402-9039 email: abe@gulkowitz.com In This Issue

Time to Recalibrate ?: 

Time to Recalibrate ? Bernanke's testimony March 28: This forecast is subject to a number of risks. To the downside, the correction in the housing market could turn out to be more severe than we currently expect, perhaps exacerbated by problems in the subprime sector. Moreover, we could yet see greater spillover from the weakness in housing to employment and consumer spending than has occurred thus far. The possibility that the recent weakness in business investment will persist is an additional downside risk. Personal Consumption Deflator Inflation creeps up On a year-over-year basis, core PCE inflation rose to 2.4% in February, supporting the Fed’s continued emphasis on the predominance of inflation risks in its recent statement and clarification by Chairman Bernanke Average hourly earnings rose by 0.3% during the month and are rising at 4.0% y-o-y. The high rate of earnings growth coupled with the low level of unemployment should keep the Fed concerned about wage inflation and rising unit labor costs and keep the Fed’s focus on the inflation outlook going forward US BLS: Corn/Ethanol Effect Keeps Hitting PPI Product Pipeline  March PPI Finished Goods Index +1.0%; March Core 0.0% Light Trucks Price Decline Helps Hold Down Core WASHINGTON - The March drop in light truck prices held the PPI core rate to a below-expectations zero, while the effect of rising ethanol feedstock corn prices filtered into animal feeds and meats, a senior Bureau of Labor Statistics analyst said Friday morning. Higher petroleum-derived energy prices did their anticipated work on the overall Producer Price Index finished goods index, with the help of food prices, elevating it a full 1 percent. The percentage point disparity with the core rate in March was similar to the 0.9 point difference the previous month. Food prices rose 1.4% in March and the overall energy index rose 3.6%, with gasoline up 8.7%. There are clear signs in this year's PPI that the relationship between food and energy prices is becoming less random, with some basic foodstocks continuing to respond to the demand for ethanol. Any spillover effects from the deteriorating subprime mortgage market into the overall U.S. economy will not be felt until the second half of 2007 -- meanwhile, 27% of mortgage-backed securities exposed to collateralized debt obligations are expected to be downgraded, Fitch Ratings said on Monday.

Engines of Growth: 

Engines of Growth Asia Economies to Grow Faster Than Expected in 07, ADB Says… Asia's developing economies will grow 7.6 percent this year, faster than earlier forecast, as a pick-up in spending by consumers and companies cushions the impact of weaker exports, the Asian Development Bank said. Growth in Asia excluding Japan and Australia in 2007 will exceed a September estimate of 7.1 percent, the Manila-based lender said today. This year's expansion compares with an ``exceptional'' 8.3 percent in 2006, according to the ADB, which is funded by governments to promote development in the region. Rising incomes in China, India and other Asian economies are boosting consumer spending and encouraging companies to lift investment. Reduced dependence on export-led growth will make the region's expansion more self-sustaining, as a slowdown in the U.S. and Europe damps demand for made-in-Asia goods. Retail expansion should boost consumption in Asia Carrefour's sales in China rose 53% and Wal-Mart's sales by 30% last year, according to press reports today. Citing the China Chain Store & Franchise Association, Carrefour's sales rose to 24.8 billion renminbi (3.2 billion dollars) and Wal-Mart's to 15.0 billion renminbi. The increase is partly due to rising demand, but also to the expansion of shops nationwide, Carrefour adding 33 outlets and Wal-Mart 15 last year. Consumption is rising in China, but the government would like it to play a larger part in overall growth; retail sales grew 14.7% year-on-year in the first two months of the year, to 1.45 trillion renminbi. Increased activity in the retail sector should help stimulate demand as well as respond to it, helping to lift sales further in coming years, boosting consumption. Weak business investment poses risk Federal Reserve Chairman Ben Bernanke disappointed those expecting an early return to monetary easing. Testifying before the Joint Economic Committee, he told lawmakers that the statement following the March 21 Fed meeting did not indicate a shift away from the inflation bias in monetary policy. Not expecting problems in the sub-prime mortgage lending market to spread to the broader economy, Bernanke instead flagged up risks associated with weakening business investment. The magnitude of the slowdown in corporate spending has been greater than expected, he said. The Department of Commerce released figures showing that durable goods orders -- a proxy for business spending -- fell 1.2% in February following an even larger drop of 7.4% in January. Despite a boom in profits, US firms have been cautious about capital investment. This means the economy will continue to rely on exports and consumption for continued growth. Spooked Geopolitical tensions are helping to push up oil prices once more Commerce Dept. sanctions China over subsidy dispute The U.S. Commerce Department announced sanctions against China on Friday in connection with a dispute over paper subsidies. Secretary Carlos Gutierrez said the U.S. has the right to apply countervailing duties to Chinese paper imports, which he said threaten U.S. products Growth in the US Service Sector Slowed in March Growth in the service sector fell to a four-year low last month while the job market showed only modest improvement, according to reports yesterday that reinforced views of a weakening economy. The Institute for Supply Management said its nonmanufacturing index slid to 52.4 in March, down from 54.3 in February, confounding expectations for a rise. Despite the weakness, the institute’s inflation gauge rose. The report coincided with unexpectedly weak factory orders data for February, released by the Commerce Department. The Chinese central bank’s decision to raise the reserve requirement ratio reflects concern about excess liquidity in the banking system.

Data Detective: 

Data Detective

Weary Households?: 

Weary Households? Fed's Braunstein: Subprime Woes to Drag Out for 1-2 Yrs; No 'Easy Fix'   WASHINGTON - The Federal Reserve's head of consumer affairs Tuesday March 27 told a congressional committee that problems with the subprime lending market are expected to last for the next one to two years, with no "easy fix" for the increased amount of borrowers foreclosing on the non-traditional type of loans. Fed Director of Consumer and Community Affairs Sandra Braunstein said in testimony before the House Financial Services subcommittee that although "the market is correcting itself," the Board finds the increased amount of delinquencies of subprime loans of "great concern." "Existing subprime borrowers, especially those with more recently originated ARMS, may face more difficulty," she said. In the second hearing in less than a week on the troubled subprime market, Braustein was one of six banking regulators appearing before the subcommittee which is addressing the crisis. Housing – Going from bad to worse - 40% of markets at record inventory levels Inventory is already at record levels in 40% of the top builder markets, seven months ahead of the normal fall peak. US Consumer Spending Outlook Turns Hazy Despite Strong March Retail Sales Higher gasoline prices and concerns over the housing market are spooking the outlook. The outlook for consumer spending turned hazy in April as warnings of weak sales ahead overshadowed better-than-expected March sales at many of the nation's big retailers. Higher gasoline prices and concernns over the housing market are spooking the outlook. Analysts said rising gasoline prices and the possibility of higher interest rates could lead shoppers to curtail their spending in the coming months. And Wal-Mart Stores Inc., whose customers cut back on shopping when gas prices were high last year, warned that April's selling environment will be tough, while Federated Department Stores Inc. said its first-quarter sales will come in at the low end of expectations. The arrival of warmer weather following an unusually cold January and February helped retailers like Wal-Mart recover from a slow start to the spring selling season. An early Easter, which occurred eight days earlier than a year ago, also helped, though it will depress April's results. Other winners for March included Costco Wholesale Corp., J.C. Penney Co. Inc. and teen retailer Pacific Sunwear of California Inc. Even Gap Inc., which has been mired in a sales slump, reported better-than-expected results for March. However, cooler weather in recent days has stifled sales of spring clothing. And the slowing economy, particularly the weakening housing market, could challenge shoppers in the coming months. An immediate concern is rising gas prices. Gas and oil climbed Wednesday and Thursday after the government reported a steeper-than-expected decline in gasoline inventories, and there are predictions of $3-a-gallon gasoline by summer.

U.S. Regional Housing Maps: 

U.S. Regional Housing Maps

Credit Concerns - Reality Programming: 

Credit Concerns - Reality Programming FSA to monitor increased risks in commodity mkts The influx of new players and surging volumes have increased risks in the commodity markets, the UK’s financial watchdog said on Monday. In the weeks following the eruption of volatility across financial markets on February 27, some of the most intense trading activity was seen in the US and European credit derivative index markets. The fact that liquidity did not dry up, as some had feared, and trading volumes surged, reflects the emergence of index products as a commonplace hedge of choice among banks, asset managers, pension funds and others. However, the volatility did prompt losses for some, and expose a frailty of a much-vaunted new structured credit product, Constant Proportion Debt Obligations (CPDO). Although still a niche product, CPDOs are likely to become a significant part of this market and have the potential to distort normal market dynamics. The biggest buyers of high-yield (or leveraged) loans tend to be the managers of collateralised loan obligations, or CLOs. Such managers bundle together a group of loans, then slice them up, according to their riskiness, and sell them to investors. Once a CLO manager has raised its capital, it needs to put that money to work quickly to earn higher interest. That makes the manager an eager loan-buyer, forced to accept whatever terms the borrowers offer. The next wave of distress will be unlike the last in two respects. First, commercial banks no longer dominate the process. According to Standard & Poor's, a rating agency, non-banks such as hedge funds now make roughly half of all high-yielding leveraged loans and hold the lion's share of the secondary market. Indeed for many distressed borrowers, hedge funds have become the last, best hope of salvation. Accredited, a troubled subprime lender, was recently propped up by a $200m loan from San Francisco-based Farallon after banks withdrew support. The hedge fund charged a credit-card-like rate of interest. It also secured the right for ten years to buy over 3m Accredited shares for $10 each, a deal that will bring it huge returns if the lender pulls through. This is a variation on the “loan-to-own” strategy now popular among hedge funds: credit is extended in the hope that it can be converted to equity when the company fails to recover, allowing the lender-turned-owner to restructure the firm thoroughly. Fallen Angels 2007… S&P: In number, the utility, telecommunications, high technology, media and entertainment, consumer products, homebuilders/real estate, and health care sectors appear most vulnerable to downgrades from investment grade to speculative grade globally. Of the total tally, the utility sector led with nine entities, telecommunications followed with four entities. Some additional sectors—high technology, media and entertainment, health care, homebuilders/real estate, and consumer products—had three entities each. THOMAS FRIEDMAN NYTimes… That is because of what I call the First Law of Petropolitics: The price of oil and the pace of freedom always move in opposite directions in states that are highly dependent on oil exports for their income and have weak institutions or outright authoritarian governments. And this is another reason that green has become geostrategic. Soaring oil prices are poisoning the international system by strengthening antidemocratic regimes around the globe.

The DNA of Business: 

The DNA of Business BEST BUY ACQUIRES SPEAKEASY   Best Buy Co., Inc. has agreed to acquire Speakeasy, Inc., one of the largest independent broadband voice, data and IT service providers in the United States. This move strengthens Best Buy's technology portfolio in the small business space, delivered through the company's Best Buy For Business unit. Flying into a new dawn Delta Air Lines applied for permission to list shares again, starting in May. The carrier entered bankruptcy protection in September 2005 and expects to leave it at the end of April. Productivity and profit growth rarely diverge Bottomless pockets Kohlberg Kravis Roberts said it would take over First Data, which processes credit-card and other payments, in a $29 billion buy-out. The deal is unusual in that, given its size, it was made by a single private-equity firm (and not a “club” of firms) with the backing of several banks that are committing equity as well as debt. The end for Endesa The 18-month saga to take control of Endesa, Spain's biggest power company, seemed to reach a conclusion. E.ON, a German utility, agreed to drop its euro42 billion ($56 billion) bid in return for some of Endesa's assets. It had faced both competition from an Italian-Spanish alliance that holds a 46% stake in the company and strong opposition from the Spanish government (which is being sued by the European Commission for hindering E.ON). Endesa will now be split among E.ON, Enel, an Italian rival, and Acciona, a Spanish construction firm. EUROPEAN UNION: Roaming charges may be capped The Industry, Research and Energy Committee of the European Parliament (EP) voted today in favour of automatically capping roaming charges for all mobile phone customers to 0.40 euros (0.54 dollars) per minute for outgoing calls and 0.15 euros for incoming calls, thus cutting current rates by as much as 70%. The committee backed the European Commission proposal, which claimed that current charges are unjustified. The Commission, trying to portray itself as a consumer champion, estimates that the industry makes an annual profit of 8.5 billion euros from the charges. European telecoms companies fiercely oppose any regulation, saying that market competition is already driving down prices and that revenue losses would have to be passed on to customers. The proposal will now have to be approved by the full EP and EU member states. While there is general consensus among EU lawmakers and governments about the need for capping roaming charges and regulation is likely to come into force by the summer, disagreements persist about whether the caps should be automatic or offered as an 'opt in' option to customers. Deals, Deals, Deals… Now biggest in baby food business… Nestle to buy Gerber for $5.5 Billion from pharmaceutical maker Novartis Education lender Sallie Mae agreed to be sold to two private funds and banks JP Morgan Chase and Bank of America for $25bn Suitors raise bid for Clear Channel… The two private equity firms seeking to buy Clear Channel Communications have sweetened their offer, fearing that their initial bid may be rejected by shareholders BCE, the parent of Bell Canada, said Tuesday that it was in discussions with a consortium of Canadian pension funds about a deal to take the company private.

U.S. Job picture: 

U.S. Job picture

More U.S. Job Details: 

More U.S. Job Details

Logistics: 

Logistics Warehouse Locations Multiplying, Reversing Previous Trend Third-party logistics executives said the industry is adapting to a chronic shortage of truck drivers by utilizing rail services and reopening shuttered warehousing facilities to cut down on transportation time and costs. As demand softens slightly, trucking capacity constraints have also eased, they said. Some Inventories Fattening; Firms More Prepared for Supply Chain Shocks… while inventories continue to turn faster overall, some clients are fattening their safety stock rather trimming their product supply. They don't want to be caught short if shocks to the pipeline, like weather disruptions or port congestion, should recur. A recent trend toward more safety stock in the supply chain Beginning mid-year 2006, some clients started to "expand their warehouse footprint around the country," for transportation and customer-service reasons. These are the same forces that compelled importing retailers to diversify points of entry to the U.S. and to establish distribution centers in a variety of regions, particularly after the congestion that snarled Southern California ports in 2004 The slowdown in automotive and residential construction might be providing some of the recent slack in trucker supply. As much as 20% of truck capacity was at one time dedicated to the automotive industry, but part of that is now freed up. The American Trucking Associations' for-hire truck tonnage index rose 1.6% in February from a particularly weak January, but fell 1.7% compared to a year ago, the eighth monthly year-over-year decline. Pressing signs of inflation in the supply chain include labor, insurances and land costs. Clients are increasingly turning to rail for goods transportation in response to high diesel prices and tight trucker supply during the past few years BRAZIL: Reports cite urgent need for ports investments Given that approximately 95% of all Brazilian exports pass through its ports and that exports have been the main driver of growth in recent years, the precarious condition of ports is of great concern to both businesses and the government. A long-term strategic vision with a clear plan of action is still missing, while regulatory uncertainties linger. Notwithstanding a stream of studies on the inadequacies and urgent requirements of Brazilian ports, the government has failed to make any definitive commitments beyond vague promises to improve transport infrastructure and to deal with some of the more immediate problems. Business has found it equally difficult to make meaningful investment plans and lasting commitments. Three events clearly illustrate the type of problems facing Brazilian ports: * In March 2007, Lula indicated that he planned to create a special Secretariat for Ports (later also including airports), separate from the Transport Ministry, as part of the ministerial reform process. However, many critics saw this as blatantly yielding to pressures to satisfy patronage demands from political parties in his coalition. * In November 2006, seven containers of tropical fruit from the Sao Francisco valley were left stranded for lack of containers at the Bahian ports of Suape and Salvador, resulting in the loss of merchandise worth some 260,000 dollars. * Although construction of the TEV in Santos was completed in August 2005, operations could not begin until after customs clearance was granted in April 2006.

The New Geography of Business: 

The New Geography of Business China's failure to curb investment may lead to overcapacity and falling prices, turning its expansion into a ``curse,'' the Asian Development Bank said. The economy has expanded at least 10 percent for the past four years, boosted by exports and spending on factories and real estate. Fixed-asset investment surged 24 percent in 2006, exceeding a target aimed at keeping the rate below 18 percent. ``Should investment continue to run at more than 20 percent a year, what has been a source of growth for many years could turn out to be a curse,'' the Manila-based lender said in its Asian Development Outlook 2007 report yesterday. It could lead to ``excess capacity and deflation.'‘ China raised interest rates to the highest in almost eight years and increased the amount of money lenders must set aside as reserves five times in eight months to slow investment. The government has also urged local governments to focus on efficiency and environmental programs rather than spending money on new factories. The number of foreign acquisitions by Russian firms has been growing, as has foreign direct investment into Russia. In combination, these trends suggest that Russian business is becoming increasingly integrated into the world economy. Some leading Russian companies are turning themselves into transnationals, which is for the most part a commercially driven process. State intervention may affect this process, particularly in the oil and gas industries, but it will not block it. INDIA: RBI moves to ease concerns over growth... The Reserve Bank of India (RBI) today stressed that "low and stable" inflation will be key to sustaining economic expansion. The comments come amid concerns about the implications of the bank's surprise Friday move to increase interest rates by 25 basis points. With annual inflation running at over 6.0%, the RBI has been under pressure to tighten monetary policy. However, its response, to increase interest rates to 7.75% (and the cash reserve ratio from 6.0% to 6.5%), has raised fears that consumption may stall, with serious consequences for growth. Stock markets fell by around 5% on Monday (but have since partially recovered). With an important state election approaching, Minister of Finance Palaniappan Chidambaram has eased his opposition to monetary tightening to back the RBI's latest move. High inflation and interest rates pose a serious threat to growth. Chidambaram's focus on supply-side issues has made little impact on prices, particularly for non-food items, intensifying pressure on the RBI to tighten monetary policy. It was the timing of the interest rate increase that was a surprise, and further upward moves can be expected if inflation fails to ease. China facing urban skills shortages… Access to a vast reservoir of surplus rural labour has made a key contribution to meeting urban employment requirements and to accommodating China's rapid GDP growth. However, the government faces severe challenges in its efforts to meet both the quantitative and qualitative demands of securing high and stable urban employment. Migration from the countryside will continue to play an essential role in supporting industrialisation, but there will be shortages of such labour in some places. Furthermore, as China moves towards higher value-added activities, the human capital demands of more skill and knowledge-intensive industries will place a premium on workers with higher educational attainments. Import and Export Price Index Release for: March 2007 Source: U.S. Labor Department Percent change from previous month, unadjusted yr/yr Dec-06 Jan-07 Feb-07 Mar-07 Imports, all 2.8% 1.1% -1.1% 0.1% 1.7% Petroleum imports 2.4 4.0 -6.6 0.6 9.0 Non-petroleum imports 2.9 0.5 -0.1 0.1 0.3 Non-fuel imports 2.6 0.3 0.3 -0.1 0.2 Exports, all 5.3 0.6 0.4 0.7 0.7 Agricultural exports 20.2 2.4 0.7 2.8 2.1 Non-agricult exports 4.2 0.5 0.5 0.5 0.6 Imports by origin: Canada 4.1 1.6 -1.2 0.8 1.6 EU 3.0 0.0 0.7 0.2 0.4 Latin America 1.5 0.5 -1.8 -0.4 1.9 Japan -0.7 0.0 -0.1 -0.2 0.1 NICs -0.1 0.1 -0.6 0.1 0.0 China -0.6 0.0 -0.1 -0.1 0.2

Crude Analysis - Commodity Futures: 

Crude Analysis - Commodity Futures Aluminum and stainless steel costs are still very high. Nickel, which makes steel stainless, has been setting monthly price records. Gypsum wallboard prices, however, are headed in the other direction. Used heavily for homes as well as schools, hospitals, offices and stores, gypsum prices fell about 4.4% from November to February Producers of ready-mix concrete pushed prices up for the third consecutive month. April started with a 1.4% average price hike for 3,000, 4,000 and 5,000-psi concrete. This follows monthly increases of 0.6% in March and 0.8% in February. The combined monthly increases have kept prices 5.8% above a year ago. This compares to year-to-year increases of 7.0% in April 2006 and 3.8% in April 2005. Portland cement prices rose another 0.2% this month, capping a nine-month increase that has left prices 6.5% above a year ago Ethanol Demand Boosts Corn Planting High demand from the ethanol industry and strong export sales are expected to translate this year into the biggest U.S. corn planting since 1944, according to a report Gas-to-liquids (GTL) technology offers an alternative source of refined oil products, particularly premium ultra-low sulphur products. However, few countries offer the right conditions to make acceptable the associated high capital and price risks. The countries with most GTL potential are Qatar, Nigeria and Algeria. A big expansion of the GTL industry is dependent on Qatar's review of its North field reservoir. In the meantime, projects are highly vulnerable to cost inflation, developments in the traditional refining sector and the relationship between oil and gas prices. Buoyant energy prices may hit US growth The producer price index (PPI) rose 1.0% last month, the Labor Department reported on April 13. Although core producer prices (which exclude volatile food and energy prices) were flat, the headline figure was well above Wall Street's expectations and has raised concerns that higher fuel costs may cut into consumer spending. In a separate report, the Commerce Department indicated that the US trade deficit declined to 58.4 billion dollars in February, from 58.9 billion dollars the previous month. However, exports, which have helped boost faltering growth, fell marginally. Falling energy prices have helped reduce inflationary pressures since the third quarter of 2006. However, US energy prices are increasingly buoyant, which may put pressure on the Federal Reserve to maintain a monetary 'tightening bias', deepening the current slowdown.

Pumping Iron - The Old Economy: 

Pumping Iron - The Old Economy China's crude steel output in 2007 is expected to rise 13.4 pct to 475 mln tons, a senior official from the China Iron and Steel Association said. Qi Xiangdong, CISA's vice secretary, told reporters at an industry conference that output of steel products is also expected to rise 12.85 pct to 527 mln tons. In 2006, China produced 466.85 mln tons of steel products, up 24.45 pct, while crude steel output totaled 418.78 mln tons, up 18.48 pct. China, the world's biggest steel producer, said it will cut tax breaks on exports of some steel products as the nation seeks to reduce a record trade surplus. Rebates on exports of 76 products including stainless steel and cold-rolled coils will be cut to 5 percent from April 15, the State Administration of Taxation said in a statement posted on the China Iron and Steel Association's Web site. Tax breaks on other 83 grades will be abolished. The reduction in tax incentives may squeeze margins for mills including Angang Steel Co., whose exports account for 20 percent of sales, UBS AG has said. Still, higher global prices may allow producersÿto pass on tax costs, analysts said. The changes may not slow exports because mills can still make money given the gap between global and Chinese prices Absurd construction costs… Prices for sewer and water PVC pipe started the month with a strong rebound that wiped out declines during the previous two months. Despite the rebound, April prices for PVC water pipe are still 5 to 7% below a year ago. Prices for PVC sewer pipe have been more resilient and are just slightly below last year's level. After a few months of downward adjustments from last year's spike, copper water tubing prices have stiffened. This month's 2% rebound keeps copper tubing prices 27% above last year's level

Media Clips: 

Media Clips Help-Wanted Ad Index Release for: February 2007; Source: The Conference Board Index base 1987=100, seasonally adjusted yr-ago Feb-07 Jan-07 Dec-06 Nov-06 Oct-06 Feb-06 ------------------------------------------------------------------------------- National Index 31 32 34 29 29 39 New England 18 21 18 15 14 20 Middle Atlantic 18 19 20 18 18 21 East N. Central 24 26 31 23 22 27 West N. Central 36 37 34 35 34 49 South Atlantic 19 20 20 18 19 25 E. South Central 81 61 65 59 59 87 W. South Central 62 63 70 61 63 83 Mountain 80 79 80 67 65 95 Pacific 21 22 22 22 24 29 Google made its biggest foray into television advertising by announcing a partnership with EchoStar. The deal will allow the internet company, which has been experimenting with “offline” advertising over the past few months, to replicate its online system for buying, selling and measuring the impact of ads on EchoStar's 125 satellite channels in the United States. Newspaper Internet ad growth moderating… After growing 32.5% in 2006 at the companies we cover, median newspaper Internet growth slowed to 17% YTD. Key drivers: slowing help-wanted, intensifying online help-wanted competition, online growth shift toward streaming video, and reduced online upsell opportunities from weakening print trends. The bet in newspaper sector… As newsprint prices continue to head south, publishers should get even more relief on newsprint costs as the year progresses. If the pressure on the top line abates somewhat in the 2H, the companies could see some positive operating leverage then.

Tech and the Business Cycle: 

Tech and the Business Cycle Strong chip seasonals, but slowing ahead… The Semiconductor Industry Association (SIA) reported a 9.2% year over year increase and a 2.5% sequential increase in chip sales for November. Global chip sales rose to $21.9 billion, an increase of 9.2% from $20.1 billion in November 2005, and a 2.5% increase from the $21.4 billion reported in October 2006. Sales of personal computers, cell phones and MP3 players continued to be strong, reflecting the start of the holiday season. The SIA noted that there are signs of slower overall economic growth and a slowing economy could impact sales of semiconductors in the coming months. Sales of dynamic random access memory chips, or DRAM, jumped 42% from a year earlier and sales of microprocessors fell 3% from October 2005. Dot.Com A billionaire Russian entrepreneur behind Russia's biggest vodka maker has paid $3 million to acquire the vodka.com domain, part of a bid to expand into the U.S. market. Start-Up Fervor Shifts to Energy in Silicon Valley ``The global electronics cycle could turn in 2007, which would negatively affect export prospects particularly for East and Southeast Asia,'' the report from the Asia Development Bank said. ``The relief that lower prices are currently bringing to budgets, to inflationary pressures and to import bills is welcome, but should not be counted on.'' US IT new orders in February continued their soft-patch – a trend that has been in place since last October. The YoY growth rate of orders fell back to near-zero in Feb from 2% in Jan. But the MoM growth rate rebounded from -3.4% in Jan. Internet sales save US retail sales… While several categories were revised upward, the most significant revision was to sales at nonstore retailers, now estimated at up 5.3% in February (vs. 2.8% initially reported). The surge at nonstore retailers likely reflects the activities of consumers hampered by bad weather and using the internet for an increasing share of purchases. Retail sales rose 0.7% in March, near the median of analysts’ forecasts (according to Bloomberg). The previous month’s very soft rise was revised upward to a 0.5% gain (from 0.1% first estimated). Non-auto sales rose 0.8% in March, also near the median of analysts’ forecasts. February non-auto sales are now estimated at up 0.4% (vs. -0.1% first estimated). Sales due to high gasoline prices however were a main driver. Singapore's exports posted their smallest increase in 18 months in March as companies shipped fewer semiconductors, disk drives and other electronics. Non-oil domestic exports rose 1.6 percent from a year earlier, after a decline of 6.6 percent in February, the government's trade promotion body said in a report today. That was worse than the median forecast of a 2 percent gain. Slowing growth in the U.S. and Europe is hurting sales forAsian electronics manufacturers

Real Estate and Construction Outlook: 

Real Estate and Construction Outlook Boom in Hotel Sector… US hotel sales for 2006 were $35.3 billion, an increase of 68% from $21 billion in 2005, according to a recent report on national hotel investment by Jones Lang LaSalle Hotels. The company tracked all hotel sales of $10 million and higher. Last year was the third year in a row of “record transaction volume for the hotel industry,” says Kristina Paider, senior vice president of research for Jones Lang LaSalle Hotels. The largest hotel transaction was the sale of the Four Seasons Hualalai for $502 million, she says. The increase in sales is due to both an increase in the number of hotel sale transactions and an increase in the sales price. The growth is due to many factors, including high and increasing operating returns, more and diversified buyers, an increased ability to obtain financing and a limited amount of newly constructed hotels, according to the report. “Many choose to buy and renovate over building because of those high [construction] costs,” she says. There is a greater “transparency” regarding hotels’ operating results, which allows investors, who may not have a lot of experience with buying and managing hotels, to enter the market, according to the report. “Hotels are seen as becoming more of a mainstream asset class,” Paider says. More hotels are also entering the marketplace as some of the publicly held companies involved in hotel real estate are selling the hotel buildings but continuing to operate the hotel. “They are moving to an owner-operator structure,” she says. A recent trend is groups of buyers pooling their resources to buy large hotel portfolios, which is something Paider sees continuing. Though the Phoenix condo conversion craze is officially dead, certain markets still boast a high demand for ground-up condominiums while others have projects barely limping toward the finish line. The dichotomy is especially apparent in two submarkets in the Greater Phoenix metro. In Scottsdale, local developer Urban Home Development Corp. is betting $220 million on two developments, the 288-unit Citro Camelback at 78th Street and Camelback Road and 68-unit Citro Biltmore, situated at Missouri Avenue and 18th Street. But farther south, in Chandler, Signature Properties West's Elevation Chandler project has been stalled once again--and is now on the market. Total government construction spending in the US increased for the seventh consecutive month. After a 1.6% advance in January, February’s gain was 0.4%. State and local construction advanced by 0.6% in February while federal government construction spending, a small and highly volatile series, tumbled 1.8%. The January-February average of state and local government construction spending is up a stunning 14.4% (annualized) versus the 4Q average, implying that state and local government construction spending will be a positive contributor to 1Q GDP growth. Construction boosts outlook in Singapore The economy expanded by 6.0% year-on-year in the first quarter, the government said today. Construction was a key driver, expanding by 7.0% compared to 4.7% in the previous quarter. The city-state is looking to revived dynamism within the sector to offset the impact of slowing external demand for its exports, particularly electronics, over the year. A recent ban by Indonesia on sand exports to Singapore threatens to push up prices, but the development of casino resorts and housing are nevertheless among the investment and construction projects that are boosting the economic outlook. Both manufacturing, which accounts for one quarter of the economy, and services grew by 6.1%. The figures strengthen government forecasts for annual growth this year to reach 4.5-6.5%, although much still depends on the global economy remaining relatively benign. Lodging pros see 'an anxious time' as they chart an economy slowing faster than expected. Moody's Investors Service ... will require more protection for investors in securities backed by mortgages on apartment buildings, offices and other commercial properties because of "a continued slide" in lending standards. China… investment in real estate grew 26.9% year-on-year to 354.4 billion renminbi (45.8 billion dollars) in the first quarter, according to National Development and Reform Commission figures today. This represented an important acceleration on the rate of increase a year earlier, and suggests that the government will continue to tighten policy to rein in sectors such as real estate, despite signs elsewhere that measures taken to date are beginning to work. Foreign interest in real estate appears to be rising fast. The government will continue to encourage more balanced investment in real estate, and will want to tighten control further on property development. Eurozone Total Construction Output Release For: February 2007 Percent change vs previous period, Workday adjusted Source: Eurostat Sep06 Oct06 Nov06 Dec06 Jan07 Feb07 ------------------------------------------------------------- EMU-13 4.0 5.4 6.5 8.9 9.1 10.4 EU-27 2.8 6.9 6.2 7.4 9.2 9.2 EMU-12 3.9 5.3 6.4 8.8 9.0 10.3 EU-25 2.7 6.8 6.1 7.1 9.0 9.0 Year-over-year percent change Workday adjusted ------------------------------------------------------------- Belgium 3.5 4.3 4.9 12.2 10.7 8.6 Czech Republic 5.8 3.1 7.2 18.5 28.8 32.5 Germany 7.9 4.6 11.7 13.5 35.6 30.7 Spain 0.1 3.7 5.7 7.6 -3.1 6.4 France 4.3 6.7 3.9 10.3 2.2 3.1 Luxembourg 2.0 5.6 -1.5 10.5 11.7 na Hungary -3.8 7.5 -5.0 0.0 -2.9 na Netherlands 6.9 4.1 4.4 2.3 5.5 8.2 Austria 3.0 3.0 2.2 0.3 27.5 na Poland 22.2 27.3 21.8 19.3 60.1 57.1 Portugal -9.2 -4.7 -6.5 -10.8 -6.7 -6.6 Romania 21.2 20.4 22.1 24.2 27.2 28.6 Slovenia 38.0 41.2 23.2 30.3 37.3 31.0 Slovakia 14.4 8.8 15.9 20.4 20.4 25.6 Finland 6.8 7.2 5.1 12.4 16.4 na Sweden 10.2 8.2 10.8 11.4 13.4 15.4 United Kingdom -7.6 9.9 2.0 -2.5 4.7 0.5 -------------------------------------------------------------

Breakout in Europe?: 

Breakout in Europe? German Business Indicators IFO ZEW Investor Sentiment Expectations Jun 02 91.3 69.6 Jul 89.9 69.1 Aug 88.8 43.4 Sep 88.2 39.5 Oct 87.7 23.4 Nov 87.3 4.2 Dec 87.1 0.6 Jan 03 87.4 14.0 Feb 89.3 15.0 Mar 88.9 17.7 Apr 88.4 18.4 May 89.4 18.7 Jun 90.6 21.3 Jul 91.6 41.9 Aug 92.8 52.5 Sep 93.0 60.9 Oct 95.3 60.3 Nov 96.2 67.2 Dec 97.0 73.4 Jan 04 97.5 72.9 Feb 96.4 69.9 Mar 95.4 57.6 Apr 96.3 49.7 May 96.1 46.4 Jun 94.6 47.4 Jul 95.6 48.4 Aug 95.3 45.3 Sep 95.2 38.4 Oct 95.3 31.3 Nov 94.1 13.9 Dec 96.2 14.4 Jan 05 96.4 26.9 Feb 95.4 35.9 Mar 93.9 36.3 Apr 93.3 20.1 May 92.9 13.9 Jun 93.3 19.5 Jul 95.0 37.0 Aug 94.6 50.0 Sep 96.0 38.6 Oct 98.8 39.4 Nov 97.8 38.7 Dec 99.5 61.6 Jan 06 101.7 71.0 Feb 103.3 69.8 Mar 105.4 63.4 Apr 105.9 62.7 May 105.7 50.0 Jun 106.8 37.8 Jul 105.6 15.1 Aug 105.0 -5.6 Sep 104.9 -22.2 Oct 105.3 -27.4 Nov 106.8 -28.5 Dec 108.7 -19.0 Jan 07 107.9 -3.6 Feb 107.0 2.9 Mar 107.7 5.8 Apr 16.5 EU Commission EMU Bus. Climate Indicator Release For: March 2007 ---------------------------- Business Climate Indicator ---------------------------- Mar07 1.55 Feb07 1.55 Jan07 1.38 Dec06 1.58 Nov06 1.52 Oct06 1.38 Sep06 1.40 Aug06 1.19 Jul06 1.29 Jun06 1.38 May06 0.98 Apr06 1.11 Mar06 0.75 Feb06 0.53 Jan06 0.27 Dec05 0.31 Nov05 0.06 Oct05 0.10 Sep05 -0.01 Aug05 -0.15 Jul05 -0.15 Jun05 -0.37 May05 -0.45 Apr05 -0.37 Mar05 -0.18 Feb05 0.11 Jan05 0.32 EMU Mar New Car Registrations -2.4% YY; German VAT Still Felt… Eurozone new car registrations fell 2.4% on the year in March, after a 3.8% decline in February, according to Market News calculations based on data released Friday by the European Automobile Manufacturers Association (ACEA). For the entire first quarter, eurozone registrations were down 2.3% compared to the same period of 2006. The sales tax hike that went into effect in Germany at the start of the year played a major role in reducing new car sales. AT&T pulled out of talks to buy a stake in Olimpia, a major shareholder in Telecom Italia, after increasing political pressure within Italy for the sale to be blocked. This is one in a series of recently failed takeover bids, showing EU governments' willingness to intervene in defence of national champions or preferred European configurations. Moreover, cases such as Airbus show how former exemplars of European cooperation can be compromised by national political considerations. The European Commission has, with some success, pursued a clear policy in trying to limit such behaviour. However, some difficult issues -- principally concerning corporate governance -- and political pressures remain a challenge in some member states.

Japan Watch: 

Japan Watch Auto exports are soaring but Japanese local sales have fallen Downside Surprises on Machinery Orders and Bank Loans: Temporary Lull in Activity Japan Real Estate: It is particularly interesting to note that the March survey showed a further improvement in sentiment among firms in the real estate sector, with the business conditions DI for large firms rising 7 points from the previous survey to +53, thereby surpassing the level of +50 that was reached when Japan was in the midst of a land price bubble back in March 1988 Tankan report in Japan... The index for sentiment among large manufacturers fell to 23 in March from 25 in the December survey, the first quarter-on-quarter drop in a year, but it was slightly better than the 22 expected by those firms three months ago. The Tankan, which was conducted from Feb. 23 to Mar. 30, showed the main index will dip further to 20 in the three months ahead. The index of large non-manufacturers was at 22, unchanged from December and is expected to rise to 23 in the next three months. Sentiment among retailers worsened further in March but is forecast to post a sharp pickup by June while other service industries also showed a gradual recovery. Domestic sales of new cars, trucks and buses, excluding mini vehicles, fell 12.6% year on year in March to 487,738 units, declining for the 21st straight month, the Japan Automobile Dealers Association said Monday. Car sales last month were down 12.4% year-on-year at 420,586 units, while sales of buses fell 12.3% to 3,151 units and truck sales dropped 13.8% to 64,001 units. For the year to March, domestic sales of new cars, trucks and buses, excluding mini vehicles, fell 8.3% year-on-year in the year to March, to 3,587,930, according to the JADA data. Household sentiment… the seasonally adjusted quarterly figure of 46.7 for March was down 0.3 percentage points relative to December, and therefore roughly flat. Household sentiment as measured by the survey improved in October-December 2006, but no further improvement has been evident since the beginning of this year--a result that is somewhat disappointing.

Will Life Ever Be the Same?: 

Will Life Ever Be the Same? This publication is an independent perspective and is provided to you for information purposes only. This publication is completely independent of any company, advisory board, or board of directors that Abraham Gulkowitz may be affiliated with. It is also not intended as an offer, encouragement or solicitation for the purchase or sale of any financial instrument. The information contained herein has been obtained from sources believed to be reliable but is not necessarily complete and its accuracy cannot by guaranteed. The views reflected herein are subject to change without notice. Neither TPL Advisory LLC, nor any of its officers or employees accept any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. This publication may not be reproduced, distributed to any person for any purpose without express permission. Please cite source when quoting. If you are not the intended recipient, please notify the sender immediately, delete this Message and do not disclose, distribute or copy it to any third party or otherwise use this Message. Electronic messages are not secure or error free and can contain viruses or may be delayed and the sender is not liable for any of these occurrences. All rights are reserved. Where’s the diversification ?