redrock@peternavarro.com

Since the bull market began back in October of 2003, the S&P 500 has gone up an average of 48 bps on the first day of each month (buying at the close on the last day of the prior month and selling at the close on the first day). On these days, the Index has been up 27 out of 37 times (73%). More striking is the compounded return of these days versus the return had one bought for the rest of the month (buying at the close on the first day of the month and selling at the close on the last day of the month). Starting on the first day of the month in November of 2002, buying on the first day of the month has amounted to half of the S&P 500's overall gains.

redrock@peternavarro.com

French doctors claim to have completed the first face transplant on a 39-year-old woman whose face had been mangled in a dog attack. The partial transplant took place on Sunday at the Amiens University Hospital. Apparently, the surgeons replaced her nose, lips, and chin with the features of a brain-dead woman. Apparently, people are now pissed off about the surgery for various reasons. From the Associated Press:

Dr. Laurent Lantieri, an adviser to the French medical ethics panel, said the surgeons who operated violated the panel's advice because they failed to try reconstructive surgery first. He said a transplant donor was immediately sought without trying to repair the woman's face with more conventional surgery...

The panel had previously objected to full face transplants but said partial ones could be considered under strict circumstances, which included first trying normal surgery.

"The ethics committee said this kind of transplant should never be considered as an emergency procedure," Lantieri said.

However, surgeon Denys Pellerin, of the National Consultative Ethics Committee advised by Lantieri said, "as long as the transplant is not total, it is not unethical."

And Dr. Jean-Pierre Chavoin, secretary general of the French society of plastic surgery, noted that Lantieri had planned to do a face transplant himself and had been beaten.

Carine Camby, director general of the agency under the French Health Ministry that coordinates organ procurement, said normal reconstructive surgery could not have been used in this case.

"It is precisely because there was no way to restore the functions of this patient by normal plastic surgery that we attempted this transplant," Camby said. "She could no longer eat normally, she had great difficulty speaking and there is no possibility with plastic surgery today to repair the muscles around the mouth which allow people to articulate when they speak and not spit out food when they eat."

redrock@peternavarro.com

I stood by the side of the market today and saw the action and kept shaking my head. The only US indice that was down today was the VIX and VXN both down about 7.5%. Folks, the spigot is wide open and spewing money all over the street. I don't know when I saw a market where everything, and I mean everything, stocks, bonds, commodities, gold, oil, etc is up big big big on no news outside of the rush of liquidity.

I’ll make the statement here that the equity market is rapidly becoming a huge risk based on the seemingly out-of-control increase of personal and public sector debt in the U.S. As I cannot see any change in that trend, given what the U.S. Administration has decided to do this week by allowing much higher mortgages (and higher much higher cash-outs for personal spending).

Yes, as money supply zooms, so too will equity markets. But think of the immense capital market risk that traders are taking on. My whole point to this blog is to educate traders to hand risk off to Wall Street. Don’t be suckers.

Wall Street, and the Administration, today is acting criminally. If this were a Christmas party, with an open bar, I look at the situation going on in capital markets like the party host pouring liquor down the throats of party revellers. Few people are thinking about the drive home. I decided to stay off the road.

Here’s your odd stat for the day, along with a small lesson. There are only eight stocks that have beaten the S&P 500 for the last seven straight calendar years. That’s a lot lower than what I would have guessed.

If we assume that every stock has a 50-50 chance of beating the market each year, then seven straight victories would be 1-in-128 (one over two to the seventh). Given that a few thousand stocks have traded continuously over that time, I would have guessed that a few dozen stocks had seven-year win streaks. Over 500 stocks have beaten the market the last five years. What happened? 1999. The S&P 500 was up a lot that year, but most stocks weren’t. The reason is that the index is weighted by market value. The bigger you are, the more say you have. And the big boys were soaring that year. For everyone else, 1999 wasn’t much fun. The median return was 0%.

The eight stocks that beat the S&P 500 from 1998 through 2004 are Canterbury Park (ECP), Chico’s FAS (CHS), Cohesant Technologies (COHT), Electronic Arts (ERTS), FactSet Research Systems (FDS), K-Swiss (KSWS), Oshkosh Truck (OSK) and Rare Hospitality (RARE).

Here’s how the eight are doing so far this year:

Chico's FAS 93.76%
Oshkosh Truck 32.21%
K-Swiss 7.68%
Rare Hospitality International 0.53%
FactSet Research Systems -0.03%
Electronic Arts -8.63%
Canterbury Park Holding -25.93%
Cohesant Technologies -27.23%

redrock@peternavarro.com

In yet another sign that the housing boom is fizzling,
existing home sales declined last month, pushing up
inventories to a 19-year high, a new report found,
according to Newsday.com.

Sales slipped a greater-than-expected 2.7 percent in
October from September's pace, according to the
National Association of Realtors, a Washington
D.C.-based industry group. The drop would have been
3.2 percent but for the people forced to relocate
after the hurricanes.

Meanwhile, the number of unsold homes rose 3.5
percent, to the highest inventories since April 1986.

davio redrock@peternavarro.com

Since 2000, American households have spent more than they earned - a shift from the prior 3 decades. Q3 2005 household spending was a record $531 billion more than their after-tax earnings (annualized). Consumer spending was 76% of Q3 GDP - a record high, up from 73% in 2000.


Residential real estate is a record 204 percent of disposable personal income, compared with 150 percent in 2000

redrock@peternavarro.com

Much has been said about the $600 billion residing on
the balance sheets of corporations and the resultant
buybacks and 'massive' dividend increases. Yet after
the recent rally in stocks, the dividend yield of the
SPX stands at a measly 1.76%.

Since 1968, whenever T-bill yields have been more than
2.12 times SPX yields, stocks have generally fallen.
The one time this did not hold true was in the bubble
years of 1998-2000 when the ratio actually reached
5.21. So, either we are about to enter another bubble
phase - which is hard to imagine with record low
equity mutual fund cash levels (as a percentage of
assets) - corporations need to pony up some cash, or
the Fed needs to lower rates.

Since I find most of the preceding thoughts highly
unlikely, don't be surprised after the recent rally in
stocks and the recent rally in short-term yields to
allow for further major upside in stocks.

redrock@peternavarro.com

MRK Merck guides for Y05, Y06, announces restructuring (30.98 )

Co issues in-line guidance for FY05 (Dec), sees EPS of $2.47-2.51, ex items vs. $2.50 Reuters Estimates consensus; co issues guidance for FY06 (Dec), sees EPS of $2.28-2.36, excluding charges but including $0.07 in stock option expense, not clear if comparable to $2.38 consensus. Co also announces restructuring program, will cut 7000 jobs by 2008, close five manufacturing plants, expects to yield $3.5-4.0 bln in cost reduction from Y06-Y10. Initial steps include the implementation of new, leaner, more cost-effective supply strategy by the Merck Manufacturing Division.

davio redrock@peternavarro.com


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