Wind Power's Dirty Little Secret

The New York Times, in a Pulitzer Prize-worthy feat of investigative reporting (not really), this week exposed some of the dirty little secrets of wind power: among them, that significantly increasing its use will also require the construction of new conventional power plants, as backup for wind turbines that don't turn when the wind doesn't blow. "Wind, almost everybody's best hope for big supplies of clean, affordable electricity, is turning out to have complications," the Times reported Thursday. Maybe the article should be clipped and sent out to all those -- including Statehouse Democrats and the governor-elect -- who are banking on wind and other renewables as the answer to our energy challenges.
This is the excellent analogy the Times uses to explain the situation: "A wind machine is a bit like a bicycle that a commuter keeps in the garage for sunny days. It saves gasoline, but the commuter has to own a car anyway." Thus, according to the story, "wind turns out to be a good way to save fuel, but not a good way to avoid building plants that burn coal."
The grid not only requires a steady flow of electricity to function properly, but consumers and businesses need the grid to respond instantaneously to meet demand -- neither of which wind farms can do. The best technology to provide backup for wind farms when the turbines aren't turning is a natural gas-fired power plant, which isn't cheap to operate or build. The higher the reliance on wind, the greater the need for conventional power plants to serve as backups. Without factoring the costs of constructing, maintaining and operating those backup plants into the equation, along with the cost of building and maintaining new transmission lines to the often remote places where these farms are located, you're not looking at the big picture. The article points out that these additional factors make wind power less-than-cost-competitive with coal, even when federal wind subsidies are factored in.
The cost of operating a coal-fired power plant could rise in the future, depending on energy markets and whether governments begin taxing carbon dioxide, an idea that is bound to gain momentum with tax-and-regulate Democrats running Congress and Colorado's Legislature. But refrain from imposing this foolish tax, and take away the federal subsidies and other forms of support for the wind power industry, and wind farms are net losers, in terms of the cost per megawatt hour.
Knee-jerk supporters of renewables, especially wind, will argue that the extra cost is worth it if the emissions from coaland natural gas-fired plants are reduced. But whether ratepayers will calculate the costs and benefits that way when the bills come due for the wind power craze remains to be seen. Maybe ratepayers will be happy to pay more for cleaner and "greener" energy (which they can do now, through voluntary programs). Or maybe ratepayers will feel like they were sold a bill of goods.
The point of the Times story was clear: "Without major advances in ways to store large quantities of electricity or big changes in the way regional power grids are organized, wind may run up against its practical limits sooner than expected."
We don't doubt that, over time, innovations will help solve some of wind power's technical drawbacks. But the march of innovation will also help make conventional power plants more efficient and clean over time. To pretend that innovation will fall only to the benefit of renewables, while it stands still everywhere else, is just one of many fallacies renewable advocates lean on for support.
We're not arguing that renewables don't have a role to play -- just that such decisions should be dictated not by government mandates, but through the voluntary actions of utility companies, responding to market forces and consumer demand. We hope that acknowledging "clean" energy's dirty little secrets will help the reflex regulators see the light and think twice before imposing any more mandates.

Wind Power's Promise May Be Restrained

U.S. wind power strangled by antiquated power grid
By Matthew L. Wald
Wednesday, August 27, 2008

WASHINGTON: When the builders of the Maple Ridge Wind Farm spent $320 million to erect nearly 200 windmills in upstate New York, the idea was to get paid for producing electricity. But at times, regional electric lines have been so congested that Maple Ridge has been forced to shut down even with a brisk wind blowing.
That is a symptom of a broad national problem. Expansive dreams about renewable energy, like Al Gore's hope of replacing all fossil fuels in a decade, are bumping up against the reality of a power grid that cannot handle the new demands.
The dirty secret of clean energy is that while generating it is getting easier, moving it to market is not.
The grid today, according to experts, is a system conceived 100 years ago to let utilities prop each other up, reducing blackouts and sharing power across small regions. It resembles a network of streets, avenues and country roads.
"We need an interstate transmission superhighway system," said Sudeen Kelley, a member of the Federal Energy Regulatory Commission, which governs many interstate transmission projects.
While the United States now gets less than 1 percent of its electricity from wind turbines, many experts are starting to believe that figure could hit 20 percent.
Achieving that would require moving large amounts of power over long distances, from the windy, lightly populated plains in the middle of the country to the coasts where many people live. Builders are also contemplating immense solar-power stations in the nation's deserts that would pose the same transmission problems.
The grid's limitations are putting a damper on such projects already. Gabriel Alonso, chief development officer of Horizon Wind, the company that operates Maple Ridge, noted that in parts of Wyoming, a turbine could make 50 percent more electricity than an identical model installed in New York or Texas.
"The windiest sites have not been built, because there is no way to move that electricity from there to the load centers," he said.
The basic problem is that many transmission lines, and the connections among them, are simply too small for the amount of power companies would like to squeeze through them. The difficulty is most acute for long-distance transmission, but shows up at times even over distances of a few hundred miles.
The transmission lines carrying power away from the Maple Ridge farm, atop Tug Hill near Lowville, New York, have sometimes become so congested that the company's only choice was to shut down - or pay fees to the grid operator for the privilege of continuing to pump power into the lines.
Politicians in Washington have long known about the grid's limitations and have been talking seriously about solving them for a decade, but they have made little progress. They are reluctant to trample the prerogatives of state governments, which have traditionally exercised authority over the grid but have little incentive to push improvements that would benefit neighboring states.
Another problem is that the grid is balkanized, with about 200,000 miles, or 322,000 kilometers, of power lines divided among 500 owners. Big transmission upgrades often involve multiple companies, many state governments, and numerous permits. Construction costs are astronomical, and every addition to the grid provokes fights with property owners who do not want to look at a line of power pylons marching across the landscape.
These barriers mean that electrical generation is growing four times faster than transmission, according to U.S. government figures. In the last 20 years, according to the U.S. Energy Department, peak electrical demand is up more than 53 percent but the means to transmit that electricity have grown by only 12 percent. (The vulnerability of the grid became clear in August 2003, when trouble on a few power lines in Ohio precipitated a blackout that affected 50 million people in the Northeastern United States and Canada.)
In legislation passed in 2005, Congress gave the Energy Department the authority to step in to approve transmission if states refused to act. The department designated two areas, one in the Middle Atlantic states and one in the Southwest, as national priorities where it might do so; 14 U.S. senators then signed a letter saying the department was being too aggressive.
Energy Department officials say that, however understandable the local concerns, they are getting in the way of a vital priority.
"Viewed from a broad perspective, it is clear that modernizing the electric infrastructure is an urgent national problem, and one we all share," Kevin Kolevar, assistant secretary for electricity delivery and energy reliability, said in a speech last year.
Unlike many of the nation's energy problems, improvements to the grid would require no fancy new technology.
An Energy Department plan to get 20 percent of the nation's electricity from wind calls for a high-voltage backbone that would span the country. It would use technology similar to 2,100 miles of power lines, mostly in Ohio, West Virginia, Virginia and Indiana, that are already operated by a company called American Electric Power.
The cost would be high - $60 billion or more - but in theory could be spread across many years and many millions of customers who would benefit from access to new power sources. However, in most states, rules used by public service commissions to evaluate transmission investments discourage multi-state projects of this sort. In some states with low electric rates, officials fear that new lines will simply export their cheap power and drive up prices.
Without a clear way of recovering the costs and earning a profit, and with little leadership on the issue from the federal government, no company or organization has offered to fight the political battles necessary to get such a transmission backbone built.
Texas and California have recently made some progress in building transmission lines for wind power, but nationally, the problem seems poised to get worse. Today, New York State has about 1,500 megawatts of wind capacity. The state has windy areas that could handle far more turbines, and is planning for another 8,000 megawatts of capacity.
But those turbines will need to go in remote, windy areas that are far off the beaten path, electrically speaking, and it is not clear that enough transmission capacity will be developed to handle the power.
Save for two underwater connections to Long Island, the state has not built a major new power line in 20 years.

Dell's 2nd Qtr 2008 Earnings Down

Dell reported fiscal second quarter revenue of $16.4 billion, up 11 percent year-over-year and driven by a 19 percent increase in worldwide product shipments. Earnings per share were $0.31 (consensus was $0.36) and cash flow from operations was $1.1 billion.
“We are positioning Dell to win in a new era of global IT spending,” said Michael Dell, chairman and CEO. “We have our most competitive product portfolio ever – whether for digital nomads or hyper-scaled data centers. Our growth at a multiple of the industry across all major product categories for the second consecutive quarter affirms we are on track with our five key business priorities – notebooks, consumer, enterprise, SMB and emerging countries.”
Operating income was $819 million, or 5 percent of revenue. Gross margins in the quarter were adversely affected by actions to drive growth in strategic areas like Global Consumer and EMEA, as well as an increase in deferred revenue from the sale of successful service offerings in EMEA, which will be recognized in subsequent periods.
Dell’s productivity improvements gained momentum in the quarter with operating expenses at 12.2 percent of revenue, a decrease of 1.6 percentage points and the lowest level for Dell in six quarters. Dell’s tax rate in the quarter was 26.4 percent.
In the quarter, the company absorbed $27 million of expense for the amortization of purchased intangibles and $25 million in business realignment costs. Each expense was worth about $0.01 in earnings per share. The company remains committed to achieving annualized cost reductions of at least $3 billion by the end of fiscal year 2011.
“We are making progress in improving productivity and reducing costs,” said Brian Gladden, Dell CFO. “Strategic actions to accelerate growth in certain areas of our business affected gross margins this quarter and there will be some non-linearity in the improvements in our operating income margins as we rebalance our portfolio, make cost improvements and drive growth.”

Dell ended the quarter with $9.5 billion in cash and investments and weighted average shares were 2 billion, a 12 percent reduction. The company spent $1.4 billion to repurchase 60 million shares of stock.
Continued actions have reduced headcount by more than 8,500 in the past year, excluding increases from acquisitions. In the third quarter, the company will attain the goal of 8,900 it set for reductions a little more than a year ago. On an ongoing basis, Dell will invest in strategic growth areas, while focusing on scaling costs and improving productivity.

Gov. Sarah Palin Approves Pipeline Construction

TransCanada Gets Alaska Governor Palin's Approval for Pipeline
By Eduard Gismatullin

Aug. 29 (Bloomberg) -- TransCanada Corp., the nation's largest pipeline company, won approval from Alaska Governor Sarah Palin to build a $27 billion pipeline to carry natural gas from the Arctic to U.S. markets.
Palin on Aug. 27 signed a bill authorizing the state to award Calgary-based TransCanada a license to build the 1,715- mile (2,744-kilometer) link from Prudhoe Bay to the Alberta Hub in Canada, according to a statement. The license will be granted in 90 days.
``Our company has started field work on the project in order to meet our target date for completing the initial open season within two years,'' TransCanada Vice President Tony Palmer said in the statement.
Alaskan authorities plan to develop gas deposits on Alaska's North Slope that were discovered decades ago and left untouched by the inability to get the fuel to users. Palin solicited pipeline proposals last year and chose TransCanada's proposal after rival plans by BP Plc and ConocoPhillips didn't meet the state's requirements.
Tapping the North Slope fields, which Alaska estimates to hold 35 trillion cubic feet of gas, would help make up for lower state revenue arising from declining oil production. Alaskan crude output has dropped by more than half since 1998.
Alaska owns the gas; BP, ConocoPhillips and Exxon Mobil Corp. hold most of the leases to develop it. The two partners have invited Exxon to join their pipeline venture known as Denali to compete with TransCanada.
State Subsidy
Under its license agreement with the state, TransCanada will get a $500 million subsidy in return for seeking federal regulatory approval for the project and finding customers for the pipeline. The license doesn't guarantee construction of the project.
The link will ship 4.5 billion cubic feet of gas a day through Canada to U.S. markets. TransCanada expects to hold an auction for capacity to help determine the size of the line in July 2010, the company said Aug. 1. The project could be operating by September 2018.
London-based BP is Europe's second-largest oil company behind Royal Dutch Shell Plc. ConocoPhillips, based in Houston, is the third-largest U.S. oil company, ranking behind Exxon and Chevron Corp.

Personal Income And Spending

Personal income decreased $89.9 billion, or 0.7 percent (consensus was -0.1%), in July, in contrast to an increase of $7.4billion, or 0.1 percent, in June and an increase of $218.0 billion, or 1.8 percent, in May. Disposable personal income (DPI) decreased $114.7 billion, or 1.1 percent, in July, compared with a decrease of$208.0 billion, or 1.9 percent, in June and an increase of $595.9 billion, or 5.7 percent in May. Personal consumption expenditures (PCE) increased $24.1 billion, or 0.2 percent, in July, compared with an increase of $65.5 billion, or 0.6 percent, in June. The pattern of changes in income reflects the pattern of payments associated with the Economic Stimulus Act of 2008 (see page 2). Real DPI decreased 1.7 percent in July, compared with a decrease of 2.6 percent in June. Real PCE decreased 0.4 percent, compared with a decrease of 0.1 percent.

Merck's Valueline Outlook

Merck’s March-period results were mixed. Sales were below our expectations, but share net beat our estimate. That said, earnings per share were aided by a low tax rate caused by foreign tax credits and by share buybacks.

The FDA has rejected cholesterol drug Cordaptive. By issuing a ‘‘nonapprovable’’ letter, the agency has damped hopes that the drug, which had been one of the most promising in Merck’s development pipeline, would help offset the 2012-2013 patent expiration of Singulair. Merck and the FDA would not comment on why Cordaptive was turned down, and Merck plans to submit additional data that it believes will increase the odds of
approval. Still, the setback has raised doubts about the quality of the pipeline as well as the scientists’ ability to develop new drugs. Too, the news follows the release of data earlier this year that showed that another cholesterol drug, Vytorin, failed to slow heart disease better than a less expensive drug.

Courts have overturned two Vioxx verdicts. An appeals court in Texas found
that the plaintiffs had not proven that the drug had been the cause of death, and a New Jersey court reduced a verdict, saying that Merck had not committed consumer fraud. Although the rulings may discourage lawyers from pursuing similar lawsuits, Merck has already offered to pay
almost $5 billion in an attempt to end the litigation. The settlement covers about 50,000 people that allege heart attacks or strokes after taking Vioxx, and will result in average payments of $100,000 for dropping their lawsuit. Although it now appears that Merck’s initial strategy of fighting every case may have been warranted, we believe management did the right thing in getting the matter behind it.

The company is downsizing its U.S. salesforce. Plans to cut about 1,200 sales positions, or about 15% of the total, reflect competition from generic drugs, declining
reinsurance reimbursements, and the above-noted new-drug setbacks. Too, it is part of the plan to cut costs. We are neutral on these shares. Although management recently reiterated its
earnings guidance, the recent product approval setbacks are dissapointing.
Douglas G. Maurer, CFA July 18, 2008


2011-13 PROJECTIONS
-------------------------------------------------------------Ann’l Total
--------------------------Price----------- Gain--------------- Return
High----------------------85--------------(+130%)------------25%
Low----------------------55--------------(+50%) -------------14%

Johnson&Johnson Valueline Outlook

The weak dollar continues to boost Johnson & Johnson’s top line. June period sales rose nearly 9%, to $16.5 billion, but about two-thirds of this advance was currency-related. The company also recorded healthy bottom-line growth, as share earnings of $1.17 were 11% higher than a year earlier. Research expense was roughly flat in the period, helping to boost margins. Looking ahead, we think the dollar may continue experiencing softness, so we have hiked our full-year sales estimate by $2.75 billion, to $65.75 billion. As a result, we now look for share earnings of
$4.70 this year, $0.20 higher than our previous estimate and a 13% increase from last year’s tally.

The rate of sales and earnings growth may well slow down next year. JNJ has performed exceptionally well recently, making for difficult comparisons in 2009. Also, the dollar is likely to stabilize relative to foreign currencies, which would reduce the positive impact of foreign sales.

The company outlined its growth strategies for the Medical Devices & Diagnostics (MD&D) and Consumer segments. At MD&D, the company plans to expand its leadership position in core
businesses, as well as penetrate highgrowth markets, such as orthopedics and obesity care. Further, this division plans to increase its presence in emerging markets, because these areas usually have inadequate medical supplies. At Consumer, the company is stressing science-based research into developing better products for everyday use.

This stock has many attractive characteristics. JNJ is ranked 2 (Above Average) for Timeliness. Long-term investors may also want to consider these shares. Although capital appreciation potential over the 3- to 5-year pull falls below the Value Line median, there are several positive factors. The company has excellent
brand recognition, a long history of solid growth, and a top-notch rating for Financial Strength. Too, the stock earns our Highest (1) rank for Safety, as well as top marks for Price Stability and Earnings Predictability. The healthy yield adds to JNJ’s appeal. We think these shares would be a good option for most investors, especially those with a conservative bent.
Tom Nikic August 29, 2008


2011-13 PROJECTIONS
-------------------------------------------------------Ann’l Total
------------------------Price----------- Gain----------- Return
High-------------------120-------------(+70%)---------16%
Low--------------------95--------------(+35%)-------- 10%

Preliminary 2nd Qtr 2008 GDP Beats Estimates

Real gross domestic product -- the output of goods and services produced by labor and propertylocated in the United States -- increased at an annual rate of 3.3 percent (consensus was 2.7%) in the second quarter of 2008, (that is, from the first quarter to the second quarter), according to preliminary estimates released by theBureau of Economic Analysis. In the first quarter, real GDP increased 0.9 percent. The GDP estimates released today are based on more complete source data than were available forthe advance estimates issued last month. In the advance estimates, the increase in real GDP was 1.9percent (see "Revisions" on page 3).
The increase in real GDP in the second quarter primarily reflected positive contributions fromexports, personal consumption expenditures (PCE), federal government spending, nonresidentialstructures, and state and local government spending that were partly offset by negative contributionsfrom private inventory investment, residential fixed investment, and equipment and software. Imports,which are a subtraction in the calculation of GDP, decreased. The acceleration in real GDP growth in the second quarter primarily reflected a larger decrease inimports, an acceleration in exports, an acceleration in PCE, a smaller decrease in residential fixedinvestment, and an upturn in state and local government spending that were partly offset by a largerdecrease in inventory investment.

Initial Jobless Claims

UNEMPLOYMENT INSURANCE WEEKLY CLAIMS REPORT
SEASONALLY ADJUSTED DATA

In the week ending Aug. 23, the advance figure for seasonally adjusted initial claims was 425,000, a decrease of 10,000 from the previous week's revised figure of 435,000. The 4-week moving average was 440,250, a decrease of 6,000 from the previous week's revised average of 446,250.
The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending Aug. 16, an increase of 0.1 percentage point from the prior week's unrevised rate of 2.5 percent.
The advance number for seasonally adjusted insured unemployment during the week ending Aug. 16 was 3,423,000, an increase of 64,000 from the preceding week's revised level of 3,359,000. The 4-week moving average was 3,365,500, an increase of 36,250 from the preceding week's revised average of 3,329,250.
The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 2.994 million.

A Rant On Obama From Britain

From Simon Heffer

There is an atmosphere over the Democratic Convention, and it is not merely the thin, dehydrating air of the Mile High City on the edge of the Rockies.

Michelle Obama in Denver: She tells a good story but it is not enough
It is the barely concealed contempt that the supporters of Barack Obama and Hillary Clinton have for each other, undiluted despite the Presidential Election being barely two months away.
"Hillary 12" is on the lips of many delegates here, as they look forward to their heroine having another attempt at the nomination in four years' time: an attempt that can, of course, take place only if Mr Obama fouls up now. Many Democrats assume, or rather hope, that he will do just that.
Others fear he may not now make the serene progress to the White House that looked assured a month or two ago. Hence the air of tension where Mr Obama's supporters had once hoped there would be one of confidence.
Hence a convention, so far, devoted to papering over cracks in the Democratic home rather than savaging and burying the Republicans for their years of misrule. The delegates look forward with trepidation to his speech before 75,000 people at Denver's Mile High Stadium on Thursday night. Some fear this is a hubristic act, that of a man drunk on his own mellifluous oratory and, as the old cliché goes, making the mistake of believing his own publicity. He is a candidate accused of an obsession with image and of putting his distinct personal style ahead of any substance, distinct or otherwise. Mrs Clinton's supporters are mainly bad losers who have taken further umbrage in the last few days that she was not picked to be his vice-presidential running mate; they are not the main danger to Mr Obama, however, even though a poll revealed that 27 per cent of them want to vote for John McCain.

The real problem is those who were open-minded towards Mr Obama but who now fear he may not be up to it; and they are not hard to find in Denver. While we await his turn in the spotlight it was his wife, Michelle, who on Monday evening supplied the first keynote speech of the convention. It is interesting how the Americans, having rejected the British Constitution in 1776, now seem entranced by the idea of what Walter Bagehot (explaining the appeal of monarchy) called the constitutional device of "a family on the throne".

We have had the Bush family ad nauseam, the Kennedys ditto (with old Ted yanked from his sickbed to endorse Mr Obama in a stunt that made On Golden Pond seem light on sentimentality), an attempt at the Clinton family, and now the extended family of the Obamas.
Mrs Obama, eloquent, charismatic, articulate, glamorous, felt obliged to make a speech outlining, among other things, the all-American nature of her parents and brother. No detail of her father's suffering from multiple sclerosis was too intimate, no reference to her humble upbringing too cloying, to be shared with the American people. Mrs Obama has long since chucked in her job as a stratospherically highly paid lawyer to serve the public in more humble capacities: as she did not hesitate to tell us. It was a pungent reminder of the differences that remain between our two cultures: any politician, or politician's spouse, who tried to push such a line in Britain would be laughed out of public life. Here, things are different, and it is felt they need to be different in order to find the right person to govern America and lead the free world. There is an idealism, or at least a lack of cynicism, in American politics that will be incomprehensible to many in Britain. Family, and its use in politics to identify leaders with the led, is almost a taboo at home.
Here it is an essential part of the process. It is part of that property that every candidate for high office here has to have: what Mrs Obama called his, or her, own American story.

Mr Obama has rehearsed his story over and over again - the white mother, the rapidly absentee black father, the self-confidence that had him churning out his first volume of autobiography at the age of 32. Now it was Mrs Obama's turn. As stories go it is a good one.
Her humble parents did a magnificent job bringing up their children, they worked hard, they encouraged aspiration, they made the link between effort and reward and they explained the clear distinction between right and wrong. They were, in short, good conservatives, though that was not how Mrs Obama put it. They were good Americans. As their daughter said - and given some of the slurs about her and her husband's patriotism in the past few months, she had to say it - they lived the American dream. And the Obama programme is to allow everyone to buy into and live that dream, by means as yet unspecified. Mrs Obama continued the theme of sentimentality launched by Senator Kennedy, and perpetuated by various other speakers during the evening.

The general theme is this: Mr Obama is wonderful because he is wonderful. Or, if we want to be more rigorous, he is wonderful because he believes in "change". As with David Cameron's use of the word (though it appears to have dropped out of his vocabulary) this vacuous term is never defined: we are never told what is changing, and to what. But the word only has to be mentioned on the floor of this convention for the delegates to be set off on yet more moronic whistling, hooting and clapping. Nobody wants to delve further into what it means; perhaps they will never have to. The whole business of the personal "story" is the ultimate proof of the triumph of the politics of personality over the politics of substance. At this convention, one is reminded that people who become politically active do so principally because they have a grievance.
How that state of mind can ever be treated by the politics of personality is far from clear. So far, the Obama campaign, with its emphasis on the "story", has been largely substance free. He needs to start to redress that on Thursday in his speech, and in the three debates with Senator McCain in the coming weeks. He feels he has solved part of the problem in his appointment of foreign policy "expert" Joe Biden as his running mate, but the real issue where substance is required is the economy.

Even a town as prosperous as Denver starts to look frayed at the edges, with cheap meal deals on offer at most restaurants and large lots of derelict land even in the heart of the city.
Some have wondered how Mr Obama would react to Iran bombing Israel in the first week of his presidency. A better question might be how he would react to a couple of investment banks going under, with defaults on a trillion or two of debt.
Having a good "story" may now be an indispensable part of the job application. Poor old Senator Biden is being lauded here more for having a wife and child killed in a car crash than for knowing where Kazakhstan is.
But this is the politics of soap opera and the pursuit of ratings, driven largely by a cynical mass media. It is no proof of a man's fitness to govern a superpower. If the Democrats are starting already to worry about their choice of candidate, that's why.

July Durable Goods Much Higher

New Orders
New orders for manufactured durable goods in July increased $2.9 billion or 1.3 percent (consensus was 0.1%) to $219.3 billion, the U.S. Census Bureau announced today. This was the third consecutive monthly increase and followed a 1.3 percent June increase. Excluding transportation, new orders increased 0.7 percent. Excluding defense, new orders increased 2.8 percent.

Shipments
Shipments of manufactured durable goods in July, up three of the last four months, increased $5.3 billion or 2.5 percent to $218.3 billion. This followed a 0.9 percent June increase.

Unfilled Orders
Unfilled orders for manufactured durable goods in July, up twenty-nine of the last thirty months, increased $6.6 billion or 0.8 percent to $824.4 billion. This was also at the highest level since the series was first stated on a NAICS basis in 1992 and followed a 0.9 percent June increase.

Inventories
Inventories of manufactured durable goods in July, up twelve of the last thirteen months, increased $2.7 billion or 0.8 percent to $335.8 billion. This was also at the highest level since the series was first stated on a NAICS basis in 1992 and followed a 0.8 percent June increase.

Capital Goods Industries
Nondefense
Nondefense new orders for capital goods in July increased $4.5 billion or 6.3 percent to $76.3 billion.

Defense
Defense new orders for capital goods in July decreased $2.9 billion or 25.7 percent to $8.4 billion.

Consumer Confidence Up

Consumer Confidence Improves in August, Reports The Conference Board
August 26, 2008

The Conference Board Consumer Confidence Index™, which had improved moderately in July, made further gains in August. The Index now stands at 56.9 (1985=100), up from 51.9 in July. The Present Situation Index decreased to 63.2 from 65.8 last month. The Expectations Index, however, increased to 52.8 from 42.7 in July.
The Consumer Confidence Survey™ is based on a representative sample of 5,000 U.S. households. The monthly survey is conducted for The Conference Board by TNS. TNS is the world's largest custom research company. The cutoff date for August's preliminary results was August 19th.
Says Lynn Franco, Director of The Conference Board Consumer Research Center: "Consumer confidence readings suggest that the economy remains stuck in neutral, but may be showing signs of improvement by early next year. Declines in the Present Situation Index, both in terms of business conditions and the labor market, appear to be moderating. The Expectations Index, which posted a significant gain this month, suggests better times may be ahead. However, overall readings are still quite low by historical standards and it is still too early to tell if the worst is behind us."
Consumers' assessment of current conditions did not improve in August. Those claiming business conditions are "bad" increased to 33.2 percent from 32.6 percent, while those claiming business conditions are "good" edged up to 13.4 percent from 13.2 percent last month.
Consumers' appraisal of the labor market has turned bleaker. Those saying jobs are "hard to get" rose to 32.0 percent from 30.2 percent in July, while those claiming jobs are "plentiful" declined to 13.1percent from 13.6 percent.
Consumers' short-term expectations improved again, but still remain quite negative. Those expecting business conditions to worsen over the next six months declined to 25.8 percent from 32.4 percent, while those expecting conditions to improve rose to 11.9 percent from 9.2 percent. The outlook for the labor market was also less pessimistic. The percent of consumers anticipating fewer jobs in the months ahead decreased to 30.6 percent from 37.3 percent, while those expecting more jobs increased to 10.5 percent from 8.0 percent. The proportion of consumers anticipating their incomes will increase improved slightly to 14.7 percent from 14.3 percent.

July 2008 New Home Sales Down

NEW RESIDENTIAL SALES IN JULY 2008

Sales of new one-family houses in July 2008 were at a seasonally adjusted annual rate of 515,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.4 percent (±11.6%)* above the revised June rate of 503,000, but is 35.3 percent (±7.3%) below the July 2007 estimate of
796,000. The median sales price of new houses sold in July 2008 was $230,700; the average sales price was $294,600. The seasonally adjusted estimate of new houses for sale at the end of July was 416,000. This represents a supply of 10.1 months at the current sales rate.

July 2008 Existing Home Sales Increase

Existing-home sales rose in July to the highest level in five months, although sales have hovered in a relatively narrow range over the past 11 months, according to the National Association of Realtors®.
Existing-home sales – including single-family, townhomes, condominiums and co-ops – increased 3.1 percent to a seasonally adjusted annual rate¹ of 5.00 million units in July from a downwardly revised level of 4.85 million in June, but are 13.2 percent lower than the 5.76 million-unit pace in July 2007.
NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said the up-and-down pattern may break soon. “We hope the new tools in the hands of home buyers from the recently enacted housing stimulus package will spark a sustained sales uptrend in the months ahead,” he said. “Buyers who’ve been on the sidelines should take a closer look at what’s available to them now in terms of financing and incentives. Given some of the inventory on the market, we also strongly encourage buyers to get a professional home inspection.”
The national median existing-home price3 for all housing types was $212,400 in July, down 7.1 percent from a year ago when the median was $228,600.
Lawrence Yun, NAR chief economist, said home prices in some regions could soon increase. “Sales have picked up significantly in several Florida and California markets. Home prices generally follow sales trends after a few months of lag time,” he said. “Still, inventory remains high in many parts of the country and will require time to fully absorb. We expect more balanced conditions in 2009 and will eventually return to normal long-term appreciation patterns.”
Analysis of NAR price data since 1968 shows home prices normally rise 1 to 2 percentage points above the overall rate of inflation, building wealth over the typical period of homeownership.
Total housing inventory at the end of July rose 3.9 percent to 4.67 million existing homes available for sale, which represents an 11.2.-month supply² at the current sales pace, up from a 11.1-month supply in June. The rise in supply results from a sharp increase in condo inventory; the single family supply declined.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 6.43 percent in July from 6.32 percent in June; the rate was 6.70 percent in July 2007.
Single-family home sales rose 3.1 percent to a seasonally adjusted annual rate of 4.39 million in July from 4.26 million in June, but are 12.4 percent below the 5.01 million-unit level a year ago. The median existing single-family home price was $210,900 in July, down 7.7 percent from July 2007.
Existing condominium and co-op sales increased 3.4 percent to a seasonally adjusted annual rate of 610,000 units in July from 590,000 in June, but are 18.6 percent below the 749,000-unit pace in July 2007. The median existing condo price4 was $223,400 in July, which is 2.7 percent below a year ago.
Regionally, existing-home sales in the West jumped 9.7 percent in July to a level of 1.13 million and are 0.9 percent higher than July 2007. The median price in the West was $273,200, down 22.2 percent from a year ago.
In the Northeast, existing-home sales rose 5.9 percent to an annual pace of 900,000 in July, but are 11.8 percent below a year ago. The median price in the Northeast was $278,700, which is 4.9 percent lower than July 2007.
Existing-home sales in the Midwest increased 0.9 percent to an annual rate of 1.12 million in July, but are 17.0 percent lower than July 2007. The median price in the Midwest was $175,400, up 1.0 percent from a year ago.
In the South, existing-home sales slipped 0.5 percent to an annual pace of 1.85 million in July, and are 18.1 percent below a year ago. The median price in the South was $179,300, down 3.5 percent from July 2007.

This Week's Market Movers - Earnings

July 27 - Dollar Tree (consensus 0.41)
July 28 - Dell (0.36)

This Week's Market Movers - Indicators

August 25 - July Existing Home Sales (consensus 4.94M)
August 26 - July New Home Sales (525K)
------------Consumer Confidence (53.0)
August 27 - July Durable Goods (0.1%)
August 28 - GDP (2.7%)
------------Jobless Claims (427K)
August 29 - Personal Income/Spending (-0.1 Income, 0.2 Spending)

2nd Qtr Revenues and Net Income Of Major Domestic Companies

Second Quarter 2008 Key Findings
Net Income
$30.4 billion
Revenues
$423.4 billion

Highlights
The 19 major domestic energy companies reported a 1-percent decline in net income relative to second quarter of 2007. However, this also represents a 31-percent increase relative to the second-quarter average for 2003-2007.

Return on sales (net income ÷ revenue) fell from 10.5 percent to 7.2 percent in the second quarter of 2008 due to the 44 percent increase in revenue.

The effects of higher oil and natural gas prices are more than offset by lower worldwide oil production and worldwide refining margins.

Spoof Of The Week From Onion

August 21, 2008
Michael Phelps Returns To His Tank At Sea World

ORLANDO—Fourteen-time Olympic gold medalist and SeaWorld main attraction Michael Phelps returned to his seven-million-gallon water tank Wednesday to resume his normal schedule of performing in six shows a day for marine park crowds every day of the week.
Phelps, the 6'4", 200-pound aquatic mammal, and the first ever SeaWorld swimmer to be raised in captivity by foster swimmers (Mark Spitz and Dara Torres), was recaptured by trainer Bob Bowman in a hoop net baited with an entire Dutch apple pie following Phelps' final Olympic event last Sunday. Phelps was then tethered to the rudder of a container ship bound for St. Petersburg, guided down local waterways, and introduced back into his home habitat, the tank in SeaWorld's 5,500 seat stadium, known to park officials and visitors alike as "Phelps' Happy Harbor."
"Michael seemed really excited to be back," said Bowman, adding that the male swimmer became playful upon entering his tank, breaching the water and sounding repeatedly. "He just started swimming freestyle and backstroke, and only stopped to slide belly first onto the tank's platform so he could be fed dozens of fried egg sandwiches."
"He fell asleep at the surface of the water around midnight," Bowman added.
Though Bowman plans on continuing the long-running aquatic show "Michael, The Yankee Doodle Swim Team Captain," in which Phelps was performing prior to leaving for Beijing, Bowman said he and Phelps would begin working on an all-new production, which will debut in September with the title "Champion!" Bowman has promised this show would be the most ambitious program in the history of Olympic swimmer sea spectacles.
Bowman says one stunt called the "Flying Medal" will begin with Phelps' 14 gold medals being suspended above the water. Phelps will then enter the stadium butterfly-stroking at full speed, coursing along the surface, and with every breach of the water, placing his head through the hoop of one medal after another. If Phelps is wearing all 14 medals at the end of the stunt, Bowman said, the swimmer will be rewarded with a whole pizza and a pound of cooked enriched pasta.
Bowman confirmed that the routine would also feature the signature aquatic feats that audiences from around the world have come to expect from Phelps, such as his trademark trick of 35 flip turns in 35 seconds, nuzzling a child with his nose, and Bowman himself "surfing" on Phelps' back while the subservient sea creature swims the breaststroke.
"Those seated in the first 14 rows should be prepared to get soaked," Bowman said, admitting that Phelps' powerful dolphin kicks would be added to the new program. "Also, Michael's two friends, [Olympic swimmers] Ryan [Lochte] and Jason [Lezak], will open the show with their humorous beach ball antics."
Beginning with the 1985's "Baby Michael Celebration," Phelps has entertained SeaWorld audiences for over 20 years. Spectators are not only enthralled with Phelps' exploits in the water, but his abnormally large torso, unusually small lower body, double-jointed ankles, gargantuan eating habits, the slurring, almost human methods of vocalization he uses to communicate, and his odd-looking goggle-covered face, all of which combine to make him the most unusual sight in all of Florida.
"I have never seen a stranger yet more majestic-looking creature," said husband and father of three Glenn McKay. "Last year we went to SeaWorld San Diego and saw [Michael's female counterpart] Michelle, and even though the show was a little funnier than this one, nothing compares to watching Michael almost hover over the water after launching his trainer into the air."
"Michelle" is SeaWorld's moniker for the Olympic gold medalist who was born Natalie Coughlin.
"I liked it when he played dead and floated in the water," added McKay's 8-year-old son Brandon, who was clutching a Michael Phelps stuffed doll. "I also liked when he blew water on everyone."
Though spectators—and ticket-sales personnel—are happy that Phelps is back at SeaWorld, members of the World Society for the Conservation of Olympic Swimmers released a statement yesterday saying that these athletic mammals should be released from captivity. The statement claims that there is conclusive scientific proof that confinement in smaller pools of water, as opposed to wide-open, Olympic-sized pools, causes the swimmers sensory depravation and a shorter lifespan.
"It's clear that Michael doesn't like being at SeaWorld," WSCOS spokesperson Jonathan Haines said. "When he was placed back into his tank, the slightly loose portion of his black swim cap immediately folded over to the right side, a telltale symptom of stress and angst. And you can be certain that, just before he left for Beijing, he didn't bite that little girl's arm off because he was happy."

Aeropostale 2nd Qtr 2008 Earnings Meets The Street

Aeropostale Reports Record Second Quarter 2008 Results
Second Quarter Net Sales Increase 21% Same Store Sales Increase 11% Earnings Per Share Growth of 63% to $0.31 Per Diluted Share

NEW YORK, Aug 21, 2008 (BUSINESS WIRE) -- Aeropostale, Inc. (NYSE: ARO), a mall-based specialty retailer of active and casual apparel for young women and men, today reported results for the second quarter ended August 2, 2008.
Net income for the second quarter of fiscal 2008 increased 43% to a record $21.1 million, or $0.31 per diluted share, compared to net income of $14.7 million, or $0.19 per diluted share, in the second quarter of fiscal 2007.
For the second quarter of fiscal 2008, total net sales increased 21% to $377.1 million, from $311.2 million in the year-ago period. Same store sales for the second quarter increased 11%, compared to a decrease of 4% in the year-ago period.
Julian R. Geiger, Chairman and Chief Executive Officer said, "We are extremely pleased with our second quarter performance. The ongoing strength of our merchandise assortments and our team's consistent execution led to another record quarter. Our back-to-school merchandise assortments have been positively received by our customers and we believe that we are well positioned as we head into the second half of the year. We remain focused on building on our strong momentum for the Aeropostale brand, while strategically investing in our business to support our long-term growth."

Third Quarter Guidance
The Company announced its earnings guidance for the third quarter of fiscal 2008. The Company believes it will achieve earnings in the range $0.59 to $0.61 per diluted share for the third quarter. The Company achieved earnings of $0.48 per diluted share in the third quarter last year.

About Aéropostale
Aéropostale, Inc. is a mall-based, specialty retailer of casual apparel and accessories, principally targeting 14 to 17 year-old young women and men. The company provides customers with a focused selection of high-quality, active-oriented, fashion and fashion basic merchandise at compelling values. Aéropostale maintains control over its proprietary brands by designing, sourcing, marketing and selling all of its own merchandise. Aéropostale products can only be purchased in its stores or on-line through its e-commerce website http://www.aeropostale.com/corp/www.aeropostale.com
The company currently operates over 800 Aéropostale stores in 47 states and Canada, and 14 Jimmy's stores in 11 states

Barnes&Noble 2nd Qtr 2008 Earnings Easily Beats The Street

Barnes & Noble Reports Second Quarter Financial Results
Declares Quarterly Dividend

New York, NY (August 21, 2008)—Barnes & Noble, Inc. (NYSE: BKS), the world’s largest bookseller, today reported sales and earnings for the second quarter ended August 2, 2008. In addition, the company also announced that its Board of Directors declared a quarterly cash dividend of $0.25 per share for stockholders of record at the close of business on September 9, 2008, payable on September 30, 2008.
Sales for the second quarter decreased 1.6% to $1.2 billion largely due to last year’s record sales of J.K. Rowling’s Harry Potter and the Deathly Hallows. Barnes & Noble store sales decreased 1.6% to $1.1 billion, with comparable store sales decreasing 4.7% for the quarter. Barnes & Noble.com sales were $99.8 million for the quarter, a 3.6% comparable sales increase. Excluding prior year sales of the Harry Potter book, comparable sales decreased 1.5% in stores and increased 13.9% online.

Bestselling titles during the quarter included Stephenie Meyer’s Breaking Dawn, Randy Pausch’s The Last Lecture, Lauren Weisberger’s Chasing Harry Winston and David Wroblewski’s The Story of Edgar Sawtelle.

Second quarter net earnings were $15.4 million or $0.27 per share. Included in second quarter net earnings was an after tax benefit of $0.12 per share, resulting from a more favorable physical inventory shortage rate than previously estimated and accrued. Excluding this benefit, second quarter net earnings were $0.15 per share (consensus was $0.09), higher than guidance of $0.08 to $0.13 per share.
Despite the softer sales environment, the company’s management of operating expenses and higher than forecasted gross margins enabled it to exceed its second quarter earnings per share guidance. Gross margin was stronger than expected due to greater utilization of the company’s distribution centers and a lower markdown rate.

GUIDANCE
For the third quarter, the company expects comparable store sales at Barnes & Noble stores to decline in the low single digits. Barnes & Noble, Inc.’s third quarter loss per share is expected to be in a range of $0.10 to $0.15.
Based on first-half 2008 sales performance and current trends, the company is reducing its full-year comparable store sales guidance from slightly negative to a decrease in the low single digits. Although the company is reducing full-year sales guidance, the company is reiterating full-year earnings per share guidance to be in a range of $1.70 to $1.90. The company continues to expect full-year results in-line with previously issued guidance despite the challenging retail sales climate as a result of the margin benefits already realized and its continuing focus on controlling expenses and improving gross margins.
As of August 2, 2008, the company operated 723 Barnes & Noble stores and 73 B. Dalton stores. During the second quarter, 10 Barnes & Noble stores were opened and four were closed. 10 B. Dalton stores were closed during the quarter.

Leading Indicators Down Sharply

The Conference Board announced today that the U.S. leading index decreased 0.7 percent (consensus was -0.2%), the coincident index increased 0.1 percent and the lagging index increased 0.4 percent in July.

>The leading index declined sharply in July, the second decrease in the index in the past three months. Building permits, stock prices, and weekly initial claims (inverted) made very large negative contributions to the index this month, more than offsetting positive contributions from the interest rate spread and consumer expectations. The six-month change in the index stands at -0.9 percent (about a -1.8 percent annual rate), up from the 3.4 percent annual rate of decline at the end of the first quarter of 2008. However, the weaknesses among the leading indicators continue to be very widespread.
>The coincident index increased slightly in July, after remaining unchanged in June. Industrial production contributed positively to the index for the second consecutive month, while employment has continued to decline. The coincident index decreased 0.4 percent (about a -0.7 percent annual rate) from January to July, and all four components declined during this six-month period. In July, the lagging index rose more than the coincident index, and the coincident-to-lagging ratio decreased as a result.
>After stabilizing in March and April, the leading index has reverted to the downward trend that began in the middle of 2007. In addition, the weaknesses among its components have remained widespread in recent months. Meanwhile, the coincident index has gradually decreased this year, and is slightly below its recent highest level in October 2007. Real GDP growth slowed to a 1.4 percent average annual rate in the first half of the year (including a 1.9 percent annual rate in the second quarter), sharply lower than the average annual rate of 2.3 percent in the second half of 2007. Taken together, the current behavior of the composite indexes suggests that the risks for further economic weakening in the near term remain elevated.

LEADING INDICATORS. Three of the ten indicators that make up the leading index increased in July. The positive contributors — beginning with the largest positive contributor — were the interest rate spread, index of consumer expectations, and manufacturers' new orders for nondefense capital goods*. The negative contributors — beginning with the largest negative contributor — were building permits, stock prices, average weekly initial claims for unemployment insurance (inverted), real money supply*, and manufacturers' new orders for consumer goods and materials*. Average weekly manufacturing hours and the index of supplier deliveries (vendor performance) held steady in July.
The leading index now stands at 101.2 (2004=100). Based on revised data, this index remained unchanged in June and decreased 0.1 percent in May. During the six-month span through July, the leading index decreased 0.9 percent, with three out of ten components advancing (diffusion index, six-month span equals 30 percent).

COINCIDENT INDICATORS. Three of the four indicators that make up the coincident index increased in July. The positive contributors to the index — beginning with the largest positive contributor — were personal income less transfer payments*, industrial production, and manufacturing and trade sales*. The negative contributor was employees on nonagricultural payrolls.
The coincident index now stands at 106.8 (2004=100). This index remained unchanged in June and decreased 0.2 percent in May. During the six-month period through July, the coincident index decreased 0.4 percent, with none of the components advancing (diffusion index, six-month span equals 0 percent).

LAGGING INDICATORS. The lagging index stands at 112.1 (2004=100) in July, with four of the seven components advancing. The positive contributors to the index — beginning with the largest positive contributor — were change in CPI for services, average duration of unemployment (inverted), commercial and industrial loans outstanding*, and the ratio of consumer installment credit to personal income*. The negative contributor was the change in labor cost per unit of output*. The ratio of manufacturing and trade inventories to sales*, and average prime rate charged by banks* held steady in July. Based on revised data, the lagging index remained unchanged in June and decreased 0.2 percent in May.

Initial Unemployment Claims - Still Not Good

In the week ending Aug. 16, the advance figure for seasonally adjusted initial claims was 432,000 (consensus 448,000), a decrease of 13,000 from the previous week's revised figure of 445,000. The 4-week moving average was 445,750, an increase of 7,250 from the previous week's revised average of 438,500.
The advance seasonally adjusted insured unemployment rate was 2.5 percent for the week ending Aug. 9, unchanged from the prior week's revised rate of 2.5 percent.
The advance number for seasonally adjusted insured unemployment during the week ending Aug. 9 was 3,362,000, a decrease of 17,000 from the preceding week's revised level of 3,379,000. The 4-week moving average was 3,330,250, an increase of 66,250 from the preceding week's revised average of 3,264,000.
The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 3.005 million.

HP 3rd Qtr Earnings Beats The Street

HP Reports Third Quarter 2008 Results

-- Third quarter net revenue up 10%, or $2.7 billion, from a year earlier to $28.0 billion

-- Third quarter GAAP operating profit up 20% to $2.5 billion; $0.80 earnings per share, up from $0.66 a year earlier

-- Third quarter non-GAAP operating profit up 20% to $2.7 billion; $0.86 earnings per share, up from $0.71 a year earlier

-- Strong third quarter cash flow from operations of $3.4 billion

PALO ALTO, Calif.--(BUSINESS WIRE)--Aug. 19, 2008--HP (NYSE:HPQ) today announced financial results for its third fiscal quarter ended July 31, 2008, with net revenue of $28.0 billion, up 10% from a year earlier and up 5% when adjusted for the effects of currency.
In the third quarter, GAAP operating profit was $2.5 billion and GAAP diluted earnings per share (EPS) was $0.80, up from $0.66 in the prior-year period. Non-GAAP operating profit was $2.7 billion, with non-GAAP diluted EPS of $0.86 (consensus $0.83), up from $0.71 in the prior-year period. Non-GAAP financial information excludes $161 million of adjustments on an after-tax basis, or $0.06 per diluted share, related primarily to amortization of purchased intangibles.

Revenue in the Americas grew 4% on a year-over-year basis to $11.6 billion. Revenue grew 16% in Europe, the Middle East and Africa to $11.2 billion. Revenue grew 14% in Asia Pacific to $5.2 billion. When adjusted for the effects of currency, revenue in the Americas grew 3%, revenue in Europe, the Middle East and Africa grew 5%, and revenue in Asia Pacific grew 8%. Revenue from outside of the United States in the third quarter was 68% of the total, with revenue in the BRIC countries (Brazil, Russia, India and China) growing 24% over the prior-year period and accounting for 10% of total revenue.
Personal Systems Group
Personal Systems Group (PSG) revenue grew 15% year over year to $10.3 billion, with unit shipments up 20% on a year-over-year basis. Notebook revenue for the quarter grew 26% over the prior-year period, while Desktop revenue increased 6%. Commercial client revenue grew 15% year over year, while Consumer client revenue increased 17%. Operating profit was $587 million, or 5.7% of revenue, up from $519 million, or 5.8% of revenue, in the prior-year period.
Imaging and Printing Group
Imaging and Printing Group (IPG) revenue grew 3% year over year to $7.0 billion. On a year-over-year basis, supplies revenue grew 11%, Commercial hardware revenue declined 5% and Consumer hardware revenue declined 14%. Printer unit shipments declined 2% year over year, with Consumer printer hardware units flat and Commercial printer hardware units down 9%. Operating profit was $1.0 billion, or 15.0% of revenue, versus $981 million, or 14.5% of revenue, in the prior-year period.
Enterprise Storage and Servers
Enterprise Storage and Servers (ESS) reported revenue of $4.7 billion, up 5% over the prior-year period fueled by ESS blades, which grew 66%, and Storage, which grew 16%. Storage revenue growth was fueled by the midrange EVA line and the low-end MSA line, which each grew 19%. On a year-over-year basis, Industry Standard Server revenue grew 2%. Business Critical Systems revenue increased 2%. Operating profit was $544 million, or 11.5% of revenue, up from $507 million, or 11.2% of revenue, in the prior-year period.
HP Services
HP Services (HPS) revenue increased 14% year over year to $4.8 billion. Revenue in Technology Services grew 13% with Consulting and Integration and Outsourcing Services up 13% and 18%, respectively, compared with the prior-year period. Operating profit was $574 million, or 12.1% of revenue, up from $417 million, or 10.0% of revenue, in the prior-year period.
HP Software
HP Software revenue grew 29% compared with the prior-year period to $781 million, led by 32% growth in the Business Technology Optimization portfolio. Operating profit was $122 million, or 15.6% of revenue, up from $51 million, or 8.4% of revenue, in the prior-year period.
Financial Services
HP Financial Services (HPFS) reported revenue of $680 million, an increase of 17% year over year. Financing volume and net portfolio assets increased 15% and 13%, respectively, over the prior-year period. Operating margin was 7.5% of revenue, up from 6.7% in the comparable period last year.
Asset management
HP generated $3.4 billion in cash flow from operations for the quarter. Inventory ended the quarter at $8.2 billion, down 3 days over the prior year. Accounts receivable of $13.8 billion was up 2 days over the prior-year period. Accounts payable ended the quarter at $14 billion up 5 days from the prior-year period. HP's dividend payment of $0.08 per share in the third quarter resulted in cash usage of $197 million. HP utilized $1.6 billion of cash during the third quarter to repurchase approximately 34 million shares of common stock from the open market. HP exited the quarter with $14.9 billion in gross cash, which includes cash and cash equivalents of $14.8 billion, short-term investments of $64 million, and certain long-term investments of $101 million.
Outlook
HP estimates fourth quarter FY08 revenue will be approximately $30.2 billion to $30.3 billion.
Fourth quarter FY08 GAAP diluted EPS is expected to be approximately $0.95 to $0.97 and non-GAAP diluted EPS is expected to be approximately $1.01 to $1.03. Fourth quarter FY08 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.06 per share, related primarily to the amortization of purchased intangibles.

Weekly Rant - Those Damn Rich People

From the Wall Street Journal

Washington is teeing up "the rich" for a big tax hike next year, as a way to make them "pay their fair share." Well, the latest IRS data have arrived on who paid what share of income taxes in 2006, and it's going to be hard for the rich to pay any more than they already do. The data show that the 2003 Bush tax cuts caused what may be the biggest increase in tax payments by the rich in American history.
The nearby chart shows that the top 1% of taxpayers, those who earn above $388,806, paid 40% of all income taxes in 2006, the highest share in at least 40 years. The top 10% in income, those earning more than $108,904, paid 71%. Barack Obama says he's going to cut taxes for those at the bottom, but that's also going to be a challenge because Americans with an income below the median paid a record low 2.9% of all income taxes, while the top 50% paid 97.1%. Perhaps he thinks half the country should pay all the taxes to support the other half.
Aha, we are told: The rich paid more taxes because they made a greater share of the money. That is true. The top 1% earned 22% of all reported income. But they also paid a share of taxes not far from double their share of income. In other words, the tax code is already steeply progressive.
We also know from income mobility data that a very large percentage in the top 1% are "new rich," not inheritors of fortunes. There is rapid turnover in the ranks of the highest income earners, so much so that people who started in the top 1% of income in the 1980s and 1990s suffered the largest declines in earnings of any income group over the subsequent decade, according to Treasury Department studies of actual tax returns. It's hard to stay king of the hill in America for long.
The most amazing part of this story is the leap in the number of Americans who declared adjusted gross income of more than $1 million from 2003 to 2006. The ranks of U.S. millionaires nearly doubled to 354,000 from 181,000 in a mere three years after the tax cuts.
This is precisely what supply-siders predicted would happen with lower tax rates on capital gains, dividends and income. The economy and earnings would grow faster, which they did; investors would declare more capital gains and companies would pay out more dividends, which they did; the rich would invest less in tax shelters at lower tax rates, so their tax payments would rise, which did happen.
The idea that this has been a giveaway to the rich is a figment of the left's imagination. Taxes paid by millionaire households more than doubled to $274 billion in 2006 from $136 billion in 2003. No President has ever plied more money from the rich than George W. Bush did with his 2003 tax cuts. These tax payments from the rich explain the very rapid reduction in the budget deficit to 1.9% of GDP in 2006 from 3.5% in 2003.
This year, thanks to the credit mess and slower growth, taxes paid by the rich may fall and the deficit will rise. (The nonstimulating tax rebates will also hurt the deficit.) Mr. Obama proposes to close this deficit by raising tax rates on the rich to their highest levels since the late 1970s. The very groups like the Congressional Budget Office and Tax Policy Center that wrongly predicted that the 2003 investment tax cuts would cost about $1 trillion in lost revenue are now saying that repealing those tax cuts would gain similar amounts. We'll wager it'd gain a lot less.
If Mr. Obama does succeed in raising tax rates on the rich, we'd also wager that the rich share of tax payments would fall. The last time tax rates were as high as the Senator wants them -- the Carter years -- the rich paid only 19% of all income taxes, half of the 40% share they pay today. Why? Because they either worked less, earned less, or they found ways to shelter income from taxes so it was never reported to the IRS as income.
The way to soak the rich is with low tax rates, and last week's IRS data provide more powerful validation of that proposition.

Why Obama Is Not Good For America

An editorial from IBD following a "town hall" meeting at Saddleback church.

Obama has no depth of character, he is very shallow, too cautious, and too politically correct among a whole array of faults. Many things go into a strong and vibrant economy that no one can predict (e.g. housing crisis, credit crunch) but certainly the empty suit and vapid Barack Obama would be a drag on the economy. (Tim)

It was only in May that Sen. Barack Obama cockily proclaimed he would debate Sen. John McCain "anywhere, anytime." But in June, Obama said no to McCain's challenge to have 10 one-on-one town hall meetings.
After what happened at Lake Forest, Calif.'s evangelical Saddleback megachurch Saturday evening, we may have found that debating is Obama's Achilles' heel. Whether or not you like the idea of such events being held in religious venues, the plain-and-simple method of questioning used by Saddleback pastor and best-selling author Rick Warren revealed fundamental differences between these two men.
"It's one of those situations where the devil is in the details," Obama said at one point. He could have been referring to his own oratorical shortcomings when a teleprompter is unavailable. We learned a lot more about the real Obama at Saddleback than we will next week as he delivers his acceptance speech in Denver before a massive stadium crowd.
The stark differences between the two came through the most on the question of whether there is evil in the world. Obama spoke of evil within America, "in parents who have viciously abused their children." According to the Democrat, we can't really erase evil in the world because "that is God's task." And we have to "have some humility in how we approach the issue of confronting evil."
For McCain, with a global war on terror raging, there was no equivocating: We must "defeat" evil. If al-Qaida's placing of suicide vests on mentally-disabled women and then blowing them up by remote control in a Baghdad market isn't evil, he asked: "You have to tell me what is."
Asked to name figures he would rely on for advice, Obama gave the stock answer of family members. McCain pointed to Gen. David Petraeus, Iraq's scourge of the surge; Democratic Rep. John Lewis, who "had his skull fractured" by white racists while protesting for civil rights in the 60s; plus Internet entrepreneur Meg Whitman, the innovative former CEO of eBay.
When Warren inquired into changes of mind on big issues, Obama fretted about welfare reform; McCain unashamedly said "drilling" — for reasons of national security and economic need.
On taxes, Obama waxed political: "What I'm trying to do is create a sense of balance and fairness in our tax code." McCain showed an understanding of what drives a free economy: "I don't want to take any money from the rich. I want everybody to get rich. I don't believe in class warfare or redistribution of the wealth."
To any honest observer, the differences between John McCain and Barack Obama have been evident all along. What we saw last weekend was Obama's shallowness juxtaposed with McCain's depth, the product of his extraordinary life experience.
It may not have been a debate, but it was one of the most lopsided political contests in memory. No wonder Obama wants to keep debate formats boring and predictable.

July 2008 Producer Price Index Doubles Consensus

Producer Price Indexes -- July 2008

The Producer Price Index for Finished Goods advanced 1.2 percent (consensus 0.5) in July, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This increase followed a 1.8-percent jump in June and a 1.4-percent rise in May. At the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 2.7 percent in July compared with a 2.1-percent gain in the prior month, and the index for crude materials for further processing climbed 4.2 percent subsequent to a 3.7-percent increase in June.

July 2008 Housing Starts And Permits Down

NEW RESIDENTIAL CONSTRUCTION IN JULY 2008
The U.S. Census Bureau and the Department of Housing and Urban Development jointly announced the following new residential
construction statistics for July 2008:

BUILDING PERMITS
Privately-owned housing units authorized by building permits in July were at a seasonally adjusted annual rate of 937,000. This is 17.7 percent (±1.3%) below the revised June rate of 1,138,000 and is 32.4 percent (±1.5%) below the revised July 2007 estimate of 1,386,000.
Single-family authorizations in July were at a rate of 584,000; this is 5.2 percent (±1.4%) below the June figure of 616,000. Authorizations of units in buildings with five units or more were at a rate of 318,000 in July.

HOUSING STARTS
Privately-owned housing starts in July were at a seasonally adjusted annual rate of 965,000. This is 11.0 percent (±9.0%) below the revised June estimate of 1,084,000 and is 29.6 percent (±5.1%) below the revised July 2007 rate of 1,371,000. Single-family housing starts in July were at a rate of 641,000; this is 2.9 percent (±10.9%)* below the June figure of 660,000. The July rate for units in buildings with five units or more was 309,000.

HOUSING COMPLETIONS
Privately-owned housing completions in July were at a seasonally adjusted annual rate of 1,035,000. This is 8.7 percent (±10.0%)* below the revised June estimate of 1,134,000 and is 31.7 percent (±6.6%) below the revised July 2007 rate of 1,515,000. Single-family housing completions in July were at a rate of 791,000; this is 7.2 percent (±9.3%)* below the June figure of 852,000. The July rate for units in buildings with five units or more was 229,000.

Target 2nd Qtr Earnings Lower But Beats The Street

Target Corporation Second Quarter Earnings Per Share $0.82

MINNEAPOLIS--(BUSINESS WIRE)--Aug. 19, 2008--Target Corporation (NYSE:TGT) today reported net earnings of $634 million for the second quarter ended August 2, 2008, compared with $686 million in the second quarter ended August 4, 2007. Earnings per share in the second quarter increased 2.4 percent to $0.82 from $0.80 in the same period a year ago. All earnings per share figures refer to diluted earnings per share.

Retail Segment Results
Sales grew 5.7 percent in the second quarter to $15.0 billion in 2008 from $14.2 billion in 2007, due to the contribution from new store expansion slightly offset by a 0.4 percent decline in comparable store sales. Retail segment earnings before interest expense and income taxes (EBIT) were $1.1 billion in the second quarter of 2008, up 7.2 percent from $1.0 billion in 2007.
Second quarter gross margin rate declined moderately from last year, driven by faster sales growth in lower margin rate categories, partially offset by increased margin rates within categories. Second quarter selling, general and administrative (SG&A) expense rate improved meaningfully from 2007, benefiting from continued productivity gains in stores, and disciplined control of expenses across the company.

Credit Card Segment Results
The average receivables directly funded by Target in the second quarter declined 19.8 percent to $3.6 billion from $4.5 billion a year ago, reflecting the impact of JPMorgan Chase's investment in the receivables portfolio, partially offset by a $1.8 billion increase in average receivables.
Segment profitability in the quarter declined 65 percent to $74 million from $213 million in the same period a year ago, as a result of a decline in overall portfolio yield, combined with Target's reduced investment in the portfolio. This yield decline is attributable to higher bad debt expense resulting from an increase in current period write-offs combined with additions to the reserve for future periods, as well as the impact on portfolio yields of lower interest rates.

Home Depot 2nd Qtr 2008 Earnings Lower But Beats The Street

The Home Depot Announces Second Quarter Results

ATLANTA, Aug 19, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- The Home Depot(R), the world's largest home improvement retailer, today reported fiscal 2008 second quarter consolidated net earnings of $1.2 billion, or $0.71 per diluted share (consensus was $0.61), compared with $1.6 billion, or $0.81 per diluted share, in the same period in fiscal 2007. Earnings per diluted share from continuing operations in the second quarter of fiscal 2008 were $0.71, compared to $0.77 per diluted share in the second quarter of fiscal 2007, a decrease of 7.8 percent.

Sales for the second quarter totaled $21.0 billion, a 5.4 percent decrease from the second quarter of fiscal 2007, reflecting negative comparable store sales of 7.9 percent, offset in part by sales from new stores.
The Company's fiscal 2007 contained 53 weeks of operations. This shifted the Company's 2008 fiscal calendar. Because of this shift, and given the seasonal nature of its business, second quarter sales, on a like for like calendar basis, were negatively impacted by approximately $160 million. Excluding the calendar shift, on a like for like basis, comparable store sales for the quarter were negative 7.2 percent.

Fiscal Year 2008 Financial Outlook
Given the continued softness in the housing and home improvement markets as well as the commitment to invest in its key retail priorities, the Company believes fiscal 2008 sales will decline by approximately five percent and diluted earnings per share from continuing operations will decline by approximately 24 percent. This is consistent with its previous guidance. The Company's 2008 earnings per share guidance does not include its store rationalization charge from the closing of 15 stores and removal of 50 stores from its future growth pipeline.

Lowe's 2nd Qtr 2008 Easily Beats The Street

MOORESVILLE, N.C. - Lowe's Companies, Inc. (NYSE: LOW), the world's second largest home improvement retailer, today reported net earnings of $938 million for the quarter ended August 1, 2008, a 7.9 percent decline from the same period a year ago. Diluted earnings per share declined 4.5 percent to $0.64 (consensus was $0.56) from $0.67 in the second quarter of 2007. For the six months ended August 1, 2008, net earnings declined 12.1 percent to $1.54 billion while diluted earnings per share declined 8.7 percent to $1.05.
Sales for the quarter increased 2.4 percent to $14.5 billion, up from $14.2 billion in the second quarter of 2007. For the six months ended August 1, 2008, sales increased 0.7 percent to $26.5 billion. Comparable store sales for the second quarter declined 5.3 percent and declined 6.7 percent in the first half of 2008.
"Our sales results for the quarter, while better than our forecast, reflect the realities of the continuing macro economic pressures on our industry," commented Robert A. Niblock, Lowe's chairman and CEO. "We saw relative strength in our seasonal sales as homeowners welcomed back spring and restored lawns and outdoor landscaping following the effects of last year's drought in much of the country. In addition, we believe our second quarter sales benefited from the economic impact of the fiscal stimulus tax rebates. Unfortunately, weakness in bigger ticket projects continues, particularly in markets most impacted by the housing downturn.

Lowe's Business Outlook
Third Quarter 2008 (comparisons to third quarter 2007)
>The company expects to open approximately 38 new stores reflecting square footage growth of approximately 10 percent
>Total sales are expected to increase 1 to 2 percent
>The company expects comparable store sales to decline 5 to 7 percent
>Earnings before interest and taxes as a percentage of sales (operating margin) is expected to decline approximately 290 basis points driven by the cycling of last year's $112 million reduction in self-insurance reserves for workers compensation and general liability claims in addition to payroll, fixed cost and depreciation deleverage
>Store opening costs are expected to be approximately $34 million
>Diluted earnings per share of $0.27 to $0.31 are expected
>Lowe's third quarter ends on October 31, 2008 with operating results to be publicly released on Monday, November 17, 2008

Fiscal Year 2008 (comparisons to fiscal year 2007)
>The company expects to open approximately 120 stores in 2008 reflecting total square footage growth of 7 to 8 percent
>Total sales are expected to increase approximately 1 percent
>The company expects comparable store sales to decline 6 to 7 percent
>Earnings before interest and taxes as a percentage of sales (operating margin) is expected to decline approximately 180 basis points
>Store opening costs are expected to be approximately $97 million
>Diluted earnings per share of $1.48 to $1.56 are expected for the fiscal year ending January 30, 2009

Why Georgia Matters

Russia's invasion of Georgia has implications beyond Russia's desire to regain territory or influence over the lost territories of the old Soviet empire. Just as important is the desire to control access to the Caspian's Sea 35 billion barrells of oil and trillions of cubic feet of gas. The question is who will control the flow of oil from the Caspian Sea to Europe; Russia or the more friendly countries and allies such as Georgia, Turkey, and southern Europe?

The Caspian Sea region has become a central focal point for untapped oil and natural gas resources from the southern portion of the former Soviet Union . Beginning in May 2005, oil from the southern sections of the Caspian Sea began pumping through a new pipeline (built by a BP-led consortium) to the Turkish seaport of Ceyhan. The 8-year effort of Western capital, technology, and diplomacy had aimed to decrease reliance on Middle Eastern oil. Although oil reserve growth in the Caspian region ha s not met levels that had been expected in the 1990s, European countries are paying special attention to the natural gas resources that could lie beneath the Sea as a way to diversify their sources of gas imports.

Estimates of the Caspian Sea region's proved crude oil reserves vary widely by source. For this reason, EIA estimates proven oil reserves in the region range between 17 and 49 billion barrels, which is comparable to OPEC members Qatar on the low end, and Libya on the high end. In 2006, regional oil production is expected to total 2.3 million bbl/d, comparable to annual production from South America's second largest oil producer, Brazil. During 2007, EIA expects over 200,000 bbl/d of annual production growth, comprised mostly of growth from Azerbaijan. By 2010, EIA expects the countries of the Caspian Sea Region to produce between 2.9 and 3.8 million bbl/d, which would exceed annual production from South America's largest oil producer, Venezuela.

This Week's Market Movers - Indicators

August 19 - Housing Starts (consensus 950,000)
------------PPI (0.5 M/M, less food&energy 0.2)
August 21 - Initial Jobless Claims (448,000)
------------Leading Indicators (-0.2)

This Week's Market Movers - Earnings

August 18 - Lowe's (consensus $0.56)
August 19 - HP ($0.83)
------------Home Depot ($0.61)
------------Target ($0.76)
August 20 - BJs Wholesale Club ($0.57)
August 21 - Barnes&Noble ($0.09)
------------Aeropostale ($0.31)

Industrial Production and Capacity Up

INDUSTRIAL PRODUCTION AND CAPACITY UTILIZATION

Industrial production increased 0.2 percent in July after having advanced 0.4 percent in June. Manufacturing output gained 0.4 percent in July and was boosted by a rise of 3.6 percent in the production of motor vehicles and parts. Excluding motor vehicles and parts, the index for manufacturing increased 0.2 percent. The output of mines moved up 0.9 percent, while the output of utilities contracted 1.9 percent. At 111.8 percent of its 2002 average, total industrial production was 0.1 percent below its level of a year earlier. In July, the capacity utilization rate for total industry edged up to 79.9 percent, a level 1.1 percentage points below its average for 1972-2007.

July 2008 CPI Higher Than Epected

On a seasonally adjusted basis, the CPI-U advanced 0.8 percent in July, following a 1.1 percent increase in June. The index for energy rose sharply for the third straight month, increasing 4.0 percent in July and accounting for about half of the overall increase in the all items index. The food index rose 0.9 percent in July after rising 0.8 percent in June. The index for food at home rose 1.2 percent in July after rising 1.0 percent in June. Indexes for five of the six major grocery store food groups rose at least 1.0 percent. The index for all items less food and energy increased 0.3 percent in July, the second straight such increase. The indexes for apparel and for recreation increased more sharply than in June, but the indexes for shelter and medical care rose more slowly.

Initial Jobless Claims Down But Higher Than Expected

In the week ending Aug. 9, the advance figure for seasonally adjusted initial claims was 450,000, (consensus was 440,000) a decrease of 10,000 from the previous week's revised figure of 460,000. The 4-week moving average was 440,500, an increase of 19,500 from the previous week's revised average of 421,000.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending Aug. 2, an increase of 0.1 percentage point from the prior week's unrevised rate of 2.5 percent.

The advance number for seasonally adjusted insured unemployment during the week ending Aug. 2 was 3,417,000, an increase of 114,000 from the preceding week's revised level of 3,303,000. The 4-week moving average was 3,273,750, an increase of 75,250 from the preceding week's revised average of 3,198,500.
The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 2.995 million.

JC Pennys 2nd Qtr Earnings Beats The Street

JCPenney Reports Second Quarter Financial Results
Second Quarter Highlights
-- Comparable store inventories below last year
-- Effective expense control in difficult consumer environment
-- Successfully launched several exciting brands for
Back-to-School
-- Opened 12 new stores, 11 in the off-mall format
-- Added 10 Sephora inside JCPenney locations bringing total to
81

PLANO, Texas--(BUSINESS WIRE)--Aug. 15, 2008--J. C. Penney Company, Inc. (NYSE:JCP) reported earnings per share from continuing operations of $0.52 for the second quarter ended Aug. 2, 2008, compared to $0.78 in last year's second quarter. Net income for the quarter decreased 35.7 percent to $117 million.

Operating Performance
During the second quarter, total sales decreased 2.5 percent. Comparable store sales decreased 4.3 percent, at the favorable end of the Company's guidance for a mid-single digit decrease. The Company opened 12 new and relocated stores in the quarter, including 11 in the off-mall format. The best sales performance was in women's apparel and family shoes, with continued weakness in home and fine jewelry. Geographically, the best performances were in the northeast and central regions while the southeast and southwest regions were the softest. Internet sales through www.jcp.com increased 5.6 percent on top of a 17.4 percent increase in the same quarter last year.
For the second quarter, operating income declined 180 basis points to 5.7 percent of sales, and gross margin decreased by 60 basis points to 37.5 percent of sales. The decline in gross margin was mitigated by our customers' positive response to new fall and Back-to-School merchandise, as well as better alignment of inventory to sales trends. Total operating expenses increased by 120 basis points to 31.8 percent of sales in the quarter, including the impacts of depreciation and amortization expense, pre-opening expenses and income from ongoing real estate operations. SG&A expenses continued to be well-managed across the entire organization, with broad-based savings in the quarter relative to initial expectations. Second quarter operating income was $243 million, compared to last year's $329 million.
Interest expense for the quarter was $55 million, and the tax rate was 38.3 percent.

Third Quarter Earnings Guidance Management's third quarter guidance is as follows:

-- Total sales: decrease low-single digits.

-- Comparable store sales: decrease mid-single digits.

-- Operating income: operating income is expected to decline year over year driven by both a reduction in gross margin dollars and an increase in SG&A expenses. As a percent of sales, operating income is expected to decline principally as a result of a higher SG&A ratio.

-- Interest expense: approximately $60 million.

-- Income tax rate: approximately 38 percent.

-- Average diluted shares: approximately 223 million average diluted shares of common stock, including about 1 million common stock equivalents.

-- Earnings per share: approximately $0.70 to $0.75 per share, which includes the impact of the Company's largest non-holiday marketing event moving from the third quarter in 2007 to the fourth quarter in 2008.