Wednesday, December 22, 2004


The pundits continue to cry with alarm that the dollar continues to fall! GOOD!

The rally of stocks has paralleled the rally of the Euro. The pundits are probably right; the dollar will go lower. Just don't let this reality cause you to avoid stocks!

By the way, long rates and the dollar trend together. This fact is counter intuitive. It leads many to see data and draw the wrong conclusions. For two and a half years I have been a bond bear and a stock bull. This has been the profitable allocation. Not that bond returns have been negative but because stock returns have been sweet.

I expect 2005 to be another good year for stocks. However, I expect a powerful sector rotation to continue. As always, it will be important to be in the right stocks.

Fortunately or unfortunately the investment puzzle is more complicated than it looks. In every sector, there are opposites. In the soft drink market you have the companies that sell the syrup and the companies that buy and bottle the syrup. In the last week or two, KO and PEP have broken-up while CCE and PBG have broken-down. Health care includes companies that buy drugs (hospitals and other providers) and companies that sell drugs. Some financial companies lend big dollars to businesses and others borrow big money to buy businesses.

Picking the right stocks in the right sectors will be key to making big bucks in 2005. I hope you will rely on my "rules". These include, zigging when the popular press says to zag, keeping your transaction costs and fees low, putting no more than 7% of your funds into any one stock and be willing to ask for help or a second opinion. A good discount broker such as Brown, ET or AMTD will save significant brokerage fees.

Posted by Hello