Thursday, April 14, 2005

Bill Cara: Capital Markets & Social Equity

Bill Cara: Capital Markets & Social Equity

Bill suggest that if 10,360 is broken, the Dow will quickly drop to 9,800. Bill correctly called that Monday's strong market would not continue on Tuesday.The call of "if the market drops another 40 points then it could drop another 560" leaves a lot of wiggle room.

My bullish outlook is even more imprecise. I have said there will be a very strong up-move this year but that it may not start until November! My posture is to stay fully invested to catch the major move and to not worry over the back and forth and forth and back action of recent months.

Trying to make serious money off these short-term moves is difficult at best. I simply do not know anyone who has made it to the Forbes richest list playing these short moves.

The Bulls to Bears ratio is getting into healthy territory. This week we hit another big winner. In only a few days, our USG stock of the week selection went up 30%. The call was based on fundamentals and the timing was lucky. Who could have guessed that two liberal senators would sign on to asbestos legislation?This is the way markets work.

The reason I can't tell you when the next BIG BULL BOOM BUBBLE will start is because the catalyst will likely be a surprise. Maybe the Fed will reveal that it does not need to raise short rates any more, maybe Iraq will write a constitution, agree to share oil revenues among the provinces and start pumping 7 million barrels a day or maybe 5 democratic senators will make a deal to support Social Security reform.

There have been many surprise catalyst over the years. My favorite one to relate happened when I was 13 years old in 1963. The first half of the BIG COMPUTER, BIG BULL BOOM BUBBLE had already run its course. After a wonderful market run, stocks stalled in 1961 and 1962. President Kennedy dealt with the crises of the day which included run away steel prices and the Bay of Pigs incident in Cuba. Sentiment had turned negative. Who could have guessed that the catalyst to the second half of the BIG BULL BOOM BUBBLE would be that Kennedy was shot!

The following Tuesday, when the market re-opened, the best one day gains in 24 years surprised everyone. Within two weeks the Dow was at an all time high. The market from 1963 until 1969 was one of the best markets in history. Many of the hot names of the day made a lot of people wealthy. I remember incredible gains my Dad made in companies like Xerox, Control Data, Burroughs and National Cash Register.

Yahoo will announce earnings this week and Google on the 21st. These companies are growing at rapid paces. They each announce new services regularly. There is concern that they will "give away the store" to increase market share but like EBAY in China, these companies are out to "lock-up" content and relationships knowing that revenues will come. For example, Yahoo just announced free web sites for small businesses. A business that builds a web site with tie-ins to many services makes for a "sticky" hosting service. The history is that companies learn how to promote their web site after they build them.The fact that Google is able to offer a free 2 gig hard drive to all comers with unlimited access shows just how cheap web services have become.

Cramer likes big newspapers. OK fine but one must realize that these companies must adapt to the new realities; they must adapt to web publishing to survive. The cost to produce, store and distribute information has dropped like a rock. Who needs to pay a reporter to cover a high school football game when there are several bloggers covering it for free? The Greensboro News is one of the first to attempt to incorporate these bloggers in its distribution channel.

The action in publishing is a great example of the way the substitution effect quietly lowers inflation. At the same time that whiners and alarmist are writing about the horrible inflation in oil and commodities, they are cancelling their high dollar newspaper and magazine subscriptions because they have access to much more information on virtually any topic "free of charge"! The internet is the greatest invention since the printing press. The benefits have just begun to be realized.

The next several years will be years of dramatic growth in VoIP and web publishing just to name two areas. The huge productivity gains being made in China, India, etc. are an under-appreciated part of the whole story that supports the thesis that another BIG BULL BOOM BUBBLE are on the way; buy the this dip in the market; hang onto the bucking bronco; don't get bucked off by short-term problems.

Stocks are under-valued relative to bonds and real estate is gathering steam for another big run. My bet is that we reach a Dow of 15,000 before we hit 9,800. Even if we hit 9,800, I am prepared to hang on tight. I want to make better than 100% over the next 4 years. If I drop 15% and then make 130%, I can live with the move.