Monday, November 07, 2005


Tom DeLay Mug Shot - October 20, 2005

Much of the political news in recent weeks has been "much to do about nothing". The news has served to frustrate which has been a depressant weighing on the stock market.

In the long run, Delay and Liddy will be only footnotes in history. By the congressional elections next year, stocks will be up, the deficit will have improved, the oil price will be down and the Supreme Court will have two Bush appointees on board. Life will be deemed relatively good and the public votes their pocket books.

American wealth has never been so high. Our standard of living continues to go up. Many of those reaching retirement age are continuing to work because their jobs are enjoyable.

Many financial advisors are now encouraging folks in good health to defer social security until the age of 70. Payments go up about 6% for each year of deferment. Those who live beyond 80 more than make up the loss because their payments are almost double those of the same age who begin drawing at 62.

The new health care subscription benefits are designed to be confusing. This opens the door of opportunity for various commercial health care plans. The benefits are real but tricky.

I had predicted that the FOMC would raise rates at least .25%. This is good news as the market needs assurance that inflation is under control. Once it is absolutely clear that inflation has been tamed, the FOMC may even need to lower rates in 2006.

The market will break out around the next to last rate increase which is probably now. Should the FOMC get spunky and raise .5%, the market may fall on the news for a day or three. Then, a few days after the increase, the market will be on a roll.

There has not been a dramatic sell off to form a solid bottom but the very long consolidation has served the same purpose. I do not belive it is necessary to have a dramatic sell off before the next leg of the BULL.

A few folks who take my advice on their accounts have basically gone "all-in". They are fully committed to the market and have even purchased shares on margin. Margin is a double edged sword. It leverages returns dramatically no matter if you are right or wrong when using it. Today, a few of these accounts were up better than 10% on equity today!

Last Friday, QCOM was down sharpely. QCOM is maybe 6% of the value of the QQQQ. MSFT and other big names such as CISCO have been dead in the water for some time. The S&P and Dow were up stronger Friday than was the QQQQ. . Normally one would think that the QQQQ. would lead the way up. However, I have suggested for some months that it is time for the big solid defensive growth stocks to lead the small stocks. This is finally happening. The S&P is showing relative strength to the Russel 2000 and to the value line index.

Today was different again. Today the NASDAQ beat the Dow and the S&P easily.

Note that the absense of a steady trend has been part of the problem for the markets. Folks who invest with any particular style can't seem to catch hold of a solid trend. There continue to be reversals. No matter! S&P size companies are as cheap as more risky small companies. Buy the big names and hold on for a good ride. Tomorrow, the bucking bronc may try to shake you lose. Hold on tight and buy more on pull backs. Avoid the oils but buy most anything else.

Three weeks ago a friend said which of the big dumb and ugly stocks would I buy, BAC or HD. I said they are both beat down but so is WMT. I was not eager to buy any of these but told him I would continue to add to legacy airlines as funds become available. The percentage gain in the CAL,AMR and LCC have been fantastic since the question but all three of these stocks have done fine. I expect them all to have good years ahead.

The fear continues to be that long rates must go back to higher ground. The reality is that global competition and technological innovation will continue to keep interest rates low. Therefore, real estate, bonds and stocks will all do ok but the cheapest of these is stocks!