Welcome Mats Out for Stem Cell Agency

Welcome Mats Out for Stem Cell Agency

California is at work trying to be the leading area for stem cell research. This controversial research holds huge potential for the betterment of mankind. Ethical questions are in the news. One can expect heath care issues to loom large in the years ahead. In the short run, the momentum of the stock market is in industrial goods.

If you stay 100% invested in a diversified stock portfolio, you will do well during the next several years. IPO's are heating up but the steady money will be made in big cap American companies.

Congratulations to Patient Investor Number 5

Corning Glass--Ready For Another Run? (click on image to enlarge)

Congratulations to patient investor number 5. After Corning bottomed in 2002 and then after it made a "higher low" in early 2004, patient investor number 5 purchased shares. Within a few months, this investor had more than a 50% gain when more money was available to invest. It is sometimes hard to do the smart thing but I suggested that he should buy more. As you can see, the stock went all the way from the $4 to $12 range.

For the past year, the stock has been locked in a trading range. During this time, it has become clear that the companies products are being adopted at an ever faster pace. New factories have been built. Economies of scale are being realized. Prices are on the way down. Consumers need the companies product. An explosion in sales is just around the corner.

As a early adopter, I paid over $1,500 for my first pocket calculator and almost $2,000 for my first car phone (I lost the calculator but the phone still works). I wised up. I have not purchased my first LCD TV screen yet (I have purchased a Dell computer with a wonderful UltraSharp screen). I learned a valuable lesson. My family more than doubled our investment in satellite radio before we bought out first satellite radio, we made more than 6 times our money in NXTL before we bought our first NXTL phone and we have made almost 300 percent on our first investment in GLW before buying our first LCD-TV.

GLW is ready to run again. Broadband internet service is ready to take the next leap forward. Companies such as VZ, SBC and others are spending billions installing fibre-optic cable. GLW has a portfolio of patents that make light speed data transmissions possible. Buy GLW with confidence! GLW is one of those companies you will want to say you held for 20 years or more!

I write for education and entertainment purposes. Investing in stocks can result in losses of capital. As an amateur investor for 42 years, I have enjoyed great successes and great failures; my wife and children do not permit me to make investment recommendations (they follow my advice but will not allow me to give it too others).

Peter Brimelow: Market bounce emboldens bulls - Opinion - Markets/Exchanges - Market News

Peter Brimelow: Market bounce emboldens bulls - Opinion - Markets/Exchanges - Market News

After many weeks of negative attitudes, several newsletter publishers have turned at least a little positive. Most are still calling for a bounce within a trading range. No real enthusiasm yet!

The market has impressively fought through negative news today. The Dow and the NAS are off their lows and the S&P is up! Climbing against negative news is often a sign of a powerful market. Don't miss the next three years! Don't miss the first 5 to 15 days of the move, missing the first 5 to 10% of a a big move is harmful to your portfolios health!

Goldman sees oil price 'super spike' to $105 a barrel - Oil and Gas - Energy - Analyst

Goldman sees oil price 'super spike' to $105 a barrel - Oil and Gas - Energy - Analyst

Can you believe $105 per barrel of oil in the near future? I don't! Just the thought is enough to shock the market and even to slow the economy a bit. I pumped $39 worth of gas last night, my all time high. With gas prices up because of the refinery explosion, the idea of $105 per barrel strikes fear in the hearts of men.

CAL made the deal with labor to save $418 million per year. One might argue that fuel costs will rise at least that much. I believe fuel costs will be higher but revenues will be higher as well. The Yellow Freight Chairman reports that fuel surcharges are being passed through to customers. The PCED is still only 2.3% and the largest component of costs, labor costs, are still rising at moderate rates. Productivity is still strong.

Can you imagine what all you would do to reduce consumption if the oil price were to double from here? Demand would drop precipitously. One of the important indicators I follow suggest that oil prices are near the peak for this economic cycle. The supply build announced yesterday was large. Germany just announced a 12% unemployment rate and industrial output in Japan just declined. The market is already adjusting to current oil prices.

President Bush continues to "win". For the first time ever, Government workers are not receiving automatic raises. Merit pay is actually creeping into the US bureaucracy. I predict that the congress will pass an energy bill within the next several months. Congress and the President will get the credit for solving the current energy crisis. By year end, I predict oil prices of $42 per barrel. From there it will take a few more years to bring online new resources to reduce the price further.

Continental Airlines

Continental Airlines

The deal is done to save $418 million per year in labor costs. The stewards did not reach agreement. It is anticipated that the final savings will reach $500 million per year.

THE WORM HAS TURNED! IT MAY TAKE ANOTHER YEAR FOR PROFITS TO SHOW! CAL SHOULD INCREASE IN VALUE WELL BEFORE THE PROFIT FLOW BEGINS!

Boersenreport.de - Microsoft launches TV-to-go service

Boersenreport.de - Microsoft launches TV-to-go service

$19.95 per month will get you TV to Go. Napster, Samsung, MTV, and TiVo are among the business partners. The service will allow certain shows to be down-loaded to portable devices. The time is near when one will not need to rent or buy a DVD.

CommsDesign - Understanding the Design Challenges of VoWiFi

CommsDesign - Understanding the Design Challenges of VoWiFi

In the first Big Bull of the century, Henry Ford was able to push a car into half the homes through the use of low cost assembly techniques. It took GM to figure out how to sell to the other half the population. The second Boom created by GM was the bigger Boom. The linked article is about the convergence of VoIP and WiFi which will serve to sell the second half of the population on the need for broadband internet service.

The investments and savings will be remarkable. Today, many folks pay $50 per month for home phone service, another $70 per month for cell phone service and another $200 per month for business phone service. A VoWiFi phone would eliminate the need for these services. The one phone would be very feature rich and offer unlimited calling for a low fixed rate.

Entire networks must be redesigned to take advantage of the convergence. The process is well underway; equipment is being installed all across America. Billions are being spent. Equipment company earnings are going to surprise investors. Productivity and wealth will increase at a steady pace as communication capabilities are enhanced.

Many folks simply do not appreciate how much time, energy and money is wasted each year playing games such as phone tag. If you look at a phone display that shows your business associate is on another call, you may want to click a button to tell the phone to ring you both after the first call is completed. You might also chose to send an instant message or an instant voice message. You might even realize that he is currently handling the problem you were about to call about. A truck driver that avoids one unnecessary stop as a result of good communications capabilities might save a whole years worth of communications expense.

It will take major investments to put the new systems into the hands of businesses and consumers. Consumers will be given a compelling reason to purchase broadband internet for their homes. Having a nationwide broadband network will allow many other services to be adopted. The second half of the internet Big Boom Bubble Bust is ahead. Invest now to avoid playing a game of catch-up!

S&P 500 EARNINGS (INFLATION-ADJUSTED)

Another good chart from Chart of the Day! (click image to enlarge)

Good charts are always worth more than a thousand words. All charts are subject to many interpretations. The glaring mistake in the chart as presented is the failure to recognize that the US economy benefits from productivity to produce a geometric growth pattern. The best regression line for the data would probably be 6 or 7% compounded rates. The log scale used does not do the data justice. The information revolution we are enjoying appears to have increased the nominal non-inflation adjusted growth rate from 6 to 7%. This same data posted as non inflation adjusted data on a standard scale would look very different.

A pattern in the data that is consistent with the "investment clock" that I use is that high earnings can fool investors into investing at the wrong time. The market is a forward looking animal it does not have eyes in the back of its head. The chart as presented might lead one to conclude that the cycle peak in earnings has already been reached. When one understands that he "line of best fit" is a geometric line, one can extrapolate from what happened in the mid 1990's. The comparison is that earnings exploded in the first half of the 1990's, hesitated for a short time and then took off again to finish the typical pattern of a strong decade finish.

If you have not noticed from my other posts, I am very optimistic about the market for the next few years. At least 30 times a day, I am getting buy signals. While writing this, I have been listening to a replay of the "Neil Cavuto Show". Even after today's explosive rally, the panelist have tended to emphasize the trading range. Then jokes were made about not needing the S&P break out chart that was prepared weeks ago.

Sentiment was very negative before the big rally and current indications are most traders will sell into the rally or at least sell strongly when the market gets back to the peak of the trading range. A break out would cause a lot of folks to need to jump back in the market at higher prices. Markets explode to the upside violently because the break outs come when short-term traders are out of the market or on the short side. Over the past few days, I have posted links to several bearish posts by respected short-term traders; the makings of a violent turn like we saw today. Will this move be the big break? Who knows? Are conditions ripe for a multi-year move? Yes!

Economist.com | Hotels

Economist.com Hotels

Ten years ago, I bet Papa John that world wide down-towns were going to make a comeback. At the time, it was hard to believe. Towns such as my own home town of Winston-Salem had all been "malled". Citizens had all moved to the suburbs and down-town was dark after about 6 PM each week day and dead on the week ends.

Down-towns, large and small, are making the turn. The old tobacco factories in Winston are being remodeled into modern office and research facilities. Wake Forest University and Winston-Salem State University are cooperating to build a 70 Billion Dollar research park.

As the linked article mentions, hotel operators are buying into down town areas. Harry Dent has written about the new "urbanites". Seniors can live in many down-town areas and not need to drive. They can enjoy theater, restaurants and community services within walking distance or on bus and other public transportation routes.

The trend is just getting started. The down trend in Winston-Salem lasted the better part of 25 years. Investors should consider down-town real estate. Millions of baby boomers may wish to retire to more urban settings in the years to come.

Is EV-DV dead? Yes and QUALCOMM is alive!

Is EV-DV dead?

The linked article is highly technical and of little interest to most investors. I have linked to it for one reason only; it demonstrates the power of QCOM. QCOM has set many of the standards for cell phone communications and earns large royalties. Mr. Jacobs has step aside and given his son control of day to day operations. Transfers of power always raise risk levels and depress shares. Mr. Jacobs handled the transfer like Dean Smith and the UNC Basketball program. He left at a time when the "team" was very strong. The program took some time to regain its footing. QCOM is still rolling in revenues and the next generation of cell phone equipment will pay-off for the company. This is a buying opportunity!

Kiplinger.com - THE SOCIAL SECURITY DEBATE

Kiplinger.com - THE SOCIAL SECURITY DEBATE

The number of articles about Social Security grows. Most, such as this one at Kiplinger.com, acknowledge that reform is needed. Two arguments made on the Fox News -- Special Report are that the very reason to support private accounts is to reduce the future claims on the Social Security Trust Fund and that the original purpose of Social Security has in fact changed. The opponents get these arguments up-side down. They argue that the private accounts will take away from the trust account. The other argument is that Social Security was designed to transfer wealth from "well to do workers" to the elderly poor. The system currently takes money from the relatively poor young folks to pay to many relatively wealthy seniors. This argument is not oft repeated because it sounds as if the argument is to reduce the benefits paid to seniors. The real idea is to increase the investment returns to the young who are in the position of paying for others retirements. Investors simply need to recognize that the system must be fixed and when it is an anchor will be removed from the US economy--boom markets are ahead.

London Calling: U.K. demand seen weak for stripped-down Windows XP - Computer Software - Software - Markets/Exchanges - Market News

London Calling: U.K. demand seen weak for stripped-down Windows XP - Computer Software - Software - Markets/Exchanges - Market News

A few weeks ago, I wrote that a train wreck is imminent. The MSFT share price has been coming down while all the value ratios improve. The price to book, price to sales and other measures give MSFT the look of a value play. The growing hoard of cash is not bad either. The fight in Europe has lasted a long time but as the linked article shows, consumers show little interest in buying a Windows version that does not include the "free media components". The fight is not over but the next version of Windows is almost ready for market. A huge up-grade cycle is approaching. MSFT has won a significant role in media delivery. Investors can buy this big cap stock with confidence that patient investors will be well rewarded.

WSJ.com - GE Projects Gain Of $2.6 Billion In Unit Stock Sale

WSJ.com - GE Projects Gain Of $2.6 Billion In Unit Stock Sale

For months, I have written that the big caps are where you want to invest. Stocks don't get bigger than XOM or GE (these two are taking turns as the biggest company in America). The Wall Street Journal reports that GE is raising projections and doing well. It is not too late to participate.

Texas Instruments Delivers Enhanced Voice over Cable Software for Cable OEMs

Texas Instruments Delivers Enhanced Voice over Cable Software for Cable OEMs

TXN and other "equipment" companies continue to improve the performance and reliability of communicating over the internet. The growth in this area is going to be big for a number of years. The savings over traditional phone service is too big to ignore.

As a current user of Vonage, I can refer you to Vonage for one free month of service. I would also receive a free month. I have referred several family members who all enjoy the low cost and the feature rich service. It is my hope to buy Vonage shares on the IPO but I fear the price will be very high. TXN is probably one of the best ways to play this fast growing industry. TXN technology is frequently the best available. The DLP technology has helped lower the cost of products from cell phones to big screen TVs.

Remember the marketing "S-curve". Only the early adopters have purchased many of the products served by DLP. There will be several years of fast growth in these areas.

E-Commerce News: Trends: Web Sites' Sideline: TV-Type Shows

E-Commerce News: Trends: Web Sites' Sideline: TV-Type Shows

Free markets find the way to the lowest price. Even semi-free markets are often successful in finding the lowest price. The latest Forbes Magazine reported that some companies have set up divisions in the low tax state of Nevada. Divisions in other states pay the divisions in Nevada for services, such as the use of logos. The earnings are reduced in the high tax states and increased in the low tax state.

The latest "web TV station" shows that the free market is going to gradually work its way around cable TV oligopolies. My family owns both CMCSA and TWX. We appreciate that these firms generate large cash flows because of virtual locks on large customer bases. As consumers, my family wants the freedom to watch the shows we want to watch without being forced to buy the "whole cable package". Internet TV is a serious competitive risk for the cable companies. TIVO and others have the potential to organize internet TV content and to distribute it to the public. CMCSA has entered an agreement with TIVO. No doubt CMCSA is trying to insure that TIVO and CMCSA will both "win" by supporting the "package deal" concept.

The "Web TV show" in the article is all about weddings. Other "Web TV shows" will be produced. The shows will likely be niche shows until someone does something special. Then all bets are off. Free markets are famous for delivering "creative destruction". In a free market, if you build a better mouse trap, the world will beat a path to your door. My family will continue to hold TWX and CMCSA but we will keep our eyes open for good viewing opportunities.

Forbes.com: Study Shows Sirius Has Brand Awareness Lead Over XM

Forbes.com: Study Shows Sirius Has Brand Awareness Lead Over XM

When SIRI ran to the $7 to $9 range, there was too much excitement for the sector and I encourage the sell of the shares. SIRI and XMSR each traded down in the following months. Each firms stock has built a base price again. To my knowledge, none of my friends or family have purchased shares again but the shares are less risky now. As the linked article in Forbes reports, 40 million Americans are likely to subscribe.

On the other hand, SIRI has raised additional capital through convertible securities which indicates the near term upside is limited. Only patient investors should consider these shares at the current time. Other stocks will likely out-perform; can we figure out which ones?

Bush pushes Social Security accounts in Iowa - Financial - Financial Services - Bond Market - Economy

Bush pushes Social Security accounts in Iowa - Financial - Financial Services - Bond Market - Economy

Pressure is growing to save Social Security. Bush says those who oppose will pay a political price. Bush has shown his willingness to drop support for Republican or Democratic congressmen who work against his policies. Bush has a lot of levers to pull. The main one continues to be the fact that the Social Security Trust Fund is under-funded and needs to be addressed. Should reform not be passed, Social Security will be a Republican issue. In the past, Demo crates were able to use Social Security to attack Republicans. Failure to address the short-fall will provide the President a tool to bludgeon Democrats who oppose.

361% GAIN IN ONE DAY!!!

Congratulations to Mrs. Tucker. She has now made 131 times her original investment in one stock. The investment returns are getting so large that they are hard to comprehend.

Mrs. Tucker's cost basis in UNH (United Health Care) is $.73 per share. The stock closed at $95.71 per share today, up $2.64 on the day. Dividing the one day move by the original cost results in a one day gain of 361%! Funny math is being used to make a point that many folks miss. Folks are often content to earn a 5% bond yield while passing up a 3% tax advantaged stock dividend. By the maturity date of the bond, the dividend may have increased to the equivalent of a 15% bond yield. The stock value is likely to have increased as well. In the case of solid growth, the compounding effect, like in Mrs. Tucker's case, makes future gains very high relative to the original investment.

Last night a news program mentioned that investors in Warren Buffet's firm have made 6,000 percent during the life of the company. Mrs. Tucker has made 13,100 percent in about 22 years of ownership. The original purchase was not in United Heath Care but it was taken-over by United around 1985. The returns above do not count the nominal dividend that has grown to 4% of the the original investment. Mrs. Tucker has owned other stocks that did very well and others that did poorly but it only takes one 131 "bagger" to forever appreciate the potential returns in the market.

My Mom enjoys planting, tending and harvesting a garden. There are few things better than home grown beans, corn and tomatoes. Tending a stock portfolio is similar to tending a garden. You have to weed the garden and replant when the frost kills early plants but the rewards are many. Mom's Tractor Supply Stock, symbol TSCO, has been one of the pleasant surprises she planted in her portfolio garden. Mom and Mrs. Tucker will continue to plant the seeds, weed the weeds and harvest the bountiful harvest. Some years will yield better returns than others. Only the very best plantings will yield 361% in one day. How long do you suppose it will be before Mrs. Tuckers stock splits again and then one day yields her 722% return in one day?

Safe Haven | Even Stephen Roach Has It Wrong

Safe Haven Even Stephen Roach Has It Wrong

It is not just the technicians and the stock pickers who are negative. Economist are writing negative articles and the big media are ready to "report the news". The above article screams about the "looming economic danger". It tries to make the case that the Chinese would somehow be better off if they were not selling their goods to Americans; how ridiculous can one get?

The standard of living in China has been soaring for the past several years. It is free trade that is benefiting them and us. This is the classic case of the orange gower benefiting by trading some of his oranges for wheat. Both growers enjoy oranges and wheat.

Bears are piling on from all directions; don't be fooled. The good news is being ignored. The use of monetary and fiscal policies to "prime the pump" has worked exactly as one would hope. The economy is now so strong that interest rates are being allowed to return to market levels. With productivity and free trade holding down inflation, there is already evidence that rates are again near equilibrium levels.

Even the bad news is a bump in the PCED to 2.3 from 2.0. A 2.3% inflation rate is a good thing! Are any of you old enough to remember the 18% inflation rates of the late 70's? Bond rates continue to fluctuate around 4.5% and GNP is only slightly lower than 4%; Stephen Roach and his friends apparently can't see the forest for the trees. Good times are here!

Performance, Fortune & the U.S. President - www.bearmarketcentral.com

Performance, Fortune & the U.S. President - www.bearmarketcentral.com

The Bears are Growling! Everywhere I turn, I hear bears growling--music to my ears. I have helped a number of folks position their accounts aggressively. We are ready for the Big Bull Boom Bubble Bust. The good news is that we are in full Boom now. The economy is doing very well. Job growth, revenue growth and profit growth abounds. The Boom should last several years. Stocks will Bubble toward the end of the BOOM.

The Dow is up 110 today, the NAS up 25 and the S&P is up 13 to 1178. All of this means nothing and everything. We are stuck in a trading range until we are stuck no more. Today's action says we are not about to break below the range. Another day or two like this would say we are going to break above. A break above would put a hurting on short sellers. They will want to cover quickly. After months of low volatility, a break out could be large. As I have reported for the last several months, it may take until November for the market to appreciate that Social Security Investments will be added to the market. In all probability the market will sense the move long before it arrives but all we can do is invest and then be patient.

By the way, another SS idea is being floated around congress. The idea would allow a small portion of SS money to go to private accounts to be matched by individual contributions. This is similar to what Federal Employees are allowed to do. The final compromise must solve the liquidity crises and establish the "lock-box" of ownership. Otherwise, the congress will sooner or later over spend the accounts again. The congress is caught in a tough spot. Some members are finally admitting that there is a solvency problem. The first step to compromising on a solution is to admit that the accounts are in a serious deficit.

The next big stock move is not far away; if you are not invested today, you may already be missing the first part of the jump!

Net Stocks: E-tax filing helps Adobe Systems - Internet Services - Electronic commerce - Internet - Analyst - M&A

Net Stocks: E-tax filing helps Adobe Systems - Internet Services - Electronic commerce - Internet - Analyst - M&A

This is an interesting follow-up to my report on ADBE made earlier today. This article shows that even the IRS has good reasons to purchase ADBE software. The IRS has saved about 4.8 Billion Dollars by using ADBE!

With so much positive news on the stock, I would hesitate to buy more right now. We will continue to hold and will buy more when the news is not so hot.

Winston-Salem Journal | Greensboro creating an "electronic town square" with blogs

Winston-Salem Journal Greensboro creating an "electronic town square" with blogs

The above link is a nice article demonstrating the change that newspapers must make. In earlier discussions, we talked about how Dow Jones made the right move to buy CBSMarketWatch, the NY Times made the right move to buy About and the combination of Gannet, Knight-Ridder and The Tribune made the right move to buy the news aggregator.

Newspapers must respond to the internet challenge. Internet users can program the automatic delivery of "personalized" news. Newspapers have had the advantage of offering local news. Bloggers are taking this advantage away. The above article shows that there are many ways to innovate using the internet. I expect newspapers across the country and around the world to make similar moves. The productivity machine continues to march forward. Why should anyone waste precious resources driving a truck around filled with reams of paper? The internet can deliver the same content at a small fraction of the costs.

GOOD NEWS AHEAD! PRODUCTIVITY IS MATHEMATCALLY THE EQUIVALENT OF WEALTH! BIG MONEY WILL BE MADE (OR SAVED) IN THE YEARS AHEAD!

A big thank you to the heads up from Courtney. As a computer teacher, she has a good sense of were computer usage is going.

BIG WINNER KEEPS ON WINNING!

This is a congratulations to Jonathan blog. Jonathan purchased ADBE (Adobe) after hearing my take on the company. He is on a bucking bronco and enjoying a great ride. The stock continues to move up even after down-grades by a number of analysts.

The Morningstar report gives one a good sense of the problem. The stock has done extremely well and trades at 30 times next years earnings. It is within a stones throw of its all time high which was made during the internet bubble. The Morningstar analyst is impressed with the growth rate and with the "double moat". I too am impressed with the "double moat" which is a knowledge moat and a network moat. The knowledge moat is simply that students are trained in the usage at graphic arts schools around the world. The networking moat is that there are 500 million users.

One part that I do not believe the analyst appreciate is the tie-in with YHOO. YHOO is providing search services and promoting the product line.

Thank you Jonathan for buying and holding. I enjoy seeing folks make BIG MONEY!

The stock is an expensive stock based on price to earnings ratio. Growth in the current market is under-appreciated. I envision a relatively high grow rate for many years, hold on to this winner and do not let go!

Bill Cara: The End-of-1Q05 Equities Big Picture

Bill Cara: The End-of-1Q05 Equities Big Picture

Bill Cara does a great job of making his case. He is bearish. He and many others. This market has been a tough one. However, the economic cycle is in place to have four or five very strong years.

Keep in mind that there is an element of truth in the efficient market hypothesis. In other words, the market is currently fairly priced if one takes in to account all factors. The tricky part is that the factors include a psychological or perception factor. This sentiment factor can keep the market over or under-priced for a considerable period of time. The bubble of the late 90's is an oft mentioned example where the market went high on fundamentals but then went very high on misplaced sentiment. We have been in an upside down bubble for a few years. Stocks have an earnings yield equal or greater than bonds with growth potential as a bonus. The market has been discounting the growth potential heavily.

Again, the good news is that the short-term traders will jump on board and help push prices up quickly once the big move starts. Today the market is having an excellent day but it is hard to get excited when the market is simply bouncing off the lower end of a trading range. I am a bit excited about the gap up in AMR. A growth rate of 3 or 4% in seat miles will at some point cause a significant jump in revenues as rates will rise quickly when more seats are filled. The operating leverage of this business is huge. Profits will be very large in the next high utilization cycle.

AIRLINE DAM IS LEAKING--FLOOD EXPECTED

This morning CNBC reported that Merrill Lynch has moved American Airlines from neutral to buy. It seems less than a month ago when Merrill upgraded to neutral. The legacy Airlines are producing so much revenue per share that it is only a matter of time before the negative dike will crumble. The same with the over-all market.

The average S&P company is growing earnings at 15%! Negative sentiment is holding share prices down but earnings continue to grow. Merger and acquisition activity is high because one company sees value in the shares of another.

AMR is up $1.1 per share this morning. My family purchased shares on 2/4/2005. We are up 25% in a little over a month. This is a blessing during a tough market. In the coming months and years, I expect the sentiment to do a 180 in regard to airlines. Baby Boomers are buying second homes at a rapid pace. In a similar situation in the late 80's, a close friend had reached the level of 6 weeks annual vacation. He decided to take Friday off for 30 plus weeks in a row. Counting holiday's I believe it was 35 weeks in a row. He was on a plane to somewhere every Thursday night; he saw much of the world on three day weekends. The extreme often illustrates the point. Our economy is growing at an extraordinarily fast pace--25% above historical norms! Americans are as wealthy as they have ever been. The average homeowner in America increased his net worth by approximately $16,000 last year! Think about how long it takes for the average person to save $16,000.

Short selling has become a popular tool. Hedge funds and speculators are betting stocks will go down. Short sellers will buy heavily when the market breaks to the up-side. If you are not in the market, you will not have time to "catch-up". Buy the big American companies now and hold on to Ken Fishers famous "bucking bronco bull market". Ken says the bronco will try to buck you off but if you hold-on you will reap extraordinary gains. Ken, Ed Yardeni, and other folks who look at the market with a longer term point of view are currently very bullish. Short-term traders are currently very bearish. In particular, chart readers are very negative. The risk of breaking below support levels appears to be high. Even those who call for a big rally suggest that one should sell into the rally. If this happens and the market breaks, the sellers into the rally will be chasing the market for weeks to come.

HOT NEWS--NOT HOT!

Movers & Shakers: Highlights of rising and falling U.S. stocks - General News - General

There have been lots of "BIG" headlines recently but the positive news for stocks is getting little press. Buried deep in the above article is a paragraph about Office Max (OMX) buying back 25% of all shares. This is a huge buyback. It comes on the heels of numerous other buyback announcements. It also comes on the heels of the leveraged buyout announced yesterday and on the heels of the start-up of a huge leverage buyout fund. What does all this mean?

Stocks are cheap; companies have the most ever cash on their balance sheet; if they do not buy back their shares, someone else will.

What to expect? More and more companies will buy back shares. Managements do not want to lose control and they face the risk of hostile take-over bids. Supply and demand for stocks is just like the supply and demand for anything else. If companies soak up supply of shares by buying back shares, the remaining shares will be bid up in price. What action should you take?

IGNOR SHORT TERM NEGATIVES--BUY STOCKS TO HOLD FOR THE NEXT 3 TO 5 YEARS. TRYING TO WAIT UNTIL THE SHORT-TERM BOTTOM IS MADE IS A MISTAKE; BUY NOW! IF YOU ARE EARLY AND SOME OF THE STOCKS YOU BUY GO DOWN, SELL THEM FOR THE SHORT-TERM TAX LOSS AND REPLACE THEM WITH OTHER GOOD VALUE STOCKS. AS AN AMATUER, I CANNOT RECOMMEND STOCKS BUT IT IS MY BELIEF THAT 5 YEAR GAINS WILL AVEARGE CLOSE TO 100%!

Gizmondo arrives in the UK - Engadget - www.engadget.com +++

Gizmondo arrives in the UK - Engadget - www.engadget.com +++

Nokia's latest entry is a wireless game, music and video player. This market is competitive. As a result, I have not been a fan of Apple. It seems that there are too many companies competing for the same market. My family owns MOT and TXN which also make competitive products. We like patents. TXN in particular has patented inventions that make their products cost efficient. One needs less battery power to operate the DLP products of TXN than others. NOK is a market leader and I would not fuss about owning this company. TXN is still my favorite in the area.

Forbes.com: Recession Alert

Forbes.com: Recession Alert

Great article with very nice charts; wrong conclusions!

Several newsletters and bloggers are very negative! The contrarian play is to buy when others are saying sale! Look at the charts presented carefully; you can see that conditions are ripe for a very strong market move!

WSJ.com - Delta Air Adds New Measures To Cash-Conservation Effort

WSJ.com - Delta Air Adds New Measures To Cash-Conservation Effort

Correction: I misstated the DAL savings in an earlier blog. The $240 Million of savings is over a five year period. The linked WSJ story outlines other steps DAL is taking to avert a cash crunch later in the year. Again, this is a distressed company in a distressed industry, only aggressive investors should consider investing.

HAVE YOU HAD YOUR "IMAGE" CHECKED TODAY? STOCK OF THE WEEK!

Chances are you or someone you know has had to have an X-ray, MIR, CT or Ultrasound recently. If you have active children you have probably experienced this thrill too often. Recently, I discovered an 8-year old company in a growth business that fits our "good value" screening criteria. It is a company that is living up to its commitment to provide high quality, cost effective radiology services. Company literature says that Radiologix (RGX) strives to be the premier provider of diagnostic imaging services through high-quality service to patients, referring physicians and mutually beneficial relationships with radiologists who provide expert interpretations of diagnostic images. Through the commitment of valued employees, Radiologix is dedicated to growing shareholder value by delivering personalized, timely and cost-effective services to patients, affiliated physicians, referring physicians, and the health care community.

In November 1997, seven successful, geographically diverse, physician-owned radiology practices joined together to form what is now known as Radiologix. (http://www.radiologix.com/). Each of these physicians contributed their imaging center and administrative assets in exchange for ownership in the Company. The Corporate Office and National Support Center is based in Dallas, TX and provides functional support to the subsidiaries.

Today, Radiologix owns and operates 76 freestanding, outpatient diagnostic imaging centers. The centers employ 2,000 and provide a broad range of diagnostic imaging services in 10 states. The company maintains a strong presence in all of its markets. Thanks to the efforts of their family of employees and member physicians, Radiologix has become one of the leading providers of radiology services in the United States. The company utilizes technology and technical expertise to perform a range of imaging procedures, such as magnetic resonance imaging (MRI), computed tomography (CT), positron emission tomography (PET), nuclear medicine, ultrasound, mammography, bone densitometry, general radiology and fluoroscopy.

Radiologix’s mission statement is to offer the benefits of small, family type practices, combined with the structure, security and funding of a publicly traded corporation. The radiologist partners work closely with the staff to ensure the highest possible patient care. Management feels it is important to kept the family feeling in the centers while providing "best in class" radiology services.

We have often noted the aging of the "baby boomers". Data show remarkable growth in the number of doctor visits in the USA. US citizens who have reached 51 years of age are taking 7 times the number of prescriptions as they were taking 10 years ago. Health Care is a growth business. Employment for radio-logic technologists is expected to grow most rapidly in offices and clinics of physicians, including diagnostic imaging centers. Health facilities such as Radiologix are expected to grow very rapidly due to the strong shift toward outpatient care, encouraged by third-party payers and made possible by technological advances that permit more procedures to be performed outside the hospital.

Fiscal year end results did not fully reflect the successful year Radiologix had. "2004 was a watershed year for our company. We focused our efforts on stabilizing our operations, building our leadership team, and strengthening our internal controls. As such, we made many difficult operational, financial and personnel decisions that resulted in significant but primarily non-cash financial charges. These decisions challenged our team, tested our resolve, and blurred our true underlying performance," said Sami S. Abbasi, president and chief executive officer of Radiologix. "However, by making these decisions and acting on them, we left 2004 stronger, healthier financially, and better positioned for the future. I am confident in our operations and in our potential to create long-term sustainable shareholder value."

Radiologix’s largest competitors, Alliance Imaging, (AIQ) (http://www.allianceimaging.com/) founded in 1983 has 478 diagnostic imaging systems with over 1,000 clients in 43 states. This stock was volatile during the year. The 52 week low of $3.60 was made on 3-29-04 and the 52 week high of $14.15 was hit 2-1-05, Alliance reported an increase in fourth quarter revenue of 5.5%. Revenue for 2004 increased 4.0%.

Per the Center for Disease Control, (www.cdc.gov/), emergency department visits are on the increase. Two factors are involved: overall population growth and the aging of our population. Older Americans, those 75 years of age and over, had the highest rate of emergency department visits-65 visits per 100 persons per year while the national average was 39 visits per 100 persons per year. You or your family member will likely use diagnostic and imaging services in any 5 year time.

The recent roller coaster ride may have be contributing to the cheapness of the stock. Radiologix’s 52 week high of $4.98 on 2-4-04 and 52 week low of $2.99 on 10-24-04 is too exciting for conservative investors. However, patient investors should be well rewarded by the stock. With a price now of $4.29 per share, are you willing to take a chance on this 8 year old diagnostic imaging company?

The New York Times > Technology > Google Acquires Urchin Software

The New York Times > Technology > Google Acquires Urchin Software

In the big Cisco run, Cisco had the best technology. Whenever a small company created a new technology Cisco was quick to buy it. Cisco had a run of maybe 15 years of incredible growth. Google, Yahoo and MSFT continue to buy companies that will help these firms stay in the leadership pack. The owners of the companies that are lucky enough to be bought cash-in big time. The competitors not purchased are left to suffer trying to compete against the three giants of the industry.

Other "major" players are trying to make it the big four instead of the big three. Interactive Corp, Cendant, AOL, HP and others continue to buy companies to break into the "big circle". Google purchased Picasa, HP paid dearly for Snapfish and YHOO purchased flkr. Of course, ADBE, Kodak and others offer photo sites. Many of these purchases are designed to integrate services such that a person stays with the one provider. The Urchin Software purchase by Google will give Google advertisers the ability to maximize their coverage at the lowest costs. This is a good service that is a natural addition to Google.
Some investors will buy little internet companies in the hope of hitting the next take-over. I prefer to own the solid companies in the leading positions. Many folks are quick to point out several other search companies have lost out along the way. This is true but YHOO and GOOG have commanding positions. EBay and AOL have leadership products that are not going to go away quietly. Portfolio management is about managing risks. If one takes no risk, one makes no profit. The key is to take risks that have a high probability of paying off. Long-term investors in GOOG, YHOO, TWX, and EBay will do well. Ownership in internet stocks should be tempered with ownership in other areas

Forbes.com: Delta Announces Tech Operations Cuts

Forbes.com: Delta Announces Tech Operations Cuts

The airlines are cutting costs like never before. As reported in Forbes, Delta will contract-out its maintenance services; it will save $240 million per year! Sometimes it is hard to get perspective on large numbers. The numbers mean something only in relation to other numbers. The following comparisons are significant: Delta has a market capitalization of little more than $500 million but the latest move will save the company $250 million! Delta has 141 million shares outstanding and the latest move will save $1.77 per share! A $4 share that cuts costs by $1.77 per share makes that share worth more!

I am not an analyst. I am not even a professional investor. I am an amateur with more than 40 years of experiences. I cannot and do not recommend DAL. The company has lost a lot of money in recent years and has a debt to capital ration well in excess of 100% (in other words, the company has a negative book value). Some of my best buys ever have been companies in similar situations. For example, I bought Chrysler in 1982 and NXTL in 2002 at times when neither company had positive book values. Like Jim Cramer, I made the mistake of buying Bethlehem Steel when it was on the way out.

For aggressive investors, it makes sense to own shares in the stronger legacy lines such as AMR and DAL buying with a little money may make sense. One of the value measures that I like is the price to sales ratio. You are unlikely to ever find stocks with lower price to sales ratios that have a decent chance of survival. These shares will do extremely well if the company survives.

BlogginWallStreet

BlogginWallStreet

My thanks to Eric Levitt for posting my "big picture" comments to his blog. One of the things readers can learn from Eric is to moderate their enthusiasm to "run in crowds". Such notable investors as John Maynard Keynes, Sir John Templeton and David Dreman, to name just a few, have done well by buying what was or is unpopular. Eric and I have each posted comments about the piles of money flowing into developing country funds. Like Keynes said, in economics, the majority is always wrong. Sure enough, Brazil, Mexico and other funds have done poorly in recent weeks.

Several weeks ago, I wrote that big cap American Companies are the ones to own in this market. Take a look at what has been happening. Companies such as GE and Boeing have done well. XOM and GE have played tit for tat to claim the biggest company prize. Not all of the big names have gone up but few have been slammed like some of the developing country funds.

Congratulations to my Mom. She has the patience required to be a great investor; day after day she is being rewarded with good news. Her Norfolk Southern Corp just made a deal with the Canadian National Railway. The deal will ease traffic in the Chicago area and benefit both firms. For a year or so I have suggested that the day may come when Canadian National buys NSC. My family does not own the stock because it has take-over potential. We like the company because it is enjoying very high operating ratios; in other words we like it because it is making money. A take-over would be a bonus but it is not necessary for our investment success. I thank my Mom for taking my advice to buy the stock and for her patience.


The other reason to bring up Mom's account is to say to you, you can do just as well as Mom. You do not need to pay a fee to a mutual fund to own NSC and other good companies. The brokerage fee to buy $2,000 or $10,000 worth is only $5. There is no carrying charge. A fund might charge $70 to $200 per year to hold Mom's NSC for her. As it is, her $5 cost gets to be a bigger bargain every year.

I hope you will listen to Eric and others who do not push you into high cost products. One of the secrets to market success is to avoid unnecessary fees. If you wouldn't pay a gas station an annual fee for the privilege of buying gas at the station, don't pay 12b-1 and other unnecessary fees!
GO MOM GO!

Barron's Online - Technology Trader

Barron's Online - Technology Trader

WiMax is on the way. High speed internet service that requires no wires and works for up to 30 miles. INTC and other equipment vendors expect to sell billions of dollars of equipment in the next couple of years.

WSJ.com - Gray Area On Whether IRS Can Tax Internet Auction Income

WSJ.com - Gray Area On Whether IRS Can Tax Internet Auction Income

"Buyers bought $34 billion worth of merchandise there last year." EBay is a business of millions of small businesses. More than 135 million people have registered. This is a long-term hold for my family. We have large profits in the first shares purchased and have continued to add to holdings. We are at a small loss in the last shares purchased.

MSFT is now offering a service similar to the Froogle service offered by Google. There is a risk that these and other "shopping services" will take business from EBay. EBay is spending heavily to the be market leader in China. It is a very big market. EBay is the top auction house in over 50 countries although YHOO and a partner are the leaders in Japan and are fighting for leadership in China.

First quarter internet earnings will be out soon. I expect good results from YHOO and GOOG advertising. The business is growing quickly around the globe.

Futures Movers: Crude prices close above $54; analysts see $50 - Oil and Gas - Energy - Commodities

Futures Movers: Crude prices close above $54; analysts see $50 - Oil and Gas - Energy - Commodities

Oil inventories are building. One of my leading indicators suggest that the peak is over. Oil prices may get to the $40--$50 range in the months ahead. Aggressive investors should consider buying the most solid of the legacy airlines such as Continental and American.

Net Stocks: Yahoo, Google get Goldman embrace; IAC's reverse split - Electronic commerce - Internet Services - Internet - Analyst - M&A

Net Stocks: Yahoo, Google get Goldman embrace; IAC's reverse split - Electronic commerce - Internet Services - Internet - Analyst - M&A

More than one brokerage has raised the advertising estimates for YHOO and GOOG. Jim Cramer is doing a two show comparison of estimates. The news is heating up.

International sales are ramping up. I suspect growth will be strong. We have been through some negative sentiment and YHOO is buying back shares. My family will hold these for the long-term projected growth.

Sizzlin' Summer Travel Deals - Get 'Em While They're Hot; AmericanAirlines Vacations Launches Summer Sale

Traffic is back. American is the largest of the airlines. It will make it through the rough patch and then make a lot of money. Costs have been cut and are continuing to be cut. A rebound in business will cause fares to rise but costs will remain low. Profits are ahead!

Myrtle Beach Luxury Homes and Condos

Myrtle Beach Luxury Homes and Condos

Myrtle Beach Living reports that while there are 65 homes listed in Myrtle Beach for over $1,000,000 the number of condos for sale for less than $100,000 is fading fast. $100,000 does not buy much. Good quality rental units typically trade for $250,000 or more.

This past Friday, I met with Jim Springs of Century 21--Broadhurst Reality. His multiple listing sheets showed that around 150 units have been sold in the Kingston Plantation area in the past 3 months and only 30 are currently listed!

Boomers and Echo-Boomers are buying homes. To build more ocean front condos, older buildings will need to be torn down. Prices must rise to meet the demand.

LEVERAGED BUYOUT T-BOONE PICKENS T-BOND

SunGard> to be taken private in $11.3 billion buyout - Computer Software - Technology, Software - Software - M&A

In the mid-eighties leveraged buyouts were in vogue. T-Boone Pickens was the most famous buyer. Time and again he was able to purchase an entire company by getting an investment bank or group of investment banks to loan 100% of the purchase price. The trick was to find an under-valued company and to pledge the assets of the company as the collateral for the loan! Many times after the company was purchased, the pieces were sold off one at a time with the total sales price greater than the purchase price. I picked up the nick name of T-Bond during this time because I "tried to buy the US government bond market on a leveraged buyout". I borrowed money at 13% interest to buy T-Bonds paying 13.75%.

The current economic cycle is similar to the cycle of the mid 1980's. Today, it was announced that 7 investors have formed a group to buy SunGard. The purchase price is 11.3 Billion Dollars. It is only common sense that leverage buyouts should happen now. The public is afraid of the stock market because many were burned in the 2000 bubble. The result is that stocks are cheap relative to borrowed money. Companies can be purchased on 100% borrowed money! Stocks are yielding more than bonds! Such a situation can only last so long until the market finds a way to correct the discrepancy.

The BIG BULL BOOM BUBBLE BUST is on the way. For the past few months, I have written that the BIG BULL BOOM is under-way. World wide economic growth is BIG. US exports and imports are BOOMING. Boomers have money to spend and they are spending it. US consumers are as wealthy as they have ever been. The opportunity is huge.

Unless the market goes up substantially soon, I expect many more leveraged buy-outs to occur. A regular reader has noted that buy-out premiums have not been very large. He is correct. Companies such as AT&T, ASK, NXTL and others needed to merge. In the face of soaring prices for inputs, businesses have not been able to raise output prices to match; in fact, many businesses are having to lower prices to compete. Businesses have fought hard to improve productivity. Unit labor cost have gone down. Companies such as Vonage and Google are putting the hurt on a lot of other "traditional" businesses. Who wants to run a newspaper advertisement for more money and less coverage than a Google ad. Who wants to pay more money for local only service than they can pay Vonage for local and unlimited long-distance.

There will continue to be mergers and leveraged buyouts. For example, Yellow Freight just announced another deal! A report today suggest that the savings to be realized by the merged companies will be bigger than first thought.

The rumor mill is starting to crank-up; which company will be next? Chasing rumors is a losing game. Buy good companies at fair value and you will hit more than your fair share of mergers. Last year, our family accounts enjoyed several buyouts. In most cases, we bought the stocks because we liked the business prospects. The companies on the buying end are getting great deals. Again, Yellow has more than doubled its size and has fully absorbed previous deals with little or no dilution. Buy stocks before they are bought out by someone else!

SAVE BROKERAGE COMMISSIONS!

Paul B. Farrell: Save money in retirement by self-managing portfolio - Financial - Financial Services - Mutual Funds - Personal Finance

What a spread!
charges $5 for the same trade for which the "discount broker" Wachovia charges $34.95. "Full service" firms charge over $325 for the same trade! How can this be? If one gas station charged $2 per gallon, a second could sell very little gas at $14 per gallon and a "full service" station could not charge $130 per gallon. The "full service" broker would argue that while everyone can pump gas, not everyone can select stocks.

In the above referenced article, Paul B. Farrell argues that one can save a lot of money by managing ones own portfolio. He makes the point that index funds do well relative to managed mutual funds.

Some folks need more investment assistance than others. Those who need help should be careful not to overpay.

Institutional Investor--MORE BROKERS?

Institutional Investor

has plans to recruit more brokers. The firm plans to try to hire brokers away from other firms. Is this not an interesting situation?

The discount brokers are in a price war and the "big boys" are hiring! The indication is that the big firms are gearing up for IPO's and then distribution of institutional holdings. It will take two or three years to beef up the "force" and to be ready. The IPO market may heat up fairly soon. Vonage is the next big IPO. VOIP has been growing but perhaps a little slower than expected. AT&T Call Advantage only added 54,000 subscribers in 2004. Vonage is making steady gains but the free service offered by Skype has picked up 29 million users! Skype is adding paid features.

Sometimes individuals forget that the big brokerage firms act as distribution arms for big institutional investors. My forecast is for a strong market run over the next 3 or 4 years but the retirement of the baby boomers should bring about a slower growth economy.

BOOMERS AND ECHO BOOMERS

TaylorTree

My friend Mike Taylor continues to study the Boomers and Echo Boomers. My focus on the housing boom has been on the fact that the boomers are at the prime age to buy second homes. This indeed has been happening and it should continue to happen for several more years. Mike has reminded me of the Echo Boomers. My two daughters are smack in the middle of this group. The oldest bought her first home two years ago; a four bed-room three-bath brick home with a two car garage. It is a sign of the times that the two car garage is the part that is not big enough (my son-in-law owns classic cars in addition to his everyday vehicles). My youngest daughter will graduate from graduate school this fall and I am sure she will buy her first home soon.

The majority of the Echo Boomers, according to Mike's figures, will be at peak first home buying ages in the next few years. Knowing how far the housing boom will last is difficult. My wife and I plan to down-size out first home and to retain ownership in a second home or two. This is the trend--never fight the trend!

Mr. Softy's Hard Sell [Fool.com: Motley Fool Take] March 21, 2005

Mr. Softy's Hard Sell [Fool.com: Motley Fool Take] March 21, 2005

The Fool has laid out the the key questions. The race is on by MSFT and others to build-out distribution channels for advertising. Google has captured a lot of real estate cheaply. Investors such as Barry Diller and MSFT are spending heavily to "own" more space. Buying ASK JEEVES gives Diller and ASK a way to reach the customers while paying the advertising out of one hand and into the other.

The new MSFT search is highly target-able and therefore attractive to advertisers. In the same way that Yahoo and MSFT have had to copy Google, Google will have to offer similar products. The speculation is that Google will offer such a product before MSFT can get its distribution channel built. Of course, MSFT already has distribution through a lot of sites; it simply made a mistake by not going after this business earlier.

Ironically it was GoTo.com that developed the model that is used by Google and GoTo was eventually purchased by YHOO. Eventually large ad buys will be competitively placed. Those large firms that need to advertise will negotiate the tightest deals they can get through GOOG, YHOO, MSFT, ASK, AOL and others.

It is so easy to sign up for Google's AdSense program. Google does all the work. Google has promised to be more open in regard to the way revenues are split. Small advertisers and providers will never get the best deal. Since the internet is a place with a very wide distribution, the millions of little guys will keep Google in the green for years to come.

Net Stocks: Plaxo pushes for-pay services - Internet Services - Electronic commerce - Internet - Analyst - M&A

Net Stocks: Plaxo pushes for-pay services - Internet Services - Electronic commerce - Internet - Analyst - M&A

As a Plaxo user, I report that I love the service. However, I have stalled my usage as I wait for the full roll-out of Gmail. I have a Gmail account but do not use it much. I believe the full featured Gmail account may make Plaxo unnecessary.

I am speculating. I have no "insider" information. I simply know that I like Plaxo very much but am not likely to pay a fee to use it at this time. Plaxo has a difficult challenge to face. The system ties into the MSFT Outlook product very neatly. It is a wonderful improvement over the Outlook program. The day will come when one never needs to update ones address book as it will automatically be updated by friends and associates. Will Plaxo be one of the leaders? Will services such as Yahoo Mail and Gmail not develop their own similar services?

Yahoo board OKs $3 bln stock-buyback plan - Internet Services - Internet - Company Announcements

Yahoo board OKs $3 bln stock-buyback plan - Internet Services - Internet - Company Announcements

YAHOO!

Buying back $3 Billion of shares in a company with a market cap exceeding $40 Billion is not nirvana but it is not chopped liver either.

Advertising revenues will be the next key numbers to be reported. I read an article, I believe in Investors Business Daily, that speculated on when internet advertising will exceed magazine advertising. Approximately $150 million is spent on magazine advertising. Last years internet numbers were somewhere in the one half that range.

The problem for Google and Yahoo is that even if they each get one third of $150 million in revenues, these amounts are small relative to market caps approaching $50 Billion. Buying Google and Yahoo still takes faith. Faith in international growth in advertising revenues and faith that eventually internet advertising will approach current levels for TV advertising.

Articles such as the one mentioned can dampen ones spirits. Even the linked article is not exciting because the purchase of shares is spread out over 5 years and during this time employee options will account for a large portion of the shares.

I believe it will take the patience of Job to hold these shares long-term. I am thankful that folks such as my Mother have the kind of patience required. I hope you will buy a few shares and hang on for dear life. I write only for education and entertainment purposes. If you buy stocks after reading my reports, I hope you will be kind enough to let me know. I try to make a difference in the lives of others and it is nice to know if I have succeeded.

BABY BOOM HOUSES BOOM BOOM BOOM

The housing numbers are out again and the trend continues. Baby Boomers are buying homes and second homes. The wealth in our country has never been higher and Boomers have the empty next syndrome. They have the resources to own a second home. They are likely to own two homes for the next 20 years or more. This trend implies frequent travel including frequent air travel. The airlines have a long way to go before revenues will exceed costs but major strides have been made. Boomers are buying second homes primarily in resorts. Prices are soaring. Second home buyers should get in on the trend early as prices are not likely to see these levels again.

New home sales up 9.4% last month!

Google Blog

Google Blog

Now one can click on Ad Links by Google. The little innovations at Google continue to build on advertising revenue potential. I am not permitted to recommend any stock but if I had money to invest in Google, I would do so before the next earnings announcement. The growth just may be a significant surprise.

The Internet Stock Blog: Online brokerage price cuts continue - SCH cuts options fees

The Internet Stock Blog: Online brokerage price cuts continue - SCH cuts options fees

One of my regular readers recently pointed to the weak performance of our online brokerage stocks. We own ETrade and Ameritrade and they have each traded down in recent weeks. What has basically happened is that Schwab gave up on charging higher rates for "premium services". Schwab has made several price cuts and ET and AMTD responded.

Morgan Stanly was quoted in the article as believing the price competition is largely over and consolidation in the industry may occur. As I expect a long sustained bull market ahead, I will continue to hold ET and AMTD. These companies should see significant trading increases when the market finally breaks out of the current trading range.

GOLD HEDGE CLOSED--BIG PROFITS AHEAD!

The past few weeks have not generally been kind to my family portfolios. Many of our long-term positions have come well off their highs. EBAY has been one of the worst but it and several others deserve a good rest. We will hold the long positions without worrying about them. Our timing was excellent in regard to the Gold hedge. We made a nice profit and took it off before the big rally in the dollar.

We have added and added and added to our airline positions. We have a lot of patience when it comes to turn-around plays. Ironically, our airline stocks have out performed our oil drilling stocks over selected time frames in the past couple of years. The airlines hit lows and bounced. The stocks tested the lows and now are in the long process of recovery. Some may not survive but my bet is that my family will own several survivors that will do extremely well over the next five years or more. The recent fare increases are encouraging. Fuel prices are only the excuse needed to raise fares. The reality is that the market supply and demand conditions currently allow the carriers to raise rates.

Diversification is often used as a means to avoid taking a stand. Many intelligent investment advisers hide behind the concept of diversification. These folks sometimes lack confidence and do not want to take a stand. Others are simply avoiding the potential of law suits while earning fees for placing clients in "products". Others are correctly diversifying portfolios for those who truly have a main goal of preserving capital; those who are happy with average returns of 6 to 9% provided they don't ever suffer draw downs of equity. A few are carefully analyzing markets and diversifying into securities that offer high probability of success for the customers, these advisers typically take a reasonable fee but do not place clients in the highest cost funds.

Investors certainly need to be careful. They certainly need to understand relative risks. If an investor has the goal of stock market returns of 11% or better, he must take the risk of being in the market. One problem I often see is that in order to avoid risks they do not understand, investors often unnecessarily accept large fees in the attempt to guarantee against large losses. Paying 2% of assets to invest in a covered option fund is a bad risk since the long-term track record of option funds is not good.

John Maynard Keynes was one of the most successful investors of all time. He is responsible for the large endowment enjoyed by Oxford University. This is the fund that gave Bill Clinton and thousands of other Americans full scholarships. Mr. Keynes spent only a few hours each week investing the Universities funds. He did much of his work from his bed as he was very ill for many years. Perhaps it was his pending death that allowed him to perceive that risk is a necessary evil. He was known to concentrate his investments into as little as 6 companies or industries. He decided which industry was ripe for profits and "loaded up the truck".

One interesting phenomenon is that from time to time Americans decide to start their own businesses. These Americans are typically unhappy with the returns of their portfolios, tired of their jobs and ready to seek their fortune. Ironically they often sale diversified retirement accounts and sink their life savings into a very risky proposition. The long-term history has been horrible. About 90% of all of these folks close their businesses at huge losses within 5 years.

Owning a large position of shares in DAL, CAL, AMR, and NWAC is a risky proposition. However, not nearly as risky as owning the same total investment in any one of these stocks. Although my investment is not evenly divided, for sake of discussion if one puts 25% in each of these stocks and if one liquidates while the other three are five year home runs, the total return will be 300%!

Owning shares in these large companies is certainly less risky than starting the typical small business. The owner of a small business must typically give up his job and investment income in the hope that the business will pay-off. The buyer of airline stocks does not have this problem.

Diversification is a good idea. Even John Maynard purchased 6 or more industries. Many other famous investors have held and currently hold concentrated positions. Perhaps Mark Twain's insight serves to make the point. Twain said he had decided to put all his eggs in one basket but he would watch the basket.

In truth, Twain was not very smart with money. My recollection is that he died without any. The idea here is to encourage all to think carefully about the concept of diversification and not blindly purchase high cost funds as a place to hide. As Mr. Keynes once said, perfect diversification would lead to zero profit.

BIG PROFITS AHEAD FOR THOSE WILLING TO TAKE MARKET RISKS!

USATODAY.com - 10 reasons why Nasdaq won't recover soon

USATODAY.com - 10 reasons why Nasdaq won't recover soon

Wave after wave of negative news is a very positive indicator. The more negative the news, the bigger the move when it comes!

MSN Money - TheStreet.com

MSN Money - TheStreet.com

I see more and more signs of negative sentiment--a positive development. The media is reflective of the thoughts of readers. This article shows that the market is "wearing out" the active small trader. Choppy markets are hard to successfully trade. Another recent contrary sign was posted by the odd lot short sellers. The level of selling reached a 15 year high! A significant level as 1990 was a tough market year at the start of a significant recession. The economy was nowhere near as strong as the current economy. We have a "reality--perception gap". The reality is that the economy is strong, productivity is strong and the law of substitution is keeping prices in check. The perception is that inflation is roaring ahead and the economy is weak. The market will surge to the up-side before the false perception is corrected. Stay tuned as the Big Bull Boom Bubble Bust is just ahead (my forecast is the next big move starts by November--don't play games and miss the big move).

Florida Home Sales Rise 6 Percent in February, According to Florida Association of Realtors(R)

Florida Home Sales Rise 6 Percent in February, According to Florida Association of Realtors(R)

The Florida Association of Realtors reports average annual appreciation of 25%, "fierce buyer demand and a shortage of inventory". Myrtle Beach SC realtors report a similar shortage of inventory.

Construction of second homes should continue to be strong as the "baby boom" generation is now 47 to 59 years of age. One market observer states that the peak age for purchasing a second home is from 52 to 59. He reports that a new fast growing trend among the oldest of the "boomers" is to down-size the first home and use the proceeds to purchase a second home. The down-sized first home is frequently a low mantenance patio or cluster home. "Boomers" are clearly planning to travel more. Airlines and resort areas should be beneficiaries of the trend.

In the late 1960's the boomers parents, who were part of the previous baby boom generation, purchased motor homes in record numbers. In 5 or 6 years, shares of Winnebago went from $2 to $110 per share. The energy crunch of the early 1970's killed the trend. This cycle it appears that the motor home trend will not be nearly as pronounced but the second home market is going to exceed all expectations. Resort properties in Las Vegas have reached unheard of prices. Bermuda ocean front condos in many resorts now begin at $4 million or more.

When any trend develops, investors should get on board early. I write this with mixed feelings as I promised my wife years ago that we would sell our resort rental business by the time our youngest child graduates from college but no later than the age of 55. We plan to keep ownership in at least three ocean front condos. The rest are for sale. I have raised my prices to reflect the current market and must only hope that I am not leaving millions on the table.

Forbes.com: Buying The Perfect Vacation Home

Forbes.com: Buying The Perfect Vacation Home

Escapehomes.com reports that Myrtle Beach is the number one location for second home purchases. Second home purchases grew by 16% last year. Baby Boomers are at the prime time in their life to own a second home. Prices may rise until the 47 to 52 year old boomers reach the peak buying age.

canada.com - travel

canada.com - travel

Another report showing airlines continue to seek cost cuts. In this one, the report is that NWAC seeks $950 million in annual labor savings after negotiating $300 million is compensation reductions among pilots and salaried workers.

It is always interesting to see how long it takes to negotiate union contracts. Managements seem to have all the patience needed. Delta's management talks about getting enough savings to make it through the tough times it projects for 1995 and 1996. NWAC says it hopes to conclude negotiations by year end. The optimism I have for the industry is that the annualized savings typically represents several dollars per share. An up-turn in the business, whenever it occurs, could send several dollars per share to the bottom line.

siliconindia.com

siliconindia.com

According to siliconindia.com Google AdWords are now available in 41 languages, Google now searches over 8 billion documents and Google plans to expand its operations in India. India, China and other less developed nations are leaping ahead. These countries never had phones in every home and they will never will. They are going directly from no phones to cell phones. The advertising market is also developing differently. I expect Google's international growth to be faster than is US growth in the years ahead.

WSJ.com - Delta Needs to Cut More Costs To Offset Mounting Fuel Prices

WSJ.com - Delta Needs to Cut More Costs To Offset Mounting Fuel Prices

A billion here and 500 million there, sooner or later you have a real savings. Delta continues to make news because it needs cash to cover rising fuel costs. Delta expects rising fares to cover 25% of its needs. It is difficult to be optimistic about the prospects for Delta. On the other hand, experience tells us to buy what no one else will.

We have positions is CAL, AMR, and NWAC. We will hold what we have for now. When new USAir stock is issued we will take a look. It is expected that regional carriers such as Republic and Wisconsin Air will be the majority owners of the "new company".

In the absence of a new terrorist attack, the projected economy for the next few years could not be much better for the airlines. Businesses have money to spend and are indeed investing in plant and equipment. Business travel should be strong.

Delta is not the only carrier to reduce flights and employees. When demand begins to fill capacity, the pricing wonder will begin. That is the price of a $100 ticket will quickly rise to $300 or more. Can Delta hang on to see the turn?

GameStop's shares rally after Q1 forecast, Q4 results - Retail - Earnings - Company Announcements

GameStop's shares rally after Q1 forecast, Q4 results - Retail - Earnings - Company Announcements

Congratulations to Kupsky for a great Stock of the Week pick. GameStop fits a number of criteria we use to select stocks. The bottom line is that the stock is under appreciated. Today's numbers may serve to start changing the opinion of the market. It is interesting to note that ERTS just reduced guidance and took a huge hit. The stock was down $11 per share yesterday while GME announced that retail sales of games were strong last quarter.

Stocks that make such a sharp earnings turn usually continue to improve. Kupsky will do an update article on all of our Stock of the Week selections. Please note that all selections are made for educational and entertainment purposes. We are not stock analysts but we enjoy making money in the market.

ALL ROADS LEAD TO MYRTLE BEACH

I will not be blogging much for a few weeks because I plan to reside in Myrtle Beach off and on for a few weeks. Some of the time, I will relax with my family and some of the time I will work on the sale of our condominium rental business. Twenty 20 years ago, I promised my wife that we would retire at 55 if she would help build our resort rental business. (My great-grandfather, grandfather, and father all retired near the age of 55.) I may break my promise by a few months as selling a business is harder than building one. Only those who have built a substantial business from scratch have the slightest idea of what I am talking about. Operating a successful business requires many skills and many sacrifices. Marilyn and I believe we are better people for having fought the fight. Our marriage is strong after 33 years. We are blessed beyond measure.

Monday, Marilyn and I drove home from Myrtle the "old-way". We usually cut across country on "back roads". We can cut 20 miles and 20 minutes off the trip by taking several "short-cuts". It is amazing that Myrtle Beach has been the second fastest growing city in the United States for 40 years without access via interstate highways. Recently, the city hit a new gear. Millions and millions of baby boomers who have fallen in love with Myrtle over many years of vacationing there are now beginning to retire. Many are deciding to make Myrtle their first or second home. When one considers that there are 120 golf courses and 1700 restaurants in the area, one can begin to appreciate the attraction.

The "Grand Stand" is 60 miles long; sixty miles of beautiful beach with the accompanying moderation of temperatures that comes with the ocean. Myrtle is not the winter haven like Florida as the average high in the winter time is only about 40 degrees however, it is warmer in winter and cooler in summer than inland areas for many miles west.

The good news for Myrtle is that roads have been approved and are under-construction from all points. The main new additions are Interstates 73 and 74 which will cross about 2 miles from my ocean-front condos. These highways will give easy access to Myrtle from all the way from Michigan to New York and from Tennessee to Florida. The two highways are interesting because of the way they separate on their way from Michigan to Myrtle Beach in order to go near large population centers. They join together a few times but separate where needed. In the process they each cross other Interstates such as 95, 85 and 77 to give access from other areas. Finally they will complete the natural ending of Interstate 20 that now goes across the country but stops 50 miles from the beach in Florence. The connection to I-95 near Savanna GA and again near Lumberton NC will give easy access to Myrtle for north-south travelers.

Some folks are confused as to why so many North Carolinians vacation in Myrtle. There are two answers; unlike NC beaches, the wide flat beach at Myrtle is similar to the wide flat beaches of Daytona Florida and the distance to Myrtle is considerable shorter than to the outer banks of North Carolina. To put it another way, geography is the answer. The North Carolina coast butts directly into the Atlantic Ocean which makes the beaches relatively narrow and steep. The South Carolina coast is at an angle such that the waves come rolling into shore versus a more crashing pattern in North Carolina. The water temperatures are also effected by the geography. The Gulf Stream is able to flow up the coast and to stay near the South Carolina shore but it is pushed away from the North Carolina shore. This may sound insignificant but jump in the NC water and your breath is taken away. Through much of the year, SC water feels like bath water.

The water temperature is not nearly as important as what it does for the air temperature. It rarely snows in Myrtle because the Gulf Stream Water warms the air in the winter. My home town is often 10 degrees colder than Myrtle in the winter and 5 degrees hotter in the summer.

TWO TRENDS

Two important trends are making a difference. The first is a benefit of high speed internet access. In our modern world, more and more folks have found that they can work from anywhere. Some can work full time from anywhere, others need to occasionally show up at the office year round and others can occasionally take a long break from the office if they have means of communicating regularly. Many folks now have the attitude that if they have to work, why not do so while watching the beauty of the beach.

The second trend represents a change in life style for the baby boomers. In the cycle of life, we tend to reach our peak level of disposable income at around 52 to 59 years of age. The disposable income peaks for two reasons; earnings typically max-out at this time and educational and other expenses for children typically decline sharpley during these years. A trend that has prevailed for many years has been that families buy the "big house" when their children are near high school ages. High school students bring friends over for visits and having the big house is desirable as a status symbol. Families can typically afford the "big house" at this point in their lives as the equity in their first home provides more than enough for the down-payment. The interesting developing trend is that "empty-nester's" are down-sizing while putting the excess equity into second homes.

Tax laws have favored first and second homes for many years. Maybe 5 years or more ago an additional home-ownership benefit was passed. The law allows one to sell ones residence (of two years or more) and pay no capital gains taxes. Furthermore, the tax benefits of owning rental property are not as powerful as a number of benefits allowed on first and second homes. The first and second home owner can allow friends, family and associates to use the home for a fee and the owner usually owes no tax on the "incidental rental". The result is that many baby boomers are selling the "big house" and using the proceeds as a down-payment on a smaller first home and a second beach home. The Myrtle Beach night spots are hopping with the partying 47 to 59 year old "boomers".

On the way home Monday, we saw new roads paralleling the old roads much of the way. Both NC and SC are moving at quick-speed to build access to the beach. Las Vegas Nevada is "Boom Town, USA" but Myrtle Beach has a growth rate almost as big. Baby Boomers want to retire to where the action is or they at least want to own a second home there.

When all the roads are completed, Myrtle Beach access will spur further development and of course add value to prime located beach property. Roads are only part of the story. Airline traffic is now greater than before 2011. Flights have been added from numerous cities, including connections to European locals. The decline in the dollar have made a Myrtle Beach vacation very inexpensive for Europeans and 1 of 3 beach front condos are now being purchased by Europeans in a number of locals.

One can never know how long a trend will last, however, they trends usually last longer than initially predicted. The 47 year old boomers still have years before they reach peak earnings. Millions of Americans can afford a second home. Will these folks suddenly decide to put more money into the stock market? The wealth of Americans is at an all time high and disposable income is at record levels. I believe the records will be broken year after year for at least 4 more years. It might be wise for me to wait a few more years before selling the business but a promise is a promise. It is time for me and my wife to take an extra walk or two on the beach and let others worry about reserving vacations for others. All roads lead to Myrtle Beach but my wife and I are looking forward to spending more time in Myrtle versus traveling to and from.

WSJ.com - A Mixed Blessing

WSJ.com - A Mixed Blessing

Gannett, Knight-Ridder and Tribune newspaper companies have purchased minority interests in Topix, a Google competitor for news aggregation. The trend continues; old line news media are buying into internet media. The old line firms resisted this move for as long as they could. Many hoped to build their existing papers into online juggernauts. Google, Topix and others are showing that the way to get eye-balls on pages is to use the online services as gateways.

Knight-Ridder in particular has been working at becoming an online news purveyor. Google has become powerful enough that alliances are being made to slow the growth. In the meantime, Google keeps adding to its levels of service. Individual users can now customize their news page. This is an old idea but previous versions were cumbersome. The Google set up is easy and of course free.

To reach the link to the article, you may need a subscription to the Wall Street Journal. I subscribe to a few magazines and a couple of newspapers online. Barron's and the WSJ still carry a lot of weight for me. I read a few business magazines to know what is "hot".

More and more news and info will be transmitted over the web. Investors should keep this in mind. Knight-Ridder, Gannett and the Tribune will be around for years to come. They may be able to slow the growth of this one Google service. Yahoo announced more "sticky" services today. Yahoo paid dearly for its new photo service program but this is the type of thing that keeps customers with Yahoo. Google has many similar "sticky" services. If you tend to search through Google, then you will tend to use many of the "free" Google services.

The willingness of Topix to sell is an indication that Google has been eating Topix's lunch. Having the support of three large newspapers will certainly help Topix. It still seems to me that Google will continue to grow the fastest of all firms mentioned.

ONLINE GAMBLING GROWING

Chimera Technology Gains Access to Chinese Gaming Market

The US Justice Department has prevailed in discouraging the use of credit cards and advertisements for online money games. These restrictions are having little effect. The business is experiencing dramatic world wide growth and Americans have joined in droves. Americans do not break the law when they participate. (Sports betting online may get you in hot water but this business is also growing.)

The World Trade Commission has ruled that American sanctions are illegal. The ruling is being appealed. The situation is similar to North Carolina not having a lottery when all the surrounding states do. North Carolina citizens who wish to play the lottery are donating millions of dollars to Virginia, South Carolina and many other states. Sooner or later politicians will determine that the US is losing billions of tax dollars to other countries by not allowing online "money" games to be headquartered here.

I am a firm believer that the auto is a benefit to our society even though tens of thousands of drivers, passengers and pedestrians die each year. I am for allowing insurance companies to offer substantial discounts to those who allow GPS tracking of their driving habits. If the GPS is programmed to warn the driver that he is over the middle line or is approaching a stop light too fast, that would be great. In other words, as a country we have an obligation to design our systems to help one another and to give one another incentives to help each other. In most cases, Americans must be left with the freedom to live as they wish. In situations where they might harm another, such as when they drive a car too fast, we need to make all reasonable efforts to prohibit or discourage the activity.

Playing games online will grow quickly for many years. It is a losing argument to say that a adult should not be allowed to spend his own money on such an activity. Prohibition of alcohol did not work and money games are available in every state of the union. Games online is another area where the internet will grow because it is the most efficient way to perform the "task" at hand.

It is hard for any sensible investor to pay-up to own shares in high priced stocks such as YHOO, EBAY and GOOG. These firms have to grow at a good clip for many years to justify their current price. This is the history of the stock market.

Those who bought any of the "big names" Xerox, IBM, Ford, GM, Home Depot and thousands of others early in the life of the products made fantastic total returns. After the growth peaked, the returns have been mediocre at best. The GM buyer 34 years ago has a capital loss to realize if he sells the stock.

Purchases of high priced online stocks such as YHOO and GOOG need to be balanced with "value" stocks. Should you need assistance in constructing a portfolio, I would be happy to volunteer.

CBDS WORLDWIDE MISSIONS AND EDUCATION

Calvary Baptist Day School

The above link is to news about and from a missions trip by Calvary Baptist Students. These students are spending their spring break in service to others in the country of Costa Rica. In my article titled IT'S THE PARENTS FAULT, I told about recent studies showing Mormon students perform better than Protestant students at the University of North Carolina. The Mormon students are able to articulate their beliefs; they know who they are and why they are in school. They are less likely to engage in risky behaviors such as alcohol abuse, drug abuse and sexual activities. Their performance in class shows that the students are in school to learn.

I wrote that the major reasons for the poor relative performance of US high school students are the attitudes of the parents (which are passed on to the students). Many parents in our society see more value in having their 16 year old son or daughter earn extra spending money "flipping burgers" than participating on a mission trip or performing in a school play.

Maintaining a part-time job to assist with family finances is honorable, but usually not of high importance. In most cases, it is the child that wants the job in order to "live like a king". The parents support or condone the work activity but are then frustrated about the time and money spent at activities such as cruising the town, going to the movies, playing video games, etc.

The Calvary Baptist student statistics indicate that these poor attitudes do not prevail among Calvary Baptist parents. From memory, I believe it is true that 98% of the students attend college. Like any group, some folks make mistakes along the way. The statistics at UNC show that Protestant students as a group perform better than most other students in the same measures where the Mormon students excel. I suspect that the CBDS students perform equally as well as the Mormon students.

The students in Costa Rica are to be congratulated. These folks are making a difference in the lives of others. These young folks would not have made this trip without the support of their parents. Congratulations to the parents; they have started an unknown number of chain reactions that will continue throughout eternity.

GENERAL MOTORS MAYBE NEXT YEAR

The big news today is about GM's negative outlook. The chart of GM shows the stock is at a ten year low. The stock had a nice run from 1995 to 2000 which was a similar time to the way 2005 to 2010 is shaping up. On the other hand, this stock is selling for the same price it was 34 years ago according to bigcharts.com!

This stock was selling for the same price 34 years ago! I repeated the statement for emphasis because no gain for 34 years is a terrible performance. The stock paid a good dividend during those years and the current yield is 6.87%!

A friend of mine who retired from GMAC says that Cadillac is offering a $17,000 discount. Don't tell me that the market is not rapidly adjusting to higher oil prices. The fact is that GM can not give away its biggest gasoline guzzlers. Oil prices soared this morning, back-tracked mid day and will likely close at all time highs. Contrary thinking suggest one should remember that the reason for high oil prices is a strong global economy.

Years ago, David Dreman wrote an article in Forbes or included in one of his "Contrarian" investment books about the one year rule. His one year rule is that one should wait about a year before buying shares in a fallen stock. The type of stock he was talking about was like GM. A widely known company that makes big news after it has already fallen far from its peak price. David ran a number of studies using Compustate data to show that the biggest part of the decline is over when the bad news makes front page but the up move takes an average of one more year.

The margins are so large on the big cars and SUV's that GM can offer free financing and discounts and still make a nice gross margin. The real problem GM has is that the costs of heath care and other benefits to well paid employees take away the margin. If it weren't for the payoff from the motor division to GMAC, the company would never show a profit.

The most interesting thing is that the car companies have been able to turn the normal business cycle on its head. Consumer discretionary big ticket items normally go begging when the industrial expansion phase of a recovery starts. By offering "free" financing, GM has made the deals look all the better when interest rates are high!

My bottom line is that I had much rather own GM than a bond right now. The risk of a bond declining in value is relatively high whereas the risk that GM will cut its 6.87% yield is relatively low. Some good years are ahead for stocks. While I might wait 6 months to a year before buying GM, I would not be uncomfortable owning it now and a 6% annual move in the stock price from here would yield a total return of upwards of 12%!

TIPS AND DOLLAR COST AVERAGING AN ROLLER COASTERS

The following is an email that I sent to a list of investors before I started this blog. I ran across it this morning and realized it has worthwhile information relevant to the current market.

A reader tells me that her financial adviser has recommended TIPS (Treasury Inflation Protected Securities) for her portfolio. I thank the reader for asking my opinion. (Just in case you don’t know, my ego loves to be stroked and I am thankful when I can be of service.)

Many studies show that if investors keep from 15 to 30% of their securities in bonds and the remainder in stocks their long-term returns will be almost as large if they had invested 100% in stocks. The long-term average return for stocks is about 11% and the long-term average for bonds is about 6%.

A portfolio of 70% stocks and 30% bonds would imply that the total return would be 7.7% and 1.8% for a total of 9.5%. In the long-run, we would all rather make 11% than 9.5%. Why should anyone accept 9.5% on purpose?

There are two reasons. The first is that the return on the balanced portfolio will actually be somewhere between 9.5% and 11%. The second is that the volatility will be considerably less than the 100% stock portfolio.

The average person chickens out of the stock market at just the wrong time. He buys when times are good and then is unwilling to buy more when times are tough. The reader who wrote about DRIP accounts for his children is practicing a very powerful concept called dollar cost averaging. The big companies, he is buying, pay a decent dividend in good times and in bad. He is buying the same dollar amount of stock when prices are low as he is when the prices are high. He is therefore buying more shares when prices are low! The chickens buy too high and then, instead of buying more, when prices are low, sell!

A balanced portfolio of stocks and bonds is another way to deploy the powerful weapon of dollar cost averaging. The reason is simple; it is often true that bonds will increase in value when stocks decline in value. Therefore when a recession is approaching (the stock market will “know” about 6 months to a year before you “know”) and stocks are falling, your bonds will be increasing in value. During a time when a stock portfolio of $100,000 drops 10% or $10,000, the stock portion of a balanced portfolio will drop $7,000 and the bond portion may go up by $1,000. If the guy with all stocks chickens out, he will miss the upturn and therefore miss the huge gains that come typically right in the middle of the recession (the stock market sees the recovery coming about 6 months to a year before you see it). The guy with the 70/30 portfolio will routinely notice that his portfolio has moved to a 60/40 position. To put things back into balance, he will sell some bonds and buy stocks while they are cheap. Psychologically it is very much easier to take a profit on bonds to buy stocks than it is to ride out a bad time in the market.

If either of the above investors gets a windfall of $10,000, the one investor may be too chicken to invest in stocks and the other may find it easier since he will put $3,000 in “safe” bond investments. Even those guys like me who would rather ride a roller coaster than a merry-go-round, may find that in a recession we have the intestinal fortitude to buy more stocks while they are cheap but recessions have a way of sneaking up when we all are short of cash for one reason or another. In a tough recession, it is difficult to find the cash but this is when you can buy to hit a home run.

What does the above have to do with TIPS?

Risk averse investors are inclined to invest heavily in very short maturity investments. Many will use an intermediary such as a bank or an insurance company to avoid losing their principle. The problem is that one guarantees oneself real long-term losses if one to invest in such accounts as savings accounts or money market instruments. The loss is a purchasing power loss. The long-term history of our country is that you have to make about 3% after tax on your investments just to stay even.

The same logic can be applied to a portfolio of money market instruments and bonds. In other words bonds will yield about 6% long term and money markets about 3%. The person who buys all long bonds will make more money but his principle value will fluctuate. The person who puts 100% in money markets will average 3% (currently about 1.5%) and his principle will not change in value. A balanced portfolio will dampen the volatility of the bonds while increasing the total return. Again, because of the dollar cost averaging effect, the person with the balanced portfolio will automatically move cash from the money market to the bond account when bonds are cheap. He will move money out of bonds when they are expensive. If he keeps 50% in each at all times his return will be higher that the average of 3% and 6%.

The purchase of a ten or thirty year TIPS is mathematically the same as the purchase of a balanced portfolio. At the moment I can’t remember how to calculate the duration but clearly the person who buys a 30 year TIPS is buying a longer duration portfolio than the person who buys a ten year TIPS. The exact percentages do not matter much so let’s say that a 30 year TIPS is the equivalent of putting 70% of your money in a 30 year treasury bond and 30% in a money market account. Let’s say another investor puts 70% in a ten year bond and 30% in a money market. Finally let’s say the current yield on the 30 year bond is 5% and the current yield on the 10 year is 4%. The investor in the ten year bond is going to experience less fluctuation in his total value but he is giving up 1% yield on 70% of his money. Both investors will have much less volatility than if they had purchased all bonds.

Another way to accomplish similar results is to build a bond ladder. By buying a series of bonds with different maturities one can have a bond maturing every month (year). By reinvesting in a bond that matures one month (year) after your longest holding, you repeat the pattern every month (year). In this way, you again get a blended rate on your holdings and dampen the portfolio fluctuations.

The above discussion simply says that the yield on a 30 year bond is equal to the projected inflation rate for 30 years plus a risk premium. Right now the yield on a 10 year bond is about 4% and the yield on a 10 year TIPS is 1.8%. The current yield on a 30 year bond is about 5% and the current yield on a 30 year TIPS is 2.2%. The TIPS value will be adjusted by the inflation rate once it is known. Therefore there does not need to be as much of a risk premium. A money market instrument is only going to average the inflation rate. In other words you get no extra return in the money market because you are not being paid a risk premium.

From my point of view, American has been a strong country because we are a country of risk takers. The comfortable Europeans stayed home and the entrepreneurs came to America. On the other hand, I believe too many Americans are afraid of what they don’t understand. Their fear causes them to waste a lot of money. If three investors each have $100,000 portfolios and if one buys money markets, the other bonds and the other stocks. The three will average about 3%, 6% and 11% respectively. At the end of 30 years, they will have $245,000, $600,000 and $2,600,000 respectively (interestingly the person with $2,600,000 will have paid less money in taxes). The person who purchases all 30 year TIPS will have an amount between $245,000 and $600,000. The person who puts $85,000 in stocks and $15,000 in TIPS and maintains the ratio will have about $2,000,000 in 30 years with far less volatility than the all stocks investor.

I personally have gotten into trouble more than a few times by being too aggressive. I admit that I like to use leverage and I like to hit investment home runs. A 10% return is not exciting to me.

Anyone who runs his own business must understand the difference in profits and cash flow. Running a resort rental business for 19 years has yielded a reportable loss almost every year. The good news is the cash flow has been sufficient to keep us afloat while our property values have increased.

Most investor should be less aggressive than I. However, most investors should probably be more aggressive than they are. Ben Graham, Warren Buffets teacher, said that most folks underestimate the ease of making a satisfactory return in the stock market and they underestimate the difficulty of achieving a superior return. By hiding in mutual funds, insurance products, banks, TIPS, and almost any brokerage product, the average investor gives up far too much in order to stay “safe”. Amazingly, many folks are paying 2+% for management services.
Another famous investor has said that individuals have lost far larger sums by playing it safe than has been lost by being too aggressive.

Every family should have access to 6 months worth of income. A money market account is not a bad place for a couple of months of this and TIPS is not a bad place for the other 4 months worth. Beyond that, one should execute a disciplined approach to investing that emphasizes proven products and strategies. Each investor must decide for himself what his mix of stocks and bonds should be. If one has 6 months income available, the amount one must drag around in bonds to stay “safe” can be fairly low. With long rates so unusually low at the current time, I discourage long-bond investments. If one feels he must have bonds in his portfolio, TIPS would be my investment of choice. If your typical plan would be to have 70% stocks and 30% bonds, I would currently move to 90% stocks and 10% cash (in addition to the 6 month reserve). I would sacrifice return on the 10% cash until such time as bond yields are attractive again. By the time that bonds rates are attractive again, it will likely be time to take some profits in some stocks. At that time, I would move back to my planned level of 70% stocks and 30% bonds.

It truly is easy to make a good return. You just need to stay in the markets in good times and bad and occasionally take a profits from the stock market to put in bonds or profits from bonds to put in stocks. If you are willing to ride a roller coaster, put all your money in stocks and let it ride. The markets have always had positive returns over any 15 year period.

MICROSOFT SEARCH-- HITTING THE BULLSEYE

Microsoft to Launch Paid Search Technology

Online advertising is fantastic; MSFT is making it better. MSFT has collected data on users such that if a young man who lives in a rich neighborhood does a search for a certain word, he will see a totally different set of advertisements than a middle aged woman from a Spanish speaking neighborhood.

The costs of effective advertising on the internet is going down rapidly. Last quarter, EBAY complained about the costs per ad but continues as the leading buyer of ads. Sophisticated marketing companies are moving traditional media buys to the internet. YHOO has taken a dual approach; anyone can bid for words through the computer interface; big buyers can make their buys after working out details for custom projects with YHOO media account executives.

A fundamental law of economics is that if you offer a better product at a lower price, buyers will beat a path to your door. Because GOOG has such a big percentage of the market, MSFT and YHOO may be able to take market share from them. If so, Google's rate of growth will only be slowed. Total revenue growth will be large. All three firms will garner a substantial amount of new business.

The AOL unit of TWX and others will capture market share. AOL is making progress opening up its system to non-subscribers; a tricky game for AOL. The company must attempt to hold onto subscription customers while attracting non-subscribing customers. The core AOL subscribers are a loyal group with years of using the product. Many loyal subscribers have started using increasing amounts of free Google services. AOL may retain a significant percentage of the loyal folks for a long time but the free services offered by Google will grow rapidly.

Google has a number of features that work much like the new MSFT search. For example, if you and I make identical image searches from our respective computers, we will get a totally different set of images. Google knows much about me. I mention the Myrtle Beach often. Therefore if I search on the word beach, I will see images of Myrtle Beach listed first; whereas, you might see more pictures of Miami Beach or other locations.

MICROSOFT SEARCH IS HITTING THE BULLSEYE; GOOGLE IS TOO!

IT'S THE PARENTS FAULT

Americans bemoan the poor performance of our middle school and high school students. They blame the teachers, the TV, the attitude of friends and neighbors, government officials and everyone but themselves.

David Owen has written a wonderful book tittled, The First National Bank of Dad: The Best Way to Teach Kids About Money. The main focus of the text is to teach children the value of money by giving children responsibility for some of the money in Dad's wallet--letting the children earn a bonus each month by not over-spending their allowance.

One attitude David discussed is the attitude many parents have about jobs for teenagers. How can we expect students to excel in higher education if our priority is to get them to earn goof-off bucks bagging groceries or flipping burgers. Much can be learned from hard work but will a teenager learn more from writing for the school paper, serving as an officer of a service club, performing in a school play or flipping burgers.

My family is not afraid of hard work. My wife, daughters and I worked part-time jobs when we were teenagers. These ladies were far more prudent than I. They earned money that was spent for living and educational expenses. I have waisted more money in my life than I care to admit. As a foolish teenager, I worked an average of 34 hours per week at a grocery store and failed to achieve my potential as a student. Had I worked only 20 hours per week, I would have had plenty of "spending" money and those 14 hours per week could have been spent far more wisely.

At the University of North Carolina, I took Education 41; taught by Dr. Unks. Thirty years later, I was pleased when my youngest daughter took the same course under the same professor. Dr. Unks helped us to understand that parents should have attitudes of high expectation. Dr. Unks and I believe the biggest mistake parents make is to not give young children as much responsibility and freedom as they can handle. Parents need to lead by example. By the time a child is a teenager he should have internal beliefs and priorities that guide his actions.

As an assistant Scout-Master for four years, I enjoyed helping young men learn the life skills and values that will serve them well through-out their lives. This was a time consuming part time job and a labor of love. The tough part was to provide guidance and encouragement to each scout while accepting that they each have the right to fail. Those who fail to make eagle sometimes a lesson that the successful miss.

Only about 1% of all boys who enter the program walk away with the rank of eagle. While the rules allow 18 year-olds to earn the honor, Scout leaders have a saying, "Few boys make eagle after they get a whiff of perfume and gasoline". Our troop leaders encouraged scouts to earn the eagle rank by the age of 16. We were very aware that our culture encourages 16 year olds to get jobs to buy cars, gas and incredible amounts of "stuff". We were aware that even the parents interest declines when they realize the boys are available to be chauffeurs for younger siblings.

Yesterday's Winston-Salem Journal included an associated press article from Raleigh NC. The article was titled UNC study: Mormons best students. UNC sociologist, Christian Smith, recently completed a four year study of UNC students. He found that Mormon teenagers generally avoid risky behaviors and do well in school. Mormons follow the tenants of Dr. Unks and David Owen. They expect their children to do well, they invest in their education and encourage them to perform services for character building rather than for pay.

Conservative Protestants ranked second in avoiding risky behaviors and second in school performance. My wife and I participated with our daughter in orientation at UNC five years ago. The school presented an excellent session to show that students often enter with the mistaken impression that drunken binges are expected of students. The reality is that the majority of the students are very responsible in regard to sexual activity, drug and alcohol use.

The conservative Protestants rank higher than the Mormon students on questions such as, Do you believe in God? So the cause of superior performance is not that the Mormons are "more religious". The study shows that Mormons have "intentionally created social contexts in which religious faith matters a lot". At an age when the Protestant students are expected to flip burgers for the summer in order to have more spending money, the Mormons are expected to complete a "mission".

When Alan Greenspan testified to congress last month, he talked about how many good jobs are available to the educated. In one significant way, Mr. Greenspan's testimony leads one to different conclusions than the teachings of Dr. Unks. Dr. Unks draws a formula on the board that says education does not equal socioeconomic success. He says one of his boyhood friends made a huge fortune by being lucky in the garbage hauling business. His point is that Protestants over-emphasis education as a means to wealth. We tend to mislead our children into believing that wealth is the most important accomplishment of life.

Considering the above background is it surprising that our children rush to get jobs before they acquire the education necessary to get good jobs? Let us all stop blaming too little government money on a problem that cannot be fixed with money. We need an attitude shift. The job of a child is to enjoy living as a "Child of God" who seeks to relate to serve others. If children are not learning these lessons, IT'S THE PARENTS FAULT!

GOOGLE ADDS ADS, ADS AND MORE ADS

Google adds new tool amid local search war CNET News.com

The Yellow Pages are slowly dying. This is not news but the prices paid to own Yellow Pages services show that there is money to be made offering online "Yellow Page" services.

Yahoo and Google have been building online "business directories" for some time. Yahoo has partnered with the big phone companies to sell complementary online and traditional Yellow Pages. The Google approach as described in the CNET article is different. Google is building its directory by searching the net, but then each business can add to or update the listing. This free listing gives Google the opportunity to offer to drive traffic through advertising. If there are two pizza restaurants in a town and one is on the Google map connected to links to the business, folks will find the one and not the other. The number of businesses who can use the scalable and highly relevant advertising is a very large number.

The ramifications are endless. A few weeks ago Google registered as a domain name sales company. It appears that Google will offer every business, charity, enterprise or person in the world free web hosting. It will be up to each domain "owner" to determine if the pages offer contextual advertisements. In other words, some businesses may advertise their own products and others might decide to earn advertising fees by offering space for Google to offer relevant ads. When an international economist attacked Google as being over-priced, I asked him to describe the supply and demand curves for a product that is offered free of charge but then earns the giver and the receiver revenue. He refused to even try.

TIVO UP 75% IN ONE DAY!

The 75% pop in TIVO shares today was a joy to several of my portfolio owners. The excitement will be if TIVO can earn more from its advertising features than it can from the subscription fees. One of the features is that one can fast forward through a commercial but must see a click-able banner for at least a few seconds. Those who are interested in a product can click to view extensive product promotions. TIVO will learn the interest of each household and viewers will be offered advertisements that are relevant to their interest. TIVO finally has a path to the 21 million Comcast customers. This market is competitive but the TIVO patents may have been the driving force that opened the Comcast market. DVRs are everywhere but look for TimeWarner and others to offer TIVO as an option. EchoStar has sold or leased a lot of DVRs which makes the out-come of the TIVO-EchoStar lawsuit interesting.

The reason for mentioning TIVO is to reiterate the power of the Google model. Google does not need to charge for services because advertising feeds are pervasive and non-obstructive. Many of us despise pop-up adds but do not mind relevant ads on every screen. It is like reading a focused newspaper. The travel section is full of articles and ads about travel. You will rarely respond to any particular travel deal but you may read the ads with just as much interest as the articles. To make a decent return, the newspaper must charge for the distribution of the paper and for the ads. The internet allows Google to offer free distribution and low priced, focused and relevant ads. The advertiser only pays when a potential customer seeks more information.

MSFT has an ad server in beta testing in France. Google will likely lose market share as MSFT and Yahoo move forward with contextual programs similar to Google's. Other articles continue to speculate that GOOG, YAHOO and MSFT will soon offer VOIP. Google employees have recently attended VOIP conferences and asked a lot of questions. The total number of opportunities for advertisements is growing into a very large number; so far, Google is getting a 35% share! GOOG is likely to be one of the participants in the coming BULL BOOM BUBBLE!

BE CAREFUL WHAT YOU WISH FOR!

Those who have bemoaned the falling dollar may have gotten all they want and more today. There were three things up, long-term interest rates, crude oil and the US Dollar, and most everything else was down. Sure there were a few individual stocks trading up, TIVO and QCOM to name two, however, large and small stocks in most categories took a beating.

The past few months, we have been in a sideways market. It is a market that is wearing out the traders. The most successful stock traders try to catch a trend after it is established. They try to ride the trend for as long as they can. The current market struggles to establish any trends--with the exception of oil and other "material" based companies; every thing else is slopping around.

The big question concerns the dollar. US imports continue to grow quickly but the latest liberalization of textile trade has skewed the numbers. Exports are growing at a 15% rate! The strength of the US economy has seemed modest relative to the boom in China, but we actually are in a booming economy. Job growth has been understated for three years. There are literally millions of Americans working very hard to build small internet related businesses. Many of these folks are not making large amounts of money but they may become very successful and few of them show up in jobs reports.

The nominal GNP grew at 6.2% last quarter! Even after adjusting for inflation the number was about 4%! Our economy is very strong, but it does not "feel" strong. Folks are focused on too many side issues to appreciate the good life. Some folks besmirch the wonderful rise in real property values. They say they will just have to pay more taxes. Papa John was one who rightfully did not mind paying taxes. He always figured if he was paying lots in taxes he must be making lots of money.

It appears that the world wide economy has kicked into the expansion phase. Capital spending is on the rise. Long-interest rates are being pushed and supplies of oil and other raw materials are tight. The risk is that Greenspan will need to tighten short rates more or at a faster clip. My outlook for the BIG BULL BOOM BUBBLE BUST has not changed; the starting point of the next run may be pushed back, but it should start before November.

One can only guess what the catalyst for the next move might be. Few folks know that the start of the second phase of the 1960's Bull started the day the market re-opened after President Kennedy was shot. The market made its biggest move in 24 years on that day and the market hit all time highs within two weeks.

Who knows, the dollar may make new lows, strengthen for a while and then continue on its long-term downward trend later. The long-term trend has been down for as far back as I can find a chart. However, the US is a powerful economic machine. Yesterday, Condoleeza Rice reported the possible sale of 149 F-16's to India and Pakistan. The sale would wipe out 10% of the current account shortfall! Parts and servicing would add to US exports for years to come. Indians have to sell us a lot of socks to purchase one of these planes. We really do not need to be overly concerned about competition from the Far East, if the US will continue to reduce the drag on our economy from excessive taxes and regulation. Reform of Social Security as a major benefit to the American worker would be a good step in this direction.

To complete the pattern that started in the late 1940's in regard to interest rates and inflation, the dollar must make new lows, interest must make new lows and inflation must make new lows. One could get dizzy going back and forth and forth and back. It takes patience to do well in the market. Now is the time to be patient. Stocks will out-perform other investment classes in the second half of the 2000 decade. The break-out stampede of a couple of weeks back has been corralled. The oil and bond markets are holding tight reigns. It is a matter of time before a something good happens. If the market were to get a sniff of progress in passing an energy bill, it could be off to the races. I have written a couple of times that the break-out will come by November, which seems like a very long time away. I had better stay ready because at any moment I may get what I have been wishing for.

A BITE OUT OF THE APPLE

At the last minute, Motorola pulled the plug on the roll-out of the i-tune telephone. Speculation is that the cell provider decided not to offer the service without getting a piece of each down-load. Cell phone music is about to become one more reason every person will want a cell phone.

Maps and GPS services will soon become necessities. Insurance companies will offer discounts to those who allow GPS tracking of driving habits. Maps already include search capacity and directions. Has there ever been a time in your life when you would have given a quarter to know which way to turn to get to the nearest gas station or rest-room?

BULL BOOM BUBBLE are around the corner. Infrastructure is being added quickly to support advanced features. A significant portion of the population are late adopters. Late adopters kept their horse and buggies for years after cars were available. Today, only 1% of US citizens have signed up to save money on an internet phone. A very large number of electronic boxes will be sold in the next 5 years as we progress along the product growth curve.

Apple has a leading position in down-loading songs. NBC, FOX and ESPN are producing mini TV "shows". The cell phone companies own the toll roads. I continue to hold NXTL and AMX because I believe these firms will collect a lot of tolls in the next five years. I do not own Apple and have trouble seeing how Apple can lead in distribution over the cell phone networks.

TIVO--BETTER THAN A STICK IN THE EYE

On hearing the rumor of a take-out of TIVO, I immediately thought that $6 a share would be better than a stick in the eye after having ridden the stock down to $3. I am pleased to learn that the deal is not a take-over. Details are sketchy but TIVO and Comcast have agreed to terms whereby TIVO services will be available on the Comcast system. Comcast has already agreed to buy a billion dollars worth of set-top boxes from Motorola. Apparently Comcast customers will be given the option to choose boxes at different price points. This could mean millions of dollars in revenue to TIVO.

Earlier negotiations failed when Comcast tried to make a deal on the cheap. TIVO charges retail customers north of $10 per month and collects only a few dollars per subscriber through Directv. Comcast wanted to pay less than $2 per month. The fact that a Texas judge allowed a lawsuit by TIVO against EchoStar to go forward may have moved the deal with Comcast forward.

The implications are that TIVO has the patents to enforce and that Comcast had rather strike a deal than fight it out in court. Now that the largest cable company is on board, one can speculate that others might follow. DirectTV has designed its own system. The new systems by Motorola, Scientific Atlanta and the DirectTV subsidiary typically offer advanced features but they also tend to avoid offering some of the basic features offered by TIVO. I will read the technology specific blogs over the next days and weeks to learn more. I do not pretend to know the details that make TIVO work. Market action has made it clear that management believes they have a viable long-term product; one that can withstand the competition from several 800 pound gorillas. Today's deal confirms that TIVO is a long-term player. The service through Comcast will not be available until 2006.

There are several technologies that are ready to fly! The adoption rates are expected to soar in late 2005 or in 2006. One must always remember that the stock market discounts the future by 6 to 12 months. 2006 is going to be a big year for technology. For example, touch screen ordering systems produce labor savings and increased sales for many businesses.

The labor market is still stronger than it appears. Millions of folks are building "internet businesses". They may not be making much money but they are working hard and some will become wealthy. The latest Fed reports show that Americans have more wealth than ever before. Soon, it will seem foolish not to own a TIVO!

EBAY, YAHOO, GOOGLE COMPETITION IS HEATED

The Internet Stock Blog: eBay #1 in China? No, though Meg Whitman claims "yes".

The Internet Stock Blog: eBay #1 in China? No, though Meg Whitman claims "yes".

The Internet Stock Blog has posted a couple of good articles in regard to EBAY, YAHOO and GOOG. Competition is heating up. All three stocks have traded down in recent weeks. Today, MSFT announced a new search directed advertising program.

EBAY is slugging it out to be "big" in China. EBAY has committed to spend another 100 million dollars to "win" this market. YAHOO has a strong local partner but a third entrant is making a good run. The Internet Stock Blog reported earlier that YAHOO is working on an contextual ad program to compete with GOOG. Today, the WSJ picked up on the story.

The risk to GOOG is real but I believe the growth of this market will be incredibly strong. GOOG, YAHOO, MSFT, and AOL are in some ways like NBC, CBS, ABC, and FOX. All channels advertise and all make money. GOOG was first with contextual ads. GOOG has a big lead, but the others will take share. Sifry's Alerts (http://www.sifry.com/alerts/archives/000298.html) posted a couple of charts from technorati today showing the dramatic growth in weblogs. Technorati is tracking over 7.8 million weblogs and almost 40,000 are being added daily. The purpose of mentioning blogs is to note the tremendous growth in services that are offered by the many smaller fish in the internet world. One can only wonder if the "big" guys will eventually dominate because advertising revenues will be higher using the "big guy" sites.

As Google continues to add services, the "stickyness" factor increases. So far, no one else is ready to take on Google Print. MSFT and YAHOO have the resources to go after this market. Their first task is to develop an ad program. Print may not be seen as a high priority but each search service tends to serve as an anchor to customers. If you want your search to include books, Google is currently the only game in town.

BIG PICTURE MID MARCH 2005

Three of the authors I try to read regularly, Ken Fisher, Ed Yardeni and Harry Dent have all compared the cycle of the 2000's to the cycle of the 1990's. Every investment cycle is different from every other investment cycle, but history does indeed repeat itself.

The prime rate is a good example. The prime rate charged by banks was below the treasury bond rate from October of 2001 until November of 2004 and from July of 1991 until November of 1994. In the 1995, the Fed Funds Rate continued to rise for 3 months after the crossover. The increase in the discount rate in 1994-95 was just right. Rates went from 3 to 5.25% and the stock market went up the next three years.

Another "event" in 1995 was that the real earnings yield of the S&P 500 approached the real yield on the ten year government bond. The next couple of years was a period of rising rates but company earnings went up about as fast as bond yields increased. I think a lot of investors, including "pros" often get the relationship wrong. Shouldn't one expect interest rates to go up if companies are making a lot of money and are therefore buying and building to expand their businesses?

A month or two ago, earnings yields actually went above bond yields! By this measure, stocks are cheaper now than they were at the start of the 1995 boom. The last time real earnings yields went above Bond yields was in July of 1982. A number of stocks doubled within 9 months.

There are many other similarities between the 1990's and the 2000's. Productivity held down inflation. The employment cost index went down in the face of increasing heath care costs. Personally consumption slowed mid decade. The leading economic indicators declined. Investors were confused. Money supply was on the rise and after a long hiatus commercial paper was in demand again. Businesses started spending money.

Much has been made of high consumer debt but in fact, consumers have paid down debt for two years. It is a high number but remember that it is business that drives an economic expansion. The signs of expansion are all around us. Industrial metals are in demand. Raw commodity prices are approaching the levels of the mid to late 1990's. Long bond rates have recently gone up; not enough to kill the recovery but enough to take off the "edge".

The job market was slow to gain traction in the 1990's and slower still in the 2000's. However, US exports have steepened their climb; good jobs ahead!

The big expenditure businesses are preparing to make is the touch screen computer terminal. This terminal is starting to show up at restaurants, banks, service stations, ticket booths, and airline check-in stations. These "machines" will soon be every where. It will become natural for one to punch in a food or beverage order at the gas pump, pay for it and pick it up after the pumping is done. The new bank ATM will allow one to "drag" a payment from a checking account to a credit card account or a deposit to a savings or checking account. There will be no need to try to understand the lady at the drive-in window. If you want tomato and no onion, you will select right from the screen.

Businesses are finding that they sell more by letting the customer enter his order. The customer feels less pressure to respond quickly. He takes more time to select exactly what he wants. The cost to the business is low because the employee who used to take the order can now spend his time helping to fill the order.

The late 1990's were driven partly by the y2k rush to upgrade computers. The business spending in the second half of this decade may not be as strong. On the other hand, there are productive new technologies available and as soon as it is clear that the labor market is going to tighten, businesses will speed the pace of investing in those technologies.

The Big Bull Boom Bubble Bust is still playing its way through. Investors should recognize that stocks will be the investment to perform well in the second half of the first decade of the 21st century.

DON'T BET THE FARM!

WSJ.com - Some Tips for Becoming A Shark in the Office Pool

WSJ.com - Some Tips for Becoming A Shark in the Office Pool

The odds of picking all 63 winners in the NCAA tournament are 9,220,000,000,000,000,000 to 1 against you (9.22 quintillion or 9.22 billion times a billion). So sayeth the above article in the Wall Street Journal Online Edition.

PICKING BASKETBALL WINNERS OR PICKING STOCKS--DON'T BET THE FARM AGAINST LONG ODDS.

Number one seeds make it to the final 4 about 40% of the time; number 2 seeds about 20% of the time. At the other end of the scale, not a single 16th seed has ever won a single game. The top 16 teams have a relatively easy first game and only a moderately tougher second game, but anything can happen in basketball. Making the final 16 is an accomplishment, winning from there takes a lot of skill and a lot of luck. The top 16 teams are all very good.

ESPN prognosticators like Illinois, North Carolina and Wake Forest. My assessment is that Illinois would win this tournament one time in 5 or 20% of the time. North Carolina and Duke each have about a 14 percent chance (1 of 7) and Wake Forest maybe 7%. Throw-in Ga. Tech. at 4% and NC State at 1% and I get a 40% chance that an ACC team is the next champion.

I would not bet on any team to win. I would not even bet on Illinois, North Carolina and Duke against the field. I can't tell you which team will beat anyone of the three but I can name a lot of teams that are capable. Kansas, Oklahoma State, Washington, Connecticut and many other teams are capable of beating any one of my favorites by 20 points or more!

It would be a poor bet to choose any three teams over the entire field; the same with three favorite stocks. If you put all your money on your favorite three stocks, you might hit a 10 bagger on one and not need to worry about the performance of the other 2 or you might not. However, if you spread your investments over your ten most favorite stocks, you would probably hit at least one 10 bagger. In the basketball analogy, give me my choice of 10 teams against the field and I will bet the farm on choosing the winner.

I listed Ga. Tech. as having a 4% chance. However, the same group of players made a big splash last year. They came close to winning it all. This year, one star player was out with an injury through-out most of the year. This team beat Carolina in the ACC tournament and had several chances to win the final game against Duke.

If one could invest in teams as if they were stocks, I suspect I would be able to buy Ga. Tech. cheap. I might buy the team for $2 with a $100 return for winning. My heart wants the Tar Heels to win, but I could not buy the "stock". Based on the analysts (ESPN prognosticators) excitement, it is clear that one would have to pay $25 or more to buy a share in the same $100 "pot". In my opinion North Carolina is no where near 12 times as likely to win as Ga. Tech.

The lessons are simple. Buy good values not hyped values; spread your risk; pull for the the TAR HEELS but don't bet the farm that we will win. :-)

AMANDA

Amanda

Amanda was eleven years old when she fell off a roof last year. My daughter, Courtney, is a teacher at her school. I hope you will take a moment to visit her web site. The recent post about reading a Dr. Seuss story is an inspriational story. The following is a quote from the story:

I'm sorry to say so
but, sadly it's true
that Bang-ups
and Hang-ups
can happen to you.

Our best to Amanda and her family!

Bnoopy: The long tail of software. Millions of Markets of Dozens.

Bnoopy: The long tail of software. Millions of Markets of Dozens.

The way most items are distributed can be depicted by the famous bell curve. Students are often familiar with the bell curve of grades. Students have typically been selected by several measures such as age and success in the prior grade. Those with extraordinarily high or low IQ's have been "filtered" out of the the typical class. Furthermore the grade a student can make is always from 0 to 100. However, the songs stocked in a store may vary widely. The songs may be of every genre from classical music to hip hop. Wall-mart typically stocks 38,000 songs. Real Networks offers 785,000.

The long tail is a fascinating topic. Businesses like NFLX, AMZN, GOOG and others take advantage of long tails. If you have ever gotten lost in the stacks of a major university library, you have an idea how many books have been published and how many books are seldom used. Google print search will dramatically increase the likelihood that an old book will be accessed. This is a good thing for people, productivity, publishers, authors, Google and Google shareholders.

The Bnoopy site is a site about starting a business to make money. Google, by providing open access, is about to spark the start-up of many small businesses. Within ten years, millions of folks will have started small businesses where the major resource is a home computer. People will live where they want to live, perhaps at the beach, work the hours they want to work, and consume less oil and gas commuting. The lucky and smart will make millions.

The cost for NFLX to keep a few copies of Ben Hur on a warehouse shelf is small. With 22,000 similar movies on the shelf, NFLX is often paid to provide movies that Blockbuster cannot afford to stock in 9,000 stores. Blockbuster stocks 3,000 popular movies. These movies are rented and re-rented often and all major rental companies are forced to buy 100's of copies of the most popular selections. NFLX stocks those 3,000 and another 22,000. Every time a NFLX customer selects one of the 22,000 movies, NFLX can serve one more customer who demands one of the 3,000. It makes the same sense for AMZN to keep a few pairs of size 22 shoes in a warehouse even though it makes no sense for a shoe store to stock these in every store.

Finding the way to provide both segments, the most popular and the least popular, is often the winning strategy. Brick and mortar stores such as Wal-Mart and Blockbuster are seeking ways to sell more goods online. In the old days, the attempt was to be able to order the off size or unpopular selection from a warehouse. This process required employee time. The online process is more efficient; offering the best price. If the product can be down-loaded over the internet, the distribution savings can be huge.

Thus the struggle to win the distribution wars. Will songs be delivered to your cell phone, pc or i-pod? Will books be printable or readable online? The answers are yes. Will you buy your books from AMZN or GOOG or Wal-Mart?

In the stock market, the most popular stocks are being "pushed" by investment firms. A lot of stocks are "out of sight and out of mind". In our Stock of the Week selection process, we try to filter out the "hot" stocks. We want to buy stocks that have good prospects for doing well and then if they become "hot" stocks, so much the better. Some of you always prefer to pay $8 for a ticket to the latest "hot" movie. The fact that the price of the latest movie is $8 per person versus $1 for a group does not mean the $8 movie is the best movie available for viewing. The distribution of stocks and movies have long-tail characteristics. Learn to take advantage of the concept of long-tails and you will make millions.

GAME ON FOR GAMESTOP?

STOCK OF THE WEEK GME 19.95 PER SHARE

GameStop Corp. (NYSE:GME) located in Grapevine, TX is the nation's largest video game and entertainment software specialty retailer. GameStop sells the most popular new software, hardware and game accessories for the PC and next generation video game systems from Sony ,Nintendo, and Microsoft. GameStop is the industry's largest reseller of used video games.

In addition, the company sells computer and video game magazines, strategy guides, action figures, and related merchandise to more than 30 million customers. The company operates 1,746 retail stores throughout 49 states, Puerto Rico and Ireland, primarily under the GameStop brand. The stores are located within shopping malls and strip centers. Complementing the retail stores, the company operates a website at www.gamestop.com and publishes Game Informer, one of the industry’s largest circulation multi-platform video game magazines, with over 1,500,000 subscribers. One visit to the web site is all it takes to appreciate the extent of the offerings available.

Since going public in Feb 12, 2002, GameStop has had an impressive showing over the last couple of years. Sales have exceeded projections each quarter. On Nov. 21, 2002 GameStop Corp. announced the opening of its 1,200th retail store. "While reaching 1,200 stores is an exciting milestone for GameStop, it is also just a step on the way to the continued rapid expansion of our company," said R. Richard Fontaine, Chairman & CEO. "We are on pace to open over 200 stores this year; and, given the growth of the video game business, and the success we have had serving very diverse demographics, we plan to grow even faster in the coming years."

Third Quarter 2004 was no exception. GameStop sales increased 28% to $416.7 million from $326.0 million. Video game software sales were exceptionally strong, growing 36%, with leading titles such as "Madden NFL 2005" from Electronic Arts Inc, "Grand Theft Auto: San Andreas" from Take-Two, and "Fable" from Microsoft, Inc. Video game hardware sales were robust with the launch of the newly redesigned PSTwo and the Xbox holiday bundle. Comparable store sales increased a strong 11.8% during the quarter.

On November 9th 2004, GameStop set a one days sales record when Microsoft released "Halo 2". "Halo 2" sold over 525,000 units in 24 hours. "Our initial projections for a strong holiday season seem to be justified by the exceptional acceptance of the video games released thus far in the season, and we are looking forward to an exciting few months and beyond", reported CEO Fontaine. Here is the BUT.

Depending on others for success can cause one to ask, "Why Do Bad Things Happen to Good Companies?" December sales were ready to surge but didn't. The headlines read- Hardware Shortage Impact Fourth Quarter Sales and Earnings.

Mr. Fontaine, commented, "After a very strong November, when GameStop's comparable store sales rose 23% driven by significant demand across all major platforms, we were well positioned for a strong holiday season. Unfortunately, severe hardware shortages of Sony's PlayStation 2, Microsoft's Xbox, and Nintendo's Dual Screen, have taken a toll. Not only did we lose the tie-in software sales that generally accompany hardware gifts, but due to the shortage affecting the total market, we lost the 'downstream' sales that historically have come our way regardless of where hardware is sold. In all of my years in the video game business, I have never seen shortages of this duration or magnitude. There is no question that there was demand for the product, but not hardware product to satisfy demand. As the season progressed, we expected hardware inventories to improve, and, as the season developed very late, we felt that much of the lost holiday sales could be rescued with more hardware in the last weeks of the season, but the shipments did not materialize."

He also said, "To put into perspective the impact of not being able to secure the hardware we needed, our December month-end inventory was $33 million lower than the previous year even though we had over 300 added stores. It became very clear as the month went on, and hardware shortages continued, that there was a significant effect on store traffic”.

"While we were frustrated by the supply shortfall, we view this as a temporary problem, as we know that our hardware manufacturers will aggressively work to expand the user base that is so obviously ready to purchase the product. Our disappointment at not having the product to sell is, to some degree, tempered by our enthusiasm for the fact that in the fourth and fifth holiday season for Xbox and PlayStation2, demand was phenomenal".

GameStop's numbers are sensational. The company has grown from 1,039 stores in 2002 to 1,746 stores; an increase of 707 stores in 2 ½ years. The industry is growing, the company is growing, but the supply problem zapped fourth quarter reults. The business is competiive with “big boys" such as Wal-Mart offering price pressur. The company does not pay a dividend.
See More

Selecting this company as the Stock of the Week, takes Moxie. (As the saying goes, a lot of Moxie). Selecting a company whose largest competitor is Best Buy (BBY), a company that sells a product that is a major category for the likes of EBAY and AMZN, a company that competes in an area where large firms such as Blockbuster Video have failed might prove to be foolish.

In other articles, I have written how "long-tailed" products are being distributed more and more through low cost online channels. Games at first appear to be "long-tailed" products. There are thousands of older games wasting away on shelves everywhere. Should NFLX enter the business, it might be able to squeeze more value out of old games. However, innovations continue to destroy the value of old games. The new Sony machine is expected to be a huge success and most of the old games will not play on the latest machines.

I have never suggested that NFLX would put movie theaters or producers out of business. People follow the crowd and buy what is "hot". Movie producers and game producers are addept at creating "hot products". Producers must collect millions of revenues to justify the costs required to make a movie. Producers win big on some and lose on others. A major part of their success comes from the DVD after-market but 100's of millions are made by making and promoting the "hot new product".

The game rental business and the movie business are similar. One can purchase or rent an old game or an old movie cheaply. Never-the-less, consumers go to the theater, pay $8 to see the show and spend almost as much on a box of popcorn and a large coke. The parents of young folks are willing to drop kids off at the mall to "hang-out". In flocks the kids go to the game stores to purchase the hot new game at a $40 price.

Note the difference in the purchase of a game and the rental of a video from Blockbuster. Blockbuster stores are normally located in a high traffic location but not inside high priced mall space. Games are bought spontaneously. After-all, the rental of a movie is likely to be made by someone who has a drivers license who drove to the store for the purpose of renting a movie. The point is that GameStop has identified a niche. Most of us do not go to the mall to buy ice cream, cookies or a game but many of us will not pass the smell of a good chocolate chip. GameStop stocks a high dollar inventory and turns it fast. The price to sales ratio is only .59. The forward P/E is under 15 times.

Bill Miller of Legg Mason Wood Walker, Sumner Redstone of Viacom and other very smart investors have invested in game stocks. My family owns shares in Electronic Arts (ERTS). Playing games on a privately owned machine is acutally relatively cheap entertainment. In the old days, game players spent one quarter at a time. In today's dollars, those quarters would be at least $1 at a time. Spending $40 on the latest game is the equivalent of 40 games. Some of the players play one game thousands of times.

After the design and production costs are covered, the manufacturing costs per game are minute relative to the sales price. To be successful, producers need a distribution channel to quickly convert the latest product to a "must have product". GameStop is the 800 pound gorilla that can make or break the latest edition.

Finally, the demographics are interesting. Gamers do not stop playing when they "grow up". Thirty and forty year old men and women who played Donkey Kong as kids now challenge players from around the world. They play new games or new versions of old games from the comfort of their living rooms. New technology allows gamers to carry on conversations or to "video-conference" with competitors from around the world. The situation reminds me of the "progress" made in personal computers over the years. A PC without an internet connection is nothing but a fancy typewriter. As soon as the latest innovation is on the market, all those old games are obsolete.

Should you decide to invest, you do so at your own risk. Should you invest, we suggest that you risk 5% or less of your capital on any one security.

Miller and Kupsky

DAN SHERMAN--IRAN OIL CRISIS

Dan Sherman

Dan Sherman has a different take on the hoarding of oil I wrote about yesterday. The thesis is the same. Oil demand has been growing faster than GNP which means excess oil is being stored somewhere.

The purpose of hoarding could be for one of two reasons. The hoarders believe the price is going much higher or there is a serious risk of a supply disruption; possibly due to a stand-off with Iran.

Bush has the support of the allies. He has let Iran know that nuclear weapons are not acceptable. Bush sent Ms. Rice to solidify support and to warn Iran to play ball or suffer consequences. The situation is fluid but positive signs have surfaced.

As far as the Strategic Petroleum Reserve, the US only adds 7 million barrels per month. Having the reserve is good policy. But the demand placed on the supply is drop in the bucket. The daily world wide demand is 83 million barrels per day.

During the 1990 economic boom, oil prices hit a peak by January 1996 and the global economic boom continued for several more years. The pattern looks of this decade is similar. It takes markets time to adjust after a price spike. Production is being increased and conservation measures are being adopted.

The economy will gradually automatically adjust. Just like the stock market discounts the earnings, the oil market is currently discounting the risks of disruption. Like Dan indicates, if nations are prepared, a cut off of Iran's oil would not be nearly as large a crisis.

We must hope a shut off is not necessary. Bush is applying great pressure. Syria finds itself between a rock and a hard place. Iran is the bigger problem. All the Iranians need to do is look at neighboring Iraq and Afghanistan to know that George means business. After Iran plays games for a while, I believe they will recognize it is in their interest to be a good neighbor to the rest of the world.

AIR TRAFFIC TO RESORT AREAS HEATS UP

Hooters air will offer non-stop service between Las Vegas and Myrtle Beach. Domestic revenue seat miles continues to grow.

In related news, it has been reported that over 30% of all condos bought in Florida last quarter were bought by Europeans. What used to cost 133,000 Euro-dollars now costs 82,000 Euro-dollars. US real estate is very cheap in terms of Euro-dollars.

CAROLINA 88 CLEMSON 81

FLIP FLOP FLIP FLOP

The markets continue to flip and flop. Just as I write about the turn, the market turns again. Almost all the international funds are up today while energy and gold are about all that is up in the US; unless you look at the interest rate side of bonds. Bonds are getting taken to the wood shed again today. The move to the expansion phase is still in force.

I have repeated Papa John's line many times but it fits this situation. Papa John served in the navy for 6 years. One of his many pearls of wisdom was that, "It takes a long-time to turn a battle ship around".

The market for stocks is turning and the public is piling into international mutual funds. If you go with the crowd, you will eventually be caught when the bubble breaks. Buy the big US stocks. If you would like a free portfolio review by an experienced amateur, let me know.

TRADE DEFICIT TURNING?

The trade deficit appears to be turning. Even in the face of wide open textile import rules. Last month most remaining textile restrictions were reduced or eliminated; imports from China surged again. However, exports grew almost as fast as imports. What is happening?

The low dollar and the strong world wide economy is having the expected results. Instead of re-investing dollars in treasury bonds, developing nations are buying US capital goods. Treasury bonds are trading down in price and capital goods profit are going up. Developing nations have a lock on businesses such as textiles where labor is a higher percentage of the final products costs; industrial nations have a lock on capital intensive industries.

Yes, I have written about the expansion phase before, but it is here. New factories and new machinery will be purchased in broad categories of businesses in the near future. One clear sign of this is that the capacity utilization rate in US manufacturing has moved quickly from 72% to 79%. Again, this means businesses will borrow and spend large sums and will have nice increases in total profits.

I have written that it is common sense for oil prices to go up when airline traffic goes up and it is common sense for the price of copper to go up when the volume of electronic equipment sales go up. The costs of oil is not the biggest cost in flying a plane and the amount of copper in a cell phone is not big but it is vital. Apple computer will not purposely sell an i-pod at a loss. The price of copper is a very small factor in the total price of an i-pod and Apple will buy as much as is needed at whatever price is required if they have customers ready to buy i-pods.

In this post, I add the cost of money as the next piece of common sense. The current up-trend in long-term interest rate is a positive sign for industrial firms; not at all a negative indicator. In the same way that an airline only needs to buy lots of fuel when the price is high, large capital intensive businesses only need to borrow lots of money when interest rates are on the way up.

The turn in the trade deficit shows that the march toward higher interest rates has begun. Interest rates and a strong dollar just like oil and airlines trade together. It is counter intuitive to most folks but still true.

If you have not locked in your home mortgage and all other long-term financing; you need to get moving. You need to reduce exposure to bond investments and increase your exposure to economically sensitive investments. Buy good old American businesses. Review your IRAs and 401-K's. It is easy for fund managers and salesmen to sneak in bonds to stabilize returns. The bad news is that bonds go down in value when industrial firms are growing and profiting.

For the past few months, as much as 80% of new purchases of mutual funds have been international funds. A number of these funds will not do well if the dollar strengthens. One should use caution when buying international funds in this market. The safer bet is to buy US stock. If you prefer to reduce volatility and are willing to pay the additional fees, then buy a US stock mutual fund versus the international stock fund. Please note that many stock funds with fancy names are part bond and part stock funds. If this is what you want, I have no problem. I avoid managed funds to avoid the fees but I certainly would avoid the "combo" fund. I like to know how much I have invested in stocks and in bonds.

A SUNDAY MADE IN HEAVEN

This past Sunday was as good a day as one can hope to live. Marilyn and I arrived at Maple Springs United Methodist Church around 8:15 AM. We enjoyed visiting with friends prior to the 8:30 contemporary service. The service was excellent. It included performances by children's choirs, songs by the praise team, a good message from Pastor Randy Waugh and Holy Communion. Holding hands with a loving wife while listening to God's Word and sitting in the company of church family is a special treat. If you have not experienced this lately, I recommend you give it a try.

After the service, Marilyn and I participated in a lively, thought provoking, spirited Sunday School discussion. There was agreement, disagreement, laughter and joy during the discussion. It will be nice to continue the discussion next week.

After Sunday School, I took Marilyn home before going to Burkhead United Methodist Church where I visited with more friends. Three of the best guys in the whole wide world then got in my car and we headed toward Chapel Hill N.C. On the way we stopped at Jimmy's Diner in Kernersville and enjoyed a good breakfast.

At Chapel Hill we parked in the Bowles lot and road the shuttle to Bowles Hall. Here we were enjoyed refreshments while watching the UNC women's basketball team on a big screen TV. We only saw the last 4 or 5 minutes of the game. What we watched was remarkable. The "Phil Ford" of women's basketball, Ivory Latta, and her team-mates put on a show. In the final 3:44 the Heels out-scored Virginia 17 to 2. The final score was 78-72 which put UNC in the finals of the ACC tournament against Duke!

When the game ended, the lights flickered in Bowles Hall and we proceeded to our seats in the "Dean Dome", also know as the Smith Center. The Smith Center is a premier basketball arena named after the greatest college coach of all time. Our $37 lower seat arena tickets were precious. There was not an empty seat in the house. We or anyone of the other 22,121 attendees could have sold our tickets to hundreds of folks waiting outside the center with only a hope of getting inside. It is illegal to sell a ticket for more than $3 over face value in North Carolina but one fellow sitting behind us claimed good seats had sold for $1,000 and up.

The basketball rivalry between Duke and UNC is as great as any other sports rivalry. Each of these teams have gone on multi-year streaks of being among the best in the nation. The "big four" of North Carolina are UNC, Duke, NC State and Wake Forest; all great universities in their own right. It is impossible to describe all the emotions involved in supporting one of these teams.

Growing up as a North Carolina Methodist who's respected maternal Aunt was truly Duke Blue all the way through, meant there was no question where I would go to college. Part of the excitement about attending was to see the basketball games in person. As a child, my family loved to munch popcorn while watching ACC basketball on TV.

By the time I was a teenager in 1963, my interest was especially keen. Duke won the regular season ACC titles in '63, '64', 65' and '66. The problem in those days was that only the ACC tournament winner went on to play in the NCAA post season tournament. Duke won the ACC tournament in '63 and '64 but perhaps their best team of all time was the 1965 team. My parents frowned on wagering but when I offered my brother all the other ACC teams against Duke he was ready to accept. We worked out a wager acceptable to Mom and Dad. The loser would wash all the dishes for the next month. It was NC State that pulled off the upset.

Life's directions turn slowly or suddenly. In 1961, Dean Smith coached his first Tar Heel team to an 8-9 record. In his first five years, his best season was 16-11. During this time he was burned in effigy by "loyal tar heel fans". The Heels had won the national championship in 1957 and fans wanted to win again. How easy it is to criticize a man or women who is doing the best they can do. Many times an outstanding person does an outstanding job and is not allowed to complete the task. Fortunately, the UNC administration had the backbone and foresight to give Smith time to do what he was born-ed to do.

Coach Smith eventually won more division I basketball games than any other coach; a record of 879-254. He set a number of remarkable records including 27 straight years of 20 wins or more. He won 20 games 30 of his final 31 years of coaching. More importantly, he always focused on the important things and he had a positive influence on the lives of millions. Ninety-six percent of his letter men graduated from college and the good these men have done and the teachings they have shared with others is priceless.

I cannot tell you when I decided to attend school at UNC. I remember that Carolina basketball was already on its incredible streak my junior and senior years of high school, 1967 and 1968. I also remember how much my high school friends and I enjoyed college ball.

By 1967, racial segregation was just starting to end. Dean Smith recruited Charlie Scott who became the first black ACC basketball star. A year or two before a black played on that "northern ACC school", Maryland, and another one got a little playing time at that "liberal ACC school", Duke, but Charlie Scott was the one that showed southerners that blacks might play basketball as well as whites. On December 29,1967, UNC fell behind the unbeaten Utah team by 17 points in the second half. This was long before the 8 point comeback over Duke with only 17 seconds to go and many other famous UNC games. The game looked lost. Dick Grubar, Larry Miller and Charlie Scott were among the few who did not believe the game was over. Charlie hit the winning shot with 8 seconds left. I saw it on TV and still have the image of the contested shot in my mind today. I know I pulled hard for UNC to win that night but that does not prove that I was ready to attend UNC. To this day, I almost always pull for any ACC team over any non ACC team.

Writing about Charlie Scott brings up the subject of segregation. I must admit that I was very naive about race relations in 1967. I did not know black people. Our high school student body was composed of 240 white students and Roland Douthit, the only black student. I saw Roland regularly but usually at a distance. I don't ever recall speaking to him directly. A few times, I heard him speak and he was a soft spoken reserved person. I suspect he was a very brave young man. I think he felt out of place at West Forsyth High School and he was surely scared half to death at times. He got along very well with the other students at our school but I felt he risked his life when he attended a high school foot ball game or other after school function.

My best friend in high school was John Kimel. I knew his family had a black maid but I can't remember her name. I do not believe we ever talked directly to one another. The year before Charlie Scott hit the winner at Utah, John took me on an adventure. At 16 years of age, John was sophisticated relative to me. He had an extremely quick mind and a memory of sports scores and statistics like no other. When he suggested we go see Earl "The Pearl" Monroe play basketball at the Winston-Salem Coliseum, I was confused. What was John suggesting? Who is "The Pearl"? Why should we go to see a blacks only basketball game at a second rate college like WSC? I didn't ask any of those questions out-loud. John was my best friend and I was a follower not a leader; if he said let's go, I went.

It was the experience of a life-time! John and I stood out like a couple of couple of corn stalks in a cabbage patch; two white high school kids in a sea of big black people. I didn't wet my pants or visibly shake because I was numb. The coliseum was packed forty-five minutes before the game. Our seats were two thirds of the way up to the high seats if you can say that a 6,800 seat arena has high seats. The seats were in the middle of a long row and we had to step over 8 to 10 pairs of feet to get to our seats.

Continued: see Why is the Sky Carolina Blue?

OIL DATA--BOND REFINANCING--INTC--WOW!

I missed the name of the JP Morgan representative who made a great point on closing bell today. The demand for oil normally grows in line with the growth in world wide GDP. Recently, it has grown at twice the GDP. This is an indication of hoarding. Folks who believe the price is going to $80 per barrel are storing extra supplies now.

World economic growth is so strong that it will take time for supply to catch demand. However, we are not having shortages like those in the 1970's. In those days, fireplaces were lit and men chopped a lot of wood. Women crocheted afghans and set thermostates at very uncomfortable levels. Some folks even unplugged refrigerators. Service stations opened sporadically and lines formed for miles when a tanker truck arrived.

The good news is that the price will drop extra quickly when the hoards are finally used. Hoarders tire quickly of tying up cash in excess inventory if supplies are plentiful and the price is not rising.

The bond re-financing of the past few days went well. Yields dropped today after the ten years were sold. The re-financing highlighted the world wide liquidity. Companies and nations are sitting on piles of dollars. Long rates are not likely to go very high as long as there is so much cash around. Capital spending is growing quickly so pressure will be on rates but profits of big American companies are also growing quickly.

INTC--WOW! Semi-conductor companies are forecasting selling products and making profits. An upgrade of RFMD today sent the stock soaring. INTC raised estimates after the close today. The stock is up better than 2% in after market trading. The NAS 100 has under-performed all year but is showing signs of life. QQQQ is trading up ten cents in after market trading and I noticed it down 37 cents at one point today.

BIG BULL BOOM BUBBLE BUST is under-way. Invest early so you can be out before the BUST!

WHY IS THE SKY CAROLINA BLUE?

Continued: from A SUNDAY MADE IN HEAVEN

Once we got to our seats, there was no reason to sit down. The crowd was standing; swaying back and forth in rhythm to chant after chant. To this day, I don't know most of the words. The chants were repeated numerous times and I mumbled what I thought might be the words. My daughters almost die laughing when they see me trying to clap in rhythm while singing a a song. They appreciate how silly I must have looked keeping rhythm in a black chorus line. I had no rhythm, I did not know the words and I was trying not to stand out. The one chant I remember was "Can you beat S C? Hell no..ah?" I think the S C stood for state college but at the time I couldn't figure it out. My brain was literally on over-load.

I have never admitted to John Kimel how scared I was. He seemed a bit apprehensive but at least he could clap, sway and chant at the same time. We couldn't talk because it was too noisy. When the buzzer sounded to start the game, I still had no idea of the sight I was about to see.

Earl "The Pearl" was a superb NBA talent playing against a second rate team. I could search the internet to find the exact date and game but it is not really important. The name that sticks in my mind is Livingston State. Whoever it was, they did not have a prayer against "The Pearl".

There was no such thing as a three point shot; but if memory serves, Earl scored 48 or 49 points that night with most of them coming from three point range. He would have scored about 70 if the three had existed. Seeing Earl shoot made me understand the swaying of the crowd. Earl would dribble the ball beyond the top of the key with his back to the basket. He would cross-over dribble back and forth in a swaying manner. The entire crowd would sway back and forth in rhythm. There was no shot clock and sometimes he would play to the crowd and sway an extra long time.

The defender nor the crowd could guess if he would break to his left or right. When he turned, he would jump into the air and shoot a high arching one hand-er. Most of his shots were well beyond where the NBA three point line would now be painted. The crowd went wild with every shot.

For 39 years, I have hoped to see as pretty a shot. I have seen Walter Davis, Al Wood, Michael Jordan, Rasheed McCants and many others shoot sweet soft shots but none compare to what I saw that night. Earl was not know for his defense and I don't believe his field goal percentage was high. After accounting for his shots being turnarounds from 35 feet or more the percentage was very high. Watching him shoot was like watching a ballet; fluid, effortless and smooth.

A year or so later, I was aware that several of my closest friends, including John Kimel were planning to attend UNC. One day at lunch, Kimel asked if I was going to room with him; I thought for only a second and said yes. I applied only to UNC and am thankful to the state of North Carolina for its wise support of an outstanding university system. I did not do well in college until after a stint in the army.

My wife, graduated from Western Carolina University. She and I were married in 1972. We lived in married student housing in Chapel Hill from 1972 to 1975. Marilyn worked for the University Hospital and is a die hard Carolina fan. A young or an old couple with no children or ties need to try life in a university town like Chapel Hill. The town is growing too fast because once you live there you do not want to leave.

My first job after college was with Wake Forest University. In three years, Marilyn and I became great fans of the University. Many of our local friends support the local school; graduates or not. The Wake Forest experience was good, but UNC-Chapel Hill is still the special place for Marilyn and me. The love we hold for our two wonderful daughters cannot be adequately described but the time one shares with ones wife before the children come along makes memories of a life time. I recommend that folks get married and then wait a few years before having children. The waiting time makes the birth event all the more powerful as a life changing event.

Our oldest daughter, Courtney Tucker, was near the top of her high school class. Her SAT scores were 100 points better than mine. She was active in student government and participated in many extracurricular activities. She did well in college level advanced placement classes. She was not accepted for admission at UNC.

I know you have heard people tell stories about how the Good Lord looks after his flock and this is one of those stories. Courtney was accepted at her second choice school, NC State. There she received a good education and met the love of her life Jonathan W. Tucker. The two are happily married, live a good life and daily demonstrate their love for their fellow man. Can you imagine how happy I am for her?

Our youngest daughter, Whitney L. Miller, was accepted at UNC, graduated with honors and received a full recruitment scholarship to the Masters in Counseling program at UNC-Greensboro. She will graduate in December. You will never meet a more caring loving person.

I have first, second and third cousins, nieces, nephews, aunts, uncles, friends, neighbors and church family who have graduated from every ACC school. I have stored a more than 40 years of emotion in regard to these schools. For 15 years or more, I have been the driver for the group that attended Sunday's game. These close friends, all Methodist Men and all Carolina Graduates, buy my meals, a pass to the Rams Club and a good ticket in exchange for transportation. Each year, we typically go to one or two football games and three, sometimes four, basketball games.

The trips take the better part of a day giving us ample opportunity to talk about every topic under the sun. We catch up with the lives of our friends, family, church families and church. One meticulous retired CPA, one quick witted lawyer and another old fellow who is the salt of the earth and I enjoy our conversations. I count these guys as precious gem's, each a blessing to me and my family. I am the youngest of the group at 54 years of age. I know the four of us will not attend a great many more games but I value each and every trip and look forward to the next one. I hope you have these kinds of friends.

So there we were on Sunday. In a packed noisy arena on senior day. As each seniors name was called, he presented a rose to his Mother. How fitting? Who else has a clue as to the amount of time, effort and energy that was spent in preparation for this day? A successful tenure for any university student is an accomplishment; to be a successful student and athlete at a top school is a daunting task well worthy of adulation. The standing ovations died slowly and tears were shed.

Then the national anthem was played. The once noisy arena was filled with the chorus of 22,000 voices. What a privilege to live in this great and free country.

The seniors were honored again by being announced as the starting five. Only two of these players have started many games. Two have gotten little playing time. It was the most important game of the year; first place in the ACC was on the line. The emotion of the rivalry becomes almost over-whelming. Carolina started this important game with only two of its star players in the lineup. This worthwhile tradition is practiced in many an arena. It says that life is not all about winning; live is about caring. These guys contributed to the school and the team for four years, they deserved to start this final game of their career. After all, college is not about basketball but is about preparing to live ones life well.

The seniors played well but within a couple of minutes the team score was losing. This group of players was over-matched. The regular starters were substituted and the seniors were given another standing ovation; after all they played their hearts out. Young folks should be taken to at least one senior day game.

The regular starters start the game 5 points behind but the Carolina team is a good one. By the end of the first half, Carolina was winning 47-41. Half time was a time of joy and relief but the crowd to a man knew that there was a lot of fight left in Duke. Duke is coached by one of the all time greatest. No Tar Heel fan likes to admit this fact. We even like to pretend to hate Duke, NC State and Wake Forest, but in truth we love these great schools too. Not like our beloved UNC but how much fun would basketball or life be if UNC never lost to Duke or if Duke never lost to Carolina?

Only Kentucky has won more college basketball games than Carolina; Kansas and Duke are not far behind. Kentucky pulled ahead while being coached by a black coach in the past few years. This happened while Carolina was in a transition from Coach Smith to Coach Williams. I mention the black Coach (Tubby Smith) only to point out the important role played by college sports in race relations. Adolph Rupp was the long-term famous Coach of Kentucky whose all time record for games won was broken by Dean Smith. Rupp was very opposed to having black players on "white" teams. Rupp believed blacks were inferior to whites.

In the late 60's Rupp's teams were some of the best ever. Two of his big players were referred to as the twin towers. To win against Kentucky, teams had to shoot well from the outside. The two monsters in the middle made close-in shots or rebounds tough. Charlie Scott was the solution to the twin towers problem.

Dean Smith recruit Charlie to win more basketball games but also because it was the right thing to do. When Charlie came to town on his recruiting visit, Dean did not hesitate to invite him to eat at formerly all white restaurants. The owners did not dare kick Dean out. Dean practices his religion which requires him to try to love his neighbor as he loves himself.

Actually it was a black division I coach, John McLendon who helped convince Charlie that he would do well in the ACC. I am not saying that Charlie did not have confidence in his game but it required a big leap of faith to attend an overwhelmingly predominantly white southern university. When I went to see Earl "The Pearl" play, I didn't know what I was doing. Dean Smith knew how tough it would be on the first black players and he did his best to ease the struggle.

One irony is that everyone gives Dean Smith credit for inventing the four corners offense; everyone but Dean. He reports that he got the idea from John McLendon the same black coach that helped him recruit Charlie Scott. One year after Charlie hit the winner against Utah, one year after Winston-Salem State College (University now) won the Division II national championship and the same year that Charlie help Carolina beat Kentucky, race riots broke out in Winston-Salem and in many other cities across America.

Several of my friends camped out on a Friday night. We woke up early on Saturday morning and drove the short distance to the Krispy Kreme doughnut shop on Stratford Road. Yes, Krispy Kreme had been in Winston-Salem for decades prior to the riots of 1968. Seeing police at Krispy Kreme was no surprise but we were very surprised to see National Guard troops posted up and down the road. We asked a policeman what was happening and learned that the riots of the night before had resulted in a curfew. Had we arrived before dawn, we would have been arrested.

I looked at the crowd in Chapel Hill and more than 85% of the ticket holders were white. The Rams Club was populated by mostly wealthy whites. All the best players on the Carolina team are black. The head coach is white and one of the assistant coaches is black. Many a Carolina fan and many a Bulls fan has pulled for Michael Jordon as fervently as is possible. Charlie Scott, Dean Smith and others must be happy to see the coming together of whites and blacks to win a game for our beloved University.

The second half started and as expected it was an all-out cat fight. The Tar Heels played without leading scorer Rasheed McCants who has had an intestinal flu. Other Heels had off shooting days particularly from the out-side. Some of the credit for this goes to the Duke defense.

Duke plays a tight man to man defense. They put pressure on the ball and on passing lanes. The defense invites the dribbler to try to take his man to the hoop. The big problem is that the Duke defenders collapse quickly and the dribbler is often caught trying to shoot over Sheldon Williams, an excellent shot blocker, on the inside or one of the other defenders attempts to block the shot from behind. The box scores listed 7 team blocks by Duke and 3 team blocks by the Tar Heels; the scorekeeper missed a few. It was a tough day under the baskets.

Duke played tough defense and went on a 9 point scoring run until there were only two minutes and 45 seconds left to play. I must tell you that it was not easy to expect to win down 9, under three minutes. Had I not witnessed prior miracle comebacks and improbable wins by Carolina in the past, I might have given up hope. As it was, the four true blue Tar Heel Methodist turned to one another and agreed it was time to pull out all stops.

In the next couple of minutes, even with one terribly bad call against us, the Heels pulled a rabbit out of the hat. At least 6 Tar Heel players made one, two or three great plays under pressure during that last 2:45. Senior Jawad Williams got it started with a tremendous rebound and dunk. Jackie Manuel continued his great defense on JJ Redick. JJ is one of the all time greatest shooters to play the game but he scored nary a point in the second half. Raymond Felton and David Noel were instrumental in two turnovers. Marvin Williams, the freshman made free throws and a three point play when he rebounded a missed free throw and was fouled. Sean May did a lot of little things during this game.

In 34 minutes of play, he shot 10 of 19 from the field, 6 of 7 from the free throw line (missing the one that Marvin put back to make the trip a 4 point play) rebounded 24 shots including 12 offensive boards, scored 26 points and for good measure picked up 3 assists; no typo, 24 rebounds and 26 points. The heels scored the final 11 points. We won 75-73.

We had a fine trip back to Winston and stopped at Bill and Leah's on the way home for foot long hot dogs, fries and milk shakes. This group is not embarrassed to hold hands and pray for blessings. Indeed we all have received many blessings. I am thankful for the friendship of these guys and I am thankful that Marilyn allows me to leave her several times each year to be with these friends. Last Sunday was a day made in heaven! In a couple of moments, the Tar Heels will take on Clemson in the ACC tournament. GO TAR HELLS!

WHY IS THE SKY CAROLINA BLUE? Because GOD IS A TARHEEL!

CURIOUS--BLOWOFF, BLOWUP OR WHAT?

Today's market has been a curious one. Trader Mike at http://www.tradermike.net reports that he sold into the market when the NASDAQ failed to hold above its 50 day moving average. The NAS has the Great Wall of China to get over at 2100; it will need a little extra push. Easy traveling is available on the other side of the wall.

Late in the day, the DOW is down 100. The NAS is holding at down 8. An intelligent sounding CNBC guest spoke about the NAS needing to break above 2100 before the market can go higher. I did not catch the fellows name but several things he said fit the current situation well.

The oil market got the attention of traders today when crude traded above $55. By the end of the day, crude held only a small gain, so what was all the excitement about? Was it any big surprise that oil might test earlier highs? Until new power plants are built and other new supplies come on-line surely most of us expect oil to go up more.

The curious part is that the energy sectors sold off. XLE is down 1.7%. The Amex index is down. OOI and OSX are down 2%. (The airline index is only down 1.3%; a very positive sign.) Does any of this make sense? Why did oil stocks turn down when the price of oil hit an extremely high nominal price?

The answers lie with the really big losers of the day. The ten year treasury bond and a broad based real estate trust index each dropped better than 3%. These were the big movers that shook the market.

It is an old story. A GDP forecast was raised and indications are that the US economy is "too strong". Tomorrows refinance of the ten year notes, the trade deficit report and the unemployment numbers are scaring the pants off traders. The bond market is like an angry mob, ready to hang all gunslingers in town. Who is willing to hold long bonds at 4.4% when there is a risk that tomorrows numbers will indicate the economy is growing at a nominal rate of better than 6.4%?

Isn't it neat the way the market tries to buck off the weak? If you search my blog you will find a quote from Ken Fisher written during the BOOM of the early 1990's suggesting the market is like a bucking bronco trying to buck you off.

The currency markets participated in the move. Traders took the dollar down almost 1%. A 1% move in the entire US currency is a lot of money. Ironically, the decline in the dollar increased the relative value of our hard assets such as real estate. In this case, the higher rate on the long bond (which includes the implication of higher mortgage rates) is frightening to real estate holders and the the drop in the dollar scares them as well.

A reader asked about my use of the "term" BULL BOOM BUBBLE BUST. This is simply the way an economic cycle plays out. Before the economy gets strong, the stock market leads the way. Then the economy is strong. After a while both the market and the economy are strong during the BUBBLE and finally the market leads into the next BUST.

University types use the word discount to describe the way the market leads the economy. Theoretically stock buyers discount future earnings. The price one is willing to pay is based on the present value of future earnings. Future earnings are "guesstimates". Sophisticated investors rely on complex mathematical calculations but their "guesstimates" are also based on assumptions.

After the market has lead out of the recession, there is an economic BOOM. Stocks often struggle during this phase; interest rate pressures and leadership changes cause problems. Stocks that did well during the "recovery phase" will not necessarily do as well in the "expansion" or BOOM phase. In the recovery phase, there was little pressure on interest rates. Empty factories and laid off workers were available to help rebuild the economy. During the expansion phase (BOOM), capital spending is necessary; new factories must be built. Incomes rise and workers are often hired away from other companies. Inflation is a potential problem.

The BULL and BOOM last for an extended period and after a while everyone is happy. Salaries are up, corporate profits are up, dividends are up, capital gains are up and life is good. There is a party going on and free refreshments are being served. Most everyone joins the party and everyone has a few stories to tell. Some tell about the utility they bought for yield, that has doubled in price and that has a new technology that saves fuel. The real BUBBLE mouths are telling about the high growth stock that is selling at only 80 times earnings and is going to take over the world. The BUBBLE market is a volatile one. To hang on to make the big profits, traders must be willing to ride a wild and crazy market.

When the BUST finally arrives, it looks like another roller coaster bottom and lots of people buy more. After all, this stock traded at 300 last month it must be a bargain at 250 a share. The hard-headed buy more at 100 because the stock stabilizes around this price for a few weeks.

The simple and best strategy is to invest cash during a recession. By the time
everyone knows the economy is in recession the recession is almost over. The stock market will go up 6 to 12 months before the official end of the recession. One should continue to invest available cash until both the economy and the market is strong. One should scale out of the market during the BUBBLE phase in order to have cash available to invest during the next recession.

Today's market was not a Blow-Off or a Blow-Up but just a regular day in the life of the BULL BOOM BUBBLE BUST. We are currently in the BOOM phase. The market is not going to go straight up; but over-time it will go up.

COPPER IS KING AGAIN! BULL BOOM BUBBLE!

Copper was "The King of Metals" for long stretches of years. Copper was mined for about 5,000 years before Gold was discovered. It gained new luster when inventions such as the telephone, electric motor and indoor plumbing grew in popularity.

The primary use of copper is for transporting water. Everything from water pipes, sauce pans to radiators need to be made from corrosive resistant materials such as copper or aluminum. The second most often use for copper is in electronic applications. Copper conducts electricity efficiently relative to other metals. The price of copper would be outrageous today if the law of substitution had not beaten it down.

Most homes built today have a lot of plastic pipes and even communication lines are now made of glass rather than copper. These major shifts in materials are just one small part of the ingenuity of free economies to hold down prices by inventing ways to save materials. The USA has been a leader in this effort. For example, to produce $1 of GNP the USA has reduced the need to buy only 7 cents worth of energy. This is half of what it was 20 years ago!

Many investors and consumers do not realize that the price of commodities go down over-time. The cost of a gallon of gas or a bushel of corn is very low today relative to what these items cost years ago. In the mid 60's a common entry level wage was 25 cents per hour. One had to work an hour to buy one gallon of gas. The only problem with most commodities is that it takes a lot of capital to find the darn stuff. When supplies get tight, the price has to go relatively very high to spark exploration and production.

Copper is currently priced at ten year highs. The reason is that IBM, TXN and other electronic manufacturers need a lot. It really does not matter how much it costs. These companies need it and they will buy it at the going rate. When a DLP based big screen TV sells at Best Buy for $2,700, the buyer is not going to not buy because the TV would have been only $2,690 had the price of copper not gone up!

One might argue that the housing BULL BOOM BUBBLE is causing the spike in copper prices. No doubt this is having an effect but, again, the amount of copper used in the average new home is going down. IBM , TXN and others have in recent years announced changes in electronic products where the use of more copper has enhanced the speed and reliability of the products.

Regardless of the use in housing or electronics, the indication from the spike in copper prices is that we are now well into the BOOM phase of the economy. The BULL phase will continue; stocks will do well. At some point, we will move into the BUBBLE phase. On balance we are not nearly there yet. My favorite electronic stock is Texas Instruments (TXN). When semi-conductor stocks make big moves, please do not even think about shorting after a run-up. The jumps can be big.

This morning I read where , TXN's largest customer, is running a trial of "Cell Phone TV" in Finland. This product will sweep the globe in the next 5 years. Fifty percent of all cell phones will be TV cell phones within 5 years.

COPPER IS KING AGAIN! Just like oil prices lead higher airline prices, copper prices lead semi-conductor prices. Buy the Bull or the Boom but be cautious during the Bubble, you don't want to be around for the BUST!

BALANCE OF POWER HAS SHIFTED

The US constitution provides our system of government with a number of checks and balances. The ultimate power rest in the voting power of the people; the people have spoken. They have elected a President and given him unusual power.

During the first Bush term, the Republican Party held the House and the Senate but the Senate by a slim margin. The slim margin gave "veto power" to Senators who were willing to plant their feet on specific issues. President Bush was able to successfully pass a number of initiatives but it was always a struggle.

Our government was designed to move as slow as molasses. Every issue that is the least bit controversial must pass committees, two houses of congress, more committees and the President. Now that the republican majority is up to 55% in the Senate, the party is ready to pass bills.

The tort reform bill in regard to class action suits was a long time coming and passed easily. President Bush wants to make changes of historical proportion. Social Security reform and Medicare reform are two of the biggies on his list. Social Security will be the big challenge and Bush is pulling out all the stops.

I believe he will succeed and I believe he will be remembered as one of the great presidents of all time. Success will not be won easily and the fight will likely last until at least October 1, 2005.

In the mean-time, smaller less important but not inconsequential bills are moving forward. Reform of the bankruptcy law has been needed for many years. Bankruptcy laws have driven up costs to American companies and American citizens. The new bill will encourage folks to negotiate at least a partial payout of debts and will slow the spin of the revolving door. There is bi-partisan support for reform and the republican controlled senate is ready to vote. The house leadership has said they will pass a clean bill quickly.

Abortion rights leaders just lost a vote in the senate. Do you see the how the balance of power has shifted? Instead of passing a bill in the house and then having to horse trade in the senate, the senate is now able to pass a bill and let the house "confirm" the bill. I am not saying the house is a rubber stamp. I am simply saying that the filibuster power in the senate is not nearly as strong as it was when the majority ruled by one vote.

Speaking of power, have you noticed the move in the 10 year t-bond. The yield has jumped 45 basis points in a month. For five years in a row, yields have been high or moving to high ground during the first half of the year and then moved down by the end of the year. Stocks have typically had their best runs in October thru December.

One forecast of GDP in 2005 was revised up to 4%. If this economy continues on this strong path, even state governments that have struggled to balance budgets in recent years are going to be flush with cash. Roads will be built, oil wells will be drilled and power plants will be built. Companies like Fluor, Ingersoll Rand and GE will do well.

The bond vigilantes are clearly prepared to keep the BOOM in check. A terrorist attack could up-set the apple cart but the recent news out of the Middle East has been on-balance out-standing. The BALANCE OF POWER HAS SHIFTED. Syria has gotten the word that the US and Europe are on the same page. Iran now understands that there is much to gain by working with Europe and America. Russia has thrown around its weight a little but all industrial nations know it is in the best interest of all to keep the pressure on the terrorist. The BALANCE OF POWER HAS SHIFTED and President Bush is using power to improve the lot of the world.

INDIA NUKE ON LINE--SO WHAT!

The India Times reports that its completely indigenously made nuclear power plant went on line yesterday. This is an accomplishment. It was just five years ago when the first pour was made. The plant is on-line 7 months ahead of schedule. India has 8 more plants under-construction and there are a total of 24 plants under-construction world wide.

There are also good reasons for the words so what in the title. This plant will save about 8 million barrels of oil in its first year of operation. The world consumes 83 million barrels of oil every day. This plant will save just a drop in the bucket.

In the US, we have 103 nuclear plants on-line. There are 441 operating world wide. Most of these are twice as big as the new India plant but many are near the end of their useful lives. The US produces 20% of its power by nuclear facilities and France produces nearly 80%. The French plants were designed to produce until 2010.

At the current price of oil, gas and coal, nuclear is the way to go. The high capital cost is the chief deterrent to nuclear. When one factors in heath and environmental concerns, nuclear wins by a country mile. People talk about the health risk of radiation but 500 times as much naturally occurring radiation bombards us daily versus what has ever been leaked from nuclear plants.

Pollution is a serious problem. To abate pollution quickly, we need to help poor nations to stop burning wood for fuel! Second we need to replace as much fossil fuel burning with nuclear energy. One uranium pellet which is about the size of a stack of 5 dimes, is the equivalent of 1,800 lbs. of coal!

China, a very large country, produces 1.8% of its electricity with nuclear fuel. China has four more nuclear plants under construction. By 2010, China will be producing 4% of electricity with nuclear fuel. Again, you can see that any one plant is only a drop in the world wide demand bucket. If we want to make a dent in the price of oil, we need to get started drilling, digging and constructing and we need to continue to improve our usage efficiency.

On Kudlow and Company tonight the gains we have made in the efficient usage were reported. We have made significant improvements; a 55% improvement in the past 20 years. One guest talked about how today's refrigerators consume 1/3 the energy. It is interesting that folks take about savings without mentioning the substitution effect.

The law of substitution is simply to powerful to ignore. The energy required for my Mom to pop popcorn was many times the energy required in a microwave oven. The walls in my parents den contained many board feet of wood. They were nice but really not nearly as good in a number of ways as my walls today. My walls save me hundreds of dollars a year in heating costs and yet they contain a relatively small amount of wood.

The bottom line is that a free country with free markets will continue to innovate to reduce consumption. We must also support the construction of new supply. If you really think coal is the way to go then support it. If you think drilling in Alaska or off the continental shelf makes sense then support it. If you think we should do nothing but conserve, then count on some cold expensive winters in the years ahead.

In my opinion an attitude shift is needed and is in the works. Nation after nation is calling for specific measures to be made. The Middle East still has a lot of oil but democracy is taking hold. Some of these 300 million poor folks are going to gain wealth and become consumers of oil. US Senate leaders have promised a permit to build a Nuclear plant in America within 5 years. Again, only a drop in the bucket. We need to follow India's lead and get 10 plants under-construction at a time.

As investors we should consider purchasing big manufacturing and construction companies such as GE, ABB or FLR. If you are going to have to buy $3.00 gas, you better make some money.

FASTENATED WITH GOOGLE

I know very little about computer programing and indeed I know more than I want to know. However, it is fascinating to learn the power embedded in Google.

Perhaps the most important thing about Google is that management is trying to leave the doors open to allow others to connect as many programs as they like. Google wants to be partners with millions or even billions of web users. To this end, Google offers services without charge and gives away code so users can adapt the web to fit their needs.

As best as I can understand, what is about to happen is that many web applications will be designed by thousands of programmers. One can already find hundreds of short programs available for free on the web. Consumers are beginning to see benefits.

Consumers no longer need to pay Microsoft big bucks for a spell checker, because in the blink of an eye, Google will scan the whole page and highlight questionable words. I am typing this message on what in effect is a Google word processor. I have the expensive Microsoft Word program on this machine but I use it less each day.

I understand that thousands of users have found neat tricks they can program into Google search features. Maps are good examples. Users are building directories of neighbors, class members and other groups with maps that show the locations of all members. Companies that are not real sure about what they think about the Autolink web features are busy building links all over the place.

Guru.net made news today out of old news when it announced AdSense links on its answers.com web site and RealMoney.com agreed to purchase a small search company. Yahoo is said to be buying a photo program that will compete with Google's Picasso and Yahoo will soon start a competing contextual advertisement program.

I sense a good market for Yahoo and Google in the weeks and months ahead. A number of short-term traders are making the mistake of taking profits in energy positions. Unless they get lucky, they are not likely to get back in much lower than today's prices. I don't think the average young person appreciates the enormity of the energy problem. It will not go away quickly. However, the market is like the ocean tide. When the tide comes rolling in there will be big waves and little waves but you can't stop it. Traders do not want to be left behind. They may jump off the energy wave, miss the next surge and then jump on the internet wave again as it starts another good run.

I'm holding onto my oil drillers and my Google and my Yahoo to name a few. I'm not letting go of my railroads, airlines or discount brokerage firms either. I have lightened up on interest sensitive stocks such as banks and retailers but then Sandra identified JAS as a nice retail play.

In the mean-time, I will continue to try new Google services as they come available. My toolbar is filled with Google buttons. I have used the movie search the video search, the stock quotes, the thesaurus, the spell checker, the news, the site search, the desk-top search, the university search, Picasa, Blogger, Gmail and the autolink. I have been a Yahoo owner for a long time. Yahoo has more sources of revenue and some neat tricks in its bag. Yahoo is great but Google is special. I am FASTENATED WITH GOOGLE.

BUY YOUR STRAW HATS IN THE WINTER TIME

I mentioned the name Bernard Baruch a couple of times and a reader says she never heard of him. Bernard was born in 1870 in Camden S.C.. He was rich at 30 years of age through shrewd investments in the stock market.

He served his country in a number of ways including helping to negotiate the peace at the end of WWI. He was a highly respected good man, a philanthropist. A university business school bears his name. I looked up a few details through the Columbia Encyclopedia as posted at www.bartleby.com.

It has been 30 years or more since I read his favorite saying. A member of the press had asked him to tell the secret of his success. He immediately replied, "Buy your straw hats in the winter time". I can't remember where I read about Bernard, but the idea has stayed with me. The idea has helped me to become a successful investor; it will help you do as well. Just remember that if everyone is excited about a certain stock or sector, it is almost too late to buy.

Another great investor I have mentioned from time is Jesse Livermore. Jesse was perhaps the greatest trader ever. His main idea was a little different from Bernard's. Jesse would shop carefully to find an out of favor good value that seemed to be making an upturn in price. He would commit 20% of his normal position size to the security and then wait. If the stock went up, he would buy another 20% and repeat until he had 100% invested. If the stock went up quickly, he might put the last 40% or even 60% into the stock but buy this time he had established a decent profit. Once onto a good stock, he was not afraid to ride it for as long as the business stayed strong. If the stock went down, he figured he had made a mistake. He would sell the position and look for another stock.

During the tremendous BIG BULL BOOM BUBBLE of 1912 to 1929, Jesse made a huge fortune. He became so widely followed that if word was out that he had purchased a stock 1000's of copy-cats would jump-in. He learned to be secretive about what he owned because he did not want to "taut and run". Near the top of the BIG BULL BOOM BUBBLE, Jesse realized the market was over-priced. He sold shares and sold shares short making another fortune as the market crashed. After the crash, he was despised by many. He was forced to operate out of an office a distance away from Wall Street.

One should consider adopting parts of the philosophies of both men; buy out of favor securities to get the best price; don't try to buy at the absolute bottom; average up on successful buys; dump unsuccessful purchases quickly; be generous with your good fortune; and, BUY YOUR STRAW HATS IN THE WINTER TIME.

VONAGE IPO SHOW ME THE MONEY

In case you don't know, companies issue stock for the first time when they think they can get the most for it. If you started a successful company you would not want to sell shares unless you could get a lot for them. When the market for new shares gets hot, it is amazing how much the market will pay.

The problem is that for every successful purchase of IPO shares, there must be scores of unsuccessful buys. The persons who bought in early on all big companies you can name probably made a small fortune. Examples are easy to find. The buyer of General Motors in 1919 made 2,200 percent in less than 10 years. The buyer of Microsoft made about 25,000 percent in 16 years. The buyer of Yahoo, April 12, 1996 doubled his money the first day and after adjusting for splits holds shares selling for $33 for which he paid $1.38, about 2300%. The Amazon buyer in 1997 has $1.50 per share basis in a $35 stock,also about 2300%. Buying a market leader seems easy in hindsight. I am getting old and my mind is blank but with just a little research, I could name hundreds of IPO's that went busted. Many of these names you would not recognize.

Some of the IPO's are successful for a very long time but then flame out later. Krispy Kreme is an example. By the way, rumor has it that Warren Buffet may buy shares in Krispy Kreme. I must digress to repeat the story of Warren Buffet and USAir. In 1989, USAir was in financial trouble (this sounds like an airline stock story already). The company needed to raise cash and the banks said no way. Mr. Buffet cut a deal. I don't remember the exact terms but the common stock was selling for about $20 per share and paid no dividend. Warren purchased 358 million dollars of preferred stock paying 9.25%. The purchase price was something like $21 per share. The preferred shares gave Warren three huge advantages over the common share buyer. The 9.25% dividend was not a small consideration. Even better, the preferred put Warren in front of the common shareholders in the event of bankruptcy. Best of all, the preferred was convertible to common at par! Warren Buffet could hardly lose (in one of his annual reports to shareholders he told how close he came to taking a substantial loss on the stock).

I don't remember the exact dates but during the recession of 1991, USAir almost went bankrupt. The stock traded between 3 and 5 dollars a share for a long time. Around that time, Warren cashed out a very profitable deal with Solomon Brothers and to reduce his tax hit he wrote down his investment in USAir. The write off by Buffet was reported widely and a lot of folks believed that Buffet had sold his USAir at a huge loss. Some of the Buffet copy-cats who purchased the common for $20 were sorely disappointed and sold their shares for around $3. I remember some of this story very well because I told several brokers that the write off was a paper entry only but they sold their stock anyway. One broker in particular screamed at me, what difference did it make, Buffet had lost all his money anyway.

I watched the stock carefully and when it broke out above $6 I purchased shares. About 5 or 6 years later, I sold my shares and a soon thereafter it was announced that Warren had converted and sold his shares. At the time of the announcement I believe the price was around $61 and I believe the peak price was around $65 (you many know the stock has filed bankruptcy twice in the past 3 years).

I did not make the maximum off the stock but I'd take a dozen more trades like that one. The point is that it takes a long time to turn around a troubled business and sometimes the business may need to cut a deal or two to survive. In the current cycle, the airlines have been in trouble three and a half years. Several have gotten their costs under control and revenue miles are growing at a steady pace. The problems in the airline business are closer to the end than to the beginning and I have purchased shares in four carriers.

Krispy Kreme still has a long way to go. If Warren Buffet makes a deal, including a high dividend security backed with company assets, I will not be in a rush to buy common shares that do not offer those substantial benefits. On the other hand, if Buffet buys, it will serve as a signal to me that Krispy Kreme is a stock to watch. My confidence in the companies survival as a public company will have been boosted.

Vonage is the fast growing internet phone company. It has taken the lead and will fight Comcast Time-Warner and many others in its attempt to remain the market leader. The business is ready to explode. Vonage has 400,000 subscribers who all save considerable sums relative to their former phone costs. We have reached the 1% on the product life cycle S-Curve and the next 10 years will see dramatic growth.

The current relatively small group of owners and the underwriters are eager to bring the stock public. The day the stock trades publicly is the day the founder is an instant Billionaire and it is the day huge checks are written to the underwriters.
These folks are not foolish. They have already been waiting a couple of years. They are waiting for a "hot" stock market. The excitement is building. Stocks have been doing well for three years but not to the point of being a "hot" market.

I plan to buy shares. I just made a ridiculous statement in the eyes of many because the number of shares or the price has not been determined. However, I have used the product for a year or so. I have signed up my Mom, Brother and Sister. We are all enjoying savings and extra services. The competition is fierce but Vonage has lead the way so far. I am willing to bet that the company is a fast grower for years to come. It is a speculation that I am willing to make with a set amount of dollars.

Ironically, I will start to pull back from my aggressive investment stance after the I purchase the Vonage shares. For a time after the purchase, other companies will look cheap relative to Vonage. In truth, in a "hot" market, most stocks are no longer cheap. When Vonage says, SHOW ME THE MONEY, I am likely to invest, but I will give up a number of other stocks about that time and say SHOW ME THE MONEY!

HERE HE COMES TO SAVE THE DAY--MIGHTY MOUSE IS ON THE WAY

New oil is coming. Attitudes are changing. The Governor of Virgina has let the Chair of the Senate Energy Committee know that Virginia has reversed its earlier stance. The Governor says he will support drilling in the continental shelf off the coast of Virginia. He wants a larger cut of the earnings but, still, a major shift in attitude.

The Senate is toying with the idea of attaching ANWAR drilling legislation to the budget resolution. The budget bill only needs 51 votes and cannot be filibustered. How big of a stink will the democrats raise when their constituantes are paying more than $200 a gallon?

Around the globe, there are many other potential new sources of oil. The current price even supports production from the huge tar sands of Canada. ConocoPhillips (COP) has made numerous deals with various countries to increase production.

Will Mighty Mouse get here in time? In the 1970's, it took a long time to "catch-up". In those years, it took decades to design and build a nuclear power plant. The new, smaller, reactors are being constructed in five years in China and elsewhere. As in most things in life, the problem is solved as soon as there is an attitude shift recognizing what needs to be done. Mighty Mouse in on the way but be prepared for high fuel prices the next few years.

GOLD HEDGE WORKING!

On a day when the stock market is a sea of red, it is nice to have the gold hedge working. The XAU Gold Index is up 2.85% today. I put on the hedge February 23 and it has moved along with the stock market break out. The move, in 13 days, of 77% could disappear quickly; options are very volatile securities.

The most interesting action today is in Texas Instruments (TXN). TXN has been a great stock to own the last several weeks. The semi-conductors were sitting on two year bottoms with improving balance sheets and improving fundamentals during the hot, hot, hot time in energy stocks. The move so far, could turn out to be small in hind-sight. TXN announced slightly lower guidance yesterday and the stock was hammered in after market trading. By market opening, Bear Sterns for one, was recommending to buy the shares on weakness and the stock is holding at down around 68 cents per share. I hope to never forget the big move in semis in the early 1980's. You have never experienced fun until you have participated in a hot semi-conductor market.

The guidance was a little curious anyway. So what, sales of big screen TV's were a little weaker than usual during this normally slow time of the year. The explosion of digital screens is still about to happen. Again, there is a lot of red on the tape today. But NOK, TXN's biggest customer is up!

The most important moves today are the 70 plus basis point moves in the long bonds. The big move up in oil, the small move in the dollar and the big move in interest are inter-related. The recent strength in the US stock market is consistent with a very strong economy which is consistent with a firming dollar, weak long-term bonds strong oil prices.

I have participated in a number of recent discussions about soaring commodity prices. These discussions are all fine well and good but most of them miss the most important point which is, prices are up because business profits are so strong! This should be common sense but many folks get caught in the trap of overly sophisticated explanations.

Again, the answer is simple. If the price of oil were actually too high, people would stop buying so much! If it were too high, businesses would stop buying so much! My family has owned Yellow Freight (YELL) for maybe 15 of the last 20 years. We have consistently made money in the stock. The past three years or so have been extra sweet. The stock is trading near all-time record prices. Yellow buys a lot of diesel fuel but profits are at record levels. Don't tell me the price of oil is too high and don't tell Yellow Freight.

Certainly Yellow and I take care to buy at the lowest price. But give us the choice of buying gas for $1 a gallon during an economic recession or depression or paying $2.50 in an economic boom and we will both choose $2.50. I agree with many that the price of oil will continue to climb until nuclear power plants and other supplies come on line. The reason is that the economy is in a long-term boom.

In one of the discussions, a couple of participants blame the speculators for the high prices; no way. Texas is awash with wild-cat speculators drilling for oil. These speculators are putting millions on the line to find new sources of oil. I agree that speculators (all around the world) are involved in the oil spike, but their speculation will ultimately relieve price pressures not add to them.

The price is up because of very strong world-wide demand. For years, the government of China has had to restrict the usage of oil and electricity. A fifty million kilowatt power plant came on line a few months ago and power is still scarce. Fourteen nuclear power plants are in design or construction stages in China. A second fifty million kilowatt plant is scheduled to come on line in a month or two.

S&P 500 company profits are so strong that the trailing earrings yield, as reported by Barron's Online is 4.5%! Do you want to own a bond yielding 4.5% including a promise that it will never pay more than 4.5% or companies earning 4.5% with a history of always making more over the life-time of a long bond.

The gold hedge is working for a couple of reasons but the big one is that the world-wide economy is strong. Even countries like Germany and France are experiencing increasing industrial production in the face of high unemployment rates.

THE BEAR IS DEAD; LONG LIVE THE BULL!

Is Decorating A Nightmare? Help is here!

STOCK OF THE WEEK
Martin Luther King weekend of 2005, the Asbury Sunday School Class at Maple Springs United Methodist Church enjoyed a long weekend at Myrtle Beach SC. The weather was not the greatest but the company was the finest. The homeowners association had contracted for renovations to the buildings hallways, few people other than class members and family were in the building so we took advantage and turned the long hallway into a bocci ball court.

We had a great time, playing games, taking walks on the beach and visiting restaurants, outlet malls and other venues in the area. Better still, we got to know one another all the better. The most enjoyable time was a joint Sunday School session. We sat where we could watch the waves roll into the beach while participating in a wide-open discussion. The young and old participated. As a sentimental old fool, I cried.

Chuck and Sandra Kupsky made the trip with their delightful daughters Emily and Megan. Instead of a long introduction, I will simply state that these are "good folks"; the kind of people you want to get to know better.

Sandra and I learned of our mutual intense interest in investing. We both hunger to do as well as we can and we know we need to learn all we can. Sandra was thrilled to know that I have been writing about the market. She really liked my idea to post a "Stock of the Week" as a way to build a monitored portfolio on the web. We decided to work together to learn more and to share what we learn.

In the weeks after the Myrtle Beach trip, Sandra and I have been working. We have spent much time screening, re-screening and re-screening for the best stocks. The criteria we used included criteria that has worked for us in the past and criteria that is supported as valid by volumes of research. After a little trial and error, we have decided that I should do the screening until we get down to a list of 40 to 50 selections and that Sandra will do the "nitty-gritty" work required to choose the final weekly selection.

The following article represents much work. We have not invested in the company, but we expect to buy shares. We confess to be amateurs. We study the markets because we enjoy learning. We write for educational and entertainment purposes only. Nothing we write should be considered investment advice. Should you invest, the risk is yours and yours alone.

Is Decorating A Nightmare? Help is Here!

Turn on the Home & Garden Network any time of day or night to get tips on all your decorating needs. Program after program help a novice decorator like me in their creative decorating endeavors. That got me thinking, I can watch a variety of Home Decorating Shows on how to "set the mode" of my home, but where do I go to find the "stuff" I need. In searching for a "Stock of the Week" (SOW) I discovered Jo-Ann Stores (JAS). JAS is celebrating its 60th anniversary. It is the Nation's Largest Fabric and Craft Retailer with locations in 47 states.

Jo-Ann Store was founded on a single retail store in 1943. As of January 31, 2005 the retailer operates 851 stores, 114 are superstores. Averaging 35,000 square feet, the- "Create-It-Yourself" Superstore generates almost four times the revenue of their traditional store and houses a variety of competitively priced merchandise used in home decorating, sewing and crafting projects, including fashion & decorative fabrics, notions, frames, scrap booking material, florals, home décor items and seasonal merchandise. The company offers customers like me the choice, quality, style and support needed to pursue the passion of creating beautiful things. For additional information, visit Joann's.

When Alan Rosskamm was 10 years old, he spent his spare time in his Grandmother Hilda's store, straightening thread racks and folding fabric remnants. Today he is president and CEO of the nation's leading fabric and crafts retailer. He is the third generation involved in Jo-Ann stores, Inc., continuing the legacy of vision, quality & service.

The year 1995 marked a turning point when Jo-Ann opened a 45,000-square-foot test store, adjacent to its Cleveland headquarters, stocked with every imaginable creative item to "serve and inspire creativity." The store became the pilot for the larger format Jo-Ann Superstores. Their traditional stores average approximately 14,400 square feet. The Superstores offer an expanded and more comprehensive product assortment than their traditional stores and generate four times the revenue and approximately 30 percent higher sales per square foot. The current Superstore prototype averages 35,000 square feet. Management believes their Superstore concept represents significant opportunity for future sales growth.

With the Fourth Quarter earnings released Monday March 7th, Alan Rosskamm believes they are on the right track. The stock has been trading near its annual high of $30.18. He is pleased with performance in a year when the focus was on the long term strategy of converting to the Superstore format. Seventy-two traditional stores were closed or a total of 1,036,800 square feet compared with the opening of 29 Superstores or 1,015,000 square feet. Assuming the Superstores generate 4 X's the revenue and approximately 30% higher sales, 40 new Superstores planned this year should deliver continued earnings growth. Rosskamm is planning a more aggressive program of Superstore conversions in future years.

On January 13th, Jo-Ann announced plans for the third distribution center to support continued growth. Ground will break in March on a 700,000-square foot center in Opelika, AL to support the key southern states of Florida, Georgia and Texas. The distribution center is expected to begin shipping to stores April 2006. The new center will create about 425 jobs, making Jo-Ann one of the largest employers in Opelika, a city located just outside of Auburn, Ala.

Tony Dissinger, senior vice president supply chain management and logistics said the
Alabama center will reduce transportation costs and will speed delivery to the southern stores. The other two distribution centers are located in Visalia, CA and Hudson, OH.

Joann.com gives customers 24-hour-a-day access to creative projects and products. The site is designed to be a resource for sewing and crafting enthusiasts and offers content that is informational, trendy, inspiring and fun.

I also like the company because they demonstrate strong moral values. For example, Jo-Ann Stores, Inc. partners with customers and employees to raise hundreds of thousands of dollars annually to donate to national federated social service and charitable organizations such as Save the Children Save the Children.

From one 1400-square-foot store in 1943 to almost 900 United States locations today-employing more than 20,000 people-Jo-Ann Stores, Inc., has not only witnessed a creative explosion in sewing and crafts, it has helped inspire it. With 60 years experience, I believe Jo-Ann Stores is a company that strives hard to enrich our lives with the latest high-quality products from around the world, by helping us find and express our creativity every day, and by providing the ideas, inspiration and advice to help our projects succeed.

It would have been nice to have gotten our report finished last week before the earnings announcement, but we took the time to select the company we like the best. Besides, who can complain about the outstanding quarter. Earnings rose 21% to 32.4 million dollars, $1.40 per share.

Note also that we selected a contrary play. You will find few brokerage houses "pushing" retail stocks at the current time. Just remember that Barauk was correct when he said about a 100 years ago that the best time to buy your straw hats is in the winter time.

Also please note that same store sales were up 4.3%! In retail, same store sales is the metric you want to be strong.

Happy decorating!

THE BEAR IS DEAD!!!

My brother-in-law sent pictures of an Alaskan Grizzly Bear, the largest ever recorded. The bear was shot a number of times. The picture above is of a US Forest Service worker and the bear. The story is retold below.

The worker was deer hunting last week when the large grizzly bear charged him from about 50 yards away. He emptied his 7mm Magnum semi-automatic rifle. The bear dropped only a few feet from the worker. The bear was still alive so the worker reloaded and shot the bear in the head several times.

The bear weighed just over one thousand six hundred pounds. It stood 12' 6" high
at the shoulder, 14' to the top of his head. It's the largest grizzly bear ever recorded.

The Alaska Fish and Wildlife Commission took ownership. The bear will be stuffed, mounted and placed on display at the Anchorage airport. It is hoped it will serve as a warning to tourists of the dangers in the wild.

Based on the contents of the bears stomach, the Fish and Wildlife Commission
established the bear had killed at least two humans in the past 72 hours including a missing hiker. The US Forest Service, backtracked to find the hiker's 38-caliber empty pistol. Not far from the pistol was the remains of the hiker. The other body has not been found.

The hiker fired six shots hiting with four (the Service found four 38 caliber slugs and twelve 7mm slugs inside the bear's dead body). The first four shots only wounded and angered the bear. The bear killed the hiker two days prior to the bear's death.

An average sized person facing the upright bear would look at its navel. The person would look the bear in the eye only if it walked on all fours!



It is a shame that the bear was killed but under the circumstances it was necessary. I hope you enjoyed reading about a bear on a stock market blog. It was interesting that the story arrived the day after the stock market broke to three and one-half year highs. I believe that we are in a bull market that is a continuation of the digital information technology innovation bull of the 1990's. THE BEAR IS DEAD! LONG LIVE THE BULL!

GOOD MORNING! GREAT MARKET!

My aggressive stance is being nicely rewarded this morning. My aggressive portfolio has reached another all time record high. What a move in the NASDAQ 100! It is almost doing as well at the airline sector! (100 up 1.86% and air up 1.88%) The NAS is playing catch up to the recent big moves in the big stocks. Of my top ten performing stocks this morning, two are airlines (DAL and CAL) and the other 8 are techies!

Please note that the market is back "in the pattern". The pattern of a lower dollar, a higher gold price, a lower long-bond rate and higher stocks. As best I can remember this pattern has been in force most of the time since October of 2002. I did not take the time to look up the numbers because the start is not important; the end is. Since no one has ever shown the a high degree of economic clairvoyance, the best option for us all is to follow the trend; the trend is your friend; never fight the trend.

I read a number of studies Saturday. I focused on studies of inflation through the decades. The USA had very low inflation when I was born in 1950. The average birth date of all baby boomers was 1952. Inflation rates climbed until the average baby boomer reached 29 years of age. My parents and millions like them tackled and won the fight to raise and educate their children. By the time the youngest of the boomers were in college, inflation rates had soared.

Laws were changed to dig-allow the deductibility of consumer interest and inflation rates have declined ever since. When the average baby boomer reaches 58 years of age, he will have lived half his life during times of rising interest rates and half his life during times of declining interest rates. The pattern will have gone full cycle by 2010.

A friend reports that his friend is having no success selling bonds. This friend has sold bonds for 20 years but can find no takers now. No wonder the stock market is moving. Billions of dollars are piling up in short term debt instruments because the public is afraid to commit to even modest durations. Wow! Bond rates must still be high! Is inflation going to average less than 2% like it did in the 1950's? Is the long-bond going to settle to 3.5% or less? Are home mortgage rates going back to 4%?

Probably not right away. In fact, rates will probably inch up in this very strong economy. After the next peak in stocks, (my guess is around 2009), you might want to be very careful. Indeed the FOMC may have to fight de-flation, after the next peak. I have written about this pattern before, the first great bull market in the 20th century ended with the great depression and the second great bull market ended with the great inflation. Generals tend to fight the last war. At the end of the next peak, the FOMC may make the mistake of fighting inflation when they should be fighting to avoid depression.

In the mean-time, the trend is up. If you always catch the long middle part of the trend, you will do well. I among many others have suggested the end of the long decline in interest rates is near. So far, we have all been wrong. The good thing about being fully invested in stocks is that being wrong about the bond market has been a blessing. We are currently at a point seldom reached. That is the trailing earnings yield on stocks is higher than the 10 year treasury rate. You are getting paid well to own stocks that tend to grow the yield over-time. You are being paid less to own bonds whose yields do not grow. Buy stocks and be happy!

COMMODITY PRICES--A TEMPORARY SITUATION

Many a blogger has recently started a thread or two in regard to inflation; a very important topic. A lot of confusion exists about the current inflation rate. China, India and other developing nations are bidding up the prices of materials. The bidders add much relative value by processing the materials with low cost labor. They then offer the finished products to consumers. Because the bidders are the low cost producers, consumers happily buy. The goods are being sold at prices that help the bidders improve their standard of living and yet the consumers get to buy goods at low costs. This is a win-win situation.

Good points have been made at BlogginWallStreet.com. The following is a copy of my response to a number of issues.

Jack Miller said...

Commodity prices always go up in the early phase of a strong economic cycle; the CRB spiked in the early to mid 1990's, new production was ramped up and prices came down. The stock market went up for several years after the peaks in commodity prices.

There is only a temporary shortage of copper, iron ore or crude oil, but, you don't get more by flipping a switch. Demand in developing nations is relatively huge. Developing nations now use in total almost as much oil as the developed nations. China produces only 3 million barrels of oil per day and is suddenly having to import 6 million barrels per day. When a huge country grows its GDP by an average of 10% for ten years, you better believe the demand for oil will have grown.

It takes a long time to develop a new mine or oil well. After an expansion in the world wide economy, the first new wells or mines do not add to the net supply because the growth in demand is faster than the growth of supply. Gradually the rate of demand growth slows and supplies gradually catch up. Until it does, increasing prices cause conservation efforts but these also take time. The 40 horse-power Smart Car, not much bigger than a golf cart, is sold out at inflated prices while GM offers $17,000 rebates on full-sized Cadillacs; GM is finding few takers.

The first step toward rationalizing supply and demand is for suppliers to believe that expansion is wise. They have to be sure because it makes no sense to build a 100 million dollar mine only to find prices below the cost of production by the time the mine is ready to produce.

Just like interstate highways. These highways are both the most "profitable" and the most expensive for the governments. A few years ago, a game of political football was played over the 28 mile stretch of interstate quality highway needed for Myrtle Beach SC. Eventually the road was built at a cost of 400 million dollars. It will eventually pay for itself many times over. However, it costs 2 million dollars a year in new gasoline taxes just to pay the interest. The vacation travel economy is very strong but it would have been almost as strong with or without the new highway. The costs of these highways are so large that you normally see significant bottle-necks before a new highway is built.

What company is going to build a 100 million dollar copper mine on speculation that the price of copper might go up? How long does it take to build a coal fired electricity plant? Also, remember that after adjusting for inflation, the prices of commodities go down.

We constantly invent ways to use less material or to substitute cheaper materials. The walls of homes have been improved in many ways but the amount of wood in my den is a fraction of the wood in my parents den and a smaller fraction of the wood in my grandparents' homes. Only a few years ago, all phone calls traveled on copper wire. Then Corning learned how to process sand correctly to carry a thousand times the volume. The cost of transmitting voice and data over fibre-optic cable is a fraction of the costs of copper lines and there is an endless supply of sand on the earth.

The State of S.C. saved over 100 million dollars on the construction of the 28 miles by using modern construction techniques. Millions of Americans are moving to coastal communities to live because they work from their homes over the internet. If you can work anywhere, why not work at the beach. A significantly larger percentage of those who commute via the internet are happier with their jobs. These commuters spend less on food, gas and more.

Inflation rates have been on a downward trend since the late 1970's. Interest rates have been on a downward trend since the early 1980's. The trend is your friend; learn not to fight it. After adjusting for the substitution effect, the average price of the average good purchased in America by the average consumer went up 1.6% last year. The bond market supports the concept that inflation is going lower. The ten year treasury yield is about 4.3% even though the economy grew at 4% last year! The last time inflation rates were consistently below 2% was the early 1950's.

It was the congress not the FOMC that opened the doors to world wide trade. The fact that wealthy Americans are choosing to buy at reduced prices from China, should not be blamed on the FOMC. All of us are wealthy relative to the Chinese. No one needs to take the blame anyway. Free trade is a good thing not a bad thing. The Chinese and the Americans have both netted huge benefits from the liberalization of trade.

There is no set limit on the number of commodity contracts; people sell contracts short everyday and only a fraction of total production is normally under contract. The size of US trade with China has only a positive influence on inflation. The unit cost of production in China is lower than here. Prior to the free trade, Americans paid much higher prices for these huge volumes of goods. Inflation is measured as an index of many items.

If a consumer buys $100 worth of items at Wal-Mart, that would have cost $200 without free trade and if the consumer spent an extra $50 on gas, then he would have saved a net of $50. His inflation rate would be negative.

I am typing this response on an extremely powerful computer relative to what was available 5 years ago. A computer with this power would have cost $1,000,000 15 years ago. It cost me $1,200 two years ago and I can replace it tomorrow for only $500. The $500 replacement machine would be so powerful that it would have cost me $5,000 or more two years ago. Indeed, many of the features were not available at any price 15 years ago. Twenty five years ago, long distance telephone calls cost $1.25 per minute in today's dollars. Today long distance calls are free through internet phones.

Stop to smell the roses, low inflation rates are all over the place. The spike in commodity prices is a relatively temporary phenomenon. It is based primarily on supply and demand and has little to do with speculation. Besides, the asset class to buy when there is relatively low inflation is stocks. Buy stocks before the next legg of the bull market gets underway.

Larry Kudlow Blog Discussion

There is no doubt that Larry Kudlow is an eternal optimist. In the current economic environment, he has every reason to be. The interesting thing is that his detractors seem to be blinded with contempt. They choose to ignore the economic boom and they truly believe the sky is falling. The following is a copy of a reply I posted to one of them on Larry's blog.

Jack Miller said...

To Howard: What if?

What if you were poor, hungry and unemployed? Would you not take a job for the going wage? The standard of living in China has risen dramatically since China joined the WTO. The deal has been outstanding for China and America. Just as good as the deal made between the orange grower and the wheat grower; both parties won.

Make a show, tip all you want and tell the world about your largesse. The lucky employees on the cruise ship will appreciate it. But, also, have a little compassion for the truly needy of the world. Please don't whine because a poor man has landed a job that allows him to feed, cloth and shelter his family. I have seen the shanty towns in the Far East. Believe me; those who are not our "wage slaves" would like to be.

What if the downward inflationary trend, which started in 1982, continues? Will we soon average the inflation rates of the 1950's? From 1952 to 1958 the GDP deflator averaged less than 2%, economic growth averaged 2.9% and unemployment averaged 4.7%. There were brief or mild recessions in '54 and '58. I don't have the productivity numbers but I am confident that today's incredible numbers are much better. Maybe current bond rates are high! Maybe rates are exactly where they should be.

There are powerful disinflation forces involved. A recent survey of workers shows 55% are happy with their job. Seventy-six percent of workers who are full-time telecommuters are happy. In addition to the benefit of happiness, these workers consume much lower amounts of fuel and other resources. They work an average of 2.4 hours more per week. Billions of people are better off today than they were a year ago. You are probably one of them. Don't worry; be happy!

THAT'S WHY THEY CALL IT A MARKET

From what I can gather, Bill Cara is a smart, experienced and successful market trader. I have had his site http://www.billcara.com book-marked for a couple of weeks and try to read it daily. The following is a copy of a post he made today.

Flashing across the TV screen is the CNBC message: "Breaking News". On screen, there is Maria Bartiromo, just beside herself in excitement with Dow 10,950. And, I'm surprised Dylan Ratigan is going along with the skit.

Ladies and gentlemen, you are being subjected to the same hype job as the CNBC crew went through in late 1999 and early 2000, right at the top of the last equity market cycle, just prior to the bursting of the Internet bubble. They didn't get it then, and they're not getting it now.

What they'll call this one is anybody's guess. One thing I do know is that this is all about greed, plus a little too much cash in the system sitting atop inflated expectations, put there by you know whom.

These histrionics are too much for words. New York doesn't need a theater district when it has Ft. Lee across the Hudson.

CNBC people ought to be licensed, so the lawsuits could begin in a couple months. And anybody on the buy-side who really is following their lead ought to be committed.

That's my take on it anyway.

BCara@BillCara.com

Clearly, Bill and I disagree about the current market. Maybe we are both partially right. I believe the next big top is still a few years away. I am hopeful that today's action was the start of a break-out. I do not need huge numbers to be happy but I am quite optimistic for the earnings outlook. Not like the last two years but at least the same direction. The streets numbers are too low. Seven percent growth in this economy; no way. Probably double that or let me have a little wiggle room at 12 to 15% on the S&P 500.

Obviously, if one needs 12 to 15% to be happy, it does not have to happen in March. Bill is probably right. The talking heads have boring jobs and have to get excited about something and everything. This sideways market has worn out a number of traders and announcers alike.

On the other hand, the history is that some of the best stock market moves ever have started in years when earnings slowed after one or two great years. Perhaps the most positive news of all today was the response of the US Dollar to the numbers.

Yep, down again. There has been a lot of talk about a real estate bubble. It is not here yet! It may still be a couple of years to the top. The resumption of the fall in the dollar may lead to the real bubble. This time it will not be the Japanese purchase of Pebble Beach that marks the top. I read a statistic somewhere last night and failed to write it down. Correct me if you know the number, but I believe 36% of all homes sold last quarter were second homes!

A friend of mine just made $184,000 on a pre-construction deal on which he never took title! The next many months the stock market should go along for the ride while investors buy and flip or buy and hold second homes. If the template holds, the stock market will peak a year or two after the real estate market peak.

THEY SAY THAT BREAKING UP IS HARD TO DO

They say that breaking up is hard to do....


I beg of you, don't say goodbye
Can't we give it just one more try
Come on baby, let's start anew
'cause breaking up is hard to do.
(posted with apologies to Neil Sedaka and Howard Greenfield)

The past few weeks I have played these words on the i-pod stuck deep in my skull at least a hundred times. As the Dow Jones Industrials and the S&P 500 have teetered on the brink of a 4 year break-up, I have been too hopeful. Ken Fisher's piece some months back in which he called for a "melt-up" maybe has influenced me to stir the stew too often. The break-up is coming. My guess is the sideways market cannot last much past summer.

The payroll numbers this morning were just about perfect. A strong number of new jobs with soft workweek and wage gains. Numbers that show the economy continues to grow at a fast clip but no so fast as to raise inflation fears. The price of oil is high enough to provide the market with the proverbial wall of worry to climb.

The Dow and the S&P are fighting to stay above three and a half year peaks. The stock in weak hands is gradually being consumed by strong players. With just a little push, the break-out could be singing a loud tune next week.

Breaking up is hard to do. I will be disappointed if this move is not the start of a significant break-up. However, I can be a patient old cuss. I will keep on buying stocks until I see a good reason to replace them with bonds or cash. Bonds are priced higher than maybe 900 years out of 1000 and the best time to hold cash is if inflation is running unchecked.

For now, I sing the same old song but it will have a different meaning when this trading market is gone. (An I'm sorry to the Four Tops) I may be singing a new song next week.

FREEDOM-PRODUCTIVITY-EMPLOYMENT

WHAT'S NOT TO LIKE?

Freedom?
Freedom is in a worldwide break-out. Productivity continues to confound the prognosticators. Economic growth just keeps on rolling along. Interest rates are very attractive to home-buyers, businesses and other consumers. Employment is strong but not too strong. Inflation is tame.

I absolutely loved the Pat Olipant, Universal Press Syndicate, political cartoon this morning. My guess is that 9 times of 10 Pat attacks conservatives or conservative positions. His two favorite targets are George Bush and Condoleezza Rice. This morning was a picture of one tiny little flower blooming in the desert with Arabs in traditional dress backing off, drawing swords and suggesting to "Stand Back-We don't know how big this thing's going to get!" It was even nice for his little side bar to be "Not very, given your track record".

The negative little comment shows that Bush may go down in history for doing the impossible. Freedom is breaking out in the Middle East. The Lebanese people crave democracy. The Palestinians want a home state. The Iraqi people demonstrated by the thousands against terrorism last week.

Productivity?

Nervous Nellies jumped on the lower productivity numbers a week or two ago. The word was that inflation is now roaring back or that the economy is really not as good as reported. The recent revision shows that productivity continues at a strong pace. Not as strong as the unprecedented levels of recent years, but better than 2%. At a 2% productivity rate, the average worker produces twice as much as his father. Think of the options; should our nation desire, we could produce the same goods while reducing the work week to 20 hours. This will not happen but it is a good way to appreciate the benefits of productivity. Americans will likely decide to continue to work about the same hours while enjoying a higher standard of living.

Employment?

February jobs as reported this morning were up 262,000. Of the increase, 20,000 were manufacturing jobs. The report shows the beginning of the end of the hysteria about our current account deficit. Those Billions of dollars accumulating in foreigners hands are being spent on capital goods manufactured in the good old USA.

Better still no signs of over-heating in the job market. The surveys "jobs hard to get" or "jobs are plentiful" show there is plenty of room for more job growth.

Inflation?

The most serious inflation we are seeing is inflation of asset values. Real estate, stocks, bonds and commodities have all gone up in value. I am not going to cry because my families biggest asset, real estate, is moving up in value at a steady clip. Stocks are selling at high price to earnings ratios but I see average earnings growth of 15% this year!

Commodity prices are simply a reflection of the strong demand created by a strong economy. The economy is strong because manufacturing resources are plentiful, inflation is low and projected to be low and interest rates are low.

For anyone to suggest that inflation is high, the person must be the equivalent of the blind man who felt the elephants truck and declared that an elephant is like a snake. Sure the price of oil is up, while the price of long distance phone calls are dropping to zero. Sure the CRB is near long term highs, while electronic gadgets are getting cheaper by the minute. If a corporate executive were to awake from a 20 year nap, he would have a hard time believing that individuals have Million Dollar computers sitting on their desks.

The three components of inflation are resources, labor and capital. A few of our resources are currently in tight supply demand squeezes, there is little inflation anywhere else and indeed the Personal Consumption Deflator reads 1.6%.

The bond market has confirmed the reports again today. The ten year treasury yield traded down to 4.33% after the jobs report today.

Superb Poker Player?

I do not know if George Bush is a poker player or not. If not, he would do well. As Commander-In-Chief he has played several strong hands well and he has bluffed a number of hands. As President, he is playing the congress like a fiddle. The senate was not willing to pass an energy policy last year and has lined up to use energy as a negotiating tool. Bush has called the bluff again and again. Bush is angling for the big fish. He hopes to pass a social security reform that will be of great benefit to future generations of Americans. If representatives and senators want to play a game of chicken with energy Bush is willing. I believe in the prediction of republican senate leaders that a nuclear permit will be issued in the US within the next five years. The game being played is a very tough game. Bush has a whole extra deck of aces up his sleeves. I would not bet against him in regard to energy, tort reform, social security reform or even democratic freedom for large portions of the Middle East. What's not to like?

BUSINESS WEEK ONLINE--WELL SPENT

Many thanks to Amey Stone, for posting my comments in regard to the airline business. The following is a copy of my follow-up response.

"Thank you for posting my comments. As a regular reader of Business Week for 38 years, it was a thrill to see my name in print.

For my children’s accounts, I have purchased shares in CAL, DAL,NWAC, and AMR; spreading their risk but making substantial investments. Revenue seat miles are in positive trends and of course sentiment is close to rock bottom. CAL just negotiated $500 million in annual cost reductions; better than $7 per share! The numbers are large indeed. Any company that loses $16 Million in a quarter and then negotiates $500 Million in annual savings has made a significant score.

I agree with the premise of Maynard’s article. Balance sheets are terrible and liquidation of one, two or three carriers would be the salvation of the remaining players. However, brinkmanship is a way of life for these extremely leveraged businesses. The survivors will quickly make enough to pay-off the lawyers and creditors. The UAL lion financing will be Debtor-In-Possession Financing. My lawyer and accountant friends tell me the lenders can’t lose."

By the way, I am a
Carolina Blue Tar Heel from North Carolina. I’ll be in Chapel Hill, NC at 4:00PM Sunday to watch the Tar Heels beat Duke, clinch first place in the regular season ACC race and prepare for a run at the national championship.

Calling me a South Carolinian was an easy mistake as my family and I own resort rental properties at Kingston Plantation, Myrtle Beach SC.

I will post this response on my site tomorrow. One of the postings on the site shows the positive relationship of oil prices and airline stock prices. While it is true that fuel is a significant expense for the airlines, it is also true that the demand for fuel is only strong when the economy is strong. In a strong economy, airline ticket prices go up much more than enough to pay for the higher fuel costs.

BLOGGIN WALL STREET

www.blogginwallstreet.com is another of the informative sites I enjoy. The following is a response I posted to a thought provoking article about Social Security.

The change being proposed is not to do away with social security. Social security will still provide a safety net. Allowing the young to invest 4% of their payroll taxes as they wish and the other 8% in the social security "annuity" will simply reduce the sting.

The sting is that the fund has been over-promised and over-spent. The young are the ones who are destined to pay the difference. Social security was sweet for my grand-parents. They paid minor amounts into the system for a year or two or three (one made only one lump sum payment that he got back the very first year). They received payments for as many as 33 years. They did not need the payments but they were freely given and accepted.

My parents each paid in for about 30 years. The pay rates were very low; as best as I can remember about 2% in their early years. Dad made enough that his with-holding stopped by mid March. Social security was a good deal for them; Mom and Dad collected for 19 years and Mom is continuing to collect a handsome dollar relative to what she paid. The rest of us are faced with the fact that the value of the current balance and the estimated inflows are not enough to provide the same benefits to the next generations.

Yes, the system can be “fixed” in any number of ways. My favorite is to leave the initial payment as the current formula but to index benefit payout growth to the inflation rate. This method spreads the reduction in benefits very thinly to all over the entire time each person receives benefits. The pain would be almost non existent.

The only real problem to the indexing plan is that it starts slow, picks up steam and eventually leaves the politicians with another huge windfall! Give the congress a windfall and there is little doubt that it will be spent wastefully. The congress operates like the fellow who wins the lottery. It is amazing how quickly the winner of a $30 million lottery is broke. Found money is always worth far less than earned money.

.Americans are generous people. We believe in the “social” side of social security. Many of us contribute as is needed to food banks, shelters and many other charities. Leaving 8% of ones income in a safety net system is plenty. Many families who routinely contribute 10% of their income to churches or charities find that 18% is a big number.


The irony is that the wealthy, who understand the power of compounding long-term returns in stocks and bonds, avoid allowing the poor to invest. As smart, wealthy investors, we proudly insist that the little guy needs our help. Therefore we “force” him into making massive payments into a low performance “safety fund”.

Massive is the correct word. A high school drop out, who never made more than minimum wage, but put 12% of his pay into stocks and bonds for 40 years would retire at 58 years of age as a wealthy man. Instead we force him into a retirement of less than minimum wage.

THE CAPITAL SPECTATOR

The Capital Spectator is a thought provoking site edited by James Picerno. James offers valuable information and insights to the markets; especially the bond markets. Few stock jocks follow the bond markets closely enough. Stocks and bonds are linked at the hip.

To maximize ones investment returns, one needs to invest heavily in stocks most of the time. One needs to keep as little in bonds as one can stomach. One can cut ones risks by keeping a relatively fixed percentage in stocks and in bonds all the time and rebalancing when ether position out-grows the assigned percentage. The total returns over time will be reduced in such a balanced portfolio but the account value will not hit extreme highs or extreme lows. Many an investor can sleep better at night knowing that in a recession bonds typically go up in value as stocks go down in value.

The investor who wants the highest probability of becoming very wealthy needs to invest all-in in the stock market and to stay all-in. Furthermore, he needs to automatically add the maximum investment he can afford every month. This investor will ride a very steep roller coaster and he is prohibited from seeing the bottom of the hills. It will be extremely hard for him to stay in his seat just before the bottom of the steepest hill is reached.

Relatively few investors are disciplined enough to truly stay with the balanced approach or the all-in approach. Many more balanced investors come close to maintaining their discipline. Of those, many are so risk averse that they leave piles of money on the table by routinely investing too heavily in fixed income vehicles.

Modern portfolio theory says that as the stock market reaches extremes, the sophisticated investor reduces or increases stock exposure as would be indicated by the direction of the extreme. The evidence consistently shows that when a really strong bull market comes along, investors of both persuasions over-commit late in the cycle and get burned. When a really bad bear arrives both types are likely to reduce stock exposure significantly near the bottom and they then miss the explosive move off the bottom.

The irony is that while research shows market timing is extremely hard, both investor types constantly work at timing the market. Like so many things in life, it is good to openly profess ones weaknesses and strengths. I work very hard trying to be a great market timer.

For many years, the concept that the market is too efficient for anyone to out-smart was believed by many a university professor. The concept first proposed by Burton Malkial was called the Efficient Market Hypothesis or EMH.

I have never believed in the EMH because there have always been at least a few investors around who regularly beat the market. I personally choose to move heavily into bonds when I believe bonds are the best place to be and into stocks when I believe they offer the advantage. In other words, I stay fully invested in stocks and bonds most of the time and in only one or the other at major extremes. The only time I raise significant amounts of cash is when I believe there is seriously high inflation ahead.

At the current time, I believe the over-all inflation rate will rise modestly over the next few years. The inflation rate should prove to be strong enough to significantly reduce bond returns but not enough to hurt stocks. At the current time, my stock-bond portfolio is 100% invested in stocks (I own significant amounts of real estate and a relatively small amount of gold and silver). My stock portfolio includes oil drilling stocks, "heavy" businesses such as railroads and one gold mining stock. I own many other positions but I point out the "commodity" positions to show that one can immunize ones stock portfolio to help off-set the inflation risks.

I plan to write an inflation--deflation piece over the weekend. Among other things, the article will say, if the price of oil is up strong and the price of electronic equipment is down strong, then the over-all rate might be quite modest. A strong economy with modest inflation is as good as it gets for stocks.

This started out to be a thank you note to James Picerno. I do appreciate the ideas and information he shares. His thoughts in regard to the on-going debate about the dollar helped me add two and two about the Euro-dollar strength. The following is a response that I wrote on his site.

TIGHT EUROPEAN MONETARY AND FISCAL POLICY

My theory of Euro-dollar strength is simple. The French, Germans and probably other Euro countries have been trying to realign their employment laws. They have each had some recent success. Examples: the French finally changed laws restricting workers to 35 hours max per week. The Germans have scheduled reductions to ultra liberal unemployment insurance.

To bring about change, the administrations put their hammers down. The Germans accepted a recession as the cost to bring change. The central bankers kept short rates higher than US short rates. Naturally money has flowed to where rates are highest.

China is almost a red herring. Lots of talking heads make a lot of hay but China, an under-employed nation, which was allowed to join the WTO. Since then, China has sold goods freely and of course expanded rapidly. The fact that China is receiving many dollars and reinvesting many dollars is expected since the US economy is strong and re-inflating. Of course the US is buying heavily from the low cost producer.

With tight fiscal and monetary policies in place, the Europeans simply are not buying as much from China as is the US. Fewer Euro-dollars in--fewer Euro-dollars out!

What do you think?

OIL UP--AIR UP MORE

A few moments ago, the Standard and Poors Energy SPYDR (XLE)was up .89%. Not nearly as much as the price of crude; London trading closed up 2.6%. Crude is making a run toward all time record prices.

Guess which has gone up a bigger percentage the past two years, $XAL or $WTIC? The airline index or the West Texas Crude Index? Guess which is up the most today?

I know, it is a trick question. Two years ago, the airlines were in a deep hole. I would bet that few folks-amateur or professional-know that oil and air trade together more likely than not. The strength in the price of oil is actually a positive indicator for the airline business. A couple of traders said today, the sentiment is so negative that it is time for a bounce. The fact is that load factors and revenues are increasing. Losses may not be as great this quarter as projected.

My response to the high oil price today was to buy more air. If you have read my previous post, you know that I have bought "the big four", CAL, DAL,NWAC, and AMR;. Yes it takes a lot of Moxie to buy these. Yes a fire cracker popping in an airport anywhere might be enough to send all of these tumbling. One should only invest with money one is prepared to lose.

As an non-paid amateur investor, I make no recommendations. I spend a lot of time writing in the hope that I will help someone. I hope someone will make money without paying high commissions and fees.

I hope you think it fair for me to ask you to send my info to a friend. I believe my life has been spent learning about the markets in order for me to share with others; I know other bloggers will read my blogs and not refer me to others how ever, if you are not a financial blogger, please do not return to my site unless you are willing to occasionally "pass it on".

1929--1969--2009

The number 40 is special. At least three people have thought so; Moses, Noah and Jim Stack. Noah may have gotten the best deal of the three. It rained on Noah 40 days and 40 nights but at least he had a roof over his head. I appreciate that he was in a boat for 40 days with at least 1000 animals and three sons and that there must have been a lot of manure to be shoveled. I'll take 40 days on most any cruise (I hate them; leave me on dry land near the ocean) over losing 90% of my assets or 40 years in the desert.

Noah wandered in the desert for 40 years because a whole generation needed to pass before the people could enter the promised land. Jim Stack figures a whole generation has to pass after a true stock market crash before the next generation is ready to enter. Jim runs a grizzly old site called bearmarketcentral.com. Jim says that after the stock market collapse from 1929 to 1932 a whole generation swore they would never buy a stock again and indeed many of them never did. Only a few folks were willing to take advantage of the incredible bear market bounce from 1932 to 1937. By the 1950's a whole new generation started investing. After solid returns for 19 years, most of them got suckered into going all-in by 1969. I got lucky and caught a bounce or two and came out ok but the bear market that ended in 1974 was not a pretty sight.

One of the charts I remember from this era showed the savings and loan bankruptcies. Prior to this debacle the vast majority of home loans were made by building and loans which came to be known as saving and loans. There were more saving and loan bankruptcies in 1973-74 than ever before or after. (The industry was not totally wiped out but came close to total annihilation in the savings and loan scandals of the late 1980's).

The good news is that we are still 4 years away from 2009! To make a fortune, you must pay attention to what happened before 1929 and 1969. In both cases we had a beautiful bull market. In both cases the beautiful bull had to stop, catch its breath, graze for a couple of years, add 500 pounds and then charge ahead for the second half. In both cases, the second half of the bull made the first half look like a billy goat market.

A good fellow and good friend, Bill Leinbach, a successful broker for more than 40 years, loves to tell stories of the 1960's bull market. It has been 20 years since he had me and others rolling on the floor with stories I only wish I could tell. Bill bought Xerox before lunch one day, sold it after lunch, took the rest of the day off, bought his wife a new car with part of his profits and was in bed making love by 4:30 in the afternoon. (Forgive me Bill if I have butchered the story, I always thought you exaggerated a little but the charts prove the market was a lot of fun.)

It is impossible to understand all the effects significant events have on a markets behavior. It often takes hindsight to gain understanding. For example, when Kennedy was shot, November 22, 1963, "everyone knew" the stock market was going to get hammered the following Monday. Almost everyone of that generation can remember the scene of Lee Harvey Oswald getting shot by Jack Ruby. This is natural partly because the scene was replayed on TV only 50,000 times. The market was closed on Monday but re-opened Tuesday. How many folks remember that the stock market made its biggest one day move since the 1930's?! How many folks remember that the Dow Jones Industrial Average hit an all time record high two weeks after Kennedy was shot and that the market didn't hardly take a breath until 1969?! (A good read: The Bear Book, John Rothchild.)

Folks like Papa John (my Dad), who did very well trading Xerox, Control Data, Burroughs Computer and other "Nifty-Fifty" stocks in the 1960's, did not like to talk about the stock market of 1969 to 1974. I never learned how badly he was burned but his attitude reminded me of his WWII service. He saw things during the war that he did not like to talk about. As always, there were a few that caught the bear market bounce of 1971-72 but most of those went all-in to catch the worst of 1973-74. Papa John was a resilient old cuss and he was able to get back into the market and participate in the big bull boom bubble bust of the 90's but many walked away from the 1974 market to never come back.

For many more folks, the collapse from March of 2000 to October of 2002 is too fresh to even consider buying now. These folks have already missed a nice move. A bull that has paused for a little while. This bull is grazing, putting on weight and getting ready to make a big charge (I figure it will charge at least by November 1).

Back to the Kennedy assassination. The economic conditions were ripe. Kennedy had successfully passed a significant tax, he had jaw boned inflation down (this time it was the price of steel that had gotten out of hand) and the bull had been grazing for two years. Only about half of the businesses had adopted the new technologies during the first half of the bull. The second half of a big bull boom bubble bust stampede was ready to go the only thing it needed was the classical wall of worry to climb. Who knows; Kennedy probably would not have increased government spending nearly as much as Johnson so the bull may have taken a zig, a zag or both along the way, but the market was ready to explode no matter who was president.

The parallels between the mid bull slow downs of 1919 to 1922, 1961-1963 and 2000-2002 are striking.

In the first great bull of the 20th century, the invention of the car assembly line in 1914 created prosperity and a market that would not quit; but in 1919 it did! The boom had caused prices to zoom; one industry in particular, the oil business, needed to catch up.

My great grand-father took advantage of the situation and bought 40 acres of land in Texas. Two weeks after buying the land, he sold half the mineral rights for the same price he had paid for the whole 40 acres. In other words he got all 40 acres of land and half the mineral rights as a "finders fee". Isn't it amazing how smart a move one can make one day and then mess up big time only 2 weeks later? He traded a fortune worth of mineral rights just to get his original investment back quickly. Isn't it easy to be critical of a man who was one of the smartest of his generation? The fact is that he, his children and grandchildren received a healthy stipend from his smart move. Even now, I get two small checks each quarter. Had he had the wisdom to have invested the check for half the mineral rights into anyone of the companies that became General Motors (Pontiac Motors etc.), I would really have a story to tell you.

The only problem I have with his oil well purchase is that families were too big in those days, my ownership is equal to three tenths (I inherited one tenth and bought the inheritance of two cousins) of one sixteenth of one third of one half of my great grandfathers share. Great-granddad only got one eighth to start with because the oil company kept 7 barrel's of every 8 to pay for exploration and production costs. In other numbers, I get about 2 hundredths of the oil revenue produced on this land and the well is about played out. My grandmother who owned a share 3.3 times the size of mine, received $700 a month during many years when that was a lot of money. I own about 4 acres of land 30 miles north of Dallas that I have never seen. I pay local taxes of about $600 per year and my checks total less than 25% of the taxes. I plan to post a picture of me, my family and my oil well in a few months.

Back to the "real" story. After about half the families had purchased cars, the market stalled. It took a little company that became known as General Motors to figure out that trade-ins should be accepted and installment financing should be arranged. The second half of the bull market became known as the roaring '20's. Even those, who made the "mistake" of buying General Motors in 1919 before the mid-bull bubble busted, made 2,200% on their investment by 1929. Calling the purchase of General Motors in 1919 a mistake is like calling my grandfathers purchase of an oil well a mistake and it is like calling the purchase of EBAY in January 1999 a mistake.

Same story, different characters in the 1950's and 1960's. The computer and other high tech inventions increased productivity dramatically which is another way of saying the inventions increased weath dramatically. (Productivity is my favorite word and we have lots of it in our current economic environment). The market was on a great run but prices got out of hand. Steel was in great demand and the industry tried to raise prices sharply, Kennedy used the bully pulpit to convince the industry that it was in its best interest to squeeze profit margins rather than customers. The adoption of the computer still had a long way to go and technologies like the Xerox machine was sitting in the same place the radio-TV-cell phone sits today. And yes, the P/E ratios were just too high!

Marty Zweig and many other knowledgeable investors have lamented that one needs to be extremely careful when P/E ratios get too high. However, if one steps back to take a long view, it is clear that P/E ratios stay too high for a very long time during a big bull boom bubble bust. In the roaring 20's the roaring 60's and the roaring 90's, the P/E's really did get too high and there was a major correction in each case. After the correction, P/E ratios were still too high! Even during a time when the majority of folks will not touch the market, there are wise old owls who recognize they are in a bull market and they hold the market at high P/E ratios.

At any auction sale, prices only go down so much until the market makers out bid one another. The relatively few big buyers are stong enough to hold at these levels. Latter on, when the crowd shows up, prices soar. Investors are confused. The majority are holding record levels of liquid assets in a combination of savings accounts, money market accounts and fixed rate instruments of some type. Those who are investing in equities are crowding into the foreign markets. The world markets have out-performed dramatically but remember the whole world is arbitraged. To put it in biblical terms the foot bone is connected to the leg bone and so on; the world market cannot walk off and leave its head behind (too far). Huge amounts of money are invested in 10 year bonds that guarantee a maximum return to maturity of 4.4%! It does not matter that 4.4% is well below the averages for a couple of thousand years. Investors on balance are too scared to enter the market.

At least a couple of the bloggers that I read and respect have made an issue of the fact that the sentiment is too bullish. This measure is of those that are in the market. The fact is that you can't get the majority of the people to even discuss the stock market right now. (The long term put-call ratio is actually pretty positive.)

The bottom line is that if you buy the big bull boom bubble bust, one day, you will tell your grandchildren about it. If you wait until the bubble phase is reached, when everyone is getting rich but you, you will have to tell your grandchildren about the bust.

FREEDOM IS ON A ROLL

The picture in today's paper of Iraqis protesting terrorist was worth a thousand words. Lebanon's recent actions show that democracy is ready to spread. Syria is clearly trying to avoid provoking the US. Even France is giving up on some of it's socialistic ideas.

The next big trade agreement that needs to be passed is called CAFTA. With its passage a free trade zone would be passed for all of the Western Hemisphere. The benefits to all countries would be large.

The congress surprised all by passing class action tort reform quickly. The democrats want to be able to make the case that they have supported Bush when he should be. From now until late August and maybe until October, the democrats and republicans will be playing a field position football game. Pushing social security reform over the goal line will determine if the 2005 game is won or lost. The democrats have shown a willingness to trade a little to improve their red-zone defense.

National events may give old George an extra pass receiver or two. Some really good things could happen in the Middle East. On the other hand, a weak domestic economy could help pass tax cuts or make the previous tax cuts permanent.

Many have learned not to underestimate Bush. Bush is on a roll as is Freedom.

TWO TALL STRAW MEN

Lindsay Graham and George Bush have used the possible solution of solving the social security problems with an increase in payroll taxes as a Tall Straw Man. The strategy has worked well. A few months ago, Americans in general thought little about the need to revise the plan. Now, individuals are writing editorials saying the plan needs to be fixed and the way to do it is to tax the rich. Others are writing that the way to fix the plan is not to raise the taxes but to do something else.

David Broder, one of the TV talking heads and an editorialist for the Washington Post, is promoting the democratic Tall Straw Man. Most of the budget cuts Bush proposed were in broad categories of services. Broder takes the spending caps proposed and applies them to specific programs to make it sound as if Bush is stealing from the widows, orphans and single mothers. The attempt is to gain leverage for the horse trading ahead.

The democrats want the public to be so upset about budget cuts that they will fight harder to "save" social security. Bush wants to pass reform and is willing to trade off with special interest as might be needed to get the more important task done. Polls are showing a wax and wane pattern. The public is now more concerned about budget cuts and more aware that something must be done to "save" social security.

Obviously both sides believe they can "win". I am a biased republican. My economics and business background and my republican bias make it clear to me that reform is a "win"