Bloomberg.com: U.S.

Bloomberg.com: U.S.

September and October represent the first back to back spending declines by American consumers since the recession of 1990! The news should give the FOMC a lot to think about.

It will not bother me if the FOMC tightens a bit too much at first and has to back-track later. "Nipping inflation in the bud" is extremely important. A wage-price spiral is the last thing our country needs.

The reality is that inflation is not very bad but there are a lot of folks who are focused on short-term problems. The perception of inflation can lead to more inflation so raising short rates a little too much can serve "the greater purpose".

David Altig Director of research at the Federal Reserve Bank of Cleveland,and David Taylor/ a hedgefund manager support my theories.

I have spoken with confidence that the price of oil is going to come down. However, I have never been sure that there will not be at least one more solid surge to test the nerves of the market. Another quarter or half point by the FOMC may be more than enough to level out supply and demand for oil until new supplies are available.

Reuters Business Channel | Reuters.com

Reuters Business Channel | Reuters.com

Upside down and backwards again. The strike against Royal Dutch in Amsterdam may cause fuel prices to soar and crude prices to drop!

Today's sharp drop in crude may have related to the the strike but then again the airlines did so well that it appears that jet fuel is coming down as much as crude.

Perhaps even more telling is that Eurpean nations are currently willing to take a strike to bring down labor costs. German, French and English strikers have been met with strong management resistance in recent months. Coal mines have been shuttered, the French have accepted longer work weeks and Germany has elected a more conservative government.

America may enjoy the availabilty of the Amsterdam crude that may be reoffered on the world market. The decline in foreign currency reserves suggest that the decline in oil prices is not over.

Today was a great day for CAL, AMR and LCC and a rough day in the oil patch. The answer to the question, which sector will be hitting peak earnings 5 years from now seems obvious. One should buy stocks based on projected future earnings not based on current earnings.

Om Malik’s Broadband Blog — » Are Bandwidth Mergers Enough?

Om Malik’s Broadband Blog — » Are Bandwidth Mergers Enough?

Om Malik is one of my favorite bloggers. He covers Google and other broad band companies nicely. The link below is to his most recent article about LVLT. He makes it sound as if companies like Comcast and Google will build their own fiber networks even when a company like LVLT is sitting on the nest egg. I suspect that LVLT will be taken over at some point. Everything Om relates shows that the demand is growing rapidly.

Tonight, NBC announced that its nightly news will be available on demand over the internet anytime after 10 pm. I would have liked for the announcement to have been that it will be available starting at 7 but this is the first of many such announcements. Being able to search old news programs will extend their usage and value.

Sending a 30 minute newscast over the internet is on the order of sending 500 thousand emails. SBC did not buy AT&T and VZ did not buy MCI for the long distance business (a dying business). These companies were bought to secure the networks. I do not own LVLT as I am concentrated in 8 stocks. However, if I were not willing to put so many eggs in one basket, LVLT would be in my basket.

To me, this is a story of the survivor living to thrive. There is such a small difference between the last of the bankrupted firms in a down-turn and the one that made it. CAL and NWAC are great examples. The two firms were not so different before NWAC went belly up. Now there is a world of difference. My family lost money on NWAC but has already made up the loss on CAL, with a lot more room to go.

LVLT by taking over the Williams network, LVLT has out lived the patience of a well to do company. Williams as I recall is a profitable oil pipeline company that built a fiber network along its right of ways. I remember that CSX railroad and others tried to take advantage of their right of ways. It is like the consolidation in cell phones, where too many players could not make money but the survivors did well.

LVLT and WilTel together can cut cost and increase revenue with no capital costs. When LVLT catches some traffic it will be able to hold it for longer distances and the same when WilTel catches traffic. The bargaining position is strengthened. Comcast, QCOM, Google, AOL or others may come to call.

There is much overlap in the two networks. The reason it makes so much sense for LVLTto acquire is that the takeover cost of one carrier was in competition with the other. LVLT may have paid up a little but now it is in the position of being the only provider available in these markets.

No one seems to have the maps of the QCOM, Google, Comcast or other networks. I am sure each firm is guarding the maps well. Of course, MCI and AT&T were bought because of the size and capacity of their networks. Google understands that Moore's law works in regard to traffic costs in addition to storage costs and computing cost. Google is flying ahead as if the costs will be virtually nil in a few years.

Traffic growth is going to be huge, traffic costs is going to be very small relative to advertising revenues. The jury is still out on the question of will there continue to be monthly usage fees (would you enjoy not getting a phone or internet bill?).

THANK YOU JIM CRAMER!

I don't care who you are, if you ever say something will never happen, you are never going to be right. When Jim Cramer, wrote in his book that one should never own an airline, I became convinced that airlines were approaching a wonderful time. A few weeks ago when Jim, continued to reiterate that he would never own an airline, my resolve was increased.

The example that I like to use of never saying never is when the fellow told me in 1981 when the prime rate was at 21% that it would never reach 6% again. I bet the fellow $1,000 of my money to $10 of his that the prime would reach 6%. On the day it hit 6% in 1986, I showed up at his house and bet him that down town real estate was ready to make a tremendous comeback. He knew I was there to mention our bet and fell into the trap again of saying that down town real estate would never be as strong as it was in the past. Not long ago when I said that the per barrel price of oil would eventually drop below $30 another fellow said it will never happen. He is already rethinking his position.

Thank you Jim Cramer. Like many who are willing to make short term calls, I expected you to capitulate on the call some day. I was surprised at how quickly you did change your mind but then it is also interesting to see how quickly JP Morgan, Lehman and other big houses have changed their tune.

It is hard to resist buying into an industry that has righted itself 29 years after its regulatory protection was broken. Indeed it has been a rough 29 years. Now the good years are starting. Like a phoenix rising up out of ashes, the surviving carriers will make boat loads of money. By the time UAL, DAL, NWAC all emerge from bankruptcy as significantly smaller carriers, AMR, DAL and LCC will have picked up valuable routes and gates.

The age of shopping only for the lowest priced seat is gone. Folks now need to latch onto available seats or they may have to go to Timbuktu before circling back to their destination.

Again, not to pick on Jim Cramer but he often proves that no one is always right and he needs to learn that never is a very long time. In about 5 years, many folks will look back and say that they thought about buying CAL when it was selling at a price to sales ratio of .08 but just could not bring themselves to pull the trigger; what a shame!

GOOD NEWS AND BAD NEWS

Good economic news is often bad news for the stock market and vice versa. Many things are "up-side down" when it comes to news. For example, peak oil stock earnings right now suggest that earnings can only get worse in future years. Peak refinery profits will lead a competitor to build a new refinery and suddenly profit margins will decline. Yesterday, Trinidad announced the start of of a large methanol refinery. Methanol is used mostly in solvents and paints. The important point is that natural gas in Trinidad is now being exported to the USA as methanol, thus reducing the demand for natural gas in the USA.

The economic statistics gathered by the conference board include leading, coincidental and lagging economic indicators. The "bad" economic news is that these indicators are going down. The leading year over year change in the leading indicators is approaching zero fast. Coincidental indicators are headed down to the 2% area which implies the GNP is slowing to a 2% growth rate. Even lagging indicators have turned down.

These weak or "bad" indicators for the economy are potentially great news for the stock market. The indicators suggest that the FOMC will stop raising short term interest rates soon. Companies generally have an easier time making profits when interest rates are low.

Today, the "good news" was that real GNP grew at a 3.8% annual rate this past quarter. This is a strong number. It was boosted by a low GNP deflator number. According to the government figures inflation even in the face of rising energy prices was relatively low. Indeed, the largest component of inflation, labor costs, were up at an annual rate of 2.2%. Those who argue that energy costs show that inflation is out the roof must recalculate; crude has dropped 15% and inflation is therefore negative in the past month.

The favorite inflation indicator used by Chairman Greenspan is the core PCE deflator which indeed was negative last month. One of may favorite inflation indicators is to divide the CRB Futures Contract by the 10-Year Treasury Futures Contract. By this measure, inflation is projected at 2.9%. However, there are a number of indications that CRB Futures are topping out and ready to head down at a rapid pace.

NOW I'M TALKING GOOD NEWS FOR STOCKS AND BONDS! If indeed CRB Futures trade down, the markets could see a significant bond market rally and an even more powerful stock market rally. The 10-Year bond is currently at a high rate relative to its average of the past two years. It is at a low real rate if you, as many folks do, use the CPI as a deflator. If you use Greenspan's favorite, the PCED, real bond rates are extremely high.

Folks the world is not black and white. There are opinions on all sides of the inflation question. Barry Ritholtz has made it his quest in recent weeks to prove that the government numbers are flawed and that inflation is much worse than what is reported by the government and what is indicated by the market.

Investors who are seeking alpha, above market performance, are in effect attempting to be smarter than the market. I and other make that attempt often. It can be a humbling experience because there is always important information that the market knows that any one individual investor does not know. I do not believe in the Efficient Market Hypothesis but I do believe that if you can't see why the market believes something then you don't have all the information you need to attempt to achieve alpha.

Blogger's are selective about which data they present. Barry has been able to pull out much data to show inflation is worse than the 10 year treasury and the 10 year TIPS suggest. I think folks misunderstand the deflator concept. Perhaps I misunderstand as well. The way I see it is that if a person stops taking the daily news paper because he now reads so much of his news on the internet the deflator is effected. The person might have been paying for broad band internet, a newspaper and long distance telephone charges. After a time, if he stops taking the newspaper and switches his phone to VoIP with unlimited long distance free of charge, then this fellow just sent the deflator down. If his newspaper cost him $180 per year and his long distance bill cost him $240 a year, his "personal--personal consumption deflator " has just seen a $420 drop in consumption. If his personal consumption was $30,000 annually prior to the decline, his personal-PCED declined at 1.4% annual rate.

Most folks think of inflation as being the price of something going up or down. The big decline is when you stop consuming an item because you have substituted something else. The law of substitution is powerful and pervasive. I always remember an old timer who contracted for a new house but then raised Cain when plastic plumbing pipes were being installed. He wanted the "real thing". He wanted copper pipes. One key point here is that new products are often not only cheaper to purchase but they are often better and much cheaper to install. It takes skill and tools to sweat a copper pipe joint. It takes a little glue to connect pvc joints.

Folks the ultimate good news for stock investors is the negativity of others. The time to "go all in" in the market is when the majority of folks are upset about something. Tell me who is not upset this week; Democrat, Republican, Conservative, Liberal, Iraq supporter, Iraq non-supporter, Bush fan, Bush critique, stock holder, worker, etc. The reality is that the economy is growing, wealth is being created, crime is down, education and welfare spending is up and baby boomers are in their peak earnings, saving and spending age bracket.

As one old timer used to say, "Times is GOOD!"

As a political aside, let me suggest to you that Bush is again managing expectations. All the "bad news" just happens to be hitting one year before and one year after the elections. Mark my words, a year from now, oil prices will be down, stock prices will be up, seniors will be receiving drugs at subsidized prices, the supreme court nominee will be working, inflation will be tame, the budget deficit will be improving, the dollar will be strong and Bush will be on the campaign trail. Please check the history on this one, but I believe Bush has the very real chance of being the only president to ever gain congressional seats in two off year elections!

With a few more seats, Bush could be in the position of rationalizing the social security system! With a few more minority votes, Bush will have broken the back of the welfare dependency status of the Jesse Jackson crowd. Opportunity and freedom exist for all in this great country. NOW I"M TALKING ABOUT REALLY GOOD NEWS!

CLASSIC ROTATION UNDERWAY

During the past 28 days, the S&P energy sector is down 3%, the utilities sector is down 4%, the technology sector is dead even and the consumer staple sector is up 3%. These are numbers one should expect half way through a business cycle. Among the strong stocks during the second half of the business cyclewill be the steady earning companies that are either out of debt or steadily paying down debt.

Companies that rely on financing will be hurt when long rates start to rise (the ten year is near a multimonth high today). In recent weeks, the homebuilders and REIT's have taken it on the chin. The economy is currently slowing a little. Consumer confidence was smacked by high gas prices. Should spending continue to slow enough to bump claims for unemployment and should the fed continue to raise short rates, the word recession will be mentioned often. The word recession has a chilling effect on the actions of consumers and investors. The word reminds me of the contest between the wind and the sun to take a mans coat off; no matter how hard the wind blew, the more firm the mans hold on the coat. The sun smiled on the man and he took the coat off immediately.

The reason the FOMC always seems to over shoot is that the sun shines brightly until the FOMC finally gets on top of the curve, then suddenly the cold wind blows. Investors and consumers run for cover. The good news is that long rates drop when the FOMC makes it to the top. The decline in long rates then makes stocks compelling investments.

Based on current inflation rates, one can easily argue that ten year rates should be at least a point or even two higher. The problem is that the most recent inflation numbers have already been partly mitigated by declining energy costs. It is impossible to call if the next bump in short rates will convince the markets that inflation is not a problem. The next bump could easily send the dollar up, gold down and long rates down. Historically, the market starts to move up at the next to last bump in short rates.

If you are in the right stocks, the timing of the exact bottom is not very important. My family remains over weight in the airline stocks. We own financials, tech, internet, rail roads and more but we are loaded up on CAL, AMR and LCC. Google is perhaps our second largest holding.

In the coming weeks, we are likely to add more consumer staples and pretty soon we will be investing heavily in pharmas. The family currently owns MRK and PFE. These beat down companies will do well after the projected run in staples.

Today was an interesting market day. The drop in oil took down the energy sectors hard while the slamming of the bond market held the lid on everything else. Even the airlines struggled in the face of crude oil down $1.60.

Only 6% of US refining capacity is still shut in! Gulf production is still off 60% but crude is not the problem; supplies jumped 4 billion barrels. Heating oil and natural gas will be expensive all winter but crude oil prices and gasoline prices should continue to fall. I figure airlines will be moving well by the time crude hits $55.

Other "late cycle" stocks should be owned. It gets a bit tricky in the techology area. Traditional late cycle stocks would include mainframe computers and software such as IBM and Oracle. This cycle it is going to be interesting to see how quickly businesses adobt thin client technologies. SUNW may be sitting at the right place at the right time.

Sentiment, money, valuation are all lining up favorably for stocks. I expect a 30% year over year move but can't tell you when it will start. I know traders and investors are eager for the "BIG BULL" to run. A lot of money will climb on when the rally breaks through the trading range of about 2 years. History shows that long sideways trading is usually followed by a blow out year. It could start any day now!
RUN BULL RUN!

GOOGLE: MORE TO COME

The following is a list of items from a screen shot of Google Base. It was copied from seweso's blog:

"Course Schedules
Events and Activities
Housing
Jobs
News and Articles
People Profiles
Products
Reference Articles
Reviews
Services
Travel
Vehicles
Wanted Ads"

This is just a small list. Google Base. will allow each user to post in a "standard category" or he may create his own category.

I sold shares in EBAY today to buy more Google. EBAY is a power house company with a natural monopoly in autions. The problem for me is that more and more of EBAY "stores" are not really auctions but just list of inventory. It seems to me that folks will opt for free inventory posting versus the EBAY listing.

One can argue all day that EBAY has a payment system set up and an anti fraud system in place. Indeed the "trust me" features in EBAY are of great comfort to buyers. However, I believe huge amounts of posting will be done in Google Base if the posting is free. It will become natural to do a search from a browser rather than to go to EBAYto do a search.

To me, it is like looking up a phone number in a phone book versus typing a search into a browser. Why not let the computer do the work in a fraction of the time?

One blogger suggest that AOL has a few search features that are better than Googles features. The thing that makes Google powerful is the simplicity of searching for everything from the same spot. Revenues went up better than 100% year over year and the public will now be invited to supply reams of new content; more growth to come!

Om Malik’s Broadband Blog — » Anaheim’s Earthlink WiFi Plan

Om Malik’s Broadband Blog — » Anaheim’s Earthlink WiFi Plan

Anaheim, CA has become yet another city planning a WiFi network. Earthlink is going hard after this business. Comcast is reported to have invested in Bel Air Networks which is another company proposing WiFi networks.

Have you noticed that NT keeps edging up in price? Do you suppose these systems are using a lot of NT equipment? JNPR has been volatile but CISCO remains as dead money. CISCO is making a huge push into India and China.

When the tech market finally takes off, I would jump on the leaders hard and heavy. If every large and small town in America goes wireless, we are talking about a lot of equipment. Companies such as GLW will supply the fiber to carry the traffic after it hits the receivers.

John Battelle's Searchblog: New Google Travel Teaser

John Battelle's Searchblog: New Google Travel Teaser

It is amazing at how simple and how smart a search can be. When one searches for two cities, Google assumes you would like to know about transportation between the two cities. The return is scroll down boxes to put in departure and return dates and search links to Expedia, Hotwire and Orbitz.

Try this feature. Can you see a day coming when you will never need to go to a specialized site first. For example, if you want to search for homes for sale, you will find millions catalogued at Google. You will be able to sort by multiple factors such as location and price. Finding what you need will be easy. There will be no need for the person looking for a bicycle in San Francisco to first go to a San Francisco classified advertising site. One will simply search for a bicycle in San Francisco.

DO THE GOOGLE GULP! IT IS NOT TOO LATE TO OWN Google ! THIS STOCK HAS THE POTENTIAL TO GO TO $20,000 PER SHARE IN THE NEXT DECADE!

CNBC REPORTERS UNINFORMED!

This morning CNBC reporters Becky Quick, Mark Haines and others demonstrated a lack of understanding in regard to Google Print. No wonder the public is confused, even the financial reporters do not study their subject before blathering on.

Google Printdoes not allow anyone to read copyrighted books. Google Printis simply an electronic card catalogue that allows users to find information about books. For example, if you want to find a book that mentions elephants you can find a long list by searching Google. Just like in a card catalogue, you might see a sentance or two with the word elephant used. This is to supply context. The sentance might be about the elephant in the room or the elephant in jungle. Clearly the potential reader needs to know the context in order to know which book to read.

The Wall Street Journal posted an article this morning about the Google Printbenefit to the world. The benefits are huge. Consumers will be able to find books from libraries or stores as a result of searching Google Print. The publishers and authors will benefit by making money and society will benefit because having information available is valuable.

We are talking about changes here that are on the order of the Gutenberg Press and the discovery of paper. In the 25 to 75 years after the invention of the Gutenberg Press, there was an explosion of invention, discovery and sharing of information. The changes were the spark to the protestant reformation and to the industrial revolution.

Google Printis here to stay. MSFT and Yahoo are now scanning books into similar services. The "old line" wealth media owners can fight in the courts for a while but they don't expect to win. They are simply willing to play "dirty" to give themselves a chance to catch-up. Consumers should be on the side of Google. Who amongst us wants to continue to be force fed advertisements and to pay high fees for services that can be supplied more efficiently by companies such as Google ,Yahoo, EBAY, AMZN and the AOL division of TWX. It is the companies such as TWX, Viacomn and News Corp that are most conflicted. It is hard to keep one foot in the "new world" while standing with the "old world" in opposition to the new world.

The market is more powerful than any one of these players. If Google. is somehow stopped, another internet firm will blaze new trails. Years from now, we will be amazed to think that "in the old days" one had to travel to a library to check out a book. In the new days, consumers will still buy books and authors and publishers will still be paid.

Om Malik’s Broadband Blog — » A Little Off This GoogleBase

“Google Base is “Google's database into which you can add all types of content. We’ll host your content and make it searchable online for free.”

The above definition was posted by Om Malik. Om is not so excited about “Google Base as others have offered on line data base products. This reminds me of so many things that Google does; it is not the first but it produces a good product that can be used free of charge by the masses.

In an earlier post I mentioned the power of communication. Last night I reread a chapter by Jeremy Siegel that tells about how the Chinese discovered many things but then lost the knowledge in later years. Within 75 years of the invention of the printing press, there were scientific discoveries happening all over the world. Can you imagine how much knowledge has been lost or destroyed? Google is helping billions of people find information that is as good as lost.

Go Google Go! The world needs free dissemination of information to all people!

John Battelle's Searchblog: base.google.com (Or...All Your Base Are Belong To Google)

WOW! BASE.GOOGLE.COM! This fires up the imagination for all sorts of things--ebay-google, craigslist-google, calendar-google and much much more.

The ramifications of a common, searchable data base is huge and mind boggling. If you have not read Jeremy Siegel's book, "The Future for Investors", I recommend it. His comparison of Google to the Gutenberg Press around 1455 or the discovery of paper around 100 helps one understand the power of sharing information.

A searchable data base that grows exponentially would be fantastic!

The Peridot Capitalist: The Google Numbers

The Peridot Capitalist: The Google Numbers

Chad
makes a great point. Google grew more than twice as fast as Yahoo and sales at a lower multiple. Granted these are high PE ratios, 41 and 47 respectively, however, when your revenues go up more than 100% in a year 41 seems like a pretty reasonable PE. Go Google

The Peridot Capitalist--UNH and PHARMAS

The Peridot Capitalist

Chad noticed a 21% premium increase by United Healthcare. He suggests that UNH will increase its earnings at a double digit pace for as long as Washington does not pass healthcare reform.

My daughter has owned UNH for more than 20 years. She has made 150 times her original investment. Therefore we are biased and want to believe the good record will continue for ever.

However, it is my belief that it is finally time to buy the big pharmas. Load up now. It may take a few months to see good profits but great profits will be made over the next several years.

Traditionally, there is an inverse relationship between the buyers and sellers of prescription drugs. My daughter will continue to hold UNH because it is an outstanding company. However, new money, if and when any arrives, will be invested in pharmas and not in cost containment vehicles.

This cycle may be different but, historically, the expansion phase of the economy has been a tough time for many sectors. It has usually been a good time for consumer staples and pharmas.
Vitaliy Katsenelson and Bullbearings join me in anticipation of big growth in these investment areas.

Google's Still Got It--Business Week Review of GOOGLE

Ben Elgin's compared Google search to the others for several weeks and concludes that "Google's Still Got it". The others are adding features and best Google in a small number of searches. Overall, one can find information through Googlethat is difficult to find with the others.

The above explains the 37% market share and the huge growth in profits. If one searches via Google, one is likely to click on advertised sites presented by Google.

AOL earns 300 million a year off of Google searches. AOL has tough choices to make in the near future. MSFT must be willing to pay big to swing AOL to MSFT search. More and more news sources are going to be available through Google. The number of blogs is growing by 70,000 per day!

I believe in the theory that the wide tail distribution is a win for Google. Again, the theory is that although the mass media gets the most viewings, the total of all the viewings is larger for the millions and millions of small news and blog sites. People are interested in many special areas that simply cannot be covered by the mass media.

I believe it is good for America to have free wide distribution of information. For example, Americans should be interested in going to see their local high school or college football game rather than watching a pro team from a far off city on TV. The mass media has sold us the pro team. The free distribution of info will allow us to follow our local teams in much detail. (By the way, the women's soccer team at UNC is undefeated 11-0 so far this year and I am glad to be able to follow this team via the enternet.)

The areas where AOL search is better than Google search is where AOL adds information from its private cache of magazine feeds. Again, AOL has an important decision to make; should it open the magazine feeds up to Google to maximize advertising revenue or should it hold onto the information with the hopes of increasing its search market share? I believe the answer is clear and a little bit complicated.

AOL needs to open its vast content to be searched but it must also post a subscription option for even more detailed information on the subject. In other words, a Google search for Barry Bonds should include a recent picture posted in one of the AOL magazines. However, AOL should expect a small subscription fee to have access to all pages of the magazine. It might work in a similar way to Google Print. One can search the book on Google Print but one cannot read the whole book.

The world is changing. Systems will continue to evolve. However, I don't see anyone knocking EBAY off the hill as the top auction site and I don't see anyone taking the search lead away from Google.

In each case, there is much more to being number one in any business than what is visible to the naked eye. Yahoo and Google will be going head to head for a long time. AOL and MSFT need to be careful or they will go down in history as also rans.

» Google Reader first look | Between the Lines | ZDNet.com

ZDNet basically gives a two thumbs up on the beta version of GReader. I have played with it a little but need more time to become hooked. For now, I enjoy the Google sidebar.

Serge dropped by the Web 2.0 conference a couple of days ago. When asked about building the equivalent of Microsoft Office, he suggested that Google will build a lot of useful interfaces that accomplish the same tasks but in a more flexible way.

I do most of my writing on this blog. As the Google tools mature, I suspect it will be silly to take the time to load a word processor.

When Google announced its open source IM client, Google Talk, I suggested the presure would mount on the big three to open up there systems to cross talk. The announcement that MSFT and Yahoo will mashup first was a bit of a surprise because of the reported talks between AOL and MSFT. Now the pressure is on AOL. AOL has 56% of the IM business to Google's .05%! It is amazing how responsive the "big boys" are becoming.

The mashup of Yahoo and MSFT is a big event. Should AOL mashup with Yahoo and MSFT, the land line phone business would take a huge hit. It will be interesting to see if SKYPE, GOOG, Gismo and others will go open source while AOL, Yahoo and MSFT try to corrale the market.

Another huge question relates to SIP. IF GOOG is able to offer free out bound calls, the big walls between users will come tumbling down. I know I am not the only consumer around who desires to have one IM client open while communicating with folks using various vendors.

IM will be much bigger than email when one can communicate with everyone. The phone feature adds to the power. I find that many "converstations" are best handled by messaging (voice messaging would be very nice). Other conversations are best handled with a call. Many a converstation starts as an IM and switches back and forth as constraints and needs dictate.

If you don't have a Gmail account yet, email me and I'll send you an invite. The reader works is integrated with your email account.

SET FOR A RALLY

After studying hard in the spring of 1982, I received my broker’s license in the summer of 1982. I bought as much stock as I could before the “break out”. By some measures, stocks are as cheap today as they were in July of 1982. Take a look at the Dow chart below. We are set up for a rally that could be almost as powerful as what happened between August of 1982 and June of 1983. The small stock rally was quite explosive and peaked in June of 1983. Large caps did quite well later in the decade.

Buy the Bull!

$4 BILLION REFINERY UNDER CONSTRUCTION

MENAFN - Middle East North Africa . Financial Network News: UAE building $4 billion refinery

The number of new refineries continues to climb. This latest one is a large one. It will be built in the United Arab Emirates.

Again, it will take time for the new refineries to come on line but investors should remember that the stock market invests in the future. Stocks values are based on what they will earn over the next 10 years and has little to do with what they earned the last 10 years.

When capacity catches up with demand, margins go down. Today, crude and gasoline prices dropped again. Demand declined about 3.2% from the prior year. Prices are set by the last gallon to be purchased. Crude at $55 per barrel could be very exciting.

Much is being said about oil politics:

According to the Los Angeles Times, there are 148 oil refineries in the US today compared to 324 in 1981. Since then, overproduction of gasoline, oil company mergers, and environmental rules have forced smaller operations out of business(The Week, October 14, 2005, Vol 5, Iss 229, pp 20.)
Why No New REfineries in 29 Years?
Oil Drum
The Watt: Energy News
Energy Politics
Sound Oil Policy

AMERICAN AIR PARENT POSTS LOSS AS FUEL BILL MOUNTS

American Air parent posts loss as fuel bill mounts - Airlines - Transportation - Earnings

AMR's fuel bill went up $230 million dollars for the quarter. The company lost $95 million for the quarter. The reason we purchased this stock in our Stock of the Week portfolio is because we think the profits will be quite large when the fuel costs are reduced.

A friend asked me how I can be so confident that fuel cost are going down. My answer is that once the oil price increased to over $20 per barrel, it became profitable to mine tar sands and to convert coal to diesel. The planet still has 200 years worth of coal and tar sands to use.

The only question for me is, how long will it take for new supplies to exceed new demand. World wide demand has been growing at 1.6% per year. There is evidence that this rate of growth is going to slow. The current price is causing significant usage shifts. New supplies are available, the question about increasing supplies is more of a question about increasing refining capacity. Most of the new refineries planned or under construction will take until 2008 to complete. Inhancements in Austraila and a new GTL refinery in China will come on line soon. Other incremental improvements will gradually make a difference.

College Sports Fans Flock to Internet Through CSTV; #1 College Sports Online Destination Breaks Records For Page Views, Subscriptions, Overall Growth;

The end is beginning! TV is changing. There are two types of internet TV. The IPTV is a complicated system being pushed by the cell phone companies. TV over IP is easy to use and is starting to catch hold on the internet.

CSTV has a broadband package available for college football. The business is booming. Investors might want to avoid owning cable TV stocks and land line telephone stocks now that the internet is competing fiercely with those businesses.

WSJ.com - Microsoft, Yahoo Plan Instant-Message Pact

WSJ.com - Microsoft, Yahoo Plan Instant-Message Pact

WhenGoogle announced its open source instant messaging service, I wrote that the presure was on the other players to allow "cross talk". As you might guess, the big players are still trying to protect turf. MSFT and YAHO are expected to announce the first mash-up. These guys are not going to an open standard but they are allowing access to the proprietary system of each.

The situation is still crazy. It is like having a Sprint phone and not being able to call anyone who has a Cingular phone.

The pressure is now on AOL. AOL. has the largest market share. I personally will not use anything but an open system; because that is the way it should be.

MORNINGSTAR UPS GOOGLE TARGET TO $254!

It is so tough to swallow the idea that a large company like Google can continue to grow so fast. Morningstar likes McGraw Hill. In other words it likes companies that are willing to sue Google to try to hold market share. Several "old line" media companies are trying to protect subscription revenue. The market place says why pay high dollars for subscriptions to information that is provided on the web free of charge.

The big, Fortune 500, companies are discovering the efficiency of Google advertising. Why should these companies pay McGraw Hill and the like exorbitant prices when the public is reading the news on the internet?

Many years ago, law suits were filed when cassette tape recorders became widely available. The courts ruled that consumer can make copies of copyrighted materials for personal use. There have been a number of other cases that allow the cataloging of information so that consumers can find the information they need. This cataloguing does not hurt the publishers but instead it helps them and it helps the consuming public.

The law suits may slow Google down a little but more and more consumers are discovering they can find what they want quickly by using a Google search. The publishers who are making their content available for search are making money. Consumers are finding the extra content to be valuable. The amount of information on the net is going to continue to expand at a rapid pace. It will be nice when books, magazines and videos can be searched quickly.

CRACK SPREADS READY TO FALL!

Economy.com (no link as subscription is required) posts the price of heating oil versus crude to show that the crack spread is huge. The laws of economics will not let this situation last long term. This winter is going to tough. Heating oil and natural gas will both still be at high prices this winter but probably not as high as current prices. Again, the laws of economics and the simple fact that various refineries will restart soon mean that the crack spread will narrow sharply. This means the retail price of heating oil is going to drop faster than the wholesale price over the next few months.

The crack spread is tricky to figure because wholesale prices are posted in price per barrel and retail prices are posted in price per gallon. Also, the calculation is usually based on the 3-2-1 formula for converting 3 barrels of crude into two barrels of heating oil and one barrel of gasoline. This formula changes a little based on the set of the refinery and the relative sweetness of the crude.

The calculation is not the important point. The reality is that the price of oil, metals and a number of CRB items were causing an inflation scare. As these prices decline, the rational for focusing on core inflation will become apparent. The jump in price of crude from $59 to $71 is fast becoming irrelevant because it was a short term blip. It costs consumers a significant sum of money in the short run but it caused many to park their SUV and to drive the family "little car". Demand for gasoline is down 4%! This is a huge number. Annual growth for many years has averaged only 1.2%. We are now using at the rate of 4 years ago!

As the oil price falls, are you making money? The rotation is out of oil and into transportation and technology. I suspect there will be a bounce in oil but rather than play the bounce, I would go for the longer term plays. Non bankrupted legacy carriers such as CAL and AMR, out of bankruptcy carriers such as LCC and technology stocks. One can also seek safe haven and good profits in consumer staples such as WMT.

BULLS EYE--STOCKS OUTPERFORM OTHERS

Current Value of the

SOW Portfolio: $106,008.56

Simple Return: 18.98%

~~>~>~~>~>~~>~>~~>~>~~

S & P 500 Value : $102,518.78
Simple Return: -.89%

~~>~>~~>~>~~>~>~~>~>~~

Treasury Bond Value : $98,700.51
Simple Return: -1.26%

~~>~>~~>~>~~>~>~~>~>~~

Individual Stocks continue to outperform equal investments in the S & P 500 (-.89%)and the TLT Treasury Bond index (-1.26%).

This week Kupsky recommends Honda Motor Co. Take a look at her research and be sure to check out other Stocks of the Week to see if it's a pick to include in your portfolio.

Past performance does not guarantee future performance. We make no recommendations!

Please call or write if you have questions about how to make money in stocks, bonds and real estate. You can reach me during office hours at 336-778-0543 or write me

SHORT INTEREST RATIO VS. S & P

The Big Picture shares a glimpse of the short interest ratio vs. the S&P 500 Take a look!

The chart shows that the shorts are starting to cover, thus putting upward pressure on the price of stocks. With oil dropping and the FOMC near the end of a long tightening round, what is not to like? The market is poised for take off. I used the words take off because CAL, AMR and LCC should do well as the price of airline fuel declines.

Some say that the refining bottle neck will not go away soon. I say if the price of crude continues to fall and the crack spread stays the same then the price of aviation fuel will fall. Furthermore, the crack spread will eventually narrow as refining capacity makes it back on line.

The evidence suggest that the shorts own oil stocks and are shorting other areas. Therefore they are getting pounded in both directions. These guys are facing a tough choice, to sell their oil stocks or cover their shorts. It appears that some folks are doing both. GO BULL!

CRUDE OIL PRICES & RIG ACTIVITY

WTRG Economics hosts a great chart explaining oil rig activity and it's relationship to oil prices. What do you think?

Internet Sharks

The Economist posts a great visual regarding the internet sharks:

JET FUEL

In January the price of jet fuel was $1.19 in the Gulf of Mexico region, $1.24 in New York and $1.25 in Rotterdam. This past wednesday the price was $1.93 in Rotterdam, $2.07 at New York ports of call and $2.52 in the Gulf.

CAL made its 4th quarter forcast based on an average cost of fuel of $2.05. A number of analyst laughed. At the time, they assumed the cost would average around $2.35 per gallon. CAL will consume about 165 million gallons in the quarter. Assuming the average turns out to be half way between the Rotterdam price and the NY price or $2 per gallon, the analyst's projections were off by $.35 cents per gallon or $56 million for the quarter.

That was based on prices two days ago. Since that time prices have dropped another 5%. Pretty soon the savings of $56 million may become serious money. Indeed, the savings may reach more than a $1 per share for the quarter! Should CAL make it though 2006 and year $4 per share in 2007 we should be talking about a $40 stock.

The current CAL price is up .47 at 12.03; a 4% one day move. More to come! My young daughter, Whitney, purchased shares in CAL, AMR, and LCC this morning. Her Google gains gave her the confidenct to make the purchase. I love for young folks to participate in the wonderful world of capitalism. One's love for free enterprise and democracy grows when one learns to appreciate the ups and downs of the markets. It is not all fun but it is mostly fun. With the right attitude, young folks have an excellent chance of doing a lot of good in this old world. Knowing this young laddy like I do, I know she will help a lot of folks in her life. Making some nice profits off the airlines will help her in her lifes work. Go Google, Go CAL, Go AMR, Go LCC and Go Whitney!

The Courier-Mail: Labor to offer tax breaks for green cars [20oct05]

The Courier-Mail: Labor to offer tax breaks for green cars [20oct05]

The Australian government is offering $2,000 tax credits for purchasing alternative-fuel cars. In addition to paying for hybrids, the government is considering paying for conversions to gaseous fuels. India is leading the way, offerning fill up stations with compressed gas.

The point again is that demand is adjusting to high petroleum prices. After trading down sharpely in the US on Thursday, crude continued to trade down later in Asian markets. Demand is historically slack in November and December.

One of the reasons I am interested in fuel is because of my families investment in CAL. Continental Airlines will use 416 million gallons of fuel in the fourth quarter. A decline in price of $50 cents per gallon would improve the quarter report by $208 million dollars. I'm keeping my fingers and toes crossed as we also have investments in AMR and LCC.

BIG BULL SNORTING AGAIN!

The BIG BULL is pawing the ground and snorting up a storm. The last time the fundamentals were so powerful for stocks was in the summer of 1982! Folks, we have not seen these prices in 23 years!

On top of the tremendous relative values we have the majority running for cover. One fellows mother just sold all her stocks and put a half a million bucks in fannie mae notes! A broker friend reports that one of his clients just sold out to retreat to treasury bills! Perhaps the best indicator is that Robert Prector is talking about a market crash again.

Meanwhile, analyst such as Elaine Garzarrelli, who looks at fundimental relationships, says the market is undervalued by 30 to 40%! It is always interesting the way the market scares the most in the sectors that will do well for the next 5 years or more. Today, PFE reported good earnings but lowered next years forecast by a few pennies. The stock was hammered. Defensive stocks should do very well in the coming economic expansion. PFE is buy, buy, buy--no matter if Kramer likes it or not.

Right now, there is a rotation occuring. The oil price is in a topping out phase. New supplies will come on line to drop the price all the way below $40 per barrel. It may take two or three years but the time to buy energy stocks was 6 years ago in 1999. Large blocks of big energy stocks are being traded as the market rotates out of this sector. The sector is helping to pull down the whole market. Please note that the earnings for the energy stocks were at rock bottom in 1999 when it was time to buy those stocks. The earnings for the pharmas are near the bottom now and 5 years from now will be soaring. Buy now!

DAL NO! NWAC NO! CAL YES! AMR YES! LCC YES!

A reader mentioned plans to buy Delta Airlines and I almost screamed no! It is foolish to invest in a company that has filed bankruptcy when it has far greater liabilities than assets. The likely hood is that bond holders will get only a fraction of their investment back. Unsecured creditors will get even less. Common stock holders will probably get zero!

Airlines such as USAir, the new symbol is LCC, is an entirely different story. The companies cost were cut deeply by the judge, the debts were dramatically reduced and the company has operating cash to use.

AMR and CAL are different too. They cut cost enough that they do not need to file bankruptcy. CAL made 80 cents per share this past quarter. Eighty cents per share profit would be no big deal except for the tremendous cost of fuel. The recent decline in fuel will reduce costs by millions of dollars for the next quarter.

If any of you own DAL or NWAC, I suggest you sale immediately. My family did not believe either firm would file bankruptcy and we lost money on each of these stocks but our profits on AMR, CAL and LCC have made up the difference and more. We expect good results for the next several years. Anything is possible, but the odds of making money by owning shares of stocks that are currently in banktuptcy are slim.

Many times you hear the story of the bankrupted company that rises like a Phonix out of ashes. This indeed happens but typically the "old shareholders" make zero and the "new shareholders" make a bundle. Take the case of K-Mart as an example. The "old shareholders" lost. The bond holders became the "new shareholders" and did very well.

Ryland Group tops forecasts, raises outlook - Home Construction - Manufacturing - Earnings

Ryland Group tops forecasts, raises outlook - Home Construction - Manufacturing - Earnings

Strong earnings continue to be the norm for 2005. Ryland homes beat estimates by 10 cents per share! This stock has dropped in just a few weeks from the low 80s to the low 60s. Should the price of oil fall more, the homebuilding stocks could be strong performers.

The S&P 500 is now throwing off an earnings yield of almost 7.25%! The public is blindly missing a buying opportunity.

CAL made 80 cents a share while paying out extremely high prices for fuel. The buying opportunity of a life time is in stocks like AMR and CAL. When do you get the chance to buy the best in the business at 80% off?

The market was down today because of the decline in oil stocks. The energy index lead the way down. The S&P sector was down 4.64%! The natural gas index was down 3.8%! The oil services index was down 4.68%! If you do not own oil stocks, this was very good news.

Remember that the see-saw is a common phenomenon in the market. When someone says food stocks were up today, it is important to know if the conversation is about grocery stores or restaurants as these are two of many groups that trade like a see-saw.

High tech did well today. The Nasdaq 100 was down .74% during the day and in after market trading a number of stocks did well. For example, MOT announced excellent results and has traded up about 2% after the market closed.

Ken Fisher made another great point in Forbes. He relates that big cap growth stocks do well startging about a year after a flat yield curve. This idea is consistent with what one would expect about the time the business cycle switches from a consumer led recovery to a business lead expansion.

I will not play the housing sector at this point even though I believe it will retest this summers highs. A friend asked me if I would buy Bank America or Home Depot. Both stocks have attractive valuations but neither excites me. I suggested that WMT is a similar big cap, out of favor play, but in a more defensive area that should do well in a rising interest rate economic expansion.

The last sentence of the above paragraph is a tricky one. With the FOMC pushing up short interest rates and the oil working with the rates to drag the economy down, it is very possible that long-term rates will come down before going up. The problem is that if you buy bonds and the economy remains strong, you would likely lose money during an economic expansion. On the other hand, if you buy stocks and hold for the next few years, you will make money. You may lose for a little while but when the BULL CHARGES you will participate in the great rally to come.

Folks, it is a rare event to have stocks so cheap relative to bonds and real estate. The current down draft may run a little while more but the opportunity is real. The broad averages will likely be up 45% over the next 2 to 3 years. The top performing groups will likely be up close to 100%. The top performing stocks will likely be up over 400%!

BBC ON THIS DAY | 13 | 1992: Thousands of miners to lose their jobs

BBC ON THIS DAY | 13 | 1992: Thousands of miners to lose their jobs

The UK has gradually gone from 1 million coal miners 60 years ago to 12,000 today. Now another 31 inefficient mines will be closed. The rationalization process is no fun to entrenched workers in entrenched industries. America has shown that many new jobs will be created when non-productive jobs are eliminated. The whole country is better off.

Germany has not gotten it yet. Germany continues to subsidize its coal mines. Germany is throwing money down a rat hole and the unemployment rate continues to hover above 10%.

The new conservative chancellor may or may not make progress as she faces strong political opposition. In the mean time, those who continue to cry "the sky is falling" can take solace in the fact that there is coal being left in the ground in the UK because the current price does not make it profitable to dig in the deep mines.

Ironically, coal is being converted to liquid fuel (primarily synthetic diesel) more than any time since Hitler ran his panzer tanks off goal gas. The cost to convert continues to come down. In addition to operating plants in South Africa and China, plants are being built in Qatar by several major oil companies. Industrial processes around the globe are using various technologies to cut petroleum use.

The example I have repeated several times is that of Shaw Carpet Mills. For years, the company paid land fill operators to bury flawed products. Recently the company was able to perfect technique similar to the conversion technique of coal to liquid. The company has been able to dramatically cut its energy bill and it no longer has the landfill charges. The exciting news is that the gasification process allows polutants to be removed.

What a blessing in disguise for the thousands of miners who have lost their jobs. Many will find cleaner, safer and more satisfying jobs. The UK will reduce its energy costs and have the resourses to spend on productive activities.

The Internet Stock Blog » Is This the Killer App for Pay-Per-Call? (GOOG, BLS, SBC, VZ)

The Internet Stock Blog » Is This the Killer App for Pay-Per-Call? (GOOG, BLS, SBC, VZ)

Wow! I have often figured the "yellow pages" to be a dying breed. It is logical that folks will look up numbers on the internet rather than by pulling out a ten pound relic. I had not thought of the "killer app" method of collecting for the look ups.

If you dial 1-800-Free411 you may have to hear a short add but you get the number for free. Imagaine the day when folks do not call numbers but speak the name of the caller into the phone or the computer. Suppose you say phone; Dominos Pizza. The screen might come up with a coupon for Dominos and or for Papa Johns, etc. Certainly Papa Johns would pay dearly for each call recieved to actually order a pizza.

I agree with the Internet Stock Blog, this methodology should be great for the likes of Google, Skype, Gizmo, Yahoo, MSFT, AOL, et. al. It could be very bad news for VZ, SBC, BLS, et. al.

The ramifications of all the changes coming to phones and media are huge. Those that hit it right are going to make serious money. Those who hold old stocks because they have owned them for a long time, may end up holding buggy whip certificates.

John Battelle's Searchblog

John Battelle's Searchblog

I like John's poker analogy. AOL is the flop; MSFT and GOOG are in a biding and bluffing war. The price will not be cheap. YHOO or CMCSA could try to draw out and steal the pot.

MSFT may offer more cash but AOL stands to lose if MSFT cannot bring in the eyeballs the way GOOG can. AOL advertising revenues have been zooming since they opened up their web portal. The reason is that GOOG is bringing the traffic.

GOOG announces earnings on October 20. The price action in the MSFT and GOOG suggest that the winning bidder is going to have to pay big. GOOG has even offered a split deal with CMCSA to make the deal easier to swallow.

It is interesting that TWX has not traded significantly higher. The market knows that TV over IP may hurt the cable companies. I have changed directions a little. Will millions of folks pay $1.99 to watch last nights show? I have anticipated subscriptions. I figured one might pay $4.95 per month to see all CBS shows. At $1.99 per pop, the content revenues could be huge. A cartoon for a $1?

It seems that TWX may be worth more than the current price. I have seen analyst list the TWX components and sum to a total of around $22 per share. The advertising value may make the company worth more.

The mashup that makes the most sense is GOOG--AOL. AIM and Google Talk could go head to head easily against Yahoo--MSFT. Yahoo has a large stable of content, AOL needs GOOG to be able to go head to head with YAHO.

Xinhua - English

Xinhua - English

Vietnam has added to the growing list of oil refineries under construction. Vienam has been exporting oil and importing finished products. Its new 2.5 Billion Dollar refinery will be the right size to eliminate its needs for imports.

Just another look at the market at work. The current price of oil and finished products is high enough to spur production and refinement. Note, the article did not talk about a completion date but I suspect it will take more than two years to build.

Bloomberg.com: Asia

Bloomberg.com: Asia

The new refinery story continues. In India, one company is building a new refinery and another is expanding an exhisting refinary.

My point continues to be that the law of supply and demand is going to move the price of oil back to an average level. Because the oil supply demand curve meets in a spider web fashion, when the price finally drops it will drop lower than than all expectations.

The timing is the difficult part. A refinery annouced today may take two or three years to build. The quick reaction is in demand destruction. Demand has been destructed in many a place. Folks are riding buses, scooters and bikes. Small cars are selling and many a SUV is parked.

Much of the demand will come back as the price of gasoline settles back down. New refineries are needed. Several are being modified or built to handle the sour Saudi crude that is in abundant supply.

CHANGE IN THE CPI

The Contrary Investor (contraryinvestor.com) is a great service for those who have about $100 to spend. The above chart shows why there is such confusion about the current CPI. Five percent of components are going down in price while most components have increased close to 2.5%. At the same time, a few items have increased at greater than 30%. The good news is that those items that have been increasing at 30% or more have since been dropping at almost 30% or more on an annualized rate. Therefore, the "core rate" numbers offer the best information in regard to inflation.

AUSTRAILIA: OIL PRICES WILL GO DOWN

Australian expects oil price to decline

I agree with Australian Treasurer, Peter Costello that oil pirces will decline. The place where we disagree is in how low they will go once the supplies are increased. He says we will never see oil at $20 or $30 a barrel again. I say oil from tar sands is profitable at $30 per barrel and there are tons of it available.

David Lynch talks about oil production peaks in the following articleNaturally, we are not going to go directly back to $30. It will take time for the new supplies to be developed. Also, China, which has reduced its usage of oil in the past twelve months, will increase its use over the next many years on average. India will also increase its usage but India has planned a new refinery that will cost half a billion dollars.

Of course the construction of refineries do not argue for reduced prices but the construction of sour crude refineries shows that $30 oil is a reasonable target. Saudi Arabia is footing a big chunk of the bill to build and to expand sour crude refineries. This oil can be refined for less than the cost of tar pit oil.

The results of the vote in Iraq will be known next week. There is a good posibility that an Iraqi refinery will be built soon!

Seeing families going to the polls in Iraq was a moving experience. It is no easy task forming a democracy. The Iraqi people want and deserve the right to run their country. The constitution calls for the sharing of the oil wealth. With a constitution in place, the wind may largely go out of the insurgents sails. God Bless America and God Bless Free Enterprise!

CHART: TIPS EXPECTED INFLATION

There are many good inflation gages around. The one above is frequently posted at the Macroblog site. My favorite is to plot the futures contract on the long bond by the futures contract on the CRB. The reason I like the futures is that it makes sharpe peaks and valley's at turning points. Right now has made a pretty sharpe peak at around 2.9%. The next move appears to be down.

GOOD NEWS FOR STOCKS! Stocks do well during times of moderate inflation. Some bloggers are currently obsessed with the appearance of high inflation. However, the sharp run up caused by the hurricanes will be followed by the sharpe drop afterward. For example, gasoline prices have declined 28% in recent weeks.

The more important thing to note is the pessimism caused by the high oil prices and other bad news. The pessimism has reached levels that have pushed the market down like a coiled spring. I have been talking about the BULL MARKET for a good while. I cannot say that the BIG BULL IS HERE. HOWEVER, I AM CONFIDENT THAT THE TIME IS NEAR.

CLEAN AND QUIRKY CARS

Clean and quirky cars to dominate Tokyo show | Tech News on ZDNet

It seems to me that the best idea to come out of the Tokyo Motor Show is the Mazda Hybrid. This car runs on gas, hydrogen or electricity. The idea is to use hydrogen when available. In the next decade, it is anticipated that the zero emission hydrogen fuel cell will be in mass production. One problem is the chicken or the egg problem of developing a network of refueling stations.

The Mazda Hybrid is a neat solution. It would use hydrogen as often as possible but owners would not have to worry about making trips to places where hydrogen is not yet available.

By the way, if you don't believe oil will every return to $40 per barrel, then you don't believe in the law of substitution or the ingenuity of markets. I do believe. Thirty years ago, we used oil for many industrial processes and even to produce much of our electtricity. Today, we use more available and lower cost fuels to supply these needs. Now that oil has ratcheted up another knotch, oil will be replaced as the primary fuel for transportation as well.

Change takes time. Oil prices started the steep incline almost three years ago. Since that time, China has gone from annual increases in the use of oil at 14% reduced to zero! That number is correct, China will acutally use less oil this month than it did in October of 2004. Other very populous regions, such as Indonesia and India, have recently cut consumer subsidies. The G20 nations met this week and agreed to find ways to conserve energy.

The new democracy of Iraq, having agreed on a formula for the sharing of the oil wealth, will likely more than double production over the next few years. Hydrogen cars (alternative fuels), conservation and new production will eventually take the price of oil back below $40 per barrel. Airlines that have cut other costs will see profits hitting the bottom line when fuel costs go down. One should buy in anticipation. The major beneficiaries of lower oil will include CAL and AMR!
Hybrids Hit the Showrooms
Tokyo Motor Show
Mazda SENKU.

WOOD STOVES! NOT AGAIN

Rutland Herald: Rutland Vermont News & Information

WOOD STOVES! NOT AGAIN!

Vermont Castings reports sales of wood stoves, up 50%! Since the 1920's, America has reforested 80 million acres of trees, halleluia! Our coutry reduced pollution by turning away from the buring of wood for fuel. It is much smarter to burn coal or nuclear fuel inside a controlled power plant than to light millions of fireplaces each day.

One point here is that folks are taking extraordinary folks to reduce the consumption of gas and oil. The action highlights again the false savings pushed upon the country by those who understand the environment but not economics.

Economics is the science of scarce resources. The reality is that the price of scarce resources makes the market use these resources in a rational way. Yes, some goods are public goods and some goods are private goods. Clean air is a public good. There should be a cost imposed on private indivuduals who "consume" our clean air.

The answer is not to fight nuclear power plants or oil refineries. When we prohibit the production of low cost electricity, folks will be forced to turn to wood stoves and other extremely dirty and extremly inefficient sources of energy.

The good news is that wood stoves are not the only substitutions taking place. For example, Chevron has started construction on its gas to liquid plant in India. When carbons such as coal and gas are converted to liquid, pollutants can be filtered as a part of the process.

We need to permit the construction of refineries. As good citizens of the planet earth, we must insist on the production and burning of clean fuels. The air in the USA is cleaner now than 5 years ago but more progress is needed. We will not get there by taking the backward step of burning wood instead of building refineries.
Fireplace Lowdown
Preventative Action

Bloomberg.com: Australia & New Zealand

Bloomberg.com: Australia & New Zealand

It is interesting to hear folks say silly stuff. For example, many folks think the major airlines have been foolish for not hedging their fuel costs. The attitude is a bit like asking the 50 year old widow whose husband recently dropped dead of a heart attack why she did not buy a 5 million dollar life insurance policy the week before he died.

It is true that after the price of a commodity spikes to new levels, users tend to start hoarding. While the price was very low, the users saw no benefit in hoarding. Of course, this pattern is exactly opposite of rationality. If you can buy very cheap, before a substantial increase in price you are ahead of the game. However, commodities tend to revert to the mean price.

In 1999 oil was too cheap. The drilling industry suffered. Oil traded as low as $12 per barrel. The industry recovery took a very long time. Oil finally traded around $18 per barrel by 2002. For about 10 years, it would have been foolish to hedge. Once the price jumped to $60 per barrel the thought ran wild of why don't we hedge against additional increases. There is a financial cost to hedging so the $60 hedger only "wins" if oil trades consistently above $62 during the duration of his hedge.

Again, the oil price will eventually trade below the mean price. Because the supply demand curve for oil follows the unstable coweb pattern similar to the pattern for farm products, no one can estimate the mean price very well. Even the best in the business can only wildly guess at the future price.

When volatility is high the risk is high and the cost of "insurance" is high. The price of volatile commodities will decline just as rapidly as the recent increases.

Bloomberg reports that the price of copper dropped today. While one day does not make a trend, the world wide stock markets are suggesting slower growth ahead. The combination of slightly higher long bond rates and declining stock prices suggest that inflation is going to consume a slightly larger portion of nominal growth and that growth is going to slow.

It may take another bump or two in the fed funds rate to turn the pattern around. Another bump or two in cooperation with bumps in other nations (South Korea raised rates a couple of days ago), should be enough to slow inflation, rally the bond market and set stocks on fire. I am tempted to suggest ten year bonds at 4.45%.

With the slowing of the hot economies (such as Australia, China, and New Zealand), the potential exhist that ten year rates will decline below the fed funds rate. Should this happen, in addition to making a profitable bond trade, the investor should be able to catch the exact market bottom. In other words the news of the inverted yield curve could cause a wave of panic selling.

As usual, one should guard against getting too cute. Short term moves are impossible to call. Intermediate term moves are easier and long term moves are no problem. From here, long term investors should be in stocks, intermediate term investors should be as much as 70% stocks and short term investors should stick with money market accounts.

Bloomberg.com: Top Worldwide

Bloomberg.com: Top Worldwide

Bloomberg reports that Australian Employment Unexpectedly Declined by 42,300. This is the first decline for this booming economy in 10 years. Resource rich Australia has benefited from the super growth of China.

This is the kind of bad news that is very good news. The US stock market needs this and additional indications that the world economy is not growing too fast. The world needs a little breathing room for resources to catch up with demand.

There are many indications that demand growth is slowing. When the evidence becomes over whelming, the Federal Open Market Committee (FOMC) will stop raising short rates. The counter movement today was in the ten year bond rate. The rate is pusing 4.5%, not a high rate but the increase shows that growth, inflation or both are still possibly too strong for comfort.

Chart of the Day - www.chartoftheday.com

Chart of the Day - www.chartoftheday.com

Today's Chart of the Day is a good one. It shows the strong relationship between the Fed Funds rate of change and the S&P earnings rate of change.

In the mid 1980's and again in the mid 1990's the earnings growth peaked but the stock market rallied because the Fed Funds stopped going up. Does this situation have a familiar feel to it?

S&P earnings growth has been unusually strong for the past couple of years. The growth rate is unsustainable. However, the leveling off of earnings is likely to be accompanied by a leveling off in Fed Funds.

Remember, the market does not need interest rates to go down. Should the Fed signal that it will likely stop raising rates anytime in the near future, this market is primed for a super jump.

Again, the current earnings rate on stocks is better than 7%. The rate on 10 year bonds is less than 4.5%. Stocks can climb in value by 35% or more and still be at attractive evaluations relative to bonds!

Many active traders are now sitting in a net short position! They are actually betting on the market going down. Betting on a down market has historically been a very tough bet to win. I can't remember the exact odds but the one year odds are about 70/30. Even the daily odds are something like 53/47 against.

The good news for investors is that those who are betting against the market today will buy massive amounts of stock when the market takes off. At first they must buy back the stock they have sold short, then to recover their losses they will feel the urge to buy extra stock on margin on the way up.

The reason the moves off of bottoms is often so volatile is because short sellers are at great risk when the market starts to rise. They must eventually buy back the shorted shares, no matter high high they go or how many times the shares are split.

It is time to prepare to be aggressive buyers. The market needs only a small catalyst to start the stampede. A move large enough to spooke the short sellers is all we need to be off and running.

Reuters Business Channel | Reuters.com REAL ESTATE BOOM!

Reuters Business Channel | Reuters.com

The real estate boom is getting its second breath. As Reuters reports, the boom is alive and well in hurricane ravaged areas.

The talk talk talk of a real estate bubble slowed the market for a while. Right now, buyers should be aware that homes are cheap partly because mortgage rates are so low. However, mortgage rates have been creeping up. Greenspan has jawboned the banks to raise rates and to screen for better credits. The jawboning can only go so far.

Millions of Americans can afford a home, millions more Americans can afford to move up and millions more can afford a second home. The housing market has held up extremely well in the face of very negative consumer attitudes. The next leg will be shorter but prices will rise significantly.
Boom Spreads
Real Estate Ripple Effect
,Boom Creates Equity Bonanza
Myrtle Beach Real Estate

macroblog

Macroblog reports that Angela Merkel is the new conservative chancellor of Germany. The problem is that the Social Democrates retained 8 of 14 seats in the cabinet.

A Maggie Thatcher or a Ronald Reagan is what Germany needs; stay tuned. The fact that the country needs to reform or get left behind is clear to all sides. The socialist will move in the right direction even though they will kick and scream the whole way.

With something like 10 new countries added to the EU, the European community can possibly rival the economic power of the US. Several of the new entrants are experiencing fast growth. One of the reasons for the growth has been the passage of lower tax rates. Businesses are moving to these areas because labor costs and taxes are low. Go Angela Go; bring Germany out of the doldrums of socialism and into the world of capitalism!

EARNINGS UP--STOCKS DOWN!

Company earnings continue to rise. Granted, much of the gain has been in oil and oil services but the overall average is getting to be large. Forward earnings on the S&P are over $84 which means the forward PE is at 14 times! At 14 times earnings, the earnings yield exceeds 7%.

CHECK OUT:
The Market and Corporate Earnings
Investment Yield


IT IS TIME TO LOAD THE BOAT! KEEP JUST A LITTLE POWER DRY AS SENTIMENT FIGURES HAVE NOT GONE TO EXTREME LEVELS. MANY SENTIMENT INDICATORS ARE EXTREME BY ONE STANDARD DEVIATION. JUST A LITTLE MORE BAD NEWS PLAYED UP IN THE PRESS COULD SHOOT THESE "PERCEPTION VERSUS REALTY MEASURES" TOO TWO STANDARD DEVIATIONS. SUCH AN EVENT WOULD SIGNAL THE BEST BUYING OPPORTUNITY IN THREE YEARS!

SUN MICROSYSTEM

Business 2.0 sent me an email report on the SUNW--GOOGLE mashup. The indications are that GOOGLE will purchase thousands of SUNW servers. SUNW uses AMD dual core chips that are the size of pizza boxes. They are perfect for the GOOGLE racks and racks of computers because they are fast and cool. Heat is a major problem in data centers.

The SUNW servers run Linux, MSFT and SUNW software. The folks at ZD NET as recounted earlier, seem to have it right. The "FAT" MSFTsystems are not needed by the majority of users. The average person needs a simple interface and access to much information; video, audio and text.

Several months ago, it was true that GOOGLE operated 10 data centers in the US with about 10,000 off the shelf computers in each center. It has been reported that GOOGLE is in the process of expanding to 60 data centers. These centers are connected by heavy duty "fiber highways" and will offer the "jumping off" place for GoogleNet.

The ties betweenGOOGLE and SUN are tight; the cofounder of SUN was the first investor in GOOGLE and Eric Schmit was at SUN before he was hired to run GOOGLE.

Commercial real estate agents report that data centers are in short supply. Many folks are not aware of the heavy capital spending cycle that is upon us. Businesses are going to be bidding for space and resources. Unemployment is relatively low. The FOMC must continue to raise short rates to "cut future inflation off at the pass". The consumer is going to get squeezed a little in the process.

Investors should consider steady earning growth stocks in the consumer staple and heath care areas to balance more aggressive investments made in the high tech area or business service area (such as airlines). Energy stocks are in "bounce" mode. The stocks have run up, down and are headed back up. I would be cautious here.

The cobweb supply and demand curve of energy is about as unpredictable as it gets. Furthermore, the stock prices discount what will happen next year, not this years earnings. Oil company earnings will be extremely strong this year. However, billions of consumers have been hit hard by the recent spike in gasoline prices. The developing nations have been hit twice as hard as the rest of the world. The cutbacks in countries such as Indonesia and India are more severe in percentage terms than in the US.

The SUNW computers are energy efficient. I have not looked at the GOOGLE financial statement to see their electricity expense but it has to be a significant number. SUN has fought the good fight to survive up against the likes of IBM and Dell. The company made it through the "wars". With GOOGLE as a major customer, other companies will think twice before buying IBM servers. IBM has mounted a major advertising campaign. IBM is a late cycle stock. I expect IBM to do well in the progressing business expansion. However, I expect SUNW to gain share. The share gain at SUNW should have a powerful impact on the price of SUNW shares. BUY THE BULL!

IT IS TIME TO BE AGRESSIVE. THE PUBLIC IS AFRAID OF EVERYTHING FROM BIRD FLU TO HURRICANES. THE BOTTOM IS NEAR. BUY NOW TO AVOID MISSING A GREAT OPPORTUNITY.

THIS WEEKS VOTE IN IRAQ COULD BE THE SPARK NEEDED. IRONICALLY, I BELIEVE IT MAY TURN OUT BEST IF THE CONSTITUTION IS DEFEATED. IF IT IS, THE MARKET MAY TEMPORARILY DROP. IN THE LONG RUN, IT MAY MEAN A TRUE DEMOCRACY TAKES HOLD!

BLOGWORLD

JUST WANTED TO SHARE SOME GREAT READING:

Hollywood Movies Misfire with Core Male Teens"Barry Reinholtz address the decline in movie attendance and revenues. He cities that an overpriced, mediocre experience at the theatre is taking a backseat to an alternate home entertainment medium

Bill Cara comments on the rising Japanese Market

Yahoo is introducing Flicker, which is journalism from all around the globe, displayed into News Search results. Consumers can now enjoy opinions, analysis and commentary, via blogs.

James Hamilton a professor of economics at the University of California, San Diego, examines the The Macroeffects of Oil. Hamilton includes a great chart on how historical disruptions in oil production have affected the GDP.

Nuriel Roubini, a Professor of Economics, the Stern School of Business at New York University and chairman of RGE Monitor, also gives a great overview to Oil Prices and the Global Economy . Unlike previous spikes in the price of oil (1973, 1979, 1990, 2000, the this year's rise is a demand shock, rather than a supply problem.

According to the NPD Group, a group helping retailers understand consumers, Holiday Spending is expected to rise in spite of gas prices.

Internet Outsider: Microsoft to Kill Google? No.

Internet Outsider: Microsoft to Kill Google? No.

The internet outsider has put together a detailed report explaining that Microsoft has already lost the web war to Google and Yahoo. AOL and Microsoft can fight it out to see who survives as number 3 or they could join forces.

Google has started advertising its tool bar on countless sites. Battelle says this is the key to the Sun-Google deal. To get the tool bar on as many machines as is possible.

I believe Google will be hard to catch in search but to do what Google really wants to do, it must be the giant killer. Netscape died trying. Bloggett, for Googlesake, hopes that it does not "go after Microsoft ". I think the deal with Sun announced exactly that Google is out to replace Microsoft high priced products with web based free services.

Old timers still can not believe that IBM lost the hill to Microsoft . Google is going to make a good run to be king of hill. Long live the king!

ON THE EDGE OF BUY BUY BUY SIGNALS.

On Friday, I headed out to Blowing Rock North Carolina for a long weekend with family. I leave after viewing a number of indicators that suggest the market is on the edge of a major best-buy trough. Ironically, it is technical sell signals that are setting up even more powerful technical buy signals.

For example, many technicians are seeing a break below support on their systems. One simple and widely followed system of this sort is the 200 day moving average support of the S&P 500. This indicator is leading to the sell of stocks.

At the same time, valuations stongly suggest stocks as the asset class of choice. Even the move of the ten year bond to a rate of over 4.4% does not bring it close to the stock level. 4.4% is certainly much better than the recent rate of 4.1. It does not look like much but one must remember that the value of bonds flutuates inversly to the yield. The earnings yield on stocks is approaching 7%!

My family is fully invested but we will become even more aggressive if the market psychology continues to push prices below all reason. We are even willing to buy call options if certain indicators go 2 or more standard deviations from the norm. There are a number of buy signals that are now positive by more than one standard deviation. Harry Dent for one has issued a buy recommendation. He does not want to try to hit the exact bottom; no one should expect to catch the exact bottom. Again, my family is fully invested because stocks are attractively priced. This does not prevent us from raising our beta, buying calls or using leverage if the probablility of a high return grows to unusually high levels.

Hold onto your hat, this Bronco is bucking for all its worth. Ken Fisher and many other very smart, experienced investors would tell you to hang on for the wild and crazy ride!

'>Gas to Liquid technology is moving forward

People's Daily Online -- Experts predict broad use of gas-to-liquids technology in energy industry

Gas to Liquid technology is moving forward around the globe. Many a company has more than one project in the works. It was in the early 1900's when Fischer, from Germany, and Topsch, from Checkoslovokia, invented the method of using an iron ore catalyst, steam and oxygen to convert coal to gas. The best part is that polutants in their gaseous state are easy to remove.

The current price of oil makes coal conversion worthwhile. In 2009, laws in Japan and other nations require cleaner fuel. The big names are stepping up to the plate. ConocoPhillips, ExxonMobil, Sasol, and Shell are all committed to building GTL plants. Three years ago, Headwaters(HDWR) inked a deal to build a plant in China. I believe it will start production this year.

In Wyoming, the Powder River Basin Project will produce 10,000 barrels per day. None of my family members currently have plans to invest in these companies. My Great Grandfather believed that "the time to get into the chicken business is when everyone else is getting out". The situation now is that everybody is getting into the oil business. Profits will go up for a while but eventually new capacity will lower profit margins. One should always remember that the best time to buy a cyclical industry is when profits are low and the best time to sell is when profits are high. The stock prices do not go up when profits are high. Investors never seem to understand why their stock price is not going up when the earnings are huge. Again, the fact is that high profits attract new investment, new investment increases supply and increases in supply reduce profit margins.

In the years ahead, coal will be used for transportation in one of two ways. The coal will be gasified and then converted to liquid (most likely synthetic diesel) or it will be used to produce electricity which will be used to charge batteries in advanced hybrid vehicles.

TOO MUCH COAL! In the spring of 2002, China was shutting down excess coal production. China is both the largest producer and the largest user of coal. It is amazing that only three years ago, the country had too much coal. This was when the contract was let with a division of Headwaters(HDWR) to build China's first GTL plants plant.

Folks, we have been through periods of tight fuel supplies before and we will go through them again. However, unlike the alarmist, I am confident that the world is not going to run out of energy. Not in 100 years, not in a million years; provided the sun still shines.

Our good planet captures just a small portion of the energy from the sun. Even so, the planet captures many times the amount of energy than we use. Indeed the majority is disapated on the "cold" side, as the world turns.

It is difficult to predict when supplies will start pushing down prices. Right now there is a huge gap between the price of crude and the price of gas. We should all say thanks to European refineries for their help in keeping the spread as narrow as it is. Indeed, we should even thank the oil majors who have decided to take a profit hit to hold down the market price.

Demand for gas is off several percentage points. In a few months, US capacity will be back at full strength. Prices are set on the margin. New supplies will eventually push the marginal price down.See other news on this issue:
Coal to Oil
Conversion Plan Picking up Steam
Conversion Pursued by Montana
Black Gold

WHY WE BOUGHT AMERICAN AIRLINES

Last week, we cut our losses and sold four stocks in our portfolio that were consistently not performing and reinvested the buy out in AMR. American Airlines is one of two experienced carriers who have managed to operate under less than optimum conditions to make a profit. On July 20, (AMR). reported quarterly profits for the first time in a great while. (AMR). has proved they are one of the strongest airlines and the most likely to be successful over the long haul.

Several things were responsible for the quarter's numbers. The airline industry is seeing improvements. (AMR). grew numbers while experiencing higher load factors and passenger growth. This agrees with the strengthening demand being seen in the airline industry.

Aditionally, this long time airline carrier continues to lower its operating costs. Not counting fuel, cost per available seat mile (CASM) at (AMR). decreased 5%, over the prior-year period. (AMR) and other airlines realize low costs are the key to success. While American Airlines may not be closing the gap quickly with airlines like Southwest, LUV), they are holding their position over their long time peers.

American Airlines has one of the most extensive domestic networks and attractive international route systems, making it a preferred choice for many business travelers. They are putting their planes where there is the least amount of low-cost competition: flights to Europe and Asia. These routes are longer than most domestic and Latin American routes, and therefore less like a commodity.

The company has seasoned leadership; President and CEO Gerard Arpey has worked for American since 1982 and Ed Brennan, Chairman has been an (AMR). director since 1987. Highly respected and financial experts in the business, (AMR). strategy is survival. Management has been renegotiating labor agreements, cutting discretionary spending, and improving the efficiency of many of its back-office functions to improve profitability. (AMR) continues to cut its ticket-distribution costs by sending customers to its Web site, where transaction costs are much lower than through a sales agent.

Optimism remains high about the pension bill that stands to ease the financial pinch facing U.S. airline carriers. According to the latest version of a pension reform bill in the U.S. Senate, both (AMR). and (CAL) will be given extra time to address the under funded status of their pension plans. The same privilege was granted last week to Northwest and Delta after the two carriers filed for bankruptcy protection. The pension bill, which still needs to be discussed in the full Senate and in the House of Representatives, would help reduce (AMR) immediate financial burden.

Airline stocks fell on Friday but closed out the week with a 6.4% gain as investors took heart in oil prices that saw futures close at levels not seen since July. American closed at $12.30 up 11.8% for the week of October 3rd.

Founded in 1982, (AMR) is the parent company of American Airlines and other aviation companies headquartered in Forth Worth, TX. (AMR)">American provides passenger and cargo transportation to 250 cities through it's major hubs in Dallas-Fort Worth, Chicago, LA, and NY-LaGuardia.

Today, all airlines operate in an extremely uncertain industry. With the unpredictability of fuel prices, labor woes and poor economic conditions lurking behind every cloud, We believe there a silver lining for the future of American Airlines.

Om Malik’s Broadband Blog » Unwired Google Confirms Free WiFi

Om Malik’s Broadband Blog » Unwired

As Om Malik has noted, Google will offer free WiFi in San Francisco as a way to have a testing ground for location based search. Offering Google talk and free WiFi must make the phone companies want to shout.

Location based search is very exciting. Offering the public the chance to search on virtually anything in a geographical area is mind boggling.
Google in San Francisco

Werblog: First eBay, now Yahoo!

Werblog: First eBay, now Yahoo!

Yahoo is beefing up its VoIP staff. Having bought Dialpad maybe 4 months ago, Yahoo is set to compete with AOL, MSFT, Google and others.

Folks, if you have been paying attention, you know that free computer to computer phone calls are going to take the phone business by storm. As more and more people carry portable wireless computers, the value of free internet phone calls will grow quickly.

We are moving into the growth phase of these businesses. Companies will spend billions on equipment to build out networks and consumers are going to spend billions on hand held wireless computers. Companies like Qualcom, Motorola, Texas Instruments, Juniper, Nokia,AMD, INTC, and many more should benefit. Buy the i-shares to cover all the bases.

Luchtzak Aviation - Continental Airlines daily service between New York and Copenhagen with B757 - A crazy site about aviation!!

Luchtzak Aviation - Continental Airlines daily service between New York and Copenhagen with B757 - A crazy site about aviation!!

The list of Continental International flights is growing very long. New International business is much better than having to fight discounters for "milk runs" in the states.

Bloomberg.com: U.S. Gasoline Futures Drop!

Bloomberg.com: U.S.

Can you believe the numbers? Wholesale prices of oil are headed toward their largest one month drop in price since June of 2001! Gasoline demand is down 2.8%.

Consumers are cutting back on oil consumption. Many folks are planning moves to the south for the winter. It may be a few more weeks before production is back to normal but the high prices are being met with lower demand.

Om Malik’s Broadband Blog » Mobile Pioneer on Google WiFi & MuniWireless

Om Malik’s Broadband Blog » Mobile Pioneer on Google WiFi & MuniWireless

Experts indicate that Google's plan to cover San Francisco with free WIFI while providing only 300 access points is flawed. The suggestion is that it will take 3,000 access points and $250 million to build the network for this one city. Un-wiring the 70% of the nation might cost 25 Billion!

I suspect the plan will work out fine. Afterall the free service will be relatively slow speed. If citizens are offered high speed service for $19.95 per month with unlimited free Google Talk calls, will not many of them opt for the pay version? Google's is not in this deal to give away the store. The details of $19.95 are all made up by me. However, Google's has indicated that it will partner with others to offer higher speed service.

It is interesting to see AOL and MSFT restructuring their businesses. At the same time, it is interesting to see the heathy competition between Yahoo and Google's. Terry poked at Google's a little by saying it is the 4th largest portal. Google's revenues are shooting toward the sky. Yahoo is certainly more diversified. Google is making the most money.

John Battelle's Searchblog GOOGLE JOBS

John Battelle's Searchblog

The next rumored search by Google is jobs.google.com. Terry Semel, top dog at Yahoo, indicates that Yahoo will allow Google to crawl its listings!

This is very interesting. If these two companies will keep one anothers info open to the other, they will both be better off. Google's approach does not support one job service over another. It does hurt the service that does not agree to allow Google to crawl.

This "non-competitive" approach, makes all the more infor available on Google and Yahoo and therefore marginalizes MSFT search. MSFT is in a scramble to "save" its search business. One option it has is to pay big for AOL's business. John points out that AOL has been instrumental in building Yahoo and Google search. Google paid a large sum for the AOL account; will MSFT pay even more?

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

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

WOW! CAL!

CAL went up 13% yesterday during market hours and then traded up another 1% in after market trading!! This stock has been a roller coaster ride in recent years. In the aftermath of 911, the stock was cut in half and then in half again and finally the the stockbottomed in October of 2002. The path has been from $57 to $4 to $20 to $9 to $16 to $9 and now back to $12.

Since the $4 price in October of 2002, the stock has gradually weathered storm after storm (figuratively and literally). The power of Katrina and Rita were amazing. Seemingly enough to swat this " weak business", but the remaining players are very tough old birds. CAL tested the lows of 2004 but support is very strong around $9.50 per share. The stockhas bounced almost 30% in the past week!

This is not a "dead cat bounce". The roller coaster ride is not over as the energy market is still volatile, but, with millions of barrels of refined products flowing in from overseas, the US market is coming through an extremely difficult time much better than most would have expected. The importation of supplies from overseas will buy the time needed for US refineries to come back on line. Another will start up in a couple more weeks. In the meantime, consumer demand has dropped 5%! Markets work!

Many projects underway around the world will increase the supply of fuel. The number of gas to liquid projects is quite extensive. In many cases they don't make big news because they are relatively small industrial situations. As a group, the total new supplies are very powerful because the price of the entire market is set by the last new source of supply. Of course the projects also include huge deals such as those in Quatar and Canada that will produce millions and millions of new supply.

Some of the more aggressive projects will ultimately prove to be huge mistakes for the investors. The costs of converting every thing from tar, shale and coal to liquid fuel is anywhere from $20 to $40 per barrel. The cost of lifting the "good stuff" is less than $5 per barrel. One must remember that two years ago, $18 oil made exploration a risky business. The motivation and confidence is now certainly there to spend millions finding more of the good stuff. Even whent the price drops back to $40, light sweet crude finds will be very profitable and will cause severe heart burn for those who have invested billons on esoteric and relatively expensive projects.

Don't misunderstand me; Canadian tar sands will certainly be a growing source of supply. Efficiencies have pushed the cost of this product into the $20 range, making it very profitable even at the $40 price that is perhaps a couple of years away.

The process here is one to which farmers can easily relate. I can't remember the technical name for the pattern but the supply demand curve for oil and agriculture products traces out a cobwebed pattern. Hitting and maintaining equilibrium of supply and demand at a stable price is simply impossible. The market is in a constant state of flux.

Old fields offer "virtually free" supplies but gradually are depleted. Exploring and production of new supplies is captal intensive, requiring years of steady production at relatively high prices to recoup investments. Coal is always there and is relatively stable because power companies and industrial users take out long term contracts. Demand for oil is much more volatile. In a strong economy the demand jumps up, increasing the profits for the oil companies but again it takes a considerable time to make up for the cost of the ex. and p. and for the years of losses just incurred.

Again, the market overshoots on supply, prices fall too low and drilling rigs sit idle. Eventually the demand catches and speed past supply and the scramble begins anew. I hope you can picture the spider web pattern. In the early 1980's there were more than 4,000 active rotary rigs. By 1999, there were less than 500 active rotary rigs. Today there are 1,400+ active rigs. However, due to technology the number of dry holes drilled has shruck. Today, 1,400 drills are more productive than 4,000 were in the 80's.

The oil business is risky, capital intensive and difficult. In the meantime, misguided souls such a Bill O'Rielly acuse honest investors and businessmen of price gouging the poor consumer. He keeps asking who sets the price of oil. The answer is "the consumer". The only way an oil company can sell any oil is for a consumer to buy it.

Oh well! CAL will do very well with oil trading at $60. When oil gets to $50, many will wonder how they missed buying CAL at its long-term major bottom. In two or three years when oil is at $40, CAL's profits will be at all time record highs. The scramble to own the stock will be fierce. Just like the scramble to own oil stocks fierce 8 weeks ago--at the top! Those that lead the scramble in three years will make money if they hold for just a year or so. Those that buy the stockat $12 tomorrow will see gains in the neighborhood of 400 percent or more in 5 years or less.

I am a semi retired private investor who makes no recommendations. Don't buy because I said so because talk is cheap---here's a few more comments on the airline industry:
Positioned for Growth

Continental One of the Best Places to Work
Oil Blog

Fuel News

Time Warner, Microsoft resume Net unit talks - Internet Services - Internet - General - M&A

Time Warner, Microsoft resume Net unit talks - Internet Services - Internet - General - M&A

The mashup of AOL and MSN would make the two companies into a strong third horse in a two horse race. Google continues to lead and even gain market share in world wide search. Yahoo continues to add substantial proprietary locals that give it solid advertising growth. AOL has the content but has not monetized it. MSN has failed to crack the market! It is pretty amazing that MSN can steam roll this market the way it has so many in the past.

AOL members currently use Google search. MSN countinues to try to grow its search business and would love to serve the 21 million AOL dial up customers. The advantage to AOL has to be along the lines of the potential to monetize content that is not currently freely available on the net; how about all those magazines?

It would be so nice to be able to search magazines the way one can search the news. For the most part, even though some magazines are online, for the most part they are not very searchable. Yahoo has a deal with ADBE and magazines such as Business Week is available by online subscription using the PDF download format.

I subscribe to Business Week and to PC World but forget to read them. More of my news comes through Google than from any other source. It would seem that AOL might want to offer a "blanket subscription". The idea to make magazines searchable for a subscription fee.

The fight is similar to the ongoing developments in the book scanning wars. The consumer will be best served if he can view books online. The efficiency over actually checking out a hard copy at the library is huge. In the long run, "economics wins". Folks such as AOL can try to hide their media, keeping it off the internet in an attempt to keep hardcopy subscription sales high. This strategy will only lead to the gradual loss of market share. AOL is probably about ready to offer substantially more content, if they can gain control of the search engine. MSFT is ready to admit that they can't crack the search market alone but they do not want to give up control to AOL.

There has been talk of spinning off a new combined entity to give each player ownership of an independently run company. I am not sure that any of this matters much. The fact continues to be that Google and Yahoo are in the race and the rest of these guys are ridding nags. Interactive corp and its Ask Jeeves program is also in the also ran division. AMZN has a powerful seach engine but the 800 pound gorrilla continues to be Google .

Some folks say that someone will come along with a dramatic enhancement to search which will make Google into another Alta Vista. The reality is that Google has strung together 10 to 60 data centers and more than 100,000 computers in a highly efficient network. Inventing a new search algorithem better than the Google science would only be a small portion of the task to out Google, Google . AOL, MSFT nor Yahoo have put together the network that can match the GoogleNet. Google is well in front and gaining share. Eventually the share gains will level off. Perhaps because of a combination of MSN and AOL. Together these folks may be in sight of Google when it crosses the finish line.
More on the AOl & MSN merger:
World Adventurers
Om Malik
TheGoogle effect
A Good Idea

John Battelle's Searchblog

John Battelle's Searchblog:

John posted the following release from Google.

Google Inc. (NASDAQ: GOOG) today announced the official launch of Google Local, merging the technologies behind Google Local and Google Maps. No longer in beta in the U.S. and Canada, users can visit Google to find local search and mapping information in one place.

'With today's launch of Google Local, users will be able to go to one
location to find all the local and mapping information they need,'said
Marissa Mayer, director, Consumer Web Products, Google Inc. 'Whether it's directions to the nearest pharmacy or reviews of nearby dim sum restaurants, we will continue to develop innovative technologies that enrich our users' lives.'"

My Take:

Local search has great potential to drive huge revenues. Being able to find the closest products at the best price quickly is a powerful tool to reduce ones costs. The power is enough to drive the inflation rate down. The potential is enough to suggest that WIFI internet, telephone and IPTV will all be free to consumers in return for the ability to capture marketing revenues.

In coming years, I expect historians to write about how the bond market conundrum of 2005 was eventually explained by the markets sniffing out of the futures savings via Google Maps combined with Google Local!

While talking to church friends tonight, I found it extremely difficult to relay the magnitude of the changes brought by always available wireless computing power. The simple questions might be the most beneficial. Questions such as, "Google, what time is it?" or "Google , is it going to rain today?" or "Google , how many minutes will it take me to walk to the library?" or "Google , how far to the nearest chicken fast food?" will be asked and answered often. A bible study group might ask, "What did Paul think about baptism?". A student studying history might ask, "Which Supreme Court Justice was the most controversial?"

Voice recognition and response has been anticipated for many years. Much of what Google is bringing forth is a function of being at the right place at the right time. Many of the Google innovations were not possible a few years ago because of cost of hardware, software and transmission or even because of the existance of the broadband web.

The pieces are coming together. At the Web 2.0 conference, hosted by John Battelle, Yahoo's chief talked at length about how Google is number 4 as a portal. AOL continues to make strides to convert to the "open" portal system. The thing to remember is that Google is much more than a portal. Google has the GoogleNet. The GoogleNet is preparing to deliver hundreds of new or remodeled products and services to billions of consumers.

As an investor, I am most confident that CAL, AMR and LCC will double in value and double again in a few years. These stocks are extremely cheap relative to Google, in particular on a price to sales comparison. On the other hand, even as a large company, Google still has the potential to compound revenues again and again and again in the next several years.

Google is taking the fight to Microsoft. To some extent, that means Google is in a major fight with INTC and DELL to name just a couple of the companies that depend on the "fat" computer model. Google is taking the fight to VZ, SBC, CMCSA and all the other telephone and cable companies. Google is actually trying to work with these folks but the "gales of creative distruction" are blowing up a major storm. Who will need a "fat" computer loaded with "super fat software" if one can pick up a low priced AMD notebook and "do it all".

Ninety percent of the owners use less than 10% of their computing power. Why should anyone buy machine gun to go rabbit hunting?

Google Maps are superb. Google local is excellent and improving. The mashup of the two is a significant enhancement. I simply do not see the energy flowing out of MSFT, YAHOO or AOL like that flowing from Google. Google is going to change your life and mine for the better. The productivity growth of the whole world is going to be strong. Productivity and wealth creation are synominous.

Last night on Kudlow and Company, one guest quoted power statistics that explain another major conundrum. The numbers were of the following magnitued; consumers have been forced to spend millons of extra dollars on fuel in the past couple of years, however, consumers total income during those years was 5 times as great as the increase in fuel costs. As Papa John used to say, "Times is Good". He knew his grammer was not the best but he also knew that America is a country of growth and innovation. Google is leading the way.

Continental Airlines

Continental Airlines

Another and another and another! CAL continues to add international flights. World wide business demand for air travel is very strong. The list of "highly profitable" new flights is growing. Highly profitable is in quotes because in total, CAL will barely scrape up a small profit for the third quarter. Considering the price of oil the past couple of months, this has been a remarkable accomplishment.

When cyclical businesses finally make the turn, the standing players usually do quite well for many years thereafter. I see 4 or 5 great years ahead for CAL , AMR and LCC. The action for the past several sessions have been neat. The indexes have fallen but CAL , AMR and LCC have enjoyed nice moves; perhaps too much too fast but then again, CAL hit $16 not long ago. It could be back at $16 pretty quick.

Bloomberg.com: U.S.

Bloomberg.com: U.S.: "Pascagoula"

The Pascagoula refinery will reopen weeks faster than earlier projections, imports of gasoline and other fuels has jumped 26 percent and gas stations report sluggish demand. As expected, the price is falling.

Investors who have piled into energy stocks are getting slammed. Airline stocks lifted off on the news.

Over the next few weeks, the word recession is going to be used quite often. My forcast is for a strong economy but the word is going to be used. The public is spooked. According to the Rasmussen poll, public sentiment is dropping like a stone. Right now, the numbers are in the ball park of where they were the month after 9-11!

Next week, there will be much concern expressed about the vote for the Iraq constitution. It is hard to tell if the doom and gloomers have a point about a negative vote. I think this might be the best news. The Sunnis may need to win this vote to feel they have a stake in the new government.

Oil down, air up, and Iraq up in the air.

HOW SWEET IT IS!

CAL, AMR and LCC are up HUGE! Some may think the jump is a one time event because the congress is considering pension relief. Some may think it is a one time pop because of a temporary decline in oil prices. I think it is the start of something big!

The "business phase" of the business cycle is upon us. Corporations are not willing to stick executives in tourist sized airplane seats. The seat sizes are going up and so are the prices.

The excuse to raise fares is in order to cover fuel costs. The reason to raise fares is because the airlines can. Demand is strong enough to permit price increases to stick.

It is always a good day when your top positions are at the top of your performance list. CAL is my pal. A well run, profitable airline.

$55 PER SHARE BY 2010 OR BUST!

BLOOMBERG: CANADA SECTOR ROTATION READY

Bloomberg

Sector rotation seems ready to roll! In many an economic cycle, heath care stocks do well after the energy stocks have done well. Consumer staples also tend to do well.

Oil stocks are getting hammered! Canadian stocks (we import more oil from Canada than from Saudi Arabia) posted their steepest loss in 17 months on October 5 (it is 1:00 AM October 6 as I write).

The bottom line is that world wide consumers are saying NO! Bicycle sales in the USA have exceeded car sales this year. Scooter sales are hot. Many consumers are staying close to home.

(PFE) Pfizer has news about a cancer drug and (MRK) Merck has a fantastic yield, 18 Billion in the bank and a good looking pipeline. My family has added more airline shares and shares in (SUNW) Sun Microsystems but patient investors will do well to buy the big pharmas (which have gone nowhere for a few years).

WEB BUBBLE ON THE WAY

Television Article | Reuters.com

UPN has ordered another 13 episodes of "Every Hates Chris". The article gives no indication if the availability of this show on Google has helped build the audience.

Apple will probably announce a new "Video-Pod". TV is going mobil. Google will send it free over WIFI in San Francisco. Apple may take the lead in paid downloads. Certainly there are many folks who are willing to pay for a world series game or other show while on the road or while out and about. We are talking big business! Web bubble 2.0 is on the way. The key is to own at during the early phase and not wait until everyone jumps on board.

BUY & SELL: FAITH IN THE AIRLINES

Current Value of the SOW Portfolio:

$105,412.88

Simple Return: 23.87%

~~>~>~~>~>~~>~>~~>~>~~

S & P 500 Value : $99,476.22
Simple Return: .04%

~~>~>~~>~>~~>~>~~>~>~~

Treasury Bond Value : $94,918.88
Simple Return: -1.08%

~~>~>~~>~>~~>~>~~>~>~~

Our Stock of the Week addition refects our faith in the survival of the airline industry. We sold four of our lower performing stocks and reinvested those proceeds into AMR

This week we chose Continental (CAL) for the Stock of the Week. Current performance is listed above.

Individual Stocks continue to outperform equal investments in the S & P 500 (.04%)and the TLT Treasury Bond index (-1.08%).

Be sure to check out other Stocks of the Week to see if it's a pick to include in your portfolio.

Past performance does not guarantee future performance. We make no recommendations!

Please call or write if you have questions about how to make money in stocks, bonds and real estate. You can reach me during office hours at 336-778-0543 or write me

BIG BULL STOMPING AND SNORTING!

THE BIG BULL IS STARTING TO SNORT, STOMP AND KICK!

THE PUBLIC IS VERY NEGATIVE TOWARD STOCKS!

THE NEXT BIG STAMPEDE SHOULD START WITHIN THE NEXT SEVERAL WEEKS!

BUY THE BULL!

POST: IRAQ SLIPS AWAY

Iraq Slips Away

The post points out the potential difficulties ahead in Iraq. The constitution as written is not the one anyone would have preferred. Failure to pass it could result in all out civil war.

Passage may give the Kurds, Shiites and Sunnis the incentive to control their respective "states". The days ahead will be tricky but hope is still alive.
Bloomington News

History Comments

YAHOO ACQUIRES UPCOMING.ORG

Yahoo acquires Upcoming.org

Yahoo continues to "buy local" content. Yahoo and AOL follow similar models. Google is more likely to "partner" with others to offer content. Google does not need to own a social calendar site if it can include many calendar sites in its web search service.

am sorry to beat an old horse to death, but the Google approach seems so powerful to me. Google does not need to lock up customers. It is willing to share them!
A quote from Online Marketing which recognizes the merger of smaller internet companies as a marketing trend we'll see more of,"You become the expert in your niche market and expert data aggregators and analysts are what the search engines are all about these days and will be for years to come. As long as that niche fits into their big picture [2 - 3 year product dev roadmap] then you're golden."
Infectious Greed
Michael Buffington on Yahoo's good moves
Om Malik
Why it works

CNN: BRITAIN LINKS IRAQ ATTACKS TO IRAN

CNN.com - Britain links Iraq attacks to Iran - Oct 5, 2005

Britian is turning up the heat on Iran. Iran needs to be a good neighbor or suffer the consequencies. The Iraq constitution may or may not pass on October 15. Passing such an important document is a difficult task; if you don't believe me, read the history of the United States of America.

I pray for a good voter turnout and a peaceful transition to a free nation. The world will be a better place when more countries adopt democratic governments.

Have you noticed the economic growth in Turkey? Turkey is in negotiations to join the ECU. Billions of people around the globe have recently begun to enjoy the benefits of freedom. Let us all hope and pray that progress will move forward at the accelerated pace of recent years!

Next for Sun, Google, Java: Walking papers for the fat client cartel? | Between the Lines | ZDNet.com

Next for Sun, Google, Java: Walking papers for the fat client cartel? | Between the Lines | ZDNet.com

FREE COMPUTERS! I KNOW: "I HAVE HEARD THAT ONE BEFORE." HEAR IT AGAIN!

The Sun Google partnership is one of tremendous potential. It is also an "in your face" announcement to Microsoft.

Microsoft. is big and tough. However, Microsoft. is selling SUV's when the public is ready for high mileage hybrids.

Every generation of the Microsoft. operating system requires millions of users to buy bigger, faster machines. More memory and faster speed but most of us use the machine to send email and to surf the net. We are not rocket scientist running quadradic equations.

Sun has long professed the goal of making the net the computer. Google has the same goal. Today's press conference was a disappointment to many bloggers. Give the guys at ZD Net credit for a deeper understanding than the other guys.

The report from ZD Net notes that through the use of AJAX "there is little if anything that Googleand Sun won't be able to deliver to our desktops, that, until today, required a significant amount of real resources (processor, hard drive, memory, etc)". In other words, consumers do not need a big expensive computer or big expensive programs if they are connected to Google and Googleand Sun through the internet. In other words, a free light weight computer supplied by Google could give the common user all the benefits without the hassles.

Don't you just love to install software upgrades, to add equipment like hard drives and to purchase a machine for hundreds of dollars? Upgrades to Gmail or to StarOffice just happen; no need for the consumer to be involved.

It is interesting at how many things have been tried before that will work now. The current situation in computers is similar to when the internal combustion engine was developed. Prior to this time, inventors tried to develop steam powered trucks to carry freight. Railroads worked but the steam engine was not practical on a wagon road. The idea of an email terminal, web TV and other "light weight" computers has been tried. If Google develops Java to run on the desktop, it will make sophisticated applications just a click away. Why should I buy excell to run a spread sheet when I know how to use only one/one thousandth of its power? I would love to occasionally post a column of figures and have the computer sum them but I don't need the humungous power of Excel.

No one knows the revenue potentials here. Google will develop free WIFI in San Francisco in order to track the traffic. Google will learn much from the San Fran trial. One important thing that Google, EBAY and others already know is that dominating market share in auctions and search is key. The San Francisco dry cleaner will want to advertise on the network that is used by the most people in his neighborhood. There is no prohibition from advertising on more than one service but if you only want to advertise one place you want to go with the biggest and best. If the cleaner advertises on two services and Google sends him all the business, he is likely to renew with Google.

Lets suppose that Sun is able to capture a significant share of word processing software and that Google is tightly integrated. How many times might the writer of a letter somewhere decide to search for a reference, a mailing address or some other information. If you get the picture, it is another case of a free service being provided to millions of consumers with revenues coming from vendors. Sometimes it is hard to envision the revenue being that large; early in the life of TV the same question hauted the industry. Radio was already big but the cost to set up a TV station was astronomical relative to the cost of a radio station. Could advertising revenues possibly cover the costs?

The reality is that billions of the worlds citizens are spending increasing amounts of time using the internet for work and entertainment; TV, Games, Email, Telephony, Video, etc. These citizens will make decisons based on what they see. It is true that out of sight is out of mind. Google does not need to make money off StarOffice, if it means the consumer does not need Microsoft. . If the consumer does not need Microsoft , he can stay in front of Google screens all day and night.

Sometimes, I probably over emphasize the "free" services. In high growth areas, sales are much more important that profits. If you get all the customers you can locked into your product or service, you can later figure out how to charge them. Google sets limits to its promisses. For example, the free WIFI in San Francisco is up to a certain speed. Millions of folks may sign up for free WIFI and later decide they need more speed. The key here is that the total charge to the consumer will still be substantially less than what the consumer now pays for several services. My total "cable" bill is quite high, I pay a seperate Vonage bill, a seperate cell phone bill and I still have two land based phone lines. Wow, I would love for Google to offer free wireless in my home town. I would gladly pay extra for extra capacity and still save a bundle.

I buy Dell computers but do not own the stock. I would love to buy low cost terminals. Why own a computer company stock if what you want to buy is cheap (or free) terminals?

In just a few years, the hand held or car based computer is going to be used far more than the desk top. One might ought to replace ones Dell or INTC postitions with a good battery company or a fuel cell company.

A couple of my relatives have purchased Sun(SUNW). We believe JAVA is going to be on the desk top and the hand held computer in a big way. Microsoft has the assets but Google has the fresh business model and the momentum. Do the Google Gulp!

SELLING STOCKS OF THE WEEK: BUYING AMR

After reviewing the Stock of the Weekportfolio this week We have decided to sell a few of our stocks that seem to have fallen into Bearish hands. Dillard’s (DDS), Joann’s Fabric (JAS), Spartan Foods (SPTN) and Russell Athletic (RML).

With individual stocks outperforming the S& P 500 and the 10 year treasury bond, each company was evaluated to see why it has not stood firm with other market performances. One common thread reoccurs: these businesses are tied to the retail sector. Perhaps rising energy prices, increase costs to transport goods, two major hurricanes and even Mr. Greenspan’s attempts to slow the economy are possible reasons for stock declines. (DDS) lost six stores in the Southeast due to the hurricanes. Dillard’s (DDS), sells upscale clothing which is a sector usually hit hard when consumers have less discretionary money to spend.

(SPTN) has been struggling recently with a major stocker holder group demanding that management enhance shareholder value. In other words, they have some internal problems as well as rising costs to transport goods to stores.

Russell Athletic (RML). just lost the sale of Jerzees brand boys sweats at all of the Wal-Mart locations. This is 2-3% of their revenue. Russell Athletic (RML). has also been affected by the hurricanes through damage to merchandise and distribution routes as well as rising costs to transport goods.

Quarterly sales at Joann’s Fabric (JAS), have been disappointing and present Joann’s Fabric (JAS), with additional challenges in meeting their 2005 performance expectations. Even with their strongest sales months ahead (September –January), they have an uphill battle. Additionally, they recently lost two of their top executives.

Even with a few “out-of-favor” choices, our Stock of the Week portfoliois still rolling on the positive side.

Moneys returned from the sale of these four stocks have been reinvested in AMR. We firmly believe the airlines are going to survive and have great faith in this stock pick to add to our Stock of the Week Portfolio. Look for Continential to be added to the portfolio as our next Stock of the Weekpick.

FOXNews.com - Business - Delta to Reduce Flight Schedule to Save Fuel

FOXNews.com - Business - Delta to Reduce Flight Schedule to Save Fuel

Delta has joined the growing list of airlines to reduce the number of flights. Delta will cancel flights with low bookings a few days in advance. It will usually be mid-week flights; weekend and international flights will not be affected.

Today, CAL, AMR and LCC traded up sharpely. Bookings are strong, costs ex fuel are down and ticket prices are moving up. Christmas and New Year flights are largely pre-booked.

CAL, in particular, has increased international flights. In response to my affinity for airline stocks, one fellow wants to know, "Airlines from what country!" He inadvertantly made a strong point for me. International airlines have reduced their costs structures in recent years but not like CAL. CAL is one of the low cost interntational carriers. The low cost provider wins!

SUNW--GOOG POOH POOHED!

It is as if Sun Microsystems has cried Wolf too many times. The blogosphere has pooh poohed the latest announcement about Google and Sun teaming up; a big mistake.

As a small business owner, I am ready to stop buying computers loaded with office suites. Nowadays, the cost of the software is more than the cost of the computer. There is no reason that any small business should spend hours networking machines, fighting off viruses and spam, making back-up copies, downloading upgrades or any of the many other chores currently required.

When Google saves my blog, it always saves 3 to 6 copies. If I need to find a copy and one server is down, another directs me to the next closest copy.

To date, MSFT has had a strangle hold on office software. Google IBM and many others have been prying the hold loose. Google is in the right place at the right time to finish the job. Google is not going to try to do it alone. Google is willing to share. Sun Microsystems has a nice suite of office software which has largely been out of sight and out of mind. It is about to be very present to millions.

My family has purchased shares in SUNW. The company survived the dot.com bubble. The "second leg" build-out of the web is about to occur. There are going to be big winners and big losers. In the same way that buggy whip makers needed to switch to auto parts makers in the 1920's, phone companies need to switch to media companies now. It is not an easy transition. Most of the whip makers went out of business.

Google and Yahoo should be thought of as the Coca Cola and Pepsi of the internet world. Can you name the third largest cola company? MSFT and AOL together would have a chance to become one of the "big three". Google now has a market cap about as large as Verizon. Verizon has the assets, Google has the momentum. Can Verizon convert to the new age?

MSFThas the money to build an Google clone. So far, Qualcomm is one of few to see the significance of owning the backbone to the internet. Sprint has signed-on to the Qualcomm system. Many a company hates to pay Qualcomm royalties. Google offers a lot of companies the chance to "partner" at "no charge".

Jim Brinkley, one of my heroes, helped Chip Mason build Legg Mason from a small firm to one the top companies on the street. Jim believes the low cost producer wins.

Google is the low cost producer. Until another firm at least tries to adopt the model, Googleis going to stay way out in front. It is going to take the merger of some major competitors and major reorganization to catch Google.

Competitors will continue to use the courts to slow Google down. I prefer to join rather than to fight. My family members have increased their holdings in Google and reduced their ownership in Yahoo, EBAY and in several telecommunications plays. We enjoy using Vonage as our VoIP provider but we are not excited about the companies business model.

Lucent,Nortel, Juniper and other equipment companies are going to supply the build-out of the "new web". Earthlink just won the contract to build-out Philadelphia. Jack Fields, a wise old investment broker, has never liked to purchase businesses in high growth areas where the competition is fierce. I agree, but when a business has a clear advantage, I like owning the advantage.

SUN. has an established product that is competitive with MSFT. It now has a distribution partner that is the low cost distributor. MSFT has almost all the market share. Only half the people have broadband connections. In 5 to 8 years 90% of the people will have broadband. Many of these will never buy word processing software. Many of those who currently own a copy of MSFT Office will not ever buy another copy.

Again, I am not saying that MSFT goes out of business. I am simply saying it is going to lose market share. In the past couple of years, MSFT has lost maybe 7% share in the browser market; it still owns the market. In 5 to 8 years, I believe it is possible that SUN will have 25% of the office software market!

FREE WIFI--THE WAY IT OUGHT TO BE!

The Google model for WIFI in San Francisco is the way it ought to be. The plan is for medium speed WIFI to be available to all "free of charge". Can you imagine the goodwill power companies would generate by offering the first $20 per month of electricity free to all households! The kilowatt rate for all over $20 would have to be higher. This is a profit making idea not a socialistic idea. Free enterprise should dictate that goods and services be priced in the best way possible. Basic necessities, such as phone service, electricity and WIFI service should always be available to all citizens. Making the price progressive would make more money for the providers and it would encourage conservation. Even health insurance should be automatic!

Wow! Has this conservative Republican lost his mind?

>Everyone who drives a car is required to buy liability car insurance. Everyone who lives should be required to set aside money to cover health care. The money should be paid into a health savings plan. This money would be available to the depositor for any health care needs. It should be invested until it is needed. If the account grows very large and the owner also has catastrophic insurance coverage then the excess funds would become available for retirement, college tuition or other purposes.

Because this money belongs to individuals who make the decisions in regard to health services, health care expenditures would be more carefully decided. Just like the idea that electricity, phone and WIFI basics should be free, the government should deposit the first $20 per month for all citizens. All citizens, those with or without a job would have an account growing in their name. The government would no longer need to spend billions to administer complicated Medicaid and Medicare programs. The idea is like the idea in industry to move all decision making down the line to the persons who know best. Only a mother, father or individual should make the decision to have extra tesst run, or not.

Obviously, I have thrown out a few dollar figures just to demonstrate the idea. Google is leading the way! The Google plan for San Francisco is neat. It is not much different than a number of plans in Europe but it is going to be a life changing system. Adoption of broadband in the rest of the US will continue to move forward but in cities like San Francisco and Philadelphia that are installing city wide WIFI, the adoption rate is going to approach 100% quickly.

Broad adoption will result in new programing. This will in clued neat little tricks, such as directions and distance from where you currently sit to where ever you want to go, and the fulfillment of old dreams, such as video on demand. The commercial applications are powerful. Because the computer location is known, a question such as, Gas?, might yield the location and prices of gas in your immediate area. Gas is just the start. How about the price and location of Kellogg's Corn Flakes?

Limited video on demand will even be free. However, one should not assume that ESPN or American Idol will be available at zero costs. The more one uses the service, the more likely one is to need higher speed of distribution. Also, producers of video services may offer various programming packages. One might be able to see all professional baseball games played fairly cheaply a couple of days after the game. One the other hand, it might be possible to view a movie now showing at theaters for a premium price.

The amount of media available will expand dramatically. Much of it will be supported by advertising. The good news is that the advertising will not be nearly as irrelevant and intrusive as today's TV advertising.

Envisioning the future is not possible, but we often get a good glimpse a few weeks or months ahead. San Francisco is about to be covered with free phone, internet and TV services! The growth in the amount of usage will be large. The citizens of other towns are going to be jealous. Look for the rapid adoption of free phone and other services across the country. Entrenched players will slow the spread but there is a gaping hole in the dam that will not be plugged!
Free WIFI

Om Malik

Google makes WIFI FREE

San Francisco becomes Wireless Hub

RUSSIAN OIL 5 MILLION A DAY

Russia has increased its oil output by about 5 million barrels per day in 5 years. I believe it was an article in the WSJ that showed the rate of growth slowed but is picking up again.

US consumption has not grown in 30 years. I do not believe it will grow in the next 30 years. China and India will consume substantially more but the real energy growth in these nations is in coal and nuclear electricity.

If I were looking for a conservative investment, I would buy GE and avoid XON. XON pays a strong dividend and is a very profitable company. The oil business is simply not a growth business. The business is in the news; investors have piled on; values are elsewhere.

The current disconnect between crude prices and gas prices will be corrected over time. The planet earth will be well severed by an increase in nuclear power and slower growth in the use of fossil fuels!
Fossil Fuels to becom Relics

Nuclear Energy

Jeff Berg on Nuclear Power

Renewable Energy

OIL STARTS TO TRICKLE OUT OF GULF

Good news: Oil began to flow last week. The Minerals Management Service says the flow has started and the market has already started to respond. See Big Cat Statistics for gulf production.The result is falling Crude oil futures from $1.61 to $65.96 a barrel Full Disclosure

BARRY FOCUSED ON: Consumer Spending, Personal Income, Credit Card "Issues"

The Big Picture: Consumer Spending, Personal Income, Credit Card Issues"

Barry is right on the money in that 70% of the US economy is consumer spending. However, we are moving into the part of the economic cycle when business capital spending carries the day. Spending by consumers will be relatively slow for the next several years. For the past several years, many consumers have used their homes like big ATMs. They withdrew equity and spent the money. The cost was virtually zero in terms of cash flow. The low rate refinanced loan was sometimes used to pay off higher cost debt. Low long-term interest rates were locked-in.

Those who live on the edge (which is a large number) must now make monthly payments on their home mortgages for years without being able to to go back to the equity well; perhaps or perhaps not?

The slow down that Barry writes about has come hard and fast. The disruptions in gasoline production are slowing the national economy. The debate continues to rage as to how slow? The spending on the rebuilding will be a powerful stimulus to the economy but the shut in of gas has a national effect now. I discounted this effect after Katrina but the Rita effect is longer lasting.

CAL just announced the suspension of some flights and an increase in ticket prices of $10. Of course, the other airlines need to play tit-for-tat. If they don't the suspensions and price increase will not hold. I expect the others to join the game; voluntarily or per force. If the airlines are short on fuel, they must cut some flights. The leverage is there to fly fewer planes at substantially improved margins per flight.

Businesses have cash. It takes much discipline not to spend cash just because you have it. Businesses are generally being careful. No one wants to jump into a comptetive situation when the other guy has $5 Billion available for capacity expansion. Businesses have learned that you make your money by running existing plants flat out,until you are forced to expand. International free trade has curtailed businesses from jumping too quickly. Increasing capacity reduces profit margins. Profits have surprised analysist for the past two years or better. Not withstanding the hurricane effects, I expect profits to continue to surprise on the upside. Ironically, the local gas stations are feeling the squeeze of higher costs and greater elasticity of demand.

Back to the consumer. If the economy does slow, 10 year treasuries may drop to 3.5% or less. The consumer may get one more big chance to refinance his home or to buy a resort home at a low interest rate. The trend is your friend and it remains the trend until it is not the trend anymore. We have been in the middle of a major real estate boom. A US baby boomer turns 50 every 7.5 seconds. Now don't tell me, all the baby boomers have purchased second homes. Don't tell me the consumer is all done. Peak earnings and spending have always occured between the ages of 47 and 59 and there are currently 79 million Americans of those ages. In many cases, other developed nations had an even greater baby boom.

The laments about consumers being head over heels in debt has been sung all of my life. In fact, quite a bit longer than my life. Read the writings of John Adams. He could not believe the spending habits of the young families in his day. Better still, read Lamentations, written maybe 2,700 years ago.

It is a fact of life that most families spend what they make. When interest rates are low, they can buy substantially more real estate for the same payment. The good news is that consumers who spend on homes and second homes will tighten their belts as necessary to make the payments. Defaults have historically been low.

The net worth of Americans has never been higher. Americans are more leveraged than ever before but there is a difference. The consumer who spends $900 on rent each month and has no equity is a different consumer than the one who spends $1,200 on mortage and taxes but has $30,000 equity. The net worth of Americans now exceeds 50 Trillion Dollars (my memory does not hold the exact number so I may have missed by a few trillion one way or the other).

If industrial capacity were out the roof or if worker shortages were common place, I might be worried about a slow down. As it is, the increases in short-rates by the FOMC have served to "export" inflation to our global trading partners. Indonesians face oil increases of at least 50%! Americans do not know how good life is!

Price gouging is a joke. American businesses work off low gross margins because we are the most efficent in the world. Free enterprise brings tighter margins not gouging. Shortages do cause hyper inflation. However, when allowed to work, the market replaces shortages.

The American consumer needs to be given a little more credit. On balance, the American consumer shops for and gets a good deal. More on this consistent picture of improvement:
Consumer Spending
Skeptical Speculator

Google to shake up online classified market?

The key take away in regard to classified ads being searchable by Google is that vendors will need to convert from a pay per listing model to a pay for performance model.

A big site, such as Cars.Com, would continue to have steady customers who automatically go to that site. It would also get a lot of hits from Google searches. Efficiency wins.

Using cars as the example, most of us would prefer to key in our search at Google rather than go to individual sites to search the inventory at that location. Those with a car to sell would not need to advertise it in various locations. The situation is like electricity. Since electricity was first sold commercially on wall street, the efficiency of it has won a bigger and bigger market. The cost to light or heat a home has dropped in real terms. However, the amount being used has grown exponentially.

There was a WSJ article in the past few days lamenting the concerns of books sellers. It seems Amazon is selling "nearly new books" at dramatic discounts. The process of posting an ad is going to become easy and routine. If it costs nothing to post, the number of postings will rise. The availability of goods and services will rise. Inflation will be reduced. EBAY and AMZN will be challenged by Google.

I believe these companies will coexist well. The Googleads will help EBAY and AMZN attract customers. Power sellers will still build and maintain sites at EBAY and the auction model will continue to be one method of selling goods. UPS and FEDEX will cut delivery costs when it becomes routine to stop at many houses per neighborhood each day.

DO THE GOOGLE GULP! For more information on Google's next cha-ching:
New Media ReprotNews.com
Breaking the Media Code
Blasted News
Daily Technology News

ABC News: US airlines look to cut flights, up fares

American Airlines will cancel 15 daily flights. Continental will cut flights and raise fares by $20 per round-trip. Delta and NWAC are also raising fares.

All of the above actions are appropriate under the circumstances. The key is: will the increases in fares stick after the fuel situation improves. I expect that both American and Continental will be profitable airlines in 2006.

JAPAN

Land of Rising Rates

Life is a see-saw, when one thing goes up, another goes down. Have you noticed the lastest move? Japan is going up, up and away.

Historically emerging markets have had a relatively negative corelation to the Japanese market. Indeed, small US stocks and emerging nation stocks tend to trade together and big cap US stocks and Japanese stocks tend to trade together. None of these relationships are perfect but they do exist.

Buy the basket! EWJ is a basket of Japanese stocks. It has made a nice move but I expect about 4 good years from this index. Buy big cap growth stocks in America, four more good years. Reduce your exposure to the over-heated markets.
ETF Investor
US Market BLog
Bill Cara

Continental Airlines Announces Daily Nonstop Service Between New York and Copenhagen, Denmark: Financial News - Yahoo! Finance

Continental Airlines Announces Daily Nonstop Service Between New York and Copenhagen, Denmark: Financial News - Yahoo! Finance

CAL continues to add international flights at a break-neck pace. The competition is virutally nil on many of these flights. Fuel is a bigger factor on international flights but the margins are fat.

One short term risk to CAL is that it might purchase NWAC or DAL. Even if such a deal is made, the purchase would amount to the assumption of debt in exchange for the carriers.

CAL has kept load factors high both domestically and internationally by shifting assests to international flights. One perceived risk to be very high is that new entrants will compete with CAL. This is a big joke. New entrants to the airline business have cost venture capitalist billions. There just are not many folks around who want to start up a company in this very competitive business. In past years, there was hope because new entrants started with much lower labor costs. After the restructurings, the surviving carriers have reduced labor costs dramatically.

Gulf Times Newspaper - Qatar, Gulf and World News - Finance & Business

Occidental just made its first shipment of Libya crude to the US. This is the first shipment since sanctions were placed on the country in 1986 in response to terrorism attacks.

The scale of worldwide oil production seems to be lost on most bloggers and investors. It is not good news that several rigs were severely damaged by Rita but a few out of 2700 active rigs worldwide is not as big a deal as it would seem.

With supplies already tight, the hurricane damage gives everyone a lot to talk about. It has been entertaining to read how "peak oil" has already been reached. "Peak oil" is the point at which oil consumed will always be larger than the amount of new oil discovered.

Yesterday, the Chair of Exxon and the King of Saudia Arabia tried to dispell the rumours about peak oil. King of Saudia Arabiasaid he expects the proven Saudi reserves to double as addtional areas are explored. Better still, the Chair of Exxon estimates that there are 7 trillion barrels of oil still to be discovered.

According to the Baker Hughes web site, the active rotary rig count dropped to around 480 in 1999 when oil dropped to $12 per barrel. The current count is approaching 1,500 with about 500 of those in Canada.

On the one hand, the billions of barrels locked-up in Colorado Shale is still not profitable to extract. However, the tar sands of Canada are now being developed. One excellent idea that is being floated by Total (a French oil company) is to build a nuclear power plant at the tar pits.

Few folks realize how much energy we waste when we produce and distribute energy. Misguided environmental policies have added and abetted incredible losses.

Take the California fiasco as a prime example. Powerplants are not built in California but power is transmitted to the state. This highly inefficient practice results in the extra buring of millions of tons of coal; just don't burn it in California.

The fear of nuclear power has resulted in the buring of 400 million tons of coal each year. Nuclear power is much cleaner than coal power.

Gradually we learn how to convert waste to economic use. For example, Shaw Carpet Mills has burried megatons of waste carpet fibers over many years. Recently the company learned how to use this material to produce energy to run the carpet mills. The key was in heating the fiber to a gaseous state such that the polutants could easily be filtered away.

The biggest waste product from power plants is heat. For this reason, it makes great sense to build a nuclear power plant where the heat could be used to extract oil from the tar pits of Canada.

The reality is that the earth is collecting more energy from the sun than we are using. As long as the sun shines, we will never run out of energy. We must learn not to waste millions of pounds of concrete and steel chasing wind mills when natural processes on our planet convert the sun's energy to hydrocarbons for us.

My best guess is that the price of oil will be down to $54 per barrel within a year. In the short run, it will be necessary for Americans to cut their use until recovery from the hurricanes is complete.

In the long run, we need to continue to become more efficient in our energy use. No need to worry over this as it is as much a part of nature as the process of decaying biomass producing oil. Markets do work! The use of electricity for lighting replaced oil lamps around the turn of the 20th century. The savings has been incredible. In the future we will drive cars that are powered by nuclear electricity. The nuclear power plant will not be in the car but the nuclear plants should be disperesed around the country (more so than the 108 nuclear plants already producing energy).

According to the Rydex Mutual Fund index, non-professional investors have dramatically overweighted oil in their portfolios. If you have more than 10% of your portfolio value in oil, you are overweight. I am underweight oil. I own a couple of very small interests in working Texas wells but, own no oil stocks.

I own no oils stocks because I believe we are close to a near-term peak in the price. The pain of higher prices is being felt around the world. Indonesians will see a jump of about 50% in the regulated price as of this coming Friday. China is regulating the sale of large vehicles and India is cutting their oil subsidy.

Meanwhile, oil producing nations are letting bids for new ground and water. The bids include our own back yard. Oklahoma, Alaska and the US property in the Gulf to name a few. Libya will let an area the size of Cuba next week. Russia, Libya, Mexico and hundreds of other nations are making deals with American firms. US technology has improved by factors of 1000. In the old days, wild-catters drilled many an empty hole. Today, American firms make detailed 3-D maps of millions of acres before drilling to where they know the oil will be found. The
Exxon chair estimates that there are 7 trillion barrels of oil to be found and the 3 trillion will be relatively easy to find.

With strong measures being taken on the demand side, around the globe, and with increased production around the globe, it is a matter of time before the price of crude comes down.

After two years of consolidation, the US stock market is about to boil over the top. When Google lets its contracts to build out the Google Net, the next round of capital spending will be underway. Many of the dreams folks had of the internet in the 1990's will come true over the next 10 years.

Check out the negative sentiment of consumers and investors as reported at Rasmussen Reports. You can see how negative the public has become. Investors should remember to invest when others are fearful and to be fearful when others are greedy.

The market needs one more big dose of "bad news" to kick start the next great stock market move. I can't tell you what the bad news will be. I hope it is not Stan! Rita has always been a name I have liked but not Stan. Wilma may be along before Stan gets out of the way. Again, these hurricanes have not been pleasant, however, they are not big enough to derail the greatest economic machine ever to exist. The US economy is strong. Greenspan used it to pull the rest of the world out of a mess and now he is tapping the brakes before we crest the top of the hill. It is time to get on board.

BUY THE BULL!

Oodle - The Search Engine for Local Classifieds

Oodle - The Search Engine for Local Classifieds

Oodle is a new seach engine for local classified ads. It seems that there are many folks trying to get out in front of Google; to take some business away or perhaps to set themselves up to be bought by Yahoo, MSFT, News Corp or Google

Oodle is pretty neat. It allows you to find what you want very quickly. This is another way the world is going to be a less wasteful (more productive) place. No need to buy new, when you can quickly find nearly new at half the price.

Oodle allows you to be pinged when a new item is listed that fits your search. Dealers love this feature.

You can expect Google to offer a similar service soon. It is clear that sooner or later EBAY and Google are going to be in head to head competion in many areas. Some have suggested that there will be 4 to 6 major players left standing in a few years. Combinations such as MSFT-AOL, Skype-EBAY, Yahoo-SBC, etc.

If you have seen a chart of newspaper help wanted advertising, it is not a pretty sight. Layoffs of staff and other cuts are in the works and a paper. The Google sidebar finds the news I want to read. Each day it gets smarter. Each day, it sends me several stories that I click as "send no more like this". My news is becoming more and more customized for me each day.

The local paper I read sends me a junk editorial page each day and sports articles from teams that I do not follow. I have not pulled the plug on my subscription yet but the day is drawing near.

Try Oodle and post a comment. I'd love to know what you think.

GOOGLE and NASA

John Battelle's Searchblog

Google does not want to waste any time on its computers. My guess is that Google owns at least 200,000 computers! This is based on the fact that at one time Google had 10 data centers and each center had about 10,000 computers. Since then it has been reported that Google is spreading out to 60 smaller data centers.

Google uses cheap, off the shelf computers, but its software is designed for "plug and play". Google can add another rack or a whole new data center and the existing computers find the new resources and put them to work.

The Google-NASA partnership makes sense. All these brains and computers working next to one another is pretty amazing. Ideas will flow.

I don't know the utilization rates at peak hours and off peak hours for Google's machines. However, even though Google helps searchers around the globe at all hours of the day and night, you can be assured that they do have peak and non peak hours. NASA studies can surely use this computing power.

Years ago, many data centers did banking, payroll and other "batch" processing at night. High powered users kept the computers busy druing the day. Somewhere, I read that Google can outrun high dollar servers by a factor of 30 at about 1/8th the costs. Why not let our space program in on some of this power and savings?
Other views:
Matt Asay
Global Chinese
Silicon Beat
Google Blog

Official Google Blog: Putting crowd wisdom to work

Google continues to look at ways to make the wisdom of the crowd work. Free markets work.

Right now, politician after politician has a plan to "correct the market"; how dumb. The collective wisdom of the market is smarter than any politician. Ideas such as windfall profits taxes or price controls do not work, except to temporarily win a few brownie points for politicians. In the long run, socialistic manipulation of markets lead to gross inefficiencies.

Markets are by no means perfect. Yesterday, Google dropped several dollars in price. It appears that the drop was disappointment over the Google press release. Investors have been waiting with baited breath to know how Google will spend several billion dollars. My belief is that the big annoucement will be the letting of a multibillion dollar contract to build-out a nationwide high speed fiberoptic broadband network.

LU Lucent and NT Nortel have both traded up in recent days. I would not be surprised if one of these companies benefits from the build-out. JNPR,the Juniper Network may also get a piece of the action. (GLW)Corning has traded down recently after a supper strong run.

Yesterdays announcement lopped a few billion off the market cap of Google. The company plans to build a million square feet of office space. I don't have a clue about the cost of space in silicon valley but it it is 100 per square foot, the cost will only be 100 million. Just a tiny piece of the spending Google is prepared to do.

Again, markets are relatively efficient. Burton Malkiel thinks they are very efficient. Warren Buffet and others disprove the EMH theory. Google is studying and using market based concepts to distribute information to the public as efficently as possible. Go Google Go.

A family member just did another Google Gulp! He watched Everybody Hates Chris, the UPN show that is being streamed by Google. He says he sees how the zillion channel TV is going to work. When Google builds out its network, the cost of streaming shows to you will be virtually nill and the revenues to Google will be huge! BUY THE BULL! Short term sentiment may take this market down a knotch but the expansion phase of the economic cycle is underway!

Other links for Google TV:
The Gadget Spy
buy google
Postronik's World
Science and Tech
Today's Top OpinionGordon's Tech

Free Wirless Internet in San Francisco!

Internet News Article Reuters.co.uk

Google has offered free wireless internet services in San Francisco. This could be the start of something big!

I have had about as much fun as I can stand dealing with Cingular the past couple of weeks. I purchased a new Treo 650 and paid an extra $39.99 per month for unlimited internet access. The set up has been a total mess and the help from several of the sales reps has been horrible. Some of the features are neat but there is an extra charge of $.25 per message every which way you turn.

Please, please, Google, please, offer free wireless in North Carolina as soon as possible! Just a few weeks ago, after dealing with Time Warner in Myrtle Beach, I said no company could beat Time Warner for horrible customer relations. I stand corrected. Cingular is where I am trapped for the next two years. I can only hope I don't have to deal with them much. Go Google, Go!