CLSA China Nov Purchasing Managers' Index 49.8 vs 50.1 in Oct - Forbes.com

Wow! A slow down in China!

China has built a lot of manufacturing capacity, the world energy crunch has made it too much. The good/bad news for traders is that metals prices are about to take a dip, a deep dip. The CRB has turned down and several of the big miners have been downgraded.

A decline in metals will allow interest rates to fall. A decline is needed because US housing construction is ready for a long fall. The number of unsold homes on the market is as high as ever. The most recent new home sales number was super strong but will likely be revised. New home sales cannot stay strong with a glut of used homes on the market.

Fireworks ahead!

GOOGLE GETS THUMPED

MarketWatch.com

For Google to take a thump on the head is not a big deal after such a fantastic run. The bigger implication is that the pull back has started.

Yes, the Dow was up today, so what? Big money often flows into the Dow at the start of a correction. The bond market also took a good thumping today; another sign that there may be a stock market correction in the cards.

The market is no doubt over-bought after a nice long rally. However, the sentiment numbers are not out the roof. Therefore, I do not expect a big down-draft. The exception could be in gold and other mining stocks. Even the oils may get hit a little harder than the average stock. It is hard to guess when the gold correction will begin. There could be one more strong blow-off rally or the prices could drop from here.

If you own Google at lower prices and are the type that will panic if it breaks prior support areas, then you might want to lighten up now with plans to buy back later. Don't complain to me if you never get the chance to buy back. There are any number of positive events that could take the stock back up strong. One of the exciting areas is the possibility of ala cart TV channels. It is clear that internet video is going to grow by leaps and bounds. It makes sense to allow Google to catalogue content. Google has made a number of recent moves to negotiate content deals.

Google was thumped today but the long term prospects are excellent. It is a high priced stock by most any measure but it has the potential to grow like few other companies. For me and my house, we will ride the bucking bronco. We will hold on tight. There may be a rough week or two ahead but 2006 should be another great year for Google.

STRONG ECONOMY WEAK BOND MARKET

The economic numbers today showed a heck of a lot of strength. Durable goods orders were strong and the housing numbers were supper strong. Housing is gaining a reputation as the new Energizer Bunny. Yesterdays drop in sales of existing homes gave the market pause but new home sales just keep on keeping on.

The stock market and inflation sensitive metals markets remain strong and bonds are getting thumped. The uncertainty created by the retirement of Greenspan continues to weigh on the market. The part that is not often mentioned by the talking heads is that the FOMC must make its moves more gradually now-a-days because the entire world is in sync like never before.

The correlation coefficients of world markets have moved to higher and higher levels since world trade has been expanded. The latest numbers are up around 70% for much of the world. The America's are now leading the way but even Japan is now on board.

Additional moves by the FOMC will force other countries to increase rates or see even higher inflation rates. Exporting countries do not want to be the first to act but the pressure to at least follow at a distance will grow.

I project that the FOMC will not stop raising rates until the Gold spiral is broken. The good news is that the distance is not great. There is now a divergence between the price of Gold and the US inflation rate. The break in Gold will be accompanied by a long bond rally. The European Central Bank meets on December 2 and the FOMC meets of December 13, stay tuned for the exciting conclusion to the Greenspan era!

InformationWeek > Travel > Struggling Airlines Try Portals For Business Travelers > November 28, 2005

CAL,DAL and NWAC continue their integration progress. Earlier I mentioned that each has made its airport clubs or lounges open to the others passengers. The move not reported is the plan to offer small businesses a combined online booking portal.

The internet has changed the airline business forever. The middleman or travel agents have been bypassed for lower cost online reservations. Travel agents will continue to serve the public but the percentage of tickets booked directly online will continue to grow.

Expedia, Travelocity and other agencies are up against stiff competition. With each of the majors building their own portals, the best deals will often be found by using the carriers site.

Prices of airline stocks have stalled after a major run. One risk being discounted is the possiblility that fuel prices are down for the traditional winter slow-down. Should prices hold at current levels, the stocks are under-valued by 30% or more. The market is clearly concerned that crude will return to the low $60 range. The irony is that the price of the integrated oil companies such as XOM appears to be discounting $40 oil.

The markets focus on oil prices is simply over-done. The airlines will make money even at $60 because they will gradually adjust fares to the price. The oil companies will make money at $40 as oil is a very profitable business at $40. I prefer the airlines but stocks are the place to be.

The bottom line is that investors are still risk averse. They continue to hide a lot of money in short-term cash holdings; the fear of loss is still the major emotion driving the market. It will take a solid break-out for greed to takeover.

Earnings have made a peak like none seen since 1965! The indications are that earnings will continue to grow. A huge number of companies are currently in the position that they can buy back shares to increase earnings. Many will issue corporate bonds to reduce shares. The operating leverage for most businesses is currently such that profits are easy to come-by. The process of "leaning-out" is into the 4th or 5th year for many businesses.

On a nominal basis and percentage basis, the airlines have probably done as much as any other industry. Auto, auto-parts and pharmaceuticals are in the recent news for their efforts. Unions are not likely to push up wages or cost in this environment. Airlines will continue to lower operating costs at a time when revenues are soaring; good times ahead!

GOLD INFLATON DISCONNECT

Steve Leisman of CNBC posted an excellent chart this morning. His chart was a comparison of the core inflation rate next to the price of Gold. I believe he pushed the price of Gold 15 months forward. The point is that the two have tracked each other very closely until the last few weeks. The price of Gold is out of sync with the market. The treasury bond market continues to forecast moderate inflation and the reported numbers are moderate. The world wide inflation rate has jumped relative to the US rate. The strength in the US dollar is hitting our trading partners hard.

The European Central Bank will consider raising rates this week. Higher rates will slow the world economy, bring down the price of gold, bring down long-term interest rates and boost the stock market. Short-term, the market is over-bought. It is over-bought by a number of measures. One should avoid focusing too much attention on short-term considerations. The likelihood of a pull-back is high but catching it just right is more luck than skill. If you have new money, you might want to wait for a pull-back to invest. Only aggressive traders should sell current holdings with a hope to buy them back cheaper. If you own a poor performer, you might consider selling it now and waiting for a pull-back to reinvest in a better stock. In any event, stay at least almost fully invested in stocks. We may be near peak earnings but the economy is strong and stocks are likely to out-perform bonds or real estate over the next few years.

Continental Airlines

My faith in the airline bounce continues. It is built on powerful premise but is also helped by the potential for fuel price reductions.

The powerful premise is that airlines have traditionally done well during the expansion phase of the economic cycle; the phase we have been moving into for the past few months. Airlines make their money when business travel is strong. Consumer traffic does not hurt but supply demand does not boost yields until business travel kicks-in. The recent conversion after conversion of planes to increase business and first class seating along with historically high load factors makes it clear that business travel is taking up all the slack.

After a 62% run in the price of Continental, the market has traded around the $57 crude oil fulcrum. Oil at $57 translates into airline fuel of about $1.70. Most analyst have made their projections of airline profits on average fuel costs of better than $2.15. Should the price level off at $57, CAL should make (according to JP Morgan) $2.94 per share in 2006! Obviously many analyst assume that fuel prices are near a winter bottom and will go back up in the spring, otherwise they would not be estimating losses for CAL in 2006.

I happen to believe that before 2006 is gone, fuel prices will be below $50 per barrel and below $1.50 per gallon for jet fuel. Should fuel prices average $1.60 for 2006, JP Morgan estimates that CAL will earn $4.32 per share!

CAL still has plenty of problems but the sale of more shares has boosted cash reserves. An IPO of a foreign carrier will produce additional liquidity. The company may need the cash to help ward of a potential strike. The dead line for a deal with the sterwards is December 7. I believe the company is ready to operate without the current union labor force for as long as it takes.

The ties between CAL, NWAC and DAL continue to grow. The companies just made a deal to open their airport club lounges to each others passengers. This makes 90 airport clubs available. These lounges are important features to attract and hold the high dollar long-distance traveler.

The code sharing and lounge sharing cause one to wonder if a merger will take place. LCC is the merger of American West and US Air. This combined firm is now the cheapest of major carriers on an enterprise basis as the debt of US Air was largely shed during bankruptcy court. CAL, NWAC and DAL code share as a marketing agreement that allows each to avoid duplication of services while selling both legs of many trips. The leap from code sharing to a merger is a big leap but the bankrupted carriers best chance of long-term survival is through merger.

Recent regulation changes allows a higher level of foreign ownership of US carriers. It appears that British Airways and others may have interest in combining operations with American carriers.

By the way, don't be surprised at 4th quarter losses. The airlines make their money during the spring, summer and fall. They are always very busy during the year end holidays but traffic is otherwise relatively low during the cold weather months. The following are a few estimates from JP Morgan:

Fuel Cost CAL 2006 EARNINGS

$1.75 $2.25
$1.70 $2.94
$1.65 $3.63
$1.60 $4.32

A nickle a gallon can increase earnings $.69 per year. A decline in crude of $1 per barrel, at current levels, converts into a decline in jet fuel of about $.03. It is not a smooth relationship as the crack spread is a higher percentage as the price goes down. However, $1.75 per gallon is the equivalent of $58.50 per barrell with a crack spread of $12 which makes current cost about $1.70 at current crude prices of about $57. Put another way, it will take prices of about $53 per barrell to produce earnings greater than $4 per share. $53 oil could push the share price of CAL to $40 or higher!

MYRTLE BEACH SUNNY AND MILD

The girls left to hit the outlet malls early. Myrtle Beach is famous for having more than 100 golf courses which perhaps correlates to the large number of outlet malls.

The weather is beautiful, the turkey was delicious and life is good. It is clear that real estate firms are gearing up for the coming season. Mortgages rates are finally trending down and demand for second homes is getting new life. A side unit here in the South Hampton Building recently sold for around $750,000. The unit is not the prime location so the sale is a good indicator that front corners may hit a million dollars this spring.

Some folks think the real estate "bubble" has popped. The reality is that of the 78,000,000 baby boomers in this country, only a small portion have purchased a second home. The second reality is that no matter how negative many folks are more families can afford two homes than ever before.

My family has enjoyed being in Myrtle Beach 18 of the last 19 Thanksgivings. One cannot ask for a much better environment to enjoy a holiday with family. With a granddaughter on the way, the shopping is all the more fun. My son-in-law and I will visit the Bass Pro Shop today. We will avoid the mall.

As far as the market goes, it is trading up a little. Sometime in the next few weeks, I believe there will be a break in gold and industrial metals prices. There will be a jump in bond prices. Earnings may drop a little as the most profitable companies, the oil companies, are now experiencing very low crack spreads. With the exception of miners and oil companies, the market should do well. The current overbought situation must be worked off. The market does not have to go down a lot to cause sentiment to switch. For example, the switch could be part of a rotation where energy stocks decline. Happy Thanksgiving!

Opinion by Richard Ducote: Refinery in desert may not be mirage | www.azstarnet.com �

Progress toward building a new refinery in Arizona continues. Mexico has agreed to allow a pipeline to be built so that Canadian oil can be unloaded in Baja California and piped accross Mexican territory.

The refinery is expected to cost $3 billion, to produce 150,000 barrels per day and to be opperational by 2010. Every little drop in the big bucket is a big help. Prices are set based on marginal supply and demand. Speculators may get tired of hoarding supplies if signs of new supply are clear.

HOW TO TURN A NICKLE INTO $.70!

Would you like to see a magic trick? Do you know how to turn a nickle into 70 cents? I know how and I am willing to tell!

Operating leverage is a neat trick; legacy air carriers have operating leverage. This means that if they increase their revenues (or yield) a little, their earnings go up a lot.

For example, according to JP Morgan, if AMR, CAL or LCC were able to lower their fuel cost by a nickle, their earnings would go up by about $.70. Guess what? Jet fuel prices dropped $.07 today! Guess what? In the past month or so, since many a projection was made, jet fuel prices have dropped about $.60! Guess what? Jet fuel supplies are now higher than before hurricane Katrina! The decline in fuel prices may continue. Instead of losing a little money, these carriers may make a lot of money. AMR and CAL could easily make $3.50 per share in 2006. LCC could easily make more.

Should AMR and CAL trade at 10 times earnings and earn $3.50 per share in 2006, we might be talking about $35 stocks; about 100% higher than current prices. Believe me, I know that AMR and CAL have already made big moves. Riding these stocks for the past three years has truly been a Ken Fisher "bucking bronco" ride.

Ken wrote about bucking bronco's in Forbes during the recession of 1990-91. I heard the message and learned from it. I do not know Ken's attitude about airline stocks but Ken is bullish on the market. He and other smart folks like Don Hays, Ed Yardeni and Harry Dent have noted that many corporations are currently able to increase their earnings buy issuing corporate bonds and using the money to buy back shares.

Stan Salvigsen used to write about clearing prices. The current situation is a great example. If a corporation can issue bonds, buy shares and increase earnings, why not? Ironically, one of the concerns that has driven folks away from stocks is that the US Government is currently practicing the same strategy. We are currently borrowing money at such low rates that we are profiting from it. Those who are whining about the trade deficit do not realize how profitable it is! Ken has written similar statements about the government deficit.

As always, statistics can be used to tell big lies. A common lie being told today is that Americans are more in debt than ever before. The problem with the statement is that it ignores the increase in American wealth. It is like saying that the person who owes $150,000 on his home is in debt twice as much as the fellow who owes $75,000 on his home, when the home of the person who owes $150,000 is worth $500,000 and the home of the person who owes $75,000 is worth $150,000. It also ignores the incomes of the two homeowners. If a person owes $150,000 but has an annual income of $150,000, he is probably in pretty good financial shape. If the person who owes $75,000 is retired, he may be in a bind.

Now is the time to turn nickles into dollars. It may take a few years. It took 29 years for the airlines to rationalize their business. Deregulation has been tough. None of us should blame the airline employees for bargaining for excessive wages and benefits during the regulated oligopoly phase. We can all understand why Delta and NWAC employees are trying so hard to hang onto excessive payments. We can also appreciate how much more affordable it is to fly.

Early in my career, I was the General Manager of a credit union. The motto of the credit union movement is, "Not for profit, not for charity, but for service". This simple concept has been routinely abused by many a credit union board of directors. It is a simple concept but only a relative few understand. The common mistake is to assume that credit unions are very different from other businesses. The reality is that every business needs to keep its net operating costs as low as possible and to charge a competitive price to the customers. The margin between the costs and the prices must be used to "fund" the business. Credit unions must make a "profit" to support growth of services. New employees must be hired, office space must be acquired, equipment must be purchased. Some credit unions practice charity by loaning money below the cost. Others make excess "profits" while performing a disservice to the customers.

The airline business is finally close to being rationally structured. New entrants can no longer gain business rapidly by under-cutting the wages of established companies. The middle class American traveler is no longer paying airline employees triple their own wages. Investors in the companies can now rationally expect to receive a return on their invested capital. The free market is not perfect but it consistently beats all other systems. Those airline employees who retired wealthy in the past many years are entitled to their fat pensions. Those who invested their earnings in the US Air, UAL, DAL, NWAC and other failed carriers cannot expect a refund. What was gained is gained and what was lost is lost. The smart investor will catch the long ride up no matter if he was on board for the long ride down.

OIL RESERVES AT RECORD LEVELS!

Those who have expected oil to hit $100 soon (including Goldman Sachs) are having to eat crow; Goldman reduced its year end price projection to $62. Crude oil supplies in the US are far above the historical averages. More importantly, proven reserves have reached a record of 1.2 trillion barrels; more reserves are being found.

A number of years ago, a university scientist (my memory for names is terrible) put forth the theory that oil is being constantly "manufactured" in the depths of our planet. He believes centrifugal force is pushing the oil to discoverable locations.

The theory has not been proved but it explains the fact that former oil pools that were "played-out" keep filling back up! Some wells have yielded dramatic increases and estimated proven reserves were never higher.

Peak oil alarmist keep telling, time and again, about depletion of reserves. There is no doubt that many wells have been pumped virtually dry, however, rig counts are at the highest level in years and "new" oil is being found daily. Regardless to the validity of the theory, the chair of XOM estimates that there are more than 3.5 trillion barrels yet to be easily found. He estimates that there are just as many more in difficult places to find.

In Japan, horizontal drilling is being used to collect oil from beneath major city populations. Russia has seen the largest increases in production in the past 10 years.

It will be 2007 before the first of several plants to produce liquid fuel from coal will be in operation in China. Senator Robert Byrd has proposed the construction of similar plants in the US.

The current price of crude includes as much as a $20 premium because of hoarding or speculation. As long as there are investors who believe the price is headed to $100, hoarding will continue. However, the cost to the hoarders keeps going up dramatically. They are suffering from higher interest costs and from capital losses now that the price has headed down. The dike is now leaking in several places. Pretty soon, another speculator or two will tire of plugging holes and the flood of crude will drive prices down.

Last year, the week after Thanksgiving, crude market prices dropped. Historically, December is a down month. The focus of bloggers is on US supply and demand, but while the US has been adjusting to tighter markets for many years, China and other developing nations have recently made rapid adjustments to higher prices.

For the past couple of days, the price of crude has climbed in the face of, surprise, surprise, surprise, cold weather that hit the northern hemisphere. This price bump is a temporary phenomena as Gulf production continues to recover and supplies continue to rise. Short-term projections can never be more than educated guesses but the current circumstances lead me to believe a break in prices is near.

Should oil break, gold and other metals will break to the downside and bonds will break to the upside (lower yields). Transportation, retail and technology stocks should do well. On the other hand, the current rally is long in the tooth. Markets typically consolidate or even pull back a bit after such strong runs. Many, who were major bears two months ago, are now extremely bullish, a negative short-term market indicator. Without a break in oil prices, I expect the market to struggle to make new highs over the next two or three weeks. Should the price of oil NYMEX oil break below $55, all bets are off; you will be thankful to hold large stock positions.

AltEng: Tankard to gas tank

AltEng: Tankard to gas tank

The law of substitution continues to work its magic. Coors is converting beer residuals into ethanol. Millions of gallons of beer is spoiled in the production process; using it to make ethanol is good for the environment, good for the Coors bottom line and good for helping bring down the cost of fuel.

Google Click to Call

A number of bloggers have reported that Google Click-to-Call service is now being tested on a number of web sites. When you click on the phone icon a box appears where you put in your phone number, Google calls the advertiser while blocking your caller ID info. The advertiser pays for the connection.

The system allows the advertiser to know which ads work. The total cost to the advertiser is cheaper than offering an 800 because the leads per ad is much higher.

The integration with Google Talk with be the next interesting event. Folks who want to post a free classified ad with Google Base and those who want to make a free Google Talk call will need to sign up for a free Google account. The number of folks who sign up for Google accounts is going to expand rapidly throughout 2006.

Metals Stocks: Gold within striking distance of $500 an ounce - Mining and Metals - Natural Resources - Commodities - Markets/Exchanges - Market News

Gold is in striking distance of $500; "buyer beware". If I thought gold was going to continue to rise, I would buy gold stocks which rise faster than gold when times are good. Of course, gold stocks will come down by a bigger percentage move if the price declines. If I were forced to take action today, I would sell gold stocks short rather than buy.

The evidence around the globe is that interest rates are on the rise. Pressure is on the Chinese to raise rates, the ECB is considering a rate increase and the US is considering rate increases. The cost of holding gold is the real cost of money. Inflation hawks are willing to argue that inflation is out of control. They are likely to use the rising price of gold as the foundation of their argument; circular reasoning at best.

The bull market in energy is making another run today with "surprise" cold weather hitting the northern hemisphere. In the past several weeks, I have time and again shown that new supplies and new refineries are being built. We all know that it will take a couple of years for these projects to have their effect but we also know that the market will move in anticipation. Hoarding of oil supplies is now the norm. Like holding gold, there is a cost to holding oil.

The costs are going to go up on December 13 and probably again by February. If I were going to trade, I would sell miners short. For now, I'll avoid this market as I believe the oil price is going to lead the gold price down.

THE BULL KEEPS RUNNING

Current Value of the SOW Portfolio:

$121,785.89

Simple Return: 25.42%

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

S & P 500 Value : $116,490.10
Simple Return: 4.54%

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

Treasury Bond Value : $105,838.54
Simple Return: -1.96%

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

As we have been writing for the last two years, Individual Stocks are the place to be. Stocks continue to outperform equal investments in the S & P 500 (4.54%)and the TLT Treasury Bond index (-1.96%). This week, Kupsky has been researching Air Methods, a leader in air medical emergency transportation services and systems throughout the U.S., as our Stocks of the Week. 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

Southeast VC: Rumor: Google to Open RTP Office

So far, it is only a rumor that Google will open a facility in the RTP, Research Triangle Park of North Carolina, but it seems reasonable. The RTP is smack in the middle between NC State, Duke and UNC Chapel Hill. NC State graduates large number of engineers and the RTP is the home of numerous high tech companines. It would be an appropriate location for a company that is hiring talent at a record pace.

AIRPLANE SALES

Boeing just experienced 5 years of double didget declines in airplane sales. According to Morningstar, the decline has been better than 11% componded for 5 years. The good news for BA is that it that the decline is distributed half to defense contractors and half to airplane builders.

Morningstar projections for the next 5 years are for sales increases of 8 or 9% compounded. Based on the announcements coming out of the Dubai Air Show, Boeing is jump starting this growth phase. New sales include 40 planes to Arab Emerants and a total of 157 to China.

In the last cycle, BA stock did extremely well through 1997. The significant down-turn during the recession of 1990-91 was finally washed out by 1997. As with all industry, production grows until demand is saturated and there has to be a digestion period.

BA stock has already done extremely well during this cycle having come from $24 in 2003 to $69 in 2005. The cycle is not nearly over but one must remember that the stock cycle leads the economic cycle. One does not want to wait until earnings peak to buy the stock.

Me nor my family own the stock but as owners of AMR,CAL and LCC we watch as interested parties. We know business travel demand has pushed current capacity to its limits. Load factors around the world are at historic peaks. Demand for flights to and from China continues to grow at double digit rates.

The environment for making money in the airline business is about as good as it will ever get; soaring business demand and rapidly declining costs. The fly in the ointment will eventaully be when capacity overwhelms demand. I know that it will take years to fill the plane orders that Boeing signed this week. For the next three years, fares will rise and load factors will stay high.

Before the peak in airline stock prices, there will be many an article posted about the tremendous turn the airline business has made. Of course, we don't currently know if DAL, NWAC and others will survive bankruptcy court. The more capacity whitled away during court, the more profits will be made over the next sereral years.

Planes sold by DAL and NWAC will go into service with other carriers. Gradually these old planes will be sent to the parts graveyard. Airbus and BA are ready to build new but DAL and NWAC are not the only carriers around that need to retire old stock. Capacity growth will be slow at first. Again, the next three years should be a very profitable time in the airline business. The cycle could last longer and it will take discipline to start scaling out long before the peak is reached.

GOOGLE = MORE THAN 1/3 MSFT

Much continues to be made about the Google market cap. Followers note that the market cap is now 1/3 the size of MSFT. Why not half? MSFT no longer has an iron fisted lock on the PC and millions of us use Google routinely. Google is just starting to role out products and MSFT is in the process of changing its business to the Google model.

No doubt, MSFT, a big and powerful company, is willing to throw its weight around. It was able to demoralize the mighty IBM and to take over businesses established by Netscape, Lotus and others. But all of that was then and this is now. After taking over the business, MSFT did little to innovate. The browser of today is little different from those of yesterday. The failure to block out viruses and spam are MSFT failures. Besides, the PC is no longer the key, the network is.

I am truely excited about Google Base and the prospects of other products in development. These products will connect me in infinite more ways to the world around me. While Google has made it much easier to find something I have stored on my computer, it continues to dramatically add to what I can find stored on other computers. The information age is finally hitting another gear.

To be sure, I am frustrated daily when I can't find information. This morning, I was looking at US Government Census and other sites. They are not indexed by Google and have no search facility at all. I spent an hour going from tables of content to various pages and never did find the information I wanted. It would cost the government nothing to allow this information to be indexed! The benefit to the world would be the savings of millions of hours annually.

A recent article told of the scanning project being performed by those opposed to the Google book scanning project. One lady told how much she is enjoying scanning the books. She said it is not as boring as it looks as she reads a lot of material as she goes. She earns about $10 per hour. Contrast that to the large machines used by Google to scan. The machines use special vacumns to carefully turn the pages of 500 year old books, takes care of the books and scans them in a fraction of the time.

Libraries were invented to share information, not to hoard it. Google is all about sharing information. Google is not out to steal any information but is out to catalogue what information is located where.

When a fellow told me in horror that Google is now worth more than Coke, I said that I don't drink a hundred Coke a day but I use Google more than a 100 times a day. The profit margin on a Google advertising link is about 4 times as high as the profit margin on a Coke. MSFT has suggested that it averages making $9 per year on its average sale of software. It has further suggested that $9 is not a huge hurdle to jump if the firm switched to an advertising supported plan. In five years, which software will you be using most, Google or MSFT?

At its peak, MSFT had a market cap of $400 Billion and currently has a cap of $300 Billion. I project that the next 5 years will be good years for MSFT and the stock has an excellent chance of doubling in value. During that time, Google will make up a lot of ground. It may not catch MSFT in 5 years but it should at least come close. If MSFT is a $600 billion company in five years and Google is a $500 billion in five years, MSFT will be selling for about $50 per share and Google will be selling for about $1,600 per share.

A lot can happen and there are no guarantees. What I know is that there are so many ways the computer and the internet could be making our lives better. My church struggles with the internet are illustrative. Our web site at MapleSprings.org is a fine site and if you live near Winston-Salem NC you should come to visit. However, the potential for better communication of the members through new services such as Google Calendar is huge.

Email has helped church members be in touch and stay in touch; email is a good start. The church newsletter and website serve great purposes but much more information needs to be made available to the members. All members should have an easy way to add a person to a prayer list, to give the details of when and where a member will be in a hospital, to add a meeting to a common schedule and to find-out what is happening at the church at any point in time. It may sound silly but members should not need to go to a web site to find information but the information should be made available routinely through an RSS feed to the member.

Schools, churches, businesses and all other groups need better communication solutions. As a scout leader, I learned how much work goes into preparing for one weekend camping trip. What a blessing an online registration and infomation system would be for the scouts. An interactive list for transportation needs, grocery needs, equipment needs, a map to the location, a departure and arrival schedule, etc. Expand this interactive system to the entire scout program and keeping up with which boy needs what would be a scoutmasters dream come true.

The computer is a great tool but right now it is like a dull ax. The good news is that Google is putting a file on the ax and progress is going to be made. Billions of people are benefiting from the new tools and many more are on the way. One of the many exciting areas offering great promiss is in the area of heath care. Much information will be shared, many problems will be concured. Google is on a path that could lead it to do more good for more people than any other company has ever done. Yes, Google MSFT!

Carrier Seeks Deal With Vietnam Airlines: Financial News - Yahoo! Finance

Carrier Seeks Deal With Vietnam Airlines: Financial News - Yahoo! Finance

While UAL sits in bankruptcy, AMR continues to make deals. The latest plan is for Vietnam Airlines and AMR to share code. This means each will be able to sell the others ticket. For example, AMR would be able to sell tickets from the United States to Japan and then to Hanoi. The second part of the trip would be on a Vietnam Airline plane.

Code sharing deals are important for a couple of reasons. One being the increased traffic it brings and the other being the reduction in costs. If AMR is already selling the one ticket, it pays no fees to travel agents to sell the second ticket.

The world has started a "business expansion"; we are no longer in an economic recovery. New plants are being built, new deals are getting done, new contracts are being signed and joint venture participants and trading partners are getting to know one another. International travel is growing like US travel grew decades ago.

AMR and CAL are each participants in international code sharing consortums. Any business that needs to send employees to spots around the globe can do one spot shopping with these major carriers. LUV does not fly there. The business is competitive but not cut-throat. Profits are going to grow!

TWENTY BILLION DOLLARS WORTH OF SOCKS

One must wonder how many socks China must produce and sell to the US to earn 20 Billion Dollars. China plans to buy 20 Billion Dollars of planes from Boeing. How would you like to have the long-term parts contract for these planes?

For many months, I have felt battered by those around me who suggest China is taking all the "good manufacturing jobs". I point out that China has lost far more manufacturing jobs than has the US to no avail. One point I have often made is that the Chinese ultimately have to buy bonds with the US cash they generate through trade or they have to buy goods from us. In the recent past, they have loaned us our money back at rates that are very profitable for the US. Now they are buying more and more goods.

A very strong economy lies ahead. The stock market is pushing to new highs even in the face of the most negative political environment I have seen in years. I constantly hear false statements from all sides but the whine is particularly severe from the liberal left. Many of the whinners do not see themselves as being a part of the liberal left but they are reading the popular news and supporting positions based on false information.

In a discussion last night, I was surprised to learn that many folks who are living comfortable lives and working at good jobs believe that we must lower our standard of living or suffer great consequences. It seems that the belief is common that we are about to use up all of the earths resources. In the US, we have added 80 million acres of trees in the past 50 years and we have millions of hectares of land that is lying fallow.

As a conservative, I certainly do not wish to waste resources. However, I believe in using what the Good Lord has given us. His abundance last forever and ever. The growth in carbon deposits on the planet is as strong as ever. Malthusians said we would use up all the food in the 19th century. Now we are going to use up all the energy. One tricky part is the law of conservation of energy; you can't get rid of the stuff. Energy does not go away!

Google shares seen surpassing $500 mark

Google shares seen surpassing $500 mark

UBS analyst Benjamin Schachter is the first of the "big firm" analyst to project $500 or more per share. A lot is made of the market cap of the company but I cannot think of another company that is likely to have as many regular customers.

Members of my family have purchased shares around $90, $190, $290 and $390. We expect to buy more as the price goes up. Today, a friend purchased another 15 shares at $403. It is our belief that more and more information will be found more and more often by more and more people for many years to come.

The Sun News | 11/20/2005 | Hilton Head: We don't want an oil refinery here

The Sun News | 11/20/2005 | Hilton Head: We don't want an oil refinery here

Meanwhile back at the ranch, US communities continue to say NOT IN MY BACKYARD. The good news is that more and more work can be done over the internet. Those living in Hilton Head will do more from their computers and pay out the nose to get on and off the island.

Yet Another Oil Refinery to Be Built

New Europe Display News

A whole lot of new oil refining capacity is coming. This time the announcement was for the "New Europe" Georgia.

BUY THAT EARNINGS YIELD

Buy That Earnings Yield - Forbes.com

Ken Fisher always has a few good stock ideas to share. In his latest article in Forbes, Fisher tells about how many companies there are that can currently borrow money in the bond markets to buy back stock and to boost the companies earnings per share. Of course, another company could borrow money to take these companies over and see an accretion to earnings the very first year.

One of the stocks he mentions is NSC. This one has been a good one for my family to own. The company is running full tilt hauling coal and other goods. One of these days, I expect it to be taken over, but I'm in no hurry. At 15 times the most recent 12 months of earnings, the company is throwing off a growing earnings yield of better than 6.5%. Bonds yields do not grow but railroad earnings do! Coal will stay in high demand even if oil goes back to $40.

Jump on board and ride one or more of Ken Fisher'sbucking broncos. Hang on with all your might because the temptation will be to get off in the middle of a great ride!

GOOGLE BASE IS BIG

A Base Hit for Google? [Fool.com: Motley Fool Take] November 17, 2005

DO YOU UNDERSTAND WHAT GOOGLE BASE DOES?

Google base is much bigger than it looks. What Google basedoes is puts human intelligence into web crawling!

At first glance, Google baseappears to be nothing more than an indexed and searchable classified advertising vehicle. Indeed, I have tried the system and it is easy to post a notice about a service available, an item for sale or an event that is planned. The option to post such items for free must certainly have newspaper publishers in a stoic state of "what will the internet do to us next?".

I have stated that Google baseis going to be big. It is in the sense that billions of notices will be posted for free and billions of folks will be able to find these notices far more quickly than by searching though newspaper ads. However, there is another very important way that Google baseis going to be big.

Right now, web crawlers such as Google and Yahoo do the best they can to index the web to assist all of us in finding the information that we want. Google basewill fine tune this process for Google by applying human intelligence to the indexing process.

Those who own web sites are likely to place free ads on Google base. The ads will of course include links back to the owners web site. By "tagging" or "labeling" (Google must be afraid of copyright suits as they use a different word for the tagging process), the ads, the owner of the site has helped define the site more precisely.

A lot has been made over the fact that Google's market cap has passed Yahoo, TWX and Coke. I don't see the reason for the "surprise"; everyone in the whole wide world needs to look-up and find information daily. Coke is a very good product but folks have lots of alternatives, TWX puts out some great movies but most are not seen by most people. On the other hand, no one is coming close to Google in its capacity to help people find information quickly. A little more than half the world uses other search products but none of them are improving as rapidly as Google.

Maybe that last statement was a little over the top. MSFT has been making great strides to improve its search product and it is improving rapidly. However, it is so far behind that when it "catches up to Google" Google is going to be gone somewhere else.

When Google had just come public, a Swiss investment advisor and I emailed our thoughts about Google. He said the stock was dramatically over-priced at $90 per share. He called me an "American Cowboy". I asked him a question that he refused to answer. My question was, "Where does the demand curve cross the supply curve when a company offers its service for free?".

Trying to imagine how big Google baseis going to be is like trying to imagine what is at the edge of space. When billions of computers are daily sending from one or more manual postings each to thousands of automatic uploads each, one can appreciate why listings expire in 31 days.

Google's goal is to organize the worlds information. There are two major changes that must be made for this to happen. One, more of the worlds information needs to be made available to the web and the information on the web needs to be cataloged better. The amount of information posted to the web is about to explode upward. The cataloguing of that information is about to take a great leap forward. This will be a great benefit to mankind.

It is amazing how many inventions were made, used and then were lost prior to the invention of the Guttenberg printing press. For centuries, the Chinese and Mongolian governments actually suppressed the spreading of information about new technology. It is no coincidence that within 75 years of the invention of the printing press that scientific, cultural and religious revolutions were under-way. Google's organization of information is just as powerful as the Guttenberg press.

The amount of information that is not used today because it is not readily available is far more than what was lost before the press was invented. Google's work in the heath care area is going to be worth more than we can currently imagine. One of the areas that health data will change forever is in the area of tracing and understanding the genetic code.

For something like 15 years, a large group of nurses have input data about their lifestyle and health practices. This data has started making a difference. Doctors are discovering surprising links between habits and health problems. Google is lending its tremendous "super computer" to help in this important and massive health analysis.

Some of the information I am relating comes from "The Google Story". I don't have a copy yet but I was able to read a portion online and I browsed a copy at a full price store (it was $26.00 there and I have not checked AMZN yet).

Years ago, I listed to a self development tape that suggested that one should always "think big". I just did a Google search and the list of books on the topic is too long. I did not take the time to find the tape. However, it is clear that the Google guys are thinking big.

Sceptics are writting blogs about how Google is trying to take over the classified advertising business. Well, classified ads are only a drop in huge bucket of information that needs to be organized and reachable.

Google Print has been renamed Google Book Search. Those who are fighting Google on this issue are generally the very people who love books. They love books because they love what books do, which is make information available to the masses. Google Book Search is making information available. Never again should one have to drive 10 miles to a library to look in a card catalogue. Doing so is a huge waste of time and resources.

Authors and publishers will get paid for writting and printing books. Google base is going to help billions of people find relevant books. Books they will enjoy, learn from and what more.


GOOGLE BASE IS BIG; VERY BIG; HUGE!

Stock Market News and Investment Information | Reuters.com

Stock Market News and Investment Information Reuters.com

Stock markets in the US, Europe and Japan are all sitting at multi-year highs. European Central Banks are finally considering raising short rates. Yield curves are still quite positive in Europe. Other countries are faced with the problem that the soaring dollar is dramatically raising the price of oil. Inflation rates in a number of countries has soared to levels not seen in 20 years. Of course, this will prove to be a relatively short lived situation as the FOMC is leading the way to higher rates.

Gold, copper and other metals are likely to turn like oil did a couple of months ago as interest rates tick up. Many folks are mis-reading the inflation situation. Interest rates in America are higher than the inflation rate. There is a real cost to hold gold.

In the past 22 months, the NASDAQ index has increase 6% while the earnings of the NASDAQ companies have gone up 30%. In the same way that Gold and oil will not stay "uncoupled" for an extended period, prices of stocks must move in line with earnings or vice versus. Indications are that earnings growth rates are moderating but they are still going up much faster than prices. A clearing point is at hand.

Technical studies continue to suggest that the market may pull back before making the big break out. However, most investors are well served to avoid trying to play the short term moves. My projection on the S&P from now until 10 years from now is a compounded rate of 11%. Right now, Americans are making a very risky bet by holding more than 5 Trillion Dollars in short term securities. Chances are good that they will under-perform the market.

BLOGWORLD

Interesting reading from the world of Blogs:

Mike Bryan Vice President of the Federal Reserve Bank in Cleveland gives a short lesson on understanding the Consumer Price Index as a guest writer on Macroblog
Bryan reports that fresh fruits and vegetables, bakery goods, natural gas, airfare, and lodging away form home—posted double-digit (annualized) price hikes in October, while meat, infants’ apparel, shoes, used cars, telephone service, personal computers, and tobacco products—cost you less in October than they did in September.


The US leads in subscriptions to Broadband according to the Computer Industry Almanac. THe US claims a 21.6% market share with worldwide Internet users projected to top 1.8 Billion by the end of 2010.

In "Lessons for the Apprenticed Investor ,"Barry Ritzholtz comments in his article for The Street .com that it’s not really the stocks in your portfolio, but stock management that helps investors make money. “Stock selection is not where investors run into trouble. Managing the positions after they become part of the portfolio is where people typically discover their investing shortcomings. And that's before we get to a wealth of other important issues, including how and when to make purchases, how much of a given stock to buy (position-sizing), when to add to existing holdings, how to handle bad markets, when to use leverage, how to use options, how to hedge, when to use stop-losses, etc.“ I’m happy to talk stocks anytime you want—write me or give me a call

MAKING MONEY!

Many folks worry more about being diversified than about making money. Don't take me wrong, diversification is an important technique used to reduce risk. However, some of the greatest money masters the world has ever known did not or do not like to be overly diversified. John Maynard Keynes liked to own no more than 6 stocks. He once said that with perfect diversification there is zero profits.

Warren Buffet owns concentrated positions in a relatively few stocks. He has the confidence to invest heavily in what he believes will do well. He has made some big mistakes but he also can boast of the best long term track record ever. "Uncle Bill Miller" of Legg Mason Value Trust fame is also known for concentrated positions. Despite a heavy load of better that 1.75%, he has beaten the S&P 500 for an incredible 14 years in a row.

I am pleased to report that a good friend of mine has made a very high return this year. While looking at his account earlier tonight, I was surprised at just how persistent he is. When he grabs onto a good stock, he locks on like a snapping turtle and will not let go. In the past 18 to 20 months, he purchased AMR 8 times,GOOG 9 times and CAL 33 times! He has not ever sold a single share of these three stocks. With almost every addition to his account, large or small, he purchased shares in one of these stocks. He owns other stocks that have done well but these three are clearly his favorites.

He has made more money this year than many folks will make their entire lives. He made the most on CALbut his purchases of ,GOOG are the most remarkable. Of the nine purchases, 4 of them were made at the approximate prices of $90, $190, $290 and $390. I am confident that he will buy more before the stock gets to $490 and I am confident that he will buy more when the stock gets to $490.

Another friend has made a huge gain on ,GOOGLE this year while losing a little on the airline stocks. He took a beating on NWAC but his recent gains on CAL and AMR are pushing him toward a break even on the airline portion of his portfolio. It is also interesting that a friend with a retirement account largely positioned in index funds has his biggest gain in LCC. After the bankruptcy court helped this company dramatically reduce its operating costs, it looks to be on the way to a number of profitable years ahead.

I don't often write much about some of my families long-term holdings because we have not added to these in a good while. A number of these are at or near 52 week highs. I may have given a bit of a wrong impression about my position on the market as emails and phone calls have asked if I am selling out. Nothing could be further than my position. I believe that after 23 months of sideways consolidation, the market is ready to break-out into a full blown BULL MARKET STAMPEDE. I have simply said that aggressive investors who are willing to bet on their ability to time the market (typically a bet with poor odds) that the market is approaching over bought conditions. The sentiment is too strong. The problem is that if this current rally is the break-out rally then forget about sentiment and stay on board for a heck of a ride. In aggressive accounts that are trading on margin, it makes a lot of sense to take a little off the top. These accounts will still make a lot of money if the rally continues.

OIL and other commodities are the big question marks. Oil has broken down below the 200 day moving average. This could be a bear trap or it could signal an upcoming swift drop of another 10% or more. With the curbs on demand in place in the very populous countries of China, India, Indonesia, Malaysia and others, I suspect that the drop will continue. However, there is a divergence between oil and gold.

There are a number of ways of looking at the strength in gold but perhaps the best thought is that the move is a "flight to quality". It is a flight to quality in countries like France which is facing riots in the streets, Italy which is facing a recession and many other nations which are experiencing the worst of inflation.

In America, short interest rates are currently considerably higher than the core inflation rate. Thus gold is expensive to hold here. However, the strength of the US dollar coupled with the huge spike in oil prices has hit our trading partners very hard with a mega dose of inflation. Any goods bought from the US cost more and, since oil is traded in dollars, the cost of oil has gone up by the nominal price and the currency swing; a double whammy that has many folks running scared.

Which brings us back the the thought of MAKING MONEY. Warren Buffets adage in regard to fear should be heeded in times like these. Warren said that fear and greed drive the market and the secret to making money is to buy when others are fearful and sell when others are greedy. In this case, the fearful are afraid to buy stocks and the greedy are jumping on the "big move" in gold.

Emotions are strong so the run in gold could last a little longer. However, another bump in the Fed Funds rate is going to put all the more pressure on central bankers around the world to "protect their currencies" by bumping their short rates. Gold, which does not pay a dividend, cannot hold up to higher and higher short term rates.

One of the reasons so many folks can't understand why the FOMC can't set a tight target and stick to it is that they do not appreciate the degree that the interest rate game is a relative game. Short rates in Australia have been well above rates in America for quite a long time. Short rates in Canada have been bumped recently. Folks get all bent out of shape about current account surpluses and deficits and suggest the world is coming to an end. The humorous part is that the citizens of the one country are whining about the surpluses just as loud as the citizens of the other country are whining about the deficits. The fact that the citizens of a very wealthy country can buy a lot of goods is seen as a terrible condition. The citizens of the poor country only wish they could have it so good.

The US is the manufacturing engine of the world. We produce more goods per capita than anyone else. We own more assets than anyone else. Individuals in America who learn how to invest can make a lot of money. I congratulate my good friend on the success he has had this year and I wish him and all of you the best in the years to come.

GOOGLE BASE IS GOING TO BE VERY BIG!

GOOGLE BASE VERY BIG!

I have said it before but it is worth repeating that Google Base is going to be very big. Go take a look at the car listings. How much better can a service be? A free listing of cars that includes a map to their location, pictures, contact information, etc. Can anyone tell me why they should pay for a classified advertisement rather than post the item into Google Base ?

The program is a beta version; it will only get better. Does anyone want to venture a guess as to how many postings will be made in the first year? I am afraid to put out a number because I might miss badly. For the past 16 months, skeptics have responded to my rantings about Google . They have said that I am so enthusiastic that they know they should short the stock. I hope the didn't. I hope they will not above $400 either. The price move is just getting started!

Google Calendar, Google Wallet and Google Finance are anxiously awaited programs. One can already see glimpses of the potential Google Finance holds. The Google Sidebar is great for following a few stocks but Google Finance should blow away the competition. Google Calendar will be especially good for organizations. My church, Maple Springs United Methodist, spends considerable time posting various activities and events to a common calendar. It is our hope to avoid as many conflicts of scheduling as possible. There will always be times when members cannot be at two places at one time but Google Calendar should make the sharing of calendar information so much easier.

Google Wallet should open many more doors for web based commerce. The web is small relative to what it could be. There is far more information not available on the web than what is. Google hopes to change this situation and part of the way is to make it easy for providers of special information a way to get paid. For example, it is only fair for a magazine publisher to be paid for publishing a widely distributed article. It is fair for the public to pay if the wish to read the article. It is silly to have to buy the entire magazine to read the one article.

There is no question that those looking for a certain item on Google Base will sometimes click on advertising on those pages. In many cases, the item one seeks will simply not be found in Google Base, however, the lead to the site that has the item may well be found. EBAY will likely be the biggest advertiser on Google Base . EBAY is also in the process of offering similar a similar service.

Looking at my own habits, I can see how big Google Base is going to be. I routinely hit the instant replay when watching TV channels and find myself watching many shows on a short delay. Then when the commercials come on I fast forward and catch up quickly. However, every now and then, when I want to buy something, I start searching the internet and I frequently click on advertising leads. I often make my final selection in a store but I use the internet to decide which store to visit.

Big advertisers are moving more and more to internet based ads. They have discovered that internet ads work. One day, most of all advertising will be done via the internet. Some of it will be video, some audio and some print ads but the ads will be internet based. GO Google GO!

MARKET RALLY CONTINUES

The three week old market rally has resumed this morning after a few days of consolidation. The rally is getting a bit long in the tooth. As a long term investor, I suggest staying fully invested in stocks but aggressive investors might want to sell into additional strength; not yet, I said additional strength.

Short term trading is impossible to get right consistently. In a market where stocks are cheap relative to real estate and to bonds, most should stay fully invested in stocks. Aggressive investors who trim a little as the rally progresses will be taking a chance to never see these prices again.

There is without question a bias growing that this is "the year end rally". It may or may not be. Generally one wants to trade with the trend until it is clear that the majority are all jumping on board. When the majority get a little excited, one should expect for the market to go too far too fast. Again, I don't think that has yet happened in this case but a little more strength could cause technitions and others to jump in with both feet. I believe the "BIG BULL" is getting close to a big run but one would expect sentiment figures to be very negative right before the start.

New Snags in Oil Talks by Indonesia And Exxon - New York Times

New Snags in Oil Talks by Indonesia And Exxon - New York Times: "Pertamina once controlled Cepu, but concluded that the field was depleted and sold the rights to drill there. That company later sold the rights to explore Cepu to Exxon Mobil, which in 2001 discovered that, far from being depleted, Cepu was one of Indonesia's largest oil resources."

The above paragraph copied from the NY Times article illustrates that investors should trust the forecast of XOM over those of the ranting Peak Oil Cassandra. The chair of XOM estimates that there are upwards of 3.5 Trillion Barrels of oil that have not been discovered. In Indonesia, the state owned oil company, sold a depleted field. XOM explored it and found massive reserves.

US technology can find the oil. Many countries have signed joint ventures with US companies to find oil. Oil is being found. From everywhere from Libya to Zimbawae to South America to Russia to North America.

My forecast a few months back was that oil would drop to around $55 per barrel and then dance around the price for a while before going lower by next fall (after hurricane season). It appears that $57 has become the pivot point. There is pretty strong support in the $57 range but I don't think the price will hold $57 for more than another month or so. When it does break $57, the next dance might be around $50.

FIVE GOOD QUESTIONS MUSLIMS SHOULD ANSWER

Five questions non-Muslims would like answered - Los Angeles Times

Radio talk show host, Dennis Prager, has listed five good questions for law-abiding Muslims to answer. It certainly does seem like it is time for peace loving members of the faith of Islam to speak out against terrorism. It will take courage to visit Jordan and other areas of unrest but the need is apparent. I pray that good folks will do good deeds to help others

MORE REFINERY'S ON THE WAY

MyWestTexas.com - Oil & Gas - 11/13/2005 - Mexico: International funding available for Mexico-Central America refinery



This article is one of many telling about a new oil refinery to be built. This one will be built in a Central American country.

JAPAN TO BUILD REFINERY IN INDONESIA

Description of Selected News

$40 The list of oil refineries being built around the world continues to grow. Do I smell $40 oil in the not too distant future? It will be three years before many of these new plants are built, but according to Exxon(XOM) there is a $20 speculation premium currently built in the price of oil. Sounds like we could get to $40 well before the actual fuel hits the market.

KUWAIT NEGOTIATES OIL REFINERY

Kuwait in negotiations over oil refinery

This refinery will be joint venture of Kuwait, Shell and BP to build a refinery in South China's Guangdong Province. The world is going to be awash with processed crude!

UNC BASKETBALL GETS HELP FROM THE FOOTBALL TEAM

News-Record.com - Greensboro, North Carolina: Sports: Moonlighting: UNC basketball could get walk-on help from football

After winning the National Basketball Championship last year, the Tarheels lost their top 7 players. The NBA got some great talent. The Heels will use football players to fill some spots this year.

Long-term fans of Roy Williams are hoping for his greatest coaching miracle yet. A lot of this hope revolves around Tyler, Terry and Thomas, a freshment big guy, an athletic reserve and a sophmore point guard who was erratic his first year. Danny Green, another freshman holds promise and high school football star--basketball walk-on, David Noel, may get 30 minutes or more per game.

Other names you may see from time to time include Jesse Holley and Brooks Foster from the UNC football squad. A former Mr. Basketball of Mississippi rode the bench last year and saw limited action the prior year. Another freshman is out with knee injury. In the first intramural game, Mike shot one open three pointer and was immediately benched. Yes, Roy has his work cut out.

Not to write this season off, but it is comforting to know about next years class. Roy has signed a six member class that is ranked number 1 in the nation. If these guys will stay around a couple of years to learn the fine points of the game, who knows, with a lot of luck, Roy could get his second NCAA Championship!

MORE TARHEEL BASKETBALL

Scout.com: UNC-CC: Roy Williams Quotes + Audio

The Heels warmed up for the season against Catawba College today. Another player, I failed to mention in a prior post, who will see significant playing time was Bobby Frasor. Bobby started when Thomas missed practice due to an injured foot.

BACKLASH EXPLODES ON AL-QAEDA

Scotsman.com News - International - Al-Qaeda on defensive as bombs begin to backfire

O.K. BACKLASH EXPLODES ON AL-QAEDA!

This may be the best news we have heard in years. Muslims are speaking out against the indiscriminant bombing of innocents.

The "bad guys" have been willing to bomb the innocents because the targets are "soft". When they go after the troops, the troops shoot back.

Before and after the revolutionary war, America teetered and tottered. Before the war, many believed the states should do whatever necessary to make amends with the British. After the war, our curency was virtually worthless. It took a lot of give and take to make the new nation work. A small example is that George Washington was opposed to a two party system and the reality is there is nothing in the constitution that suggest a two party system should be developed.

The point here is that Democracy is tough to achieve. The vast majority of the governments in the world today are not democracies. Iraq has a chance to be one of relatively few. The indiscriminant bombing by the lawless terrorist is heartbreaking. We must hope that the people around the world rise to speak. The people can shout these guys down, turn them into the authorites and make the world a better place.

ONE DAY LOST!

Bloomberg.com: U.K.

The crude production lost as a result of the hurricanes has been hyped to the max. The following is reality.

The cumulative loss of crude production in the Gulf as a result of the hurricanes is one day! The world uses 81 million barrels of oil per day. The IEA coordinated the release of approximately 60 million barrels of emergency reserves after the hurricanes hit. The net loss of available crude is one fourth of one day!

In the meantime, China has reduced its crude demand growth rate from 15% in 2004 to ZERO. The reported numbers do not show ZERO but again do you believe the hype or do you believe what is real?

Take the reported numbers in the linked article and you can see that the current growth rate is approximately ZERO. The IEA reports that through March, the projection on growth in usage was 7.9%. The past 4 months in a row, the IEA has reduced world wide demand figures and in particular the demand from China. They now project the annual growth in China to be 3.3% for this year. To get from 7.9% annual growth to 3.3% growth during the same year, the last few months of the year will have to be about ZERO.

The bottom line is that those who think the world is going to run out of energy are as off course as the Malthusian who thought the world was going to run out of food. Sticking with china as the example, China has approximately 104 million hectares of arable land available. Technology exist to grow beans for fuel.

For better than 20 years, Ken Fisherhas written solid common sense articles. A month or so ago, he suggested that to do well as an investor you should discover what is believed by the majority that is not true. The majority believes that oil will never come back down below $50 per barrel. The reality is that it will. The reality is that inflation is not as bad as commonly believed. The reality is that stocks do very well during periods of low inflation.

Tomorrow the CPI for October will be announced. I can not tell you that the number will be large or small. These monthly numbers are very volatile. They are mathematically seasonally adjusted. They are often revised time and again after they are reported. The trend since July is that the numbers are down.

Oil reserves will also be announced tomorrow. Will the size of the reserves continue to be dramatically out of whack with the current price? Again, the numbers for any one day do not prove much. However, the potential for a bond market and stock market break-out is present. For those of you who are riding Ken Fisher's bucking bronco hold onto your hat. Wednesday November 16 could be an exciting day!

NUMBERS

For an airline stock holder, it is sweet to awake to find oil trading down. Not by a large number, but the market is projecting a bigger supply build than what was projected earlier. Demand has met its match for the near term. The question still remains for the intermediate to longer term but efforts are underway around the world to reduce demand and to increase supply.

Inflation is headed down! Back in 1977 the PPI index rose sharpley above the core PPI index and stayed higher for a very long time. It stayed higher all the way to the peak in inflation in wholesale inflation in 1980 and it stayed higher as the numbers turned down. By the summer of 1982, the PPI caught up with the core PPI on the way down; about the time the stock market started perhaps the greatest BULL MARKET ever. Bonds lead the way, but stocks were certainly not bashful.

We are currently approaching the kind of figures we saw in 1980. Not in nominal terms but in the pattern and length of time involved. This time the PPI went above the core PPI October of 2002. Inflation was not a big concern at the time because it was so low. The recent numbers show signs of a top. The wholesale PPI has made a quick double top and the core PPI has clearly turned down since peaking in July. CPI numbers will be out at 8:30. Month to month numbers are very volatile and unreliable. Seasonal adjustment calculations can throw short term statistics for a real loop. However, the trend in CPI is also down.

The simply answer to all of this is that the market works. While it is true that, like hogs and other agricultural products, the price of oil is relatively inelastic in the short run, it is elastic in the longer term. When there is money to be made, sows will be bred and explorers will ramp up drilling.

The idea that the earth is going to run out of oil is ludicrous. For example, arable land is available to grow soybeans and other oil rich products. Right now, the market is busy finding substitutes. In Arizona plants are being planted to replace petroleum in rubber and in Brazil sugar cane, soya beans and other agricultural products are being used to produce ethanol.

China is in hopeful talks with Brazil trying to buy ethanol production technology. Since 1995, soya exports from Brazil to China have grown by 10,685%! China, like the US has millions of hectares of arable land available. Despite the recent US legislation that mandates the production of ethanol, it makes absolutely no sense for the US or China to use this land for ethanol production for as long as there is oil to be found and plentiful coal available. The good news is the market will gradually increase the production of ethanol as it becomes a viable alternative.

The laws of trade and substitution suggest that Brazil should grow the beansrefine them and ship the finished product to world markets. Indeed 1.7 million hectares per year of Amazon rain forest are being converted to soya production.

The value of land in Brazil has sky rocketed in recent years. It is now up to about $400 per acre (an acre of good farm land in the US is probably 10 to 20 times as valuable)! The point here is that the supply of good land in the world is very large. As a conservative, I am hopeful and confident that good decisions will be made to protect millions of acres of rain forest. By the same token, it is nice that trade allows this productive land to be used to help solve the worlds need for food and energy.

The CPI will be out at 8:30. Bonds have rallied in anticipation of good numbers. It appears that bond traders have borrowed short to lend long in recent days. They are driving up short rates to own long bonds that will appreciate if inflation is in check. Larry Kudlow and others have harped about the dangers of an inverted yield curve without pointing out that at market peaks traders short short paper in order to buy more long paper. The big rally in financial stocks is another market suggestion that rates are at or near an intermediate term peak.

While writing this, I hear a TV anchor reporting that Google Base is up and running. Speaking of running, it is time for me make a trip through the neighborhood. It is a beautiful day. Today is a great day to live in America! Praise God from Whom all blessings flow!

Gates to tout Microsoft's supercomputing move | Tech News on ZDNet

MSFT is gearing up to cluster computers in a fashion similar to what Google has done. Google can add computing power quickly because its software recognizes new clusters added and puts them to work. This is all a sophisticated form of plug and play technology.

MSFT wants to sell the software to others whereas Google wants to use its software to help folks search and use the internet. A lot of folks have written MSFT off in regard to being one of the big two in internet computing. Most folks figure Googleand Yahoo have "won" the search business and related businesses.

AOL announced its deal with Warner yesterday to show that AOL does not have to have MSFT or Google as a partner. AOL says, hey, we have the content! Folks will have to come to us to view hundreds of TV series that will be available though us.

MSFT is preparing to offer advertising supported software applications. They point out that the typical software they sell only generates $9 per user per year in revenue; not such a high hurdle to earn through advertising.

Google and MSFT are in a race to offer software. It will take many more massive data centers to handle all the traffic. Still, it is much more efficient for a computer to be used in a rack at a data center . It is possible that one computer in a rack can in effect replace hundreds of desk top personal computers. The more individuals rely on Google and MSFT computers the less they need computing power on their desks.

AOL ANNOUNCEMENT
Aol and Warner Announce Partnership
TV ONLINE
AOL + Warner
Free Internet TV
AOL launches TV Service

Dallas Morning News | News for Dallas, Texas | Business

Dallas Morning News | News for Dallas, Texas | Business

My T-Bond moniker was a take off on T. Boone Pickens. I just noticed that last Wednesday, T. Boone. said oil is headed toward $50. He went on to say that he does not see world wide production getting far above 85 million barrels per day.

I sure hate to bet against T. Boone. but if he is counting CTL and GTL then I think he is way off. Anyway, in the shortrun, I will be happy if his $50 target comes true. Another 14% or so decline on top of what we already have seen would be good for a lot of folks.

BIG-LITTLE GOOGLE GULP

Three good friends did the GOOGLE GULP this morning. One bought 200 shares, another 20 and the little gulp was only two shares; hey you buy what you can when you can! The little buyer had earlier purchased 6 shares at $195 so his basis is now $245 in 8 shares. The 200 share buyer has bought the stock 14 times, starting with the first ones on the IPO day.

As more folks learn how neat the "new web" or "web 2.0" is going to be, they will also want to own Google. Old time players are gradually offering "new web" services. So far the new offerings have been relatively lame, but, after these folks get more than their big toe in the water, they may start to have great fun. AOL--Time Warner, has jumped-in with free IPTV offerings of old shows. The shows will have non-skip 15 second commercials but it is at least a start. Viacom is offering reruns for $2.99 a download. These guys are too afraid that they might cannibalize existing distribution. No problem, the market is the market. Not many folks will buy $2.99 reruns but others will latter be offered at better prices.

Google. is seeking publishers who would like to rent books for a week. These would be on-line offerings to be read on screen only. I suppose the natural order here is to go from books to audio books then to TV shows with movies being last. It won't matter much. The dyke is starting to leak; once firms learn how to make money off content over the internet, there will be a flood. Progress must be good on Google. Wallet. It would seem natural to me for Google. Wallet to be released before the public is able to rent books.

I paid $.49 for an investment "short" at Amazon last night. Amazon has stored it for me so that I can read it online from any computer at any time. I paid with a debit card but would have preferred to use PayPal or Google. Wallet.

Note that the idea of renting a book is akin to paying a small fee for a good "short". A good stock analyst or any good web site might start offering to sell special "articles" for small fees. Those who build a great monitored track record as a stock picker might be able to sell stock selection services. The list of ideas that will flourish in "web 2.0", is largely undiscovered. If you have any ideas, please, send them my way.

I continue to enjoy discovering what Google has learned about me. For example, yesterday, Google. did its own search to find ACC Football articles and it found a really good stock market site for me. It is up to me to do many more specific searches so that Google can repeat them in the future. It is simply wonderful to see that Google. has already done the work to find what I am interested in reading. I read the teasers more than the articles that it finds but often the teasers tell me exactly what I want to know about the subject at hand.

GO Google. GO! I WANT YOU TO MAKE $18 PER SHARE OR BETTER IN 2008. I THINK YOU CAN, I THINK YOU CAN, I THINK YOU CAN!

CONGRATULATIONS TO A GREAT FRIEND

One good fellow who has trusted my investment judgment for a number of years just closed out an incredible week in the market. The stocks in his account went up 15% in value in the past two days alone; he has been an aggressive investor and used margin to increase the total return by substantially more; wow!

I am sure that he knows how much I appreciate his trust. He knows I am not the smartest trader on the block but he also knows that I learned a lot through many years in the school of hard knocks. My wife and I have been under great stress closing down our long time business, selling our house and preparing to be grandparents. Having good friends during a difficult time is good for the soul. I have many prayer group friends and I thank all of them from the bottom of my heart.

A number of other good folks enjoyed a good week in the market. Another close friend who takes my advice in regard to his 401 K plan, saw positions in every thing from WMT to CAL to AMR make nice moves this week.

Having many good friends is much more important than having much money, but helping good friends make good money is about as good as it gets. What is also nice is the confidence we have that the move in airlines is not over.

One of the things that many folks are still fighting is the idea that oil prices can come down as fast as they went up. The demand in countries like China has actually declined; China used less oil in the past 12 months than it used in the prior 12 months. Yes, 5 and 10 years from now the total annual consumption in China will be substantially greater than it is now. However in the short run, the run up in prices and new electrical plants have lowered the Chinese demand for oil. Five and 10 years from now abundant supplies of coal and tar sands will be processed into clean fuel for less than $45 per barrel. China will be using much more oil by then but it will also be producing much more.

Congratulations to all of you who purchased AMR, CAL or LCC after reading one or more of my many missives about these the past three years. You are riding a "Ken Fisher bucking bronco" that will try to shake you off. Some of you have already made 100, 200 or even 300%. You will be very tempted to take profits after you hit the next 100% mark. Don't take the profits; let your winners run! There will be pull-backs and you will be severely tested. Don't scale out at all until the business stories are all about the booming economy and only after there have been several lead stories in magazines and news stations detailing the history of how the airlines nearly went broke before making the big turn.

Another friend sent an IM today to ask if I would still buy. My response was that one of my close friends took my advice this morning and split some new money half into AMR, and half into WMT. There is risk of a pull-back but big moves often do not pull-back enough to let late comers buy. The best strategy if you do not have adequate exposure to the airlines is to buy at market opening Monday and hold on for the "bronco ride".

CHINA JOB DATA WORTH REPEATING

I have reported the information to follow several times but it is just too good not to repeat. It was reported again this morning on the Hayes Advisory site (subscription required) which is an excellent service.

The original report was made by the conference board in 2004 and it covered from 1995 to 2002. The reason Hays Advisory brought it up again is because of the noise generated by the news of record trade deficits. Those who harp on the trade deficit are generally barking up the wrong tree. Free international trade is a good thing. The chorus of whining is generally about the loss of "good US manufacturing jobs".

From 1995 to 2002, the US lost 202,000 textile jobs. The common perception is that China took those jobs from the US. The reality is that China lost 1.8 million textile jobs during these same years. The total loss of manufacturing jobs in the US during these years was about 2 million; China lost 15 million.

Folks, we are getting better and better at making all the goods the world can use while using fewer people in manufacturing. This is not a bad thing. Would you like to go back to the days when 90% of the people had to work very hard very long days to grow enough food to eat?

The number of farmers had dropped to what I thought was an incredibly low number of 4% when I entered the work force. Today, we are down to 2%. In America, two percent of our population grows enough food for all of our people and we export tons of corn, wheat and other agricultural products.

In the last ten years, American and Chinese standards of living have improved significantly. The unemployment rate today is not much different than it was 10 years ago and the average person in both countries lives much better today.

Since the current news is about restricting Chinese imports of textiles, please note that the average American will buy 75% more clothes this year than he or she bought 10 years ago. The price continues to go down relative to the average income and we can afford more.

Many boomers will decide to work extra years beyond their need for income. The reason is that many have found relatively enjoyable jobs. Many a man or women had rather spend 40 hours a week at work than an extra 40 hours at home. The "gales of creative destruction" are positive forces. Yes, tough old manufacturing jobs are lost but everyone can afford more services.

I met a church friend yesterday coming out of a neighbors beautiful home. She had cleaning supplies with her. I was surprised to learn that she cleans homes full time. This lady is a class act. She is a well dressed, pleasant person who lives well. I don't know where she gets her hair done but it is obvious that a professional does the job. Do you suppose her hair dresser pays to have her house cleaned? My friend says she loves her job partly because she has free time every day.

America has created millions and millions of jobs in the past couple of decades and the net worth of families is at an all time high. Family income is very strong. Now, I know, almost everyone thinks they have a tough life, but I have been surprised to take food to the "poor" who have big screen TV's, video collections, electronic game collections, supper nice clothes and late model cars (some of them lived in pretty sad houses or trailers). I do not regret that our mission teams sometimes have a hard time finding really hungry people to help. Americans have generally received great blessings. We really should not whine because the Chinese are willing to make a shirt for half the cost. We really should delight in paying a relatively poor person to do a job. I think it was Mr. Rockefeller who said the most charitable gift a person can give to another person is a good job.

CNN has a useful tool to help you
Calculate Your Net Worth and if you want to discuss expanding your worth in the market--write or call me (336-778-0543). There's nothing I like better to talk about than what the market is doing!

The Big Picture: Do Markets Care About Politics?

The Big Picture: Do Markets Care About Politics?

As is to be expected, Barry has put together another great post. it includes graphics of the battle ground states in 2006. Please read my attached comments. I mispelled a word (for all I know maybe two or three) but I feel good about my content.

Tomi Kilgore's Market Map: Crude's bull market may have just ended - Oil and Gas - Energy - Opinion

Crude oil down 20%! Crude oil trading below the 200 day moving average!

For those who believe that the definition of a bear market is down 20% and for those who use the 200 day moving average as their stop gap sell out point, the pressure is building. My friends and family accounts hold little or no oil stocks. My natural inclination is to buy when reporters start talking about bear markets and drops below 200 day averages. I suspect there might be a bounce in crude coming and therefore a bounce in energy stocks.

However, I do not plan to buy energy stocks. I like to buy for the intermediate or long term and I am convinced that $40 oil is on the way. I can't specify the date $40 oil will arrive other than to say it will be within 3 years. I think it is a losers game to try to trade the dips in oil.

Several of my friends and family accounts purchased more CAL, AMR and or WMT this morning. These are projected as long term holdings. CAL and AMR have certainly been volatile the past three years. Riding these stocks has truely been a Ken Fisher "bucking bronco" ride. Enjoying a bucking bronco ride is an acquired taste and several of my friends and family are starting to enjoy the ride.

Investors should read the news. The tricky part is understanding to lean against the news. I guess a good analogy to making great returns in the stock market is the analogy of hiking through a wind storm. You have to know the direction you want to go and to perservere no matter how strong the wind. The really hard thing to learn is that you can tell you are going in the right direction if the media wind bags and investment bank analyst are blowing the other way.

Google is Building Yahoo 2.0 (by Jeremy Zawodny)

Jeremy has a good way of sumarizing what Google is doing. The good news is that Google is able to make significant improvements in the programs it develops.

I have nothing against Yahoo; my family holds investments in the firm. However, Yahoo was assembled piece by piece primarily through take overs of competitors. Google started from scratch. The difference is like building a car from junk yard parts or building a new car from ground up. A skilled auto shop such as any of the NASCAR shops can take a bunch of used cars and build a fine machine but they could do even better if they start out with a brand new car.

I am anxiously awating Google Finance, Google Wallet and GoogleCalendar. I am also hopeful that new sidebar plug-ins or inhancements will come soon. From our experience to date, we can count on better products from Google or from competitors who update to compete with Google. GO Google GO!

The world could really use Google Calendar (by Jeremy Zawodny)

Having struggled to efficeintly schedule multiple resources for many years, I agree 100% with Jeremy Zawodny; I hope to see a Calendar.Google soon.

John Battelle's Searchblog: Google Personalized Search Out of the Labs

John Battelle's Searchblog: Google Personalized Search Out of the Labs

Google continues to add features that improve its core mission. Yes, Google keeps getting better and better. By granting Google the right to learn about you, you empower Google to make your life better.

My personal search profile on Google is currently empty as I just signed on to the new feature. I am confident that it will work like my Google sidebar and help me filter out the junk that I do not want to see.

As each day goes by, I appreciate Google more and more. I seldom search for news anymore now that my sidebar has already searched and listed the articles that I am likely to want to view. I view the snippet of many an article without reading the full piece. This is much like the two columns on the front of the WSJ. The columns give you a couple of lines telling what the heart of the article says. You can decide to read more if you like. The difference in the WSJ and Google is that Google knows which articles you chose to read and can adjust the list of featured articles accordingly.

I use the WSJ's internet partner site, CBS MarketWatch, to input and follow portfolios. It is a good service, provided free of charge. I subscribe to the WSJ and scan the paper most days. However, when I want to get quick information on a stock, often one that is in my portfolio, I often do not bother to open the MarketWatch page. My Google sidebar has already pulled up the stock price for me in advance. If the stock is not in my sidebar, I type the symbol in the Google search field and find my answer far more quickly than if I had opened Marketwatch.

I have noticed that when I find a stock this way and click on more information I am automatically sent to Yahoo but the screen has a frame at the top that allows a quick move to information on MSN and other services. It will be interesting to see how this is handled once Finance.Google is out. I suspect that Googlewill be happy to send searchers to any service of the users choice with any advertising revenues shared.

A popular news reporter and occasional TV talking head recently suggested that Google wants to dominate the world. The big "old media" try to villify Google. The reality is that the internet has permanently changed the way information is or will be distributed. Old media folks hate the internet and Googlejust happens to be the prime internet innovator.

A good comparison is that Google is the internet version of General Motors. General Motors did not invent the internal combustion engine, the standardization of parts or the assembly line. General Motors did not cause the world to quite using horses and wagons. The car certainly changed transportation forever and horse and buggy businesses hated General Motors. Mr. Sloan of General Motors fame simply came along at the right time to help millions purchase a vehicle. A vehicle that benefited the consumer.

The latest innovation will help consumers find information more quickly. We already know that Google, Yahoo and others finds information in the blink of an eye. Finding information quickly is more than getting a long list quickly. We have already come a long way from the days when Alta Vista would find a bazillion uses of the search word. We found lots of information in those days that took a long time to sort to useful information. Google's personalized search feature is going to improve the process more. Google will quickly learn that when my wife mentions stock and when I mention stock that she is talking about soup ingredients.

GO Google GO! DO Google! (THE STOCK IS A STEAL AT $390 PER SHARE!)

Wired 13.11: Posts

GOOGLE MAKES COPIES RIGHT--THE BENEFITS TO ALL ARE HUGE

Lawrence Lessig has written a thoughtful piece in Wired Magazine. The bottom line of the article is that the internet is for the benefit of all in the same way a card catalogue in a public library is there for the benefit of all.

I hope Google sticks to its guns and fights these silly law suits to their final conclusion. I see no way that the Supreme Court would destroy the internet to give publishers a lock on digital content. Google's system does not make copies of others works for distribution. It simply makes a complete card catalogue so that potential readers can find appropriate books.

GO Google GO! The Guetenberg Printing Press was the last invention that helped widely distribute knowledge that hereto for was often lost. Google Print (and the competing services offered by ,MSFT, YAHOO and others) will do more good for the world than most can even imagine.

Mark Hulbert: The significance of the surge in buyback announcements - Financial - Financial Services - Markets/Exchanges - Market News

It is good news that INTC and many others are buying back stock at this stage of the business cycle. The part about buybacks that is counter intuitive is that they mean the company cannot find profitable expansion opportunities. The good part is that by choosing to buy back stock rather than to try to barge in on another firms business, the firms do indeed tend to raise returns per share for existing shareholders.

The most famous example of choosing not to expand is Warren Buffet's decision in regard to Berkshire Hathaway. This textile firm was a cash cow when Buffet took over. His competitors invested heavily in new plant and equipment but Buffet saw that the returns on new investment were not going to be great. He cut costs and even cut product lines when they earned less than his target. Over a number of years, he gradually liquidated the business but he took out huge amounts of cash along the way. As most folks know, he invested that cash very profitably in other areas.

INTC is not a dying textile mill. On the other hand, the world of consumer electronics has changed. The public is buying and will buy hand held or pocket sized computers in the form of cell phones and PDA's. There are going to be "desk top" style computers all over the place (for example, I expect every hotel room in the country to have terminals in a few years). The difference is that many of these computers are going to be primarily internet terminals. Those who use "old style" software in lieu of internet based applications may carry a memory device with them that can be plugged into any desktop anywhere to make it ones "personal" computer.

It is already amazing at how storage space and costs have shrunk. One can now carry more information on a Scan Disk memory stick, the size of a lipstick, than what I could hold on my first 5 computers combined.

The bottom line is that the cost of computing continues to drop. This makes it more difficult for companies like INTC to find attractive expansion alternatives. It is a tribute to management that they have announce a huge buy back program; $25 Billion of stock! This buy back puts 2005 over the top as the biggest year ever for technology stock buy backs. The peak being passed is all the way back to 1990. If you bought technology stocks in 1990, your account bobbed and weaved for a while but your ten year compounded returns were SWEET! BUY THE BULL!

NUMBERS NOT SO BAD!

I am writing this at 1:40 AM. I like to work late at night or early in the morning while it is quiet. This morning I am in here early because after such a good move yesterday, I was afraid the market had moved to a super oversold position quickly. The numbers are not so bad!

No one I have ever met or read about can call short term market moves. The reason that you don't find wealth short term traders is because even those who are right more often than not see their gains eroded by commissions and spreads. Over the years, commissions have come down sharply. Thus it makes a little more sense to trade more often. However, a word of CAUTION, I believe in the results of the 1991 to 1996 study made by Barber and Odan, professors at University of California at Davis. They discovered that the 20% of traders who traded most often underperformed the market by 36%!

Many folks who read my blog regularly get tired of the redundancy. They wonder if there is anything in the world that I care about than Google or the airline industry; but note the payoff. I have been harping on the airlines for at least a couple of years and those who have listened and built large positions in CAL, AMR and LCC have done very well and the long term move is just underway. Yes, some of my friends and family lost money when UAL, DAL and NWAC filed bankruptcy, but have more than made it up on the survivors. Without looking up the exact numbers, I can tell you that AMR, and CAL are up 300 or 400% since UAL filed. These stocks have the potential of going up another 300 or 400% in short order.

Yesterday afternoon, I was preparing to suggest a short trade hedge to protect some of the big gains made by friends and family. After looking at the numbers this morning, I plan to maintain a "steady as she goes". We may add more AMR on some accounts and we may add more WMT on some accounts. We will watch a few stocks (SIRI is one example) looking for the right entry point on a short sale.

Selling short is risky because the potential gains are limited but the potential losses are unlimited. SIRI is a very expensive stock, the company is losing a lot of money but its revenues are projected to double next year. It will take tremendous growth for at least a couple more years for the company to stop hemorrhaging. On the other hand, many of those who have satellite radios in their cars are hooked for life.

Google is an expensive stock but the big difference is that it already has built a solid business. This search business is more complex and requires more infrastructure than is commonly believed. It is much harder to gain market share than what is perceived by the market; ask Bill Gates if you don't believe me. One day, Google , may offer to help internet users find the exact radio clips they want to hear. Personalized radio, TV, news and other information is what Google is all about. I would not be surprised if Clear Channel and other radio firms made content available for search though Google . Wouldn't it be nice to have free personalized radio? Why pay $12.95 per month for 120 stations if ones radio is smart enough to learn what you like to hear and to filter out everything else?

Of course, free radio would be supported by advertising but, again, the radio (actually the Google software) would be smart enough to learn which commercial things you are interested in knowing about and you would primarily only hear those things advertised. For example, if you like Alan Jackson, your advertisements might include when he is going to be in concert in your area. Having hear the ad once, you could let Google know that you are not interested in hearing about the concert again.

I mentioned that we might add WMT. It is a rare opportunity to be able to buy WMT at a discount to the market. I have been keeping an eye on PFE because I could make the same statement about this company. I like WMT because the natural order of the business cycle is for consumer staple companies do well after the energy cycle has run its course.

WMT is a big company but there is still much growth potential. There is a battle royal raging in Brazil between the home grown retailer, a big French retailer and WMT. I would not bet against WMT in this market but even if the home town boys are able to use political connections to "win", WMT might more than make up the difference in China (for example).

A lot of people hate WMT. The company has gotten a lot of negative press recently because of this hatred. As you might know by now, my most important rule for successful investing is to buy that which is not liked. Bonds were hated by many in the early 1980s. Real estate was hated by many in 1990. Airline stocks were hated by many two years ago (by many today). When Google was about to come public, the IPO price traded down from the mid 100's to $85 because internet stocks were despised. WMT and PFE are big solid companies. PFE has 130 drugs currently in development. It has another 70 drugs that are being tested for additional uses. The pharmas traditionally do well during the second half of the economic cycle. Consumer staples normally lead the way. I was a bit early when I suggested WMT and PFE about a year ago. The damage has not been great (PFE has traded down for 24 and a fraction to 22 and a fraction). The upside is large but I will wait a little longer before building a position in PFE. Today, I expect that one or more of my friends and family accounts will nibble on WMT. Again, we may add more AMR and we will watch SIRI as a possible short sale candidate.

SEVEN PERCENT MAKES ME ELATED!

Earlier today I was happy to report a 3% move. By the end of the day, some of my aggressive friends and extended family accounts were up better than 7%. What a day!

Leading all groups were the airlines. The $XAL index was up 4.18% while CAL was up about 9%! Oil services, $OSX, was down 3.93%. The 30 year bond yield dropped 1.66%! Gold and commodities were down a little and most everything else moved up nicely.

My concern is in regard to how fast the bears have become bulls. An awfully large number of folks are now very sure that we are now well into "the year end rally". Caution to aggressive buyers; there are still 51 days left in this year; time for a rally, a pull back and another rally.

AAII sentiment numbers and put/call ratios have dropped off quickly. The total CBOE put call ratio has made a long gradual move over the past year to reach an average of around 92%. In the past few days, the daily number has gone from pulling the average up to pulling it down. Today, the number reported is 75%. In other words, four call options are being traded for each put option. This is not an extreme number but it is low enough to suggest caution.

The market today was very strong. Some of the speculation appears to being squeezed out of the crude oil market. The chair of XOM has suggested that as much as $20 of the price of crude is due to speculation. Wow! The official IEA forecast is for crude prices to trade flat for a year. One of the less well know facts is that China businesses were forced to burn diesel fuel to generate electricity for the past year. China has finally brought more coal fired electricity on line and the government has given consumers strong incentives to conserve.

Ironically, the growth in drilling rigs has been strongest in the US where undiscovered reserves are few and far between. The irony is that while US companies have been quick to respond and government controlled drilling around the world has been slow, the US Senate has taken our oil companies to task for making money. The good news is that the US government is going to largely stay out of the way. Yes, the government may continue to block drilling off the east and west coasts and off the norther coast of Alaska and the government may continue to block the building of domestic refineries but for the most part American companies are free to explore and to produce.

The bottom line is that while I am very bullish for the intermediate and long-term, I suggest holding off on new purchases for at least a few days. Of course, I like everyone else who tries to call extremely difficult short-term moves am apt to change my focus quickly; for the moment, I am a short-term scaredy cat.

THREE PERCENT A DAY MAKES ME HAPPY!

So far, today is another one of those better than 3% days. The reason is the action in AMR, CAL and LCC. Several of my friends and family are riding a "Ken Fisher Bucking Bronco". The ride took a tough turn when mostly small positions in DAL and NWAC got hammered. All my friends and family sold out of those losers and doubled up on CAL, AMR or LCC. Several of the accounts are now on net new highs.

The airline business is truly one of the bucking broncos. The industry is one of extremely high financial leverage and extremely high operating leverage. This means the down turns are particularly rough and the up turns are mind boggling.

Chad Brand (Peridot Capitalist) has made excellent points about the possibility that LCC could turn out to be the next K-Mart--Sears. He is not representing that it will be but you have to give him credit for the idea.

I have made my points about the price of oil and the price of first class and business class seats many times. I will not belabor these points here again save one.

The thing most people miss about airlines is that they only make money during economic expansions which is when business demand is high. During recessions and during the following consumer lead recoveries, airlines do not make money. In other words, consumers shop and get good deals when plenty of excess capacity exist. Then when a world wide business expansion begins, business travelers pay what the market will bear. Consumers who travel during this time pay much more for their discounted coach seats but they are not the driving force of profits.

US Airways traded in the $4 to $6 range for some months during the early 1990's before taking off to $65 or more when the business expansion was fully under way. Using Chads numbers, the new K-Mart has appreciated 700%. The "bounce" in US Air in the 1990's was 1,600%. Instead of saying LCC may be the next K-Mart, I had rather say that it is still the old US Air!

LEANING AGAINST THE CROWD

Successful investors tend to lean against the crowd. They buy real estate during recessions. They raise cash when stocks are hot and they buy stocks when consumer sentiment is low.

Successful investors trade relatively infrequently. Those who buy and hold do better than those who trade rapidly. However, those who manage accounts smartly do much better than those who buy and hold.

I like the gardening analogy. One should plant stocks when conditions are good. One should weed the garden and one should harvest the garden. Weeding the garden means that one should sell the losers and hold onto the winners. Many investors simply cannot seem to let a winner run long enough.

Tomorrow I have decisions to make in a couple of aggressive accounts that are sitting on net new highs. These accounts are aggressive accounts; they trade on margin accounts. When margin accounts make net new highs, they have buying power. The temptation is to buy more and more as stocks go up and this is consistent with my belief in tending to average winners up and to seldom average losers down.

However, margin accounts are special. They take extra skill to avoid big losses. The current rally is nice but it is already over bought. It is not likely to be the "big breakout". On the other hand, specialist short selling has dropped precipitously, suggesting there is more upside.

The tough thing is that I believe in holding stocks for an average of at least 4 years and I believe that those who buy the right sectors today and hold for four years will do very well. I don't believe that anyone can call the markets short term moves. Intermediate term and long term moves are much easier (I'll give you 1,000 to 1 odd on the market being up over the next 20 years but no odds on if it will be up or down a month from now).

A considerable majority of traders currently believe in the year end rally. The majority is typically wrong. As an intermediate term RAGING BULL, it is tough for me to bet on a market decline. However, in these leveraged accounts, I must be extra cautious. I have made no final decision yet but it is very possible that I will use some of the buying power in these accounts to sell short; maybe as early as tommorrow. Before making the final decision, I will look at the market "internal signals" and I may wait for a major positive event. For example, if the congress were to pass a budget bill and the market were to go up strong on the news, I will probably sell into the rally.

Again, I am a RAGING BULL. Stock earnings yields are cheap relative to real estate rents and bond coupons. Diversions of this nature can last quite a while and, in this case, real estate reached a very extended price back around March of this year. Stocks have been cheap relative to bonds for two years or more. I suggest that even conservative investors should over weight big cap quality steady earning stocks in their portfolios. Ten year bonds are certainly more attractive today at 4.6 than they were just a few weeks ago but still should be avoided by investors. Traders may buy bonds for a quick pop here but the risk reward is not great. The bottom line remains that good quality steady earning companies will return substantial returns over the next 4 years. Don't miss the boat playing my projected short term pull back!

Playing short term moves is always dicey. In this case, note that I am not saying I will sell short tommorrow. Timing is key to short term trading and letting the move come close to completion requires great patience. I am not saying that I am great at playing short moves. Again, I have never met a great short term trader. I have met a lot of folks who make it sound like they consistently win. By the same token, I have met a lot of folks who talk as if they win money on every trip they make to Las Vegas. Don't believe it. The odds of winning in stocks are extremely good in the intermediate term and overwhelmingly good in the long term. The odds of winning on short term trades, after commission expense are not much better than 50/50 for experienced traders.

BOND TRADE

Yesterday, I could not resist jumping on a 200 bond trade for a friends account. The fellow had margin power available at 4.75% interest, a 23 treasury was available at a yield of 4.91% and consumer sentiment was and is at recessionary levels.

Don't assume that I am calling for a recession. To the contrary, after a soft patch brought on by the fear of high winter heating (yes, the fear is worse than the actual event), I expect the economy to pick up strength throughout 2006. Indeed, small business owners are optimistic. Small businesses create about 90% of all new jobs so it is important to note that this group sees good times ahead.

The upcoming holiday retail season is likely to be a weak one. Consumers were hit hard by the jump in oil prices and the increase in loan rates on their variable rate loans. It is natural for consumers to get squeezed when an economic expansion gets under way but it is unusual for the squeeze to start out like a wrestling match with a boa constrictor.

Yesterday, another billion dollar oil refinery was in the news. This time it is Syria, with the aid of Russia, who is planning the plant. The same day, another company announced a huge expansion in Georgia. A billion dollar plant is the equivalent of 1,000 million dollar homes or 4,000 $250,000 homes. When you have hundreds of billion dollar facilities being built at the same time around the world, you have a squeeze on capital at hand. Should it come as a surprise today that Toll Brothers lowered their forecast for home sales? Toll Brothers and many related stocks, every thing from competitors to carpet to appliances sold off hard. The bond market took a big jump.

Please note that I made the bond play as a trade only. I expect long rates to be higher by the end of next year. I expect the Fed to raise short rates at least one more time in the near term. I think it will take two quarter point increases to finally convince the markets that inflation is not such a big problem.

Inflation expectations are just as important as inflation itself. If workers demand wage increases to "catch-up" with the cost of living, the inflation spiral can be hard to stop. This time the inflation spiral can not support itself because the global market has opened doors to billions of potential workers. Right now, the core inflation rate is low around the world. Unit labor costs increases are low partly because productivity continues at a strong pace. Inflation expectations are about to fall.

The drop in oil prices, in the past month, will gradually feed back into the headline inflation numbers and will even more gradually feed back into the core numbers. The next price declines will come in metals; copper, gold, aluminum, steel, etc. Spot prices will fall and futures prices will plummet. By the spring of 2006, I suspect the FOMC will actually have to lower short rates.

I expect to make only 5% in the bonds (it will take about a .5% decline in long rates to give me the 5%) but a $10,000 gain on borrowed money is better than finding $10,000 blowing in the wind. Caution: the inherent risk in this trade is deceptive. Ironically, the risk is not nearly as large as believed by the 40% of folks who are risk adverse and the risk is much larger than is believed by the 20% who love to take risk.

You see, about 40% of the folks in the world are "collectors", about 40% are "investors" and about 20% are "speculators". The collectors lose the most because they allow others to make money off their money. They leave money at very low rates in "not so safe" banks, they pay brokers high management fees, they pay high mutual fund fees, they pay high insurance costs and they buy what others are buying (which means they realize low market returns); once they buy a dead stock they tend to hold it for years trying to get their money back. The speculators make a lot but lose a lot and in the long run are more likely to be broke than the collectors. Investors are willing to take a business risk. Investors understand that there is a balance somewhere between default risk and inflation risk that leads to great wealth. The speculators lose a lot to default risk and the collectors lose a lot to inflation. Investors don't win on every trade but they consistently win in the long run.

In the bond trade mentioned, the risk was offset by the particulars of the portfolio involved. If the economy does well, this account is going to do very well, however, in the short run, owning a few bonds diversified the account, even though the bonds were purchased with borrowed money. Again: CAUTION: leveraging stocks or bonds to the max can be devastating to your financial health. It can be a lot of fun when you are right.

BLOGWORLD

SOME GREAT READING:
Chris Anderson with Long Tail has an eye-opening article on the long term decline in media entertainment:
The box office is down 7% (continuing decline since 2004), Newspapers down 2.6%, books down 7%, Magazine revenue is up but advertising and readership are flat. According to Anderson, the only thing up is
Internet advertising:
--Banners: Up 10% this year
--Keywords: Google revenues up 96%

The Big Picture guy has an interesting article for investors on Washington Scandals and how they affect the stock market returns.

Bill Cara takes a look at the stock market winners and loser over the last 100 points in the market

For and interesting read on gas prices and as well as futures declines and how it will affect the U.S. ecomony check out Econobrowser. Econobrowser highlights how thisand the change in the car-buying habits of the U.S. public will change gasoline demand.

To Buy or Not to Buy? Beta Pundit addresses the pros and cons of the new video I-Pod

WSJ.com - Delphi Seeks Far-Reaching Givebacks

With autos, auto parts, airlines and many others seeking give backs from labor, one should be able to surmise that inflation is not likely to raise its ugly head too far.

Back in the early 80's, Stan Salvigsen wrote one of the best research pieces I have ever read. It was called Bingo, Bango, Bongo. In it he traced the way inflation comes alive. The process starts when demand for commodities are strong during a recovery. The commodities soar, leading to workers demands for "catch-up" raises, since labor is a huge portion of our total economy, when labor costs are up inflation is in full bloom and finally the cost of capital has to go up (interest rates up, stocks down).

In this cycle, we have had the strong surge in commodities but the global economy will not allow lobor inflation to occur. Labor is having to deal with the fact that there are millions willing to take jobs that can be done overseas.

This makes for a confusing inflation picture. Items that are not likely to be outsourced internationally, such as dental care and a university education has seen huge price increases. On the other hand, many manufactured items such as computers, telephones, clothing, etc. have seen dramatic deflation.

The good news for Americans is that there are good jobs available for those willing to learn and the sum total of the inflation rate is very tame. A great environment for stocks. Look for a break out in stocks in the next week or two or three.

A very interesting indicator today was that when the market broke out strong, the option market lagged. There is little sentiment for chasing stocks. That story will change when stocks break above the trading range of the past two years! YOU SHOULD BUY BEFORE THE CROWD JUMPS ON AS THE MARKET IS GOING TO TRADE TO THE TOP OF THE RANGE AND THEN BREAK OUT STRONG!

Seeking Alpha » Weekend Reading - Best of the Seeking Alpha Network

Seeking Alpha has published a number of discussions and interviews. I don't recommend the Amerivest product discussed in regard to AMTD but this stock is one of my families big positions and big gainers. Take a look at the site, there is a lot of "stuff" posted and the site is part of a family of sites. I often read the Internet Blog site.

By the way, Merrill Lynch just resumed coverage on AMTD. The stock had a great run while Merrill Lynchstayed away. My family recently reduced our holdings. We are more comfortable owning stocks that are not recommended by the big houses.

Should Flickr (And Lots of Other Web 2.0 Sites) Pay You?

YES!

Those who post photos on the web should be able to post a useage fee. They should also share in any advertising fees produced.

It is my hope that the Google Wallet or some other payment system will make it easy for small payments to be made. A few cents for producing quality work would be a great reward. A few cents enough time could creat a whole new generation of online businesses.

Hybrid Cars Blog. Everything about hybrid cars, trucks, SUVs and other hybrid vehicles including plug-in hybrids, the costs of hybrid cars, hybrid car

As expected, Toyota is moving to lithium-ion batteries. Also, as expected the hybid components are getting better. Electronics offer the means to improve performance. The electronic braking funtion will do more to recharge batteries.

The best technology is probably a few years off but rapid gains are making the fuel savings significant.

USG Expands Plant Making Joint Compounds - Forbes.com

USG Expands Plant Making Joint Compounds - Forbes.com

One of our top performing Stock of the Week selections is USG. The company has announced a new plat to produce joint compounds. I have repeatedly reported that the economy has moved into the expansion phase. Companies expand when demand and profits are high. The problem is that the expansion sows the seeds of distruction.

We will continue to hold USG. in the portfolio for now as it is early in the expansion. However, we will keep an eye as to when we should pull the trigger.

Cable companies call on Sprint Nextel | CNET News.com

Sprint has finally inked its deal to offer dual band phones in cooperation with cable companies. This has been anticipated for months although it was a little surprising that 4 cable companies joined the same venture.

My family still owns Sprint but I am not as enthusiastic about the company as I used to be. The idea that Skype, Google Talk and others might offer competing services at no charge makes one pause. It is possible that Sprint could fall into the same trap as the land line phone companies. That is it may be difficult for Sprint and partners to reduce fee revenue in exchange for larger future advertising revenue.

We all know that vendors will pay dearly to get calls from consumers. The yellow pages prove that vendors will pay through the nose for leads. Google, in particular, plans a business model based on "advertiser pays".

Sprint does promise innovation. For example, the firm mentions the possibilities of features such as programing a DVR remotely through ones telephone. It is also exciting to be approaching the time when folks routinely are available at one phone number. There will not be the need to have seperate home, work and cell numbers.

Delta to merge Song operations - Airlines - Transportation - Company Announcements

Delta to merge Song operations - Airlines - Transportation - Company Announcements

Deltaowes more to creditors than it has as assets. Therefore investors should not purchase or own DALRQ shares. If you do own these shares, you should sell them and seek gains elsewhere. Seventy cents per share is not a lot of money but it beats zero by a large margin.

The reason I linked to the above article is because of Delta's addition of first class seats. The company is adding 26 first class seats to 48 planes. This is not being done for the exercise. It is being done because business travel demand is up, way up. Companies are willing to pay for first class seats on the most expensive and most direct flights. Businesses want to save time. They want to have happy employees who are willing to go where ever when ever.

Twenty six seats on 48 planes is an increase of 1,248 seats that command significantly more revenue than the comparable coach class seats. Using a round number, lets say the extra revenue on international flights is only $500 per seat and lets say these seats are used 5 times per week, 50 weeks per year. The product of 1248, $500, 5 and 50 is $156 million dollars per year!

The reason I laugh so hard at the reporting yesterday, (an old story that finally made it to TV) in regard to one new plane flying from New York to an airport 45 minutes from London is because the comparison is like comparing a flea on an elephants back. The flea may be pesky but I'll bet on the elephant to haul my freight and not worry that the flea is going to take over.

CAL and AMR, fly thousands of international "business" flights. I am not saying they turn away the vacation traveler but that they make their money when business demand is filling up high dollar business class and first class seats.

The past couple of weeks has been a fun time for the owners of CAL and AMR shares. Every other day or so, oil has traded down and airlines have traded up. On several days, the broad market has been hammered but the airlines have show great relative strength (down just a little when others are down a lot).

Relative strength is very important to notice when a market rotation is in progress. Right now, large cap stocks are showing strength versus small caps, transports are showing strength versus large caps and consumer staples are edging up just a little. Technology has been all over the place. Google has certainly led the way but the rest has been more of a mixed bag.

The next big bull market move will include technology issues. The starting date is getting close. Most likely, the start will be concurrent with another piece of really "bad news". What ever the "bad news" that kicks off the rally, don't be fooled. The markets may have a rough day or two before making the big turn. I don't expect energy to be the big driver. If I owned energy, I would sell. Peak earnings is not the time to buy but is the time to sell.

If the kick off news is a sharpe decline in the price of oil, it may be that the market goes down because of the down draft of the oil stocks. Again, the relative strength should be noted on the down draft; the stocks that only go down a little on the worste of days will be the ones that go up a lot on the best of days.

Fuel users such as Dow Chemical can be bought with confidence. Atlantic city gaming concerns will benefit from a drop in oil. The big winners will be firms like CAL, LCC and AMR that spend heavily on fuel.

By the way, even though you may be a coach class ticket buyer, you too will see prices going up. To put in the 1,248 first class seats, DAL probably had to pull out more than 2,000 coach class seats. The available seats go down each time an airline upgrades to business class or first class seats. There has been a lot of upgrading happening. The total number of seats available is not climbing nearly as fast as the number of planes in service. Bankrupted carriers have been reducing flights. Utilization is extremely high. Christmastime seat prices are out the roof.

If you plan to fly anytime soon, you should earn your tickets by buying CAL , LCC and AMR. A rare opportunity to buy shares at very low valuations.

China Allows Its Currency to Inch Up Against Dollar - New York Times

China Allows Its Currency to Inch Up Against Dollar - New York Times

OOPS! Europeans and others around the world are getting hit by a double whammy. The movement of the US dollar to higher ground has incresed the cost of oil in addition to the nominal price increase. Now China is allowing its currency to float up against the dollar.

The cost of goods and services purchased by "the others" is going up for multiple reasons. The response is that there is at least talk that the European Central Bank will raise interest rates for the first time in 5 years.

Many will be alarmed to learn that short interest rates are going up around the world. However, investors should note that increases in rates is the primary method central banks have of putting the brakes on inflation. The fear of deflation is over. The average GNP around the world is growing. It took some old fashioned "pump priming" by the USA to help the world economy grow. Now the US is leading the way to level off the excess.

The next few years will be years of economic expansion. The problem in a few years will be that profit margins have shrunk as world wide production has increased. As it becomes increasingly difficult to make profits, one should move ones portfolio to a more defensive posture, but not yet. The next move is going to be a strong move that will left most boats. One can throw a dart at the stock page to pick winners over the next several months.

Never-the-less, ones bias should be to sell off the small stocks on rallies and buy the big safe secure ones on pull backs. You may know that the big solid companies somtimes actually go up during recessions. The key is that you want to make the "flight to quality" well before the markets move to these sectors. Right now, Proctor and Gamble, Colgate, Pepsi, Wrigley, Wal-Mart, Johnson and Johnson, PFE and other solid old growth stocks will hold up well when the going gets tough.

Marketwatch - Interactive Charting

Marketwatch - Interactive Charting

A one year chart of CAL and AMR shows that CAL is up 35% and AMR is up 60%. Perhaps the more important chart is the one from the 1994 to 1997 time frame. This was a similar time. The economy had a recession in 1990-91 and in 2001. The economy recovered over the next 4 years and then expanded in the second half of the decade. Within about 3 years, the airlines went up 300% or more.

Of course the past does not guarantee the future but history does tend to repeat. The history of business cycles is that airlines sell high dollar seats and make serious money to business travelers during economic expansions. Having followed CAL fairly closely, I can tell you that CAL has recently been expanding first class and business class seating at the expense of low margin "consumer" seats.

CAL is expanding long-haul, high margin, international flights. The fact that a new ariline is flying one plane to an airport 45 minutes out from London makes the news but CALis expanding routes that will make the money.

Back in July, before the NWAC and DAL bankruptcies, CAL and AMR were each up 80% on the year. The pull back is giving investors a great opportunity. Prudential has a one year price target on AMR of $28. JP Morgan has upgraded CAL to buy.

I certainly can't promise you that AMR will zoom from $12 to $28 in a year, not even in a couple of years. However, I am confident that the price of fuel is going to come down. With Canadian tar sands as one example of ample fuel at $45 per barrel or less, this extra supply will pull the price down to $45 over time. In the mean time, other supplies will be discovered that cost much less than $45 to produce.

Furthermore, I am confident that, with lower labor costs in place, lower fuel costs will lead to substantial profits for AMR, CAL and LCC. I do not like the price of LUV. Southwest is a well run ariline but the market has more than rewarded its efficiency with a price that is way over the top.

GOOGLE TESTING CLASSIFIED ADS

Google Found to Be Testing Classified Ads - New York Times

The concept of placing classified ads on pages of related content is simply an extension of what Google already does. The ramifications are big. Just think of how many newspaper classified ads are published each day at substantial fees.

Like Jim Brinkley of Legg Mason used to say, the lowest cost provider wins. Base.Google.com could be used for many different purposes. I like the concept of being able to find every detail of a football or baseball season. I wonder how many fall festivals there are in how many little towns across America? A searchable data base of of the best barbeque restaurants would be neat, especially if it was mashed with Google Maps.

Google is about making information available. Information is the key to productivity. Googleis changing the world.

GOOGLE WALLET ON THE WAY

The speculation at Businessweek.com is that Google will need to set up a payment system and a reputation system to compete directly with EBAY. The speculation seems logical and it has long been rumored that Google.Wallet is on the way.

Don't you just love the "Gales of creative distruction?"

KRISPY KREME STARTS OVER

ARILINE EXPANSION AGAIN

Guardian Unlimited | The Guardian | Luton airport to treble capacity

The expansion phase of airline traffic is showing up everywhere. Boeing is taking orders like hot cakes and airports around the world are drawing up expansion plans. The value of existing landing slots and gates goes up as capacity utilzation peaks before the expansion. The next few years will be highly profitable for the major airlines.

PETRO CHEMICAL PLANT OPENS IN TRINIDAD

Trinidad opens new petrochemical plant

The law of substitution strikes another blow for lower fuel prices in America. Trinidad is now the worlds second largest producer of methanol. The US will import this product to reduce our usage of natural gas.

The plant will produce about 2 million metric tons per year. A little bit here and a little bit there is adding up. This winter is going to be a tough one. Retail fuel oil is carrying a 33 cent margin right now. Bill Frist is calling for congressional hearings to jaw bone down the price. Never-the-less, the price is going to be high this winter.

The laws of supply and demand are still in control. Gradually more supplies will come on line. The new methanol plant in Trinidad will have an effect, but it will not be the supply that pushes marginal new supply to levels above marginal demand.

Earlier I wrote that coal can be converted to diesel fuel at a cost of about $22 per barrel. I think perhaps the $22 is the cost for Quatar to convert natural gas to liquid. At any rate, the exact figure does not alter the important point; the price of fuel is going to come down to the marginal cost of converting tar sands and or coal into liquid.

There are abundant supplies of goal in Australia, China, Germany and America (plus much more elsewhere). There are abundant supplies of tar sands in Canada. When the price of crude was $12 per barrel just a few years ago, it made no sense to set up the plants and processes to use this coal or tar sands for transportation fuel. Today it does make sense and construction has already started.

The law of substitution is more important to the economies of the world than most citizens appreciate. The price of gas can only go so high until other fuels will be used. Some substitutions take longer than others but the process is a constant one. Billons of people make trillions of decisons weekly to substitute for gas. Today, many folks decided where to live, many others decided what car to buy and many others decided how far to travel.

Today the second largest exporter of methanol opened a plant that will help America cut the use of natural gas that is in short supply. Praise to the invisible hand of Adam Smith and praise be to our creator.

MINING, METALS, NATURAL RESOURCES EARNINGS

Phelps Dodge posts 25% profit jump - Mining and Metals - Natural Resources - Earnings

Phelps Dodge is showing all the classic signs of having made a top. The first indication is that reported profits were extra strong. It always seems counter intuitive but you want to buy a cyclical stock when its profits are extra ordinarily low. You want to sell when the profits are extra ordinarily high.

The company is currently promising to return a billion dollars to share holders in the form of stock buy backs and dividends in 2006. Well buying back shares does not put any money in the hands of owners unless you are one of the sellers.

Investors should note that the price of copper has turned. Copper and all commodities do not go up and up and up. Indeed, over the long-term they go down when adjusted for inflation. Copper has been on a multiyear run, however, there are even signs that demand from China has slowed.

The markets are clearly going through a classical rotation. The economic cycle is clearly ready to go from recovery to expansion. With each expansion in each industry, the supply goes up. Margins shrink when supply goes up faster than demand. Businesses leaders are smart; they try not to increase capacity too rapidly. However, if you are going to expand, you want to do so before your competitors.

Some are good at playing the jaw bone game. For example, we all know how Saudi Arabia talks about infinite reserves every time prices get high in order to discourage new drilling for oil.

The bottom line is that folks should be moving their portfolios toward the "second half" stocks. These will include defensive issues that make about the same margins in good times and bad. The sellers of tooth paste, under-wear, soft drinks, beer, tolet paper, etc. Grocery stores versus restaurants.

Don't take me wrong, when the market takes off, most stocks are going to go along for at least the early part of the ride. Furthermore, transportation stocks have historically lead the early bull market moves and the relative strength of the transports right now is very strong.

Techology and much more will do well in the coming weeks. However, folks should use the upcoming major rally to reduce holdings in energy, materials, heavy machinery and the like and add to the defensive areas. PFE and WMT are two of the big names that have "worn investors out". However, these companies will make large profits over the next five years at a time when interest sensitive and economically sensitive stocks will suffer.

The chart of the day web site (subscription required) posted a chart today that showed REIT's offering very low yields. This is another sign of the time for the turn. Another sign is that the S&P is showing relative strength to the Russel 2000. Large cap, safe stocks, are starting to do better than the small growth company or the developing nation stock.

BE WARNED! THE DROP IN MINING STOCKS IN THE MID 90'S UNDER SIMILAR CIRCUMSTANCES WERE LARGE!

OIL BOUNCES: AIRLINES RUN

Airline Stocks: Market jitters, oil knock airline stocks - Airlines - Transportation - Markets/Exchanges - Market News

The misleading headline to the linked article was:

AIRLINE STOCKS OFF AS OIL BOUNCES BACK

It is hard for the novice to do well in the market because he trusts the news. Reading this news on airline stocks, the novice might assume that oil stocks were up and that airline stocks took a drubbing.

The reality is that airlines were down slightly. The index was off .65%. On the other hand, the energy sector was off 2.83%; more than 4 times as much!

Small caps were off 2.28% and broader indices such as the NASD and the S&P were off 1.63 and 1.05% respectively.

CNBC made a big deal over the fact that one airplane is now flying business class seats to an airpoint on the outer edge of London. The reporter implied that AMR and CAL will have to offer fewer seats at lower prices on international flights.

The implication is true in a round about way. Business executive are not willing to fly in small seats all the way to London just to save a few hundred bucks. They demand better accomodations and they expect their companies to pay for them.

Small seats are being replaced with large seats because during the economic expansion that is under way, business executives will be flying more and more. Planes will have fewer seats but the charge per seat will be more than double the price consumers pay. Consumers who fly a few times a year make their plans based on price. Businesses cannot affort to have employees sitting around in airports all day. Businesses want employees to fly hub and spoke routes to cut the total flight time. The business and the employee typically want the trip to be as quick and pleasant as possible.

The news media is all over the story of the bankrupt and nearly bankrupted airlines without seeing the major turn underway. CAL, AMR and LCC are my favorites. My family owns them and we expect to buy more. One plane flying to an airport 45 minutes away from London is not a big deal. Major carriers flying at nearly full capacity on long-haul profitable flights thousands of times each day is the real story.

SEARS HOLDINGS DRAGS INDEX LOWER

The excitement of the Sears real estate play is over. The stock ran too far and now has probably collapsed too far. I don't plan to buy (I'm cash flow poor) but I probably should find the will or the way.

On the other hand, the next move up in real estate will probably be to a multi-year top. REIT's are currently yielding less than 3%. The big run is over but then the last leg is often the sharpest spike.

Nimble investors should consider jumping on Sears, SHLD, because Eddie Lambert is a smart investor. He is unlikely to fritter away stockholder value. He will close unprofitable stores and cut cost. One obvious opportunity is to cut distribution costs. In case you have not heard, the big secret of Wal-Mart has been to open stores near distribution centers to cut distribution costs. The combination of Sears and K-Mart locations should provide savings opportunities.

On the other hand, the business cycle suggest that it is not the time to buy into "big ticket" stores. It is the grocery type store, selling necessities, that will do well for the next several years. Only those who are willing to play the bounce should jump on Sears right now.

AMERICAN AIRLINES BOOST

NewsFinder

The big investment banks are lining up with buy recommendations on the major airlines. The numbers are compelling which means these guys can no longer ignore them.

The latest convert was Lehman Brothers which has upped its rating on AMR from neutral to overweight. The reasons given were "risk-reward has improved for the airline due to capacity reductions and a muted reaction to recent fuel price declines".

My bet is that crude oil is going to decline to around $55 where it will dance for serveral months to perhaps a year or more before going lower. In the short run, the risk of a strick against Royal Dutch is on the horizon. However, given a little time, refinery capacity increases in South Korea, Vietnam, Quatar, South Africa, Russia, China, Iran and elsewhere (eventually in Iraq) will gradually effect the outlook.

The key point is that the legacy carriers have reduced other costs to the point that profits will rise with each decline in fuel costs. In the mean time, yeild is going up. The yield is going up for one main reason; business travel demand is very high during the expansion phase of the economic cycle.

DAL recently announced that they will install 28 addtional first class seats in 48 of their big planes. Have you checked on the difference in price of a first class ticket and a coach ticket? Of course, the seats are going into the long-haul flights where business professionals are not willing to ride for hours in cramped coach seats. Assuming a net price spread of only $500 per seat and assuming only 5 flights per week for 50 weeks per year and these 1,344 seats should increase DAL's revenues by $160 million dollars per year.

Do not buy DAL! The firm is in bankruptcy and the shares are virtually worthless. On the other hand, CAL and AMR have been making the same type conversions for many months. The story is even bigger than it sounds.

To install 28 first class seats, the airline must take out more coach seats. The space occupied by the first class seats makes more revenue for the airline but a very important point is that the total number of seats available goes down; capacity is reduced. As you might expect, the fare for each of the remaining coach seats goes up because the supply demand equation has been altered.

The market was basically strong all day in Asia today. The market is off to a wonderful start here. Inflation pressures continue to subside. The bond market is trading up as is the Dow, S&P and Nasdaq. Oil is pushing against resistance at $60. What is not to like? Consumers and businesses are spending on productive assets such as cell phones.

I have made the following point before but one seldom sees the point made in the mist of all the gloom and doom reporting so I will make it again. Let's say a fellow has broadband internet, takes the daily paper, two magazines and pays for a standard phone line plus long distance charges. Now lets say, as the information he needs becomes more abundant and more retrievable on the internet that he decides to stop taking the newpaper, one magazine and he switches to a broadband phone with unlimited free long-distance charges.

Investors then look at the Personal Consumption Expediture Deflator, which is the favorite measure of inflation used by the FOMC, and this statistic shows inflation to be very moderate (1.3% was the latest core number). Indeed this particular consumer is living a better life as he has dropped the cost of the newspaper, the magazine and the long distance charges from his "out-go". His personal inflation rate has gone down.

Inflation is like a pac-man eating away at profits, income and GNP. Low inflation is very powerful gas for the stock market (does not hurt bonds either). The current global economy does not allow wages to increase much because technology is facilitating the out sourcing for all kinds of jobs. A recent great example is the tutoring available for school children. The service is provided by teachers from India who speak free of charge over internet phones and review assignments on line. The student and tutor are siting half way around the world from one another but they are talking on the phone and looking at the same web pages.

The bottom line is that we live in a time of productivity growth. The good news is that productivity growth is equal to wealth creation. The reason American's have the highest net worth ever before is that our country allows the market to adjust. We are willing to eliminate GM union jobs if those task can be done at lower cost elsewhere. There are constantly winners and losers in a free society, however, we are all winners in the long run. Those who invest their savings long term in the market are consistently among the "big winners". The average return on long term holdings in the stock market is around 12%. Those who hide their money in money market savings accounts help others get rich but as a group they lose trillions of dollars in opportunity costs.

BE THE BULL, BUY THE MARKET!

TREASURY BILL RATES RISE

Rates on Treasury bills rise at auction

The demand for money has jumped! A lot of people will consider the jump in T-bill rates as a negative but in this situation is is not. The situation is that margin debt has declined for a long time. Now that there is volatility back in the market, borrowing is ready to heat up. With 10 year rates at around 4.5%, there may be some leveraging of bonds again.

The bottom line is that stocks are cheap, inflation is tame and the ten year return on stocks from here is likely to be better than 11% compounded. The ten year return on bonds from here is likely to be only slightly better than 4.5% as the principle will only earn 4.5%. The reinvested coupons may earn a little more.

Wow, 11% versus 4.5%, which are you going to take?

TOM DELAY MUG SHOT

Tom DeLay Mug Shot - October 20, 2005

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

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

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

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

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

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

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

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

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

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

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

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

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

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

JAPANESE STOCKS ON THE RISE

Reuters Business Channel | Reuters.com

The latest rate increase by the FOMC is reverberating around the world. The Austrailian Central Bank decided to maintain its rates at 5.5%, the US dollar strengthened. The dollar also strengthened against the Yen. The Japanese stock market has been making a good move of late.

It is time to avoid developing nation stocks and to own the big established companies of Japan. The next several years, Japanese stocks will outperform most other nations.

CLEARER SKIES

Wow! $8.38

David Strine, airline analyst with Bear Stearns, projects that AMR and CAL will earn money in 2006 even with the oil price at $60. He writes that if oil prices were to average $40 per barrel in 2006, then AMRcould earn $8.38 per share and CAL could earn $5.80 per share.

Wow!

I project oil prices to dance around $55 for several months next year. I believe they will end lower by year end but an average of $40 would be a major stretch. Never-the-less, with the trucks loaded up with CAL and AMR it is fun to dream.

AMR is a huge company by revenues. It is a relatively small company by market capitalization. The AMRmarket cap this morning was $2,180 billon. MSFT only 139 times the market cap and LUV is only 6 times.

It is easy to imagine AMR as a $100 stock in a few years. Wow! $8.38!

TURN ABOUT IS FAIR PLAY

OpenOffice celebrates turning 2.0 | Tech News on ZDNet

OpenOffice is ready to challenge MSFT. The program has a word processor, spread sheet, data base, and presentation software included. It is a pretty solid offering and it is free!

MSFT will fight this one hard but, in the long run, free is hard to beat. Ironically it is MSFT who played this game against past leaders. Turn about is fair play.

AIRLINE PROFIT AHEAD

WSJ.com - Article

From my point of view, the track record of JP MORGAN on airlines has been dismal. The firm liked DAL and NWAC at the worst of times, down-graded CAL to neutral while it was trading around $9 and now with the stock pushing $12 they like it again.

However, the point made in today's upgrade is a valid one. CAL and AMR are selling at a lower price today that before Katrina and the price of fuel is much lower today than it was at that time.

A bounce in the price of fuel could scare investors again. However, there is strong evidence that new supplies of oil are starting to take the lead over new demand for oil. Demand will grow in China, India and elsewhere for many years to come. However, both China and India have refineries under construction. Both countries are building GTL (Gas to Liquid) refineries. These refineries typically convert natural gas or even goal to liquid fuels (coal is heated until it gives off gas to be processed).

I have said it before but must say again that it is a rare opportunity to buy a stock at a .08 price to sales ratio. CAL was recently carrying $22 of debt for each dollar of equity. It clearly has the leverage to slip and fail or to make equity holders wealthy in a hurry. The company just sold $200 million shares worth of stock (about 20% of the company) at $11.35 per share. This move was disappointing but perhaps necessary. Company officers forecast an end of the year cash balance of $1.4 billion. Another few dollars of declines in oil prices and the $1.4 billion will take a jump. Profit projections for 2006 will also jump. JP MORGAN expects the company to be profitable in 2006. The swing down in the price of fuel could make that a big profit in 2006.

RUN BULL RUN

Check out Checkers Drive In, Kupskey's new pick for Stock of the Week

Current Value of the SOW Portfolio:

$111,298.52

Simple Return: 19.55%

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

S & P 500 Value : $108,997.57
Simple Return: 1.16%

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

Treasury Bond Value : $99,383.91
Simple Return: -4.40%

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

Individual Stocks continue to outperform equal investments in the S & P 500 (1.16%)and the TLT Treasury Bond index (-4.40%).
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 PICTURE REVIEW

BIG PICTURE REVIEW

Back in July, retail sales reached a 10% growth rate, which is an unsustainable level.  My forecast is that consumer spending will be slow during the important fourth quarter.  I make this statement on the heels of a robust retail sector stock market.  You see, after the hurricanes, fear was in the air that the fourth quarter would be a disaster.  

My old friend and retired stock broker extraordinaire, Bill Lienbach, used to tell young brokers not to get too excited about the “ripples in the water”.  He said, when you throw a big stone in the lake, the water will slosh back and forth for a little while but it will soon return to normal; until another big stone is dropped.  The hurricanes were big events; we should all continue to support recovery efforts, however, in the grand scheme of things, the ripples are mostly gone.  

So, the fourth quarter will not be a disaster.  However, rising interest rates, including credit card rates and equity line of credit rates, and higher fuel prices are having their effect.  The effect is world wide.  Many central banks around the world have increased interest rates; Brazil, Mexico, Indonesia, Hong Kong, Canada and China to name a few.  Furthermore, crude oil is traded in US Dollars.  Therefore, the price of fuel has increased more internationally in the past couple of months than it has in the USA.  Many populous countries, such as Indonesia, Malaysia, India and Thailand, have taken steps to decrease oil subsidies that were “breaking the bank”.  

THE BIG DEPARTURE

My forecast is consistent with that of many economist and market observers.  The big departure is in the conclusions drawn.  Many observers, some of whom are obviously democrats, are beating Bush over the head with the slowdown.  They are crying the blues over this “mid course” correction.  The truth of the matter is that a “mid course” correction is to be expected.  

The typical business cycle has a recovery from recession that is lead by consumers.  It is lead by consumers because interest rates and inflation go down during recessions and consumers find themselves with spending power.  Those who made it through the recession without the loss of jobs find themselves in a neat environment. Their income goes a long way.  Many refinance their homes, buy new cars and even buy second homes.  However, after a few years of growth, resources go from excess supply to tight supply.  It becomes time for businesses to borrow money to expand and it becomes a time when the consumer gets pushed aside.  The recovery morphs into a business expansion.  

As interest rates and other prices go up, consumers must cut back on discretionary spending.  Historically, big ticket purchases are cut out during this strong phase of the business economy.  The consumer still has his job and still has good income but the combination of interest rates and higher prices can make for tough times.  Ironically, one of the best performing stock sectors during the business expansion is consumer stocks.  The important distinction to make is that it is not the consumer discretion sector but the consumer staple area that does well.  Consumers are going to buy groceries, under-wear, socks, and other “necessities” though-out the cycle.  Most will not buy the big boat, RV or put in the back yard swimming pool during this time.  The reason the consumer staple stocks do well is not because their earnings go up so much on a nominal basis but because they continue to grow while other companies struggle.  

The news media and stock mavens often lump retailers into the same pot.  The past few days WMT has done well.  This has been a “surprise” to the TV talkers.  The assumption was that poor folks would cut spending because gasoline took all the money.  But, Wal-Mart is about daily needs. Wal-Mart is half grocery store.  If consumers’ money is tight, they will cut out going to the steak house on Friday night but continue to buy goods and groceries at Wal-Mart.

NEW ECONOMY

We live in a new age when many things are turned upside down.  The luxuries of old quickly become necessities.  A good example is the cell phone.  Sprint just made a deal with four of the major cable companies.  It is a fantastic deal for Sprint, the cable companies and the consumer.  The dream of using ones cell phone at home and at work without paying per minute charges is about to become reality.  Many folks are going to save money by disconnecting their old phone and using a low cost cell phone for all their calls.  The interesting thing is that the phone is going to be much more than a phone.  

The phone will allow one to communicate with ones home computer and media center.  It will allow one to listen to “the radio” and to watch TV.  Many of you will be surprised at how “necessary” it will become to have one of these new phones.  

Another way the market is turned upside down is the car business.  In the business cycle of the 1990’s, the car business was strong right through the business expansion.  You see the car companies took a big negative and turned it into a positive.  During a time when interest rates were high, the car companies offered zero interest rate loans.  Don’t be surprised when consumers buy more fuel efficient vehicles over then next few years.  

Right now, the car companies are going through “gut check” time.  They must adapt to the new environment.  Don’t count them out, they have done it before and will do it again.  Ford and GM are both selling at very low prices.  It is not the correct time to buy these stocks based on the business cycle, but, they are cheap.  

Today, a family member purchased shares in SMH, a basket of semi-conductor stocks.  This group broke off a bottom like a frog on a hot plate yesterday.  World wide sales of semi-conductor chips are at an all time high and suddenly millions of Americans will want a TV-Phone and other “wireless” devices (game machines to work machines).  

How crazy can a market get?  On the one hand, the economy is slowing, on the other hand semi-conductor sales are at all time highs.  Even crazier was that oil stocks and airline stocks were the market leaders on Tuesday.  As I forecasted months ago, the transport index hit an all-time record high at a time when oil prices are close to record levels.  Several months ago, folks would not believe me when I suggested that oil goes up when the demand for transportation goes up.  It seems very intuitive but then the world is upside down at times.  Today, there is gloom and doom about the slowing economy while ten year bonds are at their highest rate in months!

BEAR OR BULL?    

One excellent definition of a BEAR MARKET is a market that is experiencing declining market multiples.  Well the multiple on the S&P 500 has declined from around 40 to around 14 in the past 5 years and many a good company has increased earnings and seen its stock price go down.  The average multiple absolutely go lower.  Do you remember the days of 5 times earnings being a buy threshold?  Earnings growth has been in deceleration mode for three years and I believe earnings will grow even slower in the next few years.  I can understand why many folks are worn out, disappointed and even scared.

On the other hand, those who invested heavily at the market bottom in October of 2002 have had a lot of fun in the past three years.  Riding Ken Fisher’s “bucking bronco” is about as good as it gets.  Right now, the bronco is trying hard to shake riders off.  The sharp run up in CPI is enough to make an old guy like me as nervous as a cat in a house of rocking chairs. Historically, stocks do not do well when the CPI is high.

The big question for me is how long will the CPI stay high?  I have written about my forecast that oil will gradually make its way back to $55 per barrel.  I believe it will “dance” around $55 for a good while (this projection is made in the face of the futures strips averaging around $61 for the next 18 months).  I have written that commodity prices are at or near their peak.  I do not believe wages and salaries are ready to soar (the pilots and auto makers can vouch).  Global inflation is running at about 2% and like it or not we are in a global society.  World wide productivity continues to astound.  Finally, technology is working magic in combination with the law of substitution.  The cost of the newspaper is dropping to zero for folks who get their news online.  The cost of the home phone is dropping to zero for the person who converts his cell phone to a dual band internet phone.  The cost of advertising is dropping to zero in the instances where businesses are substituting fewer targeted ads and eliminating some of the “shot gun” ads.  As we approach the final days of tightening by the FOMC, it is going to be a frightening time for investors.      

In summation, markets are tricky.  Put your money in the right place at the right time and enjoy the ride!      





  

Internet Outsider: Speechless GO GOOOOOGLE GO

Internet Outsider: Speechless

Google numbers are incredible. Doing the Google Gulp has indeed paid off and it is not too late! DO THE GoogleGULP (IT IS HARD TO BUY A $380 STOCK BUT THIS IS THE ONE TO SWALLOW).

The company spent $293 Million in the quarter building out offices and infrastrastructer. The spending is not over, the wireless network for San Francisco may cost $200 million or more. It sure would be neat if the whole country were "un-wired".

My family has purchased Google 6 or 7 times. We may buy more! On the other hand, there is a rotation going on in the market. Oil and materials are taking "gas". The leadership is likely to gradually move to the Wal-Marts and Pfizers of the world. No matter, Google is going to change the way we live!

HAVING FUN MAKING MONEY

If this market is not fun, I don't know what is! The put-call numbers, investment sentiment numbers, and other market indicators (such as 5 trillion dollars sitting on the sidelines) suggest that the public is afraid to get in the water. On the other hand, earnings have been up at double digits for more that three years! Stocks that have not increased in price in 5 years are earning more than double than the 5 year ago earnings. Yes, stocks were too high 5 years ago, yes, they are too low now. Selected stocks are zooming while the news dwells on the 12 interest rate increases in a row.

Is is not clear that an increase in interest from 1% to 4% is not the end of the world? At 4.6% the 10 year treasury bond is not giving any serious competition to stocks. I named this blog, Socks or Bonds because I love investing in Stocks and in Bonds. However, during the entire existence of this blog I have suggested a 100% allocation to stocks and a zero allocation to bonds. The allocation has worked out extremely well, particularly in the time frame from October 2002 to January of 2004 (during that time this blog was an email list).

It seems that the public is currently caught between the gyrations of quick market timers and the gloom and doom of inflation hawks. The inflation hawks mostly rant and rave as if the world is coming to an end. Some of them push gold and some suggest that the oil wells are nearly empty. The quick traders like a stock for a week (sometimes for a month or two).

Jack Fields, a very successful broker in the 60's, 70's and 80's, used to say that no one can make a fortune taking 50% profits. He was absolutely right. I have never found the person who has traded his way to great wealth. I have known quite a few millionaires who made their money in stocks.

I am coming close to deciding on which stock to load up next (using Crammer's 'mon back analogy). One of the possibilities is PFE. I don't think the business cycle is quite right for this one yet but the numbers are compelling. For example, the respective price to cash flow figures for MSFT, DELL, WMT and PFE are 16.75, 12.27, 11.1 and 8.75! I have heard a lot of people pushing MSFT and this company has a price to sales ratio that is 2.5 times as high as PFE.

I am not loading the truck yet. Partly because I have not finished building my AMR, CAL and LCC position. A few more days like today may cause me to start nibbling at PFE or WMT. Note that WMT and PFE are out of favor. I love out of favor stocks!

To be a good buy, I believe a stock has to be hard to buy. My success with Google has been because few were willing to pay $85 for the IPO and afterward most could not believe the stock was worth $300. Even now, reputable firms such as Morningstar value the stock in the $200 range. On the other hand, many folks are now out with $450 price targets. Most folks still can't appreciate the power of the infrastructure the firm has built.

Anyway, it has been fun doing the Google Gulp. It has been fun loading up the truck in the past few years on AMTD, ET, GT, GLW and others. The most fun of all has been building the airline position. It has the most potential of all. The next positions should be more defensive. Again, WMT or PFE are high on my list. I hope you are having half as much fun as I am.

Politics News Article | Reuters.com

Politics News Article Reuters.com

The Senate Energy Committee voted to lease ANWR's coastal plain for 2.4 billion dollars. The money is not huge in terms of the total budget but the 10 billion barrels of oil will help prices for all Americans.

The area to be leased is less than 10% of the reserve. It has been silly for our country not to use this oil which is currently valued at more than half a trillion dollars. Half a trillion here, half a trillion there and sooner or later it adds up to real money (in memory of Everett).

Reuters Business Channel | Reuters.com

Reuters Business Channel | Reuters.com

OPEC expects to raise production 5 million barrels per day in each of the next 5 years! The numbers do not count any increase in production from Iraq.

One can speculate that OPEC is trying to talk companies out of investments in tar sands and GTL (Gas to Liquid) facilities but production has increased from the Middle East for the past 15 years. Saudi Arabia has ordered 3 more big rigs. They are putting money into exploration and production.

The internet | The battle of the portals | Economist.com

The internet | The battle of the portals | Economist.com

I would bet on YAHOO and Google to win the "portal wars". A reader pointed out to me that I seldom write about YAHOO even though my family has owned it long before Google shares were available. The reader is right. YAHOO is solid. It is doing things the old way well. Google is exciting because it is changing the world. YAHOO has a lock on about 12 million paying customers and is second in advertising search earnings. Google is not as safe of a bet as is YAHOO but it is putting up great growth numbers.

Googles earnings are up, but there may be charges for some of the law suits against Google. The competition is taking turns encouraging law suits in an attempt to beat back Googlelong enough in the courts for the competition to catch up. The competition has a long way to go.

Copper charges to all-time peak

Copper charges to all-time peak

On the way up, commodity price peaks make a lot of news. The price peaks excite a lot of bloggers. However, in the commodities market, what goes up must come back down. My copper charts go back 200 years and copper routinely underperforms CPI.

The price will not be in the news in the many months ahead when it softens. The current tight supplies is a temporary situation. Take advantage to buy stocks while the market place is finding boogie men around every corner!

GOOGLE SATELLITE TV

When one reads that the chair of SBC went defensive about the use of the companies "pipes" it became clear why Google has interest in satellite TV feeds. The key thing that Google can offer views and advertisers is relevant advertising. Relevant advertising is a huge win for both. The consumer can watch less advertising to learn more about the products he will buy. The advertiser spends less on a rifle approach than on a shot gun approach. The consumer may even view more advertising if the advertising is in his areas of interest.

A satellite TV company might want to team up with Google to send internet TV to DVR type boxes. Consumers might click to let Google know not to send more ads of a certain type. This is similar to the way the Google sidebar works. I have been able to stop seeing even the headlines of stories in which I have no interest.

As Google learns more about me, it will be able to select the best advertising for me and for the vendors. TV ads are currently the biggest waste of time. On the internet, many of the ads are relevant and therefore not a waste of time. Folks like me keep the remote handy in an attempt to avoid as much of the repetitive TV advertising as possible. It sure will be nice when one can cancel an ad with the click on the remote.

SBC has built and purchased a heavy duty network. The old AT&T network was the biggest in the world by far until MCI and World net grew rapidly. SBC can not raise the cost of using the network much because it is a competitive situation. Users routinely swap packets of data across networks and pay only for the "net" usage. LVLT and other smaller firms are merging to fight the "big boys". QCOM, Goog , COMCAST and others are expanding their networks. The frustrated words of SBC only serve to encourage the building out of other alternative routes. Google has invested in power line systems, WiFi systems and it has purchased miles of "dark" fiber.

Google is looking for more partners. Google plays by a different book than the old MSFT. MSFT always tried to monopolize a business. Google wants to connect the consumer to the vendor. In some cases it will become the vendor but for the purpose of building something that is good for the customer. Satellite TV providers may have a natural partner available.

NBC News is now available on the internet. So are a rapidly growing list of video cast. There are going to be some neat videos posted in the coming years. The best ones will gain large audiences quickly. Many of these will be shot by amateurs. The cost to the satellite TV company for this content will be ZERO! This "long tail" content will produce billions of advertising revenues for Google and partners.

HOW QUICKLY OUR OIL ATTITUDE CHANGES

The guest on CNBC just talked about the possibility that oil will be down to $30 per barrel by the second quarter of next year. A couple of months back when I wrote about $55 oil being likely, I couldn't find any support. Now that the price has dropped from $70 to $59 the talk is about $30 oil.

I still anticipate a "dance" around $55 for a good while. There has not been enough time for exploration and production to catch up with new demand in China and India. For now, the price shock has slowed demand growth but the world wide economy is still strong; demand growth will be modest but there will be growth.

I have argued that coal and tar sands are plentiful at a cost of conversion of less than $45 per barrel. In two or three years, $45 will be new "top" price. The lower end of the range will depend on how much more "easy" oil is discovered. I understand that a field in Thailand is showing great promise.

Transportation stocks often lead the market. The most recent example was at the top in 2000; transports actually showed weak relative strength for a year before the top was made. Today, transports are trading at all time highs (I believe this is true for the S&P and the Dow Jones Transport indices). The break out of the transports says the economy and corporate profits are going to be strong. It may mean that the FOMC raises rates three or four more times. JP Morgan has posted a forecast of a 5% Fed Funds rate by next May.

Today, a number of accounts I monitor are enjoying excellent gains. Those that have heavy weightings in AMR, CAL or LCC are particularly strong. Most of these accounts also own GOOG which is resting today. Google is likely to advertise on satellite video feeds in the near future. I'll write more about this at a latter time.

For now, don't get caught in the hype about oil and inflation. Ironically, one of the arguments of those who are using inflation as a battle ax (I believe most of these guys are democrats making a political point), is that real wages have not done well. They are trying to make the point that inflation is eroding purchasing power. However, as an investor, I am concerned about the "total" inflation rate. Wages are the biggest component of inflation. Wages have grown at a very moderate pace over the past year. Total employment costs have risen faster than wages because items such as heath care costs have seen large increases. Still, investors can take comfort in the fact that inflation has been largely focused on only a small part of the total picture. Indeed, the other factor in production besides materials and labor is capital. The cost of borrowing money is still very low. Yes, increases in interest rates show up as inflation. However, increases in interest rates are like applying the brakes to commodity price increases. For example, the cost to hold an ounce of gold has gone up more than 100% in the past year.

Once the price of commodities is broken, there will no longer need to be increases in interest rates. In other words, once the FOMC gets on top of the inflation curve, two of the components of any product will no longer have inflation. Indeed, it is likely the the price of commodities will fall for several years to come.

The bottom line is that folks who believe that oil is about to go to $100 need an attitude change. However, just because it is not going to $100 in the immediate future does not mean it is going to $30 in the near future. In 1999, when oil traded as low as $12, drilling virtually stopped. I can assure you that drills are running around the world today with oil at $59. New rigs will continue to be manufactured and put to work for as long as oil is trading above $35. The probability of $55 oil within 2 years is very high and within 6 months very probable. Investors should note that AMR, CAL, and LCC will all make nice profits if oil gets back to $55 and stays there.

AMR UPGRADED AGAIN

This time Bear Sterns is the large investment bank doing the upgrading. The stock just opened up 2.3%. Bear has joined the chorus led by JP Morgan and Lehman Brothers. The indication is that the "big boys" are now loaded up on the legacy carriers and the valuations are too compelling to keep the neutral positions with a straight face.

It is worth repeating that coach seats are being removed from most long haul flights in order to add first class seats. Having run a vacation resort rental business, that has high operating leverage like the airlines, I get excited about the potential increase in revenues.

The fact that demand for first class seats is important in and of itself but the effect on coach seat fares is also worth noting. Yesterday, when trying to explain the phenomena over the phone, I fell back to the old worse case scenario explanation.

Lets say that a 300 seat plan is consistently flying 90% full at $200 per seat. There are 30 seats going begging and total revenues per flight are $54,000. Now lets assume 48 coach seats are removed when the first class section is expanded by 32 seats. In the worse case, lets say that no one is willing to pay the quadruple price asked for the first class seats so this new seats fly empty. Suddenly the demand for coach seats exceeds the supply. Rather than charging $200 per seat, the airline might bump prices to $240 per seat. The airline then offers an upgrade to first class in exchange for x number of frequent flyer miles. Twenty take advantage and brag all next week about how nice it is to fly first class. The airline, now has another 20 coach seats available and because demand is still high sells those out as well.

The bottom line is that the total revenues might have increased to $64,800 even though no one purchased a first class seat; that's the worst case. In the best case, a number of the first class seats are booked making the total revenues substantially more.

Sometimes we forget how big these companies are. My recollection is that AMR flies about 3,000 flights per day. Adding 10 first class tickets per flight might add $5,000 in revenues per flight, or $15 million in revenues per day, $5 billion per year! The nice thing about companies with operating leverage is that after the break even point, about all the new revenue is profit. Go, Go, Go, we love owning CAL, AMR and LCC.

Reuters AlertNet - Iraq rebuilds oil refinery unit crippled by war

Iraqi crews have rebuilt one of three Iraqi refineries. The story continues to be that new supplies will exceed new demand.

Fuel Cell Works Supplemental News Page

Fuel Cell Works Supplemental News Page

amaha is putting a fuel cell powered scooter into production. Fuel cell progress continues with several university based projects announcing progress in recent days.

One interesting development is a non flamable liquid that can be shipped safely and then converted to hydrogen easily with the addition of water and a metal catalyst.

Those who think the world is about to run out of fuel simply do not realize how much hydrogen is locked up in water on this planet.

Tree may provide new fuel. 20/10/2005. ABC News Online

The concept of Peak Oil that has been hyped in recent weeks is a really big joke. A few weeks ago, you would have thought the world was coming to an end because the world was running out of fuel.

The linked ABC news article is another neat example of alternative energy. The process of converting coal into diesel fuel was invented in the 1920's and was used to run Hitler's Panzier tanks. Now ABC reports that Scientist in Australia have discovered a similar process for converting a common Western Australian Tree into diesel fuel.

There is a big jump from discovering a fuel source and making it work on a commercial scale at reasonable costs. However, the truth is in the story that there truely is a bottomless well of energy on our great planet. Plants daily capture more energy than we use. More than 80 million acres of trees have been added to the US since 1920. We are not about to run out of fuel. The price of oil hit $12 per barrel in 1999 and it hit $70 a barrel in 2005. The appropriate supply should meet demand at about $35 per barrel in three years. Thus the wholesale price of gas (42 barrels to the gallon with a 10% craking spread) would be $.92.

By the way, if you run out and buy a hybrid car based on current prices and technology, you are making a mistake. Early adopters always pay too much. It would be wise to give the producers time to ramp up production. Prices will decline when the development costs have been recooped.

Windows Live

Windows Live

MSFT is quickly building a portal that includes access to an internet based version of popular software such as Word. The race is on! Google, Yahoo, AOL and MSFT all want to hold internet users in one place.

Google, is working on sliming down Open Source Office so that it can be used easily as an online application. MSFT is working to make Microsoft Office an online application. I am not sure of what efforts are being made by Yahoo, and AOLto offer "productivity software" but you can see from the link above that the MSFT Live page is basically another internet portal.

MSFT has a huge installed base. Google, has a business model that reduces the cost to the consumer. The two are going to go head to head for many years to come!

I don't know who will win but on my suggestion a friend just bought some more Google, in his retirement account. He has a lot of years to go before he will be drawing from the account. He owns at least 20 other stocks in the account. Our belief is that Google, continues to take advertising share (strong gains in audio and video ads on the horizon). Consumers do not mind Google, ads nearly as much as the forced advertisments tried by others. Who wants pop-ups? Who wants to watch 12 mintutes of non relavent ads during a 30 minute show? Who wants to pay MSFT for monopoly products that are not consumer friendly?

» Google: Thinking about the future of TV ads | Googling Google | ZDNet.com

» Google: Thinking about the future of TV ads | Googling Google | ZDNet.com

It is fun to speculate about how good life will be in the future. We humans discount quickly how much better it is to live today that 100 years ago. Two hundred years ago life was really rough.

Google is going to be a significant part of the coming improvements. The Google influence may be more far reaching than we can imagine. For now, we should keep our speculation into the "near future". How about the idea of a Google DVR?

Men, women and children should be spared having to watch many of the adds on TV today. A Google DVR service should be able to serve up adds for us based on knowledge gained from the emails we send and our browsing habits. Those who have been planning a vacation trip to Hawaii might enjoy advertisements about local events, shows and sites to see.

Advertisers would certainly pay a permium for placement in front of motivated buyers. Googles most recent extremely strong earnings were strong for an important reason. The firm has worked hard to make the advertisments it serves highly relavent to the viewers. The Fortune 500 companies are beginning to understand that they can pay Google more per viewer, get a higher response and spend less money all at the same time. The old "shot gun" approach to advertising has tried to force panty hose adds on men and truck adds on women. The result is that even good content does not get watched as the remote goes wild on each commmercial break. The number of times a full show is not seen is large because viewers are running from the ads.

It is known that Google has looked at various means to distribute its services to the public. It is know that Google has purchased heavy duty fiber optic networks, it has invested in power line distribution technology, wireless technology and satelite technology.

We know that Google is interested in the "thin client" technology whereby the personal computer is more of a terminal. Why should the consumer need to build networks, fight spam, fight viruses and download massive word processing and other programs?

A relatively small computer could serve as a media server and computer. It is easy to get hooked on the idea that services might be free. Although free is nice, the idea that there is no free lunch is absolutely valid. It is also true that TV and radio worked well in the days when they were totally supported by advertising. By making advertising efficient, it is likely that most basic media services, including Gmail, Blogging, VoIP, Browsing, Music and Video can again be supported by "desireable" advertising.