Monday, September 18, 2006


Great wealth is being accumulated by those who are taking advantage of the highest corporate profits in 40 years! This "BULL MARKET" began October 10, 2002; it is not over! The Market Cycle is about to roll forward; releasing trapped "animal spirits" to find a new investment home. While the mid-cycle "correction" has been under way for the past several months, a speculative boom is getting underway in areas where many have given up.

Learn the lessons of the market cycle as presented here and you can become very wealthy!

The market cycle is sometimes depicted as a wheel. Others choose to show it as a sine wave. Don't get confused as the two ways of looking at the market are the same. If you draw a horizontal line at the height of the center of a wheel and roll the wheel forward, the pattern traced by any point on the wheel is a sine wave. I often talk about the market see-saw; here again, when one point on a wheel is at its peak the opposite point is at the bottom. The perfect market cycle would be like an eight car roller coaster train moving down a smooth sine wave. At the same time the front car reached the top, the last car would reach the preceding bottom.

There is no perfect market cycle. When the famous "animal spirits" are involved, you see violate swings. For example, several months ago, I wrote that the price of oil would soon come down sharply. The main reason I gave was because the extraordinary high levels of oil in storage was not consistent with the price. It takes no great imagination to appreciate that the law of supply and demand does indeed work over time. The hoarding of supplies was initially a rational move given the risk of an "Iranian Crisis". However, greed took over and recently speculators were bidding $80 per barrel for oil to be delivered in December even with over a trillion barrels sitting in storage and available at a lower price. At the same time, millions of individual investors were pouring their money into energy and energy services stocks. Investors were scaling the roller coaster infrastructure to climb on the train just as it approached the top of the hill.

The tide is turning (the wheel is turning, moving down the sine wave, the see is about to saw). As energy stocks have been coming down in price, a large segment of the population is "buying on dips". The train is now flying along on momentum and, on this trip, the train can never again reach the old height. Individual investors who jumped into energy late are in already down a good distance. Others made money on earlier purchases but they keep buying more, their average cost of shares is going up. Still others have seen the light and are cashing-out. The exit out of energy may soon look like a theater where someone in the front is screaming fire at the top of their lungs. When this money rushes out of energy, it will find a new home. Thus the see-saw makes its move, energy down and ______ up.

One of my biggest frustrations is that there are millions of Americans who are over-weight energy stocks and do not even know it. Millions of Americans have invested in mutual funds which have also crowded into the oil patch. To add insult to injury, many of these funds are charging excessive fees while consistently under performing the market.

Back to the market cycle: the train does not go down the track at a consistent speed. Like a freight train, it slows down, stops and even backs up to take on a bigger load. The energy cars ran out of room a couple of years ago so the train added extra cars. The weight of the energy cars is affecting the performance of the entire train. The great news for smart investors is that as the energy cars are now headed down from the peak, the whole train is about to pick up speed. You have to read the market to see how fast the train is traveling and what is starting to rapidly climb the next hill (next wave on the sine-wave).

Over the past 31 days, (email me for the rest of the commentary)