Thursday, October 11, 2007


I continue to have more to do than I can possibly get done. I will let individual email responses pile up for a few more days, until I can catch my breath. Just a few comments here to let you know the BIG BULL is still preparing for its next charge.

1) Yes, commodities are rolling over. A couple of readers continue to make the case that oil and gold are near record highs. All I can say is that these two very visible commodities simply do not tell the whole story. Take a look at a chart of Uranium prices. After running and running, all the way to about $140, the price has fallen to around $75 since the peak in June. Aluminum, lumber and others have fallen dramatically. Oil is still high but natural gas, which will be substituted for oil as much as possible this winter, is selling at about half the price of oil on a BTU basis. With warm winter weather, oil could easily trade at $50 per barrel by January.

2) The Democratic controlled congress continues to talk a big game while quietly backing away from confrontation. The latest quiet move was to remove the provision of increasing the tax on partnerships. John Rutledge noted that 15.5 million Americans would have been hit by the higher tax. The loud talk is mostly about SCHIP "poor children's health assistance". Republicans in tight races are being lobbied to vote to override the Bush veto. Democrats know that if they can't get the votes to help "poor children" then there is no hope of "winning" on "big" issues this year. Rope-a-dope seems to be the strategy of the day. The odds have increased that the congress will pass another one year patch to the AMT and leave big change to the tax system as a campaign issue.

3) Jobs, jobs, jobs for the illegals. For a number of months, a large number of workers have been expecting lay offs. These workers social security numbers are either 000-00-0000 or numbers that do not match the names of the workers. In many cases the numbers match the names of dead people. After the latest attempt at immigration reform failed, the Bush administration warned employers to "cleanse their payrolls". A month or so ago, a court suspended the plan and, yesterday, it ruled the plan to be out of bounds. The bottom line is that immigration reform is still needed. Piece meal attempts to "fix" the problem will not work. The ruling of the court pretty much puts us back at square one. The good news is that millions of jobs will continue to be filled by "illegal immigrants" and great pain to the US economy will be delayed to a future time.

So, for the next year, you can count on hearing a lot about tax reform, energy reform and immigration reform. Tax reform will be defined by democrats as raising taxes on capital gains, corporations and "the rich" in order to give $1,000 checks and such to the rest of us. Tax reform for the Republicans will be defined as simplifying the tax code while reducing the tax on capital in order to restore the competitive position of the US in world markets.

In the area of energy, constant calls for increases in the government mandate for ethanol use have started falling on deaf ears. Poor people in some countries are literally starving as a result of higher food prices. Commons sense says that forcing the burning of food products in vehicles is not the best solution.

Democrats will talk about energy in terms of global warming. Republicans will push for energy independence as a national security measure. Democrats will propose a "Manhattan Energy Project" in order to create jobs and solve the global warming crisis. The reason for the push does not matter. The pressure will grow to use the abundant resources available, including coal and nuclear power. The push by democrats to tax carbon fuels could turn the price of uranium around one more time. The huge drop in the price since June is an indication by the market that the current congress will not be able to reach a cap and trade system or a carbon tax compromise. An increase in the tax on carbon will make the nuclear power numbers all the more compelling.


The bottom line for investors is that the business cycle is clearly moving into the prosperity phase. In this phase, as the price of commodities rolls down, headline inflation rates roll down, giving an automatic boost to real incomes (the simple case is of the consumer who fills his gas tank for less). Full employment brought on partly by commercial construction will provide another boost to real incomes. Spending increases by some will become the income of others and the multiplier effect will kick-in. BOOM, BOOM, BOOM; economic prosperity is at hand!

Those who say that Hillary has a lock on the Presidency ignore history and the economic cycle. We know that neither Bill Clinton or George Bush won a majority of votes. With the exception of Goldwater's run, presidential elections tend to be very close. The economic times will not ever be much better than they will be by next summer and fall and voters do tend to "vote their pocket books". Investors should take advantage of the situation and make money now. While the down turn will not be immediately after the election, do not wait until all the numbers say we are in a boom, boom, boom before you go 100% into the market. It is my opinion that the biggest mistake made by the average investor is wait until near the top to be fully invested. One needs to get in early and get out "too early". Keep in mind that most folk find it most difficult to start scaling out when "everyone" is making big money. Our "hard wiring" makes us want to enjoy the party with all the other guests, once everyone has joined the party it is time to leave. This BIG BULL began with a roar 5 years ago. The big money made during the first half of the cycle was made from October 2002 to June of 2004. The second half is under way. The cycle has two to four more years to run. It is similar to a baseball game with each inning representing a year but 9 years is an average game not the required length. Don't wait for the last year or two before you try to start hitting home runs. This baseball game is more than half over.

A number of indicators suggest the market is over bought in the short run. A pullback would not be a surprise, but the risk of being out of the market is greater than the risk of being in the market.

I have overstayed my allotted time. Got to run, run, run. Have a great day!