Monday, November 05, 2007

Profits, profits and more profits

Singapore Airlines and Japan Airlines have each announced soaring profits. This year, US carriers, as group, will make substantial profits for the first time in many years. The exception to airline profits is in China's regulated market. China, India and others, who regulate prices, including the price of fuel, must constantly battle the risk of serious resource mis-allocation.

In case you have not noticed, this business cycle is one of unprecedented demand. The price of oil did not go up because supply was restricted. The price of oil and other commodities is a result of a dramatic drop in other costs of producing goods. Even after 5 years of economic strength, the price of finished goods continues to moderate. This is good news for investors.


This morning, I am looking forward to hearing the details of the new Google mobile platform. The best guess is that the system will be Linux based with a heavy dose of JAVA scripts. The key point is that it will be wide open. MSFT just paid $240 million for a tiny peace of Facebook. Since then, Google has shown that all sorts of web systems are going to offer "social network" features. Google's individual homepages and its mobile platform is expected to build on this concept. The key point is that one can share all the information one wants to share with the rest of the world. These networks can be restricted to use by members of a company or organization or they can be wide open. As with all innovations, it will take time before we even begin to understand all the ways these systems will be used. In any event, we know that the more readily available information and knowledge, the more productive we are.

The ability to search millions of documents in fractions of a second is a powerful ability. Google is the king of search. Now the world is in the process of going Internet Mobile. It will be a huge benefit to consumers to have an open source system available. As this system is implemented, I see another surge in the growth cycle. One sigmoid curve of growth is being layered on top of another and another.


The book written by GAVECAL Research, "The End is Not Near", details how the China phenomenon has many more years to go. The main point of the book could easily have been that the information technology phenomenon has many more years.

The bubble in stock Chinese stock prices is extreme. I do not recommend attempting to profit directly. However, I agree that the world growth story will continue. It is not just a China story. Business growth is happening far and wide. JAL said its profits soared because business travelers booked more of the seats. Business travel is "big money" travel. The poorest of African nations are building airports and starting airlines. The poorest of the poor have the most to gain from learning from America. The hub systems of the major carriers are designed to aggregate passengers for the long haul flight, with continuing service to final destinations.


The "informed" American citizen who watches network news knows a lot about Brittany Spears but is not likely to appreciate the magnitude of the world economic boom. Sentiment indicators show that Americans are selling stocks and hunkering down for tough times. Even members of the American Association of Independent Investors as a group have a negative bias about investing in today's market.

Of course there are cross currents. The volume on the NASDAQ is very high and the number of oil futures contracts are out the roof. In other words, aggressive speculation lives at the same time the public is avoiding "traditional" American stocks. BUY and HOLD big cap American stocks for the next few years and you will be a happy investor.

It can be argued that Google, RIM, APPLE and other technology leaders are priced to perfection. On the other hand, the scores of companies that will use the latest and greatest of productivity enhancing products are cheap! BUY BIG USA AND SLEEP WELL!