STRENGTH HERE, STRENGTH THERE, STRENGTH EVERYWHERE

Americans are selling stocks at the wrong time. According to AMG Data Services, in the month of November, the public cash out a net of 12.8 Billion Dollars of equity mutual funds and they bought 7.6 Billion Dollars worth of bond funds. WHY? BECAUSE THEY HAVE BEEN BRAIN WASHED INTO BELIEVING THERE IS A RECESSION HERE OR ON THE WAY!

In truth, the economy is breaking out on the "high side". Recent figures show:

1) retail sales are booming,
2) industrial production growth is very strong,
3) bank loans to business are soaring,
4) wages are soaring,
5) employment growth continues even with the unemployment rate at 4.7%,
6) tax receipts are soaring.


Mark Perry, an economist that writes the carpe diem blog, notes that industrial production normally turns down several months before a recession starts. As I reported earlier, the USA is the monster nation in regard to the manufacturing of capital goods and capital goods exports grew better than 27% in the past year. No recession in sight!

CONSUMER CYCLICAL BOOM AHEAD

Consumers are enjoying plentiful jobs and wage increases. The USA has enjoyed 51 consecutive quarters of job increases and we are just entering the prosperity phase of the business cycle. In the years ahead, consumers will buy big ticket items. The home market may take a while to catch on fire again but you can expect to see a lot of new cars, boats and big screen TV's. Health product sales are also seeing a sharp rise. You can expect to see a lot of people electing to have elective surgery such as Lasik eye care.

GAME CHANGERS

IBM and Google have joined in a game changing new technology. About a 60 to 100 years ago, there were thousands of small electricity plants scattered all across the country. Even small farms might operate a small generator. Once the big power companies ramped up to scale and built the transmission lines it made all the sense in the world for the little plants to shut down. The law of comparative advantage says that a dairy farmer should spend his time taking care of cows, not tending to small scale generators.

Today, there are thousands of data centers across the country. Yahoo, Amazon, Google and Microsoft operate massive data centers that are linked by super high speed networks and that are backed up at multiple sites. Few people know for sure how many data centers Google operates but this past year they added 4 new super centers at a cost of 600 million dollars each. These centers have the power to do stuff that smaller data centers cannot do. IBM and Google have teamed up to offer super fast computer services to universities and businesses all across the country.

It is difficult to describe the power being offered. These centers are called "cloud computers". A company in California might use hundreds or even thousands of computers that are "out there in the clouds somewhere". One of the keys to "cloud computing", according to a BusinessWeek article, is the MapReduce program that is at the core of Google's system. This program splits one task into hundreds or even thousands of mini tasks. When you hit a button to search for a keyword, the response of several computers is compiled into a list and shot back you in milliseconds. The power of today's computers is as awesome as knowing that there are trillions of stars.

Investors should know that IBM is a "second half business cycle stock". They should also note that a lot of small data centers will bite the dust over the next several years as more and more companies take advantage of the economies of large scale.

MICROSOFT GOING AFTER VM AND GOOGLE GOING AFTER WIKI

Two of the most successful "new kids on the block" have been VM Ware and Wikipedia. Microsoft is cranking up its virtual computing software 6 months ahead of schedule in its attempt to stem the growth of VM. Wikipedia has seen compounding traffic growth and is in the process of developing a search engine to compete with Google. Google has countered with a new "knol" (for knowledge) program. One and all will be encouraged to write a "nol" about any subject and share the advertising revenues with Google. Even those who have been loyal but non paid contributors to Wikipedia may want to cash in on a Google revenues stream.

GOOGLE AND APPLE STILL WORKING TOGETHER

Google continues to add apps for Apple products. The most recent Google program added to the iPhone is the Picasa photo sharing app. In the meantime, polls reviews and polls are very favorable toward Macintosh Computers. The operating system wins praise from users. The problem is that both Google and Apple are in the news and as popular as can be. They both are priced at better than 50 times trailing earnings. The stock returns could easily be below average until the next great product proves to be yet another hit. One stumble could send prices down hard.

In the phone segment, Nokia continues to roll out phones with nice features. The new WiFi enabled Nokia phones have hotspot@home software. This means the phone automatically switches to a free call Internet based phone when it is in reach of a wireless router. Those who want high speed Internet on their phone should avoid the Apple IPhone for now. The offerings of "ultra mobile" computers is getting all the more interesting. Samsung's QIU-XP is one of the top ranked tablet computers that includes phone features.

OVER THE COUNTER STATIN DRUGS?

I understand that Merck is making its third attempt at getting approval for an over the counter statin drug. I know very little about this business but my initial reaction is that an awful lot of people take a small dose for year after year. It seems reasonable that they be allowed to buy over the counter or at least like the English system of directly from a pharmacist. Comments are welcome.

OLIGOPOLIES PRODUCE HIGHER PROFIT MARGINS

With Southwest and JetBlue changing from discount carriers to "members of oligopolies", the new times are here in the airline business. The only reason LUV and JBLU are changing their stripes is because going it alone with price being the big draw is no longer a profitable business model. The turn is here. In the old days, before deregulation in 1978, the "big boys were protected by regulations". Deregulation put a long list of airlines out of business, including Pan American, TWA and Eastern. LUV went from nothing to super big. By 2002, the market value of LUV was 4 times as much as the other top airlines combined. Since 2002, LUV's share price has gone from $17 to $13 while the price of CAL went up 500%.

LUV was recently forced to change their business model to the "legacy carrier model". JBLU has also suffered recent setbacks and it joined the "legacy carrier model" this week. The number of partnership deals is growing by leaps and bounds. Only airlines with extra special circumstances can prosper as "go it alone carriers". Most of the "partnership deals" being made are code sharing agreements of one type or another. Singapore just announced a flight from China to Houston. I do not know the details of this agreement but while the public is likely to see the flight as competition to CAL, the public does not realized that the US trade agreement calls for an equal sharing of passenger growth between the two countries. Put another way, it does not matter who brings in lots of passengers to a major CAL hub, many of them are likely to leave Houston on a CAL plane. When all is said and done, fares will rise as a result of these "partnership agreements".

TURN, TURN, TURN

The dollar rallied this week. It now only takes $1.44 to buy a Euro that was pushing $1.50 just a few days earlier. At the same time, the international stocks, especially developing nation stocks took a hit. The BRIC index was down better than 4% on Friday. The turn is here. It sure did take longer to arrive than I thought it would but it is here.

IT IS VERY IMPORTANT TO ADD MONEY TO YOUR ACCOUNT WHEN PRICES ARE LOW! THE BIG MONEY WILL BE MADE BY BEING IN THE MARKET WHEN SO MANY ARE RUNNING THE OTHER WAY! BUY, BUY, BUY!