Wednesday, December 05, 2007


Huckabee leads 3 to 1 among religious conservative voters. He is now second in national polls for the republican nomination. The public fight between Romney and Giuliani has help McCain and Huckabee. Huckabee is now being slammed by various "news" commentators but the surge continues.


Several months ago, I suggested that the "Iran Problem" would be solved well before the US election. Suddenly, US intelligence (?) services say that Iran abandoned its attempts to make nuclear bombs in 2003. A negotiated settlement should be easier to accomplish if all parties are in agreement that bombs are not being made.


It has been a long wait for international tensions to lessen the speculation in oil. As far as fundamentals go, there is no shortage of oil. Surplus capacity has been tight for the past couple of years but relief is on the way. Capacity is expected to grow by about 1.2% in 2008 and by even more in 2009. Consumption is expected to be up about .6% during these years. Several big projects will supply all the more oil by 2010. Of the 3 trillion barrels of oil discovered, the world has used about 1 trillion barrels. A couple of more trillion barrels are not counted as reserves because it is difficult to extract at the current price. The most recent discovery in Brazil shows us once again that there are still multi-billion barrel fields to be found. Big projects that have a long way to go before being developed fully include the giant projects of Sakhalin and Kazakh. The Kazakh discovery is the largest discovery since Prudhoe Bay.

Increases in auto fuel economy should destroy about 4 million barrels of demand per day within 7 years. In recent years, the ton miles driven have gone up while the miles per ton have gone down. Now that the biggest of the SUV's are going out of style, the ton miles will go down and the efficiency of the average light vehicle will go up quickly.

DANGER WILL ROBINSON: Investors are being tempted by alternative energy plays. Alternative energy is alternative because it is not as good as the "hard stuff". All of the "new age" alternatives still only amount to a drop in the bucket. The growth in the use of these fuels will be pushed ahead primarily only as a result of government mandate or subsidy, at least until the price of oil is much higher than the current price. The prices of most of these "hot stocks" is ridiculously high. AVOID THE PAIN!


It is rare to see so many indicators screaming BUY, BUY, BUY.

The TED spread is about as high as it was in 1982!
The AAII BULL/BEAR ratio is at 190%!
OIL is over bought but finally breaking down!
The Gambill BUY/SELL ratio for company executive buying is at 43%!
The total put/call ratio 15 day moving average is at levels not seen in decades!
The yield curve inversion is gone. The 2 year note has collapsed. The FED FUNDS RATE of 4.5% is 1.5% above the 90 day T-Bill rate!
The rule of 20 is at levels not seen since 1982!
The IBES model shows that stocks are undervalued by 44.9% relative to bonds! I believe this is an all time record reading.
Exports are jumping by leaps and bounds. The US is a capital goods producer, 38.4% of our exports are capital goods, the export growth of capital goods is running at 27.8%!!!!
Verizon is opening its networks to all "gadget producers" and Google is planning to bid on wireless spectrum next month. Nokia is pushing ahead with plans to offer Internet based services. You can expect a surge in products available and you can expect lower prices for connections. In areas of Europe, the price of connections has fallen by 70% or more after alternatives have come available.
The flight to big cap blue chip stocks has run a long way. It is time for money to flow the other way! The dollar appears to have made a bottom!
Lumber and other raw materials have fallen in price. Lumber fell from $380 to $250 in about 2 years. Inflation is dead!


A few nights ago, I hit on the best way to help others understand that inflation is dead. The focus must be turned to ones cost of living. If a person stops his subscriptions to a newspaper and several magazines because the information is now available on line, he may cut out $500 per year in his cost of living. This means that even if his cost of other goods goes up by $500, he is still just as well off as before. Each time a person replaces a 10 mile trip with a "free phone call", he has just enjoyed a better life at lower costs. Because inflation lags far behind the peak in economic growth, we are still feeling the effects of past growth today. It is important for investors to know that stocks turn long before the bottom of the economy and the bottom of the economy is hit long before the bottom of interest rates and inflation. Over the coming weeks, "bad economic news" is expected. The stock market will rise in the face of "bad news". Interest rates will continue to be cut because the news will be bad. At some point, lower interest rates produces results like lighter-fluid on charcoal. BURN BABY BURN!