Wednesday, January 09, 2008


Rodeo Cowboys must ride a bull for 8 seconds. I have never tried it but I am sure that 8 seconds seems like forever. The big market turn is near. None of us know if it will start tomorrow, next week or next month but the big turn is past due by more than 8 seconds for sure. As Mark Hulbert notes, the Nasdaq has been down 8 days in a row 37 times in the past 36 years. The average return over the next six months has been about 30%! It is sometimes hard to do but one must sometimes ride a Ken Fisher bucking bronco for a few months to win a major victory.


Google has planned to offer its mobile computer operating system by the summer. INTC is ready. Intel has announced no less than 16 new high powered processors for hand held devices. The advances in computing power and storage continue to follow the amazing Moore's Law. This week a new storage card, the size of a postage stamp, was revealed. It will hold more an unreal amount of data.

Several hand held computer prototypes were on display this week at the CES Show. Most of these use touch screen (haptics technology) input. No keyboard is required. Microsoft, which has sold 100 million copies of its Vista software, is making money hands over fist. Many a hand held computer uses Microsoft software. However, I believe Nokia, Apple, Google and others will avoid using Microsoft software to the extent that they can.


When Henry Ford standardized parts in 1908 he made the car affordable to about 10% of the population. When he invented the assembly line he made the car affordable to about 50% of the population. After one product life cycle, GM added selection, financing and colors and sold a lot of cars. Cars and trucks had a big impact on the US economy all through the 20's, 30's, and 40's but the building of interstate highways starting in the 50's changed our world. Inflation died as a result of the increased productivity of any business that relied on transporting supplies or goods (virtually all businesses benefited). So far, the internet has made an impact on our lives, similar to what happened in the early years of the auto. You ain't seen nothing yet!

Super speed internet highways are on the way. Comcast, for example, has announced mind boggling speed availability. Speeds such that high definition movies can be downloaded in seconds. At the same time, more and more video content is being made available on wireless devices. The dream of the "picture phone" has been finally realized.


I have had a few rough weeks. While the market has not been kind, the real problem is that my grand daughter, Julianna Tucker, has run a fever of an on that has reached as high as 105. She has been treated for the possibility of allergies, asthma and viruses. Hopefully test results to be returned tomorrow will reveal the problem and the cure. Please say a prayer for this little sweet one.


When will this rough market turn? While I cannot answer this question, I see indication after indication that the time is near. One of the arguments made on TV is that interest rate reductions by the FOMC take months to take hold. Another argument is that current rate cuts is like pushing on a string as lower interest rates will not entice people to borrow if they are already head over heals in debt.

These arguments are wrong in several ways. The stock market turn will happen quickly and it will happen in anticipation of higher real profits many months down the road. Historically, the market has anticipated profits an average of 9 months away but it has often "known the future" a year to 18 months in advance. Interest rate cuts are powerful. They are double edged and sharp. Now-a-days, the great bulk of corporate loans are floating rate loans and even a large percentage of all consumer loans, even including home loans, are floating rate loans. Cuts in interest rates cut costs by an enormous amount. The stimulative effect causes demand to soar. Furthermore, the first of the rate cuts were made months ago and the process is gathering steam. Tomorrow, the Bank of England will decide if it should make its second cut. There have been two cuts in the USA and the FOMC will meet again at the end of the month. During times like these, the FOMC could easily have a called meeting to cut before the end of the month.


Gold has once again spiked in price. Those who are not paying attention to the geo-political situation are quick to label the gold and oil prices as inflation indications. The opposite is true. The fear of conflict in Iran is actually causing commerce to slow. The world wide slow down in growth will soon show up in the price of oil. Progress toward a deal with Iran continues. The process seems to be as slow as molasses but it is actually moving forward at a faster than average pace (this process has been ongoing since 1978). No one knows if a deal will be done any time soon or not but Bush is not flying over to meet just for the fun of going. The President does not get involved in these negotiations unless a deal is possible.


The oil field off the coast of Brazil is possibly the largest field that has ever been found. The first structure is estimated to contain 5 to 8 billion barrels but much more exploration will be done on similar structures in the field. Volume production will not come from the field for about 5 years but newly developed Elephant Fields are coming on line in other parts of the world. The hint of a deal with Iran could knock $20 per barrel off the price of oil in a few days.


Iraq has not been in the news much lately. Mostly because of relative peace. The death rate has dropped by 55% since July. Pretty soon, I expect the letting of bids to develop an Elephant Field in Iraq. Iraq is currently producing more oil per day than was produced during the time of Saddam. The next monster field could double the countries production ofter about 5 years of development.

A big drop in the price of oil will lead to significant declines in the price of hamburger, milk, eggs, pork chops and almost all other food products.


Yesterday, I was asked if I still believe in a tech stock "surge". I do but by the same token I believe the beneficiaries of lower oil prices and high tech gadgets will be all people in almost all businesses. The silliness of converting corn into a weak substitute for gasoline will be hurt but most every other business is going to benefit from lower costs. These lower costs will come from the lower cost of money, the lower cost of fuel, the lower cost of goods and the higher productivity of people.


Even after the recent 12% correction in the stock market and the small decline in the value of real estate, the net worth of the American people is over 58 trillion dollars. Just three years ago this figure was less than 54 Trillion dollars. The argument that the American consumer is head over heals in debt is simply wrong. While there are those that are, the great majority are not.


The middle of our economic roller coaster train is the housing car and this car is right at the bottom but the front of the car is already climbing the next hill and the tail end of the car still has a little stretch before it hits bottom. It would be a huge mistake to jump off this roller coaster that is moving quickly. Billions and billions and billions of hand held computers will be manufactured and sold and used during the next 10 years. The first of the Google "phones" are supposed to be on the market by summer.

Yesterday, I bought gas in Statesville, NC for $2.78 per gallon. I believe there is a local "gas war" in progress between the Sheetz at one exit and the Hess station at the next. Still, it was fun to save a few dollars on one tank of gas. Pretty soon, we will all be "saving" a few dollars on gas and in exchange for those dollars we will be able to opt for high speed hand held Internet access. Hand held access to the Internet will save consumers and businesses billions of dollars per year.


During the prosperity phase, the public will have extra disposable spending power. New "stuff" will be purchased. People will spend money on every thing from robots to elective surgery. Gadgets with computing power and memory will be all over the place. Even in this economic "slowdown" the worlds economy is growing at one of the fastest rates in history. The growth will show up in the value of assets soooon!