Wednesday, March 19, 2008


This time, it is a purely technical indicator that is screaming, "BUY, BUY, BUY". The indicator is detailed in an article by Mark Hulbert posted on The indicator was among those recommended in Marty Zweig's 1986 book, "Winning on Wall Street". It is called the Double 9 to 1.

A 9 to 1 up-volume to down-volume day is a relatively rare occurrence. Two 9 to 1 days in close succession have proven to be a good sign of a major market turn. I have forgotten the researchers name but a study was done from 1942 to 2006 that shows the average annual gain after a double 9:1 has been about 22% whereas the time in between has resulted in an average of 4.5% returns (dividends not counted in either case). Yesterday, the market experienced a 9.5 to 1 day, as those pessimistic short sellers were caught with their pants down. The long buyer can lose 100% of his investment while the stubborn short selling can lose many times as much.


In country after country, from Algeria, to Canada, to Brazil, to Kazakhstan and beyond, total liquid fuel production (primarily oil and liquid natural gas) is showing steady increases. At the same time, there is more and more evidence of demand destruction. SkyBus just announced "significant" cut back on flights and DAL just announced reductions of 5%. What a difference between the "old airlines" and the "new". Unlike the "old airlines" the "new" simply are unwilling to fly at a loss. The price of the seats times the number of seats sold has to produce a profit or the flight will be reduced.


The FOMC drug its feet for seven weeks between the last cut and yesterday 75 basis point cut. In the mean time the FOMC has tried to be cute about supplying money to selective big banks. Still, the total cut in the discount rate has been huge. The discount rate offered by the FED was at 6.25% in August of 2007, clearly far to high for the conditions that existed. Yesterday, the fed funds rate was cut to 2.25%. A dramatic cut in the cost of money. Money is on sale! The equivalent move in most anything would make consumers jump! For example, the mother thinking about buying a kid a bicycle might have hesitated at $62.50 for the bike in August. Today, the bike looks darn cheap at $22.50. The lower price of money will make all sorts of long term capital intensive purchases worth while. Businesses are taking advantage. Capital goods exports have climbed by 19%. Individuals will once again consider buying the big boat, the big RV or even the beach home.


China just raised its reserve requirements for the 12th time in about one year. The reserve requirement in China is now up to the record level of 15.5%. The Yuan is rising. China will export less and consume more. China will continue to cut back its use of oil per dollar of generated GDP and it will buy more capital goods from the USA. Good markets ahead.


President Bush is giving the Iranians all the more to worry over. Sunni tribal leaders are turning out to be the best of US allies. They have helped cut back on violence in the region and the cost has been payment of just a few dollars per day per "soldier". As part of this "program" the US is arming these Iraqi "soldiers". The Iraqi government, so far, has not been willing to integrate great numbers of these "soldiers" into the regular Iraqi army but Iran is certainly aware of the military build-up of its Sunni neighbors. Iran needs to make a peace treaty soon or face Sunnis backed by US weapons. (Much of the above information came from George Freeman at I am not suggesting that the US is preparing to invade Iran by proxy. I am saying that Iran is under extreme economic and political pressure to suspend funding of terrorist organizations.


One of the techniques consumers around the world are using to cut back on the use of oil is to move from the suburbs to the city. The slow real estate market has slowed the pace but the trend is in place. Urban living results in less pollution per person and significantly lower cost. Yesterday, one of my neighbors was very interested in my planed move to town. She mentioned that she and her husband have been shopping in the West End area of Winston-Salem. She is really drawn by the idea of her children being able to walk to local schools.

The price of midtown Manhattan condos seems to make the opposite point about cost but you have to appreciate the reason citizens are willing to pay so much. In real estate, location is key. If one were able to move a Manhattan condo to North Carolina, its value might fall from 1.5 million to 150,000. Manhattan condos appreciate in value because they eliminate long commutes. Highly paid people save a lot by working and living close to home.

Major cities are making great strides to promote "down-town living". Cities like Copenhagen have learned neat little tricks that make shared pedestrian streets similar to extra out door, shared, patios. As the sense of community grows and as more ways are found to share or lower costs and as a greater variety of sports, food and entertainment is attracted to down town areas, the growth trend accelerates. Health advocates note that the French live long lives perhaps because they are more likely to walk to and from. Another positive development is the result of Google Transit coming on line in more and more cities. Google has shown that if transit routes and schedules are easily available to all who have Internet access, including through mobile phones and PDA's, the ridership goes up significantly. Google can add only so many cities a month. In order to "do the best for the most", Google encourages those who want Google Transit to mount a local "city hall" campaign.


Having discovered oil, the country of Ghana is very concerned about falling prey to the "Dutch Disease". Once Belgium discovered natural gas, the country started coasting; "Why world so hard if we are all going to get rich off our gas?" Over the years, Americans have learned to be careful about gratuitous foreign aid. Foreign aid is often nothing but a "Dutch Disease" curse; "Why should we work hard to earn a living if the Americans will give us the food we need?"

So far the best solution to world hunger has been to develop free trade with those countries that are willing to operate by rule of law. It helps a tiny few when corrupt leaders grab the spoils of developmental aid or of heavily taxed production. The best way for the leaders of a country to get rich is to develop the legal framework for individuals to trade products with others. Free trade should include relative freedom of immigration.


Yesterday I demonstrated how some of our "American Heroes" are nothing more than common men who for what ever reason got a favorable telling in history. Again, can you imagine the Gene Barry "Bat Masterson" skinning 20 buffalo per day? All for the purpose of starving the Indians off their land? Would you have guessed that the only man know to be killed by Bat to be a competitor for a bar room "girl"? Bat was no doubt a character but a legend only created in the press.

On the other hand, many true American Heroes have almost been forgotten. John Hancock is famous for his signature on the Declaration of Independence and few of us know anything more about him. The fact is that he served two separate terms as our "President". During his term as President of the "Congress of the Confederation" he worked as many as 20 hours per day, 6 days a week, to raise the capital needed to fight the revolutionary war. Prior to the war, Hancock had worked tirelessly to build his Uncle's business and he thus made himself, perhaps, the wealthiest of all Americans at this time. He contributed most of his fortune to the "cause". He was by no means a perfect man but even those who disagreed with him, including John Adams, respected his hard work and his devotion to his neighbors and his country. He was generous to a fault and was loved by many a "common man". After the war, he served two terms as governor of Massachusetts before retiring to enjoy the benefits of his labor, however, when the people asked him to come back for one more term, he obliged and he died while serving the people.


The Greek democracy was a great experiment. The framers of the US Constitution took the best of democratic principles from the English and from all the way back to the Greeks. Today, there are powerful men in powerful positions in America but there are also checks and balances. A recent invention, called the Internet, has given the public the power to be all the more informed and an informed public is the "kernel" of democracy. John Hancock supported the constitution after the bill of rights was negotiated. We now enjoy freedom. John Hancock correctly fought against "big government". In regard to the British, he said, "They have no right to put their hand in my pocket".

Walgreen just announced an expansion to its health clinic program. Today there are thousands of low cost clinics in America, staffed by nurse practitioners, where "primary care" is available. These practitioners are quick to refer serious illness to medical doctors. The purpose of telling this story here is to note that, given the opportunity, the free market will find the way to supply the needs of the consumer. Over the past 50 years or more, the cost of health care has soared much faster than the cost of other services as more and more of the care was funded by government payment or government dictated systems. It is my hope that the next administration will be able to return health care to the control of the individual who needs care and to once again offer Americans the option of seeking the kind of education that was acquired by John Hancock.


As I have suggested time and time again, the price of the US dollar is not so low because of low interest rates. Sure enough, the rates were cut by 75 of 325 points yesterday and the dollar bounced upward. The reason is that the FOMC is finally almost out of the way. The market t-bill rate is now at least back to 65% of the artificially imposed Fed Funds rate. It now makes sense to do business in America and businesses from all over the world now have great incentive to do business with and in America.

With so many BUY indicators "off the charts", we should need no more encouragement to buy aggressively. Yes, the past 6 months have been tough on the psyche but all the while the price to values has gotten better, BUY, BUY, BUY!