Thursday, October 02, 2008


There is a huge rally in progress. It is a rally in the bond market. This rally is partially hidden from view because the rally is centered overseas.

Bond data from around the world is not readily available free of charge. Bits and pieces are available on sites like Bloomberg. English Guilts have been extremely strong since last June. Euro Bunds were not too far behind. US bonds started the big move all the way back in July of 2007. In these later stages, US bonds have rallied but they have also had violent short term corrections. Of course, the big rally in foreign bonds have been accompanied by a huge rally in the US Dollar. The rally in foreign bonds shows that foreign economies are slowing.

When bonds rally, they kick off the rally in bank stocks. Once again, using the S&P SPDR Sector Funds as our guide, financial stocks are out performing the other end of the see-saw, which is basic materials. Energy stocks are following right behind basic materials which means that consumers are about to find extra money in their pockets. The rally in financial stocks will be accompanied and followed by a rally in consumer cyclical stocks.


Amazon has decided to operate its cloud with Microsoft Exchange Server Software. The battle between Google and Microsoft is engaged. So far, Google has show the ability to run the most efficient of clouds. The pace of movement of computing to cloud computers is picking up. Who wants the hassle of backing up files and running a back office when experts can do it for you cheaply?

In other news, the advantage of the IBM cell computing technology is shining through. The battle between INTC, AMD and IBM is continuing to drive the cost of computing down. The lower the cost, the more computing we will see and we ain't seen nothing yet. The day is on the way when we will routinely speak and computers will routinely answer.


The probable big winners in health care have switched back to the providers. If we assume that McCain will win or if we assume that an Obama Presidency will be limited by budget restraints, national health care is going nowhere or it will have to be heavily reliant on private companies; companies, such as Aetna and United Health Care. Given the performance of AET, until recently, it seems at odds to mention it as a part of a turn. The company has done extremely well but is down from 60 to 37 in only a few months.


The event that overlaps and follows the world wide rally in bonds is the financial rally and the poor performance of basic materials. China actually and suddenly has a surplus of coal! The price of coal has dropped to $129 per tonne. The price of dry freight has fallen as the demand for coal, steel and other industrial supplies and products has fallen. While it is true that the production of nuclear power stations is picking up, this is not enough to offset the tremendous decline in construction in other areas and the mining that must be done to support it. Highway budgets around the world have been hit hard by the decline in fuel tax revenues. The industrial production index in Europe was reported at 41 yesterday. The see-saw is on the move! Take advantage. If you already have your fill of bank stocks, do not be afraid to buy GM and Ford!