Tuesday, December 09, 2008


Big turns are being made! Major, significant, long lasting turns!

All last year, I wrote about how a major decline in fuel and other commodity prices would feed the worlds economy. Despite solid economic arguments, very few people believed me and some almost attacked me for being so wrong. Now even after the "food" of declining prices is being delivered daily, few people believe that the "big turn is here". Some of my readers site the negative attitude of the people as the reason that the delivery of low, low prices will do no good. The delivery of low prices is already "feeding" the worlds economy and, now that the turn has been made, lower prices will be around for several years. People don't believe, because they do not want to believe. If they wanted to believe, they would open their eyes.

REZ is the symbol for a broad based housing real estate investment trust, it is up 58% in value in less than 2 months. Making an even more vicious turn is SRZ, Sunrise Nursing Homes, which is up 485% in a few weeks. The turn that is taking place in real estate, the biggest asset class is powerful and, yet, several of my readers have called the bottom, by selling out, or moving their accounts to a "safer situation".

Since the "turn in airlines", call it July 14, 2008, UAUA is up 233%, CAL is up 133% and AMR is up 113%, all while the S&P 500 is down 21%!

The "up sectors" have started to trump the down sectors. Since November 20, CAL is up 50%, AMR is up 48%, UAUA is up 41% and the S&P is up 13%.


REAL MONEY is flowing into the hands of consumers like seldom if ever seen before. Sure, a lot of people have lost a job or have seen their work hours or pay cut. At the same time, the 93% of the labor force is working and, the great majority of the "other people", most of whom are receiving retirement checks, have seen a massive blood transfusion of REAL money. The fellow drawing social security got several "raises" recently. His cost of heating, gasoline and corn flakes all went down. His cost of living is going down. Yesterday, Intel announced a minor little break through that will reduce the cost of one "chip" by 95%. The average fellow will never knowingly buy one of these chips but as a result of this and other developments, the average fellow will be able to check the price of corn flakes at Lowes and Food Lion with his pocket computer.


Handel was born to wealth. His father tried to force him to study law but, fortunately, his mother encouraged him to continue his musical pursuits. As a young man, he was well known enough to gain the patronage of Prince George, later to become King George of England. By 1737, at the age of 52, Handel had already lived the good life, just when disaster struck. He had a stroke, lost the use of his left arm and had recurring vision problems for the rest of his life. By 1740, a series of failed productions cost him his fortune. He was barely able to hold onto his rented house and he literally went hungry for days at a time. He suffered from the same type of despair that is prevalent today; he lived during an age of economic revolution but it seemed as if the world was coming to an end.

Fortunately a friend left a manuscript about the life of Jesus for Handel to read. Actually, much of the text was a redaction of sections of Isaiah, Haggai and Malachi which foretold the coming of a great Messiah. Like they say, "the rest is history".

Handel read the manuscript and "made the turn" immediately. He worked feverishly for the next 24 days, surviving on little sleep and little to eat. His "first draft" was completed in the summer of 1741. On April 13, 1742 (at Easter), Handel's Messiah was first performed. Needless to say, it was a great success. No one knows which was the original composition because Handel modified it to suit the orchestra that was assembled at each new presentation. Later, Mozart added numerous other scores. While Handel continued to have health problems for the 18 years after he penned his master piece, he died as a highly respected and very wealthy man. He received full state honors and more than 3,000 mourners attended his funeral.


History does not exactly repeat itself but it does make beautiful rhymes. The financial V-turn made by Handle has been made in centuries past and will be made in centuries future. You are living during historic times, time that are similar to the industrial revolution during which Handel lived. This time, the air is full of stories about nearly bankrupted auto companies and of massive levels of real estate foreclosing, but also a time when the average person can better afford the average car or the average home THAN EVER BEFORE! Handel died with an estate of over 20,000 pounds but he lived when there was no air conditioning and when underclothes were a luxury and clean underclothes were the height of luxury.

The contrast between perception and reality is incredible. I have used the Dickens line, "It was the best of times, it was the worst of times" before, to describe the situation and here again we have a rhyme of history. Now-a-days, help for the needy is much more available, so the "times" are not nearly as bad as in the days of Dickens, but the contrast between perception and reality is just as great. Today, people literally think we are in the early days of a "great depression" when we are indeed in the middle of a long-term economic boom. One of the amazing numbers is that productivity growth has continued to stay strong throughout the recession.

The other day at Cosco a stranger and I were checking out a display of Acer NetBook Computers, 10 inch portable and WiFi connected $349 computers. These small laptop machines and their cousins will soon be everywhere. For example, today, my church is a WiFi hotspot but few people use the Internet there. Soon, the Sunday School Classrooms will NetBook Computers. If you have ever performed the task of collecting the roll and offering from Sunday School classrooms, you will immediately appreciate the idea of having the roll input directly from the classroom. If you have ever tried to maintain a church directory, you know how nice it would be if members were easily able to input changes to their personal profile, changes that would automatically be available to all other church members. Taking the roll is just the beginning of an Internet connected church (society). Video conference bible studies and educational forums will become common.

The stranger at Costco told me about how he travels the world as a consultant who helps companies "lean out". This fellow appreciates the importance of productivity. He makes better than $300,000 per year teaching others how to be efficient. To the worker at a factor, the word productivity is often a frightening word. Wile it means producing more product while using less labor, the definition for the factory worker is more likely to be doing more work for lower pay, not true, but when most people believe something the perception becomes reality. For the factory workers who have been seeing their "real" numbers decline dramatically, productivity stands for the loss of jobs. As usual, the common belief is upside down. By doing more with less labor, we are financially able to afford many more workers doing many more things. The average person, today, receives the equivalent work of 58 slaves just through the use of massive amounts of electricity. Most of this electricity is use to produce things that were considered luxuries 50 years ago. The dramatic growth in jobs today is in areas that did not exist 20 years ago.


Some of the new "stuff" is scary, incredible and life changing. For example, the world is about to be transformed by the science of Eugenics, "the self direction of human evolution". You may not like the sound of eugenics; you may be morally opposed; you may especially dislike the "new direction of abortion"; but, you nor I nor any government is in control of science.

One likely direction is that couples who desire children will more and more often in vitro fertilize multiple eggs, genetically screen and select the "best" fertilized egg and implant the selected egg in the womb. DNA chips can already test a fertilized egg for 270 known genetic "problems". In Denmark, where testing is done for Downs Syndrome, there has been a dramatic drop in Downs Syndrome births. Societies around the world will grapple with the moral questions of: What happens to the other fertilized eggs? and, Is it moral to not screen for Downs Syndrome when we can?

In a few years, parents will be able to select for strength, intelligence, wit, size, hair color and thousands of other traits. Wow, talk about productivity! How often does a gifted genius such as Handel come along? How often would such a genius be born if one could select from a dozen "optional children"? What if one could combine the best of several embryos?

Few would argue that the work done to genetically modify rice has been an evil committed. As a result of improvements 1,000 percent improvements in the production of rice, billions of people are fed. Moral questions will never be fully sorted out by man but a new age is here. Genetically modified bacteria will digest coal and gooey oil into clean burning "natural gas" and genetically selected and ultimately modified human embryos will be vastly superior, in certain ways, than would be their unselected brethren.


The here and now is the future. We do not know what will happen tomorrow but the indications are that the resource rich countries have had a good long run toward prosperity but now it is the consumer countries' turn. Nations such as Japan and the USA where we import and use the cheapest resources we can find are having a field day. Suddenly, to sell their goods to the USA, the Saudi Arabians and the Chinese must cut their prices to the bone. Americans are enjoying the turn in the dollar. US Businesses are buying raw materials at the lowest prices in 5 years and they are taking as much time as they can before lowering prices to consumers. When the PPI declines faster than the CPI, businesses get very healthy indeed. A few thousand dollars invested in US equities (stocks or real estate) will likely be many thousands of dollars in just a few years.

One does not need to take the high risk of investing in genetics projects that are not currently producing products for sale. One of the major benefits of eugenics will be dramatically more healthy people. The avoidance of cancer and other diseases will make for long lives during which assets will see many more years of compounding. We are going to see a period of great wealth and we are just in the early stages. In the meantime, the public will spend money on everything from bicycles to fruit cakes. It is an easy time to make big money, you simply must not cower in fear in "balanced mutual funds", bonds (buy JNK or HYG), CDs and money market accounts. Now is not the time to bury your talents. It is an age where the adventurous will see great things.