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Reuters reports that the Google secondary offering has added 17 underwriters. One might expect a number of companies to add coverage after the secondary has been completed. Their bias will likely be positive.

A MarketWatch report this morning suggests that EBAY may be involved in a $5 Billion bid for Skype. Skype is adding customers at the rate of 130,000 per month! Only a small percentage pay anything to Skype but one should always remember that innovative markets do not look for revenues or profits during the "build" stage; think Yahoo. None-the-less, it is estimated that Skype is pulling in revenues at an annualized rate of from $72 to $100 million dollars.

Despite the expected short-run slowdown to be caused by Katrina (the rebuilding will actually be a stimulus to growth once it gets cranking), our economy is very strong. The only unemployment that exists today is structural. Good jobs are available; training and relocation are needed to match employers and employees.

The betting has swung back and forth concerning the probability of another rate hike. Greenspan is aware that once demand pull inflation grabs hold, it is hard to shake. He has tried to get in front of the expansion phase of the economic cycle. Greenspan and all market participants should be well aware of the passage of a massive highway bill and a massive energy bill. Add the stimulus of at least $200 Billion of government and private (Katrina) spending and it becomes clear that Greenspan will probably hold the wheel steady and move up rates again this month. After all, the energy supply shock has raised the price of gas significantly.

My family is conserving fuel. I have not filled up since a few days before Katrina hit. I will see how long I can stretch this one tank of gas. I see gas prices declining because the conservation efforts are world wide. For example, India and Indonesia have each lowered their government’s subsidies for fuel. Ironically the fact that pump prices have started to recede a little will cause folks around the world to conserve and to delay their next purchase.

I was able to get a peak at a private energy report (I did not ante up the $2,500 to get my very own copy). This report examined, from the bottom-up, energy production around the world. Production is expected to rise significantly over the next 18 months. The debate still rages in regard to new production keeping up with depletion. The losers in this argument must surely and mistakenly discount the production possible from shale. At current prices, a tremendous amount of oil is recoverable in good old North America. WE ARE NOT ABOUT TO RUN OUT OF FUEL! Supplies are temporarily tight. We have a lot of energy available off the east and west coasts of our great country. We need to construct a reasonable compromise and then go get it.

The left-wing environmental whacko wants us to hunker down and live like hermits. One irony is that the automobile was a huge improvement for the environment about 100 years ago. (Was it 1905, when Henry Ford developed interchangeable parts?) Anyway, can you imagine all the horse manure and flies that were everywhere in 1905? Continued improvements in technology will allow us to further improve our environment. Hydrogen fuel emits a little water vapor. Air quality improvement is on the way.

GROWTH CYCLE PHASES

During a business cycle, we expect our economy to expand to its maximum non inflationary potential. The problem in each cycle is that sooner or later the economy grows above the long-term trend long enough to cause inflation.

The fiscal and monetary stimuli of the past few years have done their job. The real economy has grown faster than is sustainable for long periods. In the past year, Greenspan has practiced the ages old job of the Fed to "un-spike" the party punch bowl. In the old days, the business cycle was a one humped camel. The economy would quickly go from too much boom to too much bust. However, in the mid 1980's and again in the mid 1990's we enjoyed a two hump camel economy. For example, interest rate increases throughout 1994 did not bring on a recession but only a slow down in GNP and a slow down in the rate of inflation. After the slow down, the economy was good for another 5 years of decent non inflationary growth. During this time, the yield curve remained relatively flat. Inflation was held in check and the innovative technological boom helped by making a higher non inflationary growth rate possible.

The technological boom is not over. The building out of cell phone and internet high speed networks over the past 10 years have set up the possibility of numerous additional innovations. To a large degree, these innovations are not capital intensive. For example, Skype has acquired 51 million customers while a few venture capitalists have invested a relatively modest amount of money! Google raised $2 billion when it went public and still has the cash!

The situation is what one should call a "sweet spot". Of course, the big land line telephone companies or even Microsoft and Oracle might not call this a sweet spot. The land line phone companies are a bit like the wagon makers around 1915. In 1915, Henry Ford was building cars at a price that made the purchase of a new team and wagon a foolish act. Right now, one would be silly to add a land line phone when an internet line will do much more at less than half the price.

On the other hand, Microsoft and Oracle must feel like Henry Ford in the mid 1920's. Consumers were no longer willing to pay cash for a black Ford when GM offered a beautiful Buick, Pontiac or Oldsmobile in trade for your old Chevy. Now, as Google adds more and more software features free, Steve Ballmer of Microsoft fame has stated that he plans to "kill Google". (It is reported that he threw a chair across his office when he learned of another executive loss to Google.)

WORRY WORRY WORRY

The number of Nervous Nellies seems to grow daily. The reasons for their worry are endless. I do get a kick out of the concern about consumer savings and spending. If there is anything the market can count on it is that American women are going to shop!

One of the grossly misunderstood numbers is the level of consumer debt. The Nellie’s would have us believe that the consumer cannot afford to buy anything else because he is in debt up to his eye balls. The Nellie’s like to repeat "scary numbers". "Total credit market debt is up to 300% of GDP"!

This raw number leaves out many important factors. For example, mortgage payments have been substituted for rent. To say that a family which is now paying $750 per month in house payments is overextended relative to last year when he was paying $750 per month is rent is ludicrous. The family’s ability to pay $750 per month for housing and its decision to pay interest and principle instead of rent does not increase the likely-hood of failure to make the monthly payment. Indeed, the homeowner is all the more likely to make the payment. Homeowners will cut back in other areas if necessary to make their house payment. The equity now owned by people who were considered poor three years ago is already a significant amount of money.

Negative articles have said with alarm that mortgage debt has grown from 16% of GDP in 1952 to 68% in 2005. So what! In the late 70's, consumers routinely maxed out numerous credit lines and credit cards. These lines were unsecured. Is nervous Nellie suggesting that the asset backed debt in today's world is more problematic than the billions of unsecured debt in those days?

Now-a-days, consumers can afford to make the payments on a second home. This is a blessing not a curse.

Don't take me wrong. Markets do swing until they are over-extended. This happens when demand pull inflation is the order of the day. Yes we have seen some demand pull inflation in the second home market but hardly anywhere else. All the fussing over commodity prices is about cost push inflation. By its very nature, cost push inflation defeats itself. Markets automatically adjust. Demand pull inflation can be a tough animal to cage because it becomes instead of defeating itself, it feeds on itself.

Take a look at the cost push of oil prices and the demand pull that just occurred in second homes. Our neighbors to the north are enjoying a strong economy. After all, the USA imports more fuel from Canada than from any other country in the world. The increase in raw material values has caused Canada to increase production and the Canadian economy is running at almost full capacity. The country is enjoying a substantial trade surplus. Their dollar has been strong. At the same time, inflation has been low to moderate. Expansion of oil production has increased at a moderate pace because companies there know that the market will adjust. The adjustments will come on both the supply and demand sides. After all, it is a fundamental rule of economics that if the price of a good increases, the supply of that good will increase and if the price of a good increases the demand for that good will decrease. The law of substitution plays a very important role in this process.

Now, some of the good folks from Canada, who have prospered as a result of strong energy prices, have purchased second homes in places like Hilton Head and Miami Florida. When the market got hot, it did not matter what the cost of production was. Indeed, 5 year old beachfront homes that could be purchased for $500,000 were passed up while newly constructed homes were purchased for $750,000. For a while, the market was so crazy that the $750,000 home could be resold for $900,000 or more even before construction was finished.

Yes, gasoline prices were temporarily in this mode just last week. Folks with half a tank purchased at $2.55 rushed to top off their tanks at $3.29. The demand pulled the price far above the cost of production.

The stock market Bubble was a time of demand pull inflation. Today, the sentiment is not even close. Five Trillion Dollars is sitting in money market instruments because the psychology is the exact opposite of "BUBBLE PSYCHOLOGY". Demand Pull is simply not prevalent. Indeed, companies continue to cut costs in an attempt to be the low cost producer. The number of layoffs has slowed and the labor market is strong. Greenspan is trying to engineer a smooth transition from recovery to expansion. Yes, he will either overshoot or undershoot a little but only a modest adjustment will be required to get back on track.

It is my hope that at least one more rate hike will be needed. Just one more hike in interest rates could easily build the wall of worry to an extreme height. I love to be loaded up on stocks when the market begins to climb a steep wall of worry. We are close!

POPPY COCK ALL OVER THE PLACE!

One of the things you have read a million times is that the US is no longer a manufacturing economy. Numerous writers and politicians lament that all the good jobs are going over seas and the US is becoming a service economy. Nothing could be further from the truth!

The numbers show that the United States of America is about to set another all time record in the level of manufacturing as a percentage of our total GNP. We are a manufacturing machine like none other any where in the world. We hear cries that all the jobs are going to China but the numbers show that China has lost more jobs in the past 10 years than there are jobs in America. Germany, France, Great Britain, Italy and I believe all the other developed nations have lower percentage manufacturing output than the good old US of A.

The "negative Nellie’s" want to avoid talking about the tremendous good news which includes very high productivity. Instead they "blame the loss of manufacturing jobs" on China and India. These folks must wish that it still took 60% of our population to raise food. China and India are going through the same process the US went through years ago. We can now raise all the food we need while employing only 3% of our population as farmers. We raise more food today than ever before in our history. These folks should be rejoicing that India is growing its GNP at about 6.9% and China is growing at about 9.5%. These poor countries need dramatic growth. I am thankful. I am thankful that poverty is being reduced and I am thankful that huge productivity growth in these countries allow me to buy goods cheaper now than 30 years ago.

I understand that the news folks must focus on the controversial to build their audience. However, you do not need to be duped. You can think for yourself. When the "negative Nellie’s" whine about inflation, you can look at the government numbers which slow moderate inflation and you can look at the cost of the things you buy. In most cases, you will find that the things you buy have gone down relative to the increase in your wages. I just looked down at my shoes that cost $22. The same pair would have cost $52 twenty years ago. I see the copier than I purchased 14 years ago for $850; a much faster and improved one is available today for maybe $150. Yes, some things cost more, but the aggregate numbers show an unprecedenteded 10 years of wages growing faster than prices (yearly numbers not counting every little blip along the way).

The "negative Nellie’s" continue to harp on Greenspan for raising interest rates while the numbers keep proving Greenspan right. The recent strength in the labor market has dropped the unemployment rate to 4.9%. If our economy continues to grow above trend, then why should the fed throw more fuel on the fire? It is not too hot now but capacity utilization, employment, oil and other resources are showing signs that more fuel is not needed.

Investors are currently focused on the oil supply disruption. There are screams that rising oil prices combined with rising interest rates might cause a recession. Because of the storm, Greenspan may agree to hold rates steady for a few months. However, the rising fuel prices are part of the data that show the need for higher short rates. Whenever some folks are crying over a recession that is not likely and other folks are crying over inflation that is not there, it means we are in a good spot.

I hope you have responded to the pain and suffering of the needy with a sacrificial donation. However, investors need to understand that the disruption is temporary. Indeed the high cost of energy is going to speed the adoption of new technology. BUY THE BULL!

OLD MODEL VERSUS NEW MODEL

In the old days: Businesses paid for advertising, including yellow page advertising.
In the new days: Businesses contract for leads at a specified price per lead.

In the old days: Businesses could easily waste much money on ineffective advertising.
In the new days: Businesses will only pay for effective ads.

In the old days: Businesses often did not know where they got their best leads.
In the new days: Businesses will know precisely where they get their best leads.

In the old days: Consumers searched the yellow pages to find vendors.
In the new days: Consumers find listings quickly and save the results for the next time.

In the old days: Finding an auto-mechanic did not necessarily show the location.
In the new days: A map is presented showing the locations of all auto-mechanics in the area.

In the old days: Once each year, consumers threw out the old yellow pages including their notes.
In the new days: A searchable record is maintained. Calls, comments, results are recorded.

In the old days: Businesses paid substantial monthly fees for web site hosting.
In the new days: Web site hosting will be free.

In the old days: customers paid a monthly fee just to have the communication line.
In the new days: customers will have free access to the web; businesses will pay for the service.

The savings per transaction are on average bigger than they look and there are trillions of transactions. The total savings are huge.

The above are part of the ramifications of "pay per click calling". The change will not occur over night. After all, a lot of people still pay AOL $21 per month for dial up internet service. Bell South advertises $24.95 per month high speed broadband that allows phone calls and internet service at the same time. Some folks are slow to adopt new technology. However, since the price difference between land line phone service and internet phone service is huge, the adoption rate should be very fast.

STOCK MARKET BOOM!

It is typical for the stock market to boom during periods when technological innovations are being adopted rapidly. It often takes years for 10% of the population to adopt an innovation. The rapid growth phase typically starts after the 10% level has been reached. Fifty-one million consumers have downloaded Skype. Vonage, AT&T, VZ,SBC, TWX and many other companies are rapidly signing up new VoIP customers. Google has just introduced Google Talk. At the current time, Google Talk is only an instant messaging service. However, Google plans to support SIP. This means that Google Talk users will be able to make calls from computer to land line phone. Because Google will use open source technology, Google Talk users will be able to talk to users of various instant message services. My wife and I will disconnect one of our phone lines next week. We have quickly moved over the half-way mark. Now more of our calls are made on cell phones or via Vonage or Google Talk than are made on land lines. We look forward to transferring our other lines to the internet soon.

Internet telephony is ready for prime time which helps explain many other things. For example, long term treasury bond rates have confused market mavens for the past couple of years. It is difficult to understand how the nominal rate on the 10 year is only 4% while the real GNP (GNP net of inflation) has been growing at almost 4%. The bond market has been forecasting a dramatic slowing of the economy or significant productivity improvements. Bears are almost worn out. They cannot keep saying the market is about to collapse as evidenced by the bond market or by the flat yeild curve. The GNP will probably slow as a result of Katrina but growth will still be present because of technological innovations.

Productivity must be ready to resume its incredible surge! Businesses around the world are about to reduce their operating costs, including advertising, telephone and communication costs, while getting more done. Whenever a business or a consumer cuts a 10 mile round trip down to a 5 mile round trip to pick up a good or service, the savings will be large relative to the phone call savings.

"BUY THE BULL! The oil crises are a temporary phenomena. Energy is a bottomless well. It is a matter of time before the price stabilizes or goes down when supply increases relative to demand. Productivity does not go away but gets compounded.

CALLING PLANS

Which calling plan will you choose?

Land line--$30 per month with caller ID plus 8 cents per minute long distance--$75.
Cable VoIP--$39 per month with many features and unlimited long distance--$39.
Phone Company VoIP--similar to cable, each offers a bundled price--$39.
Vonage VoIP--$25 per month with many features and unlimited long distance--$25.
Cell Phone--$30 per month plus extra feature charges plus 15 cents over 500 min $50.
Skype VoIP--$00 per month except for special features plus 2 cents for skypeout--$10.
Google VoIP--$00 per month for computer and perhaps free computer to phone--$00.

And yet, Google will make a lot of money off advertising!

Even if Google charges 2 cents per minute to call outside the internet, the cost will be substantially below Vonage, Cable and Telephone systems. As time passes more and more calls will be free calls as more and more people carry handheld computers.

One of the many rumors circulating is that Google plans to buy Palm. If Google is truly setting up to be an ISP, then why not offer hand held computer-phones? I can't tell you what Google will buy. The 4 billion cash may not be the total purchase price. For example, Sprint, after swallowing Nextel, has a market cap of $37 Billion. Google has plenty of shares to offer if that is what it wants to do.

Several of my friends and family accounts added to their Google holdings today. DO THE GOOGLE GULP!

GAS SHORTAGE SOLVED--CAN YOU IMAGINE?

The gas "shortage" could be solved in a instance. It would raise a big stink but it would work. Can you imagine a politician with the guts to do it?

If President Bush were to say that until further notice, he asks all gas stations to join a special relief effort. The stations should charge an extra $1 per gallon and donate it to the relief effort. The idea is to discourage unnecessary toping off and unnecessary driving, to eliminate the shortage and to raise money for those in need.

The politicians, such as the Governor of North Carolina, who threaten prosecution for price gouging do us all a disservice. If gas is available there is no need for the hoarding that is going on all over the country. Allowing the market to work is the answer. My wife and I have driven very little in the past 5 days and we will drive very little until production and transportation are restored. We have not run out to top off our tanks. In fact the last gas we purchased was for $2.49 per gallon. Supply and demand always works when the politicians stay out of the way.

The idea of encouraging an extra $1 is an intervention needed to change the thinking that has been forced upon the station owners by politicians in past years. How can it be that any American believes that business is a dirty word? Americans in particular should understand that businesses do a service by charging the market price. Americans should also understand that at some point the station will lose money. Allowing some folks to buy below market and then closing the station down is a disservice-service to the entire community. There are 100s of millions of gallons of gas sitting in topped off tanks right now while there are other folks driving extra miles searching for a station with gas to sell.

No the politicians probably will not encourage higher prices even for a relief fund but you can do your part. Cut your consumption as much as possible and send in a donation to your favorite relief charity. There are people hurting that will appreciate your help!

GOOGLE PAY PER CALL PLAN!

Malik's

Yes Google Talk is a free internet call and the Google VoIP is likely to be a free service! However, the GOOGLE PAY PER CALL PLAN IS A GEM!

Google is currently testing advertisements in magazines and newspapers. Google pays for advertisement space and allots it to various vendors. This is similar to the ads by Google boxes you often see on the web. You might find 6 ads in a box and of course you can click on any of interest. The Ads by Google in print publications will offer an 800 number or a web address. The vendor, who paid nothing for the advertisement initially will pay per call or click!

For decades, companies have not been confident in the return on their advertisement dollars. Trillions have been wasted on ineffective advertisements. For years, my wife and I found print advertising about condominiums at Myrtle Beach to be iffy at best. We learned that a three line ad in the back of Southern Living Magazine was effective for condominium rentals until the internet offered a lower price per lead. When Google gets fully ramped, advertisers can leave the placement to Google. Google will know where to place each vendors ads for maximum results. The vendor will pay only for results.

No doubt, Yahoo, AOL, MSFT and others will market a similar system; advertisers will probably find Google to be the most effective. AOL and Googlecurrently partner in search revenues. TWX owns very many magazines. Google should be able to lower the total volume of advertising in magazines while increasing the effectiveness of the ads placed. This is not a great thing for the publisher but he must participate. The vendors will be able to reduce advertising costs including number of advertising employees and get better results; productivity at its best.

Americans must be thankful for our system of destructive capitalism. We do not rejoice at the loss of any persons job but we must rejoice that our free society continues to reduce living costs and to increase our standard of living. Many of us forget that the most wealthy of all folks 250 years ago lived with insect infestations, unsanitary food, and relatively few of our common comforts. Few people could afford underclothes.

Google and Yahoo are two of the major driving forces to a brave new world. Yahoo has plans to be the media giant of the future. It will not be long before we have networked TV versus TV networks. Yahoo has built many relationships that make it a power house. CBS shows will travel on VZ broadband but Yahoo will provide the interface and search. Google will connect billions of customers trillions of times to millions of vendors. Google will earn a very small fee trillions of trillions of times.

Google Wallet will open the door to many more opportunities. When a person clicks to pay for a service, Google will know what services are being bought and sold by whom. Again, I will not be surprised if Google is able to offer VoIP free of charge. However, if it must follow the model of Skype and Gizmo, free computer to computer and 2 cents per minute computer to phone is not bad. If you have $100 in your Google wallet, you could make a lot of phone calls for 2 cents per minute (5,000 minutes plus unlimited computer to computer which would include hand held wireless PDAs)--buy the way the sound quality is excellent!

If you would like a Gmail (includes Google Talk) invitation, let me know. I would enjoy talking to you free of charge over the internet.
DO THE GOOGLE GULP! THE STOCK IS CHEAP RELATIVE TO ITS GROWTH POTENTIAL!

CAUTIONARY NOTE: ALL POSTINGS ARE FOR INFORMATION AND ENTERTAINMENT PURPOSES. DO NOT CONSIDER ANY POSTINGS HERE AS A RECOMMENDATION TO PURCHASE SECURITIES.

STOCK OF THE WEEK: KEEPS RETURNING$$

Current Value of the SOW Portfolio:

$96,274.44

Simple Return: 19.39%

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S & P 500 Value : $89,577.84 Simple Return: 2.44%

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Treasury Bond Value : $86,150.53.Simple Return: -2.61%

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CAL is still our top performance airline stock returning 57%

US Gypsum has earn 96% while GME continues to bring in 67%. Individual Stocks continue to outperform equal investments in the S & P 500 and the TLT Treasury Bond index fund . If you're interested in talking about individual stocks, write me