Kupsky chose Myers Industries for our Stock of the week. Myers manufacturers various rubber products which are used for automotive parts and construction equipment
Myers had record earnings for the 3rd quarter and anticipates teh same results for the end of 2005. Get a full report on Kupsky's reasons behind her choice at our Stock of the week site. The Stock of the week picks outshine other investments with a simple return of 39% in the last year.
Tuesday, January 31, 2006
Kupsky chose Myers Industries for our Stock of the week. Myers manufacturers various rubber products which are used for automotive parts and construction equipment
Posted by Jack Miller at 1/31/2006 02:01:00 PM
DRIP BY DRIP!
New discoveries of oil are happening. Many are just drops in a big bucket but drip by drip the bucket is starting to fill up. January 20, 2006, Shabwah discovered oil in the Al-Kala Block 52. It will only produce 5,000 barrels per day in 2006 and will peak at about 32,000 barrels per day in 2009 but this represents another significant drop in the bucket.
When sanity reigns in the US Congress, 1 or 2 million barrels per day will be developed in ANWAR. The discoveries last month in the Gulf of Mexico and in Brazil were significant but, together, not as big as ANWAR.
One of the many substitution effects that is gathering steam is the movement of suburbanites to "down-town". This effect is happening all around the world. In Winston-Salem NC, with 800 new residences planned in the down-town area, plans are being made for building a grocery store down-town. I worked at the A&P down-town in 1967 when it was on its last legs.
Drip by drip, oil is being saved or found. A new company in NC will start production on LED home lighting this year. The head is the former head of CREE. These new semi conductor lights put out the same light as a 60 watt bulb and use only one third the electricity.
In the early going, new homes and new businesses will be the targets for the new lights. One should not plan to throw away old fixtures. However, in 10 years, the new lights will be very common and the energy savings will be very large.
Canada has announced the expenditure of $150 million to increase capacity at one refinery. Duke Power is one of many firms busy selecting sites for nuclear plants.
Velero Energy looks to be a good short. Velero Energy depends on demand for sour crude but the world is currently awash in plenty of sweet crude. Current fundamentals suggest that oil should be trading below $50 per barrel. The premium in the price is related to the Iran "risk". This problem with Iran will not go away quickly but, before the problem is over, storage facilities are going to hit their maximum capacity.
The next move in crude is back to the $55 range. My personal bet is still on the airlines. CAL and AMR have traded up in recent days. My family added more shares while the price was down. We are encouraged to know that AMR, United and CAL are all increasing business and luxury seats and decreasing the number of coach seats. United is having great success with it luxury flights from NY to LA. The planes only hold 110 passengers in luxury seats but the tickets range as high as $4,500.
Drip by Drip oil is being found or saved. Business demand for travel is growing steadily. Seats are no longer being sold to the high consumer bidder on the on line auction. Those cheap coach seats are being replaced with high dollar business and first class seating. If you want a "free" meal, you need to book your business or first class seat well in advance because demand is pushing supply very hard.
Posted by Jack Miller at 1/31/2006 10:46:00 AM
Friday, January 27, 2006
A slow down in the US economy bodes well for low interest rates. This is good news for many industries, including housing.
The real estate bubble never popped. Some air was let out of the balloon but lower interest rates will heat the balloon air and cause the balloon to rise again. The market is ripe for a strong up-move. The decline in economic growth will cause many to worry too much. The proverbial wall of worry is pretty much in place. The market will climb this wall in fits and starts over the next year or more.
Posted by Jack Miller at 1/27/2006 08:39:00 AM
Good investors should learn about "mind sets". For the past 5 years, my wife and I have dealt with the very complicated business and legal matters required to "un-wind" and sell a small business. During the process several parties declared that "'so and so's' (people in a certain professions) are idiots". Marilyn and I, with the benefit of hindsight, have learned how naive (perhaps stupid is the correct word) we have been about certain matters. In other matters we have been very careful and very smart, for example, we dated for 5 years before marriage and have been married almost 34 years. We have used good judgment in the most important decisions in our lives. We have worked at being faithful servants and good parents. Although we managed to build a successful business, we allowed it to grow to large and it came close to ruining our lives. It was over ten years ago when the business virtually took control. Having fought negative cash flow for 10 years perhaps helps explain how I can see value in AMR and CAL. Those who have fought negative cash flow know all about the task of fighting alligators while trying to drain the swamp. The good news is that we and the business survived and that, in general, we have lead happy and fruitful lives. Naive and stupid at times, yes; idiots no!
When one runs a small business, one makes countless mistakes. Most of the mistakes are small but one occasionally does something really dumb. A good friend recently explained that those in other occupations are not idiots but that they simply see things from their "mind set". An accountant, a banker, a government employee, a lawyer, a business owner and an investor all see things trough glasses of different colors. One businessman might understand and appreciate why a businessman took a certain course while a lawyer or accountant with different frames of reference, may have a hard time "walking in the businessman's shoes" and vise versa.
Another good friend took me to task yesterday for misleading him. He was right to do so. He made me realize how poorly I sometimes communicate. I did not misinform him on purpose but, when I told him a set of facts, I focused on what was important in my "mind set". After he took me to task, I realized, even more, how dumb a decision I made in an important matter about 5 years ago.
The interesting thing is that, while I consider this friend to be one of the smartest people I know (off the chart IQ smarts), In my opinion, he is a poor investor. I could be wrong because I don't really know his holdings. I simply know that at various times over the years, when I was very confident about good investments that proved to be smart choices, he was typically going in the opposite direction. I don't believe he reads this blog. I know he makes a great deal of money but, as far as I know, much of it goes into ultra conservative investments inside his 401-K.
When CAL and AMR were at or around $9 to $11, I tried to convince him and others that these companies had made the "turn". The "national mind set" in regard to airlines was so negative that, even those knowing my investment track record, could not believe I had a clue about AMR and CAL. I think my friend is like so many others who don't add beta to their portfolio until after the economic outlook is rosy. They get burned by adding beta near tops and they then find it emotionally difficult to be aggressive near bottoms.
The good news is that I have gained much "perspective" in recent weeks. I have lived through the most stressful time of my life and I believe I am a better person for it. I have often written about Ken Fisher's belief that if you can find where the majority of folks have the wrong mind set about something, then there is the opportunity to make a lot of money. The airline business is a great example as I believe AMR and CAL are on their way to $100 per share in relatively short order. However, the point of this article is that when you have dealings with those in other occupations, it is important to realize that you must listen and speak very carefully to communicate with them. When dealing with lawyers or government officials, one can easily believe there is understanding when there is not. A lot of things that are very important can very easily get lost.
Learn about mind sets. Study human nature and realize that investing is not just about the numbers. Investor psychology is very important. Right now, investors hold about 5 trillion dollars in short term "safe" investments. Investors are also stocking up on gold as if they believe modern civilization is about to end. There is opportunity in this market. Remember that when the over riding mind set is one of fear, one should invest aggressively and when the over riding mind set is one of greed, one should be cautious. The fundamentals say that oil is in ample supply and yet the price is staying very high due to fear. Avoid oil investments, near the top, and build positions in other areas as an explosive "market melt up" is near.
Posted by Jack Miller at 1/27/2006 06:39:00 AM
Friday, January 20, 2006
STOCK OF THE WEEK: Arctic Cat
The stock pick of the week has now been posted on Stock of the Week is Arctic Cat,
Arctic Cat, based in Thief River Falls, Minnesota, designs, engineers, manufactures and markets snowmobiles and ATVs along with related parts and accessories.
Stock of the Week performance continues to return successful numbers. We are currently returning 34% on Stock of the Week investments.
Posted by Jack Miller at 1/20/2006 08:53:00 AM
Friday, January 13, 2006
This morning a friend forwarded an email that was from her good friend. The email included the bible verse that I have included in my email signature for many years; Mark -24.
It reads as follows: Jesus said unto him, "If thou canst believe, all things are possible to him that believeth" and straightway the father of the child cried out, and said with tears, "Lord, I believe; help thou mine unbelief." Verse 23 is similar to another favorite verse; Philippians . This verse has been on my mind often for the past few years.
Yesterday and today, my good friend lost his sister-in-law and mother-in-law to cancer. My heart goes out to him, his wife and his family.
Marilyn continues to have “hypertension episodes” and my children are under much stress. "At times like these" it is easy to "cry in ones soup".
I thank the friend of my friend for her email. A friend of a friend is a friend indeed! Oh! What a friend we have!
Posted by Jack Miller at 1/13/2006 10:48:00 AM
Thursday, January 12, 2006
Wednesday, January 11, 2006
Life is good. Yesterday, I was feeling very low. It seemed like the weight of the whole world was on my shoulders. This morning, the first news item I saw on my Google Sidebar had the headline "Tar Heels stick Hokies". My outlook on life improved immediately.
One day, I hope the NBA "gets it"! NCAA Sports is all about giving kids all the reasons in the world to get a college education. Some years ago, when the NBA waited for kids to mature in college before drafting them, thousands of college game fans became NBA fans when their favorite college players turned pro.
Now-a-days, players go straight from high school to the pro teams or perhaps after a year or two of college. The early departures are not good for the NBA, not good for the young players and terrible for taking away the dreams of many young kids. The kids now dream of going straight to the NBA with a $50 Million contract instead of dreaming about getting a free ride through college and winning the NCAA Tournament.
UNC lost 7 of its top players last year. This year, Roy Williams has added 4 freshmen to a team with little playing experience (David Noel, a football recruit who played sparingly last year was the most experienced player to come back). With such a young team,
Not to worry, the Heels went into last lights game with a 9-2 record that included at least two wins over top 20 teams. Indeed, the Heels entered the game ranked number 20 in the nation. The team played a tough Virginia Tech team at Virginia Tech. Earlier this year, Virginia Tech beat Duke, the number one rated team in the land at Duke (except that Duke made a miracle 42 foot shoot at the buzzer).
Last nights game was not easy; ACC games on opponent’s home court rarely are. This young Carolina Team made many mistakes but they never gave up and in the end they prevailed. What a lesson? Investors have to have "Tar Heel Tenacity" to be highly successful.
Marilyn and I have seen our fortunes rise and fall dramatically over almost 34 years of marriage. We keep "hanging in there". My hope is that you and others will be inspired by your favorite sports team. Perhaps you are aware of the Jimmy Valvano story and can get your encouragement there to "Never, never, never, never, never give up!"
Posted by Jack Miller at 1/11/2006 08:19:00 AM
Tuesday, January 10, 2006
I have been blessed in so more ways than I have room to list here. The blessing that hit me today is that I can identify Job. No, I cannot claim to be in the same league as this good man in my righteousness or in my suffering, but it was good to remember the story of Job today.
Marilyn has been suffering from a number of stresses of life. She and I very much want to relieve her stress but the sources are largely out of our control. We have spent the last couple of days at Myrtle Beach. This second week of our "retirement" has been all work with no relief from the stresses of closing down the business that we built over the past nineteen years.
One of the books that Marilyn and I studied within the past few years was, "Why do bad things happen to good people?" Like the book of Job, this book lays out the "conundrum" without giving the reader the "answer", except that the Grace of God is really all that matters.
Please forgive me for straying from the theme of this blog. From 12 years of age, I have studied investments. It should be no surprise that my experiences, retained knowledge and developed skills would be apparent after 43 years. However, my important accomplishments over the years have been those things I have done to help others. I hope to do much good for many people during my retirement. I consider this blog as a form of outreach; a way for me to share what I have learned.
Marilyn and I are looking forward to accepting other opportunities to serve. My good friend Ed Tilley, I man I love and respect, has helped wheel chair patients at Forsyth Hospital for many years. I may follow in his footsteps. However, choosing how to best serve others should be a "calling". So far, I feel "called" to share my experiences here, so I spend a significant part of my day posting. I have slowed the rate of posting in recent weeks and somtimes wonder if there is not a better way to reach out. I thank you for reading. I welcome your comments and emails.
I honestly feel that investing is very hard and very easy. Like the basketball “gym rat” who has practiced thousands of free throws and who says that making free throws is easy. It is easy to invest well after you have practiced a number of years.
The bottom line of this story is that learning from ones experiences and those of others is one of the keys to a good life. Sometimes bad things happen but we must do the best we can without worrying about things beyond our control.
Posted by Jack Miller at 1/10/2006 10:46:00 PM
See more at Stock of the Week.
If you have a particular stock you'd like to talk about call me ( 336-778-0543), or send an email
Posted by Jack Miller at 1/10/2006 02:11:00 PM
11,000 and counting!
For the first time since 2001 when 9/11 interrupted our lives The Dow has hit 11,000
The Phychological effect of hitting 11,000
Fred Witzel highlights how hitting 11,000 is proof that the U.S.economy has weathered several finanical storms over recent years.
The Bull Trader notes that hitting 11,000 will strengthen investor confidence
2006 Historically as January goes...so goes the rest of the year---2006 should be the year of the Bull!
Gold hits 25 Year Peak--up more than 5 percent from a week ago, 18 percent from some two months earlier and 30 percent from a year ago. The price has more than doubled in five years.
Reuters discusses the pricing history and China's interest in diversifying into Gold
Now Public discusses gold and the history of it's price increases as it relates to public opinion of the economy.
Check out the BBC for a European opinion. BBC News indicates that the rise in gold prices in Europe indicates a move away from the American dollar.
Bloomberg reports that the Newmont Mining Corp., the world's largest producer of gold, says the price of gold is expected to rise to more than $1,000 in the next five years.
John Battelle gives a great perspective on the new Google Video and Google in general. Battelle comments that Google is officially a big company and is acting like it!
The White House has posted a list of Bush's Accomplishments in 2005--Check it out--
Chad Brand with The Peridot Capitalist lists the largest US Companies by Market Value
Posted by Jack Miller at 1/10/2006 08:56:00 AM
Monday, January 09, 2006
We continue to update you on Airlines as a stock investment because our returns have more than doubled since the purchase price, however, there are a few other stocks in our Stock of the Week portfolio which have proved to beat the market with incredible returns:
United States Gypsum Company (NYSE: USG), a leader in building products has returned 103%. We purchased USG on April 7, 2005 at $33.32 and USG was posting a $67.68 price today.
(NYSE: USG) is credited with creating North America's building materials industry. Their products are used in everything from major commercial developments and residential housing to simple home improvement projects. Their flagship brands include SHEETROCK® Brand gypsum panels and DUROCK® Brand cement board, which are recognized around the world.
Another stock in the Stock of the Week that is performing well above expectations is Gamestop . which is approaching a ROI of 52%. We purchased GME on 3/13/05 at $19.95 per share and today GME
Price was listed at $38.37. Gamestop is the nation's largest video game and entertainment software specialty retailer. selling the most popular new and used software, hardware and game accessories for PC and video gameThe Bull is on the Move---It's never too late to jump on and Ride!
Posted by Jack Miller at 1/09/2006 01:45:00 PM
Friday, January 06, 2006
The computer upgrade cycle is finally upon us! 2006 will be the year to throw out your old computer and to buy a new media computer. INTC has announced its new machine and partnerships with AOL, DirecTV and Google. The partners (others have and will join the group) will offer consumers the opportunity to search for, find and play music, TV, games and movies.
The hardware will make it easy to view the internet on TV and to view TV on computers. The programs will provide most of the abilities of TIVO and some extra neat tricks to boot. Consumers will watch the nightly news when they want to watch; Google will serve as the conduit for thousands of videos, some of which will be pay-per-view offerings.
The "Chickens Little" who have been squawking that the increases in the price of gold, copper and other metals shows that inflation is out of control should note the explosion taking place in consumer electronics. They should also appreciate that the finished goods prices are going down. It seems counter intuitive that input prices are going up while finished good prices are going down but the reality is that raw materials are only a small fraction of the total costs. The labor costs are dropping because less labor is being used per unit of production.
Chase the oil stocks all you want but that story started in 1999 and ended in 2005. The new story is about the huge change taking place in information distribution. INTC and Google are among the leaders in this change.
INTC made the chips in 90% of the worlds personal computers. AMD has done a great job, particularly in recent years, as the second "man on the totem pole". The new INTC chip is designed to do things the chip will not do. INTC no longer has a 90% market share but billions of computers will be sold with the new chips. The difference in the new chips (with the media software provided by MSFT) is bigger than the difference in the Model T and Model A automobiles.
In the past, I have suggested that the BIG BULL is about to STAMPEED. I hear a thundering noise and feel the earth quivering. Jump on board technology stocks for the ride of your life! The margins on the new INTC chips will be substantially higher than margins on existing commodity chips. BUY THE BULL!
Posted by Jack Miller at 1/06/2006 01:31:00 AM
Thursday, January 05, 2006
ABC News has picked up on the blog reports that Google will sell video. ABC says the announcement will be made tomorrow at the CES show in Las Vegas. The report is that deals have already been made with CBS and the NBA.
So far, there are no details to share in regard to payment systems or the price of shows. It is my hope that "re-runs" will be available at very low prices. I love to watch old movies and even old sports events.
Last night, Vince Young had a heck of a performance as a college football quarterback. If you did or did not see it, you would enjoy watching it. Tens of thousands of high school and college football players could use the USC-Texas game as a learning lab. Mistakes were made but the game was one of the most exciting of all time. I am not a fan of either school but it was a great game, worth seeing more than once.
This Saturday, I will be at the UNC-NC State game. I look forward to it with great anticipation because, if my young Tar Heel team plays a great game, they may knock off one of the best teams in the country. I will TIVO the game but it would be nice if Google had it on file.
The way billions of people watch TV is about to change. The potential revenues to Google, Yahoo and the content providers are huge.
Posted by Jack Miller at 1/05/2006 01:42:00 PM
ZDNET, OM Malick and others have reported that a new Google Video player and content deal will be announced at the product show this week. The Video Player includes payment features which indicates at least some of these on demand videos will be pay-per-view.
One of the things that people misunderstand about Google is the belief that it only makes money from advertising. It is true that Google currently makes its money from advertising but the service is to help folks find information. It should be obvious to all that Google will eventually be in the position to collect fees to help folks find the information, videos, music, books, locations and so much more.
The flood gates to content are finally opening. Magazines are now included in news services. TV shows are available for download. Several movie download services are available. Google will categorize this content and make it easy to access.
A big deal has been made of the Piper Jaffrey $600 call. Six hundred this year may be a stretch but this is no reason to avoid the stock. It could easily trade up $60 to $100 points this year which would make most investors happy. My target for the year is $520 but this means little. The internet market is going to expand so much that Yahoo, MSFT and AOL will make a lot of money (The movie library of TWX will likely be an important part of the Google Video announcement). Google is going to make a boat load of money for many years to come.
Do the Google Gulp, $440 shares are hard to swallow but they will be good for your financial health.
Read more on the Google Video Player:
Posted by Jack Miller at 1/05/2006 12:27:00 AM
Wednesday, January 04, 2006
Again, small, inexpensive WiFi machines are on the way. Google does not need to sell the machines to make money. Google would love to have its home page as the default page. We will have to wait to see if Google and or others will pay to be automatic home pages.
Posted by Jack Miller at 1/04/2006 04:38:00 AM
Om reports that Google has filed a patent on a process that helps speed up wireless data exchange over CDMA networks. This is an important event because it shows the work Googleis putting into the wireless arena.
A few of my readers missed the point of my blog about Google Cube Computers. The idea that Google is trying to become a hardware computer firm is totally off base. That is like saying that Microsoft is trying to become an Xbox company or that Gillette is trying to be a razor company. As we know, Gillette sells razors below cost to build a steady market for its blades. Microsoft subsidizes the price of the Xbox to build its market share.
Google could easily contract with AMD, INTC or others to build simple, low cost, wireless, low power internet appliances. AMD is reportedly making such a product for emerging markets. Would it not be worth several bucks per box for these machines to always start on the consumer’s personalized Google home page?
As I have written elsewhere, the price of gold and other metals is out the roof because of the ongoing boom and pending super boom in the sale of handheld electronic devices. Billions of GPS, phones, radios, TV's and computers will be purchased by consumers in the next few years.
Put a combination of AOL's AIM and Google's Google Talk on a cheap portable computer and you have an instantly profitable communications network. Add the availability of GPS, Google Maps, TV, Movies, etc. and who needs much else in the way of communications equipment.
INTC is now making $500,000 worth of electronics equipment per employee per year. The price of the finished products is going down. In due time, the price of a computer is following the path of the pocket calculator. I am one of a relatively few people who paid more than $1,000 each for the first two pocket calculators I purchased. Nineteen sixty-eight seems like a long time ago but in those days we could only dream about what a computer might do; a pocket calculator was a neat trick.
Again, remember this is about the razor blades not the razor. When almost everyone has instant access to data such as how much gas is going for at all the nearby locations, plotted on a convenient map, the savings in time, energy and costs sum to a huge amount.
I have skimmed the 8 page report on Google put out by Piper Jaffery. The company has placed a new price target of $600 on Google.
Needless to say, I love this company. I think the potential growth has only scratched the surface. However, the report of Google Cube Computers is only a rumor. The patent application to make CDMA faster is real. Google has already gone wireless. The wireless devices today are analogous to my first couple of computers that had zero hard drive storage. One had to load and unload data via 5.25 inch floppy disks. We have come a long way and the pace of progress is quickening. Soon there will be little reason not to buy a pocket, internet computer.
Do the Google Gulp, the stock is hard to swallow at these prices but it is good for your financial health!
Posted by Jack Miller at 1/04/2006 03:50:00 AM
Tuesday, January 03, 2006
After the market closed today,Continental Airlines (CAL) reported outstanding traffic for December and for the full year. December Revenue Passenger Miles were super strong. The domestic increase of 9.2% was eclipsed by international and transatlantic growth of 15.6% and 17.5%!
For the full year, consolidated revenue passenger miles increased by 9.6%! Available seat miles grew at a less robust 6.9% which shows that the company flew more seats with a higher percentage of them passengers in them. Indeed, the consolidated load factor for the year increase from 2004's 76.9% to 2005's 78.9%.
Today, CNBC focused on the story of head to head competition between Southwest and Frontier Airlines. I find it comforting to know that these low cost carriers are fighting so hard over passengers who pay maybe $100 for a ticket when CAL is taking out many of the cheap international seats and adding business class seats that fetch $3,000 or more.
A Forbes article recently detailed the continuing woes of DAL. The pilots seem to be willing to close the airline down rather than take permanent pay cuts. It appears that NWAC maintenance workers have tried and, so far, failed to force NWAC into liquidation. Independence is currently facing liquidation. UAL, having slashed salaries, pensions, interest and other costs while under bankruptcy protection, has obtained the financing it needs to come out from under the courts protection.
It is my judgment that ,Continental Airlines (CAL) and AMR are the best run of the international carriers. These carriers face the least amount of cut-throat competition and they each have cut costs dramatically. Further capacity reductions by DAL and NWAC are expected to give these carriers an extra boost.
There are many red herrings around. It is easy to get lost in the questions of fuel prices or potential terrorist attacks; bad things may or may not happen. The important thing to understand is that international business travel is in a major uptrend, this trend is expected to continue for several years and it will be several years before new planes on order will serve to increase available seats. Between now and then, one should expect strong revenue gains with a high percentage of the gains sinking to the bottom line.
Because these carriers have massive tax loss carry forwards, the after tax profits are going to be about the same as the before tax profits. Profits per share should rise dramatically for the next three years. During "the good times" it is not unusual to see airline PE's at 20% or more. I'm guessing that (CAL) and AMR will each see profits per share of $7 or more per share by 2008. To avoid sounding like a raving Looney, I continue to suggest these stocks may well pass their old highs in the high 50's or low 60's within a couple of years. I am actually hopeful that they will make $7 each and sell at 20 times 7 by 2008.
Posted by Jack Miller at 1/03/2006 11:26:00 PM
I must graciously agree with my good friend Random Roger again. Using a "calendar call" as a primary market indicator can be hazardous to your health.
Do I pay attention to historical patterns? Absolutely! However, when there is a lot of chatter about any particular pattern, one must balance precedent with a contrarian attitude toward sentiment. In most cases, once the majority of investors believe in a particular pattern, the pattern is at least temporarily broken.
The year 2005 is a great example. For a hundred and ten years, years ending in 5 have been winners. From 1885 to 1995, the Dow Jones gain in these years averaged 30.7%. The Dow was up 12 out of 12 of these years; a calendar call with a 100% track record (Source of data: "The Almanac Investor" by Jeffery A. Hirsch and J. Taylor Brown). Investors who purchased one year calls on this perfect indicator lost 100% of their investment.
Think about how the pattern was broken. By September of 2004, a number of market mavens reported on the "Decennial Cycle". Sure enough, the market rallied like a banshee late in 2004. Traders in effect moved the typical great performance of the 05 year to the end of the 04 year. If everyone knows that the last trading day before the 4th of July is a great day, then almost everyone buys too much two trading days before the 4th. The next year, the buying occurs three trading days in advance. Eventually, the market is so out of whack by the day before the 4th that it falls dramatically.
The same process played its hand in advance of 2006. This time, the oft reported patterns are the Santa Clause rally and the Presidential election pattern. Most investors are very aware of the annual Santa Clause rally and that the second year of the Presidential term has historically been the weakest of the four years. Investors bought in advance of the Santa Clause rally and the market ran out of steam while facing the terror of the “second presidential year”.
I don't think most investors are aware that the average second year is actually an o.k. year and that it typically sees wonderful returns from about September to year end. After the 2005 Santa Clause rally was nearly stolen by the fear of 2006, I think it is significant that the market reversed on the next to last day of the series. Again, I don't want to make too much of any one day move, but the action warmed my heart.
IMHO, the following is the proper investor perspective. One should appreciate that markets are anchored by logic but they trade on emotion in the short to intermediate term. My call for 2006 to be a great year is based on the relative value of stocks to bond yields and real estate rents.
For stocks to have a very bad year, bonds will likely have to have an even worse year. Of course, if bonds have a terrible year, it is easy to assume that real estate will have a terrible year.
All indications are the current slow down in real estate is showing up in lower demand for long-term paper. Bond yields and 30 year mortgage rates have been going down for months. Bond returns for the past 7 or 8 weeks have been spectacular and one of the best forecasters known to man, the yield curve, is forecasting lower long-term rates (the yield curve steepened today because short rates fell even faster than long rates).
Ultimately, ones inflation forecast is the key forecast. Since total compensation is the biggest component of inflation and since total compensation is growing at only a moderate pace, my forecast for inflation is low. Low inflation implies strength in bonds. If bonds are expensive relative to stocks and real estate but go up anyway, then stocks and real estate should over take and out-perform bonds; making excellent returns.
One last long-term pattern that has been broken is in regard to congressional seats gained and lost. President Bush is the only President to ever gain party seats 2 years after his election and again 4 years after his election. Will he score the incredible hat trick?
The second year pattern has been historically been up strong during the first 4 or 5 months of the year, down strong until a month or two before the election and then a really nice finish once the polls show who the winners will be. It has been a huge mistake to bet against a George Bush election victory. The market may follow the historical pattern but I believe Bush is even money to score the hat trick, with good news from Iraq. If the market gets wind of a Bush pick up of a senate seat or two this November, then hold your reigns tight because we might be riding one of Ken Fishers bucking broncos all the way to the bank.
Posted by Jack Miller at 1/03/2006 07:41:00 PM
I love it, I love it, I love it. Wouldn't you like to own a wireless computer that that is cheap to buy, simple to use and does not need Microsoft Windows or other complicated software? I would love it.
So far we are talking about a rumor. The rumor goes that the cheap computers will be sold through Wal-Mart. This part of the story makes it sound like more rumor than fact. On the other hand, we know that a lot of work is being put into building cheap laptops. If a laptop does not need extensive memory or complicated hardware, it does not need high powered batteries.
We are talking about a revolution here.
The pocket cell phones simply do not have the screen or the computing power needed to serve as a true internet terminal. With CBS, ABC, NBC, Disney, Fox and others cranking out content for portable viewing, the avalanche is ready to start.
The year 2006 is going to be a memorable one in the history of communications; free phone calls, mobile TV and internet access from cheap hand held computers; dramatic productivity growth, low inflation and a strong stock market?
2005 was my best year in the stock market ever; thanks to Google, CAL, AMR, ET, AMTD and a number of other great moves. 2006 is ready for lift off. While the short term outlook is clouded by what the FOMC and the oil market are going to do, declining inflation and declining long interest rates are powerful forces ready to give stocks a strong boost.
The demand for metals is fooling a lot of folks. They see this demand as highly inflationary. Certainly the price increases in energy and metals is an inflationary factor. It appears that the metals markets are preparing for the sale of billions of cheap computers. Although the capacity utilization of semiconductor plants has never recovered from the 2001 collapse, the growth rate for the past two years has been extremely strong. The metals markets appreciate that demand is going to explode when billions of the worlds citizens start purchasing inexpensive hand held computers.
Here is a question for the crude oil super bulls. How many gallons of gasoline will be saved when GPS enabled devices are suddenly owned by most drivers? How many trips will be avoided if one can make a free picture phone call to anyone from virtually anywhere?
The build out will take time. The hand writing is already on the wall. It does not take the prophet Daniel to see that a new era is at hand.
Are you ready to buy a $100 computer that will do more from anywhere than what your current desk top can do? I am ready!
Go Google Go! Do the Google Gulp!
Posted by Jack Miller at 1/03/2006 01:37:00 PM
Monday, January 02, 2006
The price of Gold is yelling loudly that interest rates must go much higher; 7% or more on the short rate soon and on the long end within two years. The bond market yield curve is calmly suggesting stating that rates are headed down in the near future; short rates all the way to five year rates are forecast to fall at least a half a point in 2006.
The situation reminds me of the contest between the wind and the sun. The contest was to remove the traveler’s cloak. The wind went first but no matter how hard it blew it could not take the cloak away. When the sun smiled the traveler gladly took off the cloak. Chairman Greenspan would call the situation a conundrum.
I call it a war and my daddy taught me not to take a pocket knife to a gun fight. No less than Einstein declared that the most powerful force in the universe is compound interest. Fighting the bond market like fighting the Zulus, the price of money just keeps on compounding and the Zulus just keep on coming.
The bond market has too much ammunition on its side. The annual rate of change in industrial capacity utilization is nearly zero and capacity usage is only at 80%. During the boom times in recent years, it has been the semiconductor business that has run full tilt bozo. Right now, there is slack capacity in semis even though the industry is expanding rapidly. Communications equipment has never recovered from the 1990's boom. Resources are available. One thing that is often missed is that the US produces more energy than any other nation in the world. We import only a small portion of our total needs. If you are going to a fight, you must first learn the facts. Gold is a small player on the large stage of life.
Many comparisons of the current economy are being made to prior years. However, one must go back to the 1950's and 1960's to find a time of such high GNP growth coupled with low inflation. I love to remember the wonderful market we had in 1963 to 1965. The market was great because earnings were growing but new technology (Xerox and main frame computer companies were changing the world) was holding down inflation. Stocks of the hot companies would shoot up 25 or more points in a week. Stocks were so volatile that trading was dicey and fun.
Periods of volatility typically follow long periods of relative calm. We have been in the calm before the storm for about 2 years. Hold onto your hat because the wind is ready to blow.
Technology and globalization are holding down inflation. GNP just ran the track at a fantastic pace of better than 4%. The time was better than Seattle Slew carrying 150 pounds. For the past year and a half, Greenspan has been adding weight to this horse and it carries the weight as good as Sea Biscuit. If the FOMC adds weight in January and March, it will take its toll. The economy will slow; demand for gold will slow while bonds, stocks and real estate will all get fresh legs.
How long can Gold fight bonds? Gold might keep fighting another year or more, however, the battle is lost. Bonds can lick gold with one hand tied behind its back.
Of course, there are many possible scenarios. It is possible that bonds win the first round, slowing the economy temporarily, with gold winning a second round, taking inflation and the economy on a wild ride. Gold could get help from the oil market for another year or two, but in recent weeks oil has been giving aid and comfort to the enemy. My guess is that Bernanke will join the fight on the side of bonds. I expect him to shoot for real interest rates of about 2%. Gold will not be able to stand up to 2% real rates.
My belief is that head line inflation is about to roll over below core inflation. This means that to achieve real rates of 2% Bernanke might have to cut rates not raise them. Don't laugh, in February of 1995 the FOMC made the last in a long string of rate increases and 5 months later it began a new string of rate decreases. I grant that it is not likely that the FOMC will increase rates by a half a point like it did in 1995, which implies that the drop in GNP will not be as large.
At the current time, I do not plan to short Gold. The speculative demand is too great to bet against in the short run. On the other hand, I will make long term investments that are consistent with strong growth, low inflation and low bond rates. Hmmm, buy stocks or real estate? I’ll take stocks!
Posted by Jack Miller at 1/02/2006 03:13:00 PM
The easy way to dispel the housing bubble baloney is to look at drivers license data.
Here are the millions of drivers in 5 year age brackets as of 2003.
Under 19 . 09.2mm
20-24 ... 16.7mm
25-29 .... 17.1mm
30-34 ..... 18.9mm
35-39 ...... 19.6mm
40-44 ....... 21.2mm
45-49 ...... 20.3mm
50-54 ..... 17.9mm
55-59 .... 14.9mm
60-64 ... 11.3mm
65-69 .. 08.7mm
70-74 . 07.3mm
A total of 196 million licensed drivers who own 136 million cars.
In the above data do you see what one observer has called a "pig being swallowed by a python"?
The data is 2 years old; the pig or big bubble is moving into the 45 to 54 age range. The leading edge of the “boomers” will enjoy their 60th birthday this year. Guess what? Consumers make the most money of their lives when they are in the 45 to 54 age range! Guess what else? Consumers typically have more disposable income in this age range!
At babycenter.com, there is a calculator for estimating the cost of raising and educating a child. Assuming the child lives in the south, has parents of moderate to upper means and attends public schools, the cost estimate is $475,000. Parents of two children will typically spend more than a million dollars on their children and parents of three children will typically spend more than 1.3 million dollars. It cost more to “own” two or three children than it cost to own a beautiful ocean front beach house.
Despite the anecdotal evidence, children now live “on their own” at a young age. In 1985, sixty percent of all males 18-24 years of age lived with their parents. In 2003, this number was down to 56%. In 1996, 16 percent of all males 25-34 years of age lived with their parents. In 2003 this number was down to 13%. Females move out even earlier but fewer and fewer live with their parents past the age of 18.
Back to the driver’s license data; note that in five years, the cohort of prime first home buying age will shrink. Right now, the prime average age has been reached by millions who will buy a first home, move to the “big home” or buy a second home. Over the next five years, 20 million people will reach the prime age for buying a second home!
Home mortgage rates have declined over the last nine weeks and the yield curve is now predicting lower interest rates in 2006. Despite reports of 5 months supply of homes on the market, the housing market is very strong. Recent data show that house prices are appreciating rapidly, not as rapidly as the past few years but still at double digit rates.
Look at the driver’s license data another way; in 2005, the Bureau of the Census estimates that of all the people 35 and under, 42.8% own their home, while of those who are 55 to 64 years of age, 81.3% own their own home. In the next few years there will be several more million Americans in this higher home ownership bracket.
I do not have the data handy but another interesting trend is the length of time folks are living in their homes. In the old days, Grandma moved in with the family (or the other way around). My Mom is an amazing woman who, like other single women in their 80's, wants to live in her own home. Her children, grand children and great grand children come to visit but Mom does not want to move in with any of them nor does she want to move to an "independent living" facility. She recently added a large bonus room and sun porch on to her home, demonstrating that she plans to be there a while. Her health is good and her ancestors lived long lives. God willing, she may live in her home another 25 years or more.
The bottom line is that there more people than ever before at prime home ownership ages. This reality happens to be true in most developed nations including all of Western Europe. London home prices have been leading all the way up. They were hot as a pistol a few years ago; they cooled down for a couple of years and are now soaring again.
Low interest rates are making home ownership very affordable; especially for all those whose children have flown the coop. Another trend is that many of those who already own a home are helping their children buy. I have heard it said that, the next few years, America will see the largest amount of intergenerational transfers of funds ever.
Harry Dent, the author of "The Next Great Bubble Boom" offers another perspective. He suggests that we are living through "bubble times". The stock market bubble that popped is about to be followed by another bubble; the key being to buy long before the pop. He sees bubbles all over the place. There is a gold bubble, a copper bubble, an oil bubble, a bond bubble and a real estate bubble. The difference in Harry and the Chicken’s little who are squawking loud and long is that he is looking to ride these bubbles for all they are worth.
I still like Ken Fisher's take. He is willing to get on this bucking bronco for a wild and fantastic ride.
P.S. In full disclosure, my wife and I are in the midst of retiring from our resort property rental business. We have 11 ocean front and ocean view condos on the market for sale at Myrtle Beach, SC. We plan to keep an ownership interest in beach property for the enjoyment of our family.
Posted by Jack Miller at 1/02/2006 05:00:00 AM