Tuesday, February 28, 2006


This week in Geneva, Microsoft and Fiat introduce Blue & Me
the first in car Windows system for the automobile. Alfa Romeo and Fiat owners will be able to connect their in-car systems to their phones and other gadgets using Bluetooth. Data will be displayed on a panel controlled by buttons in the steering wheel. Blue&Me enables motorists to use a "push-to-talk" button on the steering wheel to control Bluetooth mobile phones with voice commands, Bak said. The phone conversations are transmitted through the car's stereo system, he said. Blue&Me also includes GPS (global positioning system) navigation and will talk users through driving directions turn by turn.

Additionally, a USB (Universal Serial Bus) port on the dashboard allows a user to connect a media player or storage device for playing music through the car's stereo system.
MSFT $27.05 ( at noon today)
Fiat $10.81 ( at noon today)


Making the biggest investment in Vietnam of any U.S. Company, Intel said it would invest $300m to build a factory in Vietnam to package and test microchips that power PCs and mobile phones. The plant should open at the end of 2007 and is expected to be phase one more additions which will depend on factors such as factory yield and market conditions. The factory, which would employ about 1,200 people, might also test and package a small proportion of chips that go into network devices and consumer electronics. The factory is part of the company's global capital spending budget of over $6billion this year. Intel(INTC) is a stock we have written about many times. Keep an eye on this high tech mover. Intel(INTC) stock opened today at $20.70

January traffic at ABIA up by more than 10 percent - 2006-02-27

Good news all over the place.

Continental increased Austin traffic by 13% in January.

American Airlines to start China service in April with Shanghai-Chicago route - Forbes.com

Marilyn are vacationing at St. Pete's Beach. A few days off is a blessing. The past few months have been a stressful time for us both.

We are in a nice suite with a beautiful view and the weather is wonderful. The high today is forecast at 75 and at 78 tomorrow. We plan to go on a Dolphin watch cruise today. Here, on fat tuesday, we have already had too much to eat before 8 in the morning. We might have slept a little latter but we went to bed early and the sunrise was beautiful; too old to stay out late. Yesterday, we ate at a wonderful historic seafood restaurant. The owner won it and 7 acres of prime oyster beds with a full house tens over aces after he came home from WWII.

The "other enjoyment" is the action in oil and air. Saturday morning, I suggested that the price of crude would fall $5 a barrel this week. in just two days, it is down $2.50. Ample oil supplies should be announced again tomorrow.

Air continues to announce excellent results. AMR has gotten a strong response to its new service from Chicago to Dehli, India. Yesterday, AMR announced service from Shanghai to Chicago (and to the rest of the USA). The lowest priced seats are offered at $372 to Chicago and at $496 to the rest of the US. Each of these flights will produce revenues greater than $200,000. A couple of years ago, it would have been unthinkable to start this new service.

Expect CAL results for February to show strong gains. The company has increased its estimate of quarter-end cash by $100 million. Companies don't just happen to find an extra $100 million lying around. This kind of money comes from increases in revenues, top line growth. Cost cutting has been strong at CAL but a new $100 million must surely come from revenues. The new "extra cash flow" should be cumulative. At some point, the company will start using the extra cash to pay off debt. The payoff of debt will reduce interest costs which should further increase cash flow. A few years ago, I bought Nextel when it had a negative book value but good cash flow. The stock went from $2.90 to $28 lickity split when it started buying up its old low rated bonds at 50 cents on the dollar.

AMR and CAL are each hitting new highs or pushing new highs daily. Not all time highs but 4 year highs. Even LUV is raising fares but for LUV to start new service they generally must compete directly with established flights. AMRis among the airlines that are holding back on orders for new planes. To add sevice, AMR is redeploying assets or using assets more efficently. CAL is expanding capacity, while redeploying sevice to high margin international routes and is also retiring old fuel hogs.

The expansions in capacity world wide have been and are expected to be less than the expansion in demand. Load factors are as high as they have been since before I was born. The St. Pete newspaper published an article a few days ago that said the last time load factors were this high was in 1946 when "It's a Wonderful Life" was just out in the theaters. Very few folks are alive today who remember the "good times" in the airline business. In case you don't know by now, I believe whole heartedly in the generation theory. There was a good reason for Moses to wonder the desert for 40 years.

Ironically, the high price of oil is pushing the further deployment of fiber optic cable. Prices to transmit data have stabalized after years of over capacity induced declines. Verizon and AT&T are showing signs of life and companies like Corning (GLW) are on fire. My Mom owns Corning purchased at $3 per share and more purchased at $21 per share and the stock could easily go back to old highs. My feeble memory is that the old high was $170.

Marilyn and I are planning our move to our "retirement home". It is a two bedroom flat on the fourth floor corner across from Old Salem. It is next door to the new Y and within a short walk to down-town Winston-Salem. Our fuel consumption should decline by half. It was 40 years ago when race riots hit down-town Winston hard. Fourty years ago, my friends and I camped out on Friday night. We woke early to visit the Krispy-Kreme on Stratford Road. The only people there were the cops and the National Guard. They asked what we were doing out because a curfew had been imposed late Friday. We didn't know but the good news was that we were there because the sun had awakened us (we slept in bedrolls without tents). Yes, the point is that the exodus from down town Winston was in full swing 40 years ago and the new down town is under construction now, 40 years later.

Marilyn and I will cut our local fuel consumption by more than half when we move to our new home. However, if we make the trips we hope to make, all the savings will be spent on airfare; I'll write more on this from Alaska this summer.

Most of the oil bulls got on board late. The best buys were made in 1999, the price of crude is down 14% from the highs reached 6 months ago. In two or three years, there will be lots of talk on CNBC about the turn-around in airlines. The best buys were made three years ago but the next three years should be fantastic years for the patient investor; don't be too cautious about getting on board the turn in stock price always leads the turn in earnings!

Big money will be made in other areas. Goodyear Tire is a steal at today's price, Etrade is cranking out stock trades by the milli-second and Corning is enjoying the growth in flat screen sales. Stocks are cheap relative to bonds and relative to real estate; and, real estate is not nearly as expensive as is commonly perceived. The air has been let out of the ballon but the bubble is not anywhere near a pop. Real estate has been going through a correction.

Folks do not expect stocks to go straight up without correcting over-exuberance and neither should real estate investors. There are more 50 year old people in the US today than at any other time in the countries history. There are more echo boomers at the age of 28 than ever before. The prime age for buying a first home is 28 and the prime age for buying a resort home is 52; real estate has only paused for refreshment.

Commodity prices are set up for a substantial drop. The decline will asuage inflation fears, lower long interest rates, lower mortgage rates and lower money market rates. Investors who have been afraid of stocks, bonds and real estate will not sit around to watch trillions of dollars return to 2% rates of return.

A real estate recession is comming but it is still 3 to 6 years away. My family is reducing beach front real estate holdings and adding to stock positions. We may add real estate holdings in "down town" locations.

GO AIR GO! Our AMR is up about 120% in less than 6 months. We are on a Ken Fisher bucking bronco and we are holding on for a fantastic ride. Sorry, to rub it in but it is time to hit the beach.

Friday, February 24, 2006


Dr John Rutledge has some interesting comments on the Dubai Port Deal and drawing captiol investors to America—take a look.

Forbes has listed the top 10 things they predict will change the way we live

Employee Headcounts puts Microsoft at more than 6 times bigger than Yahoo and 11 as big as than Google, at least in terms of employees. Google is growing much faster than Yahoo these days. Over the last two years, Google's average employee growth rate has been 100%, while Yahoo's was at 34%, and Microsoft's was at 10%. If the current growth rates continued, Google would surpass Yahoo's headcount in 2007, and Google would be bigger than Microsoft in 2010

Bloomberg.com reports that health care spending in the US is expected to double by 2015

The Consumer Price Index showed New car prices up 0.6 percent, the biggest rise in a year, while airline fares shot up 1.2 percent, the biggest increase since a 1.5 percent rise last October—we still believe in airline stock. See our Stock of the Week

SOME POSITIVE NEWS: In the Doomsday press, all you read about is the near-$10 trillion in household debts, but have you heard anyone quote the $61 trillion in gross assets, six times the debt totals, resulting in net assets of $51 trillion (61 minus 10). In the 2.5 years since the 2003 tax cut, per capita net worth has increased 16%, and the average household is now 27% better off than in 1998, in the middle of the stock market bubble. And U.S. household wealth has almost doubled since 1995. That's not counting business, which controls an $11 trillion "savings glut" of hoarded cash. Read More

Thursday, February 23, 2006


Kupskey's Stock Pick this week is PAM Transportation Services, (PTSI) a leading truckload dry van carrier transporting general goods throughout the Continental- US, as well as in the providences of Ontario and Quebec.

The trucking business is a very competitive industry. The sharp increase in diesel fuel prices this past fall have many small truckers seeing their profits vanish. However, PAM was successful in a price increase and indications are they have what it takes to weather the tough economical times. Check out this and other Stock Pick's at our Stock of the Week site to see if this or any of our other research lines up with investments you'd like to make

Columns: Brother, can you spare some room?

"It's A Wonderful Life" one of my favorite movies came out in 1946. According to Steve Huettel, writing in the St. Petersburg times, that was the last time airplane load factors were at 77.4%.

As Steve correctly states, the 77.4% number includes late night flights that are done for the primary purpose of positioning planes for the next days service. In other words, planes are flying as full as they ever have before.

Tomorrow morning, CAL will present at the JPM airline conference. I am looking forward to reviewing the conference at Continential's website. It would not take much to push CAL to new intermediate term highs. After that, the sky is the limit.

Yesterday, Bear Sterns upgraded US Airways, LCC, to a buy. The airline is growing traffic and reducing costs at the same time. The President of United has been talking about consolidation. While he believes that merging two airlines is a tough job, the savings are substantial. LCC is proving that to be the case. The company is ahead of projections to lower costs after the merger of American West and US Airways.

It is yet to be determined if DAL and NWAC can make it out of bankruptcy. Liquidations or mergers are possibilities.

There has been a lot of press about aircraft sales. India, China and other developing nations are buying most of the new planes. We are in a strong growth cycle. It will take several years for capacity to catch up with demand.

If you want to fly, you should book early and expect to be on a full plane. You should expect fares to rise substantially over the next three years.

CAL continues to win awards for being the best business class airline. The CAL check-in Kiosk are speeding customers through like never before. Customers can view the layout of the plane and change seats when there are empties available. Technology is lowering costs and improving service.

Inflation hawks such as Barry Ritholz just do not get it. They look at the price of gas and assume inflation is horrible. They don't appreciate all the many ways that costs are disappearing. It is easy to whine that the Kiosk eliminates jobs, but, we know, the savings will be recycled to produce other jobs in other areas. The lower costs will show up as greater margins for the airlines initially but eventually in lower ticket prices to the consumer.

>Ticket prices will not go down anytime soon because demand growth is faster than supply growth. Business travel demand is incredible. Never before have so many business folks traveled to as many countries. Direct flights from Chicago to India or China have become routine. The price of a first class seat is huge but relatively small to the trade deals being made.

The aggressive investor who puts a significant portion of his portfolio in legacy airline stocks just may hit a grand slam home run again and again over the next few years. Investors should note that legacy carriers are highly leveraged. The risk include the possibility of a terrorist attack. While the reality is that airline travel is unusually safe, the slightest hint of trouble could send the stocks on a roller coaster ride. It appears that the next move might be almost straight up!

Tuesday, February 21, 2006


A paradigm shift is underway. It is incredible.

For the past 7 years or so, my wife and I operated a small computer network in our office. We had one server and 5 desk-top computers. We never learned how to use one hundredth of the computing power we owned.

When I bought my first computer in the 1970's, I soon had the hope, that one day, operating a computer would be like most of us operate a car. We get in and drive. Most drivers do not need to know how to change the oil or how to tune the engine.

Unfortunately, the small business operator for the past many years has needed to know too much about operating computers. Good news is on the way.

Google is one of the leaders in the new paradigm. Google now offers domain name services to businesses and other groups. One of the first to use the service is a college with 10,000 students. It will be interesting to see where this leads. The possibilities are unknown. The starting point is that Google is providing and maintaining servers for these groups. A company like Google can keep our viruses, reduce spam and develop specialized computing services better than a small company or other organization.

For many years, I have looked forward to the day when my church members are truly connected through the internet. Good things will happen as the ability to easily communicate and share information expands.

The news is great news for efficiency and productivity and for continued low interest rates. Capital spending will be lower than it would otherwise be in the short run. In the long run, standards of living will continue to rise and relative wealth will be spread around the world.

While the story sounds polyanish, it is a great and true story. We live in exciting times. Freedom is spreading. Governments are still oppressive but, in general, learning to be less so. Even the Chinese are gaining access to more and more information by the day.

During a recent bible study session, it was interesting to note the attitude shift that is occurring. Parents are learning to allow their children to learn via the internet. The cartoon "For Better or Worse" ran a series that shows the maturity level of teenagers who have been exposed to life via the internet.

My youngest daughter learned to read and write on the computer. She has abilities that her Mom and I will never have. My oldest daughter teaches school children how to use the computer, a class that didn't exist when I was in school. The world is changing. The change has the power of that brought on by the Gutenberg press. A new age of knowledge and productivity is at hand. I urge you to embrace the new technologies, learn how to use them and enjoy the benefits.

Oil Discovery in Australia


It took 8 days for Avery Resources to drill a wildcat well in the Cooper Basin in Australia. The well tested at 1,814 barrels per day. The company will drill at least 8 more wells in the area.

Drop by drop, oil is being found. With active rigs at levels not seen a decade, oil is going to continue to be found. Demand is going to continue to grow because China, India and other developing countries are growing. The strong demand demonstrates strong economic growth around the world.

The great news is that this growth is happening in the midst of a productivity boom. Therefore the growth is occurring during a period of relatively modest inflation.

Those who are overly concerned about inflation are often in the camp that oil is going to $100 per barrel soon. I don't see it because demand is seriously curtailed as the price rises and because the rate of substitution is gathering speed.

The law of substitution is at work all around the world. Brazil is running its cars off ethanol and Canada is digging more tar sands than ever before. Ford and GM will produce more than 600,000 ethanol ready cars this year. I am not an ethanol enthusiast at current oil prices except to the extent that more and more waste products can be converted to ethanol. For example, I don't believe in growing corn to produce ethanol but I do believe in taking the left over corn stalks from a dairy farm and converting them.

Coal to gas will be a major contributor to our energy needs as will new nuclear plants. It will take time for major investments to yield results. In the meantime, drop by drop, oil is being discovered around the globe. The discovery of new supplies will help hold the line until substitutes come on line.

Investors should be cautious about jumping on the latest fad. Solar panels and wind mills are romantic but not realistic. They will help in certain situations but are not yet efficient at large enough scale to make a real difference.

My wife and I are making plans to "down size". Our new home will downtown. We will be within a short walk to the bank, the Y, the movie theater, the restaurant, etc. Our drives to church to visit our children and to many other places will be cut in half or more. The law of substitution is alive and well. Investors have generally already bid up the price of energy related issues. To make serious money, your odds are better elsewhere.

US Airways Group, Inc. Reports Fourth Quarter and Full Year 2005 Results

The take away from the fourth quarter US Airway results was that Revenue per Available Seat Miles went up at an annualized rate of 17.5%!

The IATA projects that world wide airline traffic will grow faster than world wide economic growth for the next two years. Hold onto your hat and hold onto your CAL, AMR LCC.

Saturday, February 18, 2006


American Airlines recently added flights from Chicago to Delhi, India. It is not the only airline clamoring to get a piece of the sharp increase in demand. After years of retiring old equipment and cutting back on capacity, the airline industry suddenly does not have enough planes.

Boeing, AirBus and others are cranking up production lines but it will take years to satisfy the new international business travel demand. American companies among others suddenly have thousands of employees in India. The reasons to travel to India are growing while domestic travel within the country is booming. China is enjoying the same phenomenal growth.

I do not own Boeing and do not plan to buy shares. I think the stock will continue to do very well but I think the real leverage is in the legacy carriers. My favorite is Continental,(CAL), but American Airlines,(AMR), will do very well indeed.

The amazing thing about the Delhi flight from Chicago is that American Airlines,(AMR) was able to add it without adding a plane. The company, with the cooperation of the unions, was able to turn flights to and from London faster in order to squeeze one more flight into the mix.

Other examples of increased efficientcy abound. My favorite is that by eliminating one of the galleys, American , was able to add 4 seats per plane. It may sound like a small savings but multiply the number of flights per plane by the total number of planes and you get the equivalent of 10 extra planes flying; ten extra planes of revenue with no additional costs. Actually, if you add in the savings from not serving food on short flights, you have ten extra planes of revenue at a substantially reduced cost.

Note that international travel is the story. Southwest Airlines still has a market cap that is many times the market cap of AMR while the revenues of (AMR), far exceed the revenues of Southwest. This is an easy story! If you own LUV sell it! If you don't own CAL and AMR, buy them.

In full disclosure, my family owns CAL, AMR and LCC.


Air Canada reports record system load factors for January 2006


Back on February 7, 2006, Air Canada reported a 7.7% increase in traffic and a system load factor of 78.1%. "The mainline carrier flew 2.7% more revenue passenger miles in January". The load factor was the highest in history in the month of January.

Folks, there is a simple concept that you need to make sure you understand. When a business with high operating leverage experiences high demand for its product, it is able to sell more product at higher prices and the profit margins expand exponentially. The math is very simple.

Which would you prefer: for 500 people to owe you an average of $300 or for 530 people to owe you an average or $500. The first group would owe you $150,000 and the second group would owe you $265,000. Multiply these numbers by 300 planes flying almost 3 trips per day and the revenue difference is 103 Million Dollars per day.

Clearly my numbers are just examples drawn out of the air. The increase from $300 to $500 does not happen overnight. However, prices of seats do increase sharply when demand is very high.

My CPA friend, Lamar Jones, has been playing an interesting game. He regularly goes on-line to book a flight or two just to see if it is available and to see the price. He has found that airline seats are getting harder to find even at higher prices. A couple of weeks ago, I viewed a research report from JP Morgan that showed overall transportation prices rising annually at better than 12%. Airline seat prices are more volatile than freight prices at railroads. Railroads are doing well. My family has enjoyed nice runs in Norfolk Southern and in CSX railroads but nothing like the runs in AMR and CAL.

The airline shares we purchased about 6 months ago for around $9 are now selling for around $22. It ain't over yet!

Standard and Poors reports that airlines trade at 20 times earnings or more when they are in "good times". S&P estimates that CAL.
will earn $1.75 per share in 2006 and will trade for $37 per share, about 21 times earnings.

A lot of traders use oil prices as the excuse to not buy airline stocks; not a smart position to take. While I hope and expect oil prices to continue to moderate (just last week significant oil discoveries were made in Libya and in Angola), high prices could be exactly what AMR and CAL.
need. High oil prices could aid and abet the liquidation of NWAC or DAL. CAL.
and AMR would pick up market share should either of these carriers liquidate. Since CAL.
code shares with NWAC, it would be easy for them to service many of the routes available.

I am not routing for liquidation. It is an economic reality that labor prices are inelastic on the way down. It is really hard for anyone to accept a wage cut. In the days of heavy regulation of airlines, non-rational wages and rules crept into the system. The same thing happened in the rail road business. It has been a gut wrenching process to rationalize these industries. The unions at NWAC and DAL face a difficult choice, they must help these carriers lower their operating costs by taking pay cuts and accepting new work rules or they must join the ranks of the unemployed.

I think DAL and NWAC will survive bankruptcy. I think they will emerge as slightly smaller carriers but would not be surprised if there is not additional consolidation in the industry.

This situation drips with irony. At a time when airlines are flying the most full planes ever before in history, several carriers are fighting for survival. Worldwide, business travel, the real money maker for airlines, is at the highest level in history. The rates on first class and business class seats are soaring. Serious money is about to be made in the airline business.

A few years back, when I purchased Nextel shares (now merged with Sprint) I had to explain again and again that the negative book value of the company was not a problem. The stock went up about ten times in value in about 3 years. It was a glorious Ken Fisher bucking bronco ride. CAL.
is a similar situation. The company had a negative tangible book value last year and was bleeding cash. At current fuel prices, I believe it will have operating profits of better than $3 per share. Cash flow will be significantly larger than debt servicing needs.

NXTL surprised a lot of folks when it started buying up debentures at around 50 cents on the dollar. CAL.
should be able to achieve significant interest savings by 2007 while enjoying revenue growth of 25% or more (S&P forecasts 2006 passenger revenue growth of 22% but I think they are about to miss on the low side).

My family owns a nice chunk of CAL.
. We also own AMR and LCC. The extra good news is that 27% of the CAL.
shares available have been sold short. While I must admit that there likely a number of arbitrages going on, eventually those who are short the stock will need to cover.

I mentioned that labor prices is inelastic on the way down. I have rightfully implied that seat prices are elastic on the way up. Wait until you see the shorts all trying to cover to see real elasticity of demand. I hope my assistant will post a chart of CAL.
from 1995 to 1996 so you can see what can happen when the airlines turn.

In the business world, anything can happen. KLM reported great traffic growth the other day and the stock went down. The growth in demand will eventually be over taken by the growth in capacity. Boeing just set record airline sales. In about three years, Boeing will be pushing many new planes out the doors. At that time, CNBC will be reporting daily about the growth in traffic and the turn-around in the airline business. Buy your shares now and you will be ready to enjoy all five years of the bucking bronco ride, not just the last two when CNBC and others are hyping the industry.

Thursday, February 16, 2006


Today we decided to cut our losses on two Stock of the Week stocks and invest the proceeds into Ford Motor Company(F)
Sunrise Assisted Living Centers (SRZ) has been dragging the Stock of the Week portfolio down for months now. Today when we sold it at -26.94 , we cut our losses.
Additionally, we sold Dierdich Coffee (DDRX) which was down 13% to put our Stock of the Week portfolio in a positive position. With a loss of $1600, we took the proceeds of the sale on both stocks to add 757 shares of Ford Motor Company(F) to the portfolio. We bought Ford (F) at 8.44 and hope to watch it ride!


Current Value of the SOW Portfolio:
Simple Return: 45.03%
S & P 500 Value : $134,536
Simple Return:5.59%
Treasury Bond Value : $125,260
Simple Return: -2.11%

As we have been writing for the last two years, Individual Stocks are the place to be. Stocks continue to outperform equal investments in the S & P 500 and the Treasury Bond index Be sure to check out other Stock of the Week picks to see if any are right for you. We bought Air Methods (AIRM) in November at $13.99 and today it posted at $24.20--a 72% return in just 4 months. Another great performer for us beside the airline stocks have been US Gypsum (USG) up 160% since last April and (JCTFC) Jewett Cameron up 51% since last July

Past performance does not guarantee future performance. We make no recommendations! But share out of our own personal interest.


This week Kupsky has chosen to research Bunge (BG) for our stock of the week. Bungeis a global agri-business and food company with operations that encompasses the world. They make their profits by producing and selling fertilizer to farmers; buying, handling and selling oilseeds and grains and soybean byproducts. After adding Bunge to our stock of the weekportfolio total returns were showing and investment increase of 45%. Be sure to see if any of our stock .stock picks are right for you.

Tuesday, February 14, 2006


Airline Predictions
The Airline Bulletin notes some of the more positive trends expected in the industry during 2006: including at least two airlines, : United Airlines, and Aloha Airlines, who plan to exit bankruptcy sometime early in 2006.. Airline statistics showed strength for most carriers during the typically slow month of January. Additionally, load factors are up with higher yields on the horizon.

Retail Sales Post Strong January Gains
Consumer spending put January spending at 6 year highs The overall increase was more than double what economists had been forecasting. The market awaits the new Federal Reserve Chairman Ben Bernanke, delivery of his first report to Congress tomorrow.

Eddy Elfenbein of Crossing Wall Street comments that Capital One (COF) is an incredibly profitable stock Capital One uses a combination of heavy mass marketing and forecasts earnings this year of $7.40 to $7.80 a share, which translates to growth of 10% to 16%. It also means that Capital Oneis going for 11.0 to 11.6 times this year’s earnings.

Analysts have INTC is the most undervalued Dow stock, with a price target nearly 30% above its current price

2 Billion by 2011
Computer Almanac reports The worldwide number of Internet users surpassed 1 billion in 2005—up from only 45M in 1995 and 420M in 2000. The 2 billion Internet users milestone is expected in 2011. Much future Internet user growth is expected to come from China, India, Brazil, Russia and Indonesia. Additionally Smartphone and mobile device Internet usage will supplement PC use.


NBC will pay the International Olympic Committee $613 million for the U.S. broadcasting rights for these Games. NBC will spend another $100 million in production. Then add on the cost of entertaining clients, throwing lavish parties, and buying Grappa for everyone in sight and it all adds up to $750 million--

Starbucks is targeting China as its number 1 growth market. At $6 a cup, Starbucks coffee will cost the average Chinese laborer more than they make in one day.

Thursday, February 02, 2006


According to numbers supplied by James L. Williams, Energy economist, the US is completing oil wells at an ever more rapid pace. For example, in November of 2005, the US completed 927 oil wells versus 639 completions in November of 2004.

There are two reasons so many wells are being finished. The first is that there are more rigs drilling. The world wide rig count is up about 200% in the past 6 years. Even the Saudi's have doubled their rig count. The second reason is that technology has reduced the number of dry holes.

In the US in November of 2005, we produced 458 dry holes and in November of 2004 we produced 389 dry holes. The total number is higher but as a percentage of producing wells the number is lower.

Horizontal drilling is a part of the new technology that reduces the total costs of drilling. When a deep hole has already been drilled, it requires less work to drill sideways to the next pocket of oil.

There is much more good news for the oil consumer. US refineries are producing more gas this year than in the past two years at the same time of year. Total available supplies are building. Crude oil supplies now sit at 11% higher than the five year average at this time of year.

Weather forecasters predict that cold weather is on the way. January was unusually warm. The Iran situation is still a risk. However, the weather effects will be temporary and Iran cannot afford to not sell oil. The country needs money.

Exxon and other oil patch companies are enjoying record earnings but please remember that cyclical stocks move up and down based on future increases or decreases in earnings. It is becoming more and more difficult for oil companies to grow earnings as the current price is promoting the substitution of alternative fuels.

That last sentence does not imply that one should run out now to invest in alternative fuel production. These firms have the same problem as the oil companies; they cannot grow earnings rapidly if demand dies at higher prices.

Watch the data closely in the next few weeks. I believe you will see that growing supplies in storage will exert downward pressure on oil prices. Natural gas is finally trading back in line with distillates. The weird prices are getting back to normal. I believe the next move is down to the $55 range before the end of spring.

Wednesday, February 01, 2006

Doing the Google Gulp

Over the past few weeks, I sold several hundred shares of Google. I did not forecast the big drop yesterday but in a few aggressive accounts I simply traded out of the Google in order to invest more in faster moving stocks. After yesterday's big decline, I will probably be doing the Google Gulp again today.

With Google's VOIP service almost ready for prime time and with the expected growth in TV and Music, it does not seem to be a hard swallow after a 12% decline in price. We will have to see how the stock opens, but at one point in after market trading the stock was off $80 per share.

I hope no one is upset that I did not write about the Google sells. Marilyn and I have been very busy for the past few weeks so my blogging time was reduced. Besides, I offer to help manage accounts at no charge. Knowing that I have studied investments for 43 years (my Dad taught me much of what I know when I was 12 to 15 years old), several folks allow me to help them manage accounts.

I have not taken the time to calculate the results from 2005 but several of the accounts I manage did spectacularly well. I am very optimistic about 2006. The big problem is that the markets are very segmented. I was looking at the list of new highs the other day and most of the stocks were not common names. This market is one where you make a lot if you are in the right stocks, lose a lot if you are in the wrong stocks and have mediocre performance if you are broadly diversified.

Yahoo, Google and Ebay are all well off their highs. These companies will grow their way to higher highs. With prices down, it should be a good time to add shares.

22 Million Barrels

Another 22 million barrels of oil was found in Siberia. Drop by drop, oil is being discovered.

Imperial Energy, said the find is significant because it shows there is much more oil in the area.

There are many more large pockets of oil to be found. Saudi Arabia continues to expand the number of drilling rigs in operation. In three years, the Saudi's have increased the big rigs from 200 to 400 and are adding more. The Saudi's expect to increase production by 50% in just a few years.

Last night, President Bush proposed a 22% increase in spending on research and development of alternative energy. In my experience, once the economies of the world are aware of a way to make or save billions of dollars, the solutions are just a matter of time.

Today, UAL comes out of bankruptcy. I do not like the management at UAL relative to the management at AMR and CAL. At the present moment, I plan to take a good look at the opening price of the new stock but I will most likely continue to add to CAL or AMR.

UAL made many serious cost cuts while in bankruptcy. However, their costs per seat mile are still in line with AMR and CAL which made the cuts without having to spend the shareholders money on bankruptcy fees (enormous fees).

Oil is being discovered, airlines are flying with more seats full than ever before, non fuel costs have been cut and fares are rising. I expect three great years for the airline business. CAL and AMR could very possibly zoom from around $21 to around $84 in three years.

Investors should be mindful that the huge leverage cuts both ways. With mountains of debt, the airlines are not "over the hump". However, the upside is also huge. Patient investors should do well by buying and holding the major international carriers for the next three or more years.