Saturday, May 31, 2008

Trumps the Tally

What's wrong with depending on the collective wisdom of the analysts who follow stocks day in and day out? If the majority of analysts say buy, shouldn't you buy? And when most say sell, shouldn't you sell (if you already hold the stock)... or at least not buy? If anybody knows whether a stock is good or not, they should, right?

All this makes so much sense. And it would be so easy to do. Which is why I hate to throw the idea to the dogs. But that's what it fully deserves. And I'll tell you why.

Analysts are incredibly biased. When they see a cup half-empty, they're known to shout "buy." Okay, that's forgivable. But not when they see a cup two-thirds empty. The frightful fact is this. About 40 percent of stocks go down in any given year. And the percentage of stocks that have "sells"? Only five percent. As recently as the 90s, it was two percent.

That means a lot of stocks go down with either a "hold" or "buy" rating.

There's a way for you to get around all the smoke and mirrors. Look at the trend, not at the tally. Are analysts liking a company more or less? If it's more, the company is worth a second look. Because as analysts improve their ratings from sell to hold or from hold to buy, they bring more buyers into the fold. And as investors do more buying, the share price goes up. As an investor, that's what you want to see.

The Reuters financial site shows how analysts have changed their opinion on specific stocks during the past year. You can find this information under "recommendations."

Thursday, May 29, 2008

Demand Continues To Soar!

Anyone who tells you Asia's economic growth is slowing has been smoking something.

Why do I mention Asia? Because it happens to be ground zero for the demand side of the bull market in natural resources. There is simply NO WAY anyone can even come close to forecasting the boom without understanding Asia.

Some recent facts...

China's 2008 copper demand will increase by as much as 15%, while India's will jump nearly 10%.

Asian demand for food is growing faster than Asian economies' GDP, and is expected to jump as much as 50% by 2020.

Oil demand in China for the first quarter of this year shot up a whopping 8%!
And as strong as all that demand emanating from Asia is, it is not the only place with strong demand for natural resources.

Wednesday, May 28, 2008

If you are a chart follower .

Then you'll have good reason to believe that the Dow Jones may move higher in the weeks ahead.

After the 676-point sell off last week, the Dow now looks oversold. The last two times this year that the Dow was this oversold, it went on to rally over 1,000 points. But beware, the economy is weak.

Any bad news could kill the rally before it gets underway. So pay attention to your stops.

Tuesday, May 27, 2008

China Stocks Rebounding!

Right here in the U.S., despite the Fed's eight consecutive interest rate cuts ...

Consumer confidence has plunged to a 28-year low ...

Inflation expectations have soared to the highest level since 1982, and ...

Housing starts have cratered to the lowest level in 17 years.
Nor is the U.S. economy an easy fix. We have the massive burden of $49 trillion in credit market debt, according to the Federal Reserve Board. We have $50 trillion in contingency debts of the U.S. Federal Government, according to the Government Accountability Office. And we also have $164 trillion in derivatives, according to the Comptroller of the Currency.

Monday, May 26, 2008

Be on Top of Everything

As you get busier, you want to get better too. In particular, you want to:

Be prepared for all the meetings you go to.

Meet all your deadlines.

Answer all the questions you've agreed to answer.

Friday, May 23, 2008

Unhealthy Investments Are Best

What trumps a stalled economy? Demographics. And what are the two biggest demographic trends today?

1. Globally, it's the rapid growth of a middle class in countries like India, China, and Brazil. They want what we already have: a nice car and house, modern appliances, and good education and health care for their children.

2. Domestically, it's back to the future. Boomers still rule. And they're getting old. Hospitals, long-term-care facilities, vaccines, and meds of all kinds will see greater demand.

What these two trends have in common is health care. Globally and domestically, it's set to grow - even if the economy isn't.

Higher long-term interest rates:

I don't know if you've been shopping for a mortgage recently, or if you've been following the price action in long-term bonds. If you have been, you've probably noticed something: Long-term rates haven't been falling along with the Fed cuts. They've been rising. And naturally, since bond prices move in the opposite direction of interest rates, bond prices have generally been declining.

U.S. long bond futures topped out at around 121 earlier this year. They're going for 116 and change now. Thirty-year fixed mortgage rates bottomed out at 5.48% in mid-January, according to Freddie Mac. They were recently up to 6.01%.

And what about all those Fed rate cuts? Have they helped? Well, a 30-year fixed loan went for 6.38% in September when the Fed started slashing the funds rates willy-nilly. So that means 325 basis points of Fed cuts have bought you essentially 37 basis points in long-term, fixed rate mortgage relief.

Thursday, May 22, 2008

Dow Double Top

The Dow reversed sharply below support at 12750,

completing a small double top and warning of a bull trap -

and a test of 11750.

Wednesday, May 21, 2008

They're Giving Away Resource Stocks

Canadian resource exploration stocks. These small cap companies are notoriously volatile. They aren't quite free these days but they are ridiculously cheap.

Why exactly has this happened? Especially when commodity prices are soaring pretty much across the board. Aren't the explorers supposed to show leverage to the underlying resource prices to which they seek?

History demonstrates typical long term leverage with exploration stocks. If gold goes up 20% you can reasonably expect the gold shares to perform at a multiple of that figure. At the present times the "juniors" aren't even keeping up with rising commodity prices.

The ongoing global credit crunch is a primary reason for this disparity. The appetite for speculation has waned. Global players have sold off winning positions in order to create liquidity. Some suggest that hedge funds may be shorting the explorers. Whatever the reasons are, the anomaly won't persist indefinitely.

Either commodity prices must fall or junior miners must rise and close the gap. I don't see commodity prices falling significantly from present levels. They stand as protection against currency debasement which happens to be a growth industry these days. The US dollar remains at the epicenter.

Tuesday, May 20, 2008

Red Herring in History!

While the world's been stock watching (and losing!), the elite quietly play a different game with different rules...

Feeling cheated and disillusioned by the stock market? Sure, you may have made a good trade here... but then lost on another. The people dutifully pour their hard-earned cash into investment banks to put into the stock market for them... and those investment banks gladly oblige, for a fat fee... which they invest somewhere else! I'm no conspiracy theorist, but in my opinion the stock market is really a diversion for the masses... a distraction from where the BIG and consistent money is made... in the world's money mountain. And when I say "Money Mountain," I speak quite literally... the BIGGEST mountain of money on the planet.


Monday, May 19, 2008

Lehman Brothers will begin long-anticipated layoffs early next week, CNBC has learned, on the way to roughly a 5 percent cut to its ...

... 28,000-strong workforce.

The layoffs of about 1,400 workers-which come in addition to a previously announced 5 percent cut-are part of an initiative by Lehman Chief Executive Officer Dick Fuld to remake the firm into a smaller, more nimble, and less leveraged outfit, following the implosion of Bear Stearns .

One source has told CNBC the latest round of cuts will begin Monday.

Bear Stearns' leverage-particularly its massive borrowing of money from hedge funds to finance operations through so-called "repo trades"-has been cited as a primary cause of its implosion in March.

As rumors spread alleging that Bear Stearns had liquidity problems, those same hedge funds stopped lending money to the firm and, moreover, began shorting its stock until current Bear Stearns CEO Alan Schwartz went to the Federal Reserve and JPMorgan Chase for emergency funding.

JPMorgan offered to buy Bear for $2 a share. Though the final price tag eventually rose to $10, the bargain-basement sale sent shudders through Wall Street-and Lehman in particular-as the firm became the target of many of the same hedge funds that had shorted Bear Stearns.

Fuld, one of the toughest CEOs on Wall Street, went on the attack: First, he alleged to the Securities and Exchange Commission that he had evidence that hedge funds colluded to short Lehman into oblivion the moment the Bear Stearns deal was complete.

He then went to work on Lehman's balance sheet, putting in place the layoffs that will begin next week. He also embarked on a massive deleveraging of Lehman.

At the time of the Bear implosion, Lehman was leveraged 20-to-1-meaning 20 borrowed dollars for every dollar in capital available to the firm. Bear Stearns, by contrast, was leveraged about 40-to-1. According to people close to the company, Lehman is now leveraged between 12-to-1 and 14-to-1.

Saturday, May 17, 2008

Dow Jones Industrial Average

The Dow is rising on unusually low volumes, respecting support at 12800 before again testing resistance at 13000.

Higher volume on days with longish tails indicates buying support and we are likely to see a continuation of the up-trend.

The signal is confirmed by the S&P 500.

Friday, May 16, 2008

Firefighting Robot

Only you can prevent forest fires. But in the near future, there could be a better way to fight them. German researchers have designed a dog-sized, insect-shaped robot that can operate independently to fight forest fires. It's equipped with water tanks, fireproof armor, fire-dousing chemicals, GPS, heat sensors, and other high-tech gizmos. The robot's six legs - it has no wheels - give it stability.

There are no current plans to roll out the design for widespread use. But firefighters and fire experts around the world are investigating ways they can apply this new technology.

Thursday, May 15, 2008


WASHINGTON -- The Senate, jittery about a political backlash over the rising price of gasoline, voted by a veto-proof majority today to halt deliveries to the Strategic Petroleum Reserve over President Bush's objections.

The House is expected to follow suit later [Tuesday].

The action, supported by the Democratic and Republican presidential candidates, comes as high fuel costs have contributed to the nation's economic woes and become a hot issue on the campaign trail. It could be the only legislation that Congress passes this year in response to public angst at the fuel pump because of the parties' differences over energy issues.

The Senate measure passed 97 to 1, with Sens. Barack Obama of Illinois and Hillary Rodham Clinton of New York breaking off from their campaigns to return to the Capitol to vote for the measure. Sen. John McCain of Arizona, the presumptive GOP presidential nominee, supported the measure but was absent for the vote, continuing his campaigning in the Pacific Northwest.

"Why on earth should we be putting oil underground at a time of record high prices?" Sen. Byron Dorgan (D-N.D.), the measure's chief sponsor, argued.

-Los Angeles Times

Wednesday, May 14, 2008

Chrysler's Gas Price Gimmick

Chrysler is offering new customers who buy a Chrysler, Dodge or Jeep a fuel card that will lock their gas price at $2.99 a gallon for three years, in lieu of a standard rebate. For some models, there is a gas card AND a rebate - $3,000 back on the Chrysler PT Cruiser, Dodge Charger, Jeep Grand Cherokee, Dodge Dakota and Dodge Ram. What do all these vehicles have in common? They all suck ... gas!

First of all, how desperate must Chrysler be to try this ploy? Pretty desperate - its sales dropped 23% in April and Chrysler cars get the lowest average mileage of any of the major automakers. Chrysler only has one compact car in its fleet and it makes no subcompact cars.

Tuesday, May 13, 2008

The two surefire ways to make money...

... off boomers is now down to one. But that one way looks stronger than ever - and if you haven't invested accordingly, you should do it now.

Boomers had been a sure bet to spend their retirement years visiting either far-off places or nearby hospitals. Travel and health care companies were drooling over the thought.

But for travel agencies, hotels, and resorts, a thought is all it'll ever be.

Boomers are feeling the pinch along with the rest of the population. Consumer loan defaults are approaching levels not seen since the 1991 recession. And mortgage defaults are surging. Hopes of retiring with a nice little nest egg are fading along with the economy. That leaves health care...

The number of people being admitted to hospitals is expected to skyrocket from 8.2 million in 2004 to 22.9 million by 2030. Boomers begin reaching the ripe old age of 65 in 2011. And hospitals of all stripes - general, community, specialty, acute-care, ambulatory surgery, etc. - can't gear up fast enough.

How to invest? There are 12 real estate investment trusts (REITs) that specialize in developing and/or owning medical properties. They're much less risky than picking a pharma you think might have the next blockbuster pill.

Look for REITs with the lowest price-to-earnings (P/E) ratios. To find more information on these companies, go to the U.S. REIT website ( and type "health care REIT" in the search window. Plenty of useful links will pop up for your browsing pleasure.

Monday, May 12, 2008


The Federal Reserve bears much of the responsibility for keeping the nation's economy on track but few Americans are fully convinced that the central bank can improve the country's financial situation.

A national CNN/Opinion Research Corp. poll released Wednesday found that only 8% of respondents are "very confident" that the Fed can stimulate the country's shaky economy.

A full 17% of those surveyed said they were "not confident at all" and 34% were "not very confident," according to the poll.

The remaining 41% of respondents were only "somewhat confident" in the Fed abilities.

The poll results came from interviews with 1,008 adult Americans conducted by telephone from April 28 to April 30. The margin of sampling error for results based on the total sample is plus or minus 3 percentage points.

The Fed has dramatically lowered its federal funds rate, the key overnight rate at which banks loan money to one another, in an effort to stimulate the economy and avoid a recession.

Last month, the central bank lowered the fed funds rate to 2%. It had been as high as 5.25% as recently as September.

But the downside of lower interest rates is often higher inflation and the Fed has a duty to both maintain economic stability while controlling inflation.

In its most recent statement, the central bank signaled that it may cease interest rate cuts for a while as concerns about rising inflation has become more prevalent.

Saturday, May 10, 2008

GAAP Accounting

During the past 25 years or so Social Security has piled up a huge surplus. as it was supposed to do.

But, everyone who sat in the White House during those years have proposed federal budgets that stole from the surplus in order to hide the real size of the current federal budget deficit. These slick moves allowed those presidents - and their pals in Congress that approve the budgets - to spend more and justify tax cuts for the wealthy.

The US Office of Management and Budget says that between 2002 and 2006 while the US government's reported deficit averaged about $300 billion a year - about $4,000 per household - the real deficit was actually more than 50% larger.

The government shrunk that deficit with some chicanery by reaching under the table to borrow about $165 billion a year from the Social Security Trust Fund.

In 2007, the real deficit was $449 billion, according to the OMB. However, the "official" widely reported deficit was only $257 billion.

That's because it's government policy to add the borrowed Social Security Trust Fund surplus ($192 billion in 2007) to revenues before calculating the "official" deficit that has to be borrowed publicly.

And here's a bee-ute. US leaders in Washington claim that the recently passed $160-billion economic stimulus package will only raise the 2008 official deficit to about $400 billion. Add in the annual theft from the Social Security Trust Fund and the real deficit in 2008 will be about $600 billion.

Thursday, May 8, 2008

The Fed is GOOD for Gold!

If the Fed is successful at turning the U.S. economy and credit crisis around, it will only be because it flooded the system with hundreds of billions of paper dollars, creating wild inflation.

If the economy were to pick up on top of that, between inflation and resumed economic growth, global demand for gold would soar.

Of course, the media mavens would then argue that when the economy turns back up, the Fed will jump in with both feet to head off inflation by aggressively raising interest rates, choking off the bull market in gold.

That's also hogwash. In fact, look at the recent record. From late 2004 to mid-2006, the Fed raised interest rates 17 times, in steady quarter-point increments to 5.25% from a low of 1%. And over that period, gold surged 127%!

Look at it this way: Even with the U.S. economy in a bad funk - gold demand hit a record $79 billion in 2007.

Most of the increased demand - no surprise here - came from Asia and the Middle East. Demand from No. 1 gold customer India rose 7%.

Wednesday, May 7, 2008

Bring Back 55-Mile-Per-Hour Speed Limits.

America has amnesia. That's the only explanation for why our elected leaders don't know how to deal with an energy crisis. After all, we've had one before. And how did we solve it? One part of the solution was driving 55 mph.

The 55-mph speed limit was repealed in 1995. With apologies to Sammy Hagar and his song, "I Can't Drive 55," we all have to start driving at slower speeds again.

The average driver uses 22.8 barrels of oil per year. Driving at 55 mph, depending on what speed you have been driving previously, could increase your fuel efficiency anywhere from 7% to 21%. For every mile per hour faster than 55 mph you go, fuel economy drops by about 1%.

According to, you can assume that each 5 mph you drive over 60 mph is like paying an additional 20 cents per gallon for gas. In other words, if you're paying $3.60 per gallon gasoline, and you drive 80 mph, you're actually paying $4.40 per gallon.

Driving at slower speeds, along with other tips I talked about last week including regular maintenance for your car and keeping your tires properly inflated, could - and should - be our first attack against higher oil and gas prices.

Tuesday, May 6, 2008

It's not the bottom number that counts .

Only 20,000 jobs lost? We're skeptical.

We think the damage was much worse. But it's interesting to see where the pockets of job strength are: education & health services, government, leisure & hospitality, and mining.

Of these, we favor health, government (especially companies selling to defense) and mining.

These sectors continue to "swim upstream" while the rest of the economy tanks.

Monday, May 5, 2008

Companies that went from good to great have the following 7 traits

1. They had quiet, self-effacing leaders. People who had a "paradoxical blend" of humility and professional will. They were more like Lincoln and Socrates, Collins argued, than Patton or Caesar.

2. These leaders placed the highest priority on surrounding themselves with great people. Rather than focus on vision or strategy, they spent most of their time trying to "put the right people on the bus and get the wrong people off the bus."

3. They embraced the "Stockdale paradox" - that you must accept and confront the worst facts of your situation while maintaining an unwavering faith that you can overcome them.

4. They found something they could do better than any other company in the world. Even if it meant abandoning their core concept and moving on to something else, they maintained that lofty standard.

5. They developed a corporate culture where employees were so committed to the company's core values that disciplinary rules were not necessary.

6. They used technology to support their core values, not as the driving force of the business.

7. The process they used to make improvements was incremental, not revolutionary. It resembled "relentlessly pushing a giant heavy flywheel in one direction, turn upon turn, building momentum until a point of breakthrough and beyond."

Saturday, May 3, 2008

Dow Jones Industrial Average

The Dow closed above 13000, confirming the breakout, after a short retracement respected the new support level at 12800 - signaling buying pressure. Money Flow holding above zero confirms the buying pressure signal. Reversal below 12800 is now unlikely and would warn of another test of 12000/11750.

Friday, May 2, 2008

Sadia's (SDA) chart.

Sadia just hit a new high this week! Not only did it hit a new high, it did so by rallying nearly seven percent! As Tony the Tiger would say 'That's GRRRRRREAT!'.

When you see a company break through resistance and hit a new high, it's usually a good sign that the company will keep moving higher.

Sadia is a particularly strong company. You can find their products and meats in the freezer isle in rapidly growing Brazil. Considering that Brazil is growing by over seven percent and food prices are doubling almost every year, this company should easily see huge profit growth in the future.

While I'm not excited about their margins, they do seem average for the industry. Yet their return on equity is 25%, revenues are growing by 26%, and earnings by 32%. And if you look at value metrics like cash flow to market cap, then you'd notice that this company has

NEARLY A THIRD of their market cap covered by cash flow! That's amazing!

Thursday, May 1, 2008

Can Volatility Kill?

People who trade options study volatility closely. They hunt it out or avoid it. They massage it and time it. They know it can work for them, or against them, and in either case it strongly affects their price.

In contrast to the option trader, most of us stock investors give volatility very little thought, if any.

If that's you, you can continue to trundle happily down that path, ignoring the whole issue. if you stick with blue chips and plan to hold them for 20 years, that is.

Otherwise, it would be worth your while to give the subject a little notice. A great deal of what the experts tell you about stocks and how to handle them is closely linked to their beliefs about volatility and their reactions to it.

But on the more practical level, volatility may also affect whether you are profitable, what kind of stocks you should buy and how you handle your money.

As with the series on trend lines, I am going to break this subject down into rational pieces. You will find that the subject is not abstract at all, and is certainly not as complex as some people would have you think.

Normally, a discussion of volatility in stocks heads right to the deep waters of Modern Portfolio Theory, beta and academic studies. We'll get there, but we'll start at the commonsense end of the subject, before academics chop it up and give each of its parts ten-dollar names.