Guidance from Wise Investors & Secrets of Successful Investing

Peace Dividends That Pay Dividends of Peace

2006-12-24T13:08:00.000-08:00

The peace dividend is a political slogan purporting to describe the economic benefit of a decrease in defense spending. It is used primarily in discussions relating to the guns versus butter theory. The term was frequently used at the end of the Cold War in the early 1990’s, when many Western nations significantly cut military spending.
While economies do undergo a recession after the end of a major conflict as the economy is forced to adjust and retool, a "peace dividend" refers to a potential long-term benefit as budgets for defense spending are assumed to be at least partially redirected to social programs and/or economic growth. The existence of a peace dividend in real economies is still debated, but some research points to its reality.
During this season of the year when we profess to honor the Masters of Peace, we thought it would be refreshing to discuss dividends from companies that have little or nothing to do with war.
The fact that these companies pay dividends at all is, to our way of thinking, an act of peace. Maybe these companies believe that “…it is more blessed to give than to receive”. Perhaps they know it helps give their shareholders peace of mind when they receive part of the profits of the company?
First let’s talk about a company that pays a whopping 6% dividend. United Online (Nasdaq: UNTD). As you can learn from the profiles on our web site (just enter the symbol, press “get quote” and then click on the word “profile”) United Online is a provider of consumer Internet subscription services through a number of brands, including NetZero, Juno and Classmates Online.
The company’s subscription services include dial-up Internet access, social-networking, Voice-over-Internet Protocol (VoIP) telephony, personal Web-hosting, premium email, Internet security and online digital photo-sharing. Co. also provides advertising-supported versions of many of its services at no charge to consumers. As of Dec 31 2005, United Online had approximately 5.0 million pay accounts representing approximately 6.4 million total subscriptions, and approximately 17.6 million active accounts.
Do they do anything that supports the business of war? Not that we are aware of. Please go to their web site at http://www.untd.com/ and you will learn why they are growing and how they are able to pay such a generous dividend…6%...that’s awesome!!
UNTD is making money, and their forward PE/ ratio of a little over 12 makes Jim Cramer and his staff feel this is a cheap stock…undervalued. These are the smart people who brought the world PrivatePhone™.
What is PrivatePhone? ``We launched PrivatePhone primarily as a way for people to give out a phone number without compromising their privacy,'' said Matt Wisk, chief marketing officer at United Online. ``While many of our members do use it for that purpose, it has really morphed into a way for people to communicate by voice online. Bloggers are putting their PrivatePhone number on their blogs to allow readers to post voicemails instead of comments, people are adding it to their MySpace pages, and DJs, bands and other entertainment types are recording outgoing messages to tell their fans where they're playing or what they're up to. We took a look at what these members were doing to promote themselves online and came up with three new features to help them do it.''
The more we study about this company the more we see why they peacefully pay abundant dividends. We are a bit concerned that they have a plan for growth that will consecutively allow them to be so generous. Before you invest any of your money here better do your research and carefully examine their web site http://www.unitedonline.net.
Next, let’s look at a financial service company that has been increasing their dividends for 35 consecutive years and currently pays out at a 4.4% rate. US Bancorp (NYSE:USB).
Our CheckTheMarkets site had this to say about Minneapolis-based USB, “U.S. Bancorp is a multi-state financial services holding company. Co.'s banking and investment services are provided through a network of 2,419 banking offices mainly operating in 24 states in the Midwest and West.
The Company provides a range of financial services including lending and depository services. Co. also engages in credit card, merchant, and ATM processing, mortgage banking, insurance, trust and investment management, brokerage, and leasing activities principally in domestic markets. Co.'s non-banking subsidiaries primarily offer investment and insurance products to its customers within its markets and mutual fund processing services. At Dec 31 2005, Co. had assets of $209.47 billion.”
Recently the company updated this information. “U.S. Bancorp, with $217 billion in assets, is the 6th largest bank holding company in the United States. The company operates 2,467 banking offices and 4,943 ATMs in 24 states, and provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses and institutions. U.S. Bancorp is the parent company of U.S. Bank. Visit U.S. Bancorp on the web at www.usbank.com.”
They are trading at a 52-week high, partly because they just announced a generous 21% increase in their dividend rate.
Richard K. Davis, president and chief executive officer of U.S. Bancorp noted, "We are very proud of U.S. Bancorp's long history of paying a dividend, which provides our shareholders with an additional reward for investing in our company. Increasing the dividend by 21 percent is an important part of our strategy to continue our commitment to return at least 80 percent of our earnings to our shareholders through dividends and a stock repurchase program. We believe shifting the total payout to shareholders toward a higher mix of dividends is a more effective means to transfer the company's superior profitability directly to the shareholders. The decision to move to a greater proportion of dividends in no way diminishes the growth prospects of the company, since we will continue to retain 20 percent of earnings to support expected asset growth, capital expenditures and cash acquisitions. A higher dividend payout such as this is consistent with our strategy of low risk, dependable earnings and financial discipline."
The only war this company is supporting is the war against bad corporate leadership and stingy payouts. The USB “peace dividend” is reflected in the fact this company chooses to take the “high road” when it comes to how they take care of their shareholders.
We are also quite stoked about BB&T Corp. (NYSE:BBT), a Winston-Salem, NC based financial services and banking company. Check out their web site to learn more.
BB&T does well by their shareholders, as is witnessed by their dividend policies. The five-year compound growth rate for BB&T's quarterly dividend payment is 10.1 percent. BB&T has paid a cash dividend to shareholders every year since 1903. The corporation has increased its quarterly cash dividend payments for 35 consecutive years.
On Dec. 12th the board of Directors declared the 2007 first quarter dividend of $0.42 per share, a 10.5 percent increase over the $0.38 paid in the first quarter of 2006. The dividend will be paid Feb. 1 to shareholders of record as of Jan. 12.
BB&T operates more than 1,450 financial centers in the Carolinas, Virginia, Maryland, West Virginia, Kentucky, Tennessee, Georgia, Florida, Alabama, Indiana and Washington, D.C.
With $118.5 billion in assets, BB&T Corporation is the nation's 11th largest financial holding company. More information about BB&T Corporation is available at http://www.BBT.com.
“Peace dividends” make a lot of sense to us. Now all we have to do is invest in the companies with the best ones available. Look carefully and then invest with confidence.

Cash In On a Golden New Year Filled With Silver Linings

2006-12-23T21:56:00.000-08:00

Everyone around the globe seems to be searching for a replacement for the US dollar as a currency that all nations can trust and bank on. The dollar for almost two decades has been considered a safe investment that would outperform virtually all paper-denominated symbols of value.
Today the “full faith and confidence” in American Greenbacks is receding about as fast as my hairline when I was 25 years old. That is mainly because there is nothing really backing the dollar except promises and a belief that the US economy can grow by leaps and bounds.
Right now too many foreign governments know about our huge deficits, the unprecedented debt that the average American lives with, and that the ultimate ATM machine, US housing, has begun to malfunction.
So what is the “smart money” beginning to do? Our sources tell us that the central banks of many nations around the world are cashing in their green pictures of dead US presidents and exchanging them for gold and silver.
Speaking of silver, we here at CheckTheMarkets.com want to join with a growing number of monetary realists who believe that silver will outperform gold in 2007 versus the US dollar. In other words, if gold is going up 10 % this year, than we will probably see silver increase 20% as measured against the greenback.
That being said, we think it is a prudent time to be investing in both silver and gold. If you agree, and you don’t own some of the physical metals, than by all means acquire some.
It isn’t hard to do, and we know of experts like David Young at Wexford Capital Management (http://www.goldsilverbullion.com/) who as far as we know has some of the brightest ideas and the best prices on gold and silver bullion (we recommend you speak with him about the US silver eagles and gold eagles). If you are inclined to buy in large quantities he can also tell you how to find safe storage for your bullion and coins.
For those of us who are also so inclined, you would be well-advised to consider buying the shares of those companies who are bringing the silver and gold out of the ground and selling it for luminous profits. These are the respected producers and purveyors of the precious metals who have perfected the science of “buying low and selling higher”.
Our family has taken a special interest in a gem of a company called Goldcorp (NYSE:GG), which says it is the lowest-cost senior gold producer with the best growth profile in the Americas. In the third week of December 2006 it forecasts its 2007 output at around 2.8 million ounces of gold at an anticipated cost of $150 per ounce.
That means if gold is selling for around $630 per ounce; it has the potential to reap a per-ounce profit of around $480. If you multiply that by 2.8 million ounces…are you sitting down...it could gross a staggering $1.344 billion dollars on its gold production alone.
It also has the capacity to mine a great deal of silver and copper. After its recent purchase of Glamis Gold which owned the properties and assets of the former Western Silver Company, Goldcorp has greatly increased its potential silver profits.
While gold production levels are rising fast, so are predicted cash costs. In the third quarter Goldcorp produced 431,800 ounces of gold at cash costs of only $84 an ounce net of byproduct credits (byproduct credits are figured at a conservative $10 per ounce for silver and a perhaps not so conservative $3 per pound for copper).
If silver prices remain high and surge higher, and copper prices rebound for current levels, then 2007 cash costs will be far lower, the company recently announced.
On Dec 8th, Merrill Lynch raised it price target on Goldcorp to $38, saying the company will be viewed as the “go-to” gold producer among senior gold companies now that its merger with Glamis is complete. GG shares closed on Friday, Dec. 22nd at $27.16 per share. Are we getting the hint?
Merrill analyst Michael Jalonen said his net asset value calculation for GG is up 11.1 percent to $12.60 from $11.35, due to rising mid-term gold and silver prices and long-term silver prices. He noted that Vancouver-based GG has above-average production growth, the lowest cash costs of its peers, and a stable geopolitical asset base. In addition, the company has “substantial” free cash flow generating ability [to produce and acquire], he wrote in a note to clients.
The analyst stressed what we believe, that “The merger of Goldcorp and Glamis Gold in late 2006 vaulted Goldcorp to the forefront of global gold producers.” “The new Goldcorp has growing gold production, very low cash costs, solid earnings generating ability, large reserve/resource base, strong balance sheet and an entrepreneurial management team."
Times have been great for silver this year, which under the right circumstances can act like gold on steroids. And it’s doing this right now. With oil prices stabilizing and the dollar weakening--powerful tailwinds at precious metals’ backs--silver is beginning to significantly outperform gold.
This summer, I favored buying the iShares Silver Trust (AMEX: SLV) after the sharp correction that commenced in May at an entry price of $102. Has capitalization on that move passed other investors by? I don’t think so. I’m looking for that exchange traded fund (ETF) to trade to $200 by mid-2007 with a possible $10 to $20 downside from current levels.
The iShares Silver Trust has 10 ounces of silver per share; you have to multiply the price of silver by 10 to get to the ETF price. This is the opposite of the streetTRACKS Gold (NYSE: GLD), where the price of gold is divided by 10.
Silver prices are currently around $13; it’s not out of the question if they trade up to their 1980 high near $50 (but that would take time and a lot of patience). Obviously, this would have a significant effect on the ETF price.
Some of the best-run silver miners happen to be based in Canada. One such company is Pan American Silver Corp (Nasdaq: PAAS) led by Ross Beaty. Even though the company is based in Vancouver, British Columbia, all of its mines and reserves are in Latin America and the US, making it truly Pan American. That’s OK; all large mining conglomerates are global in nature. Pan American aims to be the largest pure silver miner in the world while delivering the lowest possible mining cost in order to achieve better leverage to the price of silver bullion.
In 2005, Pan American produced about 12.5 million ounces of silver from six producing mines in three countries and is on track to produce approximately 14 million ounces in 2006. Because there are more mines under construction, Pan American expects to become the largest primary silver producer in the world, reaching 25 million ounces per year by 2009.
There’s also an interesting Canada-based royalty company, Silver Wheaton Corp (NYSE: SLW), that has no mining operations but holds long-term contracts to sell the silver of existing mines. It buys silver at $3.90 and sells it for $13.
Before you ask why anyone in his right mind would sell silver to Silver Wheaton at $3.90, do some reading on the company on its Web site; it’s a remarkable story. The sellers of the silver take cash and shares of Silver Wheaton for their bullion. Because they're shareholders, they get heavily compensated for the low silver price they receive. It’s a way to magnify fringe silver operations of otherwise primary gold mining companies.
Finally, no article on mining stocks is complete without mentioning Barrick Gold (NYSE: ABX), the biggest precious metals miner in the world after the completion of a recent merger. For many years, Barrick was hated by precious metals enthusiasts (it probably still is) for its hedging strategy--selling bullion forward to manage volatility of revenues. Barrick was very smart to do so in the 1996-00 period when prices went down every year and less smart since 2000 as prices have been rising.
There are credible signs that this hedge book is unwinding and the leverage to the gold price of Barrick Gold is increasing. Recent mergers (like Placer Dome) are helping change the culture at Barrick. The stock's best days have yet to come; plus, the shares are the least volatile of the whole group, making them perfect for long-term conservative investors who seek exposure to precious metals prices.
There’s an excellent chance that a year from now we will look back on the shares of the company’s mentioned above—as well as the price of silver and gold—and say to ourselves, “The end of 2006 was a golden chance to cash in our dollars for silver and gold and make some serious capital gains!” Let’s not just talk about it. Let’s do it!!

Big Profits from a Surprising Strategy

2006-12-21T22:28:00.000-08:00

It’s impressive to see a publicly traded company that sells computers and computer-related hardware shining like a newly-minted gold coin.

During a time when the competition like Dell (Nasdaq: DELL) and Apple (Nasdaq: AAPL) seem to be breaking sales records, a little-known company called Systemax (NYSE: SYX) is making its mark.
The stock is up 41% of the past 30 days, and, are you sitting down? Its one year return is a dazzling 166% plus! What is Systemax doing and what is its future?
Systemax, Inc. operates as a direct marketer of personal desktop computers, notebook computers, computer related products, and industrial products in North America and Europe. It also assembles personal computers and sells them under Systemax, Tiger, and Ultra brands, as well as markets and sells computers manufactured by other companies.
The company offers a range of computer related products, including laser printer toner cartridges and ink jet printer cartridges; recordable disks and magnetic tape cartridges; peripherals that include hard disks, CD-ROM and DVD drives, printers, and scanners; memory upgrades; data communication and networking equipment; monitors; digital cameras; plasma TVs; and packaged software.
Systemax offers various industrial products, including storage equipment, such as metal shelving, bins, and lockers; light material handling equipment that include hand carts and hand trucks; furniture, small office machines, and related supplies; and consumable industrial products, such as first aid items, safety items, protective clothing, and OSHA compliance items.
It serves business customers and individual consumers, including large businesses, small and midsized businesses, educational organizations, and government entities. Systemax markets its products through direct mail catalogs, e-commerce Internet sites, and personalized relationship marketing. The company was incorporated in 1995 and is headquartered in Port Washington, NY.
The Company's multi-faceted marketing plan features Internet, relationship marketing, and inbound catalog sales. Through these channels Systemax offers over 40,000 products to its two million customers. Systemax PCs are touted as "The Perfect PC" for the educated buyer who wants name brand components, warranty and service without paying for massive amounts of advertising.
They target mid-range and major corporate accounts, small office/home office customers, value added resellers, software & internet developers, and networking professionals. These customers are reached via frequent catalog mailings, account relationship marketing, easy to use internet sites, and a variety of promotions.
Distribution is made simple by their growing network of regional distribution centers in North America and Europe. You would do well to visit their web site and discover what a successful business model they have created. The address is as you would suspect: http://www.systemax.com/.
Recently Systemax announced that third-quarter net income more than tripled. Revenue grew by more than 18% to over $575 million. After the glowing third-quarter results were announced the stock jumped almost 20% in one session.
The stock has a market cap of over $565 million dollars and is selling at around 18x earnings. It has backed off its 52 week high and was recently selling for a little over $16 per share. Apparently there is no coverage by brokerage firms or by analysts.
The CEO Richard Leeds and his family are rumored to be major shareholders. It is always nice when some of the biggest individual shareholders are the officers and directors of a company. If they start selling shares usually the alarm bells go off on Wall Street. Yet when they quietly accumulate millions of dollars worth of stock very few will take notice.
If you look at Systemax’s Section-16 insider filing, which just happen to be loaded onto their web site, you can’t help noticing that CEO Leeds holds at least 5 million shares. Rumor has it he and his kin own at least 10% of the company stock, and when the price leaped recently, we have no evidence that he sold any. Do he and his advisors know something we ought to know? We would like to know the answer to that question.
The company is growing its internet sales at a brisk pace. The CEO recently stated in a press release that the internet accounted for 34% of their sales. As internet usage and subscribers worldwide explodes over the next 10 years, can you imagine what might happen to their sales?
There is always a lot that can go wrong with a company and there has been more than one rising star that has sabotaged their own efforts. But this company seems to have some street-smart directors who know how to “sell-sell-sell”…and I’m speaking about their products and not their own shares!
Systemax has been expanding their product offerings and reaching markets in Europe, which just happens to be one of the biggest customer-bases in the world. Their Chief Financial Officer, Steve Goldschein noted that “… the Company’s overall financial condition remains solid as evidenced by its strong cash position and short-term borrowings only in certain European operations.”
Mr. Goldschein noted, “Our efforts to improve the timeliness and accuracy of our financial reporting both by adding personnel and strengthening our systems and procedures are continuing.” The rumor-mill expects the company to report their full year results on time at the end of March 2007.
Let’s keep an eye on this Fortune 1000 company. Any sell-offs of the shares which might drive the price down below the $15 level would be seen by some as a tantalizing buying opportunity.
All we can tell you for sure is that this company says it is making money on selling computers and plans to invest in its own growth. Considering Mr. Leeds impressive stock position, we’d be inclined to believe them.

The Power of Generating Power

2006-12-19T19:59:00.000-08:00

Recently my family and I became shareholders of Dynegy Inc. (NYSE: DYN) in a surprising way. We had been shareholders years ago and had suffered losses when Dynegy experienced legal problems and the stock price plunged. This was followed by a class action lawsuit that we had participated in. Many moons had passed and we kept wondering if anything would ever come from the lawsuit. Then recently we received a check in the mail followed by a stock certificate for a small number of DYN shares. So, since I was again a shareholder I wanted to learn more about this company with its tainted past.

Dynegy, Inc., through its subsidiaries, engages in the production and sale of electric energy, capacity, and ancillary services. It generates electricity by burning coal, natural gas, or oil. As of November 13, 2006, the company owned and leased 20 plants of power generation facilities with 12,000 megawatts. It sells electric energy, capacity, and ancillary services primarily through bilateral negotiated contracts with third parties and into regional central markets; and through structured wholesale over-the-counter markets and directly to end-use customers.

It also seems interesting to me that Chevron (NYSE:CVX) is the largest shareholder of DYN stock with a position of 97 million shares as of September 15, 2006. On that date DYN entered into a unique arrangement. It agreed to merge with LS Power Group, a privately held power plant investor. LS Power, a subsidiary of LS Power Equity Partners, owns and/or operates more than 10,000 MW of generating capacity in operation or under development across the United States and markets energy commodities. The transaction is subject to shareholder approval and is all necessary conditions are satisfied it will close in early 2007.

Back in early November the company gave some guidance on earnings. It reported a loss of $69 million, or 14 cents a share, vs. a profit of $23 million, or 6 cents a share, a year earlier. The results include one-time charges totaling $98 million for asset impairment, a debt exchange and litigation settlement. The most notable item -- a $61 million after-tax charge -- relates to a write-down of Dynegy's Bluegrass peaking plant because of "recent changes in the market that placed economic constraints on the facility," the company said. Revenue fell to $581 million from last year's $770 million as the company's power generation business was hurt by lower volumes and softer pricing. The Midwest, where Dynegy was able to raise prices, helped to counter declines in other regions. For 2006, Dynegy widened its loss outlook to a range of $305 million to $325 million from $215 million to $260 million.

Weeden & Co. analyst Matthew Conlan said he was disappointed with the results, but stood by his hold rating and $7 a share price target on the stock. "I believe US power demand will continue to grow alongside US economic expansion, and Dynegy will be a significant beneficiary of increased utilization of the currently over-built power generation capacity," he said.

Now if the merger with LS Power goes through Dynegy believes it will position the combined company with a diverse platform that presents near-term, medium-term and long-term options for delivering value to shareholders. See their website for details at www.dynegy.com/. The company claims that Chevron is planning to vote all their shares in favor of the transaction.

This company’s history of not being “shareholder friendly” has me worried. Rumor has it they pay their CEO a shocking salary of $2.7 million a year, and the company has been loosing money. I’ll probably keep the shares we were given just to see what happens if the merger is approved and completed. But this company, even though it is in a lucrative business, has to start posting profits and an improved financial outlook before I’ll be buying any more shares.

An apparent contrast to the Dynegy legacy is Exelon Corp. (NYSE:EXC). Exelon operates as a utility holding company in the United States. The company, through its subsidiary, Commonwealth Edison Company, engages in the purchase, transmission, distribution, and sale of electricity to residential, commercial, industrial, and wholesale customers in northern Illinois. Through it’s other subsidiary, PECO Energy Company, the company engages in the purchase, transmission, distribution, and sale of electricity and natural gas to residential, commercial, and industrial customers in southeastern Pennsylvania. In addition, the company operates electric generating facilities and a wholesale energy marketing business, as well as retail sales business of other generation projects. Exelon distributes electricity to approximately 5.2 million customers in northern Illinois and Pennsylvania; and natural gas to approximately 470,000 customers in southeastern Pennsylvania. The company was founded in 1887 and is headquartered in Chicago, Illinois. As far as I know this company has glowing track record, but do your own due diligence before you invest and check out their website at www.exeloncorp.com/.

It pays a nice little dividend of around 2.6%. It is selling close to its 52 week high and its price-to-earnings ratio going forward is around 13 times next year’s projected earnings. Recently we read that Exelon and Ameren Corp. (NYSE:AEE) avoided an Illinois electricity rate freeze and the state government will consider next year whether to pass phased-in hikes or a freeze. The two utilities had sharply criticized the proposed three-year extension of a law that locked in retail power prices at 1997 levels, warning that the measure could drive their Illinois utility units into bankruptcy. Thus are the complications of owning a utility and power generation business and why I won’t invest too much money in any one utility, even if they do pay a nice dividend and have good corporate leadership.

If you want the benefits of owning power companies but don’t want to nibble on shares of individual utilities, you might want to consider the Exchange-Traded Fund (ETF) appropriately called “Utilities Select Sector SPDR” (NYSE:XLU). It pays a lovely 3% dividend and has averaged a 21% return over the past 3 years. Now as we all know, past performance doesn’t mean much concerning how it will perform in the future, but if you want to invest in power utilities and the business of providing electricity and natural gas to the consuming public, this seems like a prudent way to spread your risk and seek worthwhile returns. More power to you!

Keep It Successfully Simple

2006-12-09T13:37:00.000-08:00

We recently received the latest edition of Extreme Value written by Dan Ferris. It was entitled "Why you can (and should) put your entire portfolio into Microsoft (Nasdaq:MSFT), Home Depot (NYSE:HD), St. Joe (NYSE:JOE) and Wal-Mart (NYSE:WMT)". It blew us away when he emphatically stated, "...if I had a billion dollars, I'd put it all into the four stocks we'll be covering this month." Yes, we would recommend you become a subscriber. Just go to www.stansberryresearch.com or call 888-261-2693. This jolted us into the train of thought of how simplified and care-free our investment portfolios would be if we took Dan's advice. We would have to add an equal proportion of Goldcorp (NYSE:GG) and Silver Wheaton (NYSE:SLW) to feel complete, but that would only be a stock portfolio of six companies. "Boring" you say? Well, maybe so but it would sure give us a lot of extra time to pursue the many other activities and interests that we somehow never seem to have enough time for these days. How valuable is a refreshing nap each day? How precious is the time spent enjoying the company of our dearest relatives and friends? Keeping life and our investments "successfully simple" has so many advantages that we couldn't begin to describe them all.
One of the advantages, and a big one it is, is that it allows us to concentrate our investment dollars in the shares of the companies and the sectors with the most upside potential over the next 5 or 6 years. As Jim Cramer likes to remind us all, we are always better off investing in the "Best of Breed" companies. The greatest stock investor of all time, Warren "Keep-It-Simple" Buffett, built his billionaire empire on this very premise. If you look at the main holdings of his "Super-Holding-Company", Berkshire Hathaway (NYSE:BRKA, BRKB) you see how Buffett practices what he preaches. You will see about 5 to 10 holdings where the vast majority of the investment money is concentrated. These carefully chosen positions which have been held for a long, long time are the main reasons the class A shares recently hit an all-time high of $110,000 per share!
The other big benefit of concentrating our investment dollars in the best companies we know of is that it allows us the time and possibility to monitor these companies very carefully, day after day. As Dan wrote so poignantly on this topic,”When I want to check on how my investment is doing, I don't check the quote. I check the financials, the annual report, call or email the company, etc. I only check the quote periodically if I'm thinking about buying more." We must confess that this sounds really wise, and you might know if you read all the sections of our website www.CheckTheMarkets.com that we created an investing technology with the acronym of WISE, which stands for "Wise Investing, Simple and Experienced". This approach really speaks to our technology, and reminds us powerfully of how Bill Gates, Warren Buffett, George Soros and Jim Rogers became incredibly wealthy.
Now the big question is not whether this approach is worth following. The big question is, "Are we WILLING to follow the simplicity and focused investing that this approach exemplifies?" After reading Dan's latest issue and looking back over our many years of over-diversifying and "piddling around" with a list of stocks way too long to keep up with, we are really tempted to answer "YES,YES, YES, we are willing to keep our investments successfully simple!" At least we think we are willing. What's your opinion on this topic? Do we all have the conviction and self-discipline to do this?

Dividends are Sweet...Sweeter Than Interest

2006-12-07T17:43:00.000-08:00

At the end of each month I enjoy looking at the interest I have earned from my Fidelity Government Reserves Money Market Fund, currently with a yield of around 5%. Automatically reinvested back into more shares of the fund, the interest compounds and grows so satisfactorily. Then my bubble is slightly burst when I realize that I will be paying ordinary income taxes on this monthly payout. Depending upon your tax bracket and annual income that means we will be paying between 20 and 35% federal income taxes and in most states between 5 and 10% in income taxes. Thus the yield is now reduced by a sickening average of around 30%. This means that 5% yield now drops down to an after-tax rate of only 3.5%. The same reality hits our CDs, our bank accounts and even our bonds and our bond funds. Darn, it just isn’t fair, especially when there are no chances for capital gains and the buying power of the dollar is dropping each year!
But instead of moaning and groaning about all this, I will be moving more and more of our personal monies to dividend paying stocks that we believe are fairly priced. Most common stocks in the U.S. will pay what the tax code calls “qualified dividends” and by tax law if you hold the stock long enough you will be taxed a maximum of 15% on your dividends. We should all check with our tax advisors and financial advisors to get the details and make sure that the dividend-paying stocks we might buy qualify to be taxed at this significantly lower rate.

We get excited when we see publicly-traded companies whose stock is under-valued. We get almost deliriously happy when that stock has an S&P Dividend and Earnings Quality rating of A- or better, an outstanding record of long-term dividend growth, a price-to-earnings ratio of 18 or less and a payout ratio of 50% or less, debt off 50% or less and a dividend yield of 1.5% or more. These criteria will narrow down the candidates from the universe of common stocks.

Right now we are focused on 4 companies who meet these standards. McDonald’s (NYSE:MCD), Eaton Vance (NYSE: EV), Citigroup (NYSE:C) and Home Depot (NYSE:HD). MCD, with a 2.4% dividend yield is an example of a company with rising dividends and little known intrinsic value. Its dividend has been rising at more than a 30% clip per year, almost twice as fast as the stock price. Analysts say that the dividend yield on MCD, which historically has been around 1.5% or lower, is high now because of the negative sentiment that Wall Street has toward this largely undervalued stock.

With an annual dividend of $1 per share, the stock would have to rise above the $65 per share price in order to revert to its historical dividend yield. Currently trading below $43 per share we can see that the dividend alone has the potential to increase the share price. With their real estate holdings (MCD has one of the finest portfolios of commercial property in the world) and their history for raising their dividend payout each year, it is no wonder that some analysts believe that MCD’s price could double in the next 5 years.

Home Depot (NYSE:HD) has many of the same desirable aspects that we see in MCD. After recently raising its dividend by 50% and with a historical yield of around 1%, the current 2.3% yield and P/E ratio of 13 indicates that this stock has a long way to go on the upside in the years ahead. Many analysts feel that Home Depot fits the profile of a rock-solid investment that every educated investor would want to have in their portfolio. If you are computer-savvy we would encourage you to check the web sites for each of these outstanding payers of dividends to see why they are both great companies and great investments.
Although it doesn’t meet all the criteria of the companies mentioned above, we also really like Emerson Electric (NYSE:EMR). With the expectations for around 15% earnings growth and only trading at 15 times next year’s earnings, this enduring company grabs our attention. With its 2.5% dividend yield, I have to take my handkerchief out of my pocket because I begin to drool. With the tax laws truly favoring income from dividends, we would all be wise to consider those stocks and companies who are generous in that department. “How sweet it is,” as Jackie Gleason used to say.

Stocks To Be Thankful For and More

2006-11-21T18:35:00.000-08:00

This is an excellent time of year to “take stock” of all we are grateful for in the stock market right now. Having just returned from the New Orleans Investment Conference I’m especially thrilled to report that I was able to meet and chat with some of my favorite investment “gurus”. When you are in the same room with such legendary folks as Mary Anne and Pamela Aden (who publish The Aden Forecast), Bill Bonner (of Agora Publishing and The Daily Reckoning), Doug Casey (who publishes the International Speculator, the Energy Speculator and the Casey Gold Report) and the three main “gurus” of the Oxford Club (Alexander Green, Lou Bass and Mark Skousen) one almost feels a sense of destiny. It was heartwarming to see the conference rooms filled with enthusiastic investors and passionate presenters. If you’ve never attended this renowned New Orleans event please, please plan on attending next year. The great investment ideas and insights you will receive will pay for your trip many times over.
What a year it has been for us personally. We’ve taken profits several times on the ups and downs of both the energy and precious metals stocks. Today we banked profits on good old Silver Standard Resources (Nasdaq: SSRI) and watched our other holdings make some sweet progress. Don’t you wish you were on the long side of Boeing (NYSE:BA) the past 10 months. Today’s 52 week high for the stock made some members of my family smile. Heavens to Betsy, it would have been hard not to make money in the stock market even if all you owned were some of the “boring” stocks like Verizon (NYSE:VZ), AT&T (NYSE:T) and Microsoft (Nasdaq: MSFT) or a little known star called Plains Exploration and Production Company (NYSE:PXP).
Getting back to the Oxford Club, their investment director Alexander Green has had some outstanding results from such companies as Celgene (Nasdaq: CELG), China Life Insurance (NYSE:LFC) and Equity Office Properties (NYSE:EOP). I’m telling you, as a long time club member I have been very impressed at how knowledgeable and prescient Alex and his protégé Lou Bass have been. If I were you I’d been looking into becoming a member of the Chairman’s Circle so you could participate in all the Oxford Club’s impressive trading services. These people are good and they are nice people as well. I think of Alexander Green as one of the best investment editors in the business today.
It is said that it isn’t just what you know that matters but also who you know. If you subscribe to and regularly read some of the most successful newsletters like Dan Ferris’ Extreme Value or Dan Amoss’ Strategic Investment you know what I mean. These are just two of the almost 20 newsletters we subscribe to and read regularly, and that is why we are filled with good investment ideas and capital gains.
It would have been unlikely we would have heard of such companies as Kennametal (NYSE: KMT) which has been very profitable for us in just a short time. Kennametal, Inc. engages in the development manufacture, and distribution of tooling, engineered components, and advanced materials consumed in production processes. Listening to the great ideas of the great investors of our day can be like going to bed early and arising early….it makes one healthy, wealthy and wise. Well, I’m not too sure about the healthy part, but it’s bound to contribute to your personal wisdom and wealth. How else would you or I have ever known about National Oilwell Varco (NYSE:NOV) a leading supplier of capital equipment and services to the worldwide onshore and offshore drilling rig fleet.
The happiest people I’ve ever known were folks who were grateful for all that this human life has to offer. They are grateful for their losses and what they have learned from them and they are grateful for their winners. They stop and smell the roses, and seem to remember how fortunate they are to have friends, family, sunshine and five amazing senses. They are the people who are always telling you that their glass is half full and sometimes more than half. Like my late mentor Harry Browne, they are thrilled with gratitude for every liberty and freedom we all so often take for granted. What a great time of year to be thankful for this amazing journey called life. Enjoy!!

Where's The Risk and Where's The Rewards?

2006-11-14T19:24:00.000-08:00

Ten years ago you could have purchased a gorgeous home on the upper east side of Santa Barbara, California for under $600,000. That’s right, back in the fall of 1996, shortly after Bill Clinton was re-elected to his second term, we looked at a 3,000 square foot home with a swimming pool in a very fashionable neighborhood which was offered for $599,000. Today you couldn’t touch it for under $2 million.

Why didn’t we scoop it up and purchase every house and condo for sale back then? Mainly, because the opportunity wasn’t obvious to us. We did buy a couple of condos “just in case” but if we had known what an incredible buying opportunity it was at that point in time we would have mortgaged the farm, borrowed from Uncle Seymour, and purchased dozens of properties. We’d be flying around in our own corporate jet today…if we only knew that the reward far outweighed the risk.
Times of great opportunity with investments are NEVER obvious. In fact the danger signs are a lot more apparent. Some believe that is where we are with the stock market. We’ve seen a huge rally, new highs for the Dow and great recoveries on the other indices. In fact, one mentor told us today, “Since Oct. 4, 2002, stocks have shot up 85%. As I said earlier, if stocks simply stopped trading today and investors walked away with their gains, this would be the third most lucrative stock market rally in the last 60 years. But no rally is without corresponding fallout -- this one included. Unlike all previous rallies, stocks were not cheap at the beginning of the bull cycle. The average stock traded for 15.3 times earnings in late 2002. The last time stocks were this expensive at the beginning of a cycle was in 1987. We all know what happened then…in a single day, the stock market lost 20%. Folks, a fall is coming. I guarantee that. All the signs are there.”
To us that sounds like “famous last words”, although for all we know he could be correct. Another mentor told us that today’s continuing rally had a lot to do with “Fed-heads” talking. Rumor has it that Federal Reserve Bank of St. Louis President William Poole today described the Fed's interest rate policy as "about right." Poole, who is acting as a voting member on the Fed's policy-making Open Market Committee, had reassuring words for a market that has been counting on a steady rate policy for the near future.
Earlier, the Labor Department said inflation at the wholesale level as measured by the Producer Price Index dropped by 1.6 percent last month following a 1.3 percent slide in September. Plunging energy prices were behind the declines, which gave Wall Street some relief from concerns that rising inflation might prompt the Fed to raise rates after three straight meetings where they were left unchanged.
"With the PPI down and with the Fed cautiously optimistic about the economy, not signaling any rate hikes, it confirmed what the market was hoping to hear," said Jay Suskind, head trader at Ryan Beck & Co. November is generally a good month for stocks, and we expect to see sideways action with an upside bias. One reason for a favorable longer term is that a favorable calendar trend is quickly approaching. Historically, stocks have posted their best performances in the third year of a presidential cycle, almost double the average of the cycle's entire four years. The third year is also very consistent; stocks have risen more than 90% of the time in the cycle's third year. Also, the cycle's fourth year historically has provided the second highest gain.
As for the Congressional change, history says that may also work out as a positive. While stocks have posted better returns during periods of political unity, periods of total gridlock such as we have now can also be surprisingly strong. The bottom line is that as long as fundamentals are strong and the Fed stays on the sidelines, the environment for stocks will remain healthy. At least that is what our favorite mentors are telling us.
Our bear mentor mentioned this today: “With stocks still near their recent highs, I think it’s useful to remember the tendency of bull markets to surrender large portions of their gains over the full market cycle. Without that understanding, investors are vulnerable to the temptation to ‘chase’ returns in what is already a richly valued, aged bull market advance, where recession risks continue to gradually increase.”
Now is not the time to be chasing crap stocks. And now is not the time to blindly invest just because stocks are on a roll -- even if you are a “believer”. They don’t always “keep making money.” Just wait, you’ll see." If our brains are still functioning I think he just meant, “it’s a stock-pickers market and don’t buy any junk”. Like the rumor mill, our mentors seem to like under-rated, overlooked companies that are also under-valued in some way.
Rather than worry about the direction of the markets or whether a scary correction is waiting in the wings, we’d rather follow some great investors who know how to find value even in the midst of "crap stocks". That's why we bought Home Depot (NYSE:HD) early this morning and already are glad we did. Our mentors are also singing the praises of energy companies like Occidental Petroleum (NYSE:OXY) and Marathon Oil Corp. (NYSE:MRO). Last week they were encouraging us to buy Wal-mart (NYSE:WMT) on the sell-off and to get ready to pull the trigger on some of the oversold Canadian income trusts like Baytex Energy (NYSE:BTE). Heck, if you want what appears to be the cheapest stock based on its forward P/E ratio, you’d be a buyer of Ampex Corporation (NASDAQ:AMPX). We did our own screening for this on our website at www.CheckTheMarkets.com, There are many ways to determine where the “deals” are.
Where is the risk in the investment world today? Is it in overbought speculative real estate, in stocks trading at high multiples and lofty prices, or a condo in Santa Barbara? If you can figure that out and figure out where the bargains are right now you will become very wealthy. Oh yeah…if you can determine what the most “hated investments” currently are, and if you have the courage and insight to see that the unjust bias against them have caused the price to be ridiculously cheap right now, you will eventually experience rewards that few will ever know. Flee high risk and lock-on to that which is cheap and oversold, and when you figure out what those are please let us know.

Where's The Risk and Where's The Rewards?

2006-11-14T19:17:00.000-08:00

Ten years ago you could have purchased a gorgeous home on the upper east side of Santa Barbara, California for under $600,000. That’s right, back in the fall of 1996, shortly after Bill Clinton was re-elected to his second term, we looked at a 3,000 square foot home with a swimming pool in a very fashionable neighborhood which was offered for $599,000. Today you couldn’t touch it for under $2 million.

Why didn’t we scoop it up and purchase every house and condo for sale back then? Mainly, because the opportunity wasn’t obvious to us. We did buy a couple of condos “just in case” but if we had known what an incredible buying opportunity it was at that point in time we would have mortgaged the farm, borrowed from Uncle Seymour, and purchased dozens of properties. We’d be flying around in our own corporate jet today…if we only knew that the reward far outweighed the risk.

Times of great opportunity with investments are NEVER obvious. In fact the danger signs are a lot more apparent. Some believe that is where we are with the stock market. We’ve seen a huge rally, new highs for the Dow and great recoveries on the other indices. In fact, one mentor told us today, “Since Oct. 4, 2002, stocks have shot up 85%. As I said earlier, if stocks simply stopped trading today and investors walked away with their gains, this would be the third most lucrative stock market rally in the last 60 years. But no rally is without corresponding fallout -- this one included. Unlike all previous rallies, stocks were not cheap at the beginning of the bull cycle. The average stock traded for 15.3 times earnings in late 2002. The last time stocks were this expensive at the beginning of a cycle was in 1987. We all know what happened then…in a single day, the stock market lost 20%. Folks, a fall is coming. I guarantee that. All the signs are there.”

To us that sounds like “famous last words”, although for all we know he could be correct. Another mentor told us that today’s continuing rally had a lot to do with “Fed-heads” talking. Rumor has it that Federal Reserve Bank of St. Louis President William Poole today described the Fed's interest rate policy as "about right." Poole, who is acting as a voting member on the Fed's policy-making Open Market Committee, had reassuring words for a market that has been counting on a steady rate policy for the near future.

Earlier, the Labor Department said inflation at the wholesale level as measured by the Producer Price Index dropped by 1.6 percent last month following a 1.3 percent slide in September. Plunging energy prices were behind the declines, which gave Wall Street some relief from concerns that rising inflation might prompt the Fed to raise rates after three straight meetings where they were left unchanged.
"With the PPI down and with the Fed cautiously optimistic about the economy, not signaling any rate hikes, it confirmed what the market was hoping to hear," said Jay Suskind, head trader at Ryan Beck & Co. November is generally a good month for stocks, and we expect to see sideways action with an upside bias.

"One reason for a favorable longer term is that a favorable calendar trend is quickly approaching. Historically, stocks have posted their best performances in the third year of a presidential cycle, almost double the average of the cycle's entire four years. The third year is also very consistent; stocks have risen more than 90% of the time in the cycle's third year. Also, the cycle's fourth year historically has provided the second highest gain" said another familiar mentor today.

As for the Congressional change, history says that may also work out as a positive. While stocks have posted better returns during periods of political unity, periods of total gridlock such as we have now can also be surprisingly strong. The bottom line is that as long as fundamentals are strong and the Fed stays on the sidelines, the environment for stocks will remain healthy. At least that is what our favorite mentors are telling us.

Our bear mentor mentioned this today: “With stocks still near their recent highs, I think it’s useful to remember the tendency of bull markets to surrender large portions of their gains over the full market cycle. Without that understanding, investors are vulnerable to the temptation to ‘chase’ returns in what is already a richly valued, aged bull market advance, where recession risks continue to gradually increase. Now is not the time to be chasing crap stocks. And now is not the time to blindly invest just because stocks are on a roll -- even if you are a “believer”. They don’t always “keep making money.” Just wait, you’ll see."

If our brains are still functioning I think he just meant, “it’s a stock-pickers market and don’t buy any junk”. Like the rumor mill, our mentors seem to like under-rated, overlooked companies that are also under-valued in some way.

Rather than worry about the direction of the markets or whether a scary correction is waiting in the wings, we’d rather follow some great investors who know how to find value even in the midst of "crap stocks". That's why we bought Home Depot (NYSE:HD) early this morning and already are glad we did. Our mentors are also singing the praises of energy companies like Occidental Petroleum (NYSE:OXY) and Marathon Oil Corp. (NYSE:MRO). Last week they were encouraging us to buy Wal-mart (NYSE:WMT) on the sell-off and to get ready to pull the trigger on some of the oversold Canadian income trusts like Baytex Energy (NYSE:BTE). Heck, if you want what appears to be the cheapest stock based on its forward P/E ratio, you’d be a buyer of Ampex Corporation (NASDAQ:AMPX). We did our own screening for this on our website at www.CheckTheMarkets.com.

There are many ways to determine where the “deals” are.Where is the risk in the investment world today? Is it in overbought speculative real estate, in stocks trading at high multiples and lofty prices, or a condo in Santa Barbara? If you can figure that out and figure out where the bargains are right now you will become very wealthy. Oh yeah…if you can determine what the most “hated investments” currently are, and if you have the courage and insight to see that the unjust bias against them have caused the price to be ridiculously cheap right now, you will eventually experience rewards that few will ever know. Flee high risk and lock-on to that which is cheap and oversold, and when you figure out what those are please let us know.

Sell On The News As A New Era Dawns?

2006-11-08T09:26:00.000-08:00

Have we just witnessed a Democratic “tsunami”? It might be too early to say for sure, but one thing seems obvious, the majority of the voting electorate has spoken and told the politicians that they want “checks and balances” in government, they want accountability, and perhaps they want “gridlock”.

How will this impact the investment markets? Rumor has it that the markets are bracing for a more combative environment in the nation’s capital. Rumors are flying about the possibilities of changes in tax rates and the jury is still out about what the Fed will do next with interest rates. The market with the biggest question seems to involve the stock market. What is the key to making money in the stock market during times like these?

Once again we have turned to our mentors for some consensus on this question. One of them, the legendary commodity guru George Kleinman had the following words of wisdom this morning that speaks to the title of today’s Money Rumor Mill:

“What’s the key to making money in the stock market over time? The answer is simple--don’t lose money during the down periods. I can see you rolling your eyes on that advice, but before you give me a “thanks a lot for that,” I can tell you this advice is actually profound.

One of the keys to success and wealth building is to turn some of your paper profits into real cash when available and not to lose money when profits become elusive. Now, I’m not talking about every trade or every investment--of course, we'll all lose money at times.

To clarify what I’m talking about, don’t ever lose big money. And when you’re fortunate enough to have paper profits significant enough to make a noteworthy improvement in your net worth, don’t leave it on paper--turn it into real cash.

At a wedding not too long ago, a relative of mine told me she was in on a dot-com IPO from the beginning with an initial investment of $100,000, and at the top she was worth $8 million (on paper). The company is now extinct. What was her net result? A loss of $100,000--she didn’t even cash in $1 of profit (and yes, she’s still working for a living).

What was she thinking? I don’t get it, but after a few decades of doing this I’ve heard the same story in varying degrees time and time again. There must be some psychological explanation beyond what I’m able to comprehend.

The key to wealth is to limit your loss during losing periods and accept some gains during the good times. “

How does that grab you? We are actually sobered by this timely reminder. And we have been practicing what he speaks about. We’ve been taking profits in such stocks as Diageo plc (symbol DEO), Microsoft (symbol MSFT), General Motors (symbol GM) and some of our mentor’s favorite metals stocks like Silver Standard Resources (symbol SSRI) and Northern Peru Copper (symbol NPUCF). We are NOT suggesting you sell any of these stocks. What we are passing on to you is that the experienced investors know how to not only let their profits ride but to capture some profits or partial profits when they have them available.

One of our early mentors used to remind us, “You can’t loose money taking a profit”. It reminded us if we have a nice profit in an investment position and we don’t know whether it is going higher or lower from here, we could take some profits and then be ready to buy on any pullbacks or corrections. Actually our mentors overall are quite bullish about stocks over the next couple of years but they constantly remind us that certain stocks have had quite a ride already and might be due for a correction and a sell-off. With the elections over (except for the final determination of which party will control the Senate), the near-term uncertainty will be focused on what the coming gridlock in Washington might mean for investor confidence and government spending policies.

As we say this the markets are digesting the election results and all the other news. The uncertainties about the energy markets, the geopolitical hot-spots, and the potential for other surprises might just make this market susceptible to what some mentors call a “consolidation”. Of course nobody knows for sure. One thing this tells us is that it will continue to be a stock-pickers and investment-pickers market. We will all need to follow the guidance of the great investors and carefully choose which voices we will be listening to.

As we write the big pharmaceutical stocks are taking it on the chin. Johnson & Johnson (symbol JNJ), Pfizer (symbol PFE) and Merck (symbol MRK) are down between 1% and 4% on the day. We will follow the grapevine on more sectors that might correct (like defense stocks) but we will look to our mentors to guide us as to how to take advantage of the situation.

The time to get interested in solid investments is when they are attractively priced. The time to sell is when they are priced for perfection. Now might be a good time to look at our portfolios and see if we have some good opportunities to take some money off the table and prepare for the next buying opportunity. Get good counsel on this and if you are willing to risk making a mistake, then err on the side of caution and prudence. It’s hard to loose money by taking some profits.

A Golden Day and A Silver Lining Too?

2006-11-06T16:22:00.000-08:00

I might have overstated the subject of today’s Money Rumor Mill. Today, Tuesday November 7, 2006 is a day that will live in some kind of historical “hall of fame.” Yesterday Wall Street roared back erasing its losses of last week after some huge private-equity buyout deals were announced.
The gains came in spite of concerns for the outcome of today’s election, though the prospect of a power shift in Congress didn’t seem to unnerve investors. John O’Donoghue, co-head of equities at Cowen & Company was rumored to have said that he thought “…what you’re seeing on the tape is a reflection of the amount of money that has been raised in the private equity pools and that money is starting to go to work.” That might be an under-statement. He also supposedly said investors are growing more confident that the elections will bring gridlock in Washington, a prospect Wall Street finds pleasing because it us usually seen as reducing risks to the interests of corporations.

Since the grapevine is telling us that Monday’s nice rally was quite a broad-based one, it bodes well for things to come, after the results of today’s election are made known. Investors even shrugged off oil’s ascendancy to over $60 a barrel again. They even ignored comments from Chicago Fed President Michael Moskow about inflation, an often sensitive topic on Wall Street. Moskow was rumored to have said in prepared remarks that the risk of inflation remains higher than the risks that economic growth will slow too much. No wonder bonds rose a tad and gold stocks like Yamana (symbol AUY) and IAMGold (symbol IAG) had nice gains.

Mr. O’Donoghue told the grapevine he believes investors will be examining valuations of stocks to consider whether they are too low given that the latest buyout offers carried such hefty premiums for some companies. You might want to go back and read or listen to our Money Rumor Mill from November 2nd as we mention the Dividend Growth Stocks that might fit this category.
Now speaking of gold…were we speaking of gold? In a recent major research report, we are told that analysts at RBC Capital Markets state that gold bullion is likely to remain in a bullish cycle for the remainder of this decade and possibly even longer. Great grams of gold gusto! They are rumored to have stated that this year’s high gold price of $725 an ounce was “just a way station on the road to a successful challenge of the all-time highs at $850 an ounce”. They really like gold companies with high leverage to the gold price and strong production and reserve growth profiles. They said that companies that offer investors attractive returns include AngloGold Ashanti (symbol AU), Eldorado Gold (symbol EGO), Goldcorp (symbol GG), Harmony Gold (symbol HMY), Kinross (symbol KGC) who just today announced they are buying Bema Gold (symbol BGO) for $3.5 billion all-stock deal and Lihir Gold (symbol LIHR).
Last but not least, Doug Kass, writing for The Street.com asks the fateful question, “Which Stocks Could Win or Lose in the Election”. We urge you to read his column for the details. We generally agree with him, especially if the “Democratic tsunami” happens in which the Democrats would pick up more than 35 net seats in the House. He wrote, My baseline outcome of a sweep [of both the houses of Congress] will probably result in an immediate market swoon and a great deal of economic uncertainty at a time when growth is flailing. A split of the House and Senate would have a more muted impact.”
He is rumored to believe that the especially vulnerable sectors in a Democratic “tsunami” would be energy, big pharma and defense. Also tobaccos like Altria (symbol MO) and high-end retailers like Polo Ralph Lauren (symbol RL) would likely be pressured. Companies he supposedly said may benefit are the environmental-related one like Johnson Controls (symbol JCI), Clean Harbors (CLHB), Medis Technologies (MDTL) and PowerShares WilderHill Clean Energy (PBW) and perhaps also government-sponsored agencies Freddie Mac (FRE) and Fannie Mae (FNM).
So what will the outcome of today’s voting be, gridlock, turmoil or golden opportunities? Our sources seem to think no matter which way the pendulum swings, there will definitely be a silver-lining to it all. What are you predicting?

Mixed Messages and a Mixed Bag

2006-11-03T15:20:00.000-08:00

Friday we found out that the unemployment rate fell to 4.4%, the lowest level since April 2001 (which just happened to be 6 months before the US officially admitted it was in a recession). The US economy created 92,000 new jobs which just happen to be 31,000 FEWER JOBS than we all expected. Talk about a mixed bag! RUMOR HAS IT that the stumbling housing market will cause the stock market to soon stumble. We will have more about this story next week Rumor also has it that the 4th quarter after a mid-term election is usually a buoyant time for the stock markets. Talk about mixed messages!

Or how about a stock trader we heard about recently. He had started reading a few newsletters and thought he knew lots about the markets. Soon he began making large bets shorting the stock market in spite of the fact that market action and trends are indicating that the Dow and many dividend stocks are undervalued. He ignored a cardinal rule of investing—don’t invest against a trend! As Marty Zweig would say, “The trend is your friend”.
But that wasn’t his biggest mistake. In my opinion, it was a bigger mistake for him to believe that the stock market is an accurate and timely barometer of the overall economy. He felt that since he “knew” where the economy was headed, that the stock market would reflect this. Maybe he was sold on the efficient market hypothesis, and believed that the market prices in all available news at all times.
But if the markets are so efficient, why have they rallied so strongly when virtually every economist in the U.S. believes that the economy is slowing down and will in turn lower future corporate earnings? The market rallied because the market isn’t always so efficient. Sometimes it is irrational and often fueled by human traders who focus on short-term news. Just look at Wal-Mart’s (symbol WMT) recent share price action as an example.
The markets rallied because corporate earnings were strong – it had nothing to do with the future direction of the economy. While they are certainly connected, the economy and the markets are two separate beasts. Just because you know a thing or two about the economy and its future direction, doesn’t mean you can make money in stocks. Just because the economy is in a bull run doesn’t mean you can pick any random stock and let it ride.
From 2004-2006, the economy was rather strong. But had you invested in a stock like Amazon (symbol AMZN), you would be at a loss today. And if you factor in inflation, you’re at an even larger loss. If you had invested in IBM (symbol IBM) from 2003-2006, you would be at breakeven today. Factor in inflation and you’re at another loss.
The direction of the economy had very little to do with the direction of these two stocks. These companies were both suffering, even though the economy was doing well.
On the same token, I’m not saying that every investor should care less about the economy – that’s just foolish. But to think that you can trade successfully simply because you know the overall direction of the economy is like believing you can build a car just because you have a garage full of tools. The key to making money in the stock market is to identify and exploit the key trends that drive growth in certain market segments. Just look at the precious metals and energy stocks over the last 2 years as a prime set of examples.
In other words, if you knew that China was growing at an over 9% clip, you may have come to the conclusion that commodities would rise in value. By exploiting that key trend and investing in it, you would likely have made 500-600% since the year 2000. If you understood that the U.S. dollar would experience a long-term downtrend because the Federal Reserve was firing up the printing press to offset a U.S. recession, you would have invested in inflation protecting gold or silver and made 200% or more since late 2001.
If you can identify the key trends happening in a particular market segment, you will be able to make money. The only reason you should make an investment decision based on what the economy is doing, is because you found one of those key trends that has the potential to multiply the size of your portfolio.
Now let me ask you something. Would you have dreamed, that just because there weren’t any hurricanes that hit the US this year that Berkshire Hathaways (symbol BRK-A) earnings would virtually quintuple in the 3rd quarter? Berkshire, which is led by billionaire Warren Buffett, owns more than 60 companies including insurance, clothing, furniture, jewelry and candy companies, restaurants, natural gas and corporate jet firms and has major investments in such companies as Coca-Cola (symbol KO), Anheuser-Busch Cos.(symbol BUD) and Wells Fargo & Co.(symbol WFC). And how about Friday’s closing share price of $105,000 per share? Now that is a success story!
As we at Check The Markets.com have learned over and over again, it’s far wiser to follow the example of great investors like Warren Buffet and Jim Rogers than trying to predict how the economy will impact the stock market. Our mentors know how to invest in great companies and clear trends. They love to avoid market forecasts and reading tea leaves.

Rumors Are Better Than Painful News

2006-11-01T16:13:00.000-08:00

I’m excited. I’m really excited. So how excited am I? I’m as excited as a valium salesman in a room full of worry-warts. I’m as excited as a Prozac peddler in a room full of depressed doctors. You’re probably dying to know why I’m so excited.

Well, I have good news and bad news if you own some Canadian income trusts like we do. The good news is they are on sale at a deep discount. The bad news is that it’s a fire sale. This is one time I’d rather be talking about rumors than about the news.

The Canadian government just proposed a new tax on the cash distributions of Canadian Income trusts. Investors responded in full panic mode, sending the shares of many widely held trusts down so low that even the groundhogs were wailing. A couple of these that we own, Essential Energy Services (symbol EEYUF) and Transforce Income Fund (symbol TIFUF) dropped 24% and 21% today alone. Other popular ones like Enerplus Resources Fund (symbol ERF) and Penn West Energy Trust (symbol PWE) were down close to 15%.

What were the Canadians thinking when they dropped this bomb (or what were they smoking)? To suddenly announce that under the proposal new income trusts would be subject to a huge corporate tax starting at around 34% and that U.S. shareholders, who already pay a 15% withholding tax on their trust dividends, would also have to pay a tax rate of 41.5% in 2011, is like Boeing (symbol BA) announcing a proposal to manufacture all future aircraft with wings made out of particle board in order to save money and help support the logging industry.

The only rumor in this news story is the rumor that Conservative Finance Minister Jim Flaherty and the government he represents is trying to scare the baloney out of millions of investors all over North America. Perhaps they are trying to undo all the benefits that these income trust funds have offered and at the same time prove that the real “tax and spend” politicians are “conservatives” after all. They could have at least done like American politicians do and spread some dirty rumors first, only to deny them later and then drop the bomb on the unsuspecting investor population.

One of our mentors thinks that this is a terrific opportunity to benefit from a four-year window of opportunity to enjoy the great distributions that these businesses now offer. Others will probably be encouraging investors to run out soon and buy some Fording Canadian Coal Trust (symbol FDG) now that the stock price has plunged almost 50% from its 52 week high and the yield is over 11%. But for those of us who already own some of these profitable income trusts, we about as excited as a mortician during a shortage of formaldehyde. And that’s putting it mildly.

What A Great Investor-Mentor Looks Like

2006-10-27T10:50:00.000-07:00

Chris Mayer, the editor of Capital & Crisis, is one smart stock picker. You can read about Capital & Crisis at www. agorafinancial.com. We first discovered Chris when he became the editor of the Fleet Street Letter, and we were impressed at how thorough and careful he was with the analysis of a publicly- traded company. Chris looks for VALUE, deep, under-appreciated, intrinsic value. He patiently peruses the reports and the internal sources of information to find a company who has outstanding leadership and is on the verge of significant growth in earnings and revenue.
Following Chris' advice has made us some serious investment profits. A few were companies that were eventually taken over by other companies because the price of the stock was so reasonable. One example, fertilizer company Agrium (symbol AGU) was not being recognized by the markets as a terrific commodity company selling at a ridiculous price. Those who bought AGU when Chris recommended it are up around 80%.

We remember the day that we received the latest edition of Capital & Crisis recommending that we buy Ameriprise Financial (symbol AMP). Reading the reasoning behind Chris' enthusiasm for this financial services company stock, we couldn't help but clearly see why it was a compelling value. We bought it, kept it less than a year and sold it for a 30% profit. Those smart enough to keep holding are up about 38% so far. Then there was AVX Corp (symbol AVX) the one that "got away". Chris said to buy it below a certain price. We got greedy and hoped it would fall more before we were buyers. Instead, the shares took off. This maker of the "hidden infrastructure" in cell phones and all sorts of electronic gadgets was and is a great way to play the increasing demand for electronic components. The company's profits have more than doubled from the same quarter a year ago. It recently had the best quarterly earnings report in 5 years. Yet the stock price has been very volatilite. Chris wrote to us on 10/27/2006 and said, "Part of the price volatility here is the same sort of thing that dogs Agrium. In the past these capacitor companies go through violent booms and busts. Everyone is scared, thinking this nice earnings report could be the last. But in AVX, we have a player that still produced free cash flow at the bottom of this cycle". Chris almost laments that AVX is only up about 35%, which is a sweet return in about a year's time.

These are just a few of the examples why Chris Mayer is one of our honorary members of our "board of investor-mentors". Our board is willing to think outside the box, look for bargains where few others are paying attention, and hold onto their investment recommendations for as long as the reasons still make good, financial sense. They are good writers and they carefully decide what to include in their newsletters. Recently Chris said we should buy an Argentine real estate company and a shrewd holding company that buys all sorts of under-priced assets and makes them grow. Bet you never heard of Leucadia National (symbol LUK)? You would have if you subscribed to Capital & Crisis. Hats off to Chris and Agora Financial for their continuing success. Those of us following their suggestions have been amply rewarded.

Crushing The Competition

2006-10-26T10:10:00.000-07:00

Rumor has it that Larry Ellison's Oracle (symbol ORCL) is bringing his brand of competition and conquering to the software industry. We heard this morning that Ellison posed a challenge to Linux software leader Red Hat Inc. (symbol RHAT) late Wednesday by announcing that Oracle (symbol ORCL) would begin offering maintenance services for Red Hat products - and charge less for that than Red Hat does. Red Hat shares were crushed by the news.

Redwood Shores-based Oracle expects to offer discounts of at least 50 percent. The threat wiped out more than one-quarter of Red Hat's market value - nearly $1 billion - amid Thursday's deepening investor worries about the much smaller company's ability to withstand the challenge. The assault on Red Hat continues Ellison's aggressive efforts to build upon the market clout that Oracle already amassed as the world's second-largest software vendor behind Microsoft Corp. (symbol MSFT).

If Red Hat's stock continues to falter, the company could become increasingly vulnerable to a takeover. Oracle executives refused Wednesday to say if they might be interested in buying Red Hat."I don't think this will kill Red Hat," Ellison said Wednesday in response to a question from a packed audience attending the biggest convention in Oracle's 29-year history. "This is capitalism. We are competing."

Global Equities Research analyst Trip Chowdhry believes Red Hat might turn into a prime takeover target, but predicted IBM Corp. (symbol IBM) is more likely to be the buyer than Oracle. Investors are convinced Oracle's attack will hurt Raleigh, N.C.-based Red Hat. Red Hat Chairman Matthew Szulik downplayed the threat to his company, hailing Oracle's move as a positive development for Linux - an alternative to the dominant Windows operating system that fuels Microsoft's profits."There are always concerns, but keep in mind that Oracle ... acknowledged that Red Hat is the technical leader in the market," Szulik said. "We still have a rich product pipeline. We will compete."

Chowdhry thinks Wall Street's concerns about Red Hat are justified. He predicted Oracle's move will trim Red Hat's revenue by about $40 million to $50 million annually. Red Hat's revenue in its last fiscal year totaled $278 million - a fraction of Oracle's $14.4 billion in revenue. "Oracle has outsmarted Red Hat," Chowdhry said.

Oracle's challenge comes just a few months after Red Hat trumped Oracle by buying open-source software maker JBoss Inc. for $350 million.ed Hat's handling of the JBoss deal was just one of several factors that irritated Oracle, Chowdhry said. He believes Red Hat made a crucial mistake by bragging that its Linux products would turn software into a commodity, prompting Ellison to attempt to counterattack.

Ellison said he is more interested in accelerating the open-source movement than crushing Red Hat.

Because much of Oracle's propriety software is designed to run on the Linux operating system, Ellison believes the company will make more money if more major corporate customers embrace open-source software.

Oracle's push into Red Hat's market won't affect financial results for at least the next few quarters, Chief Financial Officer Safra Catz told analysts during a Thursday meeting.

But Ellison's cutthroat tactics could position Oracle to hire away Red Hat's top talent since those workers are more likely to be worrying about their job security, said software industry consultant Joshua Greenbaum.

"Larry plays a hardball game," said Greenbaum, who runs Enterprise Applications Consulting. "This shows he hasn't lost his touch for savvy moves or drama."

Ellison's flair has paying off recently as both Oracle's profits and stock price have been climbing.

Oracle's market value has increased by $34 billion this year, a gain of more than 50 percent that has increased Ellison's net worth by about $8 billion. It is easy to forget how cut-throat and heartless the business of crushing your competition can truly be. Perhaps we are seeing a 21st century rendition of "survival of the fittest". Most are betting on ORCL. At what point would RHAT become an interesting investment for those who like companies that are about to be taken over?

Stocks To Watch and Wish For

2006-10-25T16:27:00.000-07:00

Wellpoint Inc. (symbol WLP) reduced its enrollment view but reported some hefty increases in revenues and decreases in costs. The stock was hit hard and it dragged down the share pricing on other insurers like Aetna (symbol AET), Cigna (symbol CI) and Humana (symbol HUM). Our mentors are seeing a mouth-watering buying opportunity unfolding here that might be worth our attention.

Take Aetna (please), which we bought LEAPS on today. This company is selling at a little over 12 times next year's earning and boasts quite a product line including healthcare insurance, dental, pharmacy, group life, disability and long-term care insurance. They also have 3 business segments: Healthcare, Group Insurance (which our mentors feel is a very profitable business) and Large Case Pensions. Aetna, based in Hartford, Conn., panicked investors in the first and second quarters with a cost measurement known as the medical-cost ratio, or percentage of premiums used to pay policyholders' medical bills.

The concern was that health insurers were lowering prices to win business even as medical costs rose, resulting in policies inappropriately priced for risk.The company said it expects to restate the second-quarter ratio "somewhat favorably" because certain costs weren't as bad as the company expected. RUMOR HAS IT that it will eventually have a nice pop in quarterly earnings and revenues and the stock will begin heading skyward. Analysts say they expect the medical-cost ratio to improve in the third quarter. Medical costs are abating, mostly because of increasing use of generic drugs, said Raymond James analyst Michael J. Baker, who rates Aetna "Outperform."

"The company is positioned to benefit from a backdrop of moderating medical-cost trend," he said, as well as lower administrative expenses and better prices. Deutsche Bank analyst Scott Fidel expects a "solid" quarter from Aetna, particularly relative to the first half. He anticipates the company will provide data showing moderating medical costs. Fidel rates Aetna a "Buy."

The grapevine thinks we investors should take a good, hard look at this beaten-down sector. One smart investor told us that he is waiting for a yet deeper correction in companies like Unitedhealth Group (symbol UNH) and Humana before accumulating some shares. Speaking of earnings, keep an eye on Celgene (symbol CELG) says the Oxford Club because their products and therapies designed to treat cancers and immune-inflammatory-diseases through gene and protein regulation in the U.S. have outstanding potential.

Meanwhile, how about Business Objects, SA (symbol BOBJ) the French company that provides business intelligence software and services worldwide. They released their quarterly earnings and beat EPS estimates by over 20%. In after-hours trading the stock soared an additional 8%. Wish we had owned some yesterday! Maybe we will all feel the same way about some of the great insurance stocks that are beginning to look attractively priced. Start writing your "wish list" immediately if not sooner. The time to buy great companies are when the herd is looking the other way.

Don't Rain On This Parade

2006-10-24T19:35:00.000-07:00

Just because it feels a little uncomfortable to see the stock markets so buoyant doesn't mean we need a good, old-fashioned correction. Correct? Just because shares of Berkshire Hathaway (symbol BRK-A) are trading for around $100,600 a share doesn't mean stocks are overpriced (but it does show what a great holding company can be worth if it doesn't split its share price too often or never).

There are a lot of "yeah buts" when pundits say that we shouldn't fight the tape and that The Stock Market (TSM) has "a mind of its own". Yet experience tells us that TSM does what it wants to no matter what the talking heads say on TV or on radio. Just like winter follows autumn (and the owners of natural gas and oil stocks are counting on this), once the Fed releases its public statement about its most recent OMC meeting and tells us whether they still feel uncomfortable about inflation, the markets will have some kind of a reaction. Once the elections of November 7th are completed, TSM will most likely do what TSM usually does in the 3rd year of the second term of a market-friendly presidency.

Rumor has it that the Dow might go to 26,000! Yawn! If Exxon (XOM) suddenly goes to $90 a share or if United Technologies (symbol UTX) zooms to $100, we doubt if too many people will be mortified. Interest rates are still historically low, there is still a bunch of money and buying power on the sidelines, and investors are feeling rather bold these days. Barring an asteroid striking the earth or the fulfillment of some biblical doomsday prophecies, the world's appetite for goods and services will continue to expand at an unprecedented rate.

Maybe that is why our mentors at The Oxford Club like the Dow Jones Global Titans Index Fund (symbol DGT). This ETF represents the world's 50-largest publicly traded companies including Coca-Cola (symbol KO) and Nestle' (symbol NSRGY). The grapevine of investors love these kind of companies because they offer great liquidity, attractive valuations, and a targeted way to participate in the booming foreign economies that currently are prospering. Between the prospects for richer profits, stock buybacks and increasing cash positions, these 50 companies offer investors a chance to reap the benefits of strong global markets. With DGT we can own all 50 at the same time and get over a 2% dividend yield to boot.

No, we are not saying that a sudden market pullback could not happen. Who knows, it might even be healthy. But we believe we should let TSM and the world's great investor-mentors guide us as to what we might expect over the next 12 to 18 months. This is no time to pretend we are clairvoyant and no time to let our emotions cloud our judgement. We all need to "Check The Markets" and follow the wisest guides who can help us participate in them profitably.

Large Cap Stocks & Multi-National Companies

2006-10-17T16:39:00.000-07:00

There has been quite a bit of scuttlebutt and hearsay concerning the best stock market investments in today’s global economy. One common theme is that we are entering the time when our attention should be turning to big-sized growth companies. That might include companies like General Electric (NYSE: GE) or Wal-Mart (NYSE: WMT) or NASDAQ traded companies like Yahoo (YHOO), whose 3rd quarter profits seemed quite disappointing, and Microsoft (MSFT) who will soon be releasing their latest operating system called Vista.

"From a Dow perspective, in a market environment where there is uncertainty, people are arguing at what pace and severity the economy is slowing," said J. Michael Barron, chief executive of Knott Capital. "Those are markets where traditional, big cap stocks tend to outperform. I think the underlying reason the Dow is moving higher is that people are uncertain as to what's happening right now, and the safer bet is to go with global brands."

Investors have a number of global companies to scrutinize this week. Among them are Citigroup Inc. (NYSE: C), 3M Co. (NYSE: MMM), Intel Corp. (NASDAQ: INTC) and International Business Machines Corp. (NYSE: IBM)
So far, early indications of how companies have fared during the third quarter have been mixed. Wachovia Corp.'s (NYSE: WB) reported profit rose 13 percent, but revenue missed projections. Toy maker Mattel Inc. (NYSE: MAT) topped Wall Street projections, while Charles Schwab Corp. (NYSE: SCH) posted a strong profit on lighter-than-expected revenue.
UnitedHealth Group Inc. (NYSE: UNH) fell after it reported Sunday that Chief Executive William McGuire will leave the company by Dec. 1 under scrutiny over backdated stock options. The nation's second-largest health insurer faced an independent report that found widespread problems with the way the insurer issued stock options. Shares fell $1.21, or 2.2 percent, to $55.25. Since then, with Moody’s downgrading several of their debt ratings, UNH has now dropped below $47 a share.
Let’s end this report with three questions? Which large-cap growth stocks would you rather own? At what point do UnitedHealth Group’s shares become a “steal”? And does anybody really think that Yahoo is a takeover candidate? All these questions are worth answering.

Taking A Breather--Cramer Style

2006-10-17T14:36:00.000-07:00

We don't always have the chance to listen to Jim Cramer's radio program but we did today. He was talking about the rally taking a breather and blamed "The Cyclicals", saying that they "...took the rally away from us". He went on to say that the Producer Price Index number came out today and "...things got too hot again in the economy". At first glance the PPI looked like it went down nicely. However, the more closely watched core PPI rose a surprising 0.6% (consensus 0.2%), ruffling the inflation hawks' feathers even though the PPI data are much more volatile than CPI and the increase in auto and truck prices responsible for the jump in core PPI may prove temporary.

Cramer's rumor mill seems to want to pump up several companies that we hadn't heard him talk up before. One is the New York Stock Exchange Group Inc. (symbol NYX), which he told his audience might be a bit cheaper in a day or two. I guess he thinks that if we like stocks we might want to buy the marketplace where many of them are sold. He was beating the drum today about tech stocks he is buying, but he said he couldn't tell us which ones or he wouldn't be able to buy them now.

He posed the question, "how do you get paid every time companies are bought out or taken over (or words to that affect)"? His answer was to buy "the premier mergers and acquisitions stock", Goldman Sachs (symbol GS). He also mentioned other investment banking companies like Lehman Bros. (symbol LEH), Bear Stearns (symbol BSC) and even Merril Lynch (symbol MER). But he cautioned listeners to pick their entry prices carefully and to wait for pullbacks.

RUMOR HAS IT that Cramer's favorite stock that he personally likes the most for speculating is Level 3 Communications (symbol LVLT) which supposedly is going to be buying Broadwing Corp (symbol BWNG) for something like a cool $1.4 billion. Broadwing's stock jumped almost 20% today. Will Broadwing help LVLT to take flight and its profits to soar? Who knows, but one thing that we heard Cramer say over and over today, "Whether it is tech stocks, biopharmaceuticals, investment banking and brokerage firms or big retailers like Sears (symbol SHLD)...why not wait till tomorrow to buy them". Sounds like Cramer knows that after the market has puffed itself up, it might be better to wait till it exhales a bit before committing more money. The Stock Market is just like you and me, it needs to take a breather ever now and then. It's been awhile for sure.

Big Cap Stocks & Global Brands

2006-10-16T21:44:00.000-07:00

THE RUMOR MILL is lighting up like a neon sign. Wal-Mart (symbol WMT) just made this headline: "Wal-Mart Stores Inc. will pay about $1 billion to buy a chain of 100 hypermarkets in China in a deal that could vault it ahead of competitors to become the country's biggest food and department store network, a news report said Tuesday." This company is diving into a huge pond with consumers who are just beginning to enjoy the purchasing power that is growing in their nation.

Meantime, good old Jim Cramer says the current big rally on Wall Street is being driven by the "momentum funds". "In fact, the momentum funds are the most positive he's seen in several years". Cramer and his assistants claim that they have determined that what he calls "market players" can get in before the momentum guys gobble up all the goodies. Cramer says, according to our RUMOR MILL, that "...the stocks that have been left behind and are still trying to catch up" are the likes of Lowe's (symbol LWE), Alliant Technologies (symbol ATK), Intel (symbol INTC), Nokia (symbol NOK), Emerson Electric (symbol EMR), International Paper (symbol IP) and DuPont (symbol DD) to name a few. They are entitled to their opinion as are we.

A great writer and economist, Stephen Leeb at the Complete Investor newsletter had this to say recently:

"As expected, the highs keep rolling in these days. Last week was the third in a row that the Dow made an all-time high. It’s now just 20 points away from the 12,000 mark. The S&P is climbing strongly too, setting new recovery highs each week.

Is this the start of a new bull market, or just the last gasp before a renewed bear? Only time will tell for sure. In these updates, we only deal in probabilities, not certainties. And right now, according to our technical indicators, the most probable short-term action is higher share prices. This bodes especially well for the big cap, quality stocks we’ve been encouraging you to invest in, such as Johnson & Johnson (JNJ), United Parcel Services (UPS), Eli Lily (LLY), General Electric (GE), Intel (INTC), and Microsoft (MSFT). Most likely, they will lead for the remainder of this rally.

Even more exciting, our Long-Term Master Key is flashing bullish for the second week in a row. (Just to remind you, a buy signal results whenever oil prices have declined year-over-year.) Over the past 30 years, stocks have never fallen more than 5% during the six months following a buy signal from the Long-Term MK.

However, let’s reiterate … we have not turned long-term bullish. The Transports continue to lag behind the DJIA, and unless they jump to new highs, we cannot believe a new long-term bull market has begun. Instead, we expect a correction will occur sometime after the election, most likely triggered by rising commodity prices and/or geopolitical upheaval.

Incidentally, what sets us aside from most commentators today is that we hope we are wrong about almost all our predictions. We truly hope the transports catch up. We hope this current rally has another 15% to go on the upside. We even hope energy prices collapse. We just don’t expect it.
That’s why we continue to point out that oil service stocks offer you the most value in the market today. Baker Hughes (BHI), Schlumberger (SLB), and Halliburton (HAL) are outrageously cheap now, considering their potential for tremendous gains over the next six months." One of our other mentor sure like Precision Drilling Services (PDS) for similiar reasons.
And speaking of oil …these stocks seems to be feeling perkey. One of our holding Penn-West Energy Trust (PWE) popped a lovely 5% on 10/16/06. Speculation and RUMORS abound, and much more will follow. Stay tuned!

Selling--Good Old Greed and Good Old Fear

2006-10-15T14:54:00.000-07:00

Why don't we earthlings sell our investments when we have a nice, fat profit? RUMOR SAYS that we don't cause we get greedy and want to believe if we hold on it will just go up higher and higher. We fell into that trap this past summer when our holdings like Vista Gold (symbol VGZ), Silver Standard Resources (symbol SSRI) and Central Fund of Canada (symbol CEF) all were up over 20%. If we had sold when we had the inclination (toward the top of their 52 week highs) we could have bought them back less than 6 weeks later for 20% less. Why didn't we? Well, we, ah, thought they would go higher. Good old greed!

Recently, a couple of our favorite mentors, said we should "cut our losses" and sell some stocks that we had purchased within the past year. Why had we purchased them. Because these same mentors said they were great companies and their shares were attractively priced. But one of them, Anadarko Petroleum (symbol APC) made an enormous acquisition, and several others including AngloGold Ashanti Ltd. (symbol AU), Anderson's Inc. (symbol ANDE), Basic Energy Services Inc. (symbol BAS) and Berry Petroleum (symbol BRY) were either in the wrong place at the wrong time, had questionable hedging policies, or were sucked down by the big correction in the energy commodities. We didn't feel like selling these holdings because we had losses in all of them, and RUMOR HAD IT that we were just days or weeks away from a nice rally in the energy and precious metals stocks. We were afraid of losses. Good old fear!

Finally, we decided to sell those recommended by our mentors because we have great respect for the "D" word---discipline. If we bought them for the right reasons, and the reasons have changed, then we should sell them and move on to better, more timely investments. And when it comes to stocks like VGZ, SSRI, CEF and Kinross Gold Corp. (symbol KGC), well, next time we might choose the discipline that says, "if you have a fat profit...take it" or the discipline that says, "if you buy shares of a company, set a 20-25% trailing stop loss. If the stock closes at 20-25% below where we bought it or 20-25% below the highest price since we bought the stock...sell it!" To be honest with you we still haven't made up our minds. But one thing we know for sure, we don't want to make any more decisions based on "good old greed or good old fear".

Some of the stocks we own like Novartis AG (symbol NVS), Millipore Corp.(Mil) and Immersion Corp (IMMR) are the types that might go up suddenly and dramatically. Can we remember our "sell discipline" when our holdings go way up or suddenly tank? We probably will if we are committed enough to write down our buy and sell disciplines, commit them to memory, and unemotionally follow through.

Scuttlebutt from the Business Grapevine

2006-10-14T00:24:00.000-07:00

We love getting email messages from Dr. Mark Skousen at Investment U. If you are not on their free list to receive this daily e-zine, well, you don't know what you are missing. Recently they sent us a message that we have excerpted to give you a great insight into the wisdom that flows from this mentor of ours.

"The business ‘grapevine’ is a remarkable thing… It is surprising what the ‘scuttlebutt’ will produce."
~ Philip A. Fisher, Common Stocks and Uncommon Profits (1958)

Dear Investment U Reader,

Philip Fisher, father of the Forbes columnist and billionaire money manager Ken Fisher, wrote a classic in 1958 called Common Stocks and Uncommon Profits. It’s still in print and highly recommended for only three of its 164 pages. It’s his short chapter on "Scuttlebutt." Fisher suggests picking stocks by talking to a company’s managers, employees, customers and suppliers.

In his best-seller, One Up on Wall Street, Peter Lynch advocates the same approach. “If you like the store, chances are you’ll love the company."

But the scuttlebutt approach can be time consuming. Fortunately (no pun intended), Fortune magazine does the work for you. And it’s been paying off…

The "Combined Power" of Admired Companies

Since 1983, Fortune has published its "Most Admired American Companies," based on a survey of 10,000 executives, directors and securities analysts who rate the companies in their industry on a scale of 1 to 10 in eight areas of leadership, innovation, financial soundness, people management, and quality of products/services. " If you would like to read the rest, go to their website at www.investmentu.com. We thank Dr. Skousen and his publisher for sharing their wisdom and insights.

Incidentally, included on the list from Forbes are General Electric (symbol GE), Johnson and Johnson (symbol JNJ) Starbucks (symbol SBUX), FedEX (symbol FDX), Toyota Motor (symbol TM) Berkshire Hathaway (symbol BRK-A) and Microsoft (MSFT), just to name some and not in their order. If there happens to be a reasonable correction in these stocks (say, 10-15%), RUMOR HAS IT that they might be a lovely group of money-making companies to own, either directly or through some mutual fund. Some might choose to buy some soon (as Cramer often says, you can "average down") and then buy the rest later IF there is a correction. But most of all, we love the advice from Mr. Fisher's and Mr. Lynch's books.

Let's try our hand at finding some "scuttlebutt" from our own, everyday "business grapevine". Talk to managers, buyers, and other key employees. Kick the tires, so to speak and listen up for some helpful gossip. Maybe you will be at Sears (symbol SHLD) or perhaps looking around Home Depot (symbol HD). Maybe you will discover why HD is trading closer to its 52 week low than its 52 week high. We are going to try this at one of our favorite shopping haunts, Costco (COST), and who knows what we will learn. It's a "remarkable thing" and sometimes quite "surprising" what we all can learn from the scuttlebutt that eminates from "the business grapevine". Let us know what you learn, please!

War On The Dow 12,000

2006-10-12T11:48:00.000-07:00

Today the Dow rose above 11,900 for the first time ever. Stocks like General Electric (symbol GE) and Johnson and Johnson (symbol JNJ) are nearing their 52 week high. Oil prices dropped to almost $57 a barrel, as low as they have been all year. What does it all mean? We don't know and we wouldn't wager a guess either. The stock market and the energy pits march to the beat of their own drum. The reason an energy/commodity giant like BHP Billiton Ltd. (symbol BHP) is up 2.5% today and Dow component Citigroup (symbol C) is down today is....because they are. We think we know why McDonald's (symbol MCD) is up almost 2%...something to do with reporting that their store sales were up almost 10% and that their 3rd quarter earnings would surpass Wall Street expectations. But why would Pepsi (symbol PEP) be down 2% despite posting an astounding 71% increase in its 3rd quarter profit? Was it because its forecast for future earnings fell one penny short of Wall Street's expectations? Makes little sense to us.

We were reading Lou Dobb's book, "War On The Middle Class" which seems to indicate that Corporate America has taken over our government, our politicians, our regulatory agencies and maybe even our brains. This book is a good place to refresh our minds with the words of The Declaration of Independence, The Constitution of the U.S.,The Bill of Rights, and Amendments 11-17 of the Constitution, mainly because the book contains the entirety of each of these founding documents. We admire CNN and Time Warner (symbol TWX) for permitting all this publicity concerning the perceived threat that looms against our personal freedoms and liberties. RUMOR HAS IT that Rupert Murdoch would be loathe to allow the Fox News channels, owned by News Corp. (symbol NWS), to speak out so blatantly just 26 days before one of the most important Congressional elections in the history of this country. If there is a "War On The Middle Class", and if the theme of the book is more than just a "quaint rubric", then wouldn't you think The Stock Market (TSM) would catch on? Is it true that what is good for corporate earnings is bad for the middle and lower middle classes of our nation? Does anybody really care?

RUMORS are bouncing off the walls like super balls that since we didn't have a correction to TSM in September and so far October has seen TSM "climbing a wall of worry", that maybe TSM is overdue to be taken out to the woodshed for a good thrashing? After all, is Boeing (symbol BA) really worth 33 times this year's earnings and 18 times next year's, with it's paltry 1.5% dividend to boot? What about Dow component Hewlett Packard (symbol HPQ) with all it's internal problems and investigations going on? It sort of blows us away that it is not only selling near a 52-week high but that it's future earnings projections are also so stratospheric.
Will the "wall of worry" collapse, succombing to a frontal assault during this "War On The Dow 12,000"? Or will the Dow and the other major stocks of TSM "break on through to the other side" and head for what demographic economists like Harry Dent Jr. have been predicting, a Dow 26,000? If only we knew for sure.The "War On The Middle Class" seems more obvious than the "War On The Dow 12,000".

Energy Stocks On Sale? What Gives?

2006-10-11T13:06:00.000-07:00

RUMORS are swirling from many directions that a long list of energy stocks are bargain-basement cheap right now. Oil today fell below $58 a barrel. Did Goldman Sachs (symbol GS) energy analyst, Arjun Murti, really say in a note to clients recently that a "perfect storm" of seasonal and technical factors was to blame for much of the recent drop in energy stocks. One of our favorite energy stocks, Devon Energy (symbol DVN) is trading at only 8 times predicted 2006 earnings. Why? Is this company not worth more? (Don't miss the latest news from our favorite energy guru at the end of this article!)

We are told that Murti sees [perhaps psychically] a rebound in energy shares during the fourth quarter. Wouldn't that be surprising if that "rebound" happens just after the elections on November 7th? Murti was quoted as saying "Fundamentally, we believe global oil demand will exceed non-OPEC supply in 2007, driving our bullish crude oil view, and that natural gas inventories can return to the middle of the range (with normal winter weather) driving a recovery in U.S. natural gas pricing." That bodes well for companies like Chesapeake Energy (symbol CHK).

Your reporters here passed on rumors last week that Saudi Arabia, whose royal family has had a long-term close relationship with current American leaders, would not curtail oil production anytime soon. Today we read that this is indeed the case. Crude is below $58 per barrel and there seems to be a supply glut. We heard, thanks to BottomLine Secrets which wrote that Tim Guinness is saying that , "At $60, oil has seen most of its recent speculative positions unwound, and it isn't likely to fall much further. So you can expect fat profits to continue for oil producers." We're not even sure who Tim is, but he might be correct.

RUMOR HAS IT that historically the energy blue chip stocks (such as XOM, COP, CVX, OXY, BP) carry a P/E ratio that is about the same as the S&P 500 stock index. But now, energy stocks are selling for less than 11 times 2005 earnings and below 10 times earnings for their predicted 2006 earnings. Meantime the S&P has a P/E multiple of clost to 16. The reasons for energy bullishness are almost legendary right now, from Asian demand to the potential geopolitical crises in the oil producing regions. Are energy stocks super cheap because Wall Street knows something we don't know? We hope not.

Many of our mentors think there are many good deals for investors right now. Look at Penn West Energy Trust (symbol PWE) which explores, developes, and produces oil and natural gas in western Canada. Current P/E is slightly over 7, and current distribution yield of 10.50% (paid monthly). Of course PWE will only be able to keep up this generous distribution if oil prices don't go down a lot more. Other companies that our mentors seem to love is ConoccoPhillips (symbol COP), Marathon Oil (symbol MRO) and Enerplus Resources (symbol ERF). Our favorite energy guru says, "The best tar-sand investment you can make today" happens to be one of Canada's largest integrated oil companies and considered to be "Canada's Gas Station", is Petro-Canada (symbol PCZ) which we personally are trying to buy some today around $40 (but don't EVER buy anything or investment money in something just becasue we are doing so...do your due diligence always). We often buy stocks only to see them drop further before they rally. Sound familiar?

But listen to this. Our guru says, and we quote, that PCZ is, "The Cheapest Oil You'll Ever Buy"! Dang, that sounds good! He claims that PCZ is a $20 billion company with 10 billion barrels of recoverable oil in tar sands. Add to that the other 5.2 billion barrels of traditional oil and gas reserves, and you get a total of 15.2 billion barrels. That means you are buying its oil for around $1.30 per barrel! Now that's cheap. One caveat we were told: some of PCZs big oil-sands projects don't have cost estimates yet, and rising costs are a big concern. But even if costs rise and tamp down share values in the short term, in the view of our mentor he views this at least a 2 to 3 year investment. Ultimately, costs will diminish and PCZs value will probably rise to reflect its reserves. He claims its "a fact" that its share price does NOT reflect the 10 billion barrels of recoverable oil keeps him very bullish on this stock. Take a look at Petro-Canada (symbol PCZ).

Investing Can Be Enchanting and Romantic?

2006-10-09T10:31:00.000-07:00

Recently we received an edition of The Oxford Club Communique. They said that about six to eight weeks ago, Jim Cramer made a boo-boo. He dismissed Amazon.com (symbol AMZN) as, "...a bookstore that sells at 60 times earnings" and he gave the stock the "sell,sell,sell" button. Within days of his pronouncement (according to Alexander Green, the Investment Director at the Oxford Club) AMZN was up 20%, and when Mr. Green wrote his article (end of Sept.2006) he told his readers "...it appears to be heading higher. Much higher."

As of this morning (10/9) the $12 Billion On-line retail giant is trading around $33.30 per share, 47 times estimated earnings. Mr. Green thinks AMZN will hit it's 52 week high of $50 set last year. That is why he put AMZN in the Oxford Club trading portfolio. He believes that although AMZN has disappointed analysts when it comes to net income, the good news is that investor expectations are quite low, so Mr. Green thinks there is lots of room for an upside surprise down the road. That is because he claims (and RUMOR HAS IT) that CEO Jeff Bezos has made the strategic decision to put competitive pricing, increased market share, first -class customer service and technology innovations ahead of short-term profits.

He rumors that Bill Miller, one of the country's top equity mutual fund managers, believes Amazon is worth a lot more than its current price. Even though people like us would rather shop at Borders (symbol BGP), Mr Miller supposedly thinks Amazon is going higher, even much, much higer in the months and years ahead.

What an enchanting notion? Like the notion that Mr. Green's "advisory panelist" puts forth in the same issue that a leading provider of middleware business software, Tibco Software (symbol TIBX) is a takeover candidate. The panelist, Lous Bass (whose photo appears to make him look like a recent college graduate), thinks that TIBX is the "...clear-cut industry leader [in middleware] with a strong and growing client base (topping 2,200 at last check), it's easy to understand why the company is at the top of potential suitor's lists. And as time passes, the group of interested companies continues to grow (with rumors swirling that IBM, MSFT, HP, SAP and ORCL, among others, might be interested in a deal)."

A few months ago this same "Communique" was weaving an enchanting tale about Taiwan Semiconductor (symbol TSM) and by golly, if you are interested in a company that designs, manufactures, sells, packages and tests integrated circuits and other semi-conductor devices, TSM might be the company for you. Their delectable 3.2% dividend is another added feature. And did we mention that it is selling for a "mere" 13 times next years earnings? Makes us think of the words of one of our favorite Broadway musicals, "My Fair Lady", and the song "The Street Where You Live". "Oh, the towering feeling, just to know somehow you are near. The overpowering feeling, that any second you may suddenly appear."

Investing is both enchanting and romantic. One enters the purchase with infatuation and high expectations. It almost feels like "puppy love". We even might feel that "any second" our investment will soar up in price like a towering skyscraper. But if you don't know as much as possible about why you are buying an investment, and if you don't have someone much smarter than yourself to analyze it and keep an eye on it, you might end up feeling like an old Neil Diamond song, "Love On The Rocks".

Incidentally, we just rented from Netflix (symbol NFLX) the 1980 anniversary edition of the movie "The Jazz Singer". If you like Neil Diamond as much as we do, you will probably enjoy this flick. And if you are enchanted enough to want to invest in the stock market, make sure you have a lot of smart mentors like Alexander Green, Bill Miller, Warren Buffett etc......and make sure you keep reading our website. We love (romantically speaking) to quote from the smartest investors and the gurus that we think are worthy of our enchantment. Many of them tell us, "never, never fall in love with an investment". That's sound advice!

General Motors Beats Google

2006-10-07T14:42:00.000-07:00

RUMOR HAS IT that Google (symbol GOOG) might be the latest suitor vying to gooble up YouTube Inc. Some think this would be a matchup made in cyber-heaven, combining the search colossals technical and advertising power with the online video pioneer's quickly expanding audience. We understand that so far YouTube has received other proposals from media giant Viacom (symbol VIA) and the foxy News Corp. (symbol NWS). It will be fascinating to see who gets to "marry" amazingly popular YouTube.

But for our money, we think General Motors (symbol GM) has stolen the media attention with a host of ploys and decisions bound to make more headlines. The machinations of the American automaker is enough to make some mentors question GMs ability to keep paying their 3% dividend. And if things weren't bad enough, we heard today that their European sales for September were down almost 5%, we assume this is compared to September 2005. The GM market share in Europe has also fallen during the last 9 months.

The GM saga gets niftier, when yesterday, director Jerome York abruptly resigned from the board while his "boss", billionaire investor Kirk Kerkorian (age 88), withdrew a plan to add as many as 12 million more GM shares to his almost 10% stake in the company. The York (age 68) decision comes on the heels of GM's board decision to end talks with Renault (symbol RNSDF) and Nissan Motor Co. (symbol NSANY), which had been aiming to continue York's proposal for an alliance of the 3 automakers. All this seemingly negative news helped the stock shed $2.08 off the share price down to $31.05.

Did York resign because he and Kerkorian have given up on the one-time "king of American automobiles"? Is this really the first salvo of a tactic to oust both the GM board of directors and Kerkorian's nemesis, GM CEO Rick Wagoner? Will the bold billionaire nominate his own slate of directors for GM's board? Will Wagoner's cost-cutting plans to save GM $9 billion a year come to fruition? Would we buy a Chevy Impala when for the same money we could buy a Toyota Avalon? Will the New York Yankees have a change in field management (what does that have to do with GM?)? We don't even begin to know the answers to these intelligent questions, but we do think GM is on the verge of some huge transitions.

The big question is, "What will GM and it's share price look like when the financial titan Kerkorian finally discloses to the public what his real plans are?" Right now Wall Street doesn't seem pre-disposed to bet on either GM or it's Dearborn rival, Ford (symbol F). As the earnings announcements for the 3rd quarter spew forth beginning this week, we might see GM shareholders feeling more and more nervous about holding that stock and switch to some better, more predictable dividend paying stocks, such as Johnson & Johnson (symbol JNJ), which our mentor Dan Ferris seems to favor. We think GM and Kerkorian will beat out GOOG, not for YouTube, but for the limelight and the media's attention. But, we have been wrong before.

They Tried To Warn Us But......

2006-10-03T17:52:00.000-07:00

...we weren't listening. They tried to tell us that commodities, energy and natural resource stocks were about to get thrashed. They warned us that we shouldn't try to "catch a falling knife". Jim Cramer's been saying that natural gas and oil stocks were still in "The House of Pain". RUMORS have been flying like bats in a musty cave. "Oil's on it's way to $55 and maybe lower" some say. "Natural gas will plunge to $3.00" says others. RUMOR HAS IT that the U.S. energy supply is more than ample, and if we have another warmer than normal winter.....WATCH OUT BELOW!!! Some rumor mills are even saying, "WHAT A GREAT BUYING OPPORTUNITY". Maybe we will all look back 6 months from now and say that about today?

Great gabs of grease balls! Rumor says that even though Venezuela and Nigeria have cut back on production, the "friends" of certain US political dynasties (a.k.a. the Saudi Arabians) and the biggest producing members of OPEC are NOT cutting production....and might be contributiing to the energy freefall (crude-oil futures have dropped $4 in just 2 days). Some analysts think the Saudis and their partners won't cut production because they don't want anyone to think they are desperate or that supplies are more available than was believed. All of a sudden, "the barrel is half full" instead of "half empty". Gold fell in sympathy, down a whopping $21.80 per ounce in one single day, and silver dropped almost 60 cents.

The Market Vectors Gold Miners ETF Fund (symbol GDX) plunged over 6% and continued to fall after hours to a total one day take down of almost 8% (I'm feeling a little queasy just writing about it). Goldcorp (symbol GG) Agnico-Eagle (symbol AEM) and Kinross Gold (symbol KGC) fell 8 to 9% in one session. Vista Gold (symbol VGZ) down almost 11%,Silver Wheaton (symbol SLW) down almost 10% and Silver Standard Resources (symbol SSRI) down 9.5%. "They" said that gold, silver, oil and natural gas might be due for this kind of sharp sell-off, even after a "bloody September". We should have listened better! We kinda did.

There is a reason ethanol stocks like Anderson's (symbol ANDE), energy companies like Anadarko Petroleum (symbol APC), Holly Corp. (symbol HOC) and miners like Northern Orion Resources (symbol NTO) were down in some cases 7% today. That reason is...drumroll please....this is a very speculative, volatile and unpredicatable time in the energy and natural resource stocks. These are examples of companies that can go up and down by big amounts in one day, and move up 30% in a week without hardly batting an eyelash. That is the nature of the stock market and stocks like Century Aluminum (symbol CENX) or even Ford Motor (symbol F). RUMORS galore say that this is NOT the end of the commodity bull market though!

Have we learned any lessons from the painful sell-off we have personally experienced in the energy and precious metals stocks that our mentors encouraged us to buy. Yes we have. Besides learning not to whine and whimper we have learned it is better to take profits while these stocks were higher (our mentors had encouraged us a couple of months ago to "take 50% off the table) then to have to endure the agonizing "account value plunge" that we now see whenever we pull up our accounts at Fidelity. But we are grown ups, and we don't "blame and complain". But next time we have a 20 or 30% profit in a volatile stocK, we think we will do the safe thing and at least "take 50% off the table". They tried to warn us, but next time we will be smarter, especially if we survive this "House of Pain". I thought Cramer once said that the best time to buy is when it hurts so much it makes your knees weak and your stomach sick? Feels like that now?

All Dressed Up and Nowhere To Go?

2006-10-02T11:56:00.000-07:00

The U.S. stock market has begun the month of October like a bull in a tuxedo. The technical gurus know that much of the market is sort of "overbought" and like a well-dressed suitor is neither too confident or too shy. Rumor has it that some of the analysts and market predictors feel the economy is looking more like "Goldilocks"...or at least the part that goes "....not too hot and not too cold, but just right", which is the way we like our oatmeal in the morning. Why shouldn't we all feel like everything is "just right"? After all, RUMOR HAS IT that today is a good day for the gaming and casino stocks. Harrah's (HET) reportedly received a $15 billion buyout bid from two private equity firms. The irony of this happening on Yom Kippur, the holiest day of the year for Judaism, picturing the need for mankind's attonement for our sins (such as gambling) is not lost on us.

But I doubt you will find many gaming stocks, especially Boyd Gaming Company (BYD), MGM Mirage (MGM) and Wynn Resorts Ltd (WYNN) feeling much contrition today. Our point is that this is an optimistic event occuring during a rather optimistic, pre-election period of time. Investors who sidelined themselves before September (a usually weak month for the market) found the month to be anything but weak. Now RUMORS abound that these same investors are starting to move into long stock positions. Volume is lower than average today due mostly to the holiday so we will have to see what the rest of the week brings. One of our mentors thinks the market will consolidate before it moves much higher. Earnings reports will start to appear next week to provide the next catalysts for market action. The good news is that we have not heard much on earnings expectations from analysts and gurus. Maybe that means earnings expectations are not running too high? This could mean that the potential damage from disappointing earnings reports could be lower than normal. Is a party brewing, or a tempest in a teapot?

We noticed that Peter Slatin, editor of The Forbes/Slatin Real Estate Report is recommending a fascinating real estate investment trust called American Campus Communities (ACC). The Austin, TX based REIT is smart enough to own and manage 38 properties in and around college campuses for student housing purposes. It provides management and leasing services for other owners as well. In terms of students housed, the company, according to Mr. Slatin, has 22,900 beds in its own properties, pays out a decent dividend, and has made money over the past 4 financial quarters (ended June 30, 2006). It sure sounds like a good business model to us, since the demand for college beds and housing seems to be going up along with college enrollment. We are NOT saying that ACC is attractively priced but we ARE saying that you might want to check out The Forbes/Slatin Real Estate Report to learn more.

Since we are on a roll (and frankly all dressed up with nowhere to go) we thought we would touch on a rumor/report we read that a top analyst at Scotiabank, Patricia Mohr, VP, Industry&Commodity Research for Scotia Economic is forecasting that base metals prices " will remain at exceptionally high levels" for the balance of the year. Mohr supposedly said that uranium supplies are tight and that price forecasts for uranium are being moved up this year and next. "A huge gap exists between global mine supply and utility consumption" [of uranium]. That should bode well for companies like Cameco Corp. (CCJ) and International Uranium Corp (IUCPF).

As you might have guessed, Mohr thinks "...silver--as well as gold--should move higher in the first half of 2007" and she is rumored to have said that the outlook for "silver prices also looks quite promising." In fact, she reportedly noted, "silver has outperformed gold this year with the London Silver Fix rising 59% year on year as of Sept.27 compared with a 28% advance for gold (London PM Fix)." And, rumor has it that she thinks silver prices "could temporarily spike over US$15, though new mine start-ups could moderate prices in the 2nd half of 2007". What will this mean for Pan American Silver (PAAS), Silver Standard Resources Inc. (SSRI) and Silver Wheaton Corp. (SLW)? You couldn't tell by looking at their share prices today, which all appear to be heading sideways. She thinks OIL prices will be supported by OPEC production cuts "...if prices consistently drop below the $60 [per barrel price], and that the current price has triggered short covering." Scotia is maintaining its oil price projection for $2007 over the $60 mark. That is one reason we picked up some shares of Berry Petroleum Corp. (BRY)...and the other reason is our favorite energy mentor is telling us it could be a takeover candidate in the future. Who the heck knows. The many markets we follow are like a bull in a tuxedo right now, all dressed up and nowhere to go. These are all good reasons to remain cautiously optimistic.

Steve Irwin vs. Jim Cramer

2006-09-29T16:59:00.000-07:00

One was a wildlife warrior, the other is a Wall Street warrior. One was a wildlife conservationist, the other is a money conservationist. One was enthusiastic and passionate about what he was doing, the other IS enthusiastic and passionate about what he IS doing. Both put their money where their mouth is. Both are outlandish and larger than life. We speak of both in the present tense because we, like Terri Irwin, believe that Steve's spirit is still with us and will always be with us. We need his positive energy and zest for life almost as badly as his family needs him. Our prayers for his family are fervent and daily.

Steve taught us (and is still teaching us) to understand and be respectful about wild animals, from crocodiles to bull rays, from cobras to tigers. Jim teaches us to understand and be respectful of the stock market, from Yamana Gold (AUY) to General Motors (GM), from Microsoft (MSFT) to Boeing (BA). Steve's spirit is teaching us to put our whole heart into protecting the habitats and the species that inhabit them. Jim's spirited attitude is teaching us to put our whole heart into improving our lot in life and making our money work hard for us.

It is our fervent belief that Steve would have (and does) appreciate Socially Responsible Investing (SRI). He would probably love a fund like the Pax World Growth Fund (PXWGX) that, through its investment managers, invests in companies that they feel are socially responsible like Cerner Corporation (CERN) and Marvell Technology (MRVL). Jim is more focused on companies that are fiscally responsible, like Goldman Sachs (GS) and Sears Holdings (SHLD) who Jim feels are well-managed and profitable. As Steve would want corporations to respect the inhabitants of the planet, Jim wants them to also respect the shareholders of the company. They both sacrifice their privacy and put their lives on the line for what they believe in, and they do so with unbridled enthusiasm.

We will miss Steve's bodily presence on the TV and the big screen, although we hope that Animal Planet TV (owned by Discovery Communications Inc.) will keep playing all his old shows. We are excited about his daughter Bindi's upcoming TV show, and the impact that his wife and two children will continue to have on this planet, guided by Steve's boundless and eternal energy. As Steve would say, "I was born to help people appreciate and conserve our beautiful wildlife and to become a wildlife warrior."

We are glad someone like Jim Cramer is taking to the airwaves and saying things like, "The fortunes in real estate were quite exaggerated...we have lots of historical data to prove that if you buy the right stocks for the long haul you will outperform all other asset classes." Cramer loves the work of Jeremy Siegel at the Wharton School who believes in the long-term value of quality stocks. Cramer passionately describes quality stocks as "...stocks that pay good dividends and companies that don't have to borrow money to pay good dividends". He is known to say, "My job is to keep you in the game so you can benefit from the long-term cycles...the 20 year period."

We believe that Cramer, if he doesn't believe it already, will begin to believe that he was born to help people utilize quality investment equities, and, to inadvertently be a "Wall Street warrior" who will champion the rights of all shareholders and investors. Perhaps he will indirectly contribute to the avoidance of another financial catastrophe like Enron, Worldcom and all the defunct dot.com companies. "You can not buy just any stock", he often warns us, "you must do your homework!"

So maybe it isn't Steve Irwin "versus"Jim Cramer, maybe it shoud be Steve Irwin AND Jim Cramer, for they have more things in common than they have differences. Our dream is that all of us will look for the commonalities that we appreciate in each other, and follow the passion for life and learning that these two men have modeled for us in such a memorable and lasting manner. Maybe all of us can invest our money with more "social responsibility" and hold publicly-traded corporations to a higher standard. Maybe we can all make this planet a better place for everyone and everything! Thanks Steve, and thank you Jim!

Steve Irwin's Investment Legacy?

2006-09-28T12:36:00.000-07:00

We don't know exactly how Steve Irwin and his family invested their money. We assume most of it went into the Irwin's amazing Australian wildlife park and "crocoseum", as well as the many tv and film projects that Steve and Terri made over their 14 years together (we think we read they made almost 170 shows on the earth's amazing wildlife creatures). If we know Steve as well as we think, we know he was the type that he would put his money where his heart was. He reminded us of someone who would use his own money to help his family and friends, whether human or not. He also had to buy a lot of work clothes, considering how much mud and dirt he rolled in!

Last night my family and I watched the Barbara Walters ABC special (DIS) where she interviewed the widow of the late "Wildlife Warrior" and conservationist, Steve Irwin. Mrs. Irwin gave us an understanding of the remarkable life, energy, humor and passion of her late husband and filled in the blanks concerning how her husband has "changed the world". Having followed Steve's career and incredible adventures for over 10years, including the births of his two children, my family and I were heartbroken by his accidental death.

However, since the fateful day that he was taken away from his family, friends and millions of fans, the life and legacy of Steve Irwin has grown to astronomical proprotions...."Crikey!" Mrs. Irwin (Terri) told all of us that Steve gave his time, money, heart and his life to what he believed in....helping humans appreciate and identify with wildlife and to motivate all of us that if each of us is willing to make even a small difference in the conservation of our planet's natural habitats and the diversity in this amazing eco-system, that the planet and all the creatures that are left will be saved.

Socially Responsible Investing (SRI) is one way we can all make a difference. SRI is generally defined as consisting of 3 strategies: First,investing in companies that meet certain standards of social and environmental responsibility. Second, using one's rights and responsibilities as a shareholder to persuade companies to adopt higher standards (also know as "shareholder activism"). Third, investing directly in sustainable economic development ("community investing"). What these strategies have in common is the hope on the part of the socially responsible investor that their investments will, over time, have a positive impact on corporate behavior, on financial markets, and on the planet we all share.

Pax World ( http://www.paxworld.com/) has the distinction of having offered the very first socially screened mutual fund in the U.S. in 1971, and we are investors in their Balanced Fund (PAXWX) and have been pleased by their objectives and performance. If you are interested go to their website or call them at 1-800-767-1729 and get their prospectus and brochure about how the fund works and what it invests in. Today there are a number of SRI funds that hold similiar type companies such as Amgen (AMGN), General Electric (GE), EMC Corp. (EMC), Wellpoint Inc. (WLP), Chesapeake Energy (CHK),Covanta Holding Corp.(CVA) and SunOpta Inc.(STKL). You might want to check with Morningstar to see how the various SRI funds compare and are rated.

Today, SRI is not so much about what you don't invest in as what you DO invest in: higher standards of corporate social responsibility and corporate consideration for the envirnoment and ecology of this planet. Steve Irwin's life and death has awakened our own conscienciousness about what kind of corporate cultures and priorities we invest our money in. "Money talks" is a famous expression, and where we invest our money speaks volumes as to what we believe in and what we stand for. Steve's legacy and his family's values have reawakened our interest in becoming proactive about supporting those businesses that have a heart and a conscience about how they are affecting the quality of life for ALL of earth's inhabitants...creatures great and small. May we all give much thought to the idea of becoming "Wildlife Investment Warriors" and do all we can to make some positive social changes before it is too late.

Mixed Nuts and Mining Companies

2006-09-26T10:36:00.000-07:00

Goldcorp (GG) founder Rob McKewen, who now heads US Gold (USGL), flat out accused his successor Ian Telfer of dumping his Goldcorp shares shortly after he became President and CEO of the company. We weren't there but we can imagine the fireworks and the "ohhh!" sound that the audience must have made when this happened. Then RUMOR HAS IT that McKewen accused Telfer of being unwilling to give Goldcorp's shareholders a say-so in the merger between Goldcorp and Glamis Gold (GLG), saying that there was "unneccessary risk" in the deal. We have owned GG, USGL and GLG for quite awhile so we are quite familiar with the history of this ongoing drama.

What also fascinated us was McKewen's other public accusations. He accused senior mining managers of gambling on mergers and acquisitions because "they have much less to loose then their shareholders" in these deals because of the managers "insignficant share ownership". Mineweb.com reported that McKewen mentioned that the "bigger is better trend" among mining companies is "a classic line," and then he reportedly asserted that major mining cmpany earnings decline as production increases. Perhaps his comments were effected by the recent merger talks between IAMGOLD Corp (IAG) and Cambior Inc (CBJ)? One of the favorite claims of investment bankers is that share prices only drop temporarily as the result of a takeover, and that just doesn't sound legitimate to a man like McKewen, nor frankly to us.

At a recent Denver conference McKewen was purported to have made the following comment about mining shares, "Its time to load up, not sell". He told miners, analysts, institutional investors and bankers attending the gold forum that he shopped worldwide before deciding to take a major position in Nevada's Cortez/Battle Mountain Trend. He chose Nevada, as RUMOR HAS IT, because it lacked the turmoil of geopolitical issues which impact other mining localities, such as Jim Cramer's recent favorite, Yamana Gold (AUY) with operations in Brazil.

McKewen was also seeking mining prospects involving the U.S. dollar and currency. However, McKewn is reported to have joked tht the State of Nevada is owned basically by two companies, Newmont Mining (NEM) and Barrick Gold (ABX), saying "...and we are sandwiched right in between"...speaking of his US Gold properties. If McKewen is one of the "mixed nuts", then so are we because we do tend to want to invest where he is investing. After all, the best mentors in the investment world are the ones with his kind of track record. So when he speaks, we listen. How about you?

Cramer Making You Any Money Yet?

2006-09-25T17:20:00.000-07:00

Listening to Jim Cramer on the radio today was like listening to a juicy rumor mill. He has an amazing knack of mixing the facts with the gossip, the truth with the opinion, and coming up with in irresistible brew. Today he was telling us, "I can't make you the money that I want to make you if you don't own these stocks." Which stocks was he speaking of? Glad you asked. Sears Holdings Corp. (symbol SHLD) is one of them. RUMOR HAS IT that he is telling his subscribers to his RealMoney service that Sears is getting ready to sell their famous Craftsman line of products in their Kmart stores. Cramer supposedly is telling both his readers and listeners that the retail sector is roaring and "en fuego"! He believes SHLD will begin to show nice improvements in their earnings starting next quarter, if we heard him right.

The other two stocks we "must own" in order for Cramer to make us money is Google (symbol GOOG) and Goldman Sachs (symbol GS). GOOG is touted by Cramer because he says he believes that technology stocks are the "place to be" at the current time. He has been singing the praises of Microsoft (MSFT) and Cisco (CSCO) for quite a while now, but our source says he just started getting bullish on Google again after the oil and commodity stocks started tanking. He, like a number of others, believe that Google is going to make a ton of money in advertising in the coming year and be stiff competition for MSFT and Yahoo (YHOO). When it comes to Goldman Sachs, Cramer used to work for them, seems to have much faith in their management (which used to include the current Secretary of the Treasury) and Cramer seems to know that GS can still make a lot of money in investment banking.

RUMOR has it and Forbes published this afternoon the story that UAL Corporation (symbol UAUA), parent company of United Airlines has supposedly hired GS to "explore various strategic options, including possibly merging with other airlines. Possible suitors and merger partners included one of our favorite airlines, Continental (symbol CAL). If you haven't flown Continental lately you don't know what you are missing. They even serve real food on their long distance flights, and the employees seemed happy and friendly.

Anyway, Goldman Sachs should benefit nicely if the rumors are true and no wonder Cramer loves GS stock. He even said today that "for a trade" he likes CAL. Go figure! He figures that now that oil and jet fuel prices are down sharply, good airlines can cut costs, passengers can afford to fly, and consumers will have more money in general in the months ahead. That is also why Cramer likes retail and technology going forward. He told listeners today that we will all have more money for computer products, DVDs, Sears clothing, and new technology items and services. He says it is all because "the tax" of high oil prices has done gone away (as they say in Mississippi). We sure hope he is correct!

Our bottom line today involves two questions. First, has Cramer made you any money? Secondly, do you think Cramer is in the business to "make you money"? If you answer "yes" to either question, you might want to consider his suggestions and perhaps find out what radio station Cramer is on each day and begin listening to his show. As we have found you are bound to learn a thing or two with every show. We have learned the hard way that we must choose our mentors carefully and make sure that we understand what we are doing before we listen to anyone, especially when it comes to real money.

Mysteries Abound

2006-09-22T17:11:00.000-07:00

The many personalities of that multi-faceted creature we call "The Stock Market" (a.k.a. The Creature from the Green Lagoon) is mystifying more than a few people right now. All it takes is one report from the Federal Reserve Bank of Philadelphia that showed regional manufacturing activity falling to a negative reading for the first time in more than three years, and "The Stock Market" (T.S.M.) becomes pessimistic. This is after the Fed kept interest rates at current levels and the Dow started flirting with its all time highs. I mean for Pete's sake (Pete Seeger that is), does one report from Philly make T.S.M. weak at the knees?

Associated Press reported today that the chief investment officer at Wells Fargo Private Client Services, a subsidiary of Wells Fargo (symbol WFC), was rumored to have said, "I think the markets are all of a sudden worried about slower growth." Dean Junkans was purported to go on to say, "I wouldn't put as much emphasis on one number as the market seems to have done in the last couple of days" , evidentally referring to the Philadephia Fed figure (see if you can say "Philadelphia Fed figure" 3 times rapidly without sounding like a blithering idiot).

Then after the market closed Friday, Hewlett-Packard (symbol HPQ) is rumored/reported to have motivated their Chairwoman Patricia Dunn to be "done", and resigned from its board of directors. CEO Mark Hurd will take over the chairmanship and Dunn, who was widely expected to stay on the board now is expected to be "done" with the board (have we over-used the pun?). We don't mean to make light of a sad situation which originated, as RUMOR HAS IT, from a wave of leaked documents revealing how deeply HP's investigators (a.k.a. spies) intruded into the personal lives of 7 directors,9 journalists, 2 employees and a partridge in a pear tree (forget the partridge). Rumor has it they even intruded into the lives of family members of all those listed above (except the partridge). Dunn allegedly authorized the "investigation" and received regular updates, although she supposedly claimed that she didn't realize that the HP investigators were going to such extremes as they evidently did. Spies do tend to surprise on the downside!

To add to T.S.M. bad mood, Boston Scientific (symbol BSX) fell to a 4 year low after the company's 3rd quarter profit warning prompted downgrades by several brokerages, among them Prudential Financial (symbol PRU) and Morgan Stanley (symbol MS). Then one of Japan's giant companies, Sony (symbol SNE) was rumored to be planning to slash its pricing for its Playstation 3 videogame console by a whopping 20%! We guess they will still be able to make a profit? Sony's move will evidently heat up the competition with rivals Microsoft (symbol MSFT) and Nintendo (symbol NTDOY). MSFT seems to be like T.S.M. when it comes to good news and bad news being on their weekly menu. Yet that is the nature of business in the big leagues. RUMOR HAS IT that MSFT has some happier days ahead of it, including a potentially higher price per share driven by better earnings. Could it be fact, or is it just rumor and wishful thinking? We do not know.

Speaking of biotech and biopharmaceutical companies (someone was speaking of them), what is going on with the stock of Millipore Corporation (symbol MIL)? After closing at $67 on Wednesday the stock has plunged to close at $60.90 today, a drop in 2 days of over 9%! Since we own this stock in our IRA and it was recommended to us by the Oxford Club, we thought we would ask if anyone would step forward to comfort us. Maybe a lot of the biotech companies had a bad week. We noticed that superstar Amgen (symbol AMGN) was down a little for the week and Celgene (symbol CELG), one of our personal favorites was also down by a few pennies for the week. Genetech (symbol DNA) was also down a little this week and yet was reported by Fortune magazine to be number 79 in their list of the fastest growing companies. Fortune's list is an annual ranking of annual companies by 3 year growth in sales, profit, and total return that meet other specific criteria.

So to make a long rumor longer, this week has been kind of a downer for a lot of shareholders, especially those of us who own precious metal stocks like Gold Fields Ltd. (symbol GFI) and energy stocks like Devon Energy (symbol DVN), down almost 9% since the close on Sept.18th. Our seasoned mentors who have been investing in T.S.M. for a long, long time tell us not to worry though. The many personalities and moods of T.S.M. are sure to surprise us even more in the weeks ahead leading up to Thanksgiving. So we anticipate even more uncertainty and unlike T.S.M., we begin this weekend with optimism and gratitude.

When it comes to T.S.M., mysteries will always abound and the bears will teeter- tooter with bulls. Mysteries can lead to people making money with their investments just as easy as it can lead to loosing money. We believe "the glass is half full". How about you?

Insiders Buying Their Own Company Stock?

2006-09-21T18:12:00.000-07:00

RUMORS are flying that the Chairman and CEO of Chesapeake Energy (CHK) is scooping up more shares of the company's common stock. Who could blame him if the rumor is true? The stock is trading way off it's 52 week high at a PE ratio of around 8 (this seems to our mentors to be undervalued relative to its peer group). Excitement over a recent deal might help explain why and if CE McClendon might be plowing so much of his own money (we hear the President of the company is also a major share-buyer) into the shares of CHK. On Aug 3rd of this year Chesapeake announced it was the winning bidder for drilling rights on 18,000 acres of Barnet Shale Leasehold beneath the Dallas/Fort Worth International airport. In layman's terms, there is a heck of a lot of Texas natural gas in the land that DFW sits on, and CHK plans to drill in between the runways. CHK believes the area could hold 470 billion cubic feet of new reserves. McLendon has described the Barnett Shale formation as "the last big prize," expressing his opinion that virtually all of the great Western properties have now been gobbled up.

If McLendon is correct about the dwindling availability of worthwhile gas fields, that could make CHK a potential takeover candidate for some predatory, hungry major oil. Sometimes it is easier to buy production on Wall Street than to go out and find it. Exxon (XON), Briitsh Petroleum (BP) and Royal Dutch Shell (symbol RDS/B) could all be potential devourers. CHK is a high quality company with 92% of its production being natural gas...it's pretty much a pure play, and if we have a cold winter, a supply disruption, some takeover activity... it might just be a humdinger. We have owned CHK for several years thanks to recommendations we received because we are subscribers to the Oxford Club Communique and Agora Publishings' Outstanding Investments newsletter. The October 2006 edition of Outstanding Investments has quite a write-up about CHK and one of our favorite gold producers, Goldcorp (symbol GG). You can subscribe or check them out at www.agorafinancial.com or email them at OI@agorafinancial.com. Rumors are flying!

When The Opportunity Arises

2006-09-20T16:20:00.000-07:00

A basketball coach approached one of her players, a young lady who could dribble, pass and run like the wind, but would not take any shots, even when she was wide open. "You remind me of myself when I was playing high school ball. One day my coach casually told me something I will never forget," the coach said with focused intensity. "You miss 100% of the shots you never take." The young forward got the message, and from that day on she practiced the skill of shooting for the basket when she had a good opportunity.

There is an application to this story in the world of investing. There are many potential investors, both female and male, who live by the rule that sort of says, "ready, get set, not yet." They toy with the idea of investing their money but just can't seem to find the nerve to "pull the trigger" so to speak. Why? Perhaps it is because they can't stand to be wrong. Maybe it is because they believe that if they buy an investment it might go down in value instead of up. They probably never knew that some of the best investment opportunities come at times when the "talking heads" are saying that the sky is falling and our stomachs are feeling quite queasy.

The fact of the matter is that when we invest carefully, we do sometimes make mistakes, loose money and learn some painful lessons. But you can also make some "baskets" and occasionally a "3 pointer" too. Our mentors have taught us that by following the example and suggestions of seasoned investors and outstanding advisors, we are more likely to have more winners than loosers. That is why this website exists, to hopefully connect you with a mentor-guided investment approach that will combine the ideas, lessons and insights of a number of wise investment guides.

Whether you are buying GE stock, the shares of an acquirer of precious metal mining properties like Yamana Gold (symbol AUY), a recommended exchange-traded fund (ETF), treasury-inflation protected securitys (TIPS) or income-producing real estate, if we have the guidance of wise mentors and we have really done our homework, we will usually have rewarding results on average over time.

But if we act more like the proverbial deer caught in the headlights, we will more than likely miss out on many profitable opportunities. Remember, "You miss 100% of the shots you never take." Chose your "shots" carefully and in time you will find you "score" more often than you miss.

Bullish Readings or Just Plain Bull?

2006-09-19T23:43:00.000-07:00

Some of the more experienced stock market watchers are telling us that their indicators right now are quite bullish. Stocks seem to be bucking the historically weak September calendar trend and the major indices are looking like they want to go higher. One writer who sent us his "market outlook", Ken Trester, tells us that he believes that the Dow is likely to make a run at new all-time highs. Many feel that the decline in energy and metals prices will help stocks, and when it comes to energy prices, forecasters like Trester who follow chart patterns seem to believe that this decline in energy prices is not over.
Then there is the Fed meeting tomorrow and the short-term direction of interest rates. Our mentors mostly perceive that this should be bullish for the stock markets too. Are all the uncertainties in the world, the upcoming Congressional elections, and all the other head-scratching factors being ignored right now? And what about the apparent fact that many longer-term investors are leaning toward foreign stocks because they are looking for higher growth prospects? Will the U.S. economy slow down in 2007? Will the dollar go down in value versus other currencies? Is the housing price correction over? Will the showdown with Iran begin to heat up? Are the most popular stocks really worth 15 times next year's earnings? Does it really matter who controls the U.S. Congress? Will there be yet another Asian currency crisis?
These are all questions that make our mentors more cautious right now. What are your advisors telling you to think about? Is the stock market about to explode to the upside or, will it have the autumnal correction that often follows a long string of interest rate hikes?
Some of the great investors in the world today are quite selective in what they invest in because of these hard-to-answer questions. It seems to us that discretion is the better part of valour at the present time. What is your opinion and what are you doing with your investment dollars? Why should any of us take extraordinary risks now when we can get 5% by parking our money in a money-market fund? Good questions, yes?

Crash Landing for Housing?

2006-09-18T18:02:00.000-07:00

Today's "Money Rumor Mill" is brought to us from the informative, entertaining and always insightful publishers at Whiskey and Gunpowder (www.whiskeyandgunpowder.com). Mish and Greg do an amazing job and you can receive their daily newsletter for free.
Here are some of the excerpts from today's edition:
I have it on great authority that there will not be a hard landing in real estate. Who told me that? It was none other than Mike Morgan at MorganFlorida. Please listen in to what Morgan has to say.

Mike Morgan:

“Will there be a hard landing? No! Will there be a crash landing? Absolutely! “Despite September’s short covering of homebuilders and value buyers trying to cash in on low P/Es and stocks selling at or below book value, a hard landing is now out of the question. We’re in for a market crash. Read between the lines, or read actual comments for content.

“Here’s what Robert Toll, CEO of Toll Brothers, said at the Credit Suisse conference. He said the market got ahead of itself in recent years, citing ‘greed on the part of buyers and sellers,’ and that current speculative inventory is probably at its largest.’

“And how about Don Tomnitz, CEO of D.R. Horton: ‘We have never seen housing prices and demand slow as quickly as they have during this down cycle.’

“Take it a step further and look at the statistics. Never before have we seen inventories at these levels. Recently, the NAR finally admitted home prices are coming down. Never before have we seen home prices fall. And RealtyTrac just announced that foreclosures are up 53% from a year ago.

“For those ‘value investors’ buying the homebuilders because the P/Es are so low, I ask, What happens when there are no earnings? And for those ‘value investors’ buying for the book value, I ask, What happens when the builders take massive write-downs to land, and burn up cash with carrying costs of unsold inventory?

“But that’s not even the heart of the current problems. For the last two weeks, I’ve been receiving daily calls from desperate mortgage brokers, real estate attorneys, insurance brokers, title companies, and subcontractors looking for deals and work. This week, I spoke with a real estate attorney closing his office and returning to the corporate world. And several of the smaller builders have called me offering triple commissions to entice sales of their inventory. It doesn’t end there.

“Who will the housing crash affect? Everyone. Real estate agents will be first. As a group, they’ve made a ton of money during the housing boom, and they’ve spent millions on new cars, vacations, restaurants, clothes, and everything else that comes with excessive discretionary income. That’s over now. Agents are not buying the luxury items that helped feed the economic boom, and they are cutting back on business spending like advertising and marketing. That hits the vendors and newspaper revenues.

“Take it a step further. With sales off 50% and more, all of the industries that have benefited from the boom will suffer loss of revenue and jobs at accelerated rates and massive proportions. Homebuilders and condo developers have been announcing cancellations of projects and cutbacks in spec building. The flippers fed the housing boom, and they’re washed up right now. In fact, they are making the crash much worse than it should have been.

“Many flippers bought multiple properties. When in the history of the world have we ever seen the housing industry conduct business like a stock exchange? We had bidding wars. We had lotteries on new developments, just like we had allocations for new tech offerings during the late ’90s. And just like the tech boom, the buyers were not making decisions based on fundamentals. Take a look at the recent Vonage offering, where buyers don’t want to pay for their stock, because the price dropped after the public offering. The same thing is happening in the housing market, with thousands of buyers walking away from deposits, refusing to close on homes. That adds to the woes of the builders.

“And just like we saw a tech crash with everyone rushing to sell, we’re now just starting to see flippers dump properties for 200-400% losses on their deposits. Add to the woes the fact that interest rates are up and most flippers bought using creative financing and low-rate ARMs.

“But this is all old news for us. The other shoe is dropping now. Loss of hundreds of thousands of jobs created from housing will act like a virus and spread throughout our economy. As real estate agents, attorneys, and mortgage brokers rein in their spending, it will affect restaurants, car dealers, advertising companies, jewelers, remodeling contractors, furniture manufacturers, bank profits, electronic retailers, clothing -- and the list goes on and on and on.

“As the primary players are affected and they cut back on spending, so will the secondary players in this market. These companies will be forced to lay off employees, and the cycle will grow like a virus. Is that it? Not a chance.
“The housing market benefits most when rates are low and jobs are being created. With rates rising and job loss skyrocketing, the affordability index for homes drops in step. The buyers that are still in the market cannot afford the same home they could a year ago. On average, with the rise in interest rates, the buyer that could afford a $500,000 home a year ago can now only afford a $425,000 home. But with the loss of jobs growing, there are fewer buyers that can afford the $425,000 home and many existing homeowners that can no longer afford to make their monthly mortgage payments.

“So now we have a third group of sellers scrambling for the ever-dwindling buyers’
market. You’ve got the flippers desperate to sell. You’ve got the builders stuck with inventory of unsold homes, and now you have the group of sellers that are being foreclosed or simply decide to sell because they can no longer swing the monthly mortgage payments after losing their jobs.

“Nonsense? Hardly. I spoke with a real estate agent the other day who has not sold a home in three months. His wife works for a title company and was just laid off. He’s now sending out applications for a job in his former field of banking. Lots of luck. He’s been out of the field for five years, and he’s 54 years old. They have two kids in college and a hefty mortgage. Oh, by the way, did I mention they own three flip properties that they can’t sell?

“How about the attorney who is closing his office and returning to the corporate world? He’s laying off six people in his office. And how about the builder who called me this week? He employs about a dozen people, as well as a small army of subcontractors. He’s closing up, and he has unsold inventory that he cannot sell at a profit. That means the dozen employees are out of work and his army of subcontractors are out of work for the first time in four years.

“And how about my office? I’ve decided to lay off one of my team members. She’s a single mom, but as much as it hurts to break the news to her, I have no choice. If things don’t pick up within the next 30 days, I will be forced to lay off a second team member. When you do the math, the choice is survival. It doesn’t end there. Realistically, if things do not pick up within 90 days, I will close my office and concentrate on my other businesses. This is reality, and you’re hearing it from the horse’s mouth.

“Multiply these four scenarios by thousands and you have a crash. A hard landing is out of the question at this point. The economists should be talking about how devastating the crash will be.”
Mish, we all hope that Mike is as wrong and wrong can be, but where there is lots of smoke (which we are experiencing right now here on the central coast of California), there is usually a nasty fire. Please check out www.whiskeyandgunpowder.com and see why we read what Mish and Greg have to say each and every business day.

Lions and Tigers and Bears, Oh My!

2006-09-12T19:19:00.000-07:00

RUMORS AND SPECULATIONS about the imminent direction of the stock and bond markets, as well as the economy as a whole,are as spectacular and abundant as Cher's wardrobe. One prominent opinion is that September is usually not a good month for stocks and so we will see a tight trading range with a mostly negative, downside bias. Others suggest that stocks might just surprise everyone to the upside. What's a couple to do? Should we sell some of our holdings and raise more cash in the money market fund? Or, should we be preparing to jump on the band wagon and start buying after the Fed meeting next week?

How about bonds and interest rates? The 10 year bond rallied today and the yield is back down to 4.77%. That is less than the interest we are making in our Fidelity Government Reserve Money Market Fund. If the economy really is as healthy as the optimists think, why aren't long-term yields and rates going up, and why the "flight to safety" that LT bond buyers symbolize?

Friday we will be given the Consumer Price Index (CPI) numbers, including the so-called "core CPI" rate which excludes food and energy. So far the core CPI rate has supposedly made the Fed governors and the members of the not-so-Open Market Committee sweat bullets. Great Caesar's Ghost! One famous analyst at one of the big brokerage firms recently said something like, "It appears that central banks don't have the stomach to deal with inflation head-on. Instead they seems to be trying to persuade the market that inflation will go away as growth slows and praying for it to be true. The central banks are having a major impact on the bond market. [To our way of thinking this is a major point]. Despite high and rising inflation, bond yields are exceptionally low. These low bond yields are stimulating demand [We find it hard to understand how low yields stimulate demand, but if he says so it must be true]. This may be the last free lunch in the current growth cycle." Then he goes on to say some words that sound SHOCKING even if they were RUMOR and not a credible economist's opinion.

"The cushion on growth from low bond yields and the growing inflationary pressure may lead to a mild form of stagflation in 2007. The global GDP growth rate could decelerate to 4% in 2007 from 5% in 2006, and inflation could accelerate to 4% from 3%. INFLATION COULD BE HIGHER THAN GROWTH IN 2007 [emphasis ours]. How long stagflation might last could depend on if and when the bond market recognizes what central bankers are trying to accomplish [we wish we could figure this out too :( ]. If that happens [if inflation is higher than growth], bond yields could spike up, which would likely force central banks to hike rates into a weakening economy. This might cause a hard landing for the global economy. My rough estimate is that the bond market could come to this realization in one year's time. Should it do so, 2008 may turn out to be the year of the hard landing for the global economy, even harder than the one in 1998."

We know we should tell you who said the above statements, but we can say that RUMOR HAS IT that he works at Morgan Stanley and his first name is Andy, but that's all we will say about that right now. If we were as smart as Forest Gump we could analyze the significance of these comments. But we are at least mentally competent enough to guess that the bond market will be tested come Friday, and if treasury yields do begin to rise again on bad inflation numbers, the bond and stock markets could get ugly fast. "How ugly?", you might ask. About as ugly as an overweight, bald man with a sleep disorder when he wakes up in the morning.

RUMOR ALSO HAS IT that IF the CPI numbers look fairly tame on Friday, it would encourage the Fed to hold the line on interest rates when they meet next week, which is something both the stock and bond markets usually like. So batten down the hatches, tighten your belts, take a deep breath, gargle with Listerine, and get ready for one unpredictable week ahead, leading up to the Fed meeting and their decision on interest rates. We can hardly wait! In the meantime, it might not be a bad idea to keep some powder dry, which is code language for "have plenty of cash to pick up some bargains" if, and we emphasis IF, stocks and bonds do go "on sale" between now and the first Tuesday in November. As Mama told Forest and us, "Stupid is as stupid does"!

Gold&Energy prices dropping! Surprises to follow?

2006-09-11T20:18:00.000-07:00

Great gabs of grey poupon! The golden and silver precious metals fell today like a drunken WWF wrestler, as did oil, natural gas, uranium and a host of other commodities.The pundits and the talking heads were predicting "pain and suffering" for all those invested in the commodity sectors, especially the stocks of producing companies. I even listened to Jim Kramer's show and heard him speak of oil and precious metals like he was describing leprosy and bubonic plague.
RUMOR HAS IT that those who are predicting more downturn in these sectors might be correct in the short-term. One mentor told us that before this very important political election on Nov.7th we just might see a magical deflation of all things inflationary, spin-doctors on TV talking about peace and worldwide economic order, and the "all's clear" signal so that the party that controls the Congress can stay in control. That is RUMOR, of course, and may just be a bunch of hogwash!
Between now and Nov.7th, things could get fairly unpredictable. One of our favorite South African mentors, Moneyweb market commentator and technical cyclist Issy Bacher, has been warning since last Thursday that gold prices (and by implication, silver and energy prices)could fall sharply. Gold could even test the $550 resistance level in the short term. You might like a free subscription to Mineweb(www.mineweb.com)if you like keeping up with the precious metals and mining businesses.
RUMOR HAS IT that the stage is being set for the 2nd best buying opportunity in the past 9 months in investments that have a lot to do with precious metals and energy. Wouldn't that be amazing? What if it coincided with an unexpected plunge in the major stock indices, most notably the Nasdaq 100 and 500? Would you be ready? Would you know what to buy and what a buying opportunity looks like and feels like?
We will give you a hint. It feels a bad case of the flu or being sucker-punched in the gut. It could even be as bad a kissing a warthog after his daily mud bath! It smells the breath of a wino with gum disease who hasn't flossed a day in his life. Buying low and buying smart isn't easy. RUMOR HAS IT that a bunch of smelly, sickening buying opportunities and some big market surprises are right around the corner!

Glamis/Goldcorp & Gold Stocks

2006-09-08T15:43:00.000-07:00

What excitement in the gold patch! Goldcorp (GG) and Glamis (GLG) have announced an agreement to merge. Under the terms of the agreement, Glamis will be absorbed by Goldcorp, and each share of Glamis stock will be exchanged for 1.69 shares of Goldcorp stock. The merger has to be approved by two-thirds of Glamis shareholders, and our sources tell us that seems very likely.

The deal bodes especially well for Glamis shareholders (which includes us). On the day of the announcement Glamis closed up 19% and Goldcorp shares lost 9% because many thought Goldcorp was overpaying for Glamis. Rumor has it that the effects of the merger will be such benefits as: greater political diversification, economies of scale, greater acceptability to institutional investors, and smarter management. The new president of the combined Goldcorp/Glamis company will be Kevin McArthus--Glamis' current CEO, who negotiated the lucrative acquisition premium for his shareholders.

So rumor has it that Goldcorp is a good investment value, especially below $27 a share (we bought our recent shares at $27.64 on 8/31/2006). If the merger does go through, Goldcorp will be able to take advantage of economies of scale, Glamis' holdings (including the assets from its recent acquisition of Western Silver) and the fact that as a much bigger company than before, the institutional investors might start buying GG if they decide to invest in more gold stocks. Institutions like the biggest companies in a sector and will be much more attracted to the new, larger Goldcorp Inc.

If the deal falls through than Goldcorp's shares will probably go up by around 9% the same day it would be announced, due to the fact that Goldcorp is perceived to have overpaid for Glamis' shares, which is currently reflected in the share price of GG. If you want more information and confirmation of the value of GG shares go to their website or become a subscriber of Casey Research's "Gold Stock Companion" which only costs $39 for a 6 month subscription (see www.CaseyResearch.com or call 800-528-0559).

Incidentally, RUMOR HAS IT that some of the next takeover candidates are Yamana Gold (AUY), AngloGold Ashanti (AU), a South African producer that has been paying a 1.3% dividend, IAMGOLD Corp (IAG) and the riskiest of the bunch being Cambior Inc. (CBJ). You should be able to pull up a Forbes story at www.forbes.com/2006/09/01/glamis-goldcorp-iamgold-in_jd_0901watch_inl.html?partner=yahootix which will give more details.

Rumors and predictions are risky if that is all you are going on. We like Yamana enough to have paid over $10.60 a share, AngloAshanti we paid over $47 a share, Cambior over $3.50 per share and today we bought some more IAG at $10.58. The advice and suggestions of our mentors gave us confidence to invest in these companies. We have been subscribers to Doug Casey's International Speculator newsletter and recently subscribed to The Gold Stock Companion service. Our experience and our own instincts tell us that in time our investments in this area will be rewarded. However, "swim at your own risk" and when it comes to rumors, be very careful which ones you act upon. Good fortune to us all!

Investor's Daily Edge and Hulbert Financial Digest

2006-09-07T11:18:00.000-07:00

One of the most helpful services we perform free of charge at www.CheckTheMarkets.com is to search the worldwide web for helpful information. We dig deep for sites that offer the most useful insights for investors who are trying to make wise investments. A timely investment is usually a good one, and understanding the big picture helps us make investments that utilize the major market moves now going on.
We located and subscribe ourselves to the daily insights at www.Investorsdailyedge.com/. It is a free investment newsletter that is delivered by email before the markets open. Their analysis of what the news and the trends means to all us investors is a valuable service. Today's edition talked about the major market trend in COMMODITIES and why the demand from nations like China and India will keep fueling this market. Their references to great investors like Jim Rogers, author of the book "Hot Commodities,How Anyone Can Invest Profitably In the World's Best Market", and their willingness to listen to the great mentors of the investment world earns our respect and gratitude.
Of course if you don't have time to read all the investment articles and newsletters then just go to www.CheckTheMarkets.com and you will get the overviews and summaries that we hope will help you make some wise investment decisions...and make your money work hard to for you. We eventually want to become like the Hulbert Financial Digest except more down to earth and user friendly. Incidentally, you can find some great insights by Mark Hulbert at www.marketwatch.com/News. Mark is one of the best in the industry and should be ranked as a mentor for all of us who need investment guidance.
We at www.CheckTheMarkets.com want to help millions of people find the best newsletters, financial advisory services, investment strategies and what we call "Great Mentor-Investors" that we can learn from and profit by. Most of what we do is gratis and we derive tremendous satisfaction out of knowing that we are using our many decades of investor experience to help men and women to become successful investors and prepare for the future. We will keep searching the web and report back to you with ideas, names, links and summations that we hope you will find profitable.

Which Is Worth Saving---Precious Metals or Banknotes?

2006-09-05T20:10:00.000-07:00

Yesterday we shared some of the reasons why James Turk (of www.GoldMoney.com fame) refers to Central Banking as "The Real Barbarous Relic". These are his opinions and perspectives, and we neither endorse them nor necessarily agree. He does bring up some reasons and points to ponder.
For those who like conspiracy theories and "powerful secrets", Mr. Turk's third reason has to do with his belief that central banks act in secrecy and that they are not held accountable. He writes, "For example, the so-called Open Market Committee of the Federal Reserve is far from 'open'. It meets and makes decisions behind closed doors, and the minutes released one month later are thoroughly redacted, leaving outsiders in the dark abou the members' deliberations. Central bankers consider themselves--and act as if they were--above the law. Moreover, this secrecy favors insiders, and it is this fundamental principle upon which central banks market intervention has been constructed, including, for example, their intervention in the gold market."
His other reasons are definitely worth reading. They range from "Taxation Without Representation" to the notion that central banks encourage the growth of debt rather than savings.
The later point really resonates with us. He writes, "Instead of following a sound and time-tested 'pay as you go' policy, consumers, businesses and governments have adopted a new creed--'buy now and pay later'. The mountain of debt that exists in the United States today and the excessive consumption that continues to enlarge that mountain are the direct results of central banks' activity and their need to grow more debt to avoid the inevitable bust that would follow if the debt growth were to stop. Newsletter writer Richard Russell explains it very simply in just three words:'Inflate or die.' That reality explains why Ben Bernanke has said in effect that he would drop $100 bills from helicopters if necessary to inflate the economy."
Mr. Turk's reasons makes us want to think very carefully about the course of the Fed's future monetary policies and the kind of investments we would choose in an "Inflate or die" scenario. As Ben Franklin would say, "An ounce of prevention is worth a pound of cure."

Central Banks vs. Precious Metals, Which is Worth Saving?

2006-09-04T15:36:00.000-07:00

One of our "tried and true" mentor-investors is James Turk who helped found GoldMoney.com, the leading company providing gold and silver in insured storage accounts that you can buy and sell online simply and securely. His most recent book is called "The Coming Collapse of the Dollar" (Dec.2004),and it is a wake-up call for all prudent investors.
When we opened our account at www.GoldMoney.com we were impressed how well organized and accessible their system and our assets are. You can link your account to your favorite bank account and move assets back and forth with great convenience.
Mr. Turk recently posted a paper entitled "The Barbarous Relic" for the Committee for Monetary Research (www.cmre.org). He contends that the real "Barbarous Relic" is "central banking intself". Central banks, he believes, are barbaric and thus uncivilized because they have all conspired to put an end to the gold standard--the idea that the value of money (currencies) in circulation should be tied to a monetary standard with intrinsic, historic value like gold and silver.
Some of his specific reasons for calling Central banking "barbarous" will be listed here and on www.CheckTheMarkets.com both today and tomorrow.
Reason #1: Corruption of Money as a Product of the Free Markets (we want to thank Doug Casey and his staff at the International Speculator for sharing these details).
Money is a fundamental building block of our society because it allows people to interact with one another in the market process. Tragically,instead of being a neutral and unfettered tool in commerce and the marketplace, fair to one and all, money has now become a matter of of force and decree, which is disruptive to the market process and therefore harmful to society. [Does the manipulation of the money supply and interest rates make this so?]
Reason #2: Creation of Money Substitutes. Prior to the creation of the Bank of England, every exchange in the trading activity that we call the market process offered (tendered) value for value. In other words, gold was exchanged for land, silver for food,etc.--assets were traded for assets. The Bank of England changed this process by creating money substitutes call "banknotes". Banknotes are not a tangible asset like gold and silver. They are merely money substitutes [artificial money] and not money itself.
Money substitutes are a liability of the bank issuing the paper currency [we thought the "government" issued official currency??]. Money substitutes create all sorts of payment risk that one does not have when using tangible assets as currency. [Do you feel safe because your paper currency is backed by "...The full faith and credit..." of your government? Isn't that just a paper I.O.U.??]
Tomorrow we will examine more reasons to consider which is worth saving, precious metals or banknotes and the central banks that issue them.

What's Should An Investor Do Now?

2006-09-02T16:05:00.000-07:00

The stock market has been up for more 3 days in a row. The price of oil has been dropping. Gold and silver has been pulling back. Money market funds are paying around 5% APY. The yield on the 10 year treasury bond has dropped to around 4.75%. One of our mentors tells us to put in some "stink bids" (similiar to a wishfully low price) orders to buy some of our favorite stocks. Another mentor says he is, "...holding off on new recommendations in the conviction that better buying opportunities will present themselves shortly."
We tell our subscribers at www.CheckTheMarkets.com that we follow our mentors advice and suggestions. We also will be sharing the names of our mentors and how other investors can follow them as well.
Our service involves "digesting" the suggestions and ideas of a large number of mentors and sharing the best of the best with our subscribers. This way our readers have more time to do what they love to do while we pass on to them a "wrap up" of the many investment advisory services and newsletters that we subscribe to. So far, many people find our services much needed. What kind of investment guidance do you need? Are you searching for trusted guides and great investor-mentors to help you make decisions with how to grow your money? We hope that www.CheckTheMarkets.com will learn what you are looking for, what you would like to see, and then get down to the business of providing this. Tomorrow, barring some unusual news, we hope to discuss a little bit about reward versus risk. How much risk should we have to take in order to get our desired investment returns?
For those of you who listen to Kramer, we find him fascinating. At the end of a recent show he was speaking to a college student who was asking him about Diageo (DEO) which is an overseas company that makes and distributes alcoholic beverages (a.k.a."booze", and ironically the very thing most college students need to avoid). Anywho, he said that DEO is, and we quote, "The best growth stock I'm focused on righ now". That tells us a lot about the jittery state of today's world and the investment climate. It's not computer chips or gold mines that Kramer is really excited about, but the makers of booze. Nothing wrong with that, but we do find it very telling.

What is Your Ideas of Risk and Reward?

2006-09-02T16:04:00.000-07:00

That might be like asking, "What is the state of your economy?" If you are on a tight budget, if you don't have much in the way of investment capital, then you might be on a "short leash" when it comes to taking risk and using risk to seek exceptional rewards. In our book we have a chapter entitled "It Takes Money To Make Money" and we encourage our readers to become "Super-Savers" and money-accumulators. Once you have saved a generous amount of investing dollars, perhaps you will be in a position to take more risk. In the meantime, getting 4 or 5%, state-tax free in T-bills sure makes a lot of sense to us.
There will always be a percentage of your investment money that needs to be "low risk", which in our book means an insured money market fund or in U.S. Treasury bills, notes and bonds. With our higher risk money we need to understand one, general fact of life. The higher the return on your investment (ROI) you desire the more "calculated risk" you have to be willing to take. Recently we bought some stocks that some of our trusted mentors suggested. We want a minimum ROI of 20%. We are also willing to see these stocks go down 20% before we will exercise our sell discipline and "cut our losses". See the correlation? If you desire a 50% "payday" on an investment, you need to realize you may take a large "haircut" if the investment disappoints or, as Kramer likes to say, "blows up". The higher the volatility (beta) of the investment, which speaks of how much your investment is likely to go up meaningfully and move down a bunch in short order and frequently, the more risk you are taking. Traders love high volatility investments because they believe it gives them more opportunity to "buy low and sell higher". The best investment traders keep their losses down and do their homework thoroughly before they set their sights on a ROI target.
Some of us prefer the "slow and steady" kind of investments. We are not willing to take big risks or stomach much volatility. If our ROI is only 5 or 6% we are delighted.
Here is the challenge today. With the real cost of living (true inflation) at current levels, we might not be able to put all our money in low risk investments and expect to keep up with the cost of life. We probably won't reach our financial goals if we don't take enough risk, risk which is commensurate to what we will need 3 years from now, 10 years from now, or when we retire. "Financial Security" must be something each of us seek in our own way and according to our own values and temperment.
If you can reach your goals with CDs and T-bills, awesome! But we wonder if you might also need some gold, silver, growth stocks and the guidance of investor-mentors who have admirable track records? The "state of your economy" might determine how much risk you are needing to take. One way to reduce risk is to follow the advice of investment guides who have been successful and can prove it. Those are the kind of mentors and guides we follow. Happy fishing!

Three Stages of a Bull Market

2006-09-02T16:02:00.000-07:00

One of our personal favorite mentors is Doug Casey (www.caseyresearch.com). We are one of his paid subscribers. Doug taught us that there are, generally speaking, three stages to a bull market. The first stage is the "stealth stage" when prices go up but nobody cares or even notices (this is true for any bull market, in stocks, in commodities, in bonds etc.). With commodities, that happened from about 2000 to 2003.
The second stage is often called "The Wall of Worry" stage. People see that prices are rising, but they expect them to fall back to the bear market levels they have become used to. We've been stuck in this stage often in the past. We came up with all kind of excuses why prices are "too high" or way above what we were used to seeing. During the second stage, people become confused by the new reality, and many veteran observers and commodity producers take the opportunity to sell, since they haven't seen higher prices like these for many years. This is the stage of the market we seem to be in RIGHT NOW.
Finally, stage three, is where there is mania and unbridled greed. This is when the "herd" and the popular media get involved in a big way. This is the stage where the big profits--and also the big risks--will be found. Greed will rule the day and prices will exceed almost everybody's expectations.
Like our mentor Doug, we are fairly comfortable buying investments when the masses and the media are saying you are nuts, or at least when the "herd" is skeptical and turned off. We must be contrarian by nature.
We've heard that stocks are probably the greatest performing asset class in the long run (although real estate in some parts of the world and precious metals eventually might become the "greatest performing asset class in the long run"). We don't just want to invest in any stock at any time. We want stocks that our mentors recommend and then we do our personal due diligence to make sure it is a wise and timely investment. Then we ask the question, "Is everyone buying this investment?" If the answer is "No!" then we get especially interested.
Then we ask ourselves, "Is this asset class in a bull market?" and if so, what stage is it in?
When we are all hearing about what a great investment gold is, we will be looking for other opportunities. When all the talking heads are yelling "BUY SILVER", we will most likely be selling. But Doug's guess is that we won't really be at that final stage for about another year. And when that stage arrives, the mania should last for some time, as it did most recently with internet stocks and tech stocks. You get great insight when you listen to great investors like Doug Casey.

Look for the Silver Lining

2006-09-02T16:01:00.000-07:00

Look for the Silver Lining
People ask us sometimes,if we could choose just one investment over the next 5 year time horizon, which investment would we pick. The answer....is SILVER, and those publicly traded producers that we think will make the most money (including one company that seems to us to be a proxy for buying silver and one fund that buys and stores both silver and gold for us). If we could only choose one kind of silver investment it would be U.S.American Eagle coins, both for tax purposes as well as profit potential.
Silver has long been the neglected step-child of the precious metals markets, but the demand for silver is rising fast, especially by those who are beginning to perceive it as a smart hedge against inflation and a lucrative investment vehicle. One of our mentors keeps reminding us that the real case for investing in silver lies on the supply side. This is because silver is really quite rare. There are only 23 pure silver mines (we are told) operating around the world, and most of the silver supply comes as a byproduct from mines mainly engaged in looking for lead, zinc and copper. To make matter more scarce, silver production was flat this year and is expected to be flat again next year. Our sources tell us that that the amount of silver that has been mined has been less than the demand for it every year for the last 15 years, but this hasn't been a big problem yet. That is because the world has been able to fill the gap from inventories and government stockpiles
However, today the U.S. government's stockpile is all but gone, and sales from other official sources, such as China, Russia and India appear to be declining each month. According to some reports the number of ounces of above-ground silver is at a 50 year low. The website SilverStockReport.com notes that while about 95% of the gold ever mined still exists in above-ground refined form, 95% of the silver ever mined has been consumed by electronics and jewelry. Because silver is one of the best electrical conductors of all metals, and because it is a potent bactericide (thus is being used more and more for purification and detoxification processes)the demand for it is most likely going to greatly increase.
On top of that, due to the new silver exchange-traded fund (symbol SLV)and the growing perception that silver is "the poor man's gold", it is once again being viewed by many as a pure metals investing play. If the next Hunt Brothers "corner-the-market" manuever happens to be launched in the future, the sky's the limit for the price of silver. What are you hearing about silver as an investment? Have you heard that silver is one of the most manipulated investment markets in the world? If you could only invest in one investment vehicle for the next 5 years, which one would you choose? Please let us know, and as the song goes, "just look for the silver-lining, and you shall find the sunnyside of life".

Interest Rates and Investment Uncertainty

2006-09-02T15:59:00.000-07:00

One of our favorite mentor-investors is Roger Conrad. He not only writes Utility&Income but the Canadian Edge Newsletters. We have personally done very well following Roger's saavy insights and recommendations. Go to the following website for more info, http://www.canadianedge.com/. Here are some of Roger's latest thoughts and excerpts from an email he sent us. He comes highly recommended.

Wall Street has largely gone from hounding Federal Reserve Chairman
Ben Bernanke about not doing enough to fight inflation to worrying
that the central bank has already gone too far and may need to cut
interest rates. Many now perceive the Fed's pause in its upward push
on rates as a first step to doing just that.

If we continue to see more signs of slowing growth in the US and
around the world in coming weeks, speculation that rates are coming
down again will only grow. In fact, the inverted yield curve
itself--shorter-term interest rates greater than longer-term
ones--illustrates that investors expect slowing growth, if not a
recession, and falling inflation.

That, in turn, will continue to push up the prices of high-quality
stocks, particularly those with high yields. If, however, the
economy seems to steady and inflation picks up, even the
highest-quality plays could again lose ground in a hurry.

At this point, it's tough to say which of these scenarios will play
out, or if something else entirely will emerge. It's quite possible,
for example, that the yield curve will remain inverted and inflation
will pick up steam as commodity-price increases filter through to
the rest of the economy. In that case, it would be very hard even
for high-quality income investments to make much headway, and the
broad market would almost surely falter.
In addition, what happens to rates is likely to be heavily
influenced by two wild cards. One is energy prices.
We've heard for many months now why a major drop in oil prices is
inevitable. Forecasts of $50 or even single-digit oil prices have
gotten a lot of play, and every dip in black gold is trumped up in
the financial press as the beginning of the end.
The bottom line is high and volatile energy prices are going to be
with us for a while. That's a good reason to keep some energy stocks
in your portfolio, no matter how high prices go. And it's also a
pretty good reason why there will be at least some premium attached
to safety in the markets--even if we avoid a devastating hurricane
in the Gulf of Mexico this year.

The other wild card for investors this year is the upcoming November
mid-term election. As my colleague Elliott Gue
(http://www.energystrategist.com) points out, the last few Octobers
before national elections have been marked by a lot of investor
nervousness, which was only calmed by the election itself.

This time around, the level of tension could well be a lot greater
than usual. A host of straws in the wind are pointing to the ruling
Republicans losing at least one and possibly both houses of
Congress. The non-partisan Cook Political Report--which has been a
reliable forecaster of races over the past couple of decades--has
identified 27 endangered Republican incumbents in the US House of
Representatives. That's up from just nine at this point in the 2004
election cycle and it's not counting open seats, where challengers'
chances are even greater.
Based on where races stand now, we could also see a 50-50 split in
the US Senate, as well as Republican governors falling in a
half-dozen states. Even the GOP's fund raising advantage is rapidly
shrinking as industry hedges its bets. And the most blistering
critiques of President Bush are coming from his erstwhile allies on
the right via talk radio and Fox News.

We're still more than two months from the election and, as the old
saying in politics goes, the real campaigning doesn't begin until
after Labor Day. But if the current trend does hold up through
September, the action could get quite choppy indeed by Halloween, as
investors worry about the risks of life under a new government.
All else equal, political tension will only reinforce the premium
placed on safety. However, we could see pressure on regulated
industries--particularly utilities in battleground states like
Maryland--if there's a perception the rules are about to change for
the worse due to a switch in the governor's mansion. Note this isn't
a real concern on the federal level regardless of the outcome in
November, since the executive branch, rather than the legislature
carries out utility regulation.

The bottom line is that rising prices for income investments
certainly beat the alternative. But now's no time for complacency.
In fact, high prices make now a good time to sell out the weak from
your holdings, or to lighten up on stocks that have appreciated to
become an inordinately large portion of your portfolio.
There ought to be a common denominator for the securities you own:
Each should be backed by a company with a growing business that will
become more valuable over time. In an environment like this, it's
easy to guess wrong on the market, the economy or both. But as long
as you own quality, you'll always be in the game, and that's more
than half the battle when it comes to successful long-term
investing.

Roger Conrad is Editor of UTILITY & INCOME

Nasty Weather or Big Surprise?

2006-09-02T15:58:00.000-07:00

The investment markets, especially the stock market, have been especially calm lately. I know many people are gone on vacation, but with all the bad news and uncertainty you would think there would be a lot more volatility. One of our mentors think we may be in for some nasty weather soon, metaphorically speaking.

One of their favorite contrary indicators about the stock market is the Chicago Board of Options Exchange Volatility Index (nicknamed the VIX). It measures market volatility based on options trading, especially the premium investors who are willing to pay to protect themselves on the downside.

If the VIX is high, it means investors are paying a lot of money to insure a market correction will not cause them big loses. And if the VIX is low, it means investors are calm and unconcerned about the market's future. Simply stated, the VIX tells you how worried investors are about the market. And as such it is a great contrarian indicator for future market direction. Every stock market correction of the last two years has resulted in big jumps in the VIX. In May 2006 traders got so scared the VIX more than doubled is less than a month, and that is when it is usually time to buy (from a contrarian perspective).

Currently the VIX is falling back to its historic low levels (as of the week ending Aug.25,2006). Our mentor studied the VIX's 2 year chart, and virtually every time the index fell to range right below where it is now, the market corrected. We are fast approaching September, a month that historically has been rough on stocks. Our mentor is worried! With the VIX indicating investor sentiment as practically placid, it may be nearing time to take some profits and move to the sidelines for awhile. He advises that we watch the VIX closely over the next 3 weeks. Right now, he claims that it is telling us that investors are complacent again...which is usually time to preserve your profits and protect your capital. Time will tell.

Hints from the FED and the Housing Market

2006-09-02T15:45:00.000-07:00

Today the Fed released the minutes from the August 8th meeting. It said many interesting things, but it did not rule out more interest rate increases. Several mentors have continued to remind us that the Fed will remain vigilant in the fight against inflation and that Bernanke and the Fed are wanting to portray a tough stance and a hawkish reputation. With the 10 year treasury bond closing below 4.8% today, it looks like the bond market isn't buying this or is oblivious to it. Nonetheless, the Fed minutes showed that another rate increase "could be needed" to slow inflation and create an economic soft landing.

NOW HEAR THIS---the economy might have already landed hard! Rumor has it that consumer spending is already tanking and that the housing market has just begun to implode. As one market analyst said today,"There is some fear that the Fed, after already being heavy-handed with monetary policy, has gone too far." The truth of the matter is that the many Fed rate hikes over the past two years have only just begun to have their desired impact. There is no doubt that economic slowing has begun and that the Fed will most likely make their next decision on a data-by-data basis.

A story on CBS radio today out of Los Angeles seems quite telling. Supposedly there is a PIMCO bond fund trader or manager who recently sold his personal home and moved into a rental home. He and his wife figured out that they could save something like 59% by renting over the cost of home ownership. The story said that the couple will be buyers again in a "couple of years from now" and the wife will be rewarded by choosing any house she wants. If interest rates move any higher than they are now, she might be able to buy a gorgeous home in Newport Beach (which today would cost $3 million) for a measly $1.5 million, a 50% reduction. Rumor has it that housing prices in Southern California might fall even farther, especially when the stampede for the exit doors begins and when folks start walking away from their expensive, adjusted-up mortgages that they no longer are able to afford. We sense both suffering and "super-bargains" in the years ahead, if you know what we mean. May the readers of this rumor mill be forewarned and forearmed!