Population Growth Trends of Countries and Global Investing Strategy

“Demographics is destiny,” is a phrase that is way overused and abused. Demographics isn’t necessarily destiny, but it does play a major role in the rise and fall of civilizations. For example Rome the city at its height of power had over a million residents and controlled 100 million subjects. When Rome fell to the Germanic raiders it had only 50,000 residents left and its control did not extend much outside the city. Demographics is important, which in turn may influence where you choose to invest. So we thought it would be interesting to see how the populations represented by some of the international ETFs we follow stack up against the U.S. in terms of demographics.

Using estimates from the U.S. Census Bureau, we calculated the expected population growth over the next 25 years—roughly a generation—as well as the percentage of the population 65 years of age or older, both now and in 2032. For single country ETFs this was easy; for the regional funds we used a weighted average of the constituent countries.

What we found was in some cases surprising. The biggest surprise was that the market with the fastest overall population growth between now and 2032 is not in the emerging markets but rather it is the United States, which is expected to grow 23% from 301 million now to 357 million in the next quarter century.

The population represented by the MSCI Emerging Market index (EEM) is expected to grow 18% over the same period, dragged down by double-digit population declines South Africa (about 8% of EEM assets) and Russia (8%), as well as virtual stagnation in Korea, which is about 14% of the index. This is partially offset by a population explosion in India, but Indian companies are only about 6% of index assets. Meanwhile the one-child policy for urban couples in China (FXI)—adopted in an era of scarcity when few were thinking about having the manpower necessary to sustain growth—has resulted in a relatively slow-growing population, along with a host of other unintended consequences (too many baby boys).

Japan is facing substantial population declines over the coming quarter century and the country also drags down the overall population growth of countries in the MSCI EAFE index (EFA) of developed-markets, since Japanese companies account for nearly 21%. The U.K. (EWU) is preferential to continental Europe, where population declines in Germany, Spain, Italy and Finland are expected to decrease the overall population growth rates for the S&P Europe 350 (IEV), even though U.K. companies represent almost a third of that index.

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Figure 3 illustrates that a graying population is something which all markets have in common. Japan has the largest percentage of people over 65, with European economies (EFA and IEV) not far behind. And Japan’s “elderly burden” will get worse, although Canada (EWC) is likely to eclipse Japan as the country with the biggest imbalance by 2032.

The U.S. (SPY) has the youngest average population of any developed market, and is expected to keep that designation in the future, but Latin America (ILF) and Brazil (EWZ) take the overall prize for the youngest populations, both now and in 2032.

China may be the first country in history to grow old before it gets rich: by 2032 its elderly burden will be nearly as high as it is in the U.S., but the country won’t have nearly the same resources on a per capita basis to deal with the challenges (then again, its government has not made the same promises).

What does all this mean? Unfortunately it isn’t likely to generate any short-term trading ideas, but it does provide some perspective for a thematic approach to international investing:

• The U.S. is relatively well-off compared with other developed markets. It will be better able to grow its way out of its problems, and its companies could see faster earnings growth, which in turn would justify the slight premium U.S. companies get over European firms (Japanese companies are still more expensive).
• China-hype may be misplaced. China is older than the other emerging markets overall, and is likely to see much slower population growth as well. Twenty-five years from now India will have the world’s largest population, about 100 million ahead of China—and they’ll be much younger too.
• The question of whether Japan is emerging from a roughly 15-year economic slump is academic; in the long run—there is no diplomatic way to say this—the country is dying. Global winners like Toyota (TM) are relatively immune and may thrive regardless, but the fortunes of most of companies in EWJ are undeniably linked to the vanishing Japanese consumer.
• Canada is getting older quickly but it may not matter. Exploitation of the oil sands could turn the country into a nation of wealthy pensioners. Similarly, Australia is getting much older, but will exhibit decent overall population growth and is rich in natural resources that could have a bigger impact than demographics.

To be sure, there are shortcomings in this analysis. First, estimates could be wrong. Societies can undergo significant changes in a quarter century that could alter birth rates, death rates, and immigration, and as a result, demographics. And as alluded to in reference to Toyota, in our global economy it probably makes less difference where a company is headquartered today than it did a generation ago.

But perhaps the biggest shortcoming is the extremely long-term nature of the analysis itself. Because while we pride ourselves on being long-term investors, demographics isn’t destiny, and as the famous economist John Maynard Keynes said, “In the long run, we’re all dead.”

Six Winners with Oil at $100

As oil flirts with $100, there are certain sectors that will benefit while others cringe at the thought of a triple-digit price per barrel.Some of the winners may be obvious while a few are secondary, less popular ideas.

Winners

• Suncor Energy (SU) is a Canadian oil and gas company that was the first to produce commercial crude oil from the Canadian oil sands. The company is currently producing 284,000 barrels per day of oil equivalent. What I like about SU is the exposure to the oil sands and the proximity to the US. With oil at $100 the government will be pressured to lessen our dependence on oil from the Middle East. With Canada to our north, why not increase the amount of oil derived from the oil sands?
• FMC Technologies (FTI) supplies subsea drilling and systems that are used for the production of oil and gas. The company is also involved in the high pressure fluid control products used in the energy industry. With oil at $100 it will result in hordes of cash on the books of the large energy companies. To appease the government and its shareholders, the companies will be forced to spend money on equipment and services. FTI will likely be one of the beneficiaries of the spending.
• Petrobras (PBR) is Brazil's largest industrial company and one of the largest oil companies in the world. PBR makes the list for two reasons. The demand for oil from emerging countries such as itself and China will continue with oil above $100 and PBR is positioned to remain a major supplier. In recent news the company announced a possible new oil discovery that could boost the country's oil reserves by as much as 50%. If it turns out the discovery can be drilled, PBR will quickly move up the ranks of top oil companies.
• The PowerShares Global Clean Energy ETF (PBD) is composed of a basket of alternative energy stocks that always find the spotlight when oil rises. Because many of the clean energy alternatives are expensive to implement, when oil rises to $100 they suddenly become more attractive. Add in the "green movement" around the globe and it is a no-brainer that money will be flowing into the clean energy stocks.
• The Market Vectors Nuclear Energy ETF (NLR) might be a controversial investment for some, but the bottom line is that if the US wants to lessen its dependence on fossil fuels, more nuclear power plants must be built. Not only is nuclear power prevalent throughout the world, it has been proven to be safe and less harmful to the environment. NLR gives investors exposure to the nuclear energy industry through mining, infrastructure, and power generation stocks.
• Monsanto (MON) is an agriculture company whose products help farmers grow bigger and better crops. Through biotechnology the firm focuses on improving crops with seeds and herbicides. With oil at lofty levels it increases the demand for ethanol that requires big crops of corn. The farmers will look to companies such as MON to provide them with the products needed to produce large amount of corn and other crops.

Top 20 VIX Correlated ETFs: All ProShares

I've covered the VIX and the best way to own a pseudo "VIX ETF" in the past, and given the high-volatility regime we've seen over the past few months, I figured it would be a good time to update this data.

I've calculated the daily log-return correlation of the closing prices of the VIX and 1100 ETFs and CEFs, and the top 20 are shown below. The results are dramatic, as literally every fund is a ProShares fund, and 14 of 20 are UltraShort funds.

As the ProShares Ultra ETFs are based on futures, they tend to need an above-average allocation of risk-free assets (e.g. bonds or money market holdings) to achieve the prescribed double-leverage. I think the results here indicate that either the underlying futures markets are being used as a volatility hedge, or that ProShares themselves are putting some of that unused risk-free capital to invest in long-volatility contracts.

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I've additionally included a few other interesting pieces. Below is the cumulative log-return of the VIX and the top 10 of the above 20 funds. Note that although they are all very directionally correlated, the nonlinear magnitude changes of the VIX results in dramatic differences in accumulated returns. This demonstrates that although these funds may provide effective short-term proxies, there is no substitute for a long-term long-volatility contract in the current ETF market.

For those interested in the distribution of VIX correlation across the entire ETF market, here is the probability density of correlation against the VIX for 1,100 ETFs and CEFs. Note its bimodal nature, with a large number of strongly negatively correlated funds and a large number of mildly negatively correlated funds. Only 8% of all funds are non-negatively correlated with the VIX.

China Automotive Systems: Revving Up For Growth

China Automotive Systems (CAAS) has posted a couple of strong quarters lately, but the stock price has been inconsistent.

In Q2 of 2007, China Automotive Systems reported revenue of 36.31 million and earnings per diluted share of 0.10. CAAS’s revenue and earnings in Q2 were considerable improvements both sequentially and year over year.

In Q3 of 2007, China Automotive Systems reported revenue of 31.20 million and earnings per diluted share of 0.11. Revenues were up year over year but down sequentially due to seasonality of the Chinese passenger vehicle market. Earnings per share, however, improved both sequentially and year over year.

The fundamentals of CAAS have been improving but the stock price of China Automotive Systems has been behaving erratically. In September and October, the stock price of CAAS was trading above nine dollars and briefly traded over ten dollars. I don’t think the upward movement in CAAS’s stock price had much to do with Q2 earnings. The stock price barely reacted to this news. However, I think some of the big institutions shifted money into Chinese stocks due to the falling dollar (a lot of Chinese companies went up around this time).

The stock price of CAAS has been drifting down since its peak in October. The main reason for this is the CEO and COO sold some shares early in October. The stock price of CAAS has continued to go down since that time but I think now is a good time to pick up some shares.

China Automotive System’s stock price is currently trading near its support and I don’t think the stock price will go much lower. The fundamentals of China Automotive Systems are improving and the stock price will reflect this over time. Also, the Chinese automotive market continues to show strong growth. The CEO of CAAS stated the “Chinese domestic auto industry grew by 27% in the first nine months of 2007.”

CAAS is also trading at a nice valuation. At yesterday’s closing price of $6.40, it has a trailing PE of 19. That is very reasonable for a growing company.

I am going to reiterate my buy recommendation at yesterday’s closing price.

Disclosure: none

Solar stocks no longer the favorite of the people

Solar stocks have been hit Monday by news that Senate and House Democratic leaders are considering a plan to leave renewable energy out of a pending U.S. energy bill. An alert posted Friday by the Solar Energy Industries Association on its web site says that “there are widespread reports that a decision has been made, at least provisionally, to move energy legislation without a tax title that extends the Solar Investment Tax Credits.”

The notice asserts that “a bill without the solar ITC provisions would be a tremendous lost opportunity for our industry and our country.”

Stephen Chin, an analyst at UBS, this morning asserted that removal of the tax credits from the energy bill “increases the likelihood that the credits could expire in 2008.” He writes that “an orphaned solar ITC may not find bipartisan support during an election year, increasing the likelihood of expiration.”

Chin says that the current tax credit allows commercial system owners a 30% tax credit against total system costs. Expiration of the tax credit, he says, would likely reduce solar system demand among commercial customers, which accounted for 41% of 2006 solar installations. He adds that utilities may be slow to embrace solar if a provision allowing them to take the 30% tax credit isn’t passed.

Chin notes that Applied Materials (AMAT) could see decreased demand for solar-related equipment without the tax credit, and that there also could be a negative impact on solar-wafer producer MEMC Electronic Materials (WFR), pointing out that its largest customer, Suntech (STP), is “increasingly exposed” to the U.S. solar market.

Solar stocks are suffering significant losses Monday:

• First Solar (FSLR) is down $22.11, or 10.7%, to $184.74.
• Suntech (STP) is down $5.22, or 8.5%, to $56.33.
• SunPower (SPWR) is down $15.57, or 12.1%, to $113.13.
• MEMC (WFR) is down $3.04, or 4.3%, to $68.12.
• Applied Materials (AMAT) is down 28 cents, or 1.5%, at $18.43.
• JA Solar (JASO) is down $3.84, or 7%, at $50.67.
• Evergreen Solar (ESLR) is down $1.28, or 9.1%, at $12.80.
• Canadian Solar (CSIQ) is down 75 cents, or 6.7%, at $10.37.
• LDK Solar (LDK) is down $2.35, or 5.8%, at $38.07.
• Yingli Green Energy (YGE) is down $4.05, or 12.7%, at $27.80.

Housing Bubble and Real Estate Market Tracker

Here's our summary of articles and data points on the housing market. It's part of Seeking Alpha's coverage of the real estate market and homebuilder stocks. Like all other topics and stock coverage from Seeking Alpha, you can have this sent to your Blackberry or desktop email by signing up for our no-spam free email subscription service.

Quote of the Day- "From the House's Mouth"

"Wall Street strategies that made the cycle of no-money-down, no-questions-asked lending possible have sucked the life out of my city" - Jim Rokakis, County Treasurer for Cleveland's Cuyahoga County, on the foreclosure crisis in Cleveland. (BBC.com, Nov. 5th)

Real Estate Sales and House Prices

• Otteau Valuation Group November Newsletter (NJ Report, Nov. 6th): "New Jersey home purchase activity in September, as measured by signed contracts, declined 23% from August and was 17% below the year-ago level in September 2006... In New Jersey, sub-prime mortgage originations occurred at modest levels relative to the rest of the nation and foreclosure activity is only slightly elevated from last year’s pace, [yet] potential home buyers continue to hold off which is causing further erosion of market dynamics... Unsold Inventory of homes for sale in New Jersey... represents a 13-month supply on the market, up from 7 months in March and 10 months in August."

• Housing Glut Hits Home (Journal Gazette, Nov. 4th) Indiana: "Fort Wayne Area Association of Realtors' Multiple Listing Service: Allen County homes are taking an average of 96 days to sell... [That's] 13 days longer than five years ago... Multiple Listing Service: Inventory hit a high of 3,329 houses in August... nearly 22% higher than in August 2005 when 2,739 Allen County residential properties were up for sale... Three hundred more workers lost their jobs Monday when Kitty Hawk Inc. shut down its Fort Wayne sorting operation, possibly increasing the pressure on the local housing market... RealtyTrac: Indiana had 9,087 properties with foreclosure filings in Q3, 10% higher than Q3'06."

Mortgages and Real Estate Lending

• Radian Declares Regular Quarterly Dividend on Common Stock (CNN News, Nov. 6th): "Radian Group Inc. (RDN) announced today a regular quarterly dividend on its common stock in the amount of $0.02/share, payable on December 18, 2007, to stockholders of record as of November 16, 2007. Radian is a global credit risk management company... Radian develops innovative financial solutions by applying its core mortgage credit risk expertise and structured finance capabilities to the credit enhancement needs of the capital markets worldwide, public finance, corporations and consumers."

Global Housing Slump?

• Bovis Gives Warning On Profits As Volumes Fall (Times Online, Nov. 6th) UK: "Bovis, the top 10 UK housebuilder, has given warning that faltering consumer confidence [and the credit crunch] has hit sales during the key autumn period... Malcolm Harris, CEO of Bovis: Profits for the full year would now be "slightly below" previous forecasts. Bovis has refused to cut the underlying prices of its properties in an effort to maintain margins but fewer sales this year will translate into a fall in profits. City analysts sliced £10 million off their 2007 pre-tax profit forecasts for Bovis from £139 million to £129M. Profits last year were 13.7% higher at £132M."

Subprime Fallout

• Bonus Pain Is Dish Still Served Bold (Wall St. Journal, Nov. 7th): "Executive-search company Options Group projects Wall St. bonuses will decrease 5%-10% from last year, the first overall drop in five years. Compensation consultant Johnson Associates: Bonuses will be flat, thanks to a relatively strong stock market and big profit gains in H1'07... Companies that have taken significant hits recently, such as Merrill Lynch & Co. and Citigroup Inc., could give smaller bonuses than those by more-successful rivals... Options Group projects an average 15%-20% decline in bonuses for people in bond and currency departments and a 10% rise for those in stocks. Those working in mortgages could see a 30% decline."

• Bonus Pool Springs Leak (Crain's NY Business, Nov. 3rd): "State Comptroller's Office: Bonus checks, which account for the lion's share of bankers', brokers' and traders' annual pay, will be 10% smaller this year. That would mark the first drop since the technology stock meltdown early in the decade... Gustavo Dolfino, president of recruiter WhiteRock Group: In the past four months, close to 12,000 bond bankers and traders have lost their jobs... Most [of the following previously] announced layoffs are believed to be of NYC-based employees: BEAR STEARNS August 240; October 300. J.P. MORGAN CHASE October 2,500. MORGAN STANLEY October 200. CREDIT SUISSE October 170. BANK OF AMERICA October 3,000."

• Avoid the U.S. Until the Subprime Mess Really Hits the Fan (Enzio Von Pfeil in Seeking Alpha, Nov. 6th): "My guess is that Q1'08 will be particularly messy. Once we get the first wounded companies reporting the extent of their damages, Wall Street will go wildly bearish... Lighten-up on your US exposure, except for tech stocks... [as] these are like "consumer staples" - people need tech such as search engines, regardless of what the economy does. We keep advising to avoid banks. Also add to this: mortgage-related finance companies. While we do maintain that America will fall strongly, buy on dips in China, Hong Kong, India and Malaysia."

• ResMae Stops Funding Loans (OC Register, Nov. 6th): "ResMae Mortgage Corp. in Brea, California announced Tuesday: "Effective immediately we are temporarily suspending new loan originations... Our National Operations Center in Brea, CA will continue to support existing loans in the ResMAE pipeline and will continue to fund loans through their commitment expiration dates... Despite the suspension of loan originations, ResMAE will continue to operate its fully staffed loan servicing operation in Brea, CA." ResMae is a subprime lender that was scheduled to emerge from bankruptcy in June, after being acquired by Citadel Investment Group."

• IndyMac’s Q3 Losses Surge (Roy Mehta in Seeking Alpha, Nov. 6th): "Alt-A Mortgage lender IndyMac Bancorp's first loss since 1999 [reached] $202.7 million ($-2.77/share) compared to a gain of $86.2M ($1.19/share) last year. Analysts had been expecting a $0.46/share loss. IndyMac took a $575 million credit-related charge, and halved its quartely dividend to $0.25/share. The company noted it held only $112 million in subprime, second-mortgages and home equity lines of credit as of Sept. 30 -- 0.3% of its total assets. Mortgage loan production fell 30% to $16.82 billion... The wider loss was a result of increasing loan losses and severance costs. IndyMac increased its credit reserves 47% to $1.39B."

• MBIA, Ambac Losses Will Be `Massive,' Egan Jones Says (Bloomberg, Nov. 6th): " Egan-Jones Ratings Co.: Bond insurers including MBIA Inc. (MBI), Ambac Financial Group Inc. (ABK) and ACA Capital Holdings Inc. face "massive losses'' over the next few quarters that could test their ability to raise new capital. MBIA may lose $20.2 billion on guarantees and securities holdings. ACA Capital may [lose] $10B; Ambac may reach $4.3B; mortgage insurers MGIC Investment Corp. (MTG) and Radian Group Inc. (RDN) may see losses of $7.25B and $7.2B, respectively... Fitch Ratings said yesterday it [is] reviewing the capital of Ambac, MBIA, Financial Guaranty Insurance Co. and CIFG Guaranty to ensure they have enough capital to warrant an AAA rating."

• GM Taking $39 Bln Non-Cash Charge In Third Quarter (MarketWatch, Nov. 6th): "General Motors Corp. (GM) said late Tuesday it will record a third-quarter non-cash charge of $39 billion because of accounting standards related to its deferred tax assets in the U.S., Canada and Germany. The company said the money is needed to establish a valuation allowance in part to compensate for unanticipated losses at GMAC Financial Services. GM is scheduled to report its third-quarter results on Wednesday."

• Fitch Cuts Rating Outlook Of Wells Fargo, Wamu, Capital One (MarketWatch, Nov. 6th): "Fitch Ratings said Tuesday it revised rating outlooks for several major banks: Wells Fargo Co. (WFC) and Capital One Financial Corp.'s (COF) [were revised] to stable from positive, and Washington Mutual Inc.'s (WM) [went to] negative from stable. Fitch removed Countrywide Financial Corp. (CFC) from ratings watch and assigned it a negative outlook. Wells' Fitch debt is currently rated AA and Capital One Financial is A-. WaMu's rating is A and Countrywide's is at BBB+. The agency also cut National City Corp.'s (NCC) issuer default rating to A+ from AA- with a negative outlook and revised down KeyCorp (KEY)... to stable versus positive."

• IndyMac Posts Loss, Morgan Stanley Writedown May Loom (Bloomberg, Nov. 6th): "Morgan Stanley, based in New York and the second-biggest U.S. securities firm, may write down $6 billion on the value of mortgages and related securities, Fox-Pitt Kelton analyst David Trone said in a note to clients... Bank of America and Wachovia, both based in Charlotte, North Carolina, may be forced to write down more mortgage-related assets in Q4, Friedman Billings Ramsey Group Inc. analyst Gary Townsend told investors."

• Analyst Sees More Q4 Subprime Write-Downs (Yahoo! Finance, Nov. 5th): "Charles Peabody, partner at research firm Portales Partners LLC expects more write-downs from Citigroup [beyond the] $8B-$11 billion writedowns for subprime mortgages... Peabody also said there may be write-downs at Goldman Sachs Group Inc (GS)... and Lehman Brothers Holdings Inc (LEH): "I really don't believe those two organizations have come clean." Merrill Lynch & Co Inc (MER) was the only big Wall Street firm to post a third-quarter loss after writing down $8.4B on investments linked to subprime mortgages... Goldman, Bear Stearns Cos Inc (BSC), Morgan Stanley (MS.N) and Lehman have collectively written down $3.6 billion so far."

Foreclosure Data

• Cities Battle Default Wave (Sacramento Bee, Nov. 6th): "DataQuick Information Systems: More than 6,500 homeowners have lost houses this year to foreclosure in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties. Three of every four are in Sacramento County... The nation's cities are taking numerous approaches as the foreclosure problem rolls from East to West. Jacksonville is offering no-interest $5,000 loans to help people with short-term mortgage problems. Chicago and Baltimore advertise a "311" telephone number for people behind on mortgage payments to call. Cleveland's suburban officials are fixing broken windows, mowing lawns and installing alarms in empty houses to keep neighborhoods stable."

• Michael Jackson Neverland Ranch Appears in Foreclosure Report (Mortgage Lender Implode-o-Meter, Nov. 6th): "Michael Jackson's Neverland Ranch has appeared in the November 5th, 2007 Foreclosure Detail Report for Santa Barbara county. While the looming foreclosure of Neverland Ranch has received some coverage, this would appear to be hard confirmation of the event... and indication that it is still underway."

• Foreclosure Wave Sweeps America (BBC News, Nov. 5th): "One in ten homes in Cleveland, Ohio is now vacant, and whole neighbourhoods have been blighted by foreclosed, vandalized and boarded-up homes... Many of these homes are now owned by the banks and investment pools owning the mortgages, and the company making the most foreclosures in Cleveland is Deutsche Bank Trust, acting on behalf of those pools... Claudia Coulton, co-director of the Centre for Urban Poverty at Case Western Reserve University in Cleveland: Over 10,000 families - one in eight of all owner occupiers in Cleveland - will face eviction this year - and the number is expected to rise."

Macro Impact, And Will The Housing Slump Cause A Recession?

• Schwarzenegger Orders State Agencies To Prepare For 10 Percent Cut As Budget Slides (My Desert.com, Nov. 6th) California: "Gov. Arnold Schwarzenegger has ordered state agencies to prepare a plan to cut 10% from their budgets as preliminary reports indicate that the subprime housing crunch will hit the California state budget harder than expected. The order, issued Monday, could affect agencies from education to healthcare to transportation. Reports indicate that the tax revenue fallout from the slump in the California housing market could push the governor's balanced budget into a $10 billion deficit."

• Why the Fed Continues To Cut Rates (Tim Iacono in Seeking Alpha, Nov. 6th): "The government's inflation statistics do not track home prices directly. Instead, they use an estimate of what homes would rent for... What would the consumer price index look like if real home prices were used instead of owners' equivalent rent? The last couple months of plunging home prices would take the annual rate of inflation to zero (actually, it's still positive at 0.01%)... a big reason why we are in the mess we are in today is that inflation, with real home prices included, was much, much higher than inflation with OER back in 2003, 2004, and 2005 when interest rates and lending standards were at multi-generational lows."

• Furniture Sales In Flux (Press Democrat, Nov. 4th) California: "The housing downturn and subprime mortgage meltdown are [hurting] many Sonoma County furniture retailers already reeling from competition from cheaper imports... Fewer home sales [and] sliding home values make it more difficult for consumers to tap evaporating equity. The slump that last year sank R.S. Basso in Sebastopol, and Colburn's Wood Furniture and Greenwood Home Furnishings in Santa Rosa has deepened... In addition to Bare Woods and Santa Rosa Bedding & Furniture, stores that have closed or are planning to close include Furniture 101, Black Sea Gallery and Red Tag Furniture in Santa Rosa, Furniture Solutions in Rohnert Park and Couches, Etc. in Petaluma."

Homebuilders, Housing Stocks and Housing-Related Stocks

• Questions Swirl on Levitt Unit (Wall St. Journal, Nov. 7th): "Shareholders: Levitt Corp. (LEV) could be on the verge of unloading its home-building unit, Levitt & Sons... Levitt would be getting rid of a troubled unit amid a crisis for home builders, [and] it would be [liable] for little of the subsidiary's debt... Parent company Levitt would be free to focus on its other ventures, such as its land-development unit, Core Communities LLC, and Bluegreen Corp., a developer of vacation resorts in which it has a 31% stake... Eric Landry, Morningstar analyst, [cited] roughly $400 million of $654M in debt the parent company could eliminate or restructure through a bankruptcy."

• Ryland: Charlotte 'Reasonably OK' Right Now (CNN Money, Nov. 6th) North Carolina: "[Since] Charlotte is doing "reasonably OK" in this crumbling housing market - it is excluded from Ryland Group Inc.'s (RYL) " Savings Spectacular" deal this weekend... Ryland is offering savings as high as 25% from Friday through Sunday. Sale markets include Las Vegas, Phoenix, Baltimore, Northern and Southern California, Denver, and Chicago. In Las Vegas, the three-bedroom " Shasta" model is now $368,823, down from $533,823, Ryland said. Ryland is the latest to try a fire sale. Hovnanian Enterprises Inc. (HOV), Standard Pacific Corp. (SPF) and Pulte Homes Inc. (PHM) have all said their similar deals were successful."

• Shareholder Group Calls for Beazer Chief's Ouster (Builder Online, Nov. 6th): "Citing a lack of leadership, federal investigations, and a downward spiral of stock value, the CtW Investment Group [a major Beazer shareholder] wants... the immediate removal of CEO Ian J. McCarthy... CtW: "Mr. McCarthy was paid over $57 million in total compensation over the past five years, including $22M in 2006 alone... among the very highest for similarly sized firms. On top of that, Mr. McCarthy executed his largest ever sale of company stock - 179.535 shares at $43.07 each, totaling $7.7M- last November, less than two months before the stock began its steady collapse to its current $9.52/share."

• A Home Builder That Saves Your Hand From Scalding (Mercury News, Square Feet Blog, Nov. 6th): "At least one builder is targeting consumers at a crucial source -- our point of caffeine acquisition. I ordered tea at Mission City Coffee Roasting Co. in Santa Clara this morning and the little jacket around the paper cup featured a full-color ad for 51, a condo and loft development from Centex Homes (CTX) near downtown San Jose. The web site for the housing development has no pricing information on it that I could find, which is a bit annoying, seeing as the anti-hand-burning jacket actually lured me to the web site. Maybe the prices are changing too fast?"

• Screaming Values Are Out There (Motley Fool, Nov. 6th): "MGIC Investment (MTG) is expecting negative earnings in 2007 and 2008. Mortgage losses and loss reserves are already three times the five-year average level, and I expect them to go higher during 2008. Oddly enough, the tightening credit crunch actually plays to the company's advantage, since many avoided mortgage insurance (insurance is generally needed when the loan-to-home-value ratio is greater than 80%) by using piggyback (second) mortgages. Second mortgages are the first to go as house prices fall and borrowers default. [Now] lenders will insist on mortgage insurance instead of encouraging piggyback mortgages... MGIC is selling at around half its intrinsic value."

• HouseValues Reports $900,000 Net Loss In Q3 (Inman News, Nov. 6th): "SEC filing: Online real estate marketing and lead-generation company HouseValues Inc. (SOLD) this week announced a $900,000 net loss for Q3'07, vs. a $500,000 net loss for Q3'06... HouseValues closed its Washington facility and laid off 100 workers, about 30% of its workforce... to reduce operating expenses...HouseValues [also] acquired Realty Generator LLC, a technology company that offers lead-generation services to real estate brokerage companies, and a related company, Blackwater Realty LLC, on Nov. 1... HouseValues: "Agents reduced their investments in marketing as transaction volumes continued to slow in many major markets." The company acquired 250,000 shares of its common stock during Q3'06."

Commercial Real Estate and Real Estate Investment Trusts (REITs)

• Financial Ground Has Shifted Under a Record Deal (NY Times, Nov. 7th): "Robert M. White Jr., president, Real Capital Analytics: Kushner Companies $1.8 billion purchase of 666 Fifth Avenue in January commanded the highest price ever paid for a single building... [but] the financing raised eyebrows: A Barclays-led group of lenders... provided an interest-only first mortgage of $1.215B based on an annual cash flow of $114 million, or 1.5 times the debt service, according to SEC documents. But... the cash flow from existing rents would actually cover only 0.65% of the debt service. Robert White: The building’s shortfall amounts to $5M a month. A $100M reserve fund was included in the debt package to cover the shortfall."

• Times Square Comfort Inn Sells for $31M (The Real Deal, Nov. 6th): "The Times Square Comfort Inn has sold to Gemini Real Estate Advisors for $31.7 million. The 78-room hotel at 42 West 35th Street, between Fifth and Sixth avenues, is near the new New York Times building. Hotels are booming in Times Square."

• Special Report: Real Estate's Biggest Deals (Daily Business Review, Nov. 5th): "Commercial real estate lenders in South Florida... are demanding more cash at closings and expecting healthy cash flow on commercial properties, leaving it to deep-pocket pension funds, hedge funds and institutional investors to seal most of the big deals... Gone are the days when investors would use bridge loans and interest-only 10-year loans for their office, warehouse and shopping center purchases with little money down... Lenders now want 25%-35% equity to finance a deal, brokers say... University of California economist Kenneth Rosen: REITs are expected to plummet about 20% in the next year... [they] are overvalued by 25%-40% relative to stocks and bonds."

Two Reasons To Buy Sallie Mae Before Everybody Else Does

Two reasons to buy Sallie Mae ((SLM) $42.86):

First, the odds on your money are pretty good here in the low forties $42.86; Stop loss at 40.50, and upside as much as 15% to 20% through next July. You may get it a dollar or two cheaper, but don’t wait since the short covering rally in financials has begun in earnest, and all boats will be lifted once Citigroup ((C): $35.00) makes a definitive bottom this week (see my post on short covering in financials from Tuesday).

Second, the chance that a bid for the company will be resuscitated would make purchasing this stock worthwhile, even if the deal was priced well below the original offer.

Sallie Mae, a favorite short of mine (2003 through 2005) seems like a low risk call option, with downside protection in the way of a multi-year low, and plenty of support provided by the two factors mentioned above. Of course, you could always pair this long with a short on First Marblehead ((FMD): $34.99), which offers little upside (lot of stock overhang up here), and, from my perch, a stock worth something in the ballpark of mid to low 20's.

Current Dollar Decline Longer, More Severe Than Historical Declines

With the US Dollar index falling even lower today, below we highlight the historical bull and bear markets of the currency.

As shown, market cycles for the currency are longer than some of the other asset classes that we have looked at. The average bull market for the US Dollar is 1,710 days long for an average gain of 48.90%. The average bear market is 1,610 days for an average decline of 31.84%.

Based on these averages, the current bear market is both longer in duration and more extreme in its decline. Since the current bear market in the US Dollar started in July 2001, currency has declined 37.69%.

click to enlarge

Below we highlight a historical price chart of the US Dollar index. As shown, we're currently at record lows. However, the currency isn't nearly as oversold as it has been in the past based on its distance from its 50-day moving average. Currently, the US Dollar is 2.25% below the bottom of it trading range.

As highlighted in the second chart below, the Dollar has reached oversold levels of 3% to 4% quite frequently.

Comparing Bubbles: China vs. Nasdaq and Homebuilders

On Monday we compared the rises and crashes of the Nasdaq and the Homebuilders during their respective bubbles. A Bespoke reader asked if we could overlay the current rise in China's Shanghai Composite on the chart to see where its bull run currently stands in comparison.

The Nasdaq and Homebuilders rallied for around 2,000 calendar days, while the Shanghai has currently only been in rally mode for 560 days. However, the gains in China of 488% are fast approaching the max gains that the Nasdaq saw of 639% at its peak.

The most interesting data points here are the starting dates of the bubbles. The Homebuilders began their enormous rise on March 14, 2000, just four days after the Nasdaq peaked. Interestingly, the Shanghai started its meteoric rise on July 11, 2005 -- just nine days before the Homebuilders peaked. Investors have seemingly flocked from one bubble to the next.

Airbus A380 - the complete guide and review

For Stephen Bleach, being a part of the inaugural A380 flight on Thursday was revolutionary... but not for all the right reasons

I’ve always been pretty middle of the road, politically speaking. But whenever Gordon Brown deigns to call the next election, I’m voting Socialist Worker’s Party. Eight hours on a plane has turned me into a Marxist.

Not just any plane. I’ve just stepped off the first commercial flight of the A380 superjumbo, the largest passenger aircraft ever built. Yes, it’s impressive: taller than five double-decker buses, wider than a football pitch, 37 times the length of Peter Crouch in his socks, that sort of thing. And yes, it’s an amazing piece of engineering, a staggering technical achievement: but it’s also the best advert for Bolshevism since the tsar said, “Stuff that Lenin chap, let’s build another palace.”

Never has the gap between the haves and the have-nots of the air been more evident. At the front of the plane (business is on the top level, the “super-first” Suites at the front of main deck, economy at the back on both levels), the elite have unparalleled luxury and space. Further back, the proletariat have to... well, let’s not get ahead of ourselves. I’ve just spent eight hours in the cheap seats: here’s a blow-by-blow account.

Takeoff: it just shouldn’t. It doesn’t seem credible that something this size should get into the air at all. Our takeoff weight today was 468 tonnes, which is the equivalent of 12 very surprised sperm whales. And when it finally comes, 50 minutes after we started boarding today’s 455 passengers (they’ll need to speed that up a touch), takeoff is a revelation.

Where other planes crank up the engines to a mighty howl and go for a death-or-glory charge to get airborne, the A380 feels more like an inter-city train leaving a station: silent, gentle, almost imperceptible. There’s a moment of anxiety when the lack of any roar, or bumping, makes you think something is terribly wrong. Then finally, after 40 seconds of smooth, quiet acceleration, this unlikely behemoth leaves the ground with a whisper and drifts quietly into the skies as if it were the most natural thing in the world. After a moment’s collective sigh, everyone breaks into applause. Taking to the air with the A380 does, genuinely, feel like a miracle.

One hour in: as well as kind, civilised folk who’ve bid in a charity auction to be on the first A380 flight, the plane is full of rude, selfish, jostling journalists like me, and the moment the seat-belt sign is turned off, it’s the cue for all of us to leap to our feet and interview mercilessly anyone within notebook distance. We do tend to make a bit of noise, but I didn’t realise we’d actually drown out the engines. That’s how quiet this plane is. In the momentary lulls between hacks barking questions, you can hear the gentle conversations of real people four rows back.

Two hours in: journalistic frenzy over, time for lunch. It’s terrific, produced by a couple of celebrity chefs I’ve never heard of, but will look out for in future. Sam Leong’s fillet of bass with fungi is the best economy-class food I’ve ever had on an airline.

Three hours in: distractions done with, there’s time to take in the surroundings. And when I do, a question occurs. If this is really the most luxurious plane ever built, why am I still shoehorned into a 32in seat?

Here, I have a confession to make. Last week, when the press were first allowed to see the inside of this plane at the Airbus factory, I – along with every journalist there – got a bit overexcited about the double beds in first and the huge business-class seats; all newer, bigger and swisher than anything we’d seen before. As a result, we didn’t spend too much time in the ominously familiar-looking economy area. A sin of omission, for which the hour of judgment has just come. Or rather hours: I’ve got five more to go.

Some passengers say the economy area is much lighter and airier than we’re used to. I don’t see it – though the large windows do provide a better view. The seat is pretty comfortable... for cattle class. My knees don’t touch the seat in front, and it’s an inch or so wider than a standard 747 equivalent. But it’s still not the ideal place to spend eight hours or more of your life, especially when you know that the real high rollers are just a few feet away, in the Suites. Time to see how the other half live...

Four hours in: the airline people are standing close guard on the curtain that separates economy from first, but for an instant they take their eyes off it, and bingo: an advance party of journalists plunges through the gap.

It’s another world. Hushed, spacious, all the seats are in cabins a little like those you’d find on a cruise ship, although the partitions only reach to about eye level. The champagne flows incessantly, and there are normally unobtainable bottles of Château Cos d’Estournel 1982 being poured. In a few of the 12 elite suites, the inhabitants have had their flat beds made up, and sprawl languorously under Givenchy duvets in front of their 23in TVs. Nobody sleeps, though. Having paid up to £25,000 at auction for a ticket, they want to savour every minute.

Upstairs, the improvement in business class, with its colossal 34in-wide seats, is arguably even greater. With just four abreast as opposed to economy’s 10, it feels both communal and spacious. The lucky ones try hard not to look smug. I try hard not to be jealous. We all fail. Five hours in: back in the cheap seats, I ruminate on what might have been. When we were shown the first A380 back in 2003, we were promised the following: boutiques, self-service restaurants, duty-free shops, children’s play areas, casinos, pubs, libraries, gyms (with treadmills to prevent DVT), showers, 18-hole golf courses. (Okay, I made the last one up, but it was going that way.) So why am I sitting here, unexercised, unshowered and unshopped, with the nearest pub in the outback five miles down? Why do we only have a slightly better version of what every long-haul holidaymaker knows and loathes – rank upon rank of sardine-tin seats, with no room to circulate or socialise? Only one conclusion: they were having us on.

Aviation enthusiasts make up the bulk of the clientele today, and they’re determined to enjoy themselves, so I’m in a disgruntled minority (see below). And, to be fair to Singapore Airlines, they never made any of those extravagant claims anyway. But right now I don’t want to be fair. This feels like a missed opportunity.

Six hours in: the real test of a long-haul seat is: Can you sleep in it? I try for 40 winks. Not a chance. The buzz all around means it’s not a fair trial, but I suspect that even on a calmer flight, it wouldn’t be easy. One bonus point: that dried-out, sinusy feeling is noticeably absent. Higher pressurisation is apparently the reason. Seven hours in: time to test the much-vaunted entertainment system. In a stab at egalitarianism, everybody gets the same stuff (economy has a smaller screen, but it’s still a healthy 10+ inches). It’s cracking: 100 on-demand films, 150 TV programmes, 700 CDs. New films, too. There are USB ports and laptop power to every seat. No internet access, though it might come.

Eight hours in: we’re preparing to land, so I’ll sum up. If you’re planning a trip down under when the plane starts flying from London next spring, should you choose an A380? Yes. It’s fabulous in first and business, a touch more comfy than we’re used to at the back. Revolutionary? No – not for the huddled masses, anyway. Vive la révolution. Business class

Business class

Andy Odgers, 39, and Hazel Watt, 43, bagged seats together in business class. Here they are sitting in just one of them. “It’s fantastic, far better than any business class I’ve seen in a 747,” said Andy, “right down to the picture quality on the big TV screen.” The couple, from Richmond in Surrey, paid US$14,200 (£6,922) for the trip, but reckoned it was worth it. “My parents are in Sydney,” said Andy, “and they don’t know anything about us being on this flight. We’re just going to walk into their hotel and surprise them. They’ll be so jealous.” “It’s better than a lot of first-class seats,” said Hazel. “You could argue it’s a bit hot, but it’s the best flight I’ve ever had.”

First class

Julian Hayward, 38, paid top dollar for two seats on the inaugural A380 flight – literally: the one-way trip in the first-class Singapore Suites for himself and a friend set Julian back US$100,380 (£48,936). The entrepreneur invited The Sunday Times in for a cosy chat in his bijou suite. Was it worth it? “Absolutely – all the money goes to charity, so it’s ending up in the right place. And this flight really is a piece of history, the first outing for the biggest plane ever built.” Would he do it again? “Perhaps not for quite so much money! But yes, the standard is something you won’t find elsewhere. I’m very impressed by their wine list. Would you care for a glass?”

Economy class

Richard Killip, 45, bought three tickets for the economy cabin of the A380, and brought along his daughters, Sophie, 12, and Ellie, 10. All three – who hail from Liverpool, but now live in Singapore – loved the flight. “The most impressive thing was the takeoff,” said Richard. “It was so quiet, it was almost spooky.” “I’ve already shown off a little to my schoolfriends,” admits Sophie. “They’re all dead jealous that I’m on the first flight!” Who else will fly the A380?

- PLENTY MORE airlines are queuing up to get the biggest passenger plane on earth. But will they go where you want to fly? When will they start? And – crucially – what will the experience be like on board? Anxious to keep a commercial advantage, most are being cagey with the details. But here’s what we know so far...

QANTAS

Start date: August 2008

Routes: “The US and the UK,” says the airline – which is expected to mean Sydney to London (via Singapore or Hong Kong), plus direct flights from Australia to Los Angeles.

What’s on board?Suites in first class, though not as enclosed as Singapore’s cabins, and no double beds as yet. Lounge with sofas in business. Four self-service bars in economy, and seats by Recaro (which makes seats for Aston Martin). Plus internet access for all.

EMIRATES

Start date:August 2008

Routes:Dubai-London looks certain. Dubai to New York, Australia and India also likely.

What’s on board?Top secret, but there are clues. The airline is installing first-class suites with doors on its fleet of 777s, with styling based on the Orient-Express train, and is expected to go even more luxurious with its A380s – president Tim Clark said: “You ain’t seen nothing yet.” But on flights to India, Emirates will cram in 644 passengers.

AIR FRANCE

Start date:spring 2009

Routes:Paris to New York and Japan.

What’s on board?Questions bring nothing more than a Gallic shrug.

LUFTHANSA

Start date:summer 2009

Routes:20 being considered, from Frankfurt to Asia and North America.

What’s on board?A complete redesign for all three areas, but no details as yet.

BRITISH AIRWAYS

Start date:2012

Routes:Los Angeles, Singapore, Hong Kong and Johannesburg are likely to be first. New York “would be considered if customer demand were strong enough”.

What’s on board?BA only ordered the planes a month ago, so they haven’t decided yet. Don’t expect many gimmicks, though – for that, look to...

VIRGIN ATLANTIC

Start date:2013

Routes:Los Angeles, Dubai.

What’s on board?More double beds for sure, plus a casino – chairman Richard Branson says: “There’ll be two ways to get lucky on our A380s.”

Showers and gyms have been mentioned too.

Four Problem Traders; Four Trading Strengths

A while back I posted on the topic of trader strengths, and readers offered worthwhile perspectives on some of the factors that distinguish successful from unsuccessful traders. After much consideration, I decided to approach the topic a bit differently: by outlining four kinds of problem traders I frequently encounter and by identifying the strengths that help people deal with these problems.

Problem Trader #1: The Frustrated Trader - The frustrated trader deals with frequent angry reactions during trading. Sometimes the anger may be vented outward; other times it is turned inward. For example, many rigidly perfectionistic traders are also frustrated traders, because they cannot live up to their impossible standards and thus artificially create failure experiences for themselves. Frustrated traders are often impulsive traders and will make trades to either compensate for prior losing trades or to make up for missed opportunities. Frustrated traders will often ignore position-sizing rules and undergo occasional blowup losses as a result. It's easy to identify the frustrated trader by their physical cues: yelling, cursing, complaining, and gesturing when they should be focused on the screen. The key strength that combats frustration: self-acceptance and being supportive of oneself. Key techniques for combating frustration: setting reasonable goals; using biofeedback for building self-control and calm focus; and mentally rehearsing trading plans/rules to make them more automatic during the trading day.

Problem Trader #2: The Anxious Trader - The anxious trader is consumed with fears of loss, missing out on objective opportunity either by not taking signals or by sizing positions too conservatively. In a sense, the anxious trader is more concerned about not losing than about winning. This risk aversion can lead to analysis paralysis, as the trader waits for the perfect setup that never quite materializes. Sometimes the anxious trader is one who has been traumatized by prior losses. It's too painful to relive memories of those losses, and so the anxious trader exits positions too quickly and is too reluctant to get into positions. A very common feature is cutting profits rapidly out of fear of losing those. Signs of the anxious trader include muscle tension, worry, relief over getting out of positions (or away from the screen), and inability to trade reasonable size. The key strength that combats anxiety is confidence and an ability to accept loss as a natural part of trading. The techniques most helpful in combating anxiety include cognitive methods for replacing worry talk with constructive problem solving; behavioral techniques to calm oneself and reprogram stress responses; setting process rather than outcome goals; and regaining confidence by trading successfully in simulation mode and gradually building one's size.

Problem Trader #3: The Overconfident Trader - Overconfident traders approach trading like a casino--and they're not the house! The overconfident trader typically overtrades, which means trading size too large for their account and trading more often than opportunity dictates. Very often the overconfident trader is attracted to action in markets, rather than consistent profits and sound discipline. As a result, the overconfident trader can be identified by winning periods punctuated by unusually large and damaging losses. Sometimes the overconfident trader is also a desperate trader, hoping to strike it rich. A common feature of overconfident traders is their lack of preparation: they think that anyone can make it with simple methods and a gut feel. The problem is that they never spend enough time reviewing markets and intensively watching screens to develop that feel. The key strength that combats overconfidence is humility, a respect for markets and risk, and conscientiousness in crafting and following trading rules. Techniques that combat overconfidence include mental rehearsal and self-hypnosis to instill trading rules and support rule-governance; mechanical position sizing to avoid risk of ruin; and cognitive techniques to intercept and challenge grandiose thoughts following winning periods.

Problem Trader #4: The Defeated Trader - Defeated traders are ones who, in trader parlance, have "lost their mojo". Their thought patterns are negative and this blinds them to opportunity. Very often they will be filled with shame, remorse, and guilt over past losses and very often they enter new trades expecting the worst. As a result, they don't often enter new trades and will miss out on opportunities that are genuinely present. They often stop working at their trading, as anything trading-related is associated with emotional pain. Defeatism thus becomes a self-fulfilling prophecy. It's easy to recognize defeated traders, not only by their depressed mood, low energy, and lack of enthusiasm, but also by their "yes, but" rejection at helping efforts. Very often the defeated trader will focus on losses and mistakes and gloss over progress that's been made: they see the trading cup as half empty, rather than half full. The key strength that combats defeatism is emotional resilience and the ability to use losses as learning experiences. Techniques that combat defeatism include cognitive methods for reprocessing negative thought patterns; structuring of the learning process to emphasize strengths and solutions rather than mistakes; and a focus on attainable goals and the creation of success experiences.

Most of us can identify elements of these four traders in ourselves. If I had to choose, I'd say that I am most like the Anxious Trader. I am quick to step away from markets when my setups aren't there--sometimes too quick! Many of the traders I work with fit into the Frustrated Trader category: they're aggressive, achievement-oriented, and hard on themselves.

Knowing your patterns does not, in itself, enable you to change them, but it's a necessary step. Indeed, I find that, regardless of the patterns, the first step of progress a trader makes is interrupting old patterns that aren't working and trying something different. The ability to stand outside oneself as an observer of patterns is a core self-coaching skill.

How 9 Internet Startups Lost 2 Billion Dollars

To an outsider looking in, venture capitalists may look like the cavalry of the gravy train. Images come to mind of handsome men in sharp looking suits, swooping in on helicopters with briefcases full of money for people like us to follow our dreams. But to the insider who has actually worked in those fields, venture capitalists are just that. Capitalists. They are businessmen whose jobs, just like any other businessman, are to make money. And like anyone else, they are capable of mistakes. Aggressive lending and bad management can easily destroy any business. And no where is this more famous than in the tech industry.

Webvan -- Webvan started as a reasonably sensible idea, "A Super Market that Delivers!" Unfortunately the leeway offered through $800,000,000 gave the company enough slack to hang itself with its own spending. With those kinds of funds at Webvan's disposal the company grew at such a rate that it overextended itself. Throughout a period of eighteen months, Webvan expanded its reach from San Francisco to eight other cities across the United States. At its zenith it reached a value of over 1.2 billion dollars. But supermarkets already have razor-thin profit margins. Add that with the burden of a new, untested business model, and the growing pains alone were enough to finish off the company. To this day, one may be able to find WebVan logos in the nooks and hideaways of AT&T park (then Pacific Bell), the stadium Webvan sponsored when it thought it had money to throw away.

Pets.com -- Started by Greg McLemore then bought by venture cap firm Hummer Winblad and executive Julie Wainwright, Pets.com was proof that it takes more than a "money is no object" marketing campaign to save you. The talking sock-puppet Pets.com became known for was a balloon in the Macy's Thanksgiving Day Parade and even made it into the crown jewel of all television advertising, a spot during the Super Bowl. But as popular as their mascot was, Pets.com was never able to convince its prospective customers why they should buy their pet supplies online. Ironically, it could be said that the initial investors were directly to blame for Pets.com's downfall. Investors pumped millions into the company with the predetermined knowledge that it would be thrown at marketing. Then, before any real value had been established within the company itself, Pets.com was made public. The company still could have plausibly been saved, but the investors instead allowed it to die quickly without giving it any long-term opportunity to grow. With the release of its IPO, Pets.com raised $82.5 million only to disappear less than a year later.

Kozmo.com -- A great idea poorly executed. Kozmo.com was founded by investment bankers Joseph Park and Yong Kang. The company's purpose was simple: to deliver a wide variety of small goods within an hour for no delivery charge. Wanted popcorn, soda, and a movie on your doorstep in under an hour? No problem! Unfortunately for Kozmo, the gimmick that made it famous, "Free Delivery", was also its undoing. The company claimed that the money saved by not needing rental space for store fronts would easily offset the costs of delivery. This however was not the case as the company would shut its doors after only three years of service. Kozmo raised roughly $250 million in funding including $60 million directly from Amazon.com, but one wonders what their logic was when they promised $150 million of that money to Starbucks for advertising.

Flooz.com -- Why spend dollars when you can use the internet's own new currency, "Flooz!" Why indeed? Flooz.com would go belly-up after only two and half years, but not before burning through something between $35 and $50 million in venture capital funding. With that kind of money it's obvious how Flooz.com was able to afford their spokesperson, Oscar-winner Whoopi Goldberg. Despite acquiring a well-received spokesperson, one has to question the rest of this company's logic. Namely, why would someone exchange currency backed by the United States government for currency backed by only a fledgling internet startup company in New York? At least gift cards are backed by their merchant. When Flooz.com went under, all Flooz credit became worthless.

eToys.com -- At first glance eToys.com seemed like a sound idea, "Sell toys on the internet!" However, when placed in the context of competing with an alliance between Amazon.com and Toys 'R' Us, it's obvious how bleak the picture really was. Funded by "idealab!" eToys raised $166 million with its IPO, but within 16 months its share price went from a high of $84 down to a low of 9 cents. "Idealab!" itself would be burned so badly through its tech investments that it would close a number of its offices and cancel its own IPO. Like other internet startups, eToys would burn through the bulk of its income through aggressive marketing and expensive advertisements. In the end however, its income would never exceed its spending. The company went under in less than two years after its IPO.

Go.com -- As a web portal, Go.com became definitive proof that even the "old guard" weren't safe from blowing large amounts of money by investing in the tech industry. Created by the Walt Disney Internet Group, Go.com was founded in 1995, but really began in 1998 when it merged with Infoseek. The intention was for Go.com to become a destination site, much like Yahoo, or later Google. Countless millions were spent in advertising with the site never growing popular enough to justify the costs. In the end, many people lost their jobs and Disney took a write off of $790 million. A lot of cash, even for a company like Disney. Go.com exists today but uses Yahoo as its search engine and only carries feeds from other Disney Web properties.

Boo.com -- As Go.com proved that even the "old guard" weren't safe, Boo.com showed that losing huge amounts of money through investing in the tech industry wasn't something bound solely within the United States. Based in the United Kingdom, Boo.com was an online store that specialized in brand name clothing. Setting aside "keeping it simple" the executives instead prioritized giving their web pages a sexy design steeped heavily in JavaScript and Flash technology. From a virtual sales assistant to web pages that took several minutes to load, Boo.com was a website that did not keep the customers first in mind. Its one saving grace, "free returns" where Boo.com would pay the postage for all returns, was not logistical for a company serving an international community. After two years, Boo.com folded having burned through $160 million.

GovWorks.com -- Founded by childhood friends Kaleil Tuzman and Tom Herman, GovWorks.com began as a way for people to pay their parking tickets online. But with Kaleil serving as salesman and Tom designing the technology, GovWorks.com grew into a site with the intention of allowing people to perform all necessary business with municipal governments online. Kaleil and Tom quickly found themselves hobnobbing with power players within the United States government, and were able to gather $60 million in venture capital funds. Soon afterwards however, tension grew between the two friends, and Tom was kicked out of the company. In the end, GovWorks.com was a complete flop and was taken over by a competitor.

MVP.com -- Your online sports equipment store! With John Elway as chairman, and Michael Jordan and Wayne Gretzky serving as directors, MVP.com was the veritable Planet Hollywood of the internet. But like Planet Hollywood, it took more than big names to keep the company afloat. It also took more than the mere $65 million war chest MVP.com started with. After entering into a four-year advertising deal with CBS, MVP.com promptly failed to pay the $10 million a year it had agreed to within their contract. All this despite the fact that MVP.com charged the same amount online as one would find in a retail store. The company folded soon after and was taken over by CBS's online affiliate Sportsline.com.

When companies such as these fail, it is more than just a website going down. Consumers are left with fewer choices, and today's new online companies find it that much more difficult to raise capital. Ideas that could bring fabulous new services to the marketplace will never see the light of day due to the careless failures of their predecessors. Unfortunately, the same thing is still going on today. EONS, the social network for senior citizens has had $32 million invested into it despite sporting such tasteful features as an obituary section. Although not a website, Amp'd Mobile recently went under, burning through $360 million in only two years. Often, ill-fated business decisions can be attributed to naivety, but other times it is plainly more malicious. Filmloop.com recently went under, because its primary funding venture capital firm forced it to sell for bottom dollar, despite the business doing well. In other cases, venture capital groups have made countless new companies possible through initial funding, only to then dog-ear that money for marketing to produce buzz. Once that buzz was established and the stock had raised, the venture capitalists would sell and move on, leaving the public share holders to bear the collapse of a company that could have made it had it been given a chance through patience, and better management. In this list alone, almost $2.5 billion was lost. Money that could have been better spent than in the risky world of venture capital.

SAP: SAP Should Follow Oracle’s Lead

There has been plenty of hot air expelled this week over whether SAP’s (SAP - Annual Report) acquisition of Business Objects (BOBJ) is a sign that it is adopting Oracle’s (ORCL - Annual Report) big acquisition strategy or whether it is a simply a larger part of SAP’s existing strategy of using small “tuck-in” acquisitions. I’ll leave others to bloviate on those issues.

I am less interested in whether SAP is following Oracle’s strategy than whether they ought to be. And I think the answer to that question is a resounding “yes.”

For one thing, corporate IT buyers’ main concerns tend to be reducing costs and reducing complexity. Much better to have Oracle and SAP tie together the applications from a number of vendors (by directly integrating them) than to devote in-house IT staff to doing it. Research 2.0 criticizes the Business Objects acquisition for this reason, saying “SAP now faces many of the same incompatible architectural challenges faced by Oracle with its many acquisitions.” I think their customers would rather have SAP deal with the incompatibilities than to have to do it themselves. Since when is making life easier for customers a bad thing?

More importantly, however, there are just too darn many application software manufacturers out there. While consolidation in some industries occurs because the weaker businesses fail, software balance sheets are generally too strong to for this to happen. The only way to fix the problem of too many customers chasing a relatively fixed amount of dollars is for an industry leader to soak up the excess capital by leveraging its own balance sheet to acquire other companies - for cash, not shares. Oracle has been pursuing that fix.

Software companies tend to generate significant cash flow, and Oracle has been able to use this cash flow to fund the acquisitions while both maintaining a healthy balance sheet and avoiding dilution to existing shareholders. As an example, consider its first large acquisition – that of PeopleSoft in January 2005 for $11.1 billion in cash. Prior to the acquisition Oracle held more than $9.5 billion in cash and marketable securities on its balance sheet, and had virtually no debt. The company used this cash and a $7 billion bridge loan to complete the acquisition, and by the end of its fiscal year in May, 2005 it had reduced the loan value to $2.6 billion while still maintaining nearly $5 billion in cash and marketable securities and actually reducing its share count.

By May, 2006 the company had made another $4 billion worth of acquisitions (net of the cash held by the acquired companies) and increased its cash and marketable securities to $7.5 billion while restructuring its debt load to $5.7 billion in long-term debt. Even though the debt was $3 billion more than the prior year, most of that was offset by the increase in cash – meaning that the $4 billion in acquisitions was made possible almost entirely through cash flow from operations.

Speaking of cash flow, in the year ended May 2007 Oracle generated $5.5 billion of it from operating activities, and spent only $320 million of it on capital expenditures. That turns out to be a free cash flow yield of 4.5% from the existing businesses. Most of that continues to be invested in new acquisitions for new growth opportunities. The free cash flow has increased 55% since FY2005.

Meanwhile, SAP is generated approximately $2.0 billion in free cash flow last year, giving it a 3.0% free cash flow yield. Its acquisition avoidance has left the free cash flow essentially unchanged over the last three years (though arguably the change in the Euro/dollar exchange rate is providing growth.)

A higher yield and growing free cash flow compared with a lower, flat one is not much of a choice in my book.

If any doubt remains over which strategy is working better, one need only turn to a price chart. Since Oracle closed the PeopleSoft acquisition in January 2005, its shares are up 70% (mostly driven by rising cash flow), compared to just more than 30% for SAP over the same time. To me, it seems like that is exactly the type of “challenge” SAP would want to adopt.

Top 10 Most Fuel Efficient Cars

Here's the top 10 most fuel efficient cars, according to the 2008 Environmental Protection Agency and Department of Energy's fuel economy guidebook, published this Saturday. Prius tops the charts.

2008 Model Year Overall Fuel Economy Leaders

Class Model City/Highway MPG

10. Honda Fit (manual) 28/34
9. Toyota Corolla (manual) 28/37
8. Ford Escape Hybrid 4WD 29/27, Mercury Mariner Hybrid 4WD ", Mazda Tribute Hybrid 4WD "
7. Toyota Yaris (automatic) 29/35
6. Toyota Yaris (manual) 29/36
5. Toyota Camry Hybrid 33/34
4. Ford Escape Hybrid FWD 34/30, MazdaTribute Hybrid 2WD ", Mercury Mariner Hybrid FWD "
3. Nissan Altima Hybrid 35/33
2. Honda Civic Hybrid 40/45
1. Toyota Prius (hybrid-electric) 48/45

If you want to save on gas, hybrids are the way to go.

Lowest Fuel Economy by Vehicle Class for 2008 Model Year

Class Model City/Highway MPG

Two Seater Lamborghini Murcielago (manual) 8/13
Minicompact Car Aston Martin DB9 Coupe, Volante (manual) 10/16
Subcompact Car Bentley Continental GTC 10/17
Compact Car Bentley Azure 9/15
Midsize Car Ferrari 612 Scaglietti (auto) 9/16
Large Car Bentley Arnage RL 9/15
Small Station Wagon Audi S4 Avant (manual) 13/20
Midsize Station Wagon Mercedes-Benz E63 AMG Wagon 12/18
Sport Utility Vehicle* Mercedes-Benz G55 AMG 11/13
Minivan* Toyota Sienna 4WD 16/21
Pickup Truck* Rousch Performance Stage3 F150 11/15
Van (Passenger and
Cargo)*
Passenger Chevrolet G1500/2500 EXPRESS 2WD 12/16
" Chevrolet H1500 EXPRESS AWD "
" GMC G1500/2500 SAVANA 2WD "
" GMC H1500 SAVANA VAN AWD "
Cargo Chevrolet G15/25 VAN CONV 2WD "
" Chevrolet H1500 VAN CONV AWD "
" GMC G15/25 SAVANA 2WD CONV "
" GMC H1500 SAVANA AWD CONV "

*Trucks over 8500 pounds gross vehicle weight rating are currently exempt from federal fuel economy requirements

Highest Fuel Economy Models by Vehicle Class for 2008 Model Year

Class Model City/Highway MPG

Two Seater Audi TT Roadster (2 liter engine,auto) 22/29
Minicompact Car Mini Cooper Convertible (manual) 23/32
Subcompact Car Toyota Yaris (manual) 29/36
Compact Car Honda Civic Hybrid 40/45
Midsize Car Toyota Prius (hybrid) 48/45
Large Car Honda Accord 4Dr Sedan (manual) 22/31
Small Station Wagon Honda Fit (manual) 28/34
Midsize Station Wagon Passat Wagon (manual) 21/29
Sport Utility Vehicle Ford Escape Hybrid FWD 34/30
Mazda Tribute Hybrid 2WD "
Mercury Mariner Hybrid FWD "
Minivan Dodge Caravan 2WD 17/24
Chrysler Town & Country 2WD "
Pickup Truck Ford Ranger Pickup 2WD (manual) 21/26
Mazda B2300 2WD (manual) "
Van (Cargo&Passenger)Chevrolet G1500/2500 Van 2WD 15/20
(4.3 liter engine)
GMC G1500/2500 Savana 2WD Cargo "
(4.3 liter engine)

Lowest Overall Fuel Economy Models* for 2008 Model Year

Rank Manufacturer/Model City/Highway MPG

1. Lamborghini Murcielago (automatic) 8/13
2. Bugati Veyron 8/14
3. Lamborghini Murcielago (manual) 9/14
4. Bently Azure/Arnage RL 9/15
5. Ferrari 612 Scaglietti (automatic) 9/16
6. Lamborghini Gallardo Spyder (manual) 10/15
Ferrari Ferrari 612 Scaglietti (manual) "
Bentley Arnage (auttomatic) "
7. Lamborghini Gallardo Spyder 10/16
Aston Martin DB9 Coupe "
Aston Martin DB9 Volante "
Mercedes-Benz Maybach 57 "
Mercedes-Benz Maybach 57S "
Mercedes-Benz Maybach 62 "
Mercedes-Benz Maybach 62S "
8. Lamborghini Gallardo Coupe (manual) 10/17
Bentley Continental GT (automatic) "
Bentley Continental GTC (automatic) "
Bentley Continental Flying Spur (automatic) "
9. Mercedes-Benz G55 AMG 11/13
10. Jeep Grand Cherokee 4WD 11/14
Mercedes-Benz Ml63 AMG "

US Foreclosures Nearly Double

Foreclosure filings across the U.S. nearly doubled last month compared with September 2006, as financially strapped homeowners already behind on mortgage payments defaulted on their loans or came closer to losing their homes to foreclosure, a real estate information company said Thursday.

A total of 223,538 foreclosure filings were reported in September, up from 112,210 in the same month a year ago, according to Irvine-based RealtyTrac Inc.

The number of filings in September was down 8 percent from August's 243,947, the firm said.

Despite the sequential decline, the September figure represents the second-highest total for filings in a single month since the company began tracking monthly filings two years ago.

"August was an extraordinarily high month for foreclosure activity, so some falloff was almost predictable," said Rick Sharga, RealtyTrac's vice president for marketing.

The filings include default notices, auction sale notices and bank repossessions. Some properties might have received more than one notice if the owners have multiple mortgages.

Typically, borrowers must be 60 to 90 days past due on their mortgage payments before their lender will consider them in default, the first stage of the foreclosure process. If a homeowner can't find a way to get current on payments, the home is then often put up for auction, and if it doesn't sell, it eventually goes back to the bank.

In all, 39 states saw a decline in foreclosure filings, the firm said.

Sharga noted that there was a spike in the number of bank repossessions in August that did not occur in September.

It's likely that the sequential decline in foreclosure activity between August and September was just a blip, not a bellwether of lessening foreclosure filings.

"We don't see September as the beginning of the end in this cycle of foreclosures," Sharga said.

The foreclosure rate for the nation in September was one foreclosure filing for every 557 households, the firm said.

The U.S. housing market has seen sales decline and home prices fall or remain flat, making it harder for homeowners who can't afford to make mortgage payments to sell their homes or seek refinancing.

Many of those troubled homeowners were among those who took on adjustable-rate mortgages that are now adjusting to a higher interest rate, translating into payments they cannot afford to make.

The rising delinquencies and foreclosures this year have led the mortgage industry to tighten lending standards, further narrowing options for homeowners struggling to pay their mortgage.

Nevada, Florida and California had the highest foreclosure rates in the country last month, the firm said.

Nevada reported one foreclosure filing for every 185 households, earning the state the highest foreclosure rate in the nation for the ninth month in a row. The state had 5,504 filings in September, down 11.1 percent from August and more than triple from September 2006.

Florida had one foreclosure filing for every 248 households. The state reported 33,354 foreclosure filings in September, down just less than 2 percent from August, but more than three times greater than September 2006's total.

California's foreclosure rate was one filing for every 253 households. The state reported the most foreclosure filings of any single state with 51,259, down 11 percent from August but a fourfold increase from September of last year.

Rounding out the states with the top 10 foreclosure rates last month were Michigan, Arizona, Georgia, Ohio, Colorado, Texas and Indiana.

Income inequality worst since 1920s, according to IRS data

Half of US senators are millionaires

The superrich are gobbling up an ever larger piece of the economic pie, and the poor are seeing their share of earnings shrink: new IRS data shows the top 1 percent of Americans are claiming a larger share of national income than at any time since before the Great Depression.

The top percentile of wealthy Americans earned 21.2 percent of all income in 2005, up from 19 percent in 2004, according to new Internal Revenue Service data published in the Wall Street Journal Friday.

Americans in the bottom 50 percent of wage earners saw their share of income shrink to 12.8 percent in 2005, down from 13.4 percent.

"Scholars attribute rising inequality to several factors," the Journal reports, "including technological change that favors those with more skills, and globalization and advances in communications that enlarge the rewards available to 'superstar' performers whether in business, sports or entertainment."

The data could cause problems to President Bush and Republican presidential candidates, who have played up low unemployment and a strong economy since 2003, crediting Bush's tax cuts for contributing to both. In an interview with the Journal, Bush downplayed the significance of the income gap, saying more education is the answer to narrowing it.

"First of all, our society has had income inequality for a long time. Secondly, skills gaps yield income gaps," Bush told the Journal. "And what needs to be done about the inequality of income is to make sure people have got good education, starting with young kids. That's why No Child Left Behind is such an important component of making sure that America is competitive in the 21st century."

The Journal notes that many Americans fear the economy is entering a recession, and the IRS data show income for the median earner fell 2 percent between 2000 and 2005 to $30,881. Earnings for the top 1 percent grew to $364,657 -- a 3 percent uptick.

Scholarly research suggests that top earners did not have such a large share of total income since the 1920s, the Journal reported.

The Journal reports that a recent stock boom likely contributed to higher earnings among those in the top income bracket, with hedge fund managers and Wall Street attorneys seeing their incomes skyrocket in recent years.

Another prominent pool or wealthy Americans gathers regularly on Capitol Hill to write the nation's laws. The Center for Responsive Politics, which tracks campaign spending and politicians' wealth, says more than a third of Congress members are millionaires, with at least half the Senate falling into the millionaires club.

Forbes reported that last year's incoming class of new Senators did "little to shake the Senate's image as a millionaires club," with half of the newly elected members having seven- eight- or nine-figure personal fortunes.

Freshman Sen. Bob Corker (R-TN) is worth between $64 million and $236 million, and newly elected Sen. Claire McCaskill's (D-MO) fortune is between $13 million and $29 million. R

Roll Call estimates Sen. John Kerry (D-MA) is the chamber's richest member with an estimated net worth of $750 million; another Democrat, Wisconsin Sen. Herb Kohl, is among the chamber's richest with between $220 million and $234 million in personal assets.

SBUX: Is Starbucks doomed or an excellent opportunity to invest?

So, after 50 years of selling hot mud, McDonald’s (MCD - Annual Report) continues to awaken to the notion that its customers might enjoy coffee that tastes good. According to Crain’s Chicago Business, “McDonald’s Corp. plans to sell lattes, cappuccinos and other specialty drinks in all of its 14,000 U.S. restaurants next year. McDonald’s predicts the new drinks will add more than $1 billion a year to sales.”

Not surprisingly, the anti-Starbuck’s (SBUX) crowd has latched on to this announcement as proof the company is doomed. 24/7 Wall St. even called it a “coup de grace,” which is defined as a “death blow intended to end the suffering of a wounded creature.” Although Starbuck’s the stock is certainly suffering, down about a third from the high reached earlier this year, it is hard to argue the company is wounded, or in need of a merciful end to its suffering.

It’s time for the doubters to face some facts. First, McDonald’s is not planning to match Starbuck’s “product for product.” In a Bloomberg article published just last month, McDonald’s President Ralph Alvarez said McDonald’s has no plans to offer the breadth of Starbuck’s beverages such as raspberry latte with soy milk and half the caffeine. Instead, they intend to compete for the plain-Jane cappuccino, offering it at about a 25% discount to the equivalent Starbuck’s model.

Secondly, Starbuck’s doesn’t need to concede the future market growth to others. For one thing, McDonald’s is already selling the cappuccinos in two thirds of its stores, according to the Bloomberg article. That potential market share loss has already been baked in, and it doesn’t seem to be hurting too badly. Starbuck’s same store sales growth is running at 4%, below its historical norm but above that of most retailers. If anything, the fact that most of McDonald’s rollout will be complete next year could ease the pressure on comp sales.

If further convincing is necessary, just look at the expected sales numbers. McDonald’s wants specialty drinks in 14,000 stores to add $1 billion to sales. In 2006 Starbucks had an average store count of approximately 6,500 and produced $6.5 billion in sales from them. In other words, they are still selling 14 times as much coffee per store as McDonald’s. The further incursion from the remaining one-third of McDonald’s expansion, even under the generous assumption that 100% of those sales would have otherwise gone to Starbuck’s, amounts to about 4% of Starbuck’s trailing twelve month company-owned retail sales – about one year’s worth of same store sales growth at worst.

Meanwhile, over the last 12 months Starbucks has generated $1.2 billion in cash flow from operating activities, and used just $1 billion to expand those operations by 15%. Assuming that two thirds of the capital expenditures went to open new stores and the rest was routine maintenance, the free cash flow from their existing store base is approximately $700 million per year, for a 3.5% free cash flow yield on the $20 billion enterprise value. It isn’t what I would call cheap, but it is much less like a wounded animal than a healthy tiger pouring its energy into a continued pounce by opening still more stores. At its current expansion rate, in two years the free cash flow yield would exceed that offered by treasuries, and Starbuck’s would still be only halfway through its expansion plans.

I would consider the stock cheap if it went down another 15% to $22.50, or if it just stayed at about the current price for another year. Since neither of those outcomes is certain, Starbuck’s fans will have to pick their own entry point. In the meantime, my favored strategy of writing put options may be worth considering. The April 2008 $27.50 puts are selling for about $2.30 right now. By writing those options you could earn an 8.5% 6-month return if the stock goes up, or buy the stock for an effective price of about $24.25 (which by April would probably meet my “cheap” criteria) if it goes down.

I think it is great that McDonald’s is offering its customers good coffee, and think the two companies can coexist much in the same way that McDonald’s has coexisted with, for example, hamburgers sold at ballparks. The two companies have very different customers and serve different purposes for them throughout the day. As for “coups de grace,” I don’t expect either company will need one any time soon.

Disclosure: Author is long Starbucks (SBUX) at time of publication. - by stockmarketbeat

An interesting list of fastest growing companies:

Rank	Company	EPS growth*	Revenue growth*	Total return*
1	NutriSystem	433%	225%	244%
2	Hansen Natural	145%	80%	139%
3	Arena Resources	140%	165%	100%
4	Intuitive Surgical	123%	62%	94%
5	Titanium Metals	151%	48%	140%
6	Apple	149%	48%	96%
7	RTI International Metals	225%	43%	68%
8	Dynamic Materials	127%	45%	173%
9	Southern Copper	83%	67%	83%
10	Global Industries	159%	48%	67%
11	Frontier Oil	291%	33%	105%
12	Allegheny Technologies	250%	36%	81%
13	Ceradyne	105%	85%	46%
14	VASCO Data Security International	75%	54%	120%
15	Perficient	59%	77%	73%
16	Holly	89%	42%	101%
17	SEACOR Holdings	198%	59%	29%
18	Pioneer Drilling	262%	58%	25%
19	Freeport-McMoRan Copper & Gold	127%	51%	44%
20	Kansas City Southern	178%	52%	34%
21	Ladish	198%	28%	70%
22	Grey Wolf	248%	51%	25%
23	Allscripts Healthcare Solutions	138%	38%	48%
24	XTO Energy	83%	60%	42%
25	Grant Prideco	300%	33%	43%
26	Hornbeck Offshore Services	157%	38%	44%
27	Dawson Geophysical	97%	54%	41%
28	National Oilwell Varco	69%	61%	49%
29	Helmerich & Payne	202%	37%	40%
30	Dril-Quip	116%	32%	69%
31	Knot	155%	26%	72%
32	First Acceptance	105%	277%	13%
33	CB Richard Ellis Group	88%	33%	79%
34	Gulfmark Offshore	306%	28%	48%
35	Helix Energy Solutions Group	96%	53%	38%
36	Valero Energy	87%	37%	60%
37	General Cable	76%	32%	107%
38	Hologic	74%	39%	68%
39	Lufkin Industries	98%	33%	61%
40	American Science & Engineering	169%	35%	40%
41	Joy Global	141%	27%	65%
42	Range Resources	66%	50%	57%
43	Palomar Medical Technologies	119%	51%	27%
44	Patterson-UTI Energy	136%	52%	17%
45	Unit	91%	58%	26%
46	Netflix	180%	49%	-19%
47	Gardner Denver	59%	57%	45%
48	Akamai Technologies	123%	39%	39%
49	Psychiatric Solutions	76%	50%	43%
50	F5 Networks	69%	51%	45%
51	Rowan Cos.	532%	36%	20%
52	RPC	106%	30%	55%
53	Atwood Oceanics	155%	27%	49%
54	Superior Energy Services	87%	32%	58%
55	W-H Energy Services	100%	33%	47%
56	First Marblehead	83%	79%	13%
57	TETRA Technologies	75%	40%	47%
58	Cognizant Technology Solutions	55%	56%	43%
59	Cleveland-Cliffs	72%	31%	78%
60	ImClone Systems	87%	65%	-26%
61	ValueClick	47%	81%	35%
62	Allis-Chalmers Energy	54%	118%	33%
63	Nucor	118%	27%	50%
64	Chesapeake Energy	58%	65%	34%
65	Celgene	33%	48%	59%
66	Tesoro	82%	29%	61%
67	Precision Castparts	73%	31%	65%
68	Miller Industries	145%	30%	37%
69	Oneok	34%	72%	37%
70	Reliance Steel & Aluminum	75%	40%	42%
71	Southwestern Energy	37%	35%	84%
72	Lam Research	132%	37%	24%
73	Penn National Gaming	81%	28%	54%
74	Jones Lang Lasalle	73%	28%	61%
75	Radiant Systems	115%	28%	41%
76	Steel Dynamics	66%	38%	45%
77	Oil States International	71%	42%	39%
78	Layne Christensen	76%	38%	35%
79	Pinnacle Financial Partners	46%	81%	17%
80	Concur Technologies	165%	27%	29%
81	Avatar Hldgs.	82%	45%	23%
82	inVentiv Health	57%	51%	33%
83	Noble Energy	58%	47%	35%
84	A.M. Castle	74%	28%	50%
85	Encore Wire	84%	43%	17%
86	Commercial Metals	63%	27%	62%
87	American Capital Strategies	31%	62%	25%
88	Team	35%	48%	41%
89	WMS Industries	109%	35%	13%
90	First Advantage	43%	74%	7%
91	Deckers Outdoor	47%	32%	51%
92	OYO Geospace	56%	29%	58%
93	Pantry	101%	29%	28%
94	Cameron International	70%	30%	43%
95	Jackson Hewitt Tax Services	61%	50%	18%
96	Dress Barn	100%	28%	34%
97	World Fuel Services	32%	57%	24%
98	Regal Beloit	55%	44%	30%
99	Swift Energy	64%	43%	25%
100	Berry Petroleum	46%	40%	38%

The Worst Recession in 25 years?

On September 18 the Fed cut its target for the fed funds rate by 50 basis points (0.5 percentage points), from 5.25% to 4.75%. The move surprised many analysts who had been expecting a more modest cut of 25 basis points.

For those versed in the Austrian theory of the business cycle, as developed by Ludwig von Mises and elaborated by Friedrich Hayek, the aggressive Fed "stimulus" is ominous indeed. Not only will it pave the way for much higher price inflation than Americans have seen in decades, but it will also exacerbate what could be the worst recession in twenty-five years.

How the Fed "Sets" Interest Rates

Before discussing the history of interest rate manipulation by the Fed, a primer will be useful. When people say the Fed did such-and-such to "interest rates," they are specifically referring to the Fed's target for the federal funds rate. The Federal Reserve itself is neither a borrower nor a lender in this market; the fed funds rate is the interest rate that banks charge each other for overnight loans of reserves. Recall that in our fractional reserve banking system, the Fed mandates that banks keep a certain amount of reserves (either cash in the vault or deposits with the Fed itself) in order to "back up" their total outstanding deposits. At any given time, some banks have more reserves than they need, while others have less. The banks with excess reserves can thus loan them to those with deficient reserves, and the (annualized) interest rate is the fed funds rate.

Now a further complication: the Fed itself does lend reserves to banks, but it does this at the so-called "discount window," and the relevant interest rate is the discount rate. In recent years the Fed has traditionally maintained a margin between the fed funds target and the discount rate, in order to encourage banks to borrow from each other, rather than coming hat in hand to the (more expensive) Fed. Some readers may recall in mid-August that the Fed slashed the discount rate (not the fed funds rate) and encouraged banks to borrow from it in an effort to restore liquidity and calm to the credit markets.

It is clear enough how the Federal Reserve can set the discount rate: since the Fed is the one loaning these reserves, it can insist on any rate it wants. (Of course, if the rate were too high it might not get any takers.) But how does the Fed influence the federal funds rate, if it doesn't directly participate in this market? Is the target enforced the way, say, the government in some areas controls apartment rents or minimum wages?

The process is much more complicated. Very briefly: the Fed can control the quantity of reserves held by banks, and thus indirectly can control the price the banks charge each other for lending out reserves. If the Fed thinks banks are charging each other too much for reserves — in other words, if the actual fed funds rate is higher than the target — then the Fed will engage in an "open market operation," buying assets such as US Treasury bonds from banks. The Fed pays for these purchases by adding numbers to the accounts the selling banks have with the Fed.

This is the precise point of entry for the new money that the Fed creates out of thin air. To repeat: When the Fed buys (say) $1 million in bonds from Bank XYZ, Bank XYZ surrenders ownership of the bonds but sees that its deposits of reserves at the Fed go up by $1 million. But the Fed didn't transfer this money from some other account. No, it simply increased the electronic entry representing Bank XYZ's total reserves on deposit. There is no offsetting debit anywhere in the banking system. Bank XYZ now has $1 million more in reserves, while no other bank has less. Bank XYZ is now free to go out and loan more reserves to other banks, or to make loans to its own customers. (In fact, due to the fractional-reserve system, the bank could make up to $10 million in new loans to customers.) The money supply has increased, putting upward pressure on prices measured in dollars.

But back to our original theme, the injection of reserves obviously increases their supply and thus (other things equal) pushes down the rate Bank XYZ will charge other banks who might want to borrow reserves from it. The open market operation has thus achieved the Fed's goal of pushing the actual fed funds rate down to the desired target. Of course, going the opposite way, if the actual fed funds rate were too low, the Fed would sell assets to the banks, thereby destroying some of the total reserves in the system.

Austrian Business Cycle Theory

According to Ludwig von Mises and his followers, the boom-bust cycle is not inherent in the free market, but is rather caused by the government's interference in the credit markets, specifically its manipulation of interest rates. The government causes the boom period when it injects new credit into the system (pushing down rates), and then the unsustainable, non-economic investment projects put into motion necessitate a bust at some future date. (Here is a reading plan for this topic.)

The following chart illustrates the Misesian explanation. Note the chart does not include the recent September cut.

Real Yr/Yr GDP Growth (blue, right) vs. Real Effective Fed Funds Rate (red, left)

Generally speaking, the chart indicates an inverse relationship between the two series. This accords with the commonsense view that cutting interest rates provides a stimulus while hiking them is contractionary. However, what the Austrian approach provides is the understanding of the real forces behind the boom-bust cycle. In other words, most financial commentators think that today's interest rates affect today's economic growth, end of story. But if a previous boom period has led to massive malinvestments, there must be a bust period to liquidate the various projects (for which there is an inadequate capital structure to complete).

To put it another way, many commentators seem to believe that if the Fed held interest rates low indefinitely, then we'd never have high unemployment, just rampant price inflation. And yet, the recent experience shows that this is dead wrong. The Fed didn't cause the recent problems by "responsibly" hiking interest rates. No, rates had been steady at 5.25% for some time, and then the housing bubble burst and the mortgage market faltered, thus "forcing" the Fed to take action.

Looking back at the chart above, we can see why the worst may be yet to come. In (price) inflation-adjusted terms, the early-2000s levels of the actual fed funds rate is the lowest since the Carter years. And many readers may recall the severe recessions of 1980 and 1982 that followed that period.

Conclusion

In the Austrian view, the boom-bust cycle is caused by the Fed's maintenance of artificially low interest rates, which causes businesses to expand, hire workers, buy other resources, and so forth, even though these projects are not justified by the true supply of savings in the economy. The greater the "stimulus" the worse the malinvestments.

From 2001–2004, the Fed kept (real) rates at the lowest they've been since the late 1970s. One of the consequences that has already manifested itself is the housing bubble. But a more severe liquidation seems unavoidable. The recent Fed cut may postpone the day of reckoning, but it will only make the adjustment that much harsher.

The Con That Turned the World Against America

The world’s financial system came precariously close to seizing up these past couple months.

In fact, as far as some big banks and financial institutions were concerned, for a moment in time, the system was in a full-blown cardiac arrest. Liquidity, the flow of money—the lifeblood of today’s economic structure—came uncomfortably close to clotting up.

Defibrillators sizzling and money flowing, central banks around the world acted in concert to jump-start financial markets, slashing lending rates and injecting a half trillion in dollar steroids into the economic pulmonary system.

But contrary to what the big media outlets may have reported, it is actually inconsequential whether or not central bankers succeeded in temporarily stabilizing markets.

Irrevocable damage to America’s economic system has taken place.

And because the world’s largest economies are so closely intertwined, the effects will not be limited to the United States. Confidence in the world’s financial system—a system based on the dollar as the reserve currency—is failing, not because of a liquidity crunch, a popping housing bubble, or the myriad of other commonly spouted economic causes, but because of broken faith. The result will be a new world financial order—one without America at the head.

Here is what happened and why you need to know about it.

The world’s economic system is built on trust. Money is no longer backed with tangible assets. The only thing giving that Jackson in your wallet purchasing power is the perception that it will be able to buy a similar batch of goods tomorrow as it can today. But here is the catch. There is no standard that determines what a dollar is worth—ultimately it’s all relative. Its value could disappear overnight.

The same is true for every currency, whether yen, ruble or peso. Each is backed by confidence—confidence that the government will act responsibly, confidence that the government will honestly pay its debts (not just print more money), and confidence that the currency will remain a store of wealth.

When that confidence is broken, faith-based economic systems go into meltdown. Investors and international banks flee, currency values plummet, inflation runs rampant and economies are destroyed.

In August, when fallout from America’s popping housing bubble began to hit the market, trust in America cracked—and with it, so too did confidence in the global economic system.

Hamid Varzi, writing for the International Herald Tribune, summarized world opinion this way: “The U.S. economy, once the envy of the world, is now viewed across the globe with suspicion” (August 17).

He continued: “The ongoing subprime mortgage crisis … presages far deeper problems in a U.S. economy that is beginning to resemble a giant smoke-and-mirrors Ponzi scheme. And this has not been lost on the rest of the world.”

Trust in America is quickly disappearing. Why? Because America single-handedly brought the international financial system virtually to its knees by foisting off fraud-ridden subprime debt on an unsuspecting world, which resulted in the ensuing credit crunch.

America will not escape unscathed. You can’t cheat the very people you rely upon to lend you money without a backlash.

Here is how American greed ripped off the rest of the world.

In 2000, America faced a recession. But rather than letting the economy rebalance, the Federal Reserve decided to slash interest rates to artificially stimulate the economy—even though it knew that doing so would probably create even bigger problems later.

Consequently, mortgage rates in America plummeted and, suddenly, millions more Americans could buy homes. House prices skyrocketed: tripling and quadrupling in many areas. The bubble fed on itself as prospective homeowners, often acting more like speculators, rushed to buy homes as quickly as possible to capitalize on further price appreciation.

As home values rose, fewer people could afford traditional loans. To keep their profits growing, banks and lenders began offering easy-to-get subprime mortgages—mortgages to borrowers normally considered too risky due to credit history, income status and other factors.

Oftentimes these loans were adjustable-rate, or had initial teaser rates that would ratchet up later. Often the loans were given without any applicant background checks at all. As long as a borrower could write his own name and yearly income (regardless of whether or not it was true), he could get a loan.

And everyone was happy. Record house prices fueled a building boom and jobs were created. Borrowers were glad because they got huge loans and could purchase homes that were rising in value. Real-estate agents were pleased because the bigger the house sold, the bigger their profit. Lenders and loan brokers were cheerful too because they each got their cut of the action.

But there was just one problem: The whole boom was based on artificially low interest rates. What would happen when interest rates rose, homes stopped appreciating and borrowers had more difficulty making payments?

American banks, understanding the risk involved in holding so many chancy (and possibly largely overvalued) subprime mortgages on their own books, decided to get rid of them. But who would want to buy all the risky mortgages? Certainly not Americans who were already maxed out on subprime debt. The answer was foreigners.

But here was the catch. To make the sales profitable, the risky mortgages had to be marketed as a “safe” investment.

So American banks sliced and bundled their subprime mortgages together into packages. Using complex computer models, and by geographically and otherwise diversifying the bundled mortgages, American banks convinced world-renowned and trusted American investment-rating agencies like Moody’s and Standard & Poor’s to give the mortgage securities higher valuations than regular subprimes would typically rate.

Later it became public knowledge that these same ratings agencies, which foreign investors were relying on for impartial advice, were being paid by the very banks and lenders that were bundling and selling the subprime mortgages—a huge conflict of interest that produced some terribly misleading data for foreign investors.

It has also emerged, at least in Moody’s case, that the agency knew for years that the mortgages securities they rated as safe were more than 10 times as risky as other similarly rated bonds (Daily Reckoning, September 3).

But at the time, even the banks were happy. They could merrily issue subprime mortgages (and still collect all their fees) because they were able to both quickly remove the mortgages from their books and get top dollar for them, thanks to the high ratings. And foreign investors (as well as domestic investors) confidently purchased these supposedly safe mortgage investments.

That is, until interest rates started to rise—and subprime borrowers began defaulting in droves.

As with all parties, the fun and games eventually end. Suddenly the world woke up to the fact that subprime mortgages were just that—subprime—regardless of what American ratings agencies and banks pretended. As the U.S. housing market slumped, suddenly nobody wanted any American mortgage securities anymore, let alone subprime ones.

Investors around the world tried to sell American mortgage securities, but by this time, the shoddy credit ratings had become public knowledge. American credit-rating agencies embarrassingly began to issue massive ratings downgrades, and foreign investors found that to even get any bidders on their American mortgage portfolios, they had to accept steeply marked-down prices.

Hedge funds and other investment vehicles began to seize up as people tried to pull their money out of any and all businesses associated with U.S. mortgages. Panic ensued.

As the credit crunch spread, it became evident that the “made in America” economic crisis was not contained. America’s trade partners would also take the hit for the moral breakdown in America, a breakdown that could have been avoided had greed not been such a big factor.

Banks and mortgage lenders across Europe and America began to fail.

German, French and British banks, as well as stock market investors around the world, got hit especially hard as the credit crunch and fears of new restrictive lending practices shook international bourses. Investors lost billions.

Things got so bad in Germany that the government had to step in to save two banks from failing. In France, bnp Paribas, one of the nation’s largest banks, had to suspend redemptions from three investment funds it managed.

In Britain, Northern Rock Plc., the nation’s fifth-largest lender, experienced an unprecedented bank run as customers lined up for hours to clamor for their money when it was revealed that it was having trouble accessing enough credit to continue normal operations. The Telegraph compared the scene to something out of Zimbabwe.

And the few big-name collapses experienced so far may be just the beginning.

You can be sure that billions in losses—all as a result of what amounts to a con—will not pass without a response. International backlash is growing.

“The entire world is growing in its disgust for having been defrauded,” says economic analyst Jim Willie. “French, British, German, Japanese and Chinese banks have been harmed from ingesting falsely labeled food items. What was sold as ‘AAA’ rated milk products was actually highly toxic acid ….”

For example, in a foreign-policy speech on August 27, French President Nicolas Sarkozy called for an enhanced global rule book to avoid financial crises—a rule book governing America. Sarkozy, who has vowed to “moralize financial capitalism,” said America’s crisis could recur if “the leaders of major countries” did not take “concerted action to foster transparency and regulation of international markets.”

Peter Bofinger, a member of the German government’s economic advisory board, agrees. “We need an international approach, and the United States needs to be part of it,” he said.

Dick Bryan, a professor of economics at the University of Sydney, says the world must respond as well. “[T]here is the need to challenge the sovereignty of national regulators—why should the rules of lending in the U.S. be left to U.S. regulators when the consequences go everywhere?” he said. In this globalized world, “a problem in one location is a problem everywhere.”

If and how long Washington can resist international pressure is unclear. So far the response from Washington is that it wants “no form of oversight.”

But a new global rule book may be the least of America’s worries.

While regulators in the U.S. have been unreceptive to international monitoring, Europe and Asia, unlike in years past, now have growing financial leverage up their sleeves.

What if foreigners stopped lending to the U.S.? Worse, what if they started dumping U.S. debt in the form of treasuries and bonds?

“America depends on the rest of the world to finance its debt,” Bofinger reminds us. If foreigners stopped buying America’s financial products, it would be a catastrophe.

Foreign willingness to purchase U.S. debt has kept interest rates low in America—thereby creating millions of jobs in real estate, home construction, remodeling and other associated industries. America has become so dependent on foreign money that if foreigners stop lending to America, the America you know today would not survive.

Even now, the foreign backlash is beginning to be felt. The U.S. dollar is dropping to lows never before experienced. In September, the dollar fell to the lowest it has ever been against the euro. Against the Canadian dollar it hit a 31-year low, making the two dollars almost equal in value.

So while U.S. officials continue to brag that all will work out just fine and that the credit crunch is contained, they are missing the bigger point: America cheated the very people it depends upon for loans. Now, foreigners are voting with their feet and are choosing to reduce investment in America. They are abandoning the dollar.

As Jim Willie warns, we “might be in the early stages of … a boycott of U.S.-dollar-based financial assets.”

But who can blame them?

Greed and corruption have been exposed for being endemic to so many levels within America’s economy. Who is to say that even U.S. government bonds more closely resemble subprime mortgages than their conventional reputation as a safe investment?

The world is approaching an end of an era. America’s moral collapse now lies exposed to all—a virtual death sentence to an economic system based on trust. Confidence lost, America’s reputation as a financial safe haven is being replaced with subprime status—and as foreigners have found out, subprime risks just aren’t worth it.

By Robert Morley

The Lottery Scam

Would you like to pay a 75% sales tax? This is what you are paying when you purchase a lottery ticket.

Don't believe me? Read on.

First of all, lottery is a form of gambling that pits your odds against the house(lottery organizer), same as most form of casino gambling. So what exactly is your odd of winning? Usually a casino game will have odds that looks approximately like this, ((you 47% vs 53% house)), as you can see, the house always wins, but it wins by a slim margin. Of course some games like the slots have worse odds and some game such as blackjack have better odds, but mostly they do not deviate much from 47% vs 53%.

So what are the odds when you play the lottery? It's ((you 0.00000001% vs 99.99999999% house)). Yes you read that right, the house always wins and wins with a huge margin. Why? Because on any given round of lottery, the house (lottery organizer) takes at least a 50% cut right away, that means no matter if there is a winner, 50% of the money YOU paid is gone! What would you do if a casino take 50% of your bet each time you make a bet, regardless if you win or lose?

But wait, there is more, when you do win the big prize, the government (same entity as the organizer in most cases) takes another 50%+ cut on your prize money as income tax. Feeling the love?

But wait, there is more, you know the money you spent to purchase the lottery ticket? that's after tax dollars, meaning you already paid income tax on that money! Every single dollar in the prize pool are after tax dollars! So basically, millions of people are buying a lottery ticket, so they can have the privilege to have one lucky person to pay income tax on after tax money again! Although millions of dollars changed hands, nothing was produced, it's just magic and more income tax!

So what really is the odd of winning the lottery? Well it's different each time, but I could tell you this, you are approximately 1000 times more likely to die in a car accident than winning the lottery.

Here is an example with numbers:
Step 0. 300 million after tax dollars spent on lottery ticket (government= +$60 mil, due to income tax)

Step 1. 300 million lottery ticket purchased (government = +$55 mil, some money spent on administrating the lottery)

Step 2. 50% house cut taken (government = +$205 mil)

Step 3. A winner! now pay income tax (government = +$280 mil)

Step 4. The winner is left with $75 mil while the government's net profit is $280 million dollars!

Yes that's right, you effectively just paid 75% sales tax to purchase a lottery ticket, so that you can gamble in a game with odds that is the worst odds on the planet.

But that's all fine, if people are willing to do it, why should I care? I care because a government organized lottery is nothing but a regressive tax. Those who are most likely to buy a lottery ticket are usually the less affluent members of society. So a lottery is effectively a tax that only collected from the poor, thus making the poor poorer.

The following comments are from wikipedia:
"The astronomically high odds against winning have also led to the epithets of a "tax on stupidity", "math tax" or the oxymoron "voluntary tax" (playing the lottery is voluntary; taxes are not). They are intended to suggest that lotteries are governmental revenue-raising mechanisms that will attract only those consumers who fail to see that the game is a very bad deal. Indeed, the desire of lottery operators to guarantee themselves a profit requires that a lottery ticket be worth substantially less than what it costs to buy. After taking into account the present value of the lottery prize as a single lump sum cash payment, the impact of any taxes that might apply, and the likelihood of having to share the prize with other winners, it is not uncommon to find that a ticket for a typical major lottery is worth less than one third of its purchase price." - http://en.wikipedia.org/wiki/Lottery

The Air Car - zero pollution and very low running costs

"According to an article on Gizmag, Tata, India's largest automotive manufacturer, has developed a car that runs on compressed air. It costs less than $3 USD to fill a tank on which it can run for 200 to 300km. The car will cost about USD $7,300 and has a top speed of 68mph. About once every 50,000 km you have to change the oil (1 liter of vegetable oil). Initial plans are to produce 3,000 cars per year."

EA introduces "Sims game" for laptops

LOS ANGELES, California (Reuters) - Electronic Arts Inc. (ERTS.O: Quote, Profile , Research) on Tuesday announced a new line of video games called "The Sims Stories" aimed at the laptop-toting youth market as it strives to deliver a bigger proportion of titles based on more lucrative company-owned material.

Players of "The Sims" control virtual people called Sims as they sleep, eat, cook, socialize, buy things and work.

"The Sims" is the No. 1 franchise at EA, the world's biggest video game publisher, which has sold more than 70 million games globally since 2000. It also has a broader audience than most games. Half of its players are female -- unlike most commercial video game audiences, who are mostly male.

"The Sims Life Stories" is the first in the new series and is due in the United States and Europe in the first week of February.

"The Sims Pet Stories" and "The Sims Castaway Stories" are scheduled to ship in mid-2007 and late 2008, respectively.

EA aims to use the new titles to expand the "Sims" audience to more casual players and is targeting multitasking MySpace teens and consumers in their early 20s with the new games.

"The Sims Life Stories" has a comic-romantic plot and offers a new story mode, which runs through 12 chapters of a set story line, while also supporting the franchise's traditional open style of play.

All of "The Sims Life Stories" games are designed to run on laptops and do not require upgraded graphics cards, as many PC games do. The games can also be played for hours or minutes in a window while other programs, such as instant messaging or e-mail, run simultaneously.

Tools addition

I will be adding a few useful tools to the sidebar, currently I am adding a few symbol lists that is automatically updated daily and in CSV form. This can be used to track portofolio, create large scale stock scans and technical analysis. In the next few weeks, I will be adding some custom scans that I find useful in investing and trading.

The rally has legs

New record high close for the DOW today! The Christmas rally continues, my portfolio was up over 10% today, what a way to end the year! I hope everyone is enjoying the Christmas rally as much as I am.

In the short-term, don't forget about the "January Effect" , statistics has proven that market gain the most in January (due to tax sellers buying back mostly), especially in the small cap/micro cap sector!

Enjoy the rally and happy 2007!

The P/E of countries

Here is a list of P/E of various countries, one thing caught my eye is that China has the highest P/E of all, which confirms that the recent run of Chinese ADR stocks is indeed a bubble. We should see a fall of Chinese stocks before 2008.

Hong Kong	17.580
Thailand	10.624
Brazil	10.942
Korea , Rep.	11.415
China	39.397
Indonesia	12.559
Russia	6.344
Italy	17.866
Malaysia	15.165
Singapore	13.776
USA	17.499
Netherlands	11.926
Taiwan	12.827
Japan	31.606
Germany	15.064
UK	18.711
France	14.518
Mexico	13.889
Canada	16.727
South Africa	11.602
Spain	15.043
Portugal	19.700
Switzerland	15.717

Merry Christmas

This year, 2006, has been an extremely good year for myself and majority of investors. Looking ahead, 2007, there will be challenges, but the United States economy is very healthy, global economical prosperity will continue, if you thought 2006 was awesome, you haven't seen nothing yet!

Santa Clause Rally is here

Well, the widely expected Christmas rally is finally here, new high for the DOW today.

The market will be up from here until early next year.

In other news:

Japan business sentiment improves

Costco's 1Q profit up 10 percent

Fed: Moderate growth for upper Midwest

Asia: Robust Growth, Rising Risks

European Airlines: A Gradual Ascent

Due to demand and better oil prices, S&P says the major airlines are coming back from the disruption caused by the August terrorist plots

"European airlines should continue to benefit from rising passenger numbers, generally stable or rising yields, and a moderation in crude-oil prices in recent months to record strong improvement in operating profits in 2006. Credit quality in the sector should continue to gradually strengthen but is unlikely to improve materially given underlying cost pressures."

Market building momentum

There wasn't much of interest in this slow, tight-range, low-volume snoozefest. The bears were trying to gain an advantage all day but couldn't quite get there, on the other hand, the Bulls are also tired from recently rallies. Hopefully tomorrow we'll get back on track and have a better tape to work with. I believe the bulls are just resting and building up the upward momentum at the moment.

The Can't Lose Market

The can't lose market continues to push higher.


This morning's economic data helped relieve fears that the economy was slowing down too quickly and portfolio managers really didn't need much of an excuse to keep pressing. In addition, bottom calling in the housing market enabled that group to keep on rallying.

Today's market analysis

As I said a couple of days ago during the small correction, that the market trend is still very bullish, morning dips are routinely being bought, a clear sign of bull market. Today the bears received a fatal blow from the market makers, the bulls won a critical battle, new high for the S&P500. We are basically all set for the widely expected Christmas rally. Get ready to receive big gifts from Santa Clause.

The New CNBC.com

"Although I enjoy making fun of CNBC as much as most people there is some utility to the network. So it is with the new website launching today, um it is CNBC.com.

I think the biggest benefit will actually come from being able to access CNBC Europe and CNBC Asia which most folks cannot do as a function of their cable company or timezone issues. There is video available of different segments from those networks. These segments tend to be four to six minutes long which allow for a real delving in to the guest's process as opposed to maybe two minutes in a segment on CNBC USA. You will also hear more about foreign stocks and markets in these videos." -- Random Roger

The new CNBC.com also has a new stock screener, a very good screener for beginners.

Saturday thoughts: “Boomer Bust?” I Don’t Think So!

"One of the stories that I’m quite frankly getting tired of reading about, even peripherally, is the “boomer bust.” The most recent example comes from Random Roger, who references a Peter Brimelow column, which references a Richard Band newsletter. ARRGHH!!!

The typical “boomer bust” argument is that as boomers retire, funding will shift from growth stocks to income investments, and possibly away from stocks altogether. The typical “no bust” argument is that people are more fit and live longer today, postponing retirement and therefore delaying the bust, or forcing them to keep money at work in growth investments.

I find the longevity issue to be arguable, and I promise to argue it – in a later post – but I also find it to be immaterial.

Think about the distribution of wealth in this country.

The vast majority of invested and invest-able assets are controlled by a tiny percentage of the population – and those folks will keep their money hard at work long past their “retirement age,” possibly through trusts and foundations, possibly just growing it aggressively so that they can die with more toys.

There are the non-fabulously-wealthy in the boomer demographic, who may switch their asset allocation. Or they may not. Many of these “pedestrian wealthy” got that way, not from stock market investing, but from owning transmission shops, rental real estate portfolios, insurance agencies, and convenience stores. Even those with stock market holdings don’t comprise a huge portion of the everyday investment flows, and as Henry points out, the up-and-coming from the BRICs will be more than happy to buy some U.S.-market growth assets from them.

So what about the rest of the boomers, the remaining 80%+ of them? Those boomers who are pitifully unprepared for retirement, of whom more than 25% have saved nothing, and 43% of whom will re-enter the workforce almost as soon as they leave it?

Can you say, “Welcome to Wal-Mart!”?

Because that is what most of the boomers will be saying in their golden years! For them to have some impact in the market, they would have to have some impact in the market, if you know what I mean. Who really gives a monkey’s tookus about their negligible investing flows? When they move their four- or five-digit IRAs from growth funds into dividend or bond funds, will it move the markets?

I don’t buy it. For the boomer bust to happen, there would have to be some large portion of the current investment flow coming from boomers that were going to start living off of their assets, and I don’t see that. Most of the wealth is in the hands of those already living off of their assets and/or businesses, and most of the boomers will be spending their retirement showing you where the lawn equipment is at the Ace Hardware, or checking your receipt as you leave through the Garden Center. The few that do switch asset allocations will be more than compensated for by the foreign inflows of capital from the maturing emerging markets.

“Boomer bust?” I don’t think so!"

--From Bill Rempel

Bullishly Bearish

The month of December is off to a shaky start.

But as I pointed out previously, early day dips are routinely being bought. This is one of the obvious signs of a bullish market.

Chasing Nickels Around Dollar Bills

• Where is goldilocks in the ISM?


• Construction spending falls


• CME housing futures indicate more home price declines are ahead


• "Everybody has their hopes and wants, and everybody hopes and wants to avoid a recession. Often, when the signal comes in strongly like it is now, there’s a human nature tendency to say, this time it’s different." - Huge Moore


• Bonds scream recession


• Rapidly increasing inflation is good for stocks?


• I wouldn't rely on these 2007 inflation projections


• Bill Gross' investment outlook


• Brett Steenbarger offers thoughts on the market's U-turn


• Michael Kahn seeks dark clouds forming in the distance ($)


• Woody Dorsey shares some red flags ($)


• ICI provides a closer look at the all-important money inflows (take note the continued drop in liquid assets (see my previous post about this kind of data. The cash deficit is now at -2.91% according to Jason Goepfert))


• Was this summer's sell-off enough to qualify for a mid-term election year low? If so, the bulls are going to love this chart


• "The new high for the Dow Jones Utility Average is both bullish and impressive." - Richard Russell


• The falling dollar is on the Economist's front cover ($)


• Historically, the market doesn't like the falling dollar


• Further dollar weakness depends on Mr. Market's interest-rate forecasts coming good


• Retail investors are increasing their exposure to the currency markets


• Elliott Wave analysis for the gold market


• The Iraq Study Group plans to recommend withdrawing nearly all U.S. combat units from Iraq by early 2008


• What 2000 years of history tells us about China's economic future


• China's hawks a $203 desktop PC


• Yep, time to look at some Russian opportunities (In fact, have you noticed the TRF)


• U.S. nuclear firms eye Indian market


• Jon Markman sees opportunity in plastics


• Morningstar's Democrat-proof health-care stocks


• The drug store chains can't catch a break


• Making the case for USG


• SAC Capital goes long Casual Male (CMRG) ($)


• Lots of chatter these days about Mr. Softee


• George Soros' sells biotech, buys tech and retail. See his top holdings


• A quick performance check on the Dow & S&P 500 stocks


• Most overbought and oversold S&P 500 stocks


• Stocks down more than 20% over the past year and also have a five-star Motley Fool CAPS rating


• The Stockopoly Plan looks for frequent dividend income


• S&P's latest screen looks for top-to-bottom winners


• Large caps with low a p/e


• The top 10 performers (1996 - 2005)


• What are your best practices as a trader?


• Michael Sincere's 10 common trading errors


• Always try to admit your mistakes early and often


• Are you a trading idiot?


• WileyTrader shares his thoughts about using the TRIN


• The end-of-the month phenomena


• Investing well requires more than ratio analysis, but it can help


• Victor Niederhoffer's reading list has some unusual suggestions


• The Money Men


• Finding valuable financial lessons in everyday conversations


• A nice look at the hedge fund industry


• You can't judge a hedge-fund index by its coverage


• Some more new ETFs


• As usual, Roy Weitz shares his interesting finds in the mutual fund industry


• Five steps to fiscal fitness


• Yikes! Did you know that the average annual interest rate on payday loans runs about 400%?


• Some large-scale personal data thefts are being buried by the mainstream press


• Have you been SMiShed yet?


• The Feds condemn electronic voting


• Pick up the tab by texting


• Profit and questions on prostate cancer therapy


• Better oversight of 401(k) plans urged


• Right on cue - regulations are hampering capital markets, CEOs say


• The coming crackdown on CEOs (I wouldn't count on it)


• Want to be a venture capitalist? Take Guy Kawasaki's aptitude test


• I wonder how many economists are paying attention to the virtual world headlines


• Deals, Deals, Deals!


• Sign of the times - the new Dealmaker magazine


• The Vigilant Investor's podcast


• Economists, turned bloggers, are drawing fans


• Free stock alerts by phone (I suggest using a throwaway number first)


• What is slowing your computer?


• Google's browser sync


• Google's mobile strategy in a nutshell


• Forget about Friday the 13th! Just be careful on Monday the 27th


• College kid tries to sell his future on eBay


• Funny stuff - have you ever dialed 9-1-1 for yourself?


• Backscatter!


• Too many Americans are failing at being good


• "The pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." - Winston Churchill

-- Kirk Report