The Good, The Bad, and The Future
The Good, The Bad, and The Future
How quickly another year has past. If you lived along the Mississippi Gulf Coast or in New Orleans it has probably been the longest year of your life.
What were some of the highlights for 2005? Oil and gas prices would have to be the hottest topic with prices at the pump topping $3.00 per gallon this year and oil settling in over $60 a barrel. Those unbelievable storms that battered the United States…Katrina, Rita, Dennis, and Wilma are just a few highlights of the 13 hurricanes and 26 named storms making it the busiest and costliest hurricane season ever.
The President struggled and the space shuttle returned to flight. Iraq is still a challenge but there were signs of great progress with a constitution being approved by the voter in October and a new assemble elected in December.
A new Pope was selected (Benedict) along with a new Supreme Court Chief Justice (Roberts) and a new Chief of the Federal Reserve (Bernanke). The last of the Union dinosaurs are on life support. General Motors and Delta are proof that companies can’t survive in today’s competitive landscape and also meet the demands of union workers.
Our news anchors have changed and so is the way that we listen to our music. The iPod with more than 30 million shipped now allows the user to receive music or video when they want where they want it and how they want it.
On the business side of things….the economy was strong. In fact it was much stronger than any one would have imagined. In the face of 13 interest rate hikes, soaring gas prices, continued terrorism, and ever mounting debt, the economy still grew at a solid 4.1% with inflation still remaining in check. 1.89 million jobs were created in 2005 with non-financial business profits surging 49% to $868 billion dollars. The S&P 500 saw earnings growth of over 15% which is more than double what was expected.
The markets were all over the map but turned out to be much to do about nothing closing the year mostly flat. The Dow was down .6%, the NASDAQ was up 1.4% and the S&P was up 3%.
HOW DID WE CLOSE THE YEAR ???
Both of our newsletters had outstanding years….MainScale.com completed its 3rd full year of publication in October and closed 2004 with 213 profits and a return more than double the S&P. Since inception the S&P is up 50.72% while the MainScale Automated Profit System is up over 155% providing investors a return that is 200% greater then the market and getting better each year. The Common Sense Investor has also had a stellar first year giving investors timely market picks and a discipline game plan for investing in those stock picks. LVLT earned 53% in just two months, GM made us tons of money as it went down, BWNG rewarded is for our patience with a 27% return. Other winners included JDSU, COMS, GNTA, and PFE.
THE FUTURE…OUR VIEW OF 2006
The economy is due for a slowdown. The housing market, which lead this current economic expansion, has definitely peaked and while we don’t look for a crash in prices we don’t see them expanding in 2006. The consumer, which accounts for two-thirds of the economy, is loaded to the gills with debt. This is the economy’s Achilles heal! With high debt levels, higher interest rates, high gas and heating costs, and higher property taxes, consumers are tightening their wallets. The economy will have to deal with a one-two punch….slower housing market and a consumer that just can’t spend like they have over the last few years.
We look for the economy to begin to show signs of fatigue in 2006 and slow down in earnest. One obvious and very reliable indicator of this is the current flat yield curve. When the rates of 10 year bonds and the short term Fed funds rate are the same or invert the economy typically slows shortly after….we will see!
Calling interest rates is like trying to predict the weather in Florida. Many things have to be weighed to determine what the Fed will do with rates. Inflation is definitely increasing and so are most commodity prices lead by oil and copper. The dollar has done better with the Fed rate hikes but the real estate market is starting to feel the pinch. Foreign investment in our bonds continues to keep our longer term rates low but will they keep buying if our rates stop rising and our foreign debt continues to grow?
Mr. Bernanke is entering as Fed Chief in a tough spot. The rest of the world is growing as are we which is causing an acceleration in inflation. There are no signs of China, India, Brazil, Japan, and others slowing down any time soon. Much of the worlds grow is being fed by the China-India engine which will charge ahead for many years to come. China has become the 6th largest economy in the world and this year is expected to move to 4th. Because of this the Fed is becoming less influential at leading the world in monetary policy. Although inflation is a problem our Fed may not be able to stop it by raising rates in the US. If the Fed continues to raise rates too much our debt-laden consumer will be forced to retrench and stop buying thereby slowing the economy. If the economy slows the Fed may be forced to lower interest rates which will cause foreign investors to stop buying our bonds which in turn funds our national debt. This would also cause the dollar to begin to fall again in earnest. NOW THAT”S A CONUNDRUM!!!
We look for the Fed to keep interest rates where they currently are and at the first hint of an economic slowdown start to lower them again. The Fed will risk a longer-term inflationary problem to keep the consumer afloat. This being said, Bonds should do OK in a stable to lower interest rate environment.
I believe the Dollar will begin to come under pressure again in 2006 causing the world some indigestion. Our Government debt and our consumer debt or out of hand and that will be reflected in a dropping dollar.
Real Estate prices have peaked and we don’t see a crash ahead but we do see prices lower across the country in 2006. Housing affordability index just hit a 15 year low and inventories of homes are at historic highs. Mortgage rates are up as are taxes, electric bills, and heating costs and with 50% of US mortgages now variable, the consumer will start feeling the pinch.
Oil prices should remain in this general area and spend 2006 consolidating the huge move up over the last 3 years. Although many economies will continue to grow in 2006 none of the larger economies should accelerate to the point of pushing oil over the $70 price range.
SO WHAT DOES ALL OF THIS MEAN FOR THE MARKET ?
Another tough year for the major indexes! Down for the first 3 quarters hopefully making a more substantial bottom in the fall with a year end rally getting us close to even. I believe the market will begin to move lower anticipating an economic slowdown over the next 18 months. The good news for the market is that valuations are starting to come back to historic norms and become more reasonable. After 5 years of a market correction and net losses for the indexes and the last 3 years of solid corporate growth stock valuations are looking reasonable. This will buffer any drop in the markets and we believe will keep any corrections at 10% or less.
Just like the last two years it will be a stock pickers market with two ways to make money. You can have a discipline system like the MainScale.com APS system that profits from the daily and weekly gyrations in certain undervalued blue chip stocks or you can use a proprietary stock picking newsletter like The Common Sense Investor.com which provides investors with stock picks in any category that looks to outperform the markets.
WHAT ARE SOME OF THE AREAS THAT SHOULD DO WELL IN 2006?
We will be searching out leaders in the Biotech, Medical equipment, and Medical software areas. We want to invest in the cures, the new equipment to implement new medical procedures and the software to help the entire system run more efficiently. With the Baby Boomers getting older this area will be an investment hotbed for many years to come. Internet commerce and content stocks should continue to do well in 2006. Certain technology stocks should do well. Just watch the products that consumers are clamoring for and buy the leading companies. Apple’s iPod and Motorla’s Razor are two good examples of companies introducing products and dominating their space. Semiconductor companies should also do well by supplying the brains for any new intelligent product launched. Oil and Gas companies and related service industries should be bought on any corrections as should the gold stocks. Both should continue to do well in 06. The worldwide demand for oil will only continue to increase causing prices to remain high benefiting the refineries, service companies, drillers and others in the sector. With the continued increase of inflation and worldwide demand for the yellow metal, gold stocks should also be bought on any pullbacks. We will also be watching the indexes of many foreign markets and look to buy the emerging leaders, just like we did when Japan took of this year. Our Japan Index recommendation (EWJ) has moved up over 30% since we said to buy.
Buy the strongest stocks with sound fundamentals and good up-trending chart patterns and keep stop losses on all positions to limit losses when you are wrong. Short only the weakest stocks with major problems that won’t be overcome anytime soon, like Fannie Mae, Blockbuster, or Krispy Kreme. Also keep your buy stop losses in place at all times in case the stock begins to turn around.
The approach is just COMMON SENSE. Stick with it and stick with us as we strive to provide you with the best investment available along with top quality customer service.
I hope everyone has a very profitable New Year.
MARC BARHONOVICH
Publisher
How quickly another year has past. If you lived along the Mississippi Gulf Coast or in New Orleans it has probably been the longest year of your life.
What were some of the highlights for 2005? Oil and gas prices would have to be the hottest topic with prices at the pump topping $3.00 per gallon this year and oil settling in over $60 a barrel. Those unbelievable storms that battered the United States…Katrina, Rita, Dennis, and Wilma are just a few highlights of the 13 hurricanes and 26 named storms making it the busiest and costliest hurricane season ever.
The President struggled and the space shuttle returned to flight. Iraq is still a challenge but there were signs of great progress with a constitution being approved by the voter in October and a new assemble elected in December.
A new Pope was selected (Benedict) along with a new Supreme Court Chief Justice (Roberts) and a new Chief of the Federal Reserve (Bernanke). The last of the Union dinosaurs are on life support. General Motors and Delta are proof that companies can’t survive in today’s competitive landscape and also meet the demands of union workers.
Our news anchors have changed and so is the way that we listen to our music. The iPod with more than 30 million shipped now allows the user to receive music or video when they want where they want it and how they want it.
On the business side of things….the economy was strong. In fact it was much stronger than any one would have imagined. In the face of 13 interest rate hikes, soaring gas prices, continued terrorism, and ever mounting debt, the economy still grew at a solid 4.1% with inflation still remaining in check. 1.89 million jobs were created in 2005 with non-financial business profits surging 49% to $868 billion dollars. The S&P 500 saw earnings growth of over 15% which is more than double what was expected.
The markets were all over the map but turned out to be much to do about nothing closing the year mostly flat. The Dow was down .6%, the NASDAQ was up 1.4% and the S&P was up 3%.
HOW DID WE CLOSE THE YEAR ???
Both of our newsletters had outstanding years….MainScale.com completed its 3rd full year of publication in October and closed 2004 with 213 profits and a return more than double the S&P. Since inception the S&P is up 50.72% while the MainScale Automated Profit System is up over 155% providing investors a return that is 200% greater then the market and getting better each year. The Common Sense Investor has also had a stellar first year giving investors timely market picks and a discipline game plan for investing in those stock picks. LVLT earned 53% in just two months, GM made us tons of money as it went down, BWNG rewarded is for our patience with a 27% return. Other winners included JDSU, COMS, GNTA, and PFE.
THE FUTURE…OUR VIEW OF 2006
The economy is due for a slowdown. The housing market, which lead this current economic expansion, has definitely peaked and while we don’t look for a crash in prices we don’t see them expanding in 2006. The consumer, which accounts for two-thirds of the economy, is loaded to the gills with debt. This is the economy’s Achilles heal! With high debt levels, higher interest rates, high gas and heating costs, and higher property taxes, consumers are tightening their wallets. The economy will have to deal with a one-two punch….slower housing market and a consumer that just can’t spend like they have over the last few years.
We look for the economy to begin to show signs of fatigue in 2006 and slow down in earnest. One obvious and very reliable indicator of this is the current flat yield curve. When the rates of 10 year bonds and the short term Fed funds rate are the same or invert the economy typically slows shortly after….we will see!
Calling interest rates is like trying to predict the weather in Florida. Many things have to be weighed to determine what the Fed will do with rates. Inflation is definitely increasing and so are most commodity prices lead by oil and copper. The dollar has done better with the Fed rate hikes but the real estate market is starting to feel the pinch. Foreign investment in our bonds continues to keep our longer term rates low but will they keep buying if our rates stop rising and our foreign debt continues to grow?
Mr. Bernanke is entering as Fed Chief in a tough spot. The rest of the world is growing as are we which is causing an acceleration in inflation. There are no signs of China, India, Brazil, Japan, and others slowing down any time soon. Much of the worlds grow is being fed by the China-India engine which will charge ahead for many years to come. China has become the 6th largest economy in the world and this year is expected to move to 4th. Because of this the Fed is becoming less influential at leading the world in monetary policy. Although inflation is a problem our Fed may not be able to stop it by raising rates in the US. If the Fed continues to raise rates too much our debt-laden consumer will be forced to retrench and stop buying thereby slowing the economy. If the economy slows the Fed may be forced to lower interest rates which will cause foreign investors to stop buying our bonds which in turn funds our national debt. This would also cause the dollar to begin to fall again in earnest. NOW THAT”S A CONUNDRUM!!!
We look for the Fed to keep interest rates where they currently are and at the first hint of an economic slowdown start to lower them again. The Fed will risk a longer-term inflationary problem to keep the consumer afloat. This being said, Bonds should do OK in a stable to lower interest rate environment.
I believe the Dollar will begin to come under pressure again in 2006 causing the world some indigestion. Our Government debt and our consumer debt or out of hand and that will be reflected in a dropping dollar.
Real Estate prices have peaked and we don’t see a crash ahead but we do see prices lower across the country in 2006. Housing affordability index just hit a 15 year low and inventories of homes are at historic highs. Mortgage rates are up as are taxes, electric bills, and heating costs and with 50% of US mortgages now variable, the consumer will start feeling the pinch.
Oil prices should remain in this general area and spend 2006 consolidating the huge move up over the last 3 years. Although many economies will continue to grow in 2006 none of the larger economies should accelerate to the point of pushing oil over the $70 price range.
SO WHAT DOES ALL OF THIS MEAN FOR THE MARKET ?
Another tough year for the major indexes! Down for the first 3 quarters hopefully making a more substantial bottom in the fall with a year end rally getting us close to even. I believe the market will begin to move lower anticipating an economic slowdown over the next 18 months. The good news for the market is that valuations are starting to come back to historic norms and become more reasonable. After 5 years of a market correction and net losses for the indexes and the last 3 years of solid corporate growth stock valuations are looking reasonable. This will buffer any drop in the markets and we believe will keep any corrections at 10% or less.
Just like the last two years it will be a stock pickers market with two ways to make money. You can have a discipline system like the MainScale.com APS system that profits from the daily and weekly gyrations in certain undervalued blue chip stocks or you can use a proprietary stock picking newsletter like The Common Sense Investor.com which provides investors with stock picks in any category that looks to outperform the markets.
WHAT ARE SOME OF THE AREAS THAT SHOULD DO WELL IN 2006?
We will be searching out leaders in the Biotech, Medical equipment, and Medical software areas. We want to invest in the cures, the new equipment to implement new medical procedures and the software to help the entire system run more efficiently. With the Baby Boomers getting older this area will be an investment hotbed for many years to come. Internet commerce and content stocks should continue to do well in 2006. Certain technology stocks should do well. Just watch the products that consumers are clamoring for and buy the leading companies. Apple’s iPod and Motorla’s Razor are two good examples of companies introducing products and dominating their space. Semiconductor companies should also do well by supplying the brains for any new intelligent product launched. Oil and Gas companies and related service industries should be bought on any corrections as should the gold stocks. Both should continue to do well in 06. The worldwide demand for oil will only continue to increase causing prices to remain high benefiting the refineries, service companies, drillers and others in the sector. With the continued increase of inflation and worldwide demand for the yellow metal, gold stocks should also be bought on any pullbacks. We will also be watching the indexes of many foreign markets and look to buy the emerging leaders, just like we did when Japan took of this year. Our Japan Index recommendation (EWJ) has moved up over 30% since we said to buy.
Buy the strongest stocks with sound fundamentals and good up-trending chart patterns and keep stop losses on all positions to limit losses when you are wrong. Short only the weakest stocks with major problems that won’t be overcome anytime soon, like Fannie Mae, Blockbuster, or Krispy Kreme. Also keep your buy stop losses in place at all times in case the stock begins to turn around.
The approach is just COMMON SENSE. Stick with it and stick with us as we strive to provide you with the best investment available along with top quality customer service.
I hope everyone has a very profitable New Year.
MARC BARHONOVICH
Publisher
posted by Marc Barhonovich | 5:45 AM
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