The Barnard Observer

▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀

Home  Picks  Figures  Great Investors  Vault  Contact              c2003-04 Thomas Barnard

Pre-Election Notes

The economy is rolling along with 3.7 growth, but its been a rather odd growth with the lowest interest rates in 40 years triggering a lift in housing which has kept everything afloat. But there are signs that this is slowing down. Washington Mutual let a lot of workers go, and Countrywide Credit’s earnings were down.

Ford, GM, and Intel have all indicated that inventories are too high, and that they will slow their manufacturing in the fourth quarter. Sales growth at Walmart is a tepid 2-3%, and Dell’s growth is at the expense of its rivals.

While I think that the re-election of Bush will give the markets a sigh of relief, and a rally, there are substantial roadblocks to a much higher market:

Public + Private Debt stands at 3 times GDP. The highest it has ever been. There will be consequences from this, but when and where they will strike is not clear. Will the Chinese and Japanese stop buying for a while, and make mush out of the bond market?  Will it turn out that Fannie Mae’s software for loan-qualifying was too generous, and that its bad loans will turn out to be more than even more than its new equity requirements?

Trade Deficit of over 5% of GDP. A very bad sign. Warren Buffett has made massive foreign currency investments because he’s sees trouble.

Budget Deficit of $400+ Billion.

A war in Iraq with no resolution in sight.

Bin Laden, alive and well.

Gasoline over $50 a barrel.

A weak dollar.

No marvelous inventions like the internet likely to stir growth.

Yet there may be a flip side. Gasoline over $50 a barrel may create new ingenious economies and inventions. Recently, Clinton said in an interview that alternative energy is a place where you could get a million or more jobs. It is harder to see where a large trade deficit, or a large budget deficit will turn out to be an advantage. And it is hard to see how these things will go away anytime soon. This winter, people will be paying significantly more not only for gasoline, but for heating oil. It will make a difference.

The Great Investors

Warren Buffett – Not buying much. Big investments in foreign currencies.

John Templeton – "Keep your powder dry." If you must invest, even out your long and short positions.

Richard Russell – Dow Jones Industrials not confirming Dow Jones Transports. Trouble lies ahead. At major bottoms, the S&P drops to a PE of 5 to 10. Presently, the PE for the S&P stands at 20.

I believe that it makes sense to have a substantial component in cash, some in gold, some shorts, and a small component long.

October 31, 2004