The Barnard Observer
▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀
Home Picks Figures Great Investors Vault OpEd Contact c2003-04 Thomas Barnard
In the Crosscurrents March 2006
The S&P 500 has moved to new recovery highs. The Dow Jones has moved up to the 11,000 level, and the Dow Transports has gone to an all time high. The NASDAQ has also made progress but it is nowhere near the 5,000 peak it hit in 2000.
Where are stocks going from here? Tough call. I never thought they would get this high, so right out of the box I’m wrong. Dow Theory calls for the Dow Industrials to confirm the Dow Transports new highs, and so far this is lacking though there is no exact time frame this has to be done in. But you have to call the action in the DJIA to be lackluster at best. Up 50 points, down 50 points.
I would describe the action as churning with a slight upward bias.
As I look at auto sales, I don’t see that much happening. Sales a down a tad. The big news is all the stuff that’s been going on at the two big American auto makers left. GM is going to spend a huge sum of money to buyout workers. It is, meanwhile, selling off the family jewels: GMAC. It already sold of its 20% stake if Fuji Heavy Industries (Subaru) to who: Toyota. As Jimmy Stewart says in It’s a Wonderful Life. Potter’s buying. Toyota is the clear winner in the auto sweepstakes. As Michael Crichton has Sean Connery mouth his words in Rising Sun, GM is engaging in that most American of games: catch up.
We’ll be lucky as hell if GM can make a comeback. Toyota has been constantly improving its cars, making what the public wants, while GM has been making misstep and mistake. Counting on profits from SUV’s, a line of cars that will melt like butter as energy crisis heats up.
It will be tough sledding for the Dow if GM sinks to single digits, which seems a distinct possibility despite all the last minute efforts to shore up short term finances at the expense of any kind of profit.
The Commerce Department reported that sales of new single-family homes dropped by 10.5 percent last month to a seasonally adjusted annual sales pace of 1.08 million homes.
On the other hand, sales of previously owned homes rose by a stronger-than-expected 5.2 percent last month following five straight monthly declines. But the down side here is that the inventory of unsold homes moved up to a record of 548,000 at the end of February.
Richard Russell, an analyst I respect, points out that a “recent study shows that as of last September, 9.4% of all mortgage borrowers had either no equity or actual negative equity in their homes. That increased to 29% of all owners who took out first mortgages in 2005. This amounts to the following -- borrowers with $800 billion in mortgages now owe more on their homes than their homes are worth.”
The two units that sold in my section of a condominium building both took 9 months to sell, and only then with price concessions. I’m not encouraged.
We will be lucky as hell if all the creativity of the mortgage lenders and the concomitant speculation doesn’t end unhappily.
Well, I think it quite possible that stocks may not collapse terribly; on the other hand, the price for this is that they will not go up very much. If earnings increase, PE’s will drop. It’s not the traditional way these things happen, but it’s one way to get to a cheap market. But I would say another price for this apparent stability is that the dollar will drop, making this apparently stable stock market go down in value. A head sliced off with a blade so sharp the head still appears to be on top of the shoulders. But no one said investing would be easy.
If the rest of the world stops flooding the market with dollars, then we have a real problem. Then we must raise interest rates to attract the same money that we were getting for a song. This could be quite expensive because we’ve been borrowing heavily to conduct a war in the Middle East. This will eventually grind down the economy .
Perhaps we will get oil price relief, but the problem with that is the world has little excess capacity to speak of anymore, and most of the swing oil is in unstable hands – Nigeria, Venezuela, Iraq, Iran, Saudi Arabia, and so on. I wouldn’t count on relief.
Well, the upside is that if the Chinese allow us to sink into recession, it will be bad times for them, too. I’m sure this is in their calculations.
There are still areas of interest. Networking, which we have already written about, still looks about as interesting as anything. Broad band telephone and television are already upon us with Vonage and AOL, for example. And this is just going to keep coming on and on. I think that broad band will inevitably be changed to some kind of usage model as a means of rationing capacity which is narrowing. Nevertheless, all providers will be expanding their capacity. Jim Cramer has been touting JDS Uniphase (JDSU) and Corning. Cisco (CSCO) has moved directly into television by buying set box maker Scientific Atlanta.
There will be other choice technology investments. I have one that my readers can benefit by through an investment in the Barnard Partnership. This stock has doubled since the beginning of the year, and when it doubles again, I will recommend it here. I am reluctant to recommend it at this point until I see its roster of customers increase some more, and the reason it doubled so quickly is because it fell 80% in the past year.
There will also be choice biotech investments, but nothing has come across my screen yet that I wish to recommend.
Political instability and an anticipated battering of the dollar suggest that gold be part of anyone’s portfolio. Streetsmarts Gold (GLD) is gold bullion, a reasonable bet in this unstable time. Newmont has been disappointing, and seems to go from one problem to the next. It is difficult to figure out which on to invest in. Goldcorp (GG) might be a good bet. It is a low cost gold producer.
Energy will continue to be a pretty good bet, though I have no particular recommendations at current price levels, though in the past I have recommended Suncor.
3/28/06