boogey man

November 11, 2005

Ok, that’s right so I didn’t take my own advise .I put the inflection point for the market turn around October 20-21 and it looks more like it started around October 27th about a week late like everything else that has happened to the market since Katrina. Now the process that began since September of creating a massive oversold condition will reverse itself. The market should spend the next few weeks undoing some of the damage.

Mortgage rates and other fixed income rates continued there measured climb ,so if your buying a house you could be feeling the pinch ,but if your buying fixed income ,weather it is bank CD’s, tax free bonds ,corporate bonds the higher yields will defiantly increase your available gas money. We are again hearing about the specter of the boogey man inflation, yes obviously there are short term pressures with oil prices but the consumer adjust very quickly. The recent decline in gas prices should spur stronger confidence and consumer demand. Productivity growth continues to outpace commodity price increases and as long as that continues I don’t see any real threat of inflation.

People have asked me what do if anything the results of Tuesday’s elections suggest for the investment climate. Without knowing much about the Virginia Governors race at lest in New Jersey and California the vested interests resisted change .My motto when it comes to politics is simple “the problem is you live here” another words people get the government they want and deserve. So the status Quo seems fine for most people. I would be careful about taking to much of a message from this election; there doesn’t seem to be much of a mandate either way.

Oil prices have slid the last several weeks, moving lower than they were before hurricane season. In the short run energy stocks may offer some good value, but the big picture has hardly changed, the threat of terror attacks, China and India continue to increase their demand for energy, the US economy continues to grow at a good pace and refining capacity and other oil infrastructure severely constrained. Don’t vest too much faith in the argument that the weather will be mild, thus cutting demand .The weather will do what the weather will do and winter is winter. This is the energy decade and energy with remain the top issue for several years to come .Short term weakness in energy related equities may hurt short term returns in your accounts but this should be viewed as a long term buying opportunity.

What is very interesting is that the Japanese economy in the face of higher energy prices grew stronger than expected. The Japanese economy is considered to be very sensitive to energy prices, yet it surprised a lot of people and persevered. If Japan can grow it certainly bodes well for the US economy and the US stock market.

James