Frist Drops out of Presidential Race

It was reported today that Bill Frist has announced that he will not likely be seeking the presidency in 2008. He wants a "sabbatical from public life" and to spend some time on health-care again. It has been noted that this leaves the South without a Republican candidate that is considered centrist for this race.

Economic Indicators

The Wall Street Journal today reported that the number of existing homes sold in October increased 0.5% month over month (+6.4% in West, UNCH in Midwest, -1.2% South, and -2.9% Northeast). These results were higher than the market expected. The median price of an existing home showed no change month over month, at $221,000 but was down $8,000 (-3.5%) year over year, the largest ever annual drop and record third monthly consecutive decrease.

Consumer confidence was expected to slightly rise to 105.8 from October's 105.1 but instead it has dropped to 102.9. A number over 100 is considered good.

I expect that my prediction on 11/11 ("Money has been flowing in the market in anticipation of a Q4 rally, which has driven the market up double digits. I think that if this rally does not materialize we could easily see a disappointing reaction") is beginning to pan out. I'd predict at this point Q4 will be fairly close to unchanged overall (if that is correct, we have about 4% to give back from large caps and 7% from small caps), and Q1 07 will be a downer. As pretty much always, I am bullish on the long-term outlook for the market, but today I am fairly bearish on the near-term.

To those who don't know my feelings on it - stay invested. It never really works to try to jump in and out of the market. Just consider these things and think about positioning your portfolio in a more conservative manner -- Focus more on mega cap companies with strong fundamentals. Make sure you have some (but not too much) foreign exposure for diversification.

Dollar Drops

http://seekingalpha.com/article/21258

Well the dollar is starting to matter.
We talked about this back in August and it
has always cast a shadow on our trading as I've never been able to get all
gung-ho while ignoring this pressing issue.
While we were all out having
turkey, the rest of the world took a long, hard look at our balance sheets and
downgraded us.
As our debt is looking riskier to foreigners, the rumors
that the Fed will LOWER rates to boost a slowing economy make no
sense at all to buyers of international paper (or to anyone who actually
understands economics).
So let's be very, very careful out there as things
may LOOK good over here but to other countries we look a lot more like this:

More comments on this later

Democrats Target Wealth Gap

I will post my thoughts on this article soon:


Rebalancing Act Democrats Target Wealth Gap And Hope Not to Hit Economy
Divide Between Rich and Poor Continues to Widen; Spurs 'Robin Hood' Plans
Can Growth Benefit Workers? November 21, 2006; Page A1
By almost every measure, the gap between winners and losers in the American economy has widened over the past 20 years. In this month's election, anxiety about that gap was not far behind voter anger over Iraq and congressional corruption in driving Democrats to victory. "We will make our economy fairer" vowed House Democrats, in a campaign manifesto.
Now they're in a position to try, raising a big question: What can Democrats do to resist inequality in a way that doesn't choke off economic growth? Can government slice the economic apple more evenly without shrinking it?
Today's inequality reflects a confluence of forces. Technology is increasing employers' appetite for some skilled workers, while diminishing it for assembly-line workers in auto and textile factories. Imports and outsourcing are doing the same. Schools aren't graduating enough of the workers in short supply, such as engineers. Immigration is contributing to a glut of others, visible wherever day laborers gather hoping for work. Unions are atrophying. Corporate boards, hedge funds and sports teams are increasingly willing to write super-sized paychecks to a chosen few.
At the extremes, some politicians (not all of them Democrats) believe the benefits of a globalizing, high-tech economy are outweighed by the costs to U.S. workers. They would build a fence around the U.S. to reduce immigration or erect tariff barriers to imports. Even at the Democratic middle -- where the virtues of technology and globalization are prized -- proposals to reduce inequality range widely. They include interceding in the market to raise pay at the bottom or limit it at the top, pushing "Robin Hood" take-from-the-rich tax policies, improving shock absorbers that protect workers when their employers crash, extending health and retirement plans to workers without them and spending more to promote education from pre-K through college.
Meddling With the Market
High on Democrats' to-do list is lifting the federal minimum wage. It's been steady at $5.15 an hour since 1997, while consumer prices have risen 25%. Although many economists warn a higher minimum wage means fewer jobs, the 1990s suggest that boosting the minimum wage can boost incomes of those at the bottom. But its potential to shrink the gap between the wealthiest and poorest wage-earners is limited, especially when wages at the top are soaring far away from the middle and bottom.
Limiting pay at the top has proven tough. A 1993 law that discouraged tax deductions for executive salaries above $1 million is widely regarded as a bust. "Executives responded by rewarding themselves with millions of dollars worth of stock options" instead of big salaries, lament former Clinton aide Bruce Reed and Chicago Rep. Rahm Emanuel, a key strategist in the Democrats' win, in their pre-election book calling for "a new social contract for the 21st century." They go on, "This time we should approach the problem from the other direction and require companies that provide stock options to their executives to provide stock options to every worker."
That's unlikely to become law. But Barney Frank, the Massachusetts Democrat in line to chair the House Financial Services Committee, vows to push legislation that would force companies to provide more and clearer details of CEO pay, devise policies to recapture incentive pay if earnings are later restated, and require shareholder approval of "golden parachute" payments to dismissed executives. Mr. Frank says he plans hearings into a "fundamental" economic question: "How do you do a better job of sharing overall economic growth with the average worker?"
Few Democrats would block employers from laying off workers or closing factories, as is often done in Europe. But several newly elected Democrats, particularly from the beleaguered Midwest, vow to slow the flood of imports and rethink the pacts that President Bush has been negotiating to lower trade barriers.
There also is strong support among Democrats for strengthening American labor unions to try to tilt the balance in the labor market more toward workers. A bill co-sponsored by 215 House members and 43 senators, would, among other things, require employers to recognize a union after a majority of workers sign cards asking for representation instead of secret-ballot votes.
Robin Hood
A popular alternative among Democrats is to champion the market -- that is, allow it to direct people and money to best use -- and then tax the rich to give more to the poor. Enlarging the earned-income tax credit, viewed by many economists as a smart alternative to a higher minimum wage, is an option likely to figure in Democratic tax deliberations. The credit offers up to $4,536 to a family with two or more children to offset payroll taxes that the working poor pay. And it offers a cash bonus if the credit exceeds taxes paid, rewarding low-wage workers without raising employers' costs.
But most of the focus is on taking more from the top. Many Democrats would let at least some of Mr. Bush's income-tax cuts expire in 2010 or roll them back. Many favor preserving the estate tax, which Republicans target for abolition. New House Speaker Nancy Pelosi has vowed to restore a 1990s rule requiring new spending to be offset by spending cuts or tax increases; upper-income taxpayers are the sure target.
The Senate Finance Committee, with the blessing of both parties' leaders, is circulating a list of ways to shrink the "tax gap" between taxes owed and taxes actually paid. Most are aimed at upper-income taxpayers, such as requiring stock brokers to report not only the price a client got for shares, but also the original purchase price paid.
Boosting taxes on upper-income Americans would reduce disparities and provide revenues for other attacks on inequality. Raising the top two tax rates, now 33% and 35%, by a single percentage point would yield $90 billion over five years, the Congressional Budget Office estimates.
Another favorite Democratic target is the lower tax rate -- a maximum of 15% -- on capital gains and dividends. The administration says the lower rates have strengthened the stock market and the economy. Some Democrats say they're unfair. "We must end the Republicans' war on work, which taxes a millionaire at a lower rate for his stock trades than it taxes the wages his secretary earns for placing the call to his broker," wrote Rep. Emanuel and Mr. Reed. Also under discussion, often in conversations about ways to shore up Social Security, is increasing the ceiling -- now set at $94,200 -- on wages subject to the Social Security payroll tax.
Republicans as prominent as Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke recently have warned in speeches of risks posed by widening inequality. But many conservatives fear taxing the rich in response would reduce incentives for innovation, entrepreneurship and education -- and thus reduce economic growth to the detriment of all. Their counsel: Try to lift incomes of the poor and middle class, and don't worry if the rich do even better.
Democrats argue that the 1990s proved that raising taxes on upper-income Americans can produce lots of revenue and coincide with a very strong economy. Republicans counter that the 2000s show tax cuts propel the economy and can coincide with surging tax revenues. Both arguments exaggerate the ability to isolate tax rates from other economic crosswinds. But the fundamental disagreement is over the extent to which higher taxes discourage work, savings and investment. "The market is not so good at spreading the gains. We need an activist government that pursues broad-based growth," says Mr. Reed.
Shock Absorbers
One direct response to workers' anxiety is expanded government programs to cushion the fall of those who lose jobs in today's rapidly changing economy. "Better preparation before adverse events happen and more...assistance after bad events occur" would both help workers and "diminish political demands for growth-reducing policies, such as protectionism," says Peter Orszag, who heads the Hamilton Project, a think tank spawned by former Treasury Secretary Robert Rubin to find way to promote "broad-based economic growth" and "economic security."
Targeted federal programs, created to lure congressional votes for free-trade pacts, now reach few people. There's a tax credit to help those who lose jobs due to imports buy health insurance. And there's wage-loss insurance, which offers cash to eligible workers dislocated by imports to compensate for taking lower-paying jobs. Inequality foes would greatly expand such programs.
Lori Kletzer of the University of California at Santa Cruz and Howard Rosen of the Peterson Institute for International Economics in Washington, for instance, would offer eligible dislocated workers up to half the difference between weekly earnings at their old and new jobs, up to $10,000 a year. This isn't cheap: They put the price tag at between $2.6 billion and $4.3 billion a year, financed through general tax revenues or an expanded payroll tax.
Universal Coverage
An alternative, albeit expensive, is to close the gap between those with health insurance and a retirement-savings plan (on top of Social Security) and those without. About 25% of people in households with incomes below $25,000 lack any health insurance, even government provided. Among the over-$75,000 crowd, only 8.5% are without insurance. About 45% of full-time workers on private payrolls aren't offered private retirement savings plans of any sort at work.
Gene Sperling, a former Clinton aide who published a 300-page "economic strategy for shared prosperity" last year, preaches to Democrats: "Simply voting yes [on trade pacts] and getting 5,000 more people on Trade Adjustment Assistance is a losing strategy. With control, Democrats can envision a more expansive social compact might make people less fearful about the pace of change and globalization."
Finding a politically palatable and affordable way to make health insurance universally available has been impossible, so far. Mr. Bush has pushed tax credits to help more people buy insurance on their own, and dangled rule changes and low-premium, high-deductible policies to encourage small firms to offer coverage. Although some Democrats still drool over proposals for government health insurance for all, others prefer piecemeal approaches. Among them: Allowing businesses with up to 100 employees tax credits to buy insurance through a government-sponsored pool modeled on the Federal Employee Health Benefit Plan, which gives federal workers a choice of private health insurance plans.
On retirement savings, outside the contentious Social Security debate, Democratic and Republican centrists are inching toward similar proposals, described differently. Mr. Sperling is pushing a "universal 401(k)" to which employees, employers and, in some cases, the government would contribute, a cousin to the private accounts Mr. Bush wanted to carve out of Social Security. Increasingly prominent Democratic Sen. Barack Obama cites it favorably in his new book, "The Audacity of Hope" and Ms. Pelosi backs a similar proposal. It would, in essence, narrow tomorrow's inequality by encouraging Americans to save more in their working years.
Education
Improving education is the feel-good solution, seen across the political spectrum as a way to promote growth and equality simultaneously. "The economy increasingly rewards education and skills," says Edward Lazear, chairman of Mr. Bush's Council of Economic Advisers. "We would not want it any other way. However, inequality in skills and education levels means inequality in income." His fix: Improve public schools for the disadvantaged through the No Child Left Behind Act and foster competition among schools.
Democrats are focused on doing more to help Americans pay for college, especially important since the typical college grad earns 45% more than the typical high-school grad. Ms. Pelosi's platform calls for making up to $12,000 a year in college tuition tax-deductible -- or the equivalent in a $3,000 tax credit -- as well as cutting interest rates on student loans and increasing the maximum Pell Grant for low-income students to $5,100 from $4,050.
A coalition that spans the political spectrum is pushing more government support of Pre-K education. The case: Low-income children are behind when they arrive at kindergarten and never catch up; spending more on them sooner would have a big payoff.
One political problem: Education has a long fuse. It can take a generation to see results.
In the end, government can do only so much, especially given Americans' traditional ambivalence toward big government and European-style social welfare programs. "It's not hard to think of government policies with redistributive aspects," says Mr. Sperling, the former Clinton adviser. "What gets hard is to say: Here's my vision for how the private sector is going to create jobs that lead to a strengthening, not a hollowing out, of the middle class."
Americans want government to protect their current jobs and tell them where their next job -- and their children's jobs -- will come from. "But government is not good at that," Mr. Sperling says.
• Send comments to capital@wsj.com6 and share your thoughts at the new online Capital Exchange forum7.

URL for this article:http://online.wsj.com/article/SB116407693876929096.html

Nine Ways to Manage Money Effectively

I will post my comments on this article soon.


GETTING GOING By JONATHAN CLEMENTS
Nine Ways to Manage Money Effectively November 19, 2006
You get the idea.
As a columnist, my goal isn't to report the news or to offer up an ever-changing list of experts' investment recommendations. Rather, there are some key financial insights that, I believe, should guide everyone's investing, and I pound away at them week after week.
I have been talking about some of these ideas for years, while others have only recently captured my imagination. Want to manage your money better? Here, I would argue, are nine of the most important financial ideas.
1) Just Say No
To save and invest successfully, nothing is more critical than self-discipline.
That means settling on a mix of stock, bond and money-market funds and then sticking with that mix, no matter how unnerving you find the market's daily turmoil and no matter how tempted you are to buy the latest hot stock.
More important, you also need the ability to delay gratification, so you save a healthy sum on a regular basis.
2) Get Off the Treadmill
You can't spend your way to happiness. But lots of folks try, setting themselves up for a lifetime of hefty credit-card bills and emotional disappointment.
You know the cycle: You see something in the store, you decide you just have to have it, you pony up the bucks and, a few weeks or months later, the purchase is all but forgotten -- and you're hankering after something else.
Academics refer to this as the hedonic treadmill. The lesson? If you want happiness, you won't find it at the shopping mall.
3) We Are the Market
Despite all the talk of beating the market, there's a devastating piece of logic that stands stubbornly in our path.
We can't all beat the market, because collectively we are the market. If somebody beats the market, somebody else must lag behind.
In fact, once investment costs are figured in, there are very few winners and most of us trail the market averages.
4) Their Gain, Your Pain
All this should be a reminder that, like it or not, you have two investment partners: Wall Street and the taxman. The three of you divvy up your investment spoils.
Want to keep more for yourself and pay less to the Street and to the taxman? Your best bet is to clamp down on investment costs and make the most of tax-sheltered retirement accounts.
5) Help Wanted
A decade ago, I would have argued that most investors were capable of investing on their own. I no longer believe that's the case.
It seems most folks don't have the time, interest and emotional fortitude to invest successfully on their own.
But unfortunately, you may not fare much better if you hire a broker or financial planner. Many advisers charge too much and have had scant formal financial education, so you really need to pick your adviser with extraordinary care.
6) Don't Be Left Behind
When experts argue the case for diversification, they will point out that buying a wide variety of investments can lower risk, because some of these investments will post gains when others are suffering.
The problem: Whenever we get a major financial crisis, diversification -- especially global stock-market diversification -- often proves pretty much useless, because everything plummets at the same time.
Yet I think this misses a key point. Even if, say, U.S. and foreign stocks tend to rise and fall in tandem, there are often startling differences in their annual return. Those who own just one market can end up suffering long periods of lackluster performance.
Moreover, diversification isn't just about tempering short-term swings in your portfolio's value.
You also want to limit the damage done by financial calamities, whether it's political upheaval that shutters a country's financial markets or the sort of devastating market collapse we saw in Japan in the 1990s.
7) Family Matters
Your children are your legacy. They will inherit your money and they will likely adopt your financial values.
Your family is also your greatest asset and your greatest liability. If your children or your parents get into financial trouble, you would likely help out -- and they would likely help you, should you get into difficulty.
It's worth keeping all this in mind. Talk to your elderly parents about their finances. Endeavor to teach your kids about money.
Think about how you manage your own money -- and what the consequences would be for your family, should something go badly wrong.
8) Invest for the Long Term
If you die young, it could be financially devastating for your spouse and children. But don't ignore the other risk: What if you live far longer than you ever imagined?
Many retirees are so concerned about dying young that they rush to claim Social Security early and they refuse to buy lifetime-income annuities. And this is indeed the right strategy if you're convinced that you and your spouse have a short life expectancy, and you want to die a little richer.
But what if you take Social Security early, don't buy the annuity and then live a surprisingly long time? Instead of dying young and rich, you could be very much alive -- and pinching pennies.
9) Last Resort
On days when the financial markets are open, I check the yield on inflation-indexed Treasury bonds every few hours.
As of Friday, for instance, 10-year inflation-indexed Treasurys were yielding 2.3 percentage points above inflation.
To me, inflation-indexed Treasurys are the investment against which all others should be measured. If I buy 10-year inflation-indexed Treasurys, I am guaranteed to beat inflation by 2.3 percentage points a year over the next decade.
Unless I am confident that another investment will outperform this benchmark, I stick with inflation bonds. They are, to me, the investment of last resort.
Jonathan Clements also writes the "Getting Going" column that appears Wednesdays in The Wall Street Journal. Write to him at: jonathan.clements@wsj.com1.

URL for this article:http://online.wsj.com/article/SB116388187938827618.html

Investing for 20-Somethings

There was a good article in the Wall Street Journal yesterday about retirement planning for 20-somethings. Here's a link to the full article. The article makes a few basic points:

• A Fidelity Investments study shows 16% of 20-somethings have no stock exposure
• Many 20's workers have all of their money in "stable-value" funds, which are glorified money-market funds
• You should always max out your employer's matching contribution
• Young people should have the majority of their money in stocks
• Vanguard's Target Retirement 2050 Fund is invested 90% in stocks
• The majority of your money should be in large-cap stocks like the S&P 500 Index
• Consider 10% in small and 10% mid-cap stocks
• Younger people are underserved by investment advisors because of their few assets

My recommendations to you, is that no one should have any retirement savings money in stable-value or money market funds unless you are within 10 years of retirement - and even then the percentage should be small. If you are more conservative, and you are in your 20's then you can consider investing up to 20% of your savings in bond funds - but don't expect to have as much money when you retire if you do.

Keep your eye on your goal - to have enough to retire on when you reach your target age. People who invest their money too conservatively will not have enough to reach that goal.

Flawless Execution

I recommend a book I have recently read titled Flawless Execution by James D. Murphy. It is a fairly easy read (208 pages - no big words) and it would be interesting to anyone who wants to know how to plan, execute, and improve processes (debrief).

Here are some excerpts from the chapter on Future Vision:

Flawless execution begins with a Future Picture. It’s a well-written, clear, high-resolution, and easily communicated big picture of what you want the future to be. Future Picture is a beacon that pulls the team into the designed future. Executing is not enough. You must execute in the spirit of a Future Picture or you will invariably execute against the wrong things.
Entrepreneurs are by default the masters in the art of painting Future Pictures. Why is this? It’s because entrepreneurs sell vision.


Examples of a clear Future Picture:

• Gulf War: "Iraq will be out of Kuwait. Allied casualties will be low. Collateral damage will be minimized (so Iraq can recover quickly). Saddam’s Army will not be a regional power for at least ten years. Oil will flow freely in the region.” Pretty simple. Very direct. Easy to understand, and yet, it’s a Future Picture with resolution and detail sufficient to give his commanders a starting point for the planning process that would lay down the specific strategies necessary to achieve his Future Picture.
• Hess Express: "Make our stores a destination, he said to his managers; give the people in our adjoining neighborhoods the products they want. Give it to them in a self-service environment that’s clean, with a shopping experience that’s quick. And, oh by the way, don’t charge more than the local grocery store but make me a good return on my money."

Rule 1: Focus on the Future
A Future Picture statement opens the door to creativity and outside-the-box thinking at exactly the right moment in the process – before anyone has locked down plans and started the execution phases. It also focuses the commanders on the future. If it doesn’t contribute to the Future Picture, it doesn’t belong on the table.

Rule 2: Key Descriptors: Painting with Colors
1) Financial Position 7) Workforce Characteristics
2) Market Position 8) Brand: Yes or No
3) Business Areas 9) Corporate Culture
4) Innovation 10) Corporate Citizenship
5) Insider Perception 11) Ownership
6) Outsider Perception 12) Incentive Philosophy

Rule 3: Measures of Merit
Measures of merit are the measures of success we attach to each key descriptor. These are the things that have to happen in order to achieve the key descriptors, which in turn, realize our Future Picture. They tell us we’re making progress – that the future is materializing. Measures of merit are absolutes, not comparative, and are written to focus on strategic progress versus any sort of tactical success. They are clear, concise, and easily communicated.

2008

We are now officially on the road to 2008 - we're at the start of the presidential election cycle. As I mentioned in a previous post, 2008 is still a long way off, and I think the biggest mistake the Democrats could make along the road to '08 is to continue their partisan ways in Congress and nominate lots of far-left-wingers to run in the Democratic primary.

As a side note, I think we'll see Harold Ford Jr. run for US Senator from TN again in 2008.

There's an interesting article in today's Wall Street Journal detailing the early handicapping of the presidency race in 2008:

McCain, Biden Set to Be '08 Players As Feingold Rules Out Presidential Run
WASHINGTON -- Republican Sen. John McCain said he is taking the initial steps for a White House bid in 2008, setting up a committee that allows a potential candidate to raise money and travel the country to gauge support.
Democratic Sen. Joe Biden reaffirmed his intention to seek his party's nomination, though an announcement about establishing an exploratory committee probably won't come until early next year.
The anticipated wide-open campaign -- for the first time since the 1928 race, the field won't include a sitting president or vice president -- lost one possible participant when Sen. Russ Feingold (D., Wis.) decided against a long-shot run.
...
Mr. McCain is a former Navy pilot who was a prisoner of war in Vietnam. He was elected to the Senate in 1986, and served in the House for four years before that. During the 2006 election cycle, Mr. McCain attended 346 events and raising more than $10.5 million on behalf of Republican candidates. He also donated nearly $1.5 million to federal, state and county parties.
The 63-year-old Sen. Biden, who is line to take over as chairman of the Senate Foreign Relations Committee, also ran for president before, dropping from the 1988 race after it became known he had lifted a portion of a speech from a British politician without attribution.
...
Last week Iowa Gov. Tom Vilsack announced his candidacy. Sen. Hillary Rodham Clinton of New York is widely considered the front-runner. Others mentioned include Sen. John Kerry of Massachusetts, the 2004 nominee; former Sen. John Edwards of North Carolina, the vice presidential nominee two years ago; Sens. Barack Obama of Illinois, Evan Bayh of Indiana and Christopher Dodd of Connecticut; and New Mexico Gov. Bill Richardson.
Republicans talked about for 2008 are Massachusetts Gov. Mitt Romney; Senate Majority Leader Bill Frist of Tennessee; Arkansas Gov. Mike Huckabee, Sen. Sam Brownback of Kansas and former New York City Mayor Rudy Giuliani. Republican Rep. Duncan Hunter of California, chairman of the House Armed Services Committee, said last month he is forming an exploratory committee.

Link for the full article.

John McCain - As a moderate sometimes Republican sometimes Democrat, I really like John McCain, although I know the NRA hates him, which makes it difficult for him to get the party's nomination.

Joe Biden - I really know nothing about this guy, which is weird because he's a big name.

Hillary Rodham Clinton - I believe Hillary is the best way for the Democrats to lose in 2008. I think she is totally unelectable to President. Now, she may be a viable VP candidate, although I don't think she would accept that nomination.

John Kerry - I honestly doubt he will run officially (by primary debate time, I doubt his hat will be in the ring).

John Edwards - I give John Edwards the highest odds of being our next President. I am not sure who I'd vote for between McCain and Edwards, but Edwards sure looks the part.

Barack Obama - I think if he runs he will not get the nomination. I saw (and I think Sen. Obama did as well) the Harold Ford Jr. campaign in Tennessee as a proxy for his chances in the south. Ford lost.

Mitt Romney - I honestly dislike Mitt Romney quite strongly. As a former resident of both Utah and Massachusetts, I know enough about him to know I would never vote for a ticket with him on it.

Bill Frist - As a resident of Tennessee, I also have a perspective on Sen. Frist. I like him, but not all conservatives around here do. I think he stands a decent chance.

Rudy Giuliani - I think he is totally unelectable by the Republicans , much like Hillary among Democrats. (I seriously doubt conservative Republicans will support a divorced former Governor who was kicked out of the Governor's mansion by his wife after he had an affair).

The Stock Market

The US stock market has been on a roll lately, with the S&P 500 index up 2.2% over the past month, and 12.5% since the low on July 17th. The only problem is there doesn't seem to me to be a legitimate reason for a 12% gain in 4 months. Consumer confidence has risen, and oil prices have dropped - so the US consumer is looking strong, but corporate earnings growth is slowing and there is a great deal of talk about the Fed cutting interest rates in 2007. Here are some excerpts from the Wall Street Journal about the market this past week:

WSJ.com: Wall Street Focus Shifts From Elections to Fed November 10, 2006.

Wall Street shifted its gaze from the fleeting turbulence of the midterm elections to more-familiar fare Friday: earnings, oil prices and the Federal Reserve.
...
"The topic de jour for the next few weeks will be the Fed" and its policy meeting in early December, said Ned Riley of Riley Asset Management.
Investors will also focus on consumer spending as the holiday season ramps up. A new survey by the International Council of Shopping Centers shows consumers may cooperate. On average, consumers plan to spend $676 on holiday purchases this year, up 9% from last year, according to the survey, helped by declining gasoline prices.
Wall Street will get an important batch of economic data next week, when the government releases its monthly inflation statistics. Any hint that inflation is creeping higher will likely trigger a selloff on Wall Street, said Mr. Malone, since many investors are banking on a Fed rate cut in early 2007 to cushion the softening economy's downward slide.
Until then, stocks are likely to languish, as they did throughout Friday, though they finished the day with a push into the black. The Dow Jones Industrial Average gained 5.13 points to 12108.43, gaining 122.39 for the week.
...
The Standard & Poor's 500-stock index gained 2.57 to 1380.90, and the Nasdaq Composite Index rose by 13.71 to 2389.72, its highest close since February 2001.
Oil prices fell $1.58 to $59.58 a barrel after the International Energy Agency lowered its global oil demand forecast for 2006 and 2007, citing weakening demand from China. Gold prices fell $7.50 to $629.30 an ounce after surging more than $18 Thursday after an official with the People's Bank of China said the country may diversify away from U.S. assets such as the dollar and bonds.
Treasury securities rallied after a Thursday auction of $13 billion worth of 10-year bonds showed strong demand from overseas buyers, including foreign central banks.
Though stocks have meandered in the past few days, some investors expect the uptrend that recently lifted the Dow industrials to a record high to resume. The period from November through January is traditionally the strongest of the year for stocks, and many analysts think this year will be no different.
...
The reason for Mr. Pavlik's bullish stance: expectations that the economy is on solid footing and that a rate cut by the Federal Reserve in the first half of 2007 will help growth continue.
While market analysts aren't in complete agreement about why stocks tend to rally at the end of the year, one factor is the wave of spending generated by the holidays, which tends to lend a bullish tone to Wall Street. This year, investors also hope a sharp drop in energy prices will lead to a happy holidays, the most critical time of the year for the nation's retailers.

Link to the full article.

You'll notice that there was quite a bit of mention of the expected rate cuts by the Federal Reserve in 2007 in that article. That theory is part of what is driving the market higher. The problem is, if the Federal Reserve cuts interest rates there will be a reason why. The Fed does not cut rates to drive the market higher; they cut rates to spur on a slow economy or to raise prices in the face of deflation. I think at this point we can rule out the idea that we may be facing deflation as an impetus for the Fed to cut, so it would have to be because the economy is slow. If the Fed sees that the economy is slow, and reacts, generally that means it is too late and a recession is in the offing.

So to bring all these predictions back together and spell them out in simple language, the Market assumes that the economy will be slowing in 2007, probably leading to a recession, and so stocks have been rallying higher. That is not a good reason for a rally.

Now, I do also feel that there is a likely chance of a relatively strong market through mid-December based on current bullishness and the general lack of bears recently. Also, the fact that for the past several years there has been a strong rally in Q4 is good reason (in investor's minds) for there to likely be one this year.

And I think that, ladies and gentlemen, is the reason for the recent rally. Money has been flowing into the market in anticipation of a Q4 rally, which has driven the market up double digits. I think that if this rally does not materialize we could easily see a disappointing reaction. Also, I wonder how much of the money is planning on leaving the market early in Q1 2007, as they expect a slowing economy and Q2 of each of the past several years has not been a tremendous time to be invested. I think we stand to see a peak in late November or early December followed by several months of market drops, which should be a good time to be buying, particularly mega cap companies with strong fundamentals.

Dell Stock?

There is an article in the WSJ today that's fairly bullish on Dell stock. Here are excerpts:

Wall Street Journal: HEARD ON THE STREET: Dell Loses Lead, And Investors Can Take Heart
By CHRISTOPHER LAWTONNovember 10, 2006; Page C1
Dell Inc. lost its No. 1 position recently in the world-wide personal-computer market -- and investors have reason to cheer.
For years, the Round Rock, Texas, computer maker was a highflying tech company that churned out healthy profits and consistently grabbed market share with its low-cost business model of selling PCs directly to customers. Over the past year and a half, as that formula has shown its age, Dell has struggled to increase its share and maintain robust profits. It often slashed prices in order to move more PCs.
The price cuts hit Dell's bottom line hard. In August, it reported that fiscal second-quarter profit plunged 51%. Dell's operating margin, once the envy of the industry, also deteriorated. Margin, a measure of profitability that represents the difference between revenue and the cost of production, stood at more than 10% in the late 1990s and above 8% as recently as 2004. It fell to 4.3% in the most recently reported quarter.
Meanwhile, Dell shares have risen more than 9% on Nasdaq since fiscal second quarter results were posted Aug. 17, though the stock is still down nearly 17% for the year. Dell closed at $24.98 yesterday, up 80 cents, giving it a market value of $57 billion.
...
A Dell spokesman declined to comment ahead of next week's earnings report. In remarks to analysts during the company's last earnings call in August, Dell Chief Executive Kevin Rollins acknowledged that the company's pricing has been "overly aggressive." He said Dell would be more careful about its pricing but didn't want to lose market share.
Some are skeptical Dell is on an upward trajectory.
"If Dell just came out and said they are going to focus on profitability and not going to focus on share gains, it would help," says Ken Smith, director of technology research for Munder Capital Management. "They have lost share and become less profitable. I take whatever they say with a grain of salt." He says the PC industry is mature and there aren't huge share gains to be had anymore. Munder Capital Management, which manages $42.2 billion, owned 862,974 shares of Dell as of June 30, according to SEC filings.
...
URL for the full article: http://online.wsj.com/article/SB116311547762619207.html

I wanted to point out a few things about this. I DO NOT LIKE MANUFACTURING COMPANIES!!! I don't understand why people always want to invest in capital intensive companies. The easiest way to explain how this is a bad idea is to look at the airlines (or today, car companies). The only obvious way for one to make a good long-term investment in a capital intensive company is to invest in its early years, while their market is growing, and their market share is also growing. Under those circumstances, companies are typically rewarded with high multiples, and earnings will grow at a rapid pace. The problem comes when the market matures, and the company is no longer able to steal market share. The company will probably irresistibly spend money trying to continue the days of old, which will generate horrible returns for investors.

To be fair, the same can be said about many types of companies, particularly in "growth" industries. For example, this criticism is probably very accurate if applied to Amazon.com, because they continue to invest in non-core businesses, and face tremendous competition and ever-growing capital expense needs. If capital expense as a portion of income or revenue must grow over time, the company is not a good investment.

So, to recap, I don't like DELL, or HPQ, or INTC (particularly Intel - INTC), or any company that must continually spend to stave off stiff competition in the face of a slow-growth market.

More Politics

So President Bush also is stating that the overall "thumping" that the Republicans took was a result of discontent with Iraq. I still maintain that it is a result of discontent with the President, including Iraq, lack of fiscal discipline, and that no significant changes have been enacted during his term-and-a-half.

Apparently conservatives as a whole have moved away from the Republican Party in this election, including so-called "Christian Conservatives":

Exit polls suggest that Democrats made significant gains among several religious demographic groups, including both Catholics and evangelical Protestants. While the party's 2004 presidential nominee John Kerry won barely 20% of white evangelicals, for example, almost 30% voted Democratic this year. Democrats won the backing of 55% of Catholics this year, compared with 47% in 2004.

That is from the Wall Street Journal Online today at http://online.wsj.com/article/SB116303697315518036.html

Another good WSJ article on politics today is http://online.wsj.com/article/SB116304212211318140.html "Outcome Shakes Up '08 Calculus For McCain, Clinton and Others"

2008 is still a long way off, and I think the biggest mistake the Democrats could make along the road to '08 is to continue their partisan ways in Congress and nominate lots of far-left-wingers to run in the Democratic primary.

Election Results

I am glad that Bob Corker will be our new US Senator. I do admire Mr. Ford in that he ran a tough race, and was a more than gracious loser. While he will not be serving in Congress for 2 years, I think he will be back in public service in that time or less.


Nationally, many pundits have stated that the election would be and or turned out to be a referendum on the war with Iraq. However, I would define that more broadly, and state my view that the election turned out to be a referendum on Bush himself. Many sources (citing exit polls) have stated that approximately half of voters said they cast their votes for or against candidates as a way to send a message of opposition or support of President Bush:

More than a third of the electorate said it was voting to send a message of opposition to the president, according to Election Day interviews with more than 11,700 voters as they left the polls. That was 15 percent higher than the segment of voters who said they were voting in support of Bush.
Among voters who said they had backed Bush's 2004 re-election, one in six cast ballots for Democratic House candidates yesterday, the exit poll found.

That quote is from http://www.baltimoresun.com/news/nationworld/iraq/bal-te.election08nov08,0,925892.story?coll=bal-home-headlines .

It will certainly be interesting to see if the Democrat controlled House can work with the Republican controlled Senate and President Bush. I strongly suspect that not much will be accomplished by either side in Washington over the next two years. As a side note, usually a lack of activity in Washington is good for the stock market.

Stock Market P/E Ratios Drop, Aiding Bull Market

Bloomberg: Price-Earnings Ratios on U.S. Stocks Drop, Aiding Bull Market


There was an interesting article on Bloomberg.com (article here) yesterday detailing one theory on why the stock market could be set to post significant additional gains. This is one story I have heard from multiple pundits and advisors.

The story goes like this: This bull market (from the bottom in late 2002 through today) has seen earnings increase faster than stock prices. Thus the market multiple (P/E ratio of the market as a whole) has decreased, which is not typical for a bull market. Usually, during a bull market, enthusiasm increases faster than earnings, and thus the market multiple increases, until it gets to a level that is unsustainable, and the market turns into a bear market.

I have no idea if this will play out as advertised. What I do know is that the stock market is no longer cheap, as it has been for most of the past 4 years. Thus the inclination would be to reduce exposure to stocks in your asset allocations. However, bonds are truly pitiful right now (long-term interest rates have nowhere to go but up, so the best a buy-and-hold bond investor can achieve will be the coupon, which is lower than cash or short-term yields), so I would recommend that most people stay fairly heavily weighted in stocks, and start to add to their cash (or short-term) position.

Vote Today

Tuesday, November 07, 2006
Vote Category: News and Politics
Vote today, if you haven't already.

Big time election in the Tennessee US Senator race: Bob Corker (R) (49%) vs. Harold Ford Jr. (D) (46%).

From the Wall Street Journal: "With the resignation of Bill Frist, the GOP is hoping Bob Corker can snag this seat. Although Corker leads over the Democrats' Harold Ford in all of the most recent polls, his average margin is only six percentage points, making this race too close to call."

I believe that Corker will win, and he is who I am voting for (even though two weeks ago, 10/26, Harold Ford Jr. literally gave me a big old bear hug).

Why should you vote either way in this election? Here are some of the commonly cited reasons pro and con on each candidate (these are not necessarily my views):
For Harold Ford Jr.: He's smart, a well presented handsome man (slick according to Republicans), well educated and has years of experience in DC. He is moderate (more conservative than most Democrats) on social issues and a fiscal liberal.
For Bob Corker: He's a Tennessee businessman who has been the very successful mayor of Chattanooga for years and is conservative on social and fiscal policy. He's not a dyed in the wool politician.

Against Harold Ford Jr.: He is the more liberal of the two candidates, he is from a family that is at the head of the Memphis political machine and that has often been seen as corrupt and thuggish. He failed the bar exam after graduating from a prestigious law school. He has not had a "real" job except in politics.
Against Bob Corker: He is the more conservative of the two candidates, and he is rich ($200 million), and is portrayed as looking out for the interests of the wealthy. There were some snafus early on in his time as mayor of Chattanooga. He is portrayed as being too close to oil interests (his campaign manager is the CEO of a gasoline retailer).

First Blog Entry

This is my first blog entry on Blogger.com (Google Blogs).

Here is the first entry I made in my first blog (on myspace):


Friday, September 08, 2006
Blog?
Should I post a blog?

I googled why post a blog and quickly found an interesting quote:

Why post a blog on the web if not for others to consume it? "To keep a diary" you might say, and if that is the case, why not just keep a diary offline? It's a similar situation to women wearing scanty clothes - they do it so that others will look at them. There's nothing wrong with suggesting what might earn them even more favorable glances. Without people viewing his blog, it becomes little more than an offline diary anyway.

What is a blog? I was asked that by a coworker about a month ago. I told him it was an online diary. Apparently, Wikipedia agrees:

A weblog, which is usually shortened to blog, is a type of website where entries are made (such as in a journal or diary), displayed in a reverse chronological order. Blogs often provide commentary or news and information on a particular subject, such as food, politics, or local news; some function as more personal online diaries. A typical blog combines text, images, and links to other blogs, web pages, and other media related to its topic. Most blogs are primarily textual although some focus on photographs (photoblog), videos (vlog), or audio (podcasting), and are part of a wider network of social media.

The word blog can also be used as a verb, meaning to maintain or add content to a blog.

Now, keep in mind that I find it difficult to post something without invoking Wikipedia. So let me say it again, if Wikipedia says it, it must be true, right?

So, back to the question, Should I post a blog?

The easy answer is yes, Everybody Else Is Doing It, So Why Cant We?