Wednesday, May 24, 2006

Military personnel get 10% off at Home Depot this weekend!

According to this Forbes article - "all active duty personnel, reservists, retired military, veterans and their families can receive a 10 percent discount off their purchases in honor of Memorial Day. The offer is valid on purchases of up to $2,000 for a maximum of $200 between May 25 and May 29, 2006 at The Home Depot stores."

Seems like a pretty good deal but it's not being terribly well publicized. Particularly in an area like Watertown with a heavy military presence, I think they'd be out promoting this offer a bit more.


Tuesday, May 23, 2006

Markets don't like the bird flu....

The markets feel very 2002-ish right now. Whatever the news the markets want to go down. Today the market was up for most of the day until a story broke that there may have been a human-to-human transmission of bird flu in Indonesia, then we went south fast. These are preliminary reports, but human-to-human bird flu, if not contained, is a major, major risk to the global economy. I don't see it happening today or tomorrow - the mutations needed are just too complex - but it is possible and if it does happen, I'd like to be short the market and long lots of water and canned goods :)

Some people keep pointing to hurricane forecasts which are pushing up oil prices. I can't believe people are trading on this news. Forecasters are off by an average of 2+ hurricanes/yr. When you're talking about 3-8 storms/yr, + or - 2 storms is a big margin for error.

Also, there seems to be a presumption in the market that all of these storms will end up in the Gulf of Mexico. Again, flawed thinking as anyone in Coastal Carolina will tell you.

There are a lot of Jim Cramer-ites out there looking to push the market back up but they lack conviction. I can see both the Nasdaq and Dow bouncing 3% up from here, but by 6/1 I think we're going to start testing new lows.

Tuesday, May 16, 2006

Please excuse the light posting...

I'm in the home stretch of the biggest fundraiser of the year - tomorrow night in Clayton - and I've been working long and hard preparing for the dinner.

I'll be back later in the week with lots of interesting thoughts on interest rates and inflation. The markets are poised to move in a big way this week based on the data we see tomorrow.

Thanks for your patience.

Thursday, May 11, 2006

Take a bite out of Real Estate Commissions...

1) Empower yourself with good info - here's a new site Real Estate ABC which offers some pretty valuable insights into recent sales and prices paid. In the past, you had to track this info down through some ancient county filing system. Their pricing guides are clearly flawed, but it's worth clicking around.
2) Understand that commissions are negotiable. Right now in Jefferson, Lewis, St. Lawrence County there is a perception that the market is "hot" and realtors often act as if their fees are standard and non-negotiable. Everything is negotiable. I've never paid over 4% total commission in a home sale or purchase, yet I frequently see commissions listed at 6%, 7% or even 8%.

3) Be aware of the US market as a whole. I can home prices in Upstate quickly adjusting back down 20-40% if
  • Long bond rates continue to rise pushing up mortgage rates.
  • A domestic economic slowdown impacts tax receipts leading to lower defense spending (ie, scaled down expansion of Ft. Drum)
  • Inventory continues to build in upstate as less experienced builders jump on the construction bandwagon.

Last week I was told by a realtor that my home had appreciated more than 100% from my purchase price in 2003 less than 3 yrs ago. That's not sustainable.

This is why trading stocks is like performing your own open heart surgery...

It's always best left to professionals. The market at some point in the next month will have another "The Fed's almost done (REALLY!)" rally, but the market's obsession with commodity prices is bordering on silly.

As we've said before in the past commodity markets like oil, nat gas, gold, silver, etc were traded by industry players. Today every hedge fund with $10 and a dream is trading commodities. This is creating a very dangerous market for untrained investors. Hedge Fund managers and traditional portfolio managers are chasing new highs in almost every metal. These managers are trading in commodities like they are equities and the differences are stark.

I still think we get one more run at the records on Wall St. - 11,750 has been my target - but the increasing pressure on the US economy from weakening housing markets, rising long-term rates, reduced foreign investment, a weak jobless recovery since 2001 and a new Fed president that looks like a deer in the headlights means I'm getting increasingly negative on 2006 - 2010.

If I'm right - you heard it hear first. The 2008 election could hinge on the perfect storm of crashes - the stock market down 30%, commodities down 50% and real estate down 15% and falling like a brick - all occurring in 2007.

Monday, May 08, 2006

What's with Electric Rates?

National Grid, Pepco, BGE, PSC, etc, etc... These large utilities have more than just strange acronyms in common. More frequently these utilities are finding themselves on the receiving end of huge rate increases that are being passed along to you.

In 2005 I switched most lights to low-wattage fluorescent light bulbs and made a conscious effort to reduce my overall use of electricity. To my surprise it worked! My usage as measured by kilowatts was down almost 15% from 2005 to 2006, but to my surprise my bill was up 20%!!! The kicker? National Grid had managed to boost my rate by nearly 25% from 2005 to 2006.

The only notes I've seen regarding National Grid's rate increases relates to additional healthcare and pension costs they've incurred. I suppose it could be worse - we could live in Maryland.

Maryland residents are facing hikes of 35-70% in their electric rates according to this Washington Post article.

I do not have a problem with a competitive company operating in a free market charging more for their product if demand dictates higher prices. I do however have a problem with protected companies charging more for a product because their cost structures are flawed, they continue to exhibit poor management skills, and they invested cheap power vs. long-term solutions.

1) Cost Structure - Utilities are run like GM and Ford. Employ an aging workforce that is prone to health issues while doing little to reduce personnel costs.

2) Lack of Management Skill - Managing a utility is unlike managing any traditional business. Their inability to foresee demand or supply shifts is never punished, but rather is rewarded in the form of higher rates.

3) Poor Investments - Utilities around the country are now crying over the price of natural gas and oil. Well, I studied lots of clean, environmentally friendly coal technologies in 1991-94 that made sense with oil above $26/barrel. However, with oil at $18/barrel, every power plant in the country seemed to go w/oil or gas. How's that working out?

Frankly, for 85% of us higher rates are little more than an inconvenience, but consider for a moment the senior on a fixed income. He is told that there is little or no inflation so he earns 1% on his savings. However, he watches his heating oil bill jump 60%, his gas price at the pump jump 50%, his electric rates jump 30-70%, every delivery has a fuel surcharge of 5%, etc. etc.

Someone is being less than honest - either we have inflation and rates need to adjust OR the price increases are artificial.

I'll let you draw your own conclusions.

Wednesday, May 03, 2006

Random collection of thoughts...

It's been a busy week - sorry for the light posting. Here's a random collection of thoughts........

1) Oil/Gas - Oil's bouncing around (down over $2 today on news that inventories are up and demand remains unchanged despite $3/gal gas), but it's still trading above $70. This is clearly going to become a more substantial drag on the economy as 2006 progresses. I'm still a believer that we're going to see $2 gas before $4 gas because the contraction of the global economy that I foresee in 2007 will dramatically reduce demand for crude.

The major wild card here is the US vs. Iran. Two weeks ago, I shrugged off all the Iran talk as blustery PR, but it appears that there is some real meat to US preliminary planning. If this talk is true, the possibility of our attacking Iran goes from my forecast of 0% to 30% or 40% and that risk premium probably justifies the current price. For the record, if we attack Iran we all should start buying stock in Schwinn/Trek/Cannondale, etc because you'll be driving around the North Country begging to find $5 gas.

Here's the best gas mapping site I've seen......... Type in your zip code and get updated prices using daily price data. Pretty cool.

2) 10yr and Real Estate - A number of astute market watchers pointed out that the 10yr bond crossed an important threshold today rising above 5.13%. I'm not a technician/chart guy, but one of the best pointed out today that the 10yr is above a trend line that goes back 20 yrs. This is a really important reversal. I'm of the mind that the 10yr bond is racing back to 6% and anything above that is anyone's guess. As consistent readers will remember, the 10yr bond dictates interest rates on your mortgage. Rising 10yr rates = Rising mortgage rates = falling home prices. Couple this with exploding inventory, a buyer's strike in many markets and developments popping up on every inch of available land and this has the makings of being a very bad time to be a new home buyer.

4) Dollar - I won't bother you with a ton of statistics here, but note that the US dollar fell to a 20 yr low vs the Canadian dollar recently (BTW - Did anyone here the Calgary fans booing during our National Anthem tonight?). Oddly enough, that should be good news for our local economy as Canadians will have more incentive to travel south and spend their appreciating currency in our rundown taverns.

5) Markets - Here's the $64k question - where do the markets go from here? I'm still of the opinion that the Fed will raise rates at their next meeting before taking a break on rate hikes. This probably causes one last 200pt day on the dow. I'd sell into the teeth of that rally, because the back half of 2006 and beyond looks ugly. If I have to put a number on the Dow, I'll say we peak within 50 pts of 11,700 then we're heading back to the mid-8k range by 2008. It's Japan circa 1993...

Thoughts, comments, questions???

Any subjects you'd like clarified or covered???

Shoot me an e-mail.