Cumulative Knowledge (02/27/2005)

I've written earlier about the Federal Reserve Chairman history. Read here. As we get closer to Greenspan's closing months as Fed Chairman...we are sure to be bombarded with hype, worries, gloom and doom as we play musical chairs with our nation's top economists. Thought it would be interesting to see what happened to the DJ-30 a month before, the month started, and one year after a new Fed Chairman begins his/her tenure.

Marriner Eccles (starting month: February; 1936 - 1948)
DJ-30 January 2, 1936 close: 144.10
DJ-30 February 3, 1936 close: 150.60
DJ-30 March 2, 1936 close: 154.10
DJ-30 February 1, 1937 close: 186.60

Thomas McCabe (starting month: April; served: 1948 - 1951)
DJ-30 March 1, 1948 close: 168.10
DJ-30 April 1, 1948 close: 177.60
DJ-30 May 3, 1948 close: 179.50
DJ-30 April 1, 1949 close: 176.30

William McChesney Martin (starting month: April; served: 1951 - 1970)
DJ-30 March 1, 1951 close: 252.80
DJ-30 April 2, 1951 close: 246.60
DJ-30 May 1, 1951 close: 260.70
DJ-30 April 1, 1952 close: 267.20

Arthur Burns (starting month: February; served: 1970 - 1978)
DJ-30 January 2, 1970 close: 809.20
DJ-30 February 2, 1970 close: 746.40
DJ-30 March 2, 1970 close: 780.20
DJ-30 February 1, 1971 close: 877.80

G. William Miller (starting month: March; served: 1978 - 1979)
DJ-30 February 1, 1978 close: 774.30
DJ-30 March 1, 1978 close: 743.30
DJ-30 April 3, 1978 close: 751.00
DJ-30 March 1, 1979 close: 815.80
* note Miller did not serve a full year.

Paul Volcker (starting month: August; served: 1979 - 1987)
DJ-30 July 2, 1979 close: 834.00
DJ-30 August 1, 1979 close: 850.30
DJ-30 September 4, 1979 close: 872.60
DJ-30 August 1, 1980 close: 931.50

Alan Greenspan (starting month: August; served: 1987-current)
DJ-30 July 1, 1987 close: 2409.80
DJ-30 August 3, 1987 close: 2557.10
DJ-30 September 1, 1987 close: 2610.97
DJ-30 August 1, 1988 close: 2130.51

Overall, the beginning of a Federal Reserve Chairman's tenure is much ado about nothing. Sure, there was Greenspan's awful performance leading to a -12% decline in his first year as Fed Chairman. But, by and large, most end their first year better than they started. In fact, based just on the numbers above...it looks as the first year of a Fed Chairman is a good thing for the market. Of course, I'm leaving out Benjamin Strong (1914-1928) and Ronald Ransom. My time series does not go back 1914 nor do I have Strong's starting month. And, I cannot find anything for Ronald Ransom's tenure.

Roger Nusbaum posted a blurb about Tom Dorsey's statement that almost every stock that reaches $90 then goes to $100. When I read this I just had to test the idea. The problem was a test of this type requires a time series that is not split-adjusted. Because, stocks that do get to $90 and follow on to $100...are most likely to split their stock...forever removing their original stock price from stock market history. Unless, as I said before, you have access to data pre-split. Despite not having this type of data...I figured there would be enough ETF's and possibly REIT's that did not split to provide some sort of test of the idea. To find out the results of the test, please read Roger Nusbaum's post and the comments posted here. Then follow on to Anumati's blog on his review of this type of confirmation bias at work. Anumati does a great job summarizing this type of bias here.

Let me say one more thing in regard to the $90 to $100 statement above. I do believe the results would improve by including those stocks that have split in the sample. But, is it a tradeable idea? That's a whole different ball game. My test was just to see if $100 was reached. There's many other things to consider in trying to turn the idea into an actual system. And I'll leave it at that.

A great post on gold by Donald Luskin from SmartMoney.com. Two best parts of the article are the following:

• If you'd held gold instead of dollars since 2000...the price of oil would be 5% cheaper instead of 50% higher.
  


• Luskin discusses just a bit about his public blow-up with Jim Cramer from RealMoney.com. For those of you unaware of the public fight between Cramer and Luskin's gold call...you can follow this EliteTrader thread for more info.

Indonesia is considering withdrawing from OPEC. Believes they are a net importer of oil and thus, no longer eligible. Read here.

Very interesting interview with Dennis Gartman here. I love his mention of Mark Twain's cat theory of investment. I absolutely love that theory! For those of you not familiar with it...here it is from Dennis himself:

• Mark Twain -- and I love this comment -- once said that a cat that sits upon a hot stove will never sit upon a hot stove again, nor upon a cold one either, because they all look hot.


• Also mentions baby boomers, railroads, producer companies, small local banks as investments, and more.


• Note: This interview was performed back in March 29, 2003

An interview with Fox's Cashin guest, Wayne Rogers here. Nothing too insightful here but fans of the show might find it interesting.

Here's a news item that caught my eye. Tobacco growers may see a landfall of cash if the government decides to end the tobacco quota program. This could potentially cause domestic growers to get out of the tobacco business and prohibit new entrants into tobacco. I have no knowledge of this business...but pay attention to this sector due to my system investment in DMN.

Looks like the housing bubble is being primed again by the government. Read here. I don't think we need to worry about the housing bubble collapse until the government begins imposing rules to limit buying. I guess, that won't be anytime soon. Speaking of housing, here are some interesting statistics I've dug up:

• Owner Occupied Housing increased 197% from 1970 to 1980 when the 80 million Baby Boomer generation were in their 20's.
• Rent Occupied Housing decreased -30% from 1970 to 1980 during the same time period.
• Owner Occupied Housing increased 18.3% from 1990 to 2000 while the nearly 80 million Echo Boomer generation were in their teens.
• Rent Occupied housing increased 7% during the same time period.
• One could concur that as the Echo Boomers age into their 20's that owner occupied housing could increase almost as much as the 197% increase that happened during the original boomers first home purchase buying spree.
• Almost 2/3's of the Echo Boomers live in California, Florida, and Texas.
• There is evidence the Echo Boomers are indeed late bloomers. Read here. I encourage all of you to read the article in full. But, if you get anything understand the following: The silent generation (Baby Boomer parents) considered their kids grown up at the age of 18. Baby Boomers do not consider someone an adult until age 26. Plus, high rent and housing costs have forced several echo kids into living with parents until enough money is saved for housing. And my speculation is many of the Baby Boomers second home purchases are for their Echo Boomer children.
  

Finally, wanted to point out the following post from AllThingsFinancial here on becoming an economist. Sometimes observing the popularity of degrees can be helpful in stock sector performance. You remember the "gotta get a Management Degree" 80's? The must have "MIS" degree of the 90's? I'm not really sure what the must have degree is now. I'd be curious of your comments or opinions on this. Funny thing, experience. When I started college, I wanted the degree that was the most popular...the degree that ensured I would have a job upon graduation. If I had to do it all over again? I would choose a degree that had the least number of students. Back in my day that would have been petroleum engineering, operations research, statistics, and yes, economics. In fact, I've been having recent thoughts and ponderings on going back to school and obtaining a masters in economics. Call me crazy. :-)

Have a great week!

MT

Note: I'll post my system performance tomorrow. There were no system triggers for buys or sells this weekend.

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

Accumulated Knowledge (02/21/2005)

I'm changing up the content of the site a bit. I'll still discuss system trading and continue to post the weekly systems. And I'll continue to develop trading systems. In fact, I've been working on a research intensive trading idea for the past three weeks. Most likely, have another month or so in gathering the data for the system. Then I can start on actually processing the data. But, as far as the site...the frequency of posts and the actual content is going to change.

Due to time constraints, I'll switch from writing posts daily to weekly. Think of it as the beginning of a weekly newsletter. I will also focus more on the big trends that I believe will effect our investing lives over the next 10 years. More of a long-term view on the market and related factors. This will help me in gathering my thoughts on where we are headed. And hopefully, keep me focused on where the money will be made in the coming years. So, let's get started.

One investing theme I like to focus on is anything that involves forced increased spending. Recently the government is forcing the medical establishments hand in getting their records online. Here's a recent article on the governments push. Read here. The main stock I've been following that's taking advantage of this trend is Quality Systems Inc. (QSII). One reason for liking this company is their technology. Most companies in this sector are using some pretty old technology. Making their upgrade path an obstacle. QSII doesn't have this problem and could enable them to be out develop their peers. Here's some recent news on QSII's NextGen subsidiary here. With the likes of Kodak, IBM, Cisco, etc. all getting into this $60 billion a year market...watch out...it could get exciting. Add the 80 million aging baby boomers entering into the overburdened healthcare system and you've now got hospitals being forced to update their systems just for the sake of the numbers being processed through.

Just a wonderful interview on market history from Safe Haven here. John Taylor interviews Bob Hoye of Institutional Advisors. Some of the key points in the interview:

• Bob believes we're in a cyclical bull within a secular bear market. The cyclical bull began in 2002 and Bob believes the top occurred at the end of 2004.


• Bob believes a new financial era begins with a huge ramp-up of inflation in the old era stuff followed by a crash in those commodities that will then begin the setup for the new financial era. After a crash in the new financial era...a long contraction ensues. Every bubble Bob studied, the senior currency became strong. So, Bob believes the US Dollar will rise instead of fall.


• I like Bob's statement in Barron's that "the world is long inflation and short the dollar."


• Interesting that Bob found in every post-bubble the senior currency become strong and gold became strong. Which goes against what has been happening lately with the gold declining on dollar rallies.


• Believes we are in year 5 of a 20 year bull market for gold.


• Take note of his remarks on Jim Rogers and Rogers view on commodities being in a bull market.


• Also read the blurb on Kudlow, Rubin, and Summers.


• Overall, just a great lesson in economic history. An article to read again and again and save for the future."

Speaking of bonds, bubbles, and long rates...read Jack's post on the Greenspan conundrum here. John Mauldin also provides some insight into the conundrum as well via Safe Haven.

Some stock picks from various advisors at the Orlando World Money Show from CBSMarketWatch.com. Read here.

Oil investors take note; the US rig count is near a 19-year high. Read here. Read here for the view that land drillers are considered undervalued to their deepwater brethren. And this article notes how the average offshore rig is 20 years old, it will take more rigs to recover oil at the same rate as now, and today's average well takes longer to drill and yields less oil/gas than a decade ago, all pointing to more rig building to come. Another article draws attention to the fact that no new refinery has been built in the US since 1976. I am long a land driller, so be forewarned.

Housing starts hit a 21-year high last Wednesday. The article points that rising rates will deflate the housing boom. I don't believe this will happen like people expect. I believe rising rates will at first inflate the housing boom even higher as investors scramble to lock-in the historical low mortgage rates. Something else will end up breaking housing's back. What that is...I don't know...but I believe everything is leading up to the tipping point in housing. Most likely just one small news item or event will be the trigger. Then we will all see it ever so clearly. But, until then...housing and land is hot, hot, hot. One thing to pay attention to is the 2nd home market. I think one very good proxy for this market is Jim Walter's Homes stock price. Notice the rocket-like rise in the past year of this home builder. When this building stock gets heated...you know the housing bubble is full-steam ahead.

And last but not least, one way to play the cash-rich oil company play is to go after what they might buy. A recent look through Monster.com provided the following clue. Back in the Y2K crunch, the majority of oil companies purchased SAP systems instead of upgrading their legacy systems. See an old article I wrote on the subject. Back then they didn't buy or upgrade to all the available SAP modules. Money and resources have been the issue. With the recent flow in cash coming back to the oil players...they just might decide to add to their SAP systems. I already know of one oil company doing just that. One thing to know is that most oil companies all follow the same line. Why that is...I have no idea. Maybe its the brother-in-law effect. Just kidding.

Anyway, back when Oracle bought PeopleSoft I really thought Oracle was buying into a declining business. The ERP sector is done. So, be careful in entering this sector. SAP sold off pretty badly due to the Orasoft fiasco. Everyone is waiting and watching what SAP will do or what some company will do to it (ie an IBM or Microsoft). Anyway, this lock on the cash rich oil industry just might be the ticket to increased earnings and attention. Note, I currently do not own SAP stock...but that could change at any time.

Ater reading this post and decide you need a little kick-back and relax time...check out the movie, Constantine. It's pretty good. Heck, I might have to go see it a second time.

Have a great and prosperous week!

Later Trades,

Michael Taylor

Weekly Systems

New System Triggers

• Closing AATK (PennyLag) long position at Monday's Market Open.


• Closing DDDC (PennyLag) long position at Monday's Market Open.

Recently Closed Trades

• none.
  

Current Open Systems

Symbol	System	Entry Date	Exit Date	Profit/Loss%
QQQQ	SimpleUp	1/4/2005	open	-1.58%
AATK	PennyLag	1/5/2005	open	-38.49%
HAUP	PennyLag	1/7/2005	open	-22.08%
DDDC	PennyLag	1/18/2005	open	+25.50%
DCTH	PennyLag	1/24/2005	open	-3.63%
APLX	PennyLag	2/7/2005	open	+13.55%
			Total	-26.73%

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

test this

Testing a new blogging tool.

Mike

Peak Oil, Hospitals, and Market Wisdom

Ran across this rant over at EliteTrader today. Discussion is about peak oil, the sky is falling, I'm right, you're wrong. I always enjoy reading these types of discussions. The participants always get caught up in proving one's self worth and in the process give up some really good insight that could make you a buck or two in the market.

My father-in-law was in the hospital over the weekend and after spending a few hours there...I believe I saw a bit of the future. The hospital was different than most of the hospitals I've been to. They had a nice little restaurant, gift shop containing gifts you'd actually buy, and the entire hospital smelled like a beauty salon. It almost gave you the feeling you were in the mall. And with almost 80 million baby boomers coming into the age of aches and pains...I can see where hospitals will evolve from the traditional diagnose, treat, and release...to providing a level of service never seen before. I wouldn't doubt there would be a local Walgreens in the hospital, food courts, and possibly a movie theater in the future.

Some stats supporting this belief of mine are from a recent BusinessWeek article stating some 22.4 million U.S. households care for someone over the age of 65. In fact, the number of Americans expecting to care for an aged relative is up 25% from 1997. With more people and time spent in hospitals...the greater level of service and amnenities hospitals will need to provide.

Forgive me if hospitals already have these features in your neck of the woods. If so, please enlighten this backwoods boy from Texas. :)

For your information my father-in-law is okay...he passed his heart tests with flying colors. He was able to go home today and you can bet he's already feeling much better. But, please say a prayer or two for my Dad who is undergoing an esophagus test tomorrow morning.

I've recently made a purchase in the oil drillers sector and oil service sector. This is from my 5% of equity "play" money allocation. I've actually been beating my head against the wall for not doing this much earlier in the year...but part of the problem is all my money was tied up in my trading systems. And of course the other part was analysis paralysis. My arch nemesis. :)

Finally some words of wisdom since I seem to have none.

"The man who follows the crowd will usually get no further than the crowd. The man who walks alone is likely to find himself in places no one has ever been." -- Alan Ashley-Pitt

"Be extremely skeptical, and stay with what you know. The great success stores in life are people who figure out what they know, stay with it, put their eggs in that basket and watch it carefully." -- Jim Rogers (Managed the Quantum Fund to a 3,400% gain in 10 years)

"Someone's sitting in the shade today because someone planted a tree a long time ago." -- Warren Buffett

Accumulated Knowledge (02/13/2005)

Sorry for the lack of posts...but I've been doing some research on the local real estate market. And getting some much needed help and insight from Jack and his Old Merrill Pal over at Stocks and Bonds?. If you haven't checked out the Stocks and Bonds? blog...you owe it to yourself to do so. He covers a range of topics from stocks, bonds, real estate, the economy, market history, the list goes on. I'm not kidding in saying Jack has forgotten more than I will ever know. Check it out!

A recent interview from Valero's CEO, Bill Greehey. Looks like 2005 will be another bang up year for the company. I never got around to doing a complete study on the oil refinery business...but do know that the horrific narrowing of the crack spreads seem to be at the refineries back. In addition, any refinery that has taken advantage of heavy crude processing is in the sweet spot. Plus, I stop every day to grab a coffee from one of their Diamond Shamrock stores. :)

A comeback for IO? Their new seismic system sounds interesting. They just need the exploration market to kick into high gear. And to overcome the recent lawsuit.

I can't help but think there's more than a few opportunities presenting themselves in the heartlands these days. Read here on the recent initiatives to keep residents from blowing away. Combine this problem with the recent news here and here on Bush's aim towards cutting government subsidies for grain farmers and you've got a bottom in the making. Ya think?

Interesting article on School Reform and the turnaround background on the NYPD. Read here.

Looking for a good movie or two to see? You must check out In Good Company and Meet the Fockers. If you're a dad with a daughter...then you absolutely have to see In Good Company. Just be prepared to be pulled at the heartstrings. :)

Have a good week everyone!

Daily Systems

New System Triggers

• none.

Recently Closed Trades

• Closed MGF (BreakUp) on the previous Monday's open at +1.20% profit.

Weekly Systems

New System Triggers

• none.

Recently Closed Trades

• none.
  

Current Open Systems

Symbol	System	Entry Date	Exit Date	Profit/Loss%
QQQQ	SimpleUp	1/4/2005	open	-0.66%
AATK	PennyLag	1/5/2005	open	-26.19%
HAUP	PennyLag	1/7/2005	open	-25.00%
DDDC	PennyLag	1/18/2005	open	+60.50%
DCTH	PennyLag	1/24/2005	open	-6.95%
APLX	PennyLag	2/7/2005	open	+13.98%
			Total	+15.68%

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

Weekend Update (02/06/2005)

Looking at another house on Monday. Wish me luck.

Have a good week!

Daily Systems

New System Triggers

• Close MGF (BreakUp) long position at Monday's market open.

Recently Closed Trades

• none.
  

Current Open Systems

Symbol	System	Entry Date	Exit Date	Profit/Loss%
MGF	BreakUp	1/19/2005	open	+1.35%
			Total	+1.35%

Weekly Systems

New System Triggers

• Initiate APLX (PennyLag) long position at Monday's market open.

Recently Closed Trades

• Closed CARN (PennyLag) long position at +1.51% profit.
  

Current Open Systems

Symbol	System	Entry Date	Exit Date	Profit/Loss%
QQQQ	SimpleUp	1/4/2005	open	-0.53%
AATK	PennyLag	1/5/2005	open	-24.60%
HAUP	PennyLag	1/7/2005	open	-8.77%
DDDC	PennyLag	1/18/2005	open	+30.75%
DCTH	PennyLag	1/24/2005	open	-0.03%
			Total	-3.18%

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

Interest Rates Article

Fantastic article on interest rate increases and their historical effects by Gary Carmell via Safe Haven. He puts together a pretty good "variant perception" of what could happen to the bond market this year. Not sure if I agree with his conclusion but his observations are hard to ignore.

Gary points out that only 4 out of 56 economists believe the 10-year Treasury security will end 2005 at 4.50% or lower.

His chart reflecting Japan's interest rates from 1983 - 2004 and U.S. commercial paper rates from 1921 - 1943 is pretty cool.

Gary has studied over 150+ years of interest rate history and offers the following:

• During the first half of an economic expansion interest rates fall 67% of the time (56% since World War II) and increase 83% of the time (89% post WW-II) during the second half.


• As we transition to recessions rates have risen 80% of the time (70% post WW-II) during the first half and have fallen 97% of the time (100% post WW-II) during the second half of the recession.
  


• Thus, recoveries are aided by dropping interest rates and recessions are typically induced by higher rates.


• Between June 1857 and December 1945, the U.S. was in a recession approximately 44% of the time, or every 27 months with the average duration being 22 months.


• Since 1946 the recession frequency has dropped to 16%, or every 57 months with an average duration of 11 months.


• Our current expansion has lasted 37 months. If recent history is any guide, then we have approximately two years before our next recession.

There are many more great insights into interest rates uncovered in this article. Read the entire article here.

Daily Systems

New System Triggers

• none.

Recently Closed Trades

• Closed FO (BreakUp) back on Tuesday's market open with a +4.88% profit.
  

Current Open Systems

Symbol	System	Entry Date	Exit Date	Profit/Loss%
MGF	BreakUp	1/19/2005	open	+1.05%
			Total	+1.05%

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

Grandpa, Cotton, and the Fed Chairman

Usually, I post stock market information...but this link is about commodities. Cotton in particular. I've never traded the futures market. But, I do have a bit of a commodities bug in me. I believe I got it from my grandfather. A man I never met and from the stories told...a man I sure would've liked to have known. He was a cattle rancher and farmer...cotton being one of his favorite crops. I sure wish the new seed technologies would have been around when he was breaking his back in cotton. Read cotton article here. Key points below:

• The Texas cotton harvest is expected to be 7.5 million bales, best since at least 1949. The United States, largely because of the Texas crop, expects a record, too. Worldwide, cotton harvests in many countries will hit records. "Nobody had a crop failure to speak of," says Shawn Wade of the Plains Cotton Growers, which represents West Texas growers.


• A decline in the water table and its quality could have a long-term effect on West Texas cotton growers.


• Genetic engineering of seeds has meant farmers can plant varieties that are drought-resistant or that can thrive in colder areas. The genetic engineering that produces such seeds is one reason U.S. cotton harvests have become more plentiful. "We used to have one seed, and now we have 5,200 varieties," says Candice Poteet, executive vice president of the Texas Cotton Association in Dallas, which represents cotton merchandisers. "If you're planting in an area prone to high winds, you can plant a hearty variety with a thicker stalk."


• That, plus technology such as irrigation, cotton strippers and chemical fertilizers, have helped turn cotton into one of the nation's most successful crops. "Today, we can harvest more cotton in one day than my daddy could in a whole season," says David Jones, 68, a cotton farmer who lives south of Lubbock.


• The USA is the world's largest cotton exporter; China, the largest importer.

On to other topics....here's an article that discusses what I think will become the number one topic of 2005. The replacement of Greenspan. Read here. My favorite quip in the article is from Drew Matus, "Hiring a Fed chairman is like firing a missile. There's no recall button." The article lists the candidates as:

• Martin Feldstein, Harvard professor & president of the National Bureau of Economic Research
• Glenn Hubbard, former head of Bush's Council of Economic Advisors
• Lawrence Lindsey, a former Federal Reserve Governor
• John Taylor, undersecretary of the Treasury for international affairs
• Ben Bernanke, fed governor
• Roger Ferguson, fed vice chairman
• Donald Kohn, fed governor

Do me a favor and review each of the links above. Each one should take you to a picture and bio of the person. Spend a few seconds looking at the picture and glancing at the bio. Make your decision on 1) who you think should be the new Fed Chairman and 2) who will be chosen as the Fed Chairman by Bush. The less you know of these people the better. Mark down your decision and keep it with you. See how your Blink process performs.

Later Trades...