Tim... looks like possibly SCON got a rec from a newsletter, that might explain the volume and AH's trades
supposedly Tobin Smith rec'd it to his subscribers... i never heard of this guy before, so did a little digging... he has some interesting overall economic/market comments
Don’t Underestimate The Boom
- Oct 31, 2003
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THE KAHUNA'S RANT O' THE WEEK: Underestimate The Boom At Your Own Risk -- By Tobin Smith
Making money in the stock market takes equal doses of dogmatism and pragmatism. I am dogmatically long the market here because I see the economic and sales demand research we generate every week here at ChangeWave.
From this exclusive look under the hood of the growth industries in America, I can unambiguously tell you what we tell all our clients from the top to the bottom: We have seen the sharpest positive reversal in end-user demand and fourth-quarter sales pipelines in the history of our macroeconomic research.
Our exclusive, proprietary look into the real economy continues to tell me we have hit the legendary sweet-spot of the business cycle where:
Inflation is non-existent. (1.2% and dropping)
Businesses have shed as many jobs as they can risk. The job market has bottomed. (Even the Fed has figured this out.)
Interest rates should rise slightly as they do upon every early stage of strong recoveries -- no big whoop.
The price of gold, the drop in the dollar and the steep yield curve (the difference between three-month and 30-year treasury debt) tell us that widespread deflation is NOT a threat. What's left is GOOD deflation that takes the price of things like flat-screen TVs down 50% or more each year.
Businesses are too low on inventory and staff but are holding out until the very last second to ramp up their fixed costs. When the pain becomes too much, they are going to explode with hiring and spending.
Productivity-based IT capital investment hit 33% year-over-year growth in July and should hit more than 45% year-over-year growth in the third quarter. The equipment replacement cycle has definitely started. (The Fed figured this out, too!)
The consumer is a lot richer today than two years ago and is out there spending. Durable goods spending is up 6.2%, the highest rate since 2000.
Why? Because $5 trillion in mortgages were refinanced and MANY replaced 30-year agreements with 15-year contracts, which means they are getting richer every month AND paying $300-$700 LESS monthly in mortgage payments for the life of their agreement. Because their paycheck is $200-$1,000 bigger every two weeks from lower taxes and higher child credits -- even after paying higher rates for healthcare premiums. Because those who invested in stocks have recovered half or more of their losses from the great Bear Market of 2000-2003.
In short, the positive aspects of the economy for the next 12-18 months SO much outweigh the negatives (aside from a terrorist strike on U.S. soil) that we have an economic mismatch bigger than me wrestling John "Bradshaw" Layfield on "WWE Smackdown."
WRESTLING THE BEARS
But as I said earlier, the successful investor matches an equal amount of pragmatism with his/her dogmatism, otherwise one risks becoming a perma-bull or perma-bear -- a condition that is the only surefire way I know to lose money in stocks.
My pragmatism (i.e. what am I missing in the business cycle puzzle? Where am I wrong but don't know it yet?) this week comes from my pal Jon Markman of Pinnacle Investment Advisors. Jon also writes one of the best columns on investing on the planet for MSN.com's Money section. He recently wrote that Michael Belkin, a global economist who I respect for his great calls on the markets over the last five years, is now bearish again.
Jon's writes the following in his article titled "Market prophet is battening the hatches":
"Belkin abandoned his Nasdaq 2,280 target because he noticed that money-supply growth had begun to contract as credit markets froze up -- an event that, in his words, has 'drained the economy of bubble fuel':
"In July, the three-month annualized rate of growth of money had reached a peak of 14%. But money-supply growth two weeks ago had fallen to 1%, and last week, according to Federal Reserve data, it actually turned negative.
"Fed data shows that banks are dumping their holdings of government bonds right and left; their Treasury holdings have dropped $100 billion since July.
"Commercial lending has gone nowhere since July, and real estate lending has slowed dramatically. (A newsworthy example of the latter was a report last week that the New York Times had put off building its new headquarters tower in Manhattan for a couple of years because its development partner was unable to obtain financing.)
"Belkin believes that the Bush administration essentially 'rented the 2003 recovery from Wal-Mart' by cutting taxes and mailing out rebate checks, and now faces an 'involuntary deleveraging process' that will feed into weaker corporate results, softer economic statistics, worsening unemployment and, eventually, a sharp decline in real-estate values."
Jon notes that Belkin closed his uber-expensive newsletter last week with, "The point of a bear-market rally is to make everyone bullish again just before the market does its next swan dive." (You can read the entire article for yourself by going to MSN.com's Money section and finding the SuperModels column from 10/22.)
In my view, Mr. Belkin seems to be missing the following:
Our economy is SWIMMING in cash. (The Fed closing the cash spigot temporarily is a GOOD thing, not a bad thing.) We could not keep juicing the economy with 14% more cash each quarter -- it was time to come back to neutral cash stimulus and let the magic of the "virtuous (i.e. potent) cycle" of growth kick in and do the heavy lifting in this new business cycle.
We WANT interest rates to rise -- that means end-user demand is growing. All sustainable economic recoveries have rising interest rates. Banks are selling treasuries because they know this and do not want to incur the losses on their capital. Wouldn't you do the same thing?
Four percent-plus (4%+) economic growth is in the bag for 2004 because of the virtuous cycle of accelerating growth that is now kicking into the growth industries of our economy.
The power of this potent growth phase of the business cycle does NOT need extraordinary monetary stimulus to work. I think this is what Belkin and the rest of the bears are missing.
TRANSFORMATION IN THE REAL WORLD
Case in point: Look at one of the leaders in one of the transforming industries we follow -- global positioning systems (GPS). GPS has now hit an inflection point of S-curve growth as the price point has fallen under $199, and every car in the world is now going to get GPS starting in the 2005 models (with complete saturation by about 2010).
Now look at one of the leaders in GPS, Trimble Systems. They perfectly illustrate what happens to a company when they cut costs, catch a ride on a secular growth wave and own high-margin intellectual property that is required to meet the demand of the high growth wave.
In its earnings announcement Tuesday, Trimble reported third-quarter earnings of $9.94 million (29 cents a share), up from $2.71 million (9 cents a share) in the year-ago period. At the end of July, Trimble predicted third-quarter earnings of 19 cents to 23 cents a share.
What they did not forecast is how much new demand above existing conservative forecasts can turn into huge bottom line expansion. Also in this world of Sarbanes-Oxley laws that can put executives in JAIL for missing their numbers, we have a world of leaders who are scared to say anything positive about the future. This clampdown on executive forecasts has created a world where management is now consistently underestimating growth, which makes these Trimble-like surprises even more powerful.
The incredible power of the business model multiplier effect -- how a 22% rise in revenue can become a 100%+ rise in earnings growth -- is the secret sauce that is powering our recovery. Look at Trimble again for an example of the earnings multiplier effect in all its glory.
Trimble's revenue rose 22% to $139.6 million, beating the company's prior guidance of $129 million to $132 million as well as an analysts' average estimate of $131.1 million. Surprise -- their executives UNDERESTIMATED top line growth. For the company's full year, Trimble expects earnings to increase 142% to 150% over 2002 while revenues rise 14% to 15% over the year-ago period.
A 150% increase in earnings on a 14% overall rise in revenues? You bet -- and you are going to see results like that from leaders of growth industries across the land as the earnings multiplier effect turns into excess capital, which in turn kick off the cycle of self-sustaining economic growth in 2004.
Increased profits create increased end-user demand for things, which triggers increasing output and jobs.
The increase in GDP creates more income and jobs for those who work and produce in the growth industries, AND for the companies and people who sell services to BOTH the companies and their employees at home.
This spike in consumption creates even MORE demand.
Which kicks in an inventory build-up cycle for at least six to nine months.
Which adds another engine of demand and production/jobs to the economy.
This brings us to 2005. Call it the Bush Boom. Or call it the laws of economics and business cycles reasserting themselves after a long, hard visit to the economic woodshed.
Whatever you call it, the self-sustaining growth cycle has kicked in and those who own bonds will be hurting (unless they hold them to maturity) and those who own economically sensitive equities riding the greatest waves of secular transformational growth will increase their wealth 50%, 100% or 200%+ over the next 12-18 months.
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