Monday, February 21, 2005

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%
AATKPennyLag1/5/2005 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.

3 comments:

Jack Miller said...

I like the new approach. Many years ago, I read that if you don't have a clue about where real estate is headed, you had better stay out of the stock market. The real estate market is something like six times the size of the stock market. If it gets hurt, stocks will get hurt badly. The 21 year housing high is significant. It means 1984 was the last time housing went crazy. It took until October of 1987 before the market got spanked.

anumati said...

I really liked the discussion of your "forced spending" investment theme. I plugged your post here:
http://www.anumati.com/blogs/anumatiblog/archive/2005/02/26/134.aspx

Sir GreenSPan Con-UN-Drum said...

The only valid answer to Greenspan Conundrum: The Activating Message for X-it & Security.