Monday, March 28, 2005

Cumulative Knowledge (03/28/2005)

I'm a recent fan of Stephen Vita's Alchemy of Trading blog. What I most admire about the blog is Stephen's ability to write several posts daily, encompassing what all of us traders are feeling, while keeping it fresh and new. The conversations with hedge fund friend, Anthony from Brooklyn, are priceless.

On to the notes...

Inflation effects farmers too. Read here. Despite a banner 2004, farmers are being squeezed due to higher steel, energy, and fertilizer costs. Plus, banks are tightening the reins on lending money to farmers. With irrigation equipment costs rising are opting out until prices hopefully decline. This hurts LNN and VMI. Despite the rising inflation, farmers still can't resist new tractor purchases.

China has doubled steelmaking capacity since 2000 and now accounts for about 30% of the world's total. In fact, China has become a net exporter of steel for the past few months.

The FAA is expecting the US to exceed 1 billion airline passengers by 2015 from a current 688 million in 2004. Most of the growth will come from regional/commuter airlines and international flights to Latin America. In fact, Latin America travel is slated to grow at a 5.5% annual rate. Read here.

US Drilling hit a 19-year high. Read here. Note most of the growth came from land drillers in North America. The Texas PetroIndex rose to 167.4 in January. Note the 43% increase from the 2002 low versus the 70% increase from the June 1999 low to the August 2001 high. Still more to go? Perhaps that's why Karr Ingham is forecasting the index will reach 182 by December 2005. Nothing like an economist laying it on the line.

For the last time...there is INFLATION! For the past few months I have come across more people than I care to count that do not believe we're in an inflationary environment. BALDERDASH, BALDERDASH, BALDERDASH! Possibly Greenspan's recent federal bank brick has hit most of these people in the heads to realize what's going on. If not, maybe this article on tuition cost increases will help. Reason for the tuition hike? Rising employee benefit costs, utilities, software, and hardware. Yes, software and hardware costs are rising. Have been for the past year. Wage inflation? Yes, via employee benefit costs. Do you realize it costs some teachers in Texas $1200/month to insure their family for healthcare alone? And if it doesn't cost the teachers...its costing the district and/or the state.

Rents low and House payments high? Read here. The differential is at its biggest since 1994 and by some accounts the biggest since the 70's.

Two-thirds of US adults are overweight or obese. Up to 30% of US children are overweight. Childhood obesity has more than doubled in the past 25 years. Childhood diabetes has increased 10-fold in the past 20 years. In other words, life expectency gains could fall dramatically. Read more here.

Speciality hospitals have nearly tripled in number since 1997 according to the Texas Hospital Association. Of the 100+ speciality hospitals...nearly half are in Texas. This article must scare the bonkers out of physicians.

Arizona has won approval from the EPA for a proposed $2.5 billion oil refinery. This would be the first oil refinery built in the America in almost three decades.

Finally a word about the recent American Business Cycle chart I posted on Sunday. You should seriously check out the chart. Notice the most recent expansion/contractions. Definitely it seems the cycles are getting longer. I wonder if that has to do with the greater experience the Fed has with playing with rates in order to govern the business cycle? Anyway, here's a few tidbits from the chart...
  • Average expansion is 4.06 years.

  • Average contraction is 1.08 years

  • Average gain in an expansion is 64.39%.

  • Average loss in a contraction is -3.51%

  • The current expansion is working on 3.42 years...just shy of the average.

  • And the current gain under this expansion is a paltry 7.53%. In fact, the last time we had an expansion 3 years or greater and below an 8% gain was back in 1973. In 1973 we had a 3 year expansion coupled with a 5.57% gain.

And that's it from the TaylorTree where I wonder just what these financial shows are doing to my state of mind. Did I just use the word BALDERDASH?!? Thank you Jim Rogers. :-)

Later Trades,


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