Two commodities we hate to see rise, but will profit from nonetheless.
by Stephen Leeb
In this week’s update …
***** Nothing wrong with this market.
***** Two commodities we hate to see rise, but will profit from nonetheless.
***** The Bipartisan Word of the Year.
***** Head’s up! A sneak peak at our newest TCI stock pick.
-------------------------------------
Despite last week’s tiny pullback (0.71% on the S&P), the market continues to look as positive as it has for many weeks. If anything, the outlook has gotten even better since your last update. Everything we like to see in a market pullback (because it implies it won’t last) occurred last week. Small cap stocks outperformed. Utilities made new highs. And our indicators remain entrenched in bullish territory.
In fact, the only thing we think that could stop us all from getting richer over the next few months would be another unexpected geopolitical trauma – a renewed war in Lebanon, an attack on Iran for failing to meet the U.N. deadline, or maybe the Taliban proving to be stronger than anyone in NATO expects. Ordinarily we would consider such events to be long shots, although we wouldn’t dare guess the odds today. So what is it that makes today’s market so strong? Here’s our theory …
TOO MUCH MONEY? (WE SHOULD ALL HAVE SUCH PROBLEMS…OR NOT.)
When the book is finally written on today’s bull market, we think historians will declare it to have been driven much more by private equity and hedge funds than by central banks. No matter where we look – whether to U.S., European, or even global money measures – we see nothing but extremely high liquidity. It’s like the world economy is living in a vat of whiskey – it can’t help getting high.
While it’s tempting to say the central banks have been remiss in raising interest rates, we disagree. Rather, we think much of the liquidity today is the result of extremely leveraged buyouts in the corporate world. For instance, last week we saw one REIT bought out for some $30 billion. As typical with such buyouts, this was a leveraged transaction. The buyer paid only a fraction of the price. The rest was financed through loans, and the private equity and hedge funds that made the purchase relied on non-traditional sources.
This type of activity puts a great deal of cash into the system, cash which is then reinvested by the sellers of such companies into other investments. The result is support for higher stock prices. Of course, eventually too much cash may contribute to higher inflation, particularly when our favorite commodity becomes more scarce. Oil remains the one factor that can put noose around this bull’s neck. And on that front, we note that recently both Royal Dutch and British Petroleum lowered their production targets substantially for 2008 and beyond.
Their combined projected drop is roughly a million barrels a day, which is a very big deal. For now, oil may fluctuate and generally trade sideways, but sometime this year we expect to see its old highs challenged. So we continue to recommend you hold onto oil service and other energy stocks. Another beneficiary of excess liquidity that we must not forget is gold. Last week gold rose $20.80 an ounce to close at over $666. That makes the third week in a row it has closed over $650, and we expect gold will remain in an uptrend for the foreseeable future. But for the time being, just enjoy the bull market. It’s still going strong. And if you want to look ahead at another opportunity, consider this year’s candidate for “Bipartisan Word of the Year…”
IS YOUR POLITICIAN TURNING GREEN?
Today, we seem to be witnessing a tipping-point regarding environmentalism. No longer the domain of the Sierra Club and Greenpeace, the environment is now on the lips of every politician in the country. Every candidate and campaigner these days feels obliged to take pro-environmental stance. And that wind change is creating new investment opportunities. Many alternative and renewable energy companies only turn a profit because of small government subsidies.
Their inherent vulnerability has traditionally made their stocks trade at low P/E multiples. Solar power is a prime example of this – wind too, to a lesser extent. Neither of these energies has been able to compete so far with heavily subsidized fossil fuels, such as coal. But thanks to Washington’s newfound green agenda, investors can take heart that subsidies to the renewable energy industry are more secure and likely to enlarge.
Consequently, we think alt. energy stocks will soon trade at much higher multiples. In the past, most alternative energy stocks followed the ups and downs of oil and other fossil fuel prices. That will continue to be true to some extent. The higher oil prices climb, the more people will turn to renewables. However, as people pressure the government to control greenhouse gases and other pollutants, alternative energy stocks may begin to be propelled independently.
In the next issue of TCI, we will cover in depth some of the most exciting environmental companies today.
Until next week,
Stephen Leeb
Editor,
The Complete Investor
http://www.completeinvestor.com/mf/
Disclaimer
TCI Enterprises LLC, The Complete Investor, Emerging Investments, Leeb Index Trader and their affiliated companies and publications ("TCI" or "Letters" or "Publications") are not registered as a broker dealer or investment advisers with the U.S. Securities and Exchange Commission or any state securities authority. Letters and their information and content providers make no representations or warranties of any kind in connection with the subject matter, performance or the suitability of the information contained in publications for any purpose and are not liable for the timeliness, accuracy, or completeness of the information contained herein. The information contained in publications is provided for general informational purposes, and is not a substitute for obtaining professional advice from a qualified person, firm or corporation familiar with your personal circumstances. Please seek the advice of professionals, as appropriate, regarding the evaluations of any specific security, report, opinion, advice or other content. TCI is not responsible for any trades placed by the recipients of TCI based on the information included therein. There can be no assurance that your portfolio or positions can achieve the indicated performance and therefore, the sample performance information should not be relied upon. Investment recommendations are not intended to be construed to be personalized advice, or recommendations to buy, hold, or sell mentioned securities and readers should consider their personal situation before making any investment. All opinions expressed and information and data provided therein are subject to change without notice. TCI, its officers, directors, employees, and/or associated entities may have positions in and from time to time make purchases, or sales of the securities discussed or mentioned in TCI.
TCI shall have no liability for any newsletter that is lost, intercepted or not received by you in a timely manner, or at all, for any reason.
TCI Enterprises LLC
500 5th Ave., 57th Floor
New York, NY 10110
©2006 TCI Enterprises. All rights reserved.
In this week’s update …
***** Nothing wrong with this market.
***** Two commodities we hate to see rise, but will profit from nonetheless.
***** The Bipartisan Word of the Year.
***** Head’s up! A sneak peak at our newest TCI stock pick.
-------------------------------------
Despite last week’s tiny pullback (0.71% on the S&P), the market continues to look as positive as it has for many weeks. If anything, the outlook has gotten even better since your last update. Everything we like to see in a market pullback (because it implies it won’t last) occurred last week. Small cap stocks outperformed. Utilities made new highs. And our indicators remain entrenched in bullish territory.
In fact, the only thing we think that could stop us all from getting richer over the next few months would be another unexpected geopolitical trauma – a renewed war in Lebanon, an attack on Iran for failing to meet the U.N. deadline, or maybe the Taliban proving to be stronger than anyone in NATO expects. Ordinarily we would consider such events to be long shots, although we wouldn’t dare guess the odds today. So what is it that makes today’s market so strong? Here’s our theory …
TOO MUCH MONEY? (WE SHOULD ALL HAVE SUCH PROBLEMS…OR NOT.)
When the book is finally written on today’s bull market, we think historians will declare it to have been driven much more by private equity and hedge funds than by central banks. No matter where we look – whether to U.S., European, or even global money measures – we see nothing but extremely high liquidity. It’s like the world economy is living in a vat of whiskey – it can’t help getting high.
While it’s tempting to say the central banks have been remiss in raising interest rates, we disagree. Rather, we think much of the liquidity today is the result of extremely leveraged buyouts in the corporate world. For instance, last week we saw one REIT bought out for some $30 billion. As typical with such buyouts, this was a leveraged transaction. The buyer paid only a fraction of the price. The rest was financed through loans, and the private equity and hedge funds that made the purchase relied on non-traditional sources.
This type of activity puts a great deal of cash into the system, cash which is then reinvested by the sellers of such companies into other investments. The result is support for higher stock prices. Of course, eventually too much cash may contribute to higher inflation, particularly when our favorite commodity becomes more scarce. Oil remains the one factor that can put noose around this bull’s neck. And on that front, we note that recently both Royal Dutch and British Petroleum lowered their production targets substantially for 2008 and beyond.
Their combined projected drop is roughly a million barrels a day, which is a very big deal. For now, oil may fluctuate and generally trade sideways, but sometime this year we expect to see its old highs challenged. So we continue to recommend you hold onto oil service and other energy stocks. Another beneficiary of excess liquidity that we must not forget is gold. Last week gold rose $20.80 an ounce to close at over $666. That makes the third week in a row it has closed over $650, and we expect gold will remain in an uptrend for the foreseeable future. But for the time being, just enjoy the bull market. It’s still going strong. And if you want to look ahead at another opportunity, consider this year’s candidate for “Bipartisan Word of the Year…”
IS YOUR POLITICIAN TURNING GREEN?
Today, we seem to be witnessing a tipping-point regarding environmentalism. No longer the domain of the Sierra Club and Greenpeace, the environment is now on the lips of every politician in the country. Every candidate and campaigner these days feels obliged to take pro-environmental stance. And that wind change is creating new investment opportunities. Many alternative and renewable energy companies only turn a profit because of small government subsidies.
Their inherent vulnerability has traditionally made their stocks trade at low P/E multiples. Solar power is a prime example of this – wind too, to a lesser extent. Neither of these energies has been able to compete so far with heavily subsidized fossil fuels, such as coal. But thanks to Washington’s newfound green agenda, investors can take heart that subsidies to the renewable energy industry are more secure and likely to enlarge.
Consequently, we think alt. energy stocks will soon trade at much higher multiples. In the past, most alternative energy stocks followed the ups and downs of oil and other fossil fuel prices. That will continue to be true to some extent. The higher oil prices climb, the more people will turn to renewables. However, as people pressure the government to control greenhouse gases and other pollutants, alternative energy stocks may begin to be propelled independently.
In the next issue of TCI, we will cover in depth some of the most exciting environmental companies today.
Until next week,
Stephen Leeb
Editor,
The Complete Investor
http://www.completeinvestor.com/mf/
Disclaimer
TCI Enterprises LLC, The Complete Investor, Emerging Investments, Leeb Index Trader and their affiliated companies and publications ("TCI" or "Letters" or "Publications") are not registered as a broker dealer or investment advisers with the U.S. Securities and Exchange Commission or any state securities authority. Letters and their information and content providers make no representations or warranties of any kind in connection with the subject matter, performance or the suitability of the information contained in publications for any purpose and are not liable for the timeliness, accuracy, or completeness of the information contained herein. The information contained in publications is provided for general informational purposes, and is not a substitute for obtaining professional advice from a qualified person, firm or corporation familiar with your personal circumstances. Please seek the advice of professionals, as appropriate, regarding the evaluations of any specific security, report, opinion, advice or other content. TCI is not responsible for any trades placed by the recipients of TCI based on the information included therein. There can be no assurance that your portfolio or positions can achieve the indicated performance and therefore, the sample performance information should not be relied upon. Investment recommendations are not intended to be construed to be personalized advice, or recommendations to buy, hold, or sell mentioned securities and readers should consider their personal situation before making any investment. All opinions expressed and information and data provided therein are subject to change without notice. TCI, its officers, directors, employees, and/or associated entities may have positions in and from time to time make purchases, or sales of the securities discussed or mentioned in TCI.
TCI shall have no liability for any newsletter that is lost, intercepted or not received by you in a timely manner, or at all, for any reason.
TCI Enterprises LLC
500 5th Ave., 57th Floor
New York, NY 10110
©2006 TCI Enterprises. All rights reserved.
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