Thursday Oct 05, 2006

Silence of the bulls

Taipan Group's Dynamic Market Alert

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Silence of the bulls

by J. Christoph Amberger

Remember the last couple of times the Dow Jones Industrial index broke through historical records? There was shouting and there was screaming. B-list celebrities were invited to ring the bell on the trading floor. Newspaper headlines took up pretty much all the above-the-fold real estate as editors could spare.

As far as the American press is concerned, yesterday’s Dow record could just as well have been the soccer World Cup. With the instincts of a practiced somnambulist, our local lefty daily, the Baltimore Sun, picked “A new way to pay for Md. roads” to lead off the day.

The last time around the Dow was setting historic highs, it was blamed on irrational exuberance.

Now, I do get “irrational” this time around. (After all, it’s pre-election season.) But where’s the exuberance?

-- In his Daily Reckoning, my colleague Bill Bonner points out that even the new market highs reflect a net loss in the index if you adjust for inflation. And indeed, if you run yesterday’s high through the CPI inflation calculator, you’ll find that yesterday’s high would only represent a level of 10,040 or thereabouts in 2000, the Dow’s last peak year.

We’d still have to see a good 20% gain in the Dow to break even.

If you’d do the same for spot gold prices, however -- which is our perma-bearish friends’ fix-all investment -- you may have to dig a bit deeper. (Gold’s last record high lies 26 years in the past.)

Taking yesterday’s low at $560 per ounce, the inflation calculator comes up with just $226 per ounce in 1980. In other words, gold would have to more than double for those who bought at the last historic high to break even with yesterday’s still-depressed levels. It would have to almost quadruple off current levels for a break-even.

Because an ounce bought at the 1980 top, adjusted for inflation, would still represent a net loss of $1,420 in 2006 currency.

So much for gold as being a great inflation hedge!

-- Where are things going from here?

Our friends at the WaveStrength charting tables are pointing at increased danger of a short-term correction that could shave 10-15% off yesterday’s highs.

I’d like to point out the makings of a grand last quarter for household spending and retail business.

Today’s retailer sales numbers for September came in far better than analysts estimated, due to plunging gas prices and brightening prospects for the holiday season. U.S. department-store chains posted increases of up to 6.7% in sales at stores open more than a year. J.C. Penney Co. and Gap Inc. also exceeded estimates.

Combined same-store sales rose 3.8%. Excluding Wal-Mart, sales jumped 6%.

In the world of mass media pundits and Democrats cruising for public office, there seems to be a need for the belief that the U.S. consumer is about to keel over. “The consumer doesn’t even have a cold,’’ said Patricia Edwards, a money manager at Wentworth, Hauser & Violich.

Downside risk, of course, always remains in the current geopolitical situation. But I think investors would be making a big mistake in following the apathetic mass media.

This bull in U.S. blue chips may be short of exuberance. But it has plenty of room at the top.

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Earnings Announcements Friday, October 6, 2006

Peoples Educational Holdings Inc is releasing earnings.

Brought to you by http://www.AmericanCapitalist.net

Unlock Dates for October 2006

Wendy’s will distribute its remaining 82.75% stake in Tim Hortons Inc on September 29, 2006.  When these shares flood the market, look for THI to drop.  THI has a PE of 19 as compared to a company like McDonald’s, which trades with a PE of 16, is much cheaper, and has more growth.

10/3/06 – Visicu Inc is unlocking 6 million shares.
10/3/06 – Castle Brands Inc is unlocking 3.5 million shares.
10/4/06 – Sealy Corporation is unlocking 28 million shares.
10/23/06 – Corel Corporation is unlocking 6.5 million shares.
10/31/06 – Delek US Holdings is unlocking 10 million shares.

Brought to you by http://www.vixtrader.com

Upgrades and Downgrades

Global Payment upgraded by JP Morgan from Neutral to Overweight.

MDS Inc upgraded by UBS from Neutral to Buy.

Mercury General upgraded by Credit Suisse from Neutral to Outperform.

Red Hat upgraded by Rochdale Securities from Hold to Buy.

Avon Products downgraded by Bear Stearns from Outperform to Peer Perform.

BB&T Corporation downgraded by Friedman Billings from Outperform to Market Perform.

Johnson & Johnson downgraded by Hilliard Lyons from Buy to Long-term Buy.

M-Systems downgraded by CE Unterburg Towbin from Buy to Hold.

Tractor Supply downgraded by Matrix Research from Hold to Sell.

Tween Brands downgraded by Matrix Research from Hold to Sell.

Brought to you by http://www.gressor.com

Quote of the Day:

“Many Democrats seem to believe that the United States of America is an evil, imperialist power bent on forcing liberty, democracy, prosperity and peace down the throats of a people previously content with tyranny, ignorance, poverty and violence.”

- Doug Patton, October 2, 2006

P.S.  The IRS has teamed up with scores of bounty hunters across the nation to collect $290 billion in unpaid taxes.

But one $12 company has said “no thanks” to this partnership and is poised to make $25 billion all by themselves on a side job, which could send its share price up 272% by January 1, 2007!  The biggest debt collection shakedown in American history is about to take place. 

To find out the one company you’ll want your money to be with during it, please read on...