December 20,2009

 
Our outlook is basically unchanged.  We are bullish commodities, stocks and the world economy.  We are extremely bearish on bonds.  We are negative on the U.S. dollar, British Pound and most all bonds.  Our outlook for inflation is moving up by the day.  It is not quite time to sound the fire bell…….but we do smell smoke!

Our bullish stance on the world economy derives from what we describe in our office as the “world wide baby boom.”  In the U.S., after WW II, there was a surge in demand for a modern life style.  For the balance of the 1940’s, the 1950’s and the 1960’s there was a phenomenal surge in the U.S. economy.  “Baby Boomers” wanted a telephone, a house in the newly invented suburbs, a television set, stylish clothing, entertainment (movies and sports), automobiles, the freedom to travel and a better food diet.  Today, we estimate there are almost two billion new “baby boomers” world-wide who want the current version of the “modern life”.  They want a cell phone, high speed internet access, flat panel display screen, health care etcetera.  They also want more protein in their diet and even Western style entertainment.  This is the bullish MACRO story. 

This story can and does get interrupted from time to time by MICRO stories.  Events such as a terrorist attack, a debt crisis, or political problems amongst the neighbors of the world can cause sharp corrections in investment prices.  Sometimes Micro events can be anticipated.  Perhaps our outlook about inflation will turn into a Micro event of trouble.  However; we are always cognizant of the underlying worldwide bullish trend.  MICRO events can also be bullish.  The incredible current world wide easy monetary approach of central banks is short term bullish for investments.     

We believe the stock market will start 2010 with a nice rally.  We are very positive on the major banks.  They are historically cheap as measured by book value or earnings power.  They wrote off loans last year as if the economy was on its way to a depression.  In 2010 this will reverse creating surprising earnings gains to the upside. 

We will blog in late January about the economy and the markets.  This year more then ever we believe the early part of the year will reveal the story.

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