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Minyan Mailbag - Rusty's Nail


Thanks Rusty


Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next column from Rusty Robinson with that very intent.

Quarter-Ending Nail Biters.

Wasted days and wasted nights I have spent loving investors continue to sing the blues waiting for that big turn, yet, the markets continue to disappoint as insiders continue to unload shares of these former stars. Lets see, tech stocks pay no dividends, are predominantly domiciled in California, and have large stock option plans for management, I wonder what could be wrong with these stocks?

All My Ex'es Live in Texas...

Under-weighted holdings in energy stocks by leading mutual funds still suggest that this stellar group has further upside potential. At $55 per barrel, oil is painfully high for you Hummer drivers. Yet, the government still fails to report significant inflationary effects of $2.00 gasoline. OPEC is grabbing headlines these days in a show of support for lower prices. The passing of the baton by General Electric (GE) to Exxon (XOM) as the largest cap company this quarter tells all that the cat is out of the bag. Maybe until CNBC moves its broadcast to Houston, then I will think it's over for oil and gas. For you doubters, find another industry that will grow 30% this year. Also, the consolidation that took place over the past twenty years means that only five companies control the destiny of the industry. Finally, the late 1970's did not have a worldwide consumption anywhere near 85 million barrels per day with forecasts rising, not falling. Hedge funds may have artificially driven the futures markets up to $55 a barrel, yet, longer term, most fund managers are in major denial and continue to drink Cisco (CSCO), Yahoo! (YHOO), and BankAmerica (BAC).

Trying to Love Two Ain't Easy to Do...

The CRB index is within reach of its all time high in 1980, while the 30 year U.S. Treasury bond is not that far away from its high. The bipolar state between these two markets puts bonds on a crash course with destiny. I am not sure if the Chinese have words for disaster, or imminent danger, or just have a plain fascination with death, but investing in the U.S. government at sub-4% interest rates is more like Russian roulette. The pistol has not fired yet, but soon and very soon, the bond market is going to fall big. PIMCO has to be concerned with its enormous resevoir of fixed income purchases these days. It's not going to be pretty. I am sure Chairman Greenspan is quite anxious that no other disaster occurs on his watch as January 2006 cannot get here fast enough for him.

Heartbreak Hotel...

When bonds fall, the 20% weight in financial stocks in the S&P 500 creates a dilemma for most major mutual funds. Long-term holders of bank stocks have reaped very large returns from appreciation and dividend growth. The thousands of bank mergers and acquisitions since the early 1980's have morphed the industry into mega-banks headquartered either in the New York City money center banks or North Carolina Super-regionals. Most major cities in the United States no longer have a large bank headquartered locally. Can you name someone at a local bank?

Minyan Rusty Robinson


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