Jan/16/2006

Well folks, its been a month since my last newsletter. What has happened since then? Well for one the Oil market is sinking, althought not crashing, but it is down to $51-$52 a barrel, which is quite a drop from $78 that it was in the summer time. Why? Well the U.S. economy is definetly slowing down, oil inventories are down, warmer weather and China and India are trying to slow their economies. But even a bigger reason, is simply the big hedge funds and speculators are pulling out of the oil market futures.

OIL MARKET
These traders who control billions of dollars, bet on the way up when oil was climbing in 2006. Now a lot of them have taken profits and are getting out. This in turn is causing oil prices to recede. So will we see oil stability in 2007? Personally I don't think oil is going to going down much further than $45 a barrel, but I don't think we will see $78 a barrel anytime soon, barring any major political events. Shares of companies involved in the oil industry are still going to correct, and earnings of these companies are already being downgraded by many analysts. But remember, these companies made money at $20 a barrel, and there still going to make a ton at $45-$55. I would stick with blue chips names like Exxon Oil, Chevorn, and Connocco Philiips, all of which trade on the New York Stock Exchange.

U.S. ECONOMY
The U.S. economy is still holding up well, considering the housing market is is continuing to lose steam. Just a few weeks, I was reading that a lot of "financial experts" had thought that U.S. housing market was close to a bottom. I wonder what planet they live on? Mortgage bankruptcies are up considerably and a lot of these loans that were given by lenders who did no background checks on the buyers are now coming home to roost. Alot of loans were "interest only "and others were "partial interest payments". Too many people bought houses they could only afford when interest rates were super low, now with rates having gone up, they simply just walk away. Every homebuilder that I have seen so far, has been reporting lower earnings or losses and they can't move their inventory. Believe me, were still a long way from the bottom. Everything is cyclical, but the housing industry has a lot against it right now. An aging population, low immigrations levels, high inventories and less buyers than before. When House building stocks go down another 30%-50% from present levels, there will be some good opportunies to buy.

Having said all that, I think the U.S. economy will continue to do well. Employment is low, consumers are still spending money, interest rates are still low by historical standards, and there is a lot of liquidity out there. Notice all the private equity buyouts of late? Well that will continue, and as these companies get bought out, there will be less stock out there, There is actually 5% less stock on the market than there was last year. But the S&P 500 is trading at 16 times earnings, which is right in line with its historical average, eventually it will start to trade at a premium, so there is still good buying opportunites. Lower Oil prices will also help the economy, as consumers will have more discretionary money to spend.

Alot of the money managers like technology stocks and the large caps. I like them too, but only select ones. I would still stick with the names that I mentioned in my December column. This month I am adding MICROSOFT (MSFT-NASDAQ) to the list at $31.50 a share as of January 15/2007. That stock was a steal at $25,, and its still a good buy at $31. Why? I like companies that dominate in their industry, and they lead the pack. They have no debt, great management and a ton of cash. There is pent up demand for their new VISTA operating system and with capital spending likely to be up this year, MICROSOFT should do well, My pick of ORACLE (ORCL-NASDAQ) has seemed to have taken a pause at around the $17,but longer term, this company offers a lot of potential for share appreciation.

As for Value stocks, well I just bought 1 share of BERKSHIRE HATHAWAY (BRK.B-NYSE) today at around $3625 U.S., well now I am officiall broke! It was either that or a Jeep Grand Cherokee that has 420 horsepower that I wanted to buy that is around $52,000. But my common law just about had a heart attack when I mentioned it, so I bought BERKSHIRE instead. Retierment! Retierement! Retierment! That is what I keep thinking. A nice house on the beach, well more likely a condo. But I better get something with a view of the ocean for all this delayed gratification lol.

STOCK UPDATE
Well since I put together that portfolio last month, one of the names (PFIZER) in it has gone up and had some positive news too boot. PFIZER announced that they are going to spend $10 billion on buying back there stock in 2007, and they also had raised there dividend from $0.96 U.S. a share to $1.16 a share. The stock reacted nicely by moving to the upside, and I think we could see $30 ouf this stock by year end. Right now its giving a dividend yield of around 4.5%. Although its bond rating got downgraded one notch, it is not going to have a huge impact.

Well folks, that's it for now. Buy SMART, Buy what you UNDERSTAND, Buy with CONFIDENCE, Buy with PATIENCE, and Buy based on quality RESEARCH that YOU DO. Remember that, and you will do well.