wearmanyhats

Since the possible pandemic has been inundating the news, (and this blog looked at how that will affect the economy), no one has paid attention to the rebound of natural resource prices.   This includes oil, the one commodity that will force retailers across the board to raise prices on goods and services.  So far the jump from $35 a barrel that was just the price a couple of months ago has now changed to over $51.  There has been little discussion on this on the streets nor by our politicians.  One of the major reasons is because the price at the pump has not really changed.  Therefore the refineries and other middle men are not being as profitable.  Watch any refinery companies such as Valero (VLO),  for if they made money the last quarter, they probably are not a good investment for the second half of this year.

Other prices are going up, too.  Copper has taken another jump.  While it was running $4.00 at it’s high, it fell precipitously during the market correction.  Slowly it is heading back up.  This again will affect the building industry.  Anyone building or remodeling a new house take note:  Now is the time to get the copper.

One of the reasons natural resources are going back up is demand from other nations around the world for these building materials.  China and other Asian countries barely slowed their building during the downturn that hit the other nations.  If you were to sit in an office overlooking Singapore or other Far Eastern cities, you would see cranes like big trees towering over new construction projects.  The rest of the world is working to catch up their standard of living.

When people in the U.S. and European nations can not afford fuel for their vehicles, when they have to spend more on a remodel, when a new house costs more, the impact runs like shock waves in the economy.  People who don’t have the money to build, won’t hire the contractors.  Contractors won’t have jobs for carpenters.  They won’t sub-contract to plumbers, electricians, flooring experts, or decorators.  All of this is essential for money flowing into the economy.

Even the most prudent contractor probably never anticipated a downturn that would last several years.  And yet that is what is happening here.  And as fuel costs turn away potential home builders, as copper prices continue to shoot up, making the price of building more expensive, the recovery could slip away.  If prices could stabilize even for a few years until paychecks adjust to those increases, good times could once again return to our nation.

The international economy, stymied by the downturn in housing, defaults on loans, and a banking crisis has finally started showing signs of a turn around.  The unemployment has certainly been an issue, but as money begins to flow a bit again, growth will slowly turn the situation back to a more stable economy.

A pandemic would not help.

In the short run, shutting down stores for ten days may even cost a resurgence in unemployment and ultimately be the death knell for thousands of small businesses.  These businesses, already hurt by the recession, could probably not sustain the one- two punch of zero foot traffic, even for ten days.  

But is a pandemic likely?  Before you can consider whether it will affect a recovery,  it should be noted that Mexico has responded with zeal to contain this contagion.  That is also true of other nations where people have been strictly quarantined.  But the biggest factor in all of this is the weather.  Summer in the northern hemisphere is on its way, and with that, more people will be outdoors.  Thus the disease has less chance of spreading wildly throughout the population.

One doctor that was interviewed said it was most likely that the disease would whither away this spring, only to come back with a vengeance in the fall.  If scenario plays out, small businesses may have the summer business to sustain enough of a comeback that ten days of no business will not devastate them.  That’s good news for the people who work for small businesses.

All eyes should be on New York now, where the disease is racing through some schools.  If the flu is able to be contained, and summer helps curb its spread, the economy should do fine.  But if not, the Obama administration will have one more challenge to its already burdened agenda.

As of yesterday, thousands cases of the swine flu had been reported worldwide, according to all of reports on CNN.  150 died in Mexico, some people are infected in the United States, some in Canada, then Spain and Australia.  No doubt about it, pandemics, if this is one, can go worldwide at warp speed now that global travel is the norm.

The question then bodes, how would a worldwide pandemic affect the monetary situation?  Here are a few thoughts on the situation.

1.  Expect gold to rise in value.  Peoplle always buy gold when they are nervous. Could the leadership at the national level  somehow be affected before enough inoculations are made?  Certainly the President, his cabinet and other critical people will be inoculated first.  But what about administrators that simply won’t fall into the level of “Must be Inoculated?”  If the government worker bees are dying, who will be able to get all of the work done?  These are the kinds of things that make people flock to gold.

2.  Expect a period of economic crisis:  Imagine the country shut totally for ten days.  People who are already struggling to make ends meet will truly suffer if they are not allowed to work at home or show up at the work place.  Take that kind of money out of the system and it will be financial catastrophe to an already weakened economy.

3.  Death Knoll for Small Businesses: The small businesses that are already struggling simply would not make it.  Even Walmart would have a difficult time if it suddenly had to close all stores for ten days.  Suppliers that are already not getting paid from small businesses would find it impossible to stay afloat.  Massive numbers of distributors, trucking firms, and other middle men could simply be wiped out overnight, first by lack of workers that become ill and secondly because firms aren’t paying them.

4. Burdened hospitals would screaming for help. Imagine the state budget cuts which have already relegated poor people to use the emergency room more.  Now put people in there that can’t pay the bill and that’s a recipe for fiscal disaster for the hospital.  Most hospitals are required to treat the ill, but expect more to leave people dying in the halls. (This has been known to happen.) Priority will go to people who can pay.  And hospital administrators would be calling upon the states, who are already hurting fiscally, to help keep them open.

But then there would be a turn around.  If people simply don’t get inoculated, if they don’t have access to medical care in time, if they don’t get Tamiflu to help them beat it, they can either get well or die.  If the virus mutates into the deadly type of 1918 where it killed some people quite quickly,  businesses could reopen to find over half of their workforce simply gone.

The unemployment picture would immediately change. Professionals who have been looking for work may suddenly find themselves in demand.  Men and women who have been walking the unemployment line might find employers offering better wages to lure people to work for them.

There is historical precedence for this.  The last plague that swept Europe completely changed the feudal system because the peasants that worked the fields simply left for the cities to find work.  These were jobs that had previously been available to city dwellers.  But when millions died throughout Europe, the remaining workers found themselves in demand for better paying jobs.  The result:  feudal lords had no one to work their lands and ended up out in the fields themselves.  It was quite the shift in employment.

For now, there is no reason to be too terribly concerned.  Tamiflu seems to help it, and no one in the United States has died from it.  Mexico, the hardest hit nation, has responded appropriately.  Consequently this illness could be beaten before it even gets too far into the general population.

The wireless industry is on the move.  Bigger wireless companies are gobbling up smaller wireless companies as fast as they can afford them.  The transition is not always easier for the customer in the short term, but generally provides a greater market share for the larger wireless company. 

A good example of this is the smaller company, Unicel, which just recently was bought out by Verizon. Consider that this small wireless company was started out of the back of  the car of a gentleman who just felt that he could own his own wireless company.  Now he has sold out and his customers are part of the largest wireless network in the nation.

Verizon’s numbers look good.  Like most companies, the recent market drop put their stock at rock bottom prices.  In the past couple of weeks, however, it has been heading upward and is now trading at $31.00.  It’s profits have grown substantially in the past ten years.  It has a wonderful P/E of 13, and insiders are buying like crazy.

Why all of the promise?  Two words:  mobile connectivity .  This powerful change in communications will change the world of telephone and internet as we know it, and the result will be very profitable for investors.  Basically, it allows you to connect your laptop or computer from anywhere in the world via the wireless communication network.  People in cities, who have the best connection, can drop their land lines and go strictly wireless with the same kind of results as if they were on a hard line connection.

The result has been devastating to local providers.  A salesman at a Best Buy in Fargo, ND  said that while he was selling these subscriptions at a rate of 4-6 in the past year, he now sells them at rate of 40-60 a year.  Altel, Sprint, Verizon and other wireless networks offer these, and the result for the local phone companies will be devastating.  Unless local telephone companies offer wireless as their network, this mobile connectivity will leave them in the dirt.  It is critical as an investor that you pull any money you might have invested in local telephone companies NOW.

Verizon stands to make their profits skyrocket, which is why this is the time to get on board.  Sprint and others are not the giant of the industry, and some of them are simply in the red financially.  Verizon’s books are good and they haven’t gotten to where they are now without some sensible leadership.  All in all, VZ is the future of the wireless network.

Once oil had gone up like a rocket, and then began its fall to the earth, it was interesting to see how the prices of other goods were affected.  Here is a list of these prices so that you can get a sense of how and what has been affected by deflation:

1. Clothes:  How can retail compete with a sudden rush to used stories?  They can’t.  So prices have been slashed and company profits are slow.

2.  Legal advice:  Some lawyers cut their prices to be more affordable to the common person.  Most have not, but there are a few.

3.   Furnace filters:  The prices stabilized.

4.  Cars:  Prices on new cars have dropped.  Used cars are expensive, however, because of the high demand for them.

5.  Used tools:  There is a huge number of tools on the market as more and more people pawn items to make ends meet during this economic downturn.   Price of used tiller last year:  $80. Price of used tiller this year:  $50.00.

6. Cereal:  Name brands:  stable price.  Generics:  Price decrease.  One change:  discount stores are sold out of cereal more often.

7. Highly sought after artwork:  price change unknown.   Artwork that is famous still commands a sizable amount, but who knows how much more if times were good in this nation.

Since oil is slowly heading back upward, it should say that so will inflation.  High unemployment numbers may help keep prices low for a while yet.  But sooner or later, inflation will take a bigger and bigger bite out of our savings.

Global resources took a tumble during the market decline, and although some metal prices have come back, not all of the stocks relating to mining have jumped back yet.

Enter Bucyrus International (BUCY). This stock has doubled since the falling market last fall, and has almost doubled since its drop down just over $10.00.  It is still a cheap stock with a P/E of almost 7.

Insiders are buying like crazy, and the revenues are climbing steadily.  If you look at the five year charts, the technical movement looks like a wonderful buying opportunity.  And in a press release in February, Bucyrus highlighted a conveyor belt system that helps reduce mining costs, offering a cost cutting tool that should be highly desirable.

Even though the stock is almost up 100%R in the past few months, it is still a great buy.  The 52 week high of $79.00 gives it great room to grow. All in all, since mining is not going to slow down soon, diversify by getting into mining equipment.  And then consider whether BUCY is the kind of stock you want to add to your portfolio.

American Eagles, one ounce gold coins minted by the U.S. Mint are very difficult to get.  Part of the problem is demand; the other issue is that the Mint has said that there is some kind of production problems.  As a result, buying Eagles in a coins shop means putting your name on a list and waiting until some come in.

What if you are unwilling to wait for the gold to come in? After all, you are left to the whims of the market at that point?  Should you consider gold bars or simply go with putting it in a brokerage account and then into the ETF of GLD?

There are good reasons to physically own gold , just as there are times when you should own ETF’s.  Keeping gold and silver on hand is important.  So when you make a decision to buy, you need to know what to buy if you can’t get your hands on the best.

First, know that American Eagles command the highest cash in value.  But others will at least bring you spot price when you go to get your money back.  All kinds of other countries make gold coins, so if you go for another country’s gold coins, make sure the coin is looking pristine.  Don’t buy it if it has any chinks or dinks.

Second, make sure you take it home in some kind of covering.  A hard plastic covering is woth the dollar it might cost. If you get lucky, the coin shop dealer will throw that covering in for the purchase.  Be sure you are getting one troy ounce for what you are buying.  Ask what the price of gold is when you are buying.

Go for the coins.  Bars are not as much in demand as coins, so get ready for the premium prices you will have to pay for them.  Call around to local dealers and get price quotes.  Be prepared that shops are having shortages in gold. And from the foot traffic that I have seen in coin shops lately, the demand for gold is very high.  These bull runs in metals do not happen for decades so when it does, coin dealers need to make money.  And make money they will.

In the classic comedy, good law abiding citizens are driven to behavior unlike their usual self.  The slapstick and situational comedy may seem extreme, but the truth is that money does make people completely stupid at times.  In this case, the finest comic actors and actresses spend over ninety minutes chasing around after hundreds of thousands of dollars only to see it go flying through the air.

Even the most sensible people can be overcome with the fear of becoming homeless, or old and poor, or unable to live up to the expectations of the family. Or they will want, and not know the end of their desires.  Only money can buy things to throw into that hole, that emptiness. So they will go to extra lengths to bring in extra money, legal or not, ethical or not.

Look at the young city clerk in a small town in Minnesota.  She liked “things,” helped herself to thousands of dollars of city funds.  In the end, she wound up in jail, has a rap sheet, and lost the respect of many of her fellow small town citizens.  Most of all, she has to pay back the money and can not find a decent job, as her criminal record works against her. She was on the move upward in city administration, but kissed it goodbye. What a loss for both her and the profession.

In another nearby town, a young accountant went to work for a local hometown hardware store.  He slowly took money off the account, to the tune of $80,000.  When it became apparent that he was going to be caught, he went home that night and put a bullet through his head.  For some reason, he let money rule his decisions, to a terrible end.

In Anchorage, a man who couldn’t control his drug habit, helped himself to his employers funds, then swindled out a customer.  The result: more surprising than you might think.  The police, overwhelmed by more physical crimes, concluded that it was a civil matter.  The employers knew that the former employee had no money and the stress to follow through with a lawsuit was too stressful for the male owner.  In the end, the swindled man sued the employers, who had to settle.  

Money makes people foolish. So few people keep their wits about them concerning money that it is almost unreal. This doesn’t have a darn thing to do with investing or saving, it has to do with attitude.  What is yours?  Is it one you have kept in perspective?  Can you live with money or without it without committing crimes or unethical behavior?  It’s important that you know, because it dictates how your live your life.  And if you don’t live your life with dignity and decency, then no amount of money will fix it.  

It’s just something to think about for the day.

A financial writer recently poked fun at another financial writer about “the only good advice he had was to invest in solar energy!” as though this were bad advice.

There is a myriad of excellent buys, and a good solar energy company is a good idea, especially if the government stimulous package brings in more revenue for that company.  Consider First Solar (FSLR) for example.  This sun grabbing maker is rebounding nicely from the market downturn, and selling for $143.00 right now, down from the mid to high $200 zone.  The insiders are buying like crazy, and the company has a nice balance sheet.

What’s not to like?  It’s expensive.  With a 33 P/E, the company looks ridiculous considering how many big chips you can pick up for a P/E of under 20.  So what is a person supposed to do?

If you want to purchase something green, consider First Solar, especially since the insiders are buying so aggressively.  Make it a long term growth stock in your portfolio.  The best bet is to buy on a market correction or dollar cost average a series of buys.  It’s fairly likely that if solar advances, this company will benefit.

It’s time to put the toe back into the water.  Since no one can predict the bottom of this market downturn, investors should always invest over time.  Fund investing right now is a great move because it is a wonderful way to get in on so many great deals.

First, global resources are starting to pick up.  Global resources are going to only become more in demand, and funds like this capture everything from water to steel to precious metals.  Imagine what will happen when building picks up again here in the United States.  It is picking up in China now that the credit markets are opening back up.

Another fund that will be going up will be small cap funds.  Small companies bounce back faster than big companies.  If you can get a good small cap into your portfolio, it should bring acceptable results.

Some of the more stellar performers are Scudder, Janus, and  Fidelity.  Scudder Global Resources is closed if you are in a brokerage outside of Scudder itself, but consider buying them directly if the fund is open.  Consider, too, that as many people pulled their money out of various funds, some funds have opened back up.  Marsico Funds also has talented fund managers.

In all, you have to be in the game to win, and these funds should remain fairly stable during this volatility.  Smart investing will be the best strategy now.