Another Flight
01/25/2006
Well I have started 2006 as I ended 2005: another flight and I am tapping away. On this flight, once again to India and once again for 14 hours (day trip!) for a board meeting, I brought about 100 pages of economic analysis on the US, Eurozone and UK economy. Hmmm
not had much sleep on the flight.
And my analysis? We're looking at interest rates on hold, possibly lower. If quarterly economic growth comes in at 0.1% then it will be well below the 0.6% average trend rate. Yes, we have had more foreign direct investment into the UK than any other country in the world in 2005, and that is what has fueled the FTSE 100's 16% rise.
But, as far as economic growth goes that has not been so great. By the way, those inward investment figures for the UK were over $200billion, double the figure for the US and quadruple the $60billion which went into China.
As for the US, although the Dow fell last year and the S&P 500 (another major index) rose only 3%, the Russell 2000 (2000 smaller stocks) has had a total return last year 16%. The US stock market was uncharacteristically weak relative to the economy. Now, the biggest shadow for the US? It is importing far more than it is exporting. In fact the gap is at a record. Usually, that means a slide in the dollar. But last year we did not get that slide. Will it come this year? I am thinking regardless of weakness in the dollar, the US markets will do better this year than last year.
Incidentally, US market volatility is at a relative low. Usually when volatility increases, as it will probably do this year, if only as it reverts back to normal levels, then stocks tend to fall (not always). So that is one possible dampner on the stocks rising story.
I will leave you with the thought that the Chinese bought $2 billion of US government debt in November. Why? Because it keeps the Chinese currency cheap compared to the US currency and so makes Chinese goods extractively priced to foreigners allowing the Chinese grow through exports. But it also means the Chinese have foreign reserves of nearly a trillion US dollars. Will they stop lending to the US and cause the US government difficulties? Well, there is a saying. When you owe the bank $1m, the bank owns you. When you owe the bank $100m, you own the bank.
Similarly if the Chinese stop buying dollars, and the price of dollars tumbles, then their own reserves end up taking the biggest hit. Why is this important to investors? If the Chinese continue funding the US government, then stocks will not get spooked because the broader US economy will not get spooked.
As mentioned before, each year, I pick some stocks for 12 months ahead which I like for medium risk and target 20-25% returns. I publicly disclose these so they are out in the open. How has the portfolio done for the past two years? It is up a compounded 83% before dividends in two years. My Alpesh Patel Special Edition of ShareScope is the software used to generate the names. What were the stocks and which are the ones for the year ahead I like? Email me and I will send them to you.
Value-Growth
Just a couple of the names from my Alpesh Patel Special Edition ShareScope trading software on my value growth criteria which are based on stocks meeting revenue and profit growth and good value based on criteria such as price earnings growth. See the software for more names. Remember they are for a 6 month outlook: First Derivatives (new), Land of Leather (new), Floors 2 Go (new), Aero Inventory (not new) among others.
Rest on the software. Email me if you want to know how I generate these names based on my criteria.
Remember I am targeting about 20-25% with the value growth criteria. Last year it produced 41% return.
On my momentum value indicator (which tracks stocks with value but which in the short term also have money going into the shares) I have: BETonSports, Floors2Go, Kesnington Group, Severn Trent among others.
Crazy Small Stock
These are high risk volatile stocks which could move sharply higher or move sharply lower in my view, but will almost certainly not stand still. Names on the radar include: NSB Retail, Phoenix, Low & Bonar, Moss Bros.
Also, if you would like a free multi-media CDROM on 'Investing Better', which covers spreadbetting, CFD trading and momentum indicators like the MACD, posted to you then drop me an email with your postal address to alpesh@tradermind.com.
Spreadbetters
Spreadbetters and futures traders often look at hard and soft commodities. Here's my quick take on the action for the week ahead:
- Oil: Sideways to up
- Copper: Sideways to up
- Gold: Up
- £/$: Sideways
- Dow: Down
- FTSE 100: Down
- Soyabean Oil: Sideways
|