Sunday Brain Dump

Sunday Brain Dump

March 6, 2005

Some things bouncing around in my brain today:


1. James Altucher, a fellow author on Realmoney.com wrote a very insightful article on household debt a while ago, where he points out,

if you take the full financial obligations ratio (which includes house payments, auto loans, insurance payments, as well as debt payments) and divide by household income then we are right now at the lowest we’ve been in 11 quarters and at the same level we were at in 1989. In other words, no big deal. Most economists only look at credit card payments, which is misleading since credit cards have become a larger part of how we, as a culture, simply do our household accounting (easier to see your full budget if you put everything on a card and then pay it off before interest hits.

Also recommend James’s book, Trade Like Warren Buffett.

2. Lots of people ask where I get the weird newspapers I read. I get them delivered to my desktop by newspapersdirect.com evert day. Costs $9.95 per month. They deliver too, but that’s sooo 20th century. They have 200 newspapers from 55 countries including my favorites, the Shanghai Daily, the Times of India, and Izvestiia, along with all the usual European papers. How could a person not do this?

3. Got to talk to a terrific group of brokers and financial planners in Portland Oregon last week. Their biggest problem; clients still too afraid to invest, sitting in cash. The market is up more than 50% in the past 2 years. America was not built by people afraid to take a risk. Equities are a good value today.

4. footnote: the Portland airport is beautiful. Spotless concourses, uncrowded ticket counters, security points, and shops. Then I learned why–there are no planes! Can’t get there from here. I think they do it to keep the rest of us out.

5. State and local governments collected $20B in taxes on your phone calls last year at rates reaching above 20%. $7B of it was collected at rates above general business and sales taxes. That $7B could be invested in faster networks (they have them already in Korea, China, and India)or paid out as dividends. We need to focus here.

6. There are signs that some of the investors in the Gulf region are starting to think about taking some of the profits they have made there in the past 2 years off the table, and investing it around the world. Will help their sizzling markets stabilize.

7. Saw a real estate project in Maui this weekend where 300 people were drawing lots to buy 50 properties. This is one of the signs the hot market is over. Prices will be flat to down next year in the US.

8. Good piece fron my friends at CEI on how political price regulation causes problems.

9. Big jobs number on Friday (+262,000 in February) surprised people. Shouldn’t have. There has been a dramatic thawing in bank and leveraged lender attitudes in the past 9 months. They are back to making silly loans again, pushing paper out the door as fast as hedge funds and mutual fundds can buy it. This will make small businesses grow faster than big ones this year and push growth, profit, and dividend numbers higher than people think. That’s why I own a big position in small cap stocks today. It will also set up the next banana peel for the economy in 2-3 years when the loans go bad again.

10. Huge upward revision in the productivity growth numbers last week. Overall productivity grew 4.0% last year, with 5.2% in mfg., and 6.3% in durables. Durable goods productivuty rose 7.2% in Q42005. Yikes! This is why the inflation numbers are surprising people on the downside and will continue to do so all year. If we get a new telecom law productivity will accelerate further.

11. Productivity, growth, and profits up, inflation and interest rates contained. Stay invested!

Would love to hear from you about the things you are seeing. You are welcome to lob in comments on the blog, or email me directly at jr@rutledgecapital.com.

Regards,
John

John Rutledge

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