Tuesday, December 09, 2003

So let's flesh out those sectors mentioned in the last post with some actual stocks:

PDPhelps Dodge
XOMExxon Mobil
CVXChevron Texaco
GMGeneral Motors
ERTSElectronic Arts
SFAScientific Atlanta

Of these, the software group (MSFT, ORCL, ERTS) looks the best under my usual Buffettology ROI calculations. Since I already own these stocks, that doesn't help me much. Surprisingly GM and Amphenol also look good, and they are not stocks I would have thought of. These five all project out in the neighborhood of 20% return per year, but of course that doesn't always come to pass. Let's remember their prices as of today: MSFT 26, ORCL 12, ERTS 41, GM 48 and APH 61.

Thursday, December 04, 2003

I've been thinking more about the prospects for inflation versus deflation, and I have to think inflation is what's coming. The Bush administration is running up a huge national debt. Even with interest rates as low as they are now, the interest payments are a large part of the federal budget. When rates rise, as they surely will some day, the budget will be totally out of whack. There is only so much the feds can borrow before creditors will demand higher and higher rates. Congress doesn't dare hike taxes a lot or cut benefits a lot, nor do they dare default on the debt. The only way out is for a nice rip roaring inflation to reduce the debt (in effect).

So what makes sense to invest in under this scenario? It's much like the 1970s, after Johnson's guns and butter binge. One thing is the Treasury's inflation protected bonds, which pay a rate that goes up with inflation. But what stocks? The Wall St. Journal recently (12/1) ran a piece by Ken Brown with some sector ideas:

  • Mining and energy companies
  • Auto makers
  • Electrical equipment manufacturers
  • Software makers with foreign competition
  • Cable television companies and manufacturers
Sectors to avoid:
  • Banks
  • Service companies