If Americans are upset with what will happen to our economy when the world runs out of fossil fuels, what do you think OPEC countries will do? Unless they find a way to convert sand to a new energy source or something that foreigners will buy, it’s not looking good. These countries have almost no exportable products other than oil. Can you think of industrial products or companies that come from OPEC countries and compete on today’s global marketplace that don’t have to do with oil? Are you aware of any emerging technologies being invented there? Since oil was discovered in these places, their standard of living has risen dramatically and so have their populations. Those are big burdens and will not go away when oil goes away.

I am not expecting sympathy for the Saudis or Iranians or Venezualans et al, but we should not be ignorant of these issues. Maybe the surpluses that are being generated today are sufficient enough to rely on imported necessities. Maybe they will make enough money now, save it and then import whatever they need to support their standard of living when the oil revenues run out. Maybe they’ll just start buying businesses and diversify when the time comes. Who knows? But if you believe in the Peak Oil Theory, you should really be worrying about the consequences of a world without oil, not just a US without oil. Consider some political leaders on this list of the world’s leading oil producing countries and consider the stability of their governments and their relationship with the United States. I can only imagine how they’ll behave when their money runs out.

We get pretty hung up on ourselves in the US, our importance in the global economy and our responsibility to solve world problems. Sometimes we need to stay out and sometimes we need to get involved. In my opinion, we haven’t done too well on both of those lately. Many of our Democrat politicians (and new leaders) love to hate US big oil companies and suggest that we should tax them to punish their contribution to global warming and force investment into alternative energy, but I don’t think this is the way to solve the problem. For the record, I am concerned about pollution / global warming and would love to see investment into alternative energy. At some point, everyone has to realize that these are global problems and we all share in the responsibility. I don’t read the business sections of Middle Eastern newspapers, but I wonder how much time they spend obsessing about their contributions to carbon-based pollution or coming up with alternative energy sources.

While I think about the economic effects of running out of oil in the US, I fear a world without alternative energy, especially as it relates to countries that are so heavily dependent on oil. Would you rather that we start spending serious money on it or would you rather those inventions come from an OPEC country?

While the bond market is not my gig, I take the time to read and listen to as many bond market strategists as I can fit in my day. Tony Crescenzi, from Miller Tabak, is one of my favorites due to his rational and calm assessments of topics that many other commentators are calling a crisis or just trumpet what others are saying. I don’t always agree with him, but I greatly value his insights and the data that he uses to support them. Tony just gave an interview on Bloomberg and pointed out that there are, in fact, several reasons to be optimistic about a managed stabilization in US housing. After all the doom and gloomers about today’s economic report on October housing starts, it is refreshing to see an analysis that makes sense. Last Spring, I was interviewed over the phone by a Bloomberg reporter that asked me whether I thought there was a housing bubble. My comments were largely summarized with a post called Bubble Bubble Toil and Trouble but my primary criticism of the debate was “who cares?” and not because it didn’t matter. It did matter, but investors were not ready to deal with it back then. My response to the reporter was “When we finally get proof that there was a bubble, it will be too late to take action.” So over the past few months and as evidenced by today’s data, it is clear that a lot of air has been let out of bubbles that many economists said did not exist. Again, I ask - now that you have proof of what happened over the past 9 months, what are you going to do about it? I know you cannot turn back the clock, but is now a good time to act? I doubt it.

Milton Friedman died today.  If you need a refresher, click here.  In my opinion, he “is” the most important economist since the beginning of industrialism and global economics.  I say “IS” and not “WAS” because his work will never be lost - it is found in Ben Bernanke and many economists throughout the world.   We should remember him today and we should never forget him tomorrow.

Most people I know are either chronically early to parties or chronically late. We probably all have a family member that is given a “special” invitation to all gatherings - a lie that states the party starts 1/2 hour earlier than it really does. This way, we can zero out his 1/2 hour of habitual tardiness. On the other hand, there is always the eager bunch who seem to knock on the door before all the pre-party prep has been finished. The times I had to entertain guests before I was ready are not fond memories. After all, the term “fashionably late” is around for a reason.

But I understand it - as a guest, there is more of a danger to be late than early. The good appetizers could be gone, the beverages could be running dry, the other guests could be obnoxiously drunk, etc. etc. Being early only runs the risk of pissing off the hosts and that is a small price to pay for the pick of the goodies.

When I look at the market today, I wonder what kind of party I am at: am I the host or a guest, am I arriving early or late? What do you think? Is this a party that is just starting or is it about to fizzle as you walk through the door? Have you had enough, too much ,or are you ready for more? Are there still lots of great food and drink to choose from or are the pickings sparse or going stale? Before you answer those, just make sure you are not the kind of guest that overstays his welcome.

I have repeatedly stated my opinion on this market so you know what kind of party I think it is. If you look at my posts from June and July and all the UP signals that were originated back then, you’ll see that I showed up to the party a little early and maybe fashionably late. I look at the investors who finally got excited about this market in the past few months and weeks and feel sorry for them. They look like the drunken partiers that are so out of it that they are willing to eat leftover scraps and squeeze out the last 10 drops that you’ll find at the bottom of any emptied bottle of flat champagne.

But this is not my party. It’s yours. I am only observing from outside. So please take a sober look around and figure out whether it is just getting started or if it’s running on fumes.

As a guest host on Bloomberg TV today, Ken Fisher decided to bash Warren Buffett as not being a very good portfolio manager. It was a bit surreal to say the least and it was not an accidental comment. Ken is very bright and I doubt that he ever says anything that he hasn’t thought out fully. But for the life of me, I still cannot figure out why he chose to go down this path. Maybe he was on a roll after taking a few condescending shots at David Tice’s ability to be a profitable short seller next year, but it was odd nonetheless. Ken’s point was that Buffett is not a great portfolio manager. On its face, that is a useless comparison - I have never heard Buffett referred to as a portfolio manager. “The Greatest Investor of All Time” is the main tagline that comes to my mind and the difference between an investor and portfolio manager is obvious. It went deeper than a simple comment and as his justification, Fisher pointed out the average performance of BRK/A in the past few years, the repetitiveness of the annual Buffett letter, the lack of detail on Berkshire investments once they are brought in, the large number of private companies he buys without public info to evaluate, blah blah blah. As I said, I think Ken is a smart man and has made some significant contributions to investing and behavioral finance, provided good results for his investors, writes interesting articles for his Forbes column, etc. etc. And as he is oft to mention, Ken is in the Forbes 400, number #297 to be precise. However, he is not in the Forbes 2 and I doubt that the guy in that spot would ever feel the need to comment on Ken Fisher as a great investor, great portfolio manager or anything else for that matter.  Buffett may not be a great portfolio manager but I think there are quite a few great portfolio managers that would suggest that he had something to do with their success.

Earnings are almost wrapped up and the election has played out - it’s time to get back to other distractions like obsessing over the economic data and the Fed. I hinted last week that the HEDGEfolios Timing Indicator might change to a bearish bias and while it came close, that did not happen. Meanwhile, the market is hitting new highs, but if you expect that this is making me nervous about my increasingly negative commentary - guess again. Each time the HEDGEfolios Timing Indicator gives a signal, I am wrong for a few weeks. That’s the way a leading indicator (which I believe this is) should behave. There is a big difference between increasing prices and increasing underlying strength and divergences of the two presage turns in the market. That is what I am seeing now and have been for the past 2 months. Only time will tell if I am eating bitter pills now or crow later.

Sectors of significant weakening were found in the biotechs, major pharmas and some medical equipment manufacturers as well as REITs, telecom, and retail. Weird and unhealthy patterns are continuing to form in a broad base of stocks. I am seeing price improvements simultaneously with weakening technicals and especially money flow data. Typically, these patterns are not sustainable for long and unless we get a new rush of fresh capital being put to work in some old winners, I expect to see a continuing supply of new DOWN signals. To be fair, there was an unexpectedly high number of new UP signals this week. Some came from breakouts that I feared on losing DOWN signals but a healthy number of them were stocks that had based out in my opinion. I am maintaining a very short fuse on portfolio management due to signal volatility issues. At times like this (when I think the market is turning) and especially during earnings season, I am more likely to change signals frequently. Failing to do so will catch you in losers and I strongly advocate keeping a very close eye on your portfolio with tight stops.

Last week, I provided a sample of 201 existing UP signals that I felt would outperform the market, at least for a one-week period. I called them “reiterations” and while that is an appropriate term, I want you to know that I consider any signal that did not change from the previous week to be a reiteration. Since I only changed about 350 signals last week, the other 2,650+ signals could also be considered reiterations. The list I highlighted here and on 10/24/06 are a bit different because most of them had been losing signals that I thought had a higher probability of finally getting in gear.

I promised to update the performance of this list as of Monday’s close, but due to forgetfulness on my part, I am providing it as of Tuesday’s (11/14/06) close.

An equally-weighted portfolio of these 201 stocks from the 11/07/06 open until the 11/14/06 close would have generated a 2.19% weekly gain compared to an S&P 500 gain of 0.98%. For the week, 68.2% (or 137 out of the 201 stocks) went up. There were a few big losers in the bunch, with 10 stocks violating Bill O’Neil’s 8% rule and the worst of those (JUPM) coming in at a 37.14% loss. I was extremely disapointed with this aspect of the list as losses that large over a one-week period are very rare for me. Hopefully, my suggestion of tight stops would have caught these during their freefalls. Other than the worst 10, I was pleased with the distribution of the other losers: 56% were less than 3% and 86% were less than -10%. Regarding the winners, 61% were between 0 - 5%, 29% between 5 -10%, and 10% were above 10% gains.

A quick note on the original list from 10/24/06. That portfolio, if equally-weighted, would have had a gain since the first posting of 5.67% vs. 1.18% for the S&P 500. I won’t bore you with the details, but 72% of the 178 signals were winners with 10 signals losing between 8% and 20%. So, a few blowups, but not as bad as the second list.

Note that a few of these signals have changed to DOWN in the meantime, but I am including their performance as if they had been part of a buy-and-hold portfolio. There is not much worse than using an old list for new ideas, so please don’t consider either of these two lists to be good entry points when you happen along this post. I only provided these to show off a bit and give you a tease of what you will find if you register for the FREE trial or become a subscriber. From time to time, I might provide another list of reiterations and I will definitely provide periodic and brief updates of the first two until too many of the signals have turned to DOWN.

“The market that never sleeps”… “the most heavily traded market in the world” - it all sounds so exciting. Forex must be getting really popular with all the commercials running on CNBC during the trading day and all the infomercials at night. Maybe foreign exchange trading is a great opportunity for individual investors, but I doubt it. For good reason, currency trading has been largely offlimits to individual retail investors. Now, with the advent of the Internet and broadband connectivity, the world is literally at your fingertips. The various trading platform companies will try tempting you with pitches that say no commissions, highly lenient margin trading, profit potential in bullish or bearish markets, and low account minimums. Of course, the downsides are not quite as fun to talk about.

HEDGEfolios is only focused on equities, but that isn’t why I am negative on trading forex. I am all for diversification and using multiple asset classes to achieve that goal. However - diversification only works if you do not lose money in the process of buying the alternate investment class. My concerns about forex trading are based upon the unbelievable complexity and the very low probability that one individual can compete with the pros that are out there. It’s not good enough to be great with technical analysis or have a great trading platform. You really need to be an expert in geopolitics and political risk, economic conditions and growth rates in each country, relative inflation and interest rates, foreign trade figures, foreign bond yields, international monetary policies, foreign central bank decisionmaking, and a host of other macro factors. It’s way too tough for any one person and you are competing with teams of professionals with extremely sophisticated technology that are moving multi-million dollar trades in seconds.

Warren Buffett via Berkshire lost about $1 billion in 2005 on a bad bet against the US dollar. Even George “The Man who Broke the Bank of England” Soros has lost a few gazillion pips every once in a while. But they are supported by tremendous resources, staff and experience - they will live to fight another day. I wonder whether most forex traders on the various trading platforms will be as fortunate!?! After the tech bubble burst, we heard a lot of sob stories from daytraders that lost their family fortune and family life sitting in front of the computer all day. Forex trading will likely provide its own tragedies and I really would prefer not to hear them.

Fraud risks abound and here is a warning by the Commodity Futures Trading Commission (CFTC), the federal agency that regulates forex trading in the United States. To be honest, I don’t think this info is going to stop the real money loss in this area because that will likely come from legal trading. And before I get barraged with emails telling me success stories of the forex multi-millionaires, I recognize that some people can actually make money doing this. I am happy for them.

If you are so convinced that you need to diversify with forex exposure, you have a few other options rather than trading currency pairs. You can purchase the Rydex or Powershares currency ETFs which also concern me but not quite as much due to the fact that they are professionally structured. However, my preferred method is to evaluate an actively managed fund by experts like Axel Merk. It may not be as exciting as trading yourself, but I think it has a better chance of making money while diversifying your portfolio.

My vote in the Birinyi blogger poll was “bullish” every week since its inception at the beginning of July. That came to an end last week when I voted “bearish” for the first time and I expect that will continue for a while. If you go to Ticker Sense next week, you’ll see that many of the bloggers will have a vote displayed next to their name. As I have written in the past, I not only approve of this change, but I was one of the people that kept pestering for an end to anonymity and an increase in transparency.

I recognize there is a bit of a conflict with my bearish vote on the poll and the current bullish reading on the HEDGEfolios Timing Indicator, so I thought I’d explain it. The poll asks whether I think the market will be higher or lower one month from now. The HEDGEfolios Timing Indicator only records what the market tells me, not what I think. These are two different situations so while I am still waiting for the HEDGEfolios Timing Indicator to confirm my suspicions, I decided to vote my opinion. If you have been reading my “market” posts since mid-September, I am confident my bearish vote is not much of a surprise. Additionally, if you take a look at the chart and extend the green and red lines at their current slopes, you will see a convergence that is fast approaching. Since yesterday, I looked at a sample of over 400 charts to get a feel for the signal changes coming this week and my view has not changed - you may even see a bearish reading on the timing indicator this week. If that happens, at least I won’t have to explain why my blogger poll vote is different from the HEDGEfolios Timing Indicator.

****Performance has been updated through 11/09/06 - please read through the following disclaimer and find the updated figures at the end of the post. Before I discuss Hedgefolios performance, I want to cover myself with some cautionary language. So here goes:Nothing in my performance quoting is intended as an advertisement or in any other way meant to encourage anyone to subscribe to Hedgefolios. Regardless, you should be very hesitant to rely on any newsletter’s performance figures unless they are audited or verified by an outside party. To be as transparent as possible and remove any question of Hedgefolios credibility, I am hoping to have audited performance figures by the end of 2006. Until then, you need to be aware that any performance figure on Hedgefolios is NOT in compliance with the CFA’s AIMR Performance Presentation Standards and does not net out any transaction costs such as commissions or management fees. They are not a total return calculation as I do not include dividend yields or any compounding factor. These performance figures cover a hypothetical portfolio of the entire Hedgefolios stock universe with an equal weighting of each security. The calculation is simply the cumulative total of all gains and losses from the signals during the period in question.All this being said and under those parameters, Hedgefolios performance for stocks:

• 2005, the Hedgefolios performance was +19.99% vs. +3.00% for the S&P 500 index
• 2004, the Hedgefolios performance was +31.19% vs. +9.00% for the S&P 500 index

As the year goes forward, I will update this post periodically to let everyone know how Hedgefolios is doing.

UPDATE:

• Hedgefolios stock performance for 2006 year-to-date (through 11/09/06 close) was up 22.28%.
• Over the same time period, the S&P 500 index was up 10.42%.