Shift in Sentiment

By on May 3, 2006

This newsletter mentions Jim Rogers who was carping about inflation way back in 1996. Eventually the stopped clock is right. It’s hard to believe you could buy a semiconductor stock (NVLS) for 6 times earnings, but this was before the internet boom raised valuations into the stratosphere.

Originally posted on:

August 16, 1996

The market continues on it’s course of low volatility seen over the past few weeks after an exciting July. Don’t expect any more fireworks for quite awhile. Investor sentiment took a hit during the correction which is bullish long term. A quarterly poll of 500 Quick & Reilly clients, performed by Wirthlin Worldwide three weeks ago, shows a healthy drop in the percentage of bullish investors. 53% were bullish in late April 1996, while 47% are currently bullish. The number of bears increased dramatically to 21% from 13% in April, which is the highest percentage of bears in over a year.
There is some concern that a tight labor market will result in inflationary pressures. Theoretically this is an arguable case, however, as mentioned in the last issue, the bond market has become more vigilant to these dangers resulting in it being a self regulating mechanism. So for the foreseeable future inflation should not be a big problem unlike what sage Jim Rogers would have you believe.
Near term, the market will trudge higher, although weakness would be welcomed as it would create an attractive entry point for new funds.
Note: Novellus Systems (NVLS) was added to the aggressive portfolio to rebalance to a 90% invested position. NVLS has been dragged down along with most of the other tech stocks over the past few months. In the mid 30’s NVLS is a compelling bargain at 6 times earnings. NVLS is a leading maker of advanced chemical vapor deposition equipment used in fabricating integrated circuits. What this means is that they make the equipment that makes it possible to manufacture very small semiconductors, which are the building blocks of all computerized devices. The market is growing for more portable devices such as smart cards, notebook computers, smaller cell phones, etc. I just found out that David Braverman of Standard and Poors performed a screen to ferret out Warren Buffett type stocks. 20 stocks met the criteria and NVLS was one of them. NVLS has cutting edge technology and will almost certainly have a much higher stock price 2-3 years out.

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