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Bullish on Certain Sectors

09/01/2006 12:00 am EST


John Bollinger

President and Founder, Bollinger Capital Management

Investors can always gain keen insight by looking at John Bollinger’s comprehensive analysis of different sectors and markets worldwide. Here, he finds three areas that are beginning to exhibit decidedly bullish behavior, compelling investors to take a closer look…


International. The world's markets are recovering faster than the US markets, a fact we acknowledge by taking 5% from our allocation to US stocks and moving it to our allocation of international stocks. The new allocations are 45% US stocks, 20% international, and 35% cash. We are using this addition to diversify by adding Germany, (EWG ASE), to a mix that is largely Asian. The European markets are nearing their old highs. For us, the most important of these from a forecasting perspective is the FTSE 100, an index that often exhibits leading characteristics for the US markets. The FTSE seems to be in recovery mode and nearing its old highs. Clearly the next few weeks will be important. You can track this benchmark on Yahoo! Finance:


“Bonds. We continue to anticipate an opportunity to buy bonds, but get stuck on the idea that the bonds haven't sold off enough to make them really attractive. We believe that inflation is higher than stated, perhaps substantially higher, so with bond rates in the 4.5% to 5.0% range you hardly are getting paid for lending your money. In fact, the same thing can be said for stocks, where valuations remain well above average levels and far from attractive levels. Something will have to happen to set up the opportunity and that something will most likely be an inflation scare that'll come out of left field, much like the recent announcement that Statistics Canada had been systematically underreporting Canadian inflation for five years. On principle we feel that is a good thing, as it helps defeat the inflation indexing mechanisms, but we doubt that many Canadians agree, especially those who feel that they have been cheated on their cost of living adjustments. We remain alert for what should be an important cyclical opportunity for bonds, but cannot yet see the circumstances that might create it.


“Energy. The oil price has retreated a bit with the ceasefire in Lebanon, but we remain bullish on the entire energy complex. As mentioned here in the past, we feel world demand has exceeded world supply and barring a sea change we expect high energy prices. That means energy stocks can be bought or existing positions added to on pullbacks. It'll take tremendous technological innovation or world recession to change this relationship, neither of which appears to be immediately in the cards. More likely is a series of one-off factors like the Prudhoe Bay pipeline news, which will support the oil price.”

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