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HURRICANE'S AFTERMATH & A NEW BOOM-BUST CYCLE

If I seem unduly clear to you, you must have misunderstood what I said."
Alan Greenspan quoted in Money Magazine

The Commerce Department's study of cycles dating back hundreds of years illustrates just how predictable our world and it's inhabitants can be. Summer, fall, winter, spring or... recession, recovery, boom, bust, the universe is an orderly place. Anyone willing to look beyond present day circumstances should be able to predict the next cycle shift.

This issue's Fallen Angels stock ideas are positioned to prosper from the new season just ahead. On Wall Street and Main Street, everyone is wondering what the economic impact of the Gulf Coast's devastation will bring. There exists many years of data showing that gas prices pick up in September because hurricanes hit the Gulf, and they shut down the refineries.

We suggested several oil and gas stocks in prior Bulletins partially in anticipation of this tendency. Also, last year's Florida hurricane fallout created a building boom and pushed prices higher for the basic commodities needed. Will this time be different? To some extent, I think it will. Here's why...
THE REAL ESTATE CYCLE

In 1931, Economist Edward Dewey was hired by the government to "study the cause and underlying dynamics of the Great Depression" (www.foundationforthestudyofcycles.org) What he and his research team discovered was that nearly everything in our world, financial markets included, move through cycles that repeat over time. This "rhythmic phenomena" is observed in economics and other sciences, and most cycles occur within established time frames, making them effective tools for prediction.

Dewey found that the Real Estate Cycle seems to run 18 years from trough to trough, with 9 upward years followed by 9 corrective years. 2004 was the 9th year upward in this current cycle, and now we are seeing a topping formation develop where prices seem to have stalled.

The Federal Reserve Chairman is well aware of this cycle and is vocally and openly hoping for a soft landing. If Greenspan thinks we have a real estate bubble, he will never say so publicly. Historically, home prices correct as much as 40% off the peak prices.

This still leaves a nice profit for anyone who bought real estate at or near the 9 year low point, and I believe this cycles will again repeat.

HURRICANE AFTERMATH A BUST?

Successful Investing is all about probabilities and measuring risks against potential rewards. The reason most insurance company stocks have not suffered is because the majority of the homes and buildings lost are not covered. Most policies exclude flood damage unless the policy holder has bought additional flood coverage. Image a scenario where thousands of empty lots sit for several years while the owners try to secure financing for rebuilding.

The government will spend billions for reconstruction of essential infrastructure like roads, bridges, levies, sewer, power, etc. But the odds are against a repeat of last year's Florida building boom.

The Gulf tragedy's might be the catalyst event that begins a long period of 1970's style "stagflation." With a stagnating economy and rising inflation comes rising interest rates, rising commodity prices, and rising stock prices for companies that can grow rapidly. Find some of those, and take some of the wind out of the recent hurricane's rath.

Consider Cal Dive International (CDIS)www.caldive.com This Houston based company builds drilling platforms and provides other services essential to the oil and gas business. A momentum stock, CDIS has great potential to keep on running upwards, and year over year earnings growth is above 40%.

Consider Global Industries (GLBL) www.globalind.com A Louisiana based marine construction and services company that has fallen from it's old 1999 highs of $25, this Fallen Angel is leveraged to fly again when the rebuilding and retrofitting work begins.

Consider Bristol Myers Squib (BMY) www.bms.com A world class drug company that has fallen from the mid $70. range, BMY pays a 4.40% dividend yield while you wait for the turnaround. I'm reiterating a recommendation on this stock based on their new oral diabetes drug, and because pharmaceutical companies have historically soared at the later stages of most economic recoveries.

Be sure to diversify and remember that we will not be telling you when to sell, as that is reserved for our managed accounts clients.
Best Regards,
Gabriel Wisdom
gwisdom@amminvest.com

The opinions expressed are those of Mr. Wisdom and do not necessarily reflect those of American Money Management LLC (AMM) a SEC Registered Investment Advisor (www.amminvest.com). Clients and employees of AMM may buy or sell securities mentioned without prior notice. The opinions expressed should not be construed as a recommendation or solicitation to buy or sell securities, nor should they be considered investment advise. Investing involves risks, and you should consult your own investment advisor, attorney, or accountant before investing in anything.

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