Last week two important numbers caught my eye. The first was a new high in industrial commodity prices. Industrial commodities are the raw materials used by manufacturers, so as their prices rise they indicate both strong business activity and inflationary pressure. They differ from gold because, while gold can remain strong in the face of a very weak economy, commodities like tallow, rubber, and copper cannot. They are strong only when the economy is growing.
Also the high in industrial commodities cannot be attributed to the Fed's recent cut in interest rates. It generally takes months for the Fed's actions to affect industrial commodities, so this high predates the rate cut.

The other important number was that of unemployment insurance claims, which came in at less than 300,000. UIC claims are an important indicator for a couple of reasons. First, this statistic is not subject to major revisions down the road, as are the unemployment figures. Second, no recession has ever begun without UIC claims rising sharply. So not only is this not recessionary, it too suggests strong economic growth.

The combination of strong commodity prices and low UIC claims says the economy is on a solid footing -- more solid than the press would have had you believe prior to the Fed's interest rate cut. The cut wasn't entirely necessary, except to keep the pyschology of the masses from spiraling down, but the numbers suggest that it was good for inflation and gold.

And the threat of inflation leads us to our big investment caution for this week...

Advertisement
-------------------------------------

When You Can Make Money This Fast, Who Needs A Day Job?

It may sound crazy, but if you can spare just a few minutes once or twice a week, follow simple, brief instructions, and tap a few keys on your computer, you can make thousands of dollars a month as a short-term trader.

Since we began helping investors like you, over 66% of our trades have been winners, which we believe is just about the highest success rate on Wall Street today. The median return since we began is 25.5%. And ... this is really exciting ... our median holding period is just 27 days!

What's more, you can test-drive our service for the next 60 days and get a full refund if you're not 100% satisfied with the money you make.

To check us out, or sign up, just click on this link ... Leeb's Aggressive Trader

-------------------------------------

ANOTHER BAD DECADE FOR BONDS?

It's time to remind you to avoid owning bonds for the next few years, with the one exception, and that is zero coupon bonds which you should certainly have as insurance.

The reason we dislike bonds in general is that today's climate reminds us of the past. As the saying goes, while history seldom repeats, it often rhymes. Looking back through the data, we see a poetic resemblance between now and 1965. We'll have more to say on this subject in an upcoming issue of TCI. For now, we'll simply observe that in 1965, bond yields were at around 4.5% while headline inflation was close to 2% year-over-year. The fifteen years that followed, until 1980, were catastrophic for bonds, and very good for the kind of investments we currently suggest you overweight -- gold, commodities, and oil.

Because this is not 1965, we also recommend you own securities that are leveraged to growth in the developing world. Chindia and other developing nations are carrying the economic ball today and that will be what keeps growth strong. The price of that growth, however, will be much higher inflation for the next several years and well beyond that.

We hope we're wrong about this. The last few inflation numbers have been more benign than we expected -- a little under 4% -- leading many to conclude that the inflation outlook is not so bad. But so far as we can tell, these recent figures were anomalies. We expect the next few reports will show inflation closing in on the 4.5% level.

That's still a far cry from the double-digit inflation we saw in the 1970s, but it's also considerably higher than anything experienced since the start of the 1990s bull market.

As for the stock market, our technical indicators remain fairly positive. The Dow Industrials sit within striking distance of an all-time high. Transports, on the other hand, are still a long way below their last high. Before we can be confident that a bull market is in place, we think it's important to have a confirmation in Transports, especially since the Transports are a far better indicator of the domestic economy than the Dow Industrials. Even though worldwide growth is strong, we can't imagine theU.S. stock markets making a broad-based advance unless they are in line with the world, or leading the world. Transports reflect goods being shipped. And while they used to be a segment of the U.S. economy, they now indicate how the U.S. is doing compared to the rest of the world.

Our bet is that Transports will perk up a little in the weeks ahead, and with that in mind we are looking more at stocks like Burlington Northern (BNI), a railway company which could do very well in today's market.

Until next week,

Stephen Leeb
Editor,
The Complete Investor

Red Alert:
October 2007 Portfolio Changes

Growth Portfolio:

Buy: Agnico-Eagle (AEM)

Kinross Gold (KGC)

* Both bought 9/10/07 via Instant Alert

Sell: CACI International (CAI)

Halliburton (HAL)

* Both sold 9/10/07 via Instant Alert

FundFinds Portfolio:

Sell: Ambac Financial Group (ABK)

TETRA Technologies (TTI)

Fast Track Portfolio:

Buy: Lihir Gold (LIHR)

* Bought 9/24/07 via Instant Alert

Sell: iShares Silver Trust (SLV)

International Rectifier (IRF)

* Sold 8/30/07 via Instant Alert

Editor's Note: Due to an irregular dividend, the Income Portfolio table lists an overstated indicated yield for Vanguard Inflation-Protected Securities Fund (VIPSX). The correct anticipated yield for the fund is 4.7%.

--------------------------------------------------------------------------------

DISCLAIMER

TCI Enterprises LLC and The Complete Investor ("TCI") is not registered as a broker dealer or investment advisers with the U.S. Securities and Exchange Commission or any state securities authority. TCI and its information and content providers make no representations or warranties of any kind in connection with the subject matter, performance or the suitability of the information contained in TCI for any purpose and are not liable for the timeliness, accuracy, or completeness of the information contained herein. The information contained in TCI is provided for general informational purposes, and is not a substitute for obtaining professional advice from a qualified person, firm or corporation familiar with your personal circumstances. Please seek the advice of professionals, as appropriate, regarding the evaluations of any specific security, report, opinion, advice or other content. TCI is not responsible for any trades placed by the recipients of TCI based on the information included therein. There can be no assurance that your portfolio or positions can achieve the indicated performance and therefore, the sample performance information should not be relied upon. Investment recommendations are not intended to be construed to be personalized advice, or recommendations to buy, hold, or sell mentioned securities and readers should consider their personal situation before making any investment. All opinions expressed and information and data provided therein are subject to change without notice. TCI, its officers, directors, employees, and/or associated entities may have positions in and from time to time make purchases, or sales of the securities discussed or mentioned in TCI.

TCI shall have no liability for any newsletter that is lost, intercepted or not received by you in a timely manner, or at all, for any reason.

TCI, its officers, directors, employees, and/or associated entities may have positions in and from time to time make purchases or sales of the securities discussed or mentioned in TCI.

©2007 TCI Enterprises LLC. For questions about subscriptions, please call (866) 833-2070 or e-mail us at Leeb@sovhomestead.com. For further information please visit our website: www.completeinvestor.com.

Assigned to category: Stocks
« Questiion of the Day (10/4/07) | Main | Bonds and Transportation (10/6/07) »