Dollar is up against all major currencies this afternoon. They just love to export to US and, in imho, will inflate to do it.

Wow, Bill, you HAVE had your share of medical hassles lately. Of course, melanoma is REALLY worth watching. Unlike other "localized" skin cancers, melanoma can dive and reappear elsewhere in the body. I have read that the great upsurge in melanoma cases is on the EARS, where you don't often get a close peak. Perhaps your wife will keep an extra close watch on that. Quick recovery to you! -

This link with charts is a little dated (8/4),

http://www.decisionpoint.com/ChartSpotliteFiles/060804_PBI.html

but I don't remember it being posted here before. In light of the current rally, I find the charts and analysis to be very prescient and interesting. Don't know what others think, but I generally find Carl's analysis to be worth a read. To me, the charts/analysis look to be consistent with what Bill has been predicting for this young Bear. I still have a vivid memory of how the Autumn of 2000 unfolded, so despite the current rally (IMO, reminiscent of the Summer of 2000 rallies), I'm focused on what the tape will do starting on or about Sep 5th. If I remember correctly, Labor Day 2000 was the inflection point between a bull/bear tug-of-war and a relentless bear. So IMHO, enjoy the current rally and beware the return of "big/smart" money in September!

Bill, thank you for your comments re: gold made when you're feeling so awful! Your effort is really appreciated!

I've hung in with my gold purchases, but oh! it was a challenge for a bit there. Still, I think your view is going to be proven to be the right view.

Again, thanks for taking the time to blog -- and now go back and rest!

Jock, that was a useful reminder re: the ears. I'm going to remember it.

Glenn-mp, thank you for posting the info on Carl. Very, very interesting.

Oil and Nat Gas inventories are in good shape and
I think we will see a correction in oil and gold.
The USD and the Naz will rally for a couple weeks.
Lots of insider selling so perhaps earnings warnings
will end the rally in Sept. With a slowing world economy
and falling oil it will be hard to see any inflation for
some time. War or terror attack could change everything
of course.

The past is always prologue...

"The Optimistic Prediction of Warren Buffett
By Bill Barker

In November 1999, Warren Buffett dropped a bombshell on investors when he wrote (with Carol Loomis) in Fortune magazine that the most likely average annual returns for investors in the market for the following 17 years would be 4%.

You may recall that at the time, market participants were enjoying their fifth straight year of better than 20% returns. As the article noted, polls taken at the time showed those who had been investing for less than five years were expecting annual returns over the next 10 years of ... drum roll please ... more than 22%! Even investors with 20 years of experience were expecting returns of 13%.

The triumph of the pessimists
Buffett argued rationally that such returns were not mathematically achievable, barring occurrences such as long-term interest rates going from 6% (where they were at the time) to 1%, or corporate profits expanding well beyond their historical percentage of gross domestic product (GDP). Buffett postulated that when factoring in 1% average annual expense costs, real returns to investors should be about 4%. Including 2% annual inflation, nominal returns could be 6%.

The article was based on a speech that Buffett made in July 1999, a time when the Dow Jones Industrial Average was sitting at 11,194.

This week, the Dow opened at 11,239.

"Nothing is good or bad, but thinking makes it so"
Let's unlock what is unquestionably good news from the lack of movement in stock prices during the past seven years.

Sure, investors that have been in the market all that time have had a couple of wild rides to merely get back to where they started. But during the past seven years, three key things have happened:

Real corporate profits have actually grown faster than the 3% hypothesized by Buffett.
Long-term interest rates are no higher than they were in 1999.
Inflation has not been noticeably worse (so far) than expected.
So, the fundamental driver of stock returns -- real corporate earnings per share -- has been slightly better than what Buffett imagined might be the case. What's dramatically improved, however -- with better fundamentals at the same price -- is the valuations of stocks, particularly the large-cap stocks that Buffett was talking about.

We need an example. Let's look at the rough valuations of some of the S&P 500's main components in 1999 and today:

Company
Average 1999 P/E
Today's P/E

Microsoft (Nasdaq: MSFT)
69.5
20.3

General Electric (NYSE: GE)
39.9
20.5

Cisco Systems (Nasdaq: CSCO)
122.1
19.9

Wal-Mart (NYSE: WMT)
47.3
16.3

Intel (Nasdaq: INTC)
35.9
16.3

AT&T
24.9
18.4

Lucent (NYSE: LU)
89.7
17.8

IBM (NYSE: IBM)
29.7
14.5

ExxonMobil
32.5
10.5

S&P 500 Average
31.6
16.4

So, where does this leave us? The economy -- and by my calculations, the performance of companies in terms of profits -- has exceeded what Buffett posited. Not wildly exceeded, mind you, but there was a slight edge. That result could turn out to be ephemeral, especially as corporate profits as a percentage of GDP are now quite high. If they return to the midpoint of their historical range while the economy grows at its usual rate, after-tax earnings growth will decline.

What lies ahead
I thought I'd run the numbers on what Buffett's original estimate would mean for the remaining 10 years of his 17-year forecast.

Over the past seven years, the market has returned essentially 0% in terms of capital gains. Dividends have been on the order of about 1.6% on average, and inflation has been 2.7% annually. So real returns are negative to the tune of approximately 1%. For real market returns of 5% annually (ignoring, for the moment, the costs of investing) to materialize by 2016, we would need to see 9.4% real returns over the next 10 years.

Wait, 9.4% in real terms? That would be phenomenal. The historic average real returns of the market have been about 6.5% over the past 100 years. So are 9.4% real returns possible? Would Buffett really predict those types of 10-year returns today?

I highly doubt it. And I'm certainly not going to put words into Buffett's mouth, because I'm pretty sure he -- or Charlie Munger -- would kick my butt for doing so. Literally. Which would be embarrassing. But I digress.

The long stagnation of stock prices -- during a time when corporate profitability accelerated and companies bought back record levels of stock -- certainly means there's a great deal more margin of safety today than there was seven years ago."