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eConference Transcript

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Transcript from 12/21/05 eConference.

Dave Hunter: Hello, and welcome to tonight's e-conference. Tonight our analysts Gene Michaels, Jeff Clinton and Steve Jones, will answer your questions about our index-beating Sector Leaders Portfolio and talk about 5 investment mistakes to avoid in 2006. Plus, they will give you some insights into 2 of the hottest potential market sectors for 2006.

What better way to get ready for the New Year? Not making mistakes and with a list of potentially hot stocks in your sweaty hands.

And, one lucky attendee will win an investment book titled: "Ordinary People, Extraordinary Wealth - The 8 Secrets of How 5,000 Ordinary Americans Became Successful Investors, and How You Can Too." The book is written by Ric Edelman, the author of the New York Time best seller "The Truth About Money."

Before we begin, I'd like to remind you that this is a text-only chat; there is no sound. To ask a question, simply type your question into the box below the chat screen and hit "Sent." Your question will be held in a queue until our guests are ready to answer.

Be patient; there will be many questions. A transcript of tonight's event will be on the site in a few days.

Gentlemen, do you have any opening comments?

Gene Michaels: Good evening.

Jeff Clinton: Hi.

Gene Michaels: It's nice to be here this evening.

Steve Jones: Good evening. Thanks to everyone for joining us.

Gene Michaels: Please make sure to send in your questions.

Jeff Clinton: Let's start with those 5 mistakes to avoid in '06.

Gene Michaels: Yes, let's start off with a couple of those mistakes to avoid. The primary mistake that most investors will make in their career is getting emotional with their investments. This is the mistake that is most costly because it removes our rationale from our process. Failure to diversify your portfolio holdings would come in second, in my book, as possible mistakes we can make. I have only found one universal truth in the stock market and that is: YOU WILL HAVE LOSSES. The more your spread your capital around, the less any one mistake is going to hurt you. Any thoughts?

jake: Is the Canadian oil sands an expensive way to get oil?

Steve Jones: There comes a point where it becomes more economical for producers to take oil out of the tar sands than to try to drill in some super deep point in the middle of the ocean. With oil prices above $60 and with improving technologies, it becomes economical to extract oil from sands.

DZ: What are your thoughts on the general market direction?

Gene Michaels: I think that the market is unsure of where it wants to head in 2006. There are a lot of possible dangers looming in the not so distant future in the form of record high twin deficits and a new Fed Chairman that is going to have to deal with these occurrences. By keeping rates so low for so long, the Fed has basically prevented the market from self-correcting. That could come back to haunt us. If it does, the housing bubble will be the first to go, and from there it could domino. I am bearish long term on the market but think that there are some really good opportunities out there.

markcoronado: What do you mean by twin deficits?

Gene Michaels: The twin deficits come in the form of record high trade deficits and record high budget deficits.

cracker: Yes, how can you make sure your diversification is not simply a dilution?

Steve Jones: There is such a thing as overdiversification. Generally, 30 stocks from different sectors and with different betas will give you the diversification that you need to ensure that you have the optimal risk-reward ratio. If you're like most of us and can't afford to buy 30 different stocks, a wide-ranging index fund will help you with the diversification.

Pennywise: Where are the bubbles? The peaked or overpeaked sectors?

Gene Michaels: Correct. By keeping rates at record lows for most of the last two years, the housing market has formed a nice bubble, very similar to what we saw in the late 90s as the tech sector shot to the moon.

Jeff Clinton: The housing bubble may however slowly deflate as opposed to a catastrophic collapse that we saw in 01.

jake: Gold prices?

Gene Michaels: Gold does seem to be overbought at this time. Disclaimer: I own AU. I continue to remain bullish on the gold sector but at this level I would not be in a rush to add to my holdings. Look for gold to correct down to around 460 or so and then advance. Gold is now in its second phase of its bull market. Once it moves into the 3rd and final phase, which is where the press and media present it as a MUST OWN investment, it could shoot to the moon.

Jeff Clinton: However, at the end of that 3rd phase, watch out.

cracker: Have most confirmed housing to be a bubble and not a reality?

Gene Michaels: Well, most believe that the housing sector has formed a bubble, but at the same time, most people are admitting that they can't understand why it has lasted so long, or when it is likely to burst. I personally feel it's a crash waiting to happen. If any of our guests are in the California area, I'm sure they are witnessing price increases that are mind boggling to most.

Pennywise: Baby-boomers are coming on the scene, retiring and buying retirement homes--not true?

Gene Michaels: If I had to guess, I would assume that they are moving more into the condo scene.

markcoronado: I can see gold at 800 in 3 years.

Gene Michaels: You are not alone.

jake: How to profit from housing burst?

Gene Michaels: Well, for one thing, you can spot housing stocks that you believe to be overvalued and take bearish positions on those companies.  Short of that, the best advice in a housing correction is just stay put where you are. What will really slow down is the "flipping" of real estate -- those are the investors that are really going to get caught under the falling knife should the market correct over the next 6 to 18 months.

Steve Jones: If you *really* think that there is a housing bubble and you own a house, you could effectively short the housing market by selling your house and renting for the time period that you think the bubble lasts. Then get back into a home at a lower price. It's also VERY regional and local. Some places will rise even if there is a burst.

BOBH: Is anyone starting to get excited about silver?

Gene Michaels: All precious metals are beginning to catch the media's attention. Remember, the Fed does not want ANY excitement in the precious metals, because that would in effect signal that the markets are expecting to see continued weakness in the dollar. They will try to convince you not to get into the precious metals, but there is no doubt that this perception is beginning to reverse.

grace: What about bonds - which ones do you recommend?

Steve Jones: GM bonds are sporting around a 12% yield and are starting to look interesting. Remember, bondholders have the first right to the assets of a company in a bankruptcy. However, if you need the income from the bond investment, I wouldn't look there. I'd look at TIPS instead (Treasure Inflation Protected Securities).

Gary: What is your opinion of oil and gas stocks? Is the energy sector at it peak or does it have more room to grow?

Gene Michaels: I think that what we have seen is a bearish correction in an overall bull market. Do not think we have seen the top; I think what we are seeing now is a base forming and I expect to see the precious crude trading back in the mid-60s by the mid to latter part of the second quarter headed into the summer months.

jake: China's Google stock? Baidu.

Gene Michaels: China is one big question mark for so many investors. The main problem when trying to figure out the Chinese stocks is that you are forced to rely on government information, which is somewhat a grey area.

Jeff Clinton: Keep in mind that China is a very different place than the West.

Gene Michaels: I don't personally follow Baidu, but a couple months I got the carpet pulled out from under me on NTES when the Chinese government announced video games were causing mass suicides and murders among the youth.

grace: Do you think Latin America and Japan will continue to be strong?

Gene Michaels: I think that growth in Asia is going to continue. I do not follow Latin American stocks.

BOBH: According to the pre-info on this conference you would answer this question: "What single simple research step can save investors from losing money?"

Gene Michaels: You could ask that question to 100 people and get 100 answers, but I will tell you the one thing that has saved me over and over. It amazes me how often people forget to check earnings on companies. People get into trades based on the CURRENT technical strengths but forget to check out when the next set of earnings are coming out. In addition, check out the recent 6 to 8 earnings releases... did they beat estimates, meet estimates, or fall on their face... and then go back and see how the stock reacted around that time period. Best place to grab that information is on you can get there here:

markcoronado: How true its earnings that will drive stock prices?

Gene Michaels: It's one of the biggest factors. Think about it in everyday life... how much do your earnings drive your work productivity?

Pennywise: Get back on track please and tell use other mistakes commonly to avoid?

Gene Michaels: Ok. We covered 2; let's take a look at a couple more mistakes. We have 1) lack of diversification, and 2) emotional investing. Number 3, I would say, would be neglecting to set up appropriate stop losses as we enter into positions. Stock traders will have an easier time as the underlying security will not move so irradically. Personally I stick with 8%, but anywhere under 10 should allow you to get into trades and not bail out too soon and a market pull back. Another mistake to avoid is neglecting to fund your IRA's... definitely take advantage of that. Lastly, DONT FOLLOW THE HERD. Don't let the guy sitting to your right talk about a trade he likes and just jump in without doing your research. Once you have set up your basic trading guidelines, STICK WITH THEM.

Ok, back to some questions.

Jeff Clinton: One note about IRAs that might go unnoticed: even though it is late in the year, you can make your 2005 contribution anytime before tax day. Tax free-money is always nice.

Gene Michaels: You can find all the rules here:

Steve Jones: Also, if your employer does a 401(k) matching program, take advantage of that. The match is free money.

Gene Michaels: We love free money.

Hiker: What industries do you see as the top performers for the next 2-3 months?

Steve Jones: Right now, with the weakness in the U.S. dollar, there are a couple of sectors to look at. I like Latin American stocks. TMX, CX, and PCU have all been good for us recently. There's oil, which is a strong sector and will continue to be as long as there's uncertainty in the Middle East and as long as refining capacity remains limited. We're playing oil refiners, suppliers, and drillers heavily in our WSSP portfolios and doing quite well with them. Finally, technology looks to be coming back into vogue. Again, we have a pretty tech-heavy weighting in our portfolios, which reflects this bias.

Jeff Clinton: Look for tech to really take off if MSFT's new OS is a hit.

Gene Michaels: That should be in the latter part of 2006 and could create sizeable upside to many stocks.

grace: Is Apple overpriced now?

Gene Michaels: Disclaimer: I own apple. I love apple. It has had a little pull back recently, but I think that the next few months will see continual upside potential. They have repeatedly surprised to the upside as far as product demand, and I believe that the upcoming earnings next month will show that this holiday season was very good to the company.

Jeff Clinton: Some of us think this holiday season will come to be known as the iPod Christmas.

Gene Michaels: The new iVideo segment on that company has really seen growth that was above expectations. I love the stock and am very bullish on it.

Tet: What about Google?

Gene Michaels: Disclaimer: I own goog. Your guess is as good as anyone's on this stock. The stock seems to be untouchable, but the one thing you want to consider is that the company is NOT paying dividends. If the markets do encounter difficulty in the upcoming year, stocks that are lacking dividends are going to get hurt the most. But overall I remain bullish on the company. It was what my boss likes to refer to as a "stock with attitude."

newbie: I own Jan AAPL calls. Should I move them out to a later date? March? Later?

Gene Michaels: I also own some January calls. My plan is to ride them, and then after expiration go out a couple more months. Keep one thing in mind: that stock is going to report earnings only one or two days before January expiration. That is going to add a lot of volatility at that time, which could be our friend, but you may want to lighten up and take some profits ahead of that announcement.

cracker: Do you see any sectors that have been down the last 3 months recovering in the near future (e.g. biotech)?

Gene Michaels: Oil.

jake: The herd is playing oil stocks.

Steve Jones: Some of the pharma stocks that have been out of favor look good now.

Gene Michaels: The herd is up 30% this year.

newbie: What if the 401k does not have a co. match? Is it better to fund the 401k or IRA?

Steve Jones: Fund the IRA first. Then with excess investment capital, put it in the 401(k)

Gene Michaels: The main advantage, in some but not all cases, is that you have more control.

Gary: I like options. Would you look at Apple options say 2-3 months out, one strike in-the-money?

Gene Michaels: I typically play this stock one cycle out, and one strike OUT of the money, if you are looking at purely speculative investments. But the smart move is to spread trade the stock one or two strikes in the money. You will lose out on some potential upside should the stock really take off, but you are minimizing any potential losses that may come your way if the stock corrects to the downside.

Donniepa: How about banking sector?

Steve Jones: There has been an uptick in M&A activity lately. This is going to help the big players. JPM hit a 4-year high today on M&A increases helping their books. And we also like some of the brokerage-type plays. ET and CME both are looking strong.

grace: Are there any specific semiconductor stocks you like?

Gene Michaels: NVDA is high on my radar.

markcoronado: What about retail sector?

Steve Jones: First, NVDA is in the Hedged Momentum portfolio. The Sector Leaders portfolio has positions in both ANF and COH, so we think that if you look at the top players in retail, you have a good chance of making money. Retail has been hit this holiday season. Retailers are having to bring out large discounts. However, the top end retailers that are fashion setters like COH and ANF are much more price inelastic and can demand higher prices. This will keep margins high and make them rise above the rest of them.

trini: Any views on oil vs. gas stocks?

Gene Michaels: Where one goes the other will follow. Check out this gas chart: and then compare that to this oil chart: if you juxtaposed those charts, you would have a hard time telling it was 2 charts.

tonye: Do you think PARL has any life left? It's been stuck in a range since falling back below 30.

Gene Michaels: Moving averages are trending upwards

Gene Michaels: Very, very low volume on that stock, which keeps if off my screens. But from a quick technical glance, Iwould be holding, but not adding to any current positions.

trini: How do you see GLW?

Gene Michaels: Disclaimer: I own GLW. That stock could see some upside potential, but the fiber optic business segment never really took off as the company would have hoped.

Steve Jones: On 11/21, we made a GLW bull put credit spread recommendation in our MarketKeyhole report.

Gene Michaels: How about that free book Dave?

Dave Hunter: Yes, tonight we will be giving away a free book!

Gene Michaels: Excellent.

Dave Hunter: "Ordinary People, Extraordinary Wealth - The 8 Secrets of How 5,000 Ordinary Americans Became Successful Investors, and How You Can Too." The book is written by Ric Edelman, the author of the New York Time best seller "The Truth About Money."

I've got all the names in a hat and will be drawing the lucky winner. Drum roll please! The winner is Grace! Congratulations, Grace!

grace: Wow - thanks guys.

Gene Michaels: :)

trini: Congrats, Grace.

Gene Michaels: Congrats.

Gene Michaels: Any last minute questions?

ernestj: You're on your way now, Grace.

jake: Good job.

newbie: Do you recommend any good brokerages to fund accounts?

Gene Michaels: We highlight several on our page. I would hate to come out in favor any one over another.

Steve Jones: Look at for some of our recommended brokers.

trini: The future of Seagate, now that they have bought Maxtor?

Steve Jones: STX will come out the winner in this. After all, almost any time an acquisition is announced...

Gene Michaels: Tell that to Maxtor holders that gained 53% today.

Steve Jones: ..the acquirer gets hammered. But STX was up 3.2% today…

RAUDY: Thanks guys. Very informative.

Steve Jones: ...both win. STX will be able to put pressure on its downward supply chain. That's why DELL got hit hard today. Plus, the world isn't going to flash drives overnight.

trini: Thanx all.

grace: Thank you - was enjoyable - will you be doing this again?

Gene Michaels: We try to put these together once a month, depending on everyone's schedule.

cracker: Very enjoyable.

Gene Michaels: Thanks, cracker.

grace: Will look forward to the next one.

Donniepa: Thanks. Nite.

ernestj: Thanks for the help.

Pennywise: Thanks all!

trini: Look forward to joining you guys again. Have a Merry Christmas.

Gene Michaels: Happy holidays and travel safe.

newbie: Yes, thanks for all the great advice and information.

Dave Hunter: Thank you all for joining us tonight. A transcript of the event will be on the site in a few days.

Gene Michaels: Thanks again for joining us, and all your questions. We look forward to seeing you again. If you have any input on our site, PLEASE contact us. We love to hear from all our subscribers.

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