December - International Society of Certified Electronics Technicians

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Richard Russell offered a couple of additional suggestions which will never come about: "Jettison the whole damn Federal Reserve system, get rid of the debtbacked Federal Reserve Notes and let the US government issue its own US Government Notes. And make these Notes backed by a portion of gold so they act like real money." GOLD and SILVER. Our primary investment holdings are in gold, which is in the early stages of a secular bull market; and silver, which has taken on a precious metals aura. Appreciation is being driven by an increasing worldwide lack of confidence in fiat paper money – with gold being real money. We anticipate gold eventually rising to a price "beyond what anyone now thinks possible". Gold hit a 16 year high Friday. In closing decisively above $430 – something it failed to do twice earlier this year – gold appears to have entered the next step of the secular bull market, one marked by 1983 and 1987 highs near $500. Of high significance is a report that after 6 weeks of increasing short positions, the Commercials CUT BACK on their shorts in the latest reporting week. Thus, they may be retreating from their bear stance, probably because the handwriting is on the wall: gold is being driven upward by the swiftly diving dollar. Rising gold is keeping upward pressure on gold shares, which are rising faster than gold and within 6% of highs established in December of last year. Silver is also rising faster than gold. On the other hand, Palladium is having a difficult time breaking above its 65 week moving average. Richard Russell provided the following view on gold. "Gold has completed its first psychological or sentiment phase. The first phase is the phase where sophisticated investors, sensing a new bull market, make their initial bargain commitments. That occurred during the 1999-2001 period when gold was selling in the 260 to 300 area and gold stocks were literally being given away. PAGE 4 – December 2004 Post 2004-Election Market Outlook (Continued) "We're now early in the second phase of the gold bull market. This is the phase where the public and the funds start to pick at gold – buying a bit here, a bit there. At the same time they begin to buy some of the gold shares. The second phase is usually the LONGEST phase of a bull market, and this phase could last another year to a few years longer. The second phase of this gold bull market is being EXTENDED by the antigold element which continues to manipulate gold or short gold. "Analysts wondered whether the trend could continue or whether it would be just another encouraging spurt that would quickly fizzle out." "As the second phase moves along, brokerage houses will suggest taking "a small position" in gold, and gold will occasionally pop up in the news as it creeps to new highs. Later in the second phase the public will start to buy gold, this in reaction to increasing political and social uncertainty, rising debt levels and nervousness as to the future of the dollar. "The third phase of the gold bull market will see a frantic rush by the public to buy gold. In this phase gold will surge to "undreamed" of heights – levels beyond what anyone now envisions. This will be the final blow-off for gold, following which I believe gold will be reinstated behind paper money." Jim Sinclair added Friday ("Hold On To Your Hats") that ... "the volatility of price change and the physical size of gold contracts and metals being traded is about to increase sharply." He cautions traders to be "selling into strength and buying on the downturns using Fibonacci data." STOCK MARKETS. We are out of foreign stock markets and have taken small short positions against US large and small stocks, believing that the current rally has topped out in favor of the secular bear market, which is headed for dramatically lower levels over the next 2 years... "Hope and confidence last week triumphed", wrote Michael Santoli in Barron's "over the forces of nuance and complaint. The broad market indexes ... continued a two-week ramp on a happy confluence of political, seasonal, economic and psychological energy ... and professional investors staring at near-flat returns rushed in to buy, so as not to miss the kind of year-end rally that arrived a year ago." In addition to George Bush's hoped-for (by business and the stock market) decisive win, oil prices continued to pull back-to just below $50 a barrel. And the government reported Friday that 337,000 jobs were added in October – about double expectations – while analysts wondered whether the trend could continue or whether it would be just another encouraging spurt that would quickly fizzle out. Hurricane cleanup and reconstruction headed the jobs list, while manufacturing employment actually fell. And these are, after all, government numbers. By closing above 10343, the Dow has reversed the first in a series of declining peaks and declining lows. This could be an important change, although there are two more preceding higher 2004 peaks that the Dow would have to hurdle in order to fully confirm a rising pattern. However, we are entering the so-called "strong seasonal period" from November to April. So this rally could develop some "legs". But despite the above factors and investor's enthusiasm, the market remains very overpriced and highly speculative. (Continued on page 5)
Post 2004-Election Market Outlook (Continued) Also, many items are at technical extremes – meaning overbought and subject to correction. The secular bear is very much alive and could strike at any time – just when investors least expect it. The downside potential of this bear is MUCH greater than the upside. Meanwhile, in the back-to-reality world, The New York Times reported last week that after 2 years in bankruptcy, "United Airlines told its unions that it wants to terminate its four employee pension plans and seek additional wage and benefit cuts, as part of a plan to cut another $2 billion a year in costs." Other airlines and a number of other big businesses are reported to be closely monitoring developments. FIXED INCOME. We have taken a small short position against US bonds and are invested in foreign currencies, to benefit from the expected continuing decline in value of the US dollar vs. other major world currencies. The dollar fell for the sixth straight week, to a nine year low. Continuing budget and trade deficits expected in Bush years 5 through 8 will exert continuing downward pressure on the dollar. India announced that they will be pulling $200 billion of their trade surplus from the US market and using it for domestic infrastructure projects. Russia, China and Middle Eastern countries also appear to be backing away from the dollar. However, Commercials – who take the opposite side of nearly every strong financial trend – have taken a record LONG position on the dollar, so don't be surprised if the dollar shows some "surprising" strength. There are simply too many traders now lined up on the short side of the dollar, and a few of them need to be "washed out." But longer range – and technically – we can now expect to see the dollar fall even further, down to the 80 area. And long-range charts show the potential for going much lower than that. Bond yields appear to be bottoming and it looks like yields will be rising in the Extended Warranty Contracts – Where Does the Money Go? Did you ever wonder about the profitability of extended warranty contracts and how the money is distributed? The following information was provided by an article in a national warranty publication. How much each party gets is always open to negotiation. The underwriter needs to be compensated for the risk, plus it needs to make a profit after claims are paid. The administrator also needs to make a profit after accounting for the overhead involved in claims processing. But in general, the three entities involved in the sale and administration of an extended warranty split the premiums in the following way: the sales agent gets 50%, the administrator gets 20%, and the underwriter gets 30%. That 30% is split further into an amount set aside to pay claims (which is typically 19.8%), an amount to cover "fees" (just over 5%), and the remainder as a buffer in case claims exceed expectations. The ratios vary tremendously given the type of product involved. With a product line known to have a low loss ratio, there is less need for reserves, and of course an expectation of fewer claims. With a new type of product such as plasma screen televisions, the loss ratio will at least initially be unknown. Factors that need to be considered include the typical lifespan of the product, the length of the contract, and the projected cost of repairs/replacements. Another factor is the "clout" of the participants, and their ability to take their business elsewhere in pursuit of a bigger slice of the pie. For instance, a very large electronics retailer may be in a position to demand a higher percentage of the premiums as a sales commission. Industry Participation It's astonishing to report that nobody seems to have ever published a comprehensive market research report that sizes the extended warranty industry in all its sectors: homes, PCs, consumer electronics, major appliances, HVAC, office equipment, and weeks ahead. But the major intermediate trend for bond prices will remain up unless yields rise and stay above 4.27% on the 10 year and 5.08% on 30 year yields. Popular opinion anticipates a further Fed rate increase next week, following Friday's strong jobs report, but that assumption may be false. [Editor's Note: The Fed did raise rates on 11/10/04 for the fourth time in 5 months.] Richard Russell agrees with Bill Gross that US short rates MUST be kept low, to avoid jarring our over-indebted economy into a recession or something much worse. "Market Outlook" published with permission by Wayne Peterson and Family Business Office, Inc. Family Business Office is a comprehensive financial planning firm founded in 1992 and located in Colleyville, Texas, five miles from DFW Airport. They specialize in dealing with the challenges and opportunities faced by family-owned businesses. For more information, visit www.familybusinessoffice.net. automotive. Last year, a British research firm called PA Consulting undertook an international market study on behalf of the UK's Competition Commission, to which it reported that the U.S. extended warranty market was between $4 and $7 billion in size. But that estimate included just what industry insiders call brown goods and white goods — home audio, television, DVD, VCR, washer, dryer, refrigerator, etc. The estimated guess at the revenue generated by extended warranty companies is $15 billion. That is a low-end estimate, and it doesn't include automotive. "It's a nebulous number," but it is thought that $15 [billion] is probably a pretty good estimate." It was also noted that this estimate does not include a lot of the programs that bundle both preventative maintenance and corrective maintenance into a single offering. PAGE 5 – December 2004
Page 1 and 2: ProService Service Magazine A Journ
Page 3: Post 2004-Election Market Outlook B
Page 7 and 8: 2005 International CES ® THE HOTTE
Page 9 and 10: Can We Talk? (Continued) That’s w
Page 11 and 12: ISCET President's Article Wow - wha
Page 13 and 14: ProService Partner Advertiser Profi
Page 15 and 16: ProService Partner Advertiser Profi
Page 17 and 18: Welcome New Associates & CET’s We
Page 19 and 20: Sharing Electronics Knowledge with
Page 21 and 22: Feel the Power of ISCET Certificati

December - International Society of Certified Electronics Technicians

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