Once in a lifetime Opportunity!

The light bulb was invented about 130 years ago and ever since its debut, the light bulb’s design hasn’t changed, that is until NOW. 2007 will be the year of the LED, also know as solid state lighting. Light Emitting Diodes are pea sized solid chunks of semiconductor material, like the Intel Pentium processor in computers, that glow when electricity is applied. Up to now light bulbs have been glass vacuum tubes with a glowing tungsten wire inside, just the same as when Thomas Edison designed them more than a hundred years ago. LED’s are going to soon displace the old vacuum tube light bulbs; they are 100 times smaller, 10 folds more efficient, and practically last forever.

LED’s have been around for more than 50 years and they are currently in multiple electronic devices in the home, just look at the power “on” indicator on your T.V. or any other common home electronic device and you’ll probably see an LED light indicator. So why is it that they have been around for decades but haven’t replaced the conventional vacuum tube light bulb? The answer to that question is easy; until recent advances in materials engineering, LED’s were not bright enough and too expensive for general lighting applications. But now, advances in technology coupled with more efficient manufacturing methods have yielded the solid state LED feasible for general lighting applications.

The great thing about this entire story is that we are in the midst of an energy shortage and most electricity grids in the U.S. are working at overcapacity. LED’s offer a real viable solution to help ease the energy strain, because as you remember, they are more than 10 times more efficient than conventional light bulbs. This fact alone makes them less likely to be sensitive to the general economic climate, because they offer an alternative to building more nuclear or coal burning power plants. Power plants take years to build and nobody wants them in their backyard, but changing the conventional light bulbs in our homes and businesses with more efficient LED’s is a very painless option.

Our number one stock pick for this sector is Color Kinetics, CLRK, listed on the Nasdaq stock exchange. The company holds the worldwide patent rights to the technology in controlling the color output of LED’s. This is important because one of the advantages not yet mentioned in this article about LED’s over conventional light bulbs is that each lighting fixture can output close to 5 billion colors. That’s right, with a single bulb, called a “node”, the color and intensity output of the light fixture can be controlled electronically. Just like the dimmer switch control on some present lighting systems, but with far more intelligence and capabilities. That’s why LED lighting systems are called “Intelligent Solid State Lighting”; they can be programmed to do almost anything.

We are confident that CLRK has strong fundamentals, good management, and huge market opportunity. Usually these are the winning traits of a “triple digit gainer” and we therefore predict a price appreciation in the hundreds of percent in 2-5 years for this company. This company’s success lies in its patents and their ability to hold up against infringement, and they have successfully fought and won court cases against patent infringers in the past. In addition, multiple leading companies in this business segment have signed licensing agreements with CLRK already, and the revenue from these royalties should begin to show up on the bottom line in the second quarter of 2007. Unlike the manufacturers of the actual LED’s, CLRK is not levered to the outsourcing of manufacturing to China or other places because they are a “fabless” company with a business model that is based on royalties from their intellectual property. And in the 21st century, that’s the sweet spot to be in!

What Will Happen to the US Dollar?

By Arthur Mansourian

While economists and investors should stay away from listening to rumors, one rumor has many of them worried; that Iran and Venezuela may begin selling their oil in Euros and move away from the US Dollar. These two countries despise USA and its policies, and would do almost anything to harm the country. If such a move is made, it will hurt the US Dollar substantially. If this takes place, the US Dollar may decline 6-8% in a day! This may lead to a flight of investors to the Euro, which would have a serious impact on the world’s economic stage.

However, there are a few reasons why this may not happen:

1. China and Japan hold billions in US Dollar reserves and a drop in the US Dollar will consequently hurt them very badly. It will cause an economic implosion in Japan and will push their economy into a free-fall and a major recession, if not depression. This would be devastating to Japan, which is coming out of a long and dreadful economic doldrums. The impact on China would be less because their currency is pegged artificially to the US Dollar and to other currencies, however, China will still get seriously hurt in the long run. Since these two countries have good relationships with Iran, they will surely be trying to talk Iran out of switching to the Euro, and will try to influence the final decision. However, Iran has recently announced that they will be looking to use the Euro more.

2. The Euro’s increase will be so significant that it will hurt most European countries in their pocket books. Their import of oil will go through the roof and export will come to a halt. Your average German car would go up in price, which may push people to buy luxury Japanese and American cars instead. Case in point; Airbus, the European airplane manufacturer, is in big financial trouble. Among many production and manufacturing problems, its financial woes have been exasperated by the fact that while its cost is based on Euros, its sales is based on US Dollars.

3. No matter what they say and portray, OPEC has never been a unified organization and a dramatic move such as this will not work unless OPEC as a whole decides to do it. There are always a few members who may break ranks, such as Indonesia or Nigeria, and it is unlikely that Saudi Arabia will turn on the US Dollar. Although OPEC has made cuts in oil supplies recently, they have actually cut less output than they said they would.

On the other hand, other recent factors may provide ample proof that the time of the Dollar-priced oil is over:

1. In December 2005, the exchange rate for every one U.S. Dollar was 0.85 Euros. A year later, one U.S. Dollar is only worth 0.75 Euros. Furthermore, the Dollar fell all the way to a 20 month low of 1.32 against the Euro recently. This decline in the market value of the Dollar was mostly due to the fact that consumer confidence and durable-goods orders both fell more sharply than expected. Furthermore, in October, orders for capital goods (not including aircraft and defense) fell 5.1%, the first drop in six months.

2. Reports from this week show that the housing market’s tumble may have an even wider impact on the economy than originally expected by many analysts. New home sales had the first drop in three months in October, falling 3.2%. Also, the unsold stock of existing homes for sale increased to 7.4 months’ supply. For more insight on this, please read the articles posted by Darwinian.

3. There is a potentially positive side to the falling Dollar. A cheaper Dollar makes imports more costly, leading to hope that it might help reduce the US trade deficit. The US trade deficit topped US$700 billion last year and is headed higher this year, heightening pressure on Paulson to make sure key trade partners like China play fair and making Dollar depreciation a virtue if it means fewer imports. The deficit with China alone last year was more than US$200 billion.

These factors are significant in deciding whether it is likely that Iran and Venezuela may make such a move, since a falling Dollar may entice these two countries and others to sell oil in a stronger and more valuable currency – the Euro. If such countries see that the Dollar is not done falling, they may all join the herd and sell out as quickly as they can to cut their own losses.

Interestingly, Ben Bernanke still believes that the economy will enjoy a soft landing. Bernanke also said that inflation remains “uncomfortably high” this week, and that the economy will grow at its sustainable rate in about a year.

Someone is definitely going to be very wrong very soon.


Resources:

1. http://www.bruneitimes.com.bn/details.php?shape_ID=13085
2. http://www.collegian.psu.edu/archive/2006/12/12-08-06tdc/12-08-06dnews-08.asp
3. The Economist December 2nd – 8th 2006, Volume 381 Number 8506

Do I Smell Bull?

by Arthur Mansourian

Worries over slowing economic growth and inflation sent the indexes tumbling this week. The S&P 500 fell 0.3% to 1396.71. The Dow Jones fell 0.7% to 12,194.13. Both indexes had consecutive weekly losses for the first time since July. The NASDAQ dropped 1.9% and fell to 2413.21, the largest weekly loss since July.

Although the markets and investor spirits have been high for the past several months, there are many reasons why the Dow Jones and other broad indexes may lose their steam.

To begin with, the strength of the Euro and the quickly accelerating economies seen throughout Europe are beginning to outshine the U.S. economy. In America, the largest retailer Wal-Mart, saw monthly sales fall for the first time in 10 years. Caterpillar, the world's largest maker of heavy earth moving machines, released a report that showed manufacturing in the U.S. fell for the first time in more than three years.

Furthermore, light crude closed on Friday at $63.43, capping off its largest weekly rally since April. Cuts from OPEC and snowstorms all across the U.S.A. have contributed to the rise in the price of oil and it looks like it can go even higher. The civil war in Iraq and the historical trend of Democrats cutting the earnings of big businesses are also factors that effect the indexes. Last but definitely not least, the Federal Reserve is still not done eyeing inflation.

Take a look at the following chart:











After taking a dive in May, the Dow had an almost perfect double bottom on mostly heavy volume, which is generally a bullish sign. The index then rocketed up all the way to 12,409.30, the highest the index has ever been. However, compared to the earlier levels in 2006, starting in mid-September volume began to dry up for the most part and has been since. Only time will tell if this index has what it takes to stand against the factors that may erase its recent run.

Sources:

1http://www.bloomberg.com/apps/news?pid=20601103&sid=aINQEr9aeKAA&refer=news

2(Image source): http://finance.yahoo.com/q/bc?s=%5EDJI&t=1y&l=on&z=m&q=l&c=