Is USA Doomed to Repeat 1921-1945: Prosperity, Depression, Totalitarianism, World War?

Is the USA Doomed to Repeat 1921-1945: Prosperity, Depression, Totalitarianism, Major War?

In a previous post, we speculated that there is an 84 year cycle which includes an 84 year Major War Cycle.

In 1921 to 1929, we had the Roaring Twenties, a time of great Prosperity.  There was great economic prosperity, the stock market had a large runup, and the 1920s was a decade of increased consumer spending and economic growth.  The Federal Reserve expanded credit, and set rates very low, and more people started buying on margin.

The Roaring Twenties was also a time of new products and technologies including Mass Production and Henry Ford's Model T, and the creation of infrastructure such as highways and expressways, funded by the government.  (Federal Income Taxes were created in 1913).

No one could see what would come on October 29, 1929, Black Tuesday, a Great Stock Market Crash on Wall Street, signalling the beginning of the Great Depression which lasted around 1929 to 1939 (or middle of the 1940s).

During this time of the Great Depression, there was a rise (in Europe) of more Fascist, Totalitarian regimes such as the rise of the Nazi Party in Germany from 1933 to 1945.

And the rise of Nazism helped start World War 2 (from 1938 to 1945).

Is it happening now?

2013 will be the 84th anniversary of Black Tuesday, the Major Market Crash in 1929.  There has been research and observation showing that there is a logical reason for the 84 year cycles, and it has to do with four distinct generations in a major 84 year cycle.

We've had great Prosperity (in the mid 1990s and the early 2000s), which reminds of the Roaring Twenties.

And there are many economic signs pointing to a long term economic stagnation, collapse or depression.   We may not be in the run of the mill downturn.  Demographics are against the U.S. as the Population is Aging, and there are less people to support an ever increasing dependent population, and this aging population has been shown to correlate with the Stock Market's Price to Earnings Multiple.

In addition, since the United States Federal Debt to GDP Ratio is now 100% and growing, there will be a long term debt overhang. There is a study by Carmen Reinhart (Peterson Institute for International Economics, NBER, CEPR), Vincent Reinhart (Morgan Stanley) and Kenneth Rogoff (from Harvard University and NBER) that shows those cases in history where debt to GDP exceeded 90%, experienced suboptimal growth lasting an average of 23 years.

Depressions can lead to Totalitarian Regimes (it may happen in other places such as Europe, which is going through their own economic upheaval including problems in the Eurozone, Spain and Greece.  Even France had their credit rating reduced).

Finally, everything can culminate in a major war.

Possible Schedule:

Start Yr	End Yr	Past Event	Start Yr	End Yr	Event
1921	1929	Roaring Twenties	1995	2013	Prosperity
1929	1939	Great Depression	2013	2023	Depression
1933	1945	Nazism	2017	2029	Totalitarianism
1938	1945	World War 2	2022	2029	Major War

Story of U.S. Stock Market in One Chart, 1975 to 2035

The Story of the U.S. Stock Market (S&P 500) in One Chart from 1975 to 2035:

The Chart above tells the story of the United States Stock Market (as represented by the S&P 500 index) from 1975 to 2035.

Baby Boomers are the largest demographic group in the United States born around 1946 to 1960, right after World War II.

In the 1980s and 1990s, the Baby Boomers were in their Peak Earning Years and they earned, consumed, spent, and invested for their retirement.  This was helped in 1995 by an increase in the Money Supply, and the Printing Money Started leading to Fed Chief Alan Greenspan to proclaim that there is 'Irrational Exuberance'.  This finally lead to the peak of the Tech Bubble in the year 2000.

The Tech Bubble and Dot-Com Bubble burst, and interest rates remained low, and with loans being very easy to get (including no downpayment loans, and no proof of income), the housing market started its ascent into the stratosphere ending in the 2007-2009 Housing Bubble Peak and Burst.

The market tried to recover, thanks to Fed Chief's Ben Bernanke policies keeping interest rates very low, and printing money with three rounds of Quantitative Easing (QE1, QE2, QE3).  This occurred in conjunction President Obama's increased spending and stimulus plans following the Keynesian way of spending government money to get out of a recession.

We are currently now in the Debt Bubble (consumer debt, state and local debt, international debt, and federal government debt where the U.S. Federal government owes $16 Trillion dollars amounting to over 100% of GDP, and this amount is continuing to grow), a Spending Bubble, and a Government Bubble.  These bubbles will eventually burst.

And starting in 2011, the Baby Boomers are starting to retire, and the Aging Population starts to put pressure on the economy.   The dependency ratio (65 years and older and 0-15 years old to the total population) is going to increase through the years, adding to the burden, and hindering economic growth.

In addition, since the United States Debt to GDP Ratio is now 100% and growing, there will be a long term debt overhang.  There is a study by Carmen Reinhart (Peterson Institute for International Economics, NBER,  CEPR), Vincent Reinhart (Morgan Stanley) and Kenneth Rogoff (from Harvard University and NBER) that shows those cases in history where debt to GDP exceeded 90%, experienced suboptimal growth lasting an average of 23 years.

There are many signs pointing to continued economic stagnation, decline, and possibly recession and depression over the next twenty to thirty years (2032-2042).

Does the U.S. have a Spending or Revenue Problem? US Debt and Deficit

Does the United States have a Revenue Problem or a Spending Problem?

Since 1960, the United States has been on a Spending Trajectory, and the annual deficit over the last four years has been over $1 Trillion Dollars.

The Current U.S. National Debt is around $16 Trillion, and it is now over 100% of GDP (Gross Domestic Product).

But is it a U.S. Spending Problem or a Revenue Problem?

In the chart above, we see Spending and Revenue as a Percentage of GDP. 

Revenue since 1960 has remained in a narrow range of GDP and averages 18.1% over that time.  In that time, even if tax rates vary significantly, the Revenue has stayed in this narrow range with an 18.1% of GDP average.

Spending, on the other hand, has averaged 20.2% of GDP.  Since the Government can continue to borrow (with the Federal Reserve printing money), and since Government can continue to spend without any solid limit, you can easily forecast spending to continue growing.  When you consider a bulk of those annual payments goes to Social Security, Medicare and Medicaid, and since the U.S. Population is Aging and the Baby Boomers are starting to retire starting in 2011, you can imagine spending to continue to increase as a percentage of GDP.

So with Spending continuing to increase as a percent of GDP, and Revenue remaining a relatively constant 18% of GDP, you can see how the U.S. Debt Problem can grow year after year to create a crisis economic situation possibly leading to long term decade or multi-decade economic stagnation, or recession or depression.

The Problem the United States is having is a Spending Problem and not a Revenue Problem.

The Data:

Charts were created by this site, and Heritage.org, and data from the Congressional Budget Office.
The Spending and Revenue Chart above is based on the CBO's 2012 Long Term Outlook report, using the Externded Alternative Fiscal Scenario, Table 1-2. 

Aging Population Will Cause Great Bear Market to Last till 2025: The M/O Ratio

The Aging U.S. Population Demographic will put great pressure on the Stock Market and cause Stock Crashes and Stagnation for many years, only recovering in 2025.

Zheng Liu and Mark M. Spiegel made a great observation and they found that there is a direct correlation between the Market's Price to Earnings Ratio (P/E) and a Demographic Ratio called the M/O Ratio.

M == Number of people in U.S. between the ages of 40 and 49
O == Number of people in U.S. between the ages of 60 and 69.

Since 1954 to the present, this M/O Ratio has correlated with the market's P/E Ratio.

The theory is that those aged 40 to 49 are the main consumers and main producers.  And those in their 60s are in the retiring age, and those in that demographic will likely sell stocks.  So if the number of people in the "O" Demographic who will likely be selling stocks greatly outnumbers those in the "M" Demographic who are both producing and consuming, then the stock market will be pressured downwards.

When we project the P/E Ratio into the future based on the M/O ratio, the P/E Ratio is theoretically expected to drop from 15 in 2010 to about 8.4 in 2025 and recovering to 9.4 in 2030.

This research suggests that the U.S. (and the World?) might be headed to a long term Bear Market which will last a long time, only recovering around the year 2025.

This matches previous analysis by this blog speculating that we are near a Major Market Top, and that the Debt Crisis, and Demographics will cause a long term Secular Bear Market.

Stock Market Major Triple Top: Big Drop Ahead? Target S&P 600.

The U.S. Stock Market as measured by the S&P 500 index is at 1429 (Monday, September 10, 2012), just 10% below the all time closing high of around 1565 on October 2007.

The S&P 500 is nearing very strong overhead resistance, and it couldn't surpass it in 2000 (top #1) and then again in 2007 (top #2) when it could not surpass the all time high of 1565.

What if S&P 500 Can't Break Resistance: Target: S&P Level of 600, a drop of 58% from here.

There is a very bearish technical pattern called the "Triple Top Reversal" 

The pattern is more than establishing three peaks (and the stock market price not exceeding the last peak).  It also requires the stock pattern to reach the Confirmation Line (currently around S&P 700), which marks the previous valleys in the Triple Top pattern.  Some websites and books say the average decline from a triple top reversal pattern is around 15-20% below the Confirmation Line.

But since the time between Major peaks is more than 6 months (many years in the diagram above), the average drop is less reliable, but the pattern does mark a Major Market top.

It is possible if this scenario takes place, this could mean that the market could suffer many more years of difficulty (with stock market crashes and violent rallies).

The Fundamentals and Demographics support this theory:

All around the world, there is a global debt crisis, with countries planning to default on their debt.  The United States now has $16 Trillion in National Debt, which is more than 100% of GDP (Gross Domestic Product), and currently, there is no sign that the U.S. can control their finances, spending, and revenue.  This number also does not include $62 Trillion in Unfunded Liabilities or Promises to pay (which includes Social Security and Medicare).

The large Baby Boomer demographic is retiring and they will be selling their assets, and also, they will be claiming benefits such as Social Security, Medicaid and Medicare.  The younger generations are supposed to help pick up the slack, but there is not enough to do that, and there is high unemployment among the young adults, and many people are riddled with high debt, underwater mortgages, and ever increasing college tuition.

The Bond rating Agencies, in 2011, for the first time ever, downgraded the U.S. Creditworthiness.

Based on all this (and more), the U.S. Market might be headed towards another lost decade (2000 to 2020)?

S&P 500 Stock Market Crash?: $16 Trillion in National Debt and Bad Demographics

Is the Stock Market and the U.S. S&P 500 in Denial and is a Stock Market Crash Ahead?

Since the great stock market crash of 2008, the U.S. Stock Market has gone up from an S&P 500 low of 683 to 1432 today, September 6, 2012 for a gain of 110%.

However, during the same time, the United States National Debt went from $10.6 Trillion Dollars to today's $15.86 Trillion Dollars for a gain of 50%.

If we look at the ratio of U.S. Debt to GDP (Gross Domestic Product), we went from 74% Debt to GDP towards the end of 2008, to around 101% today, September 6, 2012:

 

 

[Numbers Here]

Is the Stock Market in Denial? 
National Debt and Bad Demographics means Trouble Ahead for the Markets.

The Stock Market has gone up over 100% since the bottom in 2009, but at the same time, the National Debt has reached a record $16 TRILLION, and now, the ratio of U.S. National Debt to GDP is over 100%.

Recently, for the first time ever, the Bond Rating Agencies downgraded the United States Credit Worthiness.

Also, there was a recent budget impasse in the U.S. Government, and the U.S. appears to be nearing a fiscal cliff.

The interest on the national debt alone will top more than $5 trillion over the next decade according to the projections from the Congressional Budget Office.

And there is no sign that this trend will slow down and reverse itself anytime soon, unless drastic and proactive actions are taken.

Bad Demographics:

Bad demographics will make this bad situation worse.   One of the largest demographic groups in the U.S., the Baby Boomers born soon after World War II, are starting to retire and will be claiming Social Security Benefits, and Medicaid benefits.  The Baby Boomers will also be living longer, putting a further strain on the system.

The hope is that the younger generations can fill the gap, but that's a problem, with high young adult unemployment rates, the young having to move home after College, and increasing debt and increasing college tuition costs.  Labor participation as a percentage of population has been decreasing and will continue to decrease, which it makes it more difficult to grow the economy.

Edge of Fiscal Cliff:

We are on the edge of a fiscal cliff, and important very active steps need to be taken to solve this dire financial problem.

The Stock Market could also be in Denial, and there is a risk of a gradual or sudden downturn which may occur soon, or over many years in the future.  There may be many Stock Market Corrections and Crashes and Violent Rallies in our future.

Despite the recent bull market since 2008, we are still in the middle of a Long Term Secular Bear Market.  The Stock Market is currently in Denial with many headwinds from a National Debt Crisis and Unfavorable Demographics.

Much Time is Needed Before Housing Can Recover

According to a recent Realtor.com survey, the top two obstacles to owning a home are (1) High Home Prices and (2) High Down Payments.

High Home Prices

Despite Home Prices continuing to fall, home prices are still too high.

Here's the Standard and Poors (S&P) Case-Shiller 10 City Composite Index since 1987:



Notice the dark blue line and the parabolic pattern reminiscent of the 2000-2002 Bubble.

The magenta line is the one year moving average of the Composite 10 index. If the Composite 10 index is above the One Year Moving Average, Housing Prices are in a Bull Market. If the Composite 10 Index is below the One Year Moving Average, Housing Prices are in a Bear Market. This is currently the case.

Still Unaffordable

According to a study looking at California Home Prices, many counties have incomes that are 50% of the income needed to afford the median priced home.

Previously, before the recent Credit Crunch, people were able to "afford" the homes based on loose underwriting standards, exotic mortgages, low promotional interest rates, and other adjustments. We are now experiencing the downside to this trend.

High Down Payments an Obstacle

Because of the recent Credit Crunch, Lenders have tightened lending standards. According to some, many people are trying to get financing, but they can't. Higher down payments are needed to buy homes now.

But how can these people afford the down payments when gas prices remain high, food prices remain high, the stock market is in a downtrend.

When combined with home prices remaining high and unaffordable, it will take some time before the housing market recovers.

Housing Annual Returns



According to Robert Shiller, author of Irrational Exuberance, and the Shiller in the Case-Shiller Index, from 1890 to 2007, the return on residential real estate was just about zero after inflation. Since 1987, it's been about 6 percent.

Robert Shiller also makes the case that if residential real estate returned 10 percent per year, houses would remain incredibly unaffordable.

In the Original Case-Shiller Composite 10 Index Chart above, there are two lines assuming 3% or 4% annual growth since 1987.

Future Housing Boom?

Is there hope for the future? Is there a future housing boom?

The stock market and the economy will eventually recover. Foreign investors, taking advantage of the cheap dollar, could start investing in U.S. properties.

Demographics will fuel the Next Housing Boom

But the real boom may be pushed by demographics.

Three major demographic groups include:

1. Baby Boomers (est: 1946-1964; 44 to 62 years old): 70 million
   
2. Generation X (est: 1965-1979: 29 to 43 years old): 17 million
   
3. Generation Y (est: 1979-1994: 14 to 29 years old): 60 million
   

As you can see, Generation Y comes close to the large Baby Boomer Demographic.

One of the major booms since 1890 (according to Yale Economist Robert Shiller), occurred after World War II as the demand for homes increased. This boom coincided with the boom of the Baby Boomer Generation.



Now, Generation Y, 2nd in size to the Baby Boomer Demographic, is going to be the right age to start families and buy homes. This might be an event similar to the era right after World War II when the Baby Boomers were growing up.

If we estimate that Generation Y would start buying homes between 26-29 years of age, then that would mean that greater number of Generation Y would be of age within around eight years from now.

After a lengthy period of time for the economy to recover, and for housing prices to stabilize or decline to a more stable and affordable level, there could be a future housing boom as Generation Y starts to buy homes.

Informal Thoughts: Portfolio moves (August 8, 2007)

I'm going to start a new segment where I casually mention my thoughts regarding making moves in my portfolio(s) without worrying too much about organization.

I'm currently thinking of selling Shanda Interactive (SNDA). While I believe in growth in online gaming in China, I already have The9 Limited (NCTY), which is another Chinese Online Gaming Play. Shanda dropped 7.3% today on a strong up day. I see Shanda up 2.9% in after-hours.

But I'm thinking of rotating into other areas.

Some possibilities:

1. Add more to America Movil (AMX). Emerging Market Telecom has been doing great. I already have an overweight on America Movil and Emerging Market Telecom. Should I continue adding to it?

2. Add more Leucadia (LUK). Leucadia is an excellent company that many people call the mini-Berkshire Hathaway. It has excellent management, and recently jumped 7% on good volume to all-time highs. I've been holding on to this, and this company looks like a very long term holding. I'm not a deep value investor, so I'm giving the reins to the great management of Leucadia. I think this company will do very well.

3. Add more ABB (ABB). This is Swiss Infrastructure play is reasonably valued with respect to growth, near its all time high, and is part of the great Infrastructure Bull Market which is benefitting from great global growth.

4. Buy Finisar (FNSR). This is a speculative $4 stock that had been on a bullish ascending triangle pattern. While it has suffered from possible Nasdaq delisting, this stock may benefit from Cisco's (CSCO) good numbers as Cisco accounted for 22% of Finisar's sales last year. The stock jumped 11.88% today in a strong market and also because of an analyst upgrade. This stock is in the networking/optical networking area.


Running a Screen

In order to find more ideas, I'm also ran a stock screen:

1. Stocks with Forward PE < 20


2. Stocks with 5 year growth rate > 20


3. Stocks over their 200 day moving average

This screen is similar but less restrictive than my Cheap Growth Ready to Breakout Screen.

I saw several oil services stocks like National Oilwell Varco (NOV), but I didn't feel like adding to this because I already had Ensco (ESV), an oil driller.

AMX showed up on the list again, and so did ABB.

Rio Tinto (RTP) showed up on the list, but I already had Freeport McMoran (FCX).

I see Telekomunikasi (TLK), but I already was overweighted in emerging market telecom. I see Vimpel (VIP), a Russian Wireless Telecom company, but do I really want another emerging market telecom?

I see Public Service Enterprise Group (PEG), but I don't feel like getting into the utilities sector (I already have a utility).

I see Cummins (CMI), a company which "engages in the design, manufacture, distribution, and servicing of diesel and natural gas engines, electric power generation systems, and engine-related component products worldwide." That's a possibility.

I see Satyam Computer Services (SAY), which an Indian outsourcing company. But do I want another Indian company? I already have an Indian company. But this may be worth a look.

One company that fascinates me in this list is Harris (HRS). They operate in four segments: "Government Communications Systems, RF Communications, Microwave Communications, and Broadcast Communications." The stock is also near its 52 week highs. This company is less levered to the US Credit Crunch, and its customers include the military and government who need this technology.

There's Gildan Activewear (GIL), which looks to have a great PEG, and BE Aerospace (BEAV), a beneficiary of the boom in aerospace. I also see Transdigm Group (TDG), which I already own and is part of the boom in aerospace.

There are many other companies in the list, but I think I have more than enough choices right now.

The Sectors in Bull Market Mode

We are in a bull market right now, with the S&P at all time highs, and the Dow near all time highs. So what sectors are working now? What are the long term trends worth investing in? (In this article, trends mean 3 years or longer.)

1. Agriculture:

In 2002, there was an influential US Farm Bill, "The Farm Security and Rural Investment Act of 2002." Prior to this, according to a Forbes Article, " few stocks had big moves prior to the enactment of the 2002 farm bill. Consider AGCO (AG), which sells combines and other farm equipment. Over the course of the year prior to the May 2002 signing of the farm bill, AGCO's shares climbed 150%, vs. a 14% decline for the S&P 500. Archer Daniels Midland (ADM) and Deere & Co. (DE), though not as frothy, also rose nicely in that time period." The push towards Ethanol is also another reason for the bull market in agriculture.

Jim Cramer prefers Deere (DE), who makes the agriculture farm equipment, Monsanto (MON), a biotech company that makes the seeds, and Chemical and Mining Co. of Chile (SQM), a fertilizer play in the agricultural sector.

Forbes likes companies such as Archer Daniels Midlands (ADM), AGCO (AG), and CNH Global (CNH), among many companies in the list they provide as beneficiaries of the farm bill.

2. Machinery

Similar to the farm bill, the $287 Billion US Transportation-spending law in 2005 has been good to machinery stocks. Beneficiaries include companies such as Caterpillar (CAT), and Terex (TEX). As a bonus, companies like Caterpillar (makes of construction equipment), have international exposure as well.

3. Infrastructure

In this area, Jim Cramer likes Foster Wheeler (FWLT) and McDermott (MDR). Foster Wheeler, "provides engineering and construction services to the oil and gas, oil refining, chemical/petrochemical, pharmaceutical, environmental, power generation, and power plant operation and maintenance sectors worldwide. It operates through two groups, Global Engineering and Construction Group (Global E&C Group), and Global Power Group." McDermott (MDR) "operates in three segments: Offshore Oil and Gas Construction, Government Operations, and Power Generation Systems."

Fluor (FLR), is another company in this area. Again, this sector also benefits from global growth.

4. Aerospace and Defense

All those old civilian and military planes need to be replaced. We are in the middle of long aerospace cycle. The main play is Boeing (BA), who benefits from the cycle and also from Airbus' troubles. Other companies in this area include BE Aerospace (BEAV), which manufactures and markets cabin interior products for commercial aircraft and business jets, Northrop Grumman (NOC), an aerospace and defense company, Embraer (ERJ), maker of jet and turboprop aircrafts for civil and defense aviation markets, and Transdigm Group (TDG), a 2 Billion Market Capitalized Company that "engages in the design, production, and supply of engineered aircraft components for use in commercial and military aircraft worldwide." Indirectly, companies such as Allegheny Technology (ATI), creator of specialty metals, benefits from this cycle, as newer planes need lighter materials to save fuel.


5. Oil, Gas, and Energy

Oil, Gas and Energy are in bull market mode because demand is high, and supply is low. The US and Emerging Markets need these to continue their fast growth. And supply is limited, so aside from oil, oil services company which do offshore drilling, supply services to oil companies, companies which search for oil, companies that make and manage offshore rigs are benefitting greatly.

Companies include integrated oil companies such as Exxon Mobil (XOM) and Conoco Philips (COP), oil services companies such as Halliburton (HAL), and Schlumberger (SLB), refiners such as Valero (VLO), offshore drillers such as Global Santa Fe (GSF) and Ensco (ESV), transport vessels for offshore oil services such as Tidewater (TDW), and oil services and rig companies such as National Oilwell Varco (NOV) and Transocean (RIG).

6. Minerals

Gold, Copper, Silver, and other materials are in bull market mode. Once again, this is low supply, high demand. The US, as well as emerging and other international markets are growing! They have an insatiable appetite for these materials. Companies include Freeport-McMoran (FCX), a gold and copper company, and Jim Cramer suggests Lundin Mining (LMC) as well, as the runner up.

7. Telecom especially Emerging Market (Wireless) Telecom

Wireless use, and advanced telecom services such as mobile internet, are growing around the world. Products such as the Apple (AAPL) Iphone, and Research in Motion's (RIMM) Blackberry help drive demand, and countries around the world are increasingly using these services. In the US and in Europe and in Japan, wireless penetration is reaching levels from 70-100%. However in Emerging Markets such as Mexico, and Latin America, wireless penetration is at much lower levels, and is expected to hit 60% penetration in the region only in 2010. That means that there is great opportunity and growth in this area. As an example, Mexican (and South American) telecom play, America Movil (AMX), still has a forward PE of only 15.51, and a 5 yr estimated growth rate of 31.6%, for a PE to Growth ratio of around 0.5, very cheap!

While AT&T (T) is a play on North America Telecom, the greater growth (at a reasonable price) is in emerging markets. Companies include America Movil (AMX), for Mexico and South America, NII Holdings (NIHD) for Latin America, Vimpel Communications (VIP) for Russia, China Mobile (CHL) for China, and Vodaphone (VOD) for Europe, Middle East, Asia and Africa.

8. Mobile Convergence/Wireless Integrated Devices/Handsets

Mobile convergence, where different technologies such as voice, data, and video come together in a single handset, is continuing to grow at a rapid pace. Leaders include Apple (AAPL) with their new handset, Research in Motion's (RIMM) popular Blackberry product, and other companies like Nokia (NOK). As new services emerge, the infrastructure to provide fast, high quality video on these mobile devices will play an important role.

9. Location Based Services

Location based services currently depend on GPS, the Global Positioning System. The companies which use these technlogies are doing well in the market, and will continue to do well, as anything that moves, from cars, with automatic navigation devices, to military weapons, to people holding mobile converged devices such as advanced cellphones will have GPS. Garmin (GRMN) is a company which provides Location Based Product devices. Navteq (NVT) is a company which provides the digital maps, and its competitor is a private company called Tele-Atlas. Sirf Technlogies (SIRF) makes GPS chips. Though it has struggled in the recent past, there are signs that the stock is stabilizing. Competitor includes Broadcom, who bought out their competitor Global Locate. Trimble Navigation (TRMB) is another company providing GPS systems. They even bought the company AtRoad, which tracks fleets of vehicles. Software maker MapInfo (formerly MAPS), was recently bought out by Pitney Bowes (PBI). Indirectly, telecoms will benefit, advanced handset makers will benefit, and companies such as Google (GOOG), may be prime candidates in creating location based service applications such as local GPS search supported by location based advertising. There is great growth in this industry!

10. Computer and Video gaming

Computer and Video gaming are in the middle of a strong cycle, as three major gaming consoles are out from Sony (SNE), Microsoft (MSFT), and Nintendo (NTDOY.pk). Sony also has the portable gaming device Sony PSP, and Nintendo has the portable gaming device Nintendo DS. Demographics also support growth as Generation Y is the 2nd largest group (after the Baby Boomers), and many people in Generation Y like to play games. There are many plays in this sector from Retailers (Gamestop (GME)), console makers (Nintendo (NTDOY.pk)), game makers (Electronic Arts (ERTS), Activision (ATVI)), graphic chip makers (NVidia (NVDA)), and gaming accessories (Logitech (LOGI)). More on this sector and analysis by the numbers here.

11. Online Gaming in Emerging Markets such as China

There is great growth in online gaming, especially in China. There is a growing middle class, and increasing broadband penetration (internet cafes included). In China and Korea, online gaming has become a very popular pasttime. Two good online gaming plays in China include Shanda Interactive (SNDA), and The9 Limited (NCTY) who has the right to bring World of Warcraft to China. Shanda Interactive has a free model where people can play the games for free, but pay real money for items in the game. Article on the Growing Online Gaming Market in Emerging Markets here.

12. Internet, Search, and Internet Video

The internet, the backbone of the major Information Revolution, remains strong. People need to find relevant information from all the data, and companies like Yahoo (YHOO) and Google (GOOG) help do this. Google (GOOG), the groups bellwether company, even purchased YouTube, a popular internet video company. Baidu (BIDU) and Rediff (REDF) service both the Chinese and India markets. Brick and Mortar Retailing continues to be challenged by internet retailing spearheaded by Amazon.com (AMZN) and EBay (EBAY). Infrastructure companies, such as Akamai (AKAM), help make delivery of information better and faster.

13. International Emerging Markets

Emerging markets such as Taiwan, Korea, South Africa, China, Mexico, Brazil, India and China are in bull market mode. This trend will last more than a few years, and this would appear to be part of a much longer trend. Since many companies benefit, an investor could invest in a broad based Emerging Market Exchange Traded Fund such as ishares EEM, and Vanguard's VWO.

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Other Sectors to Watch

Besides the sectors which are working well right now, there are other sectors worth watching. Some may start their run right now, while others may take more time to make their gains.

1. Optical Networking and Networking

More data is being placed on the internet, especially internet video. High Definition (which requires more bandwidth) will become more of a standard. Advanced services such as Internet TV (IPTV), and video demand will require much greater bandwidth. Eventually, the system will not be able to handle the demand for greater bandwidth. Next generation applications will require much greater bandwidth. Right now, even AT&T's top DSL Broadband package supports 6 Megabits per second (mbps). In Korea, broadband penetration is around 70%, and their internet speeds go up to 50 mbps, over 8 times faster than AT&T's top speed. The US is behind some countries such as Korea!

Optical Networking is a way to get much better download speeds. The best way to play this is througn Corning Glassware (GLW), who have the added benefit of servicing LCD and flat panel displays (another growth area). Ciena (CIEN) is an optical networking play. Speculative plays include $6 stock Level 3 Communications (LVLT) and $4 stock Finisar (FNSR).

I believe we are the verge of a breakout in the Optical area.

2. Obesity

Obesity is a long term problem. Two possible ways to play this trend are through Weight Watchers (WTW) and NutriSystem (NTRI). NutriSystem looks like the good growth play right now.

3. Specialty clothing

Certain companies just have a special story and product. A good example is Crocs (CROX), maker of a very popular type of footwear. Other companies include UnderArmour (UA) and Gildan Activewear (GIL).

4. Long-Term Care Facilities

Parents of Baby Boomers and eventually the Baby Boomers may need to use Long Term Care Facilities such as Manor Care (HCR), Brookdale Senior Living (BKD), and Sunrise Senior Living (SRZ). We need to watch this group for better action.

5. Healthcare Information System

Eventually, healthcare needs to have integrated software systems. The companies which provide these solutions include Cerner (CERN), Allscripts (MDRX), and Quality Systems (QSII). While this is a growth area, we may have to study the companies carefully to determine the better play.

6. Specialty and Niche Product Companies

Companies which provide a specialty or niche product have a competitive advantage. Examples might be #2 Energy Drink Maker Hansen Natural (HANS), and robotic surgery company Intuitive Surgical (ISRG).

7. Gambling Companies

There is great growth in the gambling and gambling equipment industry. Macau, in Asia, is being transformed into the Las Vegas of the East, and many companies can benefit. If internet gambling (which has taken a hit based on some laws restricting them in the US) comes back, this group will grow even more. Some companies in the gambling and gaming area include Las Vegas Sands (LVS), and MGM Mirage (MGM). Gaming equipment companies include International Gaming Technlogy (IGT), Scientific Games (SGMS), and ShuffleMaster (SHFL).

8. Leisure and Entertainment

Baby Boomers are in their peak spending years which may finally peak in 2010, until Generation Y comes of age. Also, Generation Y, as represented by Generation Y reporter of TheStreet.com Cliff Mason, appears to be more willing to spend money on leisure and entertainment. During these periods, leisure and entertainment companies should benefit.

Companies in this sector include gambling companies and gambling equipment companies (as mentioned above), hotels and resorts such as Starwood Hotels and resorts (HOT), Cruise Ship Companies such as Carnival Corp (CCL), and companies such as Vail Resorts (VAIL) and food and restaurant companies such as Darden (DRI). Powershares ETF "PEJ" covers this area, and the companies in the ETF are listed here.

9. Water

Some people say that water, and clean water, may be the next oil. An ETF which covers this area is powershares PHO, which holds companies such as Mueller Water Products (MWA) and Tetra Tech (TTEK).

10. Environmental Cleanup and Waste Management

Some companies have to cleanup our mess and all or waste including industrial waste, and radioactive waste. According to a Motley Fool article, the trends driving growth in this sector include growth in consumer spending on disposable items in growing populations. Also, there is a rise in industrial waste services as more companies utilize hazardous products in production facilities. There is a greater concern for the environment, so these companies will benefit. Companies in this area include Waste Management (WMI), Clean Harbor (CLHB), and American Ecology (ECOL).

11. Stock Exchanges

Stock Exchanges are in bull market mode. There is great consolidation in this area, and people speculate there may be only a few worldwide stock exchanges. Companies include the InterContinental Exchange (ICE), Nasdaq (NDAQ), New York Stock Exchange-Euronext (NYX), CME Group (CME), and Nymex (NMX).

12. Future Gen Y Plays: Housing, Automobiles, Weddings, Babies

Yes, housing is down right now, but we have to look many years into the future. Generation Y is a very large group, second only to the Baby Boomers. They will eventually (many years from now) be buying their first homes. They will also make other large purchases such as automobiles, and many will be getting married, and having babies. This sector trend will be good for companies in these areas, but we may have to wait many years to play these trends.


Credits

Through my research and experience, I found these bull markets. Jim Cramer mentions six wild bull markets, and those six are incorporated above (with my comments), and a long time ago, Jim Cramer also suggested looking into areas such as HealthCare Information Systems.

Generation Y: The Big Opportunity

According to the Business Week article, Generation Y (or Millenials), are those born between 1979 and 1994 (As of 2007, they would be 13 to 28). In terms of numbers, they are the 2nd largest group in the United States after the Baby Boomers.

Some numbers:

1. Baby Boomers (est: 1946-1964): 72 million
2. Generation X (est:1965-1979): 17 million
3. Generation Y (1979-1994): 60 million

With 300 million people in the United States, if we add Baby Boomers and Generation Y, these two groups make up 44% (132M/300M) of the United States population.

Much attention has been given to making money on the Baby Boomers. But if we are to truly profit, we need to look at the demographics and profit from Generation Y as well.