I own shares of this company, so what happens to it is of deep emotional significance to me and maybe I'm biased on the company's prospects. But to see it trading at a price to earnings ratio of 15x earnings, well below the S&P 500's current multiple, is, well, shocking.

Maybe a chip maker is just another kind of cylical now, and maybe tech stocks don't deserve higher multiples. But who'd have thought a year ago that the market would get this down on one of the stars of tech America?

The market sentiment seems to have shifted to AMD, but I suspect that's more a matter of fashion than substance. I'm thinking that Intel is getting one of those whippings that the market periodically decides to dish out when earnings aren't growing as fast as Wall Street wants. I'm betting it doesn't last over the long run.

I've noticed that every article I reference on this blog is tied into the gloom and doom scenario for 2006, and there's always a danger of reading and absorbing only the evidence that supports your own prejudices and subconciously factoring out any evidence that runs counter to your view. Therefore in the spirit of forcing myself to look at the rosier aspect of the current situation, I'm presenting the following paragraph from a story that came over today's AP wire:

NEW YORK - Although Wall Street's reaction to fourth-quarter earnings reports has alternated between elation and despair, corporate profits remain very healthy overall, and the majority of corporations are beating expectations.

Of the 241 members of the Standard & Poor's 500 that reported earnings as of Friday morning, 155 companies, or 64 percent, surpassed Wall Street analysts' forecasts. Another 42 companies, or 17 percent of those reporting, matched estimates, while 44 companies, or 18 percent, had lower-than-expected earnings.

According to Thomson Financial, that's well above than the S&P 500's long-term average of 59 percent better-than-expected earnings. Profit growth remained strong, with the average company posting 13.2 percent year-over-year gains, Thomson said.

Okay. Now it's in the record. Look at this news story. LOOK AT IT. Accept it and ask yourself whether it changes your thinking about the market in 2006. If after reading it, you're sticking with your views- so be it. At least you looked at the other side's argument. So what we know now is that at least on average, companies are doing what Wall Street expects when it comes to earnings. No small accomplishment when Wall Street prices in double digit earnings growth into their models year after year.

So that's the positive side of the equation. I'll probably just ignore this information, but as least I know I shouldn't ignore it. For whatever that's worth.

This morning the government releases an economic report showing that economic growth slowed sharply in the fourth quarter of 2005 to an annual rate of 1.1%, less than half of what economists had predicted. So as of writing, where has this news taken the Dow? Why, up by almost 1%. All signs are pointing to a continued slowdown in the 1st quarter, so the market reacts by going up!

The market reminds me of my cat. Ever notice that sometimes the cat stares at you from the living room floor like it's saying, "Yeah, you thought I was going to jump in your lap to be petted- but guess what? I'm going to go hop on the kitchen table while you're not looking." Why? What's the thinking behind that?

Dogs we understand. Dogs and us humans are running in the same pack. A dog almost never turns down food it's offered, or the chance at a nice pat on the head. I don't know why the market doesn't operate more like a pack of dogs than a housecat; I just chalk that up to one of those mysteries of the universe I'll never understand. But next time you think you know what the market will do the next day, ask yourself whether you can tell what your cat is going to do next. And if you can't even say what a stupid house cat is going to do, how are you going to predict the movement of the Dow?

Okay, ordinarily I don't write about politics, but I couldn't resist today after seeing this paragraph in a NY Times story about Bush's latest poll numbers after he spent the week talking about why he can't be bothered to obtain a warrant before tapping citizen's e-mail or phone calls:

The poll also found that while many Americans would tolerate government eavesdropping on e-mails and phone calls without warrants to combat terrorism, they're concerned the program the Bush administration is aggressively promoting could encroach on their civil liberties.

In other words, "Feel free to listen in on everyone else's calls- just don't listen in on mine."

Call that the motto of the new, post 9/11 culture we live in. Sort of like "Live Free or Die" for the nervous and submissive. Note to state governments: I give you permission to use this motto for your license plates, if you want. More than half your citizens won't mind at all.

I'm going to be straight with you here. This is a real memoir of my time owning J&J. There are no made up episodes in this story. No exaggerations like you find in “A Million Little Pieces.” I'm not going to say that once I bought it I took a bunch of drugs and beat up a cop and then spent time in jail before finding redemption in rehab when the truth is that I just bought it in 2001 and held it without incident for the next five years. Or that I pretended to be a cross-dressing homosexual prostitute with aides just so I could get people interested in this story of how I bought J&J and have made no money on it. Reality is dull, see? So this memoir is going to be dull. That’s the truth of it.

I'm not going to adopt the publishing industry's definition of the term "memoir", which apparently is synonymous with the word "lie." So much so, that bookstores should move what passes as memoir these days to an entirely separate rack. One that's placed between the racks for non-fiction and fiction. They can label that rack the "bullshit" rack, so when I go in and ask to read someone's highly popular autobiography about being a drug addict in rehab or a self-hating lesbian or the guy who ran the CIA prior to the invasion of Iraq, the clerk can tell me, "Oh, that book is over there with the rest of the self-promoting bullshit . . . yes, over by the coffee bar." Problem solved.

My story with J&J is very simple. I paid 60.75 per share in November of 2001. I don’t remember what attracted me to the company other than that it had a good reputation, was in the drug and medical products field, and has seen good growth in its share price over the previous decade (this is not a very exciting admission for a memoir, so let me do some editing here: the reason I bought J&J was because either because I was molested by a priest, or because I was an pale, quiet kid in high school who the other kids called “squirrely-bones” and who participated in satanic rituals with a group of homoerotic Baptists- either one will do).

I admit, the company seduced me with its solid profits, the pleasant dividend, the prospects for future growth that were, at least in public, respectable. But the stock has a dark side (bet you didn’t see that coming). Everything about this company is average. Average growth. Dull dividend. A profit picture that inspires no one. By owning this stock, I have touched the face of evil, and that face is my own. (make sense? Who cares- it sounds all literary and lyrical).

I’ve thought about my shares in J&J many times over the years. It’s hovered around 60 most of the time, sometimes going up a few bucks before falling back down. Every now and then I realized that my commitment to the stock was holding back my returns, and yet I just couldn’t abandon the relationship. Each time I came to understand that selling those shares was just what The Man wanted me to do. He didn't care about this half-black, half-Navajo, half-Chinese kid born into a working class brothel in Bangkok. Maybe owning J&J was my form of rebellion in a world that just didn’t care about me or try to understand my tortured soul. Forget trying to understand people like me, middle-class America, I said. You drive around in your SUVs and you listen to Coldplay on your I-pods, and go to Applebees and order your little basket of curly fries just like some deep-fried potato craving robots- and you've never once bothered to ask yourself why I, the ignorant investor who everyone laughed at in high school, bought J&J at 60.75. How do you live with yourselves, America?

Now it’s years later. J&J's stock price has tumbled below 58 over the past couple of days. I don’t know why. The company was locked in a battle with another maker to buy Guidant, and now that J&J has lost out on the bidding Wall Street seems determined to punish them for it, even though the conventional wisdom seemed to be the Guidant buy was an only so-so idea. Despite reporting improve earnings, Wall Street also didn’t like the company’s failure to increase revenues during the past quarter. It’s trading now around 18x earnings, just like the Dow (an index of which it’s a part), and I can’t live like this any more. What point is there going on owning J&J instead of shares in an index fund? I’m beyond the limits of human endurance here.

So I’m ready to trade my shares in J&J. Just end my relationship with this dull brute of a company that has psychically destroyed me during the time we’ve spent together with its failure to increase in value. Selling it is the only way I can regain my soul. I’ve hurt so many other people by owning it. My family, for one, who were expecting capital gains from the J&J trade to buy a new car. But maybe- just maybe- by selling it I can finally find the redemption I now know I’ve been seeking all these years with my drinking, my promiscuity, and my owning of individual stocks through my Smith Barney account.

Oprah- if you’re looking for a new memoir to tout- I’m here for you, baby. I’m here.

I've spent the past couple of months locked in investor paralysis. This condition is caused by the inability to choose between two options that both appear to make sense. In my case, it involves several decisions.

First, how big a proportion of my portfolio should I be holding in cash? Right now I'm sitting on a pile of dollars, and according to the principle that there is no way to time the market that money should be invested in typically more productive investments. Yet somehow I can't make myself buy in right now. The market appears to be efficient right now, fairly priced at historical multiples, and the profit picture over the next 1-2 years (which is what I think market's basic horizon is when it comes to valuation) is looking anemic.

Second, even if I go for equities, how much should be invested in this country, and how much abroad? I don't like the way our government's fiscal policies look, but what do I know about the effects of currencies and the prospects of foreign stocks? Nothing. And it's always hard to invest in things you don't know anything about. Or at least it should be.

Third, should I sell my positions in individual stocks and focus purely on mutual funds? I've already decided never to buy another share in a company, but I'm torn about keeping positions in my current portfolio open. To sell all of them at once will result in substantial tax liabilities, and yet a gain isn't a gain until you get the cash in hand. And since I don't see capital gains taxes going down any further, there's a good chance there will never be a better time than the present to pay the government its share of the money I've made by owning GE, BP, and GSK over the past 15 years. These are what I refer to as my "relationship" stocks- they've been good to me all these years, but honey, at some point we need to see other people, you know?

Anyway, that's what's on my mind right now. Paralyzed by indecision. I'm not confident on the future, not sure what to do. Getting frustrated. Or maybe it's just some kind of financial mid-life crisis. I just don't know.

The news out of Japan is that the Nikkei is down almost three percent today. It's sure to provoke comment (why else would I be commenting on it?), but if you look at the chart for the past year it's no surprise. It looks to be up about 35-40% in eight months or so, and that's a rate of increase that begs for a pullback.

Contrast that with the Dow over the past five years, which hasn't done much of anything. I could see the Dow falling in response today, but not by much. At least, the traders aren't going to view Japan as a bellweather given that the Dow hasn't seen the same runup that the Nikkei has. What the hell- my call at 9:09 am is for a .7% decrease by close. How's that for sticking my neck out?

This news from Tokyo doesn't change anything in my portfolio or outlook. Maybe today's move signals that the performance of foreign stocks over the past couple of years is coming more in line with the American market. I just don't know.

I don't mind market pullbacks after long months of high gains. It shows that there is still caution and rationality in a market, and as long as you've still got those you've got an efficient market. Craziness and the madness of crowds makes me nervous.

Reading a respected financial blog today, I came across this gem in the comments section of a post on Apple, which currently has a P/E of 55. Somebody identifying himself as "stock guy with a big mouth" noted:

apple's cheap. stock goes to $100 and then another stock split...HANS and MIDD are two others I'm convinced will split inside the next 90 days...All three are growing rapidly and have astonishing growth ahead of them.

This is typical of the financial blogosphere. The one quality that most seem to share is certainty. Every time I read something like this, I'm sure at least one of these blowhards must be right. I just don't know which one. Nor do I know which ones have bought stock and are clumsily trying to prop it up by drumming up interest in blogs targeted at market professionals.

Everyone has an agenda in the blogosphere. Many of the better bloggers are giving an honest opinion. Some may be making a downright dishonest to pump up a position they hold, but mostly people write as part of a purely psychological mechanism. People declare their market calls so strongly that one suspects the point is to convince themselves that they're making the right bet. They might not even realize they're doing it. A lot of money is at stake, and in our society money is the key to a comfortable life. People need some way of carrying the load when they start taking on risks, whether in a stock trade, a big debt, a new business.

I guess that means I must have an agenda, too. Only I don't know what mine is. Expressing a quiet frustration at my own failure to make millions playing the market while trying to subtly persuade myself that there's nothing wrong with decent, solid returns? Hmm. Sounds about right. I'll go with that.

In today's edition of the New York times comes this piece in the Week in Review section:

With James Frey's admission last week that he fabricated many of the hardest knocks in his hard-knocks memoir, "A Million Little Pieces" - followed by the news that neither his publisher nor his most prominent cheerleader, Oprah Winfrey, seemed to care - maybe it's time to ask: Does anyone care anymore about the ratio of fact to fiction in the memoir?

If you read the rest of the article, you find that very few people- including the author- see much problem in a fake memoir.

"I think it's partly because over the years the line between fact and fiction has been really blurred in our society," said Mr. Dickstein, the author of "A Mirror in the Roadway: Literature and the Real World."

"Take the example of advertising or promotion, where people are willing to tolerate listening to politicians making claims, or marketing people making claims, that, if they're not completely false, they're always right at the edge of falsehood. But they tolerate it as part of the overall media buzz of their lives."

One issue the writer doesn't answer is whether the gap between a fake memoir and fake news story like the ones that Jayson Blair wrote in the New York Times a few years back has narrowed. What if Mr. Blair did what he did because he had begun to see that everybody around him was doing similar things: making up quotes, blending characters into composites, describing as eyewitnesses things they had never actually seen? Journalism became tangled with fictional techniques a few decades ago, and the demands of fiction are stringent: you must have compelling and sympathetic characters facing obstacles and overcoming them in a dramatic fashion. But real drama rarely occurs in ordinary life. Makes you wonder whether most of the dramatic angles in the news are mere inventions, doesn't it?

I'd have a little more faith in the media if the reaction from them to Frey's memoir had been to point out that a memoir is not an excuse for outright lies. That there are such things as facts. That if someone's story sounds implausible and the available evidence doesn't back him up, then chances are he's full of shit. That Oprah Winfrey is a stinking whore (almost literally) for continuing to tout a book that's been dishonestly sold. That saying all autobiography is complete and utter bullshit (which is the implication they make by excusing Frey's lies), insults and degrades all those people who can tell their own stories without degenerating into the tactics of the con artist.

These people in the media, they're the ones we depend on for information on the economy, on companies, on all aspects of investing- yet they seem positively blase about Frey. Makes you wonder what kind of liberties with the truth are "traditional" or "expected" in financial journalism. What don't we know about how they do their work?

I imagine them saying, "We're sorry we didn't look into Enron's outrageous claims about its outsized earnings- but you know, financial journalism isn't really about investigating stuff. Everybody does puff pieces on companies...we thought you understood that."

"No," I'd say back. "I didn't know that."

The other day I had to eat crow on the Dow, only to find this story in the wire the next day:

NEW YORK - Disappointing earnings from Alcoa Inc. sent stocks lower Tuesday and threatened to halt the market's January rally one day after the Dow Jones industrial average closed above 11,000 for the first time since June 2001.

Alcoa is part of the Dow and a major producer of aluminum.

Alcoa disturbed investors by reporting a 16 percent drop in earnings from the year-ago period. Copper maker Phelps Dodge Corp. also said its fourth-quarter earnings will fall well below expectations . . .

At a time when the economy is booming, Mr. Market goes looking for a canary in the mine to signal when the economy is cooling off. Because all economies cool off eventually. Always. That's in the Bible somewhere, I think. Look it up. Einstein implied it in his famous formula. We're talking universal rule. Like the desire of every man for representative democracy and consumer goods (well, outside the Sunni triangle, anyway).

Aluminum and copper are used by other companies use to make goods that later show up on our shelves and in our garages-- it's the lego blocks of the modern economy- so when the demand for aluminum and copper drops Mr. Market takes notice. The damage is likely to be limited here because these are just a couple of companies out of all commodity producers and this might only be a blip in a long boom for commodities.

In other words, the canary might not be dead yet. He might just have indigestion. But I'm going to keep my eye on him.

NEW YORK - The Dow Jones industrial average crossed 11,000 Monday for the first time since before the 9/11 terrorist attacks, buoyed by a rally that has sent stock prices soaring through the first five sessions of 2006.

Wall Street's best known stock indicator reached 11,003.50 shortly after 1 p.m. EST, the first time since June 13, 2001, that the index of 30 blue chip stocks traded above that milestone. It last closed above 11,000 on June 7, 2001, when it stood at 11,090.74.

Hey, what can I say? A while back I remember predicting a 10% drop in the S&P and the Dow for right about now, but I told you my predictions have a way of going awry. I can't spot the reason for all this sudden love going out to stocks in the opening days of 2006, but apparently everyone came back from the New Year feeling upbeat.

Yes, there's humiliation making the wrong call. But the pain of humiliation is mitigated by the pleasure of watching the value of my portfolio go up. Go little Dow, says I, make a run for it. Me love you long time. And so forth.

I'm still bleak on the prospects for 2006, if only because a lot of sources of cash in the economy seem to be drying up- home equity probably isn't rising as fast as it once did and so can't be cashed out, interest rates aren't falling so we won't see as many refinancings, taxes are going to have to go up to cover the deficit, energy costs are higher. The word on the street is that high consumer spending isn't needed now to keep the economy growing because capital spending by businesses is about to skyrocket, but I don't find this argument compelling. Businesses add capacity when they expect strong demand, and demand for U.S. goods and services seems to be topping out rather than getting ready to leap to new levels. Maybe we chug along like this for a while, with only a slight slowing in GDP growth.

I'm kind of giggling at myself here, because I'm predicting the future even after saying many times DON'T PREDICT THE FUTURE. I can't resist, though. Weakness surrounds me like a big foggy cloud.

Still working on my plan for the year. Right now I'm considering going about 40% in short to intermediate bonds or cash, 50% equities, and 10% gold. Equities would be split between domestic and foreign stocks. That sounds very businesslike and reasonable, doesn't it? Nothing earth shattering or risky. Dull as watching grass grow. Which, as Paul Samuelson likes to say, is the way investing should be.

The price of gold is a big subject on financial blogs and in the press right now, so naturally the stuff has drawn my attention away from my usual practice of spending a day at work thinking about videogames, South Park, and all the actresses I’d like to sleep with.

The story on gold right now has several variations, but overall the view of many bloggers who are sharper than I am seems to be that the metal will continue to increase in value. They say that since 1) inflation is much higher than the official government statistics show and 2) because the wackier and highly stimulative financial policies of our government and central bankers, we’re going to see a widespread loss in confidence in the dollar over the next couple of years. In such circumstances, they say, people will flee to gold as the world financial system shudders under the stress of an American economy cracking, driving the price ever skyward.

Okay. I suppose that could happen. It’s a gloomy scenario, but I’m prone to pessimism and so I’m willing to consider it despite what the Bush Administration tells me about how good my life is. But the next question is, how much gold am I supposed to buy to protect myself from this possible calamity? Even if gold is something I should own, the bloggers don't seem clear on just how what percentage of my money should be devoted to this asset class.

Here's the problem: Gold is inert. It doesn't produce anything. It doesn't grow market share, invent new technology, or provide a much needed service. It doesn't collect rent or make a profit. Its value is based on the desire of people to possess it. That's it.

Now I admit to being conflicted about gold. Ever since it shot up during the economic turmoil of the 1970s, gold's been a big favorite among the speculator crowd and the people who think our economy is headed for a doomsday scenario. And until the past few years gold broke the hearts of these fans. Now it's become the talk of the speculating crowd. It's been the best investment over the past five years, one finance blogger said. The so-called "gold bugs", once mocked for their fanatical beliefs that the metal would shoot upwards in value, seem to be enjoying a renaissance of Florentine dimensions. So naturally, faced with flat indexes, low bond yields, and a cooling of real estate fever- the money is starting to flow into gold funds. Gold mania has begun.

Recently on CNBC, I saw a guy who runs a gold fund say that gold should be in everyone's portfolio (expected given his job) but that gold should never account for a major portion of a portfolio (unexpected, given his job). The problem with pushing gold as huge share of an investor's portfolio is the huge risks involved. If inflation doesn't take off, or if the world's currency market doesn't get all squirrelly, people will start moving out of gold. And there's nothing more subject to the laws of supply and demand than a commodity. A stock might pay you dividends or grow sales even as its market value tanks, but gold doesn't pay anything. Once people start moving out of it, the only way for the price to go back up in real terms is to convince more people to buy it, and as I said before, unless people are worried about inflation or panicking, they generally don't want the stuff. There's a reason why gold was such a miserable investment for decades.

So 10% gold in a portfolio? Sounds like a perfectly sane idea. Some of the macro forces at work in the world seem to favor it. Go as high as 20% if you want to make a bet or can't sleep at night worried about a crashing dollar or financial system. 50%? 100% Hmm, now you're taking some big chances. When times are good and people are feeling confident, gold crashes.

I try and take a broad view here on this blog and generally shy away from predicting the future with any seriousness. I've got a long history of seeing my gloomier predictions gutted by subsequent events, so now I make them only for fun. Who knows what the future will bring?

That's why you have to ask yourself about the next few years: What happens if the economy doesn't shake itself apart? You have to plan not just for the worst case scenario; you also have to make sure you're open to the gains possible in the best case scenario. And if a lot of the economic risks we’re facing right now turn out okay, gold is not the place to be.

So consider gold, but don't be manic about it.