The short strategy I am employing is leveraged by trading the following ETFs: Financial Bear 3x (FAZ), UltraShort Financial ProShares (SKF), UltraShort Technology ProShares (REW). These ETFs use leverage to increase returns within the fund’s objectives, however that leverage works both ways and could result in greater than normal losses as well. The benefit to short and leveraged short ETFs is that you can short the market or a particular sector without having the potential for unlimited losses, quite similar to purchasing put options rather than naked shorting.

I am confident the recovery is not imminent as housing will continue to deteriorate as interest rates rise. The massive amount of debt being issued by the US government will increase treasury yields as investors demand greater returns to absorb the incredibly large volumes of new debt. Jobs will continue to be scarce and the auto industry will suffer an even bigger meltdown now that Cash For Clunkers has ended and car sales will plummet to historic lows as anyone who was going to buy a new car in the next 6-12 months has now done so.

[tags]investing, stocks, financials, technology, treasury yeild, dividends, cash for clunkers, stock market, dow jones, nasdaq, portfolio[/tags]

There is only one glaring problem with this plan: that’s how we got in this mess in the first place! Freewheeling lending by the nation’s banks caused the unsustainable increase in home prices and propped up sales of new cars and fueled the inner consumerist in all of those who can’t manage their spending appropriately.

The solution to the problem isn’t going to be easy, but it has already begun because banks have tightened their lending standards to only put money in the hands of people with a good track record of repayment. This will not only benefit consumers by keeping money out of the hands of those who can’t repay, but it will also restore these institutions to profitability much quicker than under the government’s plan of just giving money to any Joe Guy that walks in the door and wants a loan. The politicians should also stop complaining about dividend payments being made by financial institutions because most American’s hold substantial stakes in our nations banks in their retirement portfolios and are directly benefited by receiving this money.

If the government gets its way and begins forcing banks to lend money to undesirable borrowers, then I am certain we will see ourselves in this mess again within the next decade. With a democrat in the white house and both houses of congress being controlled by the same party it is likely that the bailouts will continue and try to prop up the economy in the short term. However, the moderate term outlook for the stock market and economy looks terrible. There could be a short-lived pop in the economy after the government greases the wheels of the economy, but it will almost certainly come crashing down again sooner rather than later.

I really don’t see how anyone can be bullish on the economy either domestically or internationally if these events are allowed to unfold as our politicians are hoping. Just remember, their only concern is to get re-elected and most are not economic experts.

I think the investors with the foresight to short the financial and sector will be the winners in 2009.

[tags]economy, bailout, democrat, financial crisis, housing, meltdown, shaun carter, banks, lending, borrowing, federal reserve, economy[/tags]

I used this rally to sell aggressively out of some of the smaller, riskier stocks and keep money in the strong, high dividend yielding stocks that will surely weather the coming economic storm. This rally was surely pushed by short covering and could quickly reverse this week and continue a downward trend heading into tough economic numbers that are surely coming.

The movement is due to the coordinated global effort to stabilize the markets by financially supporting banks and ensuring that they will not be allowed to fail and thus cripple the global economy. However, I don’t think this will avert a large scale recessionary period that we will experience through 2009.

[tags]stock market, dow jones, nasdaq, rally, investing, shaun carter, recession, dividends, economy[/tags]

That $2 Billion investment in Countrywide is seen as a bailout and came at a very high price for the mortgage lender, with BofA seeming to get the much better deal. The investment was for preferred non-voting shares with an interest rate of 7.25% with the option to convert them into common stock with a strike price of only $18/share. Countrywide traded at approximately $22/share at the time of the deal and if converted, BofA would own 18% of Countrywide and be the largest shareholder. Many are speculating this could be the first move toward a potential tender offer for the company, but I’m inclined to believe it is simply a very shrewd investment at a very favorable rate of return. This investment in Countrywide could prove to be very profitable for Bank of America, especially if the government comes through with any type of bailout for the mortgage industry. A bailout would make any mortgage play a lot less risky for all investors.

Banking has gone out of favor for some reason as people dump shares of financials for fear of the foreclosure mess, but it turns out Warren Buffet has taken a keen interest in the sector for the same reasons as I, he sees incredible value in an industry that was more severely punished than it deserved. I have picked up several banks at book value or very near and they have rebounded nicely in the last month. Berkshire Hathaway has been accumulating shares of BAC among others.

Currently BofA is trading with a P/E below 11, very attractive for a banking stock and is paying a very nice dividend of over 5% at the current price. The dividend alone is worth the investment as BofA has a habit of regularly notching up the amount paid to shareholders just like many of the other large cap financials out there. At the time of the original Dividends Are King post, Bank of America was trading at 49/share and is now 52 and climbing. Analysts have a mean price target set at 54, with a high around 65. I definitely see this stock more in the 60′s over the next 6 to 12 months, but the fallout from the subprime mortgage mess will no doubt adversely affect this stock in proportion to the situation in the mortgage marketplace.

[tags]bank of america, countrywide, shaun carter, dividend, stocks, market, earnings, investing, finance, subprime, mortgage, countrywide, yield, interest, preferred stock, common stock, warren buffet, berkshire hathaway[/tags]

Citigroup is in a sector that has been out of favor amid the growing concern over the subprime mortgage meltdown. However, Citigroup is a very broadly diversified financial services organization and will not be affected as severely as the pure-play mortgage lenders. On of the most attractive things about Citigroup is the dividend, which is currently about 4.5%. The dividend here is regularly increased and will provide for very strong cashflow into the future and at the current level of $48 per share, there is definitely some upside on the capital appreciation as well.

While most financial stocks are in the dumps, the P/E of 11 on Citigroup is quite low given its position in the marketplace as the leader. Citigroup’s five-year average dividend yield is 2.9%, a full 1.5 points below its level now. This shows a significant amount of undervaluation and signifies a good entry point here in the mid 40′s.

Citigroup was recently one of the financial institutions to borrow money from the fed discount window, taking some $500 Million. In the news release it says Citigroup borrowed the money “on behalf of clients”, since then several other banks have tapped the discount window for the same amount.

Analyst estimates call for better-than-industry earnings growth over the next year and five years out as well, with price targets currently around $60/share. However, the most recent upgrade/downgrade of the stock was a downgrade by Punk, Ziegel, and Co. from Buy to Market Perform on July 18, 2007. Since that downgrade the stock has fallen some, but at these current levels it’s moved into an accumulation territory.

[tags]citigroup, c, shaun carter, dividend, p/e, finance, banking, credit cards, student loans, business credit, downgrade, upgrade, mortgage, subprime, credit, checking, savings, accounts, stocks, investing[/tags]

Altria was formerly a conglomerate of businesses including Kraft Foods which was recently spun off from the tobacco segment of the company to provide investors with more of a pure play on either side. It should also be noted that Altria owns a 28.6% interest in SABMiller, who manufactures Miller beer which is currently the worlds second largest brewer. Since the spinoff, Altria has continued to trade around $70/share, closing this past Friday at 67.39. Altria is attractive because of it’s 4.1% dividend and highly profitable tobacco business which is litigation prone, but the industry is better insulating and preparing itself for such setbacks.

The US tobacco industry may be seeing some setbacks from increased consumer resistance to smoking as a socially acceptable pastime. The real growth here is in Altria’s international tobacco business which is seeing tremendous growth. Current 12-month price targets are 69-89 a share. Where the share price is a year from now will be decided partly by a proposed change in the tobacco excise taxes in the United States, increasing them from 24 cents a pack to 43 cents.

The tobacco industry is not for everyone. Many people choose not to invest in it for personal reasons. While I don’t buy Altria’s products, I do see significant value in their business and it’s potential for increased profitablity and dividend growth.

[tags]shaun carter, phillip morris, mo, altria, kraft, tobacco, cigarettes, cigars, chewing tobacco, dividends, marlboro, basic, parliament, virginia slims, sabmiller, miller[/tags]

Phillip-Morris (MO) -4.1% Dividend

Citigroup (C) – 4.7%

Washington Mutual (WM) -6.6%

National City Corp (NCC) – 6%

Bank of America (BAC) – 5.4%

Pfizer Inc (PFE) -4.9%

I’ll be covering each of these stocks individually and in depth over the next week and discussing their pros and cons. While these companies all pay high dividends, the banking sector is very uneasy right now and some of the banks may be better bargains than others. The key point to remember with dividends is that even if a company pays a great dividend, if it loses 50% of it’s value in 12 months from when you purchased it, the dividend wouldn’t matter much. It’s easy to get blinded by the dividend, but it’s still just one portion of the analysis needed to make a buying decision.

[tags] investing, shaun carter, money, stock market, dividends, phillip morris, bank of america, citibank, pfizer, washington mutual, national city[/tags]