Economy
My Solution to BP Station Owners’ Declining Revenue and Boycott
Jul 2nd
I have been following the BP disaster in the Gulf quite closely and have been especially observant regarding the business and economic ramifications of the event and I feel I have a solution to the revenue problem being realized by station owners. I will be the first to say that a boycott against BP branded gas stations is a childish solution to the problem at hand. The minimum wage employees of BP gas stations all across the country are being harassed verbally and physically threatened because of their affiliation with the oil giant. These stations are typically owned locally or regionally and the only connection they have to BP is the gas in their underground tanks.
While I am on the subject of boycotting BP, it should be realized that as one of the world’s largest producers of crude oil, they supply the raw materials for making plastics, food preservatives, dyes, carpet, DVD’s and more. So, just because you boycott a BP branded gas station, doesn’t mean you aren’t consuming a product utilizing their crude oil.
BP recently announced a rebate program to compensate its distributors 1-2 cents per gallon of fuel purchased going back to the date of the rig explosion. This compensation is meant to alleviate the sales declines suffered by these distributors from the nationwide BP boycotts. But the question remains, will this money trickle down to the station owners and/or consumers? I think not.
Gas station owners derive a good portion of their revenue and virtually all profit from the sale of items inside their stores and make little to no markup on the gasoline. Many BP station owners are reporting revenue declines of 10-40% because people who would ordinarily fill up (and grab a coffee or snack inside) are patronizing alternate gas stations. The solution that BP should be attempting is getting people back into the stores to purchase those convenience items that the station owners depend on to stay in business.
My solution: BP needs to begin a loyalty/rewards program for consumers that offers a rebate on every gallon of fuel purchased. This way the discount is not reflected on the price advertised at the street corner so that competitors will not just match the discount. BP could require you to signup for an account and give a membership card that will then entitle you to a 3 to 5 cent per gallon discount on fuel. This discount could be given directly at the pump in the form of a lower price after swiping your membership card, or in the form of a reward sent to you in the mail after you reach a certain rebate threshold.
By offering an incentive such as this, BP stations would see a dramatic rise in business not only at the pump but inside their convenience stores as well. In desperate economic times such as this, many people will choose a BP station to save a nickel per gallon despite what’s going on in the Gulf. This would also go a long way in repairing the PR nightmare that BP has been experiencing over the last couple months. The cost to BP would be minimal considering the larger positive impact it will have on their stations’ business, thus increasing BP’s overall franchise royalty revenue.
Government Needs to Get Out of Executive Compensation
Oct 22nd
I think it’s indicative of the state of the nation’s intelligence when the general consensus among the public is that the government should be determining pay rates for executives of publicly traded companies. I wrote about this topic before with regards to the AIG bonuses and am further outraged by the current Administration’s intent to slash bank executive pay just to please shareholders.
Bush’s previous administration is just as guilty, if not more-so, than the banks themselves. Bush would speak ad naseum about how home ownership is a right for every U.S. citizen and he made it his mission to put everyone in a home, pressuring banks to loosen lending standards amidst skyrocketing home prices – which were caused by increased demand. For an MBA from Harvard, the former President had a lackluster knowledge of the damaging effects his policies would have on the economy.
This financial mess we find ourselves in today was created by government policy and is trying to be blamed on the banks themselves. Now, government policy is again causing problems by determining executive pay simply to please the public. Executive pay is high, but it is high for a reason. The job is tough, there is a lot of competition for talent and quite frankly those that lead multi-billion dollar companies should be paid as such. The thing more people need to do is put themselves in other people’s shoes before judging them.
What if the government decided that a fair wage for the work you do is half what you are getting paid now? You’d be outraged right? Mad that the government is taking away your money? Exactly.
Market Bounce To Be Short Lived
Sep 5th
The recent upswing in the stock market averages will likely be short lived as all the economic data is digested and analyzed and everyone realizes that the recovery is anything but certain. Unemployment is still at a 26 year high and will likely keep increasing. Holiday sales will most assuredly disappoint later in the year. The stratospheric rally of the last six months is so overblown that I am recommending shorting financials and technology now and eventually expanding that to include other sectors. The only stocks that should be held in any portfolio right now are those of strong brands paying substantial and steady dividends such as Kraft (KFT), Phillip Morris (PM), Altria (MO), AT&T (ATT), Verizon (VZ), Heinz (HNZ), Con Ed (ED).
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.
Technorati Tags: investing, stocks, financials, technology, treasury yeild, dividends, cash for clunkers, stock market, dow jones, nasdaq, portfolio
Economic Recovery Not Supporting Stock Market Gains
Aug 17th
I have been very cautious about the stock market since its meteoric rise from March lows. The economic recovery will be slow and tedious and will most definitely not support this 40%+ stock market growth over the past 6 months and is due for a correction. Already we are seeing oil prices and gold fall. Soon enough, the market will endure a correction and I believe it will be led by the banks and energy companies. The fundamentals just aren’t in place to support the prevailing P/E ratios being paid for the major indices
The wildcard right now is inflation and the value of the dollar. I find it hard to believe that inflation is a non-issue considering the trillions of dollars the government must raise to finance the ballooning budget deficit.
The way this plays out should be interesting to watch and I believe most sectors will be correcting downward through the end of 2009 as the economic recovery forecast becomes weaker and weaker.
Technorati Tags: economy, shaun carter, economic recovery, stimulus, stocks, investing, oil, gold, dollar
Spend It Already!
Feb 4th
With all the hype in the press recently about banks who receive government bailout money spending too lavishly on corporate retreats and jets I am left puzzled. Aren’t these parties and purchases a way to stimulate the economy? The money is being spent domestically and has been done so for many years without question. How many hundreds of millions of dollars are we keeping out of the American economy?
The reason a recession can become more dire is because of people’s fear of spending money… savings rates go up and in this case even corporations who have curtailed spending are being even more criticized for their payroll and bonus allocations. If we want to get out of this, money has to be spent! So, let’s keep it here in the U.S!
OPEC Cuts and Oil Drops
Dec 18th
OPEC announced a historic cut to oil production today and the market sold off significantly, sending crude oil prices down over $3 a barrel to just over $40. I think the market is oversold, by a significant margin, and this is a tremendous buying opportunity for oil related investments. While the global economic recession is certain, the world’s appetite for oil will only continue to increase over the long term and could provide strong long term gains.
Technorati Tags: oil, crude oil, gas prices, shaun carter, opec
Oil Prices Spike 12%
Dec 11th
As I have been expecting, crude oil has begun its runup from the $40/barrel low it touched recently. With OPEC announcing what could amount to an unprecendented production cut at their upcoming meeting and the expectation that oil should remain at around $75/barrel, I think there is a lot of upside potential and am heavily invested in Canadian Royal Trusts. I am aiming for an oil price target of $60-65/barrel by March which is when my option contracts expire. A move to that price range would provide a nice profit and continue the CanRoys ability to pay out decent dividends.
Technorati Tags: crude oil, gasoline, oil prices, shaun carter, canroy, canadian royal trust, opec
Prince Al-Waleed bin Talal on CNBC
Nov 24th
Prince Al-Waleed bin Talal was just on CNBC live for an interview with Maria Bartoromo and it proved to be a very interesting conversation. The Prince has increased his stake in Citigroup to 5% and is supportive of the US Government’s increased lending to the bank. I think this additional governmental bailout of Citigroup is still just the beginning and we will continue to see more banks fail and struggle without government aid.
Prince Al-Waleed also talked about oil prices and hoped for a steady price increase from the current $50/barrel back up to a more profitable level. But he was very passionate about the increase in price not being speculative in nature like the previous run up to $148. This is inline with my own prediction for the price of oil through the rest of 2008 and 2009 and has resulted in investments in Can Roys and related oil investments.
I don’t think this is the last of the bailouts in the financial sector and I see a full-blown recession emerging in 2009. Experts are predicting a very soft holiday shopping season because of the lack of a “must-have toy” this year. I am moving more and more in that direction and have been moving money into industry specific Ultra Short ETF’s, particularly Financials, Real Estate and Consumer Goods.
Technorati Tags: ultra short etf, financials, real estate, consumer goods, shaun carter, prince al-waleed, can roys, crude oil, citigroup, maria bartoromo, cnbc
Eurozone Officially in Recession
Nov 14th
It’s only a matter of time before the recession that has gripped the European Union stretches across the Atlantic and hit home. With gas prices dropping like a rock I think that consumers will be more inclined to open their wallets a little further this holiday shopping season.
Retail sales in the U.S. dropped 2.8% in October, which I didn’t think was much of a surprise but was the largest drop on record. I don’t plan to curtail my holiday spending at all, but I’m not sure about everyone else.
Technorati Tags: economy, eu, europe, recession, holiday shopping, consumer spending, shaun carter
Financial Crisis 2.0 is in the Making
Nov 11th
I am absolutely shocked at the words coming out of Washington right now regarding our nation’s banks willingness to lend. Lawmakers are pressing the largest banks to lend money much more freely to spur consumer borrowing and increase consumption in order to jumpstart the economy.
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.
Technorati Tags: economy, bailout, democrat, financial crisis, housing, meltdown, shaun carter, banks, lending, borrowing, federal reserve, economy
