Investing
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
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
How to Trade Oil Now
Nov 20th
Crude oil prices have been plummeting and is trading at $50.75/barrel as I write this. That is a big drop from the all-time high set just this past summer of $147.27. I think this dramatic pullback in oil prices could be a terrific time to start buying into the sector for a long term hold.
It is now proven that oil can break the $100/barrel mark and will most surely head that way in the future, perhaps 2009 or shortly thereafter. Oil is a finite resource and OPEC will do anything in its power to restore the enormous profits they enjoyed from high oil prices.
Consumers will also likely resort back to old driving habits and the reduction in use of gasoline will likely level off over the next few months as prices at the pump drop and hold below $1.75/gallon. While a global recession will likely curtail overall spending, the long-term outlook for oil prices remains quite strong.
I am looking into Canadian Royal oil trusts for their high dividend rates (20%+) and the fact that the price movement of their shares directly corresponds with crude oil prices. These companies face some changing tax laws in 2011 that will adversely effect their business models, but I think significant profits can be booked well before that deadline.
Technorati Tags: crude oil, gas prices, canadian royal, oil trusts, shaun carter, dividends, gasoline, opec
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
Wells Fargo to Issue $10 Billion in New Stock
Nov 5th
Wells Fargo announced its intention to issue $10 Billion in new stock to help cover the cost of acquiring Wachovia. The Nov 33 Put options I purchased a couple weeks ago were for this purpose exactly. Wells had announced last month they would be seeking to raise up to $20 Billion and it was obvious that when the shares were issued, the stock would suffer from dilution and fall. I sold at 3 today and locked in a 56% profit on the trade.
I think there is a lot more downside potential in most of the national banks, despite all the government’s efforts to keep them propped up and solvent. Earnings are going to be down severely heading into 2009 and this creates a great opportunity for put traders to make money on big downswings when bad news is released.
Technorati Tags: wfc, wells fargo, wachovia, shaun carter, options, stocks, investing, stock market, put, banking, earnings, stock offering
Wells Fargo Earnings
Oct 14th
Wells Fargo (WFC) is announcing earnings and probably forward guidance before the market opens on Wednesday. WFC was up over 10% today and I took that opportunity to buy Nov 33 put options in the company because I see a lot of downward pressure on the stock over the coming weeks. The market rally on Monday will be remembered as a day that you should have taken profits because there is a lot more downside to this market as the economy continues its decline.
Wells Fargo will undoubtedly benefit from the federal government’s bailout plan and will be receiving a large investment in soon-to-be-issued preferred shares to the feds as well. However, I don’t see these actions as benefitting the shareholders in the near-term, especially because WFC will likely need to dilute shares further with a common stock offering to raise capital. That dilution and any surprises could easily push the stock down into the 20′s and create a large profit on the Nov 33 puts.
Technorati Tags: wells fargo, put option, earnings announcement, shaun carter, banks, financials, investing, stock market, options, bailout
Dow and Nasdaq Soar Over 11%
Oct 13th
Today will be remembered as a historic day of trading for the US stock markets. The Dow Jones Industrial Average closed up over 1,000 points, the largest point gain in history.
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.
Technorati Tags: stock market, dow jones, nasdaq, rally, investing, shaun carter, recession, dividends, economy
Wall Street Crash Continues
Oct 9th
The seemingly unending decline in the stock market will most likely continue into Friday as few investors will want to hold their stocks through the long holiday weekend. Already the selloff has stretched six straight trading days, with each day ratcheting up triple digit losses of the Dow Jones Industrial Average.
Today’s market saw the Dow fall over 600 points, closing below 9,000 and at its lowest point in five years. It would not be a surprise to see Friday’s market close down another several hundred points as everyone gets out before the weekend. Dow component GM’s stock fell 31%, which largely contributed to sending the index 7% lower on the day.
Meanwhile some of the short ETF’s I discussed in yesterday’s post performed very well today including the UltraShort Financial (SKF) up 21%, UltraShort Dow 30 (DXD) up 11%, UltraShort Consumer Goods (SZK) up 12.5%. These ETF’s will surely be highly active during Friday’s session as more investors look to hedge their exposure to more downside potential in the market.
Technorati Tags: investing, economy, market crash, dow jones, ultrashort, etf, shaun carter, gm, general motors, financials, dow 30, consumer goods
Emergency Global Interest Rate Cuts
Oct 8th
In a coordinated effort, central banks around the world have lowered their respective interest rates to try to save off a worldwide financial calamity. But, it is beginning to look like it is too little, too late. Even after this extraordinary measure, the Dow Jones Industrial Average ended down nearly 200 points. I took the opportunity in the morning, when the market was up, to take some profits. I will be doing this on any upcoming rallies or bounces to get out of most equities.
The Bank of America Oct. 35 put options I bought have gone from 2.95 to 13.40. A profit of over $1,000 per option contract. The overall financial sector still looks messy and there are still more large banks expected to fail, which makes the Ultra Short Financials ETF (SKF) look very attractive right now. I’ve also gone long Silver (SLV) and expect to see a resurgance in metals like Gold and Silver as a safe-haven for all the money that will be flowing out of the market over the next year.
Here is a list of short ETF’s that may be a wise investment for the near term:
| ETF Name | Ticker | Benchmark Index |
|---|---|---|
| Short QQQ | PSQ | Nasdaq-100 |
| Short Dow 30 | DOG | DJIA |
| Short S&P 500 | SH | S&P 500 |
| Short MidCap400 | MYY | S&P MidCap 400 |
| Short SmallCap600 | SBB | S&P SmallCap 600 |
| Short Russell2000 | RWM | Russell 2000 |
| UltraShort QQQ | QID | Nasdaq-100 |
| UltraShort Dow 30 | DXD | DJIA |
| UltraShort S&P 500 | SDS | S&P 500 |
| UltraShort MidCap400 | MZZ | S&P MidCap 400 |
| UltraShort SmallCap600 | SDD | S&P SmallCap 600 |
| UltraShort Russell2000 | TWM | Russell 2000 |
UltraShort Style:
| ETF Name | Ticker | Benchmark Index |
|---|---|---|
| UltraShort Russell1000 Value | SJF | Russell 1000 Value |
| UltraShort Russell1000 Growth | SFK | Russell 1000 Growth |
| UltraShort Russell MidCap Value | SJL | Russell MidCap Value |
| UltraShort Russell MidCap Growth | SDK | Russell MidCap Growth |
| UltraShort Russell2000 Value | SJH | Russell 2000 Value |
| UltraShort Russell2000 Growth | SKK | Russell 2000 Growth |
UltraShort Sector:
| ETF Name | Ticker | Benchmark Index |
|---|---|---|
| UltraShort Basic Materials | SMN | Dow Jones U.S. Basic Materials |
| UltraShort Consumer Goods | SZK | Dow Jones U.S. Consumer Goods |
| UltraShort Consumer Services | SCC | Dow Jones U.S. Consumer Services |
| UltraShort Financials | SKF | Dow Jones U.S. Financials |
| UltraShort Health Care | RXD | Dow Jones U.S. Health Care |
| UltraShort Industrials | SIJ | Dow Jones U.S. Industrials |
| UltraShort Real Estate | SRS | Dow Jones U.S. Real Estate |
| UltraShort Semiconductors | SSG | Dow Jones U.S. Semiconductors |
| UltraShort Oil & Gas | DUG | Dow Jones U.S. Oil & Gas |
| UltraShort Technology | REW | Dow Jones U.S. Technology |
| UltraShort Utilities | SDP | Dow Jones U.S. Utilities |
Technorati Tags: investing, stock market, rate cut, central bank, shaun carter, interest rate, dow jones, bank of america, put option, short, etf
Google's Wild Ride
Sep 30th
Today saw some very interesting trading in the shares of Google at the very end of the trading day. Nasdaq is citing “erroneous trades” as the culprit. Quite frankly I think a better explanation is in order because of the confusion that erupted when the stock went from 400 per share to a low of 25.80 within three minutes of the market close.
Ultimately Nasdaq has cancelled any trades made below 400.52 and above 425.29 that executed during the last three minutes of trading. This has upset many traders who had standing buy orders in at obscenely low prices, for what reason I don’t know, and have had those trades cancelled.
Technorati Tags: google, shaun carter, stock market, nasdaq, investing, trading, stocks
