Thursday, July 24, 2008

It's scary

"Venezuela is broadening its network of regional alliances into Central America with its cheap oil financing initiative Petrocaribe, as countries find it increasingly hard to turn down President Hugo Chávez's largesse amid soaring oil prices.After Guatemala formalised its membership at the Petrocaribe summit on July 13, Costa Rica has officially requested to sign up. Honduras joined earlier this year.

Chavez may be far to the left side of politics, but cheap oil can easily win moderate and slightly to the right friends. "Petrocaribe" allows countries to pay for half the cost of the oil they import from Venezuela when they buy it. The balance can be paid off over 25 years.

The idea is to make friends with neighbors and keep U.S. influence down, Chavez claims.

And you thought the mortgage crisis was bad. Wait until Cuba, Guatemala, Jamaica and other poor countries find they owe Venezuela billion-dollar fuel bills they can't pay.

Thursday, July 17, 2008

Trading Mercenary

In The Last Samurai, Tom Cruise plays a mercenary with no allegiance to one side or the other. His only allegiance is to money and whichever side pays him the most.

That made me think about how traders are mercenaries. They have no allegiance to the bullish side or the bearish side, only to the side that will pay the most money. This is the only way to be successful as a trader. Some of the more famous mercenary traders who played both sides of the market include Jesse Livermore, Bernard Baruch, and Joe Kennedy.

Sure, it would be nice if the stock market only went up and everyone got rich just by buying stocks and holding them for a while. But that isn't how it works. The market goes up and the market goes down. And during rough economic periods, like the one we are currently in, the market is going to move down.

Yes, you should stick to what you know. But if the companies you love or the system you're using isn't working, don't worry about being loyal. Instead, become a trading mercenary. Your only allegiance should be to growing or protecting your own wealth.

Tuesday, July 15, 2008


In the United States, the quarter that just ended was probably the first period since the early 1980s that a bigger proportion of the consumer’s pocketbook was spent on gasoline, oil and other energy products than was spent on motor vehicles.

But even as the price of gasoline has soared to more than $4 a gallon, Americans are spending a much smaller share of their budgets on fuel than they did at the time of the last spike in oil prices, in 1980.

Even before gasoline hit $4 a gallon, the motor vehicle share of personal consumption expenditures had fallen to its lowest level since shortly after World War II, when the automobile industry was just beginning to increase production after converting to military production during the war.

The share of personal consumption expenditures going to gasoline and other fuels rose to its highest level in more than two decades in the first quarter. But that is well short of the record of 6 percent, reached in four quarters in 1980 and 1981, when oil prices were high and the economy was suffering through two recessions.

These figures are based on government figures on personal consumption expenditures, and may seem a little odd to many, who think the proportion of their disposable income going to gasoline is much larger than the figures would suggest.

They have a point. A growing part of personal consumption expenditures goes to medical services, much of which is not paid directly by consumers. In the most recent quarter, that area took 17.5 percent of spending, up from around 11 percent in the early 1980s when the fuel spending set a record.

-- New York Times

Monday, July 14, 2008

Roller coaster...

...after gapping lower on the open, dropping sharply lower at midday, rallying back to positive territory in the afternoon, the Dow still managed to close lower by 128 points on Friday.

The market got off on the wrong foot after rumors hit that Fannie Mae and Freddie Mac might be taken over by the government, rendering the stocks almost worthless.

Each of these mortgage insurers were down over 50 percent in pre-market trading. Both bounced back during the regular session, but Fannie still closed lower by 22 percent.

Saturday, July 12, 2008

Financial Stocks

Stock markets were spooked by the collapse of IndyMac, the third largest bank failure in US history, and the sharp fall of Fannie Mae and Freddie Mac over the past week.

Massive volume in the last few days indicates the presence of strong buyers who see value at current prices. Entry at this stage would be exceedingly risky, but the stocks are worth watching over the next few weeks.

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Wednesday, July 2, 2008

Perfect Company's to Short

One of the simplest ways to make money in the stock market is to find a pattern with a history of repeating, and then exploit that pattern for profits. Today, I'd like to share with you a pattern that proves to be one of the best ways to make money in a down market.

All you have to do is look for companies that recently cut or eliminated their dividend payment, and short them.

The reason why stocks drop is straightforward.

Investors view a company's dividend payment as a barometer of their fundamental health. If a dividend is reduced or eliminated, it's almost always because the company is not only making less money, but should continue to make less money down the road.

Had you shorted Ford after they first cut their dividend payments in September of 2006, you'd be up 41%. You would have been up over 70% if you had shorted National City back in January when they cut their dividend. Clearly, this pattern has been happening for years.

So if you're looking for a good company to short in this bear market, just look for one that recently cut its dividend payment.